Why Ridiculous Assumptions?

But why is this so? Why do so many intelligent people spend so much time making silly assumptions? It is interesting that economics has no way of answering this question. It is a non-question. Analytic economics has no way of analysing itself.

To answer the question, let's look again at the problem of pollution. If we are used to looking only at the costs of a factory in money terms, then it is obvious we won't look at the 'social' costs. Who does this benefit?

If the business firm running the factory paid for all the social costs (eg for cleaning up its sewerage), then it would clearly make smaller profits, than if it doesn't pay these costs. So if we assume no social costs, we are effectively increasing firms' profits.

Looking further afield, at development economics, a similar pattern emerges. Many third-world countries today complain they are "ripped-off" by the western world. Yet orthodox economics says no such thing is happening. There is no concept of "rip-off" in the free market system.

Again look at discrimination against Polynesians and women. This is abundantly evident whenever one looks around. Yet discrimination doesn't exist in academic economics. People get paid what they are worth, no more, no less. If Polynesians and women get paid less, it is because they are worth less.

In these cases, and an incredible number of others, what is economics doing? In assuming perfect competition we are in fact ignoring immense problems of pollution, development, racism and sexism. We are tacitly supporting further exploitation and injustice.

These problems can be studies by economics. But not by traditional economics. As Joan Robinson, Professor of Economics at Cambridge University, argues: faced with the problems of inequality and development, orthodox economists have crept off to hide in thickets of algebra.