Coordination Problem

Larry White at Hillsdale -- The Great Debate Lecture

|Peter Boettke|

During the fall 2012 term I taught Larry White's The Clash of Economic Ideas in 2 of my classes -- 1 undergraduate and 1 graduate.  It is an amazing work -- extremely readable and, dare I say, entertaining as it is full of history and fascinating personalities, yet also serious scholarly examination of economic doctrine.  I cannot praise this work highly enough, and it takes the reader from the original challenge to the laissez faire model through the great battles with Keynesianism, market socialism, the monetarist counter-revolution, the rise of New Institutionalism and public choice, and the empirical realities of Depression, stagflation, financial crisis, and debt crisis, as well as post-WWII economic miracles, the collapse of communism, the failure of development planning, and the benefits of free trade and globalization.

Here is a recent video of White discussing his wonderful book:

 

How Did Rugby Become Football?

|Peter Boettke|

The history of American football begins with rugby football.  The game evolved as equipment changed, player skill evolved, and most importantly rules changed which produced subsequent changes in equipment, skill, and strategy.

My colleague Dick Wagner often asks the question above, and demonstrates how small changes can accumulate to such an extent that one day you are playing a totally different game.  He then, to my mind, brilliantly flips the quesiton to how constitutional democracy became social democracy in the 20th century. Small changes accumulate and we end up playing a different game in the political arena just as we did on the field.

Constitutional democracy had puzzles and paradoxes, but social democracy has it own sets of serious puzzles and paradoxes that must be addressed.  Simplistically, I think you can think of the puzzles and paraxdoxes of constitutional democracy as relating to incentive alignment issues, whereas the puzzles and paradoxes of social democracy are epistemic in nature.  In both instanaces, critical analysis requires that we take an institutional perspective --- institutional problems demand institutional solutions.

I tried to stress this epistemic point in a recent review of Jack Knight and JIm Johnson's The Priority of Democracy.  From some of the comments, it appears I wasn't as effective as I might have hoped at communicating my point about the epistemic constraints (as well as incentive issues) that must be addressed if we are going to have robust political institutions.

BTW, Alex Tabarrok has an excellent discussion of the issues of the cognitive capacity of democratic institutions at Marginal Revolution.

 

 

Video of the Israel M. Kirzner FSSO Award Ceremony

|Peter Boettke|

 

Economic Forces at Work -- Armen Alchian RIP (1914-2013)

|Peter Boettke|

Though I never met Armen Alchian, he was a looming figure in my economic education.  Upon embarking on graduate study in economics, admist the required readings of a technical nature was University Economics by Alchian and Allen.  I learned quickly while it was necessary that we master the material from Henderson and Quandt, Varian, and Silberberg, it was not sufficient.  The various micro professors I had, all stressed that we learn to reason as an economist, not just learn the formal language of economists.  And to acquire that ability, they all pointed us to Armen Alchian.  We studied his textbook, we read his articles, we listened to his former students relay stories about how he taught and what he taught.  When we were studying for our microeconomics qualifying exam, my study partners often joked that we needed to do our best to become Alchian to succeed on the exam.  And, the exam format did in large part take the form of the True, False, Uncertain questions which are in University Economics and the pass rate in those early years of GMU's PhD program did not get above 50% by design.  If we could learn to reason like Alchian in tackling questions, then we could pass the exam.  If we couldn't think like Alchian, then we would need to take the exam again.  Many of my classmates needed a second or even third try.

That time spent studying Alchian (usually with Dave Prychitko, who taught me so much in the way that only peer-to-peer learning teaches) are some of my favorite memories from graduate school, and also have stayed with me throughout my career as the way I strive to reason through concrete problems in economics.  Dave and I continue to try to "be like Armen" in our various editions of The Economic Way of Thinking.  Paul Heyne in writing that book was heavily influenced by James Buchanan and F.A. Hayek, but he was also trying to fill a market niche that University Economics fell between.  Alchian and Allen was perceived as too difficult for basic principles, but not technical enough for advanced courses.  The Economic Way of Thinking from largely the same perspective of economics as a coordination problem, sought to provide the material in a way that was easier to digest for the student of basic economics.  Alchian and Allen, however, remains the original text upon which The Economic Way of Thinking draws educational inspiration.  We just finished the revisions for the 13th edition, and that influence is still evident.  Paul's message was to "Teach the principles of economics class as if it will be the last class in economics your students will ever have, and it will turn out to be the first of many."  The idea would be that students who have gotten a taste of the power of the economics from The Economic Way of Thinking, will now be encouraged to tackle University Economics by Alchian and Allen, as well as embark upon the study of thinkers such as Buchanan, Coase, Demsetz, Friedman, Kirzner, Hayek, Mises, North, Olson, Ostrom, Rothbard, etc.  In short, welcome to the wonderful world of economics and Alchian was just a giant in presenting subtle economic arguments in the most straightforward of ways possible. 

The older Liberty Fund edition of his papers, Economic Forces at Work, I believe captures his style and substance perfectly.  Alchian was just a brilliant economic mind and a master craftsman of the exposition of economic ideas.  Students today can get Alchian's Collected Works in 2 volumes through Liberty Fund.  They can also listen to Liberty Fund's Intellectual Portrait of Alchian.

Alchian conducted interviews with F. A. Hayek in the 1970s that are also very worthwhile.

Today marks the passing of one of the true intellectual giants on the second half of the 20th century of economics.

 

 

Who Wouldn't Want to Spend the Summer in the Sun? Apply to UFM Summer Programs

|Peter Boettke|

The Universidad Francisco Marroquin (UFM) runs summer programs in English for students.  I highly recommend you consider applying.  You will have the opportunity to experience Guatemala, discuss great ideas with talented and dedicated faculty, and enjoy meeting the wonderful people at UFM. 

Hayek and the Welfare State

|Peter Boettke|

I received an intriguing email last week from an individual embarking on the study of free market economics and Hayek in particular.  He was concerned because after an initial fascination with Hayek's writings, he had been alerted to the fact that Hayek did not provide a blanket rejection of many welfare state policies.  He wanted to know what I thought.  When pressed on this question, I often stress that it is important to distinguish between Hayek's own argument and Hayekian arguments.  One could offer, in short, a Hayekian critique of Hayek's own policy position.

I didn't want to stress this position at this time, and instead focused on what actually Hayek's own argument achieves.  Just imagine, seriously imagine, how different our political reality would be if all public policies had to pass through Hayek's "generality norm" critieria.  A lot, seriously a lot, of what currently gets passed through the political process will be eliminated.  Not everythihng a libertarian might hope for, but certainly a massive move in that direction.  

So yes, a national health care system might pass through the philosophical/political theory filter of a "generality norm", but I would suspect that somewhere in the range of 40-60% of what goes on in contempoary affairs in the US would be caught by that filter and would be considered illegitimate.

Besides engaging in that exercise --- which I think would be an interesting task for an enterprising graduate student to jump at --- Hayek gives another more general dilemma that we must wrestle with intellectually at that relates to general principles and counter-factual thought experiments. As he wrote in The Constitution of Liberty (1960, 258):

Those who attempt to delimit the functions of government in terms of aims rather than methods thus regularly find themselves in the position of having to oppose state action which appears to have only desirable consequences or having to admit that they have no general rule on which to base their objections to measures which appears to have only desirable consequences or of having to admit that they have no general rule on which to base their objections to measures which, though effective for particular purposes, would in their aggregate effect destroy a free society. Though the position that the state should have nothing to do with matters not related to the maintenance of law and order may seem logical so long as we think of the state solely as a coercive apparatus, we must recognize that, as a service agency, it may assist without harm in the achievement of desirable aims which perhaps could not be achieved otherwise.  The reason why many of the new welfare activities are a threat to freedom, then, is that, though they are presented as mere service activities, they really constitute an exercise of the coercive powers of government and rest on its claiming exclusive rights in certain fields.

Our task as economically informed social critics, Hayek tell us, was much easier with doctrinaire socialism and collectivism because we could easily demonstrate that they could not achieve what they themselves wanted to achieve.  But this is not the case with the welfare state, which as Hayek puts it, is not a definite system with explicitly stated goals.  The welfare state is instead a "conglomerate of so many diverse and even contradictory elements" that are sometimes compatible with a free society and sometimes incompatible.  Sorting through the contradictions, and the mixed methods used in the pursuit of welfare state programs is no easy task.   "The chief danger today is that," Hayek wrote (260), "once an aim of government is accepted as legitimate, it is then assumed that even means contrary to the principles of freedom may be legitimately employed."

So while the "generality norm" doesn't provide the same bright red-line as a doctrinaire laissez faire position would provide, it does constrain policy choice, and it sets up the constitutional project.  But the resolution of that constitutional project given the problem of establishing a "stopping argument" when that argument relies on establishing the veracity of counter-factual arguments in dealing with the seen and unseen consequences of welfare state policies. 

Center for the History of Political Economy at Duke -- 2013 NEH Summer Institute

CHOPE is accepting applicaitons for the 2013 NEH Summer Institute.  Bruce Caldwell writes:

The Center for the History of Political Economy at Duke University will be hosting another Summer Institute on the History of Economics this summer. The program is sponsored by the National Endowment for the Humanities and is designed primarily for faculty members, though three of the twenty-five slots are reserved for graduate students. Participants will be competitively selected and successful applicants will receive a $2700 stipend for attending, out of which they will pay for their own room and board. Our line-up of discussion leaders is pretty impressive, and includes scholars from economics, political science, and history. The deadline for applying is March 4.

The faculty for the NEH Summer Institute include: 

Brad Bateman, Denison University
Bruce Caldwell, Duke University
Bilge Erten, Committee of Global Thought at Columbia University
Craufurd Goodwin, Duke University
Ryan Hanley, Marquette University
Thomas Leonard, Princeton University 
Steve Medema, University of Colorado Denver 
Malcolm Rutherford, Victoria University, British Columbia 
E. Roy Weintraub, Duke University

Changes at the Review of Austrian Economics -- Editorial Board

What Are the Lessons Learned From Post-Communism?

|Peter Boettke|

Dalibor Rohac discusses this important question in ths paper just published in Economic Affairs (February 2013).  

What would you list as the most important lessons to be learned from this experience?

The Rule of Law and Economic Policy

|Peter Boettke|

In my PhD seminar Econ828 this evening we will be discussing Part II of Hayek's The Constitution of Liberty.  This section of the book raises several important issues for political economists to think about, but most important in my opinion is the quesiton of the relationship of the rule of law to economic policy.  Ryan Oprea and I actually published a paper on this topic in the Encyclopedia of Public Choice years ago.  The bottom line, in Hayek (and Buchanan) the rule of law consistently and persistently applied results in a policy regime that exhibits neither dominion nor discrimination.

Here is an old clip from Firing Line, where Hayek discusses this idea with respect to redistributive policy.