Tag: Bryan Caplan

Voting anarchists

One of the longest ongoing debates in anarchism concerns the morality of voting. Thomas Woods has weighed in and not only believes that it is not immoral to vote, but that there are good reasons to vote for a candidate such as Ron Paul. He writes:

If you were stuck in a prison camp, and the guards let you vote on whether you were to have gruel or prime rib for dinner, would you be “consenting to the system” to vote for prime rib, or would you simply be doing the best you could under the circumstances to improve your material condition?

It is not clear in Woods’ example if anyone else is voting so it does not address the most obvious reason why many people in mass democracies do not vote; the recognition that there is an extremely small probability that your vote will decide the outcome, and therefore is quite a futile exercise.

Austrian economists define rationality as purposive behavior. This makes it harder to adapt the framework in which it can be hypothesized that it is irrational to vote. As a consequence, Austrians are not able to launch a research program to investigate the implications and consequences of this phenomenon for public policy. In contrast, classical economists like Bryan Caplan, who are not burdened by such a vacuous definition of rationality, have made useful contributions to the microfoundations of political failure.

One implication of the statement that not voting for Ron Paul “hurts the cause of the free society” is that it posits a “free society” as a goal that should be pursued by rational individuals. This approach reinforces the politicization of individual decision making and implies that a free society is the product instead of the absence of politics.

Much of what we call political behavior is most likely a remnant of our ancestral past where one person’s opinion and behavior mattered a lot more and the relationship between people could be characterized as a zero-sum game.

As Patri Friedman has observed at Overcoming Bias:

In the ancestral environment, pulling together to help the tribe in a time of crisis was the best way for an individual to survive.  In our modern environment, however, we are often led to identify with an entire nation as our “tribe”, and it turns out that this is an inefficiently large group for most types of collective action.  We evaluate the prospect of unity with ancient mental modules optimized for Dunbarian tribes, and that sphexishness leads us into disastrous collective ventures…Anytime you get excited about collective actions in supra-Dunbarian groups, you should be suspicious that you may be in monkey-mode… anytime you are arguing about politics as if you can do anything about them, then unless you are very wealthy or powerful, you are probably in monkey-mode.

In contemporary society the ancestral mindset still dominates, but it is hard to see how the cause for a “free society” will be strengthened by reinforcing it.

In August 2011, Stefan Molyneux (for this views on voting, listen to this) released a video aimed at addressing arguments by libertarian economist Walter Block about libertarian anarchists such as Wendy McElroy and Molyneux himself who do not support Ron Paul’s political campaign. Stefan objects to Ron Paul’s incoherent “constitutionalism,” discusses the costs and benefits of political action, presents anarchism as a multi-generational effort, and also gives a Burkean perspective on what might happen if a libertarian President would attempt to roll back the state in a country where libertarianism is a minority outlook (social unrest and violence).

If you think of a libertarian society as an emergent outcome that arises from evolving social interaction between rational individuals instead of an “ideology” that requires people to conform to categorical imperatives like the non-aggression principle, a lot of the debate about the morality of voting is not useful. Stefan’s treatment of Block’s arguments is not confined to such a moralist perspective; he also discusses what Wendy McElroy calls”non-ideological objections to electoral politics,” such as the effectiveness of changing things that are within individual control versus participating in collective action. He seems to recognize that one of the consequences of advocating people to vote and campaign for Ron Paul is to induce them to adopt a rigid and politicized framework for thinking about personal liberty.

Anarchist economists routinely contrast the operation of a free market with collective choice but many of them do not recognize that the postulates about individual decision making and value in their economic theories present major challenges for traditional thinking about morality, collective action, and (electoral) politics. In an older post on this topic Wendy McElroy quotes Sunni Maravillosa to contrast her individualist perspective with that of the voting anarchists:”What happened to the understanding that liberty is, first and foremost, an individualistic idea and pursuit? How did it happen that to achieve liberty we must all unite and act as one, pulling the great lever for The One Man Fit to Rule Us All.

Anti-market bias, unemployment and immigration

Economist Bryan Caplan discusses the important topic of market-clearing wages. Why are wages not falling during the recession in order to establish equilibrium and full employment? Caplan gives an answer that seems common sense but receives little attention from professional economists and politicians.

Is labor market rigidity a market failure?  I’m afraid so.  But strangely enough, this market failure is largely caused by anti-market bias!  The main reason workers hate wage cuts is that they imagine that wage-cutting employers are satanically “unfair.”  If workers saw wage cuts for what they are – a full-employment mechanism – they’d sing a different tune.  While they wouldn’t be happy to see their wages cut, they’d grudgingly accept that a little wage variability is a fair price to pay for near-total employment security.  Once this economically enlightened perspective took hold, employers would eagerly cater to it – and the market failure would largely go away.

Bryan Caplan’s position may have implications that he may be reluctant to acknowledge. If the absence of widespread anti-market bias is a necessary condition for the proper function of the price mechanism, arguments that immigration can alter the cultural prerequisites for sustainable capitalism (let alone laissez faire) can no longer be dismissed as “nationalist” or “collectivist.” The potential for capitalism will become a function of the genetic and cultural traits of a population.

Animal spirits in public policy

In the Summer 2009 issue of the Independent Review, Arnold Kling reviews George A. Akerlof and Robert J. Shiller’s new book Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism. Reading his review, one wonders how it is still possible for a serious scholar to make a case for more government intervention by simply documenting all the ways in which actual human behavior differs from the (strong) rationality postulates of classical economics. As Arnold Kling points out, and this must be getting quite tiresome, why assume that these same “animal spirits” do not inform and shape public policy as well? It is not hard to imagine a book that uses politics and government policies as illustrations of irrationality, conformity, and unfair decision making. As a matter of fact, current government responses to the financial crisis should provide a wealth of examples for numerous volumes about “politicians in panic.”

What might be more illuminating from a scholarly perspective is to investigate how different incentives and institutional environments produce lesser and greater diversions from the postulates of rational choice. A focused contribution to investigating these topics has been made by the economist Bryan Caplan, culminating in his excellent, and courageous, book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies.

Of course, purists will rightly argue that the case of Akerlof and Shiller is dead on arrival because no prescriptive statements can be derived from their detailed descriptions of irrational behavior without accepting the authors’ own outlook, in their case expressed in the metaphor of society as a family in which the government behaves as the parents. The use of this metaphor sheds an interesting light on how some modern liberals view society as an extended family.

Understanding business cycles

In his book Recessions and Depressions: Understanding Business Cycles, Todd A. Knoop points out that a Rational Expectations perspective does not necessarily require that all segments of society are rational or use all available information:

Those who are rational will take advantage of the profit opportunities created by those who are consistently making mistakes.

In other words, the failure of some individuals to act on the future effects of policies  will create profit opportunities for people who do anticipate such effects.  This is an important observation because it highlights how public policies can be rendered ineffective without having to assume that all people are forward-looking, rational individuals.

The book also contains a useful observation about the effect of random shocks on business cycles:

It might seem strange that random shocks to productivity can create business cycle swings. Shouldn’t every negative shock be quickly offset by some positive shock? The answer is, no. Economists and statisticians have long known that if you flip a coin 20 times, cyclical patterns will emerge. There will be series of heads that follow each other just as there will be series of tails. If productivity is a random variable, then it is not surprising that economies exhibit cyclical patterns. Persistent business cycles can come about as a result of the luck that is inherent in any random process.

The existence of business cycles as such in unregulated economies does not necessarily constitute “market failure.”  In its most simplistic form, such a view of market failure would be akin to saying that free markets fail because they are not immune to meteorite attacks.

But at the end of his chapter on Rational Expectations Knoop states that

rational expectations in an imperfectly competitive model of the economy can have much different implications….It is not necessarily rational expectations but the Rational Expectations model of perfectly flexible markets that generates what many economists consider to be implausible results.

Any model that assumes competitive markets will lead to implausible results if it is used to predict how individuals behave in an economy where government policies adversely affect the operation of markets. This does not invalidate models of perfect competition but highlights the need for models that reconcile the postulate of rationality with imperfect markets, provided such models do not claim to be actual descriptions of laissez-faire economics.

One troubling implication of Rational Expectations is that government can only influence real variables in the economy if its policies are secret and unpredictable.  Even if one does not agree with the strong postulates of Rational Expectations, public stabilization policies that assume that people will repeatedly ignore their future tax burden or neglect profit opportunities that are generated by these policies, do not even pass the test of common sense. Government can, of course, respond in turn by preventing markets to refect these new realities, but this can only produce  a perpetual cycle to disturb the operation of the price mechanism.

Knoop’s book on understanding business cycles is a useful introduction to the subject although his chapter on Real Business Cycles Models could benefit from a more balanced perspective. The conjecture that business cycles could be the most efficient response to  exogenous changes given the structure of the economy is an important insight and reconciles microeconomics and macroeconomics.  Although the New Keynesian economists also provide microfoundations for their views, it is sometimes hard to tell whether these views are refinements of classical economics or departures from it. If New Keynesian Economics is just a “hodge podge of reasons for this or that market failure” it runs the risk of being able to explain any kind of empirical observations.

New Keynesian Economics seems to be less confident about public policy recommendations. It will be interesting to observe what the fate of this school of economics will be if recent work on the microfoundations of political failure will be given more attention in macroeconomics.

Murray Rothbard’s obscure case for the obvious

Libertarians are not doing themselves a favor by taking on the burden of proof to argue for something that most people take for granted. Bryan Caplan makes a similar point about Murray Rothbard’s defense of “libertarian rights:”

I object that anything that people do is ipso facto “natural,” so there’s no way you’re going to get moral precepts out of this.  But in any case, all this talk violates the fundamental rule of philosophical reasoning (indeed, all reasoning): You don’t use the obscure to argue for the obvious.  It’s silly to say, “Murder violates man’s nature, so murder is wrong,” when you can just say, “Murder is wrong.”

As Caplan rightly observes, Rothbard is on much firmer ground when he points out that “government habitually perform actions which almost everyone would admit were wrong if they were committed by a private individual.” The strength of such an argument is that it just confines itself to demonstrating that most people hold incoherent views. This position is even available to people who do not believe in human rights at all.

A persuasive case against libertarian “natural rights” philosophy has been made by L.A. Rollins in his book The Myth of Natural Rights (review here). The social philosopher Anthony de Jasay uses the framework of critical rationalism to argue for the presumption of liberty.