Arnold Kling

Sweetwater vs. Saltwater

Arnold Kling, Great Questions of Economics
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I explain the differences between the Sweetwater and Saltwater schools of economics.

The Sweetwater school views the economist as a prediction-making machine. As long as the economist's predictions are nontrivial and accurate, the underlying assumptions themselves do not need to be examined. By the same token, Sweetwater economists would argue that in order to show that irrational behavior and imperfect markets matter, you must use your theories to make nontrivial and accurate predictions.

It turns out that this philosophy leads to differences in policy positions between Sweetwater economists and Saltwater economists. Saltwater economists see flaws in economic assumptions as a rationale for government intervention, but Sweetwater economists are more skeptical.

Discussion Question. A Sweetwater economist would not look at Microsoft's market share as an indicator of monopoly. What sorts of predictions would a Sweetwater economist make about the software market, and how well are those predictions satisfied by actual behavior?

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