Coordination Problem

Articles of Interest

1. Pete Boettke on Hans Sennholz.

2. Bill Easterly on development assistance as a mistake and the ideology of development.

3. The costs of health care regulation in the U.S.

4. The 2007 Failed States Index.

A Riddle Wrapped in a Mystery Inside an Enigma

These were Winston Churchill's words about Russia in 1939.  The contradictions of the contemporary Russian situation are touched upon in this Dissent article.

I think the author raises some interesting points, but I disagree on some significant empirical facts and also find the interpretative framework the author is working with to be less than persausive.  Nevertheless, the Russian conundrum is worthy of serious study among political economists.

Wimbledon Underway

There are four major professional tennis tournaments in the year.  Arguably the most prestigious of the titles is being played right now --- the All England Tennis Championship.  I am pulling for Federer to win again -- as my good friend and co-blogger Fred knows (to his dismay) I tend to pull for the favorites and against the underdog.  I hate when the underdogs upset the top players --- unless the underdog is a new upcoming star who actually is displacing the top players.  So when Federer beat Sampras at Wimbledon several years ago, I was disappointed but awed because of his ball striking ability.  With Federer, I simply believe he is the most beautiful tennis player I have ever seen --- his footwork is flawless.  I was a huge Borg fan in the 1970s, Sampras in the 1990s, and now Federer.  I love to see perfection and dominance in sports --- it is just so unobtainable and when someone seems to obtain the unobtainable I believe it shows the possibilities in human achievment.

Boom and Bust Explanations Back in Business

Several friends have alerted me to this WSJ blog entry on the revival of the Austrian Theory of the Business Cycle taking place.

Hans Sennholz -- 1922-2007

Hans Sennholz was a GREAT teacher.  And outside of my father, he probably had more influence on my life than any other male figure.  I often pray that I will eventually be half the man my father was, and I would like to be half the economic communicator Hans Sennholz was.  I have a long way to go on both fronts.  May God Bless Your Soul Dr. Sennholz.

If it works for Dr. Dre and Snoop, why not us?!

This post at Organizations and Markets explains the attention grabbing benefits of a certain word.

The basketball coach Bobby Knight once explained why he used this word so often, and he said it was the most versatile word in the English language and then he proceeded to demonstrate the various uses and the different emotions the word could capture from anger, to dismay, to surprise.

What Do Economists Have to Say About Global Warming?

The Hoover Digest has three articles in the Spring 2007 issue that give a pretty good sense of the range of views on the microeconomics of the issue --- by Gary Becker, Richard Posner and Terry Anderson and Bob McCormick.

Who do you think has the better of the argument?

Anarchy on Primetime

Dani Rodrik blogs today on the possibility of anarcho-capitalism. Although he comes down on the side that it won't work, I'm delighted to see an economist of his quality and caliber engaging this issue directly. As Rodrik summarizes his skepticism of market anarchy:

"My mind cannot stretch that far. We know from game theory that self-enforcing agreements become impossible to maintain as the number of participants increases and mobility rises--precisely the conditions under which markets deliver the goods. The alternative is third-party enforcement of contracts. And I would rather rely on a democratic state than on the mafia to do the third-party enforcing."

His comment points to the two critical obstacles that market anarchists must confront: (1) the problem that large, socially heterogeneous populations pose for self-enforcing arrangements;(2) the problem that violence/strength disparities pose for these arrangements of self governance.

Standard folk theorem-type mechanisms, such as reputation, can secure 'good' conduct when populations are small, agents are socially homogeneous, and individuals have roughly equal physical strengths. However, as I have pointed out in previous research, such mechanisms break down when these conditions are violated.

Unlike Rodrik, however, I believe that economic logic and evidence support the contention that anarchy is capable of overcoming both of these obstacles, which would otherwise prevent widespread cooperation without government.

This argument is the focus of my research. "Social Distance and Self-Enforcing Exchange" (forthcoming in the Journal of Legal Studies) deals with how anarchy solves the problem associated with large and socially heterogeneous populations. "Trading with Bandits" (forthcoming in the Journal of Law and Economics) deals with how anarchy solves the problem associated with threat of violence when agents have disparate strengths.

These papers argue that the breakdown of folk theorem-type mechanisms of cooperation under conditions of large numbers, social distance, and disparate strengths does not prevent individuals from developing alternative (non-folk theorem based), private institutional arrangements to enable cooperation and make exchange agreements self-enforcing in the absence of government.

In addition to these papers, important research by Chris Coyne, Ben Powell, and Ed Stringham also examines the robustness of market anarchy and finds reason for optimism.

One computer technician in Romania says this work is "not very impressive." Fortunately, the appraisal of actual researchers is more favorable.

Economics, Cognition, and Society

The ECS series from University of Michigan Press has long been one of the most innovative book series in economics.  Timur Kuran founded the series over a decade ago.  I was recently appointed as an editor of this series by University of Michigan Press and Timur and I will share the editorial duties.  I am absolutely thrilled to be associated with this book series.

Timur Kuran is moving to Duke University, where he will be both in Islamic Studies and in Economics.  I have long argued that Timur is among the economists and political economists of my generation among the most creative and insightful thinkers.  Congratulations to Duke and to Timur for the move.

I recently purchased the Oxford Handbooks in Political Science.  From my quick look into them, these will be important reference works for my own research and teaching.

Finally, my colleague Bryan Caplan's The Myth of the Rational Voter has made a major splash and rightfully so.  I read the book in ms form several times and I have read it again in final published form.  Bryan is brilliant and his book is well written and bold.  He and I have our disagreements over the role of Austrian economics in the broader academic discipline of economics and political economy.  But Bryan's major complaint about me is that I attribute to him Austrian positions which he doesn't agree he is adopting.  I think it is because he has too narrow a definition of Austrian, he argues I have too wide a definition.  So he will not be surprised, though he will be slightly bothered (though I am sure not surprised) that I would consider his book fundamentally Austrian. Why?  It is methodologically individualist.  It focuses on the cognitive limitations of man.  It asks us to think not only about the material incentive issues that actors face in making decisions, but also the information they use in the context of that decision. It follows an invisible hand set of explanation to discuss the market order.  And, Bryan isn't shy about referencing major Austrian writers, such as Mises.

Bryan's case against Austrian economics has its strong points and its weak points, and today is not the day to rehash them.  But just today I was watching the Liberty Fund DVD interview with Armen Alchian as I was doing my morning exercise bike ride.  It struck me that Alchian's discussion highlighted so many points in common with the Mises/Hayek perspective on the market process.  And that led me to a clearer understanding of my own position with regard to Austrian economics in the academic world today.  I think of economic concepts from thinkers as so many pairs of underwear.  I tend to like a particular brand, but I don't wear the same pair everyday.  I change underwear!  Ideas are either useful for particular purposes or not, when they are not useful, we would do well to change them just as we do our underwear.

If some aspects of Mises, for example, are useful, we should use them, but those parts that are not useful for our purposes why should we worry about discarding them?  Similar with Hayek, Rothbard, Kirzner, or whoever.  Thinkers are not completely bundled goods, we can unbundle them for different purposes.  So if I like Rothbard's vision of politics, but Hayek's analysis of spontaneous order; or Kirzner's presentation of the competitive entrepreneurial process, but Rothbard's understanding of monopoly, why cannot I blend to offer my own rendering of politics, law, markets, and history?  Caplan argues that by adding systematically biased beliefs into the mix, the rational choice stew will taste significantly differently, and it does.  But he is still a methodological individualist, and he still is in the rational choice framework of political economy.  Bryan Caplan isn't an Austrian in the same way that I am not an Austrian, and for that matter neither was Mises or Hayek, or Rothbard, or any thinker over the past 100 + year history of the Austrian school that tried to make a contribution to scientific knowledge and/or political understanding.

Caplan's book should be on everyone's reading list this summer.  A brilliant mind tackling a hard persistent problem in political economy results in a refreshing outlook and strategies for wrestling with the problem.  We don't see eye to eye on some of the solutions, but I applaud Bryan for his courage in pursuing the logic of his argument and also for the general thrust of comparative institutional analysis in his work that views the market as a more effective decision making context for weeding out error than politics.  I don't know if Bryan will admit to being an Austrian, though the Austrian influence on him is real and not imagined and evident throughout his work. But it doesn't really matter.  Instead, what matters is that Bryan has produced an original and thought provoking book in political economy that demonstrates that he is a very good economists (no hyphen needed).

Congratulations Bryan!

All that promise that we were first exposed to when your undergraduate thesis was circulated around by Sheldon Richman has not only come true, but exceeded even the high expectations that work created among my generation of Austrian and libertarian thinkers.  I count myself as very fortunate to have colleagues like Bryan.

P.S.: Look for Bryan's podcast with Russ Roberts next week.

Now That is What I am Talking About! The Bob Higgs Version

Bob Higgs offers a reflection on Madison's paradox of government.