From the Archives: James Robinson discusses 'why nations fail' at George Mason University

James Robinson discusses 'why nations fail' at George Mason University
May 4, 2013 7:37 PM MST

In his first speaking engagement at George Mason University on the evening of May 2, Harvard political scientist James A. Robinson paid a compliment to the school by noting its “distinct intellectual atmosphere.”

Robinson appeared at the Arlington campus of GMU at the invitation of the Mercatus Center to discuss his recent book, Why Nations Fail: The Origins of Power, Prosperity, and Poverty, which he co-wrote with MIT's Daron Acemoglu.

In his lecture, Robinson explained how his and Acemoglu's empirical research had led to a predictive theory about how nations develop economically and politically. All countries, he said, can be plotted on a matrix using the categories “inclusive” (politics and economics) and “extractive” (politics and economics).

Success or failure for nations depends on whether they have inclusive or extractive institutions, Robinson said, and these institutions have their origins deep in history – although circumstances can change through the adoption and adaptations of new, better institutions.

England and Virginia

As an example of this kind of change, Robinson noted that 200 years before the Industrial Revolution, England was an economic backwater on the edge of Europe. Elizabeth I's defeat of the Spanish Armada in 1588 was unexpected and unpredictable, yet by 1788, Great Britain was Europe's most formidable economic power and the world's leading colonizer. This was the result of institutional change in law and society.

After signing books for fans and admirers, Robinson clarified and expanded some of his remarks in an interview with the Charlottesville Libertarian Examiner.

He explained that although the Spanish and English colonies in the Americas both began with the same model, the English experience at Jamestown, Virginia, set North America down a more economically prosperous path than the colonies in South America trod.

The circumstances in Virginia and, for instance, Buenos Aires, “were very different,” Robinson said.

“Because there were very few indigenous people [who were] organized in a very different way in Virginia as compared to, say, the central valley of Mexico, a very different type of society emerged.” This society was “based on creating incentives and opportunities for European [settlers] rather than exploiting indigenous people,” which was the case in Latin America.

Mysterious development?

Asked whether there is a difference in the questions of “why nations fail” and “why nations succeed,” Robinson replied that “they're two sides of the same coin.”

The reason his book has the title it does is that he and his co-author “don't think of economic development as being mysterious.”

Instead, he said, “to us, the puzzling thing is, why on earth don't poor countries that ought to be able to generate huge amounts of wealth and improve the living standards of their people” do so by investing in education, adopting technologies, and securing property rights?

“Why don't they do it?,” he repeated. “We've always found failure more puzzling. Why is it people don't take advantages of these huge opportunities?” This question is particularly salient when countries have abundant mineral resources, climates and soils conducive to agriculture, and convenient locations for trade and industry -- yet still fail to develop economically.

Cultural predictors

Many commentators on economic development – Thomas Sowell, for instance – focus on cultural values as the basis for success or failure. Robinson and Acemoglu take a different approach by emphasizing institutions.

Their approach, Robinson said, came about “mostly because of the empirical work we've done, all the scientific research. We've always found measures of institutions to have much more predictive power than different measures of culture.”

He conceded that “there's a problem of language here. When I talk about institutions, I don't just mean things written down, like the U.S. Constitution.”

He gave the example of the limit of two presidential terms, which was established as “a social norm that lasted for 150 years” by George Washington, before Franklin Roosevelt parted with the tradition and, eventually, the Constitution was amended to make the tradition statutory.

Nobel laureate economist Douglass North, he pointed out, “talks about informal institutions, social norms, and I think that's enormously important. It's not just about written-down laws. Social norms and informal institutions are quite similar to what a lot of people talk about when they talk about culture.”

When Robinson and Acemoglu talk about culture, however, “it's not about values or normative beliefs or normative principles or religious principles. We don't find that to be important; we don't think it's important” in terms of predictive value for economic success or failure.

Why Nations Fail is published in hardback by Crown Business and in paperback by Profile Books Ltd.


Publisher's note: This article was originally published on Examiner.com on May 4, 2013. The Examiner.com publishing platform was discontinued July 1, 2016, and its web site went dark on or about July 10, 2016.  I am republishing this piece in an effort to preserve it and all my other contributions to Examiner.com since April 6, 2010. It is reposted here without most of the internal links that were in the original.

From the Archives: Will 2011 state election voters feel enough pain to solve state budget crises?

Will 2011 state election voters feel enough pain to solve state budget crises?
December 4, 2010 1:22 PM MST

At the annual holiday dinner hosted by the Mercatus Center on December 1, economist Eileen Norcross spoke to the Charlottesville Libertarian Examiner about the impending crisis in state budgets. Norcross is a senior research fellow at Mercatus and co-founder of the web site StimulusWatch.org.

Norcross answered questions about state budget shortfalls and the “fiscal evasion” tricks that state governments play to create the appearance of balanced budgets. Most states, she explained, are facing serious consequences as a result of distended pension obligations and growing expenditures.

Some better than others
Still, she said, “there are a few states that are not in terrible shape,” such as South Dakota and Wyoming.

Some states are doing better because they “are simply smaller” and “don’t have as big of a public sector workforce. They don’t have the same pension obligations that some of the mismanaged states like Illinois and California do.”

Even so, Norcross warned, “all states are facing one crisis, and that is in Medicaid and rising health care costs. That is a feature of all state budgets.” Another universal feature, she added, is education spending, which “has been baked into the cake.”


Stimulus problems
Referring to research that shows that the federal stimulus money of the past couple of years may lead to budget problems for state governments in the future, Norcross cited research conducted for the Mercatus Center by Russell Sobel and George Crowley on the effects of intergovernmental transfers.

Sobel and Crowley “found that for every dollar of federal money that’s transferred to the state government, that raises future taxes by 40 cents,” Norcross reported.

Why is that?

“Once you undertake a public works project and the stimulus money goes away, you still have to finish that project. You have to pay for those workers [and] you might have to issue bonds to complete the project. In other words, they may have expanded commitments that they now have to fund themselves.”

2011 state elections

Eileen Norcross

In 2011, Kentucky, Louisiana, New Jersey, and Virginia will be holding state legislative elections, and these budgetary issues may have an effect on their outcomes but, Norcross cautioned, “that’s going to depend on the pain that the electorate feels.”

She said the case of New Jersey is “interesting,” because recently “when property taxes got so onerous on the average homeowner, [voters] actually turned out in force during the school budget election and they voted down a lot of school budgets in New Jersey.”

The number of school budgets rejected was “the greatest number since 1976,” she said, “because they were really voting against a tax hike.”

The results of next year’s elections, Norcross concluded, is “really going to depend on the extent to which the electorate is feeling the pain today or whether legislators are engaging in that kind of fiscal evasion, trying to buy more time, [and] pushing that debt onto future taxpayers.”


Publisher's note: This article was originally published on Examiner.com on December 4, 2010. The Examiner.com publishing platform was discontinued July 1, 2016, and its web site went dark on or about July 10, 2016.  I am republishing this piece in an effort to preserve it and all my other contributions to Examiner.com since April 6, 2010. It is reposted here without most of the internal links that were in the original.

From the Archives: Balanced-budget gimmickry hides states' fiscal crises, says Eileen Norcross

Balanced-budget gimmickry hides states' fiscal crises, says Eileen Norcross
December 4, 2010 12:58 PM MST

Economist Eileen Norcross, who specializes in state and local budgetary policy at the Mercatus Center at George Mason University in Northern Virginia, spoke to the Charlottesville Libertarian Examiner on December 1 about the impending crisis in state budgets.

She explained that states are experiencing persistent budget deficits, often as the result of ballooning pension obligations.

She noted that these budgetary shortfalls are taking place even though most states have a constitutional requirement to balance their budgets.

Balanced-budget 'gimmickry'
This happens, Norcross explained, because “it’s possible to have a balanced budget yet to grow spending every year.” There are different answers to the question, “What does budgetary balance mean?”

Norcross pointed out that “while on the books they can claim budgetary balance, they also engage in a lot of gimmickry, what I call ‘fiscal evasion.’”

Eileen Norcross

She explained:

“For years, states have been finding ways to balance their books without having to raise taxes directly, so they take on more debt, they dump trust funds into the general fund, they defer their pension obligations: That’s how some of these states have been balancing their books. It gives them the temporary illusion that they’ve met their commitments yet they really haven’t. That’s revealing a structural instability in these revenue streams.”

Noting that “Virginia is doing relatively well compared to the other states,” Norcross added that “there are a few things that concern me.”

For one thing, the Virginia state government “deferred [its] pension payment this year. It’s not a good practice.”

This is not unique, she said.

Pension obligations
“All the states have undervalued the size of the obligation that they owe to their public sector employees by an order of magnitude. What they claim on their books looks bad, but what they actually owe is far greater.”

In Virginia and other states, Norcross continued, “what concerns me is when [they] defer their pension obligations, they’re basically passing the buck [or] kicking the can down the road, but that’s not going anywhere. They’re going to owe those public sector workers” eventually.

In the third part of this interview, Norcross looks at which states are doing a better job, and whether fiscal matters will affect the behavior of voters in 2011 state legislative elections.

Publisher's note: This article was originally published on Examiner.com on December 4, 2010. The Examiner.com publishing platform was discontinued July 1, 2016, and its web site went dark on or about July 10, 2016.  I am republishing this piece in an effort to preserve it and all my other contributions to Examiner.com since April 6, 2010. It is reposted here without most of the internal links that were in the original.

From the Archives: Mercatus Center economist Eileen Norcross notes state budget ‘fiscal evasion’

Mercatus Center economist Eileen Norcross notes state budget ‘fiscal evasion’
December 4, 2010 12:43 PM MST

On December 1, the Mercatus Center at George Mason University hosted its annual holiday dinner, this year featuring novelist Christopher Buckley as after-dinner speaker. About 300 people attended, also hearing pre-dinner remarks from GMU economics professor Russell Roberts, co-creator of the viral video, “Fear the Boom and Bust” with rapping versions of F.A. Hayek and J.M. Keynes.

Economist Eileen Norcross is a senior research fellow at the Mercatus Center who closely follows state and local budgetary policy. Two of her recently published working papers are “Fiscal Evasion in State Budgeting” and “The Crisis in Public Sector Pension Plans.”

At the cocktail reception preceding the dinner, Norcross spoke to the Charlottesville Libertarian Examiner about the crisis in state budgets across the country.

‘Persistent budget deficits’

State and local budgets are an important research topic, she said, “because so many state and municipal governments are experiencing persistent budget deficits. They’re finding it difficult to balance their books and it’s projected that states are not likely to find fiscal balance until 2013.”

There are common reasons for this situation that cross state lines, Norcross explained.

“States have growing pension obligations that they have not funded. These bills are coming due. They’re going to have to contribute more to their pension systems to pay public sector workers. This is going to crowd out their ability to meet their growing Medicaid obligations.”

Workforce cutbacks

Eileen Norcross

Moreover, with state revenues falling, their spending grew “in the decade leading up to the recession,” she said. “They’ve built commitments into their budgets that they’re now finding it very difficult to cut. That means cutting back on the public sector workforce and other things have become very challenging for states.”

Even with money from the federal government, the situation is still serious.

“With the stimulus drying up they don’t have much to go on here,” Norcross said. “They’ve either got to raise taxes or find other places to cut.”

In the second part of this interview, Norcross answers questions about constitutional requirements for balanced budgets, deferred pension obligations, and the negative effect of stimulus money on state budgets.


Publisher's note: This article was originally published on Examiner.com on December 4, 2010. The Examiner.com publishing platform was discontinued July 1, 2016, and its web site went dark on or about July 10, 2016.  I am republishing this piece in an effort to preserve it and all my other contributions to Examiner.com since April 6, 2010. It is reposted here without most of the internal links that were in the original.

From the Archives: Economist Antony Davies debunks arguments against liquor sale privatization

Economist Antony Davies debunks arguments against liquor sale privatization
August 5, 2010 5:12 PM MST

Based on studies he has done regarding the privatization of alcoholic beverage sales in other states, Duquesne University economist Antony Davies concludes that “the major opposition surrounds the social impact of privatizing alcohol. The conventional wisdom would say if you privatize alcohol, the state loses control, and you will see more social problems associated with drinking.”

Empirically, however, this is not true, Davies told the Charlottesville Libertarian Examiner in a telephone interview on August 5. He distinguished between levels of “control,” from the free-market systems that exist in most states, to moderate control (such as in Virginia, where beer and wine are sold by private businesses) to full control (such as Pennsylvania, where even beer and wine are sold by a state-owned monopoly).

No Substantial Difference
A 2009 study he wrote for the Commonwealth Foundation for Public Policy Alternatives (a Pennsylvania think tank) with fellow Duquesne economist John Pulito, resulted in these findings, based on statistics from 1970 through 2006:

“….advocates claim that the social goals of reducing alcohol consumption, underage drinking, and alcohol-related traffic deaths justify controlling wholesale and retail alcohol markets.

“Evidence from 48 states over time shows no link between market controls and these social goals.”

Dr. Davies said in the interview that “we’re not seeing any evidence that greater control leads to better social outcomes.”

There is an exception, however, that Davies pointed out over the telephone: “DUI fatalities are significantly higher in states with more control than states with less control.”

Other factors, however, are different, he said. “If you look at per capita alcohol consumption, there’s no difference as you move from full to moderate to light control.”

Underage Drinking
As to claims that state-owned liquor stores are a better protection against selling alcohol to minors and underage drinking, Davies explained that people think “at a gut level” that private businesses “have an incentive to sell to minors. We see that’s not the case.”

Why not? “If alcohol is sold in the private market, the owner of the store has a profit incentive not to sell to minors, because if he gets caught, he loses his license. He wants to protect his business.”

Davies, who is also a visiting scholar at the Mercatus Center at George Mason University in Northern Virginia, concludes: “If you look at the data, there’s no clear pattern [that emerges showing] that imposing more control reduces underage drinking.”

Financial Arguments
In addition to the “social outcome” arguments against privatization, Davies said that “there are some financial arguments but they tend not to hold too much water.”

Those arguments, he said, “are pretty easily knocked down when you realize the state can continue to tax alcohol regardless of whether it’s sold publicly or privately.”

Davies pointed to legislation currently under consideration by Pennsylvania, which proposes to sell that state’s alcoholic beverage stores. “What’s pushing this [proposal] is the budget crunch. Selling the state store system would immediately raise the $2 billion necessary to close the budget gap.”

From the state’s perspective, Davies continued, “this is a win-win situation financially. The state can sell off its ABC system for a lump sum of cash and then continue to collect alcohol taxes and fees.”

As for Virginia, Professor Davies said he did a “back of the envelope calculation” after “looking at latest ABC statement of revenues.” Superficially, he said, “Virginia would lose about 30 percent of what it’s taking in” in operating profits.

What that doesn’t take into account, however, is lost revenue from Virginia customers who do their shopping in the District of Columbia, Maryland, West Virginia, and North Carolina. Nor does it account for the revenue increases that will result from private operation of liquor stores.

“Here’s why it may be revenue-positive,” he explained. “You achieve all these things – more convenient locations, more convenient hours, better customer service, so sales will increase. Plus auctioning off licenses” will result in previously unavailable revenue for the state.

Rent Seekers
Davies also addressed why one of the primary opponents of ABC privatization would be groups like the beer wholesalers, whose products are already sold in privately owned stores.

“Beer wholesalers,” he said, “are most against privatization of wine and spirits because it increases their competition.” By making comparable products more easily available to the same customers, “that’s going to eat into the profits of the beer distributors.”

In that regard, Davies offered some advice for voters and taxpayers who are paying attention to the privatization debate in Virginia:

“Generally speaking, the economists’ mantra is ‘follow the money.’ If you find someone arguing for or against a regulation, ask where he gets his money from.”

That seems to be a simple explanation of the motivation of some opponents of ABC privatization.

Publisher's note: This article was originally published on Examiner.com on August 5, 2010. The Examiner.com publishing platform was discontinued July 1, 2016, and its web site went dark on or about July 10, 2016.  I am republishing this piece in an effort to preserve it and all my other contributions to Examiner.com since April 6, 2010. It is reposted here without most of the internal links that were in the original.

From the Archives: UVA English professor Paul Cantor explores zombies and liberty in pop culture

Publisher's note: This article was originally published on Examiner.com on November 16, 2013. The Examiner.com publishing platform was discontinued July 1, 2016, and its web site went dark on or about July 10, 2016. I am republishing this piece in an effort to preserve it and all my other contributions to Examiner.com since April 6, 2010. It is reposted here without most of the internal links that were in the original.

UVA English professor Paul Cantor explores zombies and liberty in pop culture

Speaking at the Mercatus Center at George Mason University on November 14 on the topic, “The Economics of Apocalypse: Flying Saucers, Alien Invasions, and the Walking Dead,” UVA English professor Paul A. Cantor drew upon his research on popular culture to discuss opposing visions of individualism and collectivism in contemporary catastrophe narratives in film and television.

Cantor, a Shakespeare scholar, is author of a recent book, The Invisible Hand in Popular Culture: Liberty vs. Authority in American Film and TV, a follow-up to Gilligan Unbound: Pop Culture in the Age of Globalization, published in 2001. He is also co-editor, with Stephen Cox, of the 2010 volume, Literature and the Economics of Liberty. Cantor and Cox are among the most prominent libertarian thinkers working in the field of English literature today.

After his lecture and an audience discussion moderated by Reason magazine's Jesse Walker, Cantor explained to the Charlottesville Libertarian Examiner why he was looking into the presence of zombie themes in pop culture today.

'Self-reliance'

“These zombie stories are a very interesting way of exploring questions that Americans are interested in,” he said.

What he has noticed in zombie stories, he explained, is that “almost the first thing that results from the zombie apocalypse is the collapse of the federal government. These stories explore what life would be like in a world that was more like the American western, more like the frontier, in which people are forced to rely on their own resources.”

Sometimes, he said, those situations are “frightening but for many of the characters, particularly in The Walking Dead, the experience is empowering. They develop a sense of self-reliance, they face a a challenge, and they meet it.”

In his book, Cantor traces recurring themes in film and TV since the 1950s, a time when there were just three television channels available to most viewers, compared with the hundreds available through cable and satellite services today.

The proliferation of channels, he said, “has really opened up the creativity in television.”

Citing The Simpsons and The X-Files as pertinent examples, Cantor explained that “a lot of shows almost certainly wouldn't have made it onto television in the era of the three networks. It was the Fox Network, the fourth network, that really opened things up.”

'Greater quality'

Despite the increase in the number of networks and shows, he said, “there's a lot of continuity. Again, what I'm seeing in these contemporary zombie narratives is in many ways a reconstitution of what westerns were like in the Fifties. What we certainly have now is greater variety and, frankly, greater quality because people are able to take more creative chances.”

Cantor's new book, The Invisible Hand in Popular Culture, he said, “carries on some of the same issues” addressed in Gilligan Unbound.

One section of the more recent work “is devoted to globalization,” the primary theme of Gilligan Unbound, which was published the same week as the September 11, 2001, terrorist attacks on New York and Washington.

“This book has given me a chance to see how things have played out in popular culture” over the past decade, Cantor said.

Writing the book gave him an opportunity to ask “how shows like Fringe, V, Invasion, [and] Fallen Skies have reacted to developments since 9/11 and [a] world with a threat of terrorism but also the problems created by the war on terrorism.”

Flying saucers and totalitarianism

He was also able to compare and contrast pop culture during the Cold War and during the post-9/11 era.

“I look at flying saucer movies in the 1950s,” he noted.

In those days, Cantor said, “the invaders are an image of real foreigners. It's Soviet Communism that's showing up in the flying saucers.”

By contrast, he pointed out, “when you look at shows like V, The Event, Invasion, [and] especially Fringe, the people invading us are us. 'We've met the enemy and he is us.' These shows explore a disturbing image of the American government as having moved in totalitarian directions.”

With so many choices of movies and TV shows to watch, Cantor sometimes relies on serendipity to find what he's looking for.

“It's chancy,” he said.

“Sometimes I just like a show, often because I like the characters or the actors in it. Sometimes I force myself to watch a show because it's obvious it's raising the kind of questions I'm interested in. For example, The Walking Dead, I really just like. It's really well-made, well-done.”

On the other hand, he watches Revolution on NBC “even though I don't think it's such a good show because it fits into my thesis and I've got to consider the evidence” as he continues exploration of libertarian and apocalyptic themes in popular culture.

Will Medicaid expansion actually make poor people healthier?

Members of the General Assembly who oppose Governor Terry McAuliffe's proposals to expand Medicaid in Virginia under the terms of the Affordable Care Act (ACA, also called "Obamacare") may find some intellectual ammunition to bolster their case in a study published on March 24 by the Mercatus Center at George Mason University.

The Economics of Medicaid: Assessing the Costs and Consequences, edited by Jason J. Fichtner, contains a lot of wonkish economic analysis, such as Nina Owcharenko's chapter on "the state side of the budget equation," which shows the astronomical growth in Medicaid spending and enrollment over the past two decades (see the graph to the upper left), but the most significant findings may be in the book's last chapter, by Robert F. Graboyes and titled "Medicaid and Health."

Graboyes relies on previous studies in several states and on reports from the Government Accountability Office and other federal agencies to demonstrate that people who rely on Medicaid for health insurance not only have worse health comes than those who have other types of insurance, but worse than people with no insurance at all.

What's more, rather than taking patients out of emergency rooms and putting them in doctors' offices for routine health care, expansion of Medicaid coverage tends to increase emergency room visits by Medicaid recipients.

I'll let Graboyes -- a senior research fellow who was formerly an economist with Chase Manhattan Bank and the Federal Reserve Bank of Richmond, as well as a faculty member at the University of Richmond -- tell it in his own words (end notes omitted).

Pages 175-76:

A Mercatus publication I authored in 2013 stated the following: “An ideal health care system will provide better health to more peo­ple at lower cost on a continuous basis.” By this standard, Medicaid is an abject failure. For lower-income Americans, Medicaid yields poor coverage, poor care, and poor medical outcomes. While prom­ising coverage far beyond the program’s original scope, it fails to enroll millions of people who are among its intended population and who are eligible for enrollment. The data suggest that Medicaid does surprisingly little to improve its recipients’ health and in some ways may even harm them indirectly. It is a pennywise-and-pound-foolish program that, paradoxically, sends costs soaring by underpaying pro­viders. And the coverage, care, and cost elements show little or no improvement over time.

Pages 181-82:

In 2010, the University of Virginia conducted a large-scale study that suggested that an individual without insurance has better health outcomes than an individual on Medicaid.47 Even after adjusting for risk factors, Medicaid patients had higher in-hospital mortality, longer hospital stays, and higher costs—compared with the uninsured, those on Medicare, and those on private insurance plans.48 A University of Pennsylvania study examined data on patients receiving surgery for colorectal cancer; Medicaid patients had higher mortality and surgical complications than uninsured patients.49 A 2011 Johns Hopkins study found that “Medicare and Medicaid patients have worse survival after [lung transplantation] compared with private insurance/self-paying patients.”

Perhaps the most damning of all the recent studies is the Oregon Experiment. This was a rare example of a large-scale, fully ran­domized experiment in health care. In 2008, Oregon expanded its Medicaid program. Approximately 90,000 people applied for 30,000 newly available slots, and the state used a lottery to choose who got in and who did not. Afterward, the state tracked the health of 6,387 adults who were chosen and 5,842 who were not. From a standpoint of physical health, the results were devastating: “This randomized, controlled study showed that Medicaid coverage generated no sig­nificant improvements in measured physical health outcomes in the first 2 years, but it did increase use of health care services, raise rates of diabetes detection and management, lower rates of depression, and reduce financial strain.” Supporters of Medicaid point to positives that follow the word “but” in the preceding sentence.

Page 177:

Rapid expansion of Medicaid, as envisioned under the ACA, also has the potential to touch off a cycle of expansion, financial over­load, and mass cancellations of coverage. The best example of such a process is the TennCare disaster that began in 1994 in Tennessee. The state sought to convert Medicaid to managed care, assuming this would lead to enough savings (from efficiency gains) to cover children and the uninsured. In less than a decade, however, enroll­ ment swelled far beyond what had been predicted, and the savings proved elusive. The expansion threatened the state government with bankruptcy and, by 2006, the program was forced to cancel cover­age for approximately 200,000 Tennesseans. A high-profile study of Oregon’s Medicaid expansion provides powerful new evidence that expansion increases rather than decreases the use of emergency services; putting it another way, one of the principal arguments in favor of expansion now appears illusory [emphasis added].

The whole book, which is also available in a Kindle edition, is chock-a-block with nuggets like these. Even legislators who don't read bills before they vote on them should read this book.

Cross-posted from Bearing Drift (April 12, 2014).

@rick_sincere | facebook.com/ricksincere

Does Robert Sarvis Disdain Austrian Economics?

Robert Sarvis

Various individuals who have been trying to cast doubt on Virginia gubernatorial candidate Robert Sarvis' libertarian credentials have pointed to a comment he made in an interview with Ron Paul biographer Brian Doherty in Reason magazine, which has been interpreted to mean he is not entirely dedicated to Austrian economics, a staple of libertarian thinking.

Sarvis is the Libertarian Party's nominee for governor. He faces two rivals on Election Day, November 5: Republican nominee Ken Cuccinelli and Democratic nominee Terry McAuliffe.

Current public opinion polls show Sarvis might expect 8 to 10 percent of the vote, an unusually high number for a Libertarian (or any third-party or independent candidate for statewide office) so close to an election.

Charles C.W. Cooke cited the Reason interview on National Review Online on October 31, for example. 

Another instance of the questioning of Robert Sarvis' libertarian bona fides can be found on Examiner.com, where International Politics Examiner Andrew Moran wrote:

George Mason University is known for its free-market economics program (see Walt Williams). This is where Sarvis attained his economics degree. However, he doesn’t adhere to the principles of Austrian Economics, which is usually what libertarians promote.

Here is what Sarvis said in his interview with Reason: “I’m not into the whole Austrian type, strongly libertarian economics, I like more mainstream economics and would have been happy to go elsewhere.”

Wait does he mean “mainstream economics” that has gotten us into this current mess and continues to cause more problems?

An answer to that question may be found in an interview I did with Sarvis two years ago, when he was running for the Virginia state Senate.

That interview was also published on Examiner.com (just a coincidence). I had asked Sarvis about his favorite economist, and he offered up names of three people he admired: Friedrich Hayek, Adam Smith, and Scott Sumner.

It seems that, to Sarvis, "mainstream economics" means that derived from the work of Adam Smith, author of An Inquiry into the Nature and Causes of the Wealth of Nations.

Here's the relevant excerpt:

His libertarian philosophy is reflected in his answer when asked about his favorite economist. Without pausing, he named Friedrich von Hayek, the Austrian Nobel laureate who taught at the London School of Economics and the University of Chicago.

“Hayek is someone who really influenced my thinking,” Sarvis explained: “How to think about problems that face national economies and how public policy can influence it in many unintended ways.”


While a lot of people, such as talk-show host Glenn Beck, focus on Hayek’s 1944 book, The Road to Serfdom, Sarvis said he “was more influenced by his 'The Use of Knowledge in Society,' which was probably the seminal paper that won him the Nobel Prize, and also [volume] one of Law, Legislation, and Liberty, where he talks about rules and order.”

In addition to Hayek, Sarvis cites Adam Smith as an influence in his economic thinking.

“In philosophy, they say, there’s Plato and all else are footnotes,” he quipped. “I think that can be said more truly of Adam Smith than of Plato.”

Among contemporary economists, Sarvis pointed to Bentley University professor Scott Sumner, who blogs at TheMoneyIllusion.com. As Americans have focused on the financial crisis and the recession, he said, “Sumner has been the most persuasive in what exactly is going on [with regard to the] monetary policy mistakes of the Fed. We really are in many ways repeating some of the mistakes of the depression.”

Then there is Sarvis' biographical sketch on the web site of the Mercatus Center at George Mason University. (Both the Mercatus Center and the GMU economics department are hotbeds of Austrian economists.)

Emphasis added below:

Robert is a native of Northern Virginia and a lifelong believer in freedom, free markets, and the rule of law. He holds degrees in mathematics from Harvard University and the University of Cambridge and a JD from NYU School of Law. During law school, he co-founded a libertarian and classical liberal law journal, the NYU Journal of Law & Liberty, dedicating the first issue to Friedrich Hayek, and he has been outspoken in arguing against government regulation of the tech industry. Robert has worked as a software developer, a lawyer, and a tech entrepreneur, and his research interests span a wide range of topics relating to law, economics, and public policy.

Can the off-hand comment Sarvis made to Reason about his choice of a graduate school overwhelm the other evidence of his admiration for, and influence by, Austrian economists?

The 'Next Big Thing in Economics'? Three Views

What is the “next big thing” in economics? What is it that non-economists know nothing about today but that everyone will be talking about in five or ten years?

I posed this question to three young economists following a panel discussion at George Mason University featuring three Nobel laureates: Amartya Sen, Elinor Ostrom, and James Buchanan.

The September 9 event honored Buchanan, one of the founders of “Virginia School” or public-choice economics, who taught at Virginia Tech in Blacksburg and the University of Virginia in Charlottesville before settling at George Mason (located in Fairfax, Virginia) in the 1980s.

The tribute attracted numerous professional economists, academics, and students interested in hearing about Buchanan’s contributions to social philosophy and political economy.

In addition to Buchanan's fellow Nobel prize winners, the program included encomia from GMU’s former law school dean, Henry Manne, and the current chairman of the university’s economics department, Daniel Houser, among others, as well as an opportunity for university President Alan Merten to show off a new conference facility.


Garett Jones
Garett Jones is assistant professor of economics at George Mason University as well as BB&T Professor for the Study of Capitalism at the Mercatus Center, which is headquartered at GMU's Arlington Campus near Virginia Square. His current research, he said, is about “why IQ matters more for nations than for individuals.”

He noted that “a person’s individual IQ has a very weak relationship and very small effect on their adult wages, but it seems as though a nation’s average IQ -- how people do on conventional IQ tests, on average -- is a really great predictor of how rich or poor that country is.” He described this as “quite a robust finding” and he is trying to discover “why that’s true.”

Jones’ prediction of what the “next big thing” comes from a different part of the field, however.

“This idea of balance sheets and net worth is being a big part of business cycles, is a really big deal,” he said.

Jones pointed to a review by Paul Krugman and Robin Wells of Richard C. Koo’s book, The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession, in the September 30 issue of the New York Review of Books, describing it as “this book that’s been kicking around for a little bit” as giving “some attention” to the topic.

Discussions like these, Jones said, are “trying to bring [Federal Reserve chairman] Ben Bernanke’s research into the broader public light,” such as ideas about “what makes it possible for us to trust each other, what makes it possible for firms to lend to individuals, [and] for investors to lend to banks.” What is necessary to make these things possible, he explained, “is that you want to lend to people who have a high net worth, people who have sound balance sheets.”

What’s “floating around,” he said, is “the idea that we’re in a so-called ‘balance sheet recession,’” yet, he added, “the absolute centrality of healthy balance sheets of individuals, of firms, [and] of governments, is something that has not made it [into] the mainstream.”

“Five years from now,” Jones said, “we’ll take it for granted in a way that don’t at all today.”



Margaret Polski
For her part, Margaret Polski of the Mercatus Center pointed to new forecasting tools that are becoming available to economists.

“The real problem that we have in economics,” Polski said, “is that we can’t forecast the things that are really interesting and really important: changes in the business cycle, when we’re going up, when we’re going down. We can’t forecast when we have shocks, big price changes, and catastrophic events.”

Polski offered the example of “the Congressional Budget Office’s record in forecasting and the error in their forecasts,” for which there’s a record dating back to 1976.

In six of the last 13 years, she said, the CBO’s forecasts have been “significantly off.”

It doesn’t end there, however, she added.

“It’s not just the CBO, it’s not just the Office of Management and Budget, it’s also the private sector economic forecasters. The practical matter is that our current tools for forecasting don’t serve us well.

“What you’re going to be hearing over the coming years,” Polski continued, “is the use of complex systems tools, agent-based models to help us develop a better understanding of what’s really happening at a micro level and how that translates into macro impacts.”

That she said, is “where I think it’s going. That’s what I think is interesting and cool.”

Polski noted that,” thanks to the most recent financial regulatory reform, we have an office of financial research,” which means that, “for the first time, we’ll actually be able to collect data. Researchers will be able to get their hands on this data and start putting these tools to work.”

These tools, she said, “will help us really imagine futures that we otherwise would have a hard time imagining, [and] imagine scenarios that are otherwise difficult for us to imagine,” so that we then “can think about what is the impact of our policy decisions in a different way that we’re able to do right now.”

The new tools, Polski emphasized, are “agent-based tools” and therefore more individualized and focused than traditional forecasting models.

“The reason the macro models don’t predict” as well, she explained, “is they’re based on historical data and they’re based on big patterns and big trends and the fact of the matter is that individuals matter, small groups matter.”

This is a point often lost on those engaged in traditional macroeconomic analysis, “because agents and small collectives of agents really do matter.”

Using the new tools, she said, these agents will not “lose that power; it’s that we don’t understand their power. That’s why our forecasts are wrong and they’re wrong in ways that cause us to make bad policy.”

The real challenge, Polski explained, “has always been to integrate micro and macro.”

In the economics profession, she pointed out, “there have always been microeconomists and macroeconomists, and never the twain shall meet,” with one exception.

“Theoretically, they meet in industrial organization theory, but that’s just not enough, because that’s very focused on business and on the structure of industrial markets. That’s not really what we’re talking about.”

What we are really talking about, Polski said, is “trying to bring those analytical tools together to understand how individual actions and small collectivities can produce macro patterns, and how there can be disruptive, unpredictable, non-linear events that occur.”

Once these tools are widely available, predictions will become more accurate and that, according to Margaret Polski, is the next big thing in economics.

Peter Boettke
Recently profiled in the Wall Street Journal as “the intellectual standard-bearer for the Austrian school of economics,” Peter Boettke teaches at George Mason University in Fairfax, Virginia, and conducts research there and at the Mercatus Center in Arlington, across the river from Washington, D.C.

Boettke singled out the work of Ostrom and Buchanan, particularly their ideas “about the nature of democracy and citizenry,” that democracy is more than just voting but more active participation, and exploring the preconditions for that.

Elinor Ostrom’s husband, Vincent Ostrom, Boettke said, “wrote a wonderful book called The Meaning of Democracy and the Vulnerability of Democracies. It’s a very densely written book, so it doesn’t have the sort of popular sway that it should,” but it establishes the way to think about “those conditions about what it means to be a citizen, or what they call an artisan-citizen.”

Following on the work of the Ostroms and Buchanan, he continued, “We’re now examining those things: how it is that you create or cultivate (educationally) individuals [so they] can become self-governing citizens or their own participants within the democratic process.”

That idea, Boettke said, “is going to get more and more explored,” and Ostrom’s Nobel Prize and other events mean that it is “going to capture the imagination of a lot of scholars [in] what Amartya Sen [calls] the ‘public reason project.'”

Looking at another discipline, Boettke noted, “if you read in philosophy, a lot of people in philosophy now are calling for an idea of ‘public reason.’ I think that idea is something that no one knows about now, but ten years from now, people will all know about it and think back, ‘When the hell did they get started thinking about that?’”

One of the developments that excites Boettke is the increasingly interdisciplinary nature of economic research and theory.

“There’s a rising trend of programs in philosophy, politics, and economics,” he said, and that is a return to “what actually took place back at the end of the nineteenth century.”

Boettke explained:

“You can think about modern economics as an hourglass shape. You start with really broad questions and then, as we believed that the role of the economist was to be a technical expert, the questions narrowed, but then we found out we knew more and more about less and less.”

Consequently, he said, “we had to open the questions up again. We opened them up to sociology, to psychology, to philosophy, to politics, so as a result the hourglass goes narrow and then widens up, and we’re at that point of the widening up.”

Boettke pointed out that “the financial crisis is a perfect example of this, because you can’t just answer it as a technician in economics. It’s a question about the legal and political rules, the culture of Wall Street.”

Citing Karen Ho’s book, Liquidated: An Ethnography of Wall Street, which he called “fascinating,” Boettke explained that “economists normally don’t look at those things, but now we have to. What are the implicit rules that are going on? What do these people believe that they are doing?”

Animated and smiling, Boettke returned to his hourglass analogy and concluded: “We started out, we got very narrow, we didn’t go anywhere -- or it didn’t really help – [and] now we’re opening up again.”

(This article originally appeared in three parts on Examiner.com on September 20,  September 21, and September 23, 2010.)

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