----- Original Message -----
From: "paul phillips" <[EMAIL PROTECTED]>
The whole concept of fundamental uncertainty, which is central to
Keynes' analysis and to institutional analysis, is that there are
fundamental irregularities that in Knightian terms embody 'non-insurable
risk' -- that is there is no way to statistically anticipate or for the
market to provide for such risk. This means, of course, that no
insurance scheme or futures market can protect against such
fluctuations. Keynes argues that society protects itself from such
fundamental uncertainty by developing 'habitiual modes of behaviour'
(i.e. institutions) that protect society from such fundamental
uncertainty. This is the basic theoretical underpinning of
institutional economics as developed by Veblen, Commons, etc. and is
central to Keynes' analysis as, I would argue, to Marx, Schumpeter and
to many of the Austrians generally. The basis of these institutions is
not 'rational expectations' because, by the very definition of
fundamental uncertainty, there can not be rational (or even irrational)
expectations since these phenomena are 'fundamentally uncertain'. But
that does not mean that we can not construct institutions that can
protect us from such uncertainty, providing, of course, that these
institutions are protected from the market place. Just to give one,
simple, example. Almost every modern state provides for the declaration
of disaster and the provision of public relief in the case of a natural
disaster (Hurricane, earthquake, flood, terrorist attack or epidemic).
With global warming and the increasing unpredictability of such
weather, insurance companies are unable/unwilling to insure against such
happenings and the burden has shifted to the state as 'institutional
insurer of last resort'.
The problem with neoclassical economics is that it can not deal
with these kinds of issues. A current case is the flue vaccine shortage
in the United States due to 'fundamental uncertainty' in the market
supply of clean/safe vaccine. There is no such problem in Canada
because the state, as an institution, has provided for (an over) supply
of safe vaccine. This is not a market response, but an institutional
response predicated on the belief that the cost of market failure was
too great for Canadian society to accept. How would 'rational
expectations' respond? As we all know, they can not. And this is the
very Achilles heel of neoclassical economics.
======================
Quite, but it is also the Achilles heel of *any* institutional matrix we
arrange to circumscribe/control uncertainty/indeterminacy/risk.
David Moss has just written a book on this issue, "When All Else Fails:
Government As the Ultimate Risk Manager." There's also the work of Ulrich
Beck and others to consider.
We have no evidence that non-market forms of
creating/allocating/distributing risk will achieve substantivally less
harmful outcomes than markets, do we? This is the problem we face with
market fundamentalists, no?
Do we even have a class of algorithms that facilitate our ability to
determine when the quest to reduce/eliminate certain forms of
socio-ecological risk creates even more risk/uncertainty?
The politcal ecology of risk/uncertainty will be with us for a *very* long
time........
Ian
