Division of Labour: October 2009 Archives
October 31, 2009
Cavalcade of Miscellany: Overcoming Bias in College Football Edition
1. I <3 the modern world: blogging from the front porch, passing out candy to trick-or-treaters. FWIW, Starburst "GummiBursts" are pretty good. Shannon chose our Halloween candy well. We also have bite-size Snickers, 3 Musketeers, and Milky Way bars. My prior is that due the complex array of subsidies in agriculture, junk food is much cheaper than it would be in an unregulated market.
2. I'm a big fan of Robin Hanson's blogging at Overcoming Bias, and I think there's an excellent opportunity to learn a lot about bias by studying college sports and, in particular, sports coverage. An announcer just said something about USC being the "best one-loss team in the country," and my question is "by what standard?" Judging from the quality of the loss, they aren't even the best one-loss team in their own conference (Oregon lost to unbeaten Boise State and USC lost to 3-5 Washington, but they're about to settle this on the field). Since there's so much randomness in sports, team superiority isn't transitive. Houston beat Oklahoma State and UTEP beat Houston, but I'm pretty sure UTEP isn't better than Oklahoma State.
I trust rankings like Matt Ryan's Gus Rankings and Sagarin/ELO-CHESS a lot more because while they aren't perfect, they rank teams according to their on-the-field performance rather than their brand name, and they consider an entire season worth of information rather than one game. According to the Week 8 Gus rankings, Iowa is #1. No argument there, the Northern Iowa game notwithstanding. The Gus Rankings also suggest that Oregon is the best one-loss team in the country--and that Oregon is better than Boise State based on the quality of the teams they've vanquished. USC is #13 and the sixth-best one-loss team in the country, with two-loss Virginia Tech and two-loss Ohio State ahead of them.
Obviously, there's no perfect way to do this, but if I had a vote in the polls I would use the Gus rankings or something similar to cast my ballot.
Sentence of the Day
I know I should grade these papers, but I can't tear myself away from teh interwebs or the Twilight Zone Championship Game (aka Iowa-Indiana). Here's the Mises Institute's Jeffrey Tucker:
"Unlike at Christmas, where kids must only be good little citizens all year in order to be showered with gifts from their beneficent Guardians, at Halloween, kids must actually work in real time for their candy."
FWIW, Jeff is one of my favorite thinkers on 21st century education, and not just because he publishes a lot of my articles. Here's his Mises.org media archive; one of my favorites is his talk "Dissident Publishing: Then and Now."
Mises versus Minsky
John Authers of the Financial Times on the ideological core of the debate over financial regulation.
HT: John Cochran
Soros in Budapest, Roger Garrison at Rhodes
Blogging: it's the perfect distraction when a stack of ungraded papers is staring at you.
Commentary has been circulating about the founding of the Institute for New Economic Thinking, which is being funded in part by George Soros. Here, for example, is Michael Giberson, and here is Michael Hirsh's Newsweek story on which Giberson is commenting. Hirsh argues that the "market-skeptic school" was "marginalized during the era of 'free-market fundamentalism.'" Laying aside for a second the fact that "free-market fundamentalism" is hardly an apt description of the policies most economists endorse--to say nothing of the policies that actually get implemented--a quick scan of the INET Advisory Board puts me with Giberson. At the risk of being cheeky, I wasn't aware that Berkeley, Cambridge, Stanford, Columbia, Princeton, the LSE, NYU, Oxford, UCLA, Harvard, the Central Bank of India, and the Bank of International Settlements constituted the neglected and shunned outer darkness of the economics profession--nor was I aware that the Times of London and the Financial Times were publications bereft of influence because they are neglected by the mainstream.
To the Institute's credit, two members of the Advisory Board are at institutions with clear non-mainstream bona fides (the New School and UMass-Boston), but that's only two out of 22 Advisory Board members. It's a little like a radio station calling itself an "Indie Rock Alternative" and then playing at least one U2 song every fifteen minutes. It would be a much more credible challenge to the mainstream, I think, if Soros had stocked the Advisory Board with economists from (say) the University of Missouri-Kansas City (here's their blog) or endowed a research center named after Hyman Minsky.
In their defense, they have a very good point: mainstream economics is at a loss to explain why, exactly, the crisis happened, and we need to broaden the economic conversation a little bit (actually, a lot bit). Enter Austrian business cycle theory, which did predict and can explain the crisis in terms of central bank policy errors. One of the leading thinkers in the Austrian tradition is visiting Rhodes this week. On Thursday evening at 7:00 in Barret Library, Roger Garrison will give a lecture on business cycle theory and the Great Depression. To tide you over until then, here's Garrison's Mises University lecture on the Austrian Theory of the Trade Cycle.
What I've Been Writing Lately: Comment on Leeson
Here's a draft of my comment on Peter Leeson's The Invisible Hook, which I'm presenting in a symposium on the book at the Southern Economic Association meetings in San Antonio on November 23. The abstract:
"In The Invisible Hook, Peter T. Leeson explores “the hidden economics of pirates.” The implications of his work are many, and there are several clear ways in which scholars can build on his insights. First, exploring piracy helps us better understand the rent-seeking societies of mercantilist Europe. Second, public and private policy toward pirates helps us better understand the institutions and organizations that emerge in order to govern and manage common resources. Third, the nearly universal condemnation of pirates by religious authorities and political leaders as well as the association of pirates with the demonic and Satanic suggests further directions for research into the interactions between ideology, politics, and economic institutions."
Posted by Art Carden at 11:48 AM
Funny or Serious? Quotes from the Morning Paper
From this morning's Commercial Appeal, here's an editorial entitled "Voters deserve more than this." Here's a key passage:
Whether Herenton is guilty of a federal offense or not, a comparison of his performance as the city's chief executive for 17½ years, compared to Cohen's performance as a state and federal legislator for 27 years, should be the primary issue.
If the editorial writer is trying to be funny, this is hilarious. If the editorial writer is trying to be serious, this is terrifying.
October 30, 2009
La Tragédie de la Bicyclette
I spent this afternoon giving a tragedy of the schwinn talk to some homeschoolers in Chattanooga and--deja vu--I see this in the NYT:
But this latest French utopia has met a prosaic reality: Many of the specially designed bikes, which cost $3,500 each, are showing up on black markets in Eastern Europe and northern Africa. Many others are being spirited away for urban joy rides, then ditched by roadsides, their wheels bent and tires stripped.
Thanks to JC for the pointer.
Paragraph of the Day, So Far
Here's co-blogger Mike Munger on the most recent GDP report:
"But all the increase is in G, financed by the increased deficit. It's fake. It's not real growth. It's just shifting money from taxpayers tomorrow into Obama's approval rating today."
October 29, 2009
We all find our equilibrium price one leg at a time
The Gray Lady's Fashion & Style section reminisces about the bygone days of ultra spendy jeans.
But the denim bubble has burst, and only a handful of such extravagantly priced jeans remain at the jeans bar — labels like PRPS and 45rpm, which, in tacit acknowledgment of the decline of the premium business, are now more often referred to as “artisanal” jeans. Meanwhile, the sweet spot for designer jeans has relocated to a neighborhood just below $200, even though the styles do not look substantially different from the $300 jeans that were on the sales floors of Barneys New York and Bloomingdale’s only two years ago.
The story suggests it's not just the business cycle decreasing demand for status goods. Competitors are figuring out ways to deliver similar materials and designs for less.
Now designers are facing pressure from stores and from their competitors to rethink prices, in many cases resulting in less expensive jeans or more styles at the lower end of each designer’s range. It has not gone unnoticed by executives behind the great denim rush of 2005 that even mainstream retailers like Gap and J. Crew have caught on to the appeal of Japanese denim, whisker treatments and fading details, and that they are now produce comparable premium-look jeans that cost around $60. Banana Republic has a new denim line coming in January.
There are more interesting tid bits of applied micro in the article. I find the apparel industry is interesting on many levels.
October 27, 2009
Rule of Law versus Rule of Central Bankers
I gave the keynote address at the Economic Freedom Network Asia annual conference in Cambodia earlier this month, on the topic "Avoiding and Resolving Financial Crises: The Rule of Law or the Rule of Central Bankers?". The text of the talk is now available in pdf on the EFN-Asia website here. Comments are welcome (email me privately) as I think about turning it into a publishable paper.
Here are some excerpts:
At the core of the “rule of law” concept, as I understand it, is the liberal principle of non-discretionary governance that stands in contrast to the arbitrary or discretionary rule of men in authority. In shorthand, a political community faces a choice: either “the rule of law” or “the rule of men”. ...
Steve Horwitz Talks at Berry
Former students and local DOL readers might want to join us tonight and tomorrow night for lectures by St. Lawrence University's Steve Horwitz. Tonight's topic is "The Great Depression as Government Failure: What Your High School History Course Didn’t Teach You" and tomorrow night's topic is "Wal-Mart to the Rescue: Private Enterprise’s Response to Hurricane Katrina." Both lectures will be in the Evans Auditorium at 7 p.m.
Posted by E. Frank Stephenson at 09:40 AM
October 26, 2009
Fictional Character Quote of the Day
Call me a killjoy, but I think that because this is not to my taste, no one else should be able to enjoy it.
-Marge Simpson on Ultimate Punching.
Large Changes in Fiscal Policy: Taxes Versus Spending
We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis.
October 25, 2009
The People's Romance and The Census
Speaking of which, some surprising responses to my recent Mises.org article on tire tariffs have gotten me interested in the narrative of "national greatness" in the last few weeks. Some of the comments on the Mises Blog and some of the emails people have sent suggest that somehow our "national greatness" is diminished by free trade. I must confess that I'm at a loss for how overpaying for tires is an exercise in historically meaningful national virtue.
So what's to be done about it? Here's Robert Frank on economics education.
October 24, 2009
Moral Hazard in National Parks
My stellar student Shawn Regan alerts me to this tidbit:
On the evening of September 23rd, rangers began a search for hikers who repeatedly activated their rented SPOT satellite tracking device. The GEOS Emergency Response Center in Houston reported that someone in the group of four hikers – two men and their two teenaged sons – had pressed the “help” button on their SPOT unit. The coordinates for the signal placed the group in a remote section of the park, most likely on the challenging Royal Arch loop. Due to darkness and the remoteness of the location, rangers were unable to reach them via helicopter until the following morning. When found, they’d moved about a mile and a half to a water source. They declined rescue, as they’d activated the device due to their lack of water. Later that same evening, the same SPOT device was again activated, this time using the “911” button. Coordinates placed them less than a quarter mile from the spot where searchers had found them that morning. Once again, nightfall prevented a response by park helicopter, so an Arizona DPS helicopter whose crew utilized night vision goggles was brought in. They found that the members of the group were concerned about possible dehydration because the water they’d found tasted salty, but no actual emergency existed. The helicopter crew declined their request for a night evacuation, but provided them with water before departing. On the following morning, another SPOT “help” activation came in from the group. This time they were flown out by park helicopter. All four refused medical assessment or treatment. The group’s leader had reportedly hiked once at the Grand Canyon; the other adult had no Grand Canyon and very little backpacking experience. When asked what they would have done without the SPOT device, the leader stated, “We would have never attempted this hike.” The group leader was issued a citation for creating a hazardous condition (36 CFR 2.34(a)(4)).
This is a great example of J.R. Clark and Dwight Lee's rescue laffer curves.
October 23, 2009
File Under "Econ 101 Notes: Price Controls"
Here are questions 1c and 1d from Econ 101 Midterm #1, administered on October 8:
c. People have debated whether the federal government should control executive pay. Use a supply and demand diagram to explain how binding controls would affect the market for executives.
Here's a headline from yesterday's Wall Street Journal: "Pay Czar to Slash Compensation at Seven Firms."
I realize that these are firms that have gotten enormous sums from the Banking Sector Unification Plan, but it isn't clear to me how one can get strong economic performance by further distorting the market for executive talent. Wasn't the goal all along to make sure that these firms stay afloat? How do the feds plan to do this after all the talent jumps ship? Or maybe--just maybe--they should have been allowed to go bankrupt to begin with.
October 22, 2009
Best... Sentence... Ever...
Thus gem is from Anne Flaherty at the AP:
Congress wants another government regulator to cut through the red tape and protect your pocketbook.
...for the WIN! Wow! If anyone out there is currently preparing an undergraduate Public Choice class for the Spring, I think it would be a relatively simple matter to plan 16 weeks of lecture and readings around this one, simple sentence. You know, start every lecture with this sentence as the opening PowerPoint slide, with different words highlighted to indicate the day's lecture.
As always, my question for Ms. Flaherty and similar purveyors of journalistic excellence is to what extent is she a "true believer," and to what extent is she a knowing shill?
Here is the sentence in its natural habitat
Posted by Noel Campbell at 06:46 PM
October 21, 2009
Inflation, Institutional Decay, and the Evolution of a Cliche
1969: "Good intentions and a quarter will get you a cup of coffee."
1989: "Good intentions and a dollar will get you a cup of coffee."
2009: "Good intentions and two dollars will get you a cup of coffee."
2029: "Good intentions, twenty dollars, the appropriate ration stamps, two copies of form Z-49a, two forms of photo ID, and an afternoon in line at the Bureau will get you a cup of coffee."
Long Weekend in La Jolla
I was lucky enough to get a coveted invitation to a Liberty Fund Colloquium. It's this Thursday through Sunday at a seaside hotel in La Jolla, California. I'll spend my time hobnobbing with Vernon Smith, Ed Lopez, Ben Powell, Pete Boettke, Catherine Eckel, Robert Higgs, Barkley Rosser, and Bonnie Wilson. I'll drink a beer, smoke a cigar, and watch the sun set over the So-Cal Pacific Ocen with Social Distortion on the iPod. And this is all on someone else's dime!
Don't you wish you were me?
Posted by Noel Campbell at 11:08 AM
Can You Hook Me Up? Drug Legalization Bleg
On Sunday, I'm speaking to a church group on the economics of drug legalization. Most of my arguments will rely on Mark Thornton's The Economics of Prohibition, the recent IEA book on prohibition edited by John Meadowcroft, and the 1996 Miron & Zweibel paper on the economics of prohibition. If you have any other reading suggestions, please let me know. Comprehensive links are forthcoming.
October 20, 2009
Mrs. Carden's Food Blog
My wife is chronicling her experiments in the kitchen on an interesting new food blog.
The Onion on Aid Policy
Someday, I plan to write a book called Onionomics, which will look at basic economic principles through the eyes of Onion articles and videos. This video will be featured prominently in the chapter on foreign aid and signaling.
Vaccines and Transplants
A podcast....on EconTalk.
...in which I make the (to my mind, ENTIRELY self-evident) claim that the optimal rate of infant mortality is positive, possibly substantially so.
October 19, 2009
They Allowed This on PBS?! (updated)
HT: Tom Woods.
Update: Steve Horwitz reminds me that he is guest-blogging for PBS's Nightly Business Report. So what does PBS stand for now? Praxeology Broadcasting Station? I'm expecting Ashton Kutcher to fling my office door open and explain that I've been punk'd.
The Hazards of Working with Youth
Today's topic was nominal GDP vs. real GDP. I went through the general explanation and a simple example calculation. Then I wrote on the board 1970 nominal GDP and 2008 nominal GDP and calculated the growth rate. I said, "But this may not be a truly accurate comparison. Why not? What significant event did we experience from the mid-70s to the mid-80s? You probably didn't live it, but you know about it."
Dead silence. Finally, a girl in the back declares, "VietNam!"
Heavy sigh, for so many reasons.
Posted by Noel Campbell at 01:03 PM
Rhodes Barbeque Seminar Blog
Here's the official blog of the Rhodes College Barbeque Seminar, organized by mathematician and voting theorist Eric Gottlieb. Our first outing (to Payne's) was successful. I still owe Eric money, so this is my credible commitment to pay him plus interest ASAP.
Blaming Fee for Service
Yesterday I sent this letter to The Economist in response to this leader:
SIR -- In your leader on American health care ("What a waste", October 17th) you opine that the "worst flaw in the Finance Committee's bill is its failure to address the ["fee-for-service"] way that providers of health care are paid."
Stimulating Go Fish Georgia?
Stimulus is the real voodoo economics so on Friday I sent this letter to the AJC:
You report (Oct. 15) that “Georgia says stimulus funds created or saved more than 23,000 jobs” and that 12,923 of the jobs were retained. The difference, a bit more than 10,000 jobs, would then have been created. Some 9,000 of those folks must have taken Gov. Perdue’s advice to “Go Fish Georgia” and been unable to be counted by the federal government because the national recovery.gov website reports that only 1,046 jobs have been created in Georgia. Even that estimate is likely to be on the high side because federal government officials have an incentive to make the stimulus look as effective as possible and because recovery.gov ignores any offsetting job losses arising from the increased deficit and the concomitant higher future taxes.
Marginal Analysis Misses a Foothold at the TSA
This is a reasonably accurate depiction of my internal monologue every time I go through airport security, though I didn't know that about laptop batteries:
October 18, 2009
Michael Moore never met a strawman he didn't like
To the extent that intervention hampers competition by erecting barriers to entry — which is the usual effect, intended or not — protected firms are free to charge higher prices and reap more profits than would have been the case in an open market. Corporate power and privilege derive from political power and can’t exist without it. In contrast to existing capitalism, the truly free market would have no legal barriers to competitive entry, assuring that prices and returns are economically justified and not the fruits of privilege.
October 16, 2009
Nothing Succeeds Like Political Failure
Check out Dwight Lee's column in today's Investors Business Daily, for a double shot of public choice and wry humor.
I Buy Stuff: The Mises Silver Coin
I bought ten of these last week. I'm keeping some of them and will probably give a few away as gifts (nothing says "Merry Christmas" like honest money bearing the visage of Ludwig von Mises). One is currently in my office, propped up against a chunk of the Berlin Wall. Tu Ne Cede Malis, indeed.
FTC-Mandated Disclaimer: I have in the past received valuable consideration from the Mises Institute in exchange for writing and speaking, but they did not pay me to endorse this product.
Cross-Posted at the Mises Blog.
The Indentured Servitude Czar
From today's WSJ:
The Treasury Department's pay czar pushed outgoing Bank of America Corp. Chief Executive Kenneth D. Lewis into giving back about $1 million he received so far this year and forgoing the rest of his $1.5 million salary for 2009, say people familiar with the matter.
Translation--the pay czar has just confiscated Mr. Lewis's 2009 pay or coerced him into returning it to BOA. He'll get nada, zip, zero for the year--no bonus either.
I guess minimum wage laws, which should be abolished, only apply to workers who aren't having their arms twisted by one of Obama's minions.
Posted by E. Frank Stephenson at 04:02 PM
What I've Been Writing Lately: Opportunity Cost of Voting Edition
At Forbes.com, I argue that we should repeal the minimum wage.
A Consulting Opportunity for Pete Leeson?
Posted by E. Frank Stephenson at 01:50 PM
Nye on Williamson & Ostrom
I'm a slow blogger these days, sorry. But I want to highlight John Nye's short piece for Forbes.com on the recent Nobel. First, money quote on Oliver Williamson
When firms and suppliers have to make large-scale, highly contract-specific investments, naive notions of market competition and competitive exchange get thrown out the window.... [This] helps us understand how we went from a world 50 years ago in which General Motors was the paradigmatic large firm for its ability to manage multiple subunits and hold large inventories to the modern world where Wal-Mart ( WMT - news - people ) is lauded not for producing in-house but for managing a complex network of competing suppliers worldwide under restrictive contracts.
And Elinor Ostrom:
But as Elinor has demonstrated, ham-fisted reforms that attempt to bring the illusion of modernity to the developing world by a naive adoption of Western best-practice laws without the structures that support and enforce those rules often leads to a destruction of indigenous practice that works reasonably well without substituting a functioning and reliable market of impersonal exchange. Much of the disaster that is foreign aid can be tied to the blunt importation of best-practice rules without understanding how their implementation interacts with existing practice.
Conservative Magazines and Liberty
Dan Klein and Jason Briggeman have a fantastic piece in the latest issue of The Independent Review. Here's the abstract:
More often than not, National Review, The Weekly Standard, The American Spectator, and the now-defunct American Enterprise have failed to oppose government intrusion into America’s bedrooms, gambling places, and drug activities. Whatever political principles these leading conservative magazines have espoused, the presumption of liberty is not among them.
Since the mags (esp. The Weekly Standard) aren't always consistent defenders of small government and economic freedom, the Klein/Briggeman piece reminded me of a letter I sent to the WSJ about 10 days ago:
Irwin Stelzer ("Notable & Quotable" Oct. 5) contends that workers "relieved ... of credit card terms that are excessively onerous, and helped to retain ... their homes" is an indication that market capitalism has not collapsed in the current recession.
NB--Stelzer is frequent contributor to The Weekly Standard. I was responding to this piece in the WSJ.
And the Winner Is...
...in the Division of Labour "Should I vote in the Memphis Mayoral Election? Essay Contest": Brent Butgereit, a Rhodes student (and the peer tutor for my econ 101 classes) whose entry comparing voting to cheering at a football game is below the fold. The takeaway point: "so should you vote? If you like to show that you can make noise for its own sake, then you should." Brent wins a book. I don't know which one yet, but he wins a book.
It should be pointed out that I am a college professor. I have opportunities to "make noise for its own sake" every week in class.
Thanks to everyone who submitted entries. I was looking for a blend of cost/benefit calculus and reasoning about engaged citizenship. For the record, I didn't vote. Was I forsaking my civic duty? I think not. First, the election was a complete blowout. Second, I was teaching and hosting David Zetland, who gave a handful of excellent talks and spent a lot of time with students at Rhodes. Third, there are a lot of other, very productive and civically-engaged ways to spend my time. Fourth, I received an automated phone call from one of the candidates urging me to get out and vote (the candidate lost). If voting is going to encourage political telemarketing, this is a disincentive to vote. Yes, I could have voted early, but that would have involved jumping through hoops to find out where, when, and how I could do so. Given everything else I had going on and the near-certainty that it was going to be a blowout, early voting runs into basically the same cost/benefit calculus.
One entrant, a Rhodes 2008 graduate, offered the following reason to vote that applies an insight from one of our on-campus lectures: "Bryan Caplan has thrown down the gauntlet and outright challenges smart people, such as yourself, to vote. Don't be noise; rather, be one of Caplan's informed elite who actually counts in the tallies."
Read More »
For This Week’s Episode of “Trade-Off Theatre” it’s: “Should I Vote?”
I cannot tell you whether or not you should vote, but I can contextualize a scenario for which you can decide that it’s worth your time. The Memphis Flyer recently printed an article discussing AC Wharton’s absence from the major debates and simultaneous lead in the polls (Wharton’s polls, his opponent’s, and third-party sources all consistently show he is in the lead by at least 25 points and as much as 40). But we’re economists. We rarely trust polls. For the sake of argument, let’s suppose a “best-case” voting scenario (i.e., one in which it would be worth your time to actually vote). If there were only one hundred people voting it would almost certainly be worth the opportunity cost of doing so (at the very least you would be able to say “I was one of the 100 who voted even though might personal vote might not have mattered”). This scenario is, of course, unlikely. According to the Commercial Appeal, expected voter turnout estimates are not high. The Election Commission administrator, Richard Holden, suggested that turnout could be as much as 40 percent - the 2007 citywide election drew about 38 percent (164,898 voters). However, Holden doesn’t suspect that turnout would be as large as the 2007 election because that year, fifteen races stood in contention: mayor, city court clerk and thirteen council seats.
So let’s try to make going to the booths more worth your while. Suppose there is only a 20 percent voter turnout. Should you vote? If you think your cheering and applause would be heard over everyone else’s in the University of Alabama’s Bryant-Denny Stadium when it’s packed, you should. A full Bryant-Denny is roughly equivalent to 20 percent of voters in Memphis (≈101,000 people). If everyone was shouting at the same volume, would you be heard?
Of course, we may be expecting a large turnout still. Suppose only two percent showed up. Now we are applauding in the Orpheum (except we would have to be one-fourth as loud as everyone else)*. Even supposing a neck-and-neck race between the top three candidates, it’s not clear it will be your voice that puts the decibel level of your candidate’s audience above either of the other’s. If we trust the Appeal’s data, then Wharton has the lead with 45 percent, Carol Chumney is second with 11 percent, and Myron Lowery is third with 10 percent (this is from a telephone poll by Mason-Dixon Polling & Research – they give a margin of error of plus-minus five percent). So should you vote? If you like to show that you can make noise for its own sake, then you should.
*By this I mean that everyone is at normal volume and you are one-fourth of your normal volume. Another way to think about it would be to consider being in one of four Orpheums cheering at the same time. There are approximately 2,500 seats in the Orpheum and a two percent voter turnout is approximately 10,000 people.)
« Close It
Mexico: Curioser and curioser
See my last post about Mexico here.
Now check out this story.
Posted by Noel Campbell at 12:18 PM
Economic Illiteracy: Declining Wages Edition
I just send the letter below to USA Today in response to this article:
Your article reporting on the "biggest annual decline in real wages since 1991" carries the misleading headline "Wages tumble toward 18-year low." Even with this year's decline, real wages will remain above their 1991 level. Indeed, wages will remain above their 2007 level because the chart accompanying your article reports that real wages increased 2.4% in 2008.
I'd say that with economic illiteracy of this sort it's no big surprise that USA Today has had a massive decrease in circulation. Unfortunately, I doubt bet the correlation betwen economic literacy and circulation is more likely negative than positive.
BTW, I found this piece via an Instapundit link that was accompanied by the comment "uh oh." Actually, with 9.8% unemployment falling wages are not surprising are probably a good sign that necessary labor market adjustments are taking place.
UPDATE: I just received a response to my letter--the headline has been changed to "Wages could hit steepest plunge in 18 years."
October 15, 2009
Man vs. Beast c. 1909
From the Oct. 15, 1909 NYT:
Overexertion while whipping a balky horse caused the death of John Duffy, a wealthy farmer of Elmsford, to-day. Duffy was driving up the State road toward East View when his horse balked. He took out the whip and hit the horse a few times and then fell over the dashboard dead.
Time to Buy Some Votes
If your approval rating is down and seniors think you want to send them before death panels, what's your next move? Buy 'em off:
President Barack Obama said he will press Congress to provide $250 payments to 57 million seniors, veterans and people with disabilities next year, a $13 billion effort to offset an expected announcement this week that there will be no cost-of-living increase in Social Security payments.
Posted by E. Frank Stephenson at 08:29 AM
October 14, 2009
My hometown makes the Associated Press!
There's an Election Tomorrow?!
Here's Geoff Calkins from the Memphis Commercial Appeal on the extremely low turnout for early voting in tomorrow's mayoral election. You have until 6:00 AM tomorrow to submit via email a 250-500 word essay explaining why I should or shouldn't vote in tomorrow's mayoral election. There is a valuable prize for the winner, who will be announced on Friday.
Marktets in Everything: MJ's Burnt Hair Edition
Posted by E. Frank Stephenson at 09:03 AM
October 13, 2009
Sums It Up Nicely
A bumper sticker I observed earlier today:
Obamanomics: Trickle Up Poverty
Posted by E. Frank Stephenson at 03:58 PM
The only question is when
I don't think anyone can dismiss this assertion by Sawhill and Aaron.
Anyone who thinks that health-care reform alone is going to close the massive current -- and even larger projected -- U.S. budget deficit is deluded. President Obama has pledged that health-care reform will not make matters worse. But that isn't good enough. There is no way to restore this nation to fiscal health without higher taxes -- for the middle class as well as for the rich. The only question is when. Those increases should be enacted now, phased in gradually after the recovery is well established, and tied to the increased spending that health-care reform will generate. [Emphasis added.]
My only question regards timing. Why didn't this column appear last year, when Obama's platform made the conclusion inescapable?
Elinor Ostrom on the Commons
Here's recently-crowned Nobel Laureate Elinor Ostrom on voluntary management of the commons. Ostrom's win can be considered a win for the Hayekian worldview as opposed to the Samuelsonian worldview. HT: Brian Hollar.
On lightening up
Maybe Italy has it right, if the conclusion of this WaPo article is correct.
Besides, with Berlusconi as your prime minister, you don't have to take yourself too seriously. You don't have to trouble yourself with geopolitics or the state of the planet, or poverty and failed states. You can stay at home, remain unserious and argue about the latest legal scandal. And maybe that, too, is part of the Italian prime minister's appeal.
I disagree with one point. I would write the first two sentences this way: "Besides, with Berlusconi as your prime minister, you don't have to ... trouble yourself with geopolitics or ...." You can take yourself and things that really matter quite seriously, while marginalizing the goings-on of the state, treating it as the absurdist theater that it often is.
Given Bastiat's provisional definition of the state, "the great fictitious entity by which everyone seeks to live at the expense of everyone else," having it generate a bit of humor is probably not a bad thing.
You may insert your latest Nobel Peace Prize joke here.
To quote the fine theologian, M*A*S*H's Father Mulcahy: Jocularity, jocularity, jocularity.
An endangered species c. 1909
The October 13, 1909 NYT has a headline you won't see today:
SENATOR FLINT WILL RETIRE.
Turns out the good Senator from California felt that there wasn't enough money in being a Senator and that he had to go out in the real world to earn some scratch:
Senator Frank P. Flint announced yesterday that when his present term expires, on March 4, 1911, he would not be a candidate for re-election.It is quaint that a U.S. Senator would suggest that there wasn't enough money in national politics to make it worth his while. Perhaps there was a time when this was true. Perhaps Mr. Flint was "clean" and didn't partake of the largess his position would seem to attract.
On the other hand, perhaps this is a thinly veiled jab at the lobbyists of the day. In essence, Flint throws down the gauntlet saying "pay up or I'm outta here and I'm taking my political capital with me."
Do you wonder, as I, whether Flint really retires from public service in 1911? Oh wait, I can look that up (see below the fold for the spoiler)....
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Sure enough, Flint doesn't pursue the General Store he might have implied was on his horizon in 1909.
From the March 5, 1911 NYT:
Vice President Sherman to-day appointed Senators Flint of California and Taliaferro of Florida, neither of whom will be members of the next Congress, to vacancies on the National Monetary Commission.
More on the National Monetary Commission from Wikipedia.
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On appropriations and fraud c. 1909
The October 13, 1909 NYT prints the following funny letter to the editor:
By an edict of Postmaster General Hitchcock cats are authorized to be provided food and lodging by all Post Offices of the first and second class. That is to say, each of the largest offices is entitled to an appropriation for the maintenance of is tutelary cat. In the present fiscal year it is estimated the department will spend $135 for cat meat.Wouldn't it be nice if "cat meat" was the "fraud" about which we had to be concerned.
On the squirrel c. 1909
A letter to the editor in the October 13, 1909 NYT:
On a trip through the northern part of the Bronx Park on Saturday afternoon I discovered that the squirrels are in an actual state of starvation. The parasite that has destroyed the chestnut trees has left nothing for them to live on. They are not fond of acorns, except in a pinch, and the boys are seen gathering those up in bags, which they cart away to their homes, leaving the squirrels actually without food to go through this Winter.
Ummmm...I think I'll let Tyler read this one and blog on it
Best sentence I read today or probably will read this week.
As I always tell my students, an economist is someone who believes, sincerely believes as a matter of moral justice, that the infant mortality rate should be positive.
October 12, 2009
Ostrom and Williamson
Start with a Pigovian question: what to do about externality? Entertain a Coasean solution: bargain it away. Get stuck on transaction costs due to a Buchanan problem: collective action. Arrive at this year's Nobel: voluntary collective action can and often does work toward the emergence of good institutions. It's not private property rights per se, but well-defined and enforced rules of exclusion, which support beneficial social organization. As Alex Tabarrok aptly puts it, for Ostrom it's not the tragedy of the commons but the opportunity of the commons.
For Williamson, I suppose you could replace "get stuck on transaction costs" in the above with "managerial" or "monitoring" costs. In short, one solution that Coase poses to externality is merger, the problems with which are worked out in Williamson's contract theory of firms.
What I've Been Writing Lately: Tires, Trade, and Comparative Advantage
Here. In the comments on the Mises Blog, I'm advised to "take [my] globalist cr@p" elsewhere. I confess I'm at a loss for the appropriate outlet for my globalist cr@p--if not the website of an institution bearing the name of an economist who thought Ricardo's law of comparative advantage is the wellspring of all social behavior, then where?
On the Ostrom and Williamson Nobel
I've been rooting for Gordon Tullock to win the Nobel for as long as I can remember, but I can't say I'm surprised or disappointed that this year's prize went to Elinor Ostrom and Oliver Williamson. In fact, I'm thrilled. Arnold Kling offers an excellent summary of the Ostrom and Williamson win here.
October 10, 2009
On the Economics Nobel
Here are Bob Subrick's predictions (HT: Scott Beaulier). Bob suggests a possible prize for Gordon Tullock, Anne Krueger, and Jagdish Bhagwati for their work on rent-seeking. I've been rooting for Tullock for a long time, and I think that now more than ever he deserves the prize. By and large, government policy is made by ignoring Tullock's entire research program, with disastrous consequences. First, it is widely assumed that people will behave irrationally and opportunistically--except for a small caste of enlightened worthies who can be trusted to transcend their individual interests, behave perfectly rationally, and nudge the rest of us as hard as we need to be nudged in order to lead us to utopia.
Second, policy is made by ignoring what Tullock had to say about rent-seeking. Consider, for example, policies that are justified on distributional grounds. Even among some of those who acknowledge its disemployment effects, minimum wages remain popular because the increased income transferred to unskilled workers is supposedly worth incurring a little bit of deadweight loss. According to Tullock, however, the prospect of a transfer from employers to employees encourages rent-seeking on the part of employers (who seek to protect themselves from the transfer) and on the part of employees (who seek to acquire the transfer). The full value of the transfer will be frittered away through the political process.
Arguments for supposedly more efficient (or less inefficient) programs like the EITC or other tax-and-transfer schemes are undermined by the theory of rent-seeking. Even if we could implement a perfect tax-and-transfer scheme, the full value of the transfer will disappear down the political drain. From what I can tell about policy debates, however, this is only considered when people express surprise at the unintended consequences of the policies they endorse. Even only then, it is usually treated as a moral failing rather than a predictable consequence of the incentives in place.
Tullock has made a series of contributions that should have, by now, changed the way everyone looks at human action. If we had taken him seriously, we probably wouldn't have made the host of policy mistakes that caused the current crisis. If that doesn't deserve a Nobel Prize, what does?
October 09, 2009
Is the U.S. Federal government undergoing a crisis of legitimacy?
Discuss amongst yourselves...
Comments are open. If you care to respond, please try for communicative efficiency. Our creaky old system can't handle multiple magnum opi in the comments!
Guest Blogger: Ludwig von Mises on Reason and Error
We are honored to celebrate both the 250th anniversary of The Theory of Moral Sentiments and the 60th anniversary of Human Action with a guest post from Ludwig von Mises, below the fold. The post is excerpted from Human Action and published here. This is going to go into my introductory readings for Econ 101.
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The Fight Against Error
A critical examination of the philosophical systems constructed by mankind's great thinkers has very often revealed fissures and flaws in the impressive structure of those seemingly consistent and coherent bodies of comprehensive thought. Even the genius in drafting a world view sometimes fails to avoid contradictions and fallacious syllogisms.
The ideologies accepted by public opinion are still more infected by the shortcomings of the human mind. They are mostly an eclectic juxtaposition of ideas utterly incompatible with one another. They cannot stand a logical examination of their content. Their inconsistencies are irreparable and defy any attempt to combine their various parts into a system of ideas compatible with one another.
Some authors try to justify the contradictions of generally accepted ideologies by pointing out the alleged advantages of a compromise, however unsatisfactory from the logical point of view, for the smooth functioning of interhuman relations. They refer to the popular fallacy [p. 185] that life and reality are "not logical"; they contend that a contradictory system may prove its expediency or even its truth by working satisfactorily while a logically consistent system would result in disaster. There is no need to refute anew such popular errors. Logical thinking and real life are not two separate orbits. Logic is for man the only means to master the problems of reality. What is contradictory in theory, is no less contradictory in reality. No ideological inconsistency can provide a satisfactory, i.e., working, solution for the problems offered by the facts of the world. The only effect of contradictory ideologies is to conceal the real problems and thus to prevent people from finding in time an appropriate policy for solving them. Inconsistent ideologies may sometimes postpone the emergence of a manifest conflict. But they certainly aggravate the evils which they mask and render a final solution more difficult. They multiply the agonies, they intensify the hatreds, and make peaceful settlement impossible. It is a serious blunder to consider ideological contradictions harmless or even beneficial.
The main objective of praxeology and economics is to substitute consistent correct ideologies for the contradictory tenets of popular eclecticism. There is no other means of preventing social disintegration and of safeguarding the steady improvement of human conditions than those provided by reason. Men must try to think through all the problems involved up to the point beyond which a human mind cannot proceed farther. They must never acquiesce in any solutions conveyed by older generations, they must always question anew every theory and every theorem, they must never relax in their endeavors to brush away fallacies and to find the best possible cognition. They must fight error by unmasking spurious doctrines and by expounding truth.
The problems involved are purely intellectual and must be dealt with as such. It is disastrous to shift them to the moral sphere and to dispose of supporters of opposite ideologies by calling them villains. It is vain to insist that what we are aiming at is good and what our adversaries want is bad. The question to be solved is precisely what is to be considered as good and what as bad. The rigid dogmatism peculiar to religious groups and to Marxism results only in irreconcilable conflict. It condemns beforehand all dissenters as evildoers, it calls into question their good faith, it asks them to surrender unconditionally. No social cooperation is possible where such an attitude prevails.
No better is the propensity, very popular nowadays, to brand supporters of other ideologies as lunatics. Psychiatrists are vague in drawing a line between sanity and insanity. It would be preposterous for laymen to interfere with this fundamental issue of psychiatry. However, it is clear that if the mere fact that a man shares erroneous views and acts according to his errors qualifies him as mentally disabled, it would be very hard to discover an individual to which the epithet [p. 186] sane or normal could be attributed. Then we are bound to call the past generations lunatic because their ideas about the problems of the natural sciences and concomitantly their techniques differed from ours. Coming generations will call us lunatics for the same reason. Man is liable to error. If to err were the characteristic feature of mental disability, then everybody should be called mentally disabled.
Neither can the fact that a man is at variance with the opinions held by the majority of his contemporaries qualify him as a lunatic. Were Copernicus, Galileo and Lavoisier insane? It is the regular course of history that a man conceives new ideas, contrary to those of other people. Some of these ideas are later embodied in the system of knowledge accepted by public opinion as true. Is it permissible to apply the epithet "sane" only to boors who never had ideas of their own and to deny it to all innovators?
The procedure of some contemporary psychiatrists is really outrageous. They are utterly ignorant of the theories of praxeology and economics. Their familiarity with present-day ideologies is superficial and uncritical. Yet they blithely call the supporters of some ideologies paranoid persons.
There are men who are commonly stigmatized as monetary cranks. The monetary crank suggests a method for making everybody prosperous by monetary measures. His plans are illusory. However, they are the consistent application of a monetary ideology entirely approved by contemporary public opinion and espoused by the policies of almost all governments, political parties, and the press.
It is generally believed by those unfamiliar with economic theory that credit expansion and an increase in the quantity of money in circulation are efficacious means for lowering the rate of interest permanently below the height it would attain on a nonmanipulated capital and loan market. This theory is utterly illusory. But it guides the monetary and credit policy of almost every contemporary government. Now, on the basis of this vicious ideology, no valid objection can be raised against the plans advanced by Pierre Joseph Proudhon, Ernest Solvay, Clifford Hugh Douglas and a host of other would-be reformers. They are only more consistent than other people are. They want to reduce the rate of interest to zero and thus to abolish altogether the scarcity of "capital." He who wants to refute them must attack the theories underlying the monetary and credit policies of the great nations.
The psychiatrist may object that what characterizes a man as a lunatic is precisely the fact that he lacks moderation and goes to extremes. While normal man is judicious enough to restrain himself, the paranoid person goes beyond all bounds. This is quite an unsatisfactory [p. 187] rejoinder. All the arguments advanced in favor of the thesis that the rate of interest can be reduced by credit expansion from 5 or 4 per cent to 3 or 2 per cent are equally valid for a reduction to zero. The "monetary cranks" are certainly right from the point of view of the monetary fallacies approved by popular opinion.
There are psychiatrists who call the Germans who espoused the principles of Nazism lunatics and want to cure them by therapeutic procedures. Here again we are faced with the same problem. The doctrines of Nazism are vicious, but they do not essentially disagree with the ideologies of socialism and nationalism as approved by other peoples' public opinion. What characterized the Nazis was only the consistent application of these ideologies to the special conditions of Germany. Like all other contemporary nations the Nazis desired government control of business and economic self-sufficiency, i.e., autarky, for their own nation. The distinctive mark of their policy was that they refused to acquiesce in the disadvantages which the acceptance of the same system by other nations would impose upon them. They were not prepared to be forever "imprisoned," as they said, within a comparatively overpopulated area in which physical conditions render the productivity of human effort lower than in other countries. They believed that their nation's great population figures, the strategically propitious geographic situation of their country, and the inborn vigor and gallantry of their armed forces provided them with a good chance to remedy by aggression the evils they deplored.
Now, whoever accepts the ideology of nationalism and socialism as true and as the standard of his own nation's policy, is not in a position to refute the conclusions drawn from them by the Nazis. The only way for a refutation of Nazism left for foreign nations which have espoused these two principles was to defeat the Nazis in war. And as long as the ideology of socialism and nationalism is supreme in the world's public opinion, the Germans or other peoples will try again to succeed by aggression and conquest, should the opportunity ever be offered to them. There is no hope of eradication the aggression mentality if one does not explode entirely the ideological fallacies from which it stems. This is not a task for psychiatrists, but for economists.
Man has only one tool to fight error: reason.
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Michael Moore and Capitalism (Updated)
Here he makes a couple of crucial admissions in this clip featuring a great question from Chad Swarthout, a student at George Washington University and a participant in the Institute for Humane Studies "Liberty and Society" Summer Seminar I taught at last summer. Sadly, Moore doesn't realize that the "ideal" system he describes in which everyone's voice is heard is a system based on private property and free markets, nor does he answer Chad's question meaningfully.
Update: readers who were at the 2009 Liberty & Society Seminar at Wake Forest might remember Kyle McNeel's exhortation to "stand in front of a tank" in reference to the 20th anniversary of Tiananmen Square. This is a pretty good example of someone doing exactly that.
Dogs Bark, Cats Meow, and ...
Posted by E. Frank Stephenson at 11:56 AM
Nobel Anecdote (Updated)
Here's an entry from Greg Mankiw that reminds me of an exchange from Grad School. I was Douglass C. North's TA and RA from 2002-2005. Around the beginning of 2003, he knocked on my door and said that he had to nominate someone for the economics Nobel. Before he could continue, I interrupted and told him how amazingly flattered I was since I didn't even have a dissertation topic yet. Suffice it to say he wasn't nominating me.
This could, however, signal a shift in Nobel logic. If potential is what matters, I think the committee should reconsider and award the Prize to Chris Coyne. Like Obama, he isn't George W. Bush, so he meets at least one of the selection criteria. The tiebreaker would be Coyne's excellent After War, which, I hope, will be an input into Obama's foreign policy.
Update: Here's Kevin Grier wondering whether an Obama prize will make it harder for Obama to pursue an aggressive foreign policy. Maybe we aren't giving the prize committee enough credit: maybe they aren't giving him a medal to wear, but an albatross. Are they hoping that this will render politically unsaleable a lot of possible foreign policy options that would be unbecoming of a Nobel Peace Prize winner?
The Revolution Will be Facebooked: Reactions to the Obama Nobel
I must admit I was surprised by Obama's Nobel Peace Prize. It increased the probability with which I believe the timing of Krugman's economics prize was in part politically motivated. Here are some FB status updates from people on my "friends" list reacting to the prize, in no particular order (names redacted, obviously). The hits just keep on coming:
1. ...knows what next week's episode of South Park will be about.
2. ...wishes she could extend the Patriot Act and occupy a sovereign state, killing not only her own citizens but those of the occupied country, 'cause then she could get the Nobel Peace Prize!
3. War is peace.
4. Tonight we're gonna party like it's 1984!
5. If they're giving out Nobel prizes for not being George W. Bush, I want one too.
6. Art Carden likes some of President Obama's cosmopolitan rhetoric but wonders how tire tariffs and other restrictions on international trade are "extraordinary efforts to strengthen international diplomacy and cooperation between peoples."
7. ...wonders how long before someone makes a Kanye West mashup of him on stage with Obama saying that while the President has done a good job, Beyonce should've won the Nobel Peace Prize.
8. One that's in a language I don't speak, but it talks about Gore and Carter, and the last line is "El el 2010 sera para Paris Hilton."
9. ...is hoping that Kanye attends the Nobel awards ceremony.
10. ...started reading his Facebook feed and had to make sure that the links to Obama winning the Peace Prize weren't all from The Onion.
Best Blog Title I've Read Today
October 08, 2009
Another Division of Labour Essay Contest on Voting
On October 15, Memphians will choose a new mayor in a special election. I'm deep in the same moral and intellectual crisis that faces me every election: should I vote? I decided that (once again) I will farm this out to Division of Labour readers. I'll offer a prize of some kind for the best 250-500 word essay explaining why I should or should not vote, and the winning entry will be published on DOL. Entries will be accepted via email, and I'm looking for something that addresses the opportunity cost of voting.
Update: Here's Per Bylund on voting.
Pyramid Schemes in Memphis
Here's the letter I mentioned a few days ago on what we might do about the Memphis Pyramid, published in this morning's Memphis Commercial Appeal:
"How about a boondoggle museum
I read your Oct. 5 article about debates over what to do with The Pyramid with some interest (“Plans for Pyramid differing widely / Candidates’ ideas often outside the box”). I propose a different solution: Privatize it by distributing ownership shares to all Memphis and Shelby County taxpayers. I would then encourage the new owners to convert it into an International Museum of Resource-Wasting Boondoggles.
Visitors could be greeted with a clip of Montgomery Burns from one of last season’s episodes of “The Simpsons” in which he describes “the American Dream: a billionaire using public funds to build a private playground for the rich and powerful.”
The museum could include an exhibit explaining the broken-window fallacy and another exhibit on badly done and arguably dishonest “economic impact” studies that tell stadium proponents what they want to hear, and it could offer numerous exhibits on how stadium projects fail to live up to their promises. They could start with an entire exhibit about how long it is taking to fill the giant mud puddle in downtown St. Louis where the old Busch Stadium used to be.
Tonight: "The Legacy of Adam Smith and the Future of Capitalism"
If you're in the Memphis area and you're looking for something to do this evening, Rhodes is hosting a Symposium on "The Legacy of Adam Smith and the Future of Capitalism" through the Project for the Study of Liberal Democracy. This year marks the 250th anniversary of Adam Smith's The Theory of Moral Sentiments, and we will hear comments from James Otteson, Professor of Philosophy and Economics at Yeshiva University and Charles G. Koch Senior Fellow at the Fund for American Studies, and Peter McNamara, Associate Professor and Graduate Director in the Department of Political Science at Utah State University. I'm the discussant. If you saw Brian C. Anderson's review of Michael Hardt and Antonio Negri's Commonwealth in this morning's Wall Street Journal, you understand why this discussion takes on added importance. The fun begins at 7:00 PM in the Bryan Campus Life Center.
October 07, 2009
Austrian Empiricism... Not an Oxymoron!
Prof. Kopple responds to my question, "How do you most effectively combat the perception that Austrians are anti-empirical?" by saying....
"Do empirical work!"
In an email, he expounded:
This seems like a perfect opportunity for me to shill my journal! If you're an Austrian doing empirical work in entrepreneurship--any type of empirical work; just confront a research question with the outside world--we would love to review it the Southern Journal of Entrepreneurship.
Check us out at:
Posted by Noel Campbell at 07:48 PM
"The Great Debate of October" revisited
To everyone who emailed me, I apologize for disappearing for a couple of days, but the pesky taxpayers of Arkansas expected me to do some, you know, "work" work.
Prof. Dan Klein of George Mason University sent me this chestnut on the fifth, responding to Emily Schaeffer's response to my thoroughly deserved, yet curiously unprovoked, defensive pre-emptive attack on Art.
I'll post the note in its entirety below.
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Reading Emily’s post, I find myself unsympathetic with her distinction between “economic theory” and “empirical economics” (or “applied economic theory”).
Where philosophers including Hayek and Polanyi—and Berkeley(?), Hamilton(?), Kant(?), Spencer(?), James (?), etc., etc. – say that all observation or perception emerge from higher-level cognitive goings-on (associations, mechanisms, categorizings, etc.), no one nowadays would disagree. I take this as the nub of Hayek’s “Primacy of the Abstract,” (in New Studies), a title that is regrettable in the “Primacy.”
Hayek is against “the assertion that the abstract presupposes the concrete” (p. 37). Fine: It is wrong to say “first comes the concrete and then comes the abstract”. But I think it is a mistake to take Hayek to be saying “first comes the abstract and then comes the concrete.” In speaking of babies and lower animals, Hayek makes it pretty clear that the abstracts evolve in relation to a species/life experience.
So when Hayek says “primacy of the abstract” what he means is something like the following: Abstracts are as primary as concretes. He is not saying that all abstracts come before all “concretes”.
Now, in Hayek’s paper, I don’t notice a single occurrence of the word “theory.” Hayek is essentially talking about things like a squirrel’s perception of a nut being emergent from higher cognitive goings-on.
I object to this. We should avoid saying that squirrels theorize. Likewise, when I merely observe a baseball game, I am not theorizing. Theorizing is a form of human discourse (which could of course be discourse with oneself in one’s own head). Theory is an artifact of human discourse.
A useful way to think of “theory” is as explanation. Explanation is a matter of discourse – the squirrel does not explain.
Explanation implies an explanandum. An explanandum implies some facts.
Another useful way to think of “theory” is as articulate interpretation. That too implies facts to be interpreted.
“Factual” statements are presumed acceptable to all parties of the communication.
Sure, in any discourse situation, factual statements reside within what Hayek calls “abstractions”, but if the set of statements are regarded as “factual,” then those “abstractions” are not, within the discourse situation, theory.
(My take of facts and interpretation is given on pp. 3-5 of the following paper:
Emily expounds what she identifies as the “Misesian position in acknowledging the primacy of theory.” She champions “the primacy of theory.”
But, irrespective of whether we view “theory” as explanation or as interpretation, we must have facts to do theory. I don’t see a contest of “primacy” between facts and theory. If we must speak of “primacy” – the value of which I doubt – then, in theorizing, facts and theory are dually “primary.”
Any kind of theorizing must presuppose some facts. It is by recourse to the factual that we answer the questions: Theory of what? Explanation of what? Interpretation of what?
When Emily speaks of “the primacy of theory,” I am tempted to ask her, “The theory that you say is primary is a theory of what, exactly?” Notice how Emily shifts to: “a method for developing an [unlimited number of relevant refutable hypotheses].” A “method,” hmm. Has it turned into the “primacy of method”?
Within a discourse situation, neither of the following is true:
To say that you can always open up what are treated in one situation as “factual” to dispute, that you can change the discourse situation, is true enough. But such recursion will never bring you to a “primacy of theory.”
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Posted by Noel Campbell at 07:24 PM
Most Interesting Paragraph I've Written Today
Here is what we believe is occurring. As state and local governments become less intrusive into their economies, economic freedom increases. As economic freedom increases, state income increases. This, in turn, will increase the state’s Federal tax liability, as a percentage of state GDP. The rising Federal tax liability induces a state’s residents to seek more income-sheltering financial services from banks. These services are profitable, increasing the banks’ bottom lines. In other words, as Federal tax liabilities fall—due to falling freedom at the sub-national level—then people have less need for profitable banking services, which shelter their income from Federal taxation. This would reduce banks’ return on equity.
Posted by Noel Campbell at 01:29 PM
Thoughts from a Dull Moment: Frank Steindl on Endogenous Propagation
Office entropy is out of control, so I'm spending part of the--I was going to say morning, but it's now afternoon--cleaning up. Here's a paper that we'll read in econ 339 later in the semester: Frank Steindl's "What Ended the Great Depression? It Was Not World War II," which has taken on a new relevance since it was first published in 2007.
New Airline Fees?
I saw this on Drudge:
A Japanese airline has started asking passengers to go to the toilet before boarding in a bid to reduce carbon emissions.
It won't be long now before some airline works this idea into its fee structure. Perhaps a $5 fee for people who don't go #1 before boarding, a $10 fee for people who don't go #2 before boarding, and $15 fee for people who do neither.
Posted by E. Frank Stephenson at 01:07 PM
Update on Payday Lending in Ohio
Some snips from a Heartland Institute piece on Ohio's payday lending ban:
Last November, 64 percent of the state’s voters favored approving an Ohio House bill capping payday lenders’ annualized rates at 28 percent. Legislators had passed the bill in June 2008.
It wouldn't come as a surprise to learn that banks backed the payday loan ban, but I didn't find anything in an cursory Google search.
On Sarkozy's Happiness Adjusted GDP
French President Sarkozy recently called for adjusting tradional GDP calculations for happiness (which I tend to think is a bunch of bunk, but that's another post). Maybe the French are happier than Americans (or, more generally, countries that have higher GDPs than France)--after all, they have good wine, fine cheese, the scenic countryside that's displayed so vividly in the Tour de France coverage each summer. However, Sarkozy might want to rethink his call for a happiness-adjusted GDP.
Consider suicide rates. French suicide rates for men are roughly 50% higher than American male suicide rates. For women, the French rate is double the American rate. (Source--pay attention to the graph on the lefthand side of the article.)
Then there's the matter of car burning--a rather unusual way to indicate happiness but de gustibus non est disputandum. Here are some snips from a Time article:
For much of the world, they became iconic of France's worst social ills: the burned-out carcasses of thousands of cars set ablaze during nearly three weeks of nationwide rioting in 2005. But as yet another orgy of automobile arson on Wednesday demonstrated, the torching of cars in France has not only become an everyday event; it's also now a regular form of expression for disenfranchised suburban youths wanting to make sure the rest of the country doesn't forget they exist. And their fiery presence is never felt so strongly as it is each New Year's Eve — the day of France's unofficial festival of car-burning.
As for 2005, this Wikipedia page reports that 8,900 cars were burned over 20 days of rioting.
UPDATE: The Economist asks, "Why are the French so prone to suicide?"
Interview on Radio Free Market
Here's an interview I did with Radio Free Market during Mises U at the beginning of August and broadcast on September 25.
Hanson and Easterly On Aid and Charity
Filtered through warped minds at The Onion:
I'm going to assume there's a lot of overlap between readers of DoL, Easterly's Aid Watch, and Hanson's Overcoming Bias. Easterly and Hanson are two of my favorite scholars, and they offer complementary views on aid. Easterly argues that a lot of aid resources are wasted, and Hanson offers a signaling explanation for why we keep wasting resources on ineffective foreign aid. We care more about showing we care than about results, and accumulating poverty porn is a lot easier than making tough decisions, supporting unpopular policies, and actually doing things that will alleviate that poverty.
Speaking of people who care, here's Scott Beaulier's interesting take on his recent trip to see U2. FWIW, one of my most cherished music memories was being there when Bono skipped a verse in "I Will Follow" at Ohio Stadium in 1997. I have to give Bono credit for earnestness and for at least making an effort to understand what he's talking about. He just picked the wrong New York-based development economist to serve as his guru (Jeffrey Sachs).
Posted by Art Carden at 09:40 AM
October 06, 2009
U.S. Energy Policy and the Presumption of Market Failure
This article will argue that government energy policy has been based on faulty premises not only about the existence of market failure but also about the nature and process of innovation. Moreover, as this article will show, there is evidence that the private sector can develop energy alternatives more efficiently than the government.
That's a paragraph from what looks to be a good article by Peter Z. Grossman in the new issue of the Cato Journal.
Boettke and Caplan on Austrian Economics (Brought to you by Carl's Jr.)
Here are two of my favorite economists, Peter Boettke and Bryan Caplan, debating Austrian economics. It's a 13-part video, which raises a question: I have a video of Deirdre McCloskey's lecture at Rhodes, but YouTube won't take it. How can I cut it up, or where can I put the entire uncut video online? If you have a suggestion, please let me know.
Obligatory FTC Disclosure: I wasn't paid to write this.
The FTC is here to protect you, dear reader.
For the record I: I am open to payment if any of you want to pay me to write something on this blog. Let's make a deal baby!
For the record II: I have received exactly one book (unsolicited) hoping for a review on this blog, which I did not review, though it was a good book.
For the record III: The FTC can kiss my ass.
October 05, 2009
I'll concede the big issues, but not the small ones
I've had my evening cigar. I find a cigar, an iPod, and a porch swing to be very effective aids to cogitation.
What I won't concede: I find Mises' prose to be very difficult and unrewarding. I very much doubt I'll ever finish Human Action. That says more about me than about Prof. Mises.
What I'll concede: Prof. Koppl's comments, examples, and assertions lead me to say that HA is a work of science. I'll assume that Mises supported his arguments with evidence. It's no fault of Mises' that the standards of good empirical work are now, 90 years later, different than when he wrote.
I also know better than to say that good empirical evidence equates to regression analysis. I've spent my career to date in small business schools, so I've observed how other fields conduct empirical studies. There are many good empirical techniques that most economists don't know or use.
So the question I have for the genuine Austrians out there is this: I venture to say that the most common perception of Austrians is that they are anti-empirical. When dealing with humans, perceptions are very important. How do you most effectively combat the perception that Austrians are anti-empirical?
I won't open the comments (largely because I don't know how), but I do invite replies at email@example.com. I'll be happy to share any replies that strike me as particularly apt.
Posted by Noel Campbell at 11:06 PM
Dogpile on Campbell!
(I appear to be incompetent at embedding links. Prof. Schaeffer’s and Will Luther’s comments are available at The Perfect Substitute, while Prof. Koppl’s remarks are at ThinkMarkets. Thanks for the interest and the high quality of the comments, y’all.)
Others continue to flock to Art’s defense. In the words of a former co-worker, “We decided to whup his *** by committee.” Or, in the words (more or less) of Ron White, “I didn’t know how many of ‘em it was gonna take to throw me out of the bar, but I knew how many of ‘em they was gonna use.” Ah, well, no Southern man should ever be afraid to fight, even against long odds.
It occurs to me: Art and I know each other, but…. I’ve met Prof. Schaeffer, but I doubt she remembers me; I don’t think I’ve met Mr. Luther. I know Prof. Koppl on sight, but I very much doubt that he knows me. Folks, please permit me to buy the first round at the soonest opportunity.
More below the fold
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Responding to Will Luther (at The Perfect Substitute):
In fact, I would claim that Mises is simply a classical economist in many respects.
In his descriptions of humans engaging in productive and market behavior, yes, I would agree. In what he is attempting to accomplish, no, I disagree. Very few economists will ever set out to develop a complete, logically correct theory ahead of measurement.
Here's a short reading list for folks like Noel who'd like to understand what it is that… those… Austrians are doing.
I appreciate the reading list; however, though short in number of titles, is several thousands of pages worth of reading and represents a substantial opportunity cost. Are you sure you can’t give me the Cliff notes? Plus (my bad), but Polanyi was exactly the sort of writing I had in mind when discussing my eyes glazing over. I recall one time in (probably) 1994. I attempted a weekly brown-bag discussion group on philosophy that Prof. Lavoie ran. I lasted exactly 50 minutes.
All so-called objective facts require an act of interpretation; and interpretation is necessarily subjective. …. Less than pure objectivity does not spiral into absolute relativism where one cannot know anything.
Agreed. No arguments here…. And….? A fundamental premise of the modern experimental method is that we can never prove anything. Plus, I’m so glad we agree not to subside into some morass of Derridist-style nonsense.
Human Action is not an irrefutable tract and Mises knew this.
Glad to hear it. So, how would Mises approach revising his treatise in order to improve the theory? What parts of HA would you suggest we jettison, and why?
Responding to Prof. Koppl (at ThinkMarkets):
I might whine about how unfair it is to contrast Mises’ “philosophy” with “science” and then expect a response that doesn’t get into the philosophy of science.
Well, I never promised I wouldn’t fight dirty.
Laying out the scientific sense in which socialism “doesn’t work” or the minimum wage “doesn’t work” is a scientific enterprise. It’s about society, not building an “irrefutable description of human behavior.”
Ok, but how is it scientific without exposing sufficiently narrow and sufficiently specific predictions to the data?
Noel is mistaken about what Mises was trying to do. …. No, he was more interested in results than methodology.
I cheerfully defer to superior knowledge. How much of HA would I have had to read before this was made clear to me?
For all his talk about apriorism and whatnot, Mises completely wants us to engage in that dialectic between fact and theory that we call science. Mises’ theory of the trade cycle is science not philosophy. His theorem on the impossibility of rational economic calculation under socialism is science, not philosophy. His marginal utility approach to money demand is science, not philosophy.
Excellent! Good stuff! Thanks. And all of this was in HA or was it in collateral works? How have his models stood the test of repeated comparison with experience?
Mises had some weird lingo. He worked out his position before many modern developments in methodology. …. But he was doing science all the way, albeit front-loaded with some now old-fashioned philosophy.
All right! My question is, is all this in HA? My original point was not that Mises wasn’t a scientist, but that Human Action (by itself) seemed to be a work of philosophy and it bored me stiff. If I decide to pick up HA again, where should I start reading to minimize my exposure to weird lingo and old-fashioned philosophy?
Where is the literature where economists have empirically tested Mises’ propositions? I know some literature exists wherein other Austrian-school propositions are tested. F’rinstance, I recently read an old article by Vernon Smith testing (and supporting) Hayek’s famous argument from “Use of Knowledge in Society.” HT: Ed Lopez, for that one.
Responding to Prof. Schaeffer (at The Perfect Substitute):
First, I’m loud and vociferous? I’M LOUD AND VOCIFEROUS?? Wait… yeah… you’re right. Then again, perhaps one could recast my comments as one who is asking to be convinced that I should devote the considerable effort to reading HA, after having tried and failed. Plus, how many non-Austrians, when innocently asking what it’s all about, have been frostily told to read Mises, then all would be abundantly clear?
…the way Noel is using the term theory is not at all how Mises uses the term. For Noel – and please correct me if I am wrong – theory is the same as hypothesis and conjectures.
Theory and hypothesis, yeah; conjecture, not so much. I mean, I think that the conjecture, “opening umbrellas causes rain” is pretty poor theory.
Economic reasoning is a process of moving from an unsystematic collection of beliefs (poor theory) to a (A) systematic and internally consistent general theory of human action. From here, (B) specific hypothesis or conjectures may be logically derived involving concrete and contextual relationships and (C) confront the evidence. I think Austrians would say that if the evidence (C) doesn’t line up with the conjecture (B), check that C is consistent with what B suggests we should be looking at. If so, check the move from A to B before you reconsider A.
OK, that’s typically what mainstream economists also try to do, I believe.
When developing another scientific question to examine, the relationship between B and C in t1 never forms the basis for A in t2. To be uncharacteristically (and humorously) Randian – A is A.
OK, I don’t completely buy into that, but ok; although my (A) will be extremely limited, and—on occasion—subject to testing again. Isn’t it sometimes comforting to demonstrate to yourself that demand curves do generally slope downward?
Finally, the point that Roger makes about Mises being a scientist is probably the most important. To pejoratively relegate Human Action to the realm of philosophy implicitly suggests a rather low opinion on the extent to which philosophy informs science.
Guilty, but that one of the things that so impresses me about the “standard” scientific method. Even when the entire apparatus is in the hands of intellectual Phillistines and mere technicians such as myself, we’ve made remarkable strides in improving human wellbeing with that apparatus.
Roger points out, the contributions of Mises on such grounds as the impossibility of economic calculation under collective ownership of the means of production is not philosophy – its economic science.
As above, agreed. But did Mises do this in HA or in his other works? Did it have to be buried so deep that so many people give up the attempt to learn the lesson before it even begins? I thought Hayek elegantly achieved the same result in one quick paper (Use of Knowledge in Society) that my undergraduates read and understand.
Perhaps the reason Noel’s more mainstream friends call him an Austrian is not because he read one chapter in Human Action and has a publication in the RAE, but because they too conflate the economic and philosophical arguments.
I think you’re crediting most of the orthodoxy with more interest in Austrians than actually exists. I think all they “know” is that Austrians don’t “believe” in running regressions, and their interest immediately ends. Because I happen to know more than they do, surely that makes me an Austrian.
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Posted by Noel Campbell at 08:51 PM
What are the 10 best Supreme Court decisions?
Libertarians generally tend to believe that the Supreme Court has largely failed to protect individual rights in accordance with the Constitution. Last year, Chip Mellor of the Institute for Justice and Robert Levy of the Cato Institute published "The Dirty Dozen: How 12 Supreme Court Cases Radically Expanded Government and Eroded Freedom," outlining Supreme Court decisions that, well, radically expanded government and eroded freedom.
But obviously, not all Supreme Court decisions are bad. Sometimes the Court has stood for freedom. So what are the Top 10 Supreme Court cases for freedom? I'll open comments - please share your thoughts on the 10 best Supreme Court decisions for liberty, with a few sentences, if you can, on why you think that.
Just to start, I'll name just one case that would be on my list - not necessarily at the top, but definitely on the list: Schecter Poultry Corp. v. United States. I think most Americans don't realize how close the United States came to adopting a fascist economic system during the Great Depression, and the extent to which the National Industrial Recovery Act (NIRA) threatened freedom. The Court's decision was instrumental in keeping the U.S. operating as, mainly, a market based economy. Additionally, people don't realize the extent to which the National Recovery Administration fostered populist, extra-legal assaults on all dissent from the system it sought to impose. When I tell students what the NIRA actually required, most can't believe that the U.S. would ever have adopted so fascist a system for production. The Court's invocation of the non-delegation doctrine (never invoked since) to strike down the NIRA is one of the few times the Court has stood against mass popular opinion to strike down a law grossly infringing on economic freedom.
So please, have at it. What are the Top 10 Supreme Court decisions for freedom? (More below the fold, and be sure to check out comments)
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Update: A good deal of discussion on this has been going on at the listserve of the Oppenheimer Society, and despite my efforts to get people to post their comments to this blog, most have not. Finding this an interesting discussion, I have moved most of them over here, in the comments below.
Also, Ilya Somin has taken up the discussion at the Volokh Conspiracy, if you'd like to see the comments there, and Damon Root is on it at Reason, although the quality of the comments there is uneven, to say the least.
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Coase on a Plane
I'm cleaning out some old notes and I came across the following, which might someday be a question I would ask on an exam or in a job interview:
Crying babies and loud children are among the common complaints of frequent flyers; indeed, I can say from personal experience that a screaming infant can make for a long flight. Describe the reciprocal nature of the externality. How does the private market internalize the externality? To what extent does the possibility of an upgrade to first class help mitigate the externality? What is the role of reasonable expectations in deciding on a policy? What is the parent's responsibility? What is the responsibility of the other flyers?
The Memphis Pyramid
This morning's Memphis Commercial Appeal had an article about what to do with the Pyramid, the empty basketball arena in Memphis that will reflect sunlight directly into your eyes if you're approaching downtown on North Parkway at the right time of day. They've been talking about this at least since we moved here in 2006; where's Hernando de Soto when you need him?
I sent them a letter (which I copied, and then copied over, so I can't post it) proposing that it be privatized and turned into a museum of resource-wasting boondoggles.
Paper title: When is the government spending multiplier large?
Paper abstract: When the nominal interest rate is constant.
The paper is by Christiano, Eichenbaum, and Rebelo.
October 04, 2009
Correction and nota bene
First, my wife, an observant being, informs me that the correct saying is, "It's on like Donkey Kong."
Second, I refer to myself as an orthodox, mainstream neoclassical economist, as have others in this fun conversation we've had. I believe, though, that the majority of orthodox economists would consider me to be an Austrian because (1) I've read a chapter in Human Action, (2) I earned my doctorate at George Mason University, (3) I have an old article in Review of Austrian Economics. Go figger, as they say.
I might add that I'm very proud of my RAE article. It's on my mental list of "articles," as opposed to "publications to play the game." I should also add that, though he probably doesn't realize it, our own Ed Lopez was pivotally instrumental in writing that article. I had two conversations with him wherein after he expressed his opinion, I said to myself, "Oh, snap! He's right. I gotta do that." I could've acknowledged this in a footnote, but I'm too mean and egocentered. While I'm airing my dirty laundry, I should point out that the article was similarly facilitated by Hillsdale College's Ivan Pongracic, a jen-yoo-wine Austrian economist. Sorry, guys.
Posted by Noel Campbell at 03:22 PM
Carden’s Already Committing His Reserves
So Art had to call in reinforcements… a girl! (Juuuust kidding, Prof. Schaeffer. I recently met a nice young lady who trains MMA fighters for a living. She frightened me.)
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Mises [is] developing a “pure logic of action” [;] developing theory -- that which is prior -- to Noel’s Step 1: Observation. For Mises, economic theory (praxeology) is logical system of human action. Economics… is the application of economic theory to empirical phenomena. This distinction is crucial to understanding Mises….
In other words, HA is a book of philosophy on praxeology, rather than a book on economics, which was one of my points. Perhaps it reflects poorly on me, but that’s why I have trouble reading the book. When I read philosophy, my eyes glaze over and I feel a powerful desire to watch televised sports. It also means that Mises’ audience, supporters and critics, would be philosophers, not economists. Furthermore, I disagree with the assertion that theory comes before observation. I must have observed something in order for me to desire to theorize about it.
For Mises, there is no such thing as observation without prior theory.
Agreed, but usually only in the most general sense.
Thus, empirical observations can either be seen through the lens of poor, under-developed theory, wrong theory, unacknowledged theory, etc etc or through the lens of refined economic theory of human action…..based on the ideas of marginal cost / marginal benefit thinking.
Again, agreed, but this is precisely what the experimental method is designed to do, and does: it weeds out weak theory, promotes good theory, and identifies areas where further theoretical development would be most useful.
The second part of Mises’ project is to emphasize that …. theory influences the types of questions scientists ask. In other words, Noel’s point that Mises’ is “leaving off the most important step” is a criticism that I think Mises would level against the standard scientific method. Only in Mises view, that step is the theory informing history.
Theory does influence the questions we ask, but—again—that’s part of the scientific method. As hypotheses are winnowed by exposure to the evidence, new, previously un-thought-of questions (requiring new theory) come into view. Consider the reasons and history behind the debate about how we form expectations, for example.
If you take my reading of Mises, then he is saying something more along the line of “Hey guys, I’ve just outlined a method for developing an [unlimited number of relevant refutable hypotheses]. You’ve got about…oh…[two thousand years] worth of explaining [causal relationships of human history] to do. Get crackin’!”
Ok, I’ll violate several rules of good argument, but perhaps doing so will clear up several things for me and even persuade me to retreat from my position. Give me the “thumbnail,” suitable-for-college freshmen, bullet-point explanation for what IS Mises’ “method for developing… refutable hypotheses.” Second, give me an example of a reputable hypothesis arrived at by this method that did not occur to mainstream economics. Was that hypothesis then refuted or supported by the data?
Taking a Misesian position in acknowledging the primacy of theory challenges mainstream views on what economists should do through the implications about what economists can do. If taken seriously, the relationship between economic theory and empirical investigation changes how our knowledge of economic phenomena advances.
Well, I can’t follow you here. I’ve never denied the primacy of theory, though I’m still not sure I accept “primacy” in the way you mean it. Since I don’t necessarily accept your premise, my comments on the rest of the post will likely be somewhat ad hoc.
Why do social scientists need theory so desperately? Because the facts of the social sciences are not the same as the facts of the natural sciences.
This is abundantly evident, but no one has so argued, except as a heuristic or metaphor, for a very long time.
I would venture to speculate that the main reasons mainstream economists like Noel find the ‘primacy of theory’ point either irrelevant or uninteresting fall under some combination of the following: (a) they think their questions are already properly informed by theory…
No, but we adhere to a method or process by which flawed theory is slowly improved or discarded, and opportunities for new theory are revealed, the scientific method.
(c) no qualms of applying the methods of the natural science to the study of human action, maybe by adding a few caveats here and there, or (d) recognizing the differences between natural and social sciences, believe that little is “lost in translation” when applying the methods of the natural sciences to questions of individual action and social phenomena.
Again, no, not really; however natural science offered a heuristically very useful starting point. We would have been profoundly foolish to have overlooked the possibility that applying the “machinery” of natural sciences could give us insight into human behavior. In using natural sciences as our initial heuristic, we made some colossal blunders, but also made a very great deal of useful progress. And now, we largely left the heuristic behind. Current economics in the mainstream’s leading journals may have begun by emulating the natural sciences, but now looks very different.
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Posted by Noel Campbell at 02:47 PM
TARP one year later: $700 billion down the drain
Was it necessary? No. Did it accomplish anything? Only partial nationalizations, which are a negative. In an op-ed in the SF Examiner, Randy Holcombe lays out the details.
On Human Action, Continued
I was hoping others would jump into the discussion. Emily Schaeffer does. In the process of an excellent discussion, she points out (correctly, in my view) that what Mises is doing is laying out everything that is prior to observation.
Per co-blogger Ed Lopez's suggestion, comments are open.
Curious roll call vote patterns in Italian Parliament...
... a.k.a. "The Pianists".
HT: Mario Pagliero
October 03, 2009
It's on like King Kong!
“I propose that we settle this in the manner that Austrian economists and Austrian sympathizers settle such things: pistols at ten paces at the Southern Economic Association meetings.”Ah, Carden, Carden, Carden…how fortunate it is for you—as I possess pinpoint accuracy, nerves of steel, a ruthless heart, and lofty disdain for Crimson Tide fans—that my employer is funding no travel this year.
More below the fold.
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“Mises argues that correct theory is a prerequisite for correct history…. Theory is purely logical and purely axiomatic-deductive while history is empirical investigation informed, interpreted, and explained by theory.”OK, in the terms I use in principles class, the scientific method involves these steps, in order: (1) observation; (2) analysis leading to refutable hypothesis; (3) testing; (4) conclusion. Unless there’s a lot more in HA that I missed, Mises limits himself logical, axiomatic-deductive theory building. To my mind that’s leaving off the most important step: confronting refutable hypotheses with data; indeed, Mises isn’t interested in developing refutable hypotheses, but with developing irrefutable ones. I don’t have the proper vocabulary to express my objection, but I don’t think it’s possible for humans to develop correct, irrefutable explanations. If Mises had said (and perhaps he did), “Hey guys, I’ve just outlined a couple thousand pages of testable hypotheses. You’ve got about…oh…two centuries’ worth of empirical testing to do. Get crackin’,” then my opinion would be very different.
This is not faint praise, but a carefully considered observation. Mises aside, I think the modern Austrians are far more effective at communicating the nature of cost, choice, and market interaction with non-economists than are most of us more orthodox guys. I’ve had the signal pleasure of encountering former students who cite (my) econ classes as having a strong influence on their adult world views. I’ve been intrigued to notice that nearly all such former students now regularly read Austrian-influenced blogs, newsletters, etc. And, although they might not be able to consider the implications of Austrian business cycle theory regarding the cyclicality of real interest rates, their understanding of the market process is sound and solid. Having criticized the Austrians, I now must criticize my own neoclassical orthodoxy. In getting the point across, the Austrians have got something going on that we don’t.
I agree with a number of people who commented on Mises's birthday Tuesday that if we lived in a just world..., people across the social sciences and humanities would be reading Mises (and Hayek) rather than Marx.I don’t disagree in the slightest. Leaving aside my righteous crusade against the Cardenista savages for a moment, this comment caused me to think of something I wonder about Marx. Suppose Marx had been just as brilliant and just as (tragically) wrong, but had been a personally honorable man. How might that change the way we anti-Marxists approach ol’ Karl and his adherents?
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Posted by Noel Campbell at 10:54 AM
Responding to Noel's Challenge
Co-blogger Noel has taken issue with Human Action. I propose that we settle this in the manner that Austrian economists and Austrian sympathizers settle such things: pistols at ten paces at the Southern Economic Association meetings. I'll email Tony Carilli from the Society for the Development of Austrian Economics to see if they can squeeze us into one of their sessions, or perhaps we could do it after the SDAE dinner. Further discussion is below the fold.
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I share some of Noel's concerns, but mine are related to the sociology of academia rather than the body of Mises's work per se. The more time I spend in conversation with people outside my very narrow sub-regions of the intellectual universe, the more I'm convinced that we're often talking past one another. Our disagreements are rhetorical rather than theoretical, empirical, or epistemological, and these are the product of what Thomas Sowell called "a conflict of visions." To take one example, some psychologists criticize economists for assuming that people are "rational," but the psychological conception of rationality and the praxeological conception of rationality differ in a couple of important respects.
As I understand psychology, "rationality" means that people know their own interests and can correctly identify the means to obtain their goals. Rationality in economics, as I interpret it, is simply a restatement of the law of demand: people are self-interested, and they will tend to do more of things that get cheaper but less of things that get more expensive. Here is Carden's corollary to Godwin's Law: any multidisciplinary discussion involving economists will, given a sufficient amount of time, devolve into a debate about the merits of the rationality assumption.
Back to Mises. Mises argues that correct theory is a prerequisite for correct history, and he puts all of human knowledge into these two categories. Theory is purely logical and purely axiomatic-deductive while history is empirical investigation informed, interpreted, and explained by theory. What he lays out in Human Action is a complete analytical system in the broadest and truest sense. It is more than economics, but I think that due to path dependence in the rhetoric of the social sciences economists use "economics" to describe what Mises calls "praxeology," or the more general science of human action.
I think about economics in praxeological terms. I see economics as the science of human action. It is the logic of choice, with the implication being that any action necessarily has a cost of some kind. When speaking with non-economists, particularly my colleagues in other departments, I realize that the average person thinks economics is all about money. According to conventional wisdom, the choices economists care about are those that involve money or that can be expressed purely in terms of money. This may be true for some of us, but the economic way of thinking encompasses all human action. It doesn't just encompass those that involve strictly monetary calculation.
Can one be a good economist without reading Human Action several times? Yes, and I offer Noel himself as my evidence. In thinking about the social sciences more generally, I agree with a number of people who commented on Mises's birthday Tuesday that if we lived in a just world (or if we were closer to an equilibrium in which intellectual errors had been ferreted out), people across the social sciences and humanities would be reading Mises (and Hayek) rather than Marx.
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October 02, 2009
Pickin’ a fight with Art…
…And with very many DoL readers, too. Well, not picking a fight, but you know what I mean.
Art recently posted about his re-discovery of the excellence of Human Action. I’ve never had that reaction. I’ve always found Mises’ writings to be a chore rather than a revelation.
Caveats are in order: I am not particularly well read in the Austrian canon. I’ve never read Human Action once, much less twice. I’ve only read those bits assigned in a grad class, and I struggled with those. I’ve not read many of the other Austrian classics (though I somehow own Menger’s book), much less the moderns.
Art describes how Mises constructs a systemization of human decision making, contingent upon calculation, of which economic decisions form a subset. Agreed, but I always conceived of Mises’ efforts as attempting to build a logically correct and (therefore) irrefutable description of human behavior. As such, I always viewed Human Action as a work of philosophy, not science, nor economics—a subset of science. As such, I found the book largely uninteresting and, dare I say it, chimerical.
I admit that I am in awe of the scientific method and experimental thinking, the entire point of which is to NOT build logically irrefutable descriptions of the world. Austrian friends have told me many times of the devastating arguments which philosophy has brought to bear against scientific thinking (refutation of hypotheses, etc.) Perhaps this is true. I am not smart enough to follow the arguments whenever I’ve tried to read these philosophers. However, I can see the overwhelming increases in human well-being which have been caused by the scientific revolution. Personally, this inclines me to hold the jury on science until its critics can likewise effect similar increases in human well-being using their methods.
None of this means I’m slighting Mises’ genius. Nor am I unfriendly to what I think of as the “Austrian project.” Indeed Hayek has shaped how I think and has been the backbone of how I teach since I read “Use of knowledge in society” in the first month of grad school, and Schumpeter and Kirzner began for me a continuing—and professionally very rewarding—interest in entrepreneurship.
Still, as far as Human Action is concerned, I guess I don’t get it. OK, after writing such potentially inflammatory remarks, it’s only fair to remind readers that I can be reached at firstname.lastname@example.org
Posted by Noel Campbell at 10:47 PM
Thoughts about Rio
First, obviously, is the Duran Duran album. My subjective criteria for a "great band" are (1) they have three songs I like; (2) all the songs are at least ten years old; (3) I like the songs for reasons other than nostalgia. Thus Duran Duran is a great band, but all of the songs are on Rio. Perhaps I need more discriminating criteria.
Second, I'm relieved that U.S. citizens (of both the at-large and the Illinois varieties) won't be socked with a massive tax bill for the upcoming boondoggle.
Third, the "Olympic Games" industry is notoriously corrupt. Brazil is not noted for the strength of its judicial institutions. I'm curious to see how much money gets waylaid, and to what ends.
Fourth, Barcelona, Atlanta, Athens, Sydney, and Beijing all expended considerable resources to "clean up" and displace the riff-raff before the games. I think the governments of those places wield the whip-hand of government coercion more effectively and efficiently than Brazil or Rio. I'm curious to see how the "unsightly" populations of Rio react to the upcoming police crackdown.
Fifth, I'm sure someone knows, but I'm curious about the nature and variety of logrolling that go on in the IOC selection process.
Posted by Noel Campbell at 10:04 PM
A Sad Realization
I have only a handful of months' worth of eligibility left for the John Bates Clark award. Perhaps I can draw some solace from Swift's aphorism about the confederacies of dunces. Perhaps it's time to shift my focus to the Nobel. I calculate that I only need to continue publishing for another three centuries before I'll win it.
Posted by Noel Campbell at 09:49 PM
Choices and Tradeoffs
This is the punch line from a good article on the healthcare and the choices people make:
If individuals prefer to buy luxury items rather than pay for their healthcare needs, that preference should not be rewarded while taxpayers struggle to foot their own bills.
HT Gary R.
October 01, 2009
An Interesting Abstract: Do Markets Make Us More or Less Trusting and Trustworthy?
Here's the abstract from this paper (gated). I find this interesting and compelling in light of the anti-capitalist critique of markets as dehumanizing, atomizing institutions. I look forward to reading the paper.
This paper documents a strong positive relationship between individual reported trust levels (obtained from the US General Social Survey) and the competitiveness of the sector in which an individual works (obtained from the US census of firms). This correlation is robust to the inclusion of all of the previously studied determinants of individual trust, e.g., income, education, age, sex, marital status, city size, religion, and is large; a one standard deviation increase in sectoral competitiveness makes respondents approximately five percent more likely to answer the canonical trust question with a "usually trust" as opposed to a "usually dont trust" response. The addition of a rich set of workplace controls shows that this correlation is not likely to be driven by the size of the workplace, the amount of supervision, or related to a congenial work culture. It also appears that it is not due to selection (i.e., trustworthy or trusting individuals selecting into competitive sectors) or risk aversion, but instead seems to be due to individuals becoming more trusting the longer their experience in competitive sectors. We conjecture that trust levels are high when workplaces are characterized by high contributions of discretionary effort, i.e., when co-workers are more likely to be trustworthy. We develop a model which shows that such discretionary efforts are more likely to arise when competition within a sector is high. Competition mitigates incentives for free-riding by imposing costly shut-down on poor performing firms, makes employees more trustworthy, and thus increases trust. The model generates a positive correlation between trust and sectoral competitiveness, displays a threshold effect, suggests a non-monotonic relationship between competition and job security, and predicts patterns for a number of other variables. The data displays a high degree of consistency with these predictions.
On Foreclosures and Contagion
One of the rationales offered for government
Although previous research shows that prices of homes in neighborhoods with foreclosures are lower than those in neighborhoods without foreclosures, it remains unclear whether the lower prices are the result of a general decline in neighborhood values or whether foreclosures reduce the prices of nearby non-distressed sales through a contagion effect. We provide robust evidence of a contagion discount by simultaneously estimating the local price trend and the incremental price impact of nearby foreclosures. At its peak, the discount is roughly 1% per nearby foreclosed property. The discount diminishes rapidly as the distance to the distressed property increases. The contagion discount grows from the onset of distress through the foreclosure sale and then stabilizes. This pattern is consistent with the contagion effect being the visual externality associated with deferred maintenance and neglect.
I have a question about another paper in the same issue of the JUE; I'll put it under the fold.
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Here's the abstract of paper by Nils Braakmann in the same issue of JUE:
This paper investigates whether high regional crime levels lead to a compensating wage differential paid by firms in the respective region. Using data from German social-security records, official police statistics and official statistics for 2003–2006, I consider both violent and non-violent crimes and use three-way error-components estimators to control for individual and regional heterogeneity. The findings suggest that wages are practically unrelated to changes in crime rates. This result is robust over a wide range of subgroups. There is, however, some evidence that crime rates influence land prices.
My question is the following: Are the results of this paper biased toward zero because of Germany's labor market institutions? That is, doesn't Germany have at least some centralized wage setting that would reduce the ability of wages to adjust to crime?
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