Advocates of Reason: 9 July 2013

Man has only one tool to fight error: reason.

Ludwig von Mises

1. What I’m reading: Barry Eichengreen’s Golden Fetters. Recent acquisitions: Oliver Williamson’s The Economic Institutions of Capitalism; Elinor Ostrom’s Governing the Commons; Leland Yeager’s International Monetary Relations (Abebooks has relatively cheap copies of the 1976 edition). A comment on Fiona Maclachlan’s Keynes’ General Theory of Interest: There are plenty of interesting and thought-provoking passages in the book, but on the whole I do not find it persuasive on the major issues (e.g. that time preference is irrelevant in the determination of the interest rate; on a first reading, her discussion of chapter 17 of The General Theory is more confusing than chapter 17 itself [one of the worst chapters in Keynes’ magnum opus?]; etc.). One thing that I sympathize with, though, is that interest — when interpreted as the yield on some asset — does not play a major role in intertemporal coordination.

2. Neither guns nor germs played a leading role in the Spanish conquest of the Americas, and Spanish expeditions were more likely to fail than to succeed. According to Jason Antrosio (and the authors he invokes), Spain’s succees owes more to their indigenous allies, who interpreted the European arrival as an opportunity for independence from the larger polities Spain sought to subdue.

3. Joseph Stiglitz writes on the “free-trade charade,” pointing out that these kinds of agreements promote trade management more than they do free trade. He goes in two directions in the piece. First, he points out that a lot of bureaucratic effort is channeled towards caveats to any agreement — for example, allowing countries to keep certain subsidies (e.g. American and European agricultural subsidies) that can impact the global allocation of resources. Second, he argues that free trade agreements may eliminate caveats where they’re most needed (e.g. regulations which restrict the purchase of large vehicles for environmental reasons).

4. China may implement credit restrictions to curtail credit growth and consolidate current investment, eliminating uncompetitive firms. Noah Smith calls this an “Austrian experiment.” I’m not so sure. The article suggests Chinese banks will extend credit to firms deemed to be competitive (and it reads as if the government is the one making the decision). While the credit restriction certainly seems “Austrian,” the micromanaging of credit flows certainly doesn’t. Finally, this reminds me of China’s response to the 2007–09 financial crisis, where there was a mass failure of Chinese firms; of course, there was also a ~$500 billion stimulus package.

5. Four reasons Mexico is becoming a global manufacturing power: (i) after accounting for productivity differences, Mexican wages are relatively low; (ii) Mexico has signed more free trade agreements than any other country; (iii) Mexican energy costs are relatively low; (iv) external economies of scale. One thing (iv) means is that since Mexico has already attracted clusters of firms which supply certain industries, this clustering makes the diffusion of information more efficient, reducing costs and improving productivity. Another external economies of scale advantage has to do with the location of firms which produce inputs. If there is an existing automobile industry in some area of Mexico, a new factory may choose to operate there because they can more easily access inputs. This was actually the subject of some of Paul Krugman’s trade theory work, specifically his research on the geography of trade (see, for instance, “Increasing Returns and Economic Geography“).

6. The July 2013 Cato Unbound edition is a debate on bitcoin, market money, and free banking.

7. As a bonus, here is another horrible article written by Michael Lind, this time with co-author Robert Atkinson.  He essentially tells us that econ 101 is bad for the economy by making specific arguments that only someone with just an econ 101 education — and a poor one at that — would make.

One thought on “Advocates of Reason: 9 July 2013

  1. Joel

    Hi Jonathan

    I’m a non-economist and longtime reader of your blog. I never comment. I just wanted to say that, despite not commenting I really appreciate your blog.

    I think modern culture is a little too data-obsessed, and that this leads to simplistic interpretations of causality when we’re dealing with data that has complex causal webs embedded in it. I think this problem is true in modern psychiatry, medicine, and economics.

    It’s nice to see someone who still values reason and conceptual understanding rather than automatically surrendering to shallow interpretations of fallible data.


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