Today’s Quote of the Day…

…is from page 99 of Roger Koppl’s 2018 book Expert Failure (original emphasis)

Many thinkers (and most undergraduate economics students) seem to believe that any “laws of economics” would have to be first devised and promulgated and then followed.  If there is a law, there is a lawgiver.  But the “laws” of a spontaneous order generally function even when nobody is aware of them.  Thus, an increase in the supply of a commodity causes its price to fall in Homeric Greece no less surely than in nineteenth-century London.

JMM: We can broaden Dr Koppl’s statement to more than just economic laws.  Laws, as distinguished from legislation, are followed without necessarily any conscious knowledge of the law.  Some laws are universal (such as the increase of supply noted here), and some may be specific to a time and place (such as the orderly fashion a crowd leaves a stadium after a ballgame), but prior direction of the laws are not necessary to their functioning.  Indeed, we tend to pick up on the laws not necessarily through formal education, but rather through social cues from our interactions.

The fact that laws are not necessarily known beforehand and explicitly leads to the reason why they need to be discovered (see my post here).  Laws are something observed though human action.

 

Today’s Quote of the Day…

…comes from page 80 of Roger Koppl’s excellent 2018 book Expert Failure (link added, original emphasis):

Earlier we saw Lee Ellis argue for chemical castration of young men with “crime-prone genes.” Writers who, like Ellis (2008), view experts as reliable and nonexperts as powerless do not usually subject their theories to the reflexivity requirement.  Ellis’ essay illistrates, however, the importance of the reflexivity that all agents of the system be modeled.  He models persons with “crime-prone genes,” but not the experts who would administer sterilization policies.  He consequently wishes to place discretionary power in the hands of persons unlikely to exercise such power with the Solomonic disinterest and wisdom his policies would require even under the assumption that his eugenic ideas are correct.  In the theory of experts, as in all of social science, all agents must be modeled if we are to minimize the risk of proposing policies that would require some actors to behave in ways that are inconsistent with their incentives or beyond human capabilities.

JMM:  Economics, and the social sciences in general, try to emulate the natural sciences by means and methods.  But the social sciences differ from the natural sciences in the key way that Koppl mentions here: we are part of the very thing we are modeling.  To borrow a metaphor from elsewhere in Koppl, we are also the ants in the anthill.  So is government.

The big assumption made by many people, both on the left and on the right, is that government is somehow made out of finer clay than the rest of us mere mortals.  This may be because they were elected, or appointed by God, or appointed by some panel of experts, or whatever.  That, for some reason never really explained, those imposing rules and regulations upon us are free of the “crime-prone genes” or self-interest or moral failings of the rest of us.  Were this true, were men really ruled by angels, then we would be near Heaven.  But alas, human history indicates that this is not so.  We all make mistakes, even under the best of intentions.  The question is how to limit the danger of those mistakes.

Today’s Quote of the Day…

…is from page 14 of Mancur Olson’s 1982 book The Rise and Decline of Nations:

Although we should not be satisfied with any theory that fails to explain a lot with a little, we need not of course expect any one theory to explain everything, or even the most important thing.  Absolutely nothing in all of epistemology suggests that valid explanations should be monocausal.

JMM: It’s typical to hear opponents of this theory or that theory be dismissive of the theory because it fails in some way (“Economics is broken because it failed to predict the 2008 recession!” or “Socialism is broken because it failed to predict Venezuela!” etc).  But the world is a complex place.  Few things, if any, are monocausal: Did the Red Sox win the World Series because they had the largest payroll?  The best players?  Luck?  A favorable schedule?  Some kid in Maryland was watching them?  All of these factors played in (well, almost all of them).  They’re all part of the cause (and some even in more ways than one).

When evaluating a theory, we always need to remember to evaluate it on its own terms.  Does it make sense doing what it is trying to do?  Three great examples of this are Adam Smith’s examination of mercantilism in The Wealth of Nations (see Book IV) and Hayek and Mises’ critiques of socialism in the Socialist Calculation Debate.

Today’s Quote of the Day…

…comes from pages 86-87 of Bruno Leoni’s 1961 work Freedom and the Law (3rd Edition, emphasis added):

Common citizens were the real actors in this respect [the formation of common law], just as they still are the real actors in the formation of the language and, at least partially, in economic transactions in the countries of the West.  The grammarians who epitomize the rules of a language or the statisticians who make records of prices or of quantities of goods exchanged in the market of a country could better be described as simple spectators of what is happening around them than as rulers of their fellow citizens as far as language or the economy is concerned.

JMM: The economist as a scientist is one who observes, records, and explains phenomena.  Our models and metrics work best when they are describing these outcomes.  To use them to be prescriptive fundamentally changes the nature of the being.  For example, to try to manipulate the price system to get higher wages (eg, a minimum wage) causes distortions: less labor is purchased, overall wages may drop, etc.  Tariffs, as a means to produce more profit for firms, lead to overall poverty.  It’s easy to boost some metric merely by monkeying about with its components.  But do not fall into the mistake of thinking that now higher metric is comparable to the metric one observed before.  GDP manipulated is not the same as GDP arisen from market transactions even though they superficially look the same.

The good economist, like the good jurist or the good grammarian or the good scientist, observes the world.  He does not try to impose his own viewpoints onto the data.  He is a discoverer of economic relations (or legal relations or grammatical relations etc), not a creator of one.

Somewhere along the line, this simple fact was lost.  Economists are all about “policy recommendations” now.  Optimal tariff this and carbon tax that.  They have ceased being economists and have become applied mathematicians.  Likewise, judges, lawyers, and legislators have ceased trying to discover the law (that the law is) and have moved toward telling us what the law should be.  As such, they have ceased being judges, lawyers, and legislators and moved into being commanders of humanity.  What they do can no longer be called law; it is a farce wearing the guise of law.

Today’s Quote of the Day…

…is from Adam Smith’s 1783 letter to William Eden, Lord Auckland, to which Prof. Smith responded to a question on whether or not England should have preferential and different duties on other nations (page 271-272 of the Liberty Fund’s Correspondence of Adam Smith):

I shall only say at present that every extraordinary encouragement or discouragement that is given to the trade of any country more than to that of another may, I think, be demonstrated to be in every case a complete piece of dupery, by which the interest of the State and the nation is constantly sacraficed to that of some particular class of traders.

JMM: Indeed so.  As I wrote before, when there is ambiguity of purpose, when multiple excuses may be given for various government handouts, we must expect that there is going to be abuse and “dupery” and firms and individuals vie for such handouts.

Today’s Quote of the Day…

…is from pages 101-102 of Paul Krugman’s 1997 book Pop Internationalism:

There is no question that in many cases comparative advantgae arises from self-reinforcing external economies rather than as a result of underlying national resources.  In such cases international competition may exclude a country from an industry in which it could have established a comparative advantage, or drive a country from an industry in which comparative advantage could have been maintained.  In these cases, a [sic] intellectually respectible argument can be made for government policies to create or preserve advantage.

The fact that an argument is intellectualy respectible does not mean it is right.  Concerns over competitiveness that are valid in principle can be and have been misused or abused in practice.  Competitiveness is both a subtler and a more problematic issue than is generally understood.

Absolutely.  Some folks like to justify Trump’s economic policies based on obscure or particular economic arguments: optimal tariffs, or increasing terms of trade, or forcing other nations to lower tariffs and subsidies, or national defense.  All of these arguments are intellectually respectable (if not consistent with one another).  The internal logic of them holds.

But just because something is possible does not mean it is probable.  It is possible that a tariff could improve the well-being of a nation (subject to some key caveats).  But how probable is it that government could effectively create and enforce such a tariff and not face public choice concerns?  How probable is it that there would be no additional costs to the process, or that it won’t get hijacked for self-interested uses?

It’s trivially easy to come up with some theoretical reason why something can happen.  Translating that into reality, however, is a totally different beast.

Today’s Quotation of the Day…

…is from page 22 of Paul Krugman’s 1996 book Pop Internationalism:

So let’s start telling the truth: competitiveness is a meaningless word when applied to national economies.  And the obsession with competitiveness is both wrong and dangerous.

Although this sentence was written over 20 years ago, not much has changed.  The arguments of Clinton Krugman refutes in this first chapter of his book are identical to ones being put forth now by Trump: concerns about “competitiveness,” bad mathematics, incorrect claims of the trade deficit destroying jobs, etc etc etc.  The scarcityist fancies himself a “practical” man, but he deals in false and long-dead ideas.

Today’s Quote of the Day…

…comes from page 29 of “Modern Principles of Economics” (4th Edition) by my GMU professors Alex Tabarrok and Tyler Cowen:

The most important tools in economics are supply, demand, and the idea of equilibrium.  Even if you understand little else, you may rightfully claim yourself economically literate if you understand these tools.  Fail to understand these tools and you will understand little else.

Amen to that.

Today’s Quote of the Day…

…is from Chapter 3 of Frederic Bastiat’s final work Economic Harmonies (page 499 of the Mises Institute Edition):

Can we concieve a time when man can no longer form even reasonable desires? Let us not forget that a desire that might be unreasonable in a former state of civilization–at a time when all the human faculties were absorbed in providing for low material wants–ceases to be so when improvement opens to these faculties a more extended field. A desire to travel at the rate of thirty miles per hour would have been unreasonable two centuries ago–it is not so at the present day [or 70mph in Bastiat’s time! -JMM]. To pretend that the wants and desires of man are fixed and stationary quantities, is to mistake the nature of the human soul, to deny facts, and to render civilization inexplicable.

JMM: What we take for granted were once unobtainable wants because we had to focus on growing food. As that food was automated (thus destroying a lot of farmer jobs) and became cheaper and taken for granted, more desires, once unobtainable, became obtainable. Desires like kitchen appliances, faster transportation, recorded music, etc. Then, as more of those desires became taken for granted and cheap (displacing lots of manufacturing jobs), we moved to other desires, like better health, better medicine, more diversions (theatre, movies, sports, TVs, etc).

Shift happens, but it happens because desires are being met, which in turn allows new desires to come about. Human desires are indefinite.

Today’s Quote of the Day…

…is from page 229 Karl Menger’s 1883 book Investigations into the Method of the Social Sciences, specifically Appendix VIII “The ‘Organic’ Origin of Law and the Exact Understanding Thereof” (original emphasis):

However, law can also come into being, and even under the most original conditions, in another way essentially different from the above: by authority. The man in power or intellectually superior can set certain limits to the discretion of the weak men subject to him or of those mentally inferior. The victor can set certain limits for the vanquished. He can impose on them certain rules for their action to which they have to submit, without considering their free conviction: from fear. These rules, however similar they appear on the surface to those of national law, are both by origin and by the guarantees of their realization essentially different from the law which grows out of the convictions of the population and the realization of which was also originally an affair of the nation. Indeed, they can be in direct contrast to national law; they are really statute, not law. But the strong man has an interest in calling them ”’law,” in cloaking them with the sanctity of law, in connecting them with religious  traditions, in elevating them so that they become the objects of religious and ethical education. This is the case until the habit of obedience and the sense of subjection developed by them recognize in them something analogous to law and until this habit and sense scarcely distinguish any longer those rules limiting the discretion of the individual which are produced by the convictions of the nation from those which power prescribes for the weak.

JMM: What Menger means here by “national law” is not some national convention or agreement (in fact, he explicitly rejects the “social contract origin” theory of law), but rather what is more akin to custom and tradition: something that evolved over time to serve a purpose (protect individual interests) and is widely accepted and respected by members of the society.

What Menger does in this paragraph is draw a distinction between “national law” (the subject of the essay thus far) with statutory law.  The primary difference is how these two are established: national law (which is properly called law) is established through human interaction.  Statutory law is established through authority (ie imposed).  The two have superficial similarities only.

This is not to say that statutory law is inherently less desirable that law.  What it is to say is that statutory law can become unhinged from morality, in which case we are faced with the Bastiat Dilemma: “When law and morality are in contradiction to each other, the citizen finds himself in the cruel alternative of either losing his moral sense, or of losing his respect for the law—two evils of equal magnitude, between which it would be difficult to choose.”  To treat statutory law as some “will of the people” or the object of some “divine intelligence” (to use Menger’s term elsewhere in the essay) is to fundamentally misunderstand law.