Utopia, you are standing in it!

First, it was the Keynes v. Hayek rap video, and then came the even more vulgar and tasteless Keynes v. Hayek sequel video reducing the two hyperintellectuals to prize fighters. (The accuracy of the representations signaled in its portrayal of Hayek as bald and Keynes with a full head of hair when in real life it was the other way around.) Then came a debate broadcast by the BBC at the London School of Economics, and then another sponsored by Reuters with a Nobel Prize winning economist on the program arguing for the Hayek side. Now comes a new book by Nicholas Wapshott Keynes Hayek, offering an extended account of the fraught relationship between two giants of twentieth century economics who eventually came to a sort of intellectual détente toward the end of Keynes’s life, a decade or more after a few years of really intense, even brutal…

Below is Mark Pennington’s first guest post.  As you can see, it will be an interesting week! – GC

Mark Pennington

I am delighted to have been invited to contribute as the guest blogger on Pileus this week and to air some of the central ideas in my new book, Robust Political Economy: Classical Liberalism and the Future of Public Policy. At the core of this book is a very basic but oft neglected idea – ‘failure’ is endemic to all social institutions because human beings are imperfect. By far the most important imperfection is that people are cognitively limited and thus they make mistakes. Robust institutions, therefore, are not those that eliminate failure, but those that reduce the consequences of inevitable human errors. Before we determine that a particular set of institutions ‘fail’ meanwhile, we must explain how and why an alternative set of institutions can do better.

Many have long believed that big government helps the poor at the expense of the wealthy. But back in the glory days of economics at the University of Chicago Aaron Director noticed a recurring theme in the way democracies cut the pie. Given the power to tax and redistribute, you might expect those on the bottom (plus one to gain a majority) would form a coalition to snatch away the wealth of the top 49 percent. But this doesn’t happen. Director teased out why: forming a winning coalition requires intelligence, effort, organization, endurance, resources, indignation…capabilities the poor simply do not have. This is part of the reason why they’re poor, after all. For the very same reasons they struggle in a free market, they fail in the political market too. By Director’s logic and contrary to popular belief, the big jackpot winners in democracy are the members of the motivated…

| Peter Klein |

Longtime readers of this blog expect skepticism about behavioral social science. One of my issues is the assumed, but unexplored, assumption that private actors and market institutions cannot deal with behavioral anomalies, and therefore government intervention is necessary to make people act “rationally.” But if we can really improve health outcomes by putting the chocolate cake behind the carrot sticks in the display case, why wouldn’t profit-seeking entrepreneurs exploit this fact? Consumers pay substantial price premiums for organic produce, grass-fed meats, and other healthy products, even when the purported health benefits are long-term and uncertain. Wouldn’t some patronize the behavioral-economics-influenced grocer? “Our shelves are arranged to encourage healthy food choices.” Add earth tones, hipster music, an onsite juice bar, and the place will make as much money as your local Whole Foods.

To be a little less flippant: consider adverse selection theory. Many people misread Akerlof’s famous paper as a…

via http://xkcd.com/882/

Sunday, July 29, will be the second anniversary of the sudden passing of Earl Thompson, one of the truly original and creative minds that the economics profession has ever produced. For some personal recollections of Earl, see the webpage devoted to him on the UCLA website, where a list of his publications and working papers, most of which are downloadable, is available. Some appreciations and recollections of Earl are available on the web (e.g, from Tyler Cowen, Scott Sumner,Josh Wright, and Thomas Lifson).  I attach a picture of Earl taken by a department secretary, Lorraine Grams, in 1974, when Earl was about 35 years old.

I first met Earl when I was an undergraduate at UCLA in the late 1960s, his reputation for brilliant, inconclastic, eccentricity already well established. My interactions with Earl as undergraduate were minimal, his other reputation as a disorganized and difficult-to-follow lecturer…

It’s always nice to be noticed, especially by Paul Krugman. So I am not upset, but in his response to my previous post, I don’t think that Krugman quite understood what I was trying to convey. I will try to be clearer this time. It will be easiest if I just quote from his post and insert my comments or explanations.

Glasner is right to say that the Hicksian IS-LM analysis comes most directly not out of Keynes but out of Hicks’s own Value and Capital, which introduced the concept of “temporary equilibrium”.

Actually, that’s not what I was trying to say. I wasn’t making any explicit connection between Hicks’s temporary-equilibrium concept from Value and Capital and the IS-LM model that he introduced two years earlier in his paper on Keynes and the Classics. Of course that doesn’t mean that the temporary equilibrium method isn’t connected to the…

Last week, I argued that academics face poor incentives. We are rewarded for solving hard problems, but rarely rewarded for simple, but important, problems. On Twitter, Eric Crampton suggested that my argument could be seen as a vote for think tanks as policy vehicles:

There’s a simple logic here. Policy is the whole point of think tanks. In practice, there would probably be a bias in favor of simple solutions as voters and politicians would have a tough time understanding complex solutions.

Still, I don’t see most think tanks as immune from perverse incentives. Rather, they have a different audience that imposes its own incentives. For example, an Atlantic article chronicles the decline of the Heritage Foundation as the primary source of high quality conservative policy work. The story is straightforward, the need for funding made it hard to resist the Tea Party. Heritage flipped on so many issues from…