Economic policy is nowadays always measured against the standard of economic efficiency, that is, static efficiency. A concrete economic policy, writes Fernando Herrera-Gonzalez, is deemed to be good if it improves the static efficiency of the market. The ideal economic policy should be the one able to drive the market to the nirvana of perfect competition, in which static efficiency is maximized, as is social welfare.
The problem is not so much that the static economic model does not reflect the reality. The real problem is that this model is used by regulators to make decisions. The well-intended regulator may decide to act as an antitrust regulator and punish any deviations from this efficient ideal, or he may decide to act as a sector regulator (e.g., setting prices) by imposing the efficient ideal directly. This result is to inhibit entrepreneurship. FULL ARTICLE How is Efficiency Obtained?
Economic policy is nowadays always measured against the standard of economic efficiency, that is, static efficiency. A concrete economic policy, writes Fernando Herrera-Gonzalez, is deemed to be good if it improves the static efficiency of the market. The ideal economic policy should be the one able to drive the market to the nirvana of perfect competition, in which static efficiency is maximized, as is social welfare.
The problem is not so much that the static economic model does not reflect the reality. The real problem is that this model is used by regulators to make decisions. The well-intended regulator may decide to act as an antitrust regulator and punish any deviations from this efficient ideal, or he may decide to act as a sector regulator (e.g., setting prices) by imposing the efficient ideal directly. This result is to inhibit entrepreneurship. FULL ARTICLE All Rights Reserved ©
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