Posts filed under ‘Classical Liberalism’
The Economics of Freedom of Speech
| Nicolai Foss |
Recent, uhhmm, debate here on O&M has made me wonder why we don’t have an economics of freedom of speech. Freedom of speech has been hailed as the fundamental hallmark of free, open societies and a fundamental human right. It is also clear that freedom of speech is under attack, not just by its traditional enemies within various fundamentalist factions of established religions and authoritarian, populist, and socialist/communist regimes, but also by the tendency to turn political disagreements into moral disagreements (in Europe, most prevalent among lefties who just don’t disagree with you but think you are downright evil in case you defend free markets, nuclear power, etc.).
Related to the latter point, increasingly individuals, groups, and nations define certain opinions, political positions, moral judgments, etc. as “hatecrimes.” This position seems increasingly influential in the EU. Proponents of the right to freedom of speech has countered that part of living in a free and open society is that there is simply no right to avoid insults, hurt feelings, and the like. For example, such arguments have been invoked here in Denmark in the aftermath of the Mohammed cartoon crisis, and are currently being leveled against DK legislation regulating blasphemous utterances. However, even the most ardent defenders of freedom of speech draw the line at the explicit verbal promotion of violence against others. And most defenders of freedom of speech would also argue that organizations and associations have the rights to regulate their members’ freedom of speech.
These are clearly externality and property rights issues, and would therefore seem to fall directly within the orbit of economic arguments. And yet, economists have had very little to say about freedom of speech. Specifically, negative or positive externalities are not conventionally seen as including the untraded effects of utterances. One of the few papers that have dealt with these issues, Coase’s “The Market for Goods and the Market for Ideas,” basically argues that if there is a case for regulating the market for goods, there is also a case for regulating the market for ideas (specifically, politicians — which admittedly adds to the attraction of the idea). (more…)
Summary of Dodd-Frank Act
| Peter Klein |
The Dodd-Frank Wall Street Reform and Consumer Protection Act — I’ll refrain from snarks about the title — was signed into law today by President Obama. Here is a very useful summary by William Sweet of the Act’s contents and likely consequences. In a nutshell: “The Dodd-Frank Act effects a profound increase in regulation of the financial services industry. The Act gives U.S. governmental authorities more funding, more information and more power. In broad and significant areas, the Act endows regulators with wholly discretionary authority to write and interpret new rules.” Aren’t you shocked that it passed?
Update: Larry Ribstein is not happy. Weil Gotshal provides further details.
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Hayek Interviews
| Peter Klein |
In 1983 the Earhart Foundation sponsored a lengthy set of interviews with F. A. Hayek in Los Angeles. The transcripts have long been available (and form the basis of the interview parts of Hayek on Hayek), but the complete set of videos has just now been put online, courtesy of the Universidad Francisco Marroquín. The interviewers are an impressive lot as well: James Buchanan, Armen Alchian, Axel Leijonhufvud, Robert Bork, Tom Hazlett, Jack High, Bob Chitester, Leo Rosten, and Earlene Craver. (I hardly recognized the youthful Hazlett!) You can also get the transcripts, if you prefer plain text.
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Quote of the Day, Free Trade and Peace Edition
| Peter Klein |
Go into the London Stock Exchange — a more respectable place than many a court — and you will see representatives of all nations gathered there for the service of mankind. There the Jew, the Mohammedan, and the Christian deal with each other as if they were of the same religion, and give the name of the infidel only to those who go bankrupt. There the Presbyterian trusts the Anabaptist, and the Anglican accepts the Quaker’s promise. . . . If there were just one religion in England, despotism would threaten; if there were two religions, they would cut each other’s throats; but there are thirty religions, and they live together peacefully and happily.
—Voltaire (Letters on England, Letter 6)
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Business Ethics Symposium in Reason Papers
| Peter Klein |
From Reason Papers 31 (Fall 2009):
Articles: Business Ethics Symposium
- Rival Paradigms in Business Ethics —Nicholas Capaldi
- The Need for Realism in Business Ethics —Elaine Sternberg
- The Virtue of Prudence as the Moral Basis of Commerce —Tibor R. Machan
- Hume and Smith on the Moral Psychology of Market Relations, Practical Wisdom, and the Liberal Political Order —Jonathan Jacobs
- Ethics without Profits —Douglas Den Uyl
- Is a Market for Values a Value in Markets? —Alexei Marcoux
- The Sloppiness of Business Ethics —Marianne Jennings
- The Business Ethics of Incarceration: The Moral Implications of Treating Prisons Like Businesses —Daniel D’Amico & Joseph Butt
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Melnyk on Flew
| Peter Klein |
My Missouri colleague Andrew Melnyk penned this nice appreciation of Antony Flew, who passed away 8 April 2010. Flew “was for several decades a heroic defender of classically liberal political philosophy and indeed by far the best known professional philosopher in Britain over that period to champion classical liberalism.” As Andrew notes, “in challenging the spirit of the age as sharply and as unapologetically as he did, he was, and must have known that he was, irreparably damaging his reputation among his overwhelmingly left-leaning professional peers.”
Here are remarks on Flew’s political philosophy from David Gordon, David Conway, and Sean Gabb. Here’s a biographical sketch written for Flew’s 2001 Schlaurbaum Prize, and here’s the acceptance speech.
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Rothbard, Friedman on Health Care
| Peter Klein |
Murray Rothbard and Milton Friedman are no longer with us, unfortunately, but their opinions live on. Lew Rockwell is running a 1994 piece by Rothbard on what was then called Hillarycare, while the Saturday WSJ reprinted a 1996 essay by Friedman on “Soviet-Style Health Care.” My favorite excerpts:
Rothbard on “universal access”:
[T]here is one simple entity, in any sort of free society, that provides “universal access” to every conceivable good or service, and not just to health or education or food. That entity is not a voucher or a Clintonian ID card; it’s called a “dollar.” Dollars not only provide universal access to all goods and services, they provide it to each dollar-holder for each product only to the extent that the dollar-holder desires.
Friedman, quoting a a physician character in Solzhenitsyn’s 1967 novel The Cancer Ward, on Soviet-style “free” health care:
What do you mean by “free”? The doctors don’t work without pay. It’s just that the patient doesn’t pay them, they’re paid out of the public budget. The public budget comes from these same patients. Treatment isn’t free, it’s just depersonalized. If the cost of it were left with the patient, he’d turn the ten rubles over and over in his hands. But when he really needed help he’d come to the doctor five times over. . . .
Is it better the way it is now? You’d pay anything for careful and sympathetic attention from the doctor, but everywhere there’s a schedule, a quota the doctors have to meet; next! . . . And what do patients come for? For a certificate to be absent from work, for sick leave, for certification for invalids’ pensions: and the doctor’s job is to catch the frauds. Doctor and patient as enemies — is that medicine?
Mannepalooza at Austrian Scholars Conference
| Peter Klein |
Tune in here at 3:45 EST today for a live broadcast of the ASC session, “The Contributions of Henry G. Manne,” organized by yours truly. Panelists include me, Alexandre Padilla, Richard Vedder, Thomas DiLorenzo, and Henry Manne. And buy your copy of the Collected Works.
Update: audio files are now available: Klein, Padilla, Vedder, DiLorenzo, Manne.
Mises Quote of the Day
| Peter Klein |
Nothing can be known about such matters as inflation, economic crises, unemployment, unionism, protectionism, taxation, economic controls, and all similar issues, that does not involve and presuppose economic analysis. All the arguments advanced in favor of or against the market economy and its opposites, interventionism or socialism (communism), are of an economic character. A man who talks about these problems without having acquainted himself with the fundamental ideas of economic theory is simply a babbler who repeats parrotlike what he has picked up incidentally from other fellows who are not better informed than he himself.
This is from Mises’s introduction to the 1959 edition of Böhm-Bawerk’s massive 3-volume set, Capital and Interest. Mises gives some further admonitions: “A man not perfectly familiar with all the ideas advanced in these three volumes has no claim whatever to the appellation of an economist.” This is, shall we say, a minority view. And my personal favorite: “A citizen who casts his ballot without having studied to the best of his abilities as much economics as he can fails in his civic duties. He neglects using in the appropriate way the power that his citizenship has conferred upon him in giving him the right to vote.”
Those lacking time to study Capital and Interest in its entirety may enjoy this new edition of Böhm-Bawerk’s essay “Control or Economic Law,” which is more easily digested.
I, Taco
| Peter Klein |
Some California design students tracked the ingredients in their favorite local taco and came up with this cool image.
Of course, it’s supposed to show us the horror of all those food miles, but what I see is the miracle of the market.
Comparative Institutional Analysis and the New Paternalism
| Peter Klein |
Comparative institutional analysis — defined as the assessment of feasible organizational or policy alternatives — is at the heart of the new institutional economics. Most economists and management scholars recognize, at least implicitly, that individuals and organizations don’t think, act, and choose with reference to some kind of global optimum, but are always evaluating trade-offs among imperfect alternatives. Yet, when it comes to public policy, even trained economists and strategy scholars easily lapse into Nirvana mode. Recent examples discussed her at O&M include the debate over Fed independence, the role of financial regulators more generally, and the “soft” or “libertarian” paternalism favored by Obama’s man Cass Sunstein, among others.
The new paternalism literature suggests that private actors suffer from biases and cognitive limitations such as lack of willpower or self-control, status quo bias, optimism bias, and susceptibility to framing effects leading them to make decisions that are inconsistent with their own preferences. By making marginal changes to the options available to market participants (“nudges”), the private benefits and costs of various actions, and the informational environment in which choices are made, market participants can be led to make “better” choices without reliance on heavy-handed, top-down regulation. The problem, of course, is that this literature virtually ignores the cognitive and behavioral limitations affecting policymakers. Incentive problems are an obvious example, along with the “slippery-slope” problem: the vulnerability of new paternalist proposals “to slippery slopes that can lead from modest paternalism to more extensive paternalism” (Rizzo and Whitman, 2009, p. 667).
Mario Rizzo and Glen Whitman’s have written an excellent set of papers on the new paternalism, the latest of which focuses on the knowledge problem, and how dispersed, tacit knowledge about preferences and constraints limits policymakers’ ability to plan paternalist policies that actually make people better off. The paper is here, and Mario blogs about it here. Highly recommended!
The Capitalist Kibbutz
| Peter Klein|
That’s how the Financial Times headlines this fascinating story about the transformation of many Israeli kibbutzim into partially privatized, profit-seeking, professionally managed entities that act in capital, product, and factor markets just like private firms. There are some similarities with the end of the socialist experiment in Russia: “‘The kibbutz was never isolated from society,’ says Shlomo Getz, the director of the Institute for Research of the Kibbutz at Haifa University. ‘There was a change in values in Israel, and a change in the standard of living. Many kibbutzniks now wanted to have the same things as their friends outside the kibbutz.”
The bottom line, from economist and former kibbutznik Omer Moav: “People respond to incentives. We are happy to work hard for our own quality of life, we like our independence. It is all about human nature — and a socialist system like the kibbutz does not fit human nature.” (Via BK Marcus.)
Happy Schumpeter Day
| Peter Klein |
Today’s the birthday of Joesph A. Schumpeter, one of the great theorists — and one of the great characters — in the history of economics. To celebrate, how about remembering some of the classic Schumpeter quotes:
“[Competitive] behavior . . . is the result of a piece of past history and . . . as an attempt by those firms to keep on their feet, on ground that is slipping away from under them.”
“The process of Creative Destruction is the essential fact about capitalism … it is not [price] competition which counts but the competition from . . . new technology . . . competition which strikes not at the margins of profits . . . of existing firms but at their foundations and their very lives.”
“Intellectuals are people who wield the power of the spoken and written word, and one of the touches that distinguishes them from other people who do the same is the absence of direct responsibility for practical affairs . . . .The critical attitude [arises] no less from the intellectual’s situation as an onlooker — in most cases, also an outsider — than from the fact that his main chance of asserting himself lies in his actual or potential nuisance value.”
“[C]apitalism, while economically stable, creates a mentality and a style of life incompatible with its own fundamental conditions. [It] will be changed, although not by economic necessity and probably even at some sacrifice of economic welfare, into an order of things which it will be merely a matter of taste and terminology to call Socialism or not.”
Update: Walter Grinder reminds me that it’s also Julian Simon’s birthday. Here’s a nice tribute from Steven Moore.
Brad’s Bloviations, Part #2,235
| Peter Klein |
Brad DeLong accuses non-Keynesians (Austrians, Chicagoites, and other sensible people) of “los[ing] themselves amidst their early-nineteenth century books, one hundred and seventy years behind the state of the art in economics,” just because they think public spending and deficits might be crowding out private-market activity, making it difficult — impossible, actually — to come up with meaningful estimates of “jobs saved” by stimulus spending. If you can get past Brad’s adolescent writing style (anyone citing Bastiat, for example, is “a truly clueless idiot”), you find that he is indeed very “progressive” in his thinking — he’s made it all the way to 1950. Brad, like most Keynesians, is stuck in the C + I + G world of undergraduate macro. His argument is that the stimulus can’t be crowding out private-sector jobs because (a) wages aren’t rising (implying that stimulus-funded workers aren’t being bid away from other potential opportunities) and (b) T-bill prices aren’t falling (suggesting that private employers aren’t competing with the Feds for credit).
Leave aside for the moment that Brad has no idea what wages and bond prices would be in the absence of stimulus. The key problem with Brad’s argument, noted by Russ Roberts, is its reliance on crude macroeconomic aggregates. As pointed out here many times, heterogeneity matters. Sensible economists care not about the aggregate unemployment rate, but the effect of stimulus activity on individual labor markets. Stimulus affects the composition of employment, not just its level. (more…)
Stuck on the Methodological Hamster Wheel
| Craig Pirrong |
I’ve read John Cassidy’s New Yorker article (not available online) in which he described his journey to the freshwater provinces in his attempt to see whether the financial crisis had caused Chicago economists to reject their reactionary views. (With one exception, the answer is blessedly “no.”) I’ve also read his paean to Pigou in the WSJ. So I pretty much knew what to expect when I picked up his How Markets Fail. Let’s say I wasn’t disappointed, in the sense that my very low expectations were met.
The book is a very conventional, Stiglitz-esque critique of market economics and those who defend markets. The latter are always described with Homer-esque modifiers, just so you’ll know that they [we!] are retrograde knuckle draggers. (more…)
Interview with a Randian CEO
| Peter Klein |
Today is Ayn Rand’s birthday, so in her honor we direct you to the December 2009 issue of Academy of Management Learning and Executive, which features an interview with BB&T Bank CEO John Allison, a follower of Rand. Access appears to be restricted to AoM members (manuscript version here, published version here). Sample:
After I went to work I began to read philosophy, in search for the answers to the big questions of life. I became interested in what I consider to be the great reason/reality based philosophers — Aristotle, Thomas Aquinas, John Locke, Thomas Jefferson and Ayn Rand.
That philosophical background combined with my own observations, which I call my inductions from life, together with my family upbringing, formed my philosophical framework as a young adult and executive. In 1993 or 1994 I read Objectivism: The Philosophy of Ayn Rand by Leonard Peikoff. This book really integrated everything for me. It enabled me to focus my thinking. By this time, I had been CEO of BB&T for a few years and we were in the midst of a merger of equals. It was very important that we have a clearly defined value system. Two large organizations with cultures that had some differences had to come together with a single value system. Peikoff’s book put everything together for me. We had some of the basics of a value system — honesty, integrity, traditional conservative business values, but we also held a number of contradictions. What Rand’s philosophy did for me was to provide a framework for how to integrate all the disparate pieces. I could see everything in a different way than I had seen before. Rand’s philosophy provided an ordering. It also clarified concepts. For example, people often mix up justice with mercy. From Rand I learned that justice requires that you reward those who contribute the most with the most, which implied that paternalism is unjust; failing to deal with non-performance is unjust. Also, rationality is the foundation for values, and rationality can not be compromised.
NB: BB&T has funded a number of professorships in the last few years.
Paging John Stuart Mill
| Dick Langlois |
I have been amused by the firestorm of outrage in the press over the Supreme Court’s recent mild affirmation of the free-speech rights of corporations. As many readers of this blog will probably appreciate, the point of a right to free speech is that it must apply even to speech, and to speakers, we don’t like. Many if not most angry commentators, like the writers of the Times editorial on the subject, don’t even bother to worry about the nature of rights. To the Times and many others, constitutional jurisprudence is a purely consequentialist exercise no different from legislation (which, sadly, may be often be true in practice). But other writers and organizations aghast at the Court’s decision have a thorny problem of argument, to the extent that they have themselves invoked the First Amendment in an effort to protect speech of which they approve (or, more generally, to protect specific sub-spheres of discourse in which they themselves participate). A case in point is People for the American Way, which has called for a constitutional amendment to outlaw corporate political speech (via William Saletan). “People For the American Way,” they write, “has been at the forefront of defense of free speech and the First Amendment for almost 30 years. We continue in that role today.” In order to square the circle, PFAM and like-minded pundits and Justices have to find a way to define corporate speech as not speech. The answer? Spending is not speech and corporations aren’t people. So: does this mean that it would be OK under this logic for the government, say, to decree that the New York Times must limit its editorial budget — limiting dollars not ideas, after all — because the Times is a corporation not an individual? Why should this logic not apply to the other Amendments as well? The Times should flat-out not have freedom of the press because it is a corporation; and the Roman Catholic Church should certainly not have freedom of religion.
My favorite line, from Justice Stevens (in dissent): “The Court’s blinkered and aphoristic approach to the First Amendment may well promote corporate power at the cost of the individual and collective self-expression the Amendment was meant to serve.” So freedom of speech is really a neoclassical or Benthamite exercise in which we aren’t trying to protect individual (let alone corporate) speech but are instead trying to maximize the total amount of self-expression in society.
In its recent obituary of Erich Segal, the Times cites the following cringe-inducing line, spoken by college-student protagonist Oliver Barrett IV, as a measure of the literary caliber of Segal’s novel Love Story: “Jenny, for Christ’s sake, how can I read John Stuart Mill when every single second I’m dying to make love to you?” This suggests that many a Justice, editorial writer, and pundit must have fallen prey to similar distractions in college. They certainly failed to read John Stuart Mill.
Endogenous Indoctrination
| Dick Langlois |
I have been wanting for some time to write about an interesting paper by Gilles St. Paul called “Endogenous Indoctrination.” (I wasn’t familiar with his work, but he seems to do interesting things, including this.) Here’s the abstract:
Much of the political economy analysis of reform focuses on the conflict of interest between groups that stand to gain or lose from the competing policy proposals. In reality, there is also a lot of disagreement about the working of the policy: in addition to conflicting interests, conflicting views play an important role. Those views are shaped in part by an educational bureaucracy. It is documented that the beliefs of that bureaucracy differ substantially from those of the broader constituency. I analyse a model where this effect originates in the self-selection of workers in the educational occupation, and is partly reinforced by the insulation of the educational profession from the real economy (an effect which had been discussed by Hayek). The bias makes it harder for the population to learn the true parameters of the economy if these are favourable to the market economy. Two parameters that govern this capacity to learn are social entropy and heritability. Social entropy defines how predictable one’s occupation is as a function of one’s beliefs. Heritability is the weight of the family’s beliefs in the determination of the priors of a new generation. Both heritability and social entropy reduce the bias and makes it easier to learn that the market economy is “good,” under the assumption that it is. Finally I argue that the capacity to learn from experience is itself affected by economic institutions. A society which does not trust markets is more likely to favour labour market rigidities that in turn reduces the exposure of individuals to the market economy, and thus their ability to learn from experience. This in turn reinforces the weight of the educational system in the formation of beliefs, thus validating the initial presumption against the market economy. This sustains an equilibrium where beliefs and institutions reinforce each other in slowing or preventing people from learning the correct underlying parameters.
I was catalyzed to write today because of a related article I recently saw in the Times, which enthuses giddily about a paper called “Why Are Professors Liberal?” by two sociologists called Fosse [N. B. not Foss] and Gross. The Times lauds the paper for its sophistication and use of the quantitative. (more…)
Josh Lerner on Public Policy Toward Entrepreneurship
| Peter Klein |
Speaking of public entrepreneurship, here’s an interview with Josh Lerner about his new book Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed — and What to Do About It (Princeton, 2009). Excerpt:
There are two well-documented problems that can derail government programs to boost new venture activity. First, they can simply get it wrong: allocating funds and support in an inept or, even worse, a counterproductive manner. Decisions that seem plausible within the halls of a legislative body or a government bureaucracy can be wildly at odds with what entrepreneurs and their backers really need. . . .
Economists have also focused on a second problem, delineated in the theory of regulatory capture. These writings suggest that private and public sector entities will organize to capture direct and indirect subsidies that the public sector hands out. For instance, programs geared toward boosting nascent entrepreneurs may instead end up boosting cronies of the nation’s rulers or legislators. The annals of government venturing programs abound with examples of efforts that have been hijacked in such a manner.
Thanks to Ross Emmett for the tip.
Recession and Recovery: Six Fundamental Errors of the Current Orthodoxy
| Peter Klein |
A very good summary by Bob Higgs of “vulgar Keynesianism,” defined by Bob as the “pseudointellectual mishmash . . . that has passed for economic wisdom in this country for more than fifty years.” The key feature of VK is an emphasis on crude aggregates (“national income,” “the employment rate,” “the interest rate,” etc.) at the expense of relative prices, firm and industry effects, and cause and effect. Echoing one of this blog’s favorite themes, Bob highlights the VK economist’s inability to grasp the concept of capital structure, “the fine-grained patterns of specialization and interrelation among the countless specific forms of capital goods in which past saving and investment have become embodied. In [the VK] framework of analysis, it matters not whether firms invest in new telephones or new hydroelectric dams: capital is capital is capital.”
Update: See also David Henderson on aggregation.
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