October 2014

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Didn't the term "shock therapy" originate in the more successful transitions of other eastern european countries? This blog's Peter Leeson had a nice comparison of them with Russia in Comparing Apples.

Perhaps the most frightening aspect of all this is that the loose and impressionistic reasoning of Klein gets a huge amount of attention in human science departments. One may only hope that the next generation of economists, and those human scientists with a working knowledge of economics, will do a better job of elucidating the beneficence of classical liberal economic and political philosophy.

While reading the review by Stiglitz, I could not help but recall the message of "Where Did Economics Go Wrong?"

When the assumptions regarding market efficiency are not satisfied, this does not not mean that markets are deficient, but rather that the models are imperfect. Yet neoclassical economists continue to try to justify assumptions rather than efficiency itself.

Similarly, economists such as Stiglitz often view market efficiency through the wrong lens. As Rothbard points out in Man, Economy, and State:

Generally, these ethical views are clothed in the “scientific”
opinion that, in these cases, free-market action is no longer
optimal, but should be brought back into optimality by correc-
tive State action. Such a view completely misconceives the way
in which economic science asserts that free-market action is ever
optimal. It is optimal, not from the standpoint of the personal
ethical views of an economist, but from the standpoint of the
free, voluntary actions of all participants and in satisfying the
freely expressed needs of the consumers. Government interfer-
ence, therefore, will necessarily and always move away from
such an optimum. (p. 1036)

I think this is why I found the Austrian idea of looking at human action to be so eye opening. People like Klein truly seem to have no real grasp of why human beings do what they do, what their incentives are, how institutions shape incentives, and how people respond to incentives. That's how she and so many people like her get the idea that if you dangle a dollar bill in front of people, it will unleash the greed and selfishness just waiting to get out, and there will be a rush of people who are willing to lie, cheat, steal, and kill to get that dollar and keep it. Yet if you replace that dangling dollar bill with, say, power over 300 million people, a standing army of 1.5 million, a budget of trillions, and weak institutions unwilling to check that power, it will attract only people filled with the selfless desire to serve the greater good. That's the kind of thinking that leads to the belief that it's Milton Friedman's fault Pinochet killed people. I'm still not sure if it's deliberately disingenuous or just so naive it's painful.

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