Make neo-Nazis flop off Broadway: public choice and Tina Fey’s sheetcaking

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A week ago a white supremacist rally in Charlottesville protesting the taking down of Confederate Memorial statues turned fatally violent. Other protests were due to take place this weekend in multiple U.S. cities, including New York (now postponed). How should citizens and public authorities deal with this upsurge in violent neo-Nazi protest? I am with Tina Fey on this one: don’t show up, have some cake, and encourage the NYPD to prevent violence.

Some on the left have tried opportunistically and mistakenly to associate Virginian school public choice scholarship with the far-right. This is a sadly missed opportunity because James Buchanan’s theory of club goods helps explain how far-right street protests emerge and suggest how authorities might best subdue them. I draw on John Meadowcroft’s and Elizabeth Morrow’s analysis of the far-right English Defence League (EDL).

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Public choice and market failure: Jeffrey Friedman on Nancy MacLean

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Jeffrey Friedman has a well-argued piece on interpreting public choice in the wake of Nancy MacLean’s conspiratorial critique of one of its founding theorists, James Buchanan. While agreeing that MacLean is implausibly uncharitable in her interpretation of Buchanan, Friedman suggests that many of Buchanan’s defenders are themselves in an untenable position. This is because public choice allows theorists to make uncharitable assumptions about political actors that they have never met or observed. In this sense, MacLean is simply imputing her preferred own set of bad motives onto her political opponents. What is sauce for the goose is good for the gander.

I think Friedman’s arguments are a valid critique of the way that public choice is sometimes deployed in popular discourse. A lot of libertarian commentary assumes that those seeking political power are uniquely bad people, always having self-interest and self-aggrandisement as their true aim. Given that this anti-politics message is associated with getting worse political leaders who are becoming progressively less friendly to individual liberty, this approach to characterising politicians seems counterproductive. However, I don’t think Friedman’s position is such a good fit for Buchanan himself or most of those working in the scholarly public choice tradition.

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Against Guilt by Historical Association: A Note on MacLean’s “Democracy in Chains”

It’s this summer’s hottest pastime for libertarian-leaning academics: finding examples of bad scholarship in Nancy MacLean’s new book Democracy in Chains. For those out of the loop, MacLean, a history professor at Duke University, argues in her book that Nobel-prize winning public choice economist James Buchanan is part of some Koch-funded vast right-libertarian conspiracy to destroy democracy as inspired by southern racist agrarians and confederates like John Calhoun. This glowing review from NPR should give you a taste of her argument, which often has the air of a bizarre conspiracy theory. Unfortunately, to make these arguments she’s had to cut some huge corners in her federally-funded research. Here’s a round-up of her dishonesty:

  • David Bernstein points out how MacLean’s own sources contradict her claims that libertarian Frank Chodorov disagreed with the ruling in Brown v. Board.
  • Russ Roberts reveals how out-of-context Tyler Cowen was taken by MacLean, misquoting him to attribute to Cowen a view which he was arguing against.
  • David Henderson finds that she did the same thing to Buchanan.
  • Steve Horwitz points out how wildly out-of-context MacLean took a quote from Buchanan on public education.
  • Phil Magness reveals how much MacLean needed to wildly reach to tie Buchanan to southern agrarians with his use of the word “Leviathan.”
  • Phil Magness, again, reveals MacLean needed to do the same thing to tie Buchanan to Calhoun.
  • David Bernstein finds several factual errors about MacLean’s telling of the history of George Mason’s University.

I’m sure there is more to come. But, poor scholarship and complete dishonesty in source citation aside, an important question needs to be asked about all this: even if MacLean didn’t need to reach so far to paint Buchanan in such a negative light, why should we care?

I admittedly haven’t read her book yet (so could be wrong), but from the way even positive reviewers paint it and the way she talks about it herself in interviews (see around 15:30 of that episode), one can infer that she is in no way interested in a nuanced analytical critique of Buchanan’s public choice models or his arguments in favor of constitutional restrictions on democratic majorities. Her argument, if you can call it that, seems to be something like this:

  1. Democracy and majority rule are inherently good.
  2. James Buchanan wants stricter restrictions on democratic majority rule, and so did some Southern racists.
  3. Therefore, James Buchanan is a racist, evil corporate shill.

Even if she didn’t need to establish premise 2, why should we care? Every ideology has elements of it that can be tied to some seedy elements of the past, it doesn’t make the arguments that justify those ideologies wrong. For example, the pro-choice and women’s health movement has its roots in attempts to market birth control to race-based eugenicists (though these links, like MacLean’s attempts, aren’t as insidious as some on the modern right make them out to be), that does not mean modern women’s health advocates are racial eugenicists. Early advocates of the minimum wage argued for wage floors for racist and sexist reasons, yet nobody really thinks (or, at least, should think) modern progressives have dubious racist motives for wanting to raise the minimum wage. The American Economic Association was founded by racist eugenicists in the American Institutionalist school, yet nobody thinks modern economists are racist or that anyone influenced by the institutionalists today is a eugenicist. The Democratic Party used to be the party of the KKK, yet nobody (except the most obnoxious of Republican partisans) thinks that’s at all relevant to the DNC’s modern platform. Heidegger was heavily linked to Nazism and anti-Semitism, but it’s impossible to write off and ignore his philosophical contributions and remain intellectually honest.

Similarly, even if Buchanan did read Calhoun and it got him thinking about constitutional reform, that does not at all mean he agreed with Calhoun on slavery or that modern libertarian-leaning public choice theorists are neo-confederates, and it has even less to do with the merits of Buchanan’s analytical critiques of how real-world democracies function. In fact, as Vincent Geloso has pointed out here at NOL, Buchanan has given modern scholars the analytical tools to critique racism.

Intellectual history is messy and complicated, and can often lead to links we might—with the benefit of historical hindsight—view as situated in an unsavory context. However, as long as those historical lineages have little to no bearing on people’s motivations for making similar arguments or being intellectual inheritors of similar ideological traditions today (which isn’t always the case), there is no relevance to modern discourse other than perhaps idle historical curiosity. These types of attempts to cast guilt upon one’s intellectual opponents through historical association are, at best, another intellectually lazy version of the genetic fallacy (which MacLean also loves to commit when she starts conspiratorially complaining about Koch Brothers funding).

Just tell me if this sounds like a good argument to you:

  1. Historical figure X makes a similar argument Y to what you’re making.
  2. X was a racist and was influenced by some racists.
  3. Therefore, Y is wrong.

If it doesn’t, you’re right, 3 doesn’t follow from 2 (and in MacLean’s case 1 is a stretch).

Please, if you want to criticize someone’s arguments, actually criticize their arguments; don’t rely on a tabloid version of intellectual history to dismiss them, especially when that intellectual history is a bunch of dishonest misquotations and hand-waving associations.

James Buchanan on racism

McLean

Ever since Nancy MacLean’s new book came out, there have been waves of discussions of the intellectual legacy of James Buchanan – the economist who pioneered public choice theory and won the Nobel in economics in 1986. Most prominent in the book are the inuendos of Buchanan’s racism.  Basically, public choice had a “racist” agenda.  Even Brad DeLong indulged in this criticism of Buchanan by pointing that he talked about race by never talking race, a move which reminds him of Lee Atwater.

The thing is that it is true that Buchanan never talked about race as DeLong himself noted.  Yet, that is not a sign (in any way imaginable) of racism. The fact is that Buchanan actually inspired waves of research regarding the origins of racial discrimination and was intellectually in line with scholars who contributed to this topic.

Protecting Majorities and Minorities from Predation

To see my point in defense of Buchanan here, let me point out that I am French-Canadian. In the history of Canada, strike that, in the history of the province of Quebec where the French-Canadians were the majority group, there was widespread discrimination against the French-Canadians. For all intents and purposes, the French-Canadian society was parallel to the English-Canadian society and certain occupations were de facto barred to the French.  It was not segregation to be sure, but it was largely the result of the fact that the Catholic Church had, by virtue of the 1867 Constitution, monopoly over education. The Church lobbied very hard  in order to protect itself from religious competition and it incited logrolling between politicians in order to win Quebec in the first elections of the Canadian federation. Logrolling and rent-seeking! What can be more public choice? Nonetheless, these tools are used to explain the decades-long regression of French-Canadians and the de facto discrimination against them (disclaimer: I actually researched and wrote a book on this).

Not only that, but when the French-Canadians started to catch-up which in turn fueled a rise in nationalism, the few public choice economists in Quebec (notably the prominent Jean-Luc Migué and the public choice fellow-traveler Albert Breton) were amongst the first to denounce the rise of nationalism and reversed linguistic discrimination (supported by the state) as nothing else than a public narrative aimed at justifying rent-seeking attempts by the nationalists (see here and here for Breton and here and here for Migué). One of these economists, Migué, was actually one of my key formative influence and someone I consider a friend (disclaimer: he wrote a blurb in support of the French edition of my book).

Think about this for a second : the economists of the public choice tradition in Quebec defended both the majority and the minority against politically-motivated abuses. Let me repeat this : public choice tools have been used to explain/criticize attempts by certain groups to rent-seek at the expense of the majority and the minority.

How can you square that with the simplistic approach of MacLean?

Buchanan Inspired Great Research on Discrimination and Racism

If Buchanan didn’t write about race, he did set up the tools to explain and analyze it. As I pointed out above, I consider myself in this tradition as most of my research is geared towards explaining institutions that cause certain groups of individuals to fall behind or pull ahead.  A large share of my conception of institutions and how state action can lead to predatory actions against both minorities and majorities comes from Buchanan himself!  Nevermind that, check out who he inspired who has published in top journals.

For example, take the case of the beautifully written articles of Jennifer Roback who presents racism as rent-seeking. She sets out the theory in an article in Economic Inquiry , after she used a case study of segregated streetcars in the Journal of Economic HistoryA little later, she consolidated her points in a neat article in the Harvard Journal of Law and Public PolicyShe built an intellectual apparatus using public choice tools to explain the establishment of discrimination against blacks and how it persisted for long.

Consider also one of my personal idols, Robert Higgs who is a public-choice fellow traveler who wrote Competition and Coerciowhich considers the topic of how blacks converged (very slowly) with whites in hostile institutional environment. Higgs’ treatment of institutions is well in line with public choice tools and elements advanced by Buchanan and Tullock.

The best case though is The Origins and Demise of South African Apartheid by Anton David Lowenberg and William H. Kaempfer. This book explicitly uses a public choice to explain the rise and fall of Apartheid in South Africa.

Contemporaries that Buchanan admired were vehemently anti-racist

Few economists, except maybe economic historians, know of William Harold Hutt. This is unfortunate since Hutt produced one of the deepest and most thoughtful economic criticism of Apartheid in South Africa, The Economics of the Colour Bar This book stands tall and while it is not the last word, it generally is the first word on anything related to Apartheid – a segregation policy against the majority that lasted nearly as long as segregation in the South.  This writing, while it earned Hutt respect amongst economists, made him more or less personae non grata in his native South Africa.

Oh, did I mention that Hutt was a public choice economist? In 1971, Hutt published Politically Impossible which has been an underground classic in the public choice tradition. Unfortunately, Hutt did not have the clarity of written expression that Buchanan had and that book has been hard to penetrate.  Nonetheless, the book is well within the broad public choice tradition.  He also wrote an article in the South African Journal of Economics which expanded on a point made by Buchanan and Tullock in the Calculus of Consent. 

Oh, wait, I forgot to mention the best part. Buchanan and Hutt were mutual admirers of one another. Buchanan cited Hutt’s work very often (see here and here) and spoke with admiration of Hutt (see notably this article here by Buchanan and this review of Hutt’s career where Buchanan is discussed briefly).

If MacLean wants to try guilt by (inexistent) association, I should be excused from providing redemption by (existent) association.  Not noting these facts that are easily available shows poor grasp of the historiography and the core intellectual history.

Simply Put

Buchanan inspired a research agenda regarding how states can be used for predatory purposes against minorities and majorities which has produced strong interpretations of racism and discrimination. He also associated with vehement and admirable anti-racists like William H. Hutt and inspired students who took similar positions. I am sure that if I were to assemble a list of all the PhD students of Buchanan, I would find quite a few who delved into the deep topic of racism using public choice tools. I know better and I did not spend three years researching Buchanan’s life. Nancy MacLean has no excuse for these oversights.

On 19th Century Tariffs & Growth

A few days ago, Pseudoerasmus published a blog piece on Bairoch’s argument that in the 19th century, the countries that had high tariffs also had fast growth.  It is a good piece that summarizes the litterature very well. However, there are some points that Pseudoerasmus eschews that are crucial to assessing the proper role of tariffs on growth. Most of these issues are related to data quality, but one may be the result of poor specification bias. For most of my comments, I will concentrate on Canada. This is because I know Canada best and that it features prominently in the literature for the 19th century as a case where protection did lead to growth. I am unconvinced for many reasons which will be seen below.

Data Quality

Here I will refrain my comments to the Canadian data which I know best. Of all the countries with available income data for the late 19th century, Canada is one of those with the richest data (alongside the UK, US and Australia). This is largely thanks to the work of M.C. Urquhart who recreated the Canadian GNP series fom 1870 to 1926 in collaborative effort with scholars like Marvin McInnis, Frank Lewis, Marion Steele and others.

However, even that data has flaws. For example, me and Michael Hinton have recomputed the GDP deflator to account for the fact that its consumption prices component did not include clothing. Since clothing prices behaved differently than the other prices from 1870 to 1885, this changes the level and trend of Canadian incomes per capita (this paper will be completed this winter, Michael is putting the finishing touch and its his baby).  However, like Morris Altman, our corrections indicate a faster rate of growth for Canada from 1870 to 1913, but in a different manner. For example, there is more growth than believed in the 1870-1879 period (before the introduction of the National Policy which increased protection) and more growth in the 1890-1913 period (the period of the wheat boom and of easing of trade restrictions).

Moreover, the work of Marrilyn Gerriets, Alex Chernoff, Kris Inwood and Jim Irwin (here, here, here, here) that we have a poor image of output in the Atlantic region – the region that would have been adversely affected by protectionism. Basically, the belief is a proper accounting of incomes in the Atlantic provinces would show lower levels and trends that would – at the national aggregated level – alter the pattern of growth.

I also believe that, for Quebec, there are metrological issues in the reporting of agricultural output. The French-Canadians tended to report volume units in manners poorly understood by enumerators but that these units were larger than the Non-French units. However, as time passed, census enumerators caught on and got the measures and corrections right. However, that means that agricultural output from French-Canadians was higher than reported in the earlier census but that it was more accurate in the later censuses. This error will lead to estimating more growth than what actually took place. (I have a paper on this issue that was given a revise and resubmit from Agricultural History). 

Take all of these measurements issue and you have enough doubt in the data underlying the methods that one should feel the need to be careful. In fact, if the sum of these (overall) minor flaws is sufficient to warrant caution, what does it say about Italian, Spanish, Portugese, French, Belgian, Irish or German GDP ( I am not saying they are bad, I am saying that I find Canada’s series to be better in relative terms).

How to measure protection?

The second issue is how to measure protection. Clemens and Williamson offered a measure of import duties revenue over imports volume. That is a shortcut that can be used when it is hard to measure effective protection. But, it may be a dangerous shortcut depending on the structure of protection.

Imagine that I set an import duty so high as to eliminate all entry of the good taxed (like Canada’s 300% import tax on butter today). At that level, there is zero revenue from butter import and zero imports of butter. Thus, the ratio of protection is … zero. But in reality, its a very restrictive regime that is not being measured.

More recent estimates for Canada produced by Ian Keay and Eugene Beaulieu (in separate papers, but Keay’s paper was a conference paper) attempted to measure more accurate indicators of protection and the burden imposed on Canadians. Beaulieu and his co-author found that using a better measure, Canada’s trade policy was 11% more restrictive than believed. Moreover, they found that the welfare loss kept increasing from 1870 to 1890 – reaching a figure equal to roughly 1.5% of GDP (a non-negligible social cost).

It ought to be noted though that alongside Lewis and Harris, Keay has found that the infant industry argument seems to apply to Canada (I am not convinced, notably for the reasons above regarding GDP measurements). However, that was in the case of Canada only and it could have been a simple outlier. Would the argument hold if better trade restriction measures were gathered for all other countries, thus making Canada into a weird exception?

James Buchanan to the rescue

My last argument is about political economy. Was the institutional arrangement of protection a way to curtail government growth? Protection is both a method for helping national industries and for raising revenues. However, the government cannot overprotect at the risk of loosing revenues. It must protect just enough to allow goods to continue entering to earn revenues from imports.  This tension is crucial especially since most 19th century countries did not have uniform general tariffs (like a flat 5% import duty) which would have very wide bases. The duties tended to concern a few goods very heavily relative to other goods. This means very narrow tax bases.

Standard public finance theory mandates wide tax bases with a focus on inelastic sources. However, someone with a public choice perspective (like James Buchanan) will argue that this offers the possibility for the government to grow. Basically, a public choice theorist will argue that the standard public finance viewpoint is that the sheep is tame. Self-interested politicians will exploit this tameness to be elected and this might imply growing government. However, with a narrow and elastic tax base, politicians are heavily constrained. In such a case, governments cannot grow as much.

The protection of the 19th century – identified by many as a source of growth – may thus simply be the symptom of an institutionnal arrangement that was meant to keep governments small. This may have stimulated growth by keeping other sectors of the economy more or less free of government meddling. So, maybe protection was the offspring of the least flawed institutional arrangement that could be adopted given the political economy of the time.

This last argument is the one that I find the most convincing in rebuttal to the Bairoch argument. It means that we are suffering from a poor specification bias: we have identified a symptom of something else as the cause of growth.

A Note on the Econometric Evaluation of Presidents

Sometimes, I feel that some authors simply evolve separately from all those who might be critical of their opinions. I feel that this hurts the discipline of economics since it is better to confront potentially discomforting opinions. And discomforting opinions are never found in intellectually homogeneous groups. However, a recent paper in the American Economic Review by Alan Blinder and Mark Watson suffers exactly from this issue.

Now, don’t get me wrong, the article is highly interesting and provides numerous factoids worth considering when debating economic policy and politics. Basically, the article considers the differences in economic performance under different presidents (and their party affiliation). Overall, it seems that Democrats have a slight edge – but in large part because of “luck” (roughly speaking).

However, no where in the list of references do we find an article to the public choice theory literature. And its not as if that field had nothing to say. There are tons of papers on policy decisions and the form of government. In the AER paper, this can be best seen when Blinder and Watson ask if it was Congress, instead of the president, that caused the differences in performance. That is a correct robustness check, but it is still a mis-specification. There is a strong literature on “divided government” in the field of public choice.

In the case of the United States, this would be presidents and congresses (or even different chambers of congress) of different party affiliation. Generally, government spending is found to grow much more slowly (even relative to GDP) when congress and the White House are held by different parties. Why not extend that conclusion to economic growth? I would not be surprised that lagged values of divided government (mixed partisanships in t minus one) would have a positive on non-lagged growth rates (growth in t-zero).

Now, this criticism is not sufficient to render uninteresting the Blinder-Watson paper. However, it shows that some points fall flat when two fields fail to link together. Public choice theory, in spite of the wide fame of James Buchanan (Nobel 1986), Gordon Tullock and affiliates (or off-spawns) like Elinor Ostrom (Nobel 2009), is still clearly unknown to some in the mainstream.

And that is a disappointment…

What is entrepreneurship and why should you care?

The word entrepreneurship is thrown around a lot, but rarely defined. As far as I can tell nobody really believes (or is willing to admit they believe) that entrepreneurship is anything less than highly important (“Green child entrepreneurs are our future! Support our troops against breast cancer!”). It’s probably a wise political move to not pin down the idea because it means anyone’s cronies can be considered entrepreneurs. Speaking of which, “crony” is almost the antonym of entrepreneur. Cronyism evokes images of stagnation, inefficiency, “innovations” that make things worse, and opportunities for genuine improvement that are ignored.

Invisible hand

So what does entrepreneurship mean? There are two general definitions, and both bear on the question of how to go about having a peaceful, productive, and morally praiseworthy society. The more general of the two is judgment in the face of uncertainty. That is, given that we don’t know what tomorrow will look like, and we certainly don’t know what the world will look like in 10, 25, or 50 years, we have to make wise, forward-looking decisions. We don’t have enough information to simply plug the relevant data into an Excel spreadsheet and get the “correct” action from a formula. In other words, understanding the ubiquity of entrepreneurship means that we still consider The Use of Knowledge in Society to be relevant.

The more specific definition is pursuit of pure economic profit (above “normal returns to capital, labor, etc.”) by pursuing hitherto un- or under-exploited opportunities. Such breaks from the status quo are the creative acts necessary for economic progress. Entrepreneurship is the human face of economic change that provides a micro-level description of what economists might otherwise wave their hands over and call “technology.” This sort of entrepreneurship is an important source of uncertainty about the future. 2014 is so much different from 1964 because of the actions of innovative entrepreneurs out to improve their own lives.

You’ll notice that I haven’t defined entrepreneurship in a way that actually is inimical to cronyism. That’s because not all entrepreneurship is productive. Destructive entrepreneurship is the pursuit of economic profit that makes the entrepreneur better off at the expense of someone else resulting in a net-loss. So we should be concerned not only with allowing individuals the autonomy necessary to be entrepreneurial (rather than merely reacting formulaically to top-down commands), but also with establishing institutions that direct people to help others.

Invisible hand