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« Remembering an Intellectual Hero - Julian Simon | Main | The Economic Emperors Have No Clothes: The Brilliance of James Buchanan »

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Glad to see Jim writing about this and look forward to reading it. It is a little annoying that he lumps all economists together, and ignores those who have been writing about the crisis and offeringa dissenting diagnosis.

Nice find, Steve (via TC). This, I think, is the real gem:

"[A]ggregate variables that may be measured with tolerable accuracy ex post may not be variables subject to control, directly or even indirectly."


Meanwhile, at Think Markets DeLong wrote: "You can argue that it is a *bad idea* to create jobs for people right now by boosting government spending–that if they stay unemployed until private enterprise recovers and hire them that they will get better and more productive jobs."

DeLong thinks this is wrong, of course, but if he and like-minded colleagues can at least recognize this as part of a coherent argument against "stimulus" (something he acknowledges), then I'd say that we have a starting point -- a starting point for closing some of the gap between the pro-stimulus arguments and what Buchanan points out above.

In other words, someone of DeLong's ilk would still argue for deficit spending in order to boost certain aggregates, but the key issue is getting the "other side" to acknowledge the degree and kinds of uncertainty involved. Until that happens, there is no debate.

"The ‘economic problem’ is not (despite Lionel Robbins) an engineering problem that may be defined simply as the allocation of scarce resources among alternative uses."

This is really key. Robbins -- under the influence of Mises -- really damaged economics when he persuaded the profession to misunderstand the explanatory problem of economics. The central explanatory problem of economics is NOT a problem of explaining individual behavior or individual action -- the central explanatory problem is to explain the production of over-all economic order produced without a designing mind (along with explanations for some patterns of disorder within this overall order). I.e. Hayek & Smith, not Robbins & Mises.

Note that this account of economic science provides a scientific problem similar in structure to that Darwin's combined problem of a causal explanation for the patterns of adaptation and speciation without appeal to a designing mind.

Greg Ransom said: "The central explanatory problem of economics is NOT a problem of explaining individual behavior or individual action --- the central explanatory problem is to explain the production of over-all economic order produced without a designing mind "

Oh really? And what is this "economic order" comprised of if not individual humans purposefully acting? The only way to explain the "economic order" is within the framework of human action.

And I guess Austrian price theory and the Calculation problem is not an explanation of this "economic order"?

And how exactly do you read your Hayek? upside down? Where are these strange dichotomies such as Hayek vs Mises on these issues coming from?


Rothbardian 100% reserves and narrow banking surely aren’t libertarian or optimally efficient. But I wonder if, in the face of anti-banker populism, such an approach might be a second best solution in an era where ending the Fed is not in sight.

It would certainly leave more capital idle than real, honest free banking, but if it could theoretically end or dampen the business cycle and it’s waves of Higgsian crisis/leviathan ratcheting, maybe it’s not such a bad halfway house.

Is there legitimacy in that line of thinking?

John Papola,

It is absolutely legitimate to be asking these questions.

I don't think there is any consensus among free market people on banking. Many actually continue to support the current system.

Any 12-step program begins with acknowledging one has a problem. We have a banking and monetary problem.

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