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Wisdom from Arnold Kling

Arnold Kling has a great post on some important principles of economics that I want to quote here in entirety:

What would I consider to be some important principles of economics that I want my students to walk away with?

1. Market processes promote long-term growth. The market processes of specialization, exploiting comparative advantage, and creative destruction have benefits that are widely dispersed in the long run. These processes impose short-term costs on those who have invested in physical and human capital made obsolete.

2. Competition is a regulatory mechanism. For example, the ability of a business to exploit consumers or workers is attenuated by competitive forces. Businesses do not like competition. They lobby for policies that stifle competition. Often, such lobbying is successful. Competition is far from perfect as a regulatory mechanism. It is possible to be too optimistic about how well it can work. It is also possible to be too optimistic about the prospects for fixing the flaws in markets using government regulation.

3. Human cooperation is difficult to achieve. The conditions under which large organizations can operate without internal friction are never satisfied. Aligning incentives is more difficult in the real world than it might appear to be in the abstract.

4. Economists need two hands. The conditions under which markets will produce optimal outcomes are never satisfied. The conditions under which a government official can act as an omniscient, benevolent central planner are never satisfied.

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