Category Archives: Economics

Dalibor Rohac profiles Deirdre McCloskey and her unconventional approach to economics in today’s Wall Street Journal:

Ms. McCloskey sees a problem in the way that economic models are dominated by a strange, sociopathic character—”Max U” as she calls him, referring to the standard economic problem of maximizing utility subject to various constraints. Her own scholarly work has become increasingly focused on bringing love, hope, faith, courage and other virtues back into economics…

[R]ecall that in 1759 Adam Smith earned his reputation by publishing “The Theory of Moral Sentiments,” in which he accounted for the emergence of sympathy and moral judgments. It was only in the 20th century that ethics disappeared from economics, partly as a result of the increased mathematization of the discipline. Ms. McCloskey says it was a fundamental error for economists to start making their arguments in terms of “Max U” alone. “In fact, ‘Max U’ would be a much more sensible person if he had gender change and became ‘Maxine U,’” she chuckles.

Read the whole thing.

I learned a lot from this long-form interview with George Mason economics professor Pete Boettke. One of my few regrets from my time at GMU is that I never took any of his classes. I try to make up for it by regularly reading Coordination Problem, where Boettke blogs with several other distinguished economists.

Here’s his response when the interviewer asks him why so many Austrian-influenced economists are libertarians. The correlation isn’t due to ideology:

What the position makes you have is not libertarianism, or anything like that, but humility. The economist is nothing more than a student of society, and any economist that tries to represent themselves as a saviour of society should be subject to ridicule.

Gernot Wagner, in the Washington Post:

Markets, in fact, work all too well. They are an aggregator of wishes and desires, however misguided they may be.

This is actually a more accurate description of democracy — especially the misguided wishes bit. There is little, if anything aggregate about the market process. It is the process of individuals making exchanges with other individuals, each individually trying to meet their individual wants and individual needs.

The first thing I learned in undergrad macro is that all economics is micro. GDP and other indicators try to sum up the results of that process. But it all happens at the individual level.

Every customer at a grocery store gets an individually customized bundle of goods. Usually, no two are the same. But in a democracy, there are usually only two bundles of policy stances to choose from. And almost nobody agrees with the entire contents of one of the bundles. Nobody gets what they want. The successful politician picks his positions based on aggregate opinion, and ignores individual opinion.

But I quibble. The point of Wagner’s piece is to steer young people towards studying economics, and he makes a good case. He also offers some great advice, though it does contradict most of the policy prescriptions he puts forth:

Economists ought to be more humble in what we know and how we teach it.

Precisely. Humility is at the core of the economic way of thinking, and should form the basis of any humane political philosophy. It’s ok to admit that it’s impossible to consciously push an economy in a given direction without unintended consequences. And it’s not ok to tell other people you know what’s best for them.

(via Russ Roberts)