My Texas Tour

Next week, I’m touring Texas with my sons.  I’m speaking for Texas Tech’s Free Market Institute in Lubbock on October 5, and at San Angelo State’s Free Market Institute on October 6.

Both events are in-person, and the Texas Tech event is, amazingly, open to the public!  (Though you do have to register).  If you come, please say hi.  And you can livestream from anywhere on Earth.

My route takes me on a swath from Amarillo, the Palo Duro Canyon, Lubbock, San Angelo, Texas German country, San Antonio, and Austin.  Email me if you’d like to meet up, and maybe we can make something happen.

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O’Rourke on the Millennials and Socialism

As soon as children discover that the world isn’t nice, they want to make it nicer. And wouldn’t a world where everybody shares everything be nice? Aw … kids are so tender-hearted.

But kids are broke — so they want to make the world nicer with your money. And kids don’t have much control over things — so they want to make the world nicer through your effort. And kids are very busy being young — so it’s your time that has to be spent making the world nicer.

This is from P.J. O’Rourke, “This is why millennials adore socialism,” New York Post, September 12, 2020.

Lots of good stuff here. I do want to address one error, an error that P.J. seems to agree with “progressives” about. He writes:

That would have been in the 19th century — during America’s first “Progressive Era” — when mechanization liberated kids from onerous farm chores and child labor laws let them escape from child labor.

Actually, it wasn’t child labor laws that let them escape from child labor: it was economic growth. As people grew wealthier, parents no longer needed their children to be productive. Instead, they could support the family without their children’s income and so instead could send their kids to school. And incidentally, as E.G. West showed in Education and the State, the state in Britain was not a major funder of education and yet schooling was widespread.

It is true that child labor laws reduced child labor around the edges. But they’re an instance of what is almost a general law in economic policy. I’m using “general law” in the sense of regularity. The laws that pick up enough support are usually ones that require people to do what the majority are doing already. I believe for example, although I can’t find the source immediately, that the legislated 40-hour work week came about only after it had become standard practice.

Another good excerpt:

Intellectuals like Marxism because Marx makes economics simple — the rich get their money from the poor. (How the rich manage this, since the poor by definition don’t have any money, is beyond me. But never mind.)

This excerpt reminds me of a great paragraph from Paul Krugman’s 1990 book The Age of Diminished Expectations that I used in the first edition of The Concise Encyclopedia of Economics, in a sidebar on the article “Distribution of Income” by Frank Levy:

One reason that action to limit growing income inequality in the United States is difficult is that the growth in inequality is not a simple picture. Old-line leftists, if there are any left, would like to make it a single story—the rich becoming richer by exploiting the poor. But that’s just not a reasonable picture of America in the 1980s. For one thing, most of our very poor don’t work, which makes it hard to exploit them. For another, the poor had so little to start with that the dollar value of the gains of the rich dwarfs that of the losses of the poor. (In constant dollars, the increase in per family income among the top tenth of the population in the 1980s was about a dozen times as large as the decline among the bottom tenth.)

The O’Rourke piece is excerpted from P.J. O’Rourke, A Cry from the Far Middle, 2020.

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Five Books on Macroeconomics

Recently, Raffaele Rossi offered his recommendations for the best macroeconomics textbooks at Five Books. Here, Arnold Kling offers his recommendations:

 

 

Macroeconomic Patterns and Stories, by Edward Leamer.  This provides an excellent introduction to the data that are central to macroeconomics—how they are collected and what they mean.  Although it is framed as an introductory textbook for business school students, it is valuable for economists at all levels.  Leamer wisely steers the reader away from thinking in terms of systems of equations and instead looks for patterns in the data and stories that could explain those patterns.   Note that I recently suggested that Leamer deserves a Nobel Prize for his insights into empirical methods in economics.

 

Manias, Panics, and Crashes, by Charles P. Kindleberger and Robert Z. Aliber.  The late Charles Kindleberger was an economic historian, and I believe a historian’s perspective is crucial for looking at macroeconomics.  After all, there are no repeatable experiments in macroeconomics, only historical episodes.  Kindleberger looks at the most dramatic episodes in history, using the framework of financial instability developed by Hyman Minsky.  Kindleberger is a better expositor than Minsky.  Also,  Kindleberger emphasizes the phenomenon of “displacement,” in which a sudden change in world conditions, brought about by a major new discovery or the outcome of a war, triggers a dangerous mania.  My own thinking about macroeconomics is a combination of Kindleberger-Minsky and Fischer Black (below).

 

The Midas Paradox, by Scott Sumner.  Sumner tells the story of the Great Depression, probably the most important episode in macroeconomic history.  Sumner believes in a monetarist interpretation of the Depression.  Although I personally do not subscribe to this framework, his book provides an outstanding exposition of this important macroeconomic theory.

 

Exploring General Equilibrium, by Fischer Black.  If Kindleberger-Minsky macroeconomics is heterodox, Black’s macro was even more so.  Black does away with conventional aggregate demand and aggregate supply altogether, and instead constructs a theory of economic fluctuations based on general equilibrium, with physical and human capital sometimes suffering from rapid obsolescence.  Black even denies the relationship between money and inflation!  Tyler Cowen wrote, “It’s not an easy book for most people to read, as Black just comes out and states what he thinks, without much in the way of trappings or preliminaries or traditional narrative structure. There are also no models, just strings of statements about models.That said, virtually every sentence has substance.It is one of my favorite books in economics and it still contains many unmined insights.“

 

Macroeconomics, by J. Bradford Delong and Martha L. Olney.  I see this as a textbook that presents what I call the “academic” approach to macro, treating the economy as a system of equations.  This is not an approach that I share, but it is certainly important in the history of economic thought.  When I read the first edition of this book, I was impressed by its coverage of the topics of economic growth and international macro.  A more recent textbook that also emphasizes economic growth is Modern Principles of Macroeconomics, by Tyler Cowen and Alex Tabarrok.

Arnold Kling is the author of Specialization and Trade, which includes chapters that spell out his views of macroeconomics.

 

 


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My All-New “Economics of Immigration” Course

In three weeks, I premiere my all-new course on the “Economics of Immigration.”  If GMU sticks to its current plan, I will start teaching it in-person on August 27 to a mixed class of grad students and undergrads.  As you’d expect, the class closely follows the organization of Open Borders: The Science and Ethics of Immigration, but with extra time devoted to criticism of immigration from social scientists like George Borjas, Paul Collier, and Garett Jones.  The course also adds sections on the environment and contagious disease, two important topics that I neglected to address in Open Borders.

There are still ten open spots in the class, but in any case the whole world is welcome to read the notes and try the homework.

 

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Reflections on Science and Society

At Grove City College in the 1980s we had required courses which were dubbed “Key Courses” – you had to take survey courses in Religion and Philosophy, Social Science and History, Science, and the Creative Arts.  My Religion and Philosophy course was a year long, and the professor, Professor Reed Davis (now at Seattle Pacific University) — taught us Plato, as well as the Old and New Testament, and Augustine’s City of God and Calvin’s Institutes of Christian Religion.  But Professor Davis also raised questions throughout the course about values and scientific inquiry.

We read and watched Jacob Bronowski’s The Ascent of Man, and I can remember today as if it was just yesterday, particularly the scene where Bronowski is at Auschwitz and he explains to the audience that science doesn’t dehumanize, dogma does.  He wanders over to a pond where the ashes of the deceased were flushed from within the camp, and he explains gas didn’t kill the millions who died in the Holocaust, but arrogance did; dogma did; ignorance did.  And, it is this arrogance, dogma, and ignorance, fueled by a quest for absolute and final certainty, that kills science.  Science and the institutions that make science possible are our bulwark against the dehumanizing terror of totalitarian madness. True science, Bronowski states, stands always at the edge of error, and is a testament to what we fallible humans can achieve despite our imperfections.  It is a deeply moving scene and message.

 

Professor Reed exposed us in that class to the work of the great physical chemist turned philosopher of science Michael Polanyi.  I don’t know how many of my classmates took so quickly to Polanyi, but I did.

I first read Science, Faith and Society and then The Study of Man.  I actually read both of those books before I read any Hayek, and simultaneously as I was reading Henry Hazlitt and Ludwig von Mises for the first time.  I knew nothing of the personal biographies of any of these individuals back in 1979-1980, but their words changed my entire world view, and their arguments have occupied a central place in my mental model ever since.  I would not read much more from Polanyi during my Grove City days. Instead, my reading was focused on studying the classical economists and the economists of the Austrian school, as well as assigned readings in philosophy, law, religion, and history.  I consider my Grove City education fantastic, but even as I was reading these works (and I did do the reading!) and contemplating an intellectual career (legal philosophy was what I was thinking), I did not make learning the top priority in my college life. (Sports and social life dominated).  But, by my junior year and after an invitation to join a “graduate seminar”  with visiting students from Argentina, France, and the US, my focus on becoming a professional economist started to take shape.

 

In 1984, I headed off to graduate school and would eventually be assigned to work with Don Lavoie, the main professor I had been attracted to move to George Mason University to study with.  Don was finishing both Rivalry and Central Planning and National Economic Planning: What is Left?  I was very late to the process, but I had to do the last minute check of references for Rivalry at the Library of Congress, and while not tasked with anything, I did get a chance to read in manuscript form NEP.

And, while reading Lavoie I would encounter Michael Polanyi again.  Different books, but still Polanyi – this time Personal Knowledge.  Now a graduate student and focused on becoming a scholar, my studies were my top priority. Lavoie taught me to really read, not just gather information as I turned pages, but to engage with a text, and in learning to read as a scholar he stressed the importance of hunting footnotes. So, I read Lavoie and I read Polanyi and Thomas Kuhn, and of course Karl Popper and Imre Lakatos. I sought to adjudicate between them related to what I had learned about science from Mises and Hayek, and in particular their critique of scientism.  I had already been persuaded that the greatest evil of the 20th century followed from totalitarianism, and that totalitarianism was a consequence in modern times of an unholy alliance between scientism and statism.  As Bronowski said, arrogance, dogma, and ignorance provide the justification for the killing.

 

I did not yet know anything about the personal biography of these different thinkers, let alone their own intertwined circles of influences back in Europe. These are all things I would learn over the next 30 years of intense study.

Mary Jo Nye’s Michael Polanyi and His Generation is an outstanding window into the life and historical context within which Polanyi would make his scientific contribution and reflections on the nature of the scientific enterprise and its place within a free society.  It also does an amazing job of contextualizing the education of talented young minds in Budapest and Vienna in the first decade of the 20th century, and the vibrant scientific community in Berlin in the 1920s.  Polanyi’s colleagues in Berlin won Nobel Prizes and were leaders in their respective fields, and Polanyi himself was a famous scientists in the field of chemistry and expected that his own work may be honored with such a recognition. When it didn’t happen, he wasn’t bitter, but sought to understand the conventions and practices in operation.  Nye’s book describes how Polanyi, as head of the physical chemistry department at the Kaiser Wilhelm Institute (later Max Planck Institute) in Berlin in the 1920s, attempted to advance his own theories of absorption, but lost out in the competitive process of science.  Polanyi was convinced his was the right theory, but it was not accepted by his colleagues in the discipline.  Polanyi would later explain that a contribution in science is judged by three criteria: plausibility to the existing community; intrinsic interest to the existing community; and creativity and originality of the contribution.  Two of those are very conservative forces, but one is revolutionary. This essential tension in science, Polanyi argued, was critical to the orderly yet progressive advance of knowledge.  Quackery would be held in check, and yet innovation, novelty, and progress will be achieved slowly and surely and knowledge will accumulate.

 

But, in Polanyi’s time, the arrogance, dogma, and ignorance espoused by the fascists was also evident among communists, and so scientific inquiry was truncated not only in Germany but in Soviet Russia. Furthermore, the “men of science” in the UK and the US were parroting the arguments about the purpose of planning in the planned state as the model for scientific advancement.  The very foundation of the scientific enterprise and of the free give-and-take of the scientific community was threatened. The consequence wasn’t just slower progress on fundamental questions, or slightly more quackery on the margins of science, but the destruction of careers, and despair among scientists as knowledge was either destroyed or corrupted by the authorities in power.

 

I cannot stress enough how enjoyable it is to read Nye’s book and learn the details of the history that led Polanyi to switch his focus from scientific pursuits to a philosophical defense of the practice of free scientific inquiry.  The institutions governing the practice of science, like those governing commerce, must be strong and respected by their participants. If they are, the results are both orderly and progressive.  Knowledge advances, and our awareness of the unknown grows, so we strive to continually explore and learn more.  This is how we defeat the dark forces of arrogance, dogma, and ignorance- not through the planning of science, but its opposite, the free play of open debate and continuous contestation. The very success of sciences rests on freedom of inquiry and such freedom is in direct contradiction of any bestowal of special privileges to anyone, including the favored scientists of the established powers.

 

 

 


Peter J. Boettke is University Professor of Economics & Philosophy, George Mason University, Fairfax, VA 22030.


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Beautiful Economics of Indian Medical Care

In the mid-1990s, Shetty began experimenting with a business school concept alternately called upskilling or task-shifting. The idea is for everyone involved in a complex process to work only at the top of his qualification, leaving simpler tasks to lower-paid workers. In a hospital, this might mean that the costliest staff—experienced surgeons—enter the operating theater only to complete the most difficult part of a procedure, leaving everything else to junior doctors or well-trained nurses. Then they move to the next theater to perform the same task again.

 

This is from Ari Alstedter, “The World’s Cheapest Hospital Has to Get Even Cheaper,” Pocket Worthy. (Originally published in Bloomberg Business Week, March 25, 2019.)

Tyler Cowen over at Marginal Revolution published it as a link today. It’s fascinating all the way through. It’s a beautiful study in applied economics. If I were still teaching, I would use it in every course I teach. The above quote is a nice illustration of comparative advantage.

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The start of a new month means new articles at Econlib!

Gina Miller Johnson warns of the Danger of Benevolent Paternalism. Concerned by the increase in calls from her students and from the population as a whole for “The government to do something” almost regardless of what the “something” might be, Miller Johnson observes that this rapidly leads to government overreach. 

In a crisis like a pandemic, these dangers are heightened. “Whatever one’s view of the proper role of government as it relates to public health, another question must be posed: when, if ever, does public health provision as a public good supersede the protection of civil liberties as a fundamental role of the state? The initial wake of the pandemic saw disturbing support for sacrificing civil liberties in the name of public health.’

 

Michael L. Davis asks How Can Economists Help? The question of whether economists help people has been on my mind a lot lately. This is an extraordinary time. People need help and, as Russ [Roberts] likes to remind us, one of Adam Smith’s most important insights is that “man naturally desires not only to be loved but to be lovely.” Most of us genuinely want to help. But we don’t know how to hook up a ventilator, we don’t have the local knowledge necessary to deliver fresh milk to the store and most of us wouldn’t even be very good at stocking the cooler once the milk arrives. Do economists have anything to offer?”

Don’t worry! Davis has nine suggestions for economists who want to use their skills to help out right now.

 

Arnold Kling reviews Mending America’s Political Divide by René H. Levy. The book offers “a neuroscientist’s perspective on the phenomenon of political polarization. Our politics is stimulating our tribal instincts, which lead us to lose empathy with the other side. This lack of empathy has dangerous consequences.” While Kling feels that the book “offers a sound diagnosis of our political ills. It offers a prescription that I wish more people would take to heart” he has some concerns about a lack of balance in Levy’s arguments.

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Even More Valuable than Her Coffee Cake Recipe

I suppose there are people who might be surprised to find themselves getting solid economic analysis from a food blogger. I am not one of them. I’ve actually been waiting for this moment since March.

 

Deb Perelman is one of my favorite food bloggers. Her blog, Smitten Kitchen, details her adventures cooking for her growing family in an impossibly tiny kitchen in New York City. She has a great reputation for funny writing, great photos, and reliable and delicious recipes. (I am NOT kidding about the coffee cake.)

 

But last week, she did something a little different. In the business section of today’s New York Times, Perelman has a great piece titled, “In the Covid-19 Economy, You Can Have a Kid or a Job. You Can’t Have Both.” The article is a testament from a working mom with two young children and a husband who has been laid off, who is trying to hold everything together through the pandemic. And she’s just been told that the coming school year–the promise of which has been a beacon of sanity for parents everywhere–will, in her area, have her children attending physical school one week out of every three.

 

Perelman’s article, which you should read immediately, is not the kind of anguished, inchoate cry we have been led to expect by articles that focus on parental burnout, exhaustion, and stress. Certainly, that frustration is in her article as well. But the article is about the economic costs of her school district’s choice, analyzed by someone who is in the middle of experiencing them. She writes:

my family, as a social and economic unit, cannot operate forever in the framework authorities envision for the fall. There are so many ways that the situation we’ve been thrust into, in which businesses are planning to reopen without any conversation about the repercussions on families with school-age children, is even more untenable for others.

 

As I said, I’ve been waiting for this moment. I have a history of fascination with economic thinking as expressed in non economic works–and particularly with the economic thinking of people who are in the daily grit of working blue collar jobs and doing household work. I think their diaries and letters and interviews and books of advice tell us at least as much about the economic circumstances under which they were written as do articles by economists–probably more. 

 

This is why I spend a lot of time with books like Round About a Pound a Week, All Our Kin, Working, and How to Run Your Home Without Help. All of these works give us direct access to the lived experience of people managing daunting economic circumstances. They let us SEE people thinking economically, rather than leaving us to surmise from a distance.

 

I think Perelman is right about the unsustainable nature of the burdens–financial, educational, social, and psychological–that working parents are being asked to carry right now. I think she is right that New York City’s plan for schoolchildren to have one week on/two weeks off is an absolute disaster. More important than that, though, I think her voice, and the voices of countless other bloggers, diarists, and letter writers like her, are vital economic data that can help us think more clearly about policy now, and will help us have a better understanding of the tribulations of 2020 when it is a matter of economic history. 

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Have a Non-Rivalrous and Non-Excludable 4th!

Sarah Skwire and Steve Horwitz

Here’s what we do every July 4th. First we grill some kind of meat, and then we eat pie. Then we sit on the back porch, and we wait for it to get dark. When we have decided that it’s dark enough, we gather up the kids, the bug spray, and a big beach blanket, and we drive a few subdivisions over to a spot just across from the summer home of the Indianapolis Symphony Orchestra. There, we join a small group of neighbors and plant ourselves outside the gates of the concert shell, where we can listen to Sousa marches and the 1812 Overture and wait for the fireworks to begin.

 

And some people say there’s no such thing as a true public good.

 

The classic economic definition of a public good is a good that is non-rivalrous and non-excludable. This means that no matter how many fireworks and Sousa marches we enjoy, our neighbors can still enjoy just as many along with us. And even though we didn’t buy the tickets the symphony would like us to buy, they can’t keep us from enjoying the show. Compare this to most goods. If I eat an apple it’s unavailable to anyone else, and apple sellers can ensure that people who want to eat apples have to pay for them. True public goods are rare, but fireworks are a great example. That’s why so many economists use them to teach the concept.

 

However, even fireworks have their limits as a public good, especially if we put stress on the word “good.” On July 4th, people want to see and hear fireworks and some are even willing to pay to do so. That they do so tells us that on July 4th, fireworks are an economic good. That’s not always the case. In Indiana, July 4th seems to extend from sometime in late June until sometime around mid-July. Fireworks are a constant sight, and especially sound, for weeks and weeks in the summer.

 

For many people, and even more dogs, this turns the public good of fireworks into a negative externality, or a kind of “public bad”. Kids are trying to sleep, adults want some peace and quiet, and dogs are just trying to stay sane. The same elements that make fireworks a public good on the 4th make them a real problem on other nights. The enjoyment of those who set them off does not make them invisible or inaudible to the rest of us. And no one can restrict the sights and sounds to those who are setting them off. The “publicness” of fireworks becomes a challenge when neighbors don’t want to experience them.

 

One of the central messages of economics is that actions and choices are always contextual. Fireworks serve nicely as an example of a public good, but only on the assumption that the context is one in which people wish to consume them. That won’t likely be true of fireworks every day of the year. 

 

The fireworks are quiet this year, and the symphony won’t be playing. As with a lot of public goods–like Joni Mitchell’s paved over paradise–we don’t know what we’ve got til it’s gone. This year, we’ll sit on the porch until it gets dark, and let the lightning bugs be our fireworks. But next year? We’ll be right back where we were, just outside the gates non-rivalrously enjoying our favorite public good. 

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The Opportunity Costs of J. Alfred Prufock

Steve Horwitz and I have been teaching an online class about economics and literature, pairing core economic concepts with literary works that demonstrate those concepts. This past week, we talked with the students about opportunity cost (see Steve’s thoughts on Buchanan’s Cost and Choice here), using Thomas Grey’s “Ode on the Death of a Favorite Cat, Drowned in a Tub of Goldfishes” and T.S. Eliot’s “Love Song of J. Alfred Prufrock” as our literary texts.

Using poetry, I told the students, helps us think about opportunity costs in ways that travel alongside, but are not the same, as the ways that economists think about them. For economists, the important thing is that a choice is made. In the most reductive version of this, the moment of choice, the moment where opportunity costs are weighed, disappears into something called “revealed preference.” A choice is made. Results follow. The economist moves on. For poets, particularly for Eliot, and particularly in “Prufrock,” the moment of choice, the weighing of opportunity cost, is everything.

 

“The Love Song of J. Alfred Prufrock” is five pages of glorious poetry about the moment when we decide that a choice must be made, but we are caught on the tenterhooks of opportunity cost. The poem begins with the speaker inviting himself and us to walk out into the evening with him as he contemplates a life-altering decision. Although the nature of the decision is never directly stated, most readers agree that he is debating whether or not to ask someone to marry him. He decides not to, and the poem ends. The most reductive economic reading of the poem would be to say “Revealed preference. He never wanted to propose marriage anyway. He obviously got what he wanted, because otherwise he would have chosen something different. End of story.”

Horwitz describes James Buchanan as seeing, not “homo economicus” but “richly understood humans who experience that agony of choice and face uncertainty about the future.” This is certainly true when one contrasts Buchanan to the simple predictive choice economics models. But when one has the expansive playing field poetry offers for thought and exploration, there can be even more to the story than Buchanan gives us.

With “Prufrock,” we are invited to travel “you and I” alongside one particular human as he grapples with one particular decision. While Prufock is absolutely considering opportunity costs, his decision process is no sterile totting up of pros and cons followed by a simple choice of the least costly option. 

There will be time, there will be time

To prepare a face to meet the faces that you meet;

There will be time to murder and create,

And time for all the works and days of hands

That lift and drop a question on your plate;

Time for you and time for me,

And time yet for a hundred indecisions,

And for a hundred visions and revisions,

Before the taking of a toast and tea.

 

Opportunity cost, for Prufrock, means a torturous understanding that choices define who we are. Every choice requires that we remake ourselves and “prepare a face” that goes with whatever choice we make. Choices “murder and create” different selves we might be and different lives we might lead. With all that hanging in the balance, no wonder Prufrock finds time “for a hundred indecisions/ And for a hundred visions and revisions.” 

The unrelenting “should I/shall I” constructions of Eliot’s verse help us feel each of those individual moments that make up this thing we call a “choice.” And for Prufock, the actual choice passes almost unnoticed amidst all this debate. “I have seen the moment of my greatness flicker…in short, I was afraid.”

But while most economists would say “That’s the end of the story. Choice made. Preference revealed, moving on,” and while even Buchanan would say “A choice has been made and that experience will carry forward into Prufrock’s future choices,” Eliot shows us that–despite the fact that a choice has been made–the moment of choice is not over for Prufrock. Prufrock, human that he is, cannot stop thinking about it. Indeed, he still seems to be living in that moment of choice.

The poem’s “should I/ shall I” constructions transform into the phrase “would it have been worth it” as Prufrock returns obsessively to the moment of choice, thinking over what he could have done, might have done, did not do. The choice is made, but Prufrock is still endlessly, obsessively making it. The pain of Eliot’s poem comes not only from his obsessive titivating, but from his final realization that he has trapped himself in a world of unending “decisions and revisions,” growing ever older, but never wiser, and cutting himself off from the wonder and beauty he might have found through other choices.

Economists aren’t wrong to shrink the moment of choice to near invisibility. Poets aren’t wrong to expand it until it is so large it might “disturb the universe.” They are using different sets of tools to explore the same questions. We are wrong to think that using only one set–whichever set it is–gives us the real story. 

 

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