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Friday, September 20, 2013

US: Nobel Winner Coase Showed The Limits Of Big Government – Investor’s Business Daily

US: Nobel Winner Coase Showed The Limits Of Big Government – Investor’s Business Daily

Economics: It wouldn’t be right to let the passing of one of the 20th century’s great economists, Nobel winner Ronald Coase, go without comment. You might not know his name, but his ideas have surely affected you.
The unassuming Coase died this week at 102, productive to the very end: He published his final book, “How China Became Capitalist,” in 2012. Talk about longevity. The article that won him fame — “The Nature of the Firm” — was published back in 1937. It’s still called the most-cited economic text ever.


But Coase’s most influential idea came from a 1960 article, “The Problem of Social Cost.” From that came the Coase theorem, which held simply that when one party acts in a way to negatively affect another, government doesn’t have to step in to fix things — at least not if property rights are defined and transaction costs are low. Markets can create an equitable solution.
It was this deceptively simple idea that gave birth to the “law and economics” field, and revolutionized all of economics.
In granting Coase his Nobel in 1991, the Royal Swedish Academy cited his “discovery and clarification of the significance of transaction costs and property rights for the … economy.”
Coase’s theorem isn’t just an academic idea. It’s the basis for global market innovations that range from the trading of carbon credits to the selling of radio and television frequencies.
No doubt, Coase was both amused and disappointed at how economists in recent years twisted math-based economic models in ways to suit politics — rather than to gain basic insight into how people behave.
Indeed, Coase stood against the postwar tide of abstract, math-centered economics — he called it “chalkboard economics.” He favored actual human behavior.
Though associated in his later career with the free-market University of Chicago economics department, his actual appointment was in the law school.
Unlike many economists today, Coase believed in a world guided by reason and human logic. Ironically, the one-time socialist’s ideas were ardently embraced by free-market economists, who shared his faith in markets and people — and not big government.
Source: Investor’s Business Daily
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