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An Original DocumentEconomic Failure
The collapse of neo-classical economic theory


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Economic theory begins with two very bold and flawed assumptions.
1) That the information in the market is perfectly distributed.
2) That the economy is already running close to general equilibrium.

Neither of those assumptions are valid.
People close to government and people close to the decision making in companies are likely to have insider knowledge that will give them market advantage.  People close to power will be offered favourable "deals" which are not available to the general public.  Insider trading may be illegal, but it's a daily reality.

We know that markets do not have perfect information. Too often the information in the market is deliberately distorted by several potential players.  That is likely to distort the market in favour of the current power holders. 

Since liberalisation of economic markets in the 1980's, in the USA 85% of all economic benefit flowed to 10% of all households.  Similar results happened in other economies.  In the same period, bank profits were close to double the profitability of non-banking companies, once again demonstrating the inequality of influence. 

Given the obvious distortion of the market in favour of certain groups, it's very unlikely that the economy is running at anything close to it's optimal capacity. 

Paris Riots
Paris Riots