Coordination Problem

Clarification on Ben Powell's new faculty post

Some individuals got the wrong impression on my post on Ben's movement from SJSU to the Beacon Hill Institute at Suffolk University.  Ben is NOT leaving academics.  In fact, the opposite is true.  He is now teaching in a PhD program.  Beacon Hill Institute is a public policy "think tank" located at Suffolk and Ben will be a fellow there as well.   But his post is an academic tenure track professorship in the economics department.

Ben's move from SJSU to Suffolk adds to the number of GMU graduates currently teaching in PhD programs.  Counting only graduates since 2000, the number is now 2 overseas and 4 domestic (UC-Santa Cruz, WVU, GMU, and Suffolk).  During the period from 1983-2000, the number of GMU graduates that obtained faculty positions at PhD granting institutions was limited to 4 (NYU, U Conn, and Oaklahoma (2)) to the best of my knowledge.

The Value of Economic Communication

George Mason University is a unique culture among economic departments.  Scientific contributions to the discipline of economics are valued, but not exclusively.  Instead, the culture at GMU has always valued interdisciplinary scholarship, writing to the general public, public policy analysis, and teaching of basic economics.  This is a department that has been the home for over 20 years of James Buchanan and Walter Williams, and today is the home of Thomas Stratman (a leading figure in contemporary public choice analysis) and Tyler Cowen (perhaps the top economics blogger and columnist for the NYT).  We can boast of being the home to individuals who regularly publish in the AER and others who regularly appear on NPR.  Vernon Smith and Russell Roberts call GMU economics their home.  In fact, at GMU many of the top academics by standard measures are also those who cherish their role as communicators of economic ideas to the widest possible audience.  Our Nobel Prize winners -- Buchanan and Smith --- publish op-eds in the Wall Street Journal and Tyler Cowen has not only published in the AER and JPE, but has been the feature of several articles in the popular press for his work on culture and also his ethnic food guide.

GMU is indeed a very unusual place in terms of the respect given to a variety of intellectual activities as economists.  I think this is because we share in common as a faculty a commitment to the truth content of economics.  I heard Gary Becker once claim that the most important lesson he learned from Milton Friedman was that economics was not just an academic game to be played by clever people, but instead was a discipline of extreme importance for understanding the real world.  This lesson Becker learned from Friedman is also what the people at GMU are committed to --- and several of them might have learned it from Milton Friedman as well since they studied at Chicago, with with Friedman influenced economists at UCLA, UVA or VPI.  When I was a student in the early 1980s at GMU, I was told by both Dwight Lee and Thomas DiLorenzo that the goal for an economist was to publish 3 papers for every topic you were exploring: an academic paper, a policy paper, and an op-ed.  DiLorenzo constantly stressed that we should be getting our research topics by looking out the window instead of looking on the blackboard, and that it was no sin to write clearly and forcefully about economic affairs.

One of the really great communicators of economic ideas is currently visiting GMU for the next month --- David Henderson.  Today he gave a wonderful talk on "How to Communicate Economic Ideas" to some faculty and graduate students.  David stressed not only topic choice and gave tips on good writing for the general public, but also stressed professionalism in meeting deadlines and commitments.  It was an informative and inspiring talk.

To underline just how interesting the environment at GMU can be consider that this term we have as visitors William Easterly (who taught a seminar class on economic development), Mario Rizzo (who taught a course on Ethics and Economics), and David Henderson (who is here finishing up the editing of The Concise Encyclopedia of Economics, etc.).

And I think out of this mix, you get students who upon finishing their graduate studies are committed teachers, dedicated scholars/scientists, and hard-working writers of economics that focus on the craft of writing and publish journal articles, chapters in books, books, policy papers, and op-eds.  Just look at the range of intellectual activity that recent graduates such as Ben Powell have engaged in since leaving GMU.  He published all 3 of his dissertation papers in refereed journals, and published new papers in journals such as JEBO, JOURNAL OF LABOR RESEARCH and PUBLIC CHOICE, but he also directed a center on entrepreneurial innovation at the Independent Institute, was instrumental in developing one of the most innovative graduate programs at the MA level at SJSU, edited books, published op-eds, wrote policy papers, appeared on radio and TV, and gave numerous public lectures ranging from real estate policy to the plight of the least advantaged in developing economies.  Powell is following the Lee/DiLorenzo model far better than I ever could and in the process has developed an international reputation as one of the really dynamic young free market economists. 

Ben will now be taking his considerable talents to the Beacon Hill Institute at Suffolk University.  This is a devastating loss to the program that Ben built at SJSU, but a huge coup for Suffolk.  David Tuerck at Suffolk proved to be more entrepreneurial than the folks at SJSU.  Creative destruction --- it happens, and it is beautiful.  Hopefully the folks at SJSU will respond to the competition and realize what they need to do to rebuild their program to build on the remaining strengths of Ed Stringham, Ed Lopez, and Jeff Hummel.  They need to hire a replacement for Ben (no easy task) and they need to build on those faculty assets that had students from around the US and the world looking at SJSU as a viable graduate school option.  It will be very interesting to see what SJSU does next year in the academic job market.  SJSU at its best had faculty committed (like we do at GMU) that views economics not as an academic game to be played by clever people, but a discipline essential to our understanding of the world around us.  But academic myopia can get in the way of acting consistently on that commitment --- either because of petty jealousy, ideological insantity, or just incompetence.  I wish SJSU the best in trying to fill the void left by Ben's departure in a productive way.  But I also want to congratulate Ben, David Tuerck, and Suffolk University for valuing excellence in the discipline of economics and the ability to communicate economic ideas among scientific peers, public policy decision makers, students, and the interested layman. 

An Additional Academic Move Announcement

Pete Leeson challenged young Austrians to stop trying to write philosophical arguments.  I disagree with Pete on this, but I agree that if you are going to write philosophical papers you better engage in serious philosophical study.  I've written my share of philosophical papers in the social sciences and political theory, but I also spend a lot of time reading philosophy, and formally studied philosophy at both the undergraduate and graduate level.  But I am certainly no philosopher --- in fact I am in awe of sophisticated philosophers.

One of my former students Sahar Akhtar decided half way through completing her PhD dissertation in economics that her true intellectual passion was to work on philosophical topics.  Several of us at GMU advised Sahar to pursue economics and write philosophical papers on the side (as Tyler Cowen and David Levy have done). But Sahar resisted that advice and instead went off to Duke to earn a second PhD in philosophy.  During the process she has taught economics and philosophy courses over the years both at Duke and at Davidson College.  She is an outstanding teacher, insightful and serious scholar, and an absolutely wonderful person.

Well Sahar earned a PhD in philosophy and is now joining the faculty at William & Mary College in 2008 (after spending a year at Brown University on a research fellowship).

Congratulations to Sahar! She proved us all wrong, and in the process made us all very proud of the small role we played in the development of this brilliant young woman.

Academic Entrepreneurship: Organization Theory Style

We are all act as entrepreneurs as we strive to better our situation.  As Kirzner states it, individuals will be alert to that which is in our their interest to be alert.  This is no less true for the scholar than it is for the businessman.  In fact, many great careers have been built in academia by arbitraging between two previously separated disciplines or thinkers and finding common ground and then building a creative synthesis.  One example would be Oliver Williamson, who was able to bridge a gap between business history (Chandler) and transaction cost economics (Coase) and develop a modern theory of economic organization that moved beyond the firm as a set of production functions and instead opened our eyes to managerial strategy and organizational form.

Among those influenced by Austrian economics, Nicolai Foss has always impressed me as a great arbitrager.  From his dissertation work on, he has always demonstrated an ability to see connections that to others might be hidden from view, but once he exposes them they appear obvious to informed readers.  It is a very wonderful trait to have as a scholar. 

Foss and Peter Klein host a great blog spot entitled Organizations and Markets and recently Nicolai had a very insightful discussion of the treatment by James March and Herbert Simon in their classic work, Organizations, of the socialist calculation issues as they relate to planning both at national policy level and inside the firm.  As Foss points out, March and Simon argue that even if the motivational problem associated with planning could be solved, there would remain a coordination problem that must find a solution. 

Ironically, Gordon Tullock (a scholar closely associated with arguments about the perverse incentives of government policy making) makes a similar coordination based argument in his The Politics of Bureaucracy rather than just an incentive argument to explain the dysfunctionalities of large bureaucracies.

One of the really interesting "facts" about the social calculation debate is that Oskar Lange argued in his original paper that raising questions about motivation would entail abandoning the economic argument and instead move the debate to one concerning psychology and sociology. The modern reader is likely either to gloss over this, or find it confusing.  But that is because they are failing to appreciate the scholarly context of the time.  The value-freedom discourse of the time (1900-1950) meant treating ends as given and limiting analysis to the effectiveness of the choice of means to satisfying given ends.  Questioning the ends of the planner would entail a violation of value-freedom.  This was consistent with the  philosophical perspective that Mises and Hayek followed so their critique of socialism did not entail a critique of motives, but instead assuming high minded motives they questioned how effectively those ideals could be satisfied with the means of socialist inspired policies.

So when Foss even more recently refers to Cowen's discussion of the calculation debate and raises the question of the rational choice planner setting the price below the market clearing levels to maximize rents (an idea that was developed independently by both David Levy and Andrei Shleifer in the early 1990s, though it has its roots in the work of Janos Kornai), I think it should be recognized that the state of play on argumentation had shifted.  Value-freedom was no longer a consequence of argumentative strategy, but now a consequence of certain techniques and procedures of 'testing'.  Intellectual space was opened for public choice issues because the ends being pursued could be treated as a hypothesis to be tested, rather than as an end to be given.  But this subtle shift in the world of ideas is rarely recognized by scholars such as James Buchanan, Bryan Caplan, Tyler Cowen, and David Levy when they insist that motivational issues should take priority over calculational issues in the critique of socialism.

One of my favorite passages from Human Action (1966, 692) reads as follows: "This inference [that the state should run all plants and farms] became logically inescapable as soon as people began to ascribe to the state not only moral but also intellectual perfection. ... But things became different as soon as people  began to ascribe to the state not only the best of intentions but also omniscience. Then one could not help concluding that the infallible state was in a position to succeed in the conduct of production activities better than erring individuals.  It would avoid all those errors that often frustrate the action of entrepreneurs and capitalists.  There would no longer be malinvestment or squandering of scarce factors of production; wealth would multiple.  The 'anarchy' of production appears wasteful when contrasted with the planning of the omniscient state.  The socialist mode of production then appears to be the only reasonable system, and the market economy seems the incarnation of unreason."

There were two ways to challenge this state of play in the intellectual world -- one was to leave alone the assumption of benevolence and challenge the assumption of omniscience (the Austrian approach), while the other was to leave the assumption of omniscience in place and challenge the assumption of benevolence (the public choice approach).  From a philosophical point of view, the public choice approach violated the strictures of value-freedom and entailed attributed ends to ones opponents in a debate. However, it turned out to be accurate that many of the perversities observed in practice were due to misaligned incentives.  Still, the Austrian approach identifies a set of problems that occur even if 'angles' were put in charge and these are concerns that in my opinion should not be forgotten.

In fact, in my attempt to synthesize market process and public choice theory into a framework for political economy analysis I follow a "rule of 3".  I give intellectual priority to the Austrian criticism based on means/ends analysis on the first two cuts of an argumentative engagement with a policy opponent. But if after a clear-cut demonstration that the means chosen are ineffective with respect to the stated ends sought is made (and then repeated), then it seems appropriate to questions whether the stated ends are the real ends being sought by the decision-makers.  The Austrian critique of omniscience opens up to a discussion of means/ends, which then gives way to a public choice critique of benevolence.

Austrian Virtues

After two weeks of intense discussions, Pete Boettke and I would like to close the debate (for now at least) by providing a four-pager on Austrian virtues that we hope will be shared by most of those interested in the ideas of the Austrian school. The strategy to adopt to push forward Austrian ideas is in itself a discovery process. There are different views out there and each of them has strengths and weaknesses; only time will tell. Our view represents some middle-of-the road position, which we hope will succeed in the next 50 years in putting the Austrian school on every economist’s lips. This is our entrepreneurial bet.

Thanks to everyone involved. To read it, Download austrian_virtues.pdf.

Narratives of Academic Climbing

David Colander often refers to the brass ring in academics as tenure in a top 20 research department. These are the best jobs in academics for economists. The pay is very good, the teaching loads are light, the students are brilliant (both graduate and undergraduate), and the resources available to faculty to support research and travel are phenomenal.

The top 25 liberal arts colleges might have brilliant students, but the teaching loads are  heavy and the pay is lower.  Business schools tend to be good on teaching loads, resources and pay, but not great with respect to students.  Mid-level state universities might pay market rates or slightly below, but the teaching loads are higher, students are mediocre, and the environment is often less than desirable.  Colander is right, there is simply nothing like teaching at a school like Stanford, Harvard, Columbia, Princeton, etc.

Let me be clear about something, NOBODY SHOULD EVER COMPLAIN ABOUT ANY COLLEGE TEACHING JOB.  It is the greatest job on earth.  We get paid to work with young people, talk about ideas we care passionately about, choose to write on subjects that are of interest to us, and pretty much set our own hours.  But within the academic world there are some jobs that are more desirable than others, some jobs that have more influence than others, and some jobs that are personally more rewarding.

I have taught at a small college, a large research private university, a mid-level business school within a state university, and a large research state university.  As a teacher of undergraduates I think the best experience would be in a small liberal arts college.  But as much as  I enjoy teaching undergraduates, to me there is nothing like working with enthusiastic and bright graduate students who themselves are striving to become college professors.  I love teaching graduate students.  And I think most of my students see the enjoyment that I have working with them and they would like to pursue a similar career path.  So it is with great excitement that I announce the moves of several of my former PhD students, 4 of whom will now be working with PhD students, and 1 will be working with elite undergraduates.

Peter Leeson will be moving from WVU to join me at GMU as an Assistant Professor of Economics. Pete will be teaching an undergraduate course in international development for the Global Affairs Program, an undergraduate course in Austrian Economics, and PhD level courses in Development Economics, and Political Economy and Public Policy II.  Pete joins a faculty that can boast of 2 Nobel Prize winners, some of the most recognizable names associated with the discipline in the mind of the public, top programs in law and economics, public choice, religion and economics, history of economic thought, cultural economics, economic history, and Austrian economics.  GMU is the best weird place to study economics in the world.  The hiring of Pete just made us "weirder" and "bester".  If you are serious about studying economics and political economy, I do think it would be hard to beat GMU.  I cannot wait for Pete to get here.

Chris Coyne will be moving from Hampden Sydney College to West Virginia University, where he will replace Pete Leeson and work with Russ Sobel to continue to build WVU into one of the really great programs world-wide in applied political economy.  Russ is arguably the leading empirical public choice economist of his generation, and Chris is in my opinion among the most insightful big-picture political economists around (see his book AFTER WAR: The Political Economy of Exporting Democracy and Markets [Stanford University Press, 2007]).  The two of them together -- along with the other great colleagues at WVU -- will continue to build that program into a major research center.  Chris will be teaching the PhD course in development economics at WVU starting next fall.  Graduate students will flock to WVU.  It is a great atmosphere for learning, you have great professors, and the program does an excellent job of training its students.

Ben Powell will be moving from San Jose State University to Suffolk University in Boston. Suffolk has established a PhD program in Public Finance and Political Economy, and Ben will work to build that program into a national and international program.  He has already secured funding for graduate assistantships.  Students who go to Suffolk will learn a lot from Ben and be able to contribute not only to the scientific journals, but also to the public discourse about policy in an effective and sophisticated manner.  BTW -- Ben was absolutely FANTASTIC on Showtime's Penn and Teller show on sweatshops.

Virgil Storr will be moving after years of working in the private sector to join the faculty at the Mercatus Center at George Mason University to head up our new graduate student programs. Virgil is already the author of 1 book, he has 2 additional books in the works and several articles that he is working on with our students.   He is an extremely creative and thoughtful interdisciplinary scholar.  An outstanding colleague to work with, it will be a real joy to have this chance to work closely with him again, and also to see him build this gradaute student program.

Scott Beaulier will be moving from Mercer University to Beloit College in Wisc., where he will join Emily Chamlee Wright and Josh Hall to form one of the really dynamic trios in college teaching.  Scott is an oustanding teacher and scholar (and it turns out one helluva a long distance runner as well!).  I am sure we will have streams of students from Beloit coming to GMU.  Virgil was one of those Beloit students not that many years ago, and even more recently Emily has sent several students to work at Mercatus and IHS.  I think Beloit might now be the undergraduate college of choice for bright classical liberals with the 3 of them teaching there.

Enough bragging from a proud former teacher of these wonderful individuals.  But these guys are all fantastic teachers and scholars of economics and they care passionately about their craft and about liberty.  They are now in leveraged positions to influence undergraduates and graduate students for the betterment of the human sciences and for the advancement of the intellectual case for liberty.  There just is no room for pessimism and nay-sayers; the future is very bright indeed.

Colander's brass ring still eludes capture by young Austrians, but we are getting closer by moving to more leveraged horses on the academic merry-go-round.  If we can use our existing footholds to encourage in our young students a vision of social change that combines Nock's notion of the remnant with Pareto's notion of the elite, then perhaps the brass ring will be firmly in our grasp and the scientific, intellectual and policy world will move even further in our direction over the next decade.  When you meet young people such as Pete, Chris, Ben, Virgil, and Scott (let alone Ed Stringham) you cannot help but believe that anything is possible and in fact is very likely.  We might not call it Austrian economics when it gets to being taught regularly at Harvard, but if it walks like a duck, quacks like a duck, looks like a duck, it will be a duck whatever we call it!

Why Tony Evans Doesn't Just Channel J. B. Say, but Ludwig Lachmann as Well

This blog has been hosting a "debate" of sorts lately about the very meaning of Austrian economics and also the direction of future research in Austrian economics.  In my opinion, some smart things have been said, some dumb things have been said -- as is standard for internet discussions.  Tony Evans, another of the up-and-coming generation of young Austrians trained at GMU (though fast establishing his own independent line of research and teaching that befits the sort of creative and intelligent individuals that I've been lucky enough to work with here at GMU) sums up the issues very nicely and wisely -- (thus the reference to Ludwig Lachmann).  Tony currently sits in the seat of J. B. Say at the European School of Management (the school Say founded as the first school of commerce in Europe).

More from Dan Klein

Dan Klein has posted a response to several of the comments on his "Austrian Vices" post.  He specifically focuses on the comments by Adam Martin and Charles Steele.

What does it all mean?

As promised Fred and I will have a more detailed response to the list of vices and the virtues of Austrian economics -- old and new.  But in my PhD course in The Austrian Theory of the Market Process we spoke today about Disequilibrium, Strategizing, and Profit, and in particular learning within firms and markets.  The issue of the use and abuse of equilibrium models was of course discussed at length, as the book and other readings, addressed the inability of such models to adequately treat firms, managerial strategizing, and competitive advantage for profit.

In the discussion, I returned to an old theme of mine on equilibrium models which divides their use into "descriptive as-if" (Chicago), "normative benchmark" (Market-failure), and "analytical foil" (Austrian or older neoclassicism).  The critical issue, to me, is that Walrasian exercises require a pre-reconciliation of plans prior to transactions, whereas in the market process tradition the point of economics is to explain the reconciliation process that transpires in the market.  Adam Smith talked about the bargaining process, Hayek used the term catallaxy to describe the market order, and Mises suggested that market theory and the price system can be captured under the heading catallactics.  Exchange and the institutions within which exchange takes place.  This is the core idea of the subject matter, subjectivism, heterogeneity, calculation, etc., are all vital concepts to understanding how the market system can generate social cooperation under the division of labor.

As Gerald O'Driscoll titled his brilliant dissertation from the 1970s, Economics as a Coordination Problem and that remains the fundamental issue we are trying to deal with as economists and political economists --- what institutions promote (hinder) the coordination of diverse (and often divergent) plans among numerous and heterogeneous agents through time so as to produce social harmony and greater prosperity (social conflict and poverty). 

New Paper on Anarchy, etc.

I have a new paper forthcoming in the Journal of Institutional and Theoretical Economics on anarchy entitled, "Anarchy, Monopoly, and Predation." To read it, click here. My paper builds on Ed Stringham's excellent piece on vertically-integrated proprietary communities published in JITE earlier this year. Here's my paper's abstract:

The ‘folk theorem’ suggests that the shadow of the future coupled with the threat of lost business can create cooperation without government. Although institutions rooted in this theorem can support self-enforcing exchange in a wide variety of contexts, their potential to create cooperation is not limitless. In particular, the folk theorem may break down when some agents are physically stronger than others. Stringham’s [2006] system of vertically integrated proprietary communities relies on the folk theorem to prevent proprietors from preying on their customers. I show that while innovative, this system does not work. A monopoly proprietor maximizes profits by optimally extorting his tenants in violation of voluntary contracts.

As a side note, Pete B.'s recent post that mentions Ed Stringham and Ben Powell made me think for a moment about Salerno's comments on the research program that Boettke and I have proposed young Austrians pursue. Stringham and Powell are both excellent examples of precisely the kind of research we are advocating and both do a superb job of avoiding the Austrian vices (certainly a better job than I do). Both Stringham and Powell also agree wholeheartedly with my list of Austrian vices.

I mention all of this for two reasons. First, along with Pete B. I wonder, would Salerno also refuse to consider Stringham and Powell Austrians? Second, either way, things aren't looking so good for his very narrow conception of Austrian economics, or what could more accurately be called "history of Austrian thought."

It seems that the majority of the young professors (30 or under) who are actively publishing, influencing students, and consider themselves Austrian are advocates of what Boettke's last post describes in terms of research, or what Salerno called "Post-Modernist Austrian" economics. So, to paraphrase Joe's comment, perhaps water has already run its course. The New Austrian economics is already here.