This multiple failure led to despair and the re-examination of basic
precepts and tenets.
Consider this sample of outstanding issues:
Unlike other economic actors and agents, governments are accorded a
special status and receive special treatment in economic theory.
Government is alternately cast as a saint, seeking to selflessly
maximize social welfare - or as the villain, seeking to perpetuate and
increase its power ruthlessly, as per public choice theories.
Both views are caricatures of reality. Governments indeed seek to
perpetuate their clout and increase it - but they do so mostly in order
to redistribute income and rarely for self-enrichment.
Economics also failed until recently to account for the role of
innovation in growth and development. The discipline often ignored the
specific nature of knowledge industries (where returns increase rather
than diminish and network effects prevail). Thus, current economic
thinking is woefully inadequate to deal with information monopolies
(such as Microsoft), path dependence, and pervasive externalities.
Classic cost/benefit analyses fail to tackle very long term investment
horizons (i.e., periods). Their underlying assumption - the opportunity
cost of delayed consumption - fails when applied beyond the investor's
useful economic life expectancy.
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