Libya and the Rule of Law

by Mario Rizzo  

Frank H. Knight had an important insight about economics. Howsoever we may seek to narrow it, the basic human interests that make the subject important lie at the intersection of ethics, the theory of knowledge, and psychology (at least in a broad sense).  Friedrich Hayek was also right to think that the insights of law and the insights of economics can be mutually beneficial.  

Classical liberalism, however, is not simply economics even in a broadened sense. It is a philosophy about the limits to state power and action even when the goals are alleged to be good or holy. Classical liberalism, as Hayek taught us, is about appropriate means and not simply about the desirability of ends.  

ThinkMarkets is vitally concerned with economics, it is true, but also more generally with classical liberalism and it application to real-world problems. Accordingly, one of the main concerns of this blog has been the rule of law (albeit applied mostly to issues of economic policy).  Another important concern has been the slippery slope processes that get policy-makers and, more importantly, the public into situations that are unforeseen and undesirable.  

This brings me to the Libya question.

Does one size fit all?

by Andreas Hoffmann

In a recent article in the WSJ, David Wessel sees a “fundamental problem” in the euro zone’s one-size-fits-all policy.

We know from Mundell (1961) that a one-size-fits-all monetary policy cannot guarantee low inflation and unemployment in all members of a heterogeneous currency area, given e.g. labor markets are not fully flexible as in the euro area.

In general, capital market integration and free capital flows in two regions have the tendency to bring about convergence of real – not necessarily nominal – interest rates (assuming no risk premium) as capital is allocated to its best uses. But in a currency area, like the euro area, nominal interest rates are the same everywhere as they are set by a central authority. Thus, real interest rates can be zero or even negative in regions that experience higher inflation, while they are positive in regions with lower inflation. Then policy is too expansionary in some regions and too tight in others, while the average inflation rate may stay relatively stable at the target level.

Risky Behavior at Wittenberg

by Chidem Kurdas

Watching Wittenberg at the Pearl Theater in New York took a group of us back to our graduate school days. This is a surprisingly entertaining comedy, creating merriment out of a mash of classical characters, modern themes and serious philosophy.

The year is 1517.  Two academics at Wittenberg University, Martin Luther and John Faustus, are more or less cordial colleagues but intellectual antagonists.

Both are dissatisfied. Dr. Faustus holds four graduate degrees – in medicine, law, philosophy and theology – but has found all this knowledge lacking. On top of that, the woman he loves leaves him.  Father Luther detests the Church’s selling of indulgences but feels he can’t do anything about it. Their star pupil, a Danish prince named Hamlet, is confused.

Medieval Capitalism

by Jerry O’Driscoll  

Randall Collins is a distinguished sociologist and Weber scholar. In Weberian Sociological Theory (Cambridge University Press, 1986), Collins re-examines Weber’s contributions. It is a book favorable to Weber. In chapter 3, “The Weberian revolution of the High Middle Ages,” he employs Weber’s analysis to demonstrate that it was in medieval Europe that capitalism and modernity developed. “…The Middle Ages experienced the key institutional revolution, … the basis of capitalism was laid then rather than later, and that at its heart was the organization of the Catholic Church itself” (45).

Consider my post inspired by Gene Callahan’s earlier one. My interest is not in interpreting Weber, but understanding the history of the market economy. But much of the discussion in the prior post centered on interpreting Weber. Collins is relevant because he establishes the position I argued from a Weberian perspective.

Public Unions vs. the Real Underdog

by Chidem Kurdas

Wisconsin governor Scott Walker successfully made the financial case to limit collective bargaining by public unions. Not only have the unions imposed an immense burden on taxpayers, present and future, but they create bureaucratic rigidities that cause dysfunction and, in financial crunches, layoffs of promising employees.

Yet in recent weeks it has become noticeable that these points fail to persuade many Americans.  The Wisconsin bill that just passed and similar reforms in other states face furious opposition, including appeals to the public.  Perhaps it’s not a bad idea to highlight another aspect of government unions, in addition to the purely economic issues.

We need to understand why part of the public supports unions. The best explanation that I’ve seen is from Richard Epstein in Free Markets Under Siege, a 2005 book that analyzes unions and agricultural price supports as examples of cartels in different markets.  These cartels impose social costs and require special dispensation from antitrust law. Why did the rest of the population accept the costs?  “Never underestimate the enhanced political sympathy when the underdog seeks to gain state power,” Professor Epstein points out.

Easy Money, Emerging Market Miracles and the Revival of Industrial Policies

by Andreas Hoffmann and Gunther Schnabl

While most advanced economies continue to suffer from high unemployment and record debt levels, monetary expansions in the advanced economies feed a tsunami of carry trades, hiking asset and raw material prices and accelerating growth rates in emerging markets from Brazil over the Middle East to China. While capital inflows drive miraculous catch-ups in many corners of the world – having learnt the lesson for the recent mega-crisis – the monetary authorities in the emerging markets are aware of the risk of financial market exuberance. They aim to prevent inflation and bubbles by absorbing surplus liquidity and tightening credit growth.

Yet by doing so, they cause distortions in the real sectors of their economies, which are not on the radar screen of the now ballooning financial supervision bodies.

The Genius of Weber

by Gene Callahan

This semester, I am having the pleasure of teaching Max Weber‘s The Protestant Ethic and the Spirit of Capitalism for the second time. Doing so is renewing my appreciation for one of the great works of social science.

Weber’s historical thesis is fascinating in itself, but what really makes the work is that it is a mini-study in how to historically investigate a social-science proposition, complete with asides on method were Weber explains what he is doing. He takes two situations that are in most respects the same (that of German Catholics and that of German Protestants) and notes a crucial difference (besides religion): the two populations have significantly different degrees of participation in the capitalist mode of economic organization (as of 1905).

Constitution Bashers’ Internet Fallacy

by Chidem Kurdas

There’s a ferocious backlash against the Tea Party’s reverence for the U.S. Constitution. Court decisions against ObamaCare’s compulsory health insurance provision have further stoked the hostility.

One common and obvious line of attack is that the Constitution is old-fashioned and out of synch with our world of satellites and Twitter.