Former Chairman of the Executive Yuan Council for Economic Planning and Development, and Professor at National Taiwan University’s Department of Economics, Chen Bozhi, published an insightful article in the May 5, 2004, issue of the bimonthly “Economic Outlook” released by the Chung-Hua Institute for Economic Research. In his piece titled “Professor Lester C. Thurow’s Concept of Knowledge Economy and its Application in Our Country,” Chen emphasized the value of applying economic analysis in a more accessible and practical manner, rather than solely focusing on rigorous academic analysis. He critiqued the approach that prioritizes strict logical reasoning over the real-world applicability of assumptions, highlighting the importance of practical and popular analysis. This observation sheds light on the common issue of failing to differentiate between theory and reality in society.
On this matter, the concept of “blackboard economics” introduced by Nobel laureate R. H. Coase in 1991 serves as a clever analogy. Coase emphasized that the diagrams and models presented in textbooks or on blackboards are highly simplified representations meant to enhance reasoning and logical thinking, rather than directly applying them to real-life situations. Coase’s discussion on the implementation of taxation systems showcases the disparity between theoretical calculations and practical considerations, underlining how often policy decisions are based on theoretical models that may not align with real-world complexities. Despite the academic appeal of precise mathematical solutions, the disconnect between theory and practice remains a prevalent challenge in various fields, including economics.
Recognizing the subjective nature of individuals as distinct entities with unique values and thought processes, it becomes evident that standardized behaviors or mechanized approaches cannot adequately capture the complexities of human decision-making. The theoretical equilibrium often discussed in economic studies may not accurately reflect the dynamic and ever-changing nature of economic systems. Lester C. Thurow’s emphasis on the significance of imbalance states as sources of growth and opportunity challenges the notion of a stagnant equilibrium, highlighting the need to consider real-life societal dynamics beyond idealized models. While the theoretical concept of equilibrium may hold value in academic settings, it may not always translate seamlessly to practical applications.
Delving into the notion of market equilibrium within the framework of “blackboard economics,” the idea of reaching an optimal state where all market participants achieve their best outcomes underscores the role of price mechanisms in guiding economic activities. However, misconceptions and oversimplifications in teaching materials often lead to misinterpretations among learners and educators. The pursuit of an ideal equilibrium state may represent an unattainable perfection existing in a realm devoid of transaction costs, resembling a utopian reality akin to a “peach blossom garden” accessible solely in theory.
While approaching this ideal remains a challenge within the realm of human limitations, striving towards it by optimizing individual resources can lead to incremental progress. The dynamic and ever-evolving nature of human behaviors and resource allocations underscores the inherent imbalance in real-world scenarios, where competitive factors and transaction costs introduce complexities that deviate from the theoretical perfection often discussed in academic settings.
In conclusion, Chen Bozhi’s analysis and reflections serve as a reminder of the nuanced interplay between economic theory and practical realities, urging scholars, educators, and policymakers to bridge the gap between idealized concepts and on-the-ground complexities to foster more realistic and effective solutions for our dynamic societies.