Thursday, December 28, 2006

Why No More Great "Libertarian" Economists?

"...What distinguishes the new generation [e.g., Joe Stiglitz, Paul Krugman, and Richard Freeman] of policy-relevant mainstream economists? They are not, alas, philosophical Keynesians. But they often arrive at Keynesian policies by elaborate neoclassical routes - by building asymmetric information or increasing returns or externalities into an otherwise orthodox model and tracing through the implications. They combine a facility with this method and an openness to empirical observation, the choice of important cases, and a willingness to tackle hard problems of policy design and to consider ingenious solutions to particular policy problems. Moreover, they are willing to devote time and energy to explaining the issues to a larger public - whether in economic policy journals like Challenge or broader public forums like The New York Times. In these respects they do resemble Keynes, who remains the ultimate example of a modern economist who could do it all.

So what is the problem over there on the libertarian side? Klein is right: there is a problem - the libertarians are strangely quiet these days. One might think that new libertarian voices would emerge in the Bush era, when many actual libertarians are closer to state power than ever before. But no. There are no new Friedmans, no Hayeks, no Wanniskis, no Gilders to chorus in the new regime, to lend it an air (badly needed one might add) of intellectual authority.

I think I know the reason. The libertarians, let me suggest, have lost the courage of their convictions. Libertarian followers of Lucas, unlike, say, those of Tullock, rarely speak on public questions for a simple and well-considered reason. What they do is, indeed, very implausible. It cannot be conveyed to the ordinary literate and sensible person because, once the assumptions are spelled out, the ordinary literate and sensible person will reject them.

Furthermore, no one any longer believes Milton Friedman's old methodological saw about false assumptions being irrelevant - so long as the 'implications' are valid. The point made against Friedman long ago by Tjalling Koopmans - that this allows one to escape difficulties by reclassifying unpersuasive implications as assumptions - is elementary enough to be grasped intuitively by those who will never read Koopmans. Better to be a scholastic, in short, than a figure of fun.

A second group of scholastics is silent on policy questions for a different reason: the scholasticism that is increasingly up-and-coming inside economics no longer supports the libertarian view. It would be quite dangerous for a serious student of, say, game theory or non-linear dynamics or of models with multiple equilibria to delve too deeply into the policy implications of such work. Such forms of modern economics simply no longer support the libertarian political viewpoint, and to make this too widely known would greatly jeopardize right-wing support for mainstream economic research..." -- James K. Galbraith (2001). "Response from an Economist who also Favors Liberty", Eastern Economic Journal, V. 27, Iss. 2: 227-299.
Galbraith's paper is part of a symposium. The symposium is organized around comments on a paper by Daniel B. Klein. Gordon Tullock, Deidre McCloskey, Israel Kirzner, Charles Goodhart, Robert Frank, and James Galbraith provide the comments.


Michael Greinecker said...

I don't know much about Freeman but Krugman doesn't seem to be in the "Keynsian policy prescriptions from Neoclassical models"-camp. See for example his Size Does Matter, a defense of macroeconomics even without satisfying microfoundations.

There are still libertarian economists in the public sphere. Take a look at the popular writings of Robert Barro. An let's not forget Prescottss recent Five Macroeconomic Myths.

Anonymous said...

"One might think that new libertarian voices would emerge in the Bush era, when many actual libertarians are closer to state power than ever before."

What are the names of the libertarians who have come closer to state power than ever before in this Bush era?

Anonymous said...

a defense of macroeconomics even without satisfying microfoundations.

The same position is taken by Kevin Hoover ;

and Kirman, if I remember correctly comes pretty close to the same idea.

Robert Vienneau said...

Galbraith's article was published in 2001. I don't intend to argue about what soi-dissant "libertarians" continue to support Bush, despite his hatred of civil liberties and his war of choice. Nor do I intend to enter in how near or far from power any are.

I don't know Richard Freeman, either. I suppose Krugman's trade theory can be described as following "elaborate neoclassical routes." I think if he hasn't read it, Michael would find interesting Hahn and Solow's A Critical Essay on Modern Macroeconomic Theory. It has "Keynesian conclusions from elaborate neoclassical routes". I think of Kirman as arguing that macroeconomists following Lucas, including RBC and "new Keynesian" theorists, have failed to establish microfoundations. I've recently read Hoover's "Microfoundations and the Ontology of Macroeconomics, which is a philosophical reflection on these matters. So I guess I am concurring with Radek.

Daniel Klein's rejoinder to Galbraith also lists "libertarians" in the public sphere. My assessment is that none listed are of the intellectual stature of Hayek or Friedman, let alone Stiglitz or even Krugman. I haven't read Barro and have trouble seeing why I should take Prescott seriously. You may think I have biases here.

Anonymous said...

Libertarian economists have become much more politically active in the last few years. They've simply moved into the political realm. That's all.

Whereas before, especially in the Hayekian early 1960s, there was no outlet for libertarian politics. Today, we have both the Republican Liberty Caucus and the Libertarian Party.

Lookin' for loud and active Libertarian economists? Go to an RLC or LP convention.

Eric, CEO at

Michael Greinecker said...

The book by Hahn and Solow is good, but they didn't provide neoclassical microfoundations because they were convinced in them. What they were trying to do was "boring from within".

Prescott certainly was more influential as an economist than Hayek. And any real economist is better than Jude Wanniski, who is listed by Galbraigth.

Anonymous said...


I'm interested to know what has happened since Galbraith (James K.) published this in 2001.

Have others rushed in to counter? I think that Galbraith was spot on on both counts. As to the second, "scholasticism ... inside economics no longer supports the libertarian view", there is no reason to advocate for the "libertarian view" if increasingly apparent that it is methodologically bankrupt.

On another front, as someone who studies Post-Keynesian economics, what do you think of Hyman Minsky's relook at Keynes' work? Are the folks at the Levy Institute on a right track in your opinion?

On the latter, see recent working papers by Eric Tymoigne here.

Anonymous said...

Following up my last comment, I too study economics as a hobby. I'm particularly interested in social systems as complex systems, and the interrelationship between that study and economics. Hence I find Minsky finance an interesting and refreshing change from more "orthodox" framing. You'll see this influence throughout my Econ. Dreams-Nightmares blog. You'll also see it in my Ecological Economics blog.

On Minsky, there are probably better primers, but I found one a couple of days ago that is good enough. It is by Elisabeta De Antoni, and titled "The (too?) optimistic 'Financial Keynesianism' of Hyman Minsky" [PDF].

I find De Antoni's paper to get really interesting from p. 11 to the end. Page 11 begins, "Minsky's theory is a 'financial' theory of investment ... inspired by Keynes ... which focuses on the ways in which investment is financed and on the preceived risks connected to indebtedness. ...Economic growth thus leads [under normally functioning pschological framing, free markets and/or poorly controlled central banking] to [an ever-more] fragile financial system, [then crisis, creative destruction via deep recession or depression, rebirth, recycle...].

Robert Vienneau said...

I understand that Hahn and Solow's point is that Lucasian "microfoundations" are compatible with Keynesian results. I don't think Michael and I are disagreeing with each other or with Galbraith.

Galbraith's father was a "real economist". I think many mainstream economists do not accord him that stature. So, whatever I think of Wanniski, I'm not going to adopt that label. And as far as Prescott being more influential among economists than Hayek - so much the worse for economists.

I generally like both Hyman Minsky and the Levy Institute. They have a different direction in their research than my use of Italian-Cambridge economists for criticism of mainstream economics.

Anonymous said...

So the argument is "Yes, there are all these prominent libertarians nowadays, but we who happen to disagree with libertarianism are not impressed with them, so there must be something wrong with libertarianism."? Well, wow.