Higgs on Scientism and the Lamentable State of Macroeconomics

by Don Boudreaux on April 4, 2011

in Data, Economics, Scientism, State of Macro, The Crisis

In response to several of the comments on this earlier blog post, Bob Higgs e-mailed the following note to me; it’s a note with which I fully concur.  I reproduce it here with Bob’s kind permission.

It seems to me [Bob Higgs] that some of the frequent commentators at Cafe Hayek enjoy arguing for the sake of arguing, rather than really digging into the position against which they are arguing (regime uncertainty, in particular) to determine how “soft” and “ambiguous” it is, relative to ostensibly “hard” “scientific” variables such as “excess capacity.” (I notice, by the way, that they never seem to notice the hard evidence on corporate-bond yield curves that I have used to assess regime uncertainty in the 1930s and during the past decade. What’s not “hard” about these data? I grant that their changes still require interpretation, about which reasonable people may differ, but the bond yields are in any event as “hard” as economic data get, and certainly “harder” than BEA data on “excess capacity.”)

A good exercise for them would be to dig into the BEA’s nitty gritty to discover how the numbers on “capacity” are derived. I believe they would find that the number of arbitrary and even stupid assumptions that underlie those derivations–not to mention all of the questions related to aggregating the various industries into a single national aggregate–cast heavy doubt on their status as “scientific” data.

They might also give thought to the fact that it is not “aggregate demand” that is weak. Demand in some parts of the economy is weak, but in other parts it is strong. It is stupid to suppose that if, say, the federal government increases its deficits (for example, in order to transfer ever more bailout money to state governments so that they can continue to pay their bloated payrolls), that action will necessarily increase real output and decrease unemployment. When millions of houses stand unoccupied, spending more money on prison guards and welfare administrators in California will not help to reduce the number of unemployed construction laborers in Florida. The whole “aggregate demand” notion, as well as the models in which it is embedded, is so absurdly alien to an understanding of how a real economy operates that one must simply shake his head in wonder that economists ever fell in love with it.

But, alas, some people always want a single numerical data series or a single regression equation to provide a conclusive answer to a complex problem. (By all means, never allow historically grounded judgment to enter the picture, even if some economists have a well established record of good judgment, whereas others have manifestly terrible records.) This sort of thing, though many older economists suffer from it, seems to me to be a form of intellectual adolescence. Grow up, compadres; start to think about the complexity of the economic system and about how people THINK about the decisions they have to make–they are not automatons, after all, but persons capable of changing their minds, reconceptualizing the issues they face, reacting to new fears impinging on them, and so forth. This broader vision, it seems to me, represents a form of intellectual maturity. Unfortunately, such maturity has almost been declared illegal by the leading lights of the economics profession since the 1930s. Scientism has been the bane of economics since before I was born, and looks as if it will continue to be for a long time after I have died.

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{ 143 comments }

Pingry April 4, 2011 at 1:54 pm

“Grow up, compadres; start to think about the complexity of the economic system and about how people THINK about the decisions they have to make–they are not automatons, after all, but persons capable of changing their minds, reconceptualizing the issues they face, reacting to new fears impinging on them, and so forth.”

Ummm…and how do you reach the conclusion that economists (or, at least, the ones you dislike) somehow don’t think about the complexity of the economic system?

How do you reach the conclusion that we somehow don’t study and think deeply about the decisions that people make?

Thanks for the epiphany Mr. Higgs, because we were not aware that people change their minds.

C’mon, get real.

This is the standard Austrian attack: Namely that non-Austrians somehow don’t even think about the economy’s complexity or that we don’t think deeply about such issues, or that we have failed to realize that people change their minds.

There’s a reason why, for example, economists use k to denote capital despite the Austrian protests that capital is heterogeneous….because it’s incredibly difficult to make any kind of model with heterogeneous capital.

So maybe the Austrians can try to compete in the marketplace of ideas by providing something that addresses this…something that can be used to look at past events, and something that can be used to describe future economic events. And no, rejecting math in favor of “radical apriorism” won’t cut it.

Excuse me while I go back to not thinking about the complexity of human behavior.

–Pingry

yet another Dave April 4, 2011 at 2:29 pm

There’s a reason why, for example, economists use k to denote capital despite the Austrian protests that capital is heterogeneous….because it’s incredibly difficult to make any kind of model with heterogeneous capital.

So you admit capital is heterogeneous, but you ignore that reality because it’s too hard to model. Fair enough – modeling complex dynamic adaptive systems is astoundingly difficult (perhaps impossible with human decision makers as needed elements of the model).

But how can you then claim the resulting models are useful for understanding the reality you ignored????????

vikingvista April 4, 2011 at 2:38 pm

Pingry looks for his dropped keys beneath the street lamp, because the light is better than over by his car.

Sandre April 4, 2011 at 3:04 pm

I sorely miss the like button.

John V April 4, 2011 at 4:41 pm

two thumbs up.

Simple. Witty. Insightful and SPOT ON.

Methinks1776 April 4, 2011 at 6:00 pm

Yep. Time after time.

John V April 4, 2011 at 4:40 pm

“There’s a reason why, for example, economists use k to denote capital despite the Austrian protests that capital is heterogeneous….because it’s incredibly difficult to make any kind of model with heterogeneous capital.”

And that’s exactly why Higgs’ statement and the Austrian critique of simplistic, generic aggregations and models are so incredibly correct and relevant. It’s amazing that you posted that as a rebuttal while actually strengthening the argument that you are supposedly criticizing.

Pete April 4, 2011 at 10:33 pm

The desire for effective broad macroeconomic models to exist doesn’t justify the use of shoddy shortcuts to invent ineffective broad macroeconomic models.

Pingry April 4, 2011 at 2:05 pm

Dear Mr. Higgs,

I notice, by the way, that free market fundamentalists never seem to notice the hard evidence demonstrating market failure, but very conveniently notice the hard evidence (you know, that mathematical and econometric stuff derided by Mises and his ilk) that justifies free markets in other cases.

This is precisely how Friedman and the Chicago School helped to forge a new consensus today by challenging the postwar Keynesian monolith….by pretty much inventing the “scientism” of testing theories instead of using just deductive and subjective reasoning.

–Pingry

Emil April 4, 2011 at 4:06 pm

Well, actually post-war keynesianism dug its own whole as most, if not all, countries that implemented it found themselves with huge deficits and broken economies somewhere around the 80s

vikingvista April 4, 2011 at 4:12 pm

So true. It is an irony of biblical proportions that keynesiacs consider themselves empiricists.

robert_o April 4, 2011 at 5:11 pm

Austrians do understand market failures. Austrians also understand that the State has no magical powers by which it can better identify market failures than the people involved, and that, even if the State had such a magical power, then it still would not have the necessary magical power to resolve the failure.

If the State already had such magical powers to begin with, the USSR would be in socialist nirvana right about it.

Lionel from France April 5, 2011 at 4:32 am

Agree.
Pingry, did the state avoid the subprime crisis?

Harold Cockerill April 5, 2011 at 5:51 pm

The State does have magical powers. Unfortunately the power is not to identify market failures but to protect market failures from the rectifying force of the market.

The USSR was protected to death and we aren’t feeling too well either.

JohnK April 4, 2011 at 2:17 pm

The whole “aggregate demand” notion, as well as the models in which it is embedded, is so absurdly alien to an understanding of how a real economy operates that one must simply shake his head in wonder that economists ever fell in love with it.

That’s easy. People naturally want someone to “do something” when things are tough. Keynesian economics and it’s models explain that someone can indeed “fix it”.

They have the answer.

Saying something like “Nobody specific can fix it. It’s too complex. But if you just sit back and let resources be reallocated on their own, let the winners win and the losers lose, things will be humming in no time.” isn’t the answer.

What’s to love in that? Who will seek your advice with that kind of solution?

It doesn’t identify one specific player who can “fix it”.
Keynesian economics does. That player is government.

Keynesianism is a perversion of economics for the benefit of politicians.

Pingry April 4, 2011 at 3:34 pm

“But if you just sit back and let resources be reallocated on their own, let the winners win and the losers lose, things will be humming in no time.”

But the problem is that things may not necessarily move to full employment “in no time”. The long-run can indeed be a long time coming.

And in the meantime, just sitting back means that most people lose. The Austrians seem to believe that a recession plays some beneficial liquidationist role without which the economy cannot get back to full employment. In effect, they believe that the invisible hand is stronger in a recessionary gap than at full employment. And Austrians believe that any attempts to mitigate the huge spillovers to innocent people (and yes, sticky wages and prices are the ultimate market failure) only creates “sham prosperity.”

The rest of us believe that the invisible hand is stronger at full employment than in a recessionary gap.

ABCT rests on a bogus idea that higher unemployment leads to lower unemployment.

Understand that those of us who believe in a weak invisible hand in a recession want to have the economy moving toward full employment so that we can indeed sit back and let resources be reallocated on their own, and so that we can let the winners win and the losers lose.

We just realize that liassez-faire is really laissez-FAIL in the context of a recession.

–Pingry

JohnK April 4, 2011 at 3:42 pm

“Understand that those of us who believe in a weak invisible hand in a recession want to have the economy moving toward full employment so that we can indeed sit back and let resources be reallocated on their own, and so that we can let the winners win and the losers lose.”

Artificially raising employment through allocating resources by fiat is going to speed up resources being reallocated on their own?
Choosing winners and losers lets winners win and losers lose?

That makes no sense.

Pingry April 4, 2011 at 4:38 pm

The only thing that is artificial is when innocent people must incur large spillovers in the form of involuntary unemployment because Austrians want to liquidate everyone based on a flawed idea that more unemployment leads to less.

–Pingry

Daniel Kuehn April 4, 2011 at 4:40 pm

What do you mean when you say that they think more unemployment leads to less? I don’t understand.

Pete April 4, 2011 at 10:36 pm

DK,
I think he’s referring to the Austrian tendency to reject government attempts to increase employment. If not, my mistake.

But if so, I would counter that Austrians reject such attempts on the grounds that the policy, not the resulting short-term fall in unemployment, will lead to long term rise in unemployment. The policy retards economic growth and promotes uncertainty. Those things lead to more unemployment.

Methinks1776 April 4, 2011 at 4:11 pm

Pingry,

What is it about recessions that makes you so wise that you can do a better job allocating resources than the millions of participants in the market?

Understand that those of us who believe in a weak invisible hand in a recession want to have the economy moving toward full employment so that we can indeed sit back and let resources be reallocated on their own, and so that we can let the winners win and the losers lose.

Sure. We understand that. You’re all really good, very smart guys with good intentions (well, not all…but, I digress). We also understand that you have never been more successful than the “invisible hand” and you’ve created a many Frankensteins along the way. Where has fiscal policy ever been successful in doing anything but increasing national debt?

Pingry April 4, 2011 at 4:48 pm

But you’re making a mistake:

I’m not talking about allocating resources. Resources are allocated in a recession too. But at NAIRU, there are more resources to be allocated, but the allocation does not change in any real material manner, at least for a responsible central bank pursuing explicit form inflation targeting.

To claim that anyone can better allocate resources than millions of people misses the point. I never claimed thus, and I have never advocated central planning.

In a recession, economists in favor of liberality, instead of austerity, want to employ all of the idle resources, not tel them where to go. It’s about giving a helping hand to a weak invisible hand.

If you interpreted what I have said as trying to achieve allocative efficiency, you would be essentially committing what Summers and Krugman call ketchup economics.

Simply because a 2 quart bottle of ketchup costs twice as much as a 1 quart bottle does not mean that the price of ketchup is somehow in equilibrium.

And the same for the economy. Yes we can experience equilibrium condition at NAIRU or in an Okun gap in which we have allocative efficiency in both cases. But at NAIRU, there has not been any material change in resource allocation. We just have more resources being used in production.

–Pingry

John V April 4, 2011 at 5:03 pm

Pingry,

“In a recession, economists in favor of liberality, instead of austerity, want to employ all of the idle resources, not tel them where to go. It’s about giving a helping hand to a weak invisible hand.”

We get the intent. It’s extremely easy to understand. Now, moving beyond that, Look at that quote of yours and then consider the whole notion of heterogeneity of capital. Consider that jumbo leggo-laden mess and what it took to put it in that position. How is “employing idle resources” (as if you can even discover which ones need or can use help over others) going to address that heterogeneous combination of capital and labor that is obviously not working properly?

Your POV never takes it for granted that maybe the combinations are not working well or have been exposed as not being sustainable and need to be undone. Stimulating idle resources never considers this more important issue.

But as you said uothread:

“it’s incredibly difficult to make any kind of model with heterogeneous capital.”

EXACTLY. Obviously, the deeper insights are well beyond these simplistic models and ideas about “stimulating idle resources”. They are idle for a reason.

Seth April 4, 2011 at 6:11 pm

“In a recession, economists in favor of liberality, instead of austerity, want to employ all of the idle resources, not tel them where to go. It’s about giving a helping hand to a weak invisible hand.”

‘want to employ all the idle resources’ sounds like central planning to me.

Here’s why I think it sounds like central planning. Please let me know where I’m wrong.

First, someone has to judge that resources are idle. That judgment is not made by the 100s of millions (though it was their judgments that may have caused those resources to be used less than they once were), but by a relative few politicians who seem wholly disinterested in why the 100s of millions are not choosing to use those resources any longer

Second, this same group of politicians determine which actions to take to employ said resources, overriding the decisions of the 100s of million.

The few may not micromanage every movement but, I don’t think Stalin even told his people how to make steel, just how much to make.

Bill April 4, 2011 at 4:52 pm

“ABCT rests on a bogus idea that higher unemployment leads to lower unemployment.”

You really knocked that straw man out of the park.

Pingry April 4, 2011 at 5:24 pm

To Daniel Kuehn and Bill,

At the margin, these Austrians/liquidationists are totally against the “sham prosperity” of countercyclical policy because it interferes with the adaptation of the structure of production.

But by avoiding the “artificial employment” of expansionary policy, unemployment rises higher than it would otherwise. That much is not terribly controversial. But the Austrians seem to believe that this would lower unemployment as the structure of production adjusts.

Wrong.

Unemployment begets more unemployment. To believe the Austrian claims, the malinvestment is the only thing needing adjustment.

But the reality is that resources associated with so-called “malinvestment” are not the only resources to become idle, and furthermore, these idle resources (malinvestment and resources completely unrelated to malinvestment) lead to more idle resources (again, both in the malinvestment and resources unrelated to malinvestment) as spending continues in a downward spiral.

Unemployment begets more unemployment. Sure, at some point this stops, but how many innocent victims must be liquidated? It takes a long time to get back to NAIRU, and as a practical matter, we all live in the short-run. A lot of people out there, totally unrelated to housing and finance, are still getting shafted.

In effect, what many of us are arguing about is really just the amplitude of the business cycle. And the amplitude is greater under ABCT/liquidationism than under countercyclical policy because it’s far more than just resources associated with the malinvestment. Malinvestment can and should be dealt with at full employment, not in an Okun gap.

I know Daniel probably learned from Friedman and Schwartz, but I’m pretty skeptical that anyone else has.

–Pingry

SheetWise April 5, 2011 at 12:03 am

“In effect, what many of us are arguing about is really just the amplitude of the business cycle. And the amplitude is greater under ABCT/liquidationism than under countercyclical policy because it’s far more than just resources associated with the malinvestment.”

It sounds like you’re more concerned with the impact on the investors than you are on seeing a correction. The full impact of malinvestment on the investors is what will prevent malinvestment, IMHO.

What advantage do you see in a soft landing that prolongs a correction and impacts people who had nothing to do with the investments?

Daniel Kuehn April 5, 2011 at 6:02 am

I see – yes, well I think they are wrong in that respect, but I’m not sure it clarifies their theory to say that they think more unemployment causes less unemployment. They do not think that, but I certainly agree that what they think causes less unemployment will actually cause more.

I do like to think I picked up a thing or two from Friedman and Schwartz.

Don Boudreaux April 4, 2011 at 5:05 pm

Pingry writes: “ABCT rests on a bogus idea that higher unemployment leads to lower unemployment.”

Can you supply a citation to support this bizarre notion – a citation that is to something more than the indisputable notion that resources currently employed in ways that do not satisfy consumer desires must be released from those employments and then find more-productive employments?

vikingvista April 4, 2011 at 5:14 pm

Asking Pingry to justify bizarre notions is a bit like asking grass to justify green.

Michael April 4, 2011 at 6:56 pm

In effect, they believe that the invisible hand is stronger in a recessionary gap than at full employment.

Careful, you’re making one hell of an inference here. They might believe that the invisible hand is just as much at work in recessions as it is in non-recessions.

Are you sure your inference is appropriate?

Daniel Kuehn April 4, 2011 at 2:42 pm

Very good thoughts. His third paragraph seems extremely out of place with paragraphs 1, 2, and 4, but the methodological points remain.

Measurable data is important, but its limits need to be recognized and ultimately we have to just understand what the data is for. If someone uses production as a measure of welfare, an entire body of theoretical and empirical literature revolts against that. But if you measure it as the sum of the amount of goods sold and the price at which they were sold, that is a useful datum and we do have theories (which do incorporate subjective values and welfare and human action on the basis of those values) which can predict that prices and quantities will move one way or another. But you have to know exactly what the data you’re dealing with can and can’t tell you.

I hate distinctions between “hard” and “soft” data for the same reasons that I hate the distinctions between “hard” and “soft” science. Data is data. All data is different, but it is ultimately a piece of empirical information that you use to form and assess theory. Science is science. Some sciences seem to be more precise than others, but ultimately all science is the process of understanding and explaining the world following a specific methodology.

“Hard” and “soft” completely misses the point.

vikingvista April 4, 2011 at 2:45 pm

Data are.

Daniel Kuehn April 4, 2011 at 2:46 pm

That’s what grammar check is for :)

Richard Stands April 4, 2011 at 11:18 pm

Indeed. Because if they are not, they can’t be.

I give this comment a square root of negative one “Likes” :)

vikingvista April 5, 2011 at 1:50 am

Thank you, sir. I, for exp(-2*pi*i), appreciate math humor.

yet another Dave April 4, 2011 at 3:05 pm

Why do you think the third paragraph seems extremely out of place? To me it seems to fit right in and flow very nicely.

Perhaps the best line in the piece is in the third paragraph:

The whole “aggregate demand” notion, as well as the models in which it is embedded, is so absurdly alien to an understanding of how a real economy operates that one must simply shake his head in wonder that economists ever fell in love with it.

Daniel Kuehn April 4, 2011 at 3:13 pm

We aggregate individual transactions up to a market and talk about its dynamics. There are disaggregated dynamics (search, matching, bargaining, etc.) that have aggregated implications without actually occuring at the aggregated level of the market.

Aggregate demand is simply an aggregations from transactions up to markets, and then up from markets to economies. Just as with markets and transactions, there are disaggregated dynamics that can have aggregate implications without actually occuring at the aggregate (in this case, economy-wide level).

There is no reason why anyone who is willing to talk scientifically about markets as aggregations of similar transactions should have a problem with talking scientifically about economies as aggregations of markets. There are important features that come in when you aggregate up: namely, money, which functions very differently than any other product.

I would hesitate about any economist for which this poses a problem, particularly if the only objection is that it is not something we experience in daily life.

Since when is the subject matter of science restricted to that which is naturally and normally perceived by our senses and brains?

It doesn’t fit with the rest of the comment because Higgs spent the rest of the comment complaining about precisely those sorts of people who quibble over “softness” or “abstraction” and create a shibboleth out of the “hardness” of a phenomenon.

Daniel Kuehn April 4, 2011 at 3:20 pm

What do you think was smooth about going from “don’t reject what seems at first glance to be ambiguous” to “reject this because it is ambiguous”?

yet another Dave April 4, 2011 at 4:27 pm

Huh?

Looks like another dk reading comprehension fail.

sigh…

Daniel Kuehn April 4, 2011 at 4:34 pm

Why were you even impressed with that statement? Quantam mechanics is absurdly alien to our daily experience. Evolution is absurdly alien to our daily experience (I’ve never seen any animal evolve). Since when has this been a legitimate reason to reject a claim?

yet another Dave April 4, 2011 at 4:48 pm

an understanding how a real economy operates

vs.

our daily experience

RCF continues unabated!

vikingvista April 4, 2011 at 2:44 pm

“Demand in some parts of the economy is weak, but in other parts it is strong.”

But if you don’t obscure that in aggregation, how can you economically justify government increasingly diminishing the strong parts to subsidize the weak ones?

JohnK April 4, 2011 at 2:53 pm

You can’t.
The purpose of aggregation is not to understand the economy.
It’s purpose is to benefit politicians and their cronies as they “stimulate aggregate demand”.

Pingry April 4, 2011 at 2:59 pm

Wow, nice straw man….but hey, at least you’re not practicing “scientism” with your outlandish claims.

–Pingry

vikingvista April 4, 2011 at 3:37 pm

There is not a single part of your sentence that makes one iota of sense as a reply to JohnK.

Eduardo April 5, 2011 at 5:47 am

That is completely false! Do you know regional economics? The agregation have sense if you make it at a sector level, like when you want to assess the competitive wage from a sector! Actually you are ignoring a lot of quality work that i am sure you would use if it was convenient for making your point.
Why do you hate so much politicians? Polititicians are not just automatons that imply transaction costs

JohnK April 5, 2011 at 8:11 am

In the private sector there is feedback to a company as to whether or not it is doing a good job. It profits or it fails.
When politicians create policy there is no such feedback mechanism. When policy harms the economy there is no way to get that information back to the politician, and even if there was it wouldn’t get past the politician’s ego.
In the private sector bad ideas can be changed on a dime. They must. If they don’t then the company may go belly up (unless they have friends in government to prop them up and/or set up barriers to competition).
In government bad ideas take forever to change, if they change at all.

It’s not that I hate politicians so much as I do not see them having any legitimate role in directing the economy.
Government is supposed to react to force and fraud, not instigate it.

Eduardo April 6, 2011 at 5:11 am

“When politicians create policy there is no such feedback mechanism.”
That is not especially true. In many countries there is actually feedback systems (Belgium, Sweden, Germany) that make the citizens realize if the politicains achieved the targeted policy or not. You can see then the same logic within markets : consumers won’t buy anymore from a firm which is doing bad production, or if it is too expansive. Here the consumer is the voter.
But I understand your loose of confident about Government, especially when you see how banks and big lobbies control have influence on American policies.
I am not defending governments, i am trying to put a human face behind it. And actually i have no inconditional faith nor on markets, nor on government. (although i prefer market mechanism). In my opinion, in both cases the adjustment mechanisms depend on the societal perception of citizens and on transparency. For example, many garbage firms export their electronic garbage to African countries, so the consumer of such product can’t see that (no transparency) and then there is no appropriate feedback system.

“Government is supposed to react to force and fraud, not instigate it.”
I agree at 100%

yet another Dave April 4, 2011 at 4:40 pm

I tried to build a model to demonstrate the economic justification you’re asking for, but no matter how I worked the formulas, every result of the keynesiac assumptions gave the same result:

k = (R)(A)(P)

vikingvista April 4, 2011 at 5:07 pm

Man, I love that!

Methinks1776 April 4, 2011 at 6:02 pm

Me too.

Mesa Econoguy April 4, 2011 at 9:59 pm

I’m stealing that.

yet another Dave April 5, 2011 at 7:22 pm

Thank you all very kindly!

Daniel Kuehn April 4, 2011 at 3:05 pm

As for the “scientism” stuff… I’ve never thought much of that. Economics is a science, and since it’s a science it’s going to resemble other sciences in certain ways. Big deal

But for those who think that it is not (such as DG Lesvic), why aren’t they “philosophists” who immitate the motions of logicians without really thinking about what they’re doing?

Scott G April 4, 2011 at 3:35 pm

This is the most entertaining post and set of comments I’ve read yet at Cafe Hayek. I hardly understand the technical aspects of what is being said, but it’s fun to watch you all argue. It seems to me that many of you are making things more complicated than they need to be, but then again I’m an engineer and I’m not really sure what your goals are.

What are your goals? What problem are you trying to solve?

Methinks1776 April 4, 2011 at 3:55 pm

My goal is to out-run the stomping boot of government. Pingry and DK believe there’s no boot.

Scott G April 4, 2011 at 4:11 pm

I like this goal. I should remember to set this goal for myself more often.

Methinks1776 April 4, 2011 at 4:12 pm

It’s quite a workout.

indianajim April 5, 2011 at 9:15 am

Like the search for Eldorado?

Pingry April 4, 2011 at 4:54 pm

Umm…no.

It’s not an issue of government or market, but rather one of government and market.

You all seem to think that I’m some statist because I have the audacity to challenge you about how liquidationism is a scam based on totally discredited Austrian macro and how market failure is a very real problem.

Maybe you should in other terms than market good, government bad.

–Pingry

Pingry April 4, 2011 at 4:56 pm

**Maybe you should think in other terms than market good, government bad.

Not everything bad is due to bad government. Markets do fail, and many times they fail spectacularly.

Nothing is sacred. Questioning the market is not blasphemy.

–Pingry

Eduardo April 5, 2011 at 5:53 am

I totally agree with you, but this ideological bias (opposing market and state) has polluted the entire world for decades! I hope you all will see that the problems are not limited to the USA (althoug is the biggest economy), and that for a good economic development, Markets and State are complementary.

Methinks1776 April 4, 2011 at 5:52 pm

No, Pingry. I haven’t given a thought to whether you’re a statist or not. I just don’t think you have a clue what’s going on and how business decisions are affected by these government interventions.

I do not fail to see market failure at all. I accept it.

What you fail to recognize is the utter incompetence of government. That it fails and fails miserably always is weirdly overlooked by you. Government has never been the solution to the failures you describe. That’s where otherwise good government invariably goes bad.

Eduardo April 5, 2011 at 5:57 am

“That it fails and fails miserably always is weirdly overlooked by you.”
And what about saying that the state is a human organization like the firms that do so well in efficiency and self-equilibrium?

Methinks1776 April 5, 2011 at 8:28 am

The difference between firms and the government is that the government requires submission and does not disappear when it is wrong. Government is force. Firms are not (at least not without the aid of government).

Eduardo April 5, 2011 at 8:39 am

That is not false! Actually, i think I agree
But you only see one side of the coin.
In many cases, firms disappear when it is wrong only if the government is there (monopolly for ex). So government is force, but force is necessary too.

Methinks1776 April 4, 2011 at 5:57 pm

BTW….I have made my living for these many years now by questioning the market. It is the very heart of what I do. There’s profit in taking advantage of – and in doing so helping correct – these errors.

Your assumption is that absent government throwing sand in the gears, the market won’t function.

I ask you again….where has government intervention to return the economy to full employment ever worked and worked better and faster than non-intervention? You’re so convinced. Why? What evidence do you have other than neet-o theoretical models that say it should?

purplefox April 5, 2011 at 12:19 am

Ok, this is simple, guys. We just need a time machine to go back to the ’21 recession and instead of doing “not much” (except cutting tax rates), have our masters do lots and lots of “do something” and then compare the outcomes.

Eduardo April 5, 2011 at 6:04 am

Tell me just one economy that worked without the government institutions setting the rules of the game!
Governments can sometimes be a support to the market, sometimes the opposite.
The human well-being (for those who are interested in it) depend on a good functioning economy but also cultural specificities and in my opinion, a certain degree of political freedom. Free Markets have been applied in many countries without political freedom (Chile for ex.), and i can assure that it doesn’t work (although its true that crony relations also are part of the reality –> But nothing is Black nor White). I sure some of you will argue then that Real free-markets never existed (i mean, totally free –> free banking, etc..), but in so this case you are not starting form the observation of the reality but from the preconcepted idea, which is, by definition, an ideology.

Methinks1776 April 5, 2011 at 7:43 am

Eduardo,

You have it exactly backwards. Political freedom isn’t terribly important to markets – all it means is that you get to vote for which asshole will pick your pockets. Civil liberty and economic freedom is important. Chile is an example of economic success without political freedom and so is Singapore. Economic freedom is necessary for political freedom, but not the other way around.

Government “support” of free markets must end at maintaining Rule of Law and defending the country. Every economic interference just perverts the market.

At the end of the day, Eduardo, what you’re really advocating for is submission to the state. Nothing can be more miserable.

purplefox April 5, 2011 at 12:02 am

“My goal is to out-run the stomping boot of government.”

*Like*

vikingvista April 4, 2011 at 3:56 pm

“What are your goals?”

To use the machinations of mathematics and data analysis as tools to understand reality, if possible, rather than to assume that because mathematics and data analysis are used, it must reflect reality.

Scott G April 4, 2011 at 4:20 pm

I don’t read the comments enough to know if you’re being facetious.

Assuming you’re being serious, it seems constraining to incorporate the method of reaching the goal in the goal statement.

vikingvista April 4, 2011 at 4:25 pm

Sounds like you need to read the title of this blog post, and then look up the word “scientism”.

Scott G April 4, 2011 at 5:24 pm

Sorry if I offended you vikingvista. I really didn’t understand your statement. I understand what scientism is, however I don’t know you well enough to understand what kind of economist you are.

I should have asked a more specific question. For example, why do you use the word machinations like you do in your goal description?

machination – 1) to plot or plan to do harm, 2) to scheme or contrive to bring about

You make it sound like mathematics and data analysis are beings plotting to do harm. Based on this, and not knowing who you are I guess you’re like Hayek and prefer not to use much math?

Richard Stands April 4, 2011 at 11:48 pm

I’m not an economist either, but I’d say it’s less about how much math is used, and more about what one thinks the results imply. Are models tools to be used to investigate and try to predict, or have the models become an end in themselves, over generalized, subject to corrupting incentives, and insufficiently questioned?

Not nearly as pithy as Viking, and I may well have misunderstood. But then again, I suffer from chronic pleonasm.

vikingvista April 4, 2011 at 11:55 pm

I know that in my efforts to be non-pleonastic (never used that in a sentence before, HT:Richard), I can sometimes fall flat. No problem.

JohnK April 4, 2011 at 9:23 pm

*double like*

Daniel Kuehn April 4, 2011 at 4:03 pm

My goal is to understand how a specific species of highly evolved primates produce, allocate, and organize resources.

Methinks’s goal is to paint others as ideologues… your guess is as good as mine on why she’s interested in that.

Scott G April 4, 2011 at 4:14 pm

That sounds hard. What’s your approach?

Daniel Kuehn April 4, 2011 at 4:28 pm

Definitely hard!

I’m a beginner. (Most of) Higgs’s comment here is a good start. My work has typically been in assessing the impact of different training programs on wages, and we typically use random experiments or (if that’s not feasible) a cocktail of quasi-experimental methods to try to narrow in on short and medium-term impacts. Because of how hard it is, a lot of the work I’ve done has been descriptive – but that’s important too. I’ve also done some of the more historical work that Higgs does a lot, but once again, as you say, it’s hard. In my historical paper I wasn’t really able to rule out either of two competing theories of how the macroeconomy responds to fiscal and monetary policy – all I ended up being able to do was highlight how earlier literature had inappropriately ruled out one theory (http://www.springerlink.com/content/5683j4v650187261/).

Sciences that study complex systems are indeed hard.

Scott G April 4, 2011 at 5:30 pm

“assessing the impact of different training programs on wages”

It seems like individuals interested in taking or who have taken the training programs could do pretty good job of assessing how the training affected their wages. Why isn’t a Yelp-like review good enough to assess the value of the training program?

Daniel Kuehn April 5, 2011 at 6:07 am

If the training is subsidized, presumably you’d want to know that its results are meeting the costs. Trainees are always going to prefer something they get for free as long as it doesn’t hurt them.

You’re an engineer, right? You don’t determine the strength or functionality of whatever it is you engineer after the fact based on user feedback, do you? Of course not – you’d like to get a sense of likely outcomes (1.) before doing your work if possible, and (2.) reviewing it in a comprehensive way rather than by anecdote.

Daniel Kuehn April 4, 2011 at 4:28 pm

*Random assignment experiments

Methinks1776 April 4, 2011 at 4:17 pm

Do you recognize who handed out this bit of advice? “Stick to your own thoughts, methinks. You only confuse the discussion when you try to divine mine…..I’m just suggesting you don’t try it if you don’t want to make an ass of yourself.”

You see, “ideologue” is really not the adjective I had in mind for you.

Daniel Kuehn April 4, 2011 at 4:22 pm

Yes – I noted you did a particularly poor job characterizing my motivations in that earlier post and I am noting it again here. Look at the timestamps on our comments to Scott G. I’m just reacting to your obsession with telling me what I think.

Methinks1776 April 4, 2011 at 4:29 pm

So, you think regime uncertainty is a factor suddenly? Not a “myth to blame Obama” anymore?

Daniel Kuehn April 4, 2011 at 4:31 pm

When did I ever say regime uncertainty is not a factor?

I said it doesn’t appear to be a major one, and I said some people who talk about regime uncertainty are simply motivated by their politics and have no interest in objectively understanding the economy.

I still don’t know how you got “regime uncertainty is not a factor and it’s a “myth to blame Obama” from that.

Methinks1776 April 4, 2011 at 4:40 pm

OMG. Okay, kid. I can’t waste anymore time on you today.

purplefox April 5, 2011 at 12:12 am

Daniel, every time you try to equate biology with economics it comes off as sounding like one of two non flattering options: 1) Economics is not a serious subject and should be avoided by smart people, or 2)That you are trying to sound clever.

The first one is an odd thing to say to those who study economics, whether formally or in their spare time. If economics is truly the equal to biology in your mind (I am not sure why you pick that comparison), there is no reason to remind us that is it a serious subject for deep thinkers and analyzers.

As for the second, you are obviously a smart guy, leave it at that.

Daniel Kuehn April 5, 2011 at 6:10 am

I’m not clear on how it says it should be avoided or that it makes me sound clever.

A lot of people question the extent to which it is a science. I just like to point out that if we studied the things we study in any other species besides humans it would without a doubt be considered a science. One of the biggest barriers to thinking of economics as a science is sentimentality about the fact that we’re studying humans. And if people don’t think of economics as a science, economics won’t be done well – so there is value to clarifying that it is and how it is.

How that would push people to avoid it or how it makes me look “clever” is beyond me.

Sam Grove April 5, 2011 at 3:03 am

I thought we knew how.

SheetWise April 5, 2011 at 12:34 am

“What are your goals? What problem are you trying to solve?”

Imagine standing on a bridge and watching tens of thousands of automobiles driving along miles of freeway. Some of the observers are trying to determine where every single vehicle is going, and others are trying to determine if there are enough lanes.

Lee Kelly April 4, 2011 at 5:03 pm

I have sympathy with many of Higgs’s, but every time I read these kind of comments I respect him less and less.

Higgs writes: “It is stupid to suppose that if, say, the federal government increases its deficits (for example, in order to transfer ever more bailout money to state governments so that they can continue to pay their bloated payrolls), that action will necessarily increase real output and decrease unemployment.”

It is not my experience that any economist actually believes this; as Higgs says, “It is stupid.”

Which brings me to another thing: his writing drips with arrogance and condescension. Higgs seems to enjoy insulting others through a veneer of scholarly detachment. It is why I rarely finish reading anything of his, whether I happen to agree or not.

vikingvista April 4, 2011 at 5:19 pm

“It is not my experience that any economist actually believes this”

Some economists do believe it stimulates aggregate demand, and also believe that stimulating aggregate demand increases employment. Higgs’ point is to attack the absurdity of reasoning from aggregate demand.

Lee Kelly April 4, 2011 at 5:33 pm

It’s not that simple. A fiscal stimulus can increase nominal spending, because it can reduce money demand. Whether this increases employment and/or real output is another matter. Even advocates understand that a fiscal stimulus will fail to increase employment and real output under normal circumstances.

vikingvista April 4, 2011 at 5:50 pm

“under normal circumstances”

Higgs’ didn’t say normal circumstances. If it makes you feel any better, how about “under circumstances where they advocate stimulus.” And there are such circumstances.

Eduardo April 5, 2011 at 6:09 am

Be careful! This is Keynes :)

robert_o April 4, 2011 at 5:39 pm

Pingry, why do you deny that markets tend towards equilibrium?

vikingvista April 5, 2011 at 1:57 pm

There can be only one reason. He believes that when a person is faced with two different prices for the same thing, that person will usually pick the higher price.

DG Lesvic April 4, 2011 at 8:23 pm

Prof. Higgs,

That was a nice try, and, of course, you had to try, but I’m sure you know as well as I that you’ll never get anywhere with these people. They’ll just ignore what you say, and go on as though it hadn’t been said, like the inmates of an insane asylum, never letting any harsh reality intrude upon their dreams of intellectual glory.

Scott G April 4, 2011 at 11:57 pm

LOL.

DG Lesvic April 5, 2011 at 12:16 am

At what? Why don’t you let us in on the joke?

purplefox April 5, 2011 at 12:22 am

Your comments are generally either insightful, funny, or both.

DG Lesvic April 5, 2011 at 12:36 am

Oh, so he was laughing with me, not at me.

Thanks, Foxy old pal.

Scott G April 5, 2011 at 1:43 am

Your comment was funny! :)

DG Lesvic April 5, 2011 at 2:24 am

Instead of “their dreams of intellectual glory” I should have said delusions of intellectual grandeur, especially of Daniel, our resident pompous ass.

Argosy Jones April 5, 2011 at 2:13 am

He’s laughing at the delicious irony of your comment. Specifically, you are an inveterate comment troll who can’t seem to get a few things through his/her thick skull. Ironically, you chide an economist for wasting his time engaging with putative comment trolls.

“…dreams of intellectual glory…”

LOL lrn2 Freudian projection.

DG Lesvic April 5, 2011 at 2:28 am

I didn’t intend to “chide” Prof. Higgs. As I said, he had to make the effort.

And what, specifically, is it that I can’t get through my (and how did you know I was a his/her?) skull?

Scott G April 5, 2011 at 1:42 am

I’d like to share some observations and thoughts I have about these comments.

I’m struck at how much time and energy some of you are expending commenting. I know some of you simply enjoy blogging and commenting. That I understand, but I have a feeling some of you don’t enjoy commenting, that is, you don’t enjoy how you feel during a commenting session.

I wonder what incentives drive people to comment. Thinking out loud here. A desire to learn. For enjoyment. To refine one’s writing and communication skills. To persuade others. The desire to be right. To defend one’s beliefs. To defend one’s actions. For notoriety. To socialize. For profit.

It’s a pretty complicated thing to figure out.

Certainly there are costs and benefits from commenting.

Some individuals comment at a loss – that is they become worse off by commenting. If the costs are large enough that individual will stop commenting.

I suggest that instead of a like button, there be a donation button for good comments. Profits going to good commenters will attract more good commenters, and if the bad commenters have no other source of funding they will go out of business (stop commenting).

It would be neat to setup a monetized commenting forum to explore this idea. Don, what do you think?

To amplify the costs to bad commenters it would be interesting to require all commenters to blog in their full name.

This way capitalism can work its wonders in Cafe Hayek comments.

vikingvista April 5, 2011 at 2:03 am

“If the costs are large enough that individual will stop commenting.”

Not true. Believe me, we have tried. It’s like Night of the Living Muir. He’s come here to eat our brains.

rmv April 5, 2011 at 3:07 am

“Not true. Believe me, we have tried. It’s like Night of the Living Muir. He’s come here to eat our brains.”

That comment deserves, at least, a dollar.

SheetWise April 5, 2011 at 2:26 am

There have been several attempts at creating a “tip jar” application which would allow micro-payments to content providers, but the problem has always been the transaction cost. It appears the telephony providers have figured this out in many places around the world, but in developed countries they’re getting beaten down by the regulators (who are protecting the established interbank networks).

Go figure ;)

Slappy McPhee April 5, 2011 at 10:21 am

Excellent post — I have found that when the costs of my commenting outweigh the benefits, my wife simply hides my laptop.

Sam Grove April 5, 2011 at 3:08 am

I don’t understand why so many people seem to assume that, other than intended results, government actions are otherwise transparent in their effect on markets.

Eduardo April 5, 2011 at 6:16 am

Government actions may or may not be transparent.
As for markets, they may or may not be transparent.
Human beings are human beings
mathematics are useful platonic thoughts.

Eduardo April 5, 2011 at 8:25 am

@Methinks1776
I reply your recent post above:
1. You say: “Political freedom isn’t terribly important to markets” and then “Civil liberty and economic freedom is important”. I see a contradiction;
‘Cause, then, who is supposed to change the law, when the collective conscience is claiming for new civil liberties ? (for example, respect of the minorities: homosexuals, ethnical minorities, etc. but also intellectua you could argue that then it autoregulate after but not especialñly, because this is not due to fundamentals but rather to banking and financial system and mimetical behaviour from investors)

4. “you’re really advocating for is submission to the state”
Don’t try to put me in your extremist perception of the world. I am not pro or against government, i prefer pragmatism and case-to case analysis. I like debating, but please don’t try to interpret who i am and how i think, that is just making the conversation poorer

Eduardo April 5, 2011 at 8:26 am

@Methinks1776
I reply your recent post above:
1. You say: “Political freedom isn’t terribly important to markets” and then “Civil liberty and economic freedom is important”. I see a contradiction;
‘Cause, then, who is supposed to change the law, when the collective conscience is claiming for new civil liberties ? (for example, respect of the minorities: homosexuals, ethnical minorities, etc. but also intellectua you could argue that then it autoregulate after but not especialñly, because this is not due to fundamentals but rather to banking and financial system and mimetical behaviour from investors)
4. “you’re really advocating for is submission to the state”
Don’t try to put me in your extremist perception of the world. I am not pro or against government, i prefer pragmatism and case-to case analysis. I like debating, but please don’t try to interpret who i am and how i think, that is just making the conversation poorer

Eduardo April 5, 2011 at 8:29 am

Sorry for putting three posts, i had a weird problem ^^
The real one is the last

Eduardo April 5, 2011 at 8:28 am

@Methinks1776
I reply your recent post above:
1. You say: “Political freedom isn’t terribly important to markets” and then “Civil liberty and economic freedom is important”. I see a contradiction;
‘Cause, then, who is supposed to change the law, when the collective conscience is claiming for new civil liberties ? (for example, respect of the minorities: homosexuals, ethnical minorities, etc. but also intellectual property rules, competition, etc.). Who is supposed to represent these new ideas, if not a person elected by the ones that want the change. When you say “Government “support” of free markets must end at maintaining Rule of Law”, do you insinuate that all the good laws have already been decied and voted in the past?
2. “Political freedom isn’t terribly important to markets” ; I never said it was, I meant that it was for human being (I was inspired by Amartya sen, the book “development as freedom”)
3. And what about economic defense? too much capital inflows can make a national currency overreact. I thought about that when you said that Chile iwas an economic success. In fact, Recently it is: why? Because its government applied capital controls to impede a overreaction of its currency. (when the currency is overvalued, the economy in the export sector tend to desindustralize itself –> you could argue that then it autoregulate after but not especialñly, because this is not due to fundamentals but rather to banking and financial system and mimetical behaviour from investors)
4. “you’re really advocating for is submission to the state”
Don’t try to put me in your extremist perception of the world. I am not pro or against government, i prefer pragmatism and case-to case analysis. I like debating, but please don’t try to interpret who i am and how i think, that is just making the conversation poorer

Methinks1776 April 5, 2011 at 8:38 am

Eduardo, you’re assuming you can legislate human feelings. People who had “no respect for minorities” (whatever that means) before a law mandating “respect for minorities” won’t have it after. Do you understand what “Rule of Law” means? If you do, then you should understand the silliness of what you wrote.

Don’t try to put me in your extremist perception of the world.

This is the persistent complaint of every statist. It doesn’t change what you advocate and it doesn’t change how vile it is. Your intentions don’t count, Eduardo. They’re irrelevant. The moment you introduce government interference – for whatever reason – into the peaceful and voluntary interactions of free human beings you are coercing them. That is the ugly truth. If it offends you, too bad.

Eduardo April 5, 2011 at 8:57 am

1. You are telling that what i wrote is silly?? Read again what you wrote and see its contradictions:
“The moment you introduce government interference – for whatever reason – into the peaceful and voluntary interactions of free human beings you are coercing them”
If the actions of human being are voluntary and peaceful, then you don’t even need rule of law. I am sorry but you are wrong. Human beings do not act like in Disney movies.
2. But you also say we need rule of law. I understand what it means, but for me it implies a law (see the term). Every laws in every states have a history, an evolution. You don’t accept any evolution in the law, because you don’t see the government as representing the people. People are not just individuals, they are also groups, communities, with collective perceptions and collective needs (i hope collective is not a forbidden word here). besides, you didn’t answer me about intellectual propery rights for example.
3. I am not a statist at all. Here my colleagues of the university sees me as completely liberal, and I am proud of that because it is also my perception of myself.

Methinks1776 April 5, 2011 at 9:25 am

I’m sure compared to your colleagues you are probably very liberal.

JohnK April 5, 2011 at 9:45 am

There is only a contradiction there if you see no difference between proactive and reactive government.

Eduardo April 5, 2011 at 9:56 am

Thank you JohnK, it seems that Methinks1776 had no more constructive arguments (except his revealed truths..)
So tell me, in your opinion, how the interests of a community can be represented into the law without having a voting system and a centralized power to ensure this voted idea is represented?
Is this what you call a proactive government? Then is it good in your sense?

JohnK April 5, 2011 at 11:06 am

Sorry Ed but your questions are too loaded for me to give an answer.

Eduardo April 5, 2011 at 11:23 am

Sorry maybe i haven’t well expressed the idea. i don’t know if you agree with Methink1776 but I wanted to know how would you separate proactive from reactive government?

JohnK April 5, 2011 at 11:48 am

“i don’t know if you agree with Methink1776″

In most cases that would be an affirmative.

“I wanted to know how would you separate proactive from reactive government?”

Do you know the difference between the words proactive and reactive? Come on.

I don’t think government should DO (proactive) much of anything.

It should be there to react when there is a threat, or when someone harms an individual or their property though force or fraud, or when a contract is broken, but that’s about it.

It is not the purpose of government to be in the business of charity, of propping up failed businesses, of hampering competition for favored businesses, or in any way telling people how to conduct their business as long as all parties are consenting adults.

kyle8 April 5, 2011 at 12:03 pm

“how do you separate pro-active from reactive government”

Well you can begin by analyzing if a policy or law creates winners and losers among the citizens. Guaranteeing everyone’s right to speech, or their reasonable security does not create winners and losers. Interfering in the marketplace does. Subsidies or special taxes create some winners and some losers and are inherently immoral.

Eduardo April 5, 2011 at 12:28 pm

Thank you both for your answer.
I try (i really try, i mean it) to figure out how this could be interpreted in the real world. There are a lot of ambiguities. here are some questions:
1. Intellectual property, si it bad because it create winners and losers?
2. Anti-immigration laws, is it bad because it is against free labor markets?
3. Capital controls defend the national currency of a country (in the USA it is not the case). It is supposed to be for national defense but is also a restriction on financial markets. I see a contradiction; which one prevail?
4. Last question, more personal: Do you really think that free financial markets are a good thing? And if you have the time to answer: what do you think about financial bubbles?
And Johnk, please stop with all your clichés about crony capitalism (hampering competition, charity, blablabla…) I never shoud have said that I am argentinean, it seems to give me a socialist hat in this blog. I am just curious, and want to understand your point of view; that’s all; i am here to learn what you have to offer.

Methinks1776 April 5, 2011 at 12:40 pm

Ed,

You never had to say you were Argentinian. Your posts define who you are, of which “Argentinian” is least important.

What is the bloody point of financial markets if they are not free?

Eduardo April 6, 2011 at 9:37 am

Methinks1766,
before answering you, I return you the question:
What is the point of having free financial markets? If you can answer me refering to the reality, i would be pleased.
Otherwise, i don’t see the point of talking to you, you already showed me the extent of your incredible knowledge about the world economy (Argentina, especially –> Remark: it is not a problem to ignore some facts, but then you can’t be pretentious).

robert_o April 5, 2011 at 2:21 pm

Eduardo,

>1. Intellectual property, si it bad because it create winners and losers?

IP is still relatively new on the human scale. There are many aspects of it that haven’t had sufficient time for people to create the necessary institutions to manage it.

But that’s different from the economic argument against IP: Intellectual Property creates scarcity where there was none.

|> 2. Anti-immigration laws, is it bad because it is against free labor markets?

Anti-immigration laws only make sense if the government owns all the land. If not, then why should they stop you from having guests?

Moreover, free labor markets require that any (voluntary) labor associations are possible. Anti-immigration laws prevent that, by definition. So you have a contradiction of terms.

|> 3. Capital controls defend the national currency of a country (in the USA it is not the case). It is supposed to be for national defense but is also a restriction on financial markets. I see a contradiction; which one prevail?

Capital controls try to stabilize the currency only after the government has destroyed it. It’s as if the army bombed a city, and then mailed a letter to the residents asking for forgiveness.

Moreover, capital control fails at defending currencies, so they are not even a proper means of “defense”.

|> 4. Last question, more personal: Do you really think that free financial markets are a good thing?

Yes, obviously. If you think otherwise, please state your case.

kyle8 April 5, 2011 at 5:02 pm

I see things a bit differently. Intellectual property, is property, period. You have a right to profit by your own ideas, creations, etc.

Immigration, however is never just an economic argument. It is a political/cultural argument as well and should be viewed on all of these terms. Normally I am pro-immigration, however, it is clear that there can be more immigration at any one period of time than can be realistically handled by any one nation.(refugees of war or natural disaster come to mind). There are also problems with the unrestrained movement of peoples such as disease and criminals. Therefore I think some orderly restraint is normal for any society to protect itself.

cmprostreet April 5, 2011 at 6:30 pm

But that’s different from the economic argument against IP: Intellectual Property creates scarcity where there was none.

This argument seems to ignore the possibility that IP can create incentives such that scarcity is reduced in other areas. Regardless, IP could certainly be addressed more efficiently than it is now, both reducing the scarcity it imposes and increasing our incentive to find new ways of overcoming scarcity in other areas.

Anti-immigration laws only make sense if the government owns all the land. If not, then why should they stop you from having guests?

I don’t know if this wording was original to you, but I am hereby stealing it.*

*Stealing, in the sense that I like the wording and plan to use it at some point. I didn’t even realize until after writing the post that the second statement looks like it’s related to the first, though now that I notice, I feel more confident that you won’t object ;-) .

Eduardo April 6, 2011 at 10:08 am

Thank you all for your answers. It is interesting to see that when we talk about more specific topics (when we zoom on the economy), the opinions get more different among you. I see this as a positive thing.
I believe the big principles (and big truths) cannot be sustained when we analyze a phenomenon pragmatically.
@kyle8
I agree with you, immigration is not just an economic agreement. But this is also the case when talking about wages, interest rates, and even money. For example, money is a social and cultural agreement between citizens that has changed trough the time, having very big consequences on wages, production etc. In our actual states of economics, this is a blind spot! Most of economic teaching assume that money is a neutral element.
@ Robert
In my opinion, an economy with free financial markets can be a good thing, or a bad thing. It depends on the transparency (among other things). But there is one argument more important I think that i will explain from the South American point of view : You americans, have the dollar, which is the most used currency in the world and circulate in trillions and trillions throughout the world. If national currencies in developing countries liberalize its financial market, you see (as was the case in Argentina) big amounts of dollars tend to flow in the country (along with its correspondant waves of optimism). The problem here is as follows: The importance of this flows are so big that they destabilize the national currency. In the case the Central bank stabilizes the currency, this money constitute central bank money, so there is an expansive creation of money (by more than the amount –> fractionnary system), but then, this “additionnal money” is issued by banks in national currency, and used to finance local firms which have to repay in dolars. This asymetry is called by the economists “currency mismatch” and is for me a good reason to be careful with financial liberalization. You don’t have this problem in the USA, because you can borrow in your own currency. Sometimes you borrow from other countries, and sometimes you print money and the rest of the world has to adjust to you. I don’t like “Charles de Gaulle”, but it made a point when he openly said that after WWII.

yet another Dave April 5, 2011 at 7:53 pm

Many interactions between people are peaceful and voluntary. Governments should not inject itself into such interactions. Do you disagree? If so, why?

Only individuals have perceptions – a collective is not a sentient being. As such, a collective simply cannot have perceptions, feelings, needs, wants, desires, etc. A group of individuals with similar perceptions and desires does not change this basic truth.

Eduardo April 6, 2011 at 10:18 am

“Many interactions between people are peaceful and voluntary. Governments should not inject itself into such interactions. Do you disagree? If so, why?”
I do not disagree, if everything is perfect, let’s keep the perfection!

“a collective simply cannot have perceptions, feelings, needs, wants, desires, etc.”
It seems that you are not very comfortable with history, anthropology, sociology, philosophy, and even politics and economics. If it is better for your understanding, you can change “collective perception” with “a group of individuals with similar perceptions” . But anyway, It seems you’ll have to start from zero

Methinks1776 April 5, 2011 at 9:22 am
vikingvista April 5, 2011 at 2:03 pm

“The FDA has made it clear that qualifying for the 510(k) pathway will soon become more difficult and that more data will need to be obtained and submitted to regulators for the standard pathway.”

The 510(k) shortcut is already too burdensome. This proposed change is a potential disaster. Most medical devices aren’t high cap devices like pacemakers. Most belong to small private companies who barely scrape up a few million in investments–who can only exist because of the cheaper 510(k) process. Those companies will effectively be banned.

I have a better idea. Let’s ban the FDA.

Methinks1776 April 5, 2011 at 2:17 pm

I’m with you. worse than the companies’ struggle is the fact that consumers will be forced to do without those devices.

Oh, but it’s the natural breakdown of the invisible hand that’s preventing investments, not regulators gone wild. I can’t stomach another proclamation by yet another self-righteous twit that only government can save us. From what? Prosperity.

Stephen A. Boyko April 5, 2011 at 10:06 am

I believe that much of the problem relative to uncertainty stems from policymakers, regulators, et.al. being deterministically trained in the Industrial Age i.e., law, accounting, economics etc,.

Question: if there is complexity, there is uncertainty, how do you govern predictability, risk, and uncertainty in an OSFA deterministic system (e.g. one driving code for the US and UK)?

Furthermore: how do you use two dimensional metrics to govern a three dimensional environment (lack of dynamic tension which creates Heisenberg problem, see Comments on Release No. 34-49695, File No. S7-22-04 (June 9, 2004)
http://sec.gov/rules/policy/s72204/saboyko060904.pdf )?

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