TCS Daily


So You Want to be a Masonomist

By Arnold Kling - October 17, 2007 12:00 AM

"Imagine there's no countries
It isn't hard to do"

John Lennon

In 1962, few people knew that the future of popular music was to be found in Liverpool, England and Hamburg, Germany. In the early 1970's, few people knew that the future of information processing was to be found at the Homebrew Computer Club. In 1993, few people knew that the future of online software was in Champaign-Urbana, Illinois.

Years from now, perhaps people will be saying that something big got started recently at the George Mason University department of economics. Maybe if you become a Masonomist now, you will be getting in early on a trend that will soon catch on much more widely . (Note: my formal link with GMU is rather tenuous--I teach one course as an adjunct. Informally, my links through blogging are stronger.)

The excitement at Mason is in blogs and books. The three most well-known blogs are Marginal Revolution (Tyler Cowen and Alex Tabarrok), Econlib (Bryan Caplan and myself), and Cafe Hayek (Russ Roberts and Don Boudreaux). Robin Hanson (Overcoming Bias) is one of many other Mason faculty and graduate students who blog. This year, both Caplan and Cowen produced influential books, Myth of the Rational Voter and Discover Your Inner Economist, respectively.

Why do Masonomists blog so avidly? I think it is because there is a sense that we are onto something, and we want to ramp up the conversation among ourselves as well as communicate with a wider audience.

Lose the we

Most economists favor the free market, with reservations. Masonomics rejects the reservations. If John and Mary are free individuals, and John trades with Mary, then John and Mary both are better off. End of story.

Most other economists believe in the need for government intervention. Like many non-economists, they talk about government policy in terms of we. We must, we have to, we need, we should, etc.

Once upon a time, "We, the people" was the preamble to a charter that reminded those in government of the limitations on the power granted to them. In today's political discourse, "we" is more often the preamble to something like a call for an involuntary collective health system.

If you want to be a Masonomist, you have to lose the we. When people use we in today's politics , they are doing two things.

  1. Appealing to a moral entity that stands apart from and above John, Mary, or any other individual

  2. Treating government as the embodiment of that higher moral entity

You can be a Masonomist and believe (1). It is a good thing to have a conscience and moral standards. It is a good thing to engage in volunteer work, to form organizations that address the needs of others, and to act unselfishly toward family and others in your community.

Masonomists encourage our noble impulses. Tyler Cowen's book is a cross between a self-help manual and an essay on moral philosophy. In one section, he suggests ways that one can modify one's behavior in order to give enough to charity and to ensure that one's charitable contributions are made wisely.

However, Masonomics is unrelenting in its rejection of (2). For many years, George Mason has been the home of Public Choice Theory, which says that instead of imagining what a wise, omniscient, benevolent government might do, one should pay attention to how government operates in practice. Nobel Laureate James Buchanan, founder (with Gordon Tullock) of Public Choice, is the gray eminence of Masonomics.

In practice, the impetus for stopping John and Mary from trading typically comes not from a higher moral entity, but from Mary's competitor Sam. For example, Boudreaux has studied the history of anti-trust. In theory, anti-trust laws are designed to protect consumers from high-priced monopoly. In practice, anti-trust laws are used by competitors to punish low-price competition. For example, when Microsoft was hit with anti-trust action, the "crime" was giving away a web browser for free! You can learn more by listening to this conversation between Boudreaux and Roberts.

Melinda Gates, Lose the We

I should emphasize that "lose the we" does not mean that one should be selfish or uncompassionate or uncaring. Instead, it means that you should channel your impulse to do good by actually doing good. Saying we and advocating government policy is instead a way of feeling good. It is an arrogant, demagogic pose.

If you believe so strongly in we, why don't you put your money where you mouth is? Why don't you donate money to the government? I know my answer to that question. I try to choose charities that have low overhead and programs that seem to me to be working. I think that donating to private charitable organizations is more worthwhile than donating to government. If you, too, make no donations to government, then your actions say "lose the we." If your words say otherwise, then perhaps you should rethink your words.

For example, Melinda Gates recently wrote,

We believe that Americans have the power to improve millions of children's lives by telling their political leaders -- in the 2008 presidential campaign and beyond -- that high schools matter and by demanding to know more about their plans for fixing them.

...If Americans can speak with one voice, then the next president and other elected leaders will feel compelled to offer visions and plans that will help ensure that every child in America attends a great high school.

Melinda Gates, lose the we. The visions and plans of our elected leaders are part of the problem in education, not the solution.

Back in the 1980's, I recall that Microsoft had a very low profile in Washington. Technology leaders, including Bill Gates, seemed to feel this way: those who can, compete; those who can't, lobby. In this view, a technology firm that has a big lobbying focus is indicating that it has lost its way. If the Gates Foundation cannot come up with a better way to spend its money than to plead with politicians, then I would suggest that it has lost its way.

Masonomist Trade Doctrine

Dani Rodrik, an economist at Harvard, where we gets used without a second thought, thinks that Masonomics overstates the case for free trade. He argues that we cannot prove that everyone in a country benefits from free trade. This is true. In fact, it is theoretically possible for more people to be hurt by trade than benefit from it. Therefore, Rodrik implies, it is conceivable that we should have tariffs, or, at the very least, we need to compensate those who are "hurt" by free trade.

Masonomics says to lose the we. Instead, like John Lennon, let us imagine that there are no countries. John and Mary are trading, and they are both better off, but an economist calculates that Sam would be better off if John and Mary were prevented from trading. What entity has the moral authority to stop John and Mary from trading?

Governments lay claim to legal authority to collect taxes or impose restrictions on trade across borders. But there is no moral significance to a border. If John, Mary, and Sam all lived within the same country, the question of whether free trade is good for "us" would never arise. John's right to trade with Mary without interference on behalf of Sam would not be questioned. It is hard to see how moving Mary across a border changes the situation from a moral or economic standpoint.

Boudreaux will tell you that one of the most widely-quoted economic statistics, the national trade deficit, has no meaning. There is no we that is in debt to a they. There are only individuals who have issued securities to individuals.

It is true that governments issue securities also, and government deficits are truly something that we will have to repay. Some of those government securities are held by foreigners. There is certainly something meaningful about the total liabilities of government, and there may be something particularly meaningful about the liabilities of our government that are held by citizens of other countries or by foreign governments. But that is not what is measured by the national trade deficit.

We do not measure the balance of trade between Maryland and Virginia, and no one is the worse for this ignorance. Similarly, if we stopped measuring the balance of trade between the U.S. and China, no knowledge would be lost. Indeed, our overall economic literacy would increase, because there would be fewer misleading stories written about trade deficits.

The Cure for Market Failure

At the University of Chicago, economists lean to the right of the economics profession. They are known for saying, in effect, "Markets work well. Use the market."

At MIT and other bastions of mainstream economics, most economists are to the left of center but to the right of the academic community as a whole. These economists are known for saying, in effect, "Markets fail. Use government."

Masonomics says, "Markets fail. Use markets."

Somewhere along the way, mainstream economics became hung up on the concept of a perfect market and an optimal allocation of resources. The conditions necessary for a perfect market are absurdly demanding. Everything in the economy must be transparent. Managers must have perfect information about worker productivity and consumers must have perfect information about product quality. There can be nothing that gives an advantage to a firm with a large market share. There cannot be any benefits or costs of any market activity that spill over beyond that market.

The argument between Chicago and MIT seems to be over whether perfect markets are a "good approximation" or a "bad approximation" to reality. Masonomics goes along with the MIT view that perfect markets are a bad approximation to reality. But we do not look to government as a "solution" to imperfect markets.

Masonomics sees market failure as a motivation for entrepreneurship. As an example of market failure, let us use a classic case described by a Nobel Laureate, which is that the seller of a used car knows more about the condition of the car than the buyer. Masonomics predicts that entrepreneurs will try to address this problem. In fact, there are a number of entrepreneurial solutions. Buyers can obtain vehicle history reports. Sellers can offer warranties. Firms such as Carmax undertake professional inspections and stake their reputation on the quality of the cars that they sell.

Masonomics worries much more about government failure than market failure. Governments do not face competitive pressure. They are immune from the "creative destruction" of entrepreneurial innovation. In the market, ineffective firms go out of business. In government, ineffective programs develop powerful constituent groups with a stake in their perpetuation.

Unpopular Opinion

Masonomics disdains the obscure mathematics of mainstream economics. There is nothing about Masonomics that is beyond the comprehension of an intelligent layman.

Although Masonomics has no pretensions to be over the average person's head, Masonomists are reluctant to concede anything to popular opinion. For example, Bryan Caplan's book describes the economically ignorant voting public as a menace. As consumers, ordinary people have sufficient incentive to learn what is best for them. As voters, they do not.

When it comes to matters of fact and analysis, Masonomics does not care how many people feel a certain way, or how strongly they feel it. Robin Hanson exemplifies this unforgiving intellectual outlook. For example, he recently wrote:

our main problem in health policy is a huge overemphasis on medicine. The U.S. spends one sixth of national income on medicine, more than on all manufacturing. But health policy experts know that we see at best only weak aggregate relations between health and medicine, in contrast to apparently strong aggregate relations between health and many other factors, such as exercise, diet, sleep, smoking, pollution, climate, and social status. Cutting half of medical spending would seem to cost little in health, and yet would free up vast resources for other health and utility gains. To their shame, health experts have not said this loudly and clearly enough.

Many health policy wonks are aware of the large number of studies that show little relationship between the amount of medical services a population receives and the health of that population. However, hardly anyone is willing to follow this result to its logical conclusion, namely, that we probably would be better off with less medical care. Hanson understandably regards this as a remarkable blind spot among health policy advocates.

One of the variables that is correlated with health status is Unmentionable. This Unmentionable Factor affects life expectancy, income, international differences in the standard of living, and many other phenomena. Garett Jones is a young economist who incorporates The Unmentionable into his research. I describe a recent paper of Jones as saying that "people with high levels of The Unmentionable are better able to co-operate with one another." Not surprisingly, Jones has just joined the faculty at George Mason.

Are You Ready?

So, if you are ready to get in on the next Big Thing in political economy, now you know what to do:

--lose the we

--recognize that market failures exist, and that is why we need markets

--arrive at truth by following the facts, not the fashions

When Masonomics itself becomes fashionable, it will be time to look for something else.


Categories:

79 Comments

govt charity
advocating that the govt solve a particular problem is nothing more than a way to feel good about yourself at no cost to yourself.

Demanding that govt solve a problem means that you don't have to do any work regarding how a problem should be fixed. That's govt's job.

Demanding that govt solve a problem means that you don't have to worry about getting your fingers dirty, or spending any of your time. Hiring people to solve problems is the govts job.

Demanding that govt solve a problem means that you don't have to worry about spending any of your own money. After all, it's govt job to tax other people to solve the problems that you have identified.

Demanding that govt solve our problems is the ultimate expression of narcissism.

With Reservations
I'm not comfortable with saying I favor the free market without reservation. Intellectual responsibility demands that I grant that in a complex world the answer is not very clear, and that I remain open to data or analysis that could favor government intervention in some context.

Why?
You can't give up the concept that you might want to force someone to buy your products or force someone to sell you their products?

A power trip
There are way too many people who must have control over someone or something.

Government is just one way these people can reinforce their fragile egos.

context
in order to favor govt intervention, in any case, you have to be willing to claim that it is possible for govt beaurocrats to have better information and better motives than the people who are actually involved.

That's an indefensible position.

not indefensible at all
Take the example of an OSHA safety engineer: they go to manufacturing facilities with expertise on machine guarding, find unguarded machinery, and force the employer to fix it. They have brought additional expertise to the workplace. The employer is not an expert in machine guarding, he is an expert on producing widgets. The employer will not guard the machine until it cuts off someone's fingers, as they are unaware of the potential hazard, or it slows production. If it does interfere with production it will not get fixed. If you want to argue that is undue interference, then welcome to southern china.





Multiply this by example by the EPA, CDC, FDA, SEC, and more. You will see that government intervention can prevent DDT from killing off the condor, stave off epidemics, decrease insider trading, and stop melamine from killing our pets. Given adequate funding, resources, and expertise these agencies can improve the marketplace, and society. All thanks to the expertise they bring to the specific problems they were designed to address.




You can live in your Dickensian free-market fantasyland if you like, but most of us prefer some sort of guarantor of fairness and ethics in the market. The government isn't perfect, but it's next to impossible to have robust markets without some mechanism of arbitration. Where do you go when a client doesn't pay? A courtroom! Too bad the judges (government employees) are all incompetent in your world, they might have been able to help you out...

not indefensible at all
Take the example of an OSHA safety engineer: they go to manufacturing facilities with expertise on machine guarding, find unguarded machinery, and force the employer to fix it. They have brought additional expertise to the workplace. The employer is not an expert in machine guarding, he is an expert on producing widgets. The employer will not guard the machine until it cuts off someone's fingers, as they are unaware of the potential hazard, or it slows production. If it does interfere with production it will not get fixed. If you want to argue that is undue interference, then welcome to southern china.

Multiply this by example by the EPA, CDC, FDA, SEC, and more. You will see that government intervention can prevent DDT from killing off the condor, stave off epidemics, decrease insider trading, and stop melamine from killing our pets. Given adequate funding, resources, and expertise these agencies can improve the marketplace, and society. All thanks to the expertise they bring to the specific problems they were designed to address.

You can live in your Dickensian free-market fantasyland if you like, but most of us prefer some sort of guarantor of fairness and ethics in the market. The government isn't perfect, but it's next to impossible to have robust markets without some mechanism of arbitration. Where do you go when a client doesn't pay? A courtroom! Too bad the judges (government employees) are all incompetent in your world, they might have been able to help you out...

completely defensible
you are assuming that only a govt agent could have the expertise needed to know that a guard is needed on the machine.

Private agencies also exist that can make such judgements.
You are also assuming that the employer will either not care, or not know that he needs to ask an expert regarding whether his machine needs a guard.

Neither of those assumptions is defensible either.

I'm glad that you brought up DDT.
There was never a scintilla of evidence that DDT harmed birds. The one test that did was shown to be badly flawed. Apparently on purpose. Eagles for one, started recovering a decade before DDT was banned.

As to your claim that govt provides some guarenteed of fairness in the marketplace. That claim is so indefensible that it could only be used with a straight face in a Monty Python skit.

Since when has govt ever been "fair" about anything. Govt is force, and the only thing govt cares about is who paid the biggest bribes in the last election.

As to arbitration, why do you believe that only govt can provide that?

It must be better in the Congo
This is what you wrote. "in order to favor govt intervention, in any case, you have to be willing to claim that it is possible for govt beaurocrats to have better information and better motives than the people who are actually involved."

In reality, some government scientists/engineers know more about machine guarding that the people operating the machines. They know more about the safety of products than the people producing them, and they know more about how to prevent insider trading that the felons committing it. The engineers/scientists themselves also lack a commercial interest in the outcome of disputes, a useful trait for arbiters.

Whether or not private consultants "also" have expertise is not evidence for or against the expertise of the government.

If you trust consultants who have an interest in the welfare of their clients instead of a evil "bureaucrat", then I suggest you hire Arthur Andersen to do your accounting while auditing you. Maybe they can pay to have an analyst pimp your stock while they do your IPO?

When a goverment scientist shows up at my plant and tells me I need to lower emissions or guard a machine, I generally listen if not agree. If a consultant shows up, it's usually to sell me something I don't need. No discredit to them, they need to make a living, but caveat emptor.

Next silly idea: Huey Long was corrupt, so the SEC is too. Do not equate the EPA scientist or the SEC prosecutor with the politician. Your anti-government zealotry is entertaining, but overblown.

We can argue that someone else somewhere many know something more than the gov't. Who cares. We're talking about the real world, and in the real world profit sometimes trumps safety or fairness in the short run, and we as a society have decided that the gov't is the arbiter when we're not pleased with the results.

So again, I ask you. Who do you go to when you get cheated in a business deal? The temple of Ayn Rand, or small claims court?

If lack of government is the most important criterion for good business, may I suggest opening an office in Kinshasa?

Entities...
Each sovereign government is a self-perpetuating entity...just as each corporation and each individual.

You can't "imagine there's no countries" (as John Lennon suggested). There are such entities and they are here to stay because the larger (global) society has work for them to do.

If we wish to limit the reach and the influence of such entities (governments) then we need to take away some of their social tasks. One of those (jobs we could ask them to stop doing already) might be the collection of import duties in restraint of trade. Free trade!

But we can never fully eliminate the fundamental reason that sovereign states came into being in the first place...to defend themselves from annexation and their citizens from (foreign) enslavement. Governments everywhere will need to continue with that job.

How such work should be accomplished is somewhat different for each of our 200 national governments...they must either have world-class militaries of their own...or (save some money and) be on very friendly terms with governments that do.

Regrading global financial capitalism the author said: "the national trade deficit, has no meaning. There is no we that is in debt to a they. There are only individuals who have issued securities to individuals."

Government bonds operate in the same fundamental way as "junk bonds" issued by a corporate entity. Interest rate yields are different simply as a function of risk, in this case.

Remember that if there was no US Natinal Debt underwritten by Treasury Debt Instruments then there would be no "store of wealth" in the global economy and no hard currency. Imagine (there's no money...) that!

If some economists on the right say: "Markets work well. Use the market."...and some economists on the left say: "Markets fail. Use government."...it does not seem to follow that the compromise position should be: "Markets fail. Use markets."

Rather (it seems to me) the more prudent posture might be to say: "Markets often misbehave. Stay away from the morons. Governments often misbehave. Again, stay away from entities that seem inclined to hurt you."

Does this mean that we no longer operate in the marketplace? Of course, we do.

Does it mean that we rebel against sovereign governments? No. But it does imply that insofar as we have choices, in this regard, we should force all such entities to compete for our business.

Next subject. Economic models (and all algorithms) can never be solved to completion. However, they might achieve solutions statistically superior to the (standard error) quality of their input data. That is our goal.

Any assumption that perfect data is necessary merely establishes an excuse for the weaknesses of the economic model and its inability to predict outcomes. Measurements must be continual and recalculations must move in a "forward, finite" direction. Like chasing down a fly ball.

Failures must be seen as either poor execution or poor design. (What else? Acts of God? Plan for those too.)

"Recognize that market failures exist, and that is why we need markets."

I don't see how that follows? We need markets so that we are able to execute transactions. Market failures? This, we do not need.

It's like saying: "car crashes exist and that is why we need automobiles." Makes no sense...Really.

not a relevant response
you state that some govt engineers know more about the machine than the people who operate it.

So what?

That was not the point. You claimed that only govt engineers can be trusted to force a company to apply proper safety equipment. I showed where you were wrong.
Your response was not relevant to the point you were trying to make. Care to try again, or do you just want to keep worshiping govt?

When you find someone who tells you that only someone from the govt can be trusted, you know you have found yourself a kool aid drinker, regardless of what name he uses.

arrogant, demogogic pose
"Saying we and advocating government policy is instead a way of feeling good. It is an arrogant, demagogic pose."

And that, basically, is how all my 'debates' with my liberal SF Bay GroupThink friends always ends up with. It shuts them up when I say that...until they just learn that they can just completely ignore what I said (like I'm not in the room or something) and start back on their demagogic pose.

Eminent domain...
In the end the government can and will force any such transactions if they feel that those are in their own best interest.

Whether or not we "give up" on that reality matters not at all. They only pretend to care what "we" think.

talking to yourself
You showed I was wrong? Ha! Boy did I learn my lesson.

Let's recap this thrilling little adventure, shall we? You said government can't be trusted to do anything, I said they often can be, you said consultants know just as much as the government. I said who cares, that doesn't disprove the government's occasional competence, you then say "When you find someone who tells you that only someone from the govt can be trusted, you know you have found yourself a kool aid drinker." Wow, your witticism and insight have done me in, Great One.

I'll be dragging my troll-like gov't-lovin' self back into my zzzzzzzzzzz...

Government is people
When the people shut down the Senate switch board recently, the 'government' paid attention.

And beleive it or not, there are still people who take their oath of office to support and defend the Consitution seriously.

Now that the 2nd Amendment is being re-discovered as an individual right, power is less in the hands of the government and more to the true sovereigns.

Better, faster and cheaper...
In any society commonly desired (required, or agreed to) tasks are assigned to one work group or the other. Someone has got to do all the things that must be done. We cannot (each of us) do everything...

Often, it is more efficient for a group of specialists to execute demanding (or irksome) tasks when it is clear that this is the "better, faster and cheaper" way to go.

A strong central government has the muscle to appropriate any such tasks (for itself) that it wants.

They can say that they will do a better job of it than we would.

We might say that they are intruding into our private arenas and that they are only trying to "justify their existence" (at best) or trying to "ruthlessly control us" (at worst).

In the end we must agree to be governed...or there is going to be big trouble...and they know that. It is not in the government's own best interest to be incompetent and mean-spirited...if they can help it.

One thing that is interesting about your "...some government scientists/engineers know more about machine guarding that the people operating the machines..." discussion is that just because the government makes us comply with OSHA regulations does not mean that the company is not thereby made immune from prosecution or civil liability if someone should actually get hurt anyway.

All your lawyer's advice and your consultant's "billable hours" regarding this subject will not protect you much either.

Society itself demands that the workplace must be safe and you bear an absolute responsibility in this regard. The government did not make that up all by itself (just so they could increase our taxes).

Marjon...
You keep saying that sort of thing about individual sovereignty...and we do need to downsize, localize (and personalize) many of the mechanisms of government. But we must take those tasks away from government agencies as they are kicking and screaming to hold onto their jobs.

Some people argue that we should let those people keep their jobs because someone must do such things anyway...and just manage the government better.

Others urge that we should "privatize" lots of social services.

Private companies might do a better job and drive costs down through competition. Or we could try to hold government agencies accountable while reducing their budgets.

Either way, we are at the mercy of some else's self-serving agenda, Marjon, insofar as we do not take personal responsibility for any such task into our own hands and say "hands off" to everyone else.

"try to hold government agencies accountable" : HOW?
"we are at the mercy of some else's self-serving agenda"

In a free market we are free to choose among many "self-serving agendas".

The government gives us no choice.

recapping
You did not show how govt can be trusted to do anything.

You just asserted that only govt can be trusted to care.

Yes, you did show me. You showed me that you are unable to deal with reality.
You showed me that you are a true believer in the power of govt to perfect the unperfectable.

Why we need markets
"Recognize that market failures exist, and that is why we need markets."

Not speaking for Arnold, but this statement is a direct counterpoint to, "markets fail; use governments." It might be clearer to state, "markets sometimes fail, but thanks to adherence to the market system, we are able to recover in ways that a central government couldn't imagine."

Blogonomics?
Supporters of Free Markets seem to move around in schools -- the Austrian School. tehe London School, the Chicago School, and now perhaps the George Mason school. But what about us outside those schools? What about us free-lance free market supporters? Why don't we get a school. :-) Maybe I'm part of the Blogonomics school? (I would mentioned where my school is located on line, but I don't want to offend those with delicate sensibilities regarding such discretion of information.)

Lose the horseshit
This is an interesting exercise in self (campus) aggrandizement, and possibly a clever brand-building ploy, but otherwise largely empty rhetoric.

Your new movement eschews mathematical analysis - you just spout slogans you're simply certain are right. It's understandable by anyone, but on the basis of that understanding most citizens are too stupid to make their own decisions, and, it goes without saying, much, much stupider than you. It's the only true school of economics, but it consists largely of vaguely aggressive catch-phrases. How convenient.

And your content? I suppose there is no difference between trade among Virginia and Maryland and among the US and China - if you think there's no difference, economically or politically, between two US states and two world superpowers (a difference you never mention). You cite research by healthcare policy experts as evidence that healthcare policy experts are covering up the subject of that research. You repeatedly publish articles or blog posts referring to "The Unmentionable" (which apparently turns out to be IQ), as if sarcasm were scholarship. You analyze government as if it bore no relation to its own citizens, and had no obligations to or expectations from them - which is to say, as if citizens had created governments for no reason at all - and then conclude that governments do not behave as businesses without noticing that governments might be something other *than* businesses.

In short, it appears your movement is nothing more than the usual self-congratulatory Ayn Randism with witticism in place of its traditional lack of respectable content. Clearly, the future is yours.

I would like to see the use of the word "market" reduced...
...instead let us talk about what people should be allowed to do.

Where is your analysis proving they are wrong and you are right?

Wrong frame of reference.
Who makes the decision of what people are "allowed" to do?

And what should people be allowed to do?

Creative destruction
Failures provide opportunities for others to succeed, forest. Oftentimes those failures arise from entities serving the purposes of self-perpetuation rather than those of their customers or members. Why else have unions failed?

The difference between markets and governments is that markets provide an immediate opportunity for entrepreneurs to exploit failure while governments exploit failure to bar entrepreneurs from success by awarding entrenched stakes to failure. I direct your attention to all anti-free trade schemes in this regard. Accordingly, this is why we need markets, particularly ones that fail.

Failed government agencies get more funding.
Failed government agencies use lack of funds as the excuse for their failure.

And they are typically rewarded for such failure by receiving more more money.

overselling distinctions
I am happy to admit that GMU is brimming with interesting ideas, but you are overselling its uniqueness. You say about Akerlof that the Mason response is to look to institutions. A good idea, but in grad school at the University of Washington in the 1980s, we were doing that stuff under Steve Cheung and Yoram Barzel, and people like Ben Klein were doing it at UCLA. Even Akerlof himself wrote in the lemons paper:

"Numerous institutions arise to counteract the effects of quality uncertainty. One obvious institution is guarantees. Most consumer durables carry guarantees to ensure the buyer of some normal expected quality. One natural result of our model is that the risk is borne by the seller rather than by the buyer. A second example of an institution which counteracts the effects of quality uncertainty is the brand-name good. Brand names not only indicate quality but also give the consumer a means of retaliation if the quality does not meet expectations. For the consumer will then curtail future purchases. Often too, new products are associated with old brand names. This ensures the prospective consumer of the quality of the product.

Chains - such as hotel chains or restaurant chains - are similar to brand names. One observation consistent with our approach is the chain restaurant. These restaurants, at least in the United States, most often appear on interurban highways. The customers are seldom local. The reason is that these well-known chains offer a better hamburger than the average local restaurant; at the same time, the local customer, who knows his area, can usually choose a place he prefers.

Licensing practices also reduce quality uncertainty. For instance, there is the licensing of doctors, lawyers, and barbers. Most skilled labor carries some certification indicating the attainment of certain levels of proficiency. The high school diploma, the baccalaureate degree, the Ph.D., even the Nobel Prize, to some degree,serve this function of certification. And education and labor markets themselves have their own "brand names."

You're talking to this village's idiot
Mark makes up facts to order. routinely. makes up things he posted; makes up arguments he made, makes up things other people say. Call him on it and he ups the fiction output. zzzz is where you want to be when he's online.

Dear Arnold,
this is very simply one of the greatest treatises, if I might call it that, on economics that I've ever read, heard, or even heard about.

This li'l essay of yours should be required reading in every Economics 101 course across the nation.

It was a privilege to read this. Thank you for writing it.

I wonder if for your next essay you might like to consider the theme: "Why Congress Should Be Made Up of Economists and Not Lawyers".

Don't call the cops...
When we look to the government to take care of our personal, social responsibilities then we are at the mercy of their decisions. We enable the "authorities".

For example, inside a corporation, if there is some disruptive conflict we seldom call the cops...we simply send the offending character home. We document any such incidents, we protect our interests (and our people)...and we terminate the problem according to our own policies and procedures.

We have the choice to keep the government out of it. Most of the Federal government's laws cannot be effectively enforced at the local level anyway...and local government tends to be lame. We are not getting what we pay for...and when we do turn to the authorities they are often much more trouble than they are worth.

Making simple (in principle) things needlessly complex
is what fools or novices always do. I've noticed some of that going around here lately. At times it seems it's a plague that resists all science.

There is a third group of people who make simple things needlessly complex, but they know they're doing it and they're doing it on purpose. They are called "charlatans".

Charlatans target fools and novices.

Apparently,
somebody didn't read the essay that is here under discussion.

Emotional armoring trumps reason every time.

How do you hold governtment agencies accountable?
You accept that government agencies cannot be held accountable?

Sounds like something straight out of Robert Reich.
The position taken by Masonomics is not a "compromise". It is the expression of understanding the basic, elemental underlying principals at play (or suppressed from being at play, as the case all too often is).

Corporations and governments are both legal fictions agreed upon. One of these sets is better than the other at almost everything.

It was kind of you to state what you are all about in your opening paragraph, Keith.
And now, why don't you stop wasting bandwidth and follow your own advice?

No,
because that is falling directly into the pitfall of "markets fail. Use government."

"Us" and "people", in this context, are just variations of "we".

Failure is not necessary...
Open market opportunity allows for risk and this does, indeed, open the door to failure.

However, it is not necessary for an entity to fail utterly for an opportunity to exist. It is only necessary that an entity fail to recognize a natural opportunity of its own. It is only necessary that existing entities fail to achieve some greater destinies.

Certainly, the bombing into a rubble of a great city (World War II) provided the business opportunity to salvage all those used bricks and it was just great for "real estate development" industry in those nations hardest hit.

Nevertheless, America was better able to build on its own uninterrupted industrial momentum coming out of World War II...without all that destruction.

The point is that we may have gained...but did we gain as much as we had already lost. Will we ever actually know what we might have forfeited with all that death? That one genius who never created. Perhaps, more than one.

We can succeed without anyone failing. (When most people achieve their defining moment of greatness, the schmuck gene engages and they step aside anyway.)

We need to learn how. At 6 billion people (and going to 10 billion) we cannot really afford a substantial global reversal.

The Ph.D.
rarely reduces quality uncertainty.

Most of the time, it makes the lack of quality certain indeed.

Yes, you may take that as a statement of principle.

And that's right...
Private entities do some things better than governments. And governments have their own work to do too.

It becomes a matter of sorting out the tasks.

Unfortunately, with only 200 governments the math runs against us...that this evolutionary process will carry us there on its own (naturally). We might need to get smart too.

Patently false
"We can succeed without anyone failing."

That is patently false. It invokes a perfect world that is not for real.

Failure after failure leads to the greatest successes. Being open to failure is the foundation of authentic science.

You have also assumed that failure = "absolute" failure. Again, that is the Dark Side of Perfectionism speaking about a world that is not for real.



"We can succeed without anyone failing"
What happens when you fail to meet the needs of your customer?

How do you keep from losing your customer (failing)?

" tasks are assigned"
By whom?

Just because I get sick...does not mean that I must die of it...
Great,

A virus is the antigen that invokes an antibody that will thereafter protect the body from that disease agent. (A vaccine can do this too.)

I don't feel like I have failed just because I catch a cold. I am healthier for it. This does not mean that I must die for the benefit to be gained. Although there is always that risk. Of course, some people will actually die of the sickness, because even the smallest probability surfaces with enough trials.

But the fact remains that the process of success does not "specifically require any particular failure" to be operative.

Sometimes we accomplish success through hard work and without very much risk. Our world is not "zero-sum". No one needs to die. We can build on "win-win" opportunities.

One risk is that we all might simply try to "get lucky".

Happens every day...
She buys a handbag from Gucci instead of Bella Dolci (my brand). That's business. Much worse when I fail to meet the needs of my wife.

Bella Dolci failed to meet the needs of a customer.

How Neitzscheian!
"That which does not kill us makes us stronger."
Friedrich Nietzsche

Or do you prefer Edison?
"I have not failed. I’ve just found 10,000 ways that don’t work."
- Thomas Edison

poor eric, he can't stand it when he isn't the center of attention
I see you still define any fact that your cell master tells you not to believe to be a lie.

Why dont you supply the quotes you claim you have from that British judge
Instead of going to spread your lies to still another topic.

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