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Ronald Coase’s Econtalk

July 13, 2012

Ronald Coase was on Econtalk a couple months ago, and I recently got around to listening to it. It was good, although Coase is getting up there in age, and is sometimes hard to understand. Coase’s approach to economics has always been off the beaten path. He takes a very detailed look at particular situations and thinks deeply about how people act in them, and the institutions surrounding them. He does not use big datasets or abstract theories, but always focuses on what really happens and tries to figure out why. One of the major themes of the podcast was that “blackboard economics” was not a good approach, because it lost sight of the real world. One phrase he kept using was “people are stupid”. In a sense, people are average. They are what they are. But I think what he meant was that people are stupider than economists realize, or at least stupider than our models say they are. It is important to recognize that people aren’t perfect, but that’s why we need institutions like competition and science to push us in the right direction through trial and error. I have a lot more faith in abstract theory than he does, but a variety of approaches keeps the field fresh.

Coase’s major works:
The Nature of the Firm, published in 1937.
The Problem of Social Cost (1960) – highly misunderstood work on transactions costs and externalities

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