Something tells me Walter Block and many others will find this cartoon highly entertaining.
Something tells me Walter Block and many others will find this cartoon highly entertaining.
A new book on Austrian economics that targets economic organization has been published at Palgrave Macmillan. Edited by Guinevere Nell, it features a number of papers in favor as well as critical of Austrian economics and what Austrians have to say about organizing and organization. In a sense, the book invites to a discussion on “post-Austrian” economics by, as is also the sub title, “reaching beyond free market boundaries.”
This book is the first in a two-volume series on where Austrian economics may be, can be, and perhaps should be headed.
Here’s the table of contents:
PART I: ORDER AND EFFICIENCY IN FREE MARKETS
1. Improving Spontaneous Orders; Randall Holcombe
2. The Problem of Unemployment When Markets Clear; Daniel Kuehn
PART II: THE FIRM IN THE ECONOMY
3. The Corporate Planned Economy; Kevin Carson
4. The Firm and the Authority Relation; Per Bylund
PART III: FREEDOM, CONTRACTS, AND THE STATE
5. Contract, Freedom, and Flourishing; Gus DiZerega
6. On the Perceived Legitimacy of the State; Edward Stringham and Caleb J. Miles
PART IV: AUSTRIAN ECONOMICS AND MARKET SOCIALISM
7. Beyond Market Socialism; Andrew Cumbers
8. A Post-Austrian Market Socialism; Guinevere Nell
Updated: The poll stations in the Swedish general election closed a mere
two three hours ago. With about 60% 90% of voting districts already counted, it looks like the voter turnout has increased – and that voters have caused quite a mess in the parliament. No likely constellation of parties will reach a majority of seats in parliament.
The parliament’s 349 MPs will be distributed proportionally to represent a total of eight parties. The center-right “alliance” four-party government under PM Reinfeldt (marked by * below) has undoubtedly lost the election with a total of 39% to a 44% minority constellation of Three leftist parties. And in the middle is the nationalist/racist party Sweden Democrats as the election’s winner and third largest party in the parliament. The radical feminist party “F!” (Feminist Initiative), it seems, will not make it past the 4% of the popular vote that is necessary to be represented.
To form government requires more pro votes than con votes; most decisions during the four-year period to next election require simple majority.
The results with about 90% counted (with difference to prior election result within parentheses) is as follows:
5.7 % (+0.1) Vänsterpartiet (radical left, formerly the communist party)
31.1 % (+0.4) Social democrats (progressives)
6.8 % (-0.5) Green party (environmentalists)
5.4 % (-1.7) People’s party (social liberal)*
6.2 % (-0.4) Center party (social liberal)*
23.2 % (-6.9) Moderates (conservative party)*
4.6 % (-1.0) Christian democrats*
13.0 % (+7.4) Sweden democrats
3.1 % (+2.7) Feminist initiative
0.8 % Other
As Sweden is heading for the polls to elect rulers for the next four-year term on Sunday, it looks like there will be a bunch of winners: the racist party, the feminist party, the green party, and the communist party. The other parties, which are more Sweden-style mainstream, seem to lose, which will leave the parliament in a sort of deadlock with two “blocs” with only minority influence – dependent on at least one of the former parties (likely two – maybe even three).
The Economist has an article discussing the new Sweden, which is nothing like the progressive utopia, and how voters might turn their backs on this improvement. Writes the Economist:
Twenty years ago public spending took an eye-watering 68% of GDP; today the figure is heading to 50%. Although the tax burden remains high by international standards, top rates have been cut, as have corporate taxes. Taxes on gifts, inheritance, wealth and most property have been scrapped. Few Swedes need now to flee into tax exile.
Perhaps we’ll see another wave of Swedish [tax] refugees in the not too distant future. The question is, where will they go?
Paul Krugman, an official ranter at a blog hosted at the New York Times, recently wrote a hilarious column on (what he calls) libertarians. As usual, it is not very clear what Krugman is actually talking about, but some of the statements are spot on. At least if we take a step back to look at what Krugman seems to really be saying. It is quite insightful.
The column at first appears to be about some kind of surge in libertarianism within the republican party. But it is really a critique of blind political rants. Writes Krugman:
Libertarians … tend to engage in projection. They don’t want to believe that there are problems whose solution requires government action, so they tend to assume that others similarly engage in motivated reasoning to serve their political agenda — that anyone who worries about, say, environmental issues is engaged in scare tactics to further a big-government agenda.
He then goes on to talk about Paul Ryan, which makes the use of the label libertarian quite confusing, but the general point that people involved in the bickering of political parties tend to project opinions onto their opponents is made quite persuasively. Krugman also writes:
libertarians deal with the problem of market failure both by pretending that it doesn’t happen and by imagining government as much worse than it really is
All we need to do is replace “libertarian” with any label that Krugman uses and “government” with “the market” (and vice versa) to see that there is fundamental truth in these words: “Keynesians/progressives/[whatever] like Krugman deal with the problem of government failure both by pretending that it doesn’t happen and by imagining the market as much worse than it really is.”
But perhaps this is unfair? Well, maybe not: “Keynesians/progressives/[whatever] like Krugman tend to engage in projection.” Of course, my stating this is but a scare tactic.
Ronald H. Coase was one of the few very influential economists of the 20th century, and was awarded the “Nobel Prize” in economics in 1991. He was hardly an Austrian economist. On the contrary, he was a self-declared socialist – at least in his youth. But there is reason to believe he was well aware of Austrian theories while an undergraduate student at LSE in the 1930s (which was when he wrote one of his most influential articles, “The Nature of the Firm” published in 1937). This is when Hayek gave a series of lectures on capital theory and business cycles at LSE, and later the same year was made part of the faculty.
Coase notes in his reflective work that the whole department was affected by Hayek’s lectures and the content of the latter were part of the discussion among faculty and students for months. At the same time, it would be strange to assume that the leading figure in the department – Lionel Robbins, at the time somewhat of a Misesian – had no impact on Coase. We know that Arnold Plant, head-hunted and employed by Robbins (and mentioned as an Austrian in Hülsmann’s Mises biography), was the faculty member that influenced Coase’s thinking most. So there are several obvious “touch points” between Coasean thought and Austrian economics.
But there is more. Coase was obviously well aware of Mises’s argument against socialism, which he refers to in his 1937 article noting that “economists in the West were engaged in a grand debate on the subject of [economic] planning” (Coase, 1988, p. 8). This (and related) statements in Coase’s lauded 1937 article have been quite overlooked by scholars, but they may very well be important. In fact, as I elaborate on in an article in the September 2014 issue of the Journal of the History of Economic Thought, there is good reason to read Coase’s “The Nature of the Firm” as not primarily a treatise on economic organization in general – but a discussion on economic planning intended to support the market socialist argument in the Socialist Calculation Debate.
Coase not only positions his article in the great debate, but refers to Austrian arguments while seemingly relying on insights borrowed from Hayek’s lectures (but misunderstood). This apparent relationship between Coasean thought and the Austrian framework sheds new light on the modern theory of economic organization, which is often based on or even ”starts with” Coase. (The probably most influential theory is Transaction Cost Economics, developed by Oliver E. Williamson but based on Coase’s contributions.)
My article is here: Ronald Coase’s “Nature of the Firm” and the Argument for Economic Planning (2014, gated). An ungated working paper version, Mises Working Paper #0001/14, is here.
In the introduction to Mises’s autobiography Memoirs, FA Hayek denotes Mises’s “a priori character of economic theory” an “exaggeration” that the latter was “driven to” because other economics scholars did not accept the Misesian argument at face value. Whether this is itself an exaggerated description to make a point about Mises’s psychological state (or theoretical argument?), or – as some may have it – an attack on the master after his passing, the statement is quite interesting as it may reveal Hayek’s actual view of science.
Assuming Hayek actually believed Mises’s Praxeology was an exaggerated response to being misunderstood by the profession, then Hayek would appear to have accepted “part of” the argument. The question, of course, is what “part of” the “a priori character of economic theory” means, if anything. While the research designer needs to balance forces and interpretations in the art of econometrics and statistical manipulation, surely such a balancing act is neither desirable nor scientific in purely deductive theorizing.
Such balancing amounts to balancing the argument that our point of departure is true or balancing the logically stringent deduction from this argument. Both necessarily mean a “balancing” act between truth and untruth. So what is Hayek getting at in this statement? I elaborate on this on my blog Economic Reasoning in a post called Theory, Exaggerated or in Moderation?
With all the fuss about the French economist’s tome on capital and perpetually growing inequality, one perspective that is uncommon in the commentary is what “the market” thinks of Piketty’s characterization of it. In other words, do those involved in investing and developing capital agree with Piketty’s analysis?
Whereas one should hesitate to place too much value on individual people’s anecdotes, the “real world” rather than outrageously simplified models should be close to any Austrian’s heart on economic theory. After all, we are proponents of causal-realist analysis of the market and economy. So whereas it may not serve as scientific evidence, this comment by well-known investor Marc Andreessen is as interesting as it is revealing about the “socialist calculation” view of the economy held by the likes of Piketty:
The funny thing about Piketty is that he has a lot more faith in returns on invested capital than any professional investor I’ve ever met. It’s actually very interesting about his book. This is exactly what you’d expect form a French socialist economist. He assumes it’s really easy to put money in the market for 40 years or 80 years or 100 years and have it compound at these amazing rates. He never explains how that’s supposed to happen.
The comment, from an interview in Vox, goes to the core mechanistic assumption in Piketty’s system – and shows why it is wrong: it includes neither uncertainty nor entrepreneurship. Sometimes economists would benefit from listening to “the market.”
As we noted a couple of months ago (here and here), the Swedish Mises Institute (officially the Ludwig von Mises-institutet i Sverige) were organized a crowd funding campaign to finance the translation and subsequent publication of Mises’s magnum opus Human Action in Swedish. They eventually reached (exceeded, actually) their goal of SEK 60,000 (almost $9,000) and are now working on getting the translation done, proofed, and then published. If all goes well, they hope to have the book available already in the fall – at least in a digital format. (This, of course, would require quite a bit of human action.)
Those of you who read Swedish or wish to learn – and this is obviously a great opportunity for Misesians in e.g. Minnesota and Wisconsin with Swedish or Scandinavian ancestry - may want to consider investing in a copy or two of the final product. Keep an eye on the Mises.se site for updates on how this project progresses. Find the post We Made It! here in English translation.
It is funny, really, how so many can be so fundamentally in agreement about the worthlessness of a science based on a widespread and complete misunderstanding of what it is about. Who hasn’t heard that economics is all about money? Yet, of course, it isn’t. If economics is about anything, it is about the effects and implications of value. Or, more accurately, the actions that are taken by individuals aiming to achieve something they deem of comparatively higher value. It is important to recognize that
…value is distinct from money and can be studied completely without involving money. In fact, it can often be easier to completely exclude money and instead talk about wants, preferences, or even “utility” to make it clear what is analyzed. And value is a subjective appreciation of something, which necessarily has a tacit component and therefore cannot fully be communicated to others. We can use all sorts of proxies or estimates, but they will never correctly “measure” the value as it is seen or felt by the individual him- or herself. This is not simply because people change their minds and preferences all the time, but because value is fundamentally immeasurable – there is no value unit that can be used to accurately measure the satisfaction felt by the individual achieving it.
Read more in my EconReason post It’s Not About the Money.
Ha-Joon Chang, development economist at Cambridge University, has published a new book: Economics: The User’s Guide. The Huffington Post publishes a selected excerpt that makes for utterly terrifying reading. Not only does this book “on economics” appear to be written as some form of dismissive narrative (?), but it makes assertions and produces stacks of baseless or misleading statements about economics that supposedly comprise “arguments.” And, to top it off, Chang claims open-mindedness in his narrow-minded “takedown” of economics.
I couldn’t resist going through the statements in the HuffPo excerpt one by one and put light on this shady reasoning. Chang seems happily ignorant of what economic analysis entails. He never produces an argument in the excerpt; the only thing he accomplishes is to advertise how limited his understanding of the field he represents must be.
From my commentary, Ha-Joon Chang, Yet Another Economics Skeptic:
At first glance, this may seem like a worthy criticism – look, economics is supposed to be value-free, but not even its supposed value-free methods are value-free. But it really just amounts to a dishonest application without much relevance even to neoclassical economists. As readers of this blog know all too well, neoclassical economists tend to use “models” based on rather absurd and highly simplified assumptions such as “perfect information.” Well, they also commonly assume “perfect competition,” but Chang somehow misses this point. Instead, he assumes that the use of the Pareto criterion in abstract models under such assumptions is applied directly and thoughtlessly on empirical analyses.
Granted, if we take the Pareto criterion without thinking about it and apply it on an empirical situation akin to the ones we find in the developing world, then it appears rather outrageous. There’s nothing “natural” or equal or just with the starting point, which means the Pareto criterion only cements this situation – where radical change may be more just. In this sense, one can only agree with Chang. Except, of course, for the fact that economists don’t use the Pareto criterion inductively; they use it deductively, which in fact means that it is a criterion only from a starting point that is accepted as “untainted” by politics, privilege, etc.
More here: Ha-Joon Chang, Yet Another Economics Skeptic
It has become fashionable to attack and dismiss economics. In an age where the likes of Piketty can become an “authority” in the eyes of the public by writing a tome of scientifically questionable content but that says what people want to hear, it may seem like we are heading for a disruption in the study of economics. Perhaps this is a good thing, considering how economics professors at renowned institutions can get away with - and even be praised for – saying really dumb things like
Economics is a political argument. It is not – and can never be – a science; there are no objective truths in economics that can be established independently of political, and frequently moral, judgments. Therefore,… you should never believe any economist who claims to offer ‘scientific’, value-free analysis.
As Austrians, we have long claimed economics needs to do away with its ridiculous “physics envy” and study the market and economy for what they are. In this sense, we’re both ready for and welcome a disruption. But only if it entails a revolution in the right direction – toward a sound study of the real world. But tis is hardly what progressive unthinkers have in mind; they would rather replace the economic analysis of the world with empty slogans and policy.
As they often remind us, economics is but ideology – it is not science – and therefore cannot be trusted. How can they say this? Because the “Scientific Marxists” claim so. (The contradiction obviously escapes them.)
Economics can be both scientific and different from the statistical “mathturbation” it has often degenerated to. I try to summarize how and why in a recent text, The Fundamental Importance of the Trade-Off.
As always, the market comes to the rescue through innovative entrepreneurship. And in this case, not only do these entrepreneurs promise to build roads – they will use the roads to generate electricity for sale on the market. So they solve two problems at once. Nay, three – the roads use part of the generated power to keep snow and ice off the surface, thereby making them safe even in cold weather. Wait, four – the roads can display lights to warn drivers of danger ahead such as wild animals.
The venture, called Solar Roadways, is fully crowd-funded (closing in on double what they requested) but is looking to ”improve” existing government roads (which shouldn’t be all that hard) rather than lay their own. Too bad government doesn’t allow competition.
Over at The Week, Noah Smith, an economics professor at Stony Brook University and of online “Noahpinion” fame, attempts a dismissal of the Austrian school of economics. His critique is intended to show that “the Austrian School’s demise came not because its ideas were rejected and marginalized, but because most of them were co-opted by mainstream macroeconomics.” But Smith is obviously far from an expert on Austrian theory (or the history of it).
The argument that Austrian ideas have already been incorporated in mainstream economics has already been repeated by mainstreamers so many times that it would be strange if they don’t believe it by now. It is easy to see where Smith got the “idea” to add to the myth-building. But there was perhaps some truth to it, at least in the 1930s, as Pete Boettke noted in 2002:
By the mid-30′s … the idea of a distinct Austrian program, even in the minds of the Austrians themselves, was seriously waning, in part because the mainstream more or less absorbed the important points the Austrians were making. Mises (1933, 214) had argued that while it is commonplace in modern economics to distinguish between the Austrian, Anglo-American, and Lausanne School, “these three schools of thought differ only in their mode of expressing the same fundamental idea and that they are divided more by their terminology and by peculiarities of presentation than by the substance of their teachings.”
But since then several things have happened and the Austrian and mainstream/neoclassical schools have drifted apart. Not only has the Austrian school further developed and strengthened its theory (by such “minor” works as Human Action and Man, Economy, and State) and seen a resurgence, mainstream economics has stumbled down a very non- (anti-?) Austrian path of unreal assumptions hidden in layers of excessive mathematization, and, thanks to their adherence to Whig theory, lost most of its economic heritage and sound grounding. Read More→
The Swedish Ludwig von Mises Institute is working on translating (and will then publish) Mises’s Human Action: A Treatise on Economics into Swedish. Obviously, a Swedish translation will be more accessible to Swedes than the original English, especially for the older generations who are generally less proficient in English. As Swedes are a comparatively highly educated people, it is not impossible that Human Action can end up on the book shelves in the homes of Swedish Average Joes (Sven?).
Perhaps this is an opportunity to get the sound economic reasoning of Mises into the minds of Swedes and then into the highly progressive Swedish political discourse. Who knows, maybe Human Action could potentially play a similar role in Sweden as the samizdat copies of Hayek’s Road to Serfdom played behind the Iron Curtain during the cold war? Whether or not this will actually be the case, Human Action in Swedish would pave the way for Austrian economics in this socialist utopia. Who can argue with such a noble goal?
More information on this project (in English) can be found on the mises.se web site along with a call for support.
A recently published article at The Week, with the title “How can we unleash positive animal spirits into the economy? Change the narrative,” provides a clear example of what’s wrong with the perception of economics and why modern economic approaches, possibly aiming to amend the shortcomings “identified” by this perception, is at a loss of explaining anything important.
Perhaps the title of the article, written by John Aziz, is sufficiently telling, but let’s have a look at the assumptions and assertions in the first couple of paragraphs – and how they apply (if at all) to economics. Aziz begins:
Economics is a tough science. People are complicated — they have different (and unstable) desires, react differently to events, and view the world in different ways. Markets are complex interactions between millions of these different people.
It appears Aziz finds it highly problematic for economics that people have different desires. This is indeed a problem for a science attempting to understand or predict those desires. In this sense, I certainly feel for those psychologists working on such issues. But as an economist, it is hard to get puzzled by the statements. Rather, one feels excitement about the “complex interactions” that Aziz mentions. Yes, that’s where it gets interesting – the social phenomena arising due to individuals’ actions independently, in concert, and within an institutional framework. Here’s where the economics is. So let’s see where Aziz takes us from here:
In this respect, understanding the economy requires an understanding of people’s motivations. They invest and spend money (or withhold from investing and spending money) to fulfill certain desires and objectives, such as making a profit, building a nest egg, or simply acquiring useful goods and services. Sometimes these economic decisions are rational. Other times, instincts like greed (during an economic boom) and fear (during and after a bust) can cloud our rationality.
This paragraph is at best puzzling. The first sentence makes no sense: why does understanding “the economy” requiring understanding “people’s motivations”? It does not follow. The economy does not reflect the motivations, but people’s actions based on them. In order to understand what happens to the water when ice melts we do not need to know what the source of heat is. In order to understand the storyline of a novel we do not need to know on what type of machine it was typed or printed. Likewise, we do not need to understand people’s motivations to study the outcome of their actions.
Aziz continues: Read More→
I’ll be on Resistance Radio 98.9FM WGUF at around 12:15 EST discussing Obamacare and Sweden’s health care. My take on the former is that it is much like the latter used to be, but that as America is going for public health care Sweden is going for markets.
I’ll be on Liberty Talk Radio, KFAQ-AM in Tulsa, OK, tonight (2/22) discussing the similarities between the Affordable Care Act and Sweden’s public health care system. I’ll be on from around 7:35 PM CT (8:35 PM ET), and for those interested the radio show also airs nationally on LibertyTalkRadio.com.
If President Obama has a legacy in the history books of the future, it will likely be the utter ignorance of and contempt for economics expressed in his policies. Assuming, of course, that the next president is not even worse (which is not unlikely).
The debate following the proposal to raise the minimum wage to $10.10 is just the most recent example of Obama’s view of the world. (Central planning of health care is another.)
Granted, there is an ongoing debate among economists about the “real effects” (by which is meant: measurable, statistically significant effects in collected data) of minimum wage regulation. As Bob Murphy shows, this is not really a debate on the effect of outlawing low-paying jobs (which is what we are really talking about) but about empirical measuring techniques, data selection, econometric formulae, and statistical juggling.
The academic minimum wage debate is really only a symptom of the real problem: economics as an empirical science. Since economics is a social science, the “data” it relies on are necessarily interpreted and selected before plugged into lacking equations the statistical results of which must then be interpreted again. But “data” somehow still gives the results an air of untainted, unquestionable objectivity.
Nevertheless, modern economists seem to have swallowed the “data” illusion hook, line, and sinker. And while at it, they throw out all the babies they can find with what little bathwater they’re already pushing out the window. Read More→
People have a strange habit of ridiculing economics for its assumptions and [benchmark] models of optimality. While modern mathematical economics (i.e., professional mathturbation) admittedly rely on sometimes outrageous assumptions that make most of the resulting predictions irrelevant, there is nothing ridiculous or unscientific about economic reasoning. In order to study the social world we need to consider and analyze what’s observed empirically from the point of view of the theory-derived counterfactual. Economic science necessarily begins with theory.
As Mises noted, in the social world there are no constant relations. Consequently, inductive number crunching based on (the seemingly irrefutable phenomenon) data cannot tell us much about the world. So we must rely on what we logically find to be necessarily true, and from it derive specific truths that help us understand observed phenomena in the real world. We thus create counterfactuals that help us assess and perceive what is actually going on, rather than blindly observe.
Interestingly, while economic reasoning is laughed at and ridiculed, people tend to place great faith in applied fields such as medicine as though it were a real science. So perhaps if economics were more like medicine, it would earn the respect as a science (side-effects aside)? Read More→
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