An interesting question asked was about what separates good economics from bad. And it all comes down to the importance of transaction costs, which is the central message of Coase's two most famous papers - The Nature of the Firm and The Problem of Social Cost:
WN: You mentioned many times that you do not like the term, "Coasean economics", and prefer to call it simply the "right economics" or "good economics". What separates the good from bad, the right from wrong?
RC: The bad or wrong economics is what I called the "blackboard economics". It does not study the real world economy. Instead, its efforts are on an imaginary world that exists only in the mind of economists, for example, the zero-transaction cost world.
Ideas and imaginations are terribly important in economic research or any pursuit of science. But the subject of study has to be real.
2 comments:
Thank you very much for the quote and the link. I will put the quote in the new edition of my textbook, coming out next year. I have been a big fan of Coase every since I attended his seminar in Chicago in the 70s. He is dead right on the difference between blackboard economics and real economics.
One of the few intro books I have kept is a copy of an old edition of Dolan and Lindsey. I hope the new version does as well.
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