Friday, May 19, 2017

On Teaching Economics

Quote of the day from Paul Heyne's essay "Teaching Introductory Economics,"
It is certainly appropriate for economists to insist, in season and out, that government-funded projects also have opportunity costs and to call constant attention to the realities of what must be sacrificed to obtain desired goods. The question is how this can be done most effectively. It will not be by drawing production-possibility curves and extracting marginal rates of transformation, because that radically misstates the problem. Except in a dictatorship, no one economizes for society as a whole or for the government sector. In a democracy, public policies emerge from interactions--exchanges!--among optimizing parties: citizens, elected and appointed officials, and interest groups of many kinds. When the marginal benefits and the marginal costs accrue to different parties, an optimizing model just doesn't fit.

[from Chapter 17 in Paul Heyne, "Are Economists Basically Immoral?", Geoffrey Brennan & A.M.C. Waterman (eds.) Liberty Fund, Indianapolis (2008), p 308]

Sunday, April 30, 2017

QOTD: Politics Is Process

I really like the opening paragraph to Buchanan's The Limits of Liberty :
Those who seek specific descriptions of the "good society" will not find them here. A listing of my own private preferences would be both unproductive and uninteresting. I claim no rights to impose these preferences on others, even within the limits of persuasion. In these introductory sentences, I have by implication expressed my disagreement with those who retain a Platonic faith that there is "truth" in politics, remaining only to be discovered and, once discovered, capable of being explained to reasonable men. We live together because social organization provides the efficient means of achieving our individual objectives and not because society offers us a means of arriving at some transcendental common bliss. Politics is a process of compromising our differences, and we differ as to the desired collective objectives just as we do over baskets of ordinary consumption goods. In a truth-judgment conception of politics, there might be some merit in an attempt to lay down precepts for a good society. Some professional search for quasi-objective standards might be legitimate. In sharp contrast, when we view politics as process, as means through which group differences are reconciled, any attempt to lay down standards becomes effort largely wasted at best and pernicious at worst, even for the man who qualifies himself as expert.
Certainly seeing politics as a process of reconciling group differences seems better than seeing politics as a search for truth. As a young economist I saw myself as an expert who could guide government and public policy toward the standard of an efficient allocation of resources by correcting the "market failures" I and my colleagues had discovered. Today these earlier efforts do seem to me largely wasted and pernicious, and as work in my classrooms that was best, not at correcting market failure, but at inculcating a spirit of controlling others through the force of government to a particular version of the "good society," i.e., the "efficient allocative society."

Wednesday, February 15, 2017

QOTD: The Missing Entrepreneur

There is no place for entrepreneurship in the market model of mainstream economics. Consider Kirzner in his How Markets Work:
The theory of entrepreneurial discovery sees the explanation of market phenomena in the way entrepreneurial decisions, taken under disequilibrium conditions, bring about changes in prices and quantities. The market process so initiated consists of continual entrepreneurial competition, made possible by an institutional framework which permits unimpeded entrepreneurial entry into both new and old markets. The success which capitalist market economies display is the result of a powerful tendency for less efficient, less imaginative courses of productive action to be replaced by newly discovered ways of serving consumers -- by producing better goods and/or by taking advantage of hitherto unknown but available, sources of resource supply. The theory focuses on the concept of discovery in contrast to the notion of the individual decision in mainstream theory. (p. 31)
 The mainstream economic view of the world relies on the idea of equilibrium. Every point in the diagram of the market model, including every point on the demand and supply curves, is an equilibrium point. So, the role of entrepreneurship is missing, and if you want to know more about the real economic world, this book by Kirzner is a good one to study.

Sunday, February 12, 2017

Hayek Quote of the Day

From Hayek's "Individualism: True and False:"
The main merit of the individualism which [Adam Smith] and his contemporaries advocated is that it is a system under which bad men can do least harm. It is a social system which does not depend for its functioning on our finding good men for running it, or on all men becoming better than they now are, but which makes use of men in all their given variety and complexity, sometimes good and sometimes bad, sometimes intelligent and more often stupid. [Individualism and Economic Order, pp. 11-12]

Sunday, January 22, 2017

The Radicalism of the American Revolution

Gordon Wood's The Radicalism of the American Revolution has been in my bookcase for some time now. Maybe too long, because I recently picked it up and found this in the preface:
Americans were not born free and democratic in any modern sense; they became so -- and largely as a consequence of the American Revolution. After eighteenth-century Americans threw off their monarchical allegiance in 1776, they struggled to find new attachments befitting a republican people. Living in a society that was already diverse and pluralistic, Americans realized that these attachments could not be the traditional ethnic, religious, and tribal loyalties of the Old World. Instead, they sought new enlightened connections to hold their new popular societies together. But when these proved too idealistic and visionary, they eventually found new democratic adhesives in the actual behavior of plain ordinary people -- in the everyday desire for the freedom to make money and pursue happiness in the here and now. To base a society on the commonplace behavior of ordinary people may be obvious and understandable to us today, but it was momentously radical in the long sweep of world history up to that time. 
Wow, this reminds me of Deirdre McCloskey's three volumes on the Bourgeois Era [Bourgeois Virtues, Bourgeois Dignity, and Bourgeois Equality] by which she explains that the modern world is the result of a change in ideas that gave liberty, dignity, and equality to ordinary people.

Here are a few more quotations from the introduction to Wood's book that fit with McCloskey's ideas:
By the time the Revolution had run its course in the early nineteenth century, American society had been radically and thoroughly transformed. One class did not overthrow another; the poor did not supplant the rich. But social relationships--the way people were connected one to another--were changed, and decisively so. By the early years of the nineteenth century the Revolution had created a society fundamentally different from the colonial society of the eighteenth century. It was in fact a new society unlike any that had ever existed anywhere in the world. (p. 6)
[The] revolution did more than legally create the United States; it transformed American society. Because the story of America has turned out the way it has, because the United States in the twentieth century has become the great power that it is, it is difficult, if not impossible, to appreciate and recover fully the insignificant and puny origins of the country. In 1760 America was only a collection of disparate colonies huddled along a narrow strip of the Atlantic coast--economically underdeveloped outposts existing on the very edges of the civilized world. The less than two million monarchical subjects who lived in these colonies still took for granted that society was and ought to be a hierarchy of ranks and degrees of dependency and that most people were bound together by personal ties of one sort or another. Yet scarcely fifty years later these insignificant borderland provinces had become a giant, almost continent-wide republic of nearly ten million egalitarian-minded bustling citizens who not only had thrust themselves into the vanguard of history but had fundamentally altered their society and their social relationship. Far from remaining monarchical, hierarchy-ridden subjects on the margin of civilization, Americans had become, almost overnight, the most liberal, the most democratic, the most commercially minded, and the most modern people in the world.
And this astonishing transformation took place without industrialization, without urbanization, without railroads, without the aid of any of the great forces we usually invoke to explain "modernization." It was the Revolution that was crucial to this transformation. It was the Revolution, more than any other single event, that made America into the most liberal, democratic, and modern nation in the world. (pp. 6-7) 
I think it is difficult for us to understand McCloskey's assertion that a change in ideas explains why we prosper basically because we can't really understand what social life as monarchical and hierarchy-ridden subjects would be like. The change in ideas essentially turned life upside down, and "almost overnight" Americans became liberal, democratic, egalitarian-minded and the most modern people in the world.
[The Revolution] destroyed aristocracy as it had been understood in the Western world for at least two millennia. The Revolution brought respectability and even dominance to ordinary people long held in contempt and gave dignity to their menial labor in a manner unprecedented in history and to a degree not equaled elsewhere in the world. The Revolution did not just eliminate monarchy and create republics; it actually reconstituted what Americans meant by public or state power and brought about an entirely new kind of popular politics and a new kind of democratic office holder. . . . Most important, it made the interests and prosperity of ordinary people--their pursuits of happiness--the goal of society and government. . . . it also released powerful popular entrepreneurial and commercial energies that few realized existed and transformed the economic landscape of the country. In short, the Revolution was the most radical and most far-reaching event in American history. (p. 8)
Yep. As McCloskey might put it, the Revolution gave liberty, dignity, and equality to ordinary people. And we prosper.