Sign of the Times: A Note

by Mario Rizzo

The Wall Street Journal has an excellent editorial “ObamaCare and the Constitution” in Friday’s edition. It covers ground similar to my post below.

However, there is sentence that bothers me, not because it is wrong, but because it expresses the temper of our times:

Judicial and media liberals are trying to dismiss these challenges [to the constitutionality of Obamacare] as a revanchist attempt to repeal the New Deal, or, worse, as a way to restore the states’s rights of Jim Crow.

Yes, it is quite unfashionable, even among conservatives, to want to repeal most or all of the New Deal. It is true that finding the current healthcare bill to be unconstitutional would in no way threaten these hallowed laws. However, I wish that the New Deal were not so beyond reconsideration. I think many economists would agree that much of its legislation could, with general benefit, either be repealed outright or be seriously revised. We can begin with the labor legislation.

It also bothers me, although I fully understand why, some people insist on associating “states’ rights” with Jim Crow or with slavery, for that matter. But for intelligent people not to see the advantages of federalism is inexcusable. After all, slaves were private property but we don’t therefore assume that all manifestations of private property are bad. Well, at least not most people. I hope.

Are You Too Calm? The Clock is Ticking…

by Mario Rizzo

If you find you need a little more anxiety in your life, take a look at this real-time statistics “clock.”  It shows the debt and unfunded liabilities that taxpayers now face, without counting the new healthcare program that the Obama Administration is hoping to see passed.

If you are like me, it will make you nervous — in a somewhat fun way, however.

(HT: Jeremy Sapienza.)

The Knowledge Problem of New Paternalism

by Mario Rizzo

Glen Whitman’s and my article, “The Knowledge Problem of New Paternalism” has been published in The Brigham Young University Law Review,  2009, no. 4. The theme is that the project of the new/soft/libertarian paternalists to make us better off by our own standards fails because the paternalists lack sufficient knowledge of the circumstances of time and place that affect the welfare and decisions of agents. The analysis is quite comprehensive and should be of interest to many of our readers here.

This article should be viewed as a companion piece to our “Little Brother is Watching You: New Paternalism on the Slippery Slopes” published in the Arizona Law Review a few months ago. It was also summarized in eight posts at TM by Glen Whitman. The latest one can be found here.

ThinkMarkets Goes National

by Mario Rizzo

I am happy to report that the Christian Science Monitor has agreed to pick up TM as one of the highlighted-blogs on its Money page (down the middle). This will be a regular feature. I am not sure if every posting will be carried but, in any event, this will be a big opportunity for us to gain more exposure.

Soon, of course, we shall be influencing economic policy both here and abroad. So watch out!

Austrian Economics Meets The New Decade In The New Century

by Mario Rizzo

My survey article, “Austrian Economics: Recent Work” has now been published by The New Palgrave Dictionary of Economics. You can find the site here.

You need either an individual subscribution or access to an institutional subscription to get to the article. However, you can look here for the almost-final version. There is also my blog discussion here.

As I have said many times, the boundaries between Austrian economics and other schools of economics are fluid and not precisely defined. I do not view the policy conclusions of particular Austrian economists, regardless of their status, as having the same defining features as their analytical or theoretical contributions. Policy is part of the art and ethics of economics and not just the science as John Neville Keynes argued in 1890. It is not, and cannot, be the straightforward implications of economic theory.

I am a classical liberal, but that is not equivalent to being an Austrian economist (in my broad sense of the term!). I do not belittle the other roads to classical liberalism. When we talk about Austrian economics we are not talking about liberalism and when we talk about liberalism we are not necessarily talking about Austrian economics.

In The Economics of Time and Ignorance Jerry O’Driscoll and I explored the interrelations between Austrian economics and Post Keynesian economics. This was not meant to be an exclusive, exhaustive or even definitive connection. We wanted to shock Austrians out of the self-satisfied slumber that some were in.

In the years that have passed, there have been other connections with New Institutional Economics, experimental economics (in the hands of the great Vernon Smith), public choice-constitutional economics (in the hands, especially, of James Buchanan and Richard Wagner), and so forth.

I look forward to the new contributions of Austrians of every stripe. Some will be good and some will be poor. This is way of science. Errors all over the place. Gems of insight here and there. The process goes on.

Interesting New Journal

by Roger Koppl

Michael Barber is editor of a new journal of interest to Austrian economists, namely Schutzian Research: A Yearbook of Mundane Phenomenology and Qualitative Social Science.  The first issue came out on 9 November 2009.

Here is what they say on their website:

Schutzian Research is an annual journal that seeks to continue the tradition of Alfred Schutz. It seeks contributions that are philosophical, cultural-scientific, or multidisciplinary in character. We welcome a broad spectrum of qualitative and interpretive work, comparable with Schutz’s orientation but not necessarily derived from it. The journal is multilingual in character, with abstracts in English. All submissions will be blindly reviewed by at least two experts in the appropriate field.

Presumably, economic research would be “cultural-scientific.” Continue reading

Pigou is the new Keynes

by Sandy Ikeda

A full-page article in today’s Wall Street Jounal begins:

At the Heavenly Models home for deceased economists, an award is being presented to the resident whose work best explains financial crises, global warming, and other pressing issues of today.

The winner, according to author John Cassidy, is A.C. Pigou, the new flavor of the day.

The article implies that Pigou was the first to articulate the concepts of externalities and market failure.  I’m not sure that’s right, though I haven’t gotten around to reading The Economics of Welfare, but I believe we do have to credit him with the Pigou tax.  So in some ways he’s been almost as dangerous as his “smarter colleague,” although I’ve always felt sympathy for someone who was so much in Keynes’s shadow.

The article also has a sidebar quoting Mises (as well as Friedman, Kindleberger, and of course Keynes) apparently calling last year’s economic crisis.

Seizing the Commanding Heights

 by Jerry O’Driscoll

 On the Opinion page of yesterday’s Wall Street Journal, George Melloan spells out how government stimulus is stifling lending, crowding out private investment and impeding economic recovery. 

He writes that “the credit market has been tilted to favor a single borrower with a huge appetite for money, Washington.” It has done so in a number of ways.  

First, the Fed announced that it will evaluate bankers’ pay on the basis of how well they manage risk.  How better to be a good risk manger in a bureaucrat’s eyes than to take no risk?  Purchasing Treasury obligations and federal agency paper is the sure way to avoid risk.  The Fed has a second policy to make that strategy profitable: zero interest-rate borrowing to finance Treasury and agency debt yielding 3%.or more.  The Fed continues to signal it will keep rates low, diminishing interest-rate risk.  

These policies are choking off the supply of credit to the private sector, espcially small business.  Continue reading

Dallas Fed President Calls for the End of Too Big to Fail

 by Jerry O’Driscoll  

Thursday at the Cato Monetary Conference, Dallas Fed President Richard Fisher called for the end of of the too-big-to-fail doctirine.  He identiifed the largest financial institutions as the source of excessive risk taking.  He also repeated his claim that these institutions interefere with the conduct of monetary policy. 

Fisher offered a middle ground between two strategies discussed on ThinkMarkets: steeper capital requirements or beaking them up.  He advocated forcing the largest banks to give up some of their riskiest operations.   In effect, that is forcible downsizing. 

This is a noteworthy call coming from within the Fed itself.

Inflation Alert

 by Jerry O’Driscoll  

Yesterday was Cato’s annual monetary conference and Allan Meltzer gave the keynote address.  Today at cato.org you can listen to a 7-minute Podcast of an interview with Meltzer summarizing his presentation.  He has just completed the last 2 volumes of his history of the Fed.  

Meltzer delivers a tough message: no nation that is spending as we are, running deficits as large as we are, along with a loose monetary policy, has escaped inflation.  We must cut the deficits by cutting spending.  He talks of a $500 billion spending cut.  And he offers an innovative approach as to how, using applied Public Choice theory.  Continue reading

What About The Fed?

by Jerry O’Driscoll

I have been active in criticizing recent Fed policy, but avoided the controversy over Fed governance (“Audit the Fed”).  I worked for the Dallas Fed for 12 years and believed then, and continue to believe, that there is a legitimate private banking function that the Fed performs.  It was born as a bankers’ bank, a successor to the private clearinghouses.  As explained by Richard Timberlake, legal ambiguity surrounded some of the activities of the private clearinghouses (e.g., provision of reserves in times of distress). The Fed was the compromise. Continue reading

A Positive Program for Laissez-Faire?

by Mario Rizzo

I am deeply impressed by Henry Kaufman’s opinion piece in today’s Wall Street Journal. I think he makes a very good case for  breaking up financial institutions deemed too-big-to-fail as opposed to the regulatory alternatives being contemplated. As much as it pains me to think about the government regulating the size of any firm, this may be an option that is far, far better than the politically feasible alternatives.  You can imagine the horrors that are out there being proposed.

Many of my readers will disagree but I am very willing to be persuaded otherwise.

New Paternalism on the Slippery Slopes, Part 3: Hyperbolic Discounting

by Glen Whitman

New paternalists often rely on the phenomenon of “hyperbolic discounting” to justify their policies. Hyperbolic discounting is difficult to define in a non-mathematical way. It is sometimes summarized as excessive impatience, but that’s an over-simplification. A person with a high-but-consistent rate of time discounting would not be a hyperbolic discounter. What hyperbolic discounting really means is having inconsistent rates of time-discounting. One consequence is that a hyperbolic discounter may exhibit “time inconsistency,” a tendency to make choices and then reverse them. After explaining hyperbolic discounting (in more technical terms that I have here), Mario and I explain how paternalists have made unjustified leaps in their use of the concept (pp. 699-700):

In short, hyperbolic discounting means that people at first make long-term plans for saving or dieting but then, when the time comes to implement these plans, they succumb to the desire for short-term gratification. For the new paternalists, this type of behavior suggests an opening for paternalist intervention or correction. Examples include the previously mentioned proposal to automatically enroll people in savings plans, and to impose a sin tax (on unhealthy foods, cigarettes, and so forth) to provide additional incentive for impatient people to resist their temptations. Continue reading

Mises Featured in the Journal

by Jerry O’Driscoll  

In today’s Wall Street Journal, hedge-fund founder Mark Spitznagel celebrates Ludwig von Mises as “The Man Who Predicted the Depression.”  Spitznagel opens by observing that “Ludwig von Mises was snubbed by economists world-wide as he warned of a credit crisis in the 1920s.  We ignore the great Austrian at our peril today.”  

Spitznagel deals with The Theory of Money and Credit and does a good job presenting its principal arguments.  What I found most interesting, however, is the author’s argument that the book is a warning today.  Continue reading

New Paternalism on the Slippery Slopes, Part 1

by Glen Whitman

As Mario has already announced, we’ve just published a new article, “Little Brother Is Watching You: New Paternalism on the Slippery Slopes,” in Arizona Law Review. You can find the full text here.

The article is quite long. As a result, I expect few people will read the whole thing. I’ve therefore decided to excerpt the article in a series of blog posts. I won’t be covering all of our arguments in the paper, but I’ll be pulling out some passages that I particularly like — and that might otherwise be missed. Continue reading

Little Brother Is Watching You: New Paternalism on the Slippery Slopes

by Mario Rizzo  

Glen Whitman and I have published another article about the new paternalism – it appears in the Arizona Law Review, volume 51, no. 3 (2009). You can get it here

This article applies a slippery-slope or policy-dynamic analysis to the “moderate” policies proposed by some new paternalists. (The general slippery-slope analysis was first laid out in a UCLA Law Review article Glen and I published in 2003.)  

The following is a summary of the article:  

“The “new paternalism” claims that careful policy interventions can help people make better decisions in terms of their own welfare, with only mild or nonexistent infringement of personal autonomy and choice.  This claim to moderation is not sustainable.  Applying the insights of the modern literature on slippery slopes to new paternalist policies suggests that such policies are particularly vulnerable to expansion.  This is true even if policymakers are fully rational.  More importantly, the slippery-slope potential is especially great if policymakers are not fully rational, but instead share the behavioral and cognitive biases attributed to the people their policies are supposed to help.  Accepting the new paternalist approach creates a risk of accepting, in the long run, greater restrictions on individual autonomy than have been heretofore acknowledged.”   Continue reading

Planning And Democracy: Redux

by Mario Rizzo 

The Senate Finance Committee has filed its current version of healthcare reform. It is here.  

(HT: Volokh Conspiracy)  

It is 1,502 pages long and it is in legislative language. If passed, it will affect our lives in important ways. Let me suggest that you all read it carefully and then let your senators know what you think. 

Of course you won’t do that and neither will I. We are rationally ignorant and we shall remain that way. 

Will the senators, not on the committee, read it? I doubt it. They will be too busy giving their opinions on selected portions. However, special interests will know about the particular provisions that affect them. As to the senators on the committee, staffers will give summaries. How much they understand or care about provisions that affect the general interests in contrast to the interests that elect them is unknown.  

The welfare state makes a mockery of the rule of law and of representative democracy.

Boudreaux Wins!

by Mario Rizzo

Some very good news. Don Boudreaux, Professor of Economics at George Mason University and former president of the Foundation for Economic Education, has been awarded the Thomas Szasz Award for Contributions to Civil Liberties. Although Don is an economist, his commitment to liberty is broad-based. He understands that freedom is important in all areas of human society and life.

For a more complete announcement of the award see the FEE blog,  Anything Peaceful.

Congratulations to Don!

“Causes of the Crisis Blog”

by Sandy Ikeda

Following up on its recent issue on the financial crisis, Critical Review has started a blog with contributors to that issue doing the posting.  So far they have “disputed the theory that bankers’ bonuses, irrational exuberance, or capitalism caused the crisis. And four posts have debated the role of economic theory in failing to understand the crisis.”

Contributors listed under the fold. Continue reading

Critical Review Explores The Causes Of The Financial Crisis

by Sandy Ikeda

The most recent issue of Critical Review on the Causes of the Financial Crisis includes contributions from John B. Taylor, Daron Acemoglu, Steven Gjerstad and Vernon L. Smith, Lawrence J. White, and Joseph E. Stiglitz to name just few.

I’ve not yet read the entire issue, but did have the opportunity to read an earlier draft of the introductory essay by CR’s editor, Jeff Friedman, entitled “A crisis of politics, not economics, complexity, ignorance, and policy failure.” While the title reveals where Friedman stands on the origins of the crisis, his emphasis on “ignorance” in particular reflects his appreciation of the role of what Kirzner has termed “sheer ignorance” in creating the unintended consequences that drive the dynamics of interventionism.  (He cites Hayek, Selgin, and myself, alas there is no reference to Kirzner.)  He points out the effect of policies not only on the existing structure of regulations, but also the impact on future, unknowable interventions

I also found that his article does an excellent job of clarifying a number of points for me, including the nature of tranches and CDOs, which to the uninitiated (like me) seem highly arcane, and shedding light on the subtle but crucial roles of the Basel I and II agreements in the crisis. It’s a very useful essay, telling what can be seen as an Austrian-based story of the financial crisis.

Past, Present And Future: It Is All A Blur

by Mario Rizzo

An interesting post by Jeff Hummel over at HNN (History News Network) shows that it is difficult to know the status of the “macroeconomy” even in retrospect. This combined with poor forecasting (by Bernanke, for example) suggests a knowledge problem in the implementation of counter-cyclical policy. We may not know where we were. We do not know where we are. We definitely don’t know where we are going.

(HT: Jerry O’Driscoll)