Bryan Caplan and David Henderson

Institutional Economics

A Category Archive (136 entries)

Economic Possibilities for Our Grandchildren*

Institutional Economics
Art Carden
Samford goes on Fall Break this weekend. In my principles of macro class, we just spent two weeks talking about the institutional causes of the wealth of nations as well as the Solow growth model. As you get ready for... MORE

I'm working on a book I'm co-authoring with Deirdre McCloskey on the economic history of the last few centuries. Here is a choice passage from page 44 of her 2006 book The Bourgeois Virtues: The tempting shortcut of taxing the... MORE

There were, once again, some truly excellent comments on my last post, in which I offered my answers to the questions blockquoted below. Furthermore, Jeanne Hoffman at Heels First Travel--a lawyer by training and a member of the IHS staff--also... MORE

Coase on a Plane, or, an Idea, Recycled

Microeconomics
Art Carden
I agree with co-blogger Bryan that most voters are rationally irrational. My sense is that there are also a lot of voters and people in positions of influence who know just enough economics to be dangerous. As Steve Horwitz and... MORE

Reforming Government as an Institution

Institutional Economics
Arnold Kling
William Galston discusses institutional reforms to make government work more effectively. the time is ripe to push for new fiscal institutions to engage in a long-overdue rethinking of the rules shaping fiscal decisionmaking, to consolidate certain related government functions within... MORE

The Case for a Strong Government Auditor

Business Economics
Arnold Kling
In an essay, I write, An independent auditor has some obvious potential problems. On the one hand, it could be ineffectual if it turns out to be weak relative to the independent agencies, or captured by them. On the other... MORE

James W. Ceaser on the Constitution

Institutional Economics
Arnold Kling
He writes, Legalistic constitutionalism refers to formulas and rules. It makes one think immediately of lawyers and judges spinning elaborate constitutional doctrines and devising multi-pronged "tests." Like ancient Egyptian priests, these legal experts speak an occult jargon that few citizens... MORE

Obama is a Social Darwinist

Behavioral Economics and Rationality
David Henderson
President Obama recently called a House Republican budget plan "thinly veiled social Darwinism." This, incidentally, from a man whose own budget plan was voted down last week in the House by a vote of 0-414. (The vote was on a... MORE

Fukuyama on Acemoglu/Robinson

Books: Reviews and Suggested Readings
Arnold Kling
He writes, They are making almost the identical point to the one made in the 2009 book Violence and Social Orders by Douglass North, John Wallis, and Barry Weingast (NWW), who argue that most underdeveloped societies are what they term... MORE

The Affiliation Heuristic, Continued

Institutional Economics
Arnold Kling
I can use Bruce Schneier's Liars and Outliers as the basis for another take. A basic question in the book is how human society is able to scale above the level where we can all recognize one another. For example,... MORE

Bruce Schneier's Latest Book

Books: Reviews and Suggested Readings
Arnold Kling
It's Liars and Outliers, and I would rate it the best economics book of the year thus far. He writes about his book here and here. Schneier views our lives from the perspective of game theory. Every day, we must... MORE

Fiscal Federalism's Failure

Institutional Economics
Arnold Kling
Below is an excerpt from a video conference with Michael Greve, Reihan Salam, and me on the problems with fiscal federalism in practice. The full half-hour video is here. And, yes, I also created a podcast. It is a good... MORE

Making Taleb's Point

Institutional Economics
Arnold Kling
Frances Beinecke writes, Over the past several weeks, the Food and Drug Administration (FDA) has been in the news for its stance on antibiotic use in farm animals. Yet instead of making good on its 1977 promise to limit these... MORE

Capitalism Without Capital

Institutional Economics
Arnold Kling
John Kay writes, The critical resources of today's company are not its buildings and machines but its competitive advantages - its systems of organisation, its reputation with suppliers and customers, its capacity for innovation. These attributes are not, in any... MORE

Francis Fukuyama on Public Administration

Institutional Economics
Arnold Kling
He writes, anyone who has spent time in government realizes that the real questions that preoccupy officials have to do with implementation, or rather, the impossibility of implementing many desirable policies because of the huge number of constraints under which... MORE

An Economic Bill of Rights

Institutional Economics
Arnold Kling
What should be in it? I think of it as something less than an abstract principle ("everyone has the right to undertake any transaction that does not involve fraud") and something more than a policy proposal. My thinking is that... MORE

Onward towards Snow Crash

Institutional Economics
Arnold Kling
Alex Tabarrok reports, Private cities are happening now for a reason. Africa, India, and China are urbanizing more rapidly than has ever occurred in human history. In Africa, the number of urban dwellers is projected to increase by nearly 400... MORE

Is Russia a "Thug State?"

Institutional Economics
David Henderson
Although the KGB was abolished in 1991 after its chairman, Vladimir Kryuchhov, participated in the failed coup d'etat against USSR president Mikhail Gorbachev, the KGB mentality still thrives. Russian is run by former KGB officials and Kremlin-friendly oligarchs. They control... MORE

Paul Romer on Institutional Reform

Institutional Economics
Arnold Kling
The talk is here. He says things to offend many people, libertarians in particular. For example, he talks about problems that we would call public-choice issues, with for-profit education and health care. That is, he argues that when government is... MORE

Corporations

Institutional Economics
Arnold Kling
I would like to try to answer the question that I ducked at the Disputation on Friday evening. That question was whether corporations should have the same rights as people. One panelist, Lisa Graves, answered "no" emphatically (to loud applause,... MORE

Denmark

Institutional Economics
Arnold Kling
Scott Sumner writes, Denmark is much more decentralized. The same sort of policies adopted in Denmark would work less well in the US, because we are much more centralized, and hence far less democratic (if you define democracy properly, where... MORE

Two Notes on PSST

Macroeconomics
Arnold Kling
1. Some folks on the right are bothered by the term "sustainable" in patterns of sustainable specialization and trade. They seem to be afraid that I am some sort of tree-hugging wuss. Or that I think patterns of trade need... MORE

Foreclosure Mess

Institutional Economics
Arnold Kling
Megan McArdle asks, why aren't libertarians proposing solutions for the foreclosure crisis? Actually, I have written, What has emerged in recent weeks as "the foreclosure scandal" represents the collision of this 21st-century computerized, global financial system with an 18th-century legal... MORE

What Technology Wants

Institutional Economics
Arnold Kling
That is the title of Kevin Kelly's new book. I am only about one-fifth into the book, but I wanted to share an excerpt on the topic of slums. San Francisco was built by squatters. As Rob Neuwirth recounts in... MORE

Evolution, Economics, and Education

Alternative Economics
Arnold Kling
Mike Gibson points to a sequence of posts by D.S. Wilson. They start here (with some broken links in the first paragaph--I needed to use Google to follow up on one of them), and proceeds rather slowly for my taste.... MORE

The Lower Right Quadrant

Institutional Economics
Arnold Kling
In a comment on my eariler post, Paul Seabright writes, Unlike Arnold I'm very interested in the bottom right quadrant, inter alia because historically the boundaries between government and criminal groups have often been very fuzzy. He is referring to... MORE

Paul Romer on Charter Cities

Institutional Economics
Arnold Kling
Excellent discussion between Romer and Russ Roberts. Romer is quite aware that informal norms matter. In terms of my earlier discussion of law and order, he understands that order and law are different things. The question I would like to... MORE

Law and Order

Institutional Economics
Arnold Kling
Bryan writes, It's clear that many existing laws have little or no effect on behavior. An even larger class of laws have little or no effect on most people's behavior. What are the main mechanisms of legal irrelevance? In this... MORE

Unable to Simplify

Institutional Economics
Arnold Kling
Clay Shirky writes, Complex societies collapse because, when some stress comes, those societies have become too inflexible to respond. In retrospect, this can seem mystifying. Why didn't these societies just re-tool in less complex ways? The answer Tainter gives is... MORE

Kling and Schulz on Airline Security

Terrorism
Arnold Kling
We write, The security process needs several things it is lacking. It needs continuous adaptation, with a strong focus on satisfying customers and improving results. It needs to find new and better methods of meeting the demands of customers who... MORE

Rules and Culture

Growth: Causal Factors
Arnold Kling
Tim Kane listens to a talk by Paul Romer, and muses, Romer forces us to accept that rules are very difficult to change. Nations in particular, even when its leaders recognize the need for rules to change, have difficulty making... MORE

Soft Rule-Utilitarianism

Institutional Economics
Arnold Kling
In my follow-up to James Manzi's manifesto, I brought up a notion that I call soft rule-utilitarianism. In the comments, Manzi interpreted this as being close to what I would call hard rule-utilitarianism.... MORE

Thoughts on Spontaneous Order

Business Economics
Arnold Kling
In a comment from a troll Bryan Caplan entry, I find, I've long since lost all patience with Hayek. His original, true ideas could have been five good blog posts Personally, I think that the concept of spontaneous order takes... MORE

Book 1 and Book 2 Watch

Institutional Economics
Arnold Kling
Paul Gregory writes, China and russia in the 1980s offer a unique case study in why some reforms work and others do not. The contrast refutes the notion that a strong, perhaps totalitarian state, is required for successful reform. In... MORE

Jeffrey Friedman on Competition vs. Planning

Institutional Economics
Arnold Kling
Self-recommending, but here is an excerpt: In a complex world where nobody really knows what will succeed until it is tried, competition that pits people's ideas against each other is the only way to test these ideas. Competition among capitalists... MORE

Morning Commentary

Finance: stocks, options, etc.
Arnold Kling
Bill Easterly is not of fan of military nation-building in Afghanistan. He writes, critics of top-down state plans for economic development are also not fans of top-down state plans for military development. If the Left likes the first, and the... MORE

From Poverty to Prosperity Watch

Books: Reviews and Suggested Readings
Arnold Kling
Daron Acemoglu writes, People need incentives to invest and prosper; they need to know that if they work hard, they can make money and actually keep that money. And the key to ensuring those incentives is sound institutions -- the... MORE

Take That, Math Geeks

Institutional Economics
David Henderson
That was the title I gave my Wall Street Journal article on the Nobel prize that appears on line now and will appear in print tomorrow. Of course, as people who write for newspapers and magazines know, the odds that... MORE

Explaining Oliver Williamson

Business Economics
Arnold Kling
I think Alex Tabarrok is the most helpful of the bloggers thus far. Lynne Kiesling is helpful on Williamson as well as on Elinor Ostrom, the other new Nobel Laureate. I think of Oliver Williamson in terms of the 1980's... MORE

Nobel for Institutional Economics

Institutional Economics
Arnold Kling
When I was in Bloomington, Indiana last week, Justin Ross and I talked about the "Bloomington school of public choice," meaning Elinor Ostrom. (see Aligica and Boettke.) Little did I know that she was about to be awarded a Nobel... MORE

From Poverty to Prosperity Watch

Growth: Causal Factors
Arnold Kling
Bill Easterly interviews Paul Romer. Romer says, To understand how to alleviate poverty, we must understand growth and progress. Progress comes from new and better ideas. Ideas come in two flavors, technologies and rules. To foster growth and development, the... MORE

A Contestable Market

Growth: Causal Factors
Arnold Kling
Free to Choose Media asks, What institutions can enable the world's poor to realize their power and achieve prosperity? The best blog answer can win $250. The forthcoming book, From Poverty to Prosperity, by yours truly and Nick Schulz, would... MORE

Bruno Leoni vs. Paul Romer

Institutional Economics
Arnold Kling
In 1961, Leoni wrote, In reality, the law is something which is not pre-fabricated in some specially-designated place, by some specially-designated producer and with some pre-established technique. In much the same way, no followers of the artificial languages such as... MORE

Stuck in the Natural State?

Growth: Causal Factors
Arnold Kling
Antonio Fatas and Ilian Mihov write, China has sustained high growth rates in recent years despite its poor institutions because institutional quality is relatively less important in developing economies. However, we find that as their incomes increase, such countries need... MORE

Contest: What to Measure?

Books: Reviews and Suggested Readings
Arnold Kling
Win the Fraser Institute's Money. They want you to enter a contest about what to measure in order to improve public policy. In Be The Solution, Michael Strong cites the Fraser Institute's measures of economic freedom and how well they... MORE

Tale of Two Islands

Growth: Causal Factors
David Henderson
Stanford University economists Peter Blair Henry and Conrad Miller recently published an interesting NBER Working Paper in which they compare economic policy and economic performance between Jamaica and Barbados. Henry and Miller point out that in Jamaica, the People's National... MORE

A Microfinance Skeptic

Growth: Causal Factors
Arnold Kling
A reader points me to this letter from Milford Bateman about the impact of microfinance. first, a serious shortage of funds for small and medium-sized enterprises, which is deeply damaging because SMEs have by far the most sustainable growth and... MORE

Tyler deserts Hayek

Institutional Economics
Arnold Kling
Tyler Cowen writes, In my view we do have duties to behave more responsibly at the dinner table but the simple admonition "eat less meat" will do. In this context, "behave more responsibly" means "waste fewer resources and leave more... MORE

Creative Capitalism Gets Moldbugian

Institutional Economics
Arnold Kling
I sent a post of my own to Creative Capitalism. If a government were truly trying to maximize profits, then it would be managing a country in such a way as to increase its wealth. ...A poorly-run country, such as... MORE

Arnold Kling Doesn't Get It

Institutional Economics
Arnold Kling
John Fonte writes, For some (clearly not all) libertarians opposition to the “state,” even the constitutional democratic nation-state leads to an affinity to transnational (as opposed to international) politics. Indeed, on Cato’s website, adjunct scholar Arnold Kling...“proposes” an “alternative ideology”... MORE

Efficiency or Rent-Seeking?

Institutional Economics
Arnold Kling
The Washington Post reports [New Jersey Governor John] Corzine, who presided over mergers and acquisitions as chairman of Goldman Sachs, is telling hundreds of New Jersey's smallest towns and boroughs that they are too small to exist. Multiple layers of... MORE

Easterly and the Caplan-Cowen Debate

Institutional Economics
Arnold Kling
William Easterly writes, The end of the “development expert” paradigm does not mean the end of hope for development. Development is al­ready gradually ending poverty (global poverty rates have fallen by more than half in the past three decades) –... MORE

Political Economy Lessons for the World Bank

Institutional Economics
Arnold Kling
Some major league teachers. Nobel Laureate Douglass North writes, Our political history emphasizes modifications to natural state institutions in the 18th century that led to concern within the elite that political competition would inevitably lead to consolidated political control by... MORE

The Love of Hierarchies

Institutional Economics
Arnold Kling
Denis Dutton writes, Human beings are naturally hierarchical and they like arranging themselves into hierarchies of skill, age, wealth, competence, experience, whatever. David Brooks writes, they go into one of those fields like law, medicine or politics, where a person's... MORE

Taking the Initiative on Health Care

Institutional Economics
Arnold Kling
A proposed initiative in Arizona reads, No law shall be passed that restricts a person's freedom of choice of private health care systems or private plans of any type. No law shall interfere with a person's or entity's right to... MORE

Tyler Cowen Cheers Democracy

Institutional Economics
Arnold Kling
He writes, unlike one of my esteemed colleagues, I believe that we should revere democracy as one of the modern world's greatest achievements... Democracy is pretty good at pushing scoundrels out of office, or checking them once they are in... MORE

A Good Explanation

Institutional Economics
Arnold Kling
Alex Tabarrok writes, The law of unintended consequences is what happens when a simple system tries to regulate a complex system. The political system is simple, it operates with limited information (rational ignorance), short time horizons, low feedback, and poor... MORE

One Property Rights, Many Recipes?

Institutional Economics
Arnold Kling
Karol Boudreaux and Paul Dragos Aligica write, The legislative path is considered a rapid course to the creation of property rights...In some cases, when the economic mechanisms have been destroyed or have never existed in a functional form, the top-down... MORE

Clark gives Greif Grief

Institutional Economics
Arnold Kling
Gregory Clark goes medieval on Avner Greif. In chapter 2, Greif lays out a formal definition of an institution. This is, “An institution is a system of rules, beliefs, norms and organizations that together generate a regularity of (social) behavior”... MORE

The Nonprofit Boom

Institutional Economics
Arnold Kling
Eugene Steuerle writes, in a few decades we'll find that most people will produce services and products that could be produced as easily in the nonprofit sector as in the profit-making one. Some cities like the District are harbingers of... MORE

GMU Economics

Institutional Economics
Arnold Kling
In the latest econtalk, Russ Roberts interviews his co-blogger Don Boudreaux. This is a good opportunity for people to catch the distinctive flavor of GMU economics. I like to put it his way: at Chicago, they say "Markets work well.... MORE

Market Power Corrupts

Institutional Economics
Arnold Kling
Werner Troesken writes, Why are occasional regime changes desirable for public utility markets? The answer builds on three observations. First, corruption was endemic to public utility industries; corruption existed, in some form, across all regulatory and ownership regimes. Second, regime... MORE

Institutions and American economic performance

Institutional Economics
Arnold Kling
Sukkoo Kim writes While factors associated with slavery, capital, labor and resource endowments may have contributed to the growth of U.S. regional spatial inequality, the divergence in regional political and legal institutions was also a major contributing factor. In the... MORE

Why No Oil Shock Effect?

Macroeconomics
Arnold Kling
Olivier Blanchard and Jordi Gali write, Since the 1970s, and at least until recently, macroeconomists have viewed changes in the price of oil as as an important source of economic fluctuations, as well as a paradigm of a global shock,... MORE

Order and Disorder

Institutional Economics
Arnold Kling
My latest essay: the spontaneous order of the market can adapt to a tax relatively easily. However, when government tries to control supply, disorder emerges. Profit opportunities are created in crime and corruption. Compare the crime and mayhem in the... MORE

Moral Psychology

Behavioral Economics and Rationality
Arnold Kling
Jonathan Haidt writes Virtues are socially constructed and socially learned, but these processes are highly prepared and constrained by the evolved mind. We call these three additional foundations the binding foundations, because the virtues, practices, and institutions they generate function... MORE

Order and Disorder

Price Controls
Arnold Kling
Richard E. Wagner writes, There is an equivalence between a tariff and a quota as these are drawn on the blackboard...They are not, however, equivalent in practice. A tariff and a quota generally involve different institutional frameworks...With the quota, the... MORE

Weingast on Econtalk

Institutional Economics
Arnold Kling
I've written much on the work of Barry Weingast and Douglass North. Last week's podcast features Russ Roberts interviewing Weingast. You get a good introduction to the North-Weingast view. On a related note, last week I read The Bottom Billion... MORE

Around our Library

Economics of Education
Arnold Kling
Our Library of Economics and Liberty has a lot of interesting new stuff this week. 1. On Econtalk, Eric Hanushek argues that: --human capital is measured more accurately by performance on standardized tests than by years of schooling --better teachers... MORE

Works in Practice, Just Not in Theory?

Institutional Economics
Arnold Kling
On the topic of anarchy, Peter T. Leeson writes, Pirates created one of the earliest forms of written constitutions they called their “articles, which codified many of the rules that governed their ships, as well as punishments for rule breakers.... MORE

We Need an Anti-Congress

Institutional Economics
Arnold Kling
Iain Murray writes Speaker Pelosi has released the text of the New Direction for Energy Independence, National Security, Really Good Eggs and Consumer Protection Act (I snuck something else in there - can you tell?). It weighs in at a... MORE

Tolstoy, Hayek, and David Brooks

Institutional Economics
Arnold Kling
Tolstoy had a very different theory of history. Tolstoy believed great leaders are puffed-up popinjays. They think their public decisions shape history, but really it is the everyday experiences of millions of people which organically and chaotically shape the... MORE

What is a High-Trust Society?

Institutional Economics
Arnold Kling
I give my answer. If you can trust the processes of government, then that is a good thing. Good trust in government is based on processes that provide for accountability, checks and balances, equal protection, and punishment of official corruption.... MORE

North on Adaptation

Institutional Economics
Arnold Kling
My second essay on Douglass North is now up. To most economists, the agricultural revolution and the late Industrial Revolution are technological events. That is, the technology "arrived" and spread, leading to social change. Douglass North instead suggests that these... MORE

Douglass North at Length

Institutional Economics
Arnold Kling
From my latest essay. In textbook economics, the only external environmental factors that affect the individual are technology and prices. Social norms, habits, and rules play no role. North shows that institutions are fundamental determinants of poverty and prosperity. This... MORE

Ignoring Cost-Benefit Analysis

Institutional Economics
Arnold Kling
The Washington Post reports, The practice of estimating the costs and benefits of U.S. government regulations is "frequently done poorly," with scant evidence that it makes a difference on policymaking. That's the dismal finding of a recent report concluding that... MORE

Douglass North, On One Foot

Institutional Economics
Arnold Kling
Bryan asks, Ayn Rand famously summarized her philosophy while standing on one foot. Arnold, would you be willing to summarize North's "well-developed and persuasive answer" under the same constraint? Anyone else? Before doing that, I want to mention that the... MORE

Anarchy in the W.T.

Institutional Economics
Bryan Caplan
My co-author Ed Stringham has a nice op-ed on prosecutorial abuse and private law in today's Washington Times. Check it out.... MORE

North and Weingast

Books: Reviews and Suggested Readings
Arnold Kling
Economic conferences rarely produce great papers. Entrepreneurship, Innovation, and the Growth Mechanism of the Free-Enterprise Economies, a conference dedicated to the work of William Baumol, is typically pedestrian, with particularly forgettable contributions from Kenneth Arrow and Robert Solow. However, there... MORE

Hayek and Anti-capitalist Intellectuals

Institutional Economics
Arnold Kling
Reviewing a new edition of The Road to Serfdom, Roger Kimball writes, In the end, though, the really galling thing about the spontaneous order that free markets produce is not its imperfection but its spontaneity: the fact that it is... MORE

The Nonprofit Sector

Institutional Economics
Arnold Kling
Gerard Alexander writes, The Independent Sector, which is basically the industry group for nonprofits, reports that the combined annual expenditures of all the not-for-profit organizations required to file Form 990 with the U.S. Internal Revenue Service had grown to nearly... MORE

Helping the Wrong Side

Economics of Education
Arnold Kling
Iqbal Quadir: The UN should empower the people, not empower their governments. And if they cannot empower the people they can just shut it off. My point is that helping the wrong side is harmful. So if they cannot help... MORE

Technological Determinishm

Institutional Economics
Arnold Kling
Tyler Cowen writes, Once private corporations had the organizational wherewithal to get large in the late 19th century, governments got big too. There is an important lesson there. Technology, and to a lesser extent slavery, are why earlier American governments... MORE

Failure in an Open-Access Order

Institutional Economics
Arnold Kling
Clay Shirky writes, Open systems are a profound threat not only because they outsucceed commercial firms but also because they outfail them. They grow not in spite of failure but because of it. In traditional business, trying anything is expensive,... MORE

Colombia's Natural State?

Institutional Economics
Arnold Kling
The New York Times reports on Colombia, The government of President Álvaro Uribe, the largest recipient of American aid outside the Middle East, has found itself ensnared in a widening scandal as revelations surface of a secret alliance between some... MORE

Modern Institutions and Civil Society

Institutional Economics
Arnold Kling
Following some recent essays of mine, readers Michael Lotus and James Bennett recommend this chapter by Alan MacFarlane. Human life can for convenience be divided into four major spheres, the pursuit of power (politics), the pursuit of wealth (economics), the... MORE

The China Example

Institutional Economics
Arnold Kling
Will Hutton writes, My hypothesis when I began was that China was so different that it could carry on adapting its model, living without democracy or European enlightenment values. I have changed my mind and now see more clearly than... MORE

Applying Douglass North, et al to Iraq and China

Institutional Economics
Arnold Kling
In this essay, I elaborate on the new paper by North, Wallis, and Weingast that I first posted on last week. In the essay, I write, I would say that there is no chance that the United States will succeed... MORE

Juntas vs. Open Societies

Institutional Economics
Arnold Kling
Douglass C. North, John Joseph Wallis, and Barry R. Weingast have a new paper, immodestly titled, "A Conceptual Framework for Interpreting Recorded Human History." I will excerpt from it in the extended entry. An earlier paper (from 2005) may be... MORE

John Locke's Wager

Institutional Economics
Arnold Kling
David Brin writes, the quasi-Confucian social pattern that is being pursued by the formerly Communist rulers of China seems to be an assertive, bold and innovative approach to updating authoritarian rule, incorporating many of the efficiencies of both capitalism and... MORE

Quote of the Day

Institutional Economics
Arnold Kling
People have often been willing to give up personal identity and join into a collective. Historically, that propensity has usually been very bad news. Collectives tend to be mean, to designate official enemies, to be violent, and to discourage... MORE

What is Law. . .and what is a good blog?

Institutional Economics
Arnold Kling
Robin Hanson writes, law is there to make disputants shut up... If we expected jurors (or judges) to try their best to achieve social justice or economic efficiency, without substantial bias, we would have law, but not laws. That is,... MORE

Culture and Prosperity, Again

Institutional Economics
Arnold Kling
Pete Boettke chimes in, However advantageous a culture may be, it cannot overcome bad institutions. And however disadvantageous a culture may be, it will improve when people get to live under institutions of political and economic freedom. Culture can act... MORE

Culture or Institutions?

Institutional Economics
Arnold Kling
Someone at The Economist blog Free Exchange writes, Everyone now agrees that "institutions matter", but this is partly because "institutions" is a catchall word that can include almost anything anyone cares about, if one squints hard enough and tilts one's... MORE

Planning vs. Trial and Error

Institutional Economics
Arnold Kling
Tyler Cowen quotes Barry Eichengreen. Thus Europe, which had relied on extensive growth in the 1950s and 1960s, had no choice but to switch to intensive growth from the 1970s on. The problem was that institutions tailored to the needs... MORE

Becker on Latin American Crime

Institutional Economics
Arnold Kling
Gary Becker, a Nobel Laureate in part for his work on the economics of crime, discusses Latin America's problem. I would recommend that they use both the "stick" and the "carrot" to fight crime. The "stick" included apprehending more criminals,... MORE

Channeling de Soto in Iraq

Institutional Economics
Arnold Kling
Peter Schaefer writes, all societies have rules otherwise they would descend into anarchy. And the basis of all consensual laws (as opposed to imposed) is the customary or informal rule-sets that have been evolving with the society. These rule-sets must... MORE

For Open Borders

Labor Mobility, Immigration, Outsourcing
Arnold Kling
Sebastian Mallaby writes, In Let Their People Come, a new book published by the Center for Global Development, Lant Pritchett reports that if rich countries permitted extra immigration equivalent to 3 percent of their labor force, the citizens of poor... MORE

Good Dictators

Institutional Economics
Arnold Kling
This paper by Edward L. Glaeser, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer is a couple of years old, but it speaks to issues that come up here frequently. we find that, in a variety of specifications, initial levels... MORE

China--authoritarian capitalism?

Institutional Economics
Arnold Kling
Robert Reich writes The gap between China’s rich and poor is turning into a chasm. China’s innovators, investors, and captains of industry are richly rewarded. They live in luxury housing developments whose streets are lined with McMansions. The feed in... MORE

Ethnic Strife

Institutional Economics
Arnold Kling
In a timely article, Austan Goolsbee writes The good news is that history suggests that the destruction of war has no lasting impact on economic prospects. The bad news is that most of these countries, especially Iraq, are filled with... MORE

Indicator of Failure in Iraq

Institutional Economics
Arnold Kling
Strategy Page writes The corruption is so bad that American officials find their Iraqi counterparts more concerned with stealing than governing. The theft is so pervasive that an honest official (who doesn't steal) is at a political disadvantage. During Saddam's... MORE

Privatization in India

Institutional Economics
Arnold Kling
Gurchuran Das writes, the old centralized bureaucratic Indian state is in steady decline. Where it is desperately needed -- in providing basic education, health care, and drinking water -- it has performed appallingly. Where it is not needed, it has... MORE

Nation-building Debated

Institutional Economics
Arnold Kling
Max Borders makes a case that nation-building can work. What's more, while institutions can and usually do develop or evolve over time -- much in the same way that DNA evolved from auto-catalytic processes and from simpler amino acids, and... MORE

Family vs. State

Institutional Economics
Arnold Kling
In my latest essay, I discuss a book by Jennifer Roback Morse. Single moms and the welfare state go together. Strong families and free markets go together. Morse argues that a combination of weak families and free markets is much... MORE

Re-read Group Power

Institutional Economics
Arnold Kling
Max Borders rightly criticizes a proposal for an international agency to effect nation-building. A disconnect between the donors and the recipients means that information feedback loops get lost. The structure of the behemoth makes it virtually impossible for that agent... MORE

The Foreign Aid Debate

Institutional Economics
Arnold Kling
Cato Unbound looks at foreign aid. First, William Easterly writes, The two key elements necessary to make aid work, and the absence of which has been fatal to aid’s effectiveness in the past, are FEEDBACK and ACCOUNTABILITY. The needs of... MORE

The Disease it Purports to Cure

Institutional Economics
Arnold Kling
William Easterly writes, historically poverty has never been ended by central planners. It is only ended by "searchers", both economic and political, who explore solutions by trial and error, have a way to get feedback on the ones that work,... MORE

Scholarly Beliefs and Folk Beliefs

Institutional Economics
Arnold Kling
In my latest essay, I meditate on the topic. Regardless of the state of scholarly belief about Keynes, folk Keynesianism is dominant. For example, most people believe that we should worry about whether "the consumer" will spend freely. Everyone fears... MORE

Beliefs and Consequences

Institutional Economics
Arnold Kling
In my latest essay, I write Over the past 50 years, economists have become less materialistic. No, we have not become hippies, rejected consumerism, and discovered spirituality. As social scientists, however, we have noticed that a large share of wealth... MORE

Confusion in Political Theory

Institutional Economics
Arnold Kling
Now Bryan writes, statements like "To break a warlord equilibrium, you need government" only confuse us. I agree. I cannot think of any examples of societies that were stuck in a warlord equilibrium and then suddenly said, "Let's sit down... MORE

Intangible Wealth and Institutional Economics

Growth: Causal Factors
Arnold Kling
In a new book, a team of World Bank economists writes, most of a country's wealth is captured by what we term intangible capital...Intangible assets include the skills and know-how embodied in the labor force. The category also includes social... MORE

The Fear Factor

Institutional Economics
Arnold Kling
In the latest issue of The Independent Review, Robert Higgs writes, in the late nineteenth century the so-called welfare state began to take shape. From that time forward, people were told that the government can and should protect them from... MORE

The U.S. vs. Communist Dictatorship

Institutional Economics
Arnold Kling
Now Bryan writes, For example, the Soviet Union from 1956 on was clearly an institutional arrangement, run by many individuals with competing interests, which were resolved using rules that were viewed as more important than any one individual. Khrushchev was... MORE

Anarchists Anthropomorphizing Government

Institutional Economics
Arnold Kling
Bryan writes, I fail to see how getting a [government] counts as "breaking" a warlord equilibrium. Why shouldn't it simply be described as "accepting" a warlord equilibrium - you quit resisting the rule of the most powerful warlord, and let... MORE

Why Peaceful Anarchy Fails

Institutional Economics
Arnold Kling
Bryan writes, As economic growth progressed, of course, the market for defense services got bigger, making room for more and more firms. The problem, however, is that if you've got government in an area, it has the power and the... MORE

Anti-antitrust

Regulation and Subsidies
Arnold Kling
David R. Henderson writes, The best statement of the philosophical case against antitrust is in philosopher Harry Binswanger's essay, "Antitrust: 'Free Competition' at Gunpoint." Binswanger draws a fundamental distinction between economic power and political power. Economic power, he notes, is... MORE

Eminent Domain

Regulation and Subsidies
Arnold Kling
Both Gary Becker and Richard Posner weigh in. Becker writes, Is eminent domain a desirable principle in the 21st century? In the 18th, 19th, and early 20th centuries, governments did rather little, so there was not much to fear from... MORE

Fun Time: An Exercise in Transaction Cost Economics

Institutional Economics
Bryan Caplan
In case you haven't guessed, I'm not a practical person. I'm more interested in Why than How. I lack what Robin Hanson calls the "engineer's mentality" - the urge to construct a concrete product of use to other people. Once... MORE

France and Germany

Institutional Economics
Arnold Kling
Anthony de Jasay argues that French and German welfare state policies are based on a belief that the distribution of the national income is the government's business as well as its natural prerogative, and that whatever it happens to be,... MORE

Government as a Schelling Point

Institutional Economics
Arnold Kling
Daniel Klein writes, When people think of society at large as the group to which they belong--when they think of having “citizenship,” whether it be in a town, a county, or a country--the logic of coordination leads directly to government... MORE

Eminent Domain and Property Rights

Institutional Economics
Arnold Kling
Don Boudreaux and David Barron in a WSJ Celebrity Death Match. Boudreaux says, eminent domain is unnecessary. The fact that housing developers routinely acquire large contiguous plots of land without eminent domain -- that is, by buying individual plots from... MORE

Acemoglu, Clark Medal winner

Institutional Economics
Arnold Kling
Daron Acemoglu, the latest winner of the Clark Medal, is one more data point in the trend line away from mathematical viruosity and toward the The New Economic Paradigm. Consider, for example, his Lionel Robbins lectures on Understanding Institutions. Institutions,... MORE

De Soto Interviewed

Institutional Economics
Arnold Kling
Hernando De Soto offers his views in this interview it takes you 549 days to get a license to operate a bakery in Egypt and that is with a lawyer. Without a lawyer, it takes about 650 days. In Honduras,... MORE

Internet Governance

Institutional Economics
Arnold Kling
Alex Simonelis writes, Certain protocols, and the parameters required for their usage, are essential in order to operate on the Internet. A number of bodies have become responsible for those protocol standards and parameters. It can be fairly said that... MORE

The Price System

Economic Philosophy
Arnold Kling
Russ Roberts writes Over the next five or ten years, hundreds of millions of Chinese are expected to leave the Chinese countryside and move to the city. This extraordinary migration will require millions of adjustments to take place to make... MORE

Value and Exchange

Austrian Economics
Arnold Kling
Peter Gordon points to an interesting article by Meir Kohn in the Cato Journal The exchange paradigm has a very different theory of growth. Growth does not mean movement along an equilibrium path but rather the unfolding of a complex... MORE

Government Mergers

Institutional Economics
Arnold Kling
Peter Gordon writes, Just surfing the U.S. Statistical Abstracts, which are now available through www.census.gov for many years back, reveals the dimensions of the most auspicious government consolidation project in U.S. history: the consolidation of school districts. Sixty years ago,... MORE

Hard America, Soft America

Institutional Economics
Arnold Kling
I just breezed through Michael Barone's Hard America, Soft America. Reviewers tend to quote the following passage (p. 12). UPDATE: see also this article by Barone which leads with the sentence I quote. For many years I have thought it... MORE

Leviathan

Institutional Economics
Arnold Kling
Our parent site, Econlib, now has a sister site, The Online Library of Liberty, a library of classic works. You can browse Books and Essays. Among the writers whose work is presented and discussed is Thomas Hobbes, who offered a... MORE

Economic Freedom and Divergence

Institutional Economics
Arnold Kling
A just-concluded conference in honor of Milton and Rose Friedman produced some interesting papers. For example, James D. Gwartney and Robert A. Lawson find that an index of economic freedom helps to account for the failure of the standard of... MORE

California Reality

Energy, Environment, Resources
Arnold Kling
As a dean at Berkeley, Hal Varian has a personal interest in California. In his column today, he offers some plain-spoken economics lessons. Most California voters think the electricity crisis contributed to the state budget deficit. If only things were... MORE

Minimum Wage and CEO Pay

Income Distribution
Arnold Kling
Marc Brazeau asks (see Steve Antler's site), Two common arguments against raising the minimum wage are possible inflationary effects and job loss. Why aren't these issues raised in relation to executive compensation? I think that the conventional wisdom is that... MORE

Economics of Reconstruction

Institutional Economics
Arnold Kling
Given the situation in Iraq, an economic analysis of the problem of developing political institutions would seem timely. Tyler Cowen and Christopher J. Coyne have drafted a paper on the topic. They write, Our core thesis is the following: reconstructions... MORE

Many Interest Rates

Monetary Policy
Arnold Kling
Graham Turner claims to offer magical monetary manipulations. A year and a half after the Japanese government introduced its first fiscal stimulus, the yield curve (10-year Japanese government bond yields minus the discount rate) had steepened by nearly 2 percentage... MORE

Institutional Survival

Institutional Economics
Arnold Kling
Henry Farrell argues against the view that institutions must reduce transactions costs in order to survive. there are an awful lot of institutional arrangements out there that demonstrably have very little to do with efficiency or transaction cost reduction, and... MORE

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