The Austrian Economists

What a Wise Mother Would Wish Her Children to Do For a Living if ObamaCare Passes

Steven Horwitz

No, not plastics.

It used to be that the stereotypical mother wanted her children to become doctors.  If ObamaCare passes, she should want them to become medical lobbyists instead.  If this monstrosity goes through, the lobbyists and rent-seekers will have decades of highly-paid employment in front of them.  Plus, lobbyists can't be sued for malpractice.

I continue to be amazed at my friends on the left who think this bill is some sort of victory for the little guy.  This will be a feast of lobbying and rent-seeking as it will be tinkered with for years if it passes.  Who wins at that game?  Not you and me, but Big Insurance, Big Pharma, and Big Corporations in general, who can absorb the costs and engage in the lobbying.  It will kill small businesses and it will impoverish and worsen the medical care of the middle class, as well as the poor.

For all the talk on the left of being opposed to corporate power, they just don't seem to get that expanding the state's role is exactly what gives corporations REAL power through lobbying, rent-seeking and the all the rest. 

And You Thought Central Planning was Dead, Medical Policy Version

Steven Horwitz

Driving through the very leftist enclave of Ithaca, NY earlier today, I spotted the card this guy is carrying as a lawn sign.

One Nation, One Plan?  Really?  That about sums up the hubris of our new medical central planners doesn't it?  Everyone gets the same deal.  No way to customize, no way to make trade-offs, no way to innovate.  We know what's right for everyone and they're going to get it good and hard.  I, for one, welcome our new Medical Overlords.

The plan passed by the House yesterday may not be single payer, but it starts the ball rolling and I'm willing to bet that's about where we end up. Who says we don't need the lessons of the calculation debate even today?

Attention DC Libertarians

Steven Horwitz

All you DC area libertarians might wish to know I'm doing a public talk at American University on Tuesday night the 10th at 830pm.  The talk is in room Ward 1 on the AU campus.  I'll be speaking on the Great Recession of 2008.  I even have a new joke or two.  Come on down and be a part of the Fall 2009 Liberty Tour of the South!

20 Years Ago Tomorrow

|Peter Boettke|

November 9th 1989 --- forgive me if I still get choked up about it 20 years later -- is a critical date in modern history whose significance should never be forgotten.  Those of us who believe strongly in the freedom of the individual and in the power of voluntary civil associations (including the profit motive of the market) to resolve social dilemmas instead of relying on the coercive power of the state have lost much of the ground we gained in the 1980s and 1990s during the time since 9/11, and especially this past year. But we still can rejoice in this shinning example of the victory of the individual over the collective.  Freedom was celebrated that day by people who were oppressed by their government for far too long.

Let's remember the sheer joy of that day, and the celebration of life evident in the faces of the young (and old) as the tore down the wall figuratively and literally and reclaimed their basic human freedoms.  And let us also remember the intellectual arguments from our discipline of economics and political economy that so thoroughly demonstrated that tyranny fails to deliver the goods, while freedom actually works.  Even us cool-headed academics can get passionate about the fact that there is only one economic system that simultaneously delivers individual autonomy, generalized prosperity, and peaceful cooperation among diverse groups.  Capitalism is not just ruthlessly efficient, it is civilizing -- doux commerce thesis must be championed by economists no less than the efficiency properties of a private property order and freedom of exchange.  And political capitalism is NOT capitalism, but instead statism that both uses, and is used by, an alliance between business and government to profit some at the expense of others.

Anyway, Richard Ebeling has a nice retrospective on the 20th anniversary that is highly recommended.

Bottom-up versus Top-down Macro

|Peter Boettke|

Greg Ransom linked to his discussion at Taking Hayek Seriously of this new paper in our comments, but the idea behind the paper might be too important to be left to the comments.

What do you think of the claim that rational expectations macroeconomics was the intellectual descendants of the market socialist models of the 1930s?  Not in terms of policy design, but in terms of way of conceiving of the problem and of the way that economics should be done.

Is This an Example of Economic Insight from a Tweet?

|Peter Boettke|

The insightful and always intellectual curious and amazingly energetic Anthony Evans provides this link from FT.com.

Paul Krugman and Scott Sumner -- who is Nominally Misguided or Speaking Nominal Nonsense?

|Peter Boettke|

Paul Krugman provides his take on the Beckworth graph showing the collapse of nominal spending and relates it to his 1998 work on Japan. The upshot, monetary policy will not produce the desired effect in our current situation.  Scott Sumner responds and continues to push his position that monetary policy has been too restrictive.

I have discussed this issue with Steve and Larry and I keep getting hung up on this idea that monetary policy has been too restrictive.  I get the point about if V collapses faster than money supply is expanded, you get Sumner's position.  On the other hand, I don't get it at a very basic level.  But when I look at what government has been doing since August 2008, I follow Hart and Zingales warning that:

Our desire for a principled approach to this crisis does not arise from an academic need for intellectual coherence. Without principles, policy makers inevitably make mistakes and succumb to lobbying pressure. This is what happened with the Bush administration. The Obama administration can do better.

It turns out that the Obama administration just continued the Bush administration policies in earnest.  There has been NO change in the policy approach.  A point I think that must be stressed to counter the rhetoric of 'hope and change' and decisive break from the failed policies of the past, etc.

And I would like to argue that the failure to follow principles leading to mistakes and interest group politics is as true for monetary policy as it is for fiscal policy.  In fact, fiscal irresponsibility leads to monetary irresponsibility to pay for it (Adam Smith talked about the 'juggling tricks' government must perform as a result of public debt, see WoN, Bk V, ch 3, p 468). And the consequence is inflation and the destruction of the social bonds of trust that sound monetary policy is supposed to provide (see S. Herbert Frankel's Two Philosophies of Money for an excellent discussion of this point). In short, when I read either Krugman or Sumner all I see is the endorsement of the 'juggling tricks' without any recognition of either the complexity of the 'trick' being attempted, or the consequences even if the 'trick' is pulled off.  (Again a reading of the passages from Adam Smith and his statement that the 'juggling trick' is "so easily seen through, and at the same time so extremely pernicious" is well worth it).  

Why am I such a stuck in the mud old-fashioned economist when it comes to public finance and monetary order?  

I guess it relates to what I learned from Dr. Sennholz as an undergraduate student at Grove City College.  An education for which I am thankful for everyday.

On The Lighter Side: The Prychitko Stimulus Plan

David L. Prychitko

Posted at The Economic Way of Thinking blog.

Curing the Patient with More Poison?

Steven Horwitz

The unemployment rate jumps to 10.2% for October.

Yesterday, Congress extends unemployment benefits.

My intro students (thanks to Pete and Dave's excellent textbook exposition) understand that supply curves slope up due the opportunity cost associated with alternative uses of the resource in question.  The higher the opportunity cost of using the resource in the current way, the less of it will be supplied.  Labor too.  Apparently Congress does not have the intelligence of college first-years.  Or does and doesn't care.

Anyone want to bet against the unemployment rate continuing to stay high? 

For your enjoyment, I reprint my favorite graphical depiction of the failures of Keynesian thinking in the current recession.  You can envision the October rate being added.

 

Some Wisdom From Mr. Buchanan Late at Night

|Peter Boettke|

James Buchanan was my teacher.  I learned much from him in and out of the classroom during my student days.  But I have learned far more from him in the years since.  I turn to his works constantly for not only insight on how to tackle problems in economics and political economy, but also on the nature of our task as economists, political economists, and social philosophers.

For the past week -- ever since I read about Soros's project and $50 million investment in the future of economic thinking -- I have been obsessed with Buchanan's essay "Economics as  Public Science" and thinking through what I consider the implications for our role as educators and as researchers.

In that essay, Buchanan argues that our primary justification for existence as discipline is the pedagogical one of communicating the basic principles of the discipline of economics to the public (students) so that they can in turn become informed participants in the democratic process. 

In an earlier essay "General Implications of Subjectivism", Buchanan argues that 'Austrian economists' "seem, somehow to be more successful in conveying the central principles of economics to students than alternative schools, enclaves, or approaches." Buchanan argues that the are two important points to stress. First, the most important social role of the economist is to be a teacher of the principles of the spontaneous order of the market economy.  We must be teachers, not social engineers.  Second, we must resist the maximization paradigm and instead emphasize the spontaneous coordination the market economy achieves.  We study exchange, not allocation and optimization subject to constraints.  Economics as applied mathematics isn't capable of serving its social role.

Buchanan actually goes much further and relates his conversation to science, and points out that indeed the principle of spontaneous order is a scientific principle.  But economics is a science different from the natural sciences.  To practice the science of economics as Buchanan conceives of it, we must "stay within the exchange paradigm" otherwise "we lose the legitimate scientific principle and, instead, launch off into the scientistic implications that emerge directly from the maximization paradigm. Economists find themselves measuring social costs and social benefits, along with a little of everything else."  This isn't economic science for the simple reason that exercises in optimality are devoid of economic content.

 

Learn and Remember This Name --- Will Luther

|Peter Boettke|

One of the great joys of teaching at GMU is the constant flow of interesting students that walk through our halls.  Some of these graduates have moved on to teach at U Conn, UVA, U of Penn, Carnegie Mellon, UC Santa Cruz, Suffolk, WVU, U of Chicago, and of course right here at GMU. Others are teaching overseas and still more are teaching at colleges and state universities -- many of these individuals are starting their own research and educational centers at their home institution.  And, of course, many do not go into academia, but instead head into a variety of occupations from "think-tanks" to foundations to the private sector.  I am always amazed at the creativity and energy of GMU students --- they love economics as a discipline, and they love the art of doing economics and political economy.

This student culture is something that David Colander and Arjo Klamer recognized when they visited GMU while they were doing their study The Making of an Economist back in the 1980s, and it is something that visitors repeatedly stress when they meet our students even to this day.  Our students stand out for their enthusiasm for the economic way of thinking, and for their interdisciplinary interests.

One of those students is Will Luther, who is currently my research assistant.  Will went to undergraduate school at Capital University where he studied with Bob Lawson.  Since coming to GMU, Will has had an outstanding student career and he has also proven to be a great TA, an insightful blogger, and valued research collaborator and co-author.

Last weekend, Will attended the Austrian Scholars Conference and presented his work dealing with the money supply in the 1920s and the Great Depression.  For this work Will was awarded with one of the prizes.

Congratulations Will.

Pre-Order Richard Wagner's Mind, Society and Human Action

|Peter Boettke|

Richard Wagner's new book reflecting his effort at reconstruction of the main ideas of neo-Mengerian economics and its implications for contemporary social science will be published in early 2010.  Wagner's last book Fiscal Sociology and the Theory of Public Finance (Edward Elgar, 2007) represented a major contribution to public choice and political economy.  Mind, Society and Human similarly represents a major contribution to contemporary Austrian economics.  It is this joint appreciation for these two strands of economic liberalism that has always been one (among many) of Wagner's great strengths as an economic thinker (see his essay from the 1980s on "booms, busts, and political business cycles", or his wonderful book To Promote the General Welfare from 1990s).

The book summary from the publisher states:

Economics originated as a branch of the humane studies that was concerned with trying to understand how some societies flourish while others stagnate, and also how once-flourishing societies could come to stagnate. Over the major part of the 20th century, however, economists mostly turned away from these human and societal concerns by importing mechanistic ideas of 19th century physics.  This book seeks to show how the original human and social focus can be renewed.

The many particular topics the book examines can be traced to two central ideas. Firstly, that economic theory, like physics, requires two distinct theoretical frameworks. One treats qualities that are invariant across time and place; this is the domain of equilibrium theory. The other treats the internal generation of change in societies through entrepreneurial action that continually transforms the ecology of enterprises that constitutes a society. Secondly, economic theory is treated as a genuine social science and not a science of rationality writ large. The book also explores ways in which life in society is understood differently once economics is treated as a social science.

The book will be useful to professional audiences who work with economic theory and who find that much of the hyper-formality that comprises economic theory these days fails to make reasonable contact with reality. It will also be of interest to sociologists, political scientists, and researchers in law, public policy, Austrian economics, evolutionary economics, institutional economics and political economy.

Another New Gig

Steven Horwitz

The fine folks at FEE and The Freeman (thank you Sheldon...) offered me a regular online column as part of their attempt to enhance the magazine's online presence.  I have accepted that offer. The first of those columns appears here today.  For now, it's bi-weekly and it may eventually go weekly if I think I can manage it.

Selgin on Steil and Hinds

Steven Horwitz

George Selgin has a review of a new book Money, Markets, and Sovereignty up at the EH.net website.  It's a nice overview of some important issues surrounding money and nationalism.

Development Links

|Chris Coyne|

1. Claudia Williamson on P.T. Bauer as "development prophet."

2. Julian Morris on why we should blame famine, not climate change or inadequate aid, but on trade restrictions.  Here is an excellent comment on Julian's article.

3. The White Man's Burdern Documentary Trailer.