Can someone explain Paul Romer’s quote “I am convinced that both markets and free trade are good, but the traditional answer that we give to students to explain why they are good, the one based on perfect competition and Pareto optimality*, is becoming untenable. Something much more interest.
In: Economics
Basically he is saying that he is convinced neoliberal capitalism is good, but that the reasons neoliberal economists have been using to justify it for the past century or so are becoming so obviously wrong that they are no longer tenable.
Those reasons being **perfect competition** (the situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers) and **Pareto optimality** (an economic state where resources cannot be reallocated to make one individual better off without making at least one individual worse off). In 2020 it’s abundantly clear that these theories do not reflect the reality of markets, and probably never have.
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