|Peter Boettke|

Labels are useful shorthands, but labels can also confuse and distort. Labels are tricky. Consider discussions of economists and their various views about the way the world works. In the grand scheme of the economics profession it used to be commonplace to describe various thinkers as "freshwater" and "saltwater" economists, this was after years in which the divide was between "Monetarists" and "Keynesians", but the term "Chicago" economists was long viewed as a shorthand for a host of ideologically presumptions that were in fact not widely accepted by those practicing "Chicago Economics" -- to most they were just doing price theory the right way, while others were ignoring the lessons of price theory. Recently in a newspaper account I was labeled a "doctrinaire free market economists", the source for this label though was myself -- I guess in a talk I described myself that way. When I usually do that -- I haven't listened to the talk that was cited -- it is normally in the context of showing that even I -- this doctrinaire free market economists -- see the appeal of X (plug in some redistributive scheme or interventionist policy). It is usually done in an effort to demonstrate empathy with a set of values and to force the audience to think about the relationship between means-ends in public policy discourse. Just because we "ought" to do something, doesn't mean we "can" do something, as my friend Steve Horwitz likes to stress. Means-Ends analysis, where the Ends are treated as given, and the analysts restricts their investigation to the logical and empirical examination of the consistency of chosen means (policies) to the achievement of given ends (goals) is what positive economics was all about before the confused philosophy of science of positivism shifted to a more instrumental notion of economic science and practice of "as if" modeling and hypothesis testing. I practice positive economics in this older tradition -- that is what I was intellectually raised on under Hans Sennholz, and that is what I was trained to do in graduate school and during my early years as an academic economists working with Israel Kirzner and Mario Rizzo.

From my perspective there is a core of the economic way of thinking that can be traced from Adam Smith to Vernon Smith and that deals with basic ideas about human rationality, human sociability, and the coordination of activity through time. Incentives, Information, and Innovation are part of this core as they derive from the even more primordial ideas of property, prices, and profit/loss accounting. We live in a world of scarcity, scarcity implies that we face trade-offs, that means we must negotiate those trade-offs and we hope to do so in the most effective way possible, to achieve that we need aids to the human mind, those aids come in the form of high powered incentives and clear signals so we may engaged in the economic calculus. One of the many implications that follows is that demand curves will slope downward and supply curves will slope upward. The shape and the magnitude of the effects that follows are empirical matters and is largely determined by the array of substitutes available to economic decision makers. But the essential logic holds from a style of reasoning that attempts to derive the invisible hand theorem from the rational choice postulate via institutional analysis. Hume's principles of stability of possession, transference by consent, and the keeping of promises -- in other words, property, contract and consent -- provides that institutional infrastructure within which the human pursuit of individual betterment is channeled in commercial life into publicly desirable outcomes (e.g., wealth creation and generalized prosperity; the least advantaged are made better off). Again, property, prices and profit/loss gives economic actors high powered incentives and informational signals to allocate resources, time and effort to the most highly valued use, and the constant feedback on whether those decisions are the right ones and the incentives and information to constantly adapt and adjust to improve in the decision calculus.

This basic economic calculus applies to all human endeavors, and when we find ourselves outside of the realm of the market sphere of monetary calculation, the question for the analyst is what institutions will serve the same function in terms of incentives, information and innovation that property, prices and profit/loss served in the marketplace. Does electoral politics possess those institutional proxies? Does the bureaucratic organization of public administration? How about the philanthropic entities in the non-profit sector? This would be an implication of the economic way of thinking -- how do people weigh the marginal costs/marginal benefits of decisions in the different contexts of human interaction?

Nothing about what I have said is "libertarian" or "free market", but it is economics. Consider, for example, a report that was on NPR this morning as part of a series that is being developed on Politics in Real Life as the campaign season moves from primaries to the main event in 2016 -- it was on Paid Family Leave. Again, the economist in me kicks in while hearing the story -- not the libertarian or free market, but economists. Thus, I want to think about Means-Ends and the logical consequences of the various proposed means to obtain the desired end, and I want to learn from as much empirically as one can from historically analogous policy experience. I empathize with the Ends sought and do not question them in the least, my concern is solely with whether the proposed means would achieve the ends sought and at what cost. This requires recognizing that Paid Family Leave will have its impact on the labor market, and also one must think about the impact on the least advantaged in the labor market -- not the most advantaged, because the tragedy that motivates our initial concern is not the impact on the most privileged in the work force, but the least advantaged -- in economic jargon, the marginal employee.

It is at this point, that I think not only of basic economics as taught by Henry Hazlitt in Economics in One Lesson or Hans Sennholz in The Politics of Unemployment, but more advanced treatments of economic analysis of labor markets such as Casey Mulligan's The Redistribution Recession. Mulligan's basic point is that if through public policy you simultaneously raise the costs of hiring individuals, and you lower the costs to individuals of being unemployment, then you shouldn't be surprised by a sluggish labor market that impacts the ability of individuals to climb the economic ladder of success and income improvement.

During several recent talks in Europe (Austria in December, London in March) and the US, I have stressed 3 problems which I believe the US economic policy makers are going to have to face up to otherwise the problems in the economy will become worse and the tensions in our society will be accented rather than ameliorated: (1) the intergenerational fiscal gap; (2) the unwinding or exit strategy of the Fed since the extraordinary measures post 2008; and (3) structural inequality that is evident throughout the US. In my perspective, all 3 are inter-related and tied to a 60+ year period of the "economics of illusion" that has been pursued in US economic policy -- and also in Europe -- since WWII. So in this "reading" #3 is not due to some fundamental "law of capitalism", but instead to the political restrictions on the functioning of the economic systems that grants privileges to a few at the expense of the many. The US system has become more connection based as promissory politics has substituted for politics bound by general principles. In other words, the rent-seeking state has replaced the constitutionally bound state that sought to operationalize Federalist #51 by first empowering the government, and then constraining it such that "The interest of the man must be connected with the constitutional rights of the place." This constitutional project has been in over a century of decline due to interest group pressures and intellectual attack. But what if, I ask, the very social ills we see before us are due not to malfeasance but due to the logic of individual decision making within the institutional context so reorganized. The same style of reasoning that explains why individuals pursuing their self-interest can produce publicly desirable outcomes such as productive specialization and peaceful social cooperation within a specific institutional context also explains why that pursuit of self-interest in other institutional contexts results in social tragedies and social tensions.

That is ECONOMICS, not "libertarian" nor even "free market", but just ECONOMICS pursued persistently and consistently. And unless we get away from the habit of labeling folks and arguments in order to pigeon hole and disregard our intellectual cultural will continue to fail to understand what is causing the social ills that plague us, let alone encourage creative thinking about how to address these social ills. That would be tragic on so many dimensions.



