Statism II

In my previous post, Statism I, I defined statism as an excessive and harmful embrace of the power of the state.  Today, as a means of showing how prevalent statism is, I want to show how statism has over time infected the standard models of economics – a discipline that is regarded as one of the most pro-market in the academy.

My argument as to economics is simple.  One of the basic questions in economics is whether matters should be addressed by the market or the government.  In comparing these two institutions, one should obviously do so in a fair way and then make a determination which institution would operate better.  But that is not how neo-classical economics has treated the issue.  Instead, when it has encountered an aspect of human behavior that can affect appropriate decisionmaking, it has consistently applied it in a biased manner that advantages government over markets.

Let’s start with a world of two perfect institutions — a democratic government that pursues the public interest with knowledge and good intentions and a market characterized by perfect competition.  Both institutions do well, but of course no one regards this as a description of the real world.

One way of introducing some realism is to recognize that human actors are not entirely public interested, but are also self interested.  Initially, neo-classical economics made the assumption that market actors were self interested, but seemed to assume that government actors were public interested.  This was obviously biased in favor of government.  It took Buchanan and Tullock and public choice more generally to address this issue, but it took them decades to overcome the fierce resistance.  Eventually, more people came to realize that government actors were often acting to promote their own interests.

Once Buchanan had won the Nobel Prize, one might have assumed that the bias would have been eliminated, but like many other biases it was simply applied in other contexts.  Some years ago, neo-classical economics recognized the problem of imperfect information.  People like Joseph Stiglitz and George Akerlof introduced imperfect information into models of markets and argued for government regulation to address the market failures.  But neither they nor most of the profession was disposed to apply the insight to governments.  Thus, once again, an insight about human behavior that should have been applied in an even handed manner was instead used to criticize markets and support government.  (I should note that I once confronted Stiglitz about this issue but he was unable to appreciate the point.)

Unsurprisingly, the statist bias continues to afflict economics.  The most recent example is behavioral economics.  Economists in recent decades have started to apply the insights of Kahneman, Tversky, and others, who argue that economic actors often do not behave rationally – especially in the way that rational choice theory assumes.  And such economists have argued that the resulting market failures often just government action.  But predictably these behavioral economists typically did not apply their insights to government.  They rarely acknowledge that legislators are unlikely to act rationally and that even so called expert administrative agencies are unlikely to act rationally because of many of the same cognitive biases that behavioral economics emphasizes.  The bias of statism is at work once again.

Reader Discussion

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on February 21, 2012 at 15:12:57 pm

Thank you for this post, which clarifies a lot of things for me.

Just to try to contribute something, I'd like to say that one could come to similar conclusions from a vaguely Marxist (class analysis) perspective: academic economists are paid by the ruling class, therefore anything that they say (neoclassical, imperfect information, limited rationality) should be suspected of serving the interests of the ruling class, ie to have a statist bias. (This seems related to the insight of Buchanan and Tullock.)

There is, of course, a deep irony in the fact that Marxists use class analysis to argue for greater power to the ruling class.

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Snorri Godhi
on March 05, 2012 at 15:50:30 pm

Yes, this is a description of how iiadttronal banking works but you need to at least mention in video 1 that this has NOTHING to do with how modern banking works. Modern banking has numerous predatory aspects such as; taxpayer guaranteed /deposits; the central banks' ability to counterfeit and set interest rates; and government forced use of the banks' fiat currency monopoly. These aspects make modern banking more or less a parasitic cartel.

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on March 05, 2012 at 21:53:56 pm

The Federal Reserve System is not owned by anyone and is not a ivrpate, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and ivrpate aspects.The Fed's ultimate accountability is to Congress, which can amend the Federal Reserve Act. Legislation requires the Fed report annually to the Speaker of the House, and twice annually on monetary policy to committees of Congress.see you channel comments for source

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on March 06, 2012 at 11:59:03 am

that last bit seems contradictory one might msause that everyone being solely responsible for their own welfare would pit each individual against one another in a total competitiveness the Hobbesian thing on the contrary we would be able to see more clearly the need we have of other people to make a living for ourselves -being solely responsible for your own welfare does not mean having to make a living solely on your own with everyone on their own people would see the need for forming associations, just as we do now, so that everyone could pursue their self-interest in a reasonable manner looking out upon the social landscape with the burden of one's existence squarely upon one's own shoulders each and every individual would want to create an economic and banking system that was primarily if not exclusively concerned with providing optimum conditions for small to medium sized businesses to thrive and thus creating plenty of jobsand would not each and every individual want to create communities whereby everyone could pursue a life for themselves while conditioning one another with the good habits that contribute to maintaining a vibrant agreeable society good habits like governing oneself which is implied in the idea of self-governmentbeing solely responsible for your own welfare means that there would be no reliance on government entitlement programs so that people would not only have to work but also save money which of course loops back into having the kind of economic and banking system that would allow for everyone to be self-reliant

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on March 18, 2012 at 06:03:23 am

We definitely talk over poeple's heads, but watch out or left libertarians will criticize you as being anti-intellectual . I definitely think that one reason (among many others, of course) that many left libertarians disliked Ron Paul's campaign was the explicit populism of it that it didn't try to be the typical braniac libertarian reeducation seminar, but brought poeple together on issues they could understand that were pro-freedom. We could learn a lot from the Paul campaign, I still think.And the other part of this is that a left libertarianism that appeals to politically unsophisticated types helps us hone our leftist credentials. I find many poeple just want to be engaged instead of talked down to. Attitude is immensely important in coaxing poeple into frames of mind that allow them to release old, comfortable positions and adopt new, uncomfortable, challenging ones.The only difference I have with you is the attitude of recruitment you suggest. I'd suggest instead simply trying to make friends and be friendly. Treat poeple like they're real and not just statistics to be factored into a poll, and they'll open up in a way that allows a real opportunity for learning. You may also learn something yourself!

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on March 18, 2012 at 06:21:02 am

It would be helpful for abiertlrians/anarchists to propose solutions that are not predicated on coercion. Folks really do have issues with access to health care, and it doesn't resonate with them to say So what? That's the price of freedom! It isn't the price of freedom. A large part of the problem is actually caused by state intervention in the health system, and we should point out how ending those problematic programs/rules would help the situation. Also, let's look at ways that folks can organize in a truly voluntary way to obtain health care and to fund it for the poor.

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on June 11, 2012 at 22:56:29 pm

Dave, I like Kuyper's concept of gomrnevent not being a social contract, but "a form of grace in an evil time." I believe that Locke's principle of social contract is fallible, because man has no power to give in the first place. All that man has he as received. The establishment of the state is to provide the man with a degree of protection from the evil that resulted from the fall.Ryan

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on June 12, 2012 at 03:50:00 am

Some great discussions. I'll inortpocare your and Brad's remarks in to a follow-up post of my own later today.One thing I'd like to drag into this discussion is Chris Sciabarra's dialectical libertarianism. That is, it's not enough to evaluate any measure like CPE only in terms of whether it's good in principle, in and of itself. It must be evaluated in terms of the overall structure of which it is a part, and whether it serves to strengthen or weaken that system.And as Brad suggests, his initial letter (and most of the commentary on it by Roderick Long and myself) was directed more to the future than to the past. The CPE is probably a done deal. The goal should be to show the French students the phony nature of "free market" reform issuing from the corporate state, and to direct their future efforts to engaging the state on ground of their own choosing.

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on August 19, 2012 at 13:05:52 pm

Will we walk past those wise European nations now slrgguting against the fat of statism as they rise from the couch, embrace austerity and move toward the door or will we join those turning from sloth? Universal healthcare is not sloth. Caring for your fellow man is not sloth. Europe's problem is that neither state or EU fully control the currency leaving austerity as it only choice. Pain will follow and it already is. Lisa

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Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.