A Little Skepticism In Economics Is Prudent

6 Feb

Russ RobertsPeter Boettke is one and one in this podcast that I thought I would like more than I actually did. Too much Buchanan veneration…er, evangelism. Same problem.

On the bad score:

Guest: On an intellectual level, the reason why you get drawn to Jim Buchanan is an analytical set of arguments within economics, the most important of which is a demand of behavioral symmetry. The way that I study individuals in the marketplace is the same way that I’m going to study them in the voting booth or in any other walk of life. And traditional economics–textbook economics–had suffered from what Buchanan and Gordon Tullock would refer to as the Roman Emperor problem. A Roman Emperor is asked to judge a singing contest between two contestants, and upon hearing the first gives the award to the second under the assumption that clearly the second couldn’t be any worse than the first. This was the old market-failure/government-correction kind of idea.

Russ:Because we don’t like the way the world is; obviously we should use government because we don’t like the way the world is.

Guest: So we see the market fail and we say government is a deus mach–

Russ: deus ex machina– Guest: and can fix it. So, Buchanan, by forcing us to do this behavioral symmetry, said that: look, if people in the marketplace are doing these things because they’re greedy, well, what’s it like when we look at politicians when they are greedy. Rather than looking at people in the marketplace as greedy but people in politics as angels. So, you couldn’t do that. Man was neither sinner nor saint. He’s sort of both, this complex character. And you do that.

Russ:Very Smithian.

Guest: Yeah. And Buchanan is a modern Adam Smith. Like Friedrich Hayek–I think you could make a claim that he is the most Smithian of modern economists.

Well, there’s a boon for economics departments. Fortunately, humans aren’t simple or saintly, and one perspective alone, however useful, will just create a caricature.

On the good points (which often seem to be Russ Roberts’):

Guest: And mainline economics is: How is it that I square this–one proposition, self-interest proposition–with the invisible hand?

Russ: That things sort of work out pretty well most of the time.

Guest:And the way that we do it, what we find, is that all of those economics that I mentioned do it by way of institutional analysis. It’s the private property, market economy. And the key thing is there–it’s the private property, market economy. They don’t say: Adam Smith never said individuals pursuing their self-interest under any conceivable set of circumstances will generate a publicly desirable outcome.

Russ:And as you said in the book, he had lots of examples where things came out badly. Just mention a couple of those–teaching, religious activity.

Guest: Yeah. It’s funny the way he does it, especially in the context of this book, which talks about teaching, is that Smith contrasts the teachers in Scotland, who were actually paid by student fees directly, versus in Oxford, where they were paid based on the endowment and they were tenured. And he talks about how the professors that were tenured at Oxford would get up in front of the class and literally read the book. Whereas the professors in Glasgow and Edinburgh would actually respond to the students, try to make sure they were teaching them the right things, and like that. And with regard to religious education, he uses the issue of whether or not you have a state-sponsored church or a voluntary contribution church. And his argument is that religiosity rises much more when you have voluntary contributions to the church.

Russ: Because they respond to the consumer.

Guest: Yeah. And his friend, David Hume, who was non-religious, had the same analysis but he sponsored state churches–

Russ: Because he wanted to make them less effective.

Guest: Whereas Smith thought religion of value and so he wanted a free market in religion. So it’s a kind of very fascinating–

Russ: I’m just going to add one more, which you mention in the book. He believed that people in business would often pursue their own self-interest in the harm of others, that they were allowed to conspire or had a natural tendency to do that. He also saw lots of negative things about politicians without restraint. I’m interrupting because I think it’s such an important point that people who share our ideologies and philosophies, and our opponents, get wrong. Which is: I don’t believe–and I don’t think you believe–that anything that’s spontaneous must be good. Spontaneous is a fact–that there are emergent forces that shape outcomes in the world around us. That’s a fact. That’s not something you believe in or don’t believe in. But what you can believe in or don’t believe in is: Which are the right institutional forces that make spontaneous outcomes look good or not good? And how might they be improved, and what makes them different? But this idea somehow that Adam Smith, because he was in favor of “laissez faire,” means that he thought all government was bad or that all spontaneous, invisible-hand-like stuff was good, is not true.

Both miss Hume’s emphasis on customs and habits, but any discussion of Hume is appreciated.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: