It is a short book on specialization and trade. I have a first draft, that I plan to edit at least once more before sending it around for comments. Here are the first paragraphs of the forward:
Early in 2015, I came across a volume of essays edited by E. Roy Weintraub called MIT and the Transformation of American Economics. After digesting the essays, I thought to myself, “So that’s how it all went wrong.”
Let me hasten to mention that my own Ph.D in economics comes from MIT, in 1980. Also, the writers of Weintraub’s book are generally laudatory toward MIT and its influence.
Yet I have come to believe that the MIT approach to economics has stifled critical thinking. The critical thinker is always asking the philosopher’s epistemological question, “How do you know that?” The MIT approach suppresses that question and instead presumes that economic researchers and policy makers are capable of obtaining knowledge that many believe is beyond their grasp.2 This is particularly the case in the field known as macroeconomics, whose practitioners claim to know how to manage the overall levels of output and employment in the economy.
What I have set out to write is an introduction to economics as I believe it would have been written had the MIT revolution not taken over the academy. It sets out what I see as important principles of economics, and important issues in social theory in general. Some of the ideas were understood by classical economists but forgotten by the MIT revolution. Other ideas reflect more recent thinking about the factors that enable trust in society.
A few additional notes:
1. There is a Boudreaux-like emphasis on the gains from trade throughout the book.
2. There is a Boettke-like emphasis on the co-ordination problem and on economics as comparative institutional analysis.
3. There are some themes that are not heavily emphasized in Austrian economics, and may even run counter to it. One such theme is that trust is very important for a society’s economic well-being. Trust depends on individual beliefs, cultural norms, and formal institutions. Trust means that people have confidence that rules are being enforced. All enforcement mechanisms come with advantages and disadvantages. People count on government to serve as one important mechanism.
4. Another theme is the that financial intermediation is inherently fragile. Here, I also emphasize trust. I offer a version of the Minsky cycle, but with trust in opaque financial intermediaries, rather than sheer business confidence, as the variable that changes over the cycle.
5. My take on finance and the real economy is very antithetical to monetarism. It also differs, probably in substance and certainly in presentation, from the standard Austrian story of “the” interest rate, “the” structure of production, and malinvestment.
Should I refer to it as The Book of Arnold?
Reflections on the Revolution in Macro?
“The Emperor’s New Economics” :- “How much of Economics can not be known, some that can, and why this matters”
I had the good fortune to take courses in the philosophy of science in college, where I was introduced to Popper, Hayek and the concept of scientism. As you note, it is clear that the current practitioners of macro have little acquaintance with epistemology and thus no idea of the limits of their knowledge. They plow on, nonetheless. Where are their great achievements?
I guess the title “Paul Krugman is a Big Fat Idiot and Other Observations” isn’t charitable enough, is it?
How about Klingon Economics?
Bah, beat me to it, except I was going to suggest ‘Klingonomics!’
Trust means that people have confidence that rules are being enforced. All enforcement mechanisms come with advantages and disadvantages. People count on government to serve as one important mechanism.
Thinking about the liberal/conservative divide I think part of the Trust mechanism is covered by religion. Over 100 years ago, local people had more confidence that rules are enforced because everybody went to the same church. (I know I over-simplifying here A LOT.) As it was religion that enforced more family rules so there were institutions of getting young people properly married and raising their children according to the rules.
Now with global and specialized trade, the economy is more amoral and it expected a company or a person does business with people not of the same religion. (For instance Coca-Cola sells well to all religions in the world.) So religious institutions are diminishes which means: 1) Federal government plays more a role in following the rules. 2) Our society now has the opimtal marriage age of 25 – 30 and is comfortable with use of birth control or single motherhood.
“Over 100 years ago, local people had more confidence that rules are enforced because everybody went to the same church.”
Which meant that people belonging to other churchs (even Christians ones, not to mention the fate of lots of Jews under such a “moral system” of building “trust”)-or no church- could suffer persecution. Apparently, the Thirty Years’ War, the St. Bartholomew’s Day massacre and the pogroms were profitable exercises in trust building. Says a lot about Conservatives that they call abolishing such a state of affairs “ammoral”.
3-5. I know you aren’t primarily criticizing Austrian economics, and I am no expert, but I always feel obliged to point out (to good faith thinkers) that lagging academic paradigms are probably under-explored, under-refined, and you may not have been exposed to the latest thinking as would be virtually unavoidable with the mainstream. I might think of them like independent films vs blockbusters. I feel like most of your points are to some degree considered in Austrian economics. For example, I think “the” interest rate is an illustration and thus a caricature (or a strawman)- and doesn’t The Fed behave that way? Not that they are right…but to what,extent does their might make them right? And the fragility of finance to “the” interest rate seems inherent to the malinvestment thesis.
“Prepare to meet your Macro”
So, what I get the sense of what was lost in the singular focus seems to be the richness of prior inquiry. Also PSST is partially about discovery and serendipity. So something optimistic and broad like “A Rediscovery of Discovery in the Economy” Something better and yours of course but don’t limit yourself or your audience. For example, I intentionally used economy instead of economics, and so on.
I view what you are attempting to do and communicate as being related to a travel or journey metaphor. We already have cliches like “on the wrong track” or “stuck in a rut” or “feeling disoriented”.
Going with the metaphor, what you are trying to do is notice – especially in light of recent events – that something is not quite right and there is a lot of argument about where to go next. So you stepping up to high ground to survey the whole territory, and while considering the original objectives, point out that somewhere back there, we got on the wrong track, and started headed in the wrong direction. It seemed promising at the time, but now it’s clear that some of the early misgivings were right, we ended up in a dead end, and now we need to backtrack and chart / plot a new course.
So I suggest something like “Getting Back On Track” or “The New Course for Economics.”
I think you use “trust” more here than you normally do. I don’t know how much you are thinking of anything like Richard Florida.
Titles, maybe:
The Uncreative Class: What MIT Failed to Learn, and Teach about How Economies Work
Communication Breakdown
Working Alone
From Handshakes to Digital Handshakes in 30 Years: The New Trust
Please do not give it some cutesy title. Give it a name with some dignity, something that a self-respecting person can put on their bookshelf. Can you imagine if Friedman had given “Capitalism and Freedom” the title “Miltonomics”? Or if “Free to Choose” were instead, “No One Knows How To Make A Pencil, And Fifty Other Freaky Freedom Facts”?
I only meant to refer to it as The Book of Arnold while it is in draft stage. The real working title is Specialization and Trade
Here are some possible titles:
Whither Markets?
Foundations of a Free Economy
Themes on Catallactic Order
Markets and Models
The Market Process: A Personal View
“Should I refer to it as The Book of Arnold?”
Yes.
“Contingent Economics – On Specialisation, Trade, and Trust” or “The Contingent Economy – On Specialisation, Trade, and Trust”
I am very much looking forward to this book. PSST and many of its surrounding ideas are a significant advance in modern economic thinking. A systematic and more fully spelled out presentation is most desirable.
I am excited to detect a willingness to include the interaction of the economy with politics and the government – perhaps in some later edition even with transrational mechanisms of social cohesion: the dimensions that make an economy significantly contingent on non-economic spheres:
the spontaneous order of politics and the state (so badly neglected by economic reductionists), including what I call “effective trust” (acts of trust without sentiments of trust) that is built up behind the backs of people largely by the intended and unintended effects of political institutions fostering peaceful coexistence in the face of ideological differences in a free society, and thus, creating the precondition for a powerful economy.
I am not sire why trust is contra Austrian economics … Havent they written a lot about how values would emerge that support markets, that Austrian rasta comes to mind but I forget his name.
I might include some Deidre McCloskey type observations about what she calls bourgeois virtues etc emerging as respectable and making commerce acceptable etc.