Stop the Panic on Security

Here's an article that I really can't add much to; it's spot-on.

What is Austrian Economics?

Just so I don't lose it, here is a list of "Themes" that define Austrian economics, taken from ThinkMarkets:

(1) the subjective, yet socially embedded, quality of human decision making; (2) the individual’s perception of the passage of time (‘real time’); (3) the radical uncertainty of expectations; (4) the decentralization of explicit and tacit knowledge in society; (5) the dynamic market processes generated by individual action, especially entrepreneurship; (6) the function of the price system in transmitting knowledge; (7) the supplementary role of cultural norms and other cultural products (‘institutions’) in conveying knowledge; and (8) the spontaneous – that is, not centrally directed – evolution of social institutions.

Whatever one's school of economics, it seems that if it ignores some or all of these things, it can't possibly be going a good job of capturing what's really going on. I don't know enough about Keynesianism to say categorically that it doesn't include all or even some of these things, but it's my impression that it doesn't, and certainly I haven't see any Keyensian make mention of them, and in particular that macro formula that seems to be 90% of Keynesianism that Garth and others have quoted and discussed on wc-talk which has about 5-6 aggregate-level variables.

Rebranding "libertarianism"

I posted this as a comment on the Beacon, but decided it made for a decent enough post here, so I'll copy and paste it:


There's a reasonable argument to be made that a new term is required, that "libertarian" has so much baggage that it can never be resuscitated... The venues in which most people participate in any discussions aren't much more sophisticated than children's playgrounds and the rules for playgrounds seem to apply there, so that meaningless name-knockoffs like "libertard" actually seem to have a lot of (negative) influence on people who might otherwise be sympathetic.

"Classical liberal" isn't *so* bad but "liberal" has so much non-libertarian meaning attached to it now that I'm not sure it works. I see some merit in the term "liberaltarian" - when forced to give a label, that's usually what I use - but it may not be different enough from "libertarian" to work, and besides, it kind of represents one "half" of libertarians, squeezing out those more closely associated with "paleo-libertarianism".

The LP has made a huge mess of this branding. Their rhetoric is so "me-me-me" and "angry" that it alienates many who, as you say, are basically culturally liberal and fiscally conservative but don't see themselves as revolutionaries or rebels, just rather people who think fiscal conservatism and cultural liberalism are preferable to their alternatives. Calling yourself "the Party of Principle" amounts to an inference that if you aren't already in the LP, you don't have "principles", again alienating many who would otherwise be sympathetic.

It seems to me that what is needed is something much more lowkey and something much more positive-sounding and inclusive rather than embattled and angry; not just a term, but also the accompanying "elevator speech". Libertarianism and LP's focus on "force" is unintuitive and difficult to understand in a casual way; while I think that the principle is intellectually crucial, I don't think that intellectualism has to also be the branding.

The current association of libertarianism with a fierce individuality and focus on freedom is likewise counterproductive: people *want* to be part of collectives, we all understand that risks are less when we are parts of collectives, that there are economies of scale that come from collectives, etc. They see a disconnect between this individuality/freedom message and all the collectives that give them comfort: their family, their community, the company they work for, their clubs, their churches, their country and its national defense, etc. And "freedom" is a poor marketing message: it's too selfish. It is almost always described in selfish terms: "*I* should be free to do what I want to do...", etc. It gives an impression of irresponsibility, as people will fill in "you want to do what you want to do... and not be responsible for its consequences (and perhaps not anything else)."

A rebranding needs to be done that speaks simply to this huge group of fiscally conservative, culturally liberal people. It needs to speak in terms of what *they* get out of it, not what *you* get out of it. It needs to speak to an acknowledgment and even an embrace of collectives - voluntary, of course, but that can be in the fine print - and the sense of connectedness and responsibility that is important to them.

I am not a marketer, so I'm better at describing "requirements" than I am with coming up with a solution. The term that I've been kicking around the most - and I freely admit it has issues - is some variant of "Responsibility". The notion that freedom and responsibility go hand and hand is well known, but libertarian branding has focused on the former much more than the latter, and this may have been a branding mistake, for the reasons I give before. For the large section of people that are comfortable with and want to be part of collectives, who want the "safety nets" that come from collectives, etc., but just think that fiscal policy should be conservative and that government should stay out of people's personal lives, a focus on "responsibility" may work. In no way does it hint at a free ride, and it doesn't offend the sensibilities of those who *do* think that people should be "responsible" for helping other people in the sense that it's "the right thing to do". But "responsibility" captures the notion that no one can shirk their responsibilities by foisting them off on the government to do them; we have to take that responsibility on ourself. And because freedom and responsibility have to go together - you can't be responsible for something if you didn't have freedom to make a different choice - freedom comes along, including its manifestation in law and government.

"Trust us, we're from the government"

One of the things I run into with great consistency when I try to talk to people about alternate conceptions of social organization (besides the currently prevalent "nation-state") is their unbalanced accounting: they will dig hard and deep to find the most perplexing edge-case for the alternate system (examples include tragedy-of-the-commons type problems, "freeloader" problems, etc., problems that of course exist and are not nicely solved by the current system either) and when the answer isn't a slamdunk proclaim "aha! Your system is broken, conversation ended!", while seemingly not seeing the gargantuan mass of problems that the *current* system already has in widely demonstrable form. I wish I had documented *all* of them, just so I could return their remark with a list of thousands and thousands of not imagined problems or anticipated problems but *existing* problems, but I guess there's no time like the present to start.

To wit: what a surprise, an audit has found that police regularly misues police databases to look up data about celebrities. And yet, the same people that tell me how good the current system is and how bad an alternative would be will just go on assuming that somehow the people who work for government are "different" than eveyrone else, that government is "benevolent" and works "for the people", rather than seeing that there is no such as "government" as an entity, there are only people, the only agents in our society that take action are people, and whether or not people work for the government or not, they still have the same strengths, weaknesses, desires, self-interests, etc., as everyone else. Which is to say: any system designed with the notion that there will exist one "super class" of people that is above human nature and can be trusted to act benevolently even if they do not have sufficient incentives to do is designed from false assumptions and likely to be very dissappointing.

It is likely to end up, say, trusting that "super class" of people with more information and power than normal people and then expecting them not to use that information or power for their own uses.

And that's not theory: it is demonstrable fact. Read the article.

On why we can't overinterpret history

One of the places where I often run into fundamental blocks when discussions subjects of interest to this blog with others is in the interpretation of history.

Some people will look at a historical event and draw definitive conclusions from it. Irrespective of whether they are correct or not in their conclusion, the methodology is broken.

Compare and contrast a scientific experiment with a historical event. If you've ever taken a class with a laboratory component, you know how much effort and precision goes into the design of experiments: they must be carefully controlled so that you can be sure that the effect you are seeing has the cause that you are hypothesizing. Famous examples of mistaken experiments abound, and these are mistakes that are very subtle and yet completely alter the conclusion that can be drawn from the experiment.

Now contrast this with the process of reading about a historical event and attempting to draw a definitive conclusion about cause and effect from it: nothing is controlled, there is only one data point. Could you imagine trying to submit a paper proving Newton's law of gravity not by actually running experiments in which you drop things (carefully!) and measuring them (carefully!), but instead by reading about someone dropping something in a history book??

History is great for two things: for hypothesis creation, and for negative proof via counter-examples. It is terrible for hypothesis *proving*, however.

Statistician Paul Holland (1986) cautions that there can be “no causation without manipulation,” a maxim that would seem to rule out causal inference from nonexperimental data.

This is a perfect example: if you don't get to manipulate an experiment to try to tease out the causal factors, you really can't make causal inferences. And yet, this is bread and butter in 99% of common discourse! Every talk radio, newspaper editorial, television advocacy program, politician, and blog lives on this. Just look, for example, at the number of definitive statements that have been made about the recent economic situation. Sure, there is interesting stuff to see here to try to formulate hypotheses that we can then go and analyze and experiment with in much more detail, but we cannot draw conclusions from this set of history, there are way too many uncontrolled variables.

The frustrating result is that 99% of what is said by many reasonably smart people is just wasted oxygen/pen/electrons. It's not that it's wrong, but that because its methodology is wrong, it adds nothing to the information about the subject.

Just one of the many things that frustrates me about the world I live in.

Debate on the Great Depression and current crisis comes from within Federal Reserve system itself

I have had at least one professional economist declare to me that certain things in economics are known as facts, and that anyone who disputes them is "discredited" and full of "nonsense". To him, this includes all Austrian economists and the entire school of Austrian economics, as well as many closely related thought leaders, e.g. Robert Higgs and his alternative analysis of the Depression in terms of "regime uncertainty". He has insisted that no one who counts amongst "mainstream economics" even thinks there is a "debate" any longer on these issues.

I wonder if economists in the Federal Reserve system itself count? Members of the Richmond Federal Reserve bank Steelman and Weinberg, in the lead article of the 2008 Annual Report of the Federal Reserve bank of Richmond, make heavy reference to Higgs' regime uncertainty concept:

Through the [current] crisis, the Fed’s approach has evolved and changed in numerous directions, including the direction of credit to particular market segments and institutions. Beyond winding down its many new lending vehicles, the Fed will need to make it clear to all market participants which principles it will follow during future crises…. Public policies by all agencies must be well articulated and time consistent so that market actors can make rational plans regarding their financial and other business affairs. Arguably, such policy uncertainty did much to prolong the Great Depression in the United States (pp. 16-17) [footnote to Higgs (1997)].

Third, there is policy uncertainty. After the onset of the crisis, the Federal Reserve and the Treasury took several actions to help stabilize the financial sector. However, these actions appeared to evolve on a case-by-case basis. Some institutions received support, while others did not, making it more difficult for market participants to discern the governing principles and to make predictions about future policy moves. These institutions were already facing an uncertain economic environment, which contributed to relatively sparse lending opportunities. Coupled with an uncertain public policy environment, it is not surprising that many have been hesitant to lend and that many have had trouble raising private capital.

[T]here is also a strong case to be made that the function of market discipline can be improved by constraining some forms of government intervention, especially those that dampen incentives by protecting private creditors from losses (p.5)…. However, additional regulation of financial markets would likely hamper innovation in that industry. An alternative approach is to seek to reduce the scope of explicit safety net protection—as well as creditors’ expectations of implicit protection of firms deemed too big to fail (p.11).

More broadly, they criticize the Fed (their own employers):

The Fed could benefit from heeding the advice of two classical economists, Henry Thornton and Walter Bagehot, who considered how the Bank of England could act effectively as the lender of last resort. The Thornton-Bagehot framework stress six key points:

• Protecting the aggregate money stock, not individual institutions
• Letting insolvent institutions fail
• Accommodating only sound institutions
• Charging penalty rates
• Requiring good collateral
• Preannouncing these conditions well in advance of any crisis so that the market would know what to expect.

Current Federal Reserve credit policy has deviated from most if not all of these principles.

The authors certainly do not buy Higgs' thesis hook, line and sinker, but that's not the point: the point is that it is part of the debate, and not just within masturbatory austrian circles, but in the much wider economics community.


HT: I lifted these quotes from The Beacon, which is a very interesting Blog by members of the Independent Institute (which includes Higgs, though he didn't write the post from which I am cribbing).

Paul Krugman wanted the government to cause a housing bubble

Here's some of Paul Krugman's "best": (from August 2002)

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

That's right: Paul Krugman *wanted* the government to create a housing bubble.

But somehow this is *not* an example of government intervention just putting off until later a needed correction? Much like the current government is attempting to do *again*? We're supposed to listen to this clown despite his complete and total miss on this?