The Austrian Economists

New Blog to Bookmark --- The Sociological Imagination

Put together by 3 graduate students in sociology, who also happen to read The Austrian Economist.   The Sociological Imagination is off to a great start with posts. 

Jeff Miron on the Twisted Incentives of the Bailout

Jeff Miron has been consistent throughout the entire discussion on the economics and political economy of the financial crisis.  In this article, he makes that case yet again on why the government doing nothing should be given a chance.

Hat-tip to Greg Mankiw.

Unemployment: What and Why

Unemployment might reach 11% by August/September according to Dr. Doom -- Nouriel Roubini, in a Forbes.com column "Brown Manure, Not Green Shots."

One of my main teaching points for applied economics (whether economic history or contemporary policy) is that while economists must first get the "what" question right, the analysis is not complete until they offer a reason "why" what happened did happen.

So why is the current unemployment rate worse the projected even with the government activism that we have witnessed to date?  Could it be that the very remedies offered by the government are causing the problem?

Incentives Matter

Economists Do It With Models.

Nature Vol. 460 (July 2009): 176-177.

Michael Shermer, author of The Mind of the Market, states in his book review in Nature the following:

"Along the way he offers one of the finest introductory courses in economics since Henry Hazlitt’s Economics in One Lesson."

Wonder whose book he could be talking about?

What is it that Adam and Doug are always telling me?

When I see Doug (one of our PhD students) tomorrow I am almost certain he will make fun of me for my internet habits.  He will remind me: "Do not feed the trolls." Adam (a former student, now researcher at NYU) told me that I think everyday of his graduate career, usually followed by a laugh.  In fact, Adam orchestrated the posting on my door of a cartoon that has a man sitting up late at night typing in a fever-pitch informing his wife that he could not come to bed because someone on the internet was making an error.

These students, as well as some of my colleagues, often laugh at me at my discomfort with the blogosphere.  I want the blog to be an extension of the classroom and research seminar, on the one hand, and an economizing way to communicate information such as announcements, on the other.  But blogs are a form of entertainment for many, not a vehicle for education.  They provide information, but not necessarily knowledge.

I am not the only person that is uncomfortable with the blog culture.  Greg Mankiw has turned off the comments, as has Division of Labor and Economic Principals.  Perhaps the most accomplished economic blogger out there, Tyler Cowen, told me early on that the secret was to not engage in the comment section, but limit your interactions with commentators to your blog posts.  Tyler follows his own advice, I don't.  Because I view the blog as an extension of the classroom, I view the commentators as raising their hand in the classroom and thus I am responding.  But rarely do I find the experience on the blog as rewarding as I do in the classroom.

This disjoint leads me to wonder why.  I try to identify the differences in the environments that could produce the different experiences.  My conjecture is that it comes down to the low cost to reputation faced by most commentators for deviating from true inquiry, and the enormous benefits some people get from being abrasive and annoying.  The blogosphere is strange by construction --- in most situations the posts are made by individuals the are fully exposed reputationally, while the comments are made by individuals who choose to stay anonymous, or adopt an alias, thus bearing no reputational burden.  The costs of being abrasive and annoying are low when nobody knows who you are, and no reputational capital is really at stake, so of course more abrasive and annoying behavior than optimal takes place.

Now I understand Adam and Doug's advice to me to "don't feed the trolls" because the benefits of being annoying and abrasive fall considerably if nobody responds.  But how does one know whether the commentator is seeking a genuine dialogue, or just hoping to suck the poster into a waste of his/her time and energies?  In a specialized blog like this one --- focusing on Austrian economics as an subfield within the academic economic discourse --- the presumption is that dialogue on fine points of econoimc theory, methodology, or application is what is sought.  However, this makes the site even more vulnerable to exploitation by pranksters, neurotics, and those who are delussional about their abilities.  [one dialogue I saw recently at another site devoted to Austrian economics actually had a commentator "admit" that he was a relatively well-read 17 year old in economic theory so he was comfortably attacking Horwitz, White, Selgin, and he even threw in an obligatory insult at Tyler Cowen; on that same site in a discussion on the fine points of monetary theory one commentator used the name of "Lord Buzungulus, Bringer of the Purple Light" and a debate raged with others taking  the comments made by the Lord as serious!].  How is intellectual progress going to take place under such absurd conditions of dialogue?

On a recent post on this blog, the comments went to over 100, but one of the commentators used 3 different names (something we know because the posts were all from the same IP address).  At one point, the 3 sustained the discussion by having a conversation with one another!

On several other posts, we continue to have anonymous and alias posters even though I have repeatedly requested the use of full names to try to keep the dialogue more face-to-face and analogous to the classroom setting or seminar table.

However, I should admit that there are also several individuals here who willingly give their name and post comments that border on annoying and abrassive. So some individuals are willing to put their reputation on the line.  I respect those individuals much more than the anonymous and allias posters even when I think their positions are highly questionable.  On this site, we have a certain percentage of visitors who are convinced that the academic world is aligned against them, and that publishing in the refereed journals is all rigged against them.  There is a certain pride taken in bucking the academic establishment -- not just as an out of sync professional economist, but also as an excuse to eschew PhD work in general.  Self-study substitutes for structured study, and blog posting and internet publishing substitutes for thesis writing and engaging the disciplinary profession. 

These individuals are unpublished geniuses, who can publish their work online simply by posting, but cannot get a journal editor or referees to see the point of their "articles".  The work tends to be underdeveloped argumentatively, based on either uncharitable or incoherent readings, and tend to be written in a disjointed and unprofessional manner.  When this is pointed out to them, it just reinforces their sense of injustice.  They are so sure they are right, and everyone else is wrong.  In other words, there is a self-reinforcing conspiratorial attitude evident in the unpublished genius mindset.  This also fascinates me. 

I actually don't believe there are unpublished geniuses, just as I don't really believe their are low productivity major contributors to our science.  No -- look at the work habits of James Buchanan and Vernon Smith, compare that to Andrei Shleifer or John List.  What you will find is that major contributions come from extremely productive economists.  I keep urging the young readers on this site to visit EconLit, and just get a sense of this.  If someone in a 30+ years, only gets 30 or less hits, they haven't done much to advance our science; just as if someone teaches for 30+ years and doesn't have a bevy of students who have become economists due to exposure to that persons teaching, then that person isn't much of a teacher.   These are my working hypothesis when  it comes to measuring impact.  You research, you write, and you teach to excite young minds to do economics for a living.  Progress in scientific life is all about creativity within discipline, not undisciplined flights of imagination.  Science is not science fiction.

Finally, I wonder whether Austrian economics disproportionally attracts the low productivity and conspiratorial sort of individual to its ranks.  In other words, is there an adverse selection problem in Austrian economics, which helps explain why the Austrian school of economics has a difficult time making much headway in the profession?  The answer to this question really fascinates me.

Let me be clear, I respect the alternative media as an ideological challenger to the dominant statist culture. But I don't think scholarly blogs should devolve to the Drudge Report let alone the Onion.  How do you balance the easy access and potential wide-distribution to academics and non-academics that the internet provides with the demands of civil discourse that represents an invitation to inquiry that aspires to make progress in academic discourse among graduate students and professional economists?

It doesn't make sense if this is your goal to turn off the comments, just as to me it doesn't make sense to not engage in the comments if your goal is to engage in a community of inquiry.  So what would it take to make a blog serve these dialogical goals without becoming vulnerable to abuse by trolls?  I think insisting on the use of names that link to a web-page so we have background, might provide the right incentives.

But efforts to insist on that have failed.  And I don't have the time to monitor all comments and only except those through the day that meet the criteria so established.  Where do we go from here?  I don't know, but perhaps the advice of Adam and Doug is the place to start --- "Don't feed the trolls." But perhaps I need some help determining who the inquisative minds who want to know are versus the trolls that just want to disrupt and derail.  Help me out.

New Issue of Critical Review on Financial Crisis

The current issue of Critical Review is devoted to an examination of the causes and consequences of the financial crisis.  The collection of contributors is truly impressive and includes Vernon Smith, John Taylor, Daron Acemoglu, and Joe Stiglitz among others.  Financial regulations, monetary policy, rating agencies, capital requirements, accounting rules, etc. are all touched upon.  Also the culpability of modern economics is addressed in a piece by David Colander et al (an overstated case imho).  Friedman's introduction (which is available for download) does a great job of setting the stage for the issue and framing the discussion of the crisis in general. As Friedman's title suggest, we are talking about a crisis of politics, not of economics.

Development in Dangerous Places

Boston Review has a symposium.  Many years ago I was invited to a Fulbright Scholars program as a guest where the discussion was on development and democracy in the less developed world and in failed and weak states.  The conference was held in Monterey, CA which made for a beautiful setting.  But the conversation (the timing was right after Clinton was elected, but Bush I was still in power) turned scary quickly to this non-interventionist.  The military adventurism of the Bush administration was condemned by the participants, but the promise of UN led troops bringing freedom, democracy, and prosperity was held by the vast majority of participants.  It seemed that military adventurism was perfectly acceptable as long as it was led by blue helmets.

As you might suspect, I find Bill Easterly's contribution to be the most interesting.  I only wish Chris Coyne would have been called upon to contribute to this particular symposium.

Hat tip to Tyler Cowen at Marginal Revolution.

Leland Yeager on the Crisis

In the August 2009 edition of Liberty, the great monetary/macroeconomic thinker Leland Yeager has an important article discussing the financial crisis entitled "The Contagious Crisis."  You can get a copy now through university libraries and journal-finder.  And I think in a month or two you will be able to get it at the Liberty website.

Yeager starts his paper with this opening paragraph: "Libertarians face charges these days that capitalism has failed or at least that deregulation has invited our current economic troubles.  These charges are not persuasive.  A more realistic view is that a housing boom and bust happened to strike a fragile system whose fragility was worsened by ill-conceived government interventions."

Yeager goes through a variety of explanations for the crisis, and demonstrates the "perfect storm" that led to this crisis.  Housing policy (including tax laws); easy credit; distortions to the intricate multilateral interdependencies that led to unraveling damages to not only the financial system, but to production, employment and consumption; changes in accounting rules that impacted the short run balance sheets and exposed capital deficiencies; moral hazard as past rescues breed expectations of future bailouts; monetary policy that threatens inflation; fiscal policy that is ineffective and threatens to bankrupt the future; and burdensome financial regulations which strangle the economy and thwart economic innovation and wealth creation.

Among my favorite quotes are Yeager's argument that "The great potential for money-creation threatens inflation. Current worries about deflation are preposterous. If need be deflation is much easier to check than inflation; and anyway, not all downdrifts of prices are harmful."   Yeager follows up on this by suggesting that academic ideas of a "monetary constitution" and alternative monetary regimes, such as free-banking, have become relevant.  The fiscal recklessness that follows as the financial situation continues to spiral out of control leads Yeager to state that a "Form of Keynesianism crude enough to embarrass Keynes himself then appears relevant, especially in political circles. Measures to stimulate spending seem to promise relief, even though, a crisis like our current one originated in overborrowing and overspending, and although more of the same would risk long-run disaster."

And Yeager ends his discussion endorsing Thomas Sowell's dictum that: "The first law of economics is scarcity, and the first law of politics is to disregard the first law of economics."

Bottom line: Yeager's article is highly recommended.

Hat-tip to Larry Reed of FEE.

In Praise of Accomplishment

Roger Federer broke the record for most career grand slam tennis championships today.  It was an amazing victory as he outlasted Andy Roddick in an epic 5 set battle.  Witnessing Federer's victory was tennis greats Bjorn Borg, Rod Laver, Pete Sampras, and of course John McEnroe.  After the match, McEnroe got a chance to interview not only Federer but these former tennis greats.  He asked them if they would be willing to now grant that Federer was the greatest of all time.  Borg just pointed out that Laver was his childhood idol, Sampras (whose record Federer broke) pointed out that he had never won the French so he didn't qualify and that Laver had won all four grand slam titles in a single year twice.  McEnroe followed that up by pointing out that Laver could have won many more titles except for the rules of the time which didn't allow professional tennis players to compete in the grand slam tournaments until 1968.  After he won the 4 major titles in 1962, Laver turned professional and between 1962 and 1968, he won multiple professional titles, and in 1969 he won the 4 major titles again.  Laver is the only man to win 2 calendar year Grand Slams.  But Laver did not insist he was the best, he simply said, look all any player can do is strive to be the best of their era, and there should be little doubt that Federer is the best of his era.

Federer for his part said that the accomplishment was unbelievable, and while he pointed out that one doesn't compete to break records but to win championships such as Wimbledon, and that he still loved tennis and competing and that he hoped to be playing at Wimbledon for years to come.  Tennis can only hope for Federer to keep competing, Nadal to get healthy, and Roddick and the others to keep playing at the high level that they have.  The beauty of the sport was on full display this past month in Paris and now  at Wimbledon, and if this can continue through the summer and the US Open a great resurgence of interest in the sport may follow.

As readers of this blog know, I follow sports religiously and often use analogies from sports both in making economic theory points and more often in providing career advice.  Recently I had the ocassion to look at the accomplishments of various free market and Austrian economists in terms of academic publishing, and scientific awards.  For example, James Buchanan has not only won the Nobel Prize (1986), but also the National Humanities Medal (2006), Gary Becker, Milton Friedman and F. A. Hayek earned not only Nobel Prizes, but also the Presidential Medal of Freedom.  Israel Kirzner received awards from not only the SDAE, but also from the Sweden's FSF-Nutek Award for his work in entrepreneurial studies.  Ludwig von Mises not only was named a Distinguished Fellow of the American Economic Association, but also received Austrian Medal of Honor for his contributions to science.

Like Federer said about tennis, you don't go into economics to garner such praise from contemporaries.  Instead, we go into economics because we fall in love with the subject, find the framework of analysis the most satisfactory one available to fuel our intellectual curiosity and track truth, and take great joy and pride in teaching and writing economic arguments and communicating the lessons of the economic way of thinking to the widest and most sophisticated audience possible.  This is why we write for our scientific peers and for the highest profile outlets in our profession.  Limiting our writing to blogs, or self-published monographs as professional economists would be similar to a professional tennis player limiting his tournament playing to the local club championship, rather than striving to compete at the French Open, Wimbledon, US Open, or Austrailan Open.  Rather silly right?!

Aspiring tennis players would do well to study Federer's game, and aspiring economists would do well to study the approach to economic science one finds in the work of Buchanan, Hayek, Kirzner, and Mises.  Their CVs are characterized by advanced degrees and full of pages of scientific articles written for the refereed journals (not just ideological magazines and in-house journals edited by your friends).  We have great tools available for the young to do a comparison of career paths --- it is called the CV.  But also in the case of these great economists, you can find published versions of their bibliographies --- Bettina Bien Graves published a two-volume bibliography of Mises, David Gordon compiled a bibliography of Rothbard's writings, etc.  I find the comparison of Mises and Rothbard's publishing activity extremely interesting to study.  For more contemporary contributors you can also check EconLit and other online databases for a record of economic articles published in the peer reviewed literature --- just plug in the names of any economist you know and you will find out if they are contributing to the literature or not.  Self-reporting is not always accurate, so it is good to double check these things against the objective record.  Of course, SSCI and other citation tools are also very important to study to see what the actual record is on productivity, contribution and influence.

But I say lets praise accomplishment --- in athletics, and in science.   For the economist -- Austrian or otherwise --- the goal is to contribute to the scientific literature in our discipline.  You cannot do that unless you earn an advanced degree, are publishing with university publishers, the leading trade publishers, and the refereed journals, etc.  Don't publish exclusively with in-house journals, blogs, vanity presses, and expect to be recognized as contributing to the scientific literature.  Don't fool yourself, and don't let anyone who only does that sort of intellectual activity fool you either.  If you do that you are only competing in the "local club championship", and while winning those tournaments might be fun as an amateur, it is not what you do if you are a professional economist that aspires to track truth and advances economic science. 

This really should be as clear as day, or as true as a Roger Federer serve.

Can the Monetary System Regulate Itself?

Larry White explains why under central banking this cannot occur, but under a free banking system it can.

What is really behind foreclosures?

Casey Mulligan diagnosis the situation, taking off from this discussion by Stan Liebowitz.

What do you think?  Does this evidence lend more support to the thesis that what the financial situation represents is a credit crunch or a insolvency crisis?

One More Working Paper on Business Cycle Theory

The Mercatus Working Paper series now includes the following, co-authored with Gene Callahan:  "The Role of Ideal Types in Austrian Business Cycle Theory."  An earlier version was presented at the SEA meetings last November, as well as at the Wirth Institute Conference in October.  Gene and I thank a number of commenters at both events as well as referees at Advances in Austrian Economics, where the paper will appear next year, for their suggestions.

Towards a Better Understanding of Pirates --- required reading Mises and Hayek

Sometimes readers on this blog (and elsewhere) over the past few years of pirate fascination have missed the essential lesson of Pete Leeson's The Invisible Hook, which is that the book is about social cooperation and division of labor.  Ricardo's Law of Association in a situation where the conditions for its operation are least likely to emerge (and are constrained by the anti-social activity under discussion).  And in order to understand this, Pete argues, one must engage in economic analysis informed by Ludwig von Mises and F. A. Hayek.  Pete has been explicit about this in his articles, in his book, in his interviews about the book, etc.

My real question is why are so-called "Austrian" readers so slow to pick up on what journalists for the Boston Globe are so easily able to pick up?

Markets vs Government in Development Economics

Bill Easterly links to a recent article by Joe Stiglitz that expresses some concern that the recent financial crisis will lead to developing economies abandoning markets and moving to state-led planning instead.  Easterly is, I think, a bit optimistic in his reading of Stiglitz -- who I think is making an argument for extensively regulated markets, and not free markets, though it is welcomed that he does not advocate socialist planning for developing nations.  And as Easterly points out, that is the "big" debate once again at this critical point in time.