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There Is No Invisible Hand →
An engineering analogy may help. The invisible hand sees market economies as passenger planes, which, for all the miseries of air travel, are aerodynamically stable. Buffeted by turbulence, they just settle back into a slightly different flight path. General-equilibrium theory, as it developed in the 1960s and 1970s, suggests that economies are more like fighter jets. Buffeted by a gust, they wouldn’t just settle into a slightly different path but would spin out of control and break asunder if “fly-by-wire” computer guidance systems did not continually redirect them to avert disaster.
Economists might call the fighter-jet analogy polemic, but no knowledgeable theorist would say that the so-called “general equilibrium” model is stable. The very word “equilibrium” is deeply misleading in this context because it describes a situation that is not an equilibrium, either in plain English or in engineering. Economic equilibrium — a stable state toward which an economy would move — reveals a hope on the part of economists, not a mechanism captured in an accepted model. Speaking of “equilibrium” allowed economists to fool themselves, and others.
The failure to model the invisible hand is ironically powerful. Any given economic model might well be implausible. But if the brightest economic minds failed for a century to show how some invisible hand could move markets toward equilibrium, can any such mechanism exist? Something outside markets — social norms, economic regulation, Ben Bernanke in his happier moments — must usually avert disaster.
(Source: azspot)
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Woman with Scarf at Inspiration Point, Yosemite by Roger Minick.
(Source: Roger Minick, “Woman with Scarf at Inspiration Point, Yosemite Read more http)
Theme: Linear by Peter Vidani
