Here is a video from 1999 of Mario Rizzo discussing the state and civil society. As we grapple with questions of scale and scope of government in the 21st century, the insights in Rizzo's talk are critical for us to consider in depth.
I taught at NYU from 1990-1998 --- the moment Mario called me to tell me I would be getting the job at NYU may very well be the greatest moment of sheer joy I have experienced in my academic history. And working alongside of Mario and Israel Kirzner was a dream come true for me. Mario was an outstanding colleague for a junior faculty member and his encouragement and critical comments on my papers and book projects as well as teaching advice during that period helped me tremendously, and left a lasting imprint on me.
Before I can experience Spring Break 2014, I will be heading off to Charleston, SC for the Public Choice Society annual meetings. I return to NoVA on Sunday and will being Spring Break -- hopefully all the snow will melt while I am in SC. I have a backlog of writing assignments and readings associated with those that must be completed during this time. But I also plan to do some reading about the economics profession during my trip and on the break.
First, I recently picked up Secrets of Economic Editors to read about the various trials and tribulations of some of the top journal editors in our discipline.
Second, I just ordered via Amazon Getting a PhD in Economics -- it is supposedly a witty and honest look at the entire process from admission to getting a quality job written under a pseudonym to hide the identity of the academic economist who wrote it. I am not in general a fan of pseudonymous publishing, but I will read this quickly to see what folks are thinking. Of course, we already have a decent basically common-sensical guide in short form that is pretty recent.
Joe Salerno publically called me out to explain my position on how a scientific/scholarly discipline advances and the role that private funding plays. He also asks me to contemplate a counter-factual of my own career if there was no private funding available.
In reply, I will stay away from emphasizing the "strategic value" to young aspiring economist to acting 'as if' there is no discriminatory barriers to entry even if there are, and the personal importance of never assuming the status of victim, but always taking full ownership for your failures and always attributing your success to the helping hand of others. I will leave the elaboration of those bits of coaching to the graduate students I work with. But in the interest of trying to respond to Joe's very pointed question I will stick to the institutional level of analysis.
My vision of science/scholarship is shaped by my reading of Michael Polanyi, especially his essay "The Republic of Science" as well as his books, Personal Knowledge, Science, Faith and Society, and The Study of Man. I was introduced to Polanyi as a college freshman (2nd time around) by Reed Davis, who taught my freshman seminar in Religion and Philosophy at Grove City College. I was completely taken by the idea of "presuppositionalism" and how we both find ways to discipline and utilize this 'fact' of systematic thought. To my great surprise, Don Lavoie was deeply influenced by Michael Polanyi as well, so my early interests in philosophy of science were cultivated throughout graduate school by my PhD thesis advisor. Polanyi was, of course, also well known to Hayek and also to Knight and Buchanan. So the discussions in graduate school took on a new and deeper significance.
Science is not about the scientific method per se, but instead the discipline a community of learners puts on themselves in the quest for objective truth. Science consists of a contestation of ideas, and contributions are judged by (1) plausibility, (2) intrinsic interest to the community of scholars/scientists, and (3) originality. If you look at these, then immediately you will see that science/scholarship has both conservative and revolutionary forces playing against each other in the process of its gropping after truth. We have creativity within discipline -- the essential tension that constitutes the scientific/scholarly process.
Polanyi's move into philosophy of science was born in his opposition to authoritarian take over of science by totalitarian governments in the first half of the 20th century. A gifted scientist, he saw too many of his fellow scientists in East and Central Europe and the Soviet Union be squashed by these repressive regimes. But Polanyi was also equally concerned with skeptics who questioned the quest for truth. Both authoritarianism and extreme skepticism were enemies of science/scholarship and as such enemies of truth.
We do not operate in an ideal scientific/scholarly setting since WWII in the field of economics. Joe is right to point out the influence that governments have exerted over the shape and purpose of the discipline of economics since that time. If we go back in history, you can always find similar examples of distortions, but the prevalance I think one could safely say was not there. My colleague Larry White has written a very strong paper on the influence of the Federal Reserve System on monetary research in economics. I wrote a similar paper with Susan Anderson addressing the topic of development economics. Some of the best work along these lines, I would suggest, is by Robert Leonard and his examination of how the military shaped the development of post WWII theoretical economics.
The state is, as Roger Koppl would say, a "big player" in science/scholarship and of course can distort and often derail the quest for truth among the community of learners. In my book, Living Economics, I make a distinction between "mainline" and "mainstream" economics, and there should be little doubt that I am a champion of what I call "mainline" economics. I argue that "mainstream" is a term that really only has a sociological descriptive content and not doctrinal content. There are times when "mainline" economics has been "mainstream", and there are (as has been the case during the period since WWII) when "mainline" economics is out of the "mainstream". It is precisely at those moments, when bold and creative acts of scientific entrepreneurship are required to get the quest for truth back on track.
So scientific contributions are to be judged against plausibility, intrisic interest, and originality, but scientific careers require Positions, Funding and Ideas. So if one is committed to working within the intellectual framework of "mainline" economics during a time when it is out of sync with the "mainstream", the task of getting the ideas a hearing depends critically on securing positions within the scientific/scholarly communitiy of learners and obtaining funding to engage in research that challenges the existing status quo. A great recent research project on the difficulties faced by bold and original scholars of the "mainline" of economics in the 1950s and 1960s is the work of David Levy and Sandra Peart on controversy surrounding the Thomas Jefferson Center for Studies in Political Economy at the University of Virginia and the Ford Foundation. The material they have uncovered in the archives is so revealing and illuminating that it is must reading for any student of modern political economy.
Battles over positions and funding will have signficant impact on the ability of ideas to make headway in the competitive game of science/scholarship. But saying that is just to recognize a reality of the business we are in, and has no status to greater insight than saying that Major League pitchers are a lot harder to face than those you batted against in Little League, HS or College; or that the speed of the game is a bit different in the NBA or NFL than it was back in college. The elite programs in science/scholarship, just like the elite programs in MLB or NCAA have more resources. The Oakland A's don't have the budget of the NY Yankees, but they have to find a way to compete. Those of us not teaching at Harvard, MIT, Chicago, Princeton and Stanford, do not have the same level of resources yet we must find a way to compete and get our ideas across --- especially since we believe the "mainstream" has gone in the wrong direction compared to the "mainline".
Trying to do an end run around the scientific/scholarly establishment would be like setting up an alternative baseball league to MLB. And even in that instances as the mergers that formed the NFL and the NBA show that if we were successful in the end run, our innovation would be rewarded by being incorporated into the main institutional environment of science/scholarship. Instead, it is my view that our goal should be to first demand that we get a constant hearing in the "mainstream" for our "mainline" views, and to nudge in as many ways as we can for the "mainstream" to come back to "mainline" teachings. To do that, we must accept that reality that we have to compete in the accepted institutions of science/scholarship, and we need to meet those tests and measurements of success/failure -- the journal pecking order; the book publisher pecking order; citation pattern; scientific awards; placement pecking order; tenure&promotion issues; and scientific/scholarly prestige accorded to those who pass the tests established.
We have no viable alternative but to embrace our profession, even as we disagree with much of the arguments and modes of expression that are utilized at the moment. Those of us persuaded by the "mainline" of economics from Adam Smith to F. A. Hayek believe much of contemporary economics is wrongheaded in terms of style and substance. But we should follow the example of such Nobel Prize winners as Hayek, Buchanan, Coase, North, V. Smith and E. Ostrom -- who expressed similar reservations to the development of economics since WWII and set out to correct for those errors by making contributions that balanced the criteria of plausibility, intrinsic interest, and originality. They fought hard in the competitive struggle for positions and funding in order to advance their ideas. They all had zig/zag careers, but they persisted. This is also true for Ludwig von Mises. As I replied to Joe, I think we should be celebrating Mises's career as a scientist/scholar --- as a young man he achieved international fame for his work in monetary theory and with his critique of socialism, on the back end of his career he worked for the NBER, he published his books with Yale University Press, he was recognized within the economics profession as not only one of the outstanding European researchers in economics, but also one of the most important teachers from the Continent, and he would win the highest medal of scientific achievement from his home country of Austria, and would be named the Distinguished Fellow of the American Economic Association. And even Paul Samuelson had to admit that Mises would have won the Nobel Prize in Economic Science had it been established when the other prizes were originally established. Mises played in MLB and he had a Hall of Fame career. It is silly, in my humble opinion, for our community of learners to act as if this isn't true even though we believe that his Hall of Fame career places him in the elite of the elite and that his career path exhibited more struggles than others less worthy experienced.
One final thing, I should address -- Joe asked me to do a counter-factual about where my career would be without private funding support. I have indeed benefited greatly from the financial support of multitudes of foundations throughout my education and subsequent career. Heck, I just received roughly $2 million from the John Templeton Foundation to help me in my efforts to nudge the "mainstream" more in the direction of "mainline" economics through various research and graduate educational programs. It is hard for me to imagine the counter-factual because I attended Grove City College, where I learned about economics, and then George Mason University -- both of which received tremendous private foundation support in their economic educational missions. So in many ways I probably wouldn't have become an economist and I would either be teaching tennis, coaching HS basketball or working in the construction industry in NJ. But assuming that I had stumbled upon these ideas and persuaded of their truth value as I was by Hans Sennholz, then I imagine I would be an economics professor somewhere. Private donors had nothing directly to do with positions I have held at Oakland University, NYU, Manhattan College or even GMU. I was hired in each of these places to teach economics and fill a department "need" in certain areas of economic instruction, and I did --- and I've done pretty well if I say so myself winning teaching awards at Oakland, NYU and GMU (and at Manhattan I was just named to teach in their Honors Program when I decided to leave for GMU). I have had close calls for positions or offers at several other PhD programs through the years and also at several high quality liberal arts colleges. I have won awards for papers from ODE, EEA, as well as APEE and SDAE, and I have held offices in scholarly organizations such as HES as well as APEE and SDAE, and I am currently VP of the SEA. I referee papers for JPE and other top journals in our profession, and I have been contracted by Chicago, Cambridge, Oxford, Princeton and MIT Press to referee books. My position now at GMU is funded in part by a private donor --- I am the BB&T Professor, but I am also a University Professor of Economics & Philosophy, which is separate from any private donor influence but a designation awarded by my colleagues and administration.
Joe is certainly correct to point out that what I have been able to do, and in fact, who I am as an economist, has been deeply enabled by various donors outside of the standard state-supported organs of modern economic science. I would be the first to acknowledge that and to do so gratefully. But I see those donors working within the scientific/scholarly establishment -- just as "mainstream" economist rely on funding from Ford, MacArthur as well as NSF and NEH, those of us in the "mainline" have benefited over the years from Olin, Scaife, Earhart, Koch and Templeton (as well as several others) to pursue truth as we see it in our scientific/scholarly endeavors. Positions, Funding, Ideas --- but those ideas in science/scholarship must meet the strenuous tests of plausibility, intrinsic interest, and originality. If you aren't willing to do that, then you are playing a different game. Nothing wrong with playing a different game, but just like softball isn't MLB, playing that different game (whatever we might call it) isn't science/scholarship. It is something different --- perhaps even an endeavor that is more valuable to the advancement of a free society I will grant.
My point, in the end, is really simple --- either you compete in "The Republic of Science" or you aren't doing "science". It may be that the science is currently wrongheaded --- you might even believe it is confused and corrupted --- but if you want to advance a scientific agenda in a discipline the only way to do that is to join that discipline, embrace its professional standards of success/failure, and fight from within to correct what you see as error. You cannot do an end run around the scientific establishment, but you might be able -- if you are strong enough and talented enough -- to run right up the middle. The best in 20th century "mainline" economics did precisely that: Mises, Hayek, Alchian, Boulding, Coase, Demsetz, Kirzner, North, Olson, Ostrom, V. Smith, Tullock, Williamson, etc. Hold on to the ball, keep your eyes on the prize, and who knows you may very well end up like John Riggins breaking through the line in that Super Bowl run of his from the 1980s -- all the way for the touchdown. That never would have happened if you had decided instead that NFL was confused about the nature of the game of football so you -- even though you are strong and talented -- decided you would play instead in an alternative football league that was more pure and devoid of corrupting influences. To me that is a tragedy, not a sign of a principled stance. And ultimately, I believe if the individual scientists/scholars was in actual fact (not just in their head) strong enough and talented enough, the tragedy isn't just at the level of the individual, but spills over to the science/scholarship community of learners as the discipline of economics will remain on the wrong path when it could have been nudged in the right direction by this individuals (or group of individuals) efforts. If you believe science/scholarship are important endeavors, then such acts of disregard for the establishment are every bit as disruptive of the quest for truth as what was supposedly the reason for avoiding the scientific/scholarly establishment in the first place.
New issue of the Review of Austrian Economics in now available, it consists of a symposium edited by Adam Martin and Geoffrey Lea addressing the relationship between Austrian economics and the Virginia School of Political Economy.
Back in the 1980s, I wrote a paper "Virgina Political Economy: A View from Vienna" in the publication of the Center for the Study of Market Process -- Market Process, 5 (2) Fall 1987. The F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics at the Mercatus Center in many ways represents the institutional legacy of CSMP. That older paper concluded that merging public choice analysis of politics with the Austrian analysis of the market process the contemporary political economist will be able to improve their understanding of the social world considerably, and gain greater insight than if either approach is pursued in isolation of the other. It might be important to remember that my main area of research from the beginning of graduate school was comparative institutional analysis and the debates on a theoretical level concerning the impossibility of economic calculation under socialism, and on an empirical level concering the economic performance of the Soviet Union. My research in history of thought and methodology were a by-product of this primary research focus which was examination of the Soviet-type economy -- its origins, its history, its eventual collapse and the troubles with transition. In short, I was a engaged in comparative institutional analysis from day 1 of graduate school, and that was the reason I went to GMU to study with Don Lavoie in the first place rather than alternatives.
The symposium edited by Martin and Lea examines this very question of the compatibility of Austrian economics and public choice for a new generation of scholars. The conference they ran at FEE many years ago which formed the basis of the papers published in the symposium was great, and the subsequent volume is very strong. Enjoy. Just remember as economic scientists we are equipped with many arrows in the quiver to aim at the target of truth in political economy. Reason and evidence suggests that we should not discard any valuable arrow that we have available to us in our hunt for truth. We have a classical economics arrow (Smith/Say/Mill), but we also have a property rights arrow (Alchian/Demsetz), we have new economics of governance arrow (Ostrom/Williamson), we have a law and economics arrow (Coase), we have a new economic history arrow (North/Weingast), we have a new economic sociology arrow (Weber/Boulding/Berger/Swedberg) and we a public choice arrow (Buchanan/Tullock) as well as of couse several Austrian theory of the market process arrows (Mises/Hayek/Kirzner) available to us as we track truth about the social world and how best to study it and gain an understanding of it.
If you are a subscriber to the RAE, follow the link to gain online access. If you don't subscribe, and are either a student or professor, then recommend your library to get the Springer package so you can access through your university library. If you want you own private subscription whether you are at university or not, the least expensive way to achieve this is to join the Society for the Development of Austrian Economics.
As an undergraduate one of the most amazing intellectual experiences of my life was reading Murray Rothbard's For a New Liberty. I had already read Milton and Rose Friedman's Free to Choose, Henry Hazlitt's Economics in One Lesson, and various articles and some books of Ludwig von Mises, so I was already persuaded of the general free market argument. I tried to tackle Human Action, but as a 19 year old it without a solid educational foundation it was beyond me at the time. I found Man, Economy and State much easier to understand so it had become my "go-to" book on things economics by the time I was a sophomore at Grove City College. During a weekend trip to FEE, I picked up an amazing grab-bag of classic books for $200, which included Adam Smith's The Wealth of Nations and Hayek's The Constitution of Liberty as well as Rothbard's For a New Liberty. Reading For a New Liberty moved me from someone persuaded about the free market to someone who wanted to push the logic of free market thinking consistently and persistently. After reading that book, my future career aspirations took a radical shift and the idea of devoting my life to the teaching of the ideas founding in the writings of Smith, Bastiat, Mises, Hazlitt, Hayek and Rothbard seemed only natural. Now the question was how best to do that --- it took me a little to figure that out, and if truth be told I am still trying to figure that out 30+ years later.
But when I first had the opportunity to teach economics to college students as a graduate student at GMU in the mid-1980s, I would listen on my tape deck in the car audio tapes of Murray Rothbard lectures that I had purchased at the time. This was a practice I continued throughout graduate school and into my first job at Oakland University. [Note on constancy: I have pretty much used The Economic Way of Thinking as the required book, and tried to lecture in a style that I gleaned from Sennholz and Rothbard -- relevance as a virtue not a vice in economics -- throughout my teaching career].
So when Chris Coyne sent me the link to this video of Rothbard teaching about urban "renewal" I wanted to share it. Sennholz (my teacher) and Rothbard (my original inspiration) are both complicated figures for me for a variety of reasons that I need not go into here. But what isn't complicated is that I still draw so much pleasure in listening to either of them apply economic theory to make sense of political economy reality. Watch here as Rothbard exhibits his wit and charm as an economics teacher discussing the folly of government policy.
John Maynard Keynes famously argued in The General Theory that practical men who believe themselves to be devoid of the influence of academic scribblers are in fact "usually the slaves of some defunct economist." This was good rhetoric on Keynes's part primarily to emphasize to his readers how they had to abandon the habits of thought and intellectual straightjackets that they had taken on-board often unwittingly.
But did you know that Milton Friedman argued similarly in Capitalism and Freedom? Friedman states: "There is seldom anything truly new under the sun in economic policy, where the allegedly new generally turns out to be the discard of a prior century in flimsy disguise." (1962, 57)
Do you agree? If so, what does that say about both Keynes and Friedman's respective positions (as they are juxtasposed with each other often in discussions of public policy)? If both are claiming that the positions they are opposing are merely retreads of previously held positions, then what would public policy innovation really look like?
Also, if we consider the argument that Friedman (and Adam Smith before him) makes about the failure of government intervention but the continued progress that US citizens enjoyed during the period inspire of that failure, how can we in fact cleanly test which economic policies are good and which ones are bad. We have in front of us novel/good; novel/bad; old/good; old/bad. Keynes and Friedman both thought they were offering novel/good to be juxtaposed to old/bad mainly and fearing the possibility of novel/bad (Soviet style central planning or Nazi style corporatism as prime examples). But if the empirical test is ambiguous at best, how can we sort out the correct story?
Here is Friedman: " ... there can be little doubt that the record is dismal. The greater part of the new ventures undertaken by government in the past few decades have failed to achieve their objectives. The United States has continued to progress; its citizens have become better fed, better clothed, better housed and better transported; class and social distinctions have narrowed; minority groups have become less disadvantaged; popular culture has advanced by leaps and bounds. All this has been the product of the initiative and drive of individuals co-operating through the free market. Government measures have hampered not helped this development. We have been able to afford and surmount these measures only because of the extraordinary fecundity of the market. The invisible hand has been more potent for progress than the visible hand for retrogression." (1962, 199-200)
I make this argument myself all the time --- stressing the horse race between Smithian, Schumpeterian, Stupidity --- but I do recognize a problem. As I see it, the critics of the market (Keynes, Samuelson, Stiglitz, etc.) deny the very "fecundity of the market" that Smith and Friedman are upholding. The market in their intellectual framework is not self-regulating, and thus the progress experienced must be due to government policy measures.
So the question remains -- how would you design an intellectual test (a broader concept than the more narrow idea of an empirical test) that would be able to sort out from the complex reality of economic policy history which stream of thought is correct? Which academic scribblers have the logic and evidence on their side -- the Smith, Say, Mises, Hayek, Friedman crowd, or the Marx, Keynes, Samuelson, Stiglitz crowd? And if we cannot sort that out, are we in fact all merely "slaves of some defunct economist" when it comes to our public policy pronouncements?
I don't think so, I believe we can sort rationally. But I am sure that those whose positions I consider counter-productive also believe that their positions emerge from rational analysis. And there is the tension in public policy discussions. The Robert Aumann discussion of agreement and disagreement among rational agents simply doesn't deal with humanly rational actors, who have priors, and who look at the world through multiple perspectives. The puzzle isn't why rational actors would ever disagree, it is in fact the opposite how do humanly rational actors ever come to agree with one another about how the world works? This can only be accomplished by institutions that incentive the different actors and provide them with quality information and critical feedback. It is about the epistemic community they find themselves in. So thinking along those lines, why would it be that the epistemic community of economic public policy would produce an endless intellectual cycle rather than a dovetailing toward a consensus?
Adam Smith in discussing man's propensity to 'truck, barter and exchange' famously said: "Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog." We humans are social creatures, we talk, we haggle, we trade.
Our ability to thrive and lead flourshing lives is a by-product of the world created by individuals realizing the great gains from social cooperation under the division of labor. Figuring out what 'rules of the social game' will enable us to realize peaceful cooperation and productive specialization among individuals is one of the primary tasks of political economy. In short, as social creatures we require social rules that minimize conflict and maximize cooperation.
A caricature of economic man, however, is anything but social. Instead, homoeconomicus is depicted as an isolated creature who is able to calculate costs and benefits instaneously and accurately. But it turns out, actually that isolated creatures would have an extremely difficult time performing such calculations and thus would be unable to see the benefits of exchange, specialization, and social cooperation. They instead would when confronted with other humans behave not unlike Smith's dogs.
Last night in my graduate seminar on comparative institutional analysis we discussed Ronald Coase's 1991 Nobel Lecture -- "The Institutional Structure of Production." If you haven't read it recently, read it again carefully. Coase is the master economic theory minimalist, and one of the most illuminating thinkers of the 20th century. He is also a very humble man, never claiming originality for himself. But as with most brilliant thinkers, it is only because of their statements that we come to see their point as obvious. One of my favorite paraphrases of Coase is actually from in paper on the FCC, if you read that article you will see that he attributes his basic idea to Adam Smith --- as I put it, Coase says basically 'my "novel" theory (novel that is if you haven't read Adam Smith)'. This statement expresses a classic Coasean intellectual sentiment -- understated, but also so fundamentally true. Coase is all about exchange and the institutions within which exchange takes place.
The Nobel Prize lecture highlights how the socialist calculation debate -- as communicated through Arnold Plant -- influenced the young aspiring economist Ronald Coase at the LSE, and led to his work on the theory of the firm. The lecture also straightens out the meaning and purpose of the "Coase Theorem" --- as Coase says:
What I showed in that article, as I thought, was that in a regime of zero transaction costs, an assumption of standard economic theory, negotiations between the parties would lead to those arrangements being made which would maximise wealth and this irrespective of the initial assignment of rights. This is the infamous Coase Theorem, named and formulated by Stigler, although it is based on work of mine. Stigler argues that the Coase Theorem follows from the standard assumptions of economic theory. Its logic cannot be questioned, only its domain. I do not disagree with Stigler. However, I tend to regard the Coase Theorem as a stepping stone on the way to an analysis of an economy with positive transaction costs. The significance to me of the Coase Theorem is that it undermines the Pigovian system. Since standard economic theory assumes transaction costs to be zero, the Coase Theorem demonstrates that the Pigovian solutions are unnecessary in these circumstances. Of course, it does not imply, when transaction costs are positive, that government actions (such as government operation, regulation or taxation, including subsidies) could not produce a better result than relying on negotiations between individuals in the market. Whether this would be so could be discovered not by studying imaginary governments but what real governments actually do. My conclusion; let us study the world of positive transaction costs.
Too many commentators -- and that includes an entire generation of Austrian economists -- have completely missed the importance of Coase's insight. There is obviously room for disagreement with Coase on fine points of theory and the implications of those points. But the quoted passage deserves to be read very carefully again and again so that its very subtle point sinks in. In Coase's hands the Pigovian remedies of tax and subsidies to address externalities are rendered either redundant or non-operationaly by a logical analysis grounded in the standard assumptions of economic theory upon which those remedies were recommended in the first place. Minimal theory, maximum illumination --- that is Coase's defining characteristic as an economic thinker. We should all be so fortunate to be as 'unoriginal' as Coase in our economic analysis!!! If only the rest of the economics profession was content with pursuing the logic of Adam Smith's insights on the human propensity to truck, barter and exchange so persistently and consistently to its logical conclusion, then we would be much better economists and policy analysts.
I wrote a tribute to Coase after his death last year, and many years ago now I wrote a paper trying to mimic the Coasean style of analysis to explain the operation of the Soviet-type economy. As many of my GMU students have heard numerous times, when I taught my comparative institutional analysis graduate class at NYU through the 1990s I would make the students (more alergic to economic minimalism than my students at GMU) read Coase's classic "social cost" paper numerous times throughout the semester. As Jim Buchanan taught me -- it takes varied iterations to force alien concepts upon reluctant minds. Those students didn't want to hear about the Coase Theorem, they preferred discussions about Arrow's Theorem and Sen's Paradox. While discussing Arrow and Sen, I nevertheless returned again and again to Coase (and Buchanan). I often wonder if 20 years later any of those students think differently about public economics because of that experience.
Perhaps they do, and if so, I hope some of them will consider the following announcement:
Man and the Economy
Call for Papers for a Special Issue in Memory of Ronald Coase
“R. H. Coase: The Man and His Ideas”
Man and the Economy will devote a special issue (December 2014) to the life and ideas of Ronald Coase, the 1991 Nobel Laureate in Economics and Founding Editor of this journal. During his long academic life, Coase devoted himself to economics, which, in his view, should investigate how the real world economy works, with all its imperfections. Coase viewed and practiced economics as a social science, a study of man creating wealth in society through various institutional arrangements. To honor the memory of Coase, we welcome original research articles that extend and develop the Coasian economics, including empirical studies of the structure of production and exchange. We also welcome critical and constructive commentaries that clarify and elaborate the Coasian themes, from a law-and-economics/new institutional economics perspective, which include, but not limited to, topics on transaction costs, property rights, theories of the firm and China’s economic transformation. In addition, we also welcome personal reflections and reminiscences of Coase as a colleague, a teacher, an editor, and/or a friend.
Submissions must be made online via the Journal’s website: http://www.degruyter.com/view/j/me Deadline for submissions is September 30, 2014.
Hayek's The Constitution of Liberty was an effort to first develop an argument philosophically and historically for the institutional superiority of the "rule of law" in promoting peaceful social cooperation and productive specialization among free individuals, and then second to apply the "rule of law" to areas of public policy consistently and persistently. Mises's thought Hayek had succeeded in the first 2/3 of the book, but failed in the last 1/3 on Hayek's own terms. Application of a principle is always a dicey business. The devil is in the details.
Since 2008, there has been little talk of "the rule of law" as a guiding principle in public policy. Among all the voices, I think the most consistent and clearest voice on applying "the rule of law" to monetary policy has been Lawrence H. White. Here is White's presentation from 2009 Cato Monetary Conference on The Rule of Law and Central Banks. Larry is a bold and creative thinker, he is also one of the most articulate spokesman for true liberalism in the world today. Very lucky to be working with him at GMU.
Israel M. Kirzner was born on February 13, 1930 in London. He is, in my opinion, the greatest scholar of the Austrian School of Economics. As evidence I would point to his The Economic Point of View, and his introductions to the collection, Classics in Austrian Economics. See my review of Classicshere. I would also point to his various interpretative essays on the thought of his PhD dissertation supervisor -- Ludwig von Mises -- as well as his essays on Hayek and Menger. But Kirzner is not only a scholar of the Austrian School, but the most significant economic theorist of the modern Austrian school in my opion. As evidence I would point to his development of the entrepreneurial theory of the market process in works such as Competition and Entrepreneurship, but I would also direct readers to his refinements of price theory in Market Theory and the Price System, and his own unique take on the microfoundations of capital and interest theory in Essays on Capital and Interest.
It is my sincere hope that Kirzner will be reconized by the Nobel Prize committee for his development of the entrepreneurial theory of the market economy. Kirzner is simply put, a scholar's scholar, and an economist's economist. But besides his excellence as a scholar and scientist, Kirzner is an outstanding teacher of the logic of economic analysis and its importance for understanding the economic forces at work in our everyday lives. And, Kirzner was a tireless champion of a research program within the economics profession that sought to carve out professional space for those younger than him who wanted to develop the ideas of Menger, Bohm-Bawerk, Mises, and Hayek in a scholarly and scientifically responsible manner.
Finally, it must be said, Kirzner is an example of all that is best in the academic profession and scholarly pursuits --- a true gentleman at all times, Kirzner always put the quest for truth in economic reasoning above all else.
I have said before, and I will say it again, to economists of my generation Joe Stiglitz is a towering figure in economic theory. But despite my great respect and admiration for his intellect and the argumentative strategy that he pursued with respect to the Walrasian system, my judgement has always been that he missed the mark in his analysis of the market process and underestimated the public choice problems that his alternative political-economic systems architecture would have to confront in theory and practice. Make no mistake about it, an individual can be brilliant, perhaps even a genius, and be brilliantly wrong. That is, in my humble opinion, what you have with Joe Stiglitz -- a brilliant but wrong thinker. This stands out nowhere as obvious as in his efforts at applied political economy and policy relevant analysis of contemporary affairs. There is no doubt that he stitches together facts of the world, but the narrative that he weaves in the stitching is wildly off the mark. I would argue this is what you see again in his essay "Stagnation By Design."
Since 2008, and before, he has been constantly complaining about neo-liberal policy and how its lack of attention to the appropriate regulatory framework and disregard for fundamental policy priorities has produced the mess we are in. In fact, he made the argument very simply even while he was in positions of tremendous political power in the Clinton administration and at the World Bank --- if only the world would listen to me, and engage in the appropriate interventions then the mess would be avoided. But who were the so-called neo-liberals that weren't listening to him? What neo-liberal thinker had the same powerful positions that he held? Did F. A. Hayek or Milton Friedman actually come back from the grave to serve as head of the CEA or as Chief Economist at the World Bank? Or did all this disruptive inequality and global imbalance happen on the watch of other thinkers.
The current mess in the US is six decades in the making, as Laurence Kotlikoff recently explained in an EconTalk episode with Russ Roberts. The promisory politics that exploded after WWII can be, as James Buchanan has explained, rests completely with the Keynesianism -- Download Buchanan- Keynesian Follies.
Keynes, in Buchanan's alternative narrative, was an artist who sought to change the perception of his professional peers and policy makers during extraordinary times. In the US, this led to the suspension of the ordinary institutions of politics during the Roosevelt administration, as the normal checks and balances on political power were relaxed. The real damage, however, was the extension of Keynes's artistic impression of the workings of the economy and the polity in extraordinary times to the operation of economic policy and the polity in ordinary times. The Keynesian confusion of "art" as "science" in the economic picture that Keynes drew is the culprit. A narrative was thus constructed.
Stiglitz is the artistic grandchild of that Keynes picture. As he says in this latest essay: "Markets are not self-correcting." There is no subtley in such sentiments about the workings of the economy and the institutional framework within which they operate. Stiglitz's only conclusion is that without the guiding hand of the state, economic disaster looms around each and every corner.
The mainline economists response is not to insist that markets always clear, but instead to explain the variety of economic forces at work under alternative institutional arrangements; to challenge analysis based on assumptions of either omniscience or benevolence; to explore the multiple margins of adjustment that economic actors engage in while attempting to coordinate their plans with one another in the face of changing circumstances; and to construct arguments about what constitutes a robust political economic system rather than a fragile one subject to volitility, disruptions and social strike. What institutional arrangements can produce peaceful cooperation and productive specialization among a diverse set of individuals?; that is the question that drives the mainline economist. Rational choice theory provides the argumentative structure, but it is at the institutional level of analysis where the argumentative burden rests.
Stiglitz is right to stress that bad ideas result in bad public policy which in turn results in bad economic, political and social outcomes. But, Stiglitz has misidentified what the bad ideas are, and his narrative mischaracterizes the nature of public policy for the past 6 decades and in particular the last 2 decades. We have not experienced a period of neo-liberal neglect and arrogance, but instead a waffling back and forth between conservative and liberal Keynesianism guided by an illusion of an artistic rendering of economic and political life. This has been the public policy hegemony for the past 60+ years. It is time that this alternative narrative be listened to, rather than the same old story that emerged from the Keynesian follies so many decades ago.
Tyler Cowen links to John Roemer's recent article in Analyse & Kritik, and highlights how Roemer admits to a change of mind with respect to the workability of his reconstruction of the socialist model in the wake of the collapse of communism in 1989. My early work as an economist was focused on the Soviet experience and the theoretical and empirical debates that formed around that discussion. After 1989, the models by Bardhan and Roemer focused on equal shares or coupon based market socialism were the main contenders in the effort to build an system which could meet the Hayekian objections head-on, yet also provide a workable model of socialism with a capital market that while not permiting concentrations of wealth produces prices that could guide the efficient use of resources.
What is interesting in the abstract to the most recent article is Roemer's admission that this earlier model is not workable because of what could be termed opportunistic behavior. Here is the full abstract:
State ownership, worker ownership, and household ownership are the three main forms in which productive assets (firms) can be held. I argue that worker ownership is not wise in economies with high capital-labor ratios, for it forces the worker to concentrate all her assets in one firm. I review the coupon economy that I proposed in 1994, and express reservations that it could work: greedy people would be able to circumvent its purpose of preventing the concentration of corporate wealth. Although extremely high corporate salaries are the norm today, I argue these are competitive and market determined, a consequence of the gargantuan size of firms. It would, however, be possible to tax such salaries at high rates, because the labor—supply response would be small. The social-democratic model remains the best one, to date, for producing a relatively egalitarian outcome, and it relies on solidarity, redistribution, and private ownership of firms. Whether a solidaristic social ethos can develop without a conflagration, such as the second world war, which not only united populations in the war effort, but also wiped out substantial middle-class wealth in Europe—thus engendering the post-war movement towards social insurance—is an open question.
In my book, Why Perestroika Failed I argue that in assessing the workability of utopian schemes we must first subject them to a coherence test, and then a test of their vulnerability to opportunism. Schemes that are inchorent are deemed impossible; schemes that are coherent but vulnerable are impractical; and only schemes that are both coherent and invulnerable should be considered in the feasible set of workable utopias. (see pp. 4-5, and then chapters 3-5 in the linked book).
Roemer seems to be suggesting that if the population could coordinate around a solidaristic social ethos, then the social-democratic model, perhaps even the market socialist model, might be workable. I have always found these arguments weak whether they are made by libertarians, conservatives, progressives, or socialist. It amounts to arguing that the entire system turns of the moral character of the individuals who populate the system. If everyone was a libertarian (socialist), then we could have a libertarian (socialist) world. But think about that for a second, the more everyone coordinates around the norm, the greater the potential scope for gain by opportunistically violating that norm. So rather than rely on moral character to make the argument work, I have always been more attracted to instituitonal solutions that do not require for their working improved moral character let alone a fundamental change in human nature. Instutitional problems demand institutional solutions. Human beings do have the Smithian propensity to truck, barter and exchange, as well as Smithian sentiments about others --- that is our better nature --- but human beings are also haunted by the Hobbesian propensity to rape, pillage and plunder, and sentiments such as envy, jealousy, resentment, and loathing of the other. Which propensity manifests itself is a function of institutional environment in which we interact with each other and with nature. The logic of the situation rules, not a sense of solidarity. Solidarity, instead, is a by-product of institutions. So back to the test --- is a proposed system coherent -- are the means chosen consistent with the ends sought? --- and is a proposed system vulneralbe --- can opportunistic actors disrupt the ability of the system to achieve its goals?
Socialist have a hard time coming to grips with both tests, and as a result no viable model has yet to be proposed. It is to Roemer's credit that he admits this is true of his proposed mutual shares market socialist model -- though he believes it is only becuase of vulnerability, when a real analysis would show that it doesn't even met the coherence test due to epistemic reasons. Furthermore, even the claim that the social-democratic model (as he understands it) produces the best - most egalitarian - outcome can only be sustained if you ignore the full thrust of the coherence test and the vulnerability test.
As a result, reports of John Roemer's retreat from socialism are exaggerated as you can see in this recent interview with the Yale Herald.
Time to register for the Prague Conference on Political Economy. Congratulations to Michael Munger, who will give this year's Franz Cuhel Lecture, and to Martin Ricketts, who will give the Friedrich Wieser Lecture.
PCPE—Prague Conference on Political Economy
PCPE 2014, April 4-6 with keynote speeches by professor Michael Munger of Duke University and professor Martin Ricketts of The University of Buckingham
Call for Papers
We are inviting you to participate in the 10th annual Prague Conference on Political Economy (PCPE). PCPE is an international and interdisciplinary gathering of scholars and supporters (not only) of the Austrian School of Economics and political economy of freedom. During two days of the conference (Friday afternoon and Satuday), participants will have an opportunity to participate in lectures and debates focusing on economics, political science, history, philosophy and other humanities, and to discuss these issues with leading theorists in the field, both from Europe and overseas.
Deadline for submissions is March 17, 2014.
Friday, April 4 2014
3.00 pm - 4.00 pm: Registration
4.00 pm - 4.15 pm: Opening of PCPE 2014 by Josef Šíma
4.15 pm - 5.00 pm: Friedrich von Wieser Memorial Lecture delivered by Martin Ricketts (University of Buckingham)
5.00 pm - 5.45 pm:Franz Cuhel Memorial Lecture delivered by Michael Munger (Duke University)
Saturday, April 5, 2014
10.00 - 12.00: Sessions I
14:00 - 16.00: Sessions II
16:00 - 18:00: Sessions III
Sunday, April 6, 2014
Sightseeing and departure
This conference PCPE is an attempt to resurrect the tradition of Austrian economics- and liberty-oriented thinking that thrived in central Europe at the beginning of the 20th century, but sadly disappeared thereafter. By establishing an annual forum for scholars and students to meet and exchange ideas we hope to build a solid institutional basis for the advancement of the liberty-oriented research program.
The Conference takes place in the quaint and newly reconstructed building of the CEVRO Institute [school of legal and social studies] in the heart of Prague, the capital of Czech Republic.
As the president of the conference, I believe that the conference will keep up the good spirit of previous years. We will do our best to succeed in making the 2014 conference at least as stimulating and useful as the past ones. We also believe that your participation will make the conference an even greater success.
We hope you will join us! prof. Josef Sima, Ph.D., president of the CEVRO Institute (email@example.com)