February 2020

Sun Mon Tue Wed Thu Fri Sat
2 3 4 5 6 7 8
9 10 11 12 13 14 15
16 17 18 19 20 21 22
23 24 25 26 27 28 29
Blog powered by Typepad

« Dentists Need Not Apply | Main | In Praise of "Tweakers" »


Feed You can follow this conversation by subscribing to the comment feed for this post.

Team Keynes: "government choice!"
Team Hayek: "consumer choice!"
Team Me: "taxpayer choice!"

Can anybody tell me how long it's going to take before mainstream economists start advocating that taxpayers have the freedom to directly allocate their individual taxes?

The only way we're going to guarantee the best possible use of public funds is if taxpayers are forced to consider the opportunity costs of their tax allocation decisions. Why wouldn't economists want public goods to be efficiently allocated?

Because the whole justification of taxation is to force people to do things they don't want to do, ostensibly for their own. If you let people allocate their own taxes, you might as well just have everything run privately, for better or worse.

I saw NYU and was wondering how an alum could get a ticket.

Then I googled and it appears the deadline was last week and at the Asia Society (and starts too early for me to get there from work...)

Team Keynes: "Hayek was a liquidationist".

Team "Hayek": God forbid, Hayek was not a liquidationist, he was a good guy.


CollectiveAction...can you quantify the allocation disparity between A) 535 congresspeople allocating other people's money and B) millions and millions of taxpayers allocating their own individual taxes? Based on Hayek's concept of partial knowledge it would stand to reason that this disparity would not be insignificant.

If your taxes are going to be "stolen" from you anyways...what is the benefit to society if you are at least given the freedom to directly choose how your taxes are allocated?


Obviously the justifications for taxation are extremely flawed along knowledge and incentives lines. Nevertheless, if voters can choose what to spend their taxes on, then taxation has no purpose. Cut out the middleman and eliminate the government.

Phelps, a Hayekian?!

Hahaha, it is even worse than I thought; Phelps is praising Keynes for properly diagnosing the Great Depression and desrcibes Q1 and Q2 as "remedies" for the 2008 recession (to get the economy back on the "healthy" 2% inflation rate!!!!)

CollectiveAction, in a pragmatarian system voters would determine the functions of government and taxpayers would determine which functions to fund.

You've got too much confirmation bias. You're assuming that, given the choice, no taxpayers would voluntarily give their taxes to the middleman. You're also assuming that the free-rider problem is not a legitimate problem.

We can go round and round debating what we disagree on...or we can focus on what we do agree on. The efficient allocation of public resources would be of significant value to society.

Everybody would benefit from the best possible use of public funds. We can maximize the benefit to society by allowing each and every taxpayer to maximize the benefit they derive from their individual taxes.

Rather than you or I determining the scope of government...the invisible hand would determine the scope of government.

Of course, if you think that your current approach is working...despite the fact that the scope of government has been steadily broadening for the past 100 years...then by all means continue on with your approach. Personally it reminds me of Einstein's definition of insanity...trying the exact same thing over and over but expecting a different outcome each time.

Xerographica - try Switzerland.

Larry White did a superb job for the Hayek side -- complete with two zingers on the GM bankrupcy and Occupy Wall Street movement. But Reuters saw fit to allow only one Austrian economist our of four on the Hayek side, while giving the tongue-tied and certainly non-Hayekian Edmund Phelps the summary arguments for the Hayek team.

Would anyone care to organize a real debate, say, featuring White, Horwitz, and Caldwell vs. Krugman, Nordhaus, and Blinder?

Who won in the eyes of the audience?


Rather doubtful those Austrians you list would do any better. After all Selgin was in favor of QE, his only objection was that it could be to late.

@Mario Rizzo:

Pre-debate: audience favored Keynes (by single digits, as I recall).

Post-debate: audience favored Keynes and picked up a few additional undecided votes. Phelps was a disaster for the Hayek side, both as lead debater and deliverer of the final summary. Stephen Moore and Furchtgott-Roth represented two flavors of fiscal conservatism: Moore effectively, Furchtgott-Roth less so, I thought. All the debaters on the Keynesian side were reasonably competent.

The most interesting unchallenged assertion from the Keynesian side came from Sylvia Nasar, who claimed that Hayek, like Irving Fisher, believed in Oct. 1929 that the NY Stock Exchange was in no danger of a downdraft. She based this claim on someone's study of the monthly journal put out in Vienna by a bureau under Hayek's supervision. I wish Bruce Caldwell had been there to comment on this claim.


I thought that Larry White ably diffused the charge that Hayek didn't want any central bank action to halt a threatened secondary collapse. White stated that the monetary authority should maintain nominal GDP, that this was Hayek's view at the onset of the Great Depression, and that Hayek's only fault was not strenuously keeping this viewpoint front and center throughout the Thirties, a mistake Hayek later publicly regretted.

I wonder whose idea it was to put Phelps on the Hayek side? I mean who specifically? I wonder about the reasoning.

But I guess the real reason is that Phelps would increase the audience and, after all, he has a capitalism center at Columbia.

White is exactly right on the issue of Hayek and the maintenance of nominal spending. It is important to distinguish between primary and secondary cyclical phenomena.

A problem with Keynes is that he had no theory of the cause of the Great Depression. He saw the whole thing as a "secondary" phenmoneon -- the initiating cause of which was of little interest to him. But, after all, he was a man of action, a man for his times. No need to worry about such matters.

So, what is the difference between Hayek and Keynes? When read what you guys write, I think Keynes was right, Hayek was in agreement with him, but he didn't have the clear picture. Some would say he didn't have the balls to act, unlike Keynes.

Just saying ...

Niko, Hayek's greatest contribution to economics was the idea that NOBODY has a clear picture. Everybody has some information but nobody has all the information... http://www.econlib.org/library/Essays/hykKnw1.html

We are all just blind men feeling different parts of an elephant. When we allow one blind person or a small group of blind people to act on their limited perspective we risk unforeseen negative consequences.

It's fine to try and stimulate the economy...but it should be done by taxpayers directly allocating their taxes. Millions and millions of taxpayers have so much more information than 535 congresspeople. Taxpayers as a whole have a clearer picture than any planners could ever hope to.

The picture is a puzzle consisting of millions and millions of pieces. Congresspeople each might have a dozen pieces of the puzzle while taxpayers on average might only have one piece each. To have a clear picture we need a system that adds the puzzle pieces together.

The problem with the current system is that it averages the puzzle pieces. The blind men would have never been able to figure out that what they were touching was an elephant if they had averaged their perspectives.

In order to maximize the benefit to society each individual taxpayer should be allowed to maximize the benefit they derive from their tax allocation decisions.

Apparently Niko missed this, among many other things: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1801532

Hayek argued that policymakers didn't possess the knowledge required to predictably improve economic conditions. He concluded the Preface to Monetary Theory and the Trade Cycle by writing: "the one thing of which we must be painfully aware at the present time ... is how little we really know of the forces which we are trying to influence by deliberate management; so little indeed that it must remain an open question whether we would try if we know more."

@Professor Horwitz:
I didn't miss anything. It is just interesting that Hayek said what he said about knowledge and all, but than you read this:

"White stated that the monetary authority should maintain nominal GDP, that this was Hayek's view at the onset of the Great Depression, and that Hayek's only fault was not strenuously keeping this viewpoint front and center throughout the Thirties, a mistake Hayek later publicly regretted."

So they don't know, but they should. How? Why? Where? You can not have it both ways: they don't know enough, but they should maintain what is in the end an aggregate.

And there is that secondary depression some of you keep talking about. But, although an interesting theoretical concept (and totally wrong), I cannot find it in the current crises. I mean I cannot find it precisely, but if you ask two different people, they will tell you their opinion.

Anyway. If that is all you guys can come up with, I am surprised Keynes won by single digits. Probably the public was better informed than the debaters.

I wasn't at the debate and don't know what Larry White or anyone else said. I do know what Hayek said, however, and I know my economic history.

It is entirely anachronistic to say that Hayek or anyone else wanted to maintain nominal GDP in the Great Depression. National income accounting hadn't been invented yet. Here is a link to the history of NIA. http://www.bea.gov/national/pdf/nipaguid.pdf

Whta Hayek wrote in P&P is that neutral money meant keeping MV constant. He later clarified that he never intended this to be a guide to policy for any number of reasons. Velocity was not observed in real time and he thought the demand for money changed cyclically and unpredictably. And then there is the knowledge problem I referenced.

(His statement of the knowledge problem predates P&P. So we have additionally textual evidence that the concept of money neutrality wasn't intended be a guide to activist policy.)

To say something would be desirable in principal, but is impossible to execute in practice is not a fault. It is intellectual honesty. I don't think he ever used these words, but Hayek thought that fractional reserve banking with central banks was inherently unstable.

On this, he was in the Henry Simons/Milton Friedman camp. He expressed support for both 100% reserve banking and free banking, but did not think either wwas politically possible.

@Jerry O'Driscoll:

Thanks for your important comments above. I won't make the mistake next time of leaving you off my nominations to Team Hayek for a future Keynes vs. Hayek debate!

Let me ask this. The knowledge issue aside (a counterfactual assumption, to be sure), would there be a difference in practice between targeting neutral money (stable mv) vs. maintaining nominal GDP? What's your take on Scott Sumner's arguments?


Thank you for the answer.

I don't agree with this "To say something would be desirable in principal, but is impossible to execute in practice is not a fault. It is intellectual honesty."

But thank you none the less.


Your question assumes a fiat money standard with central banking. Given that, it gets down to issues over targets and indicators and which is easier to predict or control.

Under a commodity standard and central, the ultimate goal is maintaining parity. With free banking, there is no target. Banks must maintain reserves. Clearing houses help police the process.

Dr. O'Driscoll, thank you for this. I have been struggling with this for quite some time.

This is roughly how I was settling it in my mind but I could not put it so clearly and with as proper of documentation.

Have you or Garrison published anything commenting on White's 1999 or 2008?

I was at the debate, and Larry White was superb -so much more informed than all the other panelists (Galbreath knew his stuff but not his Hayek). Prof. White did say if he ran the fed today he would act to stabilizee MV or Nominal GDP.

No. I have not.

I have been thinking about some of the issues recently. Larry and I both will be presenting papers at the Cato monetary conference next Wednesday in DC.

Thanks for the kind remarkes from those who made them. I had fun.

The teams were entirely chosen by Reuters, presumably Harry Evans and Nick Wapshott (my invite came from Wapshott), and I have no insight into the specific choices other than Wapshott telling me that it was hard to find four Hayekians. Perhaps he meant Hayekian macroeconomists living in Manhattan, home to all my teammates.

To answer Mario's question: Team Keynes won over 5 undecideds (or maybe 5%). Team Hayek won over 9. I call that a victory for Team Hayek.

A writen version of my opening remarks is here:

I chose not to raise the ideas of abolishing the central bank or denationalizing money, but in retrospect I wish I had in response to the question of "what should the Fed do now?".

Yes, Larry. I thought you'd give a Mises answer: I'd quit.:) See you next week.

Here is the video:


Also, an article:


@ Jerry O'Driscoll

Yes, NGDP was not there yet. But targeting MV means targeting PY, which we today measure by NGDP (even though they may even better proxies).

With the exception of Prof. White, who did a fantastic job, the Hayek team was embarrassing (the Keynes team wasn't better). The highlight was White's punchline on GM: it is not a "market failure" not to supply GM with funds, but a "market verdict". Wohha! That was the single highlight in an otherwise awfully ill-informed debate (on both sides). I'm not sure if - besides White - anybody actually consulted Hayek's "macro"-writings (some even admitted that they have not).

Thanks, Arash. It sounded grim except for Larry.

I am a bit late to this discussion but I need one thing to address.

Richard Schulman wrote:
"The most interesting unchallenged assertion from the Keynesian side came from Sylvia Nasar, who claimed that Hayek, like Irving Fisher, believed in Oct. 1929 that the NY Stock Exchange was in no danger of a downdraft. She based this claim on someone's study of the monthly journal put out in Vienna by a bureau under Hayek's supervision. I wish Bruce Caldwell had been there to comment on this claim."

I have read the newsletter they are talking about. Where Sylvia is right, is that Hayek didn't believe that NYSE would crash at that time. But she left an important parts out and added a Word that completely twists the meaning. She said that Hayek now also believed in a "permanent high" NYSE. Thats wrong he did not say or believe this. Although Hayek believed that this might already be the top he did not believe in a sudden crash happening at this point in time, due to still good credit situation.
He says that in 1929 a huge inflow of capital from Europe supports the NYSE, and that a stronger "Deroute" of the NYSE would result in fast outflow of this capital, which would be devastating. But... [in German]
... "Jedoch besteht derzeit kein Grund, einen
plötzlichen Zusammenbruch der New Yorker Börse
zu erwarten. Allerdings ist es nicht ausgeschlossen,
daß nunmehr das Ende der geradezu phantastischen
Kurssteigerungen gekommen ist und das Niveau
langsam abbröckeln dürfte. Die Kreditmöglichkeiten
sind jedenfalls augenblicklich noch sehr große
und es erscheint daher die Gewähr gegeben, daß
eine ausgesprochen krisenhafte Zerstörung des
jetzigen hohen Niveaus nicht befürchtet werden

Translated (by me):
"But at the moment there is no reason to believe in a sudden crash of NYSE. However it is not ruled out that we finally see the end of the fantastic price increases of the stocks and that from now on they will start to crumble slowly. At present the credit situation is still very good, and therefore it seems that a very crisis like destruction of current high stock values need not be feared."

Judge for yourself. You don't need to drive to Austria you find all "Monatsberichte" online for free:

Also a much clearer part in which Hayek shows what he thinks of the FED's credit expansion was in November 1928:
"Die Position der Federal Reserve-Banken ist allerdings stark genug, um noch längere Zeit Kreditexpansion betreiben zu können und die Zeit der großen Wirtschaftskrise dürfte noch recht weit entfernt sein, wenn dies auch vorübergehende kleinere Liquidationsperioden nicht ausschließt."

Translated: "The position of the FED is strong enough to keep credit expansion going for quite a long time. Therefore it seems the time for the big crisis is still far ahead in the future. However this does not rule out smaller periods of liquidation."

The comments to this entry are closed.

Our Books