The Filter^

Cable on competition

The empirical evidence suggests that Marx was wrong. There is no tendency for capital to become more concentrated. Studies show that firm growth is independent of size (or anything else!), and so the distribution of firm size doesn’t change much over time. The degree of competition or monopoly is roughly stable. Tesco or Wal-Mart might seem monopolistic, but they are less so than 19th century truck stores.

via stumblingandmumbling.typepad.com

The Big Idea: The Judgment Deficit - Harvard Business Review

Over the years, the sledgehammer style of central planning has fallen out of favor. Nevertheless, Hayek’s case for decentralization remains relevant.

via hbr.org

Prychitko on the Minsky moment - an example of the epistemic primacy hypothesis?

I've just read David Prychitko's article assessing the financial instability hyposthesis from an Austrian perspective. It is in the current issue of the Review of Austrian Economics (a first class edition, I must say...), and I've also noticed (via Steve Horwitz) that not only has Peter Lewin shared his thoughts, but that Peter Lewin is blogging (this is fantastic!)

I really enjoyed the article, which argues that the "Minsky moment" can be viewed as one phase of the overall Austrian business cycle story, one that is already explained by the ABC, and one that fails to provide for an account of the overall cycle. In short, we can learn from it and shouldn't ignore the insights, but it's neither a full blown alternative not refutation.

The part I found most interesting was when Prychitko discussed the Greenspan put (p.219). I confess that this is normally a red flag to me, indicating that someone is using traditional Public Choice-style incentive arguments and not distinctly Austrian attention to knowledge problems. I am a big fan of Jeff Friedman on this point (and have a working paper with him), and have a paper under review that spells this out in more detail (email me for a copy - it's based on talks at the 2008 Southerns and the FEE conference on Vienna to Virginia). My problem is those who downplay the differences between the Austrian and Public Choice approaches, settling for the idea that both matter. The problem is that in many empirical examples these offer two alternative hypotheses. My concern is that the similarity between the conclusions between the two schools lead people to downplay the analytical differences.

My understanding of the "epistemic primacy thesis" (previously alluded to here) is the following:

epistemic factors take primacy over motivational ones

I follow Lavoie (1985) in treating the "problem of knowledge" as more fundamental to the "problem of motivation", and Kirzner's view that:

“unless one could imagine that Mises’ calculation problem has somehow been solved, questions of motivation… cannot even be asked” (Kirzner 2006, 30).

(Incidently, I view Chris Coyne's "After War" as a classic example of taking epistemic primacy seriously.) In terms of the financial crisis, I therefore think that people who advocate moral hazard explanations are typically not taking knowledge problems seriously. And indeed when I re-read Prychitko on this it became clear that he's using the Greenspan put as an example of the consequences of the conditions of uncertainty and ignorance. In this sense we do indeed see knowledge problems being treated as primary to incentive ones. Maybe I should re read other articles to see if they do possess this subtlety, but it's something that leaps from the page.

I appreciate that this sort of claim is best tested within the peer review process, but given the public debate of Prychitko's article (and the fact I happened to read it today), I wanted to make this small contribution.

My talk on "Contemporary work in Austrian Economics"

 

Towards the end of September I gave a talk on "Contemporary work in Austrian Economics" for the Adam Smith Institute. It was part of the book launch for Eamon's Primer, which I'm hoping everyone reading this site has now had chance to read. During the talk I made a number of references, and for those who wanted to follow up you can download my notes here.pdf

Indeed just before I spoke I realised that I was sat next to speaker, and managed to make a half decent recording. You can download the audio here: Download Aje_contemporary_1009

In a nutshell:

The message I want to get across – especially to undergraduates considering an academic career exploring Austrian ideas – is this:

 

• The amount of Austrian research and the number of Austrian researchers is growing exponentially
• Good Austrian economists are not marginalised by the economics profession
• There have been significant advances in our understanding of economics made recently

I do this with two lists - (A) signs that the Austrian-school is a fertile, growing, respectable part of the academic community; (B) specific pieces of work that have been published since 1994 that deepen our understanding of the science of economics.

I should add that Angel Martin emailed me to point out that the Ben Powell article I cite (Powell, Benjamin 2005. “State Development Planning: Did it Create an East Asian Miracle?” Review of Austrian Economics, Vol. 18. No. 3/4) is *not* about the East Asian crisis, but about the East Asian growth. Fair point.

For more of my lectures see here.

Image of the day: liberty under threat

Taken by Jay Fine, via Gizmodo

Cable on competition - let's drop the label?

The empirical evidence suggests that Marx was wrong. There is no tendency for capital to become more concentrated. Studies show that firm growth is independent of size (or anything else!), and so the distribution of firm size doesn’t change much over time. The degree of competition or monopoly is roughly stable. Tesco or Wal-Mart might seem monopolistic, but they are less so than 19th century truck stores.

via stumblingandmumbling.typepad.com

It's obviously disappointing to hear from the Business Secretary, but the view that capitalism leads to an increasing concentration of capital is very common. Warren Nutter's empirical work on the USSR* should have conclusively demolished this Marxist myth but sadly it remains.

The problem here is the term "capitalism". To free marketeers it means a system of private property rights and voluntary interaction. To most people it means the status quo. This reminds me of the fairtrade debates, with illogical statements such as:

my thesis that the problem with free trade is that it's not free.

Similarly if Cable's problem with capitalism is that it allows large companies seek (and get) regulatory protection (i.e. stifle competition), then it's not capitalism. It's abundently clear that when people use "capitalism" they mean different things, therefore if anyone *does* use it, without revealing how they're defining it, debate is futile.

Finally, I give a talk each year in Cambridge on the concept of compeition and monopolies. Competition means "trying to gain what your rivals are trying to gain". Remember that.

*Nutter, G. Warren. 1962. The Growth of Industrial Production in the Soviet Economy. Princeton, N.J.: Princeton University Press.

Caption contest: Ostrom and Buchanan

Original via Pete Boettke.

Image of the day

Evidently the guy planned in advance a route that would spell out the above, then drove it with a GPS device that monitored his journey. This is the result. Awesome.

Eastern bloc renews bid to become high tech hub | Anthony Evans

“There’s a basic trade-off here between economic freedom and political control. If Russia wants to realise its potential and become a major player economically, it needs to sacrifice some control.”

via www.information-age.com

The luck of the Irish?

In James Burnham's 2003 article "Why Ireland Boomed" he points to a fortuitous investment in telecommunications that occurred just before financial services became genuinely international. The unique position of Ireland as an English-speaking country within the Eurozone meant that it was an obvious target for FDI - but the supply-side infrastructure was a key enabler.

The curious point is that this investment represented a "discontinuity". In other words, Ireland very quickly went from being one of the worst telecommunication systems to one of the best in Europe. How?

Here's Sean Dorgan (Chief Executive of the IDA, writing for Heritage):

Development steps in financial services and other sectors were assisted by a series of investments in telecommunications from the 1980s onward, although the sector remained largely state-owned until the late 1990s. Late entry to heavy investment in this sector ultimately served Ireland well in that it provided the most advanced and comprehensive digital network in Europe (much as the relevance of the education system was also greater as a result of its late expansion).

This ties into the Mancur Olson point and is perhaps under-studies by free market economists. If countries under-invest in large scale capital projects, when they finally do get round to investing it has the illusion of grandeur. Think about how magnificent the high speed rail lines look in comparison to what we're used to. But the calculation problem means that these "white elephants" may not be worth the money, and lets not ignore the many years of inferior service that exist before such grand schemes get launched (if at all). The Irish case is fascinating, because *good* economic policy requires politicians to enact it, thus leading to debates as to whether the reforms are "political". But the very simplistic narrative that Ireland's boom was in large part due to farsighted policymakers investing in fast broadband, is a little too simplistic.