...excessive supplies of credit enabled mortgage lenders to give out high loan-to-value mortgages right and left, leading to delinquencies and foreclosures, supposedly leading to a weakening economy and a falling stock market, which the Fed is now attempting to "cure" by cutting rates by 75 basis points, which will inject even more funds into the economy.
Am I missing something here? The "hair of the dog" is not a good hangover cure.
Dan D'Amico has his ear to the ground when it comes to libertarian rumblings all over the world. In this instance I am very thankful. This clip from Richard Dreyfuss is outstanding. I don't know much about Dreyfuss's politics, and in this context I don't really care because the sentiments he expresses here are the same educational sentiments that I hold dearly and motivate me as a teacher. It is about learning how to think, and from that, all else follows.
UPDATE: Here is a discussion of Dreyfuss's civics initiative. He refers to his current position as pre-partisan. He wants to focus on the educational mission that gives students the tools to be informed participants within the democratic process. James Buchanan has argued for a similar role for the economists within a democratic society --- to give students the tools of reasoning and understanding of evidence to be informed participants.
I was doing some mid-winter cleaning and I discovered some reading material under a pile that had been moved into a spare room during a clean up for holiday guests. In that pile was the November issue of The Freeman. What a great surprise. Sheldon Richman does a masterful job editing the magazine, Richard Ebeling writes with such passion and knowledge, David Gordon has a wonderful discussion of the libertarian philosophy of Murray Rothbard, Bob Higgs discusses the war-time origins of the income tax,and David Henderson and Don Boudreaux provide insightful discussions on health care and pharmaceuticals respectively. That is just in 1 issue. Wow. And I haven't even mentioned the absolutely amazing article by Gerald O'Driscoll on how FED monetary policy is responsible for the the sub-prime fiasco.
My economic education at Grove City College included a regular reading of The Freeman. In fact, Sennholz asked us questions from The Freeman for our exams. At the time the magazine was published in an almost pocket size format. I made my first pilgrimage to FEE for extra-credit in Sennholz's class in my sophomore year and returned home with a library that included not only Smith and Bastiat, but Bohm-Bawerk, Mises, Hayek, Rothbard and Kirzner. My discussions with Bettina Bien Graves during that week started me on a path that changed my life aspirations. I would return to FEE multiple times over the next few years. Bettina also recommended that I get involved with the Institute for Humane Studies, which I did.
I still think FEE and IHS are the best way for young people to get introduced to classical liberal political economy and then advanced scholarship in the tradition. It was undoubtedly true when I was a student in the 1978-1988 period. Competitors have risen in both the 'market' for the introduction to classical liberalism and for advanced study in philosophy, politics and economics. Competition is always welcome -- it keeps people on their toes, forces them to always seek new and better ways to do what they are doing, etc. But sometimes in the process we start to take for granted the core capabilities that the original organization brought to the table. I think this is especially true in non-profit settings, where fads and fashion are unanchored from profit and loss accounting, and property rights and residual claimants are not quite clearly defined. In this world, our boredom with reliability is overcome by claims to new and original contributions.
The great economist Frank Knight once warned about the attractiveness of "newness" in intellectual affairs when he wrote about Keynes's General Theory: "What is new isn't true, and what is true isn't new." I am not saying that the competitors to FEE and IHS suffered the same fate. No, a lot of amazing things to advance economic thought and classical liberalism by organizations outside of FEE and IHS. And different margins of the intellectual world were tackled which FEE and IHS were not designed nor did they have the capabilities to do. But, I am myopically educational in all these discussions and that no doubt impacts my judgment as well. In looking at the discarded Freeman I realized how much for granted I have taken the role that FEE and IHS play in educating generations of students. They both do such a great job and deserve our respect and our support. We shouldn't demand them to change their core capabilities because our interests change as we grow older. I cannot imagine a better undergraduate education and experience than the one I received at Grove City College, it would be a disaster if Grove City College decided to be a graduate school and grow 10 times its traditional size. The school could never do this well, it doesn't have those capabilities either in terms of physical plant, or faculty. To do it, a massive change of what the college was all about would have to occur. No, GCC should stay as a small school with traditional values and a secluded residential campus with an undergraduate educational focus. Do what you do and do it well. Grove City has done that fantastically for generations of students. As I tell anyone who will listen, it is the greatest undergraduate school in the world.
Similarly, FEE introduces students to the philosophy of economic freedom, and IHS develops that talent to be sophisticated academics. FEE gets young economic students to study further the writings of the classical economists (Smith and Bastiat) and the Austrian economists (Bohm-Bawerk and Mises). FEE is about learning the economic insights of the classics and the Austrians and applying them to the world around us to better understanding the implications of the economic way of thinking and its relevance for understanding current affairs. IHS gets students a little further on in the educational process to revisit Smith and Hume, but also to study Mill, Hayek, Buchanan, Rawls, Nozick, Epstein, Lomasky, V. Smith, North, Coase, and Schmidtz, and learn how to build an academic career that has the potential to be one of impact as a teacher and researcher.
I support fully the efforts of FEE, IHS, and also Liberty Fund (that facilitates an even higher level conversation about liberty) in their educational efforts and at the different levels that they have developed their core capabilities. High school students and undergraduates; advanced undergraduates and graduate students; and graduate students and faculty (young and old) are all covered in this approach --- as well as businessmen, lawyers, teachers, and citizens. Educationally, lets continue to do what we do and do it well. We should respect reliability and the stick-to-it-ness that these organizations have demonstrated since their respective founding.
So don't do what I did and allow yourself to take FEE for granted. The Freeman should be read regularly and not put on the bottom of a pile to be pushed aside when company is coming over. Instead, put it on your coffee table for those guests to read, put it in your office for your students to pick up, or customers waiting to see you to read. The Freeman is full of wonderful presentations of core principles and insightful discussions of current affairs. Richard Ebeling, the current head of FEE, is one of the most knowledgeable, passionate, and articulate defenders of the classical liberal tradition that we have ever had the good fortune to have on our side, and Sheldon Richman is one of the great editors in the history of the tradition. Especially as in-fighting spreads among classical liberals and libertarian organizations, it is important to return to the basics and reaffirm the core mission. Organizations like FEE, IHS and Liberty Fund in my opinion do the best to stay on mission. Lets stay on mission.
Stimulus packages are politically popular, but do they make economic sense? Russ Roberts explains the problems with public policy measures intended to provide short-term economic stimulus.
A less measured way to put this would be, why Keynesianism was wrong in 1936, 1956, 1976, and will be wrong in the year 2056. In other words, Keynesianism is just wrong analytically and practically as argued by both Hayek (analytically) and Friedman (practically). But it does have a powerful lure politically that has persisted despite its intellectual defeat by first Hayek, then Friedman, and finally by Lucas. Perhaps nobody has explained why it has such political sway as well as James M. Buchanan, starting with Public Principles of Public Debt and continuing in Democracy in Deficit: The Political Legacy of Lord Keynes (with Richard Wagner).
Hopefully, the listeners of NPR will hear Russ Roberts's reasoned argument and pay attention to what he is trying to say to them about the less than stellar track-record of policies that attempt to provide economic stimulus, as compared to the success of policies that promote long run economic growth by structuring and aligning incentives so that we are more productive and more innovative.
Megan McArdle has ridiculed the idea of an alternative monetary regime to our current central banking system on more than one occasion. I have tried to suggest that the position is not so simple. The most recent was to suggest that the argument for a gold standard should not be so easily dismissed.
Jeff Tucker recently linked to an interview with Alan Greenspan where he suggests that under current conditions central banks cannot follow policy that will effectively control long term interest rates, and that rather than a fiat currency system we could move to a currency board or a gold standard that would operate more effectively.
In the past I suggested that a "mind-date" between Megan and either George Selgin or Larry White might be in order, but perhaps Alan Greenspan would be more to her liking. Greenspan's interview, however, reinforces my worst impression of him in terms of (a) his waffling in the name of pragmatism and (b) his lack of a strong theoretical commitment in economics. How can someone who understands the points he raised, not argue for that during his reign as the Fed Chair?
I have never held such a high office --- nor do I aspire for it, nor have the talents to achieve it --- but I think that if I somehow was 'drafted' I would like to believe I'd follow the Mises line and "abdicate" or the Leonard Read line and "push the button".
It has been a few years since I taught this class. Historically, this was my field of specialization in economics. I was attracted to the field for the simple reason that it enabled me to pursue the "big" questions in the debate between capitalism and socialism. Don Lavoie taught this course at the PhD level and he stressed not only the debate between capitalism and communism, but also the totalitarian experience with fascism, the contradictions of Western interventionist welfare-states, and the possibilities of radical libertarianism. Don was in this class, as in others, a dynamic and inspiring teacher. I couldn't really imagine working in another field or with anyone other than Don at that time.
My course is cross-listed for undergraduate and graduate students. The course is focused more on books this time around than on journal articles. Though I do believe that there have been several important journal articles recently that are fundamental to the way the field is configured today --- e.g., the entire "institutions rule" literature. But hopefully, I will be able to present the material with the enthusiasm it deserves and give the students the background necessary to tackle this journal literature. The field (now to include development economics as well) still asks the "big" questions in economics and political economy, and has the possibility to produce 'mind-quakes' to anyone who opens themselves up to the questions. As Robert Lucas once stated about development economics, once you start asking these questions about the wealth and poverty of nations it is impossible to stop.
My advice to young Austrian economists who want to write books and articles that matter is the same advice that was given to me, though I didn't always follow it, by Mancur Olson when I was a fresh faced economist. "Pete," Olson said to me, "you have to stop telling other economist what to do. Worry about the sins of omission by other economists, never about their sins of commission. Focus instead on the omissions and turn them into your sins of comission to see if they are sins or not." I am quoting from memory, but I believe that is the direct quote. Similarly, Peter Berger once asked me, "If you have $1 million to do research what would you do?" I answered something about ethnography and economics. He smiled and basically said "No you wouldn't. Wouldn't you want to save economics?" I replied that I thought both projects were interconnected. Berger smiled and knowingly said to me "Economics is unsalvagable you know." Then he proceeded to tell me fascinating stories of his interactions with economists on the topics of culture and religion. Berger, if you don't know, is one of the most engaging scholars you could ever meet -- a complete joy to be around. Perhaps only Kenneth Boulding (who was one of my teachers) could rival Berger for combining seriousness of purpose with sheer joy in the life of the mind and communicated with a great sense of humor.
Anyway, why do I write this? As economists influenced by the Austrian school, we tend to find ourselves in the position of trying to stress points that others are ignoring in economic conversation. But as Olson was trying to tell me, when we go into methodological debates or philosophical discourse (no matter how important these are) we do limit our audience and effectiveness. We would do better by doing a serious study of methodolgy when we are starting out our careers to decide how we want to proceed in our work, but then getting on with our work as economists and political economists. After we do some work, then we can critically reflect back again on our methodological perspective to see if it aided or inhibited useful work.
Harford's The Logic of Life is actually the sort of work that those schooled in Misesian and Hayekian economics can be, and should be writing. Use economics to make sense of the world around us --- write in clear and entertaining prose. Harford's model of rational choice is very Austrian (he doesn't call it that) -- but it is not the fiction of homo-economicus, or the lightening calculator of pleasure and pain, or the omniscient agent with perfect self-control. Instead, as William Jaffe once wrote about Menger's man is the same as Harford's, he is "caught between alluring hopes and haunting fears." He is, however, the pivotal chooser and as such the unit of analysis.
What Harford does in this book is walk through several of the main papers in economics written over the past few decades and provides the basic intuition that is behind the papers. In the case of some of these papers, I think Harford's reasonable interpretation excuses the excesses of formalism that in those papers cloud the basic economic intuition rather than illuminate it. In other instances, he captures not only the essence of the argument, but the reason the author approached the topic the way they did. In all instances, he makes more plain language sense of the econoimc argument than the professional economists on which he is drawing.
In his earlier book, The Undercover Economist, Harford mainly addressed the world directly and made sense of it thorugh the economic way of thinking. In his new book, he addresses the world around him and mediates between the world and the literature in economics, and improves our understanding of both in the process.
Rather than writing essays on why other economists don't get this or that point within the Austrian tradition, I wish I had written this book. I should have listened to Mancur Olson so many years ago. But as Berger recognized in me, there is something of a missionary zeal in me with regard to economics that Sennholz instilled so many years ago that I cannot shake even when it would have been in my rational self-interest to do so. Like Menger's man, I too am caught between alluring hopes and haunting fears. Maybe this year I can break out of the cycle.
Over at Cato Unbound, family historian Stephanie Coontz kicks off this month's set of essays on "The Future of Marriage." Coontz's essay is, in my view, right on the money, especially her last paragraph that distinguishes between the form that families take and the effectiveness with which families function. Our concern should be with the latter and not the former, although the two are certainly interrelated. That point has been central to my own work on the family (see working papers here and here and Cambridge Journal of Economics article here and Freeman piece here), which owes much to Coontz's excellent historical scholarship.
There is also a discussion thread at Reason's Hit & Run in which I've been posting. Some good stuff there, mixed in with the usual snarkiness.
Below the fold, I excerpt a section from one of my book's draft chapters that makes the point about function and form.