So You Want to be a Masonomist

It’s curious how we end up getting the education we want.  Here’s a recent article from TCS Daily about the Mason approach to economics. 

“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.