Sunday, July 31, 2011

James Buchanan, Paul Krugman, and $20 bills

In the James Buchanan lecture I presented here, one of the points he makes is that a lot of people commit a fallacy of composition when it comes to aggregate behavior. Buchanan referenced the fact that economists like to say that $20 bills on the sidewalk don't exist. They can't exist - someone would pick them up. But he points out that that describes behavior at the individual level, and in the aggregate we often do leave $20 bills on the sidewalk. Keynesians of course have their favorite fallacies of composition - but Buchanan specifically pointed to public choice and the commons of rule-making.

Paul Krugman's post this morning seems to agree with James Buchanan: we do sometimes leave $20 bills lying on the sidewalk.


  1. The whole picking up things of value off the street reminds me of this:

  2. Krugman's argument is premised on the claim that (a) government creates useful infrastructure and (b) that it somehow puts people to work useful ways that pay off down the line. Those sort of undemonstrated premises (or presuppositions) don't make for a convincing argument.

  3. I could have sworn that the freeway was busy on the way home last night.

    But I'm just assuming that people find it useful based on the fact that they are heavily used.

  4. ArgosyJones,

    My response is that sure, that freeway exists, but what could have been built there instead of the government sponsored freeway. So it is always useful in comparison to a bunch of other possibilities.

  5. I was once walking through Brooklyn with Thomas McQuade, an economist, when his wife spotted a twenty dollar bill on the sidewalk. "Forget it," Donna," I told her, "it's not there." (True story.)

    But, even individually, isn't it more correct to say, "We never leave *noticed* $20 bills" lying around? But often we fail to notice them. (This, I think, is Kirzner's great contribution.)

  6. Gene,

    True story:

    My freshmen year in college I saw three people walk by two $20 dollar bills that were sitting just off to the side of a concrete path (I was following two of them and one was approaching me). I always assumed that they just didn't see them and that's why didn't pick them up. Either that or I was part of some grand experiment I was not aware of. The former sounds more plausible (though I do know that social scientists have run experiments like that in the past).

    And yeah, I pick up the cash; I used some of it to by my then girlfriend some flowers.


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