Nobel Predictions and Wishes

 

 

It's that time of the year again where people are abuzz about who made the cut and who didn't. No. I'm not talking about the MLB playoffs. I'm talking about the Nobel Prize in Economics.

It's the time of the year where geeks like me get giddy with excitement. For a moment, an economist makes headlines. It's a fun time, the closest we come to the excitement of a sport.

Since this is my blog and I can do whatever I want, I thought I'd post my completely arbitrary predictions about who will win. Disclaimer: if you believe these predictions are based on any scientific procedure, I have an ocean front property in Arizona to sell you.

Prediction:

  • Robert Barro - "for his contribution to the theory of economic growth"

Wishes (and why):

  • Israel Kirzner - "for his contributions to the theory of entrepreneurship"
    • Because he's my favorite living economist. The opening of his book Competition and Entrepreneurship is the reason I became an economist. I can still remember reading it in the library. My blog is named after his first book. Need I say more about how I'm a fan of Kirzner?
  • AndreiShleifer and RobertVishny - "for their contributions to the study of corporate governance and finance"
    • Shleifer is one of the most creative economists in the last few decades. His work on regulation, behavioral economics, and law and economics is top notch.
  • Randall Wright andNobuhiroKiyotaki - "for their contributions to the theory of money."
    • Wright is teaching my monetary class next semester. I enjoy his work enough and would love to say I studied with a Nobel winner. I know it's stupid, but hey, why not cheer for the home team?

There we are. With the full backing of science, my prediction and hopefuls.

What do you guys think?

P.S. I don't care that the Economics Nobel isn't a "real" Nobel.

Emphasis of Economics and Math

Yesterday's post tried to lay out why I believe the fundamental difference between Austrians, Chicago school, and Samuelsonian economists is only one of emphasis. Thinking more about it, I was reminded about an interview with Kirzner that also bring in the use of math in economics (one of my favorite topics to get myself in trouble).

In an interview for Liberty Fund, Kirzner says the following (54:20):

If one believes that the description and analysis of equilibrium states constitutes the central task of economic analysis, then the role for mathematics is clear and indisputable because mathematics can and should and is able to grapple with the meaning of an equilibrium state... and to the extent that's all one has to do, then mathematics would be fine. The problem is, as Austrian see it, is that that is mere footnote to what economists ought to and should be doing, that is understanding the market process.

If I keeps things like this in mind, I am forced to be more sympathetic to different approaches. The reason some people don't use mathematics is because it is not well equipped to analyze what those people think is important. The reason other people force everything into mathematics is because they do want to analyze equilibrium states.

The same applies to non-math differences. In Becker's textbook, the focus is on describing how whole markets work. If that's what I want to do, his aggregation techniques might appeal to me. If I think the study should be that actions of individuals, I will not want to aggregate in such ways. It's a difference of emphasis, compared to anything antithetical.

This whole point might be trivial, but I forget it. I doubt I'm the only one.

Of course, that just kicks the can. Then the question becomes, not what techniques and models should we use? But, what is worth studying? And I wish I had an answer for that... If you do, let me know.

Update:

Michael Harris tweeted at me something I found quite interesting.


I think that gets at one important aspect. If Austrians wanted to study the same things as non-Austrians, they would use the same tools. I'd bet the reverse is also true.

Reflections on the Advanced Austrian Seminar at Mercatus

As I said in my review of Pete Leeson's Anarchy Unbound, I am in Washington, D.C. at the Mercatus Center. Actually, I'm now in a hotel lobby. That's not the point.

I came out here for the Advanced Austrian Economics Seminar, a 3 day conference/seminar for students interested in the ideas of Austrian economics, broadly defined. It was a gathering of around 20 students from around the world and faculty members from George Mason. Israel Kirzner, Pete Boettke, Pete Leeson, Larry White, and Chris Coyne gave lectures. Virgil Storr was also around and active in discussions. All of them know more economics in there pinky than I know in my body, to steal Pete Boettke's cheesy line.

Any students interested Austrian economics should apply for next year's program. The people are fun and Mercatus treats guests well. I'm talking putting us up in one of those places where the shower head is some weird set-up you've never seen before. Fancy stuff like that.

Plus, I got a lot of books as reading material, aka Christmas for me.

If I can go again, I definitely will.

The goal of the weekend was to show how modern research can use the ideas of Austrian economics. The presenters emphasized that Austrian economics is not a body of settled doctrine, but a framework for furthering economic science. Although we discussed the famous Austrian names (Mises and Hayek especially) quite often, the lens looked forward. We want to use these insights to move forward, not just look back.

The weekend started off with Israel Kirzner presenting on the market process.That talk sticks in my brain. First, for me Kirzner is a towering figure. The first few chapters of Competition and Entrepreneurship are a major reason I'm doing a PhD. I told Pete Boettke that I was like a teenage girl at a boy-band concert (with slightly less screaming). I was much more intimidated by him than even people like Robert Lucas, Ed Prescott, or Raj Chetty. Heck, I named my blog after Kirzner's dissertation. And this is a guy that 99% of economists have (wrongly) never read.

Second, Kirzner brought an energy to the podium that I was not expecting. He's no longer Mises's young student, but still has pure passion and excitement for the science. Plus, I learned a lot. While I have watched lectures of YouTube from him on similar topics, this had a new bend. To get a flavor of his ideas and the talk, check out the video below.

How do we understand an open-ended world that cannot be collapsed down into a probability distribution? If you understand, let me know how. It's tough. It's also right at the heart of the differences between Austrians' understanding of the market as a discovery process and non-Austrians' framework. That's what Kirzner has struggled with for 50+ years and still presenting on.

The rest of the weekend involved 5 more lectures and 2 breakout sessions. On top of that were meals and free time to talk about this subject that I love. I can't express how fun that was for me.

The passion differed from other seminars I've been to. Everyone there loves economics with a fervor. Mercatus, particularly the Hayek program there, is daring to be different, following the recommendation of James Buchanan.

This weekend was especially unique for me personally because it was the first time I had ever talked with an academic Austrian economist. Literally, I have never talked with people who want to do research in this field.

I didn't realize that until the first night. It hit me. I am around people who actually share my interests. Now, I was able to talk with other academics interested in the ideas. It overwhelmed me for a moment.

Beyond what I've mentioned, the highlights for me were:

  • connecting with a whole new set of economists. I know have a larger network of interesting young scholars.
  • the food (both for the seminar and outside of it). I had my first Pakistani meal and my first meal off a "hidden" second menu.
  • discussing Austrian economics and political economy over beers and whisky.

However the seminar wasn't without some disappointments. Mainly, it disappointed me to see the collective lack of understanding of non-Austrian models from us students. There were a few situations where I felt like we didn't arrive at a proper understanding of what non-Austrians are saying on an issue.

For example, Larry White asked a fairly simple question about Keynes's model. I forget the exact question. No one, myself included, knew the answer. Upon reflection, I remembered the point, but I had no internalized the model well enough to even answer a simple question quickly. That's disappointing to see. Most people were happy to sneer at Keynes, but didn't know the model.

In other discussions, less glaring examples came up. I don't think we had a correct understanding of how and why other economists use words like information or rationality. People were slaying strawmen. If Austrian economics is going to interact with the rest of the profession, the Austrian economists need to at least be able to understand others. That's a necessary condition for minimal conversations.

Maybe this is me looking for a negative thing to write so this post isn't just "GO AUSTRIANS." Maybe not. Who knows. Overall, the weekend has been what I hoped for and more. I can't praise the seminar enough. If anyone involved at Mercatus ever reads this, thanks for the weekend.

So if anyone is even remotely interested in the Austrian school of economics, apply to attend next summer here.

Well Put My Friend

From page 5 of Israel Kirzner's The Meaning of Market Process-

For Austrians, however, mutual knowledge is indeed full of gaps at any given time, yet the market process is understood to provide a systemic set of forces, set in motion by entrepreneurial alertness, which tend to reduce the extent of mutual ignorance. Knowledge is not perfect; but neither is ignorance necessarily invincible. Equilibrium is indeed never attained, yet the market does exhibit powerful tendencies towards it. Market co-ordination is not to be smuggled into economics by assumption; but neither is it to be peremptorily ruled out simply by referring to the uncertainty of the future.

How do we best understand knowledge? Austrians have staked out a middle ground between the two extremes for a long time. It's proven a tough place to be.

Perfect knowledge is easy to deal with. Radical uncertainty amounts to throwing our hands up. An important area in economic research going forward is a refinement of this middle ground.

Well Put My Friend

Israel Kirzner spent an entire career trying to convince a majority of the economics profession they were wrong. Economists have failed to incorporate uncertainty, which Kirzner tries to correct in his magnum opus Competition and Entrepreneurship.

He also attempted this mighty task in academic journals. In a 1997 article in the Journal of Economic Literature called "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach", Kirzner tries again to explain the errors of standard Samuelsonian models and why the Austrians (Kirzner) are at least aiming correctly.

At the individual level Austrians have taken sharp exception to the manner in which neoclassical theory has portrayed the individual decision as a mechanical exercise in constrained maximization. Such a portrayal robs human choice of its essentially open-ended character, in which imagination and boldness must inevitably play central roles. For neoclassical theory the only way human choice can be rendered analytically tractable, is for it to be modeled as if it were not made in open-ended fashion, as if there was no scope for qualities such as imagination and boldness. Even though standard neoclassical theory certainly deals extensively with decision making under (Knightian) risk, this is entirely consistent with absence of scope for the qualities of imagination and boldness, because such decision making is seen as being made in the context of known probability functions. In the neoclassical world, decision makers know what they are ignorant about. One is never surprised. For Austrians, however, to abstract from these qualities of imagination, boldness, and surprise is to denature human choice entirely.

When Austrians talk about uncertainty with Samuelsonian economists, they are talking past each other. Samuelsonian economists call Knighting risk uncertainty. Austrians follow Knight in his definition of uncertainty.

A Samuelsonian model, even a stochastic one, will never be able to include true uncertainty. Never is a bold word, but it appears impossible given present knowledge. However, I cannot account for uncertainty about the future, so we truly do not know.

 

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