I think 'coming out of the closet time' is getting near for some of us trained in the 'neo-classical tradition'. My last post on how we all tend imitate and emulate each other, and how this factor is central to understanding our choices and preferences would just be one more nail in the coffin for me. Of course the hard bit is what to replace it with. My new colleague over at India Economy Watch - Atanu Dey - has found another loose floorboard: the increasing returns property of ideas. My latest take: I find many of the theorems of this tradition absolutely useless in trying to understand what is happening in the global economy, but I have neither the time, nor the ability to do too much about it, so I leave what I really think as a kind of 'flexible grey area' while I'm waiting for something better to show up.
As an economist trained in the neo-classical tradition, I am constantly on the lookout for market failures. Externalities are a reliable source of market failures and when I come across a positive externality, I get a warm and fuzzy feeling. Consider a story that exhibits the benefits of positive externalities.
The story is about a farmer who consistently won the first prize for his fine crop of corn every year at the county contest. Peculiarly, after the contest he would give away the seeds of this prize-winning corn to the neighboring farmers. This puzzled some and someone finally asked why he shared his good fortune. He answered, "Well, growing corn in my field requires pollen from the neighboring fields. If they don't have good corn in their fields, I will never be able to grow good corn myself. So I distribute the good corn seeds."
The benefits of positive externalities (or the harm from negative externalities) lead to social benefits (or social costs) that eventually benefit (or cost) all. What goes around, comes around, as the saying goes. In Indian terms, it is all karma, neh?
Rajesh Jain recognized the positive externality of his Emergic Blog intuitively. He therefore puts his best ideas there. Each day that blog has around a thousand visitors. They all gain from his fine presentation. But eventually, in ways completely unforeseen, he reaps an even richer harvest of new ideas that develop through his interactions with other minds on the web.
Ideas matter. Ideas are primary. Ideas are the ultimate public good in that they are totally non-rival: my use of an idea does not diminish your capacity to use it as well. Ideas can pass from one human mind to another and set up a chain reaction that has the power to transform the world. Everything that you see around you -- the good, the bad, the ugly -- everything was just an idea in some mind. (Some Hindus claim that this universe is just an idea in the mind of God.)
How to harness the power of ideas for the social good is the challenge that we have to undertake.