The Essence of a Masonomist

by Don Boudreaux on October 19, 2007

in Economics, Education, Weblogs

Arnold Kling very eloquently explains the uniqueness of economics as taught and researched at George Mason University.  Here’s an excerpt:

At MIT and other bastions
of mainstream economics, most economists are to the left of center but
to the right of the academic community as a whole. These economists are
known for saying, in effect, "Markets fail. Use government."

Masonomics says, "Markets fail. Use markets."

Somewhere
along the way, mainstream economics became hung up on the concept of a
perfect market and an optimal allocation of resources. The conditions
necessary for a perfect market are absurdly demanding. Everything in
the economy must be transparent. Managers must have perfect information
about worker productivity and consumers must have perfect information
about product quality. There can be nothing that gives an advantage to
a firm with a large market share. There cannot be any benefits or costs
of any market activity that spill over beyond that market.

The
argument between Chicago and MIT seems to be over whether perfect
markets are a "good approximation" or a "bad approximation" to reality.
Masonomics goes along with the MIT view that perfect markets are a bad
approximation to reality. But we do not look to government as a
"solution" to imperfect markets.

Masonomics sees market
failure as a motivation for entrepreneurship. As an example of market
failure, let us use a classic case described by a Nobel Laureate,
which is that the seller of a used car knows more about the condition
of the car than the buyer. Masonomics predicts that entrepreneurs will
try to address this problem. In fact, there are a number of
entrepreneurial solutions. Buyers can obtain vehicle history reports.
Sellers can offer warranties. Firms such as Carmax undertake
professional inspections and stake their reputation on the quality of
the cars that they sell.

Masonomics worries much more
about government failure than market failure. Governments do not face
competitive pressure. They are immune from the "creative destruction"
of entrepreneurial innovation. In the market, ineffective firms go out
of business. In government, ineffective programs develop powerful
constituent groups with a stake in their perpetuation.

I’m proud to be a Masonomist.

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  • muirgeo

    So does a Masonomist believe in patents and corporate charters? The Fed?

  • Don Boudreaux

    Muirgeo,


    Being a Masonist is not to possess a list of policy do's and don'ts. All serious scholarship is about pondering the reality with revealing mental models that make sense of observed empirical observations.


    About patents, I think that there's no consensus among market-process scholars regarding them. Corporate charters are generally well-regarded -- for some reasons why see Henry N. Butler's article on the development of general corporate charters in the 19th century (Journal of Legal Studies, 1985). As for the Fed, there is a growing consensus -- though as yet fully formed -- that money supplied by private banks is superior to reliance upon a government monopoly to supply money. This consensus began taking shape with the work of Ben Klein at UCLA, Gordon Tullock (now at Mason), George Selgin (formerly at Mason and now at the University of Georgia), and Larry White (formerly at NYU and, later, Georgia, and now at the Univ. of Missouri at St. Louis).

  • muirgeo

    Dr Boudreaux,


    Thanks for the reply. I'll research further on those issues. Finally, and I apologize ahead of time but I just can not help myself, is GMU a free market creation or was it significantly reliant on public funding for its formation? Surely Masonomist do not exist as a result of government meddling...that would be all too confusing.

  • Flash Gordon

    In addition to the two major sources of government failure you mention, no competitive discipline and powerful constituent groups, is the natural tendency for government to suck up all the oxygen in the room and prevent innovation. Even a well run government program will crowd out all other potential solutions to any problem. It's insidious because we never know what might have been.


    The most important thing government can do to make markets work better is to have a sensible and fair mechanism to enforce contracts and redress wrongs.


    Unfortunately, there will always be those who will not be satisfied with anything less than a perfect market, and will push for government to "fix" the slightest perceived failure. This will always make worse the illness first diagnosed because the perfect if forever the enemy of the good.

  • Flash Gordon

    Please change "if" in last sentence above to "is" so sentence reads "..the perfect is forever the enemy of the good."

  • Gil

    Wait a tick if Masonomists believe government approximates a perfect world better than markets, doesn't that just make them hard-core Socialists? And if the criticisms posted thus far call governments incompetent, dangerous, a real monopoly playa, etc., aren't most here anarcho-Libbers rather than minarcho-Libbers?

  • josh

    Gil,

    What do you mean by:


    "government approximates a perfect world better than markets,"?


    I believe the issue is how well market based models of neoclassical economics approximate reality. I don't know what it means for "government" to approximate something.

  • I find that behavioral economics tends to be permeated with this sort of normative mindset as well. Particularly with regards to what is "rational."

  • Unfortunately, most of what passes for economics incorporates a normative mindset, including the "Masonist" view. Economists, of course, have a perfect right to express policy opinions, but I think the power of economics is diluted by the loss of objectivity that comes from building better models of the world without any agenda versus building arguments are meant to provide support for one policy versus the other, even policies I tend to agree with (like the Masonists).


    I think economics is at its best when it maintains a clear distinction between theory and evidence for how humans behave under various policy regimes (market and non-market) versus actual policy recommendations supported by a (invariably) selective reading of the theory and evidence available to support it.

  • Gil

    Whoops! Got thrown off about the part where the article "markets fail, use government" and thought the author had found a group of Socialist economists. Okay. So these Masonomists reckon government suck, lose the 'we', bah humbag! That's just plain ol' Anarcho-Libertarianism. They've been ranting on about this for ages. Maybe what Masonomist are really saying is that Minarcho-Libertarians are being hypocritical by favoring some forms of government and taxation without calling it thuggery and theft respectively.

  • Me too! My blog is still the number one Google hit for I Love GMU.

  • G

    I think the problem stems from the fact that government isn't modeled like the economy is. Economists assume the political process can produce whatever their imagination can dream up. They forget that, like the market, politics is a process, not their own personal sandbox. Unlike the market process, there is no tendency for the political process to fulfill the wants and needs of consumers. The political process cannot even know what the wants and needs of consumers are, because it cannot engage in economic calculation. Politics is about who controls the guns and legitimized force, and I cannot see how a process of picking the controllers of force could, in anything but the longest of runs, make good economic decisions.

  • muirgeo

    Masonomics worries much more about government failure than market failure. Governments do not face competitive pressure. They are immune from the "creative destruction" of entrepreneurial innovation. In the market, ineffective firms go out of business. In government, ineffective programs develop powerful constituent groups.....


    Posted by Don Boudreaux


    If you work at a computer, play video games, or listen to music on an iPod, you've benefited directly from the efforts of the winners of the 2007 Nobel Prize in Physics. Albert Fert of France's national research agency, CNRS, in Orsay, France, and Peter Grünberg of the Jülich Research Center in Germany independently discovered an effect known as giant magnetoresistance (GMR) that fueled a dramatic increase in the capacity of computer hard drives.....




    I'd hardly call this a government failure. In fact, like patent law, contract protection, our federal highways, our national parks, our corporate charters...government is often stunningly successful.


    The sooner we realize that markets and governments and society are interdependent and that the way we do set them up, no matter how imperfect, can optimize the results far better then leaving the results to the fates.


    What has been made clear these last 7 years (arguably 30 years) is that government fails miserable when it is run by people who don't think it can work.

  • muirgeo

    Visual evidence of the extent of the current climate anomaly.

    Sheered tree stumps under ice for as long as 4,000 years.

  • At MIT and other bastions of mainstream economics, most economists are to the left of center but to the right of the academic community as a whole. These economists are known for saying, in effect, "Markets fail. Use government."


    I think what we are trying to get at here is that, while markets fail, markets also correct. Government also fails,...and can be very difficult to correct.

  • What has been made clear these last 7 years (arguably 30 years) is that government fails miserable when it is run by people who don't think it can work.


    Then why are they running it? It seems that they do think it works as evidenced by the implicit assumption evidenced by attempting to forcefully implant democracy in the middle east. That is, coercion works. It worked to effect regime change, right.


    What could coercion possibly fail to accomplish?


    I see no evidence that the current administration holds to the idea that 'government doesn't work'. Why else did they pass NCLB, and expand drug prescription benefits?

  • mith

    I've seen this article linked twice now and both posts referenced the "Markets fail. Use markets." line. I was more interested in the three sections that preceded the section about market failures, losing the we. What might be a more interesting observation is applying that philosophy toward the recent presidential debates. Make note how often a candidate implies that we need to do something, and more specifically how something won't get done unless we elect the right person.

  • Chris

    Quote from "Gil" - "Minarcho-Libertarians are being hypocritical by favoring some forms of government and taxation without calling it thuggery and theft respectively."


    Sir, I find your ideas intriguing and would like to subscribe to your newsletter.


    As for me, I'm pissed that all the austrian school guys left NYU before I got here. Guess its GMU for grad school.

  • Well I know where I would want to work after university... if I was ten times smarter. As it is I'll probably end up lecturing at... Michigan State is good, right? ...Right???

  • Michael Blair

    I'd hardly call this a government failure. --muirgeo, regarding computers and iPods


    Perhaps not, but you might do well to consider Frederic Bastiat's well written essay "What is Seen and Unseen." By and large such accomplishments with connections to governments are the exception rather than the rule and likely would have been achieved without government -- possibly faster and cheaper to boot.

  • Michael Blair

    Oh, and thank you for posting the article, Don. Excellent article by Arnold Kling!

  • True_Liberal

    "...as long as 4,000 years" - Really, muirgeo?


    Do you regard that as a long or short period?? Oh, I guess you answered that, didn't you?

  • muirgeo

    trueliberal,


    It is an extremely long time with regards to the existence of modern civilization. Remember the first 1 billion people total population only occurred about 150 years ago.

  • Is Walter Williams still as GMU?

  • ...all of this makes me more and more interested in going to GMU. Should you have any more information, Professor Roberts, Please write me back...

  • Lee Kelly
    All of this makes me more and more interested in going to GMU.

    I think there are many who contribute here who would share that interest. George Mason University seems like a very interesting place to be at the moment. I have never been, and do not expect, that I will ever go to university, but would certainly be interested in going to George Mason.


    I hope you get the oppurtunity.

  • "If you work at a computer, play video games, or listen to music on an iPod, you've benefited directly from the efforts of the winners of the 2007 Nobel Prize in Physics. Albert Fert of France's national research agency, CNRS, in Orsay, France, and Peter Grünberg of the Jülich Research Center in Germany independently discovered an effect known as giant magnetoresistance (GMR) that fueled a dramatic increase in the capacity of computer hard drives.....I'd hardly call this a government failure. In fact, like patent law, contract protection, our federal highways, our national parks, our corporate charters...government is often stunningly successful. The sooner we realize that markets and governments and society are interdependent and that the way we do set them up, no matter how imperfect, can optimize the results far better then leaving the results to the fates."


    The counterpoint to this is the Japanese computer industry. It is pretty much run by the government and has virtually stagnated at the high end. The only significant innovation is occurring at the low end (e.g. consumer products and game systems) which is free of government interference.


    Also, in terms of GMR and other discoveries, there's no reason why that couldn't or wouldn't have been discovered by private sector researchers. There's nothing particularly magical about government-funded research.

  • Chris, the original

    muirgeo --


    The fact that government can be, and has been, successful at various projects is really a red herring. The question isn't whether government is successful; it's whether as a general matter, the world is better with government intervention than without.


    Your example refers to a specific technology. Do you know that this technology would not have happened outside of government? Perhaps, even, the advancement of this technology foreclosed other technologies which would have been better.


    Note that I am not a Masonomist, because I think that Masonomics fails to consider the "bird in the hand is worth two in the bush" maxim. For some things, we want the government solution because we can get it now. Don's position on antitrust comes to mind -- sure, a monopolist may eventually be conquered by a smaller entrepreneurial rival, but I'd prefer to stop the monopoly now.


  • There's nothing particularly magical about government-funded research.


    Oh, but there is. Government just waves its magic want and, voila, there is all the money anyone needs to do most anything. Those magic wands used to be sharp pieces of metal on the ends of stick, but nowadays, they are made of mostly metal and contain projectiles propelled by reactive chemical charges.

  • Gil

    Seriously, the standard Libertarian rant here follows the government's a thug and taxes are theft, yet some here seem to call themselves Minarchist? If I were Libertarian who had no love of government I'd have to be consistent and be an Anarcho-Libertarian. Either government has a legitimate place or it doesn't. Saying there's a place for a sorta government risks getting uncomfortably ideologically sandwiched between non-Libertarians and Anarcho-Libertarians.

  • Mr. Econotarian

    Markets fail. Government, as evidenced by the election of George Bush, can fail even worse.


    OK, that was the cheap shot, but an economic-minded argument would state that government may be more efficient than market-based schemes for a limited number of things that have high transaction costs - a parallel to Coase's reasoning for the existence of the firm rather than all of us being independent contractors.


    Roads are very difficult to build because they involve the purchase of a large number of plots from a large number of owners, and the difficulty in purchasing from any of those owners could kill the project. Thus eminent domain.


    Basic research is another issue that could be appropriate for government financing because it is typically difficult to see the economic value that could come from it. It is like the ultimate in venture captial, huge risk with exceedingly rare yet spectacular returns.


    Subsidizing medicine for rich retirees, well, that is probably best not done by government.


    The things government is needed for may change over time with technology. For example, in a paper-money world, private money had proven challenges in the 1800's. In a world of digital authenticated money going over computer networks, private money becomes more attractive. Wireless toll collection makes it easier to turn a profit on private high-speed roads (although they are still tough to build without eminent domain).

  • brotio

    "In fact, like patent law, contract protection, our federal highways, our national parks, our corporate charters...government is often stunningly successful" - Muirgeo


    I thought government-funded roads were eeevil because they pass in front of Wal-Marts?

  • brotio

    Gil, to repeat a post I made on another thread; When government taxes me to pay for your health care or retirement, that is theft and thuggery. When government taxes me to build roads so that you and I can both drive to Wal-Mart, that is a valid use of government because I also receive value for my tax dollar. Why is that considered inconsistent? We libertarians may argue that a privately financed road might be more efficient, but that doesn't mean that a government-financed road is immoral, only inefficient. Theft is immoral, so (in addition to being inefficient) making me pay for your health or retirement is immoral because I receive no value. See the difference?

  • brotio

    Oh, and Muirgeo,


    Notice that when you asked Mr. Boudreaux a question that he answered it directly and succinctly? Care to try that yourself?


    ... quack, quack, quack...

  • Gil

    Nope, brotio, still haven't got it yet. Especially as your argument implies poor lovable righties pay all the taxes and sneaky dastardly lefties collect all the public services. (Yep, thick as a brick! 8|)

  • Responding to muirgeo is like shooting fish in a barrel, but it's so much fun I can't resist. No, patent law is not a success. I have had a published invention stolen from me through a combination of incomptent patent examiners and court rulings which have destroyed the notion of obviousness and prrior art. These days, the only way to keep somebody from patenting an idea out from under you is to patent it first.

  • muirgeo

    When government taxes me to build roads so that you and I can both drive to Wal-Mart, that is a valid use of government because I also receive value for my tax dollar. Why is that considered inconsistent?


    Posted by: brotio




    Brotio,


    Why should some one who doesn't own a car and rides the trains have to pay for your highways? Why should some one who doesn't patent anything have to pay for the patent office?


    But indeed there is nothing inconsistent with your statement. It's very consistent with the thinking of a small self-centered brain that is incapable of thinking of the bigger picture of how society and democracy works. I think some ones mamma should'a worked a little more on sharing way back when.

  • Lee Kelly

    Gil & muirgeo,


    There is no theft where there is no property, and unfortunately property rights do not enforce themselves, since there are always people, like yourselves, who wish to appropriate the property of others for their own end.


    Now, it would be preferable if government could be funded by voluntary contribution, but it is not unlibertarian to propose involuntary taxation to provide a minimal government, without which there would be no liberty at all.


    There are even instances where libertarians may reluctantly suggest government intervention, such as for addressing externalities caused by pollution, or maybe to set up a basic infrastructure, etc.


    These issues are generally addressed with the proviso that the use of government coercion is reluctant, and an alternative solution to these problems, more compatible with liberty, is always be preferred.


    Regards,

    Lee

  • Roads are easy -- a gas tax that is and can only be used to fund roads. This would make it a users fee.

  • raja r

    Roads are easy -- a gas tax that is and can only be used to fund roads. This would make it a users fee.


    This is similar to the levy on 'Music CDs' (as opposed to Data CD - an entirely artificial distinction) to pay for copyright infringement.


    What if I want to buy gas to run a generator? Or for my lab?


    This will invariably lead to :


    a - govt mandated artificial classification of fuel that everyone must agree with.


    b - more govt intrusion and monitoring to ensure fuel is used for the 'correct' purpose.


    The burden of collecting the revenue should be on the service provider - they should not make assumptions that make it easier for them to collect, but infringe on the rights of others.


    A movie theater has its own methods to ensure everyone pays to watch the movie. They do not go around levying a tax on popcorn.


  • "Why should some one who doesn't own a car and rides the trains have to pay for your highways?"


    Do these people also consume no products that are transported via the highway? Do they not require the defense of the nation that the was the express purpose of building the Interstate Highway System?




    "It's very consistent with the thinking of a small self-centered brain that is incapable of thinking of the bigger picture of how society and democracy works"


    Obnoxious statements like the above make me wish the owners of this blog had a more vigorous attitude regarding banning contrarian parasites who substitute invective for argument.

  • Raja, who cares if you buy gas for a generator? So you contributed a little extra to road maintenence. Nobody has to slap on any extra regulations for that or to counteract it. If you want to be a stickler about not paying for that 1 inch of road, we can have a form you can fill out and send in for a refund of the user's fee. My guess is that few if any would care enough to get reimbursed so little.


    Lance, my solution would take care of the issue of people paying for transportation of goods precisely because the price paid for gas taxes would get included in the price of the goods shipped.


    Either way, a user fee is a way to solve the problem of eliminating taxes per se while taking care of public needs that are at best difficult to solve using pure free markets -- which I'm always in favor of when it is an actual option (which it is almost all the time).

  • brotio

    Gil,

    Would you please find for me an instance where I claimed only "poor lovable righties pay all the taxes and sneaky dastardly lefties collect all the public services"?


    I don't care what your political affiliation is. If you are a net taxpayer, you are being forced to fund someone else's retirement to your own detriment. You come across as a net tax receiver who is happy as hell to take that retirement at someone else's detriment. You may think it noble, I think it's theft.


    Muirgeo,

    I live in the United States, which is a republic, not a democracy. You claim that your quest to force me to pay for your retirement places you in brotherhood with Patriots like John Adams and James Mason, but obviously you haven't read much of their writings on the subject or you'd know that our Founders had no respect for democracy and no desire to try it again(especially Adams). At least Gil appears consistent in his disdain for anyone who would value their own retirement above his, even if that man is Thomas Jefferson.


    Also, don't ask questions of me until you start answering questions posed to you (you know which ones ... quack, quack, quack...) because I will not answer even simple questions posed by you until you play by the same rules you want us to play by. However, I will continue to point out your inconsistencies every time I get the chance:


    "In fact, like... our federal highways ...government is often stunningly successful"


    versus


    "Why should some one who doesn't own a car and rides the trains have to pay for your highways?"


    Both of those are from Muirgeo


    I do thank Mr. Romanoff for answering so brilliantly, though. :)

  • brotio

    Dr. Camplin,

    Thanks for your analysis on user fees. It's very insightful and logical.


    Muirgeo seems to be both opposed and in favor of taxation to build roads (a true John Kerry fan). I do know he's opposed to taxpayer-funded roads if they're anywhere near a Wal-Mart, so I'll assume that he's just opposed to taxpayer-funded highways.


    I wonder if that opposition also applies to taxpayer-funded mass transit? I get the feeling Muirgeo uses publicly-subsidized mass transit and has no problem with non-riders footing 80% of the bill.

  • "Lance, my solution would take care of the issue of people paying for transportation of goods precisely because the price paid for gas taxes would get included in the price of the goods shipped."


    I agree. I have no strong opinion on user fees v. other taxation to pay for infrastructure. User fees do tend to be a somewhat more elegant solution and do still offer an indirect mechanism of taxation for indirect users of highways. I find many of the arguments about the method of taxation are less relevant than the more important argument about the level of taxation overall regardless of the method. But that's a discussion for another time.

  • "I just don't have the time to police comments and enforce good behavior, especially since some posts were generating more than 100 comments. And I don't want to host a party in which a small vitriolic minority consistently tries to ruin the event for everyone else. So I decided to turn the comments feature off."


    Greg Mankiw, on why he shut down his comments.


    I hope that doesn't happen here.

  • "Seriously, the standard Libertarian rant here follows the government's a thug and taxes are theft, yet some here seem to call themselves Minarchist? If I were Libertarian who had no love of government I'd have to be consistent and be an Anarcho-Libertarian. Either government has a legitimate place or it doesn't. Saying there's a place for a sorta government risks getting uncomfortably ideologically sandwiched between non-Libertarians and Anarcho-Libertarians."


    No inconsistency at all. I don't love having my teeth pulled, but I do need my teeth pulled. That does not, however, mean I need all my teeth pulled.


    Equally, I may not love government, but I do want one. That does not, however, mean I want a big, intrusive government - I want a small, limited government.


    "Why should some one who doesn't own a car and rides the trains have to pay for your highways? Why should some one who doesn't patent anything have to pay for the patent office?"


    They shouldn't. That's why only people who drive on the roads pay road tax (I believe in the USA this is called car tax, vehicle license fee, or registration fee) and tolls.


    Since the government already owns the road it's legitimate for it to charge those who use it, though I'd prefer if we had a prviate road network.

  • Gil

    Or, brotio, perhaps to put it another way Libertarians apparently use very little of public infrastructure and services that they feel they're paying taxes and getting next to nothing in return hence their despise of taxes. Actually reading everyday newspapers and watching news programs most people, on the other hand, pay taxes yet actually expect the government to provide them with the services they prefer. Hence people lobby and make noise as to how they want their tax money spent.

  • Gil

    Or if you're talking retirement most people nearing retirement prefer to argue "I've worked hard all my life and paid my taxes therefore I feel entitled to my retirement". As opposed to "I haven't worked a real day in my life and want the true hard-working people to fund my retirement".

  • Colin Keesee

    Thank you to GMU's Department of Economics. George Mason is really becoming the intellectual flagship for those who study and believe in the Austrian School of Thought.


    I am a senior economics major at California State University, Northridge. The economics department is a small island of free market advocacy in a sea of statism. Despite being 3,000 miles apart, the ideas and words that come from GMU's professors, especially their blogs, give us all assistance in waging the war of ideas on a very leftist Campus, in a very leftist city.


    Cafe Hayek has taught me many things and even when an entry concerns a concept of economics that I already know, I at least can see a more a lucid and concise way of explaining that concept to the general public.


    Keep up the good work. Sadly, Milton Friedman, one of free market Economics' greatest advocates, has passed on and other greats like Thomas Sowell and George Stigler are now very old. It is good to know that people like Professors Roberts and Boudreaux and others will be around to continue waging this never ending war of ideas for decades to come.


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