James Buchanan

American Classical Liberals Suck

Edwin van de Haar Comments, Culture, Current Events, Liberty, Philosophy , , , , , , ,

This week Kevin Vallier published a new entry on neoliberalism in the Stanford Encyclopedia of Philosophy: Neoliberalism (Stanford Encyclopedia of Philosophy). It is a well-written, well-researched piece. However, it is also symbolic for the greatest deficiency of American classical liberals: they are unable or unwilling to defend the name, or label if you like, of the ideas they are associated with. Given the influence of American academia and thinks tanks on the rest of the world this is especially important. It has happened before, and it is happening now. It sucks.

This is how Vallier starts his entry:

“Though not all scholars agree on the meaning of the term, “neoliberalism” is now generally thought to label the philosophical view that a society’s political and economic institutions should be robustly liberal and capitalist, but supplemented by a constitutionally limited democracy and a modest welfare state. Recent work on neoliberalism, thus understood, shows this to be a coherent and distinctive political philosophy. This entry explicates neoliberalism by examining the political concepts, principles, and policies shared by F. A. Hayek, Milton Friedman, and James Buchanan, all of whom play leading roles in the new historical research on neoliberalism, and all of whom wrote in political philosophy as well as political economy. Identifying common themes in their work provides an illuminating picture of neoliberalism as a coherent political doctrine.”

The problem is in the words: ‘“neoliberalism” is now generally thought…’’.  Neoliberalism is a hotly debated term, there is certainly no consensus on its meaning. As Oliver Hartwich has emphasized in Neoliberalism, the genesis of a political swearword, it is still most often used as a swearword by the left for all that they think is wrong with capitalism, (classical) liberalism, (more or less) liberal policies by IMF, WTO and World Bank, et cetera. These left wingers are also found in academia, policy and in media circles, which has led to its routine use. However, it is not true that the work of Hayek, Friedman and Buchanan is generally thought to be covered by a neoliberal label. Only those who disagree with it call them neoliberals. It is painful to see that the ideas of these three Nobel Prize winners are now used to explain neoliberalism in a leading online source. They self-identified as classical liberals and just because opponents of their views use a different label is no reason to comply with that malicious practice.  

The worse thing is, it has happened before, also commencing in the US. Fairly recently, classical liberals began to use the label libertarian, as the Cato Institute has been promoting, for example on their (very useful) website  Libertarianism.org, or in David Boaz’ The Libertarian Mind.  Jason Brennan’s Libertarianism, what everyone needs to know is another example. The issue here is that the three aforementioned classical liberals, and others, are now thrown onto the same heap as Rothbard and Rand, to name a few rather different thinkers.

Decades earlier, Hayek and others noted with regret that the Americans were unable to defend the original meaning of the word liberal, with the result that a liberal in the American sense is now what people in other parts of the world call a social-democrat. It is also the reason Hayek and other started to use the name classical liberal.  

The result of all this changing of names is confusion and vulnerability. Nobody knows what label belongs to which ideas, which gives rise to a petty industry on liberal labels, yet without any clarity in the end. It also provides ample opportunity for opponents to negatively attack ideas loosely associated with the (classical) liberal movement, which results in a negative image, which also make liberal ideas less attractive for outsiders. The lack of clarity also makes vulnerable for any kind of criticism. Actually, embracing the swearword other use for you, by offering the ideas of your greatest and brightest thinkers, is a shameful act at least.

American classical liberals should stay firm and defend their ideas under the proper labels. There is no reason for change (see my Degrees of Freedom: Liberal Political Philosophy and Ideology), there is only a need for explanation and defense. Giving up clear and proper labels plainly sucks.         

Some Monday Links

Michalis Trepas Links , , , , , ,

The Essential James Buchanan (Cafe Hayek)

Defounding America (The New Criterion)

Marketplace Morality: From Masks to Veganism (The Walrus)

Julian Simon’s life against the grain

Edwin van de Haar Books, Culture, Economics, History, Liberty, Philosophy, Politics , , , , ,

I did not meet many of the postwar great thinkers of classical liberalism. There are two exceptions. In 2005 I had a chat with James Buchanan to ask him if I could translate the talk he gave to an audience of graduate students at the IHS summer seminar at the University of Virginia at Charlottesville. He agreed and I translated and published his ideas on ‘the soul of classical liberalism’ in a Dutch liberal periodical.

The other exception is Julian Simon. Perhaps not in the same league as Buchanan, he was certainly a maverick thinker and a classical liberal great. A navy officer, business man, and advertising expert who turned to academia, he is known, to name just a few, for his arguments in the field of population growth, immigration studies and of course the book The Ultimate Resource. In it he argues that all raw materials become cheaper, while humans are the ultimate resource, among many other issues. He also won a famous wager with his critic Paul Ehrlich, stating that the prices of the raw materials Ehrlich could choose (in fact copper, chromium, nickel, tin, tungsten) would decrease (inflation adjusted) over the period of a decade they agreed upon. But that is just the tip of iceberg of this most interesting man. You should really read his autobiography A Life Against the Grain, whenever you have the chance.

In 1995 a friend of mine and I founded the Dutch Benedictus de Spinoza Foundation, meant to group young people educated in (classical) liberalism. In our first public Spinoza-lecture in 1996 Simon agreed to be the speaker. If memory serves right he was on his way to or from a Mont Pelerin Society meeting in Vienna, and was willing to make a small detour. We spent two full days with him, touring The Hague, arranging an interview in a national paper, have a formal dinner with Simon as gues of honor and speaker, and so forth. He was the most congenial guest one can wish. He clearly did not want to be among the hot shots only. In fact he insisted that we should visit ‘the worst neighborhood of the city’. So we went to one of the poorest parts in town, which he found delightful, not because of the (relative) poverty, but because of the multicultural experience and multicultural food at the market.  An other remarkable feature was that in the half hour before we opened the lecture hall, he wished to take a nap on the floor right there!

In his autobiography he is open about his many rejected papers throughout his career, and the way he described how difficult it is to convince academic colleagues of a point that goes against conventional wisdom. No matter how strong the counter-evidence, people will choose to ignore the new facts or insights and keep the author out of the inner circle for as long as possible. I must say it sounds familiar to me, as an author who has attempted to change the views of (classical) liberals and IR theorists on international relations and (classical) liberalism. Even the obvious fact that trade cannot possibly foster peace seems impossible to establish. Alas, reading Simon one also learns to never give up, the truth shall be told, although there is no guarantee of success!

Nightcap

Brandon Christensen Links , , ,
  1. In defense of Ted Cruz Thomas Knapp, TGC
  2. The political economy of exit clauses and secession (pdf) Huysmans & Crombez, CPE
  3. A republic of equals and unequals (pdf) John Meadowcraft, Public Choice
  4. An empire of stupidity Nina Herzog, LARB

Nightcap

Brandon Christensen Links , , ,
  1. “Portugal is not a small country.” Afonso Ramos, History Workshop
  2. “Japan’s frank and uncomplicated relationship to pleasure offered them an attractive alternative.” David Chaffetz, Asian Review of Books
  3. Getting intimate with America’s only bachelor president Susan-Mary Grant, History Today
  4. “In short, give into death;” Micah Mattix, American Conservative

There is no such thing as a sunk cost fallacy

Federico Sosa Valle Economics, Philosophy , , , , , , , , , ,

The advocates of the sunk cost fallacy state that, since an agent ponders in his decisions marginal costs against marginal incomes, any consideration upon sunk costs would be irrational. Notwithstanding, as soon as we accept the arguments of the said sunk cost fallacy and try to put its recommendations into practice, we discover that we have just become an easy prey of a more severe kind of irrationality: the one that concerns with intransitive preferences.

Jon Elster exemplifies the sunk cost fallacy with the case of a huge snowfall that pours onto the city the very same day we were planning to attend a theatre play whose tickets we had bought the previous days and are not refundable. Elster points out that, since our attendance to the play will not bring the money we had paid for the tickets back, there is no reason to make the decision on whether or not to attend the play on the basis of the sunk costs of the tickets. The correct reasoning should take into account only the cost of enduring the heavy snowfall in order to reach to the theatre where the play would be performed. Nevertheless, the same Jon Elster makes the disclaimer that a zealous observance of avoiding the sunk cost fallacy could lead to make choices following non transitive preferences.

If we change our mind every day, discarding previous decisions and assuming a new direction just because a new opportunity has arisen, we risk to end up in the ruin. Transitive preferences tend to assure the agent of a certain profit and non transitive ones exposes him to losses. In evolutionary games simulations, agents who act according to transitive preferences outshine agents who do not. It seems, then, that the rational agents walks on the edge of the razor, between sunk cost fallacies and non transitive preferences.

That is why there is not such a thing as a sunk cost fallacy. The rational agent, to be such, must ponder a whole plan against an alternative plan in a whole as well, which in some cases, both of them last several periods of time. It is true that in the “very short term” all past costs are sunk and that it only matters the opportunity costs, but most decisions are made in the short term, which lasts more than just a moment. Otherwise, the very concept of transitive preferences would lack any meaning.

Of course certain costs are sunk: if the flux of earnings that a good of capital produces just covers the variable costs of putting it to work (for example, a truck whose earnings just pay for the gas and the salary of the driver), the more rational choice is to use it until it becomes full obsolete and do not replace it with a brand new unit.

But the sunk cost fallacy does not provide a criterion to distinguish sunk costs from just mere costs of a single plan. What a rational agent with transitive preferences discards in his considerations will be named sunk costs, and what he does not, will not. A pure tautology.

Even the snowfall case does not explain satisfactorily the said fallacy: when the agent bought the tickets, their cost were inferior to the income of watching the play, but a heavy snowfall adds not a marginal cost but increases the marginal cost of the plan composed by the cost of the tickets plus the cost of enduring the snowfall.

Notwithstanding, the sunk cost fallacy derives into a philosophical puzzle: what is the subject? How are relations between time and being and between being and becoming. It seems that our permanence as rational agents depends mostly upon not to put into practice the opportunistic approach of the sunk cost fallacy ad libidum.

Moreover, the matter has a political strand: constitutional constraints demand from the authorities to take into account the weight of certain principles in their decisions and those principles could be disregarded if the decisions are purely made on the basis of expediency. If it is the same authority the one who decides whether certain constitutional principle should be followed or not, then all the citizens would be left exposed to arbitrariness.

The considerations about the length of the period a plan should last, the responsibility upon the consequences of our past choices, and the weight of the constitutional principles on the legitimacy of political decisions, become rational if they are not pondered by an isolated agent but in the framework of the interplay among several agents.

This framework of human interaction upon which the agent’s choices take place had been characterised by Friedrich A.Hayek as a spontaneous, or abstract or extended order. He proposed to leave the term “economics” to the explanation of the choices made by an isolated agent and to establish the science of “catallaxy” as the study of the complex phenomena involved in the said structure of interactions. In the same line, James M.Buchanan labelled the interplay of individual agents as “symbiosis” and proposed to redefine the task of the political economy to its study.  More recently, in 2009, Douglass C. North, John Joseph Wallis and Barry R. Weingast, in Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History, coined the term “open access orders” to analyse the same set of events. To this stream of thought, it also belongs Vernon L. Smith’s own account of the concept of ecological rationality.

Catallaxy, Symbiosis, Complex Phenomena, and Open Access Order or Ecological Rationality are some of the aspects of what Karl Popper once called “critical rationalism” and supersedes old problems such as those of the instrumental or subjective reason. An authentic “toolbox,” ready to be used.

Nightcap

Brandon Christensen Links , , ,
  1. And?
  2. Should he?
  3. Can globalization be reversed? (II) John Quiggin, Crooked Timber
  4. Buchanan and de Jasay David Gordon, Modern Age

Nightcap

Brandon Christensen Links , , ,
  1. James Buchanan calling the kettle black David Glasner, Uneasy Money
  2. The war that never ended Patrick Hagopian, History Today
  3. ‘The Mind of Pope Francis’ J Matthew Ashley, Commonweal
  4. Mueller’s done. What now? Samuelsohn & Gerstein, Politico

The promise and peril of blockchain distributed governance

Nick Cowen Liberty, Politics , , , , ,

neoliberalthoughtcollective

I was very fortunate to learn that my essay ‘Markets for rules‘ has won the Mont Pelerin Society’s 2018 Hayek essay competition for young scholars (one of the perks of academia is being defined as young well until your 30s). I am now looking forward to presenting at MPS’s famous conference, originally organised by F.A. Hayek to build the post-war intellectual case for liberalism.

The essay is an attempt to explain the governance possibilities of blockchain technology through the lens of new institutional economics and more specifically private governance. Blockchains allow people to develop rules that can then be enforced autonomously by the participants that use them without further central direction. This could allow communities to rely more on common rules and less on formal coercive authorities to achieve widespread social cooperation. I am cautiously optimistic about the technology (it could also turn into a dystopian nightmare) though not any particular currently existing blockchain.

Here is the abstract: Classical liberals seek the paradoxical: government powerful enough to protect individuals from preying off each other, but limited enough to prevent it becoming a fierce predator itself. The emergence of blockchain technology heralds a potential revolution in our collective capacity to implement limited government. Blockchains offer a more secure and transparent way of implementing rules while permitting individual choice between rulesets that can co-exist at the same time and place. What this could ultimately mean is that a great deal of what we have traditionally conceived to be governance might be disintermediated from the territorially defined monopolistic coercive authorities that classically define states.

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

Nick Cowen Current Events, Liberty, Politics , , , , , , , ,

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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

Nick Cowen Economics, Liberty, Politics , , , ,

Screen Shot 2017-08-09 at 23.25.50

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”

Zachary Woodman Books, Comments, History, Links , , , , , ,

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

Vincent Geloso Economics, History , , , , , , ,

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 History. A little later, she consolidated her points in a neat article in the Harvard Journal of Law and Public Policy. She 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 Coercion which 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

Vincent Geloso Economics, History , , , , , , , , , , , ,

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

Vincent Geloso Economics, Liberty , , , , , , , , , ,

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…