Stefan Kolev and Ekkehard Köhler have published a paper in the Working Paper Series of the Stigler Center at the University of Chicago on the history of the politico-economic proximities between the “Old Chicago” and Freiburg Schools. The story starts in Berlin of the 1920s and culminates at the founding meeting of the Mont Pèlerin Society 1947.
Stefan presented an earlier version of the paper at the NYU Colloquium in February 2020.
PROMARKET has launched a new Economic History series. Stefan Kolev’s fabulous first article of the series discusses “The Ordoliberal Quest for a Privilege-Free Order“. Reading recommendation!
by Mario J. Rizzo and Glen Whitman
The burgeoning field of behavioral economics has produced a new set of justifications for paternalism. This book challenges behavioral paternalism on multiple levels, from the abstract and conceptual to the pragmatic and applied.
Behavioral paternalism relies on a needlessly restrictive definition of rational behavior. It neglects nonstandard preferences, experimentation, and self-discovery. It relies on behavioral research that is often incomplete and unreliable. It demands a level of knowledge from policymakers that they cannot reasonably obtain. It assumes a political process largely immune to the effects of ignorance, irrationality, and the influence of special interests and moralists.
Overall, behavioral paternalism underestimates the capacity of people to solve their own problems, while overestimating the ability of experts and policymakers to design beneficial interventions. The authors argue instead for a more inclusive theory of rationality in economic policymaking.
Gerd Gigerenzer (Director of the Harding Center for Risk Literacy, Max-Planck-Institut für Bildungsforschung, Berlin):
Taking issue with the narrow norms of rationality in much of behavioral economics, this remarkable book argues in favor of an inclusive concept of rationality and is one of the first to cover the full range of relevant empirical evidence from psychology. Escaping Paternalism promotes a serious attempt to understand why people do what they do.
Richard Epstein (Laurence A. Tisch Professor of Law, New York University):
Mario J. Rizzo and Glen Whitman have written an incisive yet accessible critique of the dominant strain of behavioral economics associated with Daniel Kahneman, Richard Thaler and Cass Sunstein. Rizzo and Whitman are wise enough to know that human beings, with quirks and practices, are ‘people, not puppets’. Yet they show how classical liberal principles of governance do far better in organizing social arrangements than the various forms of soft paternalism now in vogue with so many behavioral economists.
Robert Sugden (University of East Anglia):
Mario J. Rizzo and Glen Whitman present a powerful and well-documented critique of behavioural economists’ justifications of paternalism. They argue convincingly that these justifications illegitimately presuppose that rational-choice theory is a normative standard. Inspired by the psychology of Gerd Gigerenzer, they offer a more pragmatic and ‘ecological’ understanding of human rationality.
Tyler Cowen (George Mason University) via Marginal Revolution:
The authors are Mario Rizzo and Glen Whitman, and the subtitle is Rationality, Behavioral Economics, and Public Policy. This is the most comprehensive, definitive attempt to respond to paternalism and nudge that I have seen, written from a (mostly) libertarian and partially Austrian perspective.
We published lots of new posts in 2018. Some have received more attention than others. Below you find the 5 most popular new posts of 2018:
by Andreas Hoffmann
George Selgin has a much-discussed post over at Alt-M. I agree with most of it. However, I am puzzled by the following statement:
Austrian accounts of the money-creation process often exaggerate the ability of fractional reserve banks to create money “out of thin air,” even while sticking to a fixed reserve ratio, by looking at only one part of the bank money creation process.
[…]
Actually, it isn’t, for the simple reason that, more often than not, a deposit made at one bank involves a corresponding withdrawal of funds from another bank, as when the deposited sum takes the form of a check.
by Andreas Hoffmann
These days many commentators suggest that in Turkey a recession is on the way. But nominal GDP has continued to grow along trend.
by Andreas Hoffmann
David Glasner has posted his paper on “Hayek and equilibrium concepts” on SSRN. An earlier version of this fascinating paper was presented at the History of Economics Society in Toronto in 2017 and the NYU Colloquium.
A teaser (taken from the abstract):
The now dominant Lucas rational-expectations approach misconceives intertemporal equilibrium and ignores the fundamental Hayekian insights about the meaning of intertemporal equilibrium.
by Andreas Hoffmann
Check this out at Liberty Matters.
Lead Essay by Peter Lewin: Ludwig Lachmann – Enigmatic and Controversial Austrian Economist
by Andreas Hoffmann
Today is Mario J. Rizzo’s 70th birthday. There are very few economists who are as important to the development of contemporary Austrian economics as Mario.
To honor his birthday, I have received numerous messages and posts for ThinkMarkets that I will publish one after another. These posts portray Mario as a great contributor to the Austrian revival, an extraordinarily open-minded scholar and a great friend. And as is obvious by me writing this, Mario has influenced people all over the world and helped connect the international Austrian/Hayekian community with that in the U.S.
by Andreas Hoffmann
Intellectual Takeout’s Luis Pablo has published a nice piece on Estonia’s astonishing development. You can find it here. He attributes this development to Estonia’s “market-oriented reforms” during the 1990s. Importantly, Estonia has sticked with the “market-oriented” approach. I suggest that this persistence might help explain why the country has fared better than most other countries following liberalization.
by Andreas Hoffmann
I enjoy reading David Glasner’s commentaries. But his latest post, “What Hath Merkel Wrought?“, is absolutely misleading (with regard to Merkel and German elections).
I would like to bring the following to your attention:
The Institute for Economic Policy at Leipzig University invites submissions for the international workshop on the Future of the European Monetary Union. The workshop will take place at Leipzig University on May 30, 2018. The papers should be policy-oriented, building a solid basis for a profound discussion of the future of the European Monetary Union. The best papers can be published after a peer-review process in a special issue of Economists’ Voice. Participation in the workshop is free, travel and accommodation costs of selected presenters will be reimbursed.
by Andreas Hoffmann and Sebastian Müller
The financial crisis of 2007 eroded the public confidence in financial markets. Many people have come to believe that only the government can guarantee the stability of financial markets. Responding to increased public demand, politicians from across the political spectrum support additional “macroprudential regulation”. However, little is known about the consequences of the newly proposed regulatory efforts. When politicians fear unforeseen consequences of regulation, they might turn to Placebo-regulation, which is some regulation that merely provides a warm glow for the general public. Given the widespread belief in the need for government regulation, we suggest that such Placebo-regulation may be a good option. Market distortions are avoided. But confidence in financial markets might be restored.
ThinkMarkets got a facelift in 2017 and there were lots of new posts. Some posts have received more attention than others. Below you find the most popular new posts of 2017:
High-speed broadband networks are key to the growth of digital markets as well as most modern forms of communication, and have been subject to far-reaching regulation in many countries. In this piece, we’ll review the rationale behind a cornerstone of the prevailing regulatory paradigm: forced access to incumbent operators’ network infrastructure by alternative operators on regulated terms, so-called “unbundling”.
by Andreas Hoffmann
Stefan Kolev and I run a new colloquium at Leipzig University. This “Colloquium on the Foundations of the Market Order” provides an opportunity for academics interested in the principles of the market economy and a free society to meet and discuss research. Several participants of the colloquium contribute to this blog.
by David Herok and Andreas Hoffmann*
Since the financial crisis, trust in the European Central Bank (ECB) has declined substantially among Europeans. We argue that the decline in trust is worrisome and can be both a cause and a consequence of the ECB’s policy failure.
Check out: PPE.Life
It is a new blog by students in the PPE master’s program at the CEVRO Institute in Prague, Czech Republic. Continue reading
by Andreas Hoffmann and Nicolás Cachanosky
The Federal Reserve’s (Fed) and European Central Bank’s (ECB) policy responses to the recent financial disasters offer two tales of unintended consequences. Our previous post outlined undesired effects of the Fed’s policies. In this post, we suggest that the ECB’s stabilization policy did not only fail to achieve its goals. Monetary policy has also hampered the structural adjustment of the European economy and prolonged the crisis.
by Andreas Hoffmann
The pre-crisis Jackson Hole Consensus view on how to take asset market developments into account in monetary policy can be summarized as follows: Because it is hard to spot bubbles in asset markets with certainty ex-ante, central bankers should not lean against the wind when there seems to be a boom in financial markets (as long as the inflation rate does not pick up). However, as a rapid fall in asset prices can pull the real economy into the maelstrom of crisis, monetary policy should react decisively when a bubble bursts and “clean up the mess” to prevent spillovers to the real economy.
Because there is empirical evidence that countries with greater credit and asset market booms in the 2000s experienced more severe financial crises in 2007-9, the pre-crisis consensus view has lost popularity. Policymakers and academics have started to think of ways to curb financial booms and lower the probability of crisis using macroprudential regulation or leaning-against-the-wind monetary policy. Continue reading
I’d like to draw your attention to the following opportunity:
IREF is a free-market oriented think tank based in France. It promotes ideas, debates, events, and rigorous academic research.
With regard to research, IREF supports original research projects that lead to the production of papers of academic quality of at least 7,000 words. This support is not a prize to published work, nor is it an encouragement to “work in progress”.
The paper must have clear policy implications. It will be circulated as an IREF working paper and the author is expected to publish it in a reputed academic journal.
by Nicolás Cachanosky and Andreas Hoffmann
Even when a policy is successful in achieving its desired ends, we have to consider its unintended and unforeseen consequences, resulting from cumulative market adjustments to policy changes that make it hard to judge the overall outcome of a policy in our complex economy. The Federal Reserve and European Central Bank’s monetary policy responses to the 2008 financial crisis offer two tales of major unintended consequences. This post discusses unintended outcomes of the U.S. Federal Reserve’s crisis policies. In our next post, we address ECB policies.
Allan Meltzer has died at age 89. The number of articles on Meltzer these days indicate the significance of his contributions. Carnegie Mellon University and Bloomberg published good summary articles on Meltzer’s outstanding academic career, ideas and influence in policy. Jerry O’Driscoll‘s personal note on Alt-M emphasizes that Meltzer was also a great manager and communicator (“He can herd cats”). Check it out!
by André Casajus[*] and Andreas Hoffmann
Estonia was the first European country to introduce a flat tax on income in 1994. Many others followed. For example, Hungary successfully introduced a flat tax in 2012. In the U.S., some of the States (e.g. Pennsylvania) have introduced a flat tax on income. As in Germany, however, the federal income tax in the U.S. is still progressive. We believe the case for the flat tax is strong. Presenting an axiomatic justification for the flat tax as a redistribution rule, this post suggests that you need to accept only a few basic properties to favor a flat tax for income redistribution.
by Andreas Hoffmann
A growing number of economists suggest that governments in highly indebted countries should consider liquidating debt via financial repression. In other words, they want governments to intervene in financial markets and push government borrowing costs below the rate of inflation to erode the real value of debt. In a previous post, I argued that financial repression is dangerous and a drag on growth. This post explains why we can be hopeful that, despite a rise in popularity, the debt liquidationists will not succeed in putting their ideas to work. Debt liquidation via financial repression would necessitate far-reaching regulation or drastic measures, both of which seem unlikely in the US.
ThinkMarkets 