Tuesday, June 2, 2015

Extending the Tree of Knowledge through Branching

A striking feature of the Great Depression was the number of bank failures. Between 1930 and 1933, over 9,000 banks suspended operations, never to conduct business again.  The problem became so desperate that newly-elected President Roosevelt declared a “Bank Holiday” in which an inspection was to occur and only the sound ones would be allowed to reopen.  There are many reasons for the number of bank failures, but curiously Canada’s banking system didn’t suffer the same fate.  In fact Canada had zero bank failures between 1927 and 1980.  (That’s over fifty years without a failure!)  What could be the difference?  The answer is simple: branch banking was allowed in Canada, but not allowed in the US.  The simple principle of diversification was denied to the US banking industry and when the crisis hit, the banks fell like dominos.

Today, there is another industry set up for a similar failure: US colleges and universities—private institutions in particular.  In the same way that the US imposed “unit banking” on the financial industry, we currently have a similar anti-competitive, and anti-diversification, system targeting higher education.

It wasn’t until just recently that I discovered this situation firsthand.

I teach Economics and Finance at the University of Mount Olive in North Carolina.  UMO is a small, private, Christian and non-profit school in eastern North Carolina.  In January 2014, we launched our first graduate program, a Masters of Business Administration.  As a part of our business strategy we decided to launch the program entirely online.  The original idea was once we had the program up and running, we would look into seated and hybrid courses.  The business strategy was simple.  We wanted to diversify.  First, by adding a Graduate Program and, second, by extending ourselves outside of our region.  We had all seen the ads on TV by other schools pitching their online degree programs.  We wanted to get into that market where the world could provide us with students.  At UMO, a majority of our students are adult learners and many of those are affiliated with the military.  Working around deployments is nothing new for us.  For example, I have had a student who had to finish his Money and Banking course from Qatar.  So the faculty’s acceptance of the idea of an online degree for adult learners from all over the country came naturally.

The ability of a small Southern, Christian school to diversify is necessary.  As a regional school, we have been putting too many of our financial eggs in a single basket.  Some have made the quiet projection that within the next 5 years, 3 to 4 North Carolina colleges may disappear.  Mount Olive has had its fair share of financial difficulties, has successfully emerged from them and is better as a result.  We have learned, the hard way, the difficulties for a private school competing against tax-supported public schools.  We owe it to ourselves, our students and most importantly to our alumni that we not simply survive, but flourish.  (Imagine having a degree from a school that no longer exists.)

Last January, I had the honor to teach the very first MBA course offered at Mount Olive.  Of course, the first class drew heavily from our Alumni.  Over the following semesters, I have seen graduates of other schools join our program, however, they were still local to Mount Olive’s region.  This result, of course, makes sense because people who aren’t all that familiar with the school won’t apply.  Then I noticed that our reach extended west of I-95 and into the Triangle Area.  And so I asked our program director, almost off-handed, when we would see students from Virginia and South Carolina.  It was then that I learned the awful truth: we were not allowed to compete for students in other states!  It is against the law.  (My jaw hit the floor.)

In 2010, the US Department of Education issued a regulation that stated colleges and universities could only offer online programs in states where they also had a physical presence.  In July 2011, the DC District Court struck down this regulation.  However, the Department of Education appealed and in 2013 it issued a Notice of Proposed Rulemaking (NPRM).  Simply, the DOE announced that it intends to make a rule on the topic of State Authorization.  And this is where we stand today.

So while there is technically no Federal Rule preventing a college from advertising online programs across state lines, individual states have their own individual laws that prevent competition.  In other words, in order for the University of Mount Olive to compete across the country, UMO would have to request special authorization from each and every state that has a State Authorization law, which apparently is every state except maybe Hawaii.  Furthermore, the state would have to specifically name the school that it allows to compete with its own local schools (that means we’d have to lobby other states’ legislators—which is never cheap and hardly a guaranteed result).  There are other loophole-ish ways around some state laws.  Apparently some state laws are fairly vague.  In fact, I was told that some of the schools that advertise across the country have, in some states, a single guy with a phone in an office that creates their “physical presence.”  I am not sure if this is truly the case, but as with all loophole strategies, a single court case or amendment to state legislation can crush that approach.  (If you are interested in reading legalese for yourself, you can find it in the Code of Federal Regulations, Chapter 34, Section 600.9 State Authorization, http://www.ecfr.gov/.  Enjoy!)  The reality of these government restrictions is the creation of a chilling effect to new and innovative methods of delivering education; and it is a costly one as well, both in terms of schools lobbying for authorization and in terms of lost revenue. 

Diversifying how a school offers its courses is an act of entrepreneurship.  Reaching beyond the school’s natural regional limitation is also an act of entrepreneurship.  Both are necessary for a healthy and growing institution.  I teach entrepreneurship in my economics classes, and I see case after case of entrepreneurial ideas being squashed by the heavy hand of government.  In many cases, state legislators want to restrict online competition from “outside” educational institutions, especially if the competitor is a for-profit entity.  Regardless of the stated reason, it is the same protectionist argument that David Hume and Adam Smith fought against centuries ago.  It is the same argument made against bank branching in the early 20th century.  In each and every case, the result is that cost of protection exceeds the benefits.

The greatest strength of US Higher Education is that there is free and open competition.  Unlike the failing public K-12 system, where students are assigned to schools, US colleges and universities must persuade customers to freely opt for one’s school.  This competition ensures higher standards and lower costs.  Increasingly, each decade the government erodes this market connection through tax subsidies, grants, and so forth, but nevertheless, the link still exists.  At UMO, we are very aware of the importance of each and every student.  These students consciously choose to enroll with us and not somewhere else.  It is difficult enough to compete with institutions that benefit from the taxes that come out of my paycheck.  And it is beyond enraging to learn that we are banned from competing across state lines.  Nevertheless, I am optimistic.  Technology seems to find interesting ways around bureaucratic obstacles. 

The best solution is to extricate government from the higher education market.  Although such a goal may be wildly optimistic, we can at least do away with these State Authorization laws.  When the crisis hit the financial markets in the early years of the Great Depression, the result was that more than 9,000 banks closed their doors forever.  It is no secret that today there is a bubble in Higher Education.  If schools are unable to properly diversify, I shudder to think about how many Alumni will have degrees from schools which will no longer exist?

Wednesday, August 21, 2013

A Course in Free Markets

This year I was asked to put together a class that does not shy away from the virtues of the free market.  This Summer I was speaking at Clemson University for the Foundation for Economic Education (FEE) and I showed my course outline to Larry Reed, the President of FEE.  After looking at it, he not only liked it, but asked if I could make the outline widely available.  And so here it is, my economics course that argues that Free Markets are a good and moral system that creates good character and expands societal wealth and living standards.  I hope you like it and if you have any comments, please feel free to do so.

Tentative Course Outline:     

WEEK #1     Read Part I: “Non-Contradiction” of Atlas Shrugged
     Morality of Markets

1.                “The Economic Foundations of Freedom,” by Ludwig von Mises, in Economic Freedom and Interventionism: An Anthology of Articles and Essays, 1990, pp. 3-10.  Found here: http://mises.org/efandi/ch1.asp

2.                “Liberty and Dignity Explain the Modern World,” by Deirdre N. McCloskey, in The Morality of Capitalism, 2011, pp. 27-30.  Found here: http://atlasnetwork.org/wp-content/uploads/downloads/2011/10/The-Morality-of-Capitalism-PDF.pdf

3.                “The Intellectual Defense of Liberty,” by Walter E. Williams, October 1, 2007.  Found here: http://www.fee.org/the_freeman/detail/the-intellectual-defense-of-liberty#axzz2Rt0sMHqQ

WEEK #2

4.                Honesty and Trust,” by Walter E. Williams, February 1, 2005. Found here: http://www.fee.org/the_freeman/detail/honesty-and-trust#axzz2Rt0sMHqQ

5.                “Competition and Cooperation,” by David Boaz, in The Morality of Capitalism, 2011, pp 31-36.  Found here: http://atlasnetwork.org/wp-content/uploads/downloads/2011/10/The-Morality-of-Capitalism-PDF.pdf

6.                “Ayn Rand and Capitalism: The Moral Revolution,” by David Kelley, in The Morality of Capitalism, 2011, pp. 69-.  Found here: http://atlasnetwork.org/wp-content/uploads/downloads/2011/10/The-Morality-of-Capitalism-PDF.pdf

7.                “The Elite Under Capitalism,” by Ludwig von Mises, in Economic Freedom and Interventionism: An Anthology of Articles and Essays, 1990, pp. 18-25.  Found here: http://mises.org/efandi/ch3.asp

8.                “The Market Economy and the Distribution of Wealth,” by Ludwig Lachmann, in The Morality of Capitalism, 2011, pp. 87-95.  Found here: http://atlasnetwork.org/wp-content/uploads/downloads/2011/10/The-Morality-of-Capitalism-PDF.pdf

LABOR DAY September 2nd -- NO CLASS

WEEK #3
     Counter-Factual Reasoning

9.                 “The Lesson,” by Henry Hazlitt, Economics in One Lesson, 1946, Ch 1 pp. 3-7.   Found here: http://library.mises.org/books/Henry%20Hazlitt/Economics%20in%20One%20Lesson.pdf

10.             “The Broken Window,” by Henry Hazlitt, Economics in One Lesson, 1946, Ch 2 pp. 11-12.   Found here: http://library.mises.org/books/Henry%20Hazlitt/Economics%20in%20One%20Lesson.pdf

11.             “The Candlemakers’ Petition,” by Frederic Bastiat, in Economic Sophisms, part 1, 1845.  Found here: http://www.fee.org/the_freeman/detail/the-candlemakers-petition#axzz2Rt0sMHqQ

12.             Bastiat “Something Else,” by Frederic Bastiat, in Economic Sophisms, part 2, 1848.  Found here: http://www.fee.org/the_freeman/detail/something-else#axzz2Rt0sMHqQ

WEEK #4

13.             “I, Pencil,” by Leonard Read, 1958. Found here: http://www.fee.org/library/books/i-pencil/
     Methodological Individualism

14.             “The Individual in Society,” by Ludwig von Mises, excerpted from Human Action, 1966. Found here: http://www.fee.org/the_freeman/detail/the-individual-in-society#axzz2Rt0sMHqQ

15.             “The Class Struggle,” by Ludwig von Mises, Theory and History, pp. 112-122.  Found here: http://mises.org/document/118/Theory-and-History

TEST #1  September 11th

WEEK #5                   Movie: Atlas Shrugged Part I

WEEK #6     Read Part II: “Either-Or” of Atlas Shrugged
     The Individual and Society

16.             The Law, by Frederic Bastiat, 1950, pages 1-9, 17-21, 24-29 and 63-64.  Found here: http://www.fee.org/files/doclib/20121116_TheLaw.pdf

17.             “Economics and Property Rights,” by Walter E. Williams, January 1, 2008.  Found here: http://www.fee.org/the_freeman/detail/economics-and-property-rights#axzz2Rt0sMHqQ

18.             What Social Classes Owe to Each Other, William Graham Sumner, 1911, Chapters 1 & 2.  Found here: http://oll.libertyfund.org/index.php?option=com_staticxt&staticfile=show.php%3Ftitle=346&Itemid=99999999

WEEK #7                  
     Law of Association / Comparative Advantage

19.             Not a Zero-Sum Game by Manuel Ayau, 2007, Part 1, pp. 23-50.  Found here: http://library.mises.org/books/Manuel%20F%20Ayau/Not%20a%20Zero-Sum%20Game%20The%20Paradox%20of%20Exchange.pdf

WEEK #8                  
     Direct and Indirect Exchange: Supply and Demand

20.             The Mystery of Banking, by Murray Rothbard, 2008, Chapter 2 and Chapter 1. (Yes, read them in reverse order.)  Found here: http://www.mises.org/document/614/Mystery-of-Banking-The

WEEK #9                   MID-TERM  October 14th
     Profit & Loss

21.            “Profit Management,” by Ludwig von Mises, in Bureaucracy, 1962. Found here: http://www.mises.org/etexts/mises/bureaucracy/section1.asp

22.            “Bureaucratic Management,’ by Ludwig von Mises, in Bureaucracy, 1962. Found here: http://mises.org/etexts/mises/bureaucracy/section2.asp

WEEK #10

23.            “What Is Profit?” by Fred Foldvary, 2012.  Found here: http://www.fee.org/the_freeman/detail/what-is-profit#axzz2Rt0sMHqQ
     Effects of Markets

24.            “The Economic Role of Savings and Capital Goods,” by Ludwig von Mises, in Economic Freedom and Interventionism: An Anthology of Articles and Essays, 1990, pp. 26-30.  Found here: http://mises.org/efandi/ch4.asp

25.            “Luxuries into Necessities,” by Ludwig von Mises, in Economic Freedom and Interventionism: An Anthology of Articles and Essays, 1990, pp. 31-32.  Found here: http://mises.org/efandi/ch5.asp

26.            “Political and Economic Freedoms Together Spawn Humanity’s Miracles,” by Temba Nolutshungu, in The Morality of Capitalism, 2011, pp. 96-99.  Found here: http://atlasnetwork.org/wp-content/uploads/downloads/2011/10/The-Morality-of-Capitalism-PDF.pdf
     Critiques of the Welfare State

27.            “Middle-of-the-Road Policy Leads to Socialism,” by Ludwig von Mises, April 18, 1950.  Found here: http://mises.org/daily/2370

WEEK #11

28.            “Tragedy of the Welfare State,” by Tom G. Palmer, in After the Welfare State, 2012, pp. 5-14. Found here: http://studentsforliberty.org/wp-content/uploads/2012/06/After-the-Welfare-State-PDF.pdf


WEEK #12                 TEST #2  November 4th


WEEK #13                 Movie: Atlas Shrugged Part II

Read Part III: “A Is A” of Atlas Shrugged

29.            “The Welfare State as a Pyramid Scheme,” by Michael Tanner, in After the Welfare State, 2012, pp. 91-96. Found here: http://studentsforliberty.org/wp-content/uploads/2012/06/After-the-Welfare-State-PDF.pdf

WEEK #14

30.            “The Evolution of Mutual Aid,” by David Green, in After the Welfare State, 2012, pp. 55-65. Found here: http://studentsforliberty.org/wp-content/uploads/2012/06/After-the-Welfare-State-PDF.pdf

31.            “Mutual Aid for Social Welfare: The Case of American Fraternal Societies,” by David Beito, in After the Welfare State, 2012, pp. 67-88. Found here: http://studentsforliberty.org/wp-content/uploads/2012/06/After-the-Welfare-State-PDF.pdf
 

WEEK #15                 (finish #31)

THANKSGIVING November 27th – NO CLASS

WEEK #16

32.            “How the Right to ‘Affordable Housing’ Created the Bubble that Crashed the World Economy,” by Johan Norberg, in After the Welfare State, 2012, pp. 97-105. Found here: http://studentsforliberty.org/wp-content/uploads/2012/06/After-the-Welfare-State-PDF.pdf 

33.            “Greece as a Precautionary Tale,” by Aristides Hatzis, in After the Welfare State, 2012, pp. 21-30. Found here: http://studentsforliberty.org/wp-content/uploads/2012/06/After-the-Welfare-State-PDF.pdf

 

Monday, June 3, 2013

A Health Care "I Told You So"

I normally do not post these sort of things, but there is some degree of satisfaction when you are proven right.  And so this is bittersweet since the prediction was for the worse.

In June 1st edition of the Raleigh News & Observer, an article states the following:

"McCoy Faulkner collects $81 a day as a substitute teacher in the Wake County Public School System. A mere sub, he has no benefits.  
"The 62-year-old former Raleigh police officer shells out $580 a month for an individual insurance policy, more than half his monthly pay. The full-time teachers for whom Faulkner fills in, however, are eligible for free health insurance, with no monthly premiums, through their employer. 
"That’s why Faulkner was looking forward to the Patient Protection and Affordable Care Act, figuring he was the kind of person that the health care reform law was designed to help. Under the new law, anyone who works 30 hours or more a week for a large business will be eligible for employer-sponsored health care. 
"But instead of adding subs like Faulkner to its health care plan, the school system is looking for ways to avoid doing so. Wake is considering restricting its 3,300-plus substitutes to working less than 30 hours a week, effective July 1. 
"The reason: If just a third of the system’s subs were to qualify for employer-sponsored insurance, it would cost Wake schools about $5.2 million, chief business officer David Neter said."
The lesson is to think about the secondary consequences of a policy.  To evaluate any policy, we always must ask, "What are the incentives that are faced by the decision makers?"  Clearly this substitute teacher did not manage to think beyond "step one."  And so now his position goes from bad to worse. 

Read more here: http://www.newsobserver.com/2013/06/01/2932880/some-nc-employers-cut-worker-hours.html#storylink=cpy

Wednesday, March 27, 2013

A Painting of Cantillon?

This past weekend I attended the Mises Institute for the Austrian Economics Research Conference (formerly ASC).  First I should say that the Mises Institute has put together another great conference.  I believe that I have missed only one ASC since the beginning (and that was because I was at another Austrian Economics Conference in Prague). 

Of all the papers presented there, the most interesting (at least to me) was the one presented by Mark Thornton.  He has been attempting to solve an almost three centuries old mystery surrounding the most mysterious economist of all--Richard Cantillon.  Cantillon made his fortunate in John Law's bank during the South Seas Bubble and managed to get out just before the collapse, leaving him one of the wealthiest men in the world. 

After making his fortune he penned Essai sur la Natur du Commerce en Général.  We are not exactly sure when it was written, but estimates put in the late 1720s or early 1730s.  It is an important book not only because it is one of the few that Adam Smith actually cites, but it is actually a better explanation of basic economic principles than Smith's  Wealth of Nations.  (While some may argue that Smith is better, but Cantillon at doesn't lapse in a labor theory of value like Smith did.)

Now to add a twist, there is a mystery surrounding his death.  Was he murdered and the house burnt to cover up the crime?  Or did Cantillon fake his own death to live out the rest of his life in Bora-Bora or somewhere in South America?  We may never know.

Another mystery is what did Richard Cantillon look like?  How can there not be a painting of such a wealthy man?  It is at this point that Thornton's paper "A Man and his Family" jumps into the picture.  Thornton's paper is posted here, and the audio of the session is here as an mp3 audio.  Or you can follow this link.


Many scholars have been looking for such a painting with no luck.  It is at this point that Thornton picks up the detective story.  Thornton has been looking for a picture of Cantillon for the past 10-15 years.  The last time he was at the Louvre may prove to be the big break he (and all of us) have been hoping for.  He might have made the big discovery.  Thornton argues that the painter, Largillière, knew and painted Cantillon, his wife and daughter.  I freely admit that I am biased and have a low threshold of proof on this matter, nevertheless, I am cautiously optimistic.

Here is the painting that Thornton claims is Cantillon and his family.



Thornton claims that it was painted around 1730, which would be the correct time.  In fact, he also found a painting from 1720 also by Largillière, entitled "Portrait of a 'Gentleman.'"  And it is this...


It is clearly the same man.  He is younger and while wearing very expensive clothes, his shirt is undone.  It is a sign that he is a part of the "nouveau riche."  That could very well fit Cantillon and his rise in status during the up swing of the bubble.

Who knows for sure if this is Cantillon or someone else, but I'd like to think that it is him.  The next step is to compare the wife in the portrait above with a painting which positively identifies Mary Anne Cantillon.  So all we need to do is get some expensive facial recognition equipment, fly to Paris and ask very politely to test these paintings.  I'm sure that the French will have no problem with that!  ;-) 

Thursday, March 7, 2013

Solving Environmental Problems Through Economics

While my passion lies with Austrian Economics, I also find Environmental Economics fascinating.  (Of course, these two areas are not mutually exclusive and are often quite compatible,)  The reason why I like environmental economics so much is because it is so different from the normal use of economics.  It forces one to think (sometimes radically) out of one's comfort zone.

One of the major problems in environmental economics is non-point source pollution.  In other words, it is a type of pollution where the source is hard to identify.  A smoke stack or a drain pipe are examples of point-source pollution.  You can see the "point" where the pollution emanates from.  However, when it comes to some things such as agricultural spraying, determining which farm is causing the run-off pollution down-stream is much more difficult.

When I have been asked by my students how a market society would handle these problems without government regulation,  I would say that technology would find a way.  For example, when explosives are manufactured an inert identifier is added to the mix.  This way bomb residue experts can trace the manufacturer and lot number of the exploded material.  So why not employ similar technology to pesticides and other sprays?  That way, we can monitor down-stream and say that x% of the pollution is coming from Y's farm, and so on.

An unexpected development has arisen along these lines.  

Many people are worried about hydraulic fracturing or "fracking."  This is a process where shale is layered underground.  Between these many, tiny, thin layers is oil and natural gas.  The problem is how to extract the oil and natural gas because the layers are so thin that pumping from a single layer is inefficient.  The answer is to pump water into the area so that the layers are broken up and the oil  and natural gas can be profitably extracted.  The process mostly uses water to break up the shale layers, but an amount of hydraulic fluid is also used in the drilling process.  The worry is that this fluid along with the oil and gas might leach into the ground water.  While the science shows that this possibility has low risk, the fear is real.

And now the market solution.

A company, BaseTrace--which is based in the Research Triangle Park, NC, has developed an inert material that can be added to the hydraulic fluid so that if any leaching into the water table occurs, we can trace it back to the specific well.  That means that if there is a problem, we can identify where the problem is occurring and who is responsible.  For this to work, the amount of tracer needed is about a thimble full.  Amazing.

And possibly the most remarkable thing about this company is that it is run by 2 full-time and 3 part-time employees, all in their 20's.  I am encouraged that theories that could only imagine happening are being developed and employed by recent college graduates.

Monday, February 25, 2013

A Very Marxist Movie

With utter and complete disregard of the Oscars yesterday, I watched a movie....

I watched one of the most Marxist movies I have seen in a long time.  Fortunately, it was also a terrible movie.  It's called, "In Time" (2011) with Justin Timberlake and Amanda Seyfried.  I won't get into anything that a normal movie critic would look at like acting or cinematography; I'll concentrate on what I know--economics.

The story takes place in a dystopic future.  Normally, I love dystopic movies because usually they are about an oppressed people who throw off their chains and fight for freedom.  While this movie is about an oppressed people, who throw off their chains, it is a world in which the Marxist vision of capitalism is alive.  The rich are parasites that feed off the poor and that system must be overthrown.

So here is the premise of the movie...

People have been genetically modified so that they stop aging at 25 years, what you look like at age 25 is locked in.  (Amazingly, everyone is gorgeous.  I don't remember 25 like that, but I guess my memory has faded with age.)  When one reaches 25, numbers on your left arm light up and start counting down from 1 year.  If they reach zero, you die.  Fortunately, time can be added and subtracted.  As a result, time has become the medium of exchange.  Literally, time is money!

In a classic Marxist perspective, society is divided up into distinct "Time Zones" or socio-economic classes.  The ghetto (zone 12) is populated by the poor who labor day-to-day barely scrapping by, whereas in the rich district of New Greenwich, the rich live idle lives.  In fact since they have all the time in the world (again literally!) they are accused of not actually living at all.

The "hero" explains that prices rise for no apparent reason.  The cup of coffee's price was 4 minutes, but then jumps up to 5 minutes the next day.  A bus ride was an hour, but now has a price of 2 hours.  As a result, the hero's mom is (in a tragic and supposedly heart-wrenching scene) the first shown to die when time runs out. Actually, I didn't feel all that bad, mostly because the movie was terrible.  Or is it because I am not a Marxist?  hmm...

The plot moves forward when the "hero" helps a rich guy slumming it.  His name is Henry.  Henry is tired of living and is contemplating suicide even though he has over a century on his clock.  The movie shows its true Marxist colors in the following exchange between Henry and the "hero" Will.


Henry Hamilton: For a few to be immortal, many must die. 
Will Salas: What the hell is that supposed to mean? 
Henry Hamilton: You really don't know, do you? Everyone can't live forever. Where would we put them? Why do you think there are time zones? Why do you think taxes and prices go up the same day in the ghetto? The cost of living keeps rising to make sure people keep dying. How else could there be men with a million years while most live day to day? But the truth is... there's more than enough. No one has to die before their time. If you had as much time as I have on that clock, what would you do with it? 
The point is that the population is increasing and so prices (from an assumed Central Planner) rise to reduce the surplus population. The result is a transfer of time (wealth) to the rich.  And so the rich get richer by stealing from the poor.

However before Henry kills himself, he gives the "hero" over 100 years.  Our "hero" then goes to the capital to experience the life of the idle rich.  He gains even more years by playing poker and meets Amanda Seyfried.  After romancing her, the cops come along and accuse him of stealing the rich guy's time.  After the usual escape and chase action found in Hollywood movies, Timberlake and Seyfried's characters decide to get back at the rich.  They use guns (Oh Hollywood!) and start robbing banks.  They redistribute the time to the poor who, of course, selflessly share this time with everyone else who is poor.  They then emigrate out of their zone and cross into the rich zone, thus collapsing the system.  

And if that simply isn't enough Communist preachiness for you, then there is the coupe de grace.  As the "heroes" are robbing the banks, there are a few moments when they ask if robbing the banks are wrong.  The answer is: no, this is not wrong.  They ask, "Is it stealing if it is already stolen?"  Yes, all the rich ever do is steal their wealth.  Yes, Proudhon lives, "All property is theft."  

If this is the sort of movies that Hollywood insists on making, you can see why I skipped the Oscars.

One last note, this movie lost money in the US.  It was budgeted at approximately $40 million and brought in $37.6 million.  So do they simply make it for ideological reasons?  No, because, according to IMDB, Non-US Income was $103.2 million.  Now what does that tell you?  Your guess is as good as mine.

Wednesday, February 20, 2013

Austrian Economics Forum Spring #1 2013 (Part 2)--Buchanan and Artifactual Man

The second reading in the first AEF meeting centered on an article by Buchanan called, "Natural and Artifactual Man."  While this article is found in volume 1 (The Logical Foundations of Constitutional Liberty--1999) of the collected works of James M. Buchanan, Liberty Fund does not have electronic rights to the first volume.  (So I can't link to it, sorry.)

Oddly we started with the end of the article.  In fact Roy Cordato said he posted the last few lines on his Facebook page and someone replied asking why he was quoting a long forgotten President.  (Buchanan immediately preceded Lincoln.)  So what is the last paragraph?

Man wants liberty to become the man he wants to become.  He does so precisely because he does not know what man he will want to become in time.  Let us remove once and for all the instrumental defense of liberty, the only one that can be derived directly from orthodox economic analysis.  Man does not want liberty in order to maximize his utility, or that of the society of which he is a part.  He wants liberty to become the man he wants to become.  (page 259.)
This article is clearly one of the most Austrian of his writings for in it he takes apart mainstream Neo-Classical economic theory.  In Buchanan's words:
My purpose [this article was originally a lecture, hence the informal style], however, is not to criticize particular areas of concentration, but to advance a broad criticism against economic theory generally.  If I may resort to philosophical terms, what I am objecting to in modern economic theory is its teleological foundations, its tendency to force all analyzable behavior into the straitjacket of "maximizing a utility or objective function under constraints."  In one way, I am suggesting that the utilitarian origins of nineteenth-century political economy may have come to haunt us and to do us great danger. (pages 249-250.)
What Buchanan is getting at fits neatly into the Mengerian/Mises tradition.  According to Mises, I act because of a "felt uneasiness."  I envision myself in a better future situation.  According to Menger I imagine my ends and I think of employing means to achieve those ends.  What Buchanan is pointing out is that the very act of accomplishing these ends changes me.  I am no longer the same person I was when I started.  I am able to artificially construct a new me, hence we are all "artifactual."

A few of the examples Buchanan uses are quitting smoking or going on a diet.  "As the smoker abstains, ..., he will find that he does become different from the person that he was.  He preferences shift; he becomes the non-smoker that he had imagined himself capable of becoming."  (page 253)  Under this umbrella, we find "any aspect of human behavior that represents 'civility.'"  This includes more than simply manners and codes of conduct, it contains morals.  (As an aside, it is worth noting that this inculcating and transference was a traditional purpose of a liberal arts education.)

Today, higher-level modern economics has been reduced to essentially a study of pattern recognition.  Modern economists collect data and attempt to find patterns and derive economic laws from regularities that are "uncovered" in the data.  While some economists dress their findings up in Positivism, most economists do not think about these "meta" issues.  They are more concerned with "doing research."

Unfortunately, that approach is ultimately fruitless.  Thomas Tooke, the German Historical School and many others have all gone down this very path.  If economics is truly a social science, if it can contribute to the betterment of mankind and enrich our understanding of our world, we should pay heed to this article.  Buchanan is able to undercut the whole of the utility maximizing model and simultaneously argue in favor of a free and open society.  His method is to essentially adopt the Austrian view of "ends and means" and how Austrians view cost and choice.  (Yes, that was a reference to part 1.)