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« Mises Wins the Nobel Prize in Economic Science, well sort of ... | Main | What You See Depends Upon Where You Stand »


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In his otherwise excellent post, Pete leaves out the power nexus. What he calls bad ideas often lead to policies that enhance the power of political leaders. The political market is working.

The push for inflation as a solution to deleveraging is particularly dangerous. To me, it is clearly "offically sanctioned." It is the preferred solution of the Obama administration. Likewise the VAT, which you'll be hearing more about.

I just hope that our side is up to the task of countering this dangerous nonesense.

Nice analysis of the current situation!

“…work on developing an economics based on the realism of assumptions, populated by capable but fallible human actors…”

That is the crux. How do we know if our assumptions are realistic? The problem goes much deeper than economics. It goes to the assumptions about human nature. Most people assume that humans are born innocent and turn to evil only because of oppression. Poverty is the greatest oppressor (see Hayek’s “Counter-Revolution”)

If true, that means that all we have to do is eliminate oppression and humanity will return to its natural state of innocence.

That was Marx and Lenin’s grand scheme. The USSR was more of an experiment in changing human nature than one in economics. The prospect of changing human nature is too great and grand to let mere economics get in the way.

And if all humans are fallible, then we have no hope of changing the human condition. Many scientists look to ET to rescue us for just that reason. But the answer of socialism is that the natural sciences can show us the way if we only let them.

Or a Keynes said to Hayek after his “Road to Serfdom”, we only need to have the right kind of people in charge.

The problem is the lure of utopia from a perfected human nature.

There is no better demonstration of the imperfection of man than the fact that we are always seeking after perfection.

And, being imperfect, how could or would we know what perfection looked like?

This is why utopia is not an option.

Troy, as you may have noticed, the left thinks all of us are imperfect except for a small elite. That's why we need to turn over complete control of our lives to them.

The "linear relationship" could also be viewed as working in the other direction, as argued in Bryan Caplan's "The Idea Trap: The Political Economy of Growth Divergence."

It's clear that outcomes, policies, and ideas all reinforce each other. It's a self-sustaining system. One solution is to have a policy-selection mechanism that is based more on the selection of positive outcomes, perhaps ?

Beyond frameworks we are also dealing with ideologies. Republicans have adopted a tax cut ideology, not a comprehensive fiscal/tax policy. Rather than recognizing that tax cuts do not yield greater revenues any more (we're on the lower bound of the Laffer Curve), that our current tax rates do not collect the revenue needed to fund the programs we have enacted (as our deficits prove) and the non-military discretionary spending cannot resolve our long-term deficit issues, they dig in and remain intransigent. Similarly, in terms of economic policies, I believe many adopt a single school of thought, be it monetarism or Keynesianism, and refuse to deviate from the principles of those philosophies, even when the data suggest a different policy course. Basically, the normative determinations have been set in stone, thus preventing policymakers from acknowledging the alternatives that might prove more effective in a given circumstance.

An impartial observer of economic discourse would note that 'Bad Ideas, Bad Policies, Bad Outcomes' just as easily describes Keynesian thinking as it does Hayekian thinking; their critiques of the other are mirror reflections of each's "framework."

The 'frameworks' are opposing ideologies, and as Arendt noted, ideologies--like theologies--are merely ideas treated as if they are fact. We humans love the storyteller, and the skill of the storyteller weaving his tale we easily make into myth. We then adopt our favorite myths to become part of our identity, and any threat to our myth-made identity we attack and even kill.

Austrians need to break the ideo/theological myth-made cycle for the grounds to their theory. So do Keynesians. Neither is philosophy; both are ideo/theological myth, and how does that help the public arrive at informed decisions if their choices are merely opposing ideologies; ideas, not facts?

For Keynesians, the "multiplier" is myth-math. If it were scientific, it would work every time and be entirely predictable. That it is not is a glaring sign that we are listening to the tall tale of a myth-maker, our favorite storyteller.

For Hayekians, the "free market" is their favorite myth. So appealing. So sensible. So caressing of a certain bias, so complimentary of a certain identity. But it is a myth nonetheless, for at least four hundred years. If the 'free market' were science, it would work every time and be entirely predictable, which it obviously is not. Just as socialists always argue that if only we tried 'true' socialism next time it would work, so free marketers still argue that if only we would give the free market a 'true' try, all would be golden and prosperous forever.

If Austrians/Virginians/Chicagoans/UCLAians want their theories to carry the day, they need to stop imitating the Keynesian ideological approach and instead adopt the philosophical approach, which is to say, practice the mild skepticism of science. Busting myths is the goal of philosophy, and busting our personal best-believed best-honored myths is the goal of the best introspective philosopher.

It is not enough to argue against another's ideology if all you have as an alternative is another ideology. Hence, the wide disdain by the uninformed public for unverifiable unpredictable claims stated as if they were facts. We already have plenty of priests. What we need are genuine facts, and all of those lie outside ideo/theology.

By way of follow-up to Jerry O'Driscoll's important comment ("I just hope that our side is up to the task of countering this dangerous nonsense"), does anyone know which economists are advising the leading Republican presidential candidates (Perry, Bachmann, Paul, Romney)?

One necessary condition for demonstrating the advantages of a free market process is to show, in everyday language, that it tends to achieve an emergent order that produces more wealth, correction of mistakes, less abuse of power, more freedom, stability, and prosperity than interventions by the omniscient and benevolent enlightened and anointed few.

If you're in not good state and have no cash to get out from that point, you would need to take the credit loans. Because it would aid you emphatically. I take credit loan every single year and feel great because of it.

Many years ago, Oskar Morgenstern emphasized in his book, "The Limits of Economics" (1937), that "Economic policy consists in all those actions and measures which aim . . . at bestowing advantages . . . on a chosen group or economic subjects or entrepreneurs, and of which the motive primarily in this this social effect."

Indeed, what would be the point of any government interventions in the market, if not to deflect the market from the course and pattern that it would have taken on if "left alone"?

This is why the "political nexus" that Jerry O'Driscoll referred to is so important in thinking about and understanding the logic of what actually goes on in the political arena. This is what makes Public Choice theory so realistically crucial for understanding the political policies processes.

Much of the core message of the Public Choice approch was understood by the older economists. Pareto in the 1890s, for instance, had a clear understandingof the "concentration of benefits and the diffusion of burdens" that creates a bias toward more government spending and regulation.

Philip Wicksteed picked up this theme in his "The Common Sense of Political Economy" (1910), but added to it the reminder that while each of use is a consumer of many goods, we are the producer usually of only one or a small number of goods.

Unless we succeed in earning income and profits in our producer role in the division of labor, we will not have the financial wherewithal to purchase all the things we desire in our consumer role.

Hence, people always have a tendency for a bias in favor of their activities as a producer over our interests as a consumer -- even if the cumulative affect of producer-oriented interventions is to diminish or slow down improvements in our standards of living in our common roles as consumers of all that is produced.

Another element to this analysis concerns the fiscal side of government activities and interventions.

On this theme, an unfortunately neglected essay by Joseph A. Schumpeter is his 1918 piece on "The Crisis of the Tax State." He draws our attention to the importance of "fiscal history" and a "fiscal sociology," if we are to understand what is at work in the interaction between government and society (the market).

He says, in part:

"The fiscal history of a people is above all an essential part of its general history. An enormous influence on the fate of nations emanates from the economic bleeding which the needs of the state necessitates, and from the use to which its results are put . . .

"The spirit of a people, its cultural level, its social structure, the deeds its policies may prepare -- all this and more is written in its fiscal history, stripped of phrases. He who knows how to listen to its message here discerns the thunder of world history more clearly than anywhere else . . .

"The public finances are one of the best starting points for an investigation of society, especially though not exclusively of its political life . . .

"In the bourgeois society everyone works and saves for himself and his family, and perhaps for some ends he has chosen himself. The driving force is individual interest -- understood in a very wide sense and by no means synonymous with an economic hedonistic individual egoism. In this world the state lives as an economic parasite . . .

"The tax state must not demand from the people so much that they lose financial interest in production or at any rate cease to use their best energies for it . . . There is a limit to the taxation of entrepreneurial profit beyond which tax pressure cannot go without first damaging and then destroying the tax object . . .

"The fiscal capacity of the state has its limits . . . If the will of the people demands higher and higher public expenditure, if more and more means are used for purposes for which private individuals have not produced them, if more and more power stands behind this will, and if finally all parts of the people are gripped by entirely new ideas about private property and the forms of life -- them the tax state will have run its course . . .

"Without doubt, the tax state can collapse."

(Joseph A. Schumpeter, 'The Crisis of the Tax State' [1918], reprinted in Richard Swedberg, ed., "The Economics and Sociology of Capitalism" [Princeton University Press, 1991], 99-140.)

These aspects of the economic policy problems we face -- besides those insightfully discussed by Pete, above -- cannot be ignored.

Richard Ebeling

I return to Mencken: "Explanations exist; they have existed for all time; there is always a well-known solution to every human problem — neat, plausible, and wrong."
"The Divine Afflatus" in New York Evening Mail (16 November 1917); later published in Prejudices: Second Series (1920) and A Mencken Chrestomathy (1949)

The problem is that they are plausible (coherent) and they fit the goals of the pol.

Well, Don Kirk, you are hardly immune from the mythologizing you claim for Keynesians and Hayekians. For example, you argue that if each were right, they would be perfectly predictable. The only way you could argue that is if you bought the myth that every science was properly understood as physics -- and 19th century physics, at that! But in fact both Keynesians and Hayekians are in agreement on one thing: the economy is a complex system that is deeply, inherently unpredictable. I think Hayekians take this to its logical conclusion (and Lachmannians perhaps even more so) more so than do Keynesians -- thus the differences in policy recommendations -- but the bottom line is that neither do what you want them to do, because they do not conceive of the economy as being a simple, manipulable, predictable system. And the reason they do not do so is that the economy absolutely is not that kind of system. Not even remotely.

In other words, you have bought into a myth that has mostly been disproven even by mainline economics. Time to update your science.

To begin to answer my own question, since no one else has: I couldn't find information regarding Bachmann's, Perry's, or Paul's economic advisers. The latter, as is well known, has had a longstanding close relationship with the Mises Institute.

There is specific information on Romney's economic advisors:

"Romney has already begun assembling a team of economic policy advisers, including: N. Gregory Mankiw, who was chairman of President George W. Bush’s Council of Economic Advisers; Glenn Hubbard, who preceded Mankiw on the council and currently is dean of the Columbia University Graduate School of Business; and former Missouri senator Jim Talent." (Philip Rucker, "Campaigning in N.H., Romney focuses on economy but avoids specifics," Washington Post, July 15, 2011)

Mankiw wants a "Pigovian tax" on energy to save the planet from anthropomorphic global warming.

The current post on his blog reads:

"Alan Krueger to chair CEA. Congratulations, Alan. An excellent choice by President Obama."

Krueger's research has "proven" that minimum wages don't increase unemployment.

Mankiw also has written favorably about the Fed pursuing a negative interest rate policy:

I hope Governor Romney can get some better advice from his other two advisors, Glenn Hubbard and Jim Talent, and that the other Republican candidates get better advisors than Mankiw.

Perhaps you would choose, and that the other Republican candidates get better advisors than Mankiw.

Lackluster Republican presidential candidate Jon Huntsman has discovered the best of all methods for getting back in the race: proposing an excellent economic growth program. According to an editorial in today's Wall St. Journal (9/2/2011), Huntsman's program:

"...lowers all tax rates on individuals and businesses. Mr. Huntsman would create three personal income tax rates—8%, 14% and 23%—and pay for this in a "revenue-neutral" way by eliminating "all deductions and credits." This tracks with the proposals of the bipartisan Bowles-Simpson commission and others for a flatter, more efficient tax system.

That means economically inefficient tax carve outs for mortgage interest, municipal bonds, child credits and green energy subsidies would at last be closed. The double tax on capital gains and dividends would be expunged as would the Alternative Minimum Tax. The corporate tax rate falls to 25% from 35%, and American businesses would be taxed on a territorial system to encourage firms to return capital parked in overseas operations.

Mr. Huntsman would repeal two of President Obama's most economically debilitating creations, ObamaCare and the Dodd-Frank financial regulation law. Mr. Huntsman has it right when he says, "Dodd-Frank perpetuates 'too big to fail' by codifying a regime that incentivizes firms to become too big to fail." He'd also repeal a Bush-era regulatory mistake, the Sarbanes-Oxley accounting rules, which have added millions of dollars of costs to businesses with little positive effect.

Mr. Huntsman says he'd also bring to heel the hyper-regulators at the Environmental Protection Agency, Food and Drug Administration and the National Labor Relations Board, all of which are suppressing job-creation. The Huntsman energy policy promises to block impediments to producing oil in the Gulf of Mexico and Alaska (see editorial above), while encouraging the safe deployment of fracking for natural gas in the states. Mr. Huntsman dabbled with green energy subsidies as Governor when those were the political fashion, but perhaps he's learned watching the failures of the last two years...."

Mr. Huntsman would repeal two of President Obama's most economically debilitating creations, ObamaCare and the Dodd-Frank financial regulation law. Mr. Huntsman has it right when he says, "Dodd-Frank perpetuates 'too big to fail' by codifying a regime that incentivizes firms to become too big to fail." He'd also

Mr. Huntsman would repeal two of President Obama's most economically debilitating creations, ObamaCare and the Dodd-Frank financial regulation law. Mr. Huntsman has it right when he says, "Dodd-Frank perpetuates 'too big to fail' by codifying a regime that incentivizes firms to become too big to fail." He'd also

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