A Place to Think

by Roger Koppl

Mario changed everything by writing The Economics of Time and Ignorance with Jerry O’Driscoll.  That was the book that changed everything.  I know; I was there.  I had the incredible good luck to show up at NYU as an “Austrian” graduate student in 1980.

The Blanchard Danger

by Roger Koppl

Oliver Blanchard tells us “Where Danger Lurks”  in the macro-finance world.

The big theme is nonlinearity, which is a profoundly conservative move: DSGE modeling is just fine and we don’t need to rethink it at all. We just need to add in some nonlinearities. Blanchard does not tell how to calibrate a model with extreme sensitivity to initial conditions. But if the system is chaotic, it is also unpredictable, so how can you pretend to merely add nonlinearities to DSGE models?  It seems like a pretty direct contradiction to me. I mean, you can have the model in a trivial sense, of course. But calibration is an empty exercise that will not let you look around corners.

Blanchard’s second main message is alarming: We do need theoretical innovation, however, in measuring systemic risk. In the modern network literature on financial markets and cascades, one key point is risk externality. My portfolio choice makes your portfolio riskier. We need two things to fix this market failure. First, we need Pigou taxes, which cannot be calculated unless everyone tells the regulator his portfolio so that it can measure systemic risk and calculate a separate Pigou tax for each financial institution. Second, we need to reduce systemic risk. (“[S]teps must be taken to reduce risk and increase distance” from the “dark corners” of the macro-finance system.) In the network literature I suspect Blanchard is alluding to, this is to be done (at least in some of the articles) by having the regulator directly control the portfolios of financial institutions. (Names include: Acharya 2009; Beale et al. 2011; Caccioli et al. 2011; Gai, Haldane,and Kapadia 2011; Haldane and May 2011; and Yellen 2009, 2011)

I take a rather different view of both economic theory and the crisis in my recent IEA Hobart paper From Crisis to Confidence: Macroeconomics after the Crash.

Overall, Blanchard’s message is meant to be reassuring: We the smart macro-finance experts have now got the message on nonlinearities. So no further need to worry, we’ve got the situation in hand. To keep the system out of the “dark corners,” however, we will need more discretionary authority. You don’t mind trading off a bit of financial freedom for greater financial safety do you?

Congress Should Grow a Pair

by Roger Koppl

I was thinking of the NSA scandal while jogging through Rome’s Park of the Aqueducts  this morning. I guess it was that setting that made me think of our new computer-geek overlords as a virtual Praetorian Guard.  Augustus created the original Praetorian Guard about 27 BCE to protect the emperor. It quickly came to exercise independent power, once even auctioning off the empire to the highest bidder.  This outrage led the Roman general Septimius Severus to march on Rome and displace Emperor Julianus who had won the Praetorian bidding war. Severus disbanded the old Preatorian Guard only to set up a new Praetorian Guard, which quickly achieved a similar authority, power, and autonomy. The “intelligence community” of the US government seems to be playing a similar role today.

We now have secret interpretations of public laws  that some members of Congress have obliquely warned of.

Income Inequality Matters

by Roger Koppl

Income inequality matters. Let me say that again so you know I meant it: Income inequality matters. This statement may be surprising coming from a self-described “Austrian” economist and a “liberal” in the good old-fashioned pro-market sense. It shouldn’t be. It should be one of our issues. The surprise should be that we pro-market types have not spoken up more on this central issue, thereby letting it become associated almost exclusively with more or less “progressive” opinion.

This indifference to income distribution is all the more mysterious because pro-market thinkers generally support a theory of politics that tells us to watch out for ways the state can be used to create unjust privileges for some at the expense of others. We should expect the distribution of income to be skewed toward the politically powerful and away from the poor and politically weak. In a representative democracy “special interests” engage in “rent seeking” to get special favors. Those special favors enrich some at the expense of others. That’s what they are meant to do!

Top Young Economists Consider Their Future

by Roger Koppl

Ali Wyne of the big think  blog “Power Games”  recently posted an interesting set of comments on the theme “Empirics and Psychology: Eight of the World’s Top Young Economists Discuss Where Their Field Is Going.”  George Mason’s own Peter Leeson  was among the eight “top young economists” sharing their views.

Over at New APPS, the philosopher Eric Schliesser  summarizes the eight comments. “Bottom line: due to low cost computing and a data rich environment the future of economics is data-mining (this was clear from at least four of the comments). This is especially so because the young stars have lost faith in homo economicus (due to behavioral work and the crisis).”

Eric’s summary seems about right to me. There were eight fine minds sharing eight different visions, but two related themes dominated the comments. 1) The old rationality assumption is in trouble and we don’t quite know what to do about it. 2) Economics should be more data-driven now that we have what William Brock has labeled “dirt-cheap computing.”

Is Justice Roberts a Big Player?

by Roger Koppl

The Supreme Court upheld “Obamacare” because Chief Justice Roberts changed his mind. (It seems that “Obamacare” is no longer a pejorative.)  In this curious situation, a stalwart of the Federalist Society  has become a Big Player in healthcare markets.

A Big Player is a powerful actor who uses discretion to influence a market. In the long run, Big Players are government entities or the creations thereof. They are discretionary actors whose personal discretionary choices supplant known and simple rules. In other words, Big Players substitute the rule of men for the rule of law. The great theorist of the rule of law, A.V. Dicey, said in an important remark that the rule of law “means, in the first place, the absolute supremacy or predominance of regular law as opposed to the influence of arbitrary power, and excludes the existence of arbitrariness, of prerogative, or even of wide discretionary authority on the part of the government.”

Roberts has become a Big Player, and yet the Federalist Society is against that sort of thing. It is committed to the rule of law. Its attitude to the role of the courts is expressed in a passage from Federalist 78: “It can be of no weight to say that the courts, on the pretense of a repugnancy, may substitute their own pleasure to the constitutional intentions of the legislature…. The courts must declare the sense of the law; and if they should be disposed to exercise WILL instead of JUDGMENT, the consequence would equally be the substitution of their pleasure to that of the legislative body.” But the “judgment” of Justice Roberts in this case seems to be very much an “exercise” of his “will.”

Should we therefore castigate Roberts as a hypocrite or ideologue? I don’t think so.

The problem is not that Roberts secretly wishes to impose his personal will on the law. Indeed, the decision seems to be the most restrained possible. It was hardly an instance of “judicial activism” or “legislating from the bench” given Robert’s presumptive political opposition to Obamacare. The problem arises when sweeping measures such as the Affordable Care Act come before the Court. Such laws are ambiguous.

The Passions and the Interests in Forensic Science

by Roger Koppl

A front-page article  in yesterday’s Washington Post underlines the importance of establishing a substantive defense right to expertise in the US.

The article says, “Justice Department officials have known for years that flawed forensic work might have led to the convictions of potentially innocent people, but prosecutors failed to notify defendants or their attorneys even in many cases they knew were troubled.” The DoJ begin investigating in the 1990s “after reports that sloppy work by examiners at the FBI lab was producing unreliable forensic evidence in court trials.” As the Post article chronicles, the investigation was very narrowly drawn in spite of evidence that problems were likely more widespread.

Thing 1 and Thing 2 Sit Down To Talk

by Roger Koppl

Right in the middle of the book, Thing 1 and Thing 2 sat down to talk about a controversial topic.  It might have been politics or religion.  It might have been economics or, perhaps, global warming.  I don’t know.  Anyway, it was a Very Important Topic.   Just like you and me, Thing 1 and Thing 2 think in models, though not necessarily mathematical models.  Thing 1 thinks about the Very Important Topic with Model A and Thing 2 thinks about the Very Important Topic with Model B.  These models are in their heads. 

The Targeted Killing of Anwar al-Awlaki

by Roger Koppl

Anwar al-Awlaki was killed in a drone strike today.  If you recognize the name Awlaki, then you know that he was bad guy.  He was a propagandist for Al Qaeda who seems to have inspired the Fort Hood shooting, in which Nidal Hassan killed 13 people.  He was also an American citizen, born in New Mexico.  He was charged with no crime.  No attempt was made to arrest him.  The United States government seems to have had no plan to try him or charge him with any crime.  He was simply targeted for killing, and killed.

Another step down the road to serfdom

by Roger Koppl

Peter Orszag, former director of the Office of Management and Budget, has written an article for The New Republic entitled “Too Much of a Good Thing: Why we need less democracy.”  “To solve the serious problems facing our country,” he says, “we need to minimize the harm from legislative inertia by relying more on automatic policies and depoliticized commissions for certain policy decisions. In other words, radical as it sounds, we need to counter the gridlock of our political institutions by making them a bit less democratic.”

Them is Us: More Thoughts on Oslo and Multiculturalism

by Roger Koppl

An editorial in yesterday’s New York Times rightly notes, “A disturbing, and growing, intolerance across Europe for Muslims and other immigrants from Africa, Asia and the Middle East.  Inflammatory political rhetoric is increasingly tolerated. And anti-immigrant and anti-Islamic parties are getting stronger notably in northern European countries that have long had liberal immigration policies.”  Right.  The trends are real and bad.  But the next paragraph goes off the rails by equating multiculturalism with tolerance and (relatively) open borders.

Oslo and Multiculturalism

by Roger Koppl

The terrible Oslo killings by Anders Breivik have appropriately prompted discussion of the political implications of his act and his manifesto.  Multiculturalism is an important theme in the discussion around Breivik’s crimes and ideology.  A story in yesterday’s NYTimes links Breivik to the repudiation of multiculturalism by three European political leaders.

“Yet some of the primary motivations cited by the suspect in Norway, Anders Behring Breivik, are now mainstream issues.  Mrs. Merkel, President Nicolas Sarkozy of France and Prime Minister David Cameron in Britain all recently declared an end to multiculturalism.”  The article links Breivik’s actions to a supposed “climate” created by “right-wing” discourse.  “[S]ome experts say a climate of hatred in the political discourse has encouraged violent individuals.”

We should pay more attention to Radley Balko

by Roger Koppl

On June 14th, Radley Balko posted an article on Huffington Post entitled “Private Crime Labs Could Prevent Errors, Analyst Bias: Report.”  He explains some of the problems of forensic science in the US.  He suggests that “rivalrous redundancy” could improve the system and links to my 2007 Reason Foundation Report explaining how rivalrous redundancy works. 

For years, Radley has documented shocking problems in the American criminal justice system from no-knock warrants, to the snitch system, to forensic science.  He contributed to the July 2011 special issue of Reason magazine on “Criminal Injustice.”  The criminal justice system is the great fulcrum point where the power of the state meets the people.  We need to be more conscious of the problems of our criminal justice system and the risks to our liberties created by those problems.  And liberty loving scholars need to think harder about the nature of the problem and what to do about it.

Hayden’s Straw Man Argument on “Interrogation Deniers”

by Roger Koppl

In a Wall Street Journal op ed of 2 June 2011, General Michael Hayden, director of the CIA from 2006 to 2009, compares “interrogation deniers” to “birthers” and “truthers.”  Hayden’s op ed mischaracterizes the basic claim of those who say torture is not effective, substitutes insult for argument, and includes a non sequitur worthy of the old joke that that “military intelligence” is an oxymoron.

Hayden defines “interrogation deniers” as “individuals who hold that the enhanced interrogation techniques used against CIA detainees have never yielded useful intelligence.”  Talk about a straw man!  I suppose there must be some “interrogation deniers” as defined by Hayden, and I suppose some of them are out there floating in the wide waters of the Internet, waiting for someone to cut and paste.  But I don’t know of any examples, and their possible existence at the margins of public discourse has no bearing on the public question.   As Glenn Greenwald noted on May 4th,  “Nobody has ever argued that brutality will never produce truthful answers.”  No.  “[T]he point has always been — as a consensus of interrogations professionals has repeatedly said — that there are far more effective ways to extract the truth from someone than by torturing it out of them.”

Toward a Libertarian-Progressive Alliance

by Roger Koppl

Ralph Nader recently appeared on Judge Napolitano’s “Freedom Watch” to herald the rise of a coalition between “libertarian conservatives” and progressives.  Within Congress, he says, both groups put principle above party.  The first episode in this new alliance will be cooperation on the whistleblower bill.

Let’s hope it happens!

Mark Potok’s Loony Logical Leap

by Roger Koppl

The tragic shooting in Arizona has sparked a fight about whether today’s right-wing political rhetoric is somehow responsible for egging on Jared Loughner.  The evidence so far is against the claim.

Mother Jones, hardly a right-wing rag, interviewed a friend of Loughner.  It seems that Loughner had a grudge against Giffords after she failed to give him a satisfactory answer to a question he put to her at an earlier event.  Loughner told his friend that he had asked Giffords,  “What is government if words have no meaning?”

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?  

Further Thoughts on The Sensory Order

by Roger Koppl

Over at Austrian Addiction, Dan D’Amico responds to my recent post on The Sensory Order.  Dan wants to know “what Hayek’s theory of neuorscience is really adding here that a more basic understanding of subjective preferences does not already imply?”  Dan is not the only one with this question.  I think enthusiasts for The Sensory Order have given pretty good answers to Dan’s question, but it seems clear that we need to do a better job.

The Sensory Order

by Roger Koppl

Over at Marginal Revolution, Tyler Cowen recently said The Sensory Order is “Hayek’s most overrated book.”  In part he was complaining that “many call it his most underrated book.”  Unfortunately, he does not name names.  In any event, Tyler has other gripes including the mistaken suggestion that the science in it was not current.  As I said in a comment, “I don’t understand why TSO gets lukewarm to negative reactions from serious people who are otherwise keen on Hayek.”  The most salient example of TSO bashing may be that of Dan D’Amico and Pete Boettke, who criticize “neuro-Hayekians.” Let me go on record as an enthusiast for The Sensory Order.  The latest expression of my enthusiasm is forthcoming in JEBO.

Why Rand Paul is wrong about Title II

by Roger Koppl

Rand Paul won the Republican primary in the Kentucky Senate race and almost immediately stepped into a big pile of steaming controversy by telling Rachel Maddow that he did not support Title II of the Civil Rights Act of 1964.  Since then few voices have defended his statements on Maddow’s show, with John Stossel as one of the rare exceptions.  In his recent Christian Science Monitor op-ed on this topic, Sheldon Richman defends Paul’s statements saying, “individuals are either free to do anything peaceful or they are not.”  I reject libertarian objections to Title II precisely because I agree with the quoted remark: individuals are either free to do anything peaceful or not. (For the record: I’m not a libertarian, but the quoted statement is a logical truth, not a political program.)  Black and white people in the recently-Jim-Crow South would not have been free to associate without the assistance of Title II.

Arizona law a blow to liberty

by Roger Koppl

Kris Kobach defends Arizona’s new immigration law, SB 1070, in today’s New York Times.  He says, “Presumably, the government lawyers . . . will actually read the law, something its critics don’t seem to have done.”  Well, I read the law and I do not like it.

Whenever a  law enforcement officer makes a “lawful contact” with a person, the officer must attempt to determine that person’s immigration status if he or she has “reasonable suspicion” the person is an illegal immigrant.  It is a “lawful contact” if the cops ask for a statement at the scene of an accident, for example.  Illegals now have an incentive to flee even as mere witnesses.  The local police or sheriff’s office cannot have a policy to counter this incentive lest they be sued.  The law provides that “a person” may bring suit against any “official or agency” that has a policy that “limits or restricts the enforcement of federal immigration laws to less than the full extent permitted by federal law.”  The central provision of SB 1070 threatens to reduce the ordinary protections of the law for illegal aliens, which threatens order and security for them and everyone else.

Time for a Truth Commission

by Roger Koppl

London’s The Times reports on evidence suggesting “George W. Bush ‘knew Guantánamo prisoners were innocent.’”  (HT: Radley Balko)  Supposedly, Bush, Cheney, and Rumsfeld were all in on it.  “The accusations were made by Lawrence Wilkerson, a top aide to Colin Powell, the former Republican Secretary of State, in a signed declaration to support a lawsuit filed by a Guantánamo detainee.”

According to The Times, “He [Wilkerson] said that many [persons] were turned over by Afghans and Pakistanis for up to $5,000.”  The problem with these payments is clear.  Paying persons serious money to turn in supposed terrorists creates a powerful incentive to invent false charges so that you can get the money.  In that part of the world, $5,000 is very serious money indeed.  It is hard to avoid the conclusion that many persons swept up in that operation were innocent persons who were sold out to fatten a wallet.

Karl Rove has said that waterboarding is not torture.  (Go to about 3:07.)  He has also said that “harsh interrogation” produced lots of good actionable intelligence (2:25).  That’s not a credible remark in my book.

In the US, our government has rendered, sequestered, and tortured.  Our government has flouted the rule of law and suspended habeas corpus.  It has made war on a nation that was not a threat to us in any way.  It has spied on us without the legal nicety of a specific warrant.  It has, in other words, grown tyrannical.  Isn’t it time for a truth commission?  It is too much to hope for a real criminal trial of our highest officials, but is it really too much to ask for the truth?  Patrick Leahy called for a truth commission in February 2009.  It’s time.

Why do we trade with strangers?

by Roger Koppl

Bill Butos edited the latest volume of Advances in Austrian Economics, which is devoted to “The Social Science of Hayek’s The Sensory Order.”  It is a terrific volume demonstrating that Hayek’s classic 1952 book in psychology matters for the social sciences, including economics.

Contributors include G. R. Steele, Leslie Marsh, Lorenzo Infantino, Francesco Di Iorio, and Peter Earl.  Bill’s introduction rewards careful reading.

My imagination was captured by Jean-Paul Carvalho and Mark Koyama’s paper “Instincts and institutions: the rise of the market.”  Carvalho and Koyama identify and close an important gap in our understanding of the evolution of trade. Thanks to Greif, Milgrom, North, and others, we have a pretty good idea how medieval institutions promoted trade and enabled the emergence of capitalism. Thanks to Cosmides, Fehr, Bowles and others we have a pretty good idea how our evolved psychology supports the institutional fabric of modern capitalist economies.  What we have not understood, however, is how our evolved psychology could be consistent with the emergence of the medieval institutions that promoted trade early on.

Mysterious Moody’s Move

by Roger Koppl

The Christian Science Monitor reports that Moody’s is considering downgrading US government debt.  (HT: Mario Rizzo)   Is that a credible threat?  Moody’s is one of ten “Nationally Recognized Statistical Rating Organizations” (NRSRO) officially recognized by the SEC.  Moody’s, S&P, and Fitch are the big three and do most of the rating.  Would they downgrade the same entity that ensures their continued monopoly power?  Why would they make such a threat in the first place?   What is the public choice explanation for Moody’s (empty?) threat?

Liberty by Design

by Roger Koppl

Those of us who love liberty and fear the state support “deregulation.”  We want to unwind the bramble of regulations constraining the dynamic entrepreneurial economy.  But we have not thought enough about how to unwind the unwieldy regulatory apparatus of the current system.  It is one thing to show how a “truly free market” would work.  It is quite another to show how to get from the current regulatory mess to something we are happy call a “free market.”