Category Archives: economics

Bipartisan Consensus for the Politically Powerful

Posted on by Matthew Needham
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The Associated Press reports half of Americans think the economy will fare the same under another Obama presidency as it would under Mitt Romney. I agree and understand why that is.

Political actors from both parties act in the interests of the politically powerful, who have a lot to gain from governmental power. This comes at the expense of the average citizen, who has little to gain from influencing individual pieces of public policy. In order to gain political power, public officials must cater to powerful interest groups, regardless of campaign rhetoric.

Rules intended to diminish the ability of these interest groups will likely fail because they are written by the same politicians who benefit from working with powerful interest groups. True reform will come from limiting the size and scope of government, which will in effect reduce the possible benefit that special interests can gain from winning the influence of political actors.

Young Man, You Owe Milton Friedman a Thank You.

Posted on by kaluzer
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Every young man living after 1973 owes his life to Milton Friedman. In that year, Friedman, became the intellectual father behind ending conscripted military service. He wasn’t the first person to voice his opposition to the draft, but he was the first to communicate his ideas effectively enough to change the public mindset on the issue.

Ideas lay the groundwork for a philosophy and provide the foundation for a society. As Peter Kreeft said, “Philosophy is just thought, but sow a thought, reap an act; sow an act, reap a habit; sow a habit, reap a character; sow a character, reap a destiny. This is just as true for societies as it is for individuals.” Given that ideas guide our every action, we must look to have not just valid ideas, but ones that are intellectually grounded and sound.  Ideas must be communicated, compared and pieced together in order to create even better ideas. Communication is particularly important, as the better the communication, the more accessible and understandable ideas become. Fortunately, Friedman was a great communicator. His ability to communicate the message of liberty and free choice in regard to the draft kept young American males out of compulsory military service.

What was he able to communicate about the draft?

When making a case for the draft, advocates claimed that if soldiers enlisted for pay, it would create an army of mercenaries.  They argued that a paid volunteer army would not be a virtuous army, because the soldiers would join for monetary desire and not for patriotic duty.  Milton Friedman rebutted this by pointing out that mandatory conscription hypocritically fails this patriotic test, since forced servitude, rather than inner volition, causes individuals to serve.  Friedman believed that incentives are the foundation of each individual’s action, and therefore, it was inappropriate to attribute unpatriotic motives to paid army volunteers.

Friedman’s repudiation of such mercenary concerns are illustrated in a famous confrontation with General William Westmoreland:

“In the course of his [General Westmoreland’s] testimony, he made the statement that he did not want to command an army of mercenaries. I [Milton Friedman] stopped him and said, ‘General, would you rather command an army of slaves?’ He drew himself up and said, ‘I don’t like to hear our patriotic draftees referred to as slaves.’ I replied, ‘I don’t like to hear our patriotic volunteers referred to as mercenaries.’ But I went on to say, ‘If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general; we are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher.’ That was the last that we heard from the general about mercenaries.”

This example highlights the importance of communicating ideas effectively. By doing so, Friedman successfully convinced people of the ills of conscripted military service and persevered in the all-important court of public opinion. Friedman changed the landscape of modern war — and along with it the destiny of young Americans everywhere.

Knowing Friedom

Posted on by akoehlinger
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John Maynard Keynes famously quipped, “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” Free-market economist Milton Friedman, however, actually did manage to capture the minds not only of practical men, but of politicians and even other intellectuals. He understood that the world would change if people understood the meaning of freedom.

Historic social and political movements began with powerful ideas. For instance, the rise of the Roman Empire predicated itself on the idea of Roman citizenship and a sense of personal duty, and America’s founding relied on a distinct knowledge of personal liberty and its implied negative rights. Pivotal events, such as shifts of culture or the rise of a new state, occur in response to the outcomes of various conflicts in an ongoing war of ideas.

Milton Friedman joined this intellectual struggle knowing that education provides the best weapon. Most importantly, he believed education was a personal undertaking. This perception led to his recognition that most current “education” was actually compulsory schooling or training. The government mandated that children attend taxpayer-funded schools where little to no actual education ever occurred. His solution: school vouchers, which enabled parents to choose where they think their children will be best educated, whether it be public schools, private schools, charter schools or even home schools. Vouchers redirect taxpayer dollars from bureaucrats to the families who need them, coupling education and choice to make the greatest impact.

Friedman’s book “Free to Choose” and a subsequent television series highlight the tenets behind the power of ideas and an education’s role in shaping those ideas. Free markets result from a combination of individual choice and scarcity of information. They offer great benefits, but require individuals to trade with each other in order to obtain them. These types of exchanges only result when individuals possess freedom of choice. This idea undergirded America’s economy until progressive promotion of increased centralization eroded individual choice and increased government meddling in the economy. Thanks to their efforts, a large portion of Americans now hold the institution of federal government responsible for their every need, from the cradle to the grave.

Ultimately, Friedman recognized education’s foundational role in changing society’s institutions. Sustainable political change must be preceded by sustainable social change, which can only result from education. The battle of ideas starts in our schools. Friedman knew ideas like individual choice and freedom had lost significant ground there, but he also recognized that the ground could be regained by letting people choose how they want to educate themselves. He, like economist F.A Harper, knew that “men who know freedom will find ways to be free.”

An Ode to the Frie Market

Posted on by Elizabeth Tara Ryan
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Milton Friedman won a Nobel Memorial Prize in economics
But that isn’t all about this man; a lesson on him isn’t quick

Born in Brooklyn, New York in July of nineteen hundred twelve,
Milton Friedman was a brilliant economist; in this topic he deeply delved

For thirty years, teaching economic theory was his passion
At the University of Chicago he taught the youth of the nation

As “the most influential economist of the second half of the 20th century,”
His ideas spread like wildfire, to almost everyone, and were not elementary

Big government he said to shun,
Instead, free markets should have all the fun

The virtues of a free market system are so clear
Market intervention a nation should never have to bear

The government’s role in the economy should be greatly restricted.
Interference would only bring about poverty, depressions, and an economy constricted

A natural rate of unemployment he believed existed
No government could change this rate; it was healthy and should not be resisted

Though greatly opposed to the Federal Reserve,
Advice he still gives so the economy will be preserved

The advice: A small steady expansion of the money supply is the only way
If the central bank did otherwise, hyperinflation would never be kept at bay

Services offered by the government can be inefficient,
Should be performed by the private sector: that’s where they ought to be sent

One of these services is the production of money,
The private sector should produce it; and a gold base will lead to the highest stability

“Inflation is always and everywhere a monetary phenomenon,” he claimed
The relation between inflation and the money supply is close, he proclaimed

A monetarist at heart: Control of price inflation should be done with monetary deflation
In addition, price deflation is best controlled by only monetary inflation

An economic adviser to Ronald Reagan,
He predicted the policies of Keynes were bad, close to pagan

Not only would they cause high inflation
But minimal growth; later called stagflation

“Capitalism and Freedom,” a book he co-authored in nineteen sixty two
Speaks for policies like volunteer military and education vouchers, just to name a few

“A Monetary History of the United States,” which he published in nineteen sixty three
Investigates the role of money supply and economics in U.S. history

“Free to Choose,” another book that he and his wife did write,
Is where on monetary policy they shed much light

A staunch supporter of libertarian ideas, he took a chance,
When he fought for legalization of drugs and prostitution, not a popular stance

“Nothing is so permanent as a temporary government program” is his quote,
Noting: Once a program is started, participants will do everything to keep it afloat

He coined the phrase, “There’s no such thing as a free lunch.”
Someone always pays in the end, and will feel the punch

Milton Friedman taught many good economic lessons
Which if heeded, may have kept us out of horrid recessions

With a full life behind him and theories not previously in the mix,
Friedman died on November 16 of two thousand and six

Though he is gone, this week we honor the day Friedman was born
Today his advice to us would be, go free the market rather than mourn

Boxed In: A Need for Better Property Rights

Posted on by akoehlinger
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On Monday, the Detroit News reported a new suit against Genesee County. Denise Miller of Linden, Mich., challenged the constitutionality of the parks department preventing petitioning without permits. She had been collecting petition signatures as part of the “Recall Rick Snyder” movement in a county park.  Park officials requested that she obtain a permit, which she had neglected to do, and then assigned her a three square foot space in a remote area of the park in which to continue her campaign (see picture below).

This rights infringement case adds to a disturbing trend of other recent, similar incidents. The City of Oak Park, Michigan, recently threatened Julie Bass with jail time for planting a vegetable garden in her front yard. City repairs to a ruptured sewer line destroyed her lawn, so, after determining that sod costs were too expensive, she decided to install several planter boxes. A city ordinance stipulates that front lawns “shall be planted with grass ground cover, shrubbery, or other suitable live plant material.” Apparently a vegetable garden does not qualify as “suitable live plant material.” The city dropped the charges after this story gained national attention, but the city reentered the public eye yesterday when they decided to pursue charges alleging that the Bass family dogs are not licensed with the City.

The City of Oak Park joins a long list of federal, state, and local governments who attempt to regulate daily life through ordinances, regulations, and zoning laws. These compromise basic property rights, preventing people from realizing all the benefits of private ownership. Julie Bass owns her front lawn and her dogs, but licensing and ordinances prevent her from fully enjoying fresh vegetables and a game of fetch. And while Denise does not own any physical property, her right to speak and assemble freely is piece of intellectual property. She owns her first amendment rights, but only a permit allows her to actually exercise those rights to act on an issue important to her.

A person’s property must be their own, free from any infringements, if society is to function properly. Without well-defined and defended property rights, citizens lack the motivation to improve what they own, or use it for the benefit of others.  The only alternative to well-protected private ownership is public ownership. Publicly-provided goods like education, roads, and housing are infamous for the rampant disrepair and overuse that occurs because people have no personal, private investment them.

However, securing property rights guarantees personal investment, private ownership, and the widespread enjoyment of the associated benefits which include the creation of improved goods and services, higher levels of personal responsibility, and better stewardship. In order to achieve this security, all public ownership must be eliminated, and ridding our communities of cumbersome regulations and invasive laws that drive people away from private ownership is a good way to start.

Fear Politics: Emotional Rhetoric’s Effect on Michigan’s Labor Debate

Posted on by akoehlinger
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Last Thursday, charged union protests met Michigan Freedom to Work’s new drive to enact a state right-to-work law. Here, unions again used the politics of fear to achieve their ends. But these tactics, while seemingly effective, distort reality and confuse level-headed thinking. Unions must stop their politicking and join right-to-work supporters in a civil dialogue about how best to promote worker’s interest.

Union supporters and right-to-work supporters do agree on the problem: Michigan workers find it increasingly hard to find good paying jobs. But each side disagrees on who is responsible for creating this economic mess. Union supporters believe big business outsourced jobs to other states and countries to benefit their bottom line. Right-to-work supporters counter that unions bargained for unwarranted higher wages and drove companies to move jobs to states and countries where wages were more competitive.

As a result, each side presents different solutions. Union supporters believe unions helped workers with their past problems and can help them again today. Right-to-work supporters believe the path forward lies not in antiquated union structures, but in empowering individual worker choice.

But the tone of each side’s rhetoric determines who holds the high ground in the debate. Michigan Freedom to Work spent Thursday peacefully engaging the public with their ideas. They presented their perception of the problem, its proper solution, and the impediments to change. However, union supporters responded with loud interruptions and cat calls, shouting things like “It’s not unions fault,” “You are just corporate puppets,” and “Right-to-work states are not worker friendly.” These overtones possess a decidedly emotional edge different from right-to-work supporters’ controlled tone; an edge undergirded by fear

Emotions like these cloud judgment and prevent many in the labor movement from honestly engaging with the facts and with others who are sympathetic to their cause. The facts do not lie: unions caused much of Michigan’s economic mess and it is unions who prevent movement towards a sustainable future. Right-to-work supporters do not seek to abolish unions or attack workers. They simply ask that workers be allowed the chance to choose who they think best represents their interests, knowing this to be the best way to benefit workers. In this regard, right-to-work can actually be an ally in bringing about the change workers desire. Any further attempts by union supporters to attack these positions with emotionally charged degradations will only continue to delegitimize their standing in the labor debate. Right-to-work supporters have entered the labor debate seeking to teach a new perspective and to learn from their opponents. They want to enter into a civil dialogue with workers, unions and the state about how best to improve Michigan’s economy.  Union supporters must join right-to-work supporters at this table free from their fear politics and prejudices. This is the only way for Michigan workers to move forward.

Right-to-Work Press Conference Held in Downtown Flint

Posted on by akoehlinger
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Today, supporters of a right-to-work law in Michigan held press conferences in locations around the state. Five of those supporters appeared in downtown Flint. The main speaker, Stacy Swimp, President of the Fredrick Douglas Foundation of Michigan, addressed the crowd, saying: “All employees should be free to join and financially support a labor union if they choose, without fear of discrimination or penalty. We believe all employees should be equally free to choose not to join or financially support a union, again without fear of discrimination or penalty.”

According to Swimp, this kind of employment discrimination loses jobs and placed Michigan at the bottom of the United States’ economically. He went on to say, “This July Fourth weekend, and every day of the year, individual freedom is the issue.” Laws that promote freedom of choice, argued Swimp, will create jobs, as evidenced by the progress made in current right-to-work states. He ended by saying, “Workers want the opportunity to work for more.”

He was opposed by several union supporters who interrupted his speech on multiple occasions, saying things like, “It’s not unions fault,” “You are just a corporate puppet” or, “Right-to-work states are not worker-friendly.”

Both sides seemed to agree that Michigan is in terrible economic shape, but disagreed on how Michigan got there and how it can regain prosperity. Those who supported unions believe big business was at fault, and that any changes that seem to benefit their bottom line will only serve to perpetuate Michigan’s dismal economic situation. In contrast, those who supported right-to-work believe unions are partly at fault and that the way out is through greater worker choice and freedom outside union structures.

“The Cash Register Comes of Age”: Innovation at Work

Posted on by akoehlinger
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Transaction costs are always a constant problem in today’s society but entrepreneurs everywhere consistently find new ways to create efficiency. The most recent example can be found in a company called simply Square.

Square is a privately owned company whose namesake comes from a small square add-on that plugs into the headphone jack on your Smartphone or Tablet PC.

This little device has the potential to revolutionize the way businesses and customers interact. According to their website, “Square is the simplest way to accept credit cards. It’s easy to use and comes with a free credit card reader for your phone or iPad. Sign-up is quick. No complicated contracts, monthly fees, or merchant account. When you swipe cards with Square there is just one fee: 2.75%. Download the free app from the Android Market or iTunes App Store.” The company provides free apps, free hardware, and universal credit card acceptance all for a small fee of 2.75% of each transaction.

They have abolished the cash register. Stores can accept cash and credit payments straight from a smart device and they get the money in their account the next day. In so doing the company has eliminated the transaction costs that result from building and maintaining a standard point of sale station, printing receipts, and from having to wait for the proceeds from sales. The software also records transaction history so business owners can even get live sales data throughout the day.

And Square simplifies the shopping experience for customers. Businesses can create virtual shops that allow the customer to instantly peruse relevant product information and prices. It also eliminates the need to carry cash; you can pay with your card or simply start a tab and pay online from the comfort of your own home. Plus, you no longer have to deal with paper receipts. You conveniently receive them either in an e-mail or via a text message.

Transaction costs prevent trade benefits from being realized. But in a free market society individuals are free to find solutions that allow those benefits to be better realized by both parties. Square is just one example of the continuous innovation process.

‘Atlas Shrugged’ Coming to Life? The Real-Life Rearden Metal.

Posted on by kaluzer
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This story was originally posted on Students For Liberty’s blog.

In “Atlas Shrugged,” Ayn Rand forewarned that the ever-growing mindset placing society over the individual is destructive to economic creativity.  Hank Rearden, one of Rand’s central characters, is a self-made entrepreneur. He invents Rearden Metal, which is an alloy stronger, lighter, and cheaper than steel. Turns out, Rand’s fiction was quite similar to reality. Gary Cola, a real-life Hank Rearden, is an amateur metallurgist and entrepreneur. Cola has developed a new form of steel called Bainite Steel.  Like Rearden Metal, Bainite Steel has the potential to revolutionize the world; although this time, it’s not fiction.

What’s so Rearden about Bainite Steel?

Bainite Steel is purportedly 7 percent stronger than regular steel. In fact, its strength-to-weight ratio is higher than titanium (of the 6Al-4V variety). Bainite requires only 56% the volume of this form of titanium to maintain the same strength.  Also, the process to create Bainite Steel is much cheaper and faster.  Typically, regular steel sheets are heat-treated at around 900 degrees Celsius – a process that can take anywhere from a few hours to a few days.  Cola’s entire process, on the other hand, uses rollers that carry the sheets through flames as hot as 1,100 degrees Celsius and then sends the sheets through a cooling liquid bath.  The entire process takes less than 10 seconds and gives Bainite Steel its characteristic strength and ductile qualities.  Given that Bainite’s strength-by-volume is much higher – and its production costs much lower – the metal is useful for a large array of applications.

Applications:

Many speculators are already pondering the applications and uses of the metal.  Continue reading →

Capitalism, Compassion and Ayn Rand

Posted on by sjcammenga
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Say the word “capitalism” in some groups and people will instantly assume that you promote dog-eat-dog greed, corrupt business practices and can’t be bothered to care about the poor.

It is not difficult to figure out why people who do not understand the whole system would think this. Capitalism does have an individualistic focus, but that does not mean that there is no room for giving. One of the most memorable quotes from “Atlas Shrugged” summed up much of Ayn Rand’s philosophy; “I swear by my life and my love of it, that I will never live for the sake of another man, nor ask another man to live for mine.”

Rand was self-focused and did not condone making sacrifices with no benefit. This does not mean, however, that there was no love, compassion or special giving in the world she advocated. Her idealistic characters in “Atlas Shrugged” made a daring raid to secure the safety of a friend, risking their own lives in the process. Although the act appears selfless, these individuals benefited from saving the friend and not needing to suffer the grief of losing him to the looters. Rand takes great pains to show that the individual achievements that her characters profit from also have a positive effect on others. Acting in self interest and making money does not mean that the gains are hoarded. As the business owners became richer, they hired many people to keep the company running at capacity, and invested money into developing newer, better and cheaper products for the consumers. When their businesses were flourishing, everybody won.

To conclude in Rand’s own words, showing that individuals know how to create prosperity better than the government: “America’s abundance was created not by public sacrifices to “the common good,” but by the productive genius of free men who pursued their own personal interests and the making of their own private fortunes. They did not starve the people to pay for America’s industrialization. They gave the people better jobs, higher wages and cheaper goods with each new machine they invented, with every scientific discovery or technological advance – and thus the whole country was moving forward and profiting, not suffering, every step of the way.”

Market Failurists: A Critique of Neo-Conservative Economics

Posted on by akoehlinger
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Markets fail. We live in a dynamic world and as a result we are constantly experiencing change, both good and bad. It can come in the form of surpluses or shortages, high prices, apparent favoritism, etc.

Public goods and negative externalities indicate the most common consequential situations indicative of a market failure.  A public good is a good or service that appears to be non-rival and non-excludable. (One’s consumption of the good does not reduce the availability of the good to others and no one can be excluded from that goods’ consumption.) An example of a public good is broadcasting. Anyone can tune in to a radio program and their consumption does not take away from the consumption of another. Negative externalities occur when a producer fails to account for all of the costs of a process and passes those negative costs onto others without their consent. A good example of a negative externality is pollution. It is a cost that producers often do not have to pay for but by which others are negatively affected.

The neo-conservative response comes mainly in the form public choice theory. They hold that a market failure necessitates a government intervention. Hence, public choice theorists study politics as economics. This study empowers individuals and groups to effectively influence the political process for the efficient provision of public goods. And public choice theorists can be found on both sides of the aisle. Both Republicans and Democrats seek to use government as a means to provide what each deems public goods.

But, government intervention results in government failure. While neo-conservative public choice theory correctly identifies market failures and government failures, it then wrongly assumes that a continuing political process will eventually provide public goods (chief among them being good public policies) efficiently. They assume a central authority possess all of the information necessary to bring about the same innovations as markets. But knowledge is dispersed and no amount of centralization will ever change that. They fall into the nirvana fallacy, assuming that since markets fail, their governmental solutions are the only solutions.

Market failures are actually constructive because they provide information to entrepreneurs. Prices promote competition, reveal inefficiencies, and incentivize others to discover alternatives. As a result, there are no such things as permanent public goods. They are merely exciting and motivating opportunities for innovation. The solutions to market failures lie within the problem itself: Markets fix market failure.

On Liberty and Property

Posted on by Josiah Kollmeyer
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The Founders understood that a respect for personal property is closely linked to individual rights and liberties within society.  According to James Madison, the term property encompasses “every thing to which a man may attach a value and have a right; and which leaves to everyone else the like advantage.”  Property, therefore, encompasses far more than material possessions.  It includes such things as a man’s talents, intellect and personal security.  Under this definition, any government that seizes a man’s rightful property is violating that man’s liberty.

Liberty and property are ultimately inseparable.  This is most clearly seen in the arena of intellectual property: if men are not allowed to think, how can they ever be free?  A man’s ownership of his own skills and talents is also closely connected to liberty.  Any system which denies a worker the right to use their talents within the market hampers that worker the chance to improve his or her own life through innovation and hard work.  Governmental economic planning, which assigns citizens to specific labors without regard for personal desire or innovation, violates each citizen’s possession of his own talents, and thereby destroys both economic and personal liberty.

The accumulation of large amounts of property by a few individuals is generally frowned upon by society in general, leading to popular calls for increased taxes upon the rich.  However, just as each worker should have the right to labor for his own profit, every man, regardless of his wealth, should be able to enjoy the fruit of his own work and ability.  Extremely high taxes are no more appropriate for the rich than for the poor: every citizen’s property must be respected if this country is to remain free. 

At this point, it is important to note the final clause of the earlier quote from Madison: “property… leaves to everyone else the like advantage.”  The wealth of some citizens should never necessitate the poverty of others.  Free-market economies do indeed contain both rich and poor citizens, but every citizen should have at least the opportunity achieve prosperity.  In cases of oppression and abuse, outside intervention may be required to allow each citizen this opportunity for prosperity, but the government can never guarantee wealth to all.  Such a government would have no respect for either property rights or the purpose of government in general, which is not to provide people with property, but to bring an order based upon right, not upon brute force, into society, thereby creating the conditions under which property is secure.

Musings on Minimum Wage

Posted on by sjcammenga
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As a student trying to pay my way through school, I know I have been blessed to land a summer job at all, much less somewhere I am passionate about. Last year (2010), youth employment was lowest since 1949, having dropped 17.5% from the year before (2009). Interesting to note is that the minimum wage was last raised in the summer before, in 2008. Earlier in history, data from shows that at least 20,000 jobs were eliminated by the 1996 hike. This appears to be a pattern.

Minimum wage is definitely not the sole cause of the terrible unemployment numbers in the state today; the whole of Michigan has been suffering, especially after the collapse of the auto industry. The key to moving beyond failing industries is to support Michigan’s other businesses and encourage the establishment of new ones. When minimum wage is raised, the effects reach these businesses. Common summer employers, like farmers or resort owners, will readily admit to relying on the kids they employ in the summer to keep the business going. A higher minimum wage can discourage them from hiring too many employees or even be enough the shut them for good if they cannot afford the extra pay. 

Interestingly enough, Michigan is one of the few states which allow younger workers to be paid less than minimum wage. When a business is paying less, it is able to afford more workers. If less pay seems unfair, another beauty of a free market is the ability to walk away from a job if one doesn’t wish to live off its pay.

As a student, I am often willing to work cheaper. My younger brother who is looking for a job is willing to work for cheaper. I know students who have happily worked for a stipend less than minimum wage. I understand the importance of being able to support a family on a wage; this was the intent of the first wage law. However, I don’t think it would be all bad to have the freedom to choose to work for less if that is what it takes to be competitive and earn money for college.

Financial Regulations and Capture …

Posted on by Dustin Anderson
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The new financial regulatory agencies created by Congress, as well as the Federal Reserve, Commodity Futures Trading Commission, and the SEC, have some new rules to make thanks to recent legislation.   The newly created Consumer Financial Protection Bureau and the Financial Stability Oversight Council both have a total of about 80 new regulations to create, the Federal Reserve has 54, the CFTC about 61, and the SEC 95.

These new rules, however, won’t stop the financial companies from lobbying the existing and newly created agencies.  They will attempt to mitigate any harm done to their own firms from the regulation and will likely also get favors or exemptions from the new regulations, giving them an edge on the competition.  In the mighty words of Nobel laureate George Stigler, who was the main pioneer of the idea of regulatory capture:

Regulation and competition are rhetorical friends and deadly enemies: over the doorway of every regulatory agency … should be carved: Competition not admitted.

Beyond Markets and States

Posted on by Dustin Anderson
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I recently received the latest edition of the American Economic Review and it was quite the pleasure to read Elinor Ostrom’s Nobel lecture.  Ostrom’s work has helped us understand how people go about dealing with tragedy of the commons problems.  Through her work she finds that there are several examples where people are able to manage common property without government involvement.  Cultural and societal norms along with other rules and penalties agreed upon by those using the common property can restrict actions that will lead to better outcomes.  Really fascinating work with really cool implications.

Towards the ends she gives us the following paragraph:

Designing institutions to force (or nudge) entirely self-interested individuals to achieve better outcomes has been the major goal posited by policy analysts for governments to accomplish for much of the past half century.  Extensive empirical research leads me to argue that instead, a core goal of public policy should be to facilitate the development of institutions that bring out the best in humans.  We need to ask how diverse polycentric institutions help or hinder the innovativeness, learning, adapting, trustworthiness, levels of cooperation of participants, and the achievement of more effective, equitable, and sustainable outcomes at multiple scales.

Quite frankly, I cannot begin to tell you how refreshing reading her lecture was.  Give the entire lecture a read.  It is a draft.  To read the finalized edition you, unfortunately, have to be an AEA member.

Cross posted on Rational Conduct.