Coase on the case

The ignorance of the American public about the practice of capitalism works to raise the living standard of everyone, is reflected in the outcome of the last election.  Over 50% of the voters decided a man who does not believe in capitalism, or if he does it is some form of "social justice" capitalism that does not exist in the real world.  It appears Obama believes in something called "redistributive" socialism, or something the other, that bears no relationship to the magical wealth creation that is at the heart of capitalism.  In this brief post by PL's Steven Hayward, a 102 year old real economist identifies the problem with the current "crop" of so-called economists and by extension, the illiteracy of the American public on this critical subject.  Until the socialists and collectivists realize that their beliefs are counter productive, we will likely continue to hire economic illiterates like Obama to redistribute wealth all the while wealth is shrinking.  Sad but true.

COASE ON THE CASE AT 102

Ronald Coase

Ronald Coase, the University of Chicago economist, Nobel Prize winner, and originator of the widely used and misused “Coase Theorem” (about the dynamics of property rights) is still going at the ripe young age of 102.  I believe his famous essay, “The Problem of Social Cost,” remains the most-cited law review article in history, and it spawned the influential law and economics movement inside the legal academy.

Writing recently in the Harvard Business Review in an article provocatively titled “Saving Economics from the Economists,” Coase argued that much of the economics discipline today has become distant from the real world, if not in fact damaging:

Economics as currently presented in textbooks and taught in the classroom does not have much to do with business management, and still less with entrepreneurship. The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate. . .

This separation of economics from the working economy has severely damaged both the business community and the academic discipline. Since economics offers little in the way of practical insight, managers and entrepreneurs depend on their own business acumen, personal judgment, and rules of thumb in making decisions. In times of crisis, when business leaders lose their self-confidence, they often look to political power to fill the void. Government is increasingly seen as the ultimate solution to tough economic problems, from innovation to employment.

Economics thus becomes a convenient instrument the state uses to manage the economy, rather than a tool the public turns to for enlightenment about how the economy operates. But because it is no longer firmly grounded in systematic empirical investigation of the working of the economy, it is hardly up to the task. . .

That’s not his only recent contribution.  He’s just co-authored a new book, How China Became Capitalist.  My pal Nick Schulz interviewed Coase and his co-author Ning Wang recently.  One highlight:

Nick Schulz: You are critical of much modern economics, saying it has been transformed “from a moral science of man creating wealth to a cold logic of choice and resource allocation.” How did this happen? Where did economics go wrong?

RC & NW: Adam Smith, the founding father of modern economics, took economics as a study of “the nature and causes of the wealth of nations.” As late as 1920, Alfred Marshall in the eighth edition of Principles of Economics kept economics as “both a study of wealth and a branch of the study of man.” Barely a dozen years later, Lionel Robbins in his Essay on the Nature and Significance of Economic Science (1932) reoriented economics as “the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” Unfortunately, the viewpoint of Robbins has won the day.The fundamental shift from Smith and Marshall to Robbins is to rid economics of its substance — the working of the social institutions that bind together the economic system. Afterward, economics has turned into a discipline without a subject matter, advocating itself as a study of human choices. This shift has been assisted by what Hayek (1952) criticized as the growing trend of scientism in the study of society, which took mathematical formalism as the only secure route to truth in the pursuit of knowledge. As economists become more and more interested in formalism and related technical sophistication, it becomes secondary whether the substantive questions that they choose to perfect their methods or to illustrate their theoretical models bear any resemblance to the real world economy. By and large, most of our colleagues are not bothered by the fact that what they profess is mainly “blackboard economics.”

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Differences between left and right

Steven Hayward has begun a series that explains the seemingly irreconcilable differences between conservatives and liberals.  This post is the first of three on this truly interesting series.  Most of what he says in the second installment  here we intuitively understand.  Nevertheless it is still instructive to see these differences on paper to be able to focus and reflect on them a bit.  Because conservatives understand the value of learning from the past, and liberals are willing to expunge the past from consideration in their search for a the perfect world order, it's clear the views are indeed irreconcilable which is why there is such an intractable divide between the democrats and republicans these days. It remains a mystery how these two philosophies can exist within the same family unit, a not uncommon occurrence.

Finally, Here is the third and here fourth installment of Hayward's PL posts on the differences between the left and the right.

Is Romney the man?

Mitt Romney has never really captured the imagination of Conservatives in the manner Reagan did.  That's just a fact. The guy seems to be either highly programmed or bloodless, neither characteristic is very appealing.  Also, there's the matter of his flip-flops, particularly with regard to the Romneycare health program now running out of control in Massachussetts.  In this post Steve Hayward points out another of Romney's questionable positions in his Governor days.  It's important to remember that Hayward is a true blue conservative who wants nothing more than to get rid of Obama.  And yet he has the same reservations many other conservatives do about the depth and sincerity of Romney's beliefs about the economy, climate matters and the role of the government.  After all it does us no good to be rid of Obama and his crowd and replace him with just a lighter, paler but similar version of collectivist leadership.  Conservatives truly believe the government is too large and intrusive and must be reduced in size and influence.  The question is does Romney believe this or doe3s he just want to be POTUS?  This question and these doubts are the reason conservatives keep looking for a viable alternative to Romney all the while candidates keep dropping out of the race.

The NYTimes at it again

Steven Hayward and John Hinderaker of Powerline both have posts here and here today on the Solyndra defense mounted by the NYTimes editorial page. This defense is a pluperfect example of the Times' take on the subject of economics.  Clearly and unmistakably the Times thinks the government should be in the business of picking winners and losers and that such decisions are far too important, or something, to be left to a free market solution.  It gets worse: the Times also thinks that the policy of increasing the cost of fossil fuels should be encouraged by government policies to continue to rise in order to make the renewable energy sources the viable alternative.  This attitude at a time when gasoline prices have doubled over the past three years of the Obama administration and unemployment has risen in spite of all the new government debt designed to bring it down.  The Times can't seem to put two and two together and come to the pretty obvious conclusion that rising energy costs actually causes unemployment. Duh! Most non economists can figure that one out.  It's no wonder there's so much ignorance out there about how the real world works when so many people take the Times as Gospel on almost any subject.  These two linked posts above are short and to the point.