So what evidence do you have that the economists are fixing the problems created by the sociologists in any meaningful sense?
I confess I don’t understand this question. Could you please clarify?
You said earlier that:
I’m glad that the economics faculty spend much of their time thinking of ways to fix the problems caused by the sociology faculty, but it would save everyone time and money if they all went home.
My confusion was over this claim in that it seems to assume that a) sociologists are creating societal problems and b) economists are solving those problems.
But these “institutions” are not laws of nature, they aren’t even tangible things—an “institution” is just a description of the way people co-ordinate with each other. So yes, people in developing countries often can’t co-ordinate because they have bad institutions, but it would be equally true to say that they can’t have good institutions because they don’t co-ordinate.
Human behavior is not path independent. Institutions help coordination because prior functioning governments and organizations help people to keep coordinating. Values also come into play: Countries with functioning governments have citizens with more respect for government so they are more likely to cooperate with it an so on.
Apart from the reasons you already mentioned, marketing creates a brand which reduces information costs. This is of course particularly important in a low information market. Spending money to promote your brand is a pre-commitment to provide satisfactory quality products.
This only makes sense in a context where markets are low information and marketing creates actual information and where negative behavior by a brand will have a substantial reduction in sales. In practice, people have strong brand loyalty based on familiarity with logos and the like,. So people will keep buying the same brands not because they are the best but that’s because what they’ve always done. Humans are cognitive misers, and a large part of marketing is hijacking that.
Huh? All of these can result in total utility going down compared to what might happen if one picked a different market equilibrium. How are these not market failures?
Firstly, no-one can “pick” a market equilibrium.
You are missing the point. The point is that there are other stable equilibria that are better off for everyone but issues like networking effects and technological lock-in prevent people from moving off the local maximum.
Secondly, order is defined in the process of its emergence. Thirdly, proof of a possibility and a demonstration of a real-world effect are not the same thing.
What do these two sentences mean?
So every time a business gains on account of departures from the free market, that’s a travesty, but every time it loses, that’s the way things are supposed to work.
I don’t know where you saw a statement that implied that, and I’m curious how you got that sort of idea from what I wrote.
Besides, TBTF isn’t an economic problem, this is a political problem. They had too many lobbyists to be allowed to fail, that’s all.
There’s an argument for that in the case of the car industry, but the economic consensus is that the economy as a whole would have gotten much worse if the banks hadn’t been bailed out.
How is it a market failure? It’s possible for bundling to reduce consumer surplus, but that’s just a straight transfer.
Technological lock-in and network effects again. For example, in the case of Internet Explorer, having it bundled with Windows meant that many people ended up using IE by default, got very used to it, and then it had an advantage compared to other browsers which stayed around (because people then wrote software that needed IE and webpages emphasized looking good in IE). In this context, if the consumers had been given a choice of browsers, it is likely that other browsers, especially Netscape (and later Firefox) would have done much better, and by most benchmarks Netscape was a better browser.
You said earlier that:
My confusion was over this claim in that it seems to assume that a) sociologists are creating societal problems and b) economists are solving those problems.
Human behavior is not path independent. Institutions help coordination because prior functioning governments and organizations help people to keep coordinating. Values also come into play: Countries with functioning governments have citizens with more respect for government so they are more likely to cooperate with it an so on.
This only makes sense in a context where markets are low information and marketing creates actual information and where negative behavior by a brand will have a substantial reduction in sales. In practice, people have strong brand loyalty based on familiarity with logos and the like,. So people will keep buying the same brands not because they are the best but that’s because what they’ve always done. Humans are cognitive misers, and a large part of marketing is hijacking that.
You are missing the point. The point is that there are other stable equilibria that are better off for everyone but issues like networking effects and technological lock-in prevent people from moving off the local maximum.
What do these two sentences mean?
I don’t know where you saw a statement that implied that, and I’m curious how you got that sort of idea from what I wrote.
There’s an argument for that in the case of the car industry, but the economic consensus is that the economy as a whole would have gotten much worse if the banks hadn’t been bailed out.
Technological lock-in and network effects again. For example, in the case of Internet Explorer, having it bundled with Windows meant that many people ended up using IE by default, got very used to it, and then it had an advantage compared to other browsers which stayed around (because people then wrote software that needed IE and webpages emphasized looking good in IE). In this context, if the consumers had been given a choice of browsers, it is likely that other browsers, especially Netscape (and later Firefox) would have done much better, and by most benchmarks Netscape was a better browser.