The Coase Theorem

Ronald Coase, developer of the Coase Theorem (although Coase claimed that the Theorem was not his),  founder of the field of law and economics and Nobel Prize recipient, died a couple of days ago at the age of 102.  He worked right up till the end.  Folks who know a lot about economics and business seem to think highly of the dude so THC did some research in order to prepare a post to inform and enlighten its readership.  Unfortunately, THC did not understand most of what he read, basically a lot of stuff about externalities and transaction costs, so he bagged that idea.

If you'd like to make your own attempt to understand Coase, THC suggests you start with The Man Who Resisted Blackboard Economics.

However, as best THC can understand it this academic interchange seems to best capture the essence of Coase's thought (via Maggie's Farm).
In the course of his research, THC did run across a couple of interesting observations by Coase.  The first via Jonah Goldberg at NRO is Coase's speculation on why ever bigger governments are failing:

“an important reason may be that government at the present time is so large that it has reached the stage of negative marginal productivity, which means that any additional function it takes on will probably result in more harm than good…. If a federal program were established to give financial assistance to Boy Scouts to enable them to help old ladies cross busy intersections, we could be sure that not all the money would go to Boy Scouts, that some of those they helped would be neither old nor ladies, that part of the program would be devoted to preventing old ladies from crossing busy intersections, and that many of them would be killed because they would now cross at places where, unsupervised, they were at least permitted to cross.”

The second is a criticism of Milton Friedman (a figure otherwise mostly admired by Coase):

A gentle man, Coase is also quite willing to take on some of the giants of economics when he disagrees with them. In one essay, "How Should Economists Choose?," Coase criticizes a famous 1953 article on methodology by Milton Friedman. Friedman had argued that the correctness of one's assumptions is unimportant and that all that matters for an economic theory is that it be capable of accurate predictions. Coase responds with a devastating counterexample.

"We could have predicted," writes Coase, "over the last few years what the American government's policies on oil and natural gas would be if we had assumed that the aim of the American government was to increase the power and income of the OPEC countries and to reduce the standard of living in the United States. But I am sure that we would prefer a theory that explains why the American government, which presumably did not want to bring about these results, was led to adopt policies which harmed American interests. Testable predictions are not all that matters. And realism in our assumptions is needed if our theories are ever to help us understand why the system works the way it does. Realism in assumptions forces us to analyze the world that exists, not some imaginary world that does not."