Politics Index

The Bailout

January 3rd, 2009 admin

What if the money for the Bailout was stolen? Would anyone care? What if it was stolen from our children?

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The Super Stars of Modern Economics

January 2nd, 2009 admin

The Economist lists 8 and in doing so highlights that advances in modern economics are being found somewhere between the field clinic or the dissection room.  Really?  I don't dispute the list of scholars, but I still think the best work -- at the end of the day -- still is done somewhere between library and office desk with pad and pencil (and perhaps now mini-laptop in tow).

What is your view?

BTW, I am not saying that you cannot draw inspiration from puzzles in the field or lab (or the salty sea for that matter).  A teaching motto I often use for discovering an interesting topic to work on as a PhD student is to look out the window for puzzles where it appears that "History defies what logic dictates."  The critical word there is appears.  The point is to show how in fact history doesn't defy the logic of economics, and in so doing demonstrate the contextual nature of economic life (by identifying the underlying institutional conditions that change the "experiment" from that worked out in the pure logic).

Thanks to Chris Coyne for the pointer to the Economist article.

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From Solipsism to Social Order — the function of the price system

January 2nd, 2009 admin

Both Mises and Hayek argued that Walrasian and Marshallian traditions in economics (let alone heterodox traditions) missed the crux of the problem with socialism due to insufficient understanding of subjectivism.  The problem with socialism was not just a problem of incentives, but a problem of calculation.

Just as viewing the capital structure of an economy as consisting of heterogenous goods that have multiple-specific uses intensifies the coordination problem associated with capital combinations, so the focus on subjectivism intensifies our understanding of the coordinative properties of the price system.

Anthony Evans recently had a great post on Shackleian price theory which captures the essence of the dilemma. How is it that the private assessment of trade-offs in ones head become public information so that other can take that into account in making their private assessment of trade-offs in their heads, and how indeed does this take place in a way that coordinates the plans of actors in an economy in such a way that the most willing demanders and most willings suppliers exhibit a systemic tendency to realize the mutual gains from trade.  As Anthony's choice quote from Shackle clearly demonstrates, while Shackle might have been enthralled with Keynes's "dark forces of time and ignorance" ultimately he never loss sight of his teacher Hayek and his main lesson that with the division of labor comes the division of knowledge in society, and that the price system serves to coordinate the dispersed and often disparate plans of economic actors within the economy.

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Starting the New Year Off Right: Welcome to 2009

January 1st, 2009 admin

Kenneth Boulding, Thomas Schelling, Albert Hirschman, and Jon Elster have longed topped my list of social scientists that I recommend to my students to read and learn from.  What they can learn from these thinkers is almost limitless in terms of communication skill, style of argument, breadth of perspective, and insight.  In each case I also have fundamental disagreements with aspects of their argument about the nature of economic processes and the relationship between the citizen and the state.

So I recommend to all to read Elster's latest paper "Excessive Ambitions" (a new working paper released in 2008).  It is a timely critique of formalistic models of maximizing behavior and perfect competition as well as standard statistical analysis in the social sciences.  Unfortunately, I think Elster (who is an expert in rational theory) is not subtle enough in his critique and often uses the term "rational choice theory" to capture not only the conceptual use of this analytical framework, but its formal structure, its predictive power, and its normative use.  But one can be a critic of models of hyper-rationality and omniscient agents without denying the value of rational choice framework in economics, politics, law, sociology, and history.  As Lin Ostrom once put it, we can have a rational choice theory as if the choosers were human.  In fact, that is what Mises's laid out for us in the first 100+ pages of Human Action.

Elster argues in this paper that the excessive ambitions of rational choice theory and misguided statistical analysis represents not only a waste of intellectual resources (something Kenneth Boulding actually argued back in the 1970s), but that it produces real harm in the societies where people come to believe the information provided by these models and analysis.  As an example, he cites the case of Long Term Capital Management.

Elster argues that social scientists curtail their ambitions and admit our ignorance.  Of course, readers of this blog should remember that in the 1940s Hayek embarked on his "Abuse of Reason" project, in which he adopted Hume's dictum to "use reason to whittle down the claims of reason." The Counter-Revolution of Science contains a critique of excessive formalism, excessive aggregation, confused statistics, and excessive ambitions fueled by excessive arrogance.

Is Elster merely rediscovering Hayek, or is his argument completely different?  If similar in intellectual argument, why so different in ideological interpretation?

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We’re All Baby Sitters Now

December 30th, 2008 admin

Interesting! So Paul Krugman read the story of a baby sitter club which had poor policies regarding issuance of its currency, and because he was able to apply Keynsian economics to their situation, that gave him the confidence to apply the same economics to the entire society. Amazing. Astounding!

The lesson that I draw from this is not that I'm wise enough to manage an economy (I know I'm not). Nor do I think that Paul Krugman is wise enough to manage an economy (but he thinks he is -- which makes him a dangerous person). No, the lesson that comes to my mind that "We're all baby sitters now."

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