Coordination Problem

Observations of an Accidental Tourist: Price Theory in Application

|Peter Boettke|

Since late January I have been traveling almost weekly to present papers at colleges and universities or attend conferences where I am giving a talk.  This non-stop tour of the US will not come to an end until July.  I actually don't think I have ever traveled as much in such a short span of time in my career.

I love meeting with new people and also talking to older friends during these travels, but I do not like traveling in the least bit.  Don't like airports and certainly find all the hassles of traveling and security to be annoying.  But as I am traveling this winter/spring, I have become obsessed with an observation and doing some counting in my head to perform some rough and ready "test" of my hypothesis.

Before I go into my observation, allow me a short detour in time.  One of the most important courses I ever took was not even a class I took for credit.  I sat in on the lectures of Sheila Kirby of Rand, who was teaching Intermediate Microeconomics using Hirschleifer's texts.  She was an outstanding teacher, and for whatever reason she actually would stay after lectures and talk to this student who was not even registered in her class about economics and its power to explain human behavior.  And in addition to the text and lectures, I read two journal articles that had a huge impact on me and the way I thought about market theory and the price system.  The first was R. A. Radford's The Economic Organization of P.O.W. Camp, and the second was Fred Bell's The Pope and the Price of Fish.  The take away -- spontaneous order guided by relative price adjustments and profit and loss accounting.

So now back to my travels.  Most of my flights originate during the week, so I am traveling with businessmen (and business women but for this observation they don't enter the analysis).  Many of these men are making trips for meetings that day, so they are dressed for business as they travel.  The traditional footwear of businessmen in suits is the Oxford wing-tips.  Such shoes, however, require the shoe-laces to be tied.  Since Richard Reid's failed efforts at shoe-bombing, airline security measures have tightened and travelers are now required to take off their shoes before walking through the scanner.  This has raised the price of wearing shoes that have laces.  So I have noticed that businessmen have shifted out of the traditional wing-tip and moved to dress loafers.  My calculations actually have this at 3/4 businessmen are wearing shoes that don't require laces.  This has led me to think a Pope and the Price of Fish type study could be done on shoe wear and changes in TSA requirements after Richard Reid.  I hope an enterprising graduate student will pick this up and see if my observation has any validity --- you know what do I think, what do I know, what can I prove.

If it turns out that my observation is backed up by economic analysis, then I might start thinking about the potential effects of the failed underwear bomber on traveler behavior!

The Social Science of Hayek's The Sensory Order

Steven Horwitz

In my mail yesterday arrived volume 13 of Advances in Austrian Economics, entitled The Social Science of Hayek's The Sensory Order, edited by our good friend Bill Butos.  A glance at the table of contents indicates that this will be an indispensible volume for those interested in Hayek's cognitive theory and especially its relationship to his social science. 

It includes my paper on "The Sensory Order and Organizational Learning," in which I apply/analogize Hayek's theory of cognition and learning to how firms use market signals such as profit and loss to learn.  The volume also includes the (infamous?) D'Amico and Boettke paper attacking what they call "Neuro-Hayekianism" and responses by Roger Koppl and me to their criticisms of our work, as well as a rejoinder by Dan and Pete. 

It's not cheap, but your institution might have access to it through your library.  Roger Koppl and I are the current Series Editors for Advances and we are working with Emerald to see if we can get a discount for SDAE members.  We hope to be able to do so in the near future.  For now, get this volume if you can.

Trade, Civility and Fairness

|Peter Boettke|

A group of evolutionary anthropologists have produced a new study that argues that the human capacity to treat strangers with fairness, rather than hostility, is learned through the engagement in trading relations.  In other words, Hayek's discussion of Katallaxy and its twin root meanings in the Greek language -- (a) exchange, and (b) transforming a stranger into friendship -- gets additional support in the evolutionary anthropology literature.  This isn't the first study that explored this link, but it is another piece of evidence on the civilizing component of trade and commerce that is often overlooked in traditional economic models that focus on allocational efficiency exclusively.

HT: Karol Boudreaux.

Where There's a Will, There's a Way?

Steven Horwitz

That's the title of this week's column at the Freeman Online.  A snippet:

Recently I had cause to think about another aphorism that looks different when we shine some economics on it.  In the course of an online discussion about how to address the need for budget cuts on my campus, one member of the campus community urged us to find a way to do so without cutting the jobs of hourly or clerical staff.  Surely, he argued, there must be some way around this, perhaps by job-sharing or other strategies.  Eventually he said that if there is a will on the part of the faculty to save those jobs, there is a way.

And perhaps there is.  But perhaps there isn’t.  Taken literally, the expression says that if enough people want something to happen badly enough, it will happen.

The problem, of course, is that wishing doesn’t make it so.  And this is no less true in the social world than elsewhere.  In fact, it is probably more true there, and the consequences of thinking that wishing can make it so are much larger than they are in many other places.

Congratulations Dr Leo Krasnozhon

|Peter Boettke|

As Leo reports, he successfully defended his dissertation today, learned that he had been awarded a fellowship to continue his research on property rights at PERC this summer, and is getting ready to move to Texas to join the faculty of University of Texas at Arlington.

I can remember my first conversations about economics with Leo in Prague many years ago. Please join me in congratulating Leo, and wishing him well in all the new directions his life is going to be taking over the next few months (and I haven't even mentioned the most important one :)).

Two Recent Short Podcasts of Note: Selgin and Mokyr

~ Frederic Sautet ~

Listen to George Selgin talk about the Fed's dismal record (courtesy of the Mises Institute). George is simply one of the best economists on the subject of money and monetary systems. He is clear and concise. If I had to put four scholars together in the same faculty to teach the best graduate monetary theory courses possible, it would have to be George Selgin, Larry White, Steve Horwitz, and Roger W. Garrison.

 The other podcast is an interview of Joel Mokyr over at Vox. Mokyr talks about his latest book: The Enlightened Economy: An Economic History of Britain, 1700-1850. Mokyr gives his take on the complex question of the British take off in the late 18th century. Mokyr’s past work on the role of innovation and technology has always been very enlightening and I expect this book to be fascinating. (Read Tyler Cowen’s take on MR.) I have to say that I still have a soft spot for the late Sudha Shenoy’s theory of the Industrial Revolution. She offers a fascinating account of the period, although one that is not widely shared amongst economic historians.

Finally, I should add that an early draft of The Enlightened Economy was discussed at the Social Change Project Manuscript Workshop Series in June of 2008, which was organized by the Mercatus Center and Social Change Project director Claire Morgan. I have been a participant in two of these manuscript workshops and really enjoyed it.

Now That Explains A Lot

|Peter Boettke|

Tyler Cowen lists the books that have influenced him the most.  The list is quite illuminating for anyone who knows Tyler.  But Tyler what about Wicksteed --- 'we are all doing it, but none of know we are doing it' --- I was sure The Common-Sense of Political Economy  would have been high on your list?

Easterly vs Wolfers on Hayek's Influence

|Peter Boettke|

Bill Easterly straightens out Justin Wolfers on Hayek's influence and more importantly Hayek's ideas.

Wolfers would also benefit from considering this short note by David Skarbek on Hayek's influence on other Nobel Prize winners.

Entrepreneurship in Everything: Management Is Doing Things Right; Leadership is Doing the Right Thing

~ Frederic Sautet ~

In his famous book The 7 Habits of Highly Effective People, Stephen Covey attributes this quote to Peter Drucker and Warren Bennis (p. 101). I came across it the other day and was struck by the parallels that one can find between this statement and the way one can think of entrepreneurship in the Kirznerian approach. The quote is in a section of the book on the “two creations.” Everything we do, execute, and produce must first be thought through as an idea, Covey explains. Before a house is built, the idea of a house must exist in the mind of the builder.

This is the fundamental point of the theory of entrepreneurial discovery. Microeconomics is a closed-ended universe of optimization under constraints. By contrast, the entrepreneurial approach seeks an explanation of human action that includes novelty. Israel Kirzner showed how opening the microeconomic universe gave us a different, much richer, perspective on the way the market functions.

The statement “management is doing things right; leadership is doing the right thing” rests on this idea. Implicitly Drucker and Bennis argue that the leader must be an entrepreneur, i.e. a discoverer of new means-ends frameworks. Setting the vision — doing the right thing — is being an entrepreneur in the Kirznerian sense. Of course, one may say that leadership encompasses more than pure discovery; it also means convincing stakeholders that the vision is right and that everyone should buy into it. But at the bottom is the discovery of the idea(s) that sets the organization’s direction.

Management is different; it is closer to an optimization exercise — choosing the best option among all the known ways of doing things. Of course, in the “living economy” everyone is an entrepreneur; and managers can also exercise their entrepreneurial function. They can discover new ways to manage the daily operations of the organization, but at the end of the day, pure managerial activity is about doing known things well, rather than discovering new ways of doing things. This is perhaps why a good manager is often seen as someone who gets things done, whereas a good CEO is one who takes the organization forward where it hasn’t gone before.

Two Upcoming Public Talks

Steven Horwitz

The final leg of my 2009-10 North American Tour is upon us with two public lectures on deck.

The first will be Tuesday March 23rd from 930am til 1220pm at Western New England College in Springfield, MA where Sheldon Richman and I will be discussing Obama's first year in office (I'll take the macro, Sheldon health care) along with Gerald Friedman from U-Mass at Amherst.  Sheldon and I did this gig last year and it was much fun (the video of me is here) and the debate/discussion was productive and lively.  If you're in the area, come on down.

The second will be at American University in Washington, DC on Wednesday evening March 24th at 9pm at Ward I lecture hall.  I'll be giving my "Capitalism and the Family" talk to the student libertarian and free market groups there.  For those of you in the DC area, that's the same day as Bryan Caplan's healthcare debate at 5pm on the GMU campus in Fairfax.  I'm hoping to be at Bryan's debate and then head downtown.  If you're a free market economics geek, this is a doubleheader you do not want to miss!

Some Questions for my Faculty Colleagues on the Left

Steven Horwitz

I invite my left-leaning friends and colleagues who teach on college campuses to consider the following scenario:

Imagine that there is very strong agreement among the faculty on your campus that your curriculum needs an overhaul.  Pretty much everyone agrees that the status quo is highly problematic and that change is needed.  Imagine further that you’ve recently hired a new president and a new VPAA, both of whom agree that curricular change is needed and who came to the jobs with that as a top priority.  In addition, one key reason why the Board of Trustees appointed this president was because he promised to bring new honesty and transparency to the governance process and to end the arrogance of his predecessor.  The new president and VPAA get right to work trying to pass a new curriculum by asking your Curriculum Committee, which is an elected body comprised of faculty members, to draft a proposal. 

That committee comes out with a proposal approved by a bare majority of the committee members.  In fact, the only way they could obtain a majority vote for it was by including in the proposal a number of specific provisions that will benefit the departments of skeptical committee members.  So, for example, the English department will now get three new tenure-track lines, and History will get a one-course teaching load reduction for each of its faculty so that the faculty representing those departments would agree to support the proposal. 

Greg Mankiw on Choosing Where to Go to Graduate School

|Peter Boettke|

Greg Mankiw gives some excellent advice for those making the decision on where to attend graduate school for the PhD.

For students thinking about George Mason, the only factor I would add is that unlike other places, GMU has an unusual cluster of students each year that care passionately about specific sub-fields in economics (e.g., public choice and law and economics) or paradigmatic perspectives (e.g., Austrian economics and Experimental Economics), let alone the even larger cluster of students who would identify with classical liberal and libertarian ideas.  Attending the graduate program at GMU is like going to an IHS Liberty and Society seminar for 4 years in terms of the students who you will interact with on a daily basis.

On Reading Hayek: Rules and the General Welfare, or Why Mises I (discussed by Richard Ebeling) Might Have to Give Way to Mises II (too often dismissed as dogmatic)

|Peter Boettke|

In Volume 2 of Law, Legislation and Liberty Hayek argues that: "A more important point is that the rules which have been adopted because of their beneficial effects in the majority of cases will have these beneficial effects only if they are applied to all cases to which they refer, irrespective of whether it is known, or even true, that they will have a beneficial effect in the particular case." (p. 16)

Hayek goes on to explain that this principle applies not only to the structure of government, but to government in its policy making capacity.  To put this bluntly, the policy exceptions made for the expediency of the moment can undermine the effectiveness of the general rule.  The order produced by the general rule can be preserved "only if it is generally expected that those rules will be enforced in all cases, irrespective of the particular consequences some may foresee."

Is it possible that Mises the theorist post WWII was more Hayekian on the strict adherence to general and abstract rules, then Mises the policy wonk post WWI, and that rather than running away from Mises's insistence on strict policy lines that cannot be crossed, we should embrace them for Hayekian reasons?

On Reading Hayek: LL&L and the new statement of liberal principles of justice and political economy

|Peter Boettke|

My history with reading Hayek is somewhat checkered.  As a college student, I actually viewed Hayek as a sellout, who similar to John Stuart Mill distanced himself from the very intellectual tradition that he worked within.  What Mill did for classical liberalism in the 19th century, Hayek did to libertarianism in the 20th century.  My working copy (the one with my extensive notes in it) of The Road to Serfdom still has a broken binding from where I threw it against my dorm room wall for his "leaking" from what I considered the appropriate free market position.  Hayek was in many ways too subtle for me to fully understand what he was up to when I read him at that stage in my life (18-22 years of age).  I preferred reading Mises, Sennholz, and especially Rothbard.  In many ways this was because the way I read Murray Rothbard at that time, he did all the hard thinking for me and I just could agree to his conclusions.  This is how I judged all thinkers at the time --- do I agree with them on X, Y, or Z -- with very little critical attention paid to how they arrived at X, Y, or Z.  I was a Rothbardian because I agreed with Rothbardian conclusions that followed from the action axiom (economics), the non-aggression axiom (politics), and the compelling narrative that emerged when combining that framework to do policy analysis and/or address questions of history (revisionist history).

The Great Caplan-Boettke Debate

David L. Prychitko

On YouTube.  Video 1 of 13.