*Living Economics*

That is the new book from my colleague Peter Boettke, and the subtitle is Economics Yesterday, Today, and Tomorrow.  Of all of his books, it best captures what Peter is all about.  He should now be considered the global leader of the Austrian School of Economics.  Here is a Jeff Tucker review of the book.


First chapter here, PDF. It starts with a polemic, which is not promising - Boettke can be far more even-handed (1997, PDF).

Waving the flag of realism against other people's utopias is easy. But back in 1997 Boettke remembered that Chicago represented the utopian approach to markets and MIT the dystopian approach, instead of some monolithic utopian economics that somehow represented both. Proclaiming that we exist to criticize other people's utopias only invites left-wingers to start poking holes in "Not only is the private property market economy a self-regulating system guided through relative price adjustment and profit and loss calculus, but the market society forms the basis for a political order of free people."

And good god there are so many holes to be poked, especially if one focuses on criticizing other people's visions instead of rendering your own more explicit. Without reading the rest of the book I will predict, in absolute confidence, that Boettke does not and will never prove that his model of how people conduct relative price adjustment actually converges toward a desirable general equilibrium.

No, it's not a polemic. It' s nicely, written, albeit largely unoriginal review of classical liberal tihnking. We need books like this from time to time.

What's interesting, however, is Boettke's nod to social conservatism. He acknowledges its importance, but does quite know how to handle it or where to place it. He can feel he has a competing objective function, but he's not quite sure how to square this with classical liberalism. He might benefit from reading some of my comments on principal agent theory as it relates to liberals (principals) and social conservatives (agents). Like Haidt, he'd be farther along, as it provides a reasonably coherent framework of analysis.

By the way, ideological problems like this also arise in left-wing heterodox schools of thought. It's not only Austrians who get tangled up in the curious way contemporary orthodox economics lines divides up the party lines. All those econophysicist-type authors who argue that the price system is intrinsically unstable, chaotic, etc. etc., but somehow conclude with straightforwardly old Keynesian policy recommendations? Yeah, they are doing exactly the same kind of handwaving the new generation of Austrians tend to engage in, just in the reverse direction.

And it's easy to see why Austrians are obliged to handwave: arguing that the price system is actually stable, self-regulating, etc. is all very fine until the ghost of Paul Samuelson points out that this should make it very amenable to policy manipulation! Worse yet, orthodox results on the spread of information embedded in prices (a la Grossman-Stiglitz, Fama, etc.) militate in away from Hayek and right into the waiting arms of MIT or Chicago. What's an Austrian to do? Gauging from their blogs, apparently "spend our days criticizing old American Keynesianism and hope nobody notices the ~and then a miracle occurs!~ in our own pars construens".

(Tyler Cowen actually once wrote a book arguing, in part, that Austrian theory should take rational expectations seriously. It never seems to have caught on, though. I blame the literary tradition - one can have an Austrian theory which mood-affiliates with entrepreneurs and businessmen, or an Austrian theory with a rigorous formalist theory of capital mis-allocation, but not both)

I'm all in favour of utopias. Utopias make the world go round.

But d'you think Peter Boettke realises that F. Hayek was supportive of utopias?
This would seem to be quite important so I'll quote Hayek:

[Does you have the] "required courage to consider *utopia* with respect to policy… It is only by constantly holding up the guiding conception of an internally consistent model which could be realized by the consistent application of the same principles, that anything like an effective framework for a functioning spontaneous order will be achieved. *Utopia*, like ideology, is a bad word today; and it is true that most *utopias* aim at radically redesigning society and suffer from internal contradictions which make their realization impossible. But an ideal picture of a society which may not be wholly achievable, or a guiding conception of an overall order to be aimed at, is nevertheless not only the *indispensable precondition* of any rational policy, but also the chief contribution that science can make to the solution of the problems of practical policy."

Source - Law, Legislation, etc

David, by the way, interested in what you wrote and thanks for link.

"That is the new book from my colleague Peter Boettke, and the subtitle is Economics Yesterday, Today, and Tomorrow. Of all of his books, it best captures what Peter is all about."

Wow...this says a lot about the quality of the book if this is all the author's colleague can say.

"He should now be considered the global leader of the Austrian School of Economics."

Wow...this says a lot about the Austrian School of Economics".

Do you have anything productive to say or do you just have these remarkably unwitty comments?

I'll pass buying this Austrian polemic book. Yet another book based on a fallacy: perfect competition*. Seems that Macro economics = micro economics iff you have perfect competition, which is 99% of the time. But Keynes points out that once in a while your economy friezes so he resorted to 'money illusion' to fool people into spending--and it works say laboratory experiments involving college kids and token amounts of money. Whether it works for more than a very short term in a real economy is still open to question IMO. And remember: perfect competition requires no monopoly power (those wheat farmers where MR = Price and that flat MR curve equal to the market price, if memory serves). And it's true politicians appeal to Keynes (Nixon et al) but it's also true voters still believe in Keynes as well as that the short-term Phillips curve works over the long term.

* excerpt from book: "It is this last point raised by Say that I want to emphasize, namely that the cornerstone of Adam Smith’s economics is his analysis of the price system and the self-regulating capacity of the market economy. This is where we find what is enduring in economics, whereas what is fleeting is found in that underworld of economic thinking that denies that analysis. Unfortunately, as has been pointed out by thinkers such as F.A. Hayek, James Buchanan, and more recently Luigi Zingales, the Keynesian message appeals to technocrats and politicians."

If you think austrian econ is relies on the perfect competition model, then you really don't know the first thing about it.

They slip it in through the back door on a regular basis. The problem is that the weak intuition of rivalrous competition a la Hayek and Kirzner doesn't achieve quite the results they want - in the simplest form of firms providing differentiated goods, it just gives you modern neoclassical monopolistic competition and New Keynesianism. Worse, imposing the Austrian notion of competitive rivalry being experimental then moves in favour of lots of welfare redistribution from successes to failures (to the extent success is due to luck, in fact). The neoclassicals and the socialists all realized this in the 60s, that's why the neoclassicals all fled for the hills of perfect competition.

You only get the Austrian anti-intervention results if you then impose a lot of auxiliary assumptions to restore the effects of perfect competition under the table.

"to the extent success is due to luck, in fact"

Figuring that out should be a real brain-teaser.

Anyway, your comment is beside the point. Though you claim they "slip it in through the back door", the fact is they do not employ the model by as its presented in any neoclassical text. The theoretical framework differs significantly, as it does generally for the Austrians, not just with regard to the issue of market structure. You're focused on the assumption that, because they end up with a putatively similar policy orientation, then it's fair to say that they're employing the same model. But this is not the correct criterion to justify calling their approach "the perfect competition model" in any credible sense.

In any event, the commenter above failed to demonstrate any such nuance in his thinking. So why bother to defend it with this kind of vague associative reasoning?

Further, I find your comment that the "neoclassicals all fled for the hills of perfect competition" in the 60s because socialists seized on the experimental view of markets exceedingly strange given the work of Lange, Walras, etc. in market socialism from decades earlier and the role of equilibrium analysis in their proposals. To follow your metaphor, those hills were already occupied.

Being the intellectual leader of the Austrian school is a lot like being the world's tallest dwarf. Sure, relative to your peers you're tall, but you're still really damn short. Boettke and his ilk are as a much of a joke as the Post-Keynesians, the econophysicists, and the rest of the those clueless nabobs.

"Of all of his books, it best captures what Peter is all about. " Tyler, since you consider him 'the global leader of the Austrian School of Economics", why not say "Of all of his books, it best captures what Austrian economics is all about"?

Wow. Way to provide an actual critique of the substance of an intellectual argument. This is, of course, sarcasm, but I wouldn't expect you to be able to understand that. You would actually have to read an Austrian work, or a post-keynesian work, or any book at all before you could offer a critique a of the substance. Put down your comic book, turn off the blogs, and read a book.

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