Economists From The United States

"In the 1950s and 1960s, a substantial number of economists taking on a role of social philosopher defended a "little" inflation as a kind of social solvent, helping to reconcile competing political and economic pressures.… It was a game of mirrors, but it seemed acceptable for a while, more acceptable than imposing the degree of fiscal, monetary and other restraints necessary to deal with inflation."

"Given the network-externality characteristic of international monetary arrangements, reforming them is necessarily a collective endeavor. But the multiplicity of countries creates negotiating costs."

"It is a sobering fact that the prominence of central banks in this century has coincided with a general tendency towards more inflation, not less. [I]f the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with "free banking.""

"Federal Reserve chairman Paul Volcker essentially eliminated M1 as a target indicator. His successor, Alan Greenspan, eliminated M2. On the other hand, in the past year or two, Greenspan has said on various occasions that maybe we should reconsider using M2. The trouble is that all these measures of money cannot be relied on because the velocity of money changes. It is quite unstable."

"Neither the current state nor the future prospects of this evolving order can be understood without an appreciation of its history."

"A version of the old fable about the king's nakedness may be helpful here. Public choice is like the small boy who said that the king really has no clothes. Once he said this, everyone recognized that the king's nakedness had been recognized, but that no-one had really called attention to this fact."

"Both the existence of these parallels and their tragic nature would not have escaped Charles Kindleberger, whose World in Depression, 1929-1939 was published exactly 40 years ago, in 1973. Where Kindleberger’s canvas was the world, his focus was Europe. While much of the earlier literature, often authored by Americans, focused on the Great Depression in the US, Kindleberger emphasised that the Depression had a prominent international and, in particular, European dimension. It was in Europe where many of the Depression’s worst effects, political as well as economic, played out. And it was in Europe where the absence of a public policy authority at the level of the continent and the inability of any individual national government or central bank to exercise adequate leadership had the most calamitous economic and financial effects."

"This history of the international monetary system is short in two senses of the word. First, I concentrate on a short period: the century and a half from 1850 to today. Many of the developments I describe have roots in earlier eras, but to draw out their implications I need only consider this relatively short time span. Second, I have sought to write a short book emphasizing thematic material rather than describing international monetary arrangements in exhaustive detail."

"Progress in economics is said to take place through a cumulative process in which scholars build on the work of their predecessors. In an age when graduate syllabi contain few references to books and articles written as many as ten years ago, this is too infrequently the case."

"Aside from Yugoslavia, experiments with decentralization did not extend to planning innovation, the greatest weakness of the socialist economies. Even where markets were allowed to exert more influence over current production, the state was still responsible for planning the future. And state socialism provided only weak incentives for innovation. The Schumpeterian pressure that forced capitalist firms to innovate or die was not present in the planned economy."

"The international monetary system is the glue that binds national economies together."

"Any account of the development of the international monetary system is also necessarily an account of the development of international capital markets."

"What was critical for the maintenance of pegged exchange rates, I argue in this book, was protection for governments from pressure to trade exchange rate stability for other goals."

"Writing in 1944, the year of the Bretton Woods Conference, Polanyi suggested that the extension of the institutions of the market over the course of the nineteenth century aroused a political reaction in the form of associations and lobbies that ultimately undermined the stability of the market system. He gave the gold standard a place of prominence among the institutions of laissez faire in response to which this reaction had taken place. And he suggested that the opening of national economic decision making to parties representing working-class interests had contributed to the downfall of that international monetary system. In a sense, this book asks whether Polanyi’s thesis stands the test of time. Can the international monetary history of the second half of the twentieth century be understood as the further unfolding of Polanyian dynamics, in which democratization again came into conflict with economic liberalization in the form of free capital mobility and fixed exchange rates? Or do recent trends toward floating rates and monetary unification point to ways of reconciling freedom and stability in the two domains?"

"Complex adaptive systems have the property that if you run them—by just letting the mathematical variable of "time" go forward—they'll naturally progress from chaotic, disorganized, undifferentiated, independent states to organized, highly differentiated, and highly interdependent states. Organized structures emerge spontaneously... A weak system gives rise only to simpler forms of self-organization; a strong one gives rise to more complex forms, like life."

"Rational adventure in a physical setting is becoming increasingly rarer in the world. The evolution of technology and infrastructure has altered the kind of adventures that we can have, so that people with adventurous spirits either take on risk for its own sake, or they embark on rational adventures in the mental domain."

"In a world of superintelligent humans, the account of a quest to prove a theorem may take on a universality in its drama that seems inconceivable to us now. I believe that rational adventure is fundamental to the human spirit, and that it won't go away. But it will evolve of necessity to take place in the increasingly abstract domains that characterize the boundaries and frontiers of an evolving and ever more complex and abstract world. As a result, it will evolve into forms that are difficult for us to even think about at this point in time."

"On learning more astronomy, in the phenomenon of "averted vision," I found a justification for my rationale about the roundabout path to metaphysics via physics: to see a faint star, it's necessary to look away from it; as soon as one looks at it directly, it vanishes."

"Our goal is to build a broad-based model of key components of the economy: households, firms, banks and government... The failure to embrace things like simulation has inhibited progress in economics."

"It seemed that fundamental physics was stuck. The particle physicists were smashing particles into each other with ever increasing force, trying to figure out how many quarks could dance on the head of a pin. The cosmologists were working with very few facts... on what seemed to me to be mainly religious grounds. And most of physics was still focused on pushing and pulling, on the material properties... rather than on its informational properties. ...those that relate to order and disorder."

"Speaking crudely, a living system—an organism—consists of a symbiotic relationship between a metabolism and a replicator. ...the replicator contains the blueprint of the organism, with the information needed to grow, make repairs, and reproduce. ...the metabolism provides the energy and raw materials needed to build and run the replicator."

"The basic principle of an autocatalytic network is that even though nothing can make itself, everything in the pot has at least one reaction that makes it, involving only other things in the pot. It's a symbiotic system in which everything cooperates to make the metabolism work—the whole is greater than the sum of the parts."

"The paradox that immediately bothers everyone who learns about the second law is this: If systems tend to become more disordered, why, then, do we see so much order around us? ...It seems to conflict with our "creation myth": In the beginning, there was a big bang. ...no one is saying that the second law of thermodynamics is wrong, just that there is a contrapuntal process organizing things at a higher level."

"If we choose, we can use genetic engineering to alter the character of our offspring. ...the motivation to do this will eventually become overwhelming."

"We're rapidly creating an extraordinary silicon-based petri dish for evolution of intelligence. By the year 2025... we're likely to have computers whose raw processing power exceeds that of the human brain. Also, we're likely to have more computers than people..."

"Once we can manipulate our genome, Lamarckian fashion, the rate of change will be staggering."

"Even though something like Danny Hillis' "connection machine" is big, it's nothing compared with Avogadro's number of processors that nature has at her disposal."

"We don't know what organization is. ...We do know that complex adaptive systems have to be nonlinear and capable of storing information. ...We know a little bit about what distinguishes an adaptive complex system from a nonadaptive system, such as turbulent fluid flow."

"One of the factors that caused Spencer's ideas to lose popularity was social Darwinism... Social evolution is different from biological evolution: it's faster, it's Lamarckian, and it makes even heavier use of altruism and cooperation than biological evolution does. None of this was well understood at the time."

"She talks about how Brahms baby sat them while her mother, Clara, was out earning a living, concertizing all over Europe. Brahms continued in their lives until his death. She also talks about her loving relationship with her mother; her usual sibling like relationships with the other Schumann children; and how she would get mad at Brahms when he would make her mother sad, even cry, but none of them could be mad at Brahms for very long."

"A great man who wrote and spoke great speeches as the leader of a great cause: Great., Great. Great!,"

"A forthcoming book by Harry Markowitz, Techniques of Portfolio Selection, will treat the general problem of finding dominant sets and computing the corresponding opportunity locus, for sets of securities all of which involve risk. Markowitz's main interest is prescription of rules of rational behaviour for investors; the main concern of this paper is the implications for economic theory, mainly comparative statics, that can be derived from assuming that investors do in fact follow such rules."

"What is important will be manipulated by the government."

"The dominant form of government in the world today is dictatorship. Further throughout history, dictatorship has been the commonest form of government, indeed, for much of history the only form of government in the world."

"A government does not, in general, just go about the world doing good. It has to be pushed into it."

"The modern state is largely a mechanism for transferring funds from one person to another. What we economists call public goods are provided by the state but are now only a part of it. The United States is not as far along in this procedure as many other countries, but in our case the federal government pays out in various types of transfers a significant percent of the amount it collects in taxes. Most of the European countries are even more dominated by the legacy of Bismarck."

"Central to this book is the further assumption that man is a rational utility maximizer in all areas of life, not just in his “economic” affairs, that is, not only when engaged in buying and selling in explicit markets. This idea goes back to Jeremy Bentahm in the eighteenth and early nineteenth century, but received little attention from economists until the work of Gary Becker in th 1950s and 1960s. The concept of man as a rational maximizer implies that people respond to incentives.(...) From this proposition derive the three fundamental principles of economics."

"Clearly the present organization of the scientific community, cutting across the lines of nation states, bureaus, and almost all previously existing institutions, cannot be the result of conscious planning. There is, today, a good deal of organizational planning, but all of the instrumentalities which engage in this activity were founded after the development of science was well under way. Further, most of these organizations are parochial in nature, concerning themselves with only some special part of the scientific community like mathematical biophysics or Russian science. There is no general institution which has shaped or now can shape the development of science, only a mass of institutions which provide little more than liaison (and sometimes funds) for the scientific “producers.”"

"Buchanan and Tullock went on to apply the customary neoclassical hypothesis of individual rational utility maximization to the whole area of collective choice. One of their novel assumptions, and one that was truly revolutionary in those days, was the idea that politicians and bureaucrats do not necessarily behave as “benevolent dictators” on behalf of the public interest, but rather display the common kind of purposive behavior. They pursue their own interests and they react to incentives just like anybody else. In this landmark study, Buchanan and Tullock also draw a crucial distinction between two different levels of collective decision making, namely the constitutional level and the level of ordinary, day-to-day politics. All of this defines the paradigm they would later apply to almost every field of public economics."

"Today we have great laboratories and individual research projects employing thousands of scientists, but the interrelation between these giant laboratories, and between them and the myriad of individual investigators, is still one of voluntary, and almost unconscious, co-operation. It is not based on central planning or hierarchic organization. But as any economist knows, the fact that there is no one who can give commands does not mean that there is no social organization."

"One thing we’ve learned from the economic events of the past two years is that macroeconomics, or at least the part of macroeconomics that studies the business cycle, is a weak field. With only a few exceptions, macroeconomists, including the most illustrious, did not anticipate the current depression."

"The importance to economics of the study of institutions is no longer a controversial proposition, thanks in part to the scholarly literature generated by the new institutional economics movement. Institutions are more than organizations – property is an institution, but not an organization – but organizations are an important form of institution and will be the focus of my paper, as it is, to a considerable extent, of the new institutional economics."

"This book is written in the conviction that economics is a powerful tool for analyzing a vast range of legal questions but that most lawyers and law students-even very bright ones-have difficulty connecting economic principles to concrete legal problems."

"Although there are other heresies in The General Theory, along with puzzles, opacities, loose ends, confusions, errors, exaggerations, and anachronisms galore, they do not detract from the book's relevance to our present troubles. Economists may have forgotten The General Theory and moved on, but economics has not outgrown it, or the informal mode of argument that it exemplifies, which can illuminate nooks and crannies that are closed to mathematics. Keynes's masterpiece is many things, but "outdated" it is not."

"I wish in closing to emphasize how little corporate philanthrophy (the practical meaning of “creative capitalism,” a terrible expression that implies nonaltruistic capitalism is uncreative) is actually philanthropic, in the sense of being driven by altruism rather than by profit maximization."

"As conceived in this book, economics is the science of rational choice in a world─our world─in which resources are limited in relation to human wants. The task of economics, so defined, is to explore the implications of assuming that man is a rational maximizer of his ends in life, his satisfactions─what we shall call his “self-interest.” Rational maximization should not be confused with conscious calculation. Economics is not a theory about consciousness. Behavior is rational when it conforms to the model of rational choice, whatever the state of mind of the chooser.(...) Nor is perfect rationality assumed; rational-choice theory allows us to assume that rationality is “bounded” because of human cognitive limitations, although another way to think of those limitations is as costs of absorbing and using information."

"Gordon Tullock, on the other hand, might be characterized as the somewhat cynical pragmatist, who set out to understand the world, not to change it. This side of Tullock is visible in his early paper on simple majority rule, and is perhaps most apparent in his work on rent seeking. These differences should not be pushed too far, however. Buchanan (1980) also contributed to the rent-seeking literature, and often has described public choice as “politics without romance.” One of the most dispiriting contributions to the public choice literature has to be Kenneth Arrow’s (1951) famous impossibility theorem. In a too little appreciated article, Tullock (1967b) demonstrated with the help of a somewhat torturous geometrical analysis, that the cycling that underlies the impossibility theorem is likely to be constrained to a rather small subset of Pareto-optimal outcomes, and thus Arrow’s theorem was “irrelevant,” a rather happy result, and one which anticipated work appearing more than a decade later on the uncovered set. In Chap. 10 of Toward a Mathematics of Politics, Tullock (1967a) engages in a bit of wishful thinking about constitutional design by describing how one could achieve an ideal form of proportional representation in a legislative body. He also was an early enthusiast of the potential for using a demand-revelation process to reveal individual preferences for public goods (Tideman and Tullock 1976)."

"Correctly anticipating the rapid growth of living standards, moreover, Keynes predicted that within a century people's material wants would be satiated, and so per capita consumption would stop growing. People would work less, but only because their need for income, and more important their desire for it, was less. And then the challenge to society would be the management of unprecedented voluntary leisure. This was a popular 1930s theme--think of Huxley's Brave New World--but it underestimated the ability of business to create new wants, and new goods and services to fulfill them."

"A theory of power has long been the Holy Grail for political science, but the Grail has not been found."

"If you take the story I've given you, if you recognize that the traditional way we looked at politics had a lot of romance in it, then Public Choice comes along and removes the romance. I think the natural outcome of that is you're going to be more skeptical about government than you would have been otherwise. Mancur Olson, a good friend of mine, has been influential in Public Choice and objects very strongly to this argument that there is this conservative bias. There is no bias in it as such. But Mancur himself has necessarily had to look at politics differently because of that, despite the fact that his natural proclivity would be more left than mine. There's nothing inherently biased about it. It's just that the fact that if you start looking at the political sector or politics from a non-romantic view, you come to a different view on what has been traditional."