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John Alcorn's avatar

Re: "Akerlof himself, although he used equations to express his ideas, went down a different path, incorporating psychology and sociology. "

To my mind, 2 articles about social norms stand out. I count them as classics of cultural analysis by economists; on a par, say, with Thomas C. Schelling's article about tipping points.

One article explains how community norms of fairness shape strategic interactions among police, gangs, and neighborhood residents:

https://www.brookings.edu/articles/gang-behavior-law-enforcement-and-community-values/

This article is a useful, partial corrective to Gary Becker's "bricks & sticks" (prisons and police) policy to reduce crime. (The full article can be downloaded from the target webpage at the link above.)

The other article is about disruption of social norms by new technology:

https://www.brookings.edu/articles/new-mothers-not-married-technology-shock-the-demise-of-shotgun-marriage-and-the-increase-in-out-of-wedlock-births/

Who would have guessed that new, affordable contraception technologies — the pill and safe, legal abortion — would cause a great increase in out-of-wedlock births?!

Akerlof and co-authors have a sharp eye for social mechanisms. They strike a smart balance of fullness and parsimony (explanatory scope and explanatory power), twin ideals of science. Their solutions to puzzles of social behavior now seem obvious — but eluded other fine minds.

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John Alcorn's avatar

Re: "markets fail, use markets."

Recently, I participated in an international conference about the Scottish enlightenment (Adam Smith etc). There was an emphasis on interpretations of Smith as a proponent, avant la lettre, of the welfare state. The line was: Markets fail, use government. During plenary discussion, I counterposed the GMU line: Markets fail, use markets. I noted that most markets have problems, and so do most government remedies (e.g., rent-seeking, entrenchment, corruption). And I asked: What if the remedy is worse than the disease? Is there a principle — e.g., comparative advantage — that would reasonably limit government intervention? Awkward! Deflection ensued.

Afterwards, a British scholar took pity on my ignorance. He explained:

(a) Interpretations of Adam Smith as a proponent of small government are so yesterday, a Margaret Thatcher fad.

(b) Gordon Brown is where it's at. Markets fail, use government. Experts will sort it.

(c) Experts know to limit the welfare state *when it stifles economic growth.*

I pointed out that we never observe the counterfactual: We don't know how much economic growth we've missed out on due to big government. If stagnation is the constraint, we're very far from optimizing.

A question arises: Why do classical liberals (or libertarians) and social-democrats enlist Adam Smith in their rivalries, instead of making their policy cases squarely on the merits?

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