David R. Henderson  

My Tribute to Bill Niskanen

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The latest issue of Regulation contains a special section of tributes to the late Bill Niskanen. Scroll down for mine, which is the last. A few excerpts:

The main, though not the only, way that I'll show my respect for Bill is one that he would have appreciated: by reviewing selected parts of his last book, an excellent and eclectic collection of essays entitled Reflections of a Political Economist (Cato, 2008). Anyone who knew Bill knew he could handle criticism, so I won't hesitate to mention those few important points on which I disagree with him. Bill would have expected no less.

He then goes on to criticize "Bacon's chain," which is, quoting Bill, the following chain of reasoning:
[G]overnment financing is necessary to provide the adequate level of basic research, which is necessary to provide the scientific foundation for advanced technology, which accounts for a large part of economic growth.
He proceeds to work backwards from the last part of the chain to the first, blowing large analytic and empirical holes in each link of the chain. On the last link, he points out one of the dirtiest "unsecrets" of economists who study growth: even though we say that technology accounts for more than 50 percent of productivity growth, "'technology' is one of economists' two favorite code words for what they do not understand."
On the middle link, Bill points to evidence that, in the short term, "most technological innovation is based on other advances in technology, with little contribution from recent advances in basic research." On the first link, he notes that economists have treated this claim as self-evident rather than establishing it empirically. He points out that "private finance was the largest source of support [of basic research] until the 1950s," and that separate studies by two prominent economists, Edwin Mansfield and Zvi Griliches, found that firms' profits depended on their own investment in basic science.

I also highlight his thoughtful essays on global warming, "starve the beast," deadweight loss from taxes, European economic prospects, Paul Krugman, and the Iraq war. On the European Monetary Union, here's what Niskanen wrote in 2005:
My own guess is that the European Monetary Union will not survive 10 more years.

He may prove to be right.

I do have two criticisms. Here's one:

Surprisingly, given his strong understanding of the benefits of free trade, Bill makes a simple error in discussing those benefits. In the earlier-mentioned "Alternative Political and Economic Futures for Europe," he writes, "[M]any of the poorer nations of the world have little reason to accept the exports and investments by the industrial countries if they cannot sell us their agricultural products." That's false. Barriers to imports of their agricultural products do hurt them: there's no doubt about that. But accepting "our" exports and investments would definitely help them whether or not we have barriers against their products. This is a small error, though, relative to the numerous insights in this book.


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COMMENTS (3 to date)
Ted Levy writes:

On Niskanan's error: was his point, perhaps, that if the people cannot export their agriculture, they cannot pay for their imports without government intervention or debt, neither of which may be good for them?

[I haven't yet read his book, so I don't know.]

David R. Henderson writes:

@Ted Levy,
He didn’t elaborate, but I’m pretty sure that’s not his point. It’s a well-known finding in economics that, with a highly limited number of exceptions, when you cut off trade, people in your country are, on average, worse off. I think he was making a political point but he should have made it explicitly: that because people in country A don’t understand my point above, it’s hard for their government to justify to residents of country A letting in imports from country B. One thing Bill was really good at was clearly separating politics from economics. He didn’t do that here.

Doug writes:

I haven't read the book so I don't know the context. But perhaps what he meant was they had little political reason, even if the economic case is compelling.

E.g. it might be hard to sell low import duties to the typical Namibian or Bolivian voter, when many of them are farmers and are getting screwed over by Western agricultural policy.

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