Thursday, February 28, 2013

I was never an Austrian but . . .

I was never an austrian in the first place, but this paper allowed me to understand why I was not. I realized it is quite simple, austrians are just a little to pretentious for me to like!

But in all reality, why don't I like austrian theory?

I mean I love some of it, like :

- They say skrew math , its about philosophy and logic
- They outright challenge Keynesian theory and the idea that you can use government to fix any outright issues in the economy like unemployment and business failure
- They feel tampering with markets like the capital and employment markets generally achieves less than optimal results

But the reasons I don't like austrians are:

- They assume all social welfare programs would reduce the quality of life for the majority of the population involved
- They theorize that the poor would be better taken care of and employment would be higher in a totally free market with no social welfare
- They also assume that instigating any welfare will create a welfare state something like the ancient Inca
- They disagree with many externality theories, basically saying they don't exist

These among many other more personal reasons I can't say I am an austrian economist, even if I wanted to.

But hey, Mises and Rothbard were still excellent economists and great philosophers with many worthy contributions.

So, I can say I am a fan and not a follower of the Austrian way.

What about you?

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.

Tuesday, February 26, 2013


Brian Caplan lists several problems he has with the ABC. One of these issues he has is with the following "Proposition 3: Monetary expansion distorts the structure of production in an unsustainable way."

He clarifies his disagreement with the following, "The objection is simple: Given that interest rates are artificially and unsustainably low, why would any businessman make his profitability calculations based on the assumption that the low interest rates will prevail indefinitely? No, what would happen is that entrepreneurs would realize that interest rates are only temporarily low, and take this into account."

Brian Caplan would be correct if the market where 100% efficient all of the time, that is efficiency with respect to profit maximization. There are real examples of  this point on a regular basis. Look at the Federal reserve banks's chairperson. Many times the market reacts as a result of what he says as they did today. If the market where truly 100% efficient the market would already have know what he was going to say before he said it and would have fully priced it in, thus we would see no reaction to any statement the chairperson of the fed could say.

If the markets can't predict what the fed will do how can they predict interest rates? Perhaps it can still be done, there is no reason to doubt this but when consumers living in an inefficient world suddenly see mortgage rates on homes drop, on fixed rate 20 year loans below the long term "natural" rate, does that not qualify as a malinvestment? When the fed shifts monetary policy from just targeting short term rates to also longer term rates as it attempts to massage the yield curve would that not distort decisions? It may be that Mr. Caplan has a different opinion today and one has to wonder what a post financial crisis essay from him would look like.

Austrians Schooled and Subjective Value Good(for nothing)s Served

Austrian school (introduction)

I can tell you that I am not an Austrian Economist.  Like Haley (see post), I must confess my own ignorance about many of the topics discussed in Bryan Caplan's "Why I Am Not an Austrian Economist". However, I will attempt to focus on 2.4 Welfare Economics. In his essay, Caplan notes how Rothbard (Austrian School) distinguishes the free market from the government.
"His (Rothbard) main conclusions are simple and austere: every market transaction benefits all participants, while every act of government intervention benefits some people at the expense of others."

Caplin disputes this in a complex roundabout way, so maybe i can do it better. This first Austrian conclusion is good in theory, but in practice can be very misleading. Every market transaction may benefit (or seems to benefit) all participants at the exact moment of the transaction, but not the time before or after the transaction. when values have changed, will there still have been gains on both sides of the deal? Change in values is inevitable, due to constant changes in our environment. There are some gaps between the ideal and practice. I conclude that subjective value is an unreliable basis for this claim.

I will value things in my life differently around different circumstances. The author of this article may arrange a transaction for a seemingly comfortable futon on, but cannot return this good (for nothing) after having slept on a metal bar ALL NIGHT if the previous owner doesn't do returns! To accept that all market transactions are mutually beneficial is to deny the existence of lemon transactions (getting ripped off)...

Subjective value theory 

Every day more musicians go through being wealthy for a month to obscure poverty once their one single falters. While Aqua CD's were valuable (barbie girl) in 1997, today they are not. Which brings up the necessity to include a temporal element to value, as well as a marketing element. It's very important to include an analysis of potential value (+-value due to marketing) and temporal value (avg value/time or stand the test of time?) when operating under subjective value theory, because some things are worthless even though people value them temporarily. How else can we differentiate between seemingly valuable goods, and truly valuable goods?

Rothbard's second conclusion seems to suggest that each person pays a small amount for the government to give a bundled benefit to a select few. Yeah okay, can't argue that. Maybe I'm not all criticisms

Economics (conclusion)

Bryan Caplin's work supports many of my previous accusation towards the current mission of economics (if you've not tuned in, EVERYBODY KNOWS EVERYBODY ELSE IS WRONG). Nobody can seem to agree on anything, but intellectual growth is contained therein. If there is an objective truth to economics, this convergence is supporting evidence of it. I find the Austrian school differentiating itself from the neoclassical rival  in fairly minor ways to be extremely encouraging. 

Hope is not yet lost for economics!

Politics is still full of $#!T, though.

Of Money and Methodology

Caplan's essay on Austrian economics and his critique of their quixotic efforts to differentiate themselves from other schools reminds me of a similar critique of the monetarist school. Refering to Milton Friedman, MIT economist Robert Solow once remarked that "Everything reminds Milton of the money supply. Well, everything reminds me of sex, but I keep it out of the paper.” What's true for Friedman and money holds true for Rothbard and methodology. Nothing is so important as to render all other discussions unworthy of your time. Except, of course, love. But Rothbard didn't talk about that, so he shouldn't have been so danged single-minded. He was a great thinker, but he could have been a better economist. Instead, he chose to hang himself from the cross of heterodox obscurity.

I Agree With Everyone, and With No One

On the whole, I offer little contention with Brian Caplan. Rather, I would agree that Austrian school-of-thinkers tend to vigorously defend an incomplete and (sometimes) flawed body of logic, while they could, and should, just cut their losses, bolster their short-list of widely-accepted economic certainties, and drop the "Austrian School" title that associates them with the whole lot* of fallacies (and makes them sound pretentious anyway).

*lot, as in, the British colloquialism (I'll take the lot!), and not lot, as in, many (I like it a lot!)

In the Austrian School, from what I can gather from Caplan's interpretation, and what I would agree with, is that the Austrian Thinkers are too specific on things that are better (and arguably more productive and elucidative) left broad, and vague on things that require specificity. As we've seen, in cases of ambiguity, Austrian thinkers are vulnerable to a wide range of interpretations; some of which could render the idea false evidence is brought against it, and thus any kernel of wisdom that it retained would be lost. In cases of over-specification, the kernels of wisdom that could have deftly explained some economic phenomena are anchored to very specific examples or parameters, and therefore are lost for similar reasons of evidence being brought against it. It's similar with scientific theories. Once you have evidence against it, it's thrown out, even if you were on the right track.

This is not to say that this is the case with all Rothbard/Austrian School arguments. There are some in which the specificity is just right, and it still seems to be wrong. Welfare Economy, to name one, is an example that both Caplan and DocLawson discredit, with my allied support.

Moving on, there were areas in Caplan's argument where I thought he stretched to dismiss parts of the Austrian School, that may not have merited his desperate dismissal. Regarding Continuity, it seems as though Caplan was unneccessarily splitting hairs, and giving more credit of depth to Rothbard than should be deserved. Rothbard seems to suggest that people act only on what they are aware of at any given moment requiring action, dismissing minute details that they deem unimportant at the moment. And for the heck of it, let's throw in an example:
The decision to do the dishes does not require consideration of whether to later watch a movie with roommates or practice music. 
The two have virtually no connection at the margin, however the minute intermediary decisions may eventually involve the two, but how could we have known that? It's inefficient, and often impossible to predict such futures. But it is a possibility...
Possibility: By doing the dishes, our dishwasher unwittingly gains "street cred" with his/her roommates. When it's time to pick a movie, the roommates offer to let our dishwasher pick whatever movie he/she wants, which increases the value of the activity over practicing music for them.
SEEMINGLY, IMPOSSIBLY INSIGNIFICANT decision to wash the dishes has affected the outcome of a perfectly unrelated activity. Actually, I think the whole "traveling back in time and killing a gnat makes it so Hitler is never born" kind of wraps that concept up nicely. We act without accounting for EVERYTHING! Only instantaneous subjective relevance.

The point is that I think Rothbard got that one right, and Brian Caplan was just lookin' to scapegoat.


To sum all my thoughts up:
1. Prescribers to Austrian Economics are too tied to Austrian theory as a whole, and should probably let some things go in order to enter credible economic spheres.

2. But some sympathy: I believe that some of their theories, though they may be incomplete/vague/too specific, do carry elements of truth and applicability in modern economics. This is to say that they were one the right track, but maybe just missed the turn-off.

3. Yes, there are definite points in Austrian arguments where you're like, "What? What obviously false offer did you make with such verbose assertion? What idiots." Yes, they are definitely wrong in places.

4. I mostly agree with Caplan, but I think he, at times, came off as a little pompous and douche-baggy with his arguments. This, for me, colored his arguments with some bias, to which I was wary when considering his opinions. Let's get a little humility, eh?

5. Overall, I agree with that age-old Milton Freeman quote "there is no Austrian economics - only good economics, and bad economics." I mean, that's how science pretty  much does it. All accepted findings and theories are placed into the universal canon of scientific knowledge, and are removed when they are proven wrong. Nobody's taking the Theory of Relativity, "The World is Flat" Theory, and the Law of Gravity and saying "This is my school of thought," with someone else taking Heisenberg's Uncertainty Principle, "All Square Objects Float" Theory, and the Periodic Table, and saying "Ok, then this is mine, then." Why can't we all just get along?? Let's help a brother out, and get a unified body of economics that everyone understands is in CONSTANT FLUX! Wouldn't that be easier? Let's get it together, people.

I am apt to believe that most of what I have stated is wildly askew from what our author (and Rothbard/Mises, for that matter) actually meant in their arguments. But such is the risk of allowing someone who is neither of the Austrian or neo-classical school (or any school, for that matter) interpret information that requires a professional opinion in order to be regarded as true or false. I can only offer my pedestrian opinion, so take it or leave it.

"Is theory enough?" Or, "My Issue With Bryan Caplan's Issue"

            In Bryan Caplans article “Why I Am Not an Austrian Economist” he addresses a variety of ideas put forth from the Austrian school of economic thought. My eye was drawn toward his question of “Is Theory Enough?” Proffessor Caplan agrees to some point with Mises and Rothbard that economic theory is a useful tool (if not the only tool) in the economists arsenal. His attack against the Austrian thought is that they don't follow through with the mathematics behind their theories. He brings up the all the theories developed since economic mathematics and econometrics have evolved in 1949 as a attack against the Austrians. I don't believe that he has a valid point in this area, I'll give it to Mr. Caplan that it is very possible that several of the theories brought forth in that time entirely due to the developed mathematics but his seeming attack undermining what the Austrians had theorized without the use of mathematics doesn't seem completely reasonable.
         If their theories are still valid today why does it matter how quantitatively significant each individual point is? I find issue with his seeming importance on backing up with numbers what is sound economic theory. The market is the numbers he is looking for, all the factors of if a theory works or not can only be perceived in how a market continues and the numbers he seems to rely on are based only theories anyway.

Friday, February 22, 2013

Why I Too Am Not and Austrian Economist or Am I?

I choose not to self-label myself as an Austrian economist and rather prefer Milton Friedman's line about how there is only good or bad economics. But mainly my reluctance is because of my own ignorance related to the major Austrian works. Simply put, I have not done close readings of Mises' Human Action, Rothbard's Man, Economy and State, much less the works of Menger, Bohm-Bawerk, or even Schumpeter. Many SWEET students could no doubt school me on the finer points in those works.

My own training was quite conventional and neoclassical (except for an early introduction to Public Choice). I did attend the 2nd "Mises University" (before it was even called that) in 1987 and was awed to meet Walter Block, Roger Garrison, and Chuck Baird (who are all friends now) and even sat at the foot of Murray Rothbard himself as he held court each evening. Nevertheless my formal training has been very inside the box.

Story time: In addition to being a great Austrian economist, Benjamin Powell and I are also close friends and hiking/mountaineering partners. (Ben visited Fairbanks a year or two before me some of you may remember.)  On our many long days of hiking and climbing he and I naturally talk about economics a lot. One recurrent theme is whether or not I am an Austrian economist. Our conversation is usually along these lines:

BEN: Do you think values including costs are subjective.
ME: Sure.
BEN: Gee, you answer yes to every one of my Austrian economics questions. You're an Austrian.
ME: I thought that was just good economics.

So what do I make of Bryan Caplan's essay "Why I Am Not an Austrian Economist"? Let me take Bryan's claims in turn:

2.1 Utility Functions v. Value Scales.  Bryan is correct here. There is NOTHING in neoclassical economics that requires cardinal measurement. Period.

2.2 Indifference. Again Bryan is correct. Rothbard's notion is that preferences can only be revealed by human action and since indifference is inaction we cannot use the concept to describe anything about preferences.

This is bizarre even on Austrian grounds. Consider every Austrian's favorite example, The Broken Window fallacy. The Austrian says breaking window's intentionally is harmful because the money spent on the glazer is not spent on the suit which would have been preferred. But how do you know this? The only human action we see is the person fixing the window. We can't know this person's preference for the suit without seeing him buy it!

Austrians may claim I am being overly pedantic here, but I see this as no more pedantic than the claim that indifference is invalid because we can't see it expressed in human action.

2.3 Continuity. Here I am much more sympathetic to Austrians. There is no reason to think our preferences for goods and services obey nice mathematical properties of being smooth and continuous. Bryan says, without continuity, "it is also highly unlikely that e.g. supply and demand can ever be equal". This is true but so what?! I don't think supply and demand (technically students we should say quantity demanded and quantity supplied here) are ever literally equal. Supply and demand are static expressions of a dynamic process. 

Take a different example. A free-market, but neoclassical, economist might say that saving 1 certain life (think of the kid trapped in the well) for $10 million is silly unless we have first exhausted all opportunities to save statistical lives (think better roads) that cost less than $10 million each. But hey wait! Who says I have to value the kid trapped in the well the same as a 1/300million chance of death (which probabilistically means 1 death in a country our size)? Value is subjective - damn it -- and there is no reason my preferences for saving people should be so smooth and continuous.

(Now I do appreciate the value of framing arguments this way. When someone say's they want to "save lives" it is entirely appropriate to point out that we can save lives less expensively in other ways.)

2.4 Welfare Economics. Again, I think Bryan is correct. Rothbard's argument against externalities doesn't work for me either. I am no fan how statists abuse externality arguments (as I am no fan of how murderers use guns) but that is not to say externalities do not exist.

For my money the best reply to a statist externality argument is a more Hayekian argument about the lack of knowledge on the part of government on how to fix the problem.

2.5 Subjectivism. I agree again with Bryan that neoclassical economics is fundamentally subjectivist but with a caveat. The Austrian economist is an economist who says value is subjective AND REALLY MEANS IT. The neoclassical house is built on subjective value, but oddly a lot of neoclassical economists don't know it. Want to start a fight at an economics conference? Tell a neoclassical economist that "costs are subjective". They are and if he thinks about it will agree, but most are so poorly trained on the underlying principles (as opposed to the mathematica) that they don't know this.

3.1 Economic Calculation.  I find Bryan's criticisms to be very flat here. No markets, means no market prices, means no information about relative scarcities/preferences....I agree that there are OTHER arguments against socialism (like incentive problems) but the calculation problem is big.

3.2. Like supply and demand and other trappings of formal neoclassical theory I have no objection to the heuristics of perfect competition and monopoly. Most good neoclassical economists understand the limits of both concepts in the real world. And again I find Bryan's analysis sound.

3.4 I confess to a very weak understanding of ABC, but I didn't find Bryan's criticisms convincing. Here I punt however.

Summary: Most of Bryan's complaints seem to be to be about Rothbard not Mises or Hayek or other "Austrians". For example, read William H. Hutt's work on monopoly (mostly as applied in labor markets) and see how fundamentally neoclassical it is.  If you based the definition of "Austrian" as "agreeing only with Rothbard", then I join Bryan as not an Austrian. But if you think Austrian means "in the tradition of Mises, Hayek, Rothbard, Hutt, Garrison, Kirzner, Yeager, etc. then count me in.

I was surprised Bryan left out the impressive work of Kirzner (and others) on entrepreneurship which is clearly important. Of course, a fair view is that this kind of work is already in the mainstream so it is no longer distinctly "Austrian".

Finally, no reading of Caplan's essay can be complete without a careful study the debate he had with Pete Boettke.

Thursday, February 21, 2013

Milton Friedman, The Champion of Chile

Milton Friedman was an influential fellow, the propagator of the Chicago School of economics, and probably the most prevalent and successful economist of the last 50 years. 

My first inkling of his work was in watching the commanding heights when I saw he informally aided Chile in dealing with macroeconomic monetary woes that were crippling its already underdeveloped economy. After a military cou, the newest dictator of Chile gave his economic staff an ultimatum, fix the economy or die. Luckily for them many of them were graduates of the Chicago School and they immediately asked Milton for a personal visit to Chile to give them some pointers.

During his visit, he saw many things. He was openly opposed to the military junta (dictatorship), but he felt that it was a direct symptom of the floundering economy beset with rampant inflation and a dysfunctional redistribution system. What he proposed in a letter to the chilean president (dictator) was a series of shock measures. These included such things as:

- Reducing inflation by drastically cutting government spending, thus the government would not have to print more money to pay its debts.

- Removing several government institutions that regulated trade, to cut spending and promote a free market

- Cutting several redistribution programs to promote a free market and reduce government expenditure.

The result was that Chile eventually tamed its inflation, and the concurrent economic growth and freedom lead to a peaceful transference to a democratic government several years later in 1990. Even though the measures were carried out by the Chilean government, many of them were graduates of the Chicago School of Economics and were members of its local chapters allowing the reforms to be implemented across the board. He may have only visited and wrote a letter but the impact is measured in the brilliant economic success of Chile and its transition to democracy.

Wednesday, February 20, 2013

In a country that promotes a free market why does the Fed have so much power?

        The Federal Reserve is the central banking system of the United States. It's goals are to maximize employment, maintain price stability, and maintain a moderate long-term interest rate. It works by buying or selling various financial institutions. It's designed to be able to help the country when in times of financial stress. In the most recent recession in 2009 the Fed worked to bail out many large companies including Goldman Sachs, Morgan Stanley, Citigroup, Merrill Lynch, and many other large companies. The bailouts included 3.3 trillion in emergency loans and more than 9 trillion in a large amount of short-term loans.

      These extremely high bailouts bring to light several issues behind he semi-private semi-federal entity that the Fed is. Most notably is the high amount of cash that the fed is able to spread with limited amount of accountability. In 2009 President George W. Bush authorized a 700 billion dollar bailout that when compared to the 9 trillion eventually given and loaned out to bail out the “too big to fail” institutions. The implications of the money being given to bail to these institutions isn't good. It allows banks to employ high risk high reward strategies with the knowledge that if they do fail that the government has their backs. In economy supposedly based on free markets how is this allowed to happen?

Tuesday, February 19, 2013

The Lucky Economist

         Milton Friedman is arguably the most influential economists of the past fifty years. As with most other economists his work was not fully appreciated in its time but slowly grew in popularity as the evidence presented itself in the market. Luckily he lived long enough to see how his economic ideas proved themselves truer and truer with every year in the world economy. The journal article The Age of Milton Friedman by Andrei Shleifer provides various economic graphs that correlate with an increase in quality of life around the world. As of yet the free market is the most reliable economic system. Its popularity among the hoi polloi is not the highest but amongst economists it is widely held as superior. The proof is in the pudding, as the article by Andrei Shlfeifer demonstrates. At the crux of it all is Milton Friedman. His name is associated with free markets and his legacy will thrive so long as free markets maintain their momentum in increasing quality of life.

       The undeniable superiority of free markets begs the question. Why haven’t all countries switched to a free economy? This is a loaded question and cannot be answered in a short essay even by the most determined entry level economic students. But I will try. In short countries will not switch over to a free economy because of political will and uncertainty.

         Political will is critical for any national change. The masses and the politicians must be aligned in order for any major change to occur. There is very little political will to change our current economy into a free economy. For although the United States is a front runner for free enterprise our economy is still heavily modified. Perhaps the shrewder politicians have read Bastiat and know that if a free economy is ever instated they will lose their purpose soon after. I like to think of it as going backwards on the road to serfdom. Politicians aside the people are also not in favor of free markets, and as Milton Friedman put it, they have no need to be. A housewife has no need to learn how markets function because she will not use this information. The public is largely ignorant of economics. It is no surprise that they want to maintain social security public, price ceilings on milk, and other economic policies. On face value, many economic policies seem to be noble. That is they seek to allocate funds in to the right hands to help society. But of course the hidden costs go unnoticed and tend to leave the economy in worse shape then it would have been otherwise.

           Politics aside there is a certain unknown factor to a free market. It is difficult to grasp the concept that the market will sort itself out into equilibrium. Leaving the market to run itself may leave a sense of helplessness. Our current model allows us to alleviate pressure of the economy. The Federal Reserve can lower interest rates or buy bonds in order to help an ailing economy. Relieving all control can be considered to be too much of a risk. However all these problems that need regulating are caused by market interference in the first place.

           I do not think a free market is possible with the current political mood and ignorance of politics in general. Even if these things were both in place, it is still hard to imagine a major over haul of economic policy. Potentially there could be a long series of adjustments to the market that lead to a free economy over a span of several generations. Or the current model may fail leading to revolt and a switch to a free market. But the most likely outcome is that our economy will continue to exist in a quasi-free state.  

Tuesday, February 12, 2013

Graffiti Is an Unbroken Window


 Continuing on an observable pattern of Economics, I will attempt to discredit all former Economists in favor of my own personal theories. Like many other commonplace economic theories, Bastiat’s Broken Window Theory has many different perceived meanings. I’m going to break down these perceived meanings before looking more in depth into “a childish act of vandalism”. Hope to see you at the bottom!

Detriment to society

From what I can gather, Bastiat was implying that because the store owner (in his scenario) had to allocate resources towards fixing the window, he was unable to use those same resources for more economic pursuits. This brings forth an interesting dilemma in today’s society. The act of vandalism is punishable by law, meaning an addition to the responsibilities (or limiting of resources) to the vandal. In this view, the vandal who has limited the shop keeper’s resources has their resources limited as punishment. You might very well argue that those resources go to society. In fact those fines could very well go to paying the judge, bailiff, and facilities, but since they are so low, the bureaucracy ends up just eating those fines.


Another perceived meaning is that the breaking of the window is accidental. If it was in fact accidental, why use this theory to degrade a child? Today’s culture is all about babying your children until you die. You should know that, because YOUR parents probably support you in every aspect they can. In Bastiat’s day, Children had 12 – 15 hour work days or apprenticeships between the ages of 7 and 16. If a 7 year old drops glass and breaks it, it’s the event that was uneconomic, not the child. Bastiat’s broken window theory has a way of putting blame onto this poor kid. The child might be lashing out after having been worked really hard, or might have done it accidentally. Not to mention that positive reinforcement of good behavior is more effective than negative reinforcement of bad behavior.


Finally, many consider the broken window to be an act of vandalism. In fact, Bastiat might very well be the reason why vandalism is considered criminal mischief. Being a graffiti artist myself, I object! Famed street artist, Banksy, presents the argument: what type of criminal breaks and enters in order to leave something, not take? While many people might still expect graffiti to peter off, I know better.

Graffiti is here to stay. Graffiti is a learning experience. Graffiti is about building community. Graffiti is about beautification. Graffiti is about respect. Graffiti is about claiming your territory. Graffiti is about showing the overly rich that their buildings are in our town, not the other way around. Graffiti isn’t about destruction of property. Graffiti isn’t about fun. Graffiti isn’t a bad thing. 
(Past) As with many other famous economic thought titans, Bastiat didn't have a bad point for his time. (Present) I'm just here to show people the modern day implications of his work. Don't listen to me if you don't want to, but utilization of logic and reason is the (future).

Bastiat, Bringing Law to the Uncertainty of Economics

        Simply bringing up the subject of economics can cause reactions of skepticism. The study of economics when compared to some of the “harder” sciences leaves a lot to be desired. Despite all the technology of the modern age professional economists can't seem to make accurate predictions for any any extent of time. In addition to that when compared to a defined science such as physics there are undeniable laws that you need to account for that help you make make accurate judgments on simple things such as how long it would take a ball to drop from a tree. There are no comparable hard and fast rules in economics that allow such easy forecasts to be made.

         I believe Bastiat's theories are compared to most economic schools of thought hold undeniable logic. It might be helped that in many of his theories simply fight against common misconceptions by pointing out the glaring inadequacies in the theory such as the broken window fallacy which asserts that breaking a window increases the wealth of a nation as a whole. As opposed to many economists his argument relies on the use of basic arithmetic by pointing out the fact that if there is money wasted on things that could be avoided it is draining the available cash for other perhaps more healthy economic ventures.

         This same school of thought goes to many of his theories which brings up the question where did he go right and others so wrong? As opposed to other economists such as Karl Marx who design a grand picture of a world where their version of economics fits in perfectly Bastiat simply uses basic logic to attack fallacious ideas. While not necessarily laws Bastiat brings some hard truths to the shaky ground that modern economics lies on.