IMO, this is the most important bit in the article, and it also seems to be the piece that everybody is overlooking:
So why are economists obsessed with competition as an ideal state? It is a relic of history. Economists copied their mathematics from the work of 19th-century physicists: They see individuals and businesses as interchangeable atoms, not as unique creators. Their theories describe an equilibrium state of perfect competition because that is what's easy to model, not because it represents the best of business.
Yes, exactly. Pretty much all classical / neo-classical economic thought is rooted in the idea of equilibrium, but a strong case can be made that economic systems are not equilibrium systems. Eric Beinocker covers this ground very thoroughly in The Origin of Wealth[1]. I would personally recommend this book to everyone interested in economics. Beinhocker and the other "complexity economists" present a model of economic activity as an evolutionary system with periods of punctuated equilibrium as opposed to a strict equilibrium system.
In business, equilibrium means stasis, and stasis means death. If your industry is in a competitive equilibrium, the death of your business won't matter to the world; some other undifferentiated competitor will always be ready to take your place.
Bingo. Yes, the "goal" is to achieve a "monopoly" but even if you do achieve that, you don't get to set still and just collect limitless money for perpetuity... because evolution will eventually deliver a competitor in one form or another.
"Their theories describe an equilibrium state of perfect competition because that is what's easy to model, not because it represents the best of business."
I've had this debate dozens of times and strangely enough I find myself siding with the economists on this one. Yes, the 'end state' of most economic theories is equilibrium; that doesn't mean that all of a sudden everything in economics is wrong. If your end state is equilibrium but you acknowledge that at any moment in time you're converging towards equilibrium, but also that at any moment in time your convergence function is different, then your theory might still hold. This is then the point where I argue that a system dynamics approach is the way to do that, but apart from that: I found the theory in the article flimsy and arguing a straw man. No economist in the literature today argues what Thiel apparently argues in the article (and book).
But probably that's just part of the spin to get people to buy the book.
That sounds like a reasonable argument, but it's not the reason economists side with the equilibrium theory.
They side with the equilibrium theory because if they didn't there wouldn't be an economics science to speak of (or at least, very smart people fear there wouldn't be). And because we don't want to lose the useful results (a cynic would say : or the many jobs in that field), ... we'll just believe that idea and ignore the many reasons to question it.
People don't realize just how much of science works like this. A lot of ancient physics theories are in wide use (e.g. newtonian mechanics), because of this. Architecture wouldn't exist if we had to run gravity simulations on buildings according to relativity.
Lots of theories don't really exist. In theory we can calculate strengths of materials. In practice we don't, because the theories used to do that get it wrong too often. How do we "know" strength of materials ? Well we measure lots of materials, and create a catalog.
In theory we should know why, say a vaccine, or a medication works. In practice we only have "after-the-fact" explanations. Yes we know what aspirin does, but we knew about aspirin long, long before we had any idea what it did. What I mean is that if medicine didn't have it's double blind studies following "let's just mix stuff together and see what works" methodology, we wouldn't have medicine.
Climate science has several proofs against it, which don't necessarily prove it wrong, of course, but when it comes right down to it : climate science takes bad measurements from 300-400 years and extrapolates from that what will happen over unseen timeframes with never-before-seen circumstances. Needless to say, statistically, this is not sound reasoning. Also: climate science simply does not use first principles. Why ? Because if you did that, there wouldn't be any climate science. It ignores the incorrect use of statistics ? Why ? Because if it didn't there wouldn't be a climate science field.
Even in the "pure" sciences this happens. Godel's treatment of logic is effectively ignored, to an extent. Given the incompleteness theory, don't you think, at an intuitive level, that logic just kind of has to be fundamentally wrong ? If we picked the right theories, after all, we did so purely by chance, and we've never really changed our minds since 2000 BC. Yet logic is presented as the be-all-end-all truth that supersedes all other truth (examine the history of that idea, and you'll soon conclude that this atttitude is a component of Christianity, or rather something from Greek culture that got incorporated into Christianity, spread with it, and the original belief in logic died out, but don't ever tell a mathematician that).
You can even point to historical situations where people did this, and they ... turned out to be catastrophically wrong. I guess the basic problem is a "local optimum". A given science gets to a point where it is no longer possible to improve it on a fundamental level without destroying the entire body of knowledge in that field, most of which is perfectly correct, or at least useful. So it is not done (take the relativity fight, and before that the black-body problem, take Godel, take ... Godel pretty much walked into a room filled with the core of mathematicians of the age, and told them not just that all of their theories to be presented there were wrong, but that the field itself was fundamentally unverifiable (just short of "wrong", think about it. It may be right, but you can never verify it. What are the chances you've just randomly picked the correct theory ?). Needless to say, this resulted in exactly the reception you'd expect them to give someone like that).
So why are economists obsessed with competition as an ideal state? It is a relic of history. Economists copied their mathematics from the work of 19th-century physicists: They see individuals and businesses as interchangeable atoms, not as unique creators. Their theories describe an equilibrium state of perfect competition because that is what's easy to model, not because it represents the best of business.
Yes, exactly. Pretty much all classical / neo-classical economic thought is rooted in the idea of equilibrium, but a strong case can be made that economic systems are not equilibrium systems. Eric Beinocker covers this ground very thoroughly in The Origin of Wealth[1]. I would personally recommend this book to everyone interested in economics. Beinhocker and the other "complexity economists" present a model of economic activity as an evolutionary system with periods of punctuated equilibrium as opposed to a strict equilibrium system.
[1]: http://www.amazon.com/The-Origin-Wealth-Remaking-Economics/d...
In business, equilibrium means stasis, and stasis means death. If your industry is in a competitive equilibrium, the death of your business won't matter to the world; some other undifferentiated competitor will always be ready to take your place.
Bingo. Yes, the "goal" is to achieve a "monopoly" but even if you do achieve that, you don't get to set still and just collect limitless money for perpetuity... because evolution will eventually deliver a competitor in one form or another.