This “Great Forgetting,” as Cutsinger and Salter call it, has consequences. One is that many young economists “focus on applied research using sophisticated statistical tools without an underlying theoretical framework to guide them.” The effects, however, go beyond formal economics. The marginalization of price theory in the academy is increasingly mirrored in the conduct of public policy—and the results are dire.
Mistaken Ideas Means Bad Policy
This problem constitutes the background to a new book of 28 essays, edited by the Cato Institute’s Ryan A. Bourne, entitled The War on Prices: How Popular Misconceptions about Inflation, Prices, and Value Create Bad Policy (2024). Its central theme is that deep misconceptions about the workings of prices are driving bad policy. Bourne sees these expressed in the pronouncements on inflation’s causes by Democrat and Republican politicians. This is replicated in phenomena like increasingly favorable public opinion of price controls.
What Bourne calls “a lack of appreciation for the important functions of market prices in general” helps explain deep dysfunctionalities throughout the American economy that result from federal, state, and local government policies that, it turns out, disproportionately hurt those on society’s margins. Besides inflation, other prominent examples include rent control, upper limits on short-term loans, and the regulation of entire markets stretching from water to oil and gas. Policymakers and citizens alike, Bourne comments, seem disinterested in the way that market prices “efficiently [coordinate] economic activity by providing signals and incentives to consumers and businesses.”
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