9-9-09 - Economics 448 Class Notes 9/8/09 Hayek big firms...

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Economics 448 – Class Notes – 9/8/09 Hayek – big firms that want all the decision-making power placed at the top, are bad. The cost of getting information to the “main guy” at the top is high. man on the spot” CEO , president, director, etc at the top of the organizational hierarchy The man at the top is going to be somewhat ignorant of what is going on in the world o Hayek says this is okay most people are ignorant of the products that they are consuming Hayek explains that the price mechanism helps us in our ignorance THIS IS NOT VERY DIFFERENT THAN WHAT ADAM SMITH WAS SAYING like the Invisible Hand theorem We don’t need to know everything that caused the prices to rise or fall we react to the changes in price in the market The invisible hand theorem market power/forces will cause the price to be the appropriate price o Thus, you don’t have to have all the information all the information you need is already included in the market price o So price mechanism helps us when we are ignorant of the factors of production for the product in question Important historical Quotes: Lawrence Summers: Director of National Economic Council o Obama’s top political/economic aid “What’s the single most important thing to learn from an economics course today? What I tried to leave my students with is the view that the invisible hand is more powerful than the [un]hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That’s the consensus among economists. That’s the Hayek legacy.”
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9-9-09 - Economics 448 Class Notes 9/8/09 Hayek big firms...

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