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I agree with Buchanan. Of course.

What do other economists think of this?

Dr. Boettke,

Are these essays available for the general public?


One implication from Buchanans rejection of the maximization paradigm in favor of the exchange paradigm (that efficiency lies in the act of voluntary agreement to an arrangement, and not in the maximization of any aggregate of value or "utility") which I particularly like is the following:

Just as the economic efficieny of the market is not the reason for its legitimacy (instead, it is the common agreement of societies members to institute the institutions of a market economy, based on the reason that such an economy will produce a higher standard of living for any randomly chosen one compared to any other arrangement), the economic inefficiency of policies like social insurance are not a sufficient reason for their illegitimacy. Instead, the legitimacy of social insurance policies must lie in the common agreement of societies members to institute them, based on the characteristics of the resulting social order as evaluated by the individuals (a higher level of certainty that ones basic needs will be covered if one loses one's income without own fault). To be sure, distortions of incentives are one relevant aspect that the members of society will have to consider when thinking about whether they consider such arrangements to be in their common interest, together with other costs such as possible political mismanagement and corruption. However, the diminishment of economic efficiency and incentives are but ONE aspect of many of such policies to be considered. Ultimately, the legitimacy of social insurance policies will be a matter of free and informed choice of the individuals as members of a political body.

That being said, I agree with Mr. Boettke and Mr. Buchanan on the important role economists have in raising the public awareness of facutal working properties of different institutional arrangements, and it is very plausible to assume that a lot of demand for "social" policies stems from the lack of knowledge on the factual working properties of these policies on the side of the individuals.

I have always thought that this strand of Buchanan's work was highlighted because so many free market economists adopted ricardian equivalence. I don't think that was mostly about normative issues.

To me, a good bit of real business cycle theory suffers from the same difficulty.

Economics _is_ constrained maximization. From that perspective, what _economics_ can tell us about deficit finance or macroeconomic fluctuations must involve an optimization problem. Private savings must adjust to offset government dissaving. (more or less.) Fluctuations in aggregate output must be due to an optimal allocation between labor and leisure over time.

It is very distant from a Hayekian vision of ordinary people responding to signals and incentives, and the results arise from their interactions.

Some 35 years ago I had a conversation with Jim Buchanan about starting a journal of Austrian economics. He thought it was an excellent, indeed necessary project. I asked what he thought a suitable name for the journal would be. With little hesitation he responded: Catallaxy.

I wish there were an Austrian journal. Haha.

Alfred Marshall thought of economics as a "moral science." One meaning of this is that its purpose is to improve the world. Well, one prerequisite would seem to be that its teachings be relevant to the real world. And that they be understandable in some form by non mathematicians.

david colander also argues that austrians have comparative advantages in political economy (in contrast to economics as a science however):

Despite Dr. Buchanan's Nobel laureate, I have always felt that he is one of the most underappreciated giants in the field. I thoroughly enjoy going back and reading his common sense approach to economics. With Frank Knight as his mentor and Ludwig von Mises as his lighthouse, it is not surprising about his enormous, quality output.
Regarding his commentary about the role of economics, I think this quote of Hayek appropriate: "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

Monty Pelerin


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