Karl Marx was an intellectual radical. What that means is that he sought to get at the root cause of social ills with his analysis. Despite my extreme disagreement with Marx on his diagnosis, I have always been attracted to intellectual radicalism. Not the fashionable radical chic of rock stars, etc., but the nerdy radicalism of scholars and public intellectuals. Not a radicalism evident where the cool-kids party while skipping school, but a radicalism born in the library and in reading dusty old books and studying long and hard to try and figure things out. Think hard, read widely, think even harder, then attempt to write clearly --- that is the intellectual radicalism that I find exciting.
I am not that sympathetic to mindless radicalism --- never have been, expect I never will be, though I do often admit that anger can be a very useful muse. So do I consider the Occupy Wall Street movement an example of mindless radicalism or an example of intellectual radicalism? Clearly the folks have passion, and are disturbed over the present state of the world. And they are not without good reasons for their frustration. But are they seeking out the root cause of our social ills, or just voicing their frustration?
At the Becker-Posner Blog, they have respectively taken up an examination of the OWS movement. Read Becker, then Posner. Also Chris Coyne does a very good job addressing some of the confusion between capitalism and crony capitalism that is evident in the movement.
What do you think of these reflections/responses on OWS?
Can you provide links to other economists responses to the OWS movement? E.g., do you known anyone who has taken on claims from Adbusters?
In a new CEPR working paper by Roland Benabou and Jean Tirole, "Laws and Norms" -- they attempt to reconcile the anomalies of the economic perspective with insights on human behavior from psychology and also what we know about social control through the law.
I would be intrigued to know how Pete Leeson would respond to why in the face of the compelling logic of economics, it is still so hard to get societies to agree to certain policies they judge as repugnant.
Ultimately, I do think many of these questions will turn on issues related to what Mike Munger has coined "Eu-voluntary".
In a world of pepper-spraying cops, genital-groping TSA agents, and a debt-to-GDP ratio that's topped 100 percent, it's sometimes hard to find the good, but despite the ankle weights the state keeps attaching to us, humanity keeps running, moving ever upward.
Even as freedom retreats in some quarters, the freedoms we have left continue to improve the lot of humanity in ways our ancestors could only dream of. The sad part is that we continue to weight and shackle ourselves in ways that are slowing that progress from what it could have been. We do so because too many are too skeptical about the benefits of freedom and those with power (or who want it) are all too willing to take advantage of that skepticism to serve their own interests, both political and corporate.
As we pause to recognize all we are grateful for today, let's also re-commit ourselves to the task at hand, which is to understand the degree to which free people under the right institutions can maximize the degree of social cooperation, peace, and prosperity made possible by the progressive extension of the division of labor and exchange. And let's further re-commit ourselves to taking what we've learned and spreading it to the four corners of the Earth so that the cornucopia so many enjoy in the West can be the reality not just for every American, but for all of humanity.
It is not my intention to specialize in obituaries in this blog, but I would like to say a few words about Mark Blaug who just passed away and was a very important historian of economic thought (a dying subject in itself, but nonetheless vital to the understanding of the discipline of economics). Professor Blaug was a true scholar and gentleman (see Tyler Cowen’s post). His book, Economic Theory in Retrospect (ETR) is one of the best books on the history of economic doctrines out there. If one wants to understand the works of Alfred Marshall and Léon Walras, this is the place to go to.
Like many great minds, Mark Blaug never stopped learning and teaching. ETR came out in at least five editions over the years, and each new edition was extensively revised. He was skeptical of Austrian ideas at first, but then became more familiar with the works of Friedrich Hayek, Israel Kirzner (whom he met at several conferences, if my memory is correct), and other Austrian economists. While it has a whole chapter on the pre-WWII Austrian theory of capital and interest, it is true that ETR doesn’t make much room for more modern Austrian theories. Nevertheless, I believe Mark Blaug was an honest fellow traveller of Austrian economics, as the following passage in the 1996 edition of ETR reflects:
“I contend that perfect competition is a grossly misleading concept whose only value is to generate an endless series of examination questions. Economics would be a better subject if we discarded it once and for all. Having expunged perfect competition, we ought to follow it by also discarding Walrasian existence proofs and the Invisible Hand Theorem of welfare economics. First of all, everyone admits that these beautiful theorems are mental exercises without the slightest possibility of ever being practically relevant: first-best optima are never actually observed and in a second-best world, it is not in general desirable to fulfill any of the first-best optimum conditions; in other words, piecemeal welfare policies may be based on good or bad qualitative judgments but they are not based on rigorous analytical theorems. But once first-best, end-state competition is discarded as irrelevant, as precisely and rigorously wrong, and replaced by process-competition as imprecisely and loosely right, what are we left with? We are left with the content of every chapter in every textbook on imperfect or monopolistic competition, on oligopoly, duopoly and monopoly, in short, on industrial organization as a sub-discipline in economics. In those chapters, firms jostle for advantage by price and nonprice competition, undercutting and out-bidding rivals in the market place by advertising outlays and promotional expenses, launching new differentiated products, new technical processes, new methods of marketing and new organizational forms, and even new reward structures for their employees, all for the sake of head-start profits that they know will soon be eroded. In these chapters, there is never any doubt that competition is an active process, of discovery, of knowledge formation, of ‘creative destruction’. I call this ‘the Austrian view of competition’ because it is most firmly enshrined in the writings of such Austrian economists as Hayek, Schumpeter and, more recently, Kirzner.” (pp. 594-595)
Professor Blaug, thank you for your work. Rest in peace.
Jeff had some difficulty getting this comment uploaded, so he asked me to post:
I haven't wanted to interrupt all of these kind words, but thank you, Pete and everyone else.
Engineering the Financial Crisis was indeed inspired by what I take to be the core Austrian insight: the ubiquity of human ignorance. Popper makes a very similar point: the ubiquity of human error.
To me, Austrian economics is distinctive because it opens the door to saying, as Mises did in the socialist calculation debate: People may err because they don't know what they should know. Speaking for myself, not Wladimir Kraus, I’m not so sure about the rest of Austrian economics, but then, I am not an economist of any kind.
I agree that it's kind of absurd to have to *theorize* ignorance-based error, as Anthony Evans and I do in our recent “Critical Review” paper, but mainstream economists really do seem to have trouble with the concept, and it was this trouble that also led Wlad and me to write “Engineering the Financial Crisis.” For example, the book notes that Stiglitz asserts repeatedly that the crisis was *not* the result of anyone's errors. But we also note, following Pete Boettke's 1997 “Critical Review” article, “Where Did Economics Go Wrong?” that whether it's Stiglitz on the left or Stigler on the right, such assertions are commonplace among mainstream economists, clearing the way for them to claim that incentives, as opposed to ignorance, explain (or rather explain away) errors.
The Evans and Friedman paper linked to above suggests that Austrians seize the moment to criticize that tendency among mainstream economists. Austrians might be able to reform their discipline in this golden moment of opportunity if they show that an ignorance-based economics has a much firmer purchase on the empirical realities of the crisis than the evidence-free assertions of Stiglitz and virtually all other economists who have written about the disaster. That's what Engineering the Financial Crisis” tries to do.
The book is also an exercise in “Austrian political science.” Just as Mises asked how central planners would know what they'd need to know if they were to avoid errors, an Austrian political theory would ask how political actors are to know what they need to know, and an Austrian political science would examine political actors' actual sources of information, the gaps therein, and the theoretical and ideological biases therein.
Thus, Wlad and I find that banking regulators were in the grip of the same economistic ideology gripping Stigler and Stiglitz. They thought that deposit insurance created misaligned incentives for bankers (a moral hazard), such that bankers would now want to take wild bets. Therefore capital cushions had to be mandated by law, and the details of those mandates incentivized bankers to pile into what regulators thought were "safe" securities: those rated AAA. (Incidentally, the regulations provided an even greater incentive to pile into sovereign debt.)
Similarly, the accounting regulators thought corporate executives faced the moral hazard of profiting by hiding losses from shareholders. So they mandated mark-to-market accounting on the grounds that market prices "tell the truth" by "aggregating information" (. . . even Hayek was fallible . . .), rather than aggregating the fallible decisions of buyers and sellers. Mark-to-market accounting therefore writes down corporate assets that are experiencing an ignorance-based market panic, which happened to AAA mortgage bonds in 2007 and 2008, and this directly translates into dollar for dollar reductions in capital. If the corporation is a bank, this dramatically shrinks lending power, and thus may have transformed the financial-market panic into the Great Recession.
The "information," ideas, theories, and ideologies that prompt political action have long been studied in political science, so those who study it face none of the high hurdles to career success that face Austrian economists. The Critical Review Foundation has been running occasional seminars since 1995 to encourage young scholars of Austrian bent to go into political science. Two of those young scholars are now tenure-track political scientists at Yale. If you may be interested in this career path, please contact me through the Critical Review website, http://www.criticalreview.com/crf/
Finally, Wlad and I have a blog where we've posted updated data on the actually risk averse (but regulation-following) behavior of bankers prior to the crisis: http://causesofthecrisis.blogspot.com/2011/10/new-data-on-bankers-risk-aversion.html We'd be happy to debate the theses of the book there.
Last Sunday at the annual SDAE dinner, Richard Wagner gave his presidental address entitled "Viennese Kaleidics". The paper, which can be found here, is simply fantastic. It continues the line of reasoning that can be found in both his Fiscal Sociology and The Theory of Public Finance and Mind, Society and Human Action, where he discusses not only our entangled political economy, but the open-endedness of choice, and the necessity of moving beyond single-exit theories of social interaction.
Wagner is a process theorist, a theorist who takes the turblence of economic life seriously, and wants to examine how the institutional framework in operation in any society either exacerbates or ameliorates that turbulence. Wagner is that unique thinker that maintains the argumentative structure of economics and political economy, yet is able to apply that structure to make sense of the troubling circumstances of our complex reality --- a reality that is not only complex, but plagued with uncertainty, ignorance, and ceaseless change. We live in a kaleidic world, as Shackle taught us. But the institutional framework can either provide guideposts for coping with our ignorance, or it can leave us groping in the dark. The future may indeed be unknowable, but it is not unimaginable. But we do need institutional moorings to navigate the turbulent waters of the imagined possibilities.
Viennese kaleidics explain how we can negotiate a world amidst flux, Keynes kaleidics don't.