Increasing Marginal Utility

A blog so good it violates the law of diminishing marginal utility.

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“But, as most economists will tell you, the assumptions of rationality and consumption maximisation are mechanisms to derive general predictions about behaviour. And the funny thing is, biologists often do the same. Biologists tend to treat their subjects as optimisers.”

-Jason Collins, “The Unrealistic Assumptions of Biology.”

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HT Daniel Kuehn.

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Concerned Leftists Rediscover Michel Foucault Might Not Have Been As Anti-Market as They’d Like,” by Brian Doherty.

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Did The D-Backs Trade Wade Miley Because He Wouldn’t Give Up Gluten?” by Tom Ley.

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7 internet policy ideas that everyone can agree on,” by Eli Dourado and Danielle Kehl

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HT Dorkly.

The ‘Murica Index

Which countries are the most similar to ‘Murica? Well, we now have a scientific measure! After careful calibration, I have come up with a 91 country index which captures what it means to be a ‘Murican! As opposed to an American, a classification which includes Democrats, immigrants, and free trade proponents.

Each component is scaled 0 to 10 such that 10 is the best. Here are the components of the index:

-McDonald’s establishments per capita (logged)
-Whether you drive on the right, or the left (left like communist)
-Meat consumption per capita
-Baseball popularity
-Vehicles per capita
-Obesity rate (higher is more ‘Murica, obviously)
-Electricity consumption
-The absence of the metric system. Note that Myanmar and Liberia are not in the index, so this is just a vector of zeros, except for ‘Murica, which gets a ten.
-Common Law
-Military spending as a percent of GDP
-Guns per capita (logged)
-TVs per capita

And here are the rankings and scores!

Rank Country Score
1 United States 8.66
2 Canada 6.97
3 Australia 5.25
4 Israel 5.21
5 New Zealand 5.15
6 Luxembourg 5.15
7 Kuwait 4.98
8 Qatar 4.90
9 Norway 4.84
10 Finland 4.84
11 Germany 4.67
12 Malta 4.66
13 Sweden 4.60
14 Austria 4.60
15 Taiwan 4.59
16 France 4.57
17 Oman 4.46
18 Bahrain 4.45
19 Cyprus 4.32
20 Italy 4.31
21 Switzerland 4.30
22 Denmark 4.26
23 United Kingdom 4.23
24 Spain 4.22
25 Saudi Arabia 4.20
26 Belgium 4.17
27 Netherlands 4.15
28 South Korea 4.12
29 Ireland 4.12
30 Mexico 4.06
31 Slovenia 4.06
32 Portugal 4.02
33 Czech Republic 4.00
34 United Arab Emirates 3.96
35 Estonia 3.86
36 Panama 3.84
37 Russia 3.77
38 Greece 3.76
39 Serbia 3.72
40 Venezuela 3.70
41 Latvia 3.70
42 Hungary 3.69
43 Slovakia 3.66
44 Japan 3.59
45 Bulgaria 3.59
46 Hong Kong 3.57
47 Poland 3.53
48 Lebanon 3.52
49 Croatia 3.51
50 Brunei 3.49
51 Lithuania 3.46
52 Argentina 3.44
53 Brazil 3.40
54 Uruguay 3.27
55 Bahamas 3.27
56 Chile 3.24
57 Belarus 3.17
58 Turkey 3.15
59 Trinidad and Tobago 3.13
60 Ukraine 3.11
61 Georgia 3.11
62 Singapore 3.07
63 Costa Rica 2.82
64 China 2.78
65 Colombia 2.72
66 Bosnia and Herzegovina 2.71
67 Paraguay 2.68
68 Moldova 2.66
69 Romania 2.65
70 Jordan 2.65
71 Ecuador 2.50
72 Guatemala 2.48
73 Egypt 2.46
74 El Salvador 2.43
75 Azerbaijan 2.40
76 Peru 2.40
77 Fiji 2.36
78 Morocco 2.34
79 Malaysia 2.31
80 Honduras 2.28
81 South Africa 2.20
82 Nicaragua 2.19
83 Suriname 2.18
84 Philippines 2.11
85 Pakistan 1.90
86 Thailand 1.87
87 Mauritius 1.82
88 Vietnam 1.63
89 India 1.62
90 Sri Lanka 1.61
91 Indonesia 0.58

My article critical of Nassim Taleb is up at The Independent Review

The abstract:

Bestselling author and finance professor Nassim Taleb claims to champion tradition over social-engineering experimentation, but a careful analysis of his 2012 book Antifragile: Things That Gain from Disorder raises doubts. Such a reading reveals that despite his enthusiasm for orthodox institutions, Taleb’s beliefs and arguments exemplify what Thomas Sowell calls an “unconstrained” vision of human nature.

The full text can be found here. Right now it is subscription only, but that will change in six months. It is short and non-technical for a journal article.

In contrast to the data driven stuff I’ve been doing the last year, this is social philosophy and is more in the spirit of what I once blogged about consistently at increasingmu.

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The Cold-War Origins of the Value of Statistical Life,” by H. Spencer Banzhaf, Journal of Economic Perspectives 28, no. 4 (Fall 2014).

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“Here Mises says that we have to defend ourselves to maintain our freedom, otherwise we will be enslaved. OK. And then he says that voluntary self-defense will not work. Why won’t it work? Because the market isn’t working. And what causes the market to fail? ‘Isolated attempts on the part of each individual to resist’ will fail. In other words, defense is a public good. People will free ride on the efforts of others. But Mises has the solution. Impose a draft, and compel the able-bodied to defend the homeland and force everyone to pay taxes to finance the provision of the public good, which the unhampered free market is unable to do on its own. Of course, this is just one example of market failure, but Mises doesn’t actually explain why the provision of national defense is the only public good. But, analytically of course, there is no distinction between national defense and other public goods, which confer benefits on people irrespective of whether they have paid for the good. So Mises acknowledges that there is such a thing as a public good, and supports the use of government coercion to supply the public good, but without providing any criterion for which public goods may be provided by the government and which may not. If conscription can be justified to solve a certain kind of public-good problem, why is it unthinkable to rely on taxation to solve other kinds of public-good problems, whose existence Mises, apparently unbeknown to himself, has implicitly conceded?”

-David Glasner, “Ludwig von Mises Explains (and Solves) Market Failure.”

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The NAIRU, explained: why economists don’t want unemployment to drop too low,” by Matt Yglesias. A very nice primer.

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When Boris Yeltsin went grocery shopping in Clear Lake,” by Craig Hlavaty.

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A wonderful parody of SJW indie games. Via Lee.

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“The public clamor for the NFL to ‘do more’ when confronted by evidence of serious wrongdoing in the cases of Ray Rice, Adrian Peterson, Greg Hardy, and an unfortunately large number of other cases strikes me as very troubling, and reflective of this view, apparently pretty widespread, that we can’t count on the legal system to mete out appropriate punishment in a reasonable way. We have a criminal law, one would think, to define behavior that we cannot accept as a society, and to identify and punish those who violate those norms. Many people, though, seem to want the NFL, and/or the individual NFL teams, to take over that function. It’s a kind of privatization of a public function, and, extended more broadly, its costs might be much higher than we think. Do we really think it would be a such a good idea if Microsoft, say, or General Electric, or Wal-Mart, or Amazon, or other large private employers started instituting ‘codes of conduct’ governing employee behavior outside of work time? And if they started firing people because they received a video showing them behaving unlawfully, even heinously? And let’s see, whose interests do we think the NFL’s process for determining punishment is going to serve – the public’s? Or the NFL’s?”

-David Post, “Justice, Ferguson MO, and the NFL.”

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“This paper investigates whether U.S. government spending multipliers differ according to two potentially important features of the economy: (1) the amount of slack and (2) whether interest rates are near the zero lower bound. We shed light on these questions by analyzing new quarterly historical U.S. data covering multiple large wars and deep recessions. We estimate a state-dependent model in which impulse responses and multipliers depend on the average dynamics of the economy in each state. We find no evidence that multipliers differ by the amount of slack in the economy. These results are robust to many alternative specifications. The results are less clear for the zero lower bound. For the entire sample, there is no evidence of elevated multipliers near the zero lower bound. When World War II is excluded, some point estimates suggest higher multipliers during the zero lower bound state, but they are not statistically different from the normal state. Our results imply that, contrary to recent conjecture, government spending multipliers were not necessarily higher than average during the Great Recession.”

Government Spending Multipliers in Good Times and in Bad: Evidence from U.S. Historical Data,” by Valerie A. Ramey and Sarah Zubairy.

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“Both major parties (and most of the minor ones) are infested with protectionist fellow travelers who would discriminate on the basis of national origin no less virulently than David Duke or any other overt racist would discriminate on the basis of skin color. But if racism is morally repugnant-and it is-then so is xenophobia, and for exactly the same reasons.”

Xenophobia and Politics: Why protectionism is a lot like racism,” Steven Landsburg.

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“It is common economic doctrine that, strictly speaking, with less than an infinite number of firms in an industry, the demand curve facing any firm is negatively sloped. Moreover, the degree to which a firm faces a less than perfectly elastic demand curve is presumed to depend in part on the number of firms, with perfect competition arising in the limit as the number of firms approaches infinity. Since an infinite number of firms per industry is unrealistic, the assumption is made that as long as there are “many” firms, each acts ‘as if’ there were an infinite number and this produces perfect competition. Firms, therefore, act as if they are price takers when in fact they are not.’ In this paper, we initially describe a partial equilibrium model loosely called Cournovian, after Cournot in which there is a positive relationship between the degree of competition and the number of firms in an industry. We then proceed to show that this relationship disappears in a general equilibrium model. In fact, the major result of the general equilibrium analysis is the following: under certain conditions, a general equilibrium with two or more noncolluding firms per industry is perfectly competitive.”

The Number of Firms and Competition,” by Eugene Fama and Art Laffer, American Economic Review 62, no. 4 (September 1972).

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Adam Smith’s ‘Tolerable Administration of Justice’ and the Wealth of Nations,” by Douglas Irwin.

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The Bacon Weave Ice Cream Sandwich,” by Nick Chapman.

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The Three States of Gamer Gate,” by Clark Bianco. Via Lee.

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Via Geeks Are Sexy.

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My Naivete About Government Officials,” by Scott Sumner. This is some wonderful trolling.

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All in All, Another Brick in the Motte,” by Scott Alexander.

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Pathological Altruism and Pathological Regulation” by Paul Rubin.

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The debacle of philosophy in the 20th century” by Rafe Champion.

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Experts” by Phil Birnbaum. This relates to Bill James.

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The problem with home-cooked meals” by Sarah Kliff.

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The Economics of Fair Trade” by Raluca E. Dragusanu, Daniele Giovannucci, and Nathan Nunn.

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It’s Normal for Regulators to Get Captured” by Megan McArdle.

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Demonstrating the Validity of Twin Research in Criminology” by J.C. Barnes, John Paul Wright, Brian B. Boutwll, Joseph A. Schwartz, Eric J. Connolly, Joseph L. Nedelec, and Kevin M. Beaver.

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“‘Inflation Derps’ Are People from the Concrete Steppes” by Nick Rowe.

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Link Dump

Just because the catharses are on hiatus doesn’t mean I don’t still collect links.

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A Lonely Quest for Facts on Genetically Modified Crops” by Amy Harmon.

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Caramel pork belly recipe.

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The Behavioral Economics Guide 2014.

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Billion-Dollar Billy Beane” by Benjamin Morris.

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America’s License Raj: Unshackle the Entrepreneurs” by The Economist.

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The Role of Policy in the Great Recession and the Weak Recovery” by John Taylor.

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A good economic bet: Pundits who make wagers may look grubby but at least they are accepting a cost for failure” by Tim Harford

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What ‘Stand Your Ground’ Laws Actually Mean” by Eugene Volokh

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Tyler Cowen’s positive account of Transformers 4.

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Libertarianism as if (The Other 99 Percent of) People Mattered” by Loren Lomasky

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Life isn’t fair: the people who practice the most aren’t the most successful” by Joseph Stromberg.

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Inflation Targeting: A Monetary Policy Regime Whose Time Has Come and Gone” by David Beckworth

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Measuring Institutional Quality in Ancient Athens” by Andreas Bergh and Carl Hampus Lyttkens

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5 Hated Groups That Are Going Out of Their Way to Be Awesome” by C. Coville

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Ritual and Its Consequences: An Essay on the Limits of Sincerity” by Adam B. Seligman, Robert P. Weller, Michael J. Puett, and Bennett Simon

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Social Science Suffer from a Severe Publication Bias” by Mark Peplow

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E.T.: ‘The Worst Game Ever’” by Yahtzee Croshaw

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Consumer City” by Ed Glaeser, Jed Kolko, and Albert Saiz

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How to Make Maps” by Lee Crawfurd

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Tips 4 Economists” by Masayuki Kudamatsu

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Utilitarian Moral Judgment in Psychopathy” by Michael Koenigs, Michael Kruepke, Joshua Zeier, and Joseph P. Newman

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Freud, Carnap, Nietzsche, and Marx play Monopoly.

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Apologies for not citing who I got some of these from.

Idle Thoughts About Ordoliberalism

Please excuse some thinking aloud here. I think it might be instructive, when thinking about a public policy perspective, to evaluate how neatly it fits in with what we might be able to call “ordoliberalism.” By this I mean the standards of public policy you would see advocated in an introductory economics textbook, but at a much higher intellectual level. Or, you can think of it as Hicksian efficiency maximization with lump sum transfers. To what extent can a given policy proposal be viewed as an attempt at making the economy more efficient, and to what extent does it make transfers more like lump sum transfers (setting aside whether it increases the total amount of transfers or not)?

In some ways this is very banal, i.e., to what extent does the public policy readily fit in with what “the” economist thinks about these things? Then, to whatever extent it does not fit in with what “the” economist thinks, what are the ends the policy is seeking to achieve? How well will it achieve those ends? At what cost?

To give this some teeth, consider:

-This is a clear break from market socialist-lite that was near mainstream (if not mainstream) in mid-century economics. After all, that is where the term “ordoliberalism” originates from! This is Ludwig Erhard, not Paul Samueslon.

-By that standard, Friedman and yes Hayek (though not all “Hayekians”) are readily labeled “ordoliberals.”

-This can be viewed as a reaction to the arguments in favor of the government running key industries, as opposed to trying to make the industry better as someone like Marshall or Harberger would approach it. Do taxes and subsidies, not Commanding Heights.

-Regarding, for example, Obamacare, a lot of it can be boiled down to increasing transfer payments, which “the” economist is agnostic about. But its transfer payments are in-kind, or essentially in-kind, which “the” economist says is a stupid way of doing it. Some of Obamacare is trying to support more experimentation on the public side of things, which “the” economist may approve of (for reasons analogous to basic science). But much of Obamacare, including the core of it, looks like Commanding Heights, certainly not keyhole solutions. It’s not the nationalization of an industry, but the style is pure command and control.

-Medicare Part D, of course, should be viewed simply as a collection of poorly executed in-kind transfer payments.

There are many free market advocates who keep their language anchored to this framing. Greg Mankiw does (outside of his explicitly philosophical posts). Scott Sumner is actually excellent on this. Every op-ed of the late Gary Becker did this. However, obviously on the right, many can quickly get very deonotological (not just Rothbardians either), even when ostensibly talking about “economics.” And I offer quite a bit of incredulity to free market advocates who imply that the EITC cannot allow the poor to achieve a higher level of consumption that they would otherwise.

However, regarding economics pundits and bloggers on the left, while it seems clear that they have something like ordoliberalism as the background model for the arguments they are making, they are not clear about 1) when what they are saying simply falls in line with ordoliberalism, 2) when it is the result of other concerns (which they are no expert on), like fairness, and 3) when it is simple party politics. Counterexample? Perhaps Justin Wolfers, but I am not sure.

I think the best, clearest, and most consistent ordoliberals are free market advocates, but among free market advocates there is higher variance. Greg Mankiw is better at it than Paul Krugman, but Walter Block is worse at it than James Galbraith.

Maybe this is completely off base, but it’s a thought.

Rationalization Versus Criticism in Economics

There are two fundamentally opposed viewpoints of what we should be doing when we “do economics.”

  • One can think of economics as a means of rationalization - the use of reflection, logic, and empirics to determine how certain actions, even if counterintuitive, serve some rational end. This is the basic idea motivating much of “economic imperialism.” 
  • The second way to think about it is criticism. We work from assumptions about what the ends of agents are and determine whether their chosen means are appropriate. Cost-benefit analysis, behavioral economics, and the most successful application ever of applied econometrics, sabermetrics, are all examples.

I tend to think the second is more fruitful than the first, which in some way puts me on the left of the spectrum when it comes to economic methodology, if that is a sentence that makes sense. But of course I use that paradigm to criticize many things correlated with the left (even if they are non-political, narrowly speaking), which is perhaps what explains my ostensible eccentricity.

On the other hand, I do not object to “economic imperialism” even though I believe many of its conclusions reach way too far. The way I square rationalization with criticism is to stay within Becker’s z-good approach, but to assert we must keep the number of z-goods we accept as “legitimate” to a very limited scope. Otherwise, “rationalization” ceases to be a generator of interesting hypotheses and takes on its pejorative definition instead.

Consider vaccination opponents. We can point out that many of their empirical beliefs are simply wrong. But there are obviously deeper motivations than their empirical beliefs – the use of vaccines as a scapegoat for various childhood illnesses confirms certain worldviews (and there is no more bitter pill to swallow than to accept evidence that you worldview is wrong), the intuitive preferences for what is perceived to be natural (“I don’t like the idea of you putting all those chemicals in my son’s body”), and so on. The point is, that I can come up with perfectly legitimate rationalizations, perhaps even “preferences” that are entirely inherent to what it means to be human, to defend one of the most irrational norms we have in Western culture as somehow rational.

If we limit z-goods, we are allowed to still say that vaccination opposition is wrong on one of two grounds. One, people are improperly matching their means and ends. The z-good is the well-being of family members (which is obviously an essential z-good), and they are not perceiving how to address it correctly.

But this seems incomplete. One potential z-good I would accept is preferences over beliefs (although I would state it more broadly), which is why you get booing crowds when you present scientific evidence to opponents of vaccines. I think it’s important to realize that this is both a real human preference and a bias (confirmation bias); the two are simply different ways to label it depending on whether you want to call it a preference or call it a bias. In either case, it is not a “good” thing for vaccine opponents if this is their motivation, even if this “rationalizes” the behavior.

Additionally, this can be thought of in terms of expressive consumption. Expressive consumption instrumentally serves a number of functions. It may serve “identity,” likely a z-good which is so deeply intermingled with strange sociological phenomena it is hard to get a handle on in. It may also serve a variety of signaling mechanisms, including cooperativeness (you are a vigilant member of your community, not a stooge for the corrupt medical establishment) and yes, status. But with any signaling, people are probably incentivized to do too much of it, so in that sense this “rationalization” too may imply it is anti-social.

And clearly, when you state it in these terms, it implies that vaccine opponents are prioritizing their preferences over beliefs or engaging in a backwards form of expressive consumption in place of keeping their children healthy. That too would be grounds for criticism.

Vaccine opposition is only the clearest example of many choices I see, and I have remarked on them extensively on this blog. I think if you go through a similar exercise with them, you would come to similar conclusions.

The charge of libertarian authoritarianism

Brad DeLong has an otherwise interesting post in which he says,

Mont Pelerin neoliberals tend to be social conservatives, and to at least play with endorsing fascist and authoritarian dictators like Mussolini and Pinochet.

Whether libertarians are somehow intermingled with authoritarians is one of those one or two hundred topics that gets recycled once every couple of years in this corner of the internet. So I don’t mean to play reruns (a clip show?), but let’s go through all the examples of libertarians purportedly doing so that I can think of. This includes, by the way, examples that don’t generally get brought up by the left.

LEGITIMATE EXAMPLES

1. Hans-Hermann Hoppe is a racist pseudo-intellectual punk who somehow got tenure in an economics department during an age that radical libertarians in academia seemingly did nothing but revisionist history. He wrote a book called Democracy: The God That Failed in which he argues that, while no government at all is the first-best option, historically monarchies are preferable to democracies. Libertarians who have followed in his footsteps are either harmlessly quixotic, attempting to publish academic articles from their mom’s basement, or both. The last I heard he had been ostracized from even the most extremes of the extremes of the movement and was writing some racist history on a boat somewhere. Oh, and by the way, Hoppe founded an organization in reaction to MPS because MPS was too moderate, so his inclusion here is almost the exception that proves the rule.

EXAMPLES THAT ARE ONLY LEGITIMATE UNDER VERY UNCHARITABLE READINGS

1. Mises once said some things that sound vaguely pro-fascism if you take him completely out of context. At worst, if you read the full paragraph, he sounds blase about fascism, which is exactly the same thing you can say about Keynes (whether you treat the comments of Keynes and Mises as equivalent is a good test of how much much ideology clouds your reading, imo). Both of their comments were made in an era where many intellectuals were blase about fascism – this was decades before Nazis were the bad guys in Indiana Jones movies, after all. Regardless, even if you insist on reading Mises as uncharitably as possible, it is less legitimate to use his comments to demonize today’s MPS than it would be to use the comments regarding eugenics of nearly every progressive of the early twentieth century to demonize the Center for American Progress. So there’s that.

2. Hayek on Pinochet, oy vey. This is another example of probably simply being blase, but it is worse. If you state Hayek’s position upfront – “hey, maybe if democratic governments are clearly circling the gutter, it’s useful to have an authoritarian step in and force better institutions in place” – it doesn’t really sound like an endorsement of fascism, or even like “toying” with it, but an undue extrapolation of some positive side effects of one particular monstrous brute coming into power. To the best of my knowledge, this notion is raised on occasion within the movement, but more as a history of thought thing than anything else. If you want to go all Naomi Klein on it and claim that this depressed, lonely academic engineered Bush II’s invasion of Iraq thirty years in advance to deregulate financial markets or whatever, so be it. The more realistic portrayal is that, when Hayek made these comments, he was gradually turning into Mr. Magoo.

3. When public choice was first developing as a field, James Buchanan was chased from a couple academic institutions by other academics there who called him and his colleagues fascists. This was like the 1960s, so I don’t think it’s unfair to summarize this as Marxists getting pissed off at the implications of the rational choice model to democracy and leave it at that.

ACTUAL EXAMPLES OF THE MODERN MPS

1. There is a skepticism of democracy as an institution that you get in MPS that you won’t get elsewhere. Of course, and I don’t think I’m “outing” anyone when saying this, that’s because many of them are anarchists. They are not very impressed with the outcomes you get from democracies, but that isn’t because they want an American Pinochet to take over the government and force neoliberalism (*evil laugh*) down everyone’s throat. Rather, they believe that no government at all is optimal. That’s it, really.

2. There’s a strain of democracy skepticism that goes like this: tell me something good that democracy does that is not tautological. In other words, what is something that democracy does that is positive that is not the direct result of democracy? According to some, the only good answer to this is that democracies are less likely than autocracies to allow a famine to take place. They are very skeptical of the literature claiming that democracy encourages economic growth (I see the evidence as pretty mixed). But all this results from a very instrumentalist interpretation of democracy. You don’t care about democracy per se; it is only a method of achieving effective governance, not the end in itself. If you equate the instrumentalist interpretation of alternative political institutions with “toying with fascist and authoritarian dictators,” you have that, but you’ve shifted from uncharitable readings to smear campaigns and propaganda. 

In other words, these charges of dabbling in authoritarianism are barely superior in quality to Kengor/D’Souza charges of Obama of communism. It’s embarrassing that the intellectual left takes it at all seriously. 

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