Tuesday, March 22, 2011

Not a shining moment for Peter Boettke

Don Boudreaux links to this paper presented by Peter Boettke.

This gets to the heart of the criticism he provides of Keynes, which he calls "bad economics":

"But there are good reasons why economists forced these theories into the underworld of economic opinion. They reflected bad economic analysis. What I mean by that is that they implicitly assume away scarcity and believe the fundamental problem of modern society is poverty amidst plenty, and they explicitly deny both actor rationality and the coordinating role of prices, and the function prices serve in guiding decisions and the feedback and discipline provided by profit and loss. If you postulate a world of post scarcity, then neither the coordinating role of the price system, nor the incentives of the property rights structure, is critical; and if you don’t allow the individuals that populate your economy to learn from market signals, and you don’t allow those signals to actually work, then of course the economy will not work!"

There was a time when good criticisms were raised against Keynesianism (or what Keynesianism turned into), and real advances were made. This piece by Boettke is so poorly thought through, though, it becomes hard to know how to respond in a productive way. We assume away scarcity? Since when? Boettke provides no reference at all to what he could be referring to and I have no idea. We "explicitly deny" actor rationality? No - rational behavior was at the heart of all the economics I ever learned. Even the behavioralist work that challenged some assumptions of rationality did it by pointing out a deeper rationality to human behavior (sometimes based in evolutionary imperatives, etc.). Nobody I know - no Keynesian - ever "explicitly denied" rationality. He also says we "explicitly deny" the coordinating role of prices, which is even more unbelievable. The whole Keynesian system revolves around a distortion of a price - the interest rate - which leads to economic downturns. Price coordination is the bedrock of Keynesianism (as it is of all good economics), and it's what Keynesians count on to efficiently allocate labor, capital, and money. It's poor price signals that cause all the problems in the Keynesian understanding of the world. How could Boettke suggest we "explicitly deny" price coordination? It's hard to tell because he never cites anyone or explains how he came to this conclusion.

I guess what's most frustrating is that on most occasions Boettke seems like a reasonable and intelligent guy that's worth engaging. Then you read something like this and just think "my God - what's the point of even talking to him - he could care less about thinking through these issues, and he's happy to substitute whatever he wants to for what people actually think". If someone were to ask me to explain Keynesianism it would literally be impossible without the concept of rationality, trade-offs, and price coordination. Without those things, Keynesianism not only doesn't make sense - you just wouldn't have the vocabulary to discuss it at all. It's not clear to me, then, why Boettke takes this approach. What value does he see in inventing disagreements with Keynesianism? What is the point of inventing a boogeyman? If we don't disagree on the coordinating role of prices why tell your colleagues and most of all your students that we do? I really don't understand his motivation here. Boettke is lionized as a guy that cares a lot about his students, but that's not going to adequately prepare them to go into the world and talk about economics. They're going to approach a Keynesian and accuse them of "explicitly denying" rationality and price coordination, and then the Keynesian is going to say "actually, those ideas are central to our thought, so instead let's discuss X, Y, and Z where we do disagree" and these students are going to be completely unprepared to talk about anything other than the caricature that Boettke is providing. I spend a lot of time on here walking through pretty elementary points about why price coordination is so important in the Keynesian system, why no Keynesian is proposing central planning, what the conditions are for market efficiency, etc. I'm willing to tackle foolish points like "you guys don't care about price coordination". A lot of people won't be willing. If you say things like what I quoted from Boettke, above, a lot of people will just assume you've excused yourself from the argument that reasonable and informed people are having.

Anyway - very disappointing.


  1. He has always struck me as not only a nice, but a fair guy. This paper was strangely antagonistic and quite simply ignorant of the argument. I don't know if he was playing to his audience (it was a speech he gave after receiving an award) or what, but I was surprised at the quality of the argument.


All anonymous comments will be deleted. Consistent pseudonyms are fine.