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At Least He Spelled “Fogel” Correctly

June 15, 2013 in Economics

By Peter G. Klein

Nicholas Wapshott is the British journalist who produced 2011′s Keynes-Hayek: The Clash that Defined Modern Economics, an entertaining but ephemeral tale of Cambridge in the 1930s (here is John Cochran’s less-than-flattering review). Wapshott sees himself as an important critic of “free-market orthodoxy,” but his grasp of economic theory, history, and policy is more than a bit muddled. His newest article, a tribute to the late Robert Fogel, is positioned as a defense of cliometrics, the application of econometric techniques to economic history (and a critique of — well, he doesn’t say, exactly, but presumably Austrian-style deductive analysis wouldn’t pass muster). Unfortunately, the article is riddled with howlers.

Wapshott describes Hayek, author of “Why I Am Not a Conservative,” as a “conservative saint” and calls Abba Lerner, one of Fogel’s teachers, an “Austrian School economist.” Fogel’s cliometric approach is described as a “data mining,” a somewhat loose term that generally applies to inductive analysis, not the kind of hypothesis testing associated with cliometrics. Wapshott takes time to praise Simon Kuznets, “whose pioneering work in econometrics led to the accurate measurement of economic growth.” Kuznets’s work was certainly pioneering, as in novel, but no respectable development economist thinks GDP is an “accurate” measure of national well-being, let along economic welfare, and its limits are well known in the growth accounting literature.

The funniest line, however is this: “Fogel was one of the best sort of economists, like Milton Friedman and Anna Schwartz, devoted to determining cause and effect through a meticulous study of the facts.” Only the most naive empirical social scientist — or journalist without any actual research experience — could believe that causality emerges from “studying the facts.” To be sure, modern empirical economics is obsessed with causal inference, but no skilled econometrician thinks that the various popular identification techniques “determine” cause and effect. The so-called identification revolution is not without critics, and many practitioners worry that it has gone too far.

…read more

Source: MISES INSTITUTE

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Is Russia’s New Central Bank Head an Austrian?

June 15, 2013 in Economics

By Joseph Salerno

Well not quite, but Elvira Sakhipzadovna Nabiullina, a surprise choice of President Putin to head the Central Bank of the Russian Federation, describes herself as “a liberal economist with no hint of radicalism.” She cites books by Austrian economic historian Robert Higgs and by Keynes disciple Joan Robinson as influential in her education.

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Source: MISES INSTITUTE

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Has Mike Pence, As governor, Forgotten He's a Fiscal Conservative?

June 15, 2013 in Economics

By Tad DeHaven

Tad DeHaven

When he was a high-ranking conservative Republican in the U.S. House of Representatives, Mike Pence was a chief critic of Washington’s out-of-control spending and growing debt. Now that he is Indiana’s governor, Pence is dependent on the same federal largesse that he bemoaned. Most Hoosiers would be surprised to know that under Pence’s first budget proposal, federal funds would have accounted for around 35 percent of total state spending.

Indiana state government is not unique in this regard and Pence’s predecessor, Mitch Daniels, was similarly dependent on federal money. Indeed, Daniels signed an executive order on his first day in office creating the state Office of Federal Grants and Procurement (OFGP) to increase Indiana’s take from the federal honey pot.

As a candidate, however, Pence said that he wanted to turn the OFGP into an “office of federalism” that would take a “Thanks, but no thanks” approach to those federal handouts with too many strings attached. Unfortunately, the governor has adopted a convenient “have your cake and eat it too” definition of federalism.

It is not what James Madison had in mind. Nor does it appear the administration will be saying “no thanks” too often given that the Pence budget proposal envisions more than a third of the funds coming from Washington.

The appeal of federal funds to governors is obvious: They get to spend additional money without having to raise taxes on their voters to pay for it. A problem with this arrangement is that it creates a fiscal illusion — state taxpayers perceive the cost of government to be cheaper than it really is. In effect, the federal money and a large part of the annual budget appears to be “free.”

But Hoosiers should be mindful that every dollar Washington sends to Indianapolis is a dollar taken from taxpayers in Indiana and the other states. (The return is actually less than a dollar since the federal bureaucracy takes its cut). The situation is no different when the federal dollars go instead to, say, Sacramento. In addition, economists have found that federal subsidies to the states lead to higher state taxes and spending in the long-run because the federal “seed money” creates a demand for more government.

One could argue that so long as Hoosiers have to send money to Washington, Indiana might as well get a share of the loot. That’s an understandable sentiment, but the blatantly self-serving manner in which the Pence administration goes about distributing the bounty should …read more

Source: OP-EDS