The wage of reason

July 2, 1999

Stephen Machin and Andrew Oswald ("Economic rent", THES, June 25) argue that academic economists need to be paid "far, far more". The main reason they give is that young economists are now going into the private sector rather than into universities. As a result, there will be "no British economists teaching in universities by 2009".

Machin and Oswald need look no further than their own discipline for the refutation of their arguments. First, economics has the valuable concept of deadweight loss. For example, subsidising jobs for the unemployed might seem to make sense. But most of the time, it is very expensive because many of the jobs would have been created without the subsidy. In the same way, if the problem is a shortage of young economists, it is wasteful to increase the salaries of many time-servers already in post.

Second, the great English political economist David Ricardo demonstrated the benefits of free trade almost 200 years ago. Why should we worry about a shortage of British economists when there is a world market in the profession? If we need economists for specific tasks, we can buy them in.

Machin and Oswald do not mention an important reason for the shortage of economists, namely that the number of students taking economics has dropped dramatically. Much of the content of the discipline is seen as irrelevant. But it is not a completely empty box, and Machin and Oswald ought to reflect on some of its more useful insights.

Paul Ormerod Chairman, Post-Orthodox Economics, London

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