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Tyler Cowen writes,

An oversimplified version of my view is that anything good is underprovided at the margin. This follows from a belief in strong network and peer effects, and a belief in the relevance of basic sociology.

I think that this is an important part of Tyler Cowen's view. I think it accounts for the differences between Cowen and his Mercatus colleagues, Bryan Caplan and Robin Hanson. Caplan and Hanson are more atomistic in outlook. Theirs is a world of individuals, engaged in first-order self-interested behavior or, when they appear to be behaving irrationally, engaged in signalling.

Tyler's view, which is closer to mine, is that people feed off one another's habits. If someone works hard when they could shirk, this encourages others to work hard rather than shirk. Partly, it sets an example. Partly, it makes it easier to catch other workers who are shirking. For "works hard," substitute "obeys laws," "respects private property," "refrains from engaging in corruption," and many other behaviors. All of them have positive externalities and virtuous cycles, in this view of the world.

Thus, while Caplan or Hanson might be willing to foist some radical idea on society in order to make it more economically efficient, Cowen would worry about potential adverse effects on the social equilibrium. Cutting out a few percentage points of deadweight loss is not such a great idea if it sends society careening toward an equilibrium of cheating and corruption. Having said that, it is rarely the case that one can draw a clear connection between good economic policy and bad social cohesion.

I would not be as kind as Cowen to Dani Rodrik. Rodrik makes it seem as though economists who favor free markets are simple clods who do not understand the many ways in which markets are imperfect.

I agree with Douglass North that of course the neoclassical description of perfect markets is inaccurate, and that is why we have all sorts of institutions, from contracts to consumer information services. Where Rodrik and the economists he admires are simple clods in disagreement with the George Mason school of economics is in taking the view that we must either have perfect markets or government intervention.

I think I can speak for Tyler and Alex, Russ and Don, Robin, and Bryan, as well as myself. The George Mason school of thought on market imperfections is that the best solutions to market imperfections are likely to emerge from the market, not from government.

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CATEGORIES: Economic Philosophy

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The author at The Liberal Order in a related article titled Three Edicts of Economic Thought writes:
    Echoing this explanation by Arnold Kling on three schools of economic thought, here are three [Tracked on August 6, 2007 3:59 PM]
The author at Freedom Democrats in a related article titled Is Hayek the "right way" writes:
    Follow me: Economist Dani Rodrik, writes an [Tracked on August 6, 2007 6:18 PM]
COMMENTS (5 to date)
8 writes:

Both governments and markets are imperfect. Most government solutions at best leave one group better off than another, but net societal welfare has declined due to transaction costs. On the other hand, ideas like this one from Devin Nunes CA-R, make me think:

Kimmitt writes:

The invokation of "net welfare" as though such a statement did not contain in inherent weighting function -- and was therefore normative by definition -- is frustrating to me. Who's to say our weighting functions are the same?

Yun Gao writes:

I believe in the GMU school of thoughts. People who advocate government intervention forget that the Government is run by people (driven by certain incentives) and any decision is made at individual level.
I am learning a lots from the GMU people and enjoy your blog.

Unit writes:

The only accusation of Tyler Cowen's toward Hanson and maybe Caplan that makes sense is that of "reductionism". The others: "atomism", "elitism", etc... don't hold water. When analyzing a complex situation, one can change the problem and try to solve a simpler one, and sometime even a simpler problem that is flawed can still hold some good information. In the hard sciences, one sometimes encounters the opposite. Namely, there are situations where switching to a seemingly harder and more general problem leads to an unexpected solution. What should we call this? "Generalism"?
Anyways, it is my impression that Hanson and Caplan have more fun than Cowen in following logical arguments to their conclusions, whether reductive or generalizing. But I could be wrong.

Robin Hanson writes:

"Anything good is underprovided at the margin" is not clear enough for me to agree or disagree with. And count me as someone who "would worry about potential adverse effects on the social equilibrium" of any big change.

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