Bryan Caplan

The Austrian Search for Realistic Foundations

Self-designated Austrian economists have two different views of modern neoclassical economics. Some, such as F. A. Hayek, take issue with certain aspects of neoclassical economics without disputing its fundamentals. Others, most notably Ludwig von Mises and Murray Rothbard, explicitly reject the foundations of neoclassical consumer and welfare theory and construct a systematic alternative. This paper analyzes the most distinctive features of the Mises–Rothbard alternative to the neoclassical paradigm; it also considers related positions defended by Israel Kirzner. I argue that their effort to rebuild economics on nonneoclassical foundations fails and that their critique of neoclassical foundations is wrong or strongly overstated.

What Makes People Think Like Economists? Evidence on Economic Cognition from the “Survey of Americans and Economists on the Economy”*

The positive economic beliefs of economists and the general public systematically differ. What factors make noneconomists think more like economists? Using the “Survey of Americans and Economists on the Economy,” this paper shows people think more like economists (1) if they are well educated, (2) if they are male, (3) if their real income rose over the last 5 years, (4) if they expect their real income to rise over the next 5 years, or (5) if they have a high degree of job security. However, neither high income nor ideological conservatism have this effect. My findings for education, gender, and income have close parallels in political science: on tests of objective political knowledge, the better educated and males score higher, controlling for numerous other variables, and the independent effect of income is minor.

Stigler-Becker versus Myers-Briggs: why preference-based explanations are scientifically meaningful and empirically important

Abstract Economists typically object to preference-based explanations of human behavior; differences in preferences “explain everything and therefore nothing”. But this argument is only correct assuming that no empirical evidence exists to discipline preference-based explanations. In fact, over the past decade, personality psychologists have produced a robust collection of stylized facts about human preferences. While preferences are, empirically, quite stable , they are far from identical and have proven predictive power for economically interesting variables. The empirical challenge for future research is to jointly estimate the impact of preferences and constraints to obtain unbiased measures of their relative importance.

Behavioral Economics and Perverse Effects of the Welfare State

Critics often argue that government poverty programs perversely make the poor worse off by encouraging unemployment, out‐of‐wedlock births, and other ‘social pathologies.’ However, basic microeconomic theory tells us that you cannot make an agent worse off by expanding his choice set. The current paper argues that familiar findings in behavioral economics can be used to resolve this paradox. Insofar as the standard rational actor model is wrong, additional choices can make agents worse off. More importantly, existing empirical evidence suggests that the poor deviate from the rational actor model to an unusually large degree. The paper then considers the policy implications of our alternative perspective.

Has Leviathan Been Bound? A Theory of Imperfectly Constrained Government with Evidence from the States

This paper develops a formal theory that combines power-maximizing “Leviathan” political parties with well-defined imperfections in the political process. The model implies that both parties tend to make government larger as their likelihood of electoral victory increases. Empirical tests on state-level data confirm this prediction. Racing the Leviathan hypothesis against alternative theories of party motivation indicates that both the Leviathan and the “contrasting ideologies” views have some degree of validity.

Sociotropes, Systematic Bias, and Political Failure: Reflections on the Survey of Americans and Economists on the Economy

Objectives. Economic models of politics typically make two assumptions about voters: first, their motives are egocentric, not sociotropic; second, their beliefs are rational, not subject to systematic bias. Political scientists have presented strong evidence against the first assumption (Mansbridge, 1990), but have become increasingly willing to accept the second (Page and Shapiro, 1992; Marcus and Hanson, 1993). This article tests these two assumptions, then explores the tests’ broader implications. Methods. I use the Survey of Americans and Economists on the Economy to test for egocentricity of motivation and rationality of belief. Results. Both standard assumptions fail for the case where the economic approach would seemingly be most relevant: economic beliefs. Conclusions. This is not necessarily cause for greater optimism about the efficiency of democracy: sociotropic voters with biased economic beliefs are more likely to produce severe political failures than are selfish voters with rational expectations.

Do We Underestimate the Benefits of Cultural Competition

Economic globalization has drawn fresh attention to cultural issues. The Uruguay Round of trade negotiations debated whether there should be a protectionist “cultural exception” for television and movies, as practiced by the French, Canadians, Brazilians, South Koreans, and Chinese to varying degrees. Governments around the world subsidize culture, in part to favor one national tradition over potential competitors. More generally, cultural questions are central to broader critiques of trade and globalization (Cowen, 2002). Current analyses, however, have neglected some insights from economics. We will suggest that market competition across cultures is desirable and favors relevant notions of diversity. An underlying theme is that individuals hold unjustified prejudices—or, in economic jargon, “systematically biased beliefs”—about globalization.

Is socialism really “impossible”?

Abstract In the 1920s, Austrian‐school economists began to argue that in a fully socialized economy, free of competitively generated prices, central planners would have no way to calculate which methods of production would be the most economical. They claimed that this “economic calculation problem” showed that socialism is “impossible.” Although many believe that the Austrian position was later vindicated by the collapse of the Soviet bloc, the Austrian schools own methodology disallows such a conclusion. And historical evidence suggests that poor incentives—not lack of economic calculation—were the main source of the economic defects of “really existing socialism.”

When is two better than one? How federalism mitigates and intensifies imperfect political competition

The current paper models power-maximizing politicians’ behavior subject to imperfect political competition and perfect citizen mobility. It then analyzes the welfare implications of federal and non-federal structures. The model abstracts from both heterogeneous preferences (the most common argument in favor of federalism) and externalities (the most common argument against), showing that even in this simplified setting federalism has important welfare implications. There is one class of equilibria in which more federalism has the purely beneficial effect of offsetting imperfections in the political process. However, there is also a second class of equilibria in which citizen mobility makes political imperfections more severe by creating ‘safe districts’ for both political parties.

How does war shock the economy

Abstract Wartime periods have frequently been treated as natural macroeconomic experiments, but the international pooled time series evidence presented here shows that the literature has over-emphasized the experience of the United States and the United Kingdom. Wars fought exclusively on foreign soil do have marginally higher real output growth than peacetime periods, but real growth during all other wars is sharply below peacetime levels. Evidence for foreign and domestic wars is consistent with monetarist, fiscalist, and mixed theories of wartime booms.