Coordination Problem

BBC 4 Episode of "Analysis" on Austrian Economics

Steven Horwitz

While I was in London earlier this month, I was interviewed by the BBC for a program on Austrian Economics that aired today.  You can find the audio here.  Other names you'll recognize include Larry White, Bob Higgs, and rappin' John Papola.

A Proposed Fix for a Balance Sheet Recession?

|Peter Boettke|

Vernon Smith proposes that in a world of imperfect policy choices, but within the reality that a choice will be made nevertheless, that rather than a scattershot fiscal "stimulus" we would do better to target households and in particular the problem of homeowner negative equity.

Before commenting, remember that Smith agrees that policies that bailout anyone (banks, firms, households, etc.) are problematic.  He is discussing a policy choice within the context of choosing the least bad option, and not the first best possibility.

I disagree that the "recalculation" process will necessarily be long and result in the destruction of wealth creating opportunities, just as I disagree that the Great Depression provides evidence on the "recalculation" process, rather than what happens when government continues to attempt to off-set that "recalculation" process.  But I also understand that this historical interpretation is an on-going debate among economists and historians.  I imagine that the Great Recession will also be the subject of an on-going debate for decades to come, just as the collapse of communism and the failure of development planning are subjects of heated debate.

First, what do you think about Smith's proposal within the context he proposes it?  Second, what do you think is the best way to tackle the thorny empirical issues that would address the historical narrative in a way that might move the debate over both the Great Depression and the Great Recession toward resolution?

Anarchy, Order, and/or Chaos in Egypt?

Steven Horwitz

I've only been following developments in Egypt lightly, but the most interesting stuff I've read this evening is about the way in which various "neighborhood watch" groups have sprung up to defend their areas from looters (who apparently are often government thugs promoting more chaos) with both weaponry and ID-checkpoints.  They are wearing white armbands to identify themselves as forces of order.  In the absence of any legitimate state to enforce the basic rules, people are drawing upon pre-existing, but often hidden, instititutions to maintain order.

I wonder whether our in-house experts on evolved norms and self-governance, especially Professor Leeson, have been watching this development and have any insights.  And I also wonder how this compares to what we saw in parts of New Orleans after Katrina.

What do the uprisings of Egypt tell us about our theory of political revolution?

|Peter Boettke|

The recent events throughout Egypt are problematic for the US government as it exposes the hypocrisy of the rhetoric of being a shining light for democracy and free markets, and the reality of geopolitics.  But the events also highlights critical issues in the social sciences about the theory of social change and our ability to engage in predictions of such events.

The Charles Tilly thesis about "dual power" is one theory of revolution, but another theory of revolution that has intrigued me from my first reading is that of Timur Kuran's and his challenge that revolutions defy prediction due to the phenomena of preference falsification.  In the Tilly rendition, if you specify the existing conditions and claims to power, one can predict revolutionary action; but in the Kuran version knowledge of the pre-existing conditions would not enable reliable prediction.

Check out Kuran's classic paper, "Sparks and Prairie Fires."  Would you argue that what we are witnessing is a consequence of immiseration, dual power, or a sudden shift in preference revelation? 

 

Study the History of Political Economy Young Aspiring Economists

|Peter Boettke|

Jacob Viner as early as 1950 presented "A Modest Proposal for Some Stress on Scholarship in Graduate Training" at the Brown University Graduate Convocation.  Rather than training technicians, the PhD process in economics would do well to acquaint students with knowledge of the "history of the working of the human mind" in that discipline as revealed in the published record.

Needless to say, graduate programs did not follow Viner's proposal.  Instead, graduate training moved in the diametrically opposed direction and focused on training economists as technicians.  Viner just wants young economists to be not only competent teachers, skilled technicians, and prudent practitioners, but also scholars.

There has been some backlash against the exclusive emphasis on training technicians through the years.  David Colander and Arjo Klamer's The Making of An Economist as well as Anne Krueger et al "Report on the Commission on Graduate Education in Economics," JEL (1991).  And, of course, Deirdre McCloskey has led an almost one person campaign to try to right what is wrong about the way we teach and do economics since the 1980s.  Sensitive individuals within the profession may lament, but the practice of graduate education in economics did not bend in the direction desired by those who want to see a broader educational focus in graduate training and in particular a modest return to some emphasis on scholarship in the training of PhDs.

I was on the faculty at NYU, and in fact the teacher of the course, when History of Economic Thought was killed as a requirement.  The pivotal figure in the faculty vote was none other than William Baumol, who himself had made significant contributions to that field.  His argument was straightforward --- the opportunity cost of learning history of economic thought had simply become too high for young economists to justify the trade-off in the curriculum.  That happened about 15 years ago, and NYU was late to the process.  I joined the faculty at GMU, and within a few years the same decision was made about the history of thought requirement.  But given our student population at GMU, the decision did not eliminate the demand for the courses for history of political economy.

And over the past 15 years, the History of Economics Society has continued to grow as a vibrant academic society.  International societies have grown in membership, and new journals have been established.  At GMU, e.g., the opportunities to study history of economic thought/history of political economy has grown as in addition to our two course offerings in history of thought, students can also take courses in Smithian political economy, courses in constitutional political economy, and of course, Austrian economics.  None of these are part of the required core, but they represent part of the wide variety and diversity of elective course offerings.  Students can also participate in the Summer Institute that David Levy and Sandra Peart run, which for many years was held at GMU and now at the U of Richmond.

Outside of GMU, opportunities to study history of political economy have expanded as well both in programs in the US and even more so overseas.

Bruce Caldwell has helped establish the Center for the History of Political Economy at Duke University a few years ago, and last summer ran a program in history of thought for college teachers and graduate students.  Duke has long been the established intellectual center for the study of history of economic thought --- both the home of the main journal in the field, History of Political Economy, and the economists' papers project which provides primary source material in the library archives.  CHOPE is located in the right place, at the right time, and lead by the right person.

So it is with great excitement that I read the announcement from Duke University the other day, that CHOPE was awarded a $750,000 grant from the Soros funded Institute for New Economic Thinking.  As reported, Caldwell will also join the board of INET, as the CHOPE program is one of only 4 initial center's internationally for the INET initiative in graduate education and research in economics.

“There’s much to be learned from the history of economics,” says Bruce Caldwell, an economics researcher at Duke and founder-director of the center, which was established in 2008 with a mission of promoting and supporting the teaching of, and research in, the history of economic thought.

“While a better understanding of history provides no silver bullets, it does provide perspective and insight.”

The teachers trained through programs at the Duke center “will be key assets in restoring the history of economics as a fundamental part of economic training and academia,” Robert Johnson, executive director of INET, said in a statement.

Congratulations to Bruce, to Duke, to the history of economics/political economy faculty at Duke, to INET for making the wise decision to support a "modest proposal for some stress on scholarship", and I want to wish you all much success in your endeavor.

 

Behavioral Public Choice and Institutional Political Economy

|Peter Boettke|

F. A. Hayek devoted a chapter in The Road to Serfdom as to why the worst get on top in political regimes that grant almost unlimited discretionary power to political leaders.  In my study of the public choice contribution of The Road to Serfdom, I argued that Hayek had simply applied the basic economic argument concerning comparative advantage to the context of selection of individuals to head up the attempt by the state to control economic life through planning.  In making his argument, Hayek quoted Frank Knight as arguing:

The probability of the people in power being individuals who would dislike the possession and exercise of power is on a level with the probability that an extremely tender-hearted person would get the job of whipping master in a slave plantation.

But, I would argue, there is both a selection effect due to the institutional context, and a transformative effect on the individual's character as they adapt to their environment.  In addition to Knight, we can draw inspiration from another early 20th century observer of humanity, H. L. Mencken, who presented the problem as such:

... there are still idealists ... who argue that it is the duty of a gentleman to go into politics --- that there is a way out of the quagmire in that direction.  The remedy, it seems to me is quite ... absurd ...  When they argue for it, they simply argue, in words but little changed, that the remedy for prostitution is to fill the bawdy houses with virgins. My impression is that this last device would accomplish very little: either the virgins would lead out of the windows, or they would cease to be virgins.  The same alternatives confront the political aspirant who is what is regarded in America as a gentleman ... [From Notes on Democracy, p. 107, emphasis added]

How do you react to these precursors (and perhaps more straightforward) of behavioral public choice and institutional political economy?

 

HT: Ben Powell

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*BTW, Ben Powell has over the past few years helped to build an graduate education and research program in public choice and political economy at Suffolk University in Boston, and has a group of outstanding graduate students doing research in the field.  If you are looking for a high quality political economist to join your department, give Ben a call so he can tell you about the various students working with him.  Very impressive group of young economists!

 

 

My Undergraduate Austrian Economics Syllabus

Steven Horwitz

You can find the syllabus for my undergraduate Austrian course here.  I haven't taught it since the spring of 1999, which is really way too long.  Teaching an undergrad course is really challenging because so much time has to be spent setting context and helping them really understand the mainstream, so that the comparison and contrast to Austrian ideas can be clear. 

And this course reflects my own preferences about how best to do that.  I'm sure all of you would do it differently and will tell me how and why.  That's fine, but keep in mind, there's multiple ways to approach this task.  I'm equally curious to know what others would do with a course like this.

The Poor are Not Getting Poorer

Steven Horwitz

That's the title of my op-ed in this morning's Philadelphia Inquirer.  I fully expect to make a third appearance on a certain economist-blogger's "Stupidest Human Alive" list.  And you should see the "fan mail" that's coming in.

UPDATE:  A slightly different version appears in today's Atlanta Journal-Constitution.

Mainline versus Mainstream Economics, and The Questions of Moral Philosophy

|Peter Boettke|

In his very readable On Ethics and Economics, Amartya Sen argues that modern economics has existed in the corner solution of economics as engineering as opposed to economics as philosophy.  At the time he wrote that book, Sen was agitating for a movement away from economics as engineering and toward economics as philosophy.

I agree with Sen.  I have made the distinction in my writings between the "mainline of economic teachings" that can be traced back to David Hume and Adam Smith and runs forward to F. A. Hayek, James Buchanan, etc., and "mainstream economics" which is more or less a sociological concept related to what is currently scientifically fashionable among elite academic economists.  It is contributing to the "mainline" of economic thought that is more important in the long run, whereas fashion is fleeting.  A phrase I often invoke in conversation with my PhD students is "shelf-life", which simply means how long will that idea stay in the heads of economists.  I first heard this distinction between "mainline" and "mainstream" from Kenneth Boulding, and I got my attitude about "shelf-life" from James Buchanan.

Anyway, I am optimistic that the last decade has seen considerable movement along the lines Sen argued for in On Ethics and Economics, and with that a renewed appreciation for the "mainline" of economics as opposed to an exclusive pre-occupation with what is considered "mainstream" in the contemporary literature.  Economics continues to be a more fascinating discipline year after year, and it is more interesting precisely because that leading thinkers are compelled to rethink the sort of questions in moral philosophy that David Hume, Adam Smith, F. A. Hayek and James Buchanan wrestled with throughout their careers.

I was very interested to see this article in today's NYT by Edward Glaeser on "The Moral Heart of Economics."  Glaeser reaches back in time to Hume and Smith and forward to Milton Friedman in his essay, and concludes that:

Economists are often wary of moral exhortation, as many see the harm so often wrought by arguments that are long on passion and short on sense. But don’t think that our discipline doesn’t have a moral spine beneath all the algebra. That spine is a fundamental belief in freedom.

 

HT: Chris Coyne.

A 420 Character Letter to the President

Steven Horwitz

Dear President Obama,

The global economy is not one of your pick-up basketball games where we try to"win the future." It is a vast ecosystem of economic exchange and cooperation where the "object" is to improve the well-being of everyone, and especially the poor, by thinking beyond US special interests and embracing free trade movement in both people and goods both internally and externally.