Home > Environment > The truth will set you free?

The truth will set you free?

March 12th, 2008

There’s been a lot of discussion here about genetically modified foods and related issues. My view has been that the current state of scientific evidence does not support a general ban on GM foods but that consumers may reasonably want to be informed about whether the food they are consuming has been produced using technologies they may object to, either on ethical grounds, or because they are unconvinced about the safety of GM technology. In this respect, I’ve been very critical of Monsanto, which pushed hard to get GM foods onto the US market without any labelling requirement. Among other things, I thought this likely to be a counterproductive strategy, intensifying hostility to GM technology.

Some of my more free-market readers have argued against me on labelling suggesting that, if consumers want this information, market processes will ensure the emergence of a GM-free label. Thinking about it in the abstract, this will be true if the consumer preference for non-GM food is strong enough. And if consumers don’t care at all, then labelling won’t make any difference. There’s an intermediate zone where the choice of labelling regime might make a difference, and this has led me to support compulsory labelling.

These speculations can now be confronted with some real-world experience, with some very interesting results. As well as GM foods, Monsanto markets Posilac, a synthetic version of bovine growth hormone for cows that increases milk yields. Farmers producing milk without Posilac have advertised the fact, and have been very successful in capturing market share.

As a result, Monsanto, through a front group, Afact, is now lobbying legislatures to ban the advertising of non-BST milk. Their argument is that, since there is no scientifically demosntrable difference between the two products, advertising the way in which they are produced can only mislead consumers. So now it’s the pro-GM side who are arguing for intervention to suppress information they think consumers can’t handle.

It would be interesting to work through the consequences of requiring advertisements to exclude emotional appeals based on actual or implied differences that couldn’t be scientifically proven to matter to product quality. I’d say that ad breaks would get a whole lot shorter, and lots of ad agencies would be out of business.

Leaving such fantasies aside, the Posilac case certainly supports the pro-market side of the debate we’ve had here. A voluntary labelling system has produced a thriving market for the non-GM product, to the extent that some think Posilac-based producers will be driven out of business, at least in the fresh milk market. I don’t think that things will work so neatly, but I will certainly think a bit more about my position on this.

On the other hand, the case illustrates once again that those who put their faith in big business to support market processes are bound to be disappointed. Examples like this help to separate genuine believers in markets from backers of business interests. One commentator who definitely falls into the latter group is Alex Avery of the Center for Global Food Issues at the Hudson Institute (his father, Dennis Avery heads the Center). Here he is cheering on prohibition of advertisements of, among other things, claims that cows are not treated with rbST.

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  1. wilful
    March 12th, 2008 at 15:49 | #1

    No link for your last claim?

    I missed the GM Canola thread. Oh well. I’ve been part of a regulatory committee drawing up standards for this stuff in Victoria. It seemed reasonably clear to me that the human health risks weren’t really significant, far less so than other things we embark upon. But Monsanto and Aventis etc are at the forefront of unsustainable agriculture, or soil mining, and their approaches to GM aren’t going to do anything to enrich the planet, or Victorians, or Victorian farmers, and would only benefit some shareholders. GM research conducted for the public good on the other hand, such as at KTRI and la Trobe Uni, may have immense environmental and farmer benefits.

    One thing about labelling – they really oughta ban the “no hormones” label in chicken meat. It’s illegal to put hormones in chicken meat, has been since forever, but brands like “La Ionica” will ‘differentiate’ themselves by pretending there’s something special about their product, when they still use antibiotics in the feed.

  2. wilful
    March 12th, 2008 at 15:50 | #2

    Ah something weird happened there, ignore my first sentence, I think you may have been editing your post.

  3. wilful
    March 12th, 2008 at 15:52 | #3

    Last link is broken.

  4. 2 tanners
    March 12th, 2008 at 16:00 | #4

    Monsanto’s marketing machine must be the most inept in the world. They still haven’t recovered from the pillorying they got on both GM crops and ‘ownership’ in terms of the ridiculous terms they wanted to have on seed sales. And now they hit the legislatures trying to suppress true, if irrelevant, claims.

    BTW you seem to have two dangling sentences.

  5. jquiggin
    March 12th, 2008 at 16:20 | #5

    Sorry, guys. I accidentally hit the Publish button early. This is supposed to be the final version, so please advise if there are any remaining errors.

  6. March 12th, 2008 at 16:27 | #6

    I’d have to agree with your third last paragraph. Shows like “Friends” would find it hard to attract advertisers if they were so restricted.
    I would also have to agree with your last two paragraphs. Big businesses will always lobby for legislation to protect their interests – whether it be tariffs, subsidies, quotas or other restrictions on free trade, such as advertising bans.
    Let allowing the advertising of GM-free status while not requiring GM content warnings is (IMHO) the correct way to go here. Let consumers decide what they want to buy. Let the debate be won or lost in the battle of ideas. Odd concept, but it works.

  7. David
    March 12th, 2008 at 17:04 | #7

    Although I’m uneasy about the idea of eating frankenfoods, I’m prepared to concede that it’s an irrational fear. (A biologist friend pointed out that we’ve been getting genetically modified ourselves, as have our foods, every time we catch a virus.) My major objections to GM crops (etc) are that they reduce biodiversity, while at the same time increasing farmers’ dependance on agricultural chemicals (which is an increased cost). Additionally, these increased costs force farmers to plant larger and larger acreages to remian profitable. This will be increasingly problematic as the cost of fuel (and chemical feedstock) increases.

  8. Peter Wood
    March 12th, 2008 at 17:25 | #8

    It seems to me that a large amount of market failures exist because of a lack of labelling. We use far more electricity than we should because we have very little information about the electricity consumption of most appliances that we purchase; we know very little about the environmental impacts proom producing most products that we purchase, how much greenhouse gas emissions were involved in their production, or if any animals were harmed for example.

    These informational failures make it difficult for consumers to make informed or ethical decisions about what they purchase. While it will be easier to address some issues with labelling than others, we need much more labelling than we currently have access to.

  9. Jill Rush
    March 12th, 2008 at 19:00 | #9

    Much of the food we eat is genetically modified but if I choose a Golden Delicious Apple which is organic I should be able to make that purchase with confidence in the label.

    On the other hand the debate about genetically modified food ignores the cane toad effect.

    We have enough pest species in this country without the introduction of more species that cannot be controlled. The lack of responsibility of the owners of the technology who cannot control the spread of a potential weed species is another aspect of the argument which needs addressing.

  10. Hermit
    March 12th, 2008 at 20:15 | #10

    Compulsory labelling seems fair to me since those using GMOs, hormones or probiotics may have a yield advantage. Those who don’t have that advantage deserve a price premium or customer discrimination in their favour.

    Anyway this whole area is getting murky. I hear endurance athletes at Beijing may be legally allowed to take asthma medication. First across the line gets a gold medal if they are a milligram under the limit or disqualification if they are a milligram over.

  11. Ikonoclast
    March 12th, 2008 at 20:23 | #11

    As I am usually post dire and dreadful declamations, I will post the below as a change of pace.

    One night some time ago, my good wife and I were watching TV. The show featured a person proudly proclaiming – because it was fed organic food etc. – that she had an “organic dog”.

    I burst out laughing and said;

    “I’d hate to see an inorganic dog. What would it be made out of… concrete?”

  12. melanie
    March 12th, 2008 at 22:17 | #12

    As on the previous discussion of this issue, I think (with Jill Rush) that the issue is not whether people want to consume the stuff, but whether the weeds can be confined.

  13. The Doctor
    March 12th, 2008 at 22:32 | #13

    I’m in favour of all information(or at least as much as you decently put on a label, any ways) all the time. Whether you allow people to state a product as non-GM or GM makes no difference so long as it is one or the other.

  14. mugwump
    March 12th, 2008 at 23:23 | #14

    Big business always acts in its own interest. So does small business for that matter. Both advocate restrictions on free markets where it suits them.

    The only consistent winners from free markets are consumers, which is all of us.

    I will write to my Senator on BST advertising (they’ve got gall).

    BTW, most links in the post are broken.

  15. March 13th, 2008 at 00:22 | #15

    On the other hand, the case illustrates once again that those who put their faith in big business to support market processes are bound to be disappointed.

    Just as those that put their faith in big government to support market processes are bound to be disappointed.

  16. Tom N.
    March 13th, 2008 at 01:02 | #16

    Thanks for drawing attention to the Posilac case, John: a nice example of the market meeting consumer demands for information.

    That said, it’s a concern that I’m apparently one of your “more free-market readers”!

    Tom N.
    Compliance Officer
    Allowable Sky-Hook Colours Section
    Sky-Hook Design Specifications Branch
    Ethereally Hinged Objects Regulation Division
    Department of Legislative Promulgation and Regulatory Diffusion
    Leviathan House

  17. conrad
    March 13th, 2008 at 05:56 | #17

    “My major objections to GM crops (etc) are that they reduce biodiversity, while at the same time increasing farmers’ dependance on agricultural chemicals”

    This is really a misconception. There’s no apriori reason for either of these two. You could genetically engineer crops to need less chemicals (for example, some crops are engineered to be insect resistant and hence not need various chemicals), and if it gets common, its easy to imagine increased biodiversity (problematic in itself) if companies continually introduce new varieties of various crops.

  18. Spiros
    March 13th, 2008 at 08:16 | #18

    It’s hard to see how this proposed ban would survive a first amendment challenge.

  19. March 13th, 2008 at 09:41 | #19

    Further to comment #15 I think a big part of the problem is that the word “capitalist” is a polysemy.


    From dictionary.com we have the following definitions for “capitalist”;

    1. a person who has capital, esp. extensive capital, invested in business enterprises.
    2. an advocate of capitalism.
    3. a very wealthy person.

    Those schooled in the Maxist school of thought probably tend to be biased towards definition 1 and/or 3. Those from the classical liberal school of thought probably use definition 2 most often.

    For instance who is the better capitalist:-

    1. Donald Trump
    2. Milton Friedman

    The fact that some rich people (probably many or even most) are supportive of government intervention should not surprise anybody. One of the problems with large government is that it becomes more worthwhile to corrupt and influence government.

  20. wilful
    March 13th, 2008 at 09:44 | #20

    First amendment? I don’t see how setting the date of Senators sitting from 1 January to 1 July makes a difference.

    Isn’t one of the assumptions of classical economics that markets have perfect information – and doesn’t giving people more information come closer to this?

  21. March 13th, 2008 at 10:38 | #21

    An often stated and always incorrect shibboleth is that one of the assumptions of classical economics is perfect information. It is not. It is not needed to have a market function well.
    I would strongly suggest revision on the point.

  22. March 13th, 2008 at 10:53 | #22

    Economic liberals claim to prioritise ‘consumer choice’ but they have an implicit hierarchy of choices that guides a strong moral evaluation. For a consumer to deliberately purchase non-GM foods or a worker to purchase leisure on the job is frowned on.

  23. jquiggin
    March 13th, 2008 at 11:25 | #23

    I think it’s fair to say that, until 1970 or so, something close to perfect information was assumed in most (neo)classical economic analysis.

    In particular, perfect information is a standard part of the description of perfect competition, and there are a number of results showing that the outcome reached in a perfectly competitive market is optimal in various senses.

    The economics of imperfect information shows that markets may still function in a way that is “constrained optimal” (that is, without additional information you can’t do better), but there are a lot more possibilities for policy-relevant market failures, that is, cases where government intervention might improve things.

    That doesn’t contradict the statement that markets can function well in the absence of perfect information. They can, but they may not.

  24. O6
    March 13th, 2008 at 12:41 | #24

    9 & 12: there are non-GM herbicide-tolerant canolas (rapeseed) on the market, at least one in Australia. They can also become weeds. Weeds treated regularly with a given herbicide will themselves evolve tolerance to that herbicide. GM herbicide-tolerant rapeseed is not a new cane toad, despite Greenpeace’s wish to have everyone think so; it’s another modest source of potential weediness.
    Use of herbicides can diminish tillage, leading to less ‘soil quarrying’. The arguments are not simple and will not become so through advocacy.

  25. March 13th, 2008 at 12:55 | #25

    Perfect information has long been a simplifying assumption for the sort of economics taught in micro 101 classes, but I am not aware of any of the classical economists that based their work on the assumption of perfect information.
    We will just have to disagree on the statement that “…there are a lot more possibilities for policy-relevant market failures, that is, cases where government intervention might improve things.” I would argue that this is not “a lot”, but “very few”.

  26. James Haughton
    March 13th, 2008 at 13:56 | #26

    There is an excellent free book by Glenn Baker, “The Conservative Nanny State” on the ways in which “capitalists” lobby the government to intervene in market outcomes to their advantage. http://www.conservativenannystate.org

    As for information availability, I find it suprising that Andrew Reynolds is not aware of General Equilibrium models, which require, if I understand them correctly, a complete set of prices covering all conceivable circumstances to provide an optimal outcome.

    To quote Wikipedia:
    “So the complete Arrow-Debreu model can be said to apply when goods are identified by when they are to be delivered, where they are to be delivered, and under what circumstances they are to be delivered, as well as their intrinsic nature. So there would be a complete set of prices for contracts such as “1 ton of Winter red wheat, delivered on 3rd of January in Minneapolis, if there is a hurricane in Florida during December”. A general equilibrium model with complete markets of this sort seems to be a long way from describing the workings of real economies…”

    If you read George Akerlof’s essay on “Writing the Market for Lemons”: http://nobelprize.org/nobel_prizes/economics/articles/akerlof/
    he is quite explicit that economics at the time was dominated by GE theory:
    “The first of these [prejudices] was the primacy of the general equilibrium competitive model with complete information.”
    As witnessed by the fact that “the market for lemons” which must be one of the foundation papers of imperfect information economics, was rejected 4 times as “trivial” before being accepted.

    One wonders which of the “classical” economists Andrew Reynolds IS aware of. Or by classical does he mean Ricardo, Smith, Marx and Sraffa?

  27. David
    March 13th, 2008 at 16:17 | #27

    Conrad said “You could genetically engineer crops to need less chemicals …”

    While that’s true, it’s unlikely to happen since the companies who sell GM seed also sell agricultural chemicals.

  28. conrad
    March 13th, 2008 at 20:48 | #28

    “While that’s true, it’s unlikely to happen since the companies who sell GM seed also sell agricultural chemicals”

    I disagree – people believe this because of the very poor behavior of Monsanto. A further look around shows that some governments try and develop crops for reasonable reasons (China for example — better rice crops, including some that grow with vitamins now missing in the diet of some areas). Similarly, I think once the technology gets into the mainstream and many companies have it, there will be a far better selection of crops to grow (presumably including ones that don’t need great soil or fertizlizer), since it isn’t hard to imagine some companies will develop crops but not sell fertilizer.

  29. conrad
    March 13th, 2008 at 20:50 | #29

    Here’s a good link for you David, so you can see how GM crops might benefit people in some ways that Monsanto crops don’t:


  30. alan
    March 13th, 2008 at 21:31 | #30

    Monsanto is a private enterprise, operating in a free market. I have been told by very confident pundits that this is all I need to know to trust them.

  31. March 13th, 2008 at 21:57 | #31

    If you have been told this I hope you did not believe them. It would make you more of a fool than they are.
    James Houghton,
    I would not, for a start, regard Marx as a member of the canon of classical economists. I would also say that GE models tend to be anything but General, show little in the way of useful Equilibrium and Model little in the real world. Apart from that they can be useful. I just have not thought of where.
    That said, I am not an expert on the area as I have never found it to be of use. So someone here may care to correct me.
    Hayek clearly showed the nonsense of that approach and also why it was not needed. I believe that Smith and Ricardo would have agreed.
    Hayek would also have agreed that companies would try to use their wealth to influence or corrupt governments. This process is inevitable while governments have those powers and need the money. The solution, to me at least, is not corporate regulation as this increases the returns to such rent seeking, but to have the government constrained from doing so.

  32. Ikonoclast
    March 13th, 2008 at 23:30 | #32

    To simultaneously support democratic government and minimalist government is a patent nonsense. I can only assume therefore that anyone espousing such a position either does not truly support democratic government or is blind to the inherent contradiction of their position.

    If you have a democratically elected government and then constrain it to a minimalist governance position you are essentially saying that the voice of the democratic majority matters less then the rights of corporate capital. This can easily shown to be so because in a minimalist situation there would be no protection against monopoly or other abuses of financial power. Hence corporate capital would have effective rule of society.

    John Ralston Saul put this argument very effectively in “The Unconscious Civilization”.

  33. Salient Green
    March 14th, 2008 at 07:26 | #33

    James Haughton, thanks for the link to the clever little book, ‘The conservative nanny state’. I am finding it very illuminating and plan to send the link on to a few people, including politicians.

    What we need is a university course specifically for training CEO’s, with modules in ethics, climate change, and anything else that helps them to be good citizens. Use it to re-train most existing CEO’s and we will not have to be so damned suspicious of things like GM food.

  34. Tom N.
    March 14th, 2008 at 07:46 | #34


    Q said: “That doesn’t contradict the statement that markets can function well in the absence of perfect information. They can, but they may not.”

    That is true, but it is worth noting that perfectly informed markets need not function well either, given not just the standard market failures but also the prevalence of cognitive limitations.

    Moreover, results from behaviourial economics point to problems of information overload undermining consumer decision-making: too much information on minor details tends to shift consumers’ focus from more important matters, such as quality and price. Thus, for example, the recent PC report on Consumer Policy highlights research showing that requirements for finance brokers to disclose their commissions and relationships with lenders can lead some
    consumers to focus unduly on the costs of these commissions, rather than on the
    interest rate, which is much more important for the total costs of a financial product.

    This is another reason for being wary about introducing mandatory disclosure requirements for matters – such as the GM status of food – that are not central to many consumers’ wellbeing.

  35. March 14th, 2008 at 08:04 | #35


    There is no contradiction in believing that government should be minimal and democractic. None at all. There are two ways to look at this.

    Firstly one may believe that a minimal government is the best type of government and then espouse this view to voters. If the majority then voted for libertarian minimalism would you reject their decision as undemocratic? This is the approach most advocates of minimalist government operate on. They accept democracy as the political reality and work within that framework. The LDP took a platform of minimalist governement to the voters in 2007 and intends to do so again and again. There is no reason in my view for minimalist government to be removed from the democratic menu. Comparable parties such as ACT or Liberarianz do the same in New Zealand (all be it with slightly more success) and the Libertarian party does it in the USA. The major parties also run in Australia on a platform of minimalism in some areas of policy.

    Secondly one should consider the form and nature of democracies. No democracy operates purely on majority will. All modern democracies expect popular elected governments to submit at a minimum to the rule of law. Various democracies constrain their governments constitutionally in a variety of other ways. The Australian constitution insists on just compensation for property confiscated. The EU constitution (or treaty set) has a veto clause for each state when it comes to tax centralisation. The US bill or rights is intended to limit democratically elected governments.

    Democracy is at the end of the day a way to resolve power conflicts. It is not a fount of pure wisdom on how best to govern but a means to achieve an approximate form of government that considers the public good rather than merely championing sectional interests. The point of democracy should be to ensure everbody has a voice not to ensure that the majority may freely plunder the minority. If we actually ever achieved a state where the government cared only about the collective public good (ie perfect democracy) and was wise and intelligent then it stands to reason that we would have minimalist government. The government that governs least governs best.

  36. March 14th, 2008 at 08:35 | #36

    p.s. you inspired a feature article:-


  37. Ben
    March 14th, 2008 at 08:51 | #37

    John’s example of Monsanto is a great example for Free Markets and smaller government. Monsanto uses it’s lobbying ability to seek to stop regulation it doesn’t like and create legislation that would favor it.

    In a purely free market this type of rent seeking would not exist. The onus would be placed on the vendor of the product to ensure they are selling what the customer wants and the customer would not rely on the government to legislate basic minimum quality of product for them.

  38. James Haughton
    March 14th, 2008 at 09:21 | #38

    Andrew Reynolds,

    You asked for examples of prominent economists who used or believed in the “perfect information” assumption. I pointed out that Kenneth Arrow and the whole GE school used this as their major assumption. Now you are trying to redefine “classical economists” as “Austrian economists”. That’s quite a stretch. Most histories of economic thought define the classicals as those who used labour theories of value and the neo-classicals as those who used marginal utility theories of value. I have a certain amount of respect for Hayek, but he can’t be said to ever have been the dominant voice/school in economics in the way GE was.

    As an aside, let me point out an amusing rhetorical dodge one sees in a lot of neoclassicals, especially Robert Solow. When it’s pointed out that the Cambridge Capital Controversy and Sraffa generally showed that partial equilibrium models are self-contradictory, they say “well that’s all solved by General Equilibrium models”. When it’s pointed out that GE models have nothing to do with the real world, they say “but we can make a good approximation with partial equilibrium models”.

  39. Ernestine Gross
    March 14th, 2008 at 09:55 | #39

    #38 James Haughton, I can’t understand your writings in relation to “GE”, although I have come across similar statements in, of all places, books used in management education and in introductory economic history books.

    Would you please clarify

    a) what do you mean by a “GE school”
    b) what do you mean by “perfect information”
    c) are you saying the ‘GE school’ believes in ‘perfect information’ OR are you saying the ‘GE school’ uses ‘perfect information’

  40. James Haughton
    March 14th, 2008 at 10:57 | #40

    Sure. But I ain’t an economist, just someone who reads about it. So if you want to regard my criticisms with the same scorn as one does people who say “I’m not a climatologist, but I think Global Warming is wrong”, be my guest (the difference being I don’t believe economics is a science).

    a) GE: General Equilibrium theory: developed by neo-classicals in response to Sraffa & Robinson’s criticisms to account for shifting demand and supply terms. http://en.wikipedia.org/wiki/General_equilibrium
    It was presented as a mathematical model by Arrow, Debreau and McKenzie.

    b) The common “real world” interpretation of this model is that for a market equilibrium to be achieved, full futures markets for every possible commodity under every possible set of conditions have to exist. This is equivalent to having full knowledge of the future or perfect information availability. See George Akerlof’s essay. He won a pseudo-Nobel so presumably knows what he’s talking about.

    c) Therefore, the GE school assumes perfect information as part of its proof that market equilibria exist (ie that free markets “work”). Given that this school was put forward for a long time as the pinnacle of neo-classical economics, which in turn influenced economic policy in the real world, I think it is fair to say that they acted as if they believed in the availability of perfect information.

    This meant GE was a powerful ideological weapon, since once the assumption of perfect information was granted, it implied no necessity for product regulation, consumer warnings, etc, since the market would sort all that out.

  41. Ernestine Gross
    March 14th, 2008 at 11:56 | #41

    James Haughton,

    Thank you for your reply. There is nothing wrong in my mind with you as a self-declared ‘non-economist’ to write about what you think. On the contrary, since everybody is part of an economy everybody, in some sense, is participating in the conversation about the economic aspects of life. (I don’t care whether you think economics is a science or not.)

    However, I do object to statements, like yours in #38, which are written as if they are pronounced by someone knowledgeable about a part of the economic literature that, to the best of my knowledge, isn’t even taught in many undergraduate degrees. I would not take objections if you would have written something to the effect that it is your theory about what general equilibrium theory is about because this is what it turns out to be.


    a) Your interpretation is not even consistent with the wiki reference you have provided.

    b) You did not provide any evidence for your assertion about the ‘real world’ interpretation. Your ‘real world’ seems to consist of arm-chair theorists. (No, I am not saying Akerlof is an arm-chair theorist and it doesn’t help you to write that he has won a Nobel Prize – so have Arrow and Debreu. You’ll have to ask Akerlof whether he wants to be part of your ‘real world’.)

    c) does not follow from b) and it is not correct in any case. No, it is not fair to say that ‘they’ acted as if they believed in it. This is your assumption.

    As for the topic of this thread, labelling of goods is perfectly consistent with the description of ‘a commodity’ in general general equilibrium models.

  42. The Doctor
    March 14th, 2008 at 13:21 | #42

    Even if people have ‘perfect information’ they can and will make wrong decisions! Have a look games of chess.

    What is happening in those models mentioned is worse than just the assumption of perfect information – the models effectively assume that the ‘market’(whatever that is) will operate pluperfectly, and we know from the real world that they do not operate at that level.

  43. James Haughton
    March 14th, 2008 at 13:50 | #43

    If you, Ernestine, choose to interpret what someone on a website who you have never met or communicated with before says as evidence that they have high academic qualifications in a particular area, that’s your own silly fault. I’ve read a bit about it so I know something. I dare say not a lot. Your response sounds as if YOU consider yourself an authority on GE models. Do you enjoy feigning ignorance on webforums so you can attack people who try to answer your questions? If I was wrong and you knew it, why didn’t you just say so? For that matter, why didn’t you pick the bone directly with Prof Q (comment 23)?

    In answer to your specific points:

    a) To quote the wikipedia entry:
    “The Arrow-Debreu model of intertemporal equilibrium contains forward markets for all goods at all dates”.
    How is that inconsistent with what I wrote?

    b) “So the complete Arrow-Debreu model can be said to apply when goods are identified by when they are to be delivered, where they are to be delivered, and under what circumstances they are to be delivered, as well as their intrinsic nature. So there would be a complete set of prices for contracts such as “1 ton of Winter red wheat, delivered on 3rd of January in Minneapolis, if there is a hurricane in Florida during December”. A general equilibrium model with complete markets of this sort seems to be a long way from describing the workings of real economies…”
    This is what I take as the usual interpretation of the application of the abstract theory to the real world – as wiki also notes, the theory can be interpreted and applied to the real world in a number of ways.

    I can’t follow what you mean in your use of the terms real-world or non-real world. Akerlof explicitly says that GE theory implies perfect knowledge. Do you agree with him or not? If not, why not?

    c) is my INFERENCE, not my assumption. Why advance a theory if you don’t believe it, or at least don’t believe it’s a useful approximation to the truth?

  44. Ernestine Gross
    March 14th, 2008 at 14:26 | #44

    James Haughten,

    I was awarded a PhD for a contributon to GE theory. The examiners are authorities on this subject. I presented my model at a conference with Professor Debreu present. Does this satisfy your curiosity?

    I’ll ignore the rest of your rhetorical stuff except to say

    1) Professor Quiggin’s statement in #32 is not the same as yours.

    2) The term ‘GE school’ is something which does not belong to the body of literature known as general equilibrium theory.

    3) Your question: “Why advance a theory if you don’t believe it, or at least don’t believe it’s a useful approximation to the truth?” My answer: There are some people who have enough discipline of mind to persue questions without an a priori commitment to the answer and without an a priori commitment to the usefulness of the answer. However, these people require a theoretical result to be ‘true’ in the logic of mathematics. Some would argue that this is useful because it allows a distinction to be drawn between wishful thinking and pure ideology and theoretical knowledge. These same people tend not to ‘advance’ (in the sense of promote) a theory.

  45. James Haughton
    March 14th, 2008 at 15:05 | #45

    Leaving aside issues of ideology, truth and applicability for the moment, does General Equilibrium Theory (if you don’t want to call it a school, fine) require perfect knowledge or not? I may be irascible but I would like to know if I am mistaken on this point.

  46. Ernestine Gross
    March 14th, 2008 at 15:43 | #46

    No, post 1950s general equilibrium theory does not assume ‘perfect knowledge’ but some (not all) models (eg the Arrow-Debreu model) assume ‘complete information’(meaning each individual in the economy looks at the same ‘event tree’ which represents possible future states of nature, but it is not assumed that any one of the individuals knows for sure which event will happen but all actual events are assumed to be observable by everybody)

  47. March 14th, 2008 at 18:01 | #47

    btw — it’s not really thought by anybody that perfect (or complete, or even rational) information exists. Just that this is a good working assumption for how the market eventually works.

  48. Ernestine Gross
    March 14th, 2008 at 18:06 | #48

    John Humphreys, I would not agree with your second sentence.

  49. Ikonoclast
    March 14th, 2008 at 20:00 | #49

    Nice link Terje (at #36).

    I am always greatly amused when neoconservative libertarian capitalists decry the existence of society. Society does not exist they tell us; only individuals exist.

    These are the same ideologoues who tell us how sacred the family is. This is an extraordinary contradiction because the family after all is a social unit. Yet their duplicitous reasoning does not seem so extraordinary when we consider that the family is the vehicle of the inheritance of private wealth. Ahh now… methinks I understand.

  50. Tom N.
    March 14th, 2008 at 23:45 | #50

    And I am always greatly amused when someone, when intellectually exposed, responds with such a tranparently facile counter-attack, in this case conflating neoconservatives, libertarians and capitalists and then pretending that the fact that one of these groups venerates something – the family – that another of the groups gives no special status to means that the conflated group is philosophically inconsistent.

    I thought the key part of being an iconclast was the destruction of religious beliefs. Seems to me that, with your new creation of this new “neoconservative liberatarian capitalist” thingumy, you’ve just invented a whole new category of them!

  51. SJ
    March 14th, 2008 at 23:57 | #51

    Ernestine Says:

    #38 James Haughton, I can’t understand your writings in relation to “GE�, although I have come across similar statements in, of all places, books used in management education and in introductory economic history books.

    Ernestine, can I just say that I find your style of argument really really annoying?

    You refuse to answer questions about things like, e.g. simple interest, and you claim greater expertise or question the results of Nobel winners. Not just Akerlof. Remember Kahneman?

    You are in no place to criticise James Haughton.

  52. Ernestine Gross
    March 15th, 2008 at 06:24 | #52


    I find your style of argument also very annoying. My solution is that I try to avoid getting into a discussion with you. Given the assertions you make I can’t do this here. To set the record straight, the only Nobel prize winner I have criticised is Milton Friedman. The rest is all your interpretation. It would be helpful if you would distinguish between critising an argument and critising a person.

  53. Ikonoclast
    March 15th, 2008 at 13:09 | #53

    Re Tom at #50

    My use of the compound of neoconservative- libertarian-capitalist is not all a conflation of terms.

    The American Heritage dictionary gives the first meaning of “libertarian” as “One who advocates maximizing individual rights and minimizing the role of the state”.

    Thus “neoconservative-libertarian-capitalist” whilst an ugly compound term is perfectly logical.

    The same source gives “neocnservative” as “An intellectual and political movement in favor of political, economic, and social conservatism that arose in opposition to the perceived liberalism of the 1960s.”

    Tom, you are not confusing “liberalism” with “libertarianism” in your attempted rebuttal are you? Hoist on your own petard m8! :)

  54. Ikonoclast
    March 15th, 2008 at 13:19 | #54

    More generally, I might add that the neoconservatives are an egregiously illogical lot. They are anti-science and even against any sensible set up of a sustainable capitalist society. Witness their attacks on science including on climate change science. Witness their insane hubris as per the Project for the New American Century. Witness their complete lack of understanding of military strategy with complete fiasco of Iraq and Afghanistan.

    Witness their incompetence with respect to Bew Orleans reconstruction. Witness their dreadful treatment of returned injured soldiers; the ones the call “heroes” and then neglect in their flagrant hypocrisy.

    But enough… it would take 10,000 words to enumerate all the idiocy and inhumanity of the neocons.

  55. March 15th, 2008 at 14:12 | #55

    Does that mean that I can use “communist”, “socialist” and “social-democratic” as mutually interchangeable words?
    Neo-cons have about as much to do with libertarians as communists have to do with social-democrats. Occasionally co-operate where there is mutual benefit on the occasions when you can overcome the mutual antipathy.
    Get a life.

  56. March 15th, 2008 at 22:03 | #56

    Monsanto is so ugly it seems to have screwed the pooch for everyone in genetic engineering. It is one of those cases which proves that corporate good citizenship is essential to the reputation of the sector, which depends ultimately on public approval.

    CSIRO has done a lot of good work in the area. One paradigmatic project was the use of the BT gene to create cotton which manufactures its own insecticide, thus cutting down the horrendous use of insecticide, from which companies like Monsanto derived great benefit. They used the gene under license – from Monsanto.

  57. SJ
    March 15th, 2008 at 22:41 | #57

    Ernestine Says:


    I find your style of argument also very annoying. My solution is that I try to avoid getting into a discussion with you. Given the assertions you make I can’t do this here. To set the record straight, the only Nobel prize winner I have criticised is Milton Friedman. The rest is all your interpretation. It would be helpful if you would distinguish between critising an argument and critising a person.

    I’ve reviewed the evidence and I find that almost everything you assert is false. Prepare to be annoyed.

    It seems to me that:

    a) you’re a specialist in a particular area, just the same as most of the people who post here.

    b) you’re young, and defensive of themes within your speciality.

    c) you have opinions on other topics, just the same as most of the other people who post here, and you write about them often, e.g, the KPI thing.

    d) you can’t defend those opinions as well as the ones within your specialty, so you refuse to answer questions about them, and run away when questioned them.

    e)all of this is perfectly natural, and in some contexts, works quite well. Here, not so much.

  58. Tom N.
    March 15th, 2008 at 23:22 | #58

    Once again, Ikonoclast, your attempts to obfuscate and befuddle when intellectually exposed are pretty transparent, and incorrect assertions in #53 that I confused liberalism with Libertarianism cannot distract attention from that.

    The pertinent point is that, in response to a post about Libertarianism (#35 and #36), you (#49) attacked a “neoconservative-Libertarian-capitalist” strawman of your own creation, effectively implying that such creatures have inconsistent beliefs because they (or at least the neocon bits) venerate the family while at the same time they (or at least the Libertarian bits) do not venerate society, even though the same types of relationships apply in both.

    The problem you have is that Libertarianism does NOT venerate the family, so as a criticism of Libertarianism, your point that neocons do venerate the family is totally irrelevant.

    Moreover, the fact that you can quote a dictionary as to what the individual terms in your “ugly compound term” means does not strengthen the straw.

  59. March 16th, 2008 at 00:53 | #59

    On the other hand, the case illustrates once again that those who put their faith in big business to support market processes are bound to be disappointed.

    While at the same time, it proves that those who oppose government intervention at every turn are right, again.

    This entire case is a clear case of market success.

  60. Ernestine Gross
    March 21st, 2008 at 11:11 | #60

    SJ, you are entitled to your opinions; some of your perceptions are, if I may say, a little amusing.

  61. SJ
    March 21st, 2008 at 11:24 | #61

    I note that you ignored the comment for about a week, and spent the intervening time dropping hints that you might know something about KPIs.

    I find that amusing, too.

  62. SJ
    March 21st, 2008 at 17:48 | #62

    I’m prepared to give you the benefit of the doubt, Ernestine. Now that I’ve checked, I was wrong about the “you’re young” part, though you’re still much younger than me.

    I really don’t have any difference of opinion with you, we’d probably agree on 90% of things. I accept that you have greater qualifications than me. I have no PhD. I haven’t taught for at least ten years.

    But I’m still critical of your delivery. If someone asks you a question, just answer it. This elaborate dance you involve yourself in makes you look ridiculous.

  63. Ernestine Gross
    March 25th, 2008 at 10:43 | #63

    The topic of this thread is THE TRUTH WILL SET YOU FREE?

    Who are you, SJ?

    Please apply your own advice: “If someone asks you a question, just answer it”

  64. SJ
    March 25th, 2008 at 23:26 | #64

    Very clever, Ernestine. My real name is Fred Taylor.

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