Several weeks ago the Southern Economics Association held its 78th annual meeting. At the close of the Presidential Address several hundred economists made their way to the escalators. There were two running upwards, but for some reason everyone was packing into the nearest one, the more distant of the two being six inches further left. In Austrian terminology the empty escalator represented an unexploited opportunity for gain. None of these mainstream economists were alert enough to recognize that they could get to where they were going faster by taking one step to the left.
A Neoclassical economist might explain this situation as a rational response to unavoidable costs. The switching costs of taking one step to the left could have been too great to bear. Perhaps there was a “first mover problem” in coordinating the formation of a whole new line. Or maybe imperfect capital markets rendered the financing of such a move impossible!
As is often the case the Austrian explanation makes the most sense. After a minute or so of trying to pack into one escalator somebody finally noticed that there was a second one only one step away. After one alert person stepped to the left others followed, and the second elevator filled up. Here we can see the importance of entrepreneurship. As Israel Kirzner has pointed out many times, some people are more alert to opportunities for gain than others. Less alert persons can remain in a state of ignorance, even regarding fairly simple adjustments in their actions. Entrepreneurs lead the way in adopting new means towards greater satisfactions of our ends. To put it simply, the failure of most of these economists to notice a simple and seemingly obvious opportunity suggests that Professor Kirzner is right in his assertion that relatively few people possess the characteristic of alertness.
The more notable entrepreneurial moves lead to major improvements in consumer well being, and such opportunities are typically difficult to discern. In the above example gain is so obvious and easily realized that one must wonder how such a highly educated crowd (PhD economists) did not all notice it immediately. Furthermore, we should ask why most of these very same people downplay the importance of entrepreneurial alertness, and instead teach a paradigm of economics where entrepreneurship plays no significant role.
Competition and Entrepreneurship by Israel Kirzner