Kling and Schulz: The Importance of Markets

The first twenty pages of "From Poverty to Prosperity" by Arnold Kling and Nick Schulz has been a pleasure to read.  They compare the economy to a computer.  The hardware is the visible and countable resources of the economy, the operating system, the less visible, nonrivalrous system of law and institutions, and the software, the nonrivalrous ideas and innovation and that bring technological advance.  They argue that economic inquiry has shifted from the hardware to the operating system and software, which places renewed focus on markets.  Kling and Schulz write,

Economics 2.0 offers a completely fresh perspective on the role of markets in society, one that will become clear over the course of this book.  Traditionally, the debate over markets has been between the "Chicago school" and the "Harvard-MIT school."  The Chicago school says, "Markets usually work.  That is why we need markets."  The Harvard-MIT school says, "Markets often fail.  That is why we need government."

Economics 2.0 says, "Markets often fail.  That is why we need markets."

What do we mean by this?  Economics 2.0 says that overcoming market failure requires innovation.  Innovation is best delivered by markets.  It is rarely delivered by government.  Hence, the paradoxical conclusion is that markets are 0ften the best solution. 

The book includes interviews with Robert Fogel, Robert Solow, Paul Romer, Douglas North, William Easterly and others, and yes, I have skipped ahead to read several of the interviews.  After twenty pages and several interviews, I believe that the book is assessable to undergraduate students.