NetNews Usenet Archive 1992 #27/NN_1992_27.iso/spool/sci/econ/8750

Text File | 1992-11-18 | 2.6 KB | 52 lines

Newsgroups: sci.econ
Path: sparky!uunet!charon.amdahl.com!pacbell.com!sgiblab!sdd.hp.com!cs.utexas.edu!hellgate.utah.edu!asylum.cs.utah.edu!tolman
From: [e-mail] (Kenneth Tolman)
Subject: Unpredictable economics (the heart of the matter)
Date: 18 Nov 92 12:22:35 MST
Message-ID: <[e-mail]>
Organization: University of Utah, CompSci Dept
Lines: 42


   Any economic system is going to undergo unpredictable evolution.
Unfortunately classical economics largely ignores this reality because
of its unsettling implications for economic predictions as a whole.  The
result is that our country (with classical economists behind the scenes)
makes poor economic long term decisions, namely with a laissez faire approach
to high technology.

  An economy with two or more competing businesses may fall into a
self amplifying cycle where one business dominates over the other. For
example, in the personal computer market a buyer is more likely to buy
a machine that has lots of software and that is compatible with the
machines he already owns, EVEN if this computer is slightly inferior
(in price or quality) to another competitor.  Thus in the beginning of
the competition, one of the two businesses will luckily have more
software written for it, and then a self amplifying chain begins.  More
buyers will buy this machine, and then more software is written for it,
and so forth until this machine comes to dominate the market.  The
economy suffers a lock in from increasing returns.  The economy settles
into a state of affairs which is not necessarily optimal!

  Our government makes economic decisions based on the classical approach
of economics: every person purchasing freely within a market will lead
to the optimal growth of the system as a whole.  Thus the government is
unwilling to "pick favorites" and help out any special industries even
when these same technologies will be the economic foundations for the
future of our country.  The result is that there is a non optimal state
of affairs which the country will tend... we move continuously out of
high technology and into the service area.  Other countries are effectively
investing and researching high technology which give them increasing returns
on high tech markets, which locks the United States out!

  Economics needs to incorporate the realities of increasing returns and
inherint unpredictability.  The decisions of our government should reflect
these economic realities, and support high technology through tax breaks
and economic leverage.  Currently we are living in the dark and making
poor economic decisions which will leave us sucking our thumbs.