Economics and Freedom: Not a Math Problem

What does it mean to think about politics realistically rather than romantically? What should economists really do? And is what they do (too) wrapped up in the materialistic pursuit of utility maximization? These  are just some of the questions that Nobel laureate James M. Buchanan tried to answer in his life’s work. In this episode, EconTalk host Russ Roberts welcomes back Don Boudreaux to discuss Buchanan’s legacy, and two articles of Buchanan’s in particular, “What Should Economists Do?” and “Natural and Artifactual Man,” both found in Volume 1 of Buchanan’s Collected Works.

The conversation begins with an overview of Public Choice, largely the basis on which Buchanan was awarded the Nobel prize in 1986. But as Boudreaux is quick to point out, Buchanan’s intellectual legacy goes far beyond Public Choice. Let’s hear your reaction to the conversation between Roberts and Boudreaux. Use the prompts below to continue the conversation- here online or offline with others.

 

 

1- Why do Roberts and Boudreaux think the reaction to Buchanan’s Nobel was so unenthusiastic? When public choice is defined as, “Politicians are self-interested,” what’s missing?

 

2- What should economists do??? In what ways was Buchanan pushing back against the dominance of Welfare Economics at the time of this address? What’s wrong with the way we teach economics according to Buchanan’s view?

 

3- Boudreaux argues one reason why a lot of more hardcore libertarians don’t like Buchanan is because Buchanan always insisted on modeling politics as exchange.  Why might this be the case? How are markets and politics both examples of emergent orders?

 

4- What is “artifactual man,” according to Buchanan? How does this second article build on the first, according to Boudreaux?

 

5- Boudreaux cites one of his favorite quotes from Buchanan: ‘Man wants freedom to become the man he wants to become.’ What IS Buchanan’s case for freedom? Is this case convincing? Sufficient?

 

 

Bonus Question: Roberts and Boudreaux offer “twitter versions” of Nobels of  Buchanan and James Tobin. Can you come up with some others? Here’s the list of Economic Sciences Nobel prizes. Share yours on twitter, and tag us @Econlib and @EconTalker.

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Supply and aggregate supply are unrelated concepts

The AS/AD model that we teach our students is misnamed, as it has nothing to do with the supply and demand model used in microeconomics. To take one simple example, the vast majority of industry supply curves are almost perfectly elastic (horizontal) in the long run. The long run aggregate supply curve is almost perfectly inelastic (i.e. vertical.) These are just completely unrelated concepts.

This can help us to evaluate some issues raised by Tyler Cowen:

If you think “stimulus” is effective right now, presumably you think supply curves are pretty elastic and thus fairly horizontal. That is, some increase in price/offer will induce a lot more output.

If you think we should hike the minimum wage right now, presumably you think supply curves are pretty inelastic and thus fairly vertical.  That is, some increase in price for the inputs will lead not to much of a drop in output and employment, maybe none at all.  The supply curve is fairly vertical.

What matters for stimulus is the short run aggregate supply curve.  What matters for the minimum wage is the long run industry supply curve.  These two curves are especially unrelated.

[There also the question of whether industry supply curves even exist. Minimum wage proponents usually deny it–claiming that industries are monopolistically competitive.  The evidence suggests that industry supply curves do exist.]

I oppose both fiscal stimulus and minimum wage laws, but for reasons mostly unrelated to supply elasticities.

If you favor a minimum wage hike because you think the demand for labor is inelastic, does that mean you don’t see “downward sticky wages” as a big problem?  After all, the demand for labor is inelastic, right?

Minimum wage laws should be evaluated on the basis of their long run effects.  Proponents probably believe that a good chunk of the higher minimum wage will come out of the pockets of other workers (via higher prices.)  I’ll have to pay more for fast food.  And the empirical evidence supports that claim.  So minimum wage proponents would claim no inconsistency in their views on minimum wages and sticky wages.  But this is one problem with the argument for higher minimum wages.  If they raise prices then they probably also cost jobs.  (My own view is that the bigger problem with minimum wage laws is that they reduce non-wage compensation.)

This is a good point:

If you favor a minimum wage hike, do you criticize wage subsidies because inelastic demand for labor means most of the value of the wage subsidy will be captured by the employer? Or do you somehow want both policies at the same time, because they both involve “government helping people”?

I support wage subsidies to low wage workers because I believe that minimum wage industries tend to be highly competitive, with zero long run economic profits.  And for exactly the same reason I oppose minimum wage laws.

 

 

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Tuesday assorted links

1. Those new service sector jobs: “no bison experience necessary.” 2. Where does the climate change struggle stand now? (New York magazine) 3. The Pfizer shots likely give sterilizing immunity (i.e., you don’t then infect others). 4. Vaccine supply chain details. 5. The decline in higher ed enrollment is much steeper among men. 6. Hilton […]

The post Tuesday assorted links appeared first on Marginal REVOLUTION.

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The Theory and Practice of Oligarchical Collectivism Book Club Commentary, Part 1

Here are my reactions to your thoughts on Part 1 of the Orwell book club.

David Henderson:

Here’s another glaring statement that shows Orwell at his economically illiterate worst:

As for the problem of overproduction, which has been latent in our society since the development of machine technique

Orwell buys into the idea of overproduction. He doesn’t understand that our wants are unlimited. That may be also why, as you noted, he doesn’t worry about incentives. In his view, we had too much even in 1948.

I basically agree, but I don’t think Orwell would have denied that wants are unlimited.  The “problem of overproduction” wasn’t literally that business produced too much stuff, but that business produced more stuff than it could profitably sell.  This in turn is supposed to lead either to unemployment or cartels – two evils much in evidence during the 1930s (even though both of us know that government bears most of the blame).  Still, to convincingly answer this objection, you need to either show that (a) free markets can handle the problem by cutting input costs, or (b) government can handle the problem via the keyhole solution of printing more money.   Obvious once you think about it, but hard to articulate.

Neera Badhwar:

I wonder what you think about the following passages about war:

“The search for new weapons continues unceasingly, and is one of the very few remaining activities in which the inventive or speculative type of mind can find any outlet. In Oceania at the present day, Science, in the old sense, has almost ceased to exist. In Newspeak there is no word for ‘Science’. The empirical method of thought, on which all the scientific achievements of the past were founded, is opposed to the most fundamental principles of Ingsoc” (p. 5).

“When war is continuous there is no such thing as military necessity. Technical progress can cease and the most palpable facts can be denied or disregarded. As we have seen, researches that could be called scientific are still carried out for the purposes of war, but they are essentially a kind of daydreaming, and their failure to show results is not important. Efficiency, even military efficiency, is no longer needed.”

The second passage seems to contradict the first.

Does it really?  The first paragraph says that military research is virtually the only research left, and the second passage says that even that research is none-too-fruitful.  These seem like compatible claims.

But even if they can be reconciled, I wonder what Orwell had in mind when he wrote them. In 1939, Soviet scientists tried to replicate the fission experiments done by German scientists, and started trying to develop nuclear weapons in 1943. The Party didn’t consider this work like a kind of daydream! Perhaps it wasn’t generally known what was going on in the SU.

In Orwell’s schema, World War II and his imagined World War III in the 1950s are the last deadly serious drives for global domination.  Only afterwards does the world fall into the three-way stalemate he describes.  I think that’s what he has in mind.

KevinDC:

However, on the point where the fictional author seems to dismiss the importance of incentives regarding differential pay, Orwell does seem to have thought something like this. Or, a weaker version of it at least. In his essay The Lion and the Unicorn, Orwell wrote:

It is no use at this stage of the world’s history to suggest that all human beings should have exactly equal incomes. It has been shown over and over again that without some kind of money reward there is no incentive to undertake certain jobs. On the other hand the money reward need not be very large. In practice it is impossible that earnings should be limited quite as rigidly as I have suggested. There will always be anomalies and evasions. But there is no reason why ten to one should not be the maximum normal variation.

Many thanks for sharing this passage.  News to me.

Of course, he never provides any actual argument for why “the money reward need not be very large” or any evidence for his claim that “there is no reason why ten to one should not be the maximum normal variation,” either in this essay or in any of his other writing on the topics. He just asserts it. People prone to anti-market bias have a tendency to commit the fallacy of argument from personal incredulity when it comes to market outcomes they don’t like. “I can’t see any reason for it to be this way” is treated as if it entailed “there is no reason for it to be this way.”

In defense of Orwell, labor supply elasticity does seem fairly low.  Indeed, for many people labor supply is plausibly backward-bending over some ranges.  But he probably neglects the tournament incentives at play; many people start businesses because they’re inspired by the possibility that they might become billionaires.  I can’t prove that rising inequality since 1980 has made the U.S. the startup center of the world, but it’s plausible.

Henri Hein:

The invention of print, however, made it easier to manipulate public opinion

This does not seem right. Print also allows wider sharing of ideas, including ones inimical to authority.

You’re both right.  The printing press makes the “manipulation of public opinion” easier for everyone.  Under free speech, the end result of the cacophony is unclear.  With a government control over the media, however, the end result is to support the status quo.

Weir:

What Orwell says in one sentence about “the conscious aim of perpetuating unfreedom” he contradicts in his next sentence about lip service.

The first sentence is Orwell the polemicist. The second sentence is Orwell the novelist.

I don’t see the contradiction.  You can consciously aim for unfreedom while paying lip service to freedom, no?

The novelist knows that the banner of equality is just too useful to drop. Pretending to fight for justice is about as basic as pretending to be younger and more attractive. Birds do it.

Why isn’t this fully consistent with Orwell’s description?

Is Nike conscious of its pandering? Is Citibank? No more than the peacock is conscious of natural selection.

If you’re not conscious, how is it “pretending”?  I’ve met people in marketing, and they seem quite conscious of what they’re doing.  They don’t consider their behavior bad, but they know what they’re saying isn’t literally true.

The polemicist would say that American Airlines and Coca Cola and BMW and CVS and all the corporate sponsors of violence and looting and arson are consciously, deliberately, making life worse for people living in those cities where the murder rate doubled in 2020.

As if Gatorade and Conde Nast wanted to bankrupt a lot of immigrant-owned businesses and black-owned businesses, and make it harder for people to get jobs in a hundred communities across America.

The ambitious pragmatists at Proctor and Gamble and Bank of America and AT&T aren’t dishonest. They believe their slogans. In their own minds they’re enlightened and progressive. They aren’t aware of having caused harm.

I think Orwell has the better description.  On one level, they believe what they’re saying.  On another level, however, they know they’re tiptoeing around uncomfortable truths.

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