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Becker, Spence, Phelps, and Scholes
On the global economy and the recent downturn. The pointer is to www.bookforum.com.
Posted by Tyler Cowen on June 12, 2008 at 03:39 PM in Economics | Permalink
Comments
Tyler, I wonder if you know about the new changes in Cuba. Igualitarism is esentially over.
Posted by: Carlos at Jun 12, 2008 9:27:16 PM
A nice link, thank you. The four Nobel laureates, plus Michael Milken, tend to agree that the financial sectors of the US economy --- which, by international standards, are the most unregulated in the highly industrial countries --- have let down the US real economy, and who other than libertarians, opposed to all regulations, no? will disagree?
Somehow, with their stress on spontaneous market exchange, plus some added views about Coasian bargaining and real business cycle theory, these views about the instability of the financial sectors of our economy and elsewhere never make a dent on libertarian faith in automatic --- or at least rapid --- self-adjustments to changes in aggregate demand and supply. If market economies don't adjust swiftly this way, then there's nobody to blame other than excessive governmental regulations, or abused central bank handling of the money supply --- which is, what? (endogenous, exogenous, both? Not to mention complicated by globalizing financial markets operating instantaneously 24 hourts a day) --- or excessive taxation or fiscal policy fiddling. And anyway, why worry if a recession occurs? It's inevitable, and moreover benign, at least according to the theory of real business cycles . . . a matter of exogenous technological change, which will through innovations of various kinds lead to ever higher GDP and per capita income; and maybe, as well, ever faster rates growth.
There's no notion of sticky prices and wages in such libertarian thought, other than those that governments create. No coordination problems, no menu prices, no rational maintenance by firms of trained workers ---shouldn't wages just adjust rapidly to the reservation wage; and if not, aren't the unemployed beyond the levels of frictional levels, aggravated by search problems that governmental policies will aggravate anyway, just taking a holiday?. And somehow, transparency and accountability in the ever innovating financial sectors of national economies, all globally interconnected now, will just materialize if investors, workers, consumers, and firms just remain patient, vote for libertarian candidates like Ron Paul, boot out the financial regulators, pass legislation that forbids the Federal Reserve and its equivalents from any discretionary changes in the money supply, forbid any fiscal policy discretion, cut taxes to a minimum, and make sure that the citizenry of the US and elsewhere emulate the avant-garde adopt the libertarian view that communities are chimeras, the illusions of ignorant people, and see themselves as citizens of the world . . . followed, of course, by now just the totally unimpeded flow of goods, services, financial investments, and technologies across borders, but of unimpeded immigration as well.
What a dream! What a world!
There is one query that pops to mind here. Would libertarians like to remove all restrictions of the flow of advanced military technologies to China, Russia, North Korea, and Iran? Why or why not?
-- Michael Gordon, AKA, the buggy professor: http://www.thebuggyprofessor.org
Posted by: michael gordon at Jun 12, 2008 9:29:49 PM
I wasn't aware that libertarians were opposed to ALL regulations.
Posted by: PJ at Jun 12, 2008 10:06:45 PM
The reference in the above post to Myron Scholes jogged my memory: he and his colleague Nobel Prize winner, Robert Merton, were the major intellectual force behind Long Term Capital Management, hiring 25 Ph.D. economists for their huge hedge-fund. When it failed blatantly, with spectacular losses in the late 1990s, it required all sorts of financial bailouts from major banks and investment houses.
Which then jogged my mind in another direction: toward your colleague, Bryan Caplan, and his view that the average American adult is a nimcompoop . . . whose understanding of economics is ideologically rigid and self-destructive of the average person's self-interest. Caplan's term for this blatant ignorance? Rational irrationality, which is not the same thing as "rational ignorance" . . . used by political science specialists in public opinion and voting, as well as by several prominent University of Chicago economists like Becker, Posner, Wittman, Stigler, and others. Rational ignorance derives from the inconsequential nature of any one citizen's vote, maintained by the costs of overcoming the ignorance by search and other costly information problems. In the upshot, so political scientists and the Univ. of Chicago economists since Friedman believe, the rational ignorance cancels out when tens of millions of people vote, and hence the US democratic system is generally sound in its workings . . . yes, even when you start with the individual and his self-interest.
....
Not so, says Caplan. Using an enlightened preference approach that political scientists and some economists have developed, he trots in his "fully informed efficient" computer-like standard of comparison: experts in economics, proxied by Ph.D. economists. Strange no? Let's say that Long Term Capital Management had 25 Ph.D. economists in the data-trenches, with two Nobel prize economists worth, let us say, an average 500 such Ph.D. experts in the economics profession (in total knowledge, not quality of knowledge). Yet LTCM went belly-up.
What follows?
Just this: presumably, to stay with this example alone, Caplan has in mind either certain kinds of Ph.D. economists --- guess which ones? --- who are supposed to be wise and near-infallible, or he is simply wrong. The latter seems far more likely. In which case, professional economists are no more unequivocally knowledgeable-and-wise about very complex social, political, and economic matters than experts in such fields as climate science, the peace-movements and UN-exponents, financial investment, education, crime, and so on. Not to mention those great founts of wisdom in feminist, ethnic/racial, and class identity-studies on the Left.
Michael Gordon
Posted by: michael gordon at Jun 12, 2008 10:37:17 PM
