Saturday, May 3, 2014

Economics man behaving badly

Known to the profession as out-DeLonging Delong. Textbook author and instructor of students Steve Landsburg wants everyone protected, for their own good, from error;
Landsburg has now blocked me from commenting on his blog and judging by the recent comments from others, he has confused more people than just me (whom he considers a moron for not grasping his deeply confusing version of welfare economics that changes with the direction of the wind and for using incorrect econ jargon). 
Many have called, but a few have been chosen by Professor Landsburg for their egregious failings (lack of enthusiasm for his attempt to resurrect the theory of predatory pricing). This was deleted by the not so good professor;
Patrick R. SullivanMay 2, 2014 at 7:59 pm
Since we have a well documented history of the word processor (and other IT products like spreadsheets and browsers) market, we can check to see if Steve’s theory explains what actually happened. Say;
‘…monopoly and competition differ in the level of prices, not in the way that they change price. However, if the market were moving from a less competitive to a more competitive market equilibrium, prices would be expected to fall during the transition. If Lotus and WordPerfect tried to use their large market shares to generate short run monopoly profits, and Microsoft didn’t, we would expect prices to fall as the markets stopped taking its cues from WordPerfect and Lotus and instead started to take their cues from Microsoft. Once the new regime was in place, prices should have stabilized at their new lower level, ceteris paribus.
‘If Microsoft believed that Lotus and WordPerfect lost their dominant position because they failed to act competitively, it might have chosen a competitive price even after it achieved a dominant market shares. That appears to be what has happened since there is no evidence of prices rising even after market shares above 99% are achieved, as in the Macintosh spreadsheet market, and this pattern of behavior on Microsoft’s part occurred in some other markets such as midrange desktop publishing.’
Replaced with this by Landsburg;
You appear (from some of your posts in the earlier thread) to be shaky on a lot of the underlying economics. Let me suggest (and this is meant in the friendliest possible way) that your insistence on “realism” is hampering, not furthering, your understanding. The way to learn this stuff, for almost everyone, is to work through a whole lot of artificially simple examples that have stripped away complications to focus on one issue at a time. 
Iow, it may work in practice, but it's theory that really counts!

1 comment:

  1. Theory is a better guide to policy than observation, because it is much simpler.

    After the equations are written down, they can be manipulated according to the laws of formal logic to produce miraculous results, even if they have been rearranged to reverse cause and effect.

    Cause and effect are not part of formal logic, they come from observation. Observation is merely anecdote and unscientific we are told.

    A phishing email uses a very effective ploy which I call the Aura of Truth. It provides links to authentic sites and refers to real events, followed by fake claims. The aura of truth from the first items spills over to the fake claims.

    Most people think that they are immune to that ploy. They are sophisticated. But, this is the primary ploy used by politicians to push their plans. They say a few true things followed by their false additions. It works great.

    Keynesian economics is sold in exactly this way. Some absolutely true accounting identities are offered, followed by true observed economic relationships, followed by wishful thinking and reversals of cause and effect.

    The commonly taught and usually believed Keynes Multiplier is probably the most destructive piece of false economics. It provides support for government borrowing and spending regardless of the merits of the project. The act of spending is supposed to create more wealth than the wealth wasted by the spending. So, why not spend big?

    But, the commonly taught derivation is laughably illogical, not merely a bad estimate.

    The Illogic of the Keynes Multiplier