William K. Black wrote the article Kenneth Arrow’s (Ignored) Impossibility Theorem in New Economic Perspectives. The motivating event for the article was the death of economist Kenneth Arrow.
The author of the obit stressed the impossibility of such systems being optimal. Contrast that emphasis with the author’s treatment of Arrow’s work on “general equilibrium.”
Professor Arrow proved that their system of equations mathematically cohere: Prices exist that bring all markets into simultaneous equilibrium (whereby every item produced at the equilibrium price would be voluntarily purchased). And market competition puts society’s resources to good use: Competitive markets are efficient, in the language of economists.
Professor Arrow’s theorems set out the precise conditions under which Adam Smith’s famous conjecture in “The Wealth of Nations” holds true: that the “invisible hand” of market competition among self-serving individuals serves society well.
That is one way to phrase it, but a more accurate, parallel way to phrase Arrow’s work on general equilibrium would be as an “impossibility theorem.” Arrow actually proved that it was impossible for general equilibrium to occur. The “precise conditions” in which economists can guarantee that a market transaction “serves society well” is the null set. There is no market that meets those “precise conditions” because they are impossible to meet.
This article introduces me to a field of study that I had not known before. I can see that I am going to have to do more reading about this area.
To further quote from the article, Black’s concludes the followin:
The ultimate failure of economics as a field is to:
- worship an economic model that is criminogenic,
- hide that disaster from the public by assuming “silently” an “ADM God” that contradicts the model’s express assumption,
- continue to worship and proselytize that model when its silent assumption of an “ADM God” repeatedly produces criminogenic policies and epic predictive failures, and
- praise your models as “rigorous,” “scientific,” and “transparent,” and
- define critics as anti-scientific and demand that their critiques be excluded as heresy.
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In other words, free markets only work when a godlike superior force sets strict rules to guard against criminogenic behavior. Free markets only work when they are not free.