Thursday, September 30, 2010

Liberty and responsibility

The recent discussion on civil discourse and the sharp distinctions in understanding of liberty and responsibility have highlighted our discussion this month. Two recent blog posts one by Mario Rizzo and a second by Bob Higgs emphasize the responsibility that falls upon those who value liberty. Beyond the issues of debate lie the role of our work as economists. I do agree that we may well be at a tipping point and the opportunity certainly seems to be developing to present the case for a return to the morality of the classical liberal view.

Rizzo contextualizes our opportunity when he writes:

But look around. We are witnessing the clear unraveling of the New Deal legacy. The relative modest beginnings of the New Deal turn out to have been relatively unimportant. What was important were the tendencies that were set in motion. All those unreconstructed Republican opponents of FDR who talked of “socialism,” “the foot in the door,” “fascism,” and so forth had a substantial point. A new world was being set in motion. The pragmatic case-by-case problem solvers were ignoring a whole set of consequences – the dynamics of interventionism. Expanding entitlements became the way that countless politicians, both Democrat and Republican, were elected and re-elected.

While the tendancies predate Hoover and FDR, there can be no argument that the acceleration of the road to public acceptance and expectation of state intervention has continued from this time. To the extent that we are now at a crisis or near one, there is an opportunity.

Where and how to begin? As economists we may well be trained in the method of economic thinking and application of that thinking to institutions, incentives and behavior. But it is clear that the informal institutions of norms, conventions and beliefs will outweigh evidence and analysis. And, as Douglass North points out, the process of changing these informal institutions is extraordinarily long term and little understood, certainly beyond the conception of economists. It is this emergent and evolutionary nature that bedevils policy makers and places most change outside our immediate control.

That said, Bob Higgs this week modeled what, for me, is the approach to be utilized and, if we can broaden the channels of communication and foster a civil discourse then perhaps the broader public will re-examine their firmly and deeply held belief in the power of the state to affect positive change and remediate challenges.

Higgs writes:

Private saving and investment are the heart and soul of the dynamic market process.


. . . the boom year 2006, about 60 percent of gross private domestic investment was required merely to maintain the economy’s productive capacity, leaving just 40 percent, or $889 billion in net private domestic investment, to augment that capacity.

From that level, net private domestic investment plunged during each of the following three years, taking the greatest dive between 2008 and 2009, when it fell to only $54 billion (in constant 2005 dollars), having declined altogether by 94 percent from its 2006 peak! Last year only 3.5 percent of all private investment spending went toward building up the capital stock. Thus, net private investment did not simply fall during the recession; it virtually disappeared.

Unless this drastic decline is reversed soon, the future will be bleak for the U.S. economy. Without substantial net private investment, brisk economic growth is unthinkable beyond the very short run.


The twin themes that Higgs has emphasized in this work, and examination of the nature and impact of government intervention and the resulting regime uncertainty are reflected in this posting.

I see this as an exemplification of responsible action, for it meets the head on the choice that confronts our society. In a destructive feedback loop, government intervention creates uncertainty which creates a demand from a society that lacks experience and familiarity with spontaneous orders and thus accelerates the tendency that Rizzo outlines.

But is this enough, or even the correct approach. Higgs and Rizzo both call for a rhetorical approach based upon reason. Given the strength of the entrenched belief systems in our country which recogize and demand state intervention and deny individual liberty and responsibility, I am left wondering.

Santana and History

Santana's famous warning is trotted out each time the world seems bent on returning to some favorite folly: Those who forget history are doomed to repeat it. Well, it seems we are there again. The Great Depression occurred because of a monetary bubble created in the 1920s followed by a crash created by Fed tightening. The economy struggled to recover becausee of uncertainty and fear the economy it with the Smoot Hawley Tariff in June 1930. Yesterday, Congress almost enacted a similar measure with a bill imposing tariffs on Chinese goods because China manipulates its currency. Also, yesterday a bill was nearly enacted which would have imposed additional burdens on U.S. business who do business abroad -- trying to force the companies to not outsource.

This is simply inane --economically foolish and dangerous. Why don't the legislators understand history? Well perhaps they do and what they see is that any attempt to penalize big business and the wealthy is a boon to their support.

It is not the companies and executives of large companies that are driving jobs overseas, it is the tax and spend and regulation programs of Congress. The US corporate tax rate is the highest (except perhaps Japan) of all developed countries. Regulations continue to grow and get more onerous. Unless taxes are cut and regulations eliminated, the U.S. will not see solid growth for a generation if ever.

Wednesday, September 29, 2010

Markets fail

Arnold Kling (cited in EconTalk Justin Fox interview)

"The U. of Chicago people say markets work well, so you should use the market.

At MIT and other bastions of mainstream economics, they say markets fail; use government.

At George Mason we say markets fail; use markets."

Tuesday, September 28, 2010

John Locke - On Toleration

Given our recent discussion dealing with civil discourse, this Liberty Fund announcement appears appropriate.

A Letter Concerning Toleration
and Other Writings

By John Locke

Edited and with an Introduction by Mark Goldie

David Womersley, General Editor

A Letter Concerning Toleration and Other Writings brings together the principal writings on religious toleration and freedom of expression by one of the greatest philosophers in the Anglophone tradition: John Locke. The son of Puritans, Locke (1632-1704) lived and wrote at the dawn of the Enlightenment, a period during which traditional mores, values, and customs were being questioned.


This volume opens with Locke's Letter Concerning Toleration (1689) and also contains his earlier Essay Concerning Toleration (1667), extracts from the Third Letter for Toleration (1692), and a large body of his briefer essays and memoranda on this theme. Locke's contention, fleshed out in the Essay and in the Third Letter, that men should enjoy a perfect and "uncontrollable liberty" in matters of religion was shocking to many in seventeenth-century England. Still more shocking, perhaps, was its corollary that the magistrate had no standing in matters of religion. Taken together, these works forcefully present Locke's belief in the necessary interrelation between limited government and religious freedom. At a time when the world is again having to come to terms with profound tensions among diverse religions and cultures, they are a canonical statement of the case for religious and intellectual freedom.

Liberty Fund presents the first fully annotated edition of Locke's writings on toleration, offering guidance to his rich reservoir of references and allusions. The editor's extensive introduction describes the historical, theological, and philosophical contexts needed for understanding Locke's work.

Monday, September 27, 2010

Reforming US Immigration - Clive Crook - Business - The Atlantic

Reforming US Immigration - Clive Crook - Business - The Atlantic

It isTime -- diatribe on the current state of affairs

In the news recently is the declining performance of student achievements, the failure of the general public in Washington D.C. to support the ex mayor and his attempt to improve education via Charter schools, and the claim by the teacher unions that it is not possible to measure teacher performance. Today it is announced that the Postal Office needs to raise the price of a stamp in an attempt to partially cover a $9 billion deficit. The Republican promise to America claims it will reduce spending to pre TARP levels. It is time to make some major changes.

It is time to eliminate public education and move to private and Charter schools or whatever the market introduces. Under competition the performance of schools, teachers, and students will improve. Arizona should move to do this immediately and also reduce taxes on companies to zero. That will stimulate entrpreneurial activity and drive the state economy more than any government program can do.

At the federal level, it is time to eliminate the Department of Education. The Department has been alive a short time -- since the 1970s -- so there is no reason to keep it alive.

It is time to eliminate the government postal department. Let FedEx or other private companies provide mail services.

It is time to eliminate the Department of Energy. It is time to let the market deal with energy policies. Eliminate limits on liability and keep government out of the drilling or other energy related businesses so that new, cleaner, safer, more efficient energy will be provided.

I find it very frustrating that we deal with incremental changes and the ratchet-up effect. We never really cut spending, just cut the rate of increase. Government has done nothing but grow since the 1930s. It is time to make large changes and move back to small government.

Saturday, September 25, 2010

Regulatory Capture and Moral Hazard

The current blogosphere discussion and debate regarding implementation of financial system "reform" is an outstanding illustration of Adam Smith's realization that, businessmen will seek advantage and if that advantage is to be found in the market they will be forced to compete there, if that advantage is within the government then they will rent seek and lobby there. This is the nature of activity - the entrepreneurial impulse may well be deep seeded and the result of evolution and that impulse results in positive sum consequences in the market and is thus productive entrepreneurial activity. Alternatively, that impulse can be directed to an expanding state or government and result in negative sum activity or wealth destroying entrepreneurial activity. Ben Powell and William Baumol have written extensively on this dichotomy with telling historical and contemporary case studies.

Far to little attention is devoted to the impact of the creative destruction of entrepreneurial activity, particularly the radically different results of productive v. wealth destroying entrepreneurism. It is the institutions that direct these human impulses and, as North et al argue the informal institutions - beliefs, conventions, norms etc must be in alignment with the formal institutions. If not, the informal beliefs will prevail and circumvent and eventually weaken the formal institution.

The current US financial system "reform", really a return to the New Deal approach to regulation of business has been hotly debated along lines of regulatory capture by the industry and a resulting moral hazard. Thus the systemic intervention by the state will have relatively predictable and perverse consequences and the secondary and tertiary impact really cannot be anticipated, but will certainly not be what is the stated goal of policy makers and even the industry itself.

What is of concern is the clarity what this set of activities implies about American informal beliefs, norms and conventions regarding the role of the state. This is the most profound result of this recent activity and really makes me think of, what deTocquville described as the American Creed. In his view the admittedly contradictory norms in our society in the early 19th century were liberty, lassiez faire, individualism, egalitarianism and populism. Whatever the accuracy of deTocquville's view it has certainly changed with a shift from the first three to the last two. It is the headly mixture of egalitarianism and populism, mutually reinforing and advanced by the elite and captured by special interests that is a clear and present danger to our children and grandchildren's access to a free and responsible civil society.

In previous posts Boyes and I identified the lack of civil discourse over ideas as a key stumbling block to meaningful engagement and consideration by the public at large for any change. The lack of civility is present on both sides of the debate - the right and the left and libertarians have, on ocassion fallen prey to frustration in our efforts to examine beliefs, formal institutions and the resulting path dependency as these beliefs evolve in a manner that is ultimately immoral.

Friday, September 24, 2010

Good reads

Pratt has noted some great reads on the Constitution in a previous blog. It seems there is nothing of greater concern than liberty. But, from where did liberty arise? Little of it existed until the Greek city states but even there, only citizens had liberty. Today we find the West to be the wealthies nations in the world along with having the greatest freedom. Why is the West wealthy and the rest not? Mostly because of the existence of private property rights and voluntary trade. Why did this arise in the West and not elsewhere. An interesting answer is provided by reading:
The Victory of Reason -- Rodney Stark
The Closing of the Muslim Mind -- Robert Reilly

More on civil discourse

The thread of discussion dealing with civil discourse is useful I think for our consideration of the emergent and evolutionary path that society has followed and may follow in the future.

This reflects the thesis of Benjamin Friedman's book - The Moral Consequences of Economic Growth.

A review of the book captures what I see as a partial explanation for both the current and historical ebb and flow of civility in public discourse. Toleration and civility is rooted in our view of our own relative position in society. That perception may come from Smith's impartial spectator during times of properity and growth and from the partial spectator during times of decline and stagnation. In other words the external environment and our perception of that environment shapes our civility.

One review suggests of Friedman's book:

This probing study argues that, far from fostering rapacious materialism, economic growth is a prerequisite for the creation of a liberal, open society. Harvard economist Friedman, author of Day of Reckoning: The Consequences of American Economic Policy in the 1980s, contends that periods of robust economic growth, in which most people see their circumstances palpably improving, foster tolerance, democracy and generous public support for the disadvantaged. Economic stagnation and insecurity, by contrast, usher in distrust, retrenchment and reaction, as well as a tightfisted callousness toward the poor and—from the nativism of 19th-century Populists to the white supremacist movement of the 1980s—a scapegoating of immigrants and minorities. Exploring two centuries of historical evidence, from income and unemployment data to period novels, Friedman elucidates connections between economic conditions, social attitudes and public policy throughout the world. He offers a nuanced defense of globalization against claims that it promotes inequality and, less convincingly, remains optimistic that technology will resolve the conflicts between continual growth and environmental degradation.

Thursday, September 23, 2010

Civil Discourse Continued

Pratt notes that civil discourse does not exist today. People are nuts or loonies or marxists or socialists or sixhirb = sexist, islamophobe, xenophobe,homophobe, intolerant, racist or bigoted (this from Dennis Prager). But, as Pratt notes, the name calling has occurred at times throughout the American experiment. So the question naturally arises, what brings about a particular bout of uncivil discourse, a period in which both left and right engage in the problem? Or is the uncivil discourse all coming from the left? It seems to be periods when disagreement about the nature and direction of the country are at stake--periods when really important issues arise. Woodrow Wilson, FDR, Obama -- are these the periods in which uncivil discourse was at its worst? If so, then it must be a playbook of the progressives -- perhaps a precursor to Alinsky's Rules for Radicals. Today I hear more about the founders and the constitution, about liberty, John Locke and Adam Smith than I have before. But I also hear about nuts, fruitcakes, loonies, witches, and so on. Perhaps someone ought to do some research on this issue.

Civil Discourse and the role of government

Boyes blogged earlier this week on the specific topic of the role of the government and the example of education was employed in an effort to illustrate the costs and benefits of command v. spontaneous orders. Earlier this week I was listening to a classic EconTalk podcast with Ed Glaeser from Harvard. That podcast dealt with Paternalism and I was reminded of the analysis that Dan Klein makes of the morality of an institution (k-12) that is 70-75% dominated by the state. Looking at this differently, only 20 - 25% of k - 12 education is private, subject to the liberty and responsibility of the market order. Even that is an overly optimistic view, given the myriad regulations, laws and state mandates that govern all education. If one basic consideration of a moral and virtuous person is the liberty and responsibility that parent exercises in parenting, the immorality of allowing the state to usurp that role leads one to the conclusions of Plato. Platonic argumentation for state child education was the model for a number of 20 century "experiements" in state education that reasonable observers would label horrific violations of "the good".

My point is not to argue for private v public education, although the unintended and perverse consequences of centralized, state controlled, command k - 12 "education" are apparent in my classroom daily, but to weigh in on the central issue of civility in discourse.

As Boyes points out, both the right and left demonize opposition in a manner that really is reminiscent of the Jeffersonian era of politics (recall the personal attacks on Hamilton), Jackson (the attacks both ways), FDR (perhaps the master of modern attack politics) and all of our recent presidents. These individuals are mere symbols for the broader social shift away from a free, spirited and civil exchange of ideas to a narrow, vitriolic, mean spirited effort to avoid ideas and instead engage in attacks.

So, the use of the term loonies to describe those who advocate smaller government in the form of a reduced or eliminated federal department of education exemplifies this point.

Rather than a free, spirited, and civil exchange of ideas/positions/arguments the media, the elite and those who have a vested interest in the iron triangle of teachers unions/state government/school boards obfuscate the issue by personalizing attacks of the lowest order.

This fault is not limited to those on the left. The right in current and past debates is equally enthusiastic in their creativity in unleashing the dogs of war.

I recall an aborted discussion during the last presidential election with a colleague who, in misreading Hayek and my comments, considered me a fellow traveler in the party of Joseph McCarthy, Richard Nixon and Herbert Hoover. He described Ron Paul as a nut, intent on destroying the fabric of the country.

I am no longer stunned, although I did speculate to this colleague - how does one know another's intent?

Monday, September 20, 2010

The Left and Change

This weekend I listened to a television news program that had a couple of conservatives and liberal Juan Williams. I found it quite revelatory when Williams told us that the tea party candidate from Deleware was a lunatic for calling for the end of the education department and that the candidate from Alaska was a looney for calling for the elimination of other institutions and that unemployment compensation was unconstitutional. I find it amazing that Williams doesn't realize the education department was created by Jimmy Carter, that the FDA began in the 1930s, that the Constitution says nowhere can businesses be forced to provide unemployment compensation.

If I were the dictator, I would close the education department, the energey department, the homeland security department, transportation department, the FDA, the EPA, and virtually every other government agency. I would also eliminate public education and coerced attendance. There is only one reason that attendance until age 16 is compulsory -- because the consumer would stop buying the product. It is so bad that students would leave as soon as they could. Home schooled children are sought after by top colleges, they perform significantly better on standardized tests, and contrary to the often repeated statement that home schooled children do not know how to socialize, those home schooled appear to be more mature and better able to adapt to college and life after. They also report to be considerably "happier" than public schooled people.

Initially and still, a general public education is supposed to instill knowledge of America, its culture and constitution. Of course, that brainwashing purpose has now been subverted to brainwash toward the liberal agenda.

Back to Williams. Why would we refer to people who are not even as revolutionary as our founders in terms of what they want the government to do, as loonies or nuts? It is those like Williams who think they know better than the rest of us what is good for us that are the loonies.

Thorstein Veblen and the Liberty Fund

Thorstein Veblen and the Liberty Fund

Sunday, September 19, 2010

A Contested Exchange, or First Round Knock Out in an Intellectual Boxing Contest?

This post over at the Coordination Problem is a must read - see below for a taste:

I recommend that everyone read the exchange, but I'd emphasize reading very carefully Rajan's response. Krugman is not a political economist, he is a politicized economists, and Rajan reveals this in his measured but pointed response. Krugman can no longer have a serious discussion with his professional peers (I mean that in terms of scientific reputation and professional rank). He is incapable of being anything put a partisan pundit. Tyler calls this a "contested exchange", but to my mind it is a knock out of Krugman at the end of the first round by a superior economic mind, and a more civilized scholar. Rajan practices the "sweet science" beautifully in his reply, and Krugman finds himself flat on his back and counted out

Friday, September 17, 2010

Constitution Day — Five Reads

Constitution Day — Five Reads

1. Mark Levin, Men in Black. A great read surveying the evolution and subversion of the American Constitution.

2. F. A. Hayek, The Constitution of Liberty. A marvelous survey of the ideas embedded in the American Constitution.

3. Christopher Wolfe, The Rise of Modern Judicial Review. A readable yet sophisticated history of how we got from there to here.

4. Thomas Woods & Kevin Gutzman, Who Killed the Constitution? A popular version of the evolution of the American Constitution.

5. Andrew Napolitano, The Constitution in Exile. Another popular account of the upending of the Founder’s Constitution.

BONUS: Randy Barnett, Restoring the Lost Constitution. One of our best legal minds lays out a plan for restoring, well, our Lost Constitution.

BONUS II: Richard Epstein, How Progressives Rewrote the Constitution. A short account of what the Progressives have wrought, from one of the brightest men in America.

Wednesday, September 15, 2010

Patriotism as a Threat to Capitalism - Kel Kelly - Mises Daily

Patriotism as a Threat to Capitalism - Kel Kelly - Mises Daily

This excellent blog post over on Mises reflects one of the fundamental topics of disagreement between those of us who value a free and responsible society and the current ideology found in the two political parties of today (and the past).

Tuesday, September 14, 2010

Unemployment Rate and Level of Education

Unemployment Rate and Level of Education

Change - or more of the same?

Boyes writes of current administration tax policy as an example of the expansion of the state in society. Over the weekend I listened again to Vernon Smith on EconTalk discussing Rationality in Economics. Smith described the familiar dichotomy between two views or perspectives of the world - he calls these constructivism and ecological rationality. I tend to prefer Bill Easterly's description of planners v searchers but the analysis of perspective is, I think very important. As Sowell points out in A Conflict of Vision, underlying these 2 perspectives is a different set of assumptions about the world. Constructivists and planners have an unconstrained view of the world - that is with proper planning and thinking they can solve problems. Ecologial rationalists or searchers have a constrained vision of the world, that is they recognize scarcity.

Clearly these are fundamentally opposing views of the world and, as Vernon Smith points out, lead to radically different views of the state, individuals, freedom and responsibility.

Near the end of the podcast with Russ Roberts the following took place *(these are Roberts' notes)

Long trend in Western Civilization, especially among the intellectual elite, to argue that commercial activity is degrading, bad for the soul.

Are markets, or even the study of economics, degrading?

Do they destroy virtue?

Commercial enterprise in the human career has been just as important and valuable as the art and poetry enterprises. All reflect who we are and what we are as humans. Commercial enterprise is an engine of wealth creation that enables people to do art and music and all these intellectual activities. All remarkable examples of human ingenuity. Can't take one part away and say humans are better off.



Vernon Smith ends with, what is for me the most powerful argument in favor of ecological rationality, searching, emergent evolution or spontaneous order - freedom and liberty. Smith says it is this liberty and freedom that is the precious and essential ingredient in the human condition. As Boyes and I have observed, there is a tension or threat to this freedom from expansion of the state. Tax policy, regulation, and elite propoganda notwithstanding we see a greater threat to our freedoms from what Bob Higgs calls regime uncertainty. In yesterday's blog I referenced his recent comments about the threat posed by constructivists, planners, statists and the elite.

I am becoming convinced that it is this regime uncertainty that poses the greatest challenge to those who see liberty as the ultimate value.

Sunday, September 12, 2010

Tax Increases on Small Business

The President’s new CEA Chairman was on an interview TV show this morning. He supported all Obama policies including the expiration of the top income tax bracket. On Jan. 1, the tax rates facing small businesses are scheduled to jump, as the 2003 tax cuts expire. The top two income tax rates now stand at 33 percent and 35 percent, but would increase to 36 percent and 39.6 percent.

The Chairman said that this is misleading because so few of the small businesses fall into these income tax brackets. However, while only 8 percent of small businesses pay the highest two tax rates, the Treasury Department says those businesses generate almost three-quarters of all small-business income and shell out more than 80 percent of all income taxes paid by small businesses. Increasing tax rates on these businesses will hamper economic growth. Millions of American taxpayers earn a few bucks on the side. Sometimes the extra income is from a lucrative hobby; sometimes the work is more serious. Millions of these sideliners are honest enough to report their earnings as small-business income. But they are not small businesses in the traditional sense. They have no employees. They have no fixed place of business. They do not offer services widely. True small businesses have employees. They invest in machinery. They offer goods and services widely. And the successful ones earn significant sums to compensate for the risks of running the business. Typically these businesses plow earnings back into the business so it can expand further by investing more money and hiring more workers. And because they earn significant sums, successful small businesses earn the bulk of small business income. So, while only a small portion of taxpayers reporting small-business income would face Obama’s higher rates, those facing the higher rates are the successful and expanding small businesses that create new jobs the economy needs to grow. According to a survey by the National Association of Independent Business, the businesses most likely to face Obama’s higher rates are those employing between 20 and 250 workers. Raising rates on successful small businesses is a big part of the reason why the Obama tax hikes would hurt the economy.

The U.S. continues to become less and less attractive to business. Corporate taxes are the highest of all developed economies, except perhaps Japan. Paul Otellini, CEO of Intel, says it already costs Intel an extra billion dollars to build a microchip plant in the U.S., rather than overseas. This is an extra 25% to create a $4 billion facility. The expiration of the tax cuts will only make matters worse.

Monday, September 6, 2010

Harvard Reading list

Greg Mankiw writes:

My freshman seminar starts today. Here are the books we are reading this year (in this order):

•The Worldly Philosophers, by Robert Heilbronr
•Reinventing the Bazaar: A Natural History of Markets, by John McMillan
•Thinking Strategically, by Avinash Dixit and Barry Nalebuff
•Capitalism and Freedom, by Milton Friedman
•Equality and Efficiency: The Big Tradeoff, by Arthur Okun
•Nudge, by Richard Thaler and Cass Sunstein
•How the Economy Works, by Roger E.A. Farmer
•The Return of Depression Economics, by Paul Krugman
•The Road to Serfdom, Friedrich Hayek
•The Myth of the Rational Voter, by Bryan Caplan
•The Big Questions, by Steven Landsburg

Saturday, September 4, 2010

More on morality of markets

Earlier this month I blogged in support of Boyes view that the market order embodies morality that not only guides society to greater degrees of well being, but more importantly engenders a sense of liberty and responsibility.

This morality emerges over time in the evolutionary process at the heart of spontaneous order. An important historical example often overlooked in US history in favor of more statist and immoral examples (think Hoover and FDR and the New Deal) was articulated over on Sound Money. Note the ending sentence, I am coming to believe that the emergence and dominance of statism and dirgisme is a result of the focus on efficiency rather than morality by those who advocate liberty and responsibility.

As for the Founders’ supposedly primitive understanding of economics, we will see that their views were remarkably sophisticated and arguably superior to the dominant views of our day. They provide principles and policies by which even the most complex economic order can be governed. And the economic system they established, far from appealing to greed and selfishness and leading to an unjust distribution of wealth, has helped to create the wealthiest nation in human history—a nation in which even those Americans who are classified as poor enjoy prosperity unimaginable to the wealthiest citizens of a few generations ago.


In the Founding era, defenses of property rights proceeded along two main lines: justice and utility. The justice approach treats property as a fundamental right that it would be morally wrong to infringe, regardless of whether it served a useful purpose. The Continental Congress declared in 1774, for example, that “by the immutable laws of nature,” the people “are entitled to…property.” In the Virginia Declaration of Rights (1776), property is an “inherent” right. Massachusetts (1780) called it a right “natural, essential, and unalienable.” Four other states used similar language.[6] Viewed in this way, to deprive someone of his property is to violate a right—to commit an injustice.

Over the past two centuries, writes Greg Forster, “the moral argument for capitalism became less prominent. The case for capitalism was more often made on efficiency grounds alone.” Earlier defenders of property rights—“from Aquinas to Locke to our own time—have successfully availed themselves of both approaches.”

Friday, September 3, 2010

Morality and markets

Boyes writes of the morality of the market order. The letter he cites in his post reflects an important perspective dealing with personal responsibility and liberty.

This past week Mario Rizzo, in a post titled teaching classical liberalism writes:

I have been involved in teaching a course in classical liberalism at NYU for almost two decades. For most of this time I have taught an Honors Seminar for first-semester freshmen. More recently, I have been teaching a version for NYU law students (now cross-listed at the Columbia Law School). I am posting the syllabus for the law course with active links for those who may be interested. (Unfortunately, I cannot provide access to any readings that do not have the publicly-available links.)

http://thinkmarkets.files.wordpress.com/2010/08/classical-liberalism-2nd-20101.pdf

The excellent set of reading for this course would make a wonderful discussion foundation thinking about the Morality of Freedom.

As the WSJ letter to the editor argued - there is a fundamental moral center to the responsibility, opportunity and liberty embedded in the market order.

Today a guest speaker at my introductory macroeconomics class prompted an excellent question from one of my students. The speaker was a 27 year old Swedish research analyst for the 5th largest hedge fund in Europe. He described the function of a hedge fund (to hedge risk) then described in favorable terms the social welfare state in his country.

Students focused on his career rather than positive comments about Sweden and one asked about the negative view of hedge funds. Karl's description of his industry was clear and accessible - to me. His use of beta, standard deviation, absolute v relative performance risk adjusted clearly eluded my students. The student asked, if hedge funds performed such an important function in society why did they receive such negative press. Karl correctly replied that hedge funds are demonized because the media most frequently does not understand basic economics and certainly could not describe the function of a hedge fund correctly or, in rare cases engage in populism. Setting aside the contradiction in his correct micro economic analyis of his vocation and his wide misconception of the social welfare state, he stuck at the heart of the moral dimension of classical liberal thought - the sytem of natural liberty that seems the only way to strive toward liberty, freedom and responsibility. The media is engaged in a series of immoral acts - irresponsibility and ignorance that result in tremendous current and future harm. That is the vice of the media is vicious.

Rizzon goes on to describe his course.

This course is multidisciplinary. One of the problems created by approaching classical liberalism from the economics perspective alone is that students get an incomplete and impoverished view of the philosophy (dare I say “ideology”). Worse still, when the economics is presented from a neoclassical perspective, there is the danger that students will get the idea that classical liberalism elevates something called Efficiency or Wealth Maximization to the status of a god – or, at least, an ultimate normative standard.

As you can easily see from the syllabus, there is much more going on. There are moral foundations – and not all of these foundations stem from the same intellectual tradition. Liberalism has been affected deeply by utilitarianism, natural law, and indirect (rule-following) consequentialism. There are important disagreements across these perspectives.