Could Sarah Palin Be Right?!

by Mario Rizzo  

In an editorial the Wall Street Journal criticizes Sarah Palin for criticizing Michelle Obama’s anti-obesity campaign. The point seems to be that such talk from the Ms. Bully Pulpit is innocuous or benign. The writer makes an analogy with Nancy Reagan’s “Just Say No” anti-drug campaign. 

Now if Michelle Obama were just a Chicago-based community activist who was organizing a nation-wide propaganda campaign to urge people to eat healthily I would have no objection.  

Happy Birthday Ronald Coase

Ronald Coase is 100 years old today

by Mario Rizzo

There are few economists who are as important to the development of economics as Ronald Coase. It is important that young economists who, in their now almost-universally inadequate education, take the time to familiarize themselves with his contributions. This is best done directly through his own well-written articles rather than through the literature about him. It is perhaps unfortunate that George Stigler labeled Coase’s analysis in “The Problem of Social Cost” a theorem — the Coase Theorem. This has given rise to all manner of misunderstandings, including the incredibly ignorant remark I once heard from a graduate student, mocking the theorem-status of the analysis. That was some years ago. Today most students at the top economics have never been exposed to Coase’s work.

I look at Coase’s work on property rights as establishing an analytical framework rather than a set of policy conclusions. I believe that a new, exciting area of application of Coase’s perspective lies in the study of what some economists are calling internalities. An internality is a cost (or benefit) that a individual imposes on his future selves as as side-effect of activity today. Thus, for example, I may eat potato chips today getting pleasure but then impose some health cost on my future self. Some economists have proposed an internality tax to “correct” the situation. In a previous post I analyze this issue and present some references, including a great piece by Glen Whitman.

I wish Ronald Coase a happy birthday and thank him for making economics a better discipline.

(HT: David Boaz)

Ludwig von Mises and His Grand Tautology

by Mario Rizzo

There is a tradition of thought in economics that views the rationality of individual actions as non-falsifiable. There are variations in how this tradition might be justified. These do not concern us to any significant degree here.  For concreteness I shall examine the position of Ludwig von Mises (excerpted below) because of the purity and clarity of his argument.  

Economists want to abstract from any particular theory of human motivation. In particular, in the early years of the twentieth century, they were keen to distinguish between the subjective theory of value and hedonistic (pleasure-pain) theories associated with Bentham and later W.S. Jevons and F. Y. Edgeworth. So they wanted to say that people choose according to whatever standard they might consider important or on whatever deep basis psychologists might discover. This is not the concern of economists (or so Mises and others argued).

Therefore, when economists speak of people seeking to increase their well-being they mean that they do so in terms of whatever they consider important – pleasure, moral values, long-term interests, short-term fancy, and so forth. Economists also did not want to take a position on how carefully individuals choose what goals they want to attain. Thus, an individual increases his well-being, as he sees it, when he drinks away his paycheck as when he spends it on supporting his family.  

Predictably Rational: A Brilliant Book by Richard B. McKenzie

by Mario Rizzo 

This is the time of the year that various publications recommend Christmas books or the best books of 2010. (I have never known what a Christmas — or summer – book is. Are they supposed to be light reading? I don’t believe in reading “light.” When I am in the mood for that, I watch TV.)  In any event, I have a serious book to recommend.

Every so often a brilliant book comes out on a topic of great academic importance that is in danger of not getting the attention it deserves. I am thinking about Predictably Rational: In Search of Defenses for Rational Behavior in Economics by Richard B. McKenzie.

What is Truth in Science?

by Jerry O’Driscoll

In the “Annals of Science,” Jonah Lehrer asks “is there something wrong with the scientific method?” He poses the question in an article entitled “The Truth Wears Off” in the December 13, 2010 issue of The New Yorker (pp. 52-57). The problem is that across disciplines “claims that have been enshrined in textbooks are suddenly unprovable.”

It is a problem of being unable to reproduce results in subsequent experiments.  Even scientists who perform the original experiment cannot reproduce their own results.  The pattern is that, over time, results become less strong or even disappear.

Kirznerian Baseball

by Gene Callahan

The Mets recently hired Paul DePodesta, one of the key developer’s of the “Moneyball” approach to finding and hiring baseball talent in Oakland. DePodesta describes what Moneyball really is here:

DePodesta, who left Oakland to serve as the Los Angeles Dodgers’ general manager for two seasons before becoming an executive with the San Diego Padres, said that Lewis’s 2003 book — which remains a bible for statistics-minded fans — was a caricature. Statistics are important, he said, but the Moneyball philosophy is more an approach to evaluating talent, not a constrictive road map.

“In my mind, Moneyball really has absolutely nothing to do with on-base percentage; for that matter, it doesn’t really have anything to do with statistics,” he said Tuesday on a conference call with reporters. “Rather, Moneyball is really about a constant investigation of stagnant systems to see if you can find value where it isn’t readily apparent.”

Voters’ Best Interest

by Chidem Kurdas

Ronald Dworkin, a well-known legal scholar, describes last month’s election results as depressing and puzzling. In a commentary in the New York Review of Books, he asks, “Why do so many Americans insist on voting against their own best interests?” 

Hayek and Keynes Debating in Wonderland

by Thomas McQuade

Here’s what Alice might have recited to the Caterpillar, had Charles Dodgson been a 20th century economist of sorts:

You are old, Maynard Keynes, and your theory’s askew,
It’s easy for one to see through it –
Yet everyone thinks that you’ve said something new.
Just how did you manage to do it?

In my youth, said the sage, I dabbled in stock,
For serious profits contesting,
And it wasn’t too long but I saw what a crock
Was the classical take on investing.

Emergency Rooms Just Encourage Drunk Driving

by Roger Koppl

I do not understand why so many pro-market commenters are opposed to extending unemployment relief.  The supposedly killer, knockdown, unanswerable argument is that unemployment relief encourages unemployment.  Hospital emergency rooms encourage drunk driving.   Should we therefore close hospital emergency rooms?  

Insider Trading Regulatory Bubble

by Chidem Kurdas

After going easy for years on the fraudster Bernard Madoff, the Securities and Exchange Commission is now engaged in an all-out war against insider trading.  After financial crisis comes regulatory frenzy—so it has been for some 300 years. Both the SEC and the Dodd-Frank Act are right on cue in this long-running political show.