Friday, December 02, 2005

Everything Changes

Jason Potts:
"I ended the last post with the notion that, in an evolving economy, everything changes, and that that is the reason government cannot do anything useful with respect to innovation policy. So let me say that I am not down on the role of government. I see absolute certainty in its role in providing law & order, defence, property rights, and that is all."

[. . . .]

"Economic evolution (as driven by innovation) is an ever ongoing process. There is no end. There never can be an end. Economic evolution (and economic development and growth) is an ongoing process. The point is that in an economic system, everything eventually changes because everything is eventually subject to competitive challenge. No economic activity is an island. No policy can ever hope to be specific."
It seems to me that this is correct. Unfortunately, the static models of economics cannot capture this aspect of economic activity. The idea of economic efficiency, since it evaluates consequences or results, fits very well the static models of economic activity. But, it does not fit at all well with the truly dynamic and evolutionary nature of the economy. The static models combined with the idea of economic efficiency encourage us to think government can find policies that will get efficient results from economic activity. Instead, I think recognizing that "no economic activity is an island" should lead us to emphasize process rather than consequence when we examine public policy and government. Paying attention to process leads us to emphasize individual liberty, not economic efficiency as pareto optimality.

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