The first part of my three-part review of Janek Wasserman's *The Marginal Revolutionaries* is now up at EconLib. Parts 2 and 3 will follow on Monday and Wednesday. Here's the intro paragraph:
In the world since the 2017 publication of Democracy in Chains, Nancy MacLean’s near-slanderous “history” of public choice economics and the contributions of James Buchanan, it is understandable that a reader sympathetic to Austrian economics might approach Janek Wasserman’s 2019 history of that school of thought with some trepidation. The good news is that Wasserman’s book is a far better effort than MacLean’s, as he suffers from none of her problems with accuracy of source material and he understands the economic ideas he’s working with well enough to convey them accurately to a general reader. His careful work with archival sources provides a richly detailed account that adds to our understanding of the Austrian school’s evolution and the roles its members played in influencing 20th century economic policy. The book is not without its flaws, however. In much the same way that MacLean starts with the assumption that classical liberal ideas are racist and otherwise evil (rather than attempting to provide evidence for that claim), Wasserman’s progressivism affects his broader narrative, though in much more subtle ways than MacLean’s. In particular, he assumes that the liberalism of the Austrians was simply ideological cover for defending the power and privileges of the elite. As a result, his history of the school’s evolution in the 20th century tells an incomplete tale.
Of some interest to CP readers might be my new entry on "Economics" at the Encyclopedia of Libertarianism at Cato's libertarianism.org site.
"At the most general level, then, economics is the study of human choice and its consequences, both intended and unintended. In understanding the unintended consequences of choice, and how those choices can be coordinated to produce social benefit, economics continues to rely on the idea of the “invisible hand” found in Adam Smith. Individuals choosing in their own broad self‐interest are led through the institutions of the market to benefit others. For some economists, this is framed in terms of the tendency of markets to reach an optimal equilibrium. For others, it is described more loosely as “coordination,” or as “emergent” or “spontaneous” order. Either way, the core idea remains the same: economics studies how people choose facing scarcity and how social institutions (usually) channel those choices into unintended order. Noticing the existence of that unintended order is the beginning of social science and economics specifically."
My new monograph introducing Austrian Economics is now available for free download from Cato's libertarianism.org website. In addition, there is a companion set of short video lectures that can be found on YouTube.
As you might expect, when it comes to the Polanyi brothers, my intellectual tastes align more with Michael than with Karl. But, since my return to teaching Economic Sociology to graduate students, I have studied Karl Polanyi's work and its lasting impact in the field. To be honest, I do not find Karl Polanyi that impressive either analytically or observationally. But the reality is that The Great Transformation had an oversized influence and continues to do so, and thus I need to listen more carefully to why others are so moved by a work that I find to be so pedestrian in terms of economic theory, historical scholarship, and political economy implications.
Upon reading a first draft of chapters of what would become Hayek's The Fatal Conceit, I often said that Hayek had provided the perfect antidote to Karl Polanyi with that book, as he clearly states the underlying philosophical anthropology of the long process of economic and political development from pre-history of man through antiquity to modernity.
Watch these series of short clips from an interview at Institute for New Economic Thinking with Kari Polanyi (his daughter and a scholar of her own right).
Remember I said, I need to listen, not to critique, and certainly not to indict, but just to learn what is attractive and compelling about the ideas and the way they are presented and the insights that are promised. This seemed like a genuinely good place to start that process.
Back in the 1980s, I got interested in the work of Lin and Vincent Ostrom as it pertained to the disjoint between how different economic and political systems were supposed to operate (de jure) and how they actually operated (de facto) and the institutions that emerged to govern the actually practices. It was my interest in the Soviet experience that first alerted me to this ... one of my main professors in graduate school was Michael Alexeev, and along with Gregory Grossman and Vladimir Treml, Mike was also involved with research on the Soviet black-market economy. So with his guidance I studied everything I could on that subject, and that led me to thinking about this disjoint between de facto and de jure rules. From that moment, I saw how in the Austrian literature they also made this distinction -- from Mises's discussion of money, to Hayek's discussion of law, and Rothbard's discussion of prohibition. Prior to that, I think it is probably accurate to say that I thought there was sound economics and their was public policy, and if public policy matched sound economics then good things would follow, and if public policy was based on bad economics, then bad things happened. So the job was to make sure people understood sound economics.
I still believe that deep in my gut, but I became more fascinated after this realization in understanding economic life and the multiple and varied margins of adjustment and adaptation to circumstances that are made by creative and clever human actors. The work of the Ostroms (both Lin and Vincent) were vital to that quest to provide understanding. At the same time, I was a student of James Buchanan and not only his work in political economy and social philosophy, but in public economics. At NYU, I taught graduate seminars not only in comparative economic systems, but also Public Choice and Public Finance throughout most of the 1990s. Lin Ostrom had published Governing the Commons (1990), and Vincent had published The Meaning of Democracy and the Vulnerabilities of Democracies (1997), but they had also pioneered work on the "institutional analysis of development".
It was during this time that I met and eventually worked with Paul Dragos Aligica. One of our first projects was on Global Economic Development and the role of private enterprise and entrepreneurship in generating economic prosperity in developing and transitioning economies. It is in this work that we focused on the blending of public choice (Buchanan), Austrian economics (Hayek-Kirzner), and the Bloomington School (Lin and Vincent Ostrom). I edited a special issue of JEBO (2005) to highlight the contributions of Lin and Vincent, and Paul and I published our book summarizing the contributions of the Ostroms, Challenging the Institutional Analysis of Development: The Bloomington School (2009). A significant part of that book was a reconsideration of the municipalities debates that the Ostroms were involved in during the 1960s and early 1970s. I published with Chris Coyne and Pete Leeson a reassessment of the subsequent literature in this debate and after in a paper on Quasi-Markets in Public Choice, but that paper was more conceptual and analytical. But in a series of papers with Jayme Lemke and Liya Palagashvili, we engaged in a reassessment of the empirical work in local public economics with a focus on the delivery of policing services.
Back to the original impetus for this line of research as laid out here -- the distinction between de facto and de jure rules that govern the economic interactions of individuals in any given society -- it is vital to remember that if we pursue catallactics (study of exchange), then the subject of our studies is exchange and the institutions within which exchanges take place. With all the limitations noted, I always thought that the most operational definition of institutions was the formal (de jure) and informal (de facto) rules of the game and their enforcement. Governance is a vital aspect of social order -- do note I said governance. Covenants with and without the sword. But for agreements to be enacted their enforcement must be secured. The protection of persons and property is something Adam Smith noted long ago, and Edward Stringham notes often today. But precisely how are the institutions structured so that a norm of protection and security of persons and property governs the relevant jurisdiction?
So we head back to the municipalities debate -- what are the responsibilities of the public sector, who is responsible for the services to be rendered, and how are they going to be paid for? The Ostroms stood against the consolidationist movement and in particular UNIGOV. They championed instead a polycentric system of governance that put more direct authority in local communities and citizens, and held the public entities to be responsive to the demands of the local communities. Jayme, Liya and I published a series of papers individually, jointly and in different combinations over the past decade looking at policing services and the frustrations with the failure of these services to meet the demands of the local communities that they supposedly serve. What the Ostroms have to say about ways to improve policing has tremendous relevance for today's discussions. Consider this essay by Rashawn Ray, "Bad Apples Come From Rotten Trees in Policing", and what solutions would both be desirable and feasible. Fixing the problem is imperative, doing so in a way that actually achieves the goal must become paramount.
Please watch this video with Jayme and Liya discussing our work, and also look out for work by Tate Fegley, who just defended his PhD and also works on the thorny issue of policing.
I have tried to use this time to stay focused on research, writing and teaching. But, as imagine is common, my attention has been drawn to current affairs and learning how to operate in a virtual classroom while attempting to be an engaging and effective educator. That doesn't mean my normal interests have taken a backseat, it just means my juggling of my time and attention has required a different focus than was the case prior to March 2020.
This juggling, as well as my intellectual interests, have led me to "attend" multiple webinars. I consistently join the webinar at Princeton on Monday and Fridays on the economic and political economy of COVID-19 -- talks, e.g., by Cowen, Deaton, Kremer, Stiglitz, Acemoglu, Rodrik, Krugman, and this week Cochrane, and upcoming Summers. I also have consistently been walking twice a day and that enables me to catch up on my podcast listening, with probably 80% COVID-19 related. And, I have tried to articulate aspects of my own perspective on this at this site, and at AIER. But I am trying to constantly learn the public health issues, the social science of public health, and history of public health efforts. I wrote a column for AIER on doing science in real time that I think explains the dilemma --- we need epistemic humility, not epistemic arrogance I argued in another column -- and yet we must make progress in science and try to strive for rationality in democratic action.
Roger Koppl's Expert Failure is a great book that was published in the Cambridge University Press series that Timur Kuran and I edit, and it is extremely relevant to our current affairs. Here is Roger presenting his main thesis of the book, and applying it. Highly recommended listening.
No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.
The takings clause may provide the guiding principle. Shutting down the economy to address a public health crisis could be interpreted as a taking for public use, and if so, the citizens are due just compensation for what was taken. Just compensation is the market value of their loss.
I am just thinking aloud here, but I wonder if this approach had been pursued how the public finance of this would have been, if at all, different than what was done. Would business and their workers rather than go through potential bankruptcy and unemployment just had all bills at this time sent to federal government? Would have an average of the weekly expenses covered for all enterprises ordered to shut down accumulated over the period of time required to deal with public health crisis have cost less than what brine of politics in an election year will produce? Or will the bill be roughly the same in the end? If done right, would it have been possible to avoid unemployment numbers we are experiencing and will continue to experience and failed enterprises we will see as business do not bounce back and with that foreclosures etc.
What are the biggest weaknesses in seeing a Govt order to shut down as a Taking?
UPDATE: Ryan Murphy and Chris Fleming point me to this earlier ruminations on the issue by Ilya Somin, and the report issued by the Congressional Research Service. Turns out my "thinking aloud" is about 5-6 weeks behind!!!