Thursday, February 28, 2013

I ♥ Walter Block!

Walter Block is a hero of mine. I first met him as an undergraduate student in 1987 at Stanford when I attended the 2nd annual conference in what has become the Mises University.  He was the very first person who I remember suggesting that taking money from one person to give it to another was wrong. It had never occurred to me to question the status quo like that. (Forgive me, I was very young!) Later, it was my pleasure to work with him and co-author the first edition of the EFW index.

This week's video is vintage Walter Block and I thoroughly enjoyed every minute of it. This is true even if I disagreed with more of what he said than I agreed with. I can't help but love the energy! I don't have that kind of passion for economics on my most passionate day.  Right or wrong we need more Walter Blocks in this world.

On to substance...

Block begins by noting the oddity that almost all Austrian economists are libertarians.  This leads many to disregard Austrians as little more than a thinly-veiled cult. I've always found this criticism to be odd. After all, how many self-identified "Keynesians" are not statists?* I dare say there is no more political diversity among card-carrying Keynesians than Austrians. If Austrians are a cult then by the same logic so are Keynesians!

While it could be historical accident, I do agree that certain elements of economics emphasized by Austrians do lead one in a more libertarian direction (especially the seriousness with which they treat subjective value), but the two sets of ideas should not be identified with each other.

Block does a very good job of distinguishing the positive science of Austrian economics from the normative libertarian political philosophy. This is an important distinction that needs to be made more clear especially to young libertarians studying Austrian economics.

Where are my disagreements then?

Block essentially is the standard bearer for one type of libertarianism--the anarcho variety. But I consider the libertarian orbit to include the less "extreme" classical liberal variety. I don't see Milton Friedman as being 70 or 80 or 85 percent libertarian as does Block.  I see him as being 100% of a different kind of libertarian. (I was actually present at a conference in 1992 in which Block called Friedman a "money socialist" which was very funny.)

I consider myself to be an anarcho nowadays myself, but I don't see traditional classical liberals in the vein of Smith, Mill, or Friedman to be the enemy. For anarchos to argue with classical liberals is like arguing about what play to call when it's first and goal at the one yard line and your team is on its own one yard line with 99 yards to go. (Sorry for the American football metaphor.)

Block does a good job of explaining that Austrian praxeology is a purely logical subject, like math, but he vastly overstates the extent to which neo-classical economics is not. Both standard micro and macro economic theory are built based on axioms and logical deduction no less so than Austrian economics. (That is not to say the starting axioms or logical links are correct.) Few non-Austrian economists seriously believe empirical work is about "testing" theories. As he admits when talking about his work with Becker, most economists see empirical work to be about measurement of the theories we know are true not actually testing them.

I will not go over again the disagreements I have with Austrians regarding cardinal v. ordinal utility, indifference curves, transitivity, etc. This was covered last week. Many of his complaints about neo-classical economics fall flat in my opinion and some of them are simple misunderstandings of the neo-classical paradigm.

But let me give a couple arguments for empiricism. First, while theory, including Austrian theory, often tells us the direction of a relationship, the magnitude is rarely known as a matter of pure theory. Pure theory tells me that increasing the minimum wage will reduce employment, but it is silent by how much. The policy debate is mostly about the magnitude not the sign of this relationship, and only empirical work can help nail down this magnitude. Second, there are cases where theory is ambiguous. In neoclassical economics at least, the possibility of a Giffen Good or a backward-bending labor supply curve related to conflicting income and substitution effects can only be resolved empirically. Even the minimum wage debate can be ambiguous if you employ the monopsony argument.  I know it is tempting for Block to disregard these examples as misguided neoclassical nonsense, but the point remains that even pure theory can yield unclear predictions. Third, for better or worse, some people are not impressed by the elegance of Austrian (or neoclassical) economic logic. For these people, building empirical arguments may be the only way to get them to see the light.

Moving on...I also am increasingly unimpressed with the pure libertarian logic that Block uses to defend blackmail, libel, slander, incitement, and so on, even though I agree with him! The problem is I see the law as less about pure theory than keeping the social peace. The evolution of common law in a Hayekian sense was about setting rules that helped people get along without violence. The reason the common law disallows blackmail is probably because blackmail leads to conflict and the law over time selects rules that reduce conflict.  If you want to learn more about the law from this Hayekian perspective, consider Bruce Benson's or John Hasnas' work. In this evolutionary framework, the law is never "right" in any logical sense like Block wants it to be. The law and economics approach does not say the law should encourage resources go to the highest use, rather it says the law does encourage resources to go to the highest use. He mistakes a positive argument for a normative one.

As I said, Block and I have many disagreements. But I love his passion. I enjoy debates with him. And I consider him one of the primary reasons I am an economist and a libertarian today. In short, I ♥ Walter Block!

*I put Keynesians in quotes here to note I am talking about people who call themselves that. There are many non-interventionists who adhere to pieces of the Keynesian approach but they typically don't call themselves Keynesians, e.g., Monetarists.

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