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|Peter Boettke|

I have read with great benefit the books of Orlando Figes.  He now has a website with resources for teachers.  Recommend.

|Peter Boettke|

As you might expect, when it comes to the Polanyi brothers, my intellectual tastes align more with Michael than with Karl.  But, since my return to teaching Economic Sociology to graduate students, I have studied Karl Polanyi's work and its lasting impact in the field.  To be honest, I do not find Karl Polanyi that impressive either analytically or observationally. But the reality is that The Great Transformation had an oversized influence and continues to do so, and thus I need to listen more carefully to why others are so moved by a work that I find to be so pedestrian in terms of economic theory, historical scholarship, and political economy implications.

Upon reading a first draft of chapters of what would become Hayek's The Fatal Conceit, I often said that Hayek had provided the perfect antidote to Karl Polanyi with that book, as he clearly states the underlying philosophical anthropology of the long process of economic and political development from pre-history of man through antiquity to modernity.

Watch these series of short clips from an interview at Institute for New Economic Thinking with Kari Polanyi (his daughter and a scholar of her own right).

Remember I said, I need to listen, not to critique, and certainly not to indict, but just to 免费Ⅴpn安卓 what is attractive and compelling about the ideas and the way they are presented and the insights that are promised.  This seemed like a genuinely good place to start that process.

|Peter Boettke|

Back in the 1980s, I got interested in the work of Lin and Vincent Ostrom as it pertained to the disjoint between how different economic and political systems were supposed to operate (de jure) and how they actually operated (de facto) and the institutions that emerged to govern the actually practices.  It was my interest in the Soviet experience that first alerted me to this ... one of my main professors in graduate school was Michael Alexeev, and along with Gregory Grossman and Vladimir Treml, Mike was also involved with research on the Soviet black-market economy.  So with his guidance I studied everything I could on that subject, and that led me to thinking about this disjoint between de facto and de jure rules.  From that moment, I saw how in the Austrian literature they also made this distinction -- from Mises's discussion of money, to Hayek's discussion of law, and Rothbard's discussion of prohibition.  Prior to that, I think it is probably accurate to say that I thought there was sound economics and their was public policy, and if public policy matched sound economics then good things would follow, and if public policy was based on bad economics, then bad things happened. So the job was to make sure people understood sound economics.

I still believe that deep in my gut, but I became more fascinated after this realization in understanding economic life and the multiple and varied margins of adjustment and adaptation to circumstances that are made by creative and clever human actors. The work of the Ostroms (both Lin and Vincent) were vital to that quest to provide understanding.  At the same time, I was a student of James Buchanan and not only his work in political economy and social philosophy, but in public economics.  At NYU, I taught graduate seminars not only in comparative economic systems, but also Public Choice and Public Finance throughout most of the 1990s.  Lin Ostrom had published Governing the Commons (1990), and Vincent had published The Meaning of Democracy and the Vulnerabilities of Democracies (1997), but they had also pioneered work on the "institutional analysis of development".

It was during this time that I met and eventually worked with Paul Dragos Aligica.  One of our first projects was on Global Economic Development and the role of private enterprise and entrepreneurship in generating economic prosperity in developing and transitioning economies.  It is in this work that we focused on the blending of public choice (Buchanan), Austrian economics (Hayek-Kirzner), and the Bloomington School (Lin and Vincent Ostrom).  I edited a special issue of JEBO (2005) to highlight the contributions of Lin and Vincent, and Paul and I published our book summarizing the contributions of the Ostroms, Challenging the Institutional Analysis of Development: The Bloomington School (2009).  A significant part of that book was a reconsideration of the municipalities debates that the Ostroms were involved in during the 1960s and early 1970s.  I published with Chris Coyne and Pete Leeson a reassessment of the subsequent literature in this debate and after in a paper on Quasi-Markets in Public Choice, but that paper was more conceptual and analytical.  But in a series of papers with Jayme Lemke and Liya Palagashvili, we engaged in a reassessment of the empirical work in local public economics with a focus on the delivery of policing services.

Back to the original impetus for this line of research as laid out here -- the distinction between de facto and vp下载苹果 rules that govern the economic interactions of individuals in any given society -- it is vital to remember that if we pursue catallactics (study of exchange), then the subject of our studies is exchange and the institutions within which exchanges take place.  With all the limitations noted, I always thought that the most operational definition of institutions was the formal (de jure) and informal (de facto) rules of the game and their enforcement.  Governance is a vital aspect of social order -- do note I said governance.  Covenants with and without the sword.  But for agreements to be enacted their enforcement must be secured.  The protection of persons and property is something Adam Smith noted long ago, and Edward Stringham notes often today.  But precisely how are the institutions structured so that a norm of protection and security of persons and property governs the relevant jurisdiction?

So we head back to the municipalities debate -- what are the responsibilities of the public sector, who is responsible for the services to be rendered, and how are they going to be paid for?  The Ostroms stood against the consolidationist movement and in particular UNIGOV.  They championed instead a polycentric system of governance that put more direct authority in local communities and citizens, and held the public entities to be responsive to the demands of the local communities.  Jayme, Liya and I published a series of papers individually, jointly and in different combinations over the past decade looking at policing services and the frustrations with the failure of these services to meet the demands of the local communities that they supposedly serve.  What the Ostroms have to say about ways to improve policing has tremendous relevance for today's discussions.  Consider this essay by Rashawn Ray, "Bad Apples Come From Rotten Trees in Policing", and what solutions would both be desirable and feasible. Fixing the problem is imperative, doing so in a way that actually achieves the goal must become paramount.

Please watch this video with Jayme and Liya discussing our work, and also look out for work by vpn下, who just defended his PhD and also works on the thorny issue of policing.

|Peter Boettke|

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I have tried to use this time to stay focused on research, writing and teaching.  But, as imagine is common, my attention has been drawn to current affairs and learning how to operate in a virtual classroom while attempting to be an engaging and effective educator.  That doesn't mean my normal interests have taken a backseat, it just means my juggling of my time and attention has required a different focus than was the case prior to March 2023.

This juggling, as well as my intellectual interests, have led me to "attend" multiple webinars.  I consistently join the webinar at Princeton on Monday and Fridays on the economic and political economy of COVID-19 -- talks, e.g., by Cowen, Deaton, Kremer, Stiglitz, Acemoglu, Rodrik, Krugman, and this week Cochrane, and upcoming Summers.  I also have consistently been walking twice a day and that enables me to catch up on my podcast listening, with probably 80% COVID-19 related.  And, I have tried to articulate aspects of my own perspective on this at this site, and at AIER.  But I am trying to constantly learn the public health issues, the social science of public health, and history of public health efforts.  I wrote a column for AIER on doing science in real time that I think explains the dilemma --- we need 大数据告诉你，为什么你逛个草榴就贷不到款了！－焦点新闻 ...:2021-9-30 · 日前，最高法、最高检、公安部联合下发规定，明确网页、微博客、朋友圈、贴吧等网络平台发布的信息属电子数据，法院、检察院和公安机关有权依法向有关单位和个人收集、调取据电子数据作为定案依据。规定将从2021年10月1日起施行。 I argued in another column -- and yet we must make progress in science and try to strive for rationality in democratic action.

Roger Koppl's Expert Failure is a great book that was published in the Cambridge University Press series that Timur Kuran and I edit, and it is extremely relevant to our current affairs.  Here is Roger presenting his main thesis of the book, and applying it. Highly recommended listening.

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The Fifth Amendment reads:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

The takings clause may provide the guiding principle.  Shutting down the economy to address a public health crisis could be interpreted as a taking for public use, and if so, the citizens are due just compensation for what was taken.  Just compensation is the market value of their loss.

I am just thinking aloud here, but I wonder if this approach had been pursued how the public finance of this would have been, if at all, different than what was done.  Would business and their workers rather than go through potential bankruptcy and unemployment just had all bills at this time sent to federal government?  Would have an average of the weekly expenses covered for all enterprises ordered to shut down accumulated over the period of time required to deal with public health crisis have cost less than what brine of politics in an election year will produce?  Or will the bill be roughly the same in the end?  If done right, would it have been possible to avoid unemployment numbers we are experiencing and will continue to experience and failed enterprises we will see as business do not bounce back and with that foreclosures etc.

What are the biggest weaknesses in seeing a Govt order to shut down as a Taking?

UPDATE: Ryan Murphy and Chris Fleming point me to this earlier ruminations on the issue by Ilya Somin, and the report issued by the Congressional Research Service. Turns out my "thinking aloud" is about 5-6 weeks behind!!!

|Peter Boettke|

|Peter Boettke|

In J. S. Mill's On Liberty (1859), chapter 5 "Applications", he argues:

The principles asserted in these pages must be more generally admitted as the basis for discussion of details, before a consistent application of them to all the various departments of government and morals can be attempted with any prospect of advantage. The few observations I propose to make on questions of detail, are designed to illustrate the principles, rather than to follow them out to their consequences. I offer, not so much applications, as specimens of application; which may serve to bring into greater clearness the meaning and limits of the two maxims which together form the entire doctrine of this Essay, and to assist the judgment in holding the balance between them, in the cases where it appears doubtful which of them is applicable to the case.

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Liberal political economists, in their classic or modern form, understand that in our bumping into each other in our experience of living that some actions are mere annoyance and others are harms.  Buchanan stresses in his classic essay "The Pure Theory of Government Finance" (1949) that there are benefits and costs in government action, and while it is vital to understand the costs, the "Benefits simply cannot be forgotten." In another classic Buchanan essay "What Should Economists Do?" (1964), he asks his readers to consider the example of a swamp and a mosquito abatement program for a town, and the political bargains that must be struck between those who live near the swamp, and those who live farther away.  Liberal democratic government must always be dealing with the swamp, we cannot assume these conflicts away for ease of analysis.  Similarly, the basic Coasean analysis of bargaining away conflicts between parties is grounded in a recognition of the reciprocal nature of harms.  And, the argument for Ostromean polycentricism is grounded in the recognition of conflict and the use of the principle of subsidiarity in governmental decision units, and thus the guiding principle is that when we are choosing in groups we should strive to match the size of the potential harm from our bumping into each other and the ensuing conflicts with the governmental decision unit responsible for addressing the potential harm and minimizing human conflict while maximizing the chances for peaceful social cooperation.  

J.S. Mill in Principles of Political Economy (1848) in Book V, chapter xi, argued that laissez faire must be the vp下载苹果.  "The preceding," Mill writes, "are the principal reasons, of a general character, in favor of restricting to the narrowest compass the intervention of a public authority in the business of the community: and few will dispute the more than sufficiency of these reasons, to throw, in every instance, the burden of making out a strong case not on those who resist, but on those who recommend, government interference. Laissez-faire, in short, should be the general practice: every departure from it, unless required by some great good, is a certain evil."

Our current set of political arrangements, let alone the prevailing public ideology, is a long way from J. S. Mill's formulations in the 19th century, and even from the formulations of Hayek's The Constitution of Liberty (1960), Buchanan's Limits of Liberty (1975), or V. Ostrom's The Meaning of Democracy and the Vulnerabilities of Democracies (1997) sadly.  But it is my sincere hope that the moment for a liberal reawakening in the context of both a pandemic and a lockdown will not be lost.  As Emily Chamlee Wright argues to beautifully in the pages of the Wall Street Journal, when government occupies civil society it too often overstays its welcome.  But the vibrancy of the bottom-up solutions comes from within communities and the intricate web of relationships between commercial society, civil society and yes the government (local, state and federal).

I guess the most important point for liberal political economy to communicate is that nowhere in the history of the doctrine does the tradition deny that human conflict is an ever present reality and that it can undermine the ability to the liberal society to function properly to encourage productive specialization and engender peaceful social cooperation through exchange.  Conflict and strife are real.  Actions prejudicial to the interest of others take place and must be dealt with. The question is always, who is best to deal with them and what does dealing with them entail.  For the liberal, civil society (including commerce) is a more powerful instrument for resolving conflicts and promoting cooperation than the state.  Again, as the Mill quotes show, the argument is not a closed door, but a maxim and that maxim demands that the burden of proof in the argument always falls on those who want to shift that balance and rely more on state coercion to achieve the common good, rather than human sociability through the voluntary adoptions of norms of interaction that ameliorate those potentially harmful actions.

A pandemic is a public health issue, the harms are real and significant, but the source of our salvation and improvement will be seen in the voluntary and nimble adaptation and adjustments in social interaction (in personal behavior, and in the ordinary business of life) that reduce spread; creative and clever scientists discovering new drugs to address the symptoms and ultimately hopefully a vaccine to eradicate a novel virus; in Dr and Nurses and other medical professionals on the spot applying their great skill and compassion to care for ill patients and discovering better protocols and medical treatments to prevent the ill from becoming critically ill; and actors in civil society engaged in a variety of acts of charity to aid the most vulnerable among us to see better days.  We must be willing to ask ourselves what it means to live in a robust and resilient self-governing democratic society even when stress tested in the extreme.  To me this is our opportunity to reaffirm the liberal principles of just conduct and political economy, not to abandon them.

We have to make sure we are not precluding through public policy the creative energies of a free society to solve these most pressing and voluminous set of problems that has unfortunately come to define our present and will no doubt influence our future.  Our hope, as it always is, is found in the innovative spirit of free human beings in the public, private and independent sectors.

|Peter Boettke|

Note the scare quotes Hayek uses!  The full quote reads: "'Emergencies' have always been the pretext on which the safeguards of individual liberty have been eroded -- 暗网强大到设计者都无法销毁 中国也可能有风险 - huanqiu.com:2021-8-23 · 钱童心 中国访问学者章莹颖6月9日在伊利诺伊大学香槟分校校园失踪。迄今，美国警方仍未找到章莹颖的任何痕迹。最新进展是：章莹颖家人数天前 ...." (Hayek, vpn下, Vol. 3, 1979, 124, emphasis added).  

I added the emphasis, just as I am stressing the scare quotes, for a simple reason -- in my reading of the history of political economy that are two glaring errors that are committed -- Romance on the one hand, and Cynicism on the other.  Romance lead us astray by framing political leaders as saintly geniuses, whereas Cynicism leads us astray by framing the system as completely corrupt and devoid of any hope for improvement.  Nothing in the Humean dictum that in designing institutions of government we should assume all men are knaves is either descriptive or hopeless.  In fact, the hope in that dictum comes from the minimizing the loss function in the design from the possibility of knaves ascending to power.  It is from constructing the institutional rules of our governance such that bad men can do least harm, rather than assuming that only the best and brightest among us will rise to leadership, or that whatever system of governance we talk about it will devolve into corruption and immorality. 

The position I am attributing to Hayek is one of hope through constitutional construction. This is the same hope that James Buchanan had when he published Freedom in Constitutional Contract (1977) or The Economics and Ethics of Constitutional Order (1991).  Between Romance and Cynicism resides Realism in political economy.  That realism is grounded in the simple proposition that people are people.  As Dennis Robertson's "What Do Economists Economize On?" (1956, 154) made the point succinctly yet entertainingly when he wrote:

What does the economist economize? ' 'Tis Love, 'tis love,' said the Duchess, 'that makes the world go round.' 'Somebody said,' whispered Alice, 'that it's done by everybody minding their own business.' 'Ah well,' replied the Duchess, 'it means much the same thing.' Not perhaps quite so nearly the same thing as Alice's contemporaries thought. But if we economists mind our own business, and do that business well, we can, I believe, contribute mightily to the economizing, that is to the full but thrifty utilization, of that scarce resource Love -- which we know, just as well as anybody else, to be the most precious thing in the world.

If for our explanations of governance and social progress we rely on love to motivate all involved, Robertson reasons, we will exhaust that most precious of resource post haste. Better not go in that Romantic direction. But the alternative is not toward the Cynic, but instead go with Realism.

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The tricky thing about incentives is that they are not the same as motivation.  Motivation implies personal knowledge and intent, incentives are as I said "tricky" -- they play havoc with our mental models, with the way we frame things, and with those "pesky" tacit presuppositions which we hold.  And CDC or FDA public health official does not necessarily have to consciously know that the worst thing they could say would be to paint an overly optimistic account of disease or a treatment option (Type 2 error), they just frame this conversation in a way that biases toward priority granted to the concern with the pessimistic outcome.  The burden of proof is on the optimist because the downside risk of a false positive is far worse from where they sit than a false negative (Type 1 error).  In economic terms, this is easily translated into the language of the seen and the unseen -- we see the consequences of a false positive, we do not immediately see the consequences of a false negative -- so we bias the process of avoid false positives, and result in generating a higher cognitive barrier to persuading us that an error of false negatives is being committed.  In other words, the entire system is biased to catch Type 2 errors, but in so doing it increases the incidence of Type 1 errors.  That has serious consequences.

The Covid-19 discussion is actually a testing ground for much of these ideas.  The "emergency" could in fact just a plain old emergency -- no scare quotes.  It is a public health crisis -- a classic global externality.  We have had those before, in fact, this was a major problem with the growth of cities in human history. Humans are disease carriers to other humans, so how do we learn to live better together than we ever could in isolation while protecting ourselves from the externalities that other humans represent?  We evolved various institutions -- formal and more importantly informal -- to provide that safety.  When a vp下载 virus is introduced, it takes some time (and the experience of tragedy) for us to adapt and adjust behavior to minimize the costs and get back to realizing the benefits of extensive social cooperation.  

What Hayek is concerned about in the above passage is not denying the existence of emergencies -- remember he lived through plenty existential threats to the liberal order and devoted his career to building an intellectually robust case based on the science of economics as he understood it, and the art of political economy as it was best practiced in the long tradition from Adam Smith to J. S. Mill that he inherited for what he called true radical liberalism.  The question he is raising is how vulnerable is the liberal order to calls to suspend liberalism to address emergencies, and the turning of that real emergency into "emergencies" for the sake of political privilege and power.  In essence, the second half of the passage is asking a Robert Higgs type question about the ratchet effect, once we relax the safeguards to individual liberty, can we expect to get them back.  In Michael Greve's The Upside-down Constitution (2012), he argues that emergencies, especially war, will overturn any constitutional constraint and will not get turned back after the emergency. It is this abandonment of constitutional principle, Greve argues, that turns competitive federalism into cartel federalism and thus in effect mutes the checkmate countervailing force and sorting mechanism that was applauded about federalism.

In various writings over the past month and half, I have tried to apply and communicate some basic principles of economics and political economy to the crisis we are collectively experiencing.  We must be sensitive to the tragic consequences to individuals, families and communities that have resulted due to Covid-19, not with respect to physical health, but mental health and financial health -- in short, to human well-being both in the present and in the foreseeable future.  To give one brief indicator of the absurd reversal of fortune, we went from one of the best job reports in US history a month ago to a job report expected this week that will be the worst since the height of the Great Depression -- in 4 weeks.  Public health officials and Politicians can say all they want that it does not compute to them to equate human health and welfare with economic costs, but it does compute it is just that their tacit presuppositions are not built to see that, and the incentives that they face are not such that updating their priors in that direction is automatic.  Armed with that tool of reasoning, however, I believe those observing can build that knowledge into their own processing of information. We all must admit that the signal to noise ratio this past month from all sources has been more confusing than clarifying.  Perhaps using simple economics to make sense of the senseless isn't simple-minded in the least, but instead the most sophisticated tool we have to raise our observational capacity.

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That will require a lot more work by liberal thinkers than we might have anticipated 6 weeks ago.

|Peter Boettke|

Here is my version of a postcard from the edge to provide links to potentially interesting conversations to join during these tumultuous times.

Prior to the breakout, I was able to do two podcasts with the GMU Econ Society. Part 1 and Part 2.

2023 is the 40th anniversary of Mercatus Center, and as part of celebration I had the opportunity to sit down with one of the pivotal players in the history of the Center -- Professor Karen Vaughn.  This conversation is focused on her scholarly career.  During her visit, Professor Vaughn also had the opportunity to talk with my colleague Dr. Jayme Lemke on the being a woman in the economics profession.

Finally, I published some reflections on the use of colorful examples in the teaching of economics with the hope of placing some emphasis on the critical importance of unleashing the creative powers of a free society to address our current situation. 

Since I  have great faith in the creative and clever imaginations of entrepreneurs in the private, public and independent sector, I am asking readers to send me all the examples they find of new innovations being offered to communities under duress to help ameliorate the situation, or to offer new products and/or services that will lower the risk that individuals face with respect to public health. I am interested in curating these examples of the resourcefulness and resiliency of individuals to deliver robust results in the face of difficult odds.

|Peter Boettke|

A mantra we have used on this site since changing our name a decade ago is that we study economics as a coordination problem, and we see entrepreneurship as the solution to that problem.  In various works the different authors on this blog have pursued and reported on here, they have studied entrepreneurship in the public, private and independent sector to see how a variety of coordination problems are in fact solved or at least ameliorated.  These are never trivial acts ex ante but often acts of bold courage; of voyages into an unknown and uncertain world. But unless these acts are taken, the coordination problem persists and opportunities for gains from trade and gains from innovation are unrealized.  In short, absent the productive specialization and peaceful social cooperation that is realized when coordination problems are solved improvements in the human condition are lost.  This is not exclusively a loss of material progress, but a loss of all the things that lead to human betterment that material progress delivers for us.

Within the set of serious coordination problems to be address we must include macro volatility problems associated with the manipulation of money and credit, and the corresponding misallocation of capital and labor.  In short, a standard boom-and-bust story in the Austrian Theory of the Business Cycle.  But not all macro volatility problems are money induced distortions and corrections.  One type of coordination problem is the Robert Clower and Axel Leijonhufvud coordination Keynesian type problem, and another would be an exogenous shock such as a natural disaster, or a pandemic.  These external shocks can be, and often are, compounded by errors in the policy responses to them.  When we were conducting the Katrina project at Mercatus, one of the issues we focused on repeatedly was how to try to avoid "compounding the fury of nature with the folly of mankind." Unfortunately, that problem is almost as difficult to manage as the consequences of the external shock itself.

But collective action will be required.  The great economists Thomas Schelling put his finger on this in an interview in the LA Times back in 2005.  As he put it:

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“But achieving this coordination in the circumstances of New Orleans,” he said, “seems impossible.”

 

But, private, public and independent sector entrepreneurs figured creative and clever ways to serve as focal points of orientation for individuals to come back and rebuild in New Orleans.  The task was daunting, but it was not impossible. They solved the coordination problem through ingenuity, grit and determination, and once their bold and courageous acts were taken, others found hope.

I have written here already about the trade-offs, and about expectations, and there are plans such AEIs about how to reopen the economic system after this public health mandated shutdown.  These all must be studied carefully and dispassionately -- without over optimism or over pessimism.  But one thing is clear in my mind, we will need to solve once again a problem similar to what Schelling identified for New Orleans.  If we don't, expectations will guide actors aways from moving in the desired direction. The obvious focal point would be wide scale testing and antibody determinations, and/or effective treatment options so that despite whatever calm analysis of the numbers tells us, folks will believe that they are relatively safe to enter social spaces once again. The existing pressure on the medical system has to be reduced by ingenuity and innovation, not I would argue, by improvements in command and control management. The includes alternative supplies of needed equipment and personnel being guided to most urgent areas, by scientist working hard to discover effective treatment options by repurposing drugs or through creative combinatorial thinking. Again, the coordination problems we are facing will be addressed by creative and clever entrepreneurs (who are also erring but always striving to correct) in the private, public and independent sector.

When these entrepreneurial acts produce results that can serve as a focal point to others that its is within the reasonable calculations to return to social space in which we work, play, and live with one another, then additional work will be required to clean up the mess that the folly of mankind has created in the wake of the tragic fury of nature.  When we embarked upon our study of Katrina we found hope in a classic statement from the great classical economist J. S. Mill's Principles of Political Economy:

what has so often excited wonder, the great rapidity with which countries recover from a state of devastation; the disappearance, in a short time, of all traces of the mischiefs done by earthquakes, floods, hurricanes, and the ravages of war. An enemy lays waste a country by fire and sword, and destroys or carries away nearly all the moveable wealth existing in it: all the inhabitants are ruined, and yet in a few years after, everything is much as it was before.

Just in the 20th century economic history of the US, calm resolve may be provided in these difficult times by looking at the economic consequences of 1918-1919; 1952; 1957.  Horrendous toll and tragedy befell so many families and yet economies recover, grow and develop due to expansion of the opportunity for gains from trade and gains from innovation. This doesn't diminish the tragic suffering. Social systems should be judged by how well they minimize human suffering, and instead maximize the opportunities for human flourishing -- that is what striving for a "good society" is ultimately all about.  I hope someday soon we will once again be having very rational yet vigorous discussions about these fundamental issues related to the liberal principles of justice and political economy.

|Peter Boettke|

Consider the situation of a complex adaptive system with intricate moving parts, and the critical element in all of this has purposes and plans of its own. Welcome to the world of economics. As Carl Menger pointed out over a century ago, “… man, with his needs and his command of the means to satisfy them, is himself the point at which human economic life both begins and ends.” Principles of Economics (1871, 108) Friedrich Wieser in Social Economics (1927, 8-9) would stress this point about the social sciences versus the natural sciences in stark terms as follows:

The object of investigation is man in a condition of activity. Hence our mind ratifies every accurate description of the processes of his consciousness by the affirmative declaration that such is the case, and by the compelling feeling that it must be so necessarily. In this way the description becomes an exposition, although it may always be true that the final "why" is never brought forward, as no explanation is at any time forthcoming of stimuli which subconsciously affect consciousness. For all actions which are accompanied by a consciousness of necessity, economic theory need never strive to establish a law in a long series of inductions. In these cases we, each of us, hear the law pronounced by an unmistakable inner voice. What unequalled advantage to the naturalist, could he, too, appeal to the voice of nature for their confirmation of the laws prevailing in the organic and inorganic world! Where the natural sciences can only offer proof, the theory of economics can persuade; it can enlist the unqualified inner consent of readers.

And, in their own way this was a point stressed repeatedly by Mises, Hayek and Machlup.  But there are even very subtle issues of a technical nature that this point raises for those who want to follow a more unity of science research agenda, such as Morgenstern.  The Austrian School of Economics produced a rich debate on these issues ranging from the Menger-Mises strict dichotomy between natural and social sciences, to a more or less methodological dualism by degree as advocated by Hayek and Machlup, to a unity of science and consilience aspiration of say Morgenstern, to finally a more radical hermeneutical stances that stressed that all science is human science because only humans practice science as articulated by Lavoie (and McCloskey). I don't have any desire to adjudicate these ultimately philosophical positions here in this post, but I want to stress the implication for the modeling "problem" in economics from the fact that we are dealing with the study of human beings that have purposes and plans of their own that must be accounted for.  This problem is even deeper, I think (?), than a serious discussion of the fixed or free nature of the parameters in our modeling.  It is that our modeling has to constantly account for endogenous change in the behavior of those who populate the model which will then necessarily change the nature of the model.  In Morgenstern this is called the "theory absorption" problem, to the extent that actors in the model begin to believe the predictions of the model they will adjust their behavior to avoid the negative consequences and then as a result undermine the predictions of the model. And, this is ongoing.  Quick quiz -- think about the relationship between that point and the Lucas critique. Also, think about the difference or similarity between this point and the demand for placing the theorist within the model as well as stressed recently by both Levy/Peart, 免费Ⅴpn安卓 and Towards an Economics of Natural Equals and Koppl, Expert Failure.

I would argue, though this idea needs to be much more subject to critical dialogue with others, that there is a subtle but significant difference between the knowledge assumptions in economics made by Hayek and made by Lucas. To Lucas the agents in the model know everything that the economic theorist knows, but to Hayek the economic theorist can never possibly know everything the agents in the economy know (that pesky knowledge of particular time and place upon which they act).  This matters and matters in a significant way for how we think about parameters and predictions, about the subject and object of our investigations, and the limits and promise of scientific economics.

Many years ago, Ulrich Witt wrote a wonderful paper on what he termed "the endogenous public choice theorist" where the very predictions of the model result in recommendations for improvement which if followed will mean that the predictions of the model will necessarily change.

And, yes, this modeling "problem" is relevant for the chaotic crisis we are living through at this particular moment in time.

|Peter Boettke|

Before I start this post, let me suggest to everyone that you look at Chris Coyne's Doing Bad By Doing Good (Stanford University Press, 2013) and any lectures you can find by Coyne on this subject on YouTube.  Also, for the purposes of this post, it also might be insightful to watch some episodes of the old TV series MASH and focus on the character of Radar O'Reilly, and how he worked behind the scenes throughout the Korean War to try to procure the needed medical supplies because the planning apparatus failed to do so in an efficient manner to meet the most urgent needs of the doctors and nurses in the field.  

Andrew Koppelman explains the basic argument that will be provided for planning in times of emergency, like war, natural disaster, pandemic.  My good colleague Alex Tabarrok discusses this clearly in MRU video that is very relevant for current affairs.

The key point is to turn an economic problem that all societies confront -- the allocation of scarce means among competing and often divergent ends -- into a technological problem -- find the best means to 免费Ⅴpn安卓 -- and voila! the planner's problem is solved. Right?

Well, when we look at these command and control measures closely in historical practice (and even in the most urgent of situations), we come to appreciate that transitioning from an economic problem to a technological problem does not eliminate opportunity costs, the move instead "hides" these costs from view. These costs must still be borne. This was an important part of the economic argument developed against the draft by vpn下 and others in the 1960s.  Suppressing the wants and desires of a great multitude to the command and control for a common cause may very well achieve its desired outcomes, but at what cost and how do we understand alternative courses of action that may have been discovered.  Having that conversation is not a lapse of moral judgement, but actually an example of judicious moral reasoning.

But what are we talking about here really.  In situations after natural disaster, we are talking about getting water delivered to populations cut off from normal sources.  In wartime, we are talking about having spare parts ready to fix needed military trucks and vehicles to wage battle.  Yet, history is filled with examples of command and control supply chain frustrations when the problem appears to be so easily solved.  Gordon Tullock's The Politics of Bureaucracy (1965) discusses the issue of spare parts and compares the military difficulties during war with the US trucking industry throughout the country.

Cotton Mather Lindsay (1940-2015) was a student of James Buchanan back at UVA, he then did a post-doc fellowship at LSE, and then joined the faculty at UCLA before moving to Clemson.  His thesis was on the National Health Care system in Britain, but later work would focus on the Veterans Administration Hospitals. There are planner's problems throughout these systems -- knowledge problems and bureaucratic/political incentive problems.  Interest groups form, and metastasize throughout producing frustrations and failures in delivering even basic tasks dictated by the command and control apparatus.  One example from Lindsay's work was the building of acute care and chronic care units in the VA hospitals, and the impact that an aging veteran's population eventually impresses upon that decision.  In short, younger population want acute care, while aging groups want to chronic care.  It is extremely expensive to allocate acute care units to chronic care use. Yet it seems the logic of interest group politics and the bureaucratic incentives at play, tend toward that unhelpful outcome.

The planner's knowledge problem, Mises/Hayek/Lavoie taught us, exacerbates the planner's bureaucratic/political incentive problems.  If you do not know the right economic course of action to take, planners don't just throw up their hands and say "I don't know", then instead rely on the knowledge that is readily available to them --- the technological knowledge of marshaling means to achieve agreed upon end -- but along the way that knowledge is acted upon by flesh and blood human beings, who face incentives, and respond in predictable ways to the incentives that they face.

Why can't bottles of water get delivered from point A to point B?  Why can't we move medical supplies from areas currently very minimally impacted to high impact areas with the promise that other minimally impacted areas will backstop those first areas if they start to be impacted?  This all why production will take place to meet the increased demand.  But instead we have political gamesmanship and vested interests sticking their heels into the ground, mixed with moral posturing, all the while critical problems go unresolved.

The sort of economics practiced by Mises/Hayek, and Buchanan/Tullock is not a theory in search of an application, but a golden key to unlock the mystery of the observed reality we witness daily -- both in terms of the beautiful complex adaptive system of the price system, and the dysfunctions of public sector systems of command and control.  It is a huge error to ignore the tensions and troubles in private sector (both commercial and community) interactions, but it is also a huge error to blissful ignore these public sector dysfunctions and dismiss those that are too obvious to ignore as the consequence of particular incompetent actors rather than systematic problems that must be confronted by even the most well intentioned and most competent "generals" put in charge.  The fundamental question, I would argue, is the critical feedback mechanisms in place so that the necessary adaptations and adjustments are made quickly to reveal error, and set in motion actions to minimize the cost of the error and correct the previous errors and steer human decision making in a less erroneous direction in the future. We are, after all, fallible but capable human actors, making decisions in an uncertain and in many instances unknowable world.

Let's hope the human imagination is being pressed into action right now, and numerous nimble and entrepreneurial actors in the public and private sector are working toward solutions that will address the relevant trade-offs and minimize human suffering due to this shock we are experiencing.