If Hayek and Bastiat were econometricians, what kind of data and analyses would they run? Which major, well known datasets would each use?
I've been thinking about this recently and I may try to write up a little note on it, but it seems somewhat odd to me. When you think about it, it's kind of strange that Hayekians like Bastiat so much. Hayek makes a big deal about using aggregated data, and presumably he would prefer to use microdata to explain economic processes at a less aggregated level.
Bastiat of the broken window, on the other hand, is a classic macroeconomist. He knows that there are spillover effects which cause macroeconomic elasticities to be different from microeconomic elasticities. He knows that if you don't have a solid counter-factual you're screwed. He knows that if you restrict yourself to disaggregated data, you're going to get excited about new employment for the glassmaker but miss the falling employment for the shoemaker.
So why do Hayekians like Bastiat so much? They seem to be at different ends of the aggregation question. I think this contradiction would be more apparent if more Austrians did empirical work, but since they largely don't it often gets glossed over.
Anyway - I was thinking about this yesterday when I revisited some half-finished work on a job creation tax credit paper I've been working on for the last year. I use macro data, because that's what's available - and I came across LaLonde and Smith's (1999) chapter in the handbook of labor economics arguing that macro data is really the only appropriate data to use to get impact estimates for labor market programs - precisely because microeconomic experiments that are so common overlook the problem of spillovers, displacement, and crowding out. LaLonde and Smith (1999) tell a very Bastiatian story.
Anyway - I welcome thoughts. And let's play pretend here - no comments about how these two would never be econometricians. But it seems like they are fundamentally at odds, and that's been concealed because of how Austrian economics gets done.
Thursday, August 19, 2010
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I think you are confused.
ReplyDelete"He knows that if you restrict yourself to disaggregated data, you're going to get excited about new employment for the glassmaker but miss the falling employment for the shoemaker."
Hayek wouldn't disagree with this point in the least. Hayek never argued for disaggregated data.
Bastiat would also argue that the notion of government sponsored "job creation" is at best foolish, and at at worst the sort of thing harms the only people are worth considering - consumers.
How much of the work of Bastiat have you read?
Anonymous -
ReplyDeleteI may indeed be confused, but you seem to be a little confused as well.
First, my confusion. I haven't read Hayek's critique of Keynesian aggregates in detail, so in that sense this is indeed a speculative post that I could be wrong about. I've mostly read some of Hayek's monetary works in the 1920s and I've read pieces of him (and others channeling him) on the capital structure and the business cycle. My impression was, though, that most modern Austrian aversion to aggregates either in theory or in empirical work came from Hayek. If you have any clarification of "Hayek never argued for disaggregated data" I would appreciate it - as I said, it's a contrast I'm turning over in my head and pondering writing a quick note on.
On your confusion: I'm not saying that Bastiat would have argued for government sponsored job creation. What I'm saying is that in his refutation he would have been a "use aggregates" kind of guy because he specifically pointed out the fallacies of addressing these questions with micro-data and firm and industry-specific data points.
I haven't read too much of Bastiat besides Seen and Unseen and a couple pieces on protectionism that Mattheus posted. I read one other essay but its been a while - I can't even recall what it was.
I'm in the last 1/4 of Okrent's "Last Call" and interestingly he goes into some detail about Irving Fisher's efforts to justify prohibition in something like econometric terms. Increase in productivity for typesetters, reduction in swearing fines, etc.
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