The Stuff You Do Know That Just Ain’t So

One of these days I really need to write a long, analytical post about the things I learned in economics class in college that just don’t work that way. To put it in some perspective when I took economics Keynes was king, the Phillips Curve (a rule of thumb relationship between unemployment and inflation which fell into disrepute in the 1970s) was holy writ, and the term “rent-seeking” hadn’t been coined (although there was plenty of it going on).

I’ll just give one example: in many industries there isn’t a great deal of competition. Some industries, e.g. cable TV, are organized as local monopolies. Others, e.g. healthcare insurance, are localized cartels.

Any number of industries have an industry leader that dominates the industry with 90% or more of the market and a handful of second tier companies that scramble for the rest. Think “personal computer operating systems” and you’ll get the general idea. I’m not sure what the situation is now but that used to be the case in everything from lampshades to bowling balls.

And then there’s wages. Has anybody done any work on the social nature of wages? The notion that wages are set by the market is at best an exaggeration. Social structures within organizations are imnportant, too. For example, you can’t have an engineer earning more than the director of engineering (even if engineers are a lot harder to come by).

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