Yves here. For readers who (sensibly) have managed to avoid orthodox economics, Kenneth Arrow wasn’t merely a (Swedish Central Bank-so-called) Nobel Prize winner and Larry Summer’s uncle, but is most celebrated at the co-author of the Arrow-Debreu theorem. As we wrote in ECONNED:
The scientific pretenses of economics got a considerable boost in 1953, with the publication of what is arguably the most influential work in the economics literature, a paper by Kenneth Arrow and Gérard Debreu (both later Nobel Prize winners), the so-called Arrow-Debreu theorem. Many see this proof as confirmation of Adam Smith’s invisible hand. It demonstrates what Walras sought through his successive auction process of tâtonnement,that there is a set of prices at which all goods can be bought and sold at a particular point in time. Recall that the short-hand for this outcome is that “markets clear,” or that there is a “market clearing price,” leaving no buyers with unfilled orders or vendors with unsold goods.
However, the conditions of the Arrow-Debreu theorem are highly restrictive. For instance, Arrow and Debreu assume perfectly competitive markets (all buyers and sellers have perfect information, no buyer or seller is big enough to influence prices), and separate markets for different locations (butter in Chicago is a different market than butter in Sydney). So far, this isn’t all that unusual a set of requirements in econ-land.
But then we get to the doozies. The authors further assume forward markets (meaning you can not only buy butter now, but contract to buy or sell butter in Singapore for two and a half years from now) for every commodity and every contingent market for every time period in all places, meaning till the end of time! In other words, you could hedge anything, such as the odds you will be ten minutes late to your 4:00 P.M. meeting three weeks from Tuesday. And every- one has perfect foreknowledge of all future periods. In other words, you know everything your unborn descendants six generations from now will be up to.
In other words, the model bears perilous little resemblance to any world of commerce we will ever see. What follows from Arrow-Debreu is absolutely nothing: Arrow-Debreu leaves you just as in the dark about whether markets clear in real life as you were before reading Arrow-Debreu.
And remember, this paper is celebrated as one of the crowning achievements of economics.
By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published with New Economic Perspectives
Kenneth Arrow, one of the giants of economics, has died at the age of 95. He became a Nobel Laureate in 1972. As a young lawyer in 1977, I saw him in action as an expert witness on the subject of risk. The context was setting the rates for shipping oil through the Trans-Alaska Pipeline System (TAPs). Arrow testified about the risks of oil prices falling. The FERC administrative law judge thought such a scenario was ridiculous. Within four years, oil prices fell sharply. Arrow’s experience was a common one for economists dealing with lawyers – the ALJ ignored him.
The New York Times obituary for Arrow is revealing about how the conventional wisdom distorts economic theory in a predictably skewed fashion. It begins by discussing Arrow’s “impossibility theorem,” which states that where there are more than two choices it is impossible to construct perfect majority choice systems.
The author of the obit stressed the impossibility of such systems being optimal. Contrast that emphasis with the author’s treatment of Arrow’s work on “general equilibrium.”
Professor Arrow proved that their system of equations mathematically cohere: Prices exist that bring all markets into simultaneous equilibrium (whereby every item produced at the equilibrium price would be voluntarily purchased). And market competition puts society’s resources to good use: Competitive markets are efficient, in the language of economists.
Professor Arrow’s theorems set out the precise conditions under which Adam Smith’s famous conjecture in “The Wealth of Nations” holds true: that the “invisible hand” of market competition among self-serving individuals serves society well.
That is one way to phrase it, but a more accurate, parallel way to phrase Arrow’s work on general equilibrium would be as an “impossibility theorem.” Arrow actually proved that it was impossible for general equilibrium to occur. The “precise conditions” in which economists can guarantee that a market transaction “serves society well” is the null set. There is no market that meets those “precise conditions” because they are impossible to meet.
Market competition does not inherently “put society’s resources to good use” and “competitive markets” can be enormously inefficient. In a Gresham’s dynamic, for example, the more competitive the market the more CEOs put society’s resources to bad uses and the more inefficient the results. When hit men compete to murder spouses, the price of hiring hit men declines, but this does not serve society well and it is not efficient. (The same is true for competition by cigarette company CEOs. When companies prosper by increasing greenhouse gas emissions it, eventually, does not serve society well and it is not efficient.
The author of the obit accurately reflects the conventional economic wisdom in the two paragraphs that I quoted. The conventional economic wisdom is flat out wrong. As I have emphasized in prior posts, a prominent economist (who loves general equilibrium) admits that the conventional wisdom would only be true under the “silent” “assumption” that “God” mystically ensures that buyers and sellers do not act in a “self-serving” manner that harms society and reduces efficiency (Athreya 2013: 104). We should call it the Arrow-Debreu-McKenzie (ADM) “impossibility theorem,” but instead orthodox economists make the hilarious (implicit) assumption that God loves laissez faire so much that he prevents all predation. As Dr. Athreya phrases it, the “ADM God” prevents CEOs from even considering the possibility of predating on customers.
The author of the obit understands most of these points.
[Arrow] made clear, his powerful conclusions about the workings of competitive markets held true only under ideal — that is to say, unrealistic — assumptions.
His assumptions, for example, ruled out the existence of third-party effects: The sale of a product by Harry to Joe was assumed not to affect the well-being of Sally — an assumption routinely violated in the real world by, for example, the sale of products that harm the environment.
Note, however, that the author does not go back and correct his earlier errors and he never states that the ADM general equilibrium model shows that it is impossible for laissez faire to produce general equilibrium.
He also fails to inform readers that orthodox economists’ twin “dystopian” assumptions (Athreya 2013) make it impossible for laissez faire to guarantee either efficiency or socially desirable outcomes. The twin dystopian assumptions are self-interested behavior and rationality. Orthodox economists such as N. Gregory Mankiw define actions by CEO, such as the refusal to “loot” the firm, as “irrational” rather than “moral” because it would harm the CEO’s “self-interest” (Akerlof & Romer 1993: 65).
The punch line to the defining economist joke is “assume a can opener.” To “silently” assume an ADM God,” however, takes that joke to an unprecedented level worthy of a superlative humorist.
“Modern macro economists” have surpassed micro economists’ supreme act of humor. Modern macro silently assumes an ADM God – and invariably describes its use of general equilibrium models as “rigorous.” One imagines the rigor of “modern macro” proponents as they begin their incantations, using an analog to a pilot’s pre-flight checklist. Step one: silently assume an “ADM God.” Step two: silently assume that the “ADM God” is the patron of laissez faire and acts rigorously to prevent any predation by CEOs (even though the express dystopian assumptions would produce widespread CEO predation). Step three: Define steps 1 and 2 as the “rigorous” treatment of “micro foundations.” Step four: chant the mantra endlessly and with a straight face. Step five: do not fly on the ADM plane – and blame the crashes on “governmental interference” with the otherwise inerrant ADM checklist.
A last nerdy note. The author of the obit stresses repeatedly how impressed he is by Arrow’s general equilibrium math. The math only general equilibrium, however, because the model assumes away reality. If the model attempted to deal with reality, without the “ADM God’s” aid, the math would produce indeterminacy or spiral away from equilibrium into bubbles and market breakdowns. The math would also show that laissez faire is frequently criminogenic and would produce epidemics of elite fraud and other predatory abuse. Arrow made his absurd assumptions in his model not because they reflected reality, or proved reliable in prediction, but to make the “system of equations mathematically cohere.” When the math fails to explain reality and predict events it is a grave error (rather than a cause for celebration) when economists assume out of existence reality and torture the model until the math “coheres.”
The ultimate failure of economics as a field is to:
- worship an economic model that is criminogenic,
- hide that disaster from the public by assuming “silently” an “ADM God” that contradicts the model’s express assumption,
- continue to worship and proselytize that model when its silent assumption of an “ADM God” repeatedly produces criminogenic policies and epic predictive failures, and
- praise your models as “rigorous,” “scientific,” and “transparent,” and
- define critics as anti-scientific and demand that their critiques be excluded as heresy.
Arrow was brilliant and well meaning. We celebrate his life and mourn his passing. The opportunity cost to our field is how much he could have accomplished had his research not been so distorted by neoclassical dogma.
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This is also completely based on a bad assumption. It only holds under an ordinal ranking of those candidates. As soon as you can give the same ranking to two candidates it is false. It does not hold under:
Approval voting which is a voting method where you can “approve” (support) as many candidates as you want, and the candidate approved by the most voters wins.
Score Voting, a method where voters give from 0 to some maximum number of points to each candidate, and the highest average score wins.
Score runoff voting (SRV), also with different possible score levels. This is like score voting, except that you choose the top 2 candidates based on scores, and then find the one of them who’s rated higher on more ballots (ie, the winner of a virtual runoff)
3-2-1 voting is a voting method where voters give each candidate one of 3 ratings —— good, acceptable, or bad —— and you find the winner in 3 steps. First, the 3 semifinalists are the candidates rated “good” the most; second, the 2 finalists are the semifinalists rated “bad” the least; and third, the winner is the finalist who’s rated higher on more ballots (ie, the winner of a virtual runoff).
IRV is a horrible method compared to any of those. I would love 3-2-1 or score to be implemented. Here is some preliminary research about voter satisfaction with each method.
http://electology.github.io/vse-sim/VSEbasic/
I don’t think the ordinality assumption is the problem. It is nothing more than a simple preference ordering. The origination of the paradox may have more to do with the assumption of the independence of irrelevant alternatives. There has been no consensus on what this means.
My understanding is that the theorem holds when voters don’t have a preference that can be clearly put in a rank order list. For example, if I prefer A to B, and B to C, but C to A. If you some the preference rankings across a large group, it’s possible for A to win even though the majority of the people prefer C to A
Nope, you’re wrong. ALL alternatives to first-past-the-post with runoff for absolute majority for multi-candidate races have problems.
I’ve blogged about people like you before; you’ve infested some third-party circles to which I belong, and I consider the worst of people like you to be cultists.
In reality Arrow’s Impossibility Theorem says that there is something wrong with the assumptions that he has proved to be incompatible, just as there are myrida things wrong with the assumptions going into the Arrow-Debreu Theorem. The renowned mathematician Donald Saari gives a good discussion of the bad assumption (called “binary independence”) in his book “Decisions and Elections”, starting on page 39. The assumption says that if a voter ranks a set of candidates (1st choice, 2nd choice, etc) and if you, as a citizen, are only interested in two of the candidates, A and B, then all that matters is whether or not the voter ranks A hgiher than B or vice versa, i.e, it is irrelevant how the voter ranks the other candidates. But in the real world it matters a lot if voters rank A just higher than B (no one in between) or rank A top and B last. That is, Arrow’s assumption ignores what Saari calls the “intensity” of the ranking. When intensity is included, the “impossibility” disappears.
In fact, the standard voting method called the “Borda Count” has the desired optimality properties. In this method, if there are 4 candidates, then your top choice gets 3 points, second choice 2 points, third choice 1 point, and last choice no points, and similarly for other numbers of candidates. Then adding up the points from all the voters gives a certain point total for each candidate, which determines an overall ranking of the candidates, the top point getter being the winner. Notice that this assignment of points means that when a voter ranks A high than B, it makes a big difference how much higher, violating Arrow’s assumption.
Arrow’s Binary Independence assumption is embodied in the Codorcet voting method (for each pair of candidates A and B, count how many voters rank A higher than B). This method often gives reasonable results (if one candidate gets ranked higher than all the others by a majority of voters), but can also give weird results (collectively the voters might rank A higher than B, and B higher than C, but also C higher than A), in accordance with the impossibility theorem. In the latter case there may be no clear winner, so a different method, such as the Borda Count, must be used to resolve the discrepancy.
I’m troubled by the last sentence of this post — not because I disagree — but because I am far more troubled by the dogmas of neoliberal economics than I am of the neoclassical dogma distorting interpretations of Arrow’s research. Neoclassical economics seems caught in a death spiral of devolving into a weak variant of neoliberal economics. I fear the opportunity cost to economics is how much Arrow’s research might be distorted to serve neoliberal dogma.
I’m troubled by the last paragraph of this post. I don’t doubt that KA had an exceptionally high functional intelligence, sufficient to excel in his chosen field – but was he a wise man, given the dysfunctional impact of neoclassicism in the world? We need to be clearer on the distinction.
Any economic dogma is dangerous. I view economics like modern physics but with irrational people who randomly run in and whack the bowling ball that otherwise would have a path perfectly predicted using Newtonian physics. The economic theory generally doesn’t include those irrational people.
For some problems, old-style Newtonian physics works fine, but there are problems where only Einstein’s theory of relatively can accurately solve the problem. And then quantum shows up with its weird aspects when you try to look at things on the atom level.
Economic models are just models. They are all wrong. Some are useful. Some are simply wrong. If I hear one more politician say that tax cuts on the rich pay for themselves again, I will scream. all of the attempts to accomplish this transmutation of lead into gold have failed to date.
I haven’t seen too many obits, but its also notable that the economic profession tends to overlook perhaps Arrows single most important paper, his 1963 paper on health care, which essentially, using standard economic assumptions showed that markets cannot be shown to improve health care. That should have killed stone dead all talk of ‘internal markets’ or ‘competition’ as a solution to health problems – the fact that despite the papers wide discussion and fame it never stopped economists and other policy makers talk as if it didn’t exist shows more than anything the intellectual bankruptcy of so much of the policymaking establishment.
PlutoniumKun
February 23, 2017 at 4:41 am
Thanks for that….and speaking of health, reminds me of all the negative studies (studies that show an ineffective drug) that just never get published…pretty much because the entity that paid for the study paid for a study that shows an effective drug. And speaking of speaking of, let’s speak about incentives and why its rational (and MORE profitable) not to publish negative drug study results…..but first we would have to speak about the incentives that economists have to say the market works….
And according to Daskalakis-Goldberg-Papadimitriou, mixed Nash equilibria are computationally unachievable. That is, even under those impossible conditions, the market cannot “compute” the equilibrium state efficiently, within feasible time.
This is prof. R.W. Werner’s view.
“Neoclassical economics turns out to be the one school of thought within the discipline of economics, indeed one of the very few intellectual disciplines in general, that rejects the inductive approach favoured by scientists, and prefers deductivism. It must be considered a unique phenomenon in the history of thought that the originally marginal and eccentric deductive approach to economics has today become the mainstream school of thought. Unhindered by economic reality, deductive economists can start with their preferred axioms, which do not need to be supported by facts – such as the axiom that individuals only care about the maximization of their own material benefit. Additional unrealistic assumptions produce the theories that are so removed from reality. While this is certainly allowed and may be useful as an exercise in logic, the theories, which are specific to the hypothetical environment created by the assumptions, are then used to advance policy recommendations. By this stage, no further mentioning is made of the assumptions necessary for the validity of the argument. The jump from the theoretical and hypothetical models to actual, supposedly workable policy advice is not usually explained. It is striking how seamlessly neoclassical economists have bridged the gap from their wholly fictional world of unrealistic models to recommendations of policies that actual politicians are supposed to implement in reality. . . . “
http://www.palgraveconnect.com/pc/doifinder/view/10.1057/9780230506077
Your post has me intrigued, but I can’t read your link. Can you post a new one?
Also, didn’t John Nash blow some of Arrow’s assumptions out of the water? Amazing how some people still hang on to ‘belief’ over valid proofs…..
its from a book the New Paradigm in Macroeconomics: Solving the Riddle of Japanese Macroeconomic …
i googled the selection and it took me to a google book selection
Well! If we are going to argue dogma, we are going to be here all day. Economic models are built to justify the economists particular personal belief system. Arrow and Debreu believed in Adam Smith and Free Markets and so constructed a model to justify that belief. Marx and Engels had a different vision and constructed an equally valid model.
These models are now seized upon by people (politicians, CEO’s and bankers) who could not even spell Debreu or Engels but like the idea that a Nobel prize tells them they are allowed to rape the land because it is (ADM) God’s Work.
And don’t get me started on the worst of all belief systems, religion.
It’s not an economics problem. It’s a human problem.
This one knows the truth. Adam Smith worked for the nouveau riche plutocrats of Glasgow, against the Establishment mercantilists of London. Follow the money. The Glasgow plutocrats were making their money off of sugar, rum, tobacco and slaves. Adam Smith would seem to have just asked the evil doers to be more rational and mathematical in their evil doing. The Invisible Hand for him was King George III.
So we are definitely all the slaves of done defunct economist/ philosopher.
Frank Hahn did not view Arrow-Debreu the way you suggest. He viewed it as Bill Black characterised. It approximated an impossibility theory.
Worth noting what is missing as well. We know the highly restrictive conditions in which markets clear. We don’t know what happens when we fail to meet the assumptions of Arrow Debreu. There is no “convergence” theorem. Almost Arrow Debreu is not almost Pareto optimal.
Almost Arrow Debreu is not almost Pareto optimal.
==
is a point that needs to be repeated often. In my conversations with economists, I find this to be the REALLY BIG LIE. They will always freely admit that the conditions of perfect competition cannot exist in the world but then go on to exclaim about economistic strategies for dealing with “imperfect” markets giving precisely this suggestion, that getting closer to to perfect gets you closer to optimality. Even the math they so love shows that even in their imaginary world this is not true.
There is this (from Wikipedia). But in the neoliberal quest for market utopia, who wants to know?
‘In economics, the theory of the second best concerns the situation when one or more optimality conditions cannot be satisfied. The economists Richard Lipsey and Kelvin Lancaster showed in 1956, that if one optimality condition in an economic model cannot be satisfied, it is possible that the next-best solution involves changing other variables away from the values that would otherwise be optimal.[1] Politically, the theory implies that if it is infeasible to remove a particular market distortion, introducing a second (or more) market distortion may partially counteract the first, and lead to a more efficient outcome.[2]’
I hate to tell you this, and I’m sure you’ve heard it before, but economics in general, and neoliberal economics in particular more closely resemble religion than any sort of science.
Although I wouldn’t complain about characterizing it as a cult either.
They share the same purpose: justifying the power of elites.
Can’t wait for all this economics to be translated into a bunch of heuristics embedded into advanced A I systems……it will turn artificial intelligence into actual ignorance.
fun-nee
Black Rock did….
For whatever faults Arrow had in the realm of economics, we should pay closer attention to his results in voting theory, which provided a more generalized extrapolation of Condorcet’s voting paradox. People are always looking for a more “perfect” form of democracy – preference voting, parliamentary systems, open primaries, etc.
Arrow proved there is no perfect system besides dictatorship for maximizing even rational voter preferences for policies under reasonable conditions. His result in voting theory appears to oppose that of the Arrow-Debreu theorem in the economic realm. He proves there’s no desirable general equilibrium in voting.
In so doing, he laid a foundation for a vast political science literature studying the effects of institutional structures on policy outcomes. We had all better pay attention to it now that a constitutional convention called by the states (and funded by the right-wing nuts) is imminent. The Tenneessee state senate just put the revanchist neo-confederates over the top.
We’re about to lose government borrowing authority and likely the federal income tax, followed by the commerce clause of the constitution. As if lobbyists and corporate donors didn’t already control Congress enough, we’re going to term limits to gut any residual institutional memory. This really will be the third confederacy. These people haven’t been toying around with simple Jim Crow lite regulations on voting. They mean to bring back the whole God-awful monstrosity. Anything could happen once those conventions pop up.
Their main stated aim is a balanced budget amendment, which will gut national defense during wartime and make it difficult to handle economic depressions. They’ll probably also use it as an excuse to destroy every social insurance program in sight.
It’ll be the culmination of a generational dream kicked off when the segregationists joined Nixon’s Southern strategy and started their war on the federal government with the budget and impoundment battles. Ever since that day, the fight over the budget has really been about racist anger over blacks voting. They couldn’t express it openly so it popped up as “federal spending” and “abortion” and other substitute issues the right took a great deal of time to cook up.
These guys are getting screamed at by little old ladies only a month into Trump’s historic loss of the popular vote. I can only imagine what will happen when their confederacy cookbook recipes fully come into view.
I don’t suspect the general public will be too happy to see billionaires’ taxes permanently cut, but I guess we’ll see how weakened the sixth electoral order really is…
P.S., Even Arrow’s neoclassical-inspired insights on health care economics suggest single-payer and are still too radical for much of the orthodoxy.
When the recipes come fully into view long ignored as absurd movements like Calexit will pass as referendums with 60%. In 1989 my then 19 year old German pal said to me “one super power down, one to go.” I said maybe, but not in our lifetime. He’s prescient.
The Californians can leave. They cannot take the real estate away from the United States though. That issue was settled 150 years ago.
Why worry about where the funding comes from for a Constitutional Convention? They have always been started by some people not too far from the top. It is what the people do with them afterwards that gets interesting.
The Confederacy had some great enhancements to the original document. One of them provided that every bill had to address one subject of law, to prevent “log-rolling” and the resulting weaseling lack of accountability. Can you really say that would not be an excellent article to add to our own document?
Jesus, PhilM.
Do you really think that such technicalities will be the focus of such a convention at this point in time (when the inevitable decay of the current crony capitalist system is visible to everyone, yet the plutocrats have obtained a final monopoly on power)?
LOL.
‘The Tenneessee state senate just put the revanchist neo-confederates over the top.’
This would be huge news if true. But the conclusion seems to be jumping the gun [Second Amendment pun intended]:
Arrow was a charlatan – and I do not believe that it is by coincidence that Larry “criminal” Summers is his nephew – make no mistake this fake economy is by design and it puts all the money in the hands of the elites while destroying the general public, and their fake economic theories have the general public thinking it is their own fault. Why else was it such that any alternative theory of economics was purposely eliminated by the university curriculum. Professors that refused to teach neo-classical economics were not given tenure and were not given grants. Steve Keen talks about this and says he learned about the real economy from a professor who was cast aside (he already had tenure so they couldn’t get rid of him). People need to see what is obvious – the powers to be have used money and debt as a weapon against the general public.
Whenever I have argued with one of these ‘free-market’ dogma folks, all I have gotten in return for any reasoned discourse is paragraph after paragraph stating that
1. Any failures of the market are due to government policies
And, after multiple pages of further babble
2. In conclusion, governments only role is to protect property rights
Note: I’m not in agreement with any of that nonsense, just saying what I’ve run into
“Market failure” is the term used by people who believe that the market can never fail, for when the market has failed.
a little something that has been beyond the pale of the field of economics is property obligations. we have a system of “rights and obligations” which comprise the privilege of owning private property but the obligations are merely taxes and sometimes hazard removal. in a modern world those obligations should be revisited and made to include strict environmental maintenance. betcha the whole idea of private property would lose some of it’s appeal. likewise an obligation to mitigate harm done by anyone participating in our economic “system” to others…
So Woody Guthrie was conservative. Instead of pens, they use textbooks.
We fish know nothing of water.
Indeed, well said.
I would say that this theorem is not only impossible, it is irrelevant. Even if true, it would not matter!
As you say, if hit men compete to murder people for hire, the price of hiring hit men will decline. It’s hard to beat supply and demand. But the big thing is: so what? Even if there is a general equilibrium, how does that guarantee a positive result for anything?
It’s as if architects said that we don’t need to worry about whether a building is strong enough to stand up, because the laws of physics will ensure that eventually all forces will be in balance. However, both intact buildings and buildings that have collapsed are equally consistent with physics. And so with economics. If there are more job openings than workers, wages will be bid up. If there are more workers than jobs, wages will be bid down. If wages fall below substance, then enough workers will die to keep the balance.
Even if markets are imperfect, there is no denying the power of market forces. You can’t just wish away the laws of supply and demand and incentive (example: the Soviet Union). But the market can take us down as well as up. Both Switzerland and Bangladesh are equally consistent with the laws of the market. Worshipping the market makes as much sense as architects worshipping the laws of physics. Market forces must be acknowledged, they must be worked with and not against, but they can be directed to almost any end result depending on how we set the conditions…
RE: …”As a young lawyer in 1977, I saw him in action as an expert witness on the subject of risk. The context was setting the rates for shipping oil through the Trans-Alaska Pipeline System (TAPs). Arrow testified about the risks of oil prices falling. The FERC administrative law judge thought such a scenario was ridiculous. Within four years, oil prices fell sharply.”
Interesting episode that alternatively suggests either Arrow’s model is applicable in some instances; or that as Bill Black says,“the math [of his general equilibrium model] would produce indeterminacy or spiral away from equilibrium into bubbles and market breakdowns. The math would also show that laissez faire is frequently criminogenic and would produce epidemics of elite fraud and other predatory abuse.”
WRT the latter possibility, setting aside some prominent instances of fraud that I believe also included some early instances of institutional control fraud, I recall a few bank CEOs at that time who bet the house on ever-rising oil prices, only to subsequently be schooled that oil is a commodity subject to demand as well as supply constraints, whether artificial or otherwise.
Saw this dynamic in play again in the financial sector with the very high interest rates of the mid- to late 1980s. A few outliers at the time said that interest rates would soon begin to decline and would subsequently decline for a long time period.
More recently, I am wondering about how this conversation pertains to the nearly relentless rise in all financial markets since March 6, 2009, and to various “globalization” initiatives.
I am not an economist, but appreciate how the views of those in this field affect our lives. Thanks for this post, Bill Black and Yves.
There is no such thing as “equilibrium” in a for-profit economy. When the entire economy revolves around selling things for more than was paid for them, things do not balance out.
What seems impossible to me aboout this whole theorem is that anybody took it seriously in the first place. That really seems crazy to me.
I mean, if guys want to sit around and wank themselves in their heads, it’s a free country. But you’d think there’d be not a lot of people who’d do it and even fewer, in fact veryy few, who’d want to watch. Let alone give them prizes. Hahaha. That’s hilarious. Sorry to discomfit the imagination of the peanut gallery.
You’d think there’d be less even of an audience than for whale breeding. How many people do you know who know even one thinga bout whale breeding. Zero in my case. I don’t even know one thing about whale breeding. Not one thing. Well, 1 thing. They breed, or there wouldn’t be new whales. How they do it. I have no idea. It nevver occurred to me to think aboout it.
It’s weird that anybody would think about soemthing like a theorem like this. You wonder what they were thinking in the first place.
The way I think about it is that “common sense” economics (whatever that is) suggests that “free markets” work out just fine. It’s the job of deeper thinkers to show that this “common sense” might be common but it ain’t sense. Arrow made precise what people had implicitly believed before. In making it precise he pretty much proved it was bogus. Turns out that what is generally held to be true is a lie, but it’s still held to be true and acted on. Cos after all, just cos a mathematician shows that something is wrong, that’s no reason to stop acting like it’s right.