Smith and Maskin at the Hayek Event

After the Kirzner talk, and after meeting a great guy with an interesting life story who I had only known online in the lobby during the coffee break, we filed back in to see Ed Phelps, Eric Maskin, and Vernon Smith speak. Except Ed Phelps was ill, which was very disappointing both because it's unfortunate he was ill and also because I had a question prepared for him. Peter Boettke read his remarks, which concerned Hayek and innovation, but my question was sufficiently specific that it didn't make sense to ask it. I was going to note that Hayek is well known to have supported many safety net programs provided that their design conformed to certain requirements for a liberal order. I was going to ask about Phelps's own proposal of low income wage subsidies (which I like as well, and which I'm writing a dissertation chapter on), and whether he thought that would conform to Hayek's requirements and how he thinks Hayek would respond to it.

After Pete delivered Phelps's remarks, Eric Maskin had an interesting discussion about mechanism design work that he thinks formalizes a lot of Hayek's insights on the uses of knowledge and the market's ability to economize on knowledge. I am not familiar with the work but the models seem to work a lot like a game theory model because you've got normal optimizing behavior but then you also have a message space (ability to send and receive certain kinds of messages) and an outcome function that translates those messages into outcomes. The work he discussed demonstrated Hayek's point that under certain conditions the market is the most efficient at using information - all non-market options required more channels for the information to move along than the market.

This is all interesting stuff, but it seemed like Arrow-Debreu for information, which is to say it didn't feel very Hayekian (or Kirznerian). Arnold Kling, in the audience, had the same thought and challenged Maskin on the point. I forgot the exact response but I believe he generally agreed that yes it's a very formal model which was different but still captured a lot of the same ideas. I was going to ask the same sort of question as Arnold but didn't get the chance (George Selgin got the last comment).

I was going to remark that I was anticipating that Maskin would have talked about mechanism design in terms of the rules of the game and (to put a more Buchananesque spin on it in honor of his recent birthday) constitutional order. With mechanism design you are asking - given the incentives and behavior of the agents, what arrangement of message spaces and rules will produce the outcome that you want. This is the same idea behind Buchanan's constitutional exercise or really any situation where you are thinking about how the rules of the game determine the outcomes (or possible set of outcomes) of the game.

I have less to say about Vernon Smith's talk. It was very nice of course and I agreed with most everything he said. He presented some interesting evidence that Hayek was skeptical of experimental testing of theoretical claims. I'm not sure how firmly Hayek held that view or if it was just a little methodological bluster, but it was still an interesting bit that he shared. Smith maintained a narrative you hear sometimes from Austrians that back in the day economists really were skeptical that markets worked. I have serious doubts when I hear these things, and I think some libertarian types tend to conflate trust in government during this period with rampant doubts about the market. Of course proving this one way or another requires a lot more than the anecdotes that are usually brought to bear.