Mathematical Economics vs. “Literary” Economics?

Originally posted on mises.ca July 28, 2014

Famed Chicago economist John Cochrane gives a report from a recent meeting at the National Bureau of Economic Research (NBER, the US government institution which is tasked with determining whether or not the economy is in a recession, and where Ludwig von Mises was first employed upon moving to the United States). He reports that a recurring theme throughout the discussions was about “just how we do economics”. Certainly a topical conversation. Unfortunately, just how Professor Cochrane frames the discussion proves that gross methodological misunderstandings are still pervasive in the profession.

Firstly, Cochrane frames the methodological debate as “math vs. literature”. While the current orthodoxy in economics is to have quantifiable theories that can be “proved” or falsified by empirical evidence, and though there may be some who hold that the proper way to ascertain economic truths is through “imaginative and creative writing, especially recognized artistic value”, this dichotomy is not comprehensive of the Austrian view.

The Austrian methodological position is that economics should proceed logically from realistic foundations. Continue reading “Mathematical Economics vs. “Literary” Economics?”

Al-Jazeera Interviews Me on the Basic Income

Al-Jazeera English found my article on the basic income interesting enough to invite me on their show for a panel discussion on the subject.

I’ve got to be honest, I’m not very happy with my performance in this interview. I let myself get pigeonholed into defending how the basic income would result in people working less, when I had about six or seven other arguments to make as well. I’ll chalk this one up to inexperience.

Live and learn.

Noahgreement on similarities between Austrians and New Classicals

Originally posted on mises.ca February 7, 2014

I’ve got a confession to make: my favourite economics blog name is Noah Smith’s “Noahpinion”. It’s a really great blog name.

With the niceties out of the way, let’s address Smith’s latest screed: “How the New Classicals drank the Austrians’ milkshake”. In it, Smith tries to make the case that the reason that the Austrian school is “dead” as a serious scholarship program isn’t because the Austrians have too many different ideas from the “New Classical” mainstream, but rather because all the best Austrian ideas have been incorporated into the New Classical tradition.

Smith does this using cutting edge blogging techniques: a list. First he lists three similarities between central Austrian and New Classical claims, and then lists two “big differences”. Let’s see what Smith gets right, and wrong, in his comparative analysis of Austrian and New Classical economics.

Smith Claim #1: “Rational Expectations” is a refinement of the Action Axiom

Smith starts out his characterization of the Austrian school by quoting Mises from Human Action, which is good. He goes on to describe Mises’ writing as “pre-WW2 European literary style”, which is somewhat funny, given that Human Action was written after the Second World War, and in the United States. But I get what he’s saying.

Let’s reproduce the Mises quote here: Continue reading “Noahgreement on similarities between Austrians and New Classicals”

The Ultimate Microfoundation: Human Action

Originally posted on mises.ca on January 25, 2014

Much fuss is made in macroeconomic circles over so-called “microfoundations”: microeconomic justifications for macroeconomic models, as opposed to macro models that make ad hoc assumptions about utility, preferences, and price setting. People like to bring up the “Calvo pricing model”, where (supposedly) a magical fairy selects a firm at random to change its price, as both an example of a solid microfoundation and a brazenly nonsensical one.

Of course, when the even foundations of mainstream microeconomics are shaky at best—assuming such silly things such as perfect competition, farmers who solve calculus equations, perfect information, infinitely lived households, and infinitely divisible tractors—many macroeconomists are rightly skeptical of blanket calls by microeconomists to cite their papers and books when macro guys are constructing a new model for inflation targeting or growth modeling. Some have even gone to deny any strong linkages between microeconomics and macroeconomics.

Ludwig von Mises acknowledged this debate and made a veiled attempt to solve it over a century ago in his first treatise, The Theory of Money and Credit (TMAC); and then made a more explicitly argument in his magnum opus, Human Action (HA). Continue reading “The Ultimate Microfoundation: Human Action”

Against “The Libertarian Case for a Basic Income”

Originally posted on mises.ca on December 6, 2013

Matt Zwolinski, of Bleeding Heart Libertarians fame, has a new post on Libertarianism.org in which he attempts to defend a so-called “Basic Income Guarantee”, whereby the government pays everyone (or a very large portion of people) a minimum amount of money regardless of employment or any other status, using libertarian principles.

I believe he failed in his endeavour.

Zwolinski’s first defence: A Basic Income Guarantee would be much better than the current welfare state.

This has a simple response: Why should the federal government be taking money by force from anyone, for any reason at all? There are many economic costs associated whenever the government purloins the public, of course; but there are also moral issues involved with theft. Just because a BIG may be less paternalistic and condescending to the poor than the current welfare paradigm, as Zwolinski suggests, does not mean that it just and ethical to do in the first place. Zwolinski provides no defense of why the state has either the right or the obligation to take from some to give to others.

Zwolinski’s second defence: A Basic Income Guarantee might be required on libertarian grounds as reparation for past injustice. Continue reading “Against “The Libertarian Case for a Basic Income””

The 2013 Economics Nobel Winners in their Own Words

Originally posted on mises.ca on October 17, 2013

It’s that time of year again: when Austriansspontaneously organize to collectively commit to disparaging the work and reputations of highly esteemed professional economists. For a sampling of what others have had to say, see here and here. This is my humble contribution to this storied tradition.

The Committee of the Swedish Riksbank Prize in Economic Sciences in Memory of Alfred Nobel decided this year to honour the works of three American economists: Robert Shiller of Yale, Eugene Fama of Chicago and Lars Peter Hansen of Chicago. All three are very well respected in the mainstream of the profession. And while there are many places that have summarized their contributions and beliefs, I present them here in their own words. (With my own quirky interpretation in parantheses.)

Here is Robert Shiller on the source of unemployment:

“Unemployment is a product of capitalism: people who are no longer needed are simply made redundant. On the traditional family farm, there was no unemployment.”

Continue reading “The 2013 Economics Nobel Winners in their Own Words”

Against “A Capitalist Case for Health Reform”

Originally posted at mises.ca on September 25, 2013

Recently, John Green—one half of the Youtube duo “vlogbrothers”, along with his brother Hank—has embarked on a video series discussing health care reform in the United States in light of the dawning of the Obamacare era. The most recent instalment is titled “Bigger Pizza: A Capitalist Case for Health Care Reform”. Watch the video here:

Unfortunately, the only capitalist case to be found for health care reform is in the title of the video only.

The video starts off well enough with a general defense of capitalism, which led up to the cheeky line that “Free markets create free pizza” (although he made a couple of unnecessary caveats, namely that innovation usually comes at the expense of the increased destruction of the environment, but that’s another issue for another time), because if we imagine the wealth of society as a large pizza, free markets—through constant and unbridled innovation—increase wealth, and therefore increase the size of the pizza. John then says “the only way to get that free pizza is to make the world safe for innovation and competition.” This is very true. He follows this up with “Our current health care system sucks for facilitating this.” This is also very true. However, from this true point he dives into the unfortunate depths of absurdities. Continue reading “Against “A Capitalist Case for Health Reform””

Cleaning up after Robert Wenzel’s Drive-by against IP

Originally posted at mises.ca on February 28, 2013

The following is adapted from a recent presentation at a Mises Toronto Pub night.

Let me start off by saying I have a lot respect for Robert Wenzel.

Robert Wenzel is the editor and publisher of EconomicPolicyJournal.com, a very popular–and very Austro-libertarian–finance and economics blog. Mr. Wenzel hosts “Morning Coffee with Murray Rothbard”, and his posts are littered with quotes from Mises, Hayek, Rothbard, and many others. He seems to always have a great quote from a great thinker ready. He is also a very interesting person. He is full of stories, from fending off muggers, to picking up women, and making $100,000 with drunken homeless bums.

Wenzel is a ruthless defender of Austrian and libertarian ideals. He has viciously (and correctly, in my opinion) attacked prominent figures many consider to be libertarian, on the grounds of them holding decisively unlibertarian, or even anti-libertarian ideas. Some people he has attacked on these grounds include Megan McArdle, Gary Johnson, Bruce Bartlett, Tyler Cowen, and Rand Paul. Many criticize him for it, but I believe it necessary to distinguish between libertarian and non-libertarian ideas, so when those who are new to libertarianism hear new ideas, they can better distinguish between libertarian and non-libertarian values. He has also compiled the very useful 30 day reading list on becoming knowledgeable libertarian. Continue reading “Cleaning up after Robert Wenzel’s Drive-by against IP”

In Defence of Rodney Bowers

Originally posted on mises.ca on January 29, 2013

On page 4 of last Monday’s Metro Toronto, journalist Jessica Smith detailed the heroic actions of Toronto chef and restaurateur Rodney Bowers, as he joined Vancouver chef and restaurateur Mark Brand’s effort to address poverty in his community.

The Brand-Bowers plan to address this great social ill is simple: They sell tokens for $2.25 at their restaurants, which can be exchanged for a free sandwich. The people who buy these tokens then give them away to those in need. The reason Bowers is bringing this program to Toronto is because of its immense success in Vancouver: according to Brand, he’s redeeming 120 tokens a day.

But no good deed goes unpunished. Apparently, other activists have spoken out against this program as “demeaning” and–horror of all horrors–doing the government’s job.

One such critic is York University’s Ilan Kapoor, who is a professor of critical development studies (which involves critiquing economic development from post-Marxist, feminist, etc. perspectives). He brushes off Bowers and Brand as providing merely “a Band-Aid kind of solution, because it doesn’t address the broader problems of hunger and, larger than that, joblessness and inequality.” He says the problem with private charity is it allows “private individuals–celebrity chefs in this case–to decide (how to feed people in need) and we as the audience who buy these meal tickets should not be making decisions on who we want to give them to based on our whims and fancies.” He offers as his solution “a state-funded, fair system of distribution.”

The problems with Kapoor’s criticisms are two fold. First is his dismissal of Band-Aid solutions seemingly in general. But Band-Aids still serve an important function. Bowers easily dismisses Kapoor here. “Some critics are going to say it’s dehumanizing or degrading; but what’s dehumanizing and degrading is that those people are still hungry.”

Second, Kapoor commits the fallacy of ascribing action to a collective. Put simply, only individuals act. If a group of people were to stand naked before you, you could not, merely by looking, assert that you were looking at the Ontario Legislative Assembly, or the Toronto City Council, or just group of strangers with no connection to each other. We can only ascribe identity to collectives once we understand what the individuals that make up collectives themselves understand about their condition.

So when Kapoor says he is in favour of “a state-funded, fair system of distribution” as opposed to private individuals distributing their money how they please, he is fact favouring a system where arbitrarily chosen individuals (the state) decide how to spend other people’s money. What he is saying is that arbitrarily chosen individuals can somehow avoid the follies and weaknesses of everyone else, and will not succumb to the twin demons of “whim and fancy”.

Recently deceased Nobel Laureate James Buchanan spent his entire career demonstrating that just because you are an arbitrarily chosen manager of other people’s money, does not mean that your heart becomes hardened with indifference. It does not mean you become immune to persuasion. And surely you do not suddenly become a nonemotive, friendless, dispassionate, calculating robotic bureaucrat concerned only with the attainment of the elusive “greater good”.

Politicians are people before entering office, and remain human beings while they are in office. They build relationships and owe debts of gratitude, like the rest of us. They also, like the rest of us, try to help out their friends whenever they can. They make a lot “friends” when they’re in office, too.

The only difference between us and them is that, unlike private people, every bit of help a politician offers a friend through the state is at the expense of every single other member of the community.

And because the state has vastly more resources at its disposal than any private entity, politicians are actually more susceptible to be bribed, co-opted, blackmailed, and tempted & tantalized with promises of great riches and glory in order to game the system to advantage of themselves and their “friends”.

Private charity should be embraced with open arms, precisely for the reasons that Professor Kapoor decries it so. It is precisely because private charities allow individuals to determine for themselves how to help others, that makes private charity more judicious, economical, creative, and just a little bit more human.