Ikeda mentions 2 interesting examples that should vex the neoclassical economists.

1. Suppose, he says, “the state issues and strictly enforces a prohibition against commercial vehicles driving over 200-miles per hour.” Since no truck right now on today’s highways would even approach this speed, this policy, as far as a neoclassical would imagine, has no effect on the market. An Austrian economist, however, sees farther. What if a technology could exist that would allow such fast transportation in a safe manner? If it is discovered in the future, entrepreneurs, constrained by the law, would never invest into it, and this beneficial advance would never be commercialized. Even worse, the technology itself might never be invented in the first place, if the law would not permit a payoff from research and development in this area of science.

“In addition, too much investment [compared to what is optimal] would take place over time in technologies that depend on lower-speed travel. As in standard analysis, the current costs of commercial transport remain unaffected, yet a subtle though very real impediment to economic development now exists because of the regulation.” (95-6)

2. Let the state “mandate that insurance companies cover a minimum of two days of post-partum care for women who give birth in hospitals.” Both the neoclassical and the Austrian will point out that “this will… reduce the number of women covered by insurance (by the law of demand).” But only the Austrian will notice in addition that the bill will “also tend to discourage researchers from investigating new medicines and procedures that could in fact safely speed up the in-hospital post-partum recovery process.” (164)

We can conclude that neoclassical economists are like little babes, unable to glean the more remote yet for all that crucial consequences of government interventions.


Leave a Reply

Your email address will not be published.