As soon as I start reading about general equilibrium models, the same question seems to pop over and over again, which I know many of you will be familiar with, as classmates from previous semesters have brought on to discussion. I’ll introduce the question,why I’ve found it relevant for the course, why it has been controversial through my years in ITAM and share a brief article for more discussion.
The question, as stated in the title, is something we’ve all thought of at some point. Are markets too free? A question that provides a great connection between General Equilibrium in Competitive Markets and Markets & Morals, since the lack of morality in some kind of scenarios awakes the need of having some sort of intervention (e.g. Classic example of externalities that arise from pollution and problems 1.2 and 1.8 from class). The importance of questioning market clearance and maximizing social welfare by being selfish is in my opinion a great way to end chapter one and start chapter two.
Personally, I’ve felt that my Economics BA has developed on a fascinating timeline, since we’ve been studying the general equilibrium model for years now while reading about the urgency of having proper regulation. Crisis of '08, structural reforms of this government, surge of cryptocurrencies and arise of new ‘unicorn’ firms such as fintechs are examples of topics that in chronological order have appeared in my life and all discuss the need of having a proper regulation.
As an introduction of chapter two, I believe that these are all examples that question morality behind economic markets. A question that in my opinion, doesn’t have a particular answer. Free markets can bring prosperity as good as they can being despair. Regulation can bring order as good as it can bring chaos. It’s a thin delicate line, and not everybody ends on the winning side. First Welfare Theorem is as important as the second, and it’s often underappreciated.
To dig deeper on the discussion, I suggest reading this brief article by nobel winner Robert Schiller (https://www.nytimes.com/2015/10/11/upshot/faith-in-an-unregulated-free-market-dont-fall-for-it.html). The title says it all: Faith in an unregulated free market? Don’t fall for it. Since day one we’ve been challenged to question all we learn, and doing so since chapter one is a great way to learn. What do you think about free markets? Would you agree with Schiller on the urgency of economics heroism?
Let me know what you think.