The Jedi, Economists, and public choice theory

In some of my most egotistical (although sometimes cynical) moments, I enjoy ranting about the similarities between economists and Jedi’s (at some point I might do a post – if I can actually be bothered trying to figure out what the similasrities are 😛 ).

In this context I found this old dialogue between Tyler Cowen and Bryan Caplan fascinating (ht Marginal Revolution).

On one side, Tyler argues against the Jedi order – effectively the existence of the order creates the very evil it means to prevent. Byran on the otherside believes that the Sith (the bad guys) would still exist in the absense of the Jedi – but would have no-one to truly counter them.

Both sides are right in part, and the ultimate result depends on an empirical relationship – does the Jedi order destroy more evil than it creates.

For fun, lets bring this back to an economics example. In this sense, if we heroically took economists to be Jedi’s my guess is that market failure would the Sith. Economists believe that their form of analysis helps to prevent, or improve outcomes in the face of, market failures. However, is it possible that the very act of economic analysis shifts peoples actions in a way that makes market failures MORE likely.

For an example we can go to “Freakonomics“. There is a story about how a daycare centre set a fee for “additional after hours care”. Once they set this fee, a the prior “tacit” agreement between the day care and its patron to avoid leaving children after the set hours collapsed. Even when the price was removed, this tacit agreement could not be restored.

As a result, the existence of economists and the need to set explicit prices destroy implicit institutional relationships that exist in society may thereby create the failures that economists are charged to prevent!