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”” →

Prices, Price Ceilings, and Subsidies

Originally posted at mises.ca on May 3, 2011

There’s an old saying that if you lay all the economists in the world in a straight line, you still wouldn’t reach a conclusion. That is very true on many matters economic, but there are a few instances where universal agreement exists. Two of those instances are the effects of price ceilings and subsidies. However, many economists still deny that specific price ceiling and subsidies will be harmful, because… well they never really say. Sometimes they point to an empirical study for “proof”, but for every empirical study proving one thing, there is another one that proves the exact opposite. So we must rely upon theoretical and analytical tools, to obtain logical answers to difficult and intertwined phenomena. Here we’ll examine the role of prices in the economy, and how their manipulation never has the effect intended. Continue reading “Prices, Price Ceilings, and Subsidies” →