Arnold Kling  

More on the Late Paul Samuelson

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A lot of the feeling about him is correlated with how one feels about math. Those feelings range from Robert Lucas (quoted by Tyler Cowen and elsewhere):


I internalized its view that if I couldn't formulate a problem in economic theory mathematically, I didn't know what I was doing. I came to the position that mathematical analysis is not one of many ways of doing economic theory: It is the only way. Economic theory is mathematical analysis. Everything else is just pictures and talk.

to Peter Boettke

Rather than following Mises's Human Action, the economics profession went the path of Samuelson's Foundations. Formalism was intereprted as synonymous with logical rigor, and in the subsequent decade positivistic testing was interpreting as synonymous with empirical analysis. By the 1960s, formalism and positivism transformed the science of economics so that the Misesian understanding of "theory" and "history" was actually completely dismissed as a relic of a pre-scientific age.

...We must always remember that Samuelson was the great anti-Misesian of 20th century economics, and in my book that translates into a force for anti-economics despite all the scientific accolades, awards, honorary degrees, and reverence by his peers

Samuelson himself was interviewed on this issue.

"Like herpes, math is here to stay," he said. "It takes strong math to defeat misleading math...But it does lead to a communication problem. The number of people who can communicate effectively, like Paul Krugman, is very small. I will say something. It won't be a new John Kenneth Galbraith who cleans of the Aegean stables of economics. I think that the big changes in economic doctrines which will be used in the twenty-first century will come from inside the profession."

One may choose to be agnostic on this issue. I myself am pessimistic that there is a methodogical cure for economics. I would say that prior to Samuelson's formalization in economics, there were a lot of papers published that lacked clarity and insight. Now that formalization dominates, we also see a lot of papers that lack clarity and insight. If you compare the most insightful mathematical papers with the average non-mathematical papers, math wins. But one can also run the comparison the other way and reach the opposite conclusion.

To say, as Samuelson did, that change will come from the inside the profession is to predict that change will come from those with a vested interest in the status quo. That strikes me as implausible. Change will come from the fringes of the profession, not from the center. If it comes at all.


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CATEGORIES: Economic Methods



COMMENTS (29 to date)
stephen writes:

I think people tend to forget that math is just a language, a way to express ideas. Thats it. It always helps to have more ways, better ways, to explain your ideas. It does not mean, however, that just because your vocabulary is better that your ideas are.

Of course, since ideas and knowledge are really all about signaling and status, maybe "sounding better" is all there really is.

Philo writes:

*Augean* stables?

Dave writes:

I have dgress in Political Science and History, an MBA in accounting, and a JD. I always loved economics but am no math whiz so the dream of the PhD in economics was quashed long ago.

My concern with Samuelson is not so much the math vs non-math arguments but the fact that his textbook was so pervasive and was, for generations of non economics majors (some soc sci, mosty if not all business majors etc) THE one and only exposure to basic economics. Many of us only learned Keynesian economics - (and Marx in social science classes). Of course, the solution to all so called market failures or any other problem was government intervention and regulation. As for the lectures I remember in the 1980s we never studied or even mentioned anyone other than Keynes in class. I once raised my hand and said something about Milton Friedman - having read Free to Choose a year before, only to be aggressively shot down by my eco 101 professor. Anything other than Samuelson's conclusions were, quite simply, WRONG.
I recently picked up a copy of a mid 90's edition of his text. The statements and conclusions in many parts are unreal - my favorite is where he says that very little US government spending is for welfare. (I'll get the exact page and edition if anyone thinks I'm overstating my case)

All in all I think he was an important to many non-economists because his version of economics was what they were taught.

Does anyone who teaches Economics on the college level (esp intro course) have this same insight? Or is my impression biased?



paul writes:

Samuelson is the poster child for what's wrong with economics. bad assumptions shrouded in intimidating language (math). what has been the efficacy of economics over the last 100 years other than perhaps "confirming" the obvious fact that people acting voluntarily maximize happiness.

thanks, keep up the good work...(sarcasm off)

david writes:

Ironically, the post-Keynesians and Austrians have something in common in railing against the mainstream's focus on mathematical rigor. I don't see either teaming up, though; both have ideological motivations that are a little too transparent.

At least the post-Keynesians seem able to borrow results from behavioral economics and game theory to support their case; the Austrian persistence in trying to pry more out of Mises's axioms seems to me misguided. Stone, blood, etc.

As for math... well. The Austrian attempt to make praxeology respectable next to, and distinguishable from, the Samuelson formalization never got anywhere. I suppose it doesn't help that the latter has benefited from much more intellectual development than the former, but the formalization made it evident about just how annoyingly difficult it is to prove that intervention doesn't work. The Chicago school bites these bullets. The Austrian school prefers to assert that its lack of mathematical rigor shields it from the problems it doesn't like. I don't see this leading anywhere, not when Chicago keeps drawing the newer generations of undergrads who prefer a market ideology.

Cyberike writes:

Mathematics is a useful tool, but economics is far too complex to solve much more than simple problems. Have you ever tried to solve a rate of change equation (like heat or wave motion) with three variables? Solvable, but these are well defined functions with known relationships.

Not only does economics have many more (often very complex) variables, I would argue that economics does not even follow logical rules. There is too much emotion, too much politics, too much illogic (where people do not even do things in their own self interest, particularly in the long run).

Differential equations must have boundary conditions, and the (solvable) solutions follow only a particular form: generally e to the i x.

I am not a math expert, but to try to shoehorn economics into what is solvable does not seem very useful to me at all. To rely on a formula when you do not know all the variables, or how those variables interact in the real world, sounds to me like madness, which could very likely result in a complete breakdown of our economic system.

Oh.

Never mind.

Randy writes:

The changes to the economy will be a surprise to all but a few, and even those few will be just people who guessed right. And that's the problem with a mathematical approach.

Snorri Godhi writes:

When comparing Samuelson to Mises, the first thing that comes to mind is that Mises predicted in the 1920s that the Soviet Union would be a failure, while Samuelson, as late as 1985, claimed that “The Soviet model has surely demonstrated that a command economy is capable of mobilizing resources for rapid growth.”

Both by training and by natural inclination, I tend to put problems into a mathematical framework; I am not satisfied unless I can do so. But, as a non-economist, I have to ask: what good has mathematics done to economics, if it could not even be used to figure out that the Soviet Union was going to collapse?

Apologies to economists for my being blunt.

zefreak writes:

David:

Austrians do borrow insights from Behavioral and Experimental economics (except perhaps those at LvMI, but they would if they bothered understanding it). Behavioral Economics actually fits very well within the Austrian paradigm, and even substantiates both the complexity and subjectivity of utility scales, an important aspect of the Austrian case against intervention.

Austrians mainly focus on the normative philosophy of the major Behavioral Economists (Ackerman, Sunstein et al). While they are often rigorous in their research, these economist often offer naive policy prescriptions that don't even consider their own research on bounded rationality.

It seems that their goal is to 'fix' these cognitive bias and maximize rationality (in the 'driven by thought' sense of the term, not the driven by incentives usage which is found in Austrian literature), even though their very research shows that frames and forms matter.

I find that their naive ethical views drive their policy advice, as much of their research lends credence to the Austrian view of the impossibility of top down utility maximizing.

Jim F. writes:

Change will come from the fringes of the profession, not from the center. If it comes at all.

But Samuelson's own contribution refute this. Samuelson changed the economics professions in a certain way and he was definitely an insider.

Marty writes:

Garbage in, garbage out.

The most elegant math in the world is of no avail if the assumptions and relationships are wrong.

Samuelson may have been a good technician but he got all the big issues wrong.

Ryan Vann writes:

If one really wants to fancy themselves among the technocratic elite of Economics, they would assert that Comp Sci > Math when it comes to languages that best model Economies.

You can simply do much more with computer simulations than a linear regression will ever get you; of course, comp sci does require math.

liberty writes:

"ot only does economics have many more (often very complex) variables, I would argue that economics does not even follow logical rules. There is too much emotion, too much politics, too much illogic (where people do not even do things in their own self interest, particularly in the long run).

...

I am not a math expert, but to try to shoehorn economics into what is solvable does not seem very useful to me at all. " - Cyberke

This touches on a very interesting point: Because people have different risk thresholds and time preferences, some do what they want now, while others do what they will want later, and when the economist does not know which factor will rule --and both, especially given herding effects may drive a particular market and often the two will drive a given market in opposite directions--he may know nothing about the total dynamic of the market.

So, while an economist can say "if its X, then Y happens" for both, if they inadvertently assume one or the other of these directions, they may predict the opposite result than happens, and another part of their model is blamed.

Just a thought.

liberty writes:

"
zefreak writes:

David:

Austrians do borrow insights from Behavioral and Experimental economics (except perhaps those at LvMI, but they would if they bothered understanding it). Behavioral Economics actually fits very well within the Austrian paradigm, and even substantiates both the complexity and subjectivity of utility scales, an important aspect of the Austrian case against intervention.

Austrians mainly focus on the normative philosophy of the major Behavioral Economists (Ackerman, Sunstein et al). While they are often rigorous in their research, these economist often offer naive policy prescriptions that don't even consider their own research on bounded rationality.

It seems that their goal is to 'fix' these cognitive bias and maximize rationality (in the 'driven by thought' sense of the term, not the driven by incentives usage which is found in Austrian literature), even though their very research shows that frames and forms matter.

I find that their naive ethical views drive their policy advice, as much of their research lends credence to the Austrian view of the impossibility of top down utility maximizing."


This is very interesting - I thank you for the thought here because I do think it has an interesting validity.

But, you do not mention institutions - which, although Austrians, in the way you point out, do not focus on the complexity of individual's thinking in their "policy prescriptions" or their theoretical results that comes from their assumptions--their assumption tend to implicitly ignore those things--because they base their models often on just an institutional framework.

On the point of methods and methodology: the non-mathematical may sometimes allow even more lack of declared assumptions though its hard to get worse than most mathematical economists. However, when they do make assumptions explicit (which they often do) Austrian assumptions are institutional and relatively straightforward.

Although they do not focus on a complexity of mindset, many times, they do not rule it out either: they assume only institutional structures, however they assume that these institutional structures dominate actions at least to a significant degree that all-else-equal they may alter outcomes toward the ends that result from the policy that effects them.

In other words: if a policy changes the incentives that result from the institutions in the society (e.g., soften a budget constraint) it is assumed that all-else-equal this will tend toward a certain outcome (e.g., the actors will spend more and take more risk) which in itself says nothing about the other more complex behaviors of the mind--what would behavioral economics say about what these actors would do given softer budget constraints, all-else-equal?

Would behavioral economics suggest that, all else equal, a softer budget constraint would not tend to produce a firm that tends to worry less about costs, take more risks if given chance for risk, and possibly spend more? Or how would this be affected by taking bounded rationality even more into consideration (I think bounded rationality is certainly to be assumed)?

Thanks for engaging this topic. :)

david writes:

Those mocking Samuelson for his statements on the Soviet Union would be wise to remember that most Sovietologists - both economists and political scientists - badly overestimated the strength of the USSR as late as 1991. Samuelson's opinion was correct based on the apparent figures of Soviet GDP growth provided then, which turned out to be overestimates. You can hardly fault someone for having the wrong conclusions when given the wrong data.

To be crass, Hayek also predicted that socialism would rapidly lead to totalitarianism; for all that, Western Europe remains resolutely democratic. And economic freedom does not bring political freedom - the relationship between political and economic freedoms turns out to be complex.

Also, it appears that many commenters here don't really have any idea how math is actually used in economics - the much-mocked vision of economists attempting to model people like atoms, as appealing as it is, isn't actually true. The value in mathematics is in allowing you to make your argument clear, rather than inviting generations of economists to argue over What You Really Meant. There's a reason nobody's really sure what Mises/Hayek/Keynes Really Meant. But such instances are rare in the Samuelson formalization.

Math permits clarity and brevity of argument. An example, written by our gracious host Arnold Kling.

CJ Smith writes:

David, Marty and other math-negative or math-neutral commentators:

The value of mathematics in economics isn't that mathematics will make more accurate or more correct descriptive or normative comments, per se. The value lies in the fact that mathematics forces a logical and process oriented approach to issues, thus making it easier to test for and identify invalid assumptions, spurious methodology, or outright distortions. Mathematics also provides a common frame of reference and common "language" that is generally much less prone to subjective interpretation by the originator and the recipient.

Can mathematics lead to oversimplification of problems and issues? Certainly, but it’s still a better approach than, "People sometimes act complexly or irrationally, so models of their behavior will always be wrong." Additionally, mathematical economics can and has gone beyond simplistic regression analysis, three variable equations, and even calculus. Some of the professors at my university are doing economics research involving feedback loops, hysteresis effects, and multidimensional vector and array analysis. While we may never achieve modelling perfection, advances in economics, mathematics, and computational power should be able to provide better normative and predictive models.

Snorri Godhi writes:

Those mocking Samuelson for his statements on the Soviet Union [...]

I am the only commenter who mentioned the Soviet Union here, and I did not mock Samuelson: I mocked the entire economics profession.

Samuelson's opinion was correct based on the apparent figures of Soviet GDP growth provided then, which turned out to be overestimates. You can hardly fault someone for having the wrong conclusions when given the wrong data.

Mises needed no data at all to correctly conclude that the Soviet Union was a failure. Many other people, not all of them economists, also came to this correct conclusion.

To be crass, Hayek also predicted that socialism would rapidly lead to totalitarianism; for all that, Western Europe remains resolutely democratic.

Western Europe is a bit more socialist than the USA, but you need very sensitive instruments to measure the difference. Also, Western Europe has not been very democratic until very recently. France, Italy, the Netherlands, and Scandinavia were/are one-party democracies. The UK, pre-Thatcher, has tried to combine socialism with democracy, and the result has been an unqualified failure. Spain, Portugal, and Greece have become democratic only in the 1970s. Switzerland is very democratic, and also less socialist than the USA.

I won't discuss Germany, Belgium, etc. because I live in the former Soviet Union, so it's bedtime for me.

Ted Craig writes:

I just read this post after reading another blog using plenty of economics jargon to explain how pulling this lever or that lever will improve the economy (i.e. jobs and spending). The problem is very few people sit down and do the kind of math economists do. Maybe the government and large corporations do it. But not the small businesses that employ most Americans and not the households that do most of the spending. Economists are constructing formulas after the fact to explain why people did what they did.

Carl The EconGuy writes:

Clearly, math can be very useful in cleaning up confusions and imprecision associated with the use of ordinary language. Many ideas in economics have been clarified this way, and Samuelson contributed in important ways. This is good.

The problem comes when mathematical economists insist that math is the *only* language in which economic ideas can/should be expressed instead of being just a tool with its own limitations. A central problem with math as the sole language of economics is that many problems that clearly should be within the sphere of analysis get overlooked because they are not amenable to mathematical analysis, given the limitations of math. If you define economics as those issues that are tractable with math, you've narrowed the sphere of analysis too much.

For example, DSGE models are void of any institutional context -- no firms, no banks, no stock market because there is no math to derive them endogenously in the model and, besides, there is no rationale for them inside the model anyway. There is no money in any GE model, because endowments are swapped instantaneously when the equilibrium price vector is announced -- GE models are barter models by assumption. Nominal values are irrelevant in DSGE models. Asset prices are determined by full information (plus some risk variance) present value calculations. Agents are identical.

All of these simplifications are required to keep the math manageable, and they remove macroeconomics so far from reality that it's not even a skeleton remaining, only pieces of articifical plastic that don't look like anything. You get models that can be calibrated only within a narrow spectrum of empirics.

The result is a system of hundreds of equations buried inside obscure computer models that cannot even explain the current economic crisis ex post. The models are squished into the math language, and leave many, perhaps most, relevant questions outside.

So too much math is not good either. The best understanding of the current macroeconomic situation does not come from economists wedded to math. DSGE models should be buried, and stakes driven through their cores.

Some balance is required. Macro, in particular, is completely out of balance as it stands right now.

zefreak writes:

liberty:

Thank you for your response, I found much of what you say about institutions interesting and I agree that Austrian research is heavily rooted in institutional analysis and the incentives they create (and rightfully so). This means of course that the underlying motivation of the actor is unimportant, as it is the incentive structure that is questioned rather than the particular end.

As per the rest of your post, if I may clarify a few things and eliminate a potential misunderstanding.

My last three paragraphs were not directed at Austrian economists but the 'libertarian paternalism' of pop-behaviorist literature such as Nudge. Many of the well known behaviorist researchers seem to share these views, and their policy proposals betray an incomplete understanding of the implications of bounded rationality.

As an example, Behavioral Economists criticize neoclassical economics for ignoring what is known as 'anchoring bias'. This is partially a strawman, as neoclassical economics 'rightly understood' (Bryan's phraseology) does not really make the mistake, but many in the field do fall victim to it. Anchoring bias is the cognitive shortcut of using relative rather than absolute measurements.

For example, a naive rational choice model would submit that $1 million dollars is better than $500 thousand dollars, and that a rational person would choose the former rather than the latter. However, Behaviorists (and Austrians) argue that such simple comparison of magnitudes doesn't take into account the unique psychological 'frame' of the individual, such as accepting lower absolute magnitudes of compensation in exchange for a greater magnitude relative to other people.

So obviously, frames matter. However, the Behaviorists that subscribe to libertarian paternalism seem to forget this fact. They focus on the fact that cognitive bias affects choices in a way that, to a (naive) rational being, is sub-optimal. Their policy proposals generally ignore the way that even interventions that seem harmless can affect action. Think of a child wanting to clean his room of his own accord and then being told that if he doesn't clean his room he will be punished. That sure dampened my cleaning spirit as a child!

Ultimately, I find behavioral and experimental research to substantiate many Austrian and subjectivist theories. I think a synthesis of behavioral research is both possible and necessary.

Simon Kinahan writes:

We see a lot of papers published in X that lack clarity and insight, for all values of X.

Norman writes:

Carl, you've obviously not read any DSGE papers in the last five years or so. I've seen multiple articles using every single aspect of reality you assert must be assumed away.

While I agree that there should be a better balance between intuitive discussion and mathematical precision, blatantly misrepresenting the opposition is a guaranteed way to be sure your views aren't taken seriously. If you're going to attack straw men, you have to at least be more cunning about it.

I think Marty is right that Samuelson's great contribution was as a technician, which I think was a step in the right direction. I'm sure that few here would complain about all the math that meteorologists and climatologists use, their often faulty predictions and erroneous interpretations of data notwithstanding.

Mathematical econ allows us to not only know exactly what an author means, but why their beliefs (assumptions) lead to the conclusions they do and in many cases when the empirical implications are not found in evidence, which assumptions failed. As we're all aware, though, the discipline has gone astray in viewing technical prowess and good ideas as substitutes rather than complements.

Snorri Godhi writes:

PS: after watching Arnold Kling's and Nick Schulz' interview on Reason TV, I'd like to qualify my statement above:

I did not mock Samuelson: I mocked the entire economics profession.

Should have been: the entire economics 1.0 profession.

liberty writes:

"Those mocking Samuelson for his statements on the Soviet Union would be wise to remember that most Sovietologists - both economists and political scientists - badly overestimated the strength of the USSR as late as 1991."

Many Sovietologists badly overestimated their *military* strength, and *political strength* but those studying the Soviet economy (e.g., Nove, Davies, Harrison, Wheatcroft, Kornai, Rutland, etc.) could see how badly it was mangled.

"Samuelson's opinion was correct based on the apparent figures of Soviet GDP growth provided then, which turned out to be overestimates. You can hardly fault someone for having the wrong conclusions when given the wrong data."

Except that (1) all those named above could tell you those numbers were fakes, (2) the whole problem with mathematical economics is the static models and the aggregate numbers--even if GDP growth *was* 10% or whatever, does this mean the economy was efficient? Does it mean that the people's demands were being supplied? It turns out NO, it does not. And Mises and Hayek (and all the economists that came before them) could tell you that, because it does not take a lot of economic theory--just a basic understanding of supply and demand--to see that. However, Samuelson could not see that. He also failed to see that year after year, decade after decade, despite these figures of 10% GDP growth and better, the Soviet economy remained the same relative size compared to the US. That, sorry to say, requires some serious blinders.

"To be crass, Hayek also predicted that socialism would rapidly lead to totalitarianism; for all that, Western Europe remains resolutely democratic."

Hayek argued that *socialism* requires totalitarianism. How did he define *socialism*? Hayek defined socialism as "common ownership of the means of production." Despite what people call Western Europe today, it does not have common ownership of the means of production--does it? Does the state own all the manufacturing facilities, banks, transport, supermarkets, etc?

liberty writes:

zefreak -

Ah, my mistake. I'd thought that was all aimed at Austrians. In the case of libertarian paternalism, I tend to agree. Although, I suppose it is worth contemplating why we might see *institutions* that create incentives differently from *policies* that create incentives: are the institutions always right? How do we know private property institutions are perfect for every situation, and there cannot be certain cases where the policy-drive incentives would not be better?

The neoclassical approach that finds "market failure" has an answer to this--based on static models that are completely unrealistic, it picks out the certain situations in which policy-driven incentives are "better" than the incentives of pure property institutions.

Austrians do not really answer this question well. Chicago explicitly says that markets are perfect, but Austrians reject this "perfection" as an end state--and point to the never-in-equilibrium aspects that explain what static models label imperfections--but they do not then explain how they can be sure that the incentives of the basic private property institutions will always be better than those introduced by well-meaning libertarian paternalists who may be trying to overcome e.g., behavioral irrationalities.

Libertarians have an answer: coercion bad. But Austrians wave their hands and talk about the dynamic economy--which is valid when it comes to a lot of policies: the policy is intended to "fix" a "market failure" like profit or something, which is actually key in the dynamics of the market, for growth and response of supply to demand, etc. But is this valid when it comes to libertarian paternalism for example?

Of course, there are other answers, e.g., Mario Rizzo argues that the paternalist does not have enough knowledge: http://works.bepress.com/mario_rizzo/29/

Snorri Godhi writes:

Liberty:
Hayek argued that *socialism* requires totalitarianism. How did he define *socialism*? Hayek defined socialism as "common ownership of the means of production."

Actually, I don't think that this is accurate: Hayek recognized that nazi totalitarianism had its roots in the "collectivist" cultural climate of Germany -- where "collectivist", or "socialist", does not imply common ownership of the means of production.

Hayek also feared that the "socialism" of the 1945 Labour Party would lead Britain in a totalitarian direction. Few people seem to remember today that Britain had less economic freedom than most of Western Europe between ww2 and Thatcher. Since Britain did not become totalitarian, Hayek might seem to have been wrong -- but actually I think that post-ww2 Britain gives the strongest evidence for the Hayek/Friedman hypothesis, that democracy requires economic freedom. When British socialism faced collapse in 1979, the Labour Party could have saved socialism by abolishing democracy, but they chose to save democracy instead. That they had to make the choice shows that Hayek was right.

Other European countries that had a British level of central planning were less democratic; e.g. in Sweden the Social "Democratic" Party had a near-monopoly of political and media power.

liberty writes:

Snorri Godhi:

Fair enough. There is a distinction between what Hayek said about planning and socialism-per-se and what he said about interventionism and the movement toward socialism, and what happens when you allow it to go all the way (as you say, there is a choice at some point).

I just get frustrated when people say that Hayek said socialism (undefined by this critic) means totalitarianism "and yet X country is not totalitarian, and I have decided that it is socialist" (despite not defining what socialism was to Hayek).

If, on the other hand, you say that Hayek argued that each incremental piece of public ownership is a piece less of freedom and more of government power and control and hence the more socialist you are the more totalitarian you will be -- I am not sure you can find this in him, but surely you could find this in Rothbard -- then this is a different argument, and in order to defeat it you could not point to a non-totalitarian but "semi-socialist" country as proof against it. You'd have to find a more-socialist but less-totalitarian country than another country (less-socialist and more-totalitarian).

The only problem with this is it is very difficult to add interventions and determine relative "semi-socialist" and relative "semi-totalitarian" levels, and people will disagree. However, the really clear cases tend to support this hypothesis - as can be easily evidenced by looking at "human rights and liberties" indexes alongside "economic freedom" indexes. And also, its the purest common sense.

zefreak writes:

Liberty:

Thank you for your thoughtful responses. You have picked up on a very interesting idea, that of analyzing policy and its system of incentives similarly to those of institutions. At a fundamental level, I do not think there is a difference. Private property is itself a politically crafted institution (albeit developed via evolutionary process. Hume and Hayek are both insightful on this point) and so can't be strictly differentiated from 'softer' regulations like rent control or reserve limits. In the case of private property and free trade of property titles, the institutions created did have meaningful incentives, such as internalizing cost and allowing such complex processes as the division of labor.

(I just want to be clear that when I say private property is political policy, I do not mean that it was crafted top down by some form of government. Rather I mean that, while developed through centuries by those societies whose benefits it discovered, it requires a territorial monopoly via a legal system that protects its claims and is therefore political in nature)

The problem I have with libertarian paternalism is similar to the knowledge problem with some public choice thrown in: firstly, their regulatory nudges can affect behavior in unpredictable ways, and (according to their own research) can diminish the agents satisfaction even if the stated goal is achieved if it does not adequately and completely take into account the motivations and frames of the individuals.

Secondly, there are public choice arguments against such 'soft' regulation. I won't go into details, but I probably shouldn't have to on this website :)

Ultimately, these are largely practical and not theoretical objections. It is certainly possible, perhaps probable that there are policies that would shape incentives in such a way as to increase on average the wellbeing and happiness of the average individual. In the absence of complete knowledge however, including the unobservable knowledge of preference and frames (except through action, I am definately Misenian in that regard), I am skeptical of additional regulation and default to the regulatory system (basic private property) that best supports the discovery process.

I also didn't mean to solely pick on Behavioral Economists for their policy proposals. Austrians of the Rothbard/natural law variety can definitely share the blame of naive normativity :)

Snorri Godhi writes:

Liberty: thank you for your reply. Basically, I agree with you. I just wanted to buttress your position, as it were, against the possible attack that Hayek did fear that even British Labour was a slippery slope to dictatorship.

One more word of caution: Hayek and Friedman did not say that it is impossible to have economic freedom in a dictatorship. (Although, again, common sense suggests that you cannot have a total lack of human rights and freedom of speech, if you have economic freedom.)
Therefore, finding that country X (say, pre-Thatcher Britain) is more socialist AND more democratic than country Y (say, Hong Kong) does not prove that Hayek and Friedman were wrong.

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