The Austrian Economists

Some thoughts on the FLDS case in Texas

Over at Liberty and Power, I've just posted a longish entry on the Texas Supreme Court decision yesterday mandating the return of the children to their fundamentalist Mormon community in Texas.  Comments over there make more sense, but if you don't wish to register at HNN, I'll leave comments open here for those who read it and wish to join the fray somewhere.

The Rise of Randomized Experiments in Development Economics

Dani Rodrik has an interesting new paper reflecting on the methodological gap that exists in development economics between the micro and macro approaches. In the last few years, randomized experiments (RE) have become for some economists (especially those at the MIT Poverty Action Lab) the only source of “admissible” evidence in development (at least it constitutes hard evidence as opposed to soft).

Austrian economists should have a lot to say about the rise of RE in development economics. On the positive side, it is true that rather than having some pretence of knowledge, economists and policy makers are better off admitting some level of ignorance as to what may work in development aid. However RE can also be seen as the symptom of two problems that have plagued mainstream economics for a long time.

First is the idea that the methodology of economics must be the same as that of the “hard” sciences. RE was developed originally in biology (especially in bacteriology and virology, if I am not mistaken) and its transfer to economics is what scientism is all about.

Second, while it is a good idea to maintain a humble attitude towards the social process, as F. A. Hayek explained, this does not mean throwing the baby out with the bath water—which is exactly what RE contenders do. Being suspicious of any claims to ex-ante knowledge as to what works in economics amounts to denying the existence of regularities (i.e. laws) in social phenomena that economics can establish. In the extreme, the idea that demand curves slope downwards is of no importance to RE contenders.

It is true that policy implementation is not always an easy exercise. Admitting that one doesn’t always have good knowledge as to whether policy X is going to deliver the expected result is a huge improvement over the intellectual hubris that often characterizes development policy. However, RE contenders see only half of the story. Like Hayek (but without saying so), they emphasize the importance of the context in determining the success of a policy, but they deny that whether a given policy will work also depends upon things we can know ex-ante such as: the state of the de facto institutions, the impact on relative prices, whether the policy enables gains from trade to be captured and exploited, etc. This knowledge is not always available without actually going into the field. But a thorough knowledge of the context doesn’t imply that RE is the only way to get evidence of the effects of a policy (quite the opposite in fact) and, even more importantly, it doesn’t mean that the laws of economics should not be considered as guides in the application of policy.

Austrian Economics as a Progressive Research Community: Roger Koppl

Some of our readers have questioned whether the contemporary Austrian school of economics is making any progress.  Some have questioned applied work, others believe they have identified fundamental flaws in the theoretical system, and yet others just think the Austrian school has outlived its usefulness altogether.

To counter this, I suggested that we provide links to contemporary Austrian economists and their work to see if this would at least give us a place to start the conversation rather than continually going backward in time to the writings of Mises and Hayek, or even Rothbard and Kirzner.  The first place I would suggest that students and curious colleagues start would be to read all the SDAE presidential addresses since the organization was founded.  The only address not published in the RAE was Karen Vaughn's original presidential address which was published in Advances in Austrian Economics.  If you are interested in getting an electronic copy just email Peter Lipsey at plipsey@gmu.edu, the others are available either at the RAE website at GMU or at the Springer website that most university libraries subscribe to.

The next place would be to track down scholars by name. Go to the RAE, QJAE, and Advances websites, and look up the editorial boards and do a google search of the different scholars and look up their personal webpages and read their papers either off their homepage or through SSRN.  We aren't hiding, you just have to know how to use a computer.

And finally, the parties to this blog have decided that we will try to make the task even easier by highlighting individuals scholars who we think should be brought to attention.  So I start with Roger Koppl.  Roger recently published a piece in Forbes discussing his work on forensic science.  Koppl has always been one of the most energetic and intellectually curious economists I have ever met.  Schutz, Shackle, Machlup ... Walras, Menger, Morgenstern ... complexity, chaos, subjectivism ... big players, expectations, monetary history, and macroeconomics ... and now forensic science and epistemics.  To see the broader framework which informs his critique of current forensic practice see his essay "Epistemic Systems".

Koppl is an energetic and creative thinker, and his work is always on important topics.  If that isn't progress, I am not sure I understand what people are looking for.

More Horwitz Now Available Online

Before our thousands of devoted female readers get too excited, it's just more of my work that's now available.

I spent the afternoon scanning and uploading some old published papers of mine, most of them from the 1995-1998 period, including my 1996 JHET piece on monetary equilibrium theory and the ensuing exchange with Allin Cottrell, my 1998 HOPE piece on Mises and monetary calculation, and my feminism and Austrian economics paper from 1995, as well as some other goodies.  I will be adding a few more later this week. You can find everything I have posted on line listed here.  Enjoy (and Go Wings!).

How to Maximize Your Scientific Impact as an Economist

Tyler Cowen has an interesting post on how to read a CV.  He mentions the idea of a portfolio interpretation, and I certainly agree with him on that. One has to exhibit a coherent and progressive research program.  But I think there is also another issue that matters.  Go to any top 10 department and look at the CVs of the associate and full professors.  Often what you will find is a lower quantity of output, but significant placement in top tier journals.  Now go to schools in the 20-50 range and what you will find is often high quantity, but also publications in top journals.  Why aren't the associate and full professors in those top 10 departments?  Many times they actually are more productive in terms of number of journal publications, but somehow they haven't been able to break into the top departments.

We cannot attribute it completely to educational background.  Look at a scholar such as John List at U of Chicago.  His PhD is from Wyoming, his first job was at Central Florida, yet he climbed and climbed until he was a full professor at U of Chicago.  Every young scholar with ambitious professional aspirations ought to look closely at John's career and try to mimic it.  John had a passion, pursued it, and succeeded against all the odds.

If you look closely at what separates those in the top 10 or top 20, and those who occupy positions in the rest of the PhD research and education universe, my hypothesis is that it is not just publication in the top journals.  That is necessary, but not sufficient.  Instead, the question of whether one's work is viewed as a productive input into the scholarly production process of others.  Those who secure the best positions in the short-run (and since tenure actually locks individuals in sometimes it is a short-run that becomes a long-run position!) are the one's whose work gets in the top journals and is useful to other scholars in top 20 or top 10 departments in their research.  It is this that, I hypothesize, which separates scholars.

Now the trick is, you never know what will take off as a field or as a technique. So you cannot orchestrate your ambitions, you just have to pursue your passions and try to do the best work you can that is interesting to you (and hopefully to others).  However, this is not an excuse to be disengaged from the professional conversation ---- lone wolf scholars will forever remain a lone wolf.  Which is not good for your ambitions to obtain a top 10 appointment.

So young Austrian economists --- read what Tyler is saying.  Track truth first and foremost.  And be willing to live with the consequences of wherever the chips may lay professionally.  If you are doing history of thought, do it well, but don't expect to get an appointment at a PhD institution.  If you are doing economic history, then work your butt off and do good work, but recognize again that it is a "thin market".  If you do political economy, then recognize that besides working with the writings of Hayek and Buchanan, you need to be conversant in the contemporary scholarship of Weingast, Shleifer and Acemoglu among others.  If you pursue a more traditional field such as IO, Money or Public, then again the idea much be to track truth but to do so by bringing the ideas of Mises, Hayek, Buchanan, etc. to the contemporary conversation in the economics profession.

So your mission, if you choose to accept it, is to be that type of researcher whose work is viewed as a productive input into the scholarly production process of other scholars.  And also to do the type of research that has lasting impact --- 'shelf life' beyond the next journal article.  It is my sincere hope that the next generation of young scholars in the Austrian tradition, take up this mission and succeed professionally beyond anyone's expectations.  Despite my not so hidden reference to Mission Impossible, this isn't mission impossible, it is however mission difficult.  Good luck.

Lavoie's predictive powers were pretty, pretty good!

Don Lavoie was the ideal teacher/scholar.  He also, as Tyler points out, was able to see how future technologies would shape the craft of the teacher and scholar.

Chris at Anti-war.com

Co-blogger Chris has a new piece just up at anti-war.com.  It's a very nice overview of his book and will bring his political economy analysis to a very sympathetic audience.  Nice job Chris!

Welcome Julie!!!!

An insightful new voice has been added to the economic blogosphere --- Julie Novack's The Political Economist. 

I particularly liked Julie's discussion of Bryan Caplan's The Myth of the Rational Voter.  Bryan may claim that he is not influenced by Hayek, but it is actually hard to sustain that argument since Caplan's book is so obviously a representative of a 'epistemic turn' in public choice.  The Caplan self-narrative demonstrates the difficulties of accurately tracing out influence.  Caplan actually worked on Hayek's Collected Works when he was an undergraduate, he has read probably everything within the Austrian school tradition, and he finds significant flaws. But nobody close to Bryan would argue that his reading of "neoclassical economics" is conventional. Bryan is an insightful and creative thinker, but he is also influenced in numerous ways by the Austrian school in ways he refuses to acknowledge.  He is not an "Austrian", but certainly an economist who has been influenced by the tradition.  This is true of more economic thinkers at GMU than any other school in the world --- Alex, Tyler, Dan, Dick, Roger, Jim, Gordon, Vernon, David, Walter, Don, and Russ have a deep knowledge and affinity toward 'Austrian' arguments even if they wouldn't call themselves a member of "The Austrian School of Economics."  Perhaps that label only really applies to Pete Leeson and myself, but that exercise is really counter-productive because all it is a question of self-identification of a scholar.  Instead, lets read the works independent of label, look at the style and substance of the work, and try to see the propositions evident in the work rather than the bibliography and footnotes.  Caplan is a methodological individualist, he examines the cognitive imperfections of individuals, he looks at the comparative institutional environment and its impact on the structure of incentives and the processing of information, and he looks at processes of adjustment over time rather than just an equilibrium snap-shot at a point in time.  In many ways, I would argue that Bryan is as 'Austrian' as I am, he just doesn't want the label.  OK, we don't have to force him to call himself something he doesn't want to. How about we just call him "creative, insightful, and just a damn good economist"?  I don't think Bryan would object to that. How he got to be that sort of economic thinker, however, must relate to his path of study and reflection over the years --- no?  At this point, I think Bryan would have to admit that during his formative years he engaged in a deep and serious study of the Austrian tradition and its influence on him is undeniable.  And thank god, because it helped Caplan become one of the really interesting economic researchers and effective teachers of quality economics in his generation.
 

Is Austrian Economics Heterodox Economics?

I just received this question from a reader who is doing a research project on classifying contemporary schools of economics.  The problem is that the question is not as easy to answer as one may think.

Clearly the contemporary Austrian school of economics is not part of the mainsream of economics.  But many of the main themes in Austrian writers are consistent with arguments presented by classical and neoclassical writers from Adam Smith to J B Say to Milton Friedman.  Austrians are part of the mainline of economic thinking, but not currently part of the mainstream.

This produces a weird intellectual context for me to answer the original question.  Part of the reason the Austrians are not part of the mainstream is because in the 20th century they resisted the unholly alliance of statism and scientism.  Ironically, the more difficult argument to win is the one against scientism --- statism while hard is not nearly as hard to defeat.  But the "science wars" are very difficult to win unless you ape the methods of the physical sciences.  Do a thought experiment for minute  and consider the following developments in economics over the past 50 years: law and economics; public choice; rational choice sociology; new economic history;  mathematical economics; and experimental economics.  In each of these cases, the field that was perceived to be the more "scientific" influenced research, not the other way around.  In most of the cases, economics was the more scientific field, but in the cases of mathematical economics and experimental economics, the more rigorous field invaded the less.

But what if while economics is definitely a science, it is a human science; a philosohical science, that is unique and distinct from the natural sciences.  To put it another way, what if we agree that the way to advance the natural sciences was to purge human explanations where they didn't belong (overcoming anthropromorphic explanation), but when applied to the human sciences this intellectual thrust would purge the very thing we hope to study?!  In other words, while purging anthropromorphism in the natural sciences resulted in progress, in the human sciences all that results is mechanomorphism.  Zesus didn't cause lightening bolts due to his anger anymore than economic systems operate like clocks or bathtubs or even linear accelerators.  The human element cannot be purged from economics and for us to make intellectual program.

Fighting scientism is  much harder than fighting statism, and thus even though the Austrian school originally fell out of fashion due to the rise of anti-market arguments, when market-oriented arguments came back in fashion the Austrian school remained for the most part on the outside looking in with respect to the economics profession.

But ironically many leading mainstream thinkers come back to Austrian points at the back end of their careers as they start to realize that standard models miss out on dynamics and creativity.  To use the langugae of Nelson and Winter, they realize that the appreciative theory of the market found in Mises/Hayek/Kirzner outdistances the formal theory of the market found in Arrow/Hahn/Debreu.

So what is my answer to the question?  Austrian economics starts from within a heterodox problems situation (heterogenous agents, uncertainty, ignorance, etc.), and they interact within complicated environments (differing tastes, heterogeneous products, market power, etc.), and thus the Austrian answer to how markets work differs considerably from the standard presentation in textbooks, and the non-standard presentation in heterodox writers.  Instead, the focus is on how the institutions of property, contract and consent engender market processes of adjustment and adaptation that produce social cooperation under the division of labor.

In other words, the Austrian school is heterodox sociologically, mainline intellectually (tracing back to Adam Smith and David Hume), and mainstream historically (a branch of neoclassicism).  But in the contemporary world, the mainstream label makes the least sense, the mainline label is little understood let alone appreciated, and the heterodox label serves a useful sociological function.  Though the Austrian school doesn't really fit anywhere easily.

My New Hero

My new hero is Lenore Skenazy who had the absolute audacity to allow her 9 year old son to ride the bus and subway home from Bloomingdale's in New York City recently.  Guess what happened to him?  Absolutely nothing!  He wasn't abducted, abused, or otherwise damaged and he gained a ton of self-confidence, not to mention demonstrating that, even in NYC, we live in a world overwhelmingly characterized by trustworthy strangers and institutions that produce them. 

Skenazy now has a blog called "Free Range Kids," which argues that the dangers to children perceived by so many parents are mostly imaginary and that kids have lost something really important when they are not given the freedom to play and explore free from parental eyes.  The independence and responsibility that such play develops cannot easily be found otherwise, as this Rosa Brooks column on Skenazy notes.

As I have pointed out before, there is a line of argument among some psychologists that we are raising a "Nation of Wimps" by way over-protecting our children from every perceived danger or cushioning or preventing any sort of failure on their part.  As the comments on Skenazy's blog show, this is not a popular view and I applaud her courage not only for her parenting choices but for going public with it and responding to those who seem to think that encouraging independence in our children is akin to child abuse.

I'll save for the comments or another post my own ideas on why we see the "nation of wimps" problem, but the backlash of people like Skenazy is a healthy development.