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Jim Rose
New Zealand
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The army or the Navy could have bought the government down and stopped the surrender at any time by the Army or Navy minister resigning. Japanese governments automatically fell whenever either the Army or Navy minister resigned under the meiji Constitution. In mid-1944, the Navy minister resigned so as to bring down Prime Minister Tojo. The purpose of the Japanese oligarchy in that manoeuvre was to move to a prime minister was more able to negotiate peace terms. The Japanese oligarchy were trying to get out of the war on the best terms they could.
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Jim Rose is now following Richard Ebeling
May 1, 2014
Jim Rose is now following Rafe Champion
Mar 13, 2014
Another reason for the lack of new ideas in economics is George Stigler argued that if the problems of economic life changed frequently and radically, and lacked a large measure of continuity in their essential nature, there could not be a science of economics. Stigler said that an essential element of a science is the cumulative growth of knowledge, and that cumulative character could not arise if each generation of economists faced fundamentally new problems calling for entirely new methods of analysis. A science requires for its very existence a set of fundamental and durable problems. Stigler proposed that a viable and healthy science requires both the persistent and almost timeless theories that naturally ignore the changing conditions of their society and the unsettled theories that encounter much difficulty in attempting to explain current events. Stigler concluded that without the base of persistent theory, there would be no body of slowly evolving knowledge to constitute the science. Without the challenges of unsolved, important problems, the science would become sterile.
this blog is under construction and will be devoted to a classical liberal view of the world where everything is getting better because of the spread of capitalism and the rule of law. Continue reading
Posted Mar 9, 2014 at Utopia, you are standing in it
This an example of Stigler’s law of scientific epiphany about how the inventor of an idea is not the first to discover it, but the first to make sure it stayed discovered and was not forgotten again and reinvented and recycled as new. Stigler’s Nobel lecture was on how and when new ideas were fully adopted into the body of knowledge of the profession. Stigler said that Smith founded economics because A considerable number of economists, and a few considerable economists, have emphasized the fact that Smith had many gifted predecessors and almost all or perhaps exactly all of his ideas are to be found expressed, and sometimes well expressed, by these predecessors. Some economists therefore wish to give the title of founder of economics to earlier writers such as Cantillon. This line of argument, in my view, misses the point. It was Smith who provided so broad and authoritative an account of the known economic doctrine that henceforth it was no longer permissible for any subsequent writer on economics to advance his own ideas while ignoring the state of general knowledge. Knight’s review of the general theory was: Many of Mr. Keynes’s own doctrines are, as he would proudly admit, among the notorious fallacies to combat which has been considered a main function of the teaching of economics. under Stigler’s rule of scientific epiphany, Keynes deserves credit because he made sure that the old scattered ideas and fallacies stayed discovered.
see http://www.youtube.com/watch?v=yqT6koFnEwA for a great lecture by Coase in 2003 discussing many of the above issues using, at bottom, mostly the price theory he learnt at LSE from arnold plant.
great post. As for central banks, as Greg Mankiw noted in a great 2006 JEP article: • Autobiographies and other hands-on sources show that recent developments in business cycle theory by new classical and new Keynesians have had close to zero impact on practical policymaking at central banks. • Central banker’s analysis of economic fluctuations and monetary policy as discussed in their autobiographies are intelligent and nuanced, but it shows no traces of modern macroeconomic theory, and would seem almost completely familiar to someone who was schooled in the neoclassical-Keynesian synthesis that prevailed around 1970 and has ignored the scholarly literature ever since.
Some on the Left believe the Mont Pelerin Society is the ringmaster of the vast neo-liberal conspiracy that has had a Svengali influence over economic policy since the 1970s. Few had even heard of the Mont Pelerin Society until the late 1990s and the internet age. • Lead conspirator Hayek was so little known at his death that finding extensive obituaries of him in newspapers is hard. Some may be behind pay walls. • None mentioned Hayek as the leader of a global cabal. His son’s obituary in 2006 was much longer mostly on the back of who his now very famous father now was. Despite being a colony of the vast neo-liberal conspiracy, mentioning Friedman’s name in the 1980s at job interviews in Canberra would have been extremely career limiting. Not much better in the early 1990s. Back in the 1980s, the much less radical Milton Friedman was just graduating from being ‘a wild man in the wings’ to just a suspicious character in policy circles. If you name dropped Hayek in the 1980s and 1990s, any sign of name recognition would have indicated that you were been interviewed by educated people.
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Alchian (1969) lists three ways to adjust to unanticipated demand fluctuations: • output adjustments; • wage and price adjustments; and • Inventories and queues (including reservations). Alchian (1969) suggests that there is no reason for wage and price changes to be used regardless of the relative cost of these other options: • The cost of output adjustment stems from the fact that marginal costs rise with output; • The cost of price adjustment arises because uncertain prices and wages induce costly search by buyers and sellers seeking the best offer; and • The third method of adjustment has holding and queuing costs. There is a tendency for unpredicted price and wage changes to induce costly additional search. Long-term contracts including implicit contracts arise to share risks and curb opportunism over relationship-specific capital. These factors lead to queues, unemployment, spare capacity, layoffs, shortages, inventories and non-price rationing in conjunction with wage stability. Alchian and Woodward’s 1987 'Reflections on a theory of the firm' says: “… the notion of a quickly equilibrating market price is baffling save in a very few markets.Imagine an employer and an employee. Will they renegotiate price every hour, or with every perceived change in circumstances? If the employee is a waiter in a restaurant, would the waiter’s wage be renegotiated with every new customer? Would it be renegotiated to zero when no customers are present, and then back to a high level that would extract the entire customer value when a queue appears? … But what is the right interval for renegotiation or change in price? The usual answer ‘as soon as demand or supply changes’ is uninformative.” Alchian and Woodward then go on to a long discussion of the role of protecting composite quasi-rents from dependent resources as the decider of the timing of price revisions. Alchian and Woodward explain unemployment as a side-effect of the purpose of wage and price rigidity, which is the prevention of hold-ups over dependent assets. They note that unemployment cannot be understood until an adequate theory of the firm explains the type of contracts the members of a firm make with one another. Benjamin Klein’s theory of rigid wages in American Economic Review in 1984 is one of the few that explored rigid wages as an industrial organisation issue. Klein treated rigid wages as a response to opportunism and hold-up problems over specialised assets and are forms of exclusive dealership or take-or-pay contracts. If Klein and Alchian are right, wage and price rigidity is a benefit, not a cost. the authors should have avoided measurement without theory
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see http://oll.libertyfund.org/?option=com_staticxt&staticfile=show.php%3Ftitle=2136&chapter=195441&layout=html&Itemid=27 for STANLEY G. LONG's New individualist review of University Economics by Armen A. Alchian and William R. Allen. Belmont, California: Wadsworth Publishing Co., 1964,
Richard Epstein published a paper titled hayekian socialism.
Toggle Commented Feb 20, 2013 on Hayek and the Welfare State at Coordination Problem
A few days ago I chanced across http://alchian-allen.com/index.html This site must be a legacy promo for their 2005 universal economics with table of contents and preface that can be downloading. An early draft of the first half of the 2005 book is on the web. The web site for the paperback of universal economics has been down for several months. Alchian had a most penetrating mind. He was always looking for a better answer. He was at his most confronting and most creative when he said "Whatever is, is efficient." If it wasn't efficient it would have been something different. Of course, if you try to change anything that is there, that is efficient too. Alchian would ask "If something is so optimal, why don't we see it then?" The notion was essentially that there must be other costs that you left out of your model; either costs involved in the political system, in organizing support, or in changes for this other solution which might seem to be such a low-cost option. The basic point was why are we weighing only some costs and not others? Why are these costs (involved in minimizing particular dead-weight losses that would be involved in setting a particular tax) less important than other types of costs (involved in informing people of what the options are or of organizing them to adopt the alternative option)? Entrepreneurship is not a free lunch.
So they can pick winners did they? Consider Japan. Those at MITI must have excellent investment appraisal skills? How would you test that? Look at their investment portfolio after they retired. Much less inside information but those picking winners skills can be used to trade on their private accounts. the human capital is general. My professors at graduate school in Tokyo were retired from MIT, ministry of finance, the lot. Worked at those ministries in the high growth years picking winners. The retired MITI and other professors kept their wealth well hidden. Clothes were the same as others. Their children went to normal schools and Japanese public universities. They all looked forward to the bi-annual salary bonuses (5.15 months salary in all). I thought all would be revealed when where invited to their houses for lunch. Alas no: an ordinary Japanese suburban house. Many still lived in their ministry apartment. Bureaucrats who could pick winners – beat the market – should be excellent investors on their private portfolios after they retire. They have the core skills. If special investing skills somehow appeared from the air inside MITI, people would pay to work there, and there would be tell-all books written on the investment skills passed on by word of mouth.
Stigler’s writings in the 1960s, 1950s and before are all worth reading. He made a marvellous critique of what became behavioural economics back in the early 1960s by saying that in every decade for the last 150 years, economists dabble in psychology. They miss the point of economics as a method. The simple hypothesis behind economics is so powerful in accounting for so much of human behaviour.
My retired in-laws in the rural Philippines moved from their village having no sealed road access and no phones to cable TV access outside their door all inside ten years. When I was in Japan in 1995, each generation was head and shoulders taller than the last. The 2010 generation of Japanese are the first to have obesity issues. I am no longer tall when I visit Asia. It was nice to be tall.
People who do not like modern western society can always migrate to a developing country, burn their passport and live like one of the locals.
A TV documentary placed two parents and four children in their home with only the amenities available during the 1970s, 1980s and the 1990s. The children to give-up Facebook for a black-and-white telly and vinyl records. Goodbye to three games consoles, three DVD players, five mobile phones, six televisions and seven computers, their dishwasher, two washing machines and a tumble dryer Filming occurred over the winter of 2009, which was particularly cold and snowy for England. the family had to endure cold nights when the lack of central heating was simulated for the 70s episode.
How much would you pay to go back to 1950s and be better off? A way to grasp the conceptual difficulties of measuring changes in living standards and life expectancies across the decades is to step into Brad De Long’s time machine. In this thought experiment, DeLong asks how much you would want in additional income to agree to go back in time to a specific year. DeLong was an economic historian examining the differences in American living standards since 1900. DeLong would have refused to go at all to 1900 unless he could have taken mid-20th century medicine with him. Otherwise it would have meant dying from a childhood phenomena.
"I invite the reader to try and identify a single instance in which a "deep structural parameter" has been estimated in a way that has affected the profession's beliefs about the nature of preferences or production technologies or to identify a meaningful hypothesis about economic behavior that has fallen into disrepute because of a formal statistical test." "The Scientific Illusion in Empirical Macroeconomics", Lawrence H. Summers Scandinavian Journal of Economics, Proceedings of a Conference on New Approaches to Empirical Macroeconomics. (June 1991), pp. 129-148
You might want to look at Micheal Keane’s ‘Structural vs. atheoretic approaches to econometrics’ published in the journal Journal of Econometrics (2010). Keane argues that it is not possible to learn anything of interest from data without theoretical assumptions. All statistical inference relies on some untestable assumptions Abstract "this paper attempts to lay out the sources of conflict between the so-called "structural" and "experimentalist" camps in econometrics. Critics of the structural approach often assert that it produces results that rely on too many assumptions to be credible, and that the experimentalist approach provides an alternative that relies on fewer assumptions. Here, I argue that this is a false dichotomy. All econometric work relies heavily on a priori assumptions. The main difference between structural and experimental (or "atheoretic") approaches is not in the number of assumptions but the extent to which they are made explicit." Also look at Keane, Michael P. 2010. "A Structural Perspective on the Experimentalist School." Journal of Economic Perspectives where he argues that we cannot begin a systematic assembly of facts and empirical regularities without a pre-existing theoretical framework that gives the facts meaning and tells us which facts we should establish.
more attention could be paid to the search and matching fictions that are common to the job market and the marriage market. Mises and Rothbard were keen on the notion that we could always get a job tomorrow at the market wage so all unemployment is voluntary unless there is a union or legal barrier. In the marriage market, there is no involuntary single people. We could always go out into the street and marry the first person we meet, if they will have us! The marriage market is close to the idealised unhampered market, but there is a hell of a lot of search and matching going on out there. Heterogeneity implies search on both sides before there is a marital matching with a positive surplus. Is this because marriage is like a job - a long-term investment? Are singles bars the spot market that Lucas explicitly, and Mises and Rothbard implicitly talk of as where we can always get a job instantly. • I find Lucas and Prescott’s search-island model to be an excellent explanation of unemployment. • Lucas and Prescott’s economy is composed of a large number of scattered islands. • They have no precise knowledge of what wages will prevail in the economy. • Workers either remain on their island or leave it for what they expect to be a more alluring one • Some workers are unemployed, crossing between the islands, but they are nevertheless engaging in optimizing behaviour. See http://perso.uclouvain.be/michel.devroey/Batyra.pdf “FROM ONE TO MANY ISLANDS: THE EMERGENCE OF SEARCH AND MATCHING MODELS” for a 100 year survey explaining how trivial fragmentation of a centralised market into decentralised markets explains resource unemployment.
I would have thought Morgan O. Reynolds’ economics of labor would have rated a mention? Reynolds’ book has a strong market process approach. he mentions that a big difference for the labor market is there is no arbitrage function that entrepreneurs perform elsewhere Alchian’s writings on labor economics are a rich tapestry, including his writings on wage and price rigidity and long term-contracts. this includes the efficiency enhancing aspects of unions such as in the enforcement of property rights and contracts. Because of economies of scale in monitoring and enforcing employment contracts, unions may arise as a contract cost-reducing institution for employees with investments in specific human capital.
The behavioural economics is an example of JS Mill’s truth that engaging with people who are partly or totally wrong sharpens your arguments and improves their presentation. People have a better understanding of rationality such as through the work of Vernon smith on ecological and constructivist rationality and of how people deal with human frailties and correct error through specialisation, exchange and learning. George Stigler’s in his Existence of x-inefficiency paper opposed attributing behaviour to errors because error can explain everything so it explains nothing until we have a theory of error. Kirzner wrote a response saying that error is pervasive in economic processes. The rational Misesian human actors are human enough to err. The marksman who shoots wants, as a rule, to hit the mark. If he misses it, he is not irrational. What is inefficient about the world, said Kirzner, is at each instant, enormous scope for improvements exist in one way or another and is yet simply not yet noticed. The lure of pure entrepreneurial profits harnesses the systematic elimination of error and points the way to the institutions necessary for the steady social improvements. Behavioural economics is a clumsy way of discussing the pervasiveness of errors because insufficient attention is paid to decentralised, emergent market processes that correct them, often long ago. Armen Alchian defined efficiency as "Whatever is, is efficient." If it wasn't efficient it would have been something different. Of course, if you try to change anything that is there, that is efficient too. Armen Alchian would ask "If something is so optimal, why don't we see it then?" He pointed to the question of optimal taxes. The notion was essentially that there must be other costs that you left out of your model; either costs involved in the political system, in organizing support, or in changes for this other solution which might seem to be such a lower cost option. The basic point was why are we weighing only some costs and not others? Why are the costs involved in minimizing that particular dead-weight losses that would be involved in setting a particular tax less important than other types of costs involved in informing people of what the options are or of organizing them to go and try to adopt the alternative options? Error correction is not manna from heaven.