Coordination Problem

I Confess I Don't Get It

Several years ago I hosted Deirdre McCloskey's visit at GMU.  A condition of her visit was that she speak not only to the economics department, but also that she has the opportunity to meet with various women's groups and also the Gay, Lesbian and Transgender Alliance on campus.  The experience was enlightening to me as these are not groups that I normally would not interact with during my normal work routine.  I embraced the opportunity and wanted to go listen and learn.

But during a session where GMU PhD students in culutral studies were discussing their work with Deirdre about power and sexism as reflected in disciplines such as economics, and the sexism evident in the market in general, I started to question what was being argued.  But Deirdre seemed to understand the arguments being offered.  I was confused. The Deirdre McCloskey I knew was not only a philosophically aware classical liberal thinker who could write, but a damn good economist.  McCloskey's text in price theory is one of the best books anyone could read to learn economics from.  As I became more and more uncomfortable with the direction of the conversation, I intervened and asked Deirdre "I don't understand, what would need to be changed in Donald McCloskey's Applied Theory of Price now that you are Deirdre?"  Basically what I wanted to ask was "don't demand curves slope downward regardless of gender or sexual orientation?"

My question was never really answered and the discomfort I felt with the direction of the conversation, had now shifted to the discomfort that I caused by pushing an argument that perhaps bordered on impolite given the audience. So I kept quiet the remainder of the meeting, and never brought the subject up again with McCloskey privately --- which I regret. As readers of this blog will know, I consider McCloskey one of the most fascinating and original thinkers in economics and political economy (see my various reviews of her books over the years).  I should have just asked her what was on my mind, but I guess I got nervous that my inability to understand nuance would be revealed to blantantly.

Now Tyler Cowen has pointed us to a new blog by an undgraduate student of economics at University of Toronto that focuses on the clash of feminism and economics --- Economic Woman. The author is insightful and she writes in an engaging style, but again I ask "don't demand curves slope downward regardless of gender or sexual orientation?"  For example, hasn't there been significant studies over the years that have attempted to control for various factors (e.g., occupational choice, job tenure, educational choice, etc.) in the wage gap, and once these are taking into account the gap closes significantly.  Clearly the advice Economic Woman gives to undergraduates is reasonable advice for men and women.

My resistence to feminism as a doctine in contrast to economics is not a politically conservative issue.  My sister would beat me up if I tried to do that (BTW, congratulations Sue --- she is being inducted into her high school Athletic Hall of Fame for her coaching career tonight!!!).  No, I grew up in a household where women were expected to excel in athletics and life, and not accept barriers.  But so were men supposed to excel.  Thus, in my mind  the expectation of excellence turned into an argument for individualism, not a collective demand for action.  Women, like men, let alone minorities, should not accept any artificial barriers to pursuing their goals.  If people get in your way, don't let them --- either side-step them or run them over.  Don't ever let others define you, you define yourself; you are in control of your own destiny.  The cream always rises, is what my father always taught us.

When I learned economics at GCC, I came to understand that markets provide options for side-stepping or running over artificial barriers.  If the corporate old boys network presents barriers, then start your own business and compete with them in the marketplace.  Markets are a great equalizing force in society.  They provide the means for the escape from oppression.  In fact, Deirdre McCloskey's latest work on Bourgeoise Virtues makes this argument in historical form better than I have seen elsewhere.  So irrespective of gender, sexual orientation, religious belief, nationality, and ethnicity, economic theory teaches that demand curves slope downward, and economic history teachers that market societies are the most open and equalizing.

In other words, economics and feminism do not collide.  A women practicing economics is no different than a woman practicing physics.  Of course, being a woman I am sure is different from being a man, just as being a young man is different than being middle aged man.  But if the claim is different than that --- in essence that there is a different economics for women than for men --- I must confess I just don't get it.  Again demand curves slope downward whether we are talking about men or women, whether we are talking about Jews, Christians, Muslims, or Buddhists, whether we are talking about Africans, Americans, and Europeans.

Does Development Economics Attract the Least Developed Economists?

Fritz Machlup argued that it did.*  Joseph Stiglitz more recently has argued that development agencies such as the World Bank are filled with 'third rate economists from first rate institutions.'

When I began my professional career as a teacher and researcher in economics the two fields that I tried to contribute to were (1) comparative and development economics, and (2) the history and methodology of political economy.  And whle I still consider these fields to be among the most intellectually rewarding in economics, anyone who pursues these fields will have to agree that the modal economist practicing comparative and development economics and/or history and methodology of political economy is radically different in personality and interest from the modal economist in more traditional fields such as IO or Public Economics.

To a considerable extent, with the collapse of communisn in 1989, the field of comparative and development economics moved in a more traditional direction.  When that changed the population pool changed.  Among comparativist now-a-days you are about a likely to find a true believing Marxist as you are to find one working in the field of monetary economics.  Let alone more exotic economists that used to populate the Association of Comparative Economics such as Ghandian economics, or the "small is beautiful"  movement.

The development of New Growth Theory cut against Machlup's quip, and the strange intellectual diversity that once dominated the field of comparative and development economics has for all intents and purposes disappeared.

Is this a good thing or bad?

*Cited by Don Boudreaux in his review of David Warsh's Knowledge and the Wealth of Nations.

Who Has Influenced Who and Why?

One of our readers asked the following: "Sorry if this hijacks the thread, but among the living Austrian economists, who would you say have had the most impact on the mainstream of the discipline? And has their influence been due to uniquely Austrian insights or could their most influential work have been done by a non-Austrian?"

I didn't want the question addressed in the comments section where it would be burried.  Instead, I thought we should discuss this as a separate post.  Of course, the answer here has some obvious objective criterion --- academic appointment, journal placement, social science citation impact.  On the other hand, we have to recognize that there are serious problems of (a) timing, (b) thin market fields in the discipline, and (c) truth tracking independent of scientific popularity.  What I mean by that is that a truly original and bold idea often meets resistence and comes to be appreciated only over time.  For example, James Buchanan's work in public choice and constitutional political economy took some time before its influence was felt and even then much of the academic establishment in economics remained woefully innocent of the implications of Buchanan's revolutionary ideas.  Similarly, if a scholar works outside of the "thick market" fields of IO, monetary theory, or public economics, he may in fact rise to the top of the field but not necessarily land in the top position or place their work in the top general journals.  Finally, there is still the case that a scholar outside of what is currently "mainstream" may in fact make a fundamental contribiution to economic science that will not be recognized until the end of his life and not necessarily in his lifetime.  It is a mistake to make too much out of Ludwig von Mises's outsider status --- he was an internationally recognized figure in Europe prior to WWII, and after WWII he published his treatise with Yale, it was reviewed in the NYT, he was named Distinguished Fellow of the AEA, etc.  So Mises was a well-known figure in the discipline of economics.  On the other hand, he was in my opinion probably the most under-appreciated economist and political economist of the 20th century since I would argue he was that century's greatest economic mind.  But we should be careful because to say someone is recognize as a great economist and international leader of classical liberal economic thought (which was definitely Mises's status) is not being assigned to the scientific dustbin just because he is not recognized for being the greatest economist.

With those qualifiers in place, let me take a stab at answering Mike's question.  Obviously, the #1 Austrian to meet the objective criteria would be F. A. Hayek.  He held appointments at LSE and U of Chicago, published in the AER and JPE, won the Nobel Prize, and remains to this day an influential economist and social thinker based on citations.  Look at recent Nobel Prize winners such as Douglass North and Ned Phelps and how they rely on Hayek's work to discuss the dynamic market process.  Hayek's influence is profoundly felt even in the work of 2007 Nobel prize winners and the theory of mechanism design.  The knowledge issues Hayek raises are uniquely Austrian, and escape the intellectual grasp of both perfect information economics and imperfect information economics.  And Hayek's works such as The Constitution of Liberty and Law, Legislation and Liberty has impacted greatly the "institutions rule" literature that has captured the intellectual imagination of some of the best and brightest currently practicing economics and political economy.

#2, Israel Kirzner and his work on entrepreneurship and the dynamic market process.  Again, Kirzner taught throughout his career at New York University --- one of the top 20 departments in the world in economics consistently throughout his career, often in the top 10.  He published papers in the JPE and Journal of Economic Literature, and his books are with University of Chicago Press.  His influence has been felt in economics and management studies.  His work on the dynamic entrepreneurial market process is beyond the intellectual grasp of traditional models of perfect competition and even those of imperfect competition markets.

#3, Lawrence White and George Selgin and their work on free banking and altenative monetary institutions.  Again, they have published in the JEL, AER, EJ, etc.  They have published their books with major publishers.  They have taught at NYU, GMU and U of Georgia --- all PhD programs.

#4, Roger Garrison and his work on the history of economic thought and the Austrian Theory of the Business Cycle.  Garrison has been in the AER and other top journals. He has taught at Auburn throughout his career.  He is internationally recognized as the leading representative of the ABCT.

#5, Mario Rizzo his work in law and economics and the philosophy of the social sciences.  Rizzo has taught at NYU throughout his career, his law and economics articles have been published in the JLS and top law reviews, and his books have been published with top tier presses.  Rizzo's (along with Glen Whitman) current work on paternalism promises to have a major impact.

#6, Bruce Caldwell earned a niche as the professions leading interpreter of Popper and of Hayek.  This has led to significant surveys in the JEL on both thinkers.  But Caldwell has also been able to publish methodological work in the AER --- a major accomplishment. And now Caldwell is moving to Duke, pehraps the leading university in history of economic thought in the world.

OK, that would be my list of scholars who have had the most influence in the profession, and have done so in a way that is uniquely Austrian.

Unorthodox Individuals I have Learned From (inspired by Matthew's comments)

It has been suggested that younger Austrians are unaware of the rich literature in heterodox economics, and in particularly the heterodox literature that addresses Austrian economics.  So I wanted to provide a partial and incomplete list of some of the individuals who I have learned much from over the years who I would recommend that students of Austrian economics read and study to get a sort of 'heterodox' reading of Austrian economics.  While I have learned from these individuals, I also have disagreements about fine points in economics and political economy.

My educational pedigree in Austrian economics is fairly well documented: I studied with Dr. Hans Sennholz at GCC, and then came to GMU where I wrote my dissertation under the direction of Professor Don Lavoie.  I then became an Assistant Professor of Economics at NYU, where Israel Kirzner served as my mentor.  At GCC, in addition to Sennholz I also benefited greatly from the graduate students that were studying with Dr. Sennholz -- Philippe Nataf, Esteban Thomsen, Alfredo Irigoin, and Eduardo Zimmerman.  Eduardo Zimmerman, who unforutnately I have not seen since my GCC days, spent many hours talking to me about Austrian economics, Henry Hazlitt and classical liberalism.  He, in fact, gave me my first copies of Menger's Principles and Investigations to read.  Funny how small gestures of kindness and intellectual encouragement can have huge impact on young scholars.  At GMU, not only the Austrian faculty of Lavoie, Jack High, Viktor Vanberg, Karen Vaughn, Tom DiLorenzo, Don Boudreaux and George Selgin, but also the public choice faculty of James Buchanan, Gordon Tullock, Dwight Lee, and Robert Tollison had an extremely positive influence on me. And David Levy's original insights in lectures that he gave in the mid-1980s are still popping in my head today when I finally understand their brilliance.  And at NYU, Mario Rizzo was a huge influence on me, but so were the faculty fellows of Joe Salerno, Roger Koppl, Sanford Ikeda, Young Back Choi, Bill Butos and David Harper.

But none of this is really that surprising.  Austrian and public choice influences on an Austrian and public choice thinker.  Some of the influences on me have been more orthodox --- e.g., Paul Milgrom and Barry Weingast during my time at Stanford, and Andrei Shleifer from reading him first on issues on the transition and then on issues of legal origins and institutions and public policy.  My good friend Jeff Friedman actually dates my decline as an original thinker to the influence of Weingast during my year at Stanford.  And Barkley Rosser believes my intellectual bankruptcy is complete with my endorsement of the work of Shleifer.

However, there is also a set of heterodox teachers and writers and colleagues that have taught me much throughout my career.

First, Kenneth Boulding was actually my teacher when he was a visiting Robinson Professor here at GMU.  David Prychitko and I actually camped out to talk to Boulding and he never once sent us away.  Instead he welcomed us.

Second, I met Warren Samuels when I was a first year graduate student and he served as a mentor for me for the next 20 years.

Third, reading G. L. S. Shackle was an eye opening experience and the meeting of Ludwig Lachmann and having the opportunity to discuss economic ideas with him produced a "mind quake" in me.

Fourth, Warren's student and my contemporary Steve Medema picked up where Warren left off and pushed me on arguments that I thought were settled and made me rethink my own understanding of institutional analysis and the history of our discipline.

Fifth, Gary Mongiovi, who I met upon my arrivial at NYU, welcomed me into the NYC intellectual scene and pushed me to think about the philosophy of economics and the contribution of post Keynesian and Scrafian economics.

Sixth, Ted Burczak and I are roughly contemporaries and his work on Hayek's post modernist moment as well as his rethinking of the project of the Left after Hayek made me rethink some cherished beliefs.  Actually David Prychitko used to press me on these points first, and then Ted's work pushed that door in my mind open even further.

Seventh, Mat Forstater introduced me to the work of Adolph Lowe and showed me the common ground among German language economists in the 1920s and 1930s.

Eighth, Paul Lewis is a profound and critical thinker in economics --- perhaps the most penetrating critique to my way of thinking besides David Prychitko and Jeff Friedman that I have ever met.

Ok, enough for right now. There are many more, but I just wanted to give a list of heterodox thinkers that have made me think twice (sometimes more) about positions I was perhaps too quick to believe were settled.  I would recommend the work of these critical thinkers to any young economist of the Austrian persuasion to test their thought process.  Matthew is right --- we need critical dialogue, not just edifying works.  Austrianism and classical liberalism must embrace a culture of criticism.  But I would insist not just criticism for criticism sake, but real criticism that puts a certain responsibility on the critic as well as the author putting forth the argument. Deconstructionism can be useful, but it can also be an intellectual disease.  Deconstruction of the argument of others can be a tool for productive intellectual intercourse if done right, or it can devolve into little more than an exercise in mental masturbation.

Who have been the most influential thinkers on you that hold beliefs that radically diverge from yours?

Econ881 Spring 2008 Final Exam

Answer all questions.

1.    In which ways is the economics mainstream becoming more Austrian?  Less Austrian?  Discuss, using specific examples.

2.    Which idea in Austrian economics has been most neglected by the Austrians themselves?  How might it be applied to resolve some outstanding economics questions, puzzles, or issues?

3.    One of Hayek’s main criticisms of Keynes was that his economics was overly aggregated.  In the intellectual defeat of Keynes, Robert Lucas argued that by consistently applying the microeconomic foundations of macroeconomics would correct for the failures of Keynesian economics.  First, what is the common ground between Hayek and Lucas?  Second, what are the main points of disagreement between Hayek and Lucas?

4.    Ludwig von Mises argued that rational economic calculation under socialism was impossible.  Explain Mises’s argument and the debate that emerged surrounding it.  What are the strongest points of the argument?  What are the weakest points in Mises’s argument?  Does the argument possess any relevance today given that socialism as a policy option seems to have faded from history (or has it)?

5.    Pick 1 of the following areas and explain the contributions that Austrian economics has to offer in addressing the contemporary policy question and/or contemporary literature:

a.    The failure of development aid in Africa;
b.    The housing bubble and the subprime mortgage crisis;
c.    Antitrust policy and Microsoft;
d.    The situation in Iraq;
e.    The problem with failed and weak states.

6.    What do you understand to be the relationship between praxeology and catallaxy?  Is catallaxy reducible to praxeology, or is the relationship more complex; and if it is more complex how would you characterize that relationship?  Action is a praxelogical category, but such things as prices, contracts, and organizations are catallactical, as these are not phenomena that would be recognizable to Robinson Crusoe. 

7.    In your opinion what are the main virtues and vices of the Austrian school of economics.

8.    Bruce Caldwell titled his intellectual biography of F. A. Hayek, Hayek Challenge.  What does he mean by that?  What are the continuities and discontinuities in Hayek’s long research career?

9.    In Frank Knight’s review of Mises’s Human Action he states that while he agrees with Mises on method and more or less on policy implications, that Mises’s book is ultimately about a unique approach to capital theory and that he could not follow Mises in that regard because the Austrian theory of capital is flawed. Make sense of Knight’s positive claim about Human Action being a book about Austrian capital theory, and critically discuss his claim about why the theory is wrong.

10.    Several of my colleagues and your teachers have forcefully argued that Austrian economics is either fundamentally flawed or outlived its usefulness.  Reconstruct their arguments and formulate an effective counter-argument to those claims.

A Sad Anniversary for France: Turgot's Dismissal in 1776

May 12, 1776 was one of the saddest days for France. It was the day Louis XVI removed A.R.J. Turgot from office. Turgot was the Minister of Finance of France, the greatest French economist of the 18th century, and a key figure of the French enlightenment (he was a close friend of Condorcet, and Voltaire came to his rescue). He had a great sense of duty, freedom, and civilization. Turgot was too successful, so to speak, in his economic reforms and in the fiscal discipline he imposed on the finances of the French Crown. He fell because he wanted to go too far in the removal of confiscatory taxes (la taille and la corvée), the deregulation of commerce and industry, and the abolition of privileges many guilds and others possessed at the time (e.g. les droits féodaux). Turgot is perhaps the greatest reformer the world has ever seen. If Louis XVI had trusted his Minister of Finance to the end, it is likely that the French Revolution would not have taken place.

Turgot directly influenced Adam Smith with his view of markets. Following his mentor, Vincent de Gournay, Turgot was a strong advocate of laissez-faire. He didn’t write as much as Smith unfortunately, but has left us a few outstanding essays in which he developed many great insights. For instance, he had a sophisticated understanding of the entrepreneurial role and of the origin of interest. And his work on the influence of regulation and taxation is well worth the read. See Murray Rothbard’s The Brilliance of Turgot as well as Rothbard’s biography of Turgot (see also here and here). Another reference is Ralph Raico who has written on Turgot and the French liberal school (but I am not sure where to find it on the net). For those interested, Eugene Daire has, in my view, written the best biography of Turgot (in French).

It is most important to remember that because of Turgot, economists acquired the reputation of hardliners at the end of the 18th century (reputation recognized in the name given by their adversaries: la secte des économistes). They stood against the privileges of the few and were in favor of competition and freedom. In those days, economists were not yet the counselors of the Prince, but the purveyors of truth.

I was recently in Normandy and saw Turgot’s castle, which is still owned by his family. Here is a picture…

 

The Economics of Pirate Tolerance

"The Invisible Hook: The Economics of Pirate Tolerance," is now available, here.

Abstract: Can criminal profit-seeking generate socially desirable results? This paper investigates this question by examining the economics of pirate tolerance. At a time when British merchant ships treated black slaves as slaves, some pirate ships integrated black bondsmen into their crews as full-fledged, free members. Enlightened notions about equality did not produce pirate tolerance, however. I argue that self-interest seeking in the context of the criminally-determined costs and benefits of pirate slavery was responsible for pirates' progressive racial practices. Analogous to Adam Smith's invisible hand, whereby legitimate persons' self-interest seeking can generate socially desirable outcomes, among pirates there was an "invisible hook," whereby criminal self-interest seeking produced a socially desirable outcome in the form of racial tolerance.

Coming soon: "The Calculus of Piratical Consent: Criminal Foundations of Constitutional Democracy"

Happy Hayek's Birthday

Don Boudreaux reminds us that it is Hayek's 109th birthday today.  Following Don's lead, I'll celebrate with one of my favorite Hayek quotes:

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."  (The Fatal Conceit, p. 76)

Hayek could have easily substituted "the social sciences" for economics in that statement.

Few humans can say they have profoundly changed the world of ideas and the world in which they live.  Hayek is one of them, and a good hunk of humanity is better off for it.  And they could be better yet if Hayek's work (along with Mises and all the rest) were to have even more influence than it has already. 

The world would also be a better place were more people to emulate Hayek as a model of scholarship and civility.  We need more people willing to start with the assumption that those who disagree with them are only guilty of intellectual error rather than maliciousness or stupidity.

Let's also hope that this century is the century of freedom and spontaneous order rather than statism and scientism.

And feel free to use the comments to add your own favorite Hayek quotes.

Homobasketballicus -- 2008 edition

I've worked as a basketball coach on and off since the summer of 1978.  Anyone who knows me, will learn quickly that I am actually sort of crazy about the sport.  I watch literally thousands of games a year ranging from middle school to three levels of high school to college at every level (DIII, DII, DI and NAIA and even JUCO) and of course professional basketball from the D-League to Euro League to the NBA (though I really only watch the NBA during the pre-season and first month of the season and then follow lightly through the season and pick up intensely watching only after the NCAA championship is over).

I often use basketball analogies in my lectures to highlight the importance of the rules of the game on the strategies that players will use in deciding how to play the game --- whether that game be basketball or the game of economic life.

One of the real joys in my life has been my ability to share this love of the game of basketball with my family, friends and my wife and kids.  And as for any person who coaches the opportunity to coach their own son is a real thrill.  This is my last year coaching my son during the AAU season.  Stephen has played AAU basketball since he was 12, and organized basketball since he was 9.

Anyway, a lot of my students and even colleagues have found my obsession with the sport of basketball strange to say the least, and of course wonder why my attentions are often drawn away from economic research to a game that seems so far removed from the concerns of economics and political economy.

Well, here is the weblink to the 2008 U17 Fairfax Stars and the player profiles.  I have been coaching most of these boys since 9th grade, and we have traveled throughout the US playing against some amazing athletes --- many of whom you will see on TV in the coming years.  It has been an honor for me to work with them and I am just thrilled to be doing so again this spring/summer for one last time.  I encourage you to take a quick look at the accomplishments of these young men both on and off the court.  Perhaps some of these kids will be playing at your institution of higher learning starting in 2009.  They are great kids, some are extremely academically gifted (one boy actually scored a perfect score on his SATs and has a 4.0 GPA, and did I mention he is 6'9" and was an All-District performer last season for his HS team), and they can all contribute to a college basketball program. Let me know if your school's team could use some help!  I cannot promise that they will major in economics, but I can promise that they are the sort of student/athletes that will make any institution proud to have them compete for their teams.

Random Sightings of Sensible Economics (well not so random)

Kevin Grier asks "Is more regulation always the answer?"

Larry White explains why looking carefully at the Fed figures might make sense of contemporary monetary policy in a way that the conventional wisdom misses.

Glen Whitman on the Post Soviet diet of Cubans and the "health benefits" of such a policy.  Though Glen I wonder really how one could infer that the improved health conditions were a consequences of communist policies when in fact they are correlated with the breakdown of the communist system which wipes out a supply network for Cuba, and Cuban policies of autarky.

David Beito gives some more evidence on why Herbert Spencer was a good guy that classical liberals should embrace rather than hide.

Tyler Cowen on the Cowles Commission economists.  But Tyler, I would distinguish between brilliance and insightful.  No doubt these guys were brilliant, but not necessarily the most insightful when it comes to understanding the real world and possessing great judgment when it comes to issue of public policy.  Yes, brilliant and well meaning people can be wrong.  As Gary Becker once summed up the most important lesson he learned from Milton Friedman "Economics is not just a game played by clever people."  The economists associated with the Cowles Commission were (are) no dobut the cleverest of the clever, but they were more often than not wrong on the major issues of their day.  Imagine what modern economics would have looked like had the post-WWII period not been dominated by Cowles and Rand, but instead by organizations that resisted the intellectual alliance of statism and scientism!!!  Not sure any of those guys would make the list of the most insightful contributors to the science of economics even recognizing that they were (are) no doubt brilliant minds.

Finally, Anthony Evans raises questions about the economic rhetoric.