What is Mainline Economics?

(light orchestral music) – So you look around the world and you see huge disparity in the human condition. You see some people that
are desperately poor. You see others that
are living in opulence. What is determining these
difference in the human condition? Why are some societies working
well compared to others? And why are some not working? The tools of economics,
particularly the tools in mainline economics,
can shed light on this, they can help us understand how does culture and institution shape the decisions that humans make? How can we change the
incentives of policy makers through institutional change
so that they can create better rules to help us
live in peace and prosperity with one another. The ideas that were
pioneered by Adam Smith, they’re very much alive right now. There are people that are trying to apply these insights from the
mainline of economics. We try to make our world a better place. (light orchestral music) Mainline economics is based
on three propositions. The first is that humans
have a natural desire to exchange with one another. “Truck, barter and exchange,”
as Adam Smith said. And this exchange is
a process of exchange. Number two is that this process of exchange is profoundly
influenced by the culture and institutions within
which it takes place. You get very different outcomes
based on different culture and different institutions. And three, these institutional
differences are themselves the product of exchange, except it’s exchange often
in the political marketplace, not in the private marketplace. That’s actually, I think,
probably one of the strengths of mainline economics
is its analytical focus is on the imperfections of institutions and how we can improve
them and reduce frictions. So if you think about one
version of mainstream economics, it’s just to assume in this
highly mathematized model of reality we call perfect
competition that, you know, you have multiple buyers
and multiple sellers and their interacting in
a frictionless environment in which property rights
are perfectly protected, contracts are complete,
information is complete, you have zero transactions cost. It’s basically this anti-septic, you know, really clean and elegant
mathematical model, but it assumes away all the important and interesting characteristics
of what makes societies work well or not work so well. Mainline economics really shines a light on those institutional
differences to understand under what circumstances
are property rights more or less complete? Under what circumstance
is our transactions cost high or low? Under what circumstances
are the norms of culture such that people feel
that they can interact with one another and trust one another? And have lower transactions
cost so they can exchange with those with whom they stand to gain. Mainline economics is really
focused on, in many ways, those important frictions that can stand between mutually beneficial exchange. – It’s only through the existence of property contracting
consent that individual, pursuing their own
self-interest can be lead to promote the interest
of society as a whole. It wasn’t that anytime I
pursue my self-interest I’m gonna generate a positive outcome. It was, instead, very
institutionally contingent and that basic idea runs from Adam Smith to Jean-Baptiste Say, to John Stuart Mill into the early 20th
century, including FA Hyek and James Buchanan and
Ronald Coase and Doug North and Vernon Smith and Elinor Ostrom. Mainstream economics is
just whatever’s currently fashionable at the time. You think about it in a very simple sense, it’s what’s currently being
considered the cutting edge of science and everyone
considers that to be the fashion. Sometimes the mainstream is the mainline, and sometimes there’s huge
divorce between the mainstream and the mainline. And when there’s a huge divergence between those two things, it takes entrepreneurial
action by individuals, such as the ones that I just mentioned that won the Nobel Prize, to pull economics back
to its core teachings from Adam Smith to Vernon Smith.

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