Cafe Hayek — where orders emerge

A Conditioned Response?

by Don Boudreaux on May 18, 2013

in Economics, Hubris and humility, Nanny State

Here’s a letter to an e-mail correspondent. I use his real name with his kind permission.

Jeremy Harris, M.D.

Dear Dr. Harris:

Thanks for e-mailing in response to my recent review of Cass Sunstein’s book Simpler. While I disagree with the thrust of your argument, I appreciate its civility and thoughtfulness.

The heart of your criticism is your claim that I “ultimately deny the significance” of behavioral economics.

No and yes. I don’t deny the worth of learning more about human behavior. I don’t deny that some economists forget that homo economicus is an analytical tool and not a description of, or a prescription for, real people. I don’t deny that behavioral economics gives us a richer and worthwhile picture of the reality of human action.

But I do deny two things. First, I deny that the best of economics is done in ways that make it, at its core, vulnerable to the findings of behavioral economics. Not only is homo economicus an appropriate analytical tool on many occasions, but also, a great many ‘non-behavioral’ economists (and nearly all Austrian economists) often model human decision-making with more richness and realism than behavioral economists think. Read, for example, Adam Smith, F.A. Hayek, Ronald Coase, James Buchanan, Thomas Sowell, and Deirdre McCloskey.

Second, I deny that behavioral economics strengthens the case for government regulation. Indeed, I believe that it weakens that case. Because the regulators have the same psychological foibles as the regulatees – yet face far less direct feedback on their decisions than do those whom they regulate – turning more decision-making power over to government increases the frequency of human error and amplifies its ill-effects. Markets keep those errors less numerous and their effects more confined.

Human beings are not laboratory rats to be controlled and conditioned by some elite of their number who, somehow and without explanation, manage to become higher-order creatures simply by working for government and professing deep concern for the welfare of their lab animals.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Add a Comment Share

Quotation of the Day…

by Don Boudreaux on May 18, 2013

in Complexity & Emergence, Creative destruction

… is from page 108 of Peter Drucker’s 1967 volume, The Effective Executive:

The need to slough off the outworn old to make possible the productive new is universal. It is reasonably certain that we would still have stagecoaches – nationalized, to be sure, heavily subsidized, and with a fantastic research program to ‘retrain the horse’ – had there been ministries of transportation around 1825.

Add a Comment Share

Thomas Sowell Interviewed by Uncommon Knowledge’s Peter Robinson

by Don Boudreaux on May 18, 2013

in Economics, Myths and Fallacies, Scientism, Video

Thomas Sowell, in his voluminous writings, is – on my understanding – sometimes wrong. But he’s wrong only rarely. Very rarely. And on those very many occasions when he’s right he is brilliantly insightful and impressively forceful in his argument.

Add a Comment Share

Some Links

by Don Boudreaux on May 17, 2013

in Books, Civil Society, Curious Task, Growth, Hayek, Health, Hubris and humility, Immigration, Trade

Richard Epstein lays the lumber to Obamacare. Here’s his opening sentence:

On Friday, May 10, President Obama ventured into Ohio to give a Mother’s Day defense of the sagging fortunes of his signal achievement, the misnamed Patient Protection and Affordable Care Act. The law, the President assures us, “is here to stay”—a comment that is best regarded as a threat and not a promise.

Mark Perry appropriately praises an unsung major technology advance: the shipping container. Also, one of the commenters to Mark’s post appropriately mentioned Mark Levinson’s excellent book of a few years ago on this topic – a book entitled The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger.) And fortunately – after a half-century or so of very little improvement – the shipping container looks to be on the verge of making a substantial leap forward in efficiency, versatility, and reliability. If so, the world will become even smaller and the world economy even bigger. In a world more economically informed and less prone to worshiping as saviors allegedly Great Men or Great Women, Malcom McLean and the other individuals who played a large role in making the shipping container a reality would be, with far more frequency than are politicians and military generals, celebrated with boulevards bearing their names, currencies (privately issued, of course!) bearing their likenesses, and anthems singing their praises.

Rob Bradley explains why Hayek understood economics better than does T. Boone Pickens. (Back in 2008 I wrote on a similar matter, but with less eloquence than Rob.)

Here’s Jonah Goldberg on the current I.R.S. scandal.

Over at Libertarianism.org, George Smith is up to part 5 of his series on defending the non-aggression principle. Here’s part one (with links to the subsequent parts easily found). (HT Walter Grinder)

I’m eager to read Alvaro Vargas Llosa’s Global Crossings.

Add a Comment Share

Quotation of the Day…

by Don Boudreaux on May 17, 2013

in Complexity & Emergence, Curious Task, Hayek, Prices, Science

… is from pages 49-50 of the 1979 Liberty Fund edition of Hayek’s deep and profound and important 1952 book, The Counter-Revolution of Science:

But the concrete knowledge which guides the action of any group of people never exists as a consistent and coherent body. It only exists in the dispersed, incomplete, and inconsistent form in which it appears in many individual minds, and the dispersion and imperfection of all knowledge are two of the basic facts from which the social sciences have to start.

Add a Comment Share

Quotation of the Day…

by Don Boudreaux on May 16, 2013

in Politics

… is from George Will’s current column:

Leaving aside the seriousness of lawlessness, and the corruption of our civic culture by the professionally pious, this past week has been amusing. There was the spectacle of advocates of an ever-larger regulatory government expressing shock about such government’s large capacity for misbehavior.

As Thomas Sowell reminds us, reality isn’t optional. And humans are always human – even when they sport gaudy titles and win their jobs by persuading a majority of some group of voters to cast votes for them rather than for a different cast of hubris-lathered, self-important ruler-wannabes.

Add a Comment Share

Façade Capitalism Means Façade Freedom

by Don Boudreaux on May 16, 2013

in Civil Society, Crony Capitalism, Reality Is Not Optional

Yesterday I delivered some brief introductory remarks at, and then participated in, a panel discussion entitled “Façade Capitalism and Its Threat to Human Rights” – which was expertly moderated by the Daily Beast‘s Michael Moynihan – at the Oslo Freedom Forum. It was a great honor to do so. Here are my remarks.

…………

An economy is capitalist in façade-only if much of the direction of resources in that economy is governed by something other than the free choices of consumers and the genuine competition of producers – competition both for customers and for resources to be used to produce what producers anticipate customers will demand.

Likewise, a society is free in façade-only if it is capitalist in façade-only.

The modern “liberal” – in America we increasingly say “Progressive” – ethos features two propositions relevant to the subject of this panel. The first is that government intervention is a pernicious threat to liberty when exercised over “personal” or “civil” matters such as religious belief, speech, sexual practices, or participation in politics.

The second is that our liberty is somehow enhanced – or at least not threatened – by strong state or collective intervention into the economy.

I believe that the first of these propositions is absolutely valid. I believe that the second – the one about the economy – is grossly mistaken. And it’s mistaken in a way that is inconsistent with the very reasons for why the first proposition is valid.

Two facts support my belief.

Continue below the fold.

Add a Comment Share

Means Are Not Ends

by Don Boudreaux on May 15, 2013

in Creative destruction, Growth, Myths and Fallacies, Seen and Unseen

Here’s a letter to Salon:

In your interview of Jaron Lanier you quote a passage from his book Who Owns the Future? – a book in which Mr. Lanier laments the modern economy’s facility at making available at very low costs many goods and services whose production in the past required a great deal of human labor: “At the height of its power, the photography company Kodak employed more than 14,000 people and was worth $28 billion. They even invented the first digital camera. But today Kodak is bankrupt, and the new face of digital photography has become Instagram. When Instagram was sold to Facebook for a billion dollars in 2012, it employed only 13 people. Where did all those jobs disappear? And what happened to the wealth that all those middle-class jobs created?” (“The Internet destroyed the middle class,” May 12).

Mr. Lanier sounds profound, I suppose, to people unfamiliar with history. So let’s re-write Mr. Lanier’s prose just a bit in order to put his fears in historical context:

“At the height of its power, agriculture employed 90 percent of the population and produced output worth vastly more than half of U.S. GDP. It even invented countless plant hybrids and animal breeds. But today nearly all farms of the past have gone bankrupt (or, seeing the economic writing on the wall, were transformed to other uses). Agriculture today employs only about one percent of the workforce. Where did all those jobs disappear? And what happened to the wealth that all those good agricultural jobs created?”

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

(For the pointer to the Salon piece on Lanier, I thank Steven McDuffie.)

By Mr. Lanier’s logic – and, to be fair, he’s hardly the only person who sees the world as he does – we’d all be made much wealthier if, suddenly, each gallon of water for human consumption had to be manufactured using many workers.

Add a Comment Share

Quotation of the Day…

by Don Boudreaux on May 15, 2013

in Adam Smith

… is from Book V, Chapter 2 – on page 876, Vol. 2, of the 1981 Liberty Fund edition – of Adam Smith’s 1776 An Inquiry Into the Nature and Causes of the Wealth of Nations:

There is nothing so absurd, says Cicero, which has not sometimes been asserted by some philosophers.

Add a Comment Share

My advice for graduates

by Russ Roberts on May 14, 2013

in Education, Everyday Life

NPR’s Planet Money asked a bunch of economists for their advice for new graduates. They used an excerpt of what I sent them. Here’s the whole thing:

Don’t take the job that pays the most money. Nothing wrong with money, but it’s the wrong criterion for choosing if you are fortunate to have a choice in this not-so-great job market. People often confuse economics with anything that is related to money as if the goal of economics is to make you rich. But the goal of economics is to help you get the most out of life. Money is part of that of course, but usually there are tradeoffs–the highest paying job has drawbacks. Don’t ignore those. So take the job that is the most rewarding in the fullest sense of the word. Sure, money matters. But so does how much you learn on the job, how much satisfaction it gives you and whether it lets you express your gifts. The ideal is to find a job you love that still lets you put food on the table and a roof over your head. You spend a lot of time at work. Don’t do something you hate or that deadens your soul just because it pays well.

Time is precious. One of the simplest but most important ideas of economics is the idea of opportunity cost–anything you do means not doing something else. Don’t spend all of your leisure on email and twitter and entertainment. Keep your brain growing. Listen to Planet Money. Read a novel. Take a cooking class or keep working at that musical instrument.

Finally remember the question Mary Oliver asks in her poem, The Summer Day:

Doesn’t everything die at last, and too soon?
Tell me, what is it you plan to do
with your one wild and precious life?

You don’t have to answer that question today. Or even tomorrow. But time is precious. Find a way to use your gifts. If you don’t have any gifts, invest in finding some. If you have some, invest in improving them.

Add a Comment Share

← Previous Entries