Economics for Yesterday, Today and Tomorrow

The Adam Smith Award is the highest honor bestowed by The Association of Private Enterprise Education. It is given to recognize an individual who has made a sustained and lasting contribution to the perpetuation of the ideals of a free market economy as first laid out in Adam Smith's Wealth of Nations. Past recipients have included James Buchanan, Douglass North, and Vernon Smith, among many other scholars.
 
The Association of Private Enterprise Education acts as a network to provide members with information, interaction, and support in their efforts to put into action an accurate and objective understanding of private enterprise systems. Its guiding principle is that individual knowledge and understanding of a society based on freedom in enterprise and personal life can provide an environment in which people can fulfill their greatest potential.

The remarks below were taken from Peter Boettke's blog, Coordination Problem.

Thank you to APEE for this award. I am truly humbled to receive this award, and to be listed among the past winners of this award such as Armen Alchian, Harold Demsetz, Douglass North, Vernon Smith, or my teachers Gordon Tullock and James Buchanan. To be honest, I am more comfortable viewing myself as someone who studies the work of these past winners and teaches their works to my students, rather than someone who is on any list with them. But I will gladly and humbly accept this honor from our society.

As many of you know, I have spent the better part of my professional life pursuing a dual career of coaching basketball at a variety of levels from CYO to AAU, from youth basketball to HS coaching. Last year, I was inducted into a local sports Hall of Fame back in VA for my basketball-coaching career. At that ceremony I was asked to say a few words about how I was able to be successful in coaching. The words I chose that night actually translate from that world into my world as a teacher and especially mentor to graduate students very well. In fact, I was only able to pursue my dual career precisely because I also saw the parallel between the two worlds I walked in. The best book on pedagogy I have ever read remains a book about John Wooden entitled You Haven’t Taught Until They Have Learned, and the best book I have read on how to build a research team is still Tom Crean’s Coaching Team Basketball. I recommend both to all of you, though perhaps I am the only one to see the tight connections. Also, since I see political economy following Prof. Buchanan as the intellectual play between rules and strategies of play within those rules (and the question of enforcement) I see analogies with sports and economic systems all the time. I understand the limitations in the comparison, but the idea of sports as the school of rules, and the economic system as an unfolding game of competitive play is too alluring to me to pass on.

Anyway, at that ceremony I told the other coaches and elite players in attendance that getting such a recognition is easy if you follow 3 simple rules. (1) Marry well; (2) work with hard working and talented people who dream big dreams; (3) have the courage of your convictions and perhaps just as important the courage to withstand the critique of your convictions. It is easy to be known as a good coach when you work with great coaches and with great players. And it is easy to be known as a dedicated coach when those around you give you constant support and encouragement to excel. What was true for coaching is even more so with respect to my career in economic research and graduate education. Rosemary has been my life partner in my travels from HS in NJ where I pursued my hoop dreams, through college in PA where my hoop dreams morphed into a tennis career, to graduate school in VA where I became an aspiring academic, and then finally my teaching jobs in Michigan, California, NY and back in VA. We have raised two wonderful sons – Matthew and Stephen – who have no doubt given us challenges, but so much more joy. And Rosemary has pursued her own career as an educator in NY, NJ, and VA -- as educators, we work as a team, she gets the kids on the way in, and I get them on the way out. As many of my former students here can testify, Rosemary has opened our home and invited these students into our family and worked with me to develop close-knit community of Austrian and classical liberal economists at GMU.

At NYU and certainly at GMU I have worked with amazingly talented and ambitious young economists who have eagerly taken on the task of pushing out the frontiers of our knowledge, tackling intellectual taboos, and embracing their role as economic educators.

Let me repeat, it is easy to be happy and content when your life partner is your best friend and devotes their life to supporting and encouraging you in your endeavors, and it is easy to look good as an economics teacher when you have the opportunity to work with outstanding students many of whom have already established themselves as outstanding teachers and leading researchers in economics and political economy with international reputations.

My last point about building a successful career was about sticking to your guns. You decide what you want to work on, and how you want to work on it, and then you doggedly pursue it. The list of Adam Smith winners is full of individuals who boldly pursued their own agenda in economics and political economy regardless of the scientific and ideological fashion of their time. We all need to learn from their example. A good place to start is Buchanan’s essay “No Regrets” in Economics from the Outside In: Better Than Plowing and Beyond.

To me, economics is the intellectual framework through which we can see man in all walks of life. We need to pursue a rational choice approach to the study of man, but one that recognizes the choosers as human, and we need to pursue institutional analysis in applied economics, but one that recognizes that history matters. Such an economic and political economy research program can provide us with essential truths for understanding the human condition, and it is our responsibility to teach the principles of this discipline (theory, applied theory, and economic and policy history) to our students. We must exhibit clarity of thought, and possess clarity in our message. Simple economics is not simple-minded economics, and it is our duty to communicate the basic teachings of economics to our peers, to our students, to policy makers, and to the general public as effectively as we are capable of. This task is especially true when the intellectual world becomes dominated by popular fallacies, and when the policy world gets flipped upside down as it has this past year.

This isn’t rocket science. Good economic ideas lead to good public policy that result in good results; and bad economic ideas lead to bad public policy which result in bad results. It is this simple truth that I have tried (and will continue to try) to communicate to my students in every class I teach and every opportunity I have to give talks to students outside of GMU. Thus, the title of my talk – “Economics for Yesterday, Today and Tomorrow.”

My formal paper seeks to explore what is enduring and what is fleeting in the basic teachings of economics. The core claim of the paper is that what is enduring in economics is most often politically unpopular, and what is fleeting in economics is usually politically viable and quite often popular. This results in a conflict between good economics and good politics that was evident from the time of Adam Smith to the contemporary world that we as researchers and teachers occupy. Our job as economic educators and scholars is neither to steer the ship of state in one direction or another, nor to provide pleasant and popular news to the ears of politicians and the public about the possibility of enlightened government policy to provide a corrective to the social ills of this world. Instead, our job is the two-fold task of: (1) the pleasant job of presenting the basic principles of our discipline to our ‘students’ and deploying those basic principles to make sense of the world around us [Peter Leeson's The Invisible Hook is the best contemporary example I can point to], and (2) the unpleasant one of playing the social critic who demonstrates logically and empirically how the best intentions of policy makers go astray and produce outcomes that are worse than the conditions the policies were supposed to eradicate [Chris Coyne's After War is the best contemporary example I can point to]. In both tasks our job as economists does entail the communication of the dour message that the when it comes to the economy rather than talking about unbounded possibilities we must and emphasize the reality of scarcity and the necessity of choice within constraints. And while the message is a sober one, and one might even say a somber one, it can be (and must be) conveyed with much intellectual joy and educational enthusiasm if we are to succeed in our dual jobs as economists.

Since I don’t have the time to lay out my argument in detail, I will summarize the argument with 5 points.

1. The Situation. In 1951, Frank Knight took the podium for his presidential address for the AEA and in the context of the Keynesian revolution taking over economic research and education Knight simply told his audience that “The time has come to take the bull by the tail and look the situation square in the face.” For free enterprise economists and educators, the situation hasn’t change much in the past 60 years. We still need to face the situation that Knight identified.
2. The Culprit. Keynesianism was wrong in its diagnosis of the problem (instability of capitalism), it was wrong it is methodology (in the excessive aggregation, its starting point of unemployment and its willingness to cut the economic story short before adjustments could occur), and it was wrong its policy application (aggregate demand management). We have had to deal with these errors since the end of WWII, and they were never fully defeated even with the monetarist counter-revolution, the public choice critique, the development of New Classical Economics, and the political success of ‘supply side economics’. Keynesian economics as a tool for public policy has never disappeared in the policy world of the western democracies. Instead, all we have seen is an oscillation between conservative Keynesianism and liberal Keynesianism, but the policies are fundamentally Keynesian as economic policy makers are entrusted to manipulate monetary and fiscal policy in an attempt to control inflation and unemployment. A truly free market policy regime was not introduced in actual fact, though the rhetoric of free markets was often invoked during the past 20 years.
3. The Problem Situation of Economic Actors. What Keynes wasn’t wrong about was the power of ideas and the importance of seeing the economic actor as ensnared in the “dark forces of time and ignorance”. His problem, and those who have followed him in identify this complex problem situation is that they lack the appreciation for the dynamic efficiency aspect of the market system (as opposed to static efficiency) and the role of economic and social institutions in promoting social cooperation. Responses to Keynesianism that do not recognize the complex problem situation out of which economic order must be derived provide a weak defense of that economic order. We must remember Bastiat’s warning that: “the worst thing that can happen to a good cause is, not to be skillfully attacked, but to be ineptly defended.”
4. Embracing the ‘Hard Case.’ Robust political economy and the future of economic research and education. It is reasoning from the “hard case” where we must find our voice in the economic dialogue of our age. Yes, we find ourselves in the dark forces of time and ignorance, but the accommodating adjustment of relative prices, the discipline of profit and loss, and the basis of price and profit/loss in private property provide individuals with the “flashlights” required to find their way out of being ensnared and enables them to follow the path to realize the gains from exchange and the gains from innovation that lead to the wealth creation that is the source of economic growth and development.
5. Economics as a Public Science. Embrace our job as economic educators. Our job, as James Buchanan has stressed, as economic educators is to teach students the basic principles of our discipline, and most importantly the principle of spontaneous order, so they may in turn become informed participants in the democratic process. Buchanan has made the observation that those attracted to Austrian economics seemingly possesses a comparative advantage in appreciating the basic principles of economics over their fellow economists, and this “fact” is not overlooked by members of APEE as a simple flipping through the conference program will reveal. It is after all those who sit in the seat of Adam Smith, as Lord Acton once wrote, who are worthy of our serious attention, not those intellectuals who focus either on the free floating abstractions of theoretical fancy or the momentary concreteness of politically expedient policies. Logic and evidence are on our side; it is our responsibility to write clearly, speak forcefully, and to advance knowledge in the field of economics through our research and teaching. Yes, the world right now appears to be upside down, but just imagine what must have gone through the minds of the free market economists in the 1930s as New Deal Policy were passed, and then again in the 1960s as the Great Society Programs were implemented! As James Buchanan has stated: “I am a pessimist when I look to the future, but an optimist when I look in the past.” We in the US have always found some way to get our message across, and we find a way in the policy world to step back from the abyss rather than fall in. We have our work cut out for us, but we will prevail in the end because the power of the economic way of thinking to render our world intelligible and if followed improve the lives of billions for the better.

Thank you again for this very generous award, and thank you making APEE such a dynamic force for economic research and education.