Tag: nobel prize

The Latest Nobel Prize in Economics… Why It Should Make Us Sad

The latest Nobel Prize in economics has been awarded to Alvin Roth and Lloyd Shapley. They’ve done brilliant work on algorithms for optimally matching pairs of things (such as job vacancies and job seekers), but at least one prominent application of their work should produce a deafening roar of foreheads hitting desktops: public school choice.

As the Nobel organization’s website explains, the original algorithm was developed by Shapley and David Gale to optimally match pairs of individuals who could only each be matched with one other person. For instance, optimally marrying-off 10 men and 10 women based on their relative levels of interest in one another. Over the past decade, it has come to be used to match students to places in local public schools (by Roth).

The problem is that this approach to “school choice” correctly assumes that the better public schools have a fixed number of places and cannot expand to meet increased demand. So it’s about finding the least-awful allocation of students to a static set of schools—a process that does nothing to improve school quality.

Meanwhile, there is something called a “market” which not only allows consumers and producers to connect, it creates the freedoms and incentives necessary for the best providers to grow in response to rising demand and crowd-out the inferior ones. It also provides incentives for innovation and efficiency. But instead of advocating the use of market freedoms and incentives to improve education, some of our top economists are spending their skill and energy tinkering with the increasingly inefficient, pedagogically stagnant status quo.

Forehead… meet desk.

Diamond Down

Today Nobel Prize-winning economist Peter Diamond announced he is withdrawing his nomination to the board of governors of the Federal Reserve System. 

Professor Diamond, in the pages of New York Times, blames the opposition to his nomination on both partisan politics and what he sees as a misunderstanding of the relationship between unemployment and monetary policy.  Mr. Diamond, however, is the one with a fundamental misunderstanding.  We all know unemployment is an important issue and needs to be addressed.  The question is whether it can be addressed with loose monetary policy.  Mr. Diamond apparently believes it can.  There are many who believe it cannot.  If all our labor market problems could be solved with loose money, then we’d already be at full employment.  In case Mr. Diamond didn’t notice, we aren’t.  We also have gone down this path too many times before. The belief in a long-run trade-off between unemployment and inflation has the been source of considerable economic harm.

It is interesting that Mr. Diamond does not address the legal obstacles to his nomination.  The foremost is that there can only be one board member from the same Fed district at any one time.  As Mr. Diamond notes he has been at MIT “since 1966” and not living in Chicago, as the White House claims.  Whatever his academic qualifications, by law he is prohibited from serving on the Fed Board.  If congressional Democrats don’t like the law, they can try to change it, but we should not just ignore it.  Such only breeds a contempt for the law and a belief that the laws only apply to the masses and not the elite. 

So to answer Mr. Diamond’s compaint that ” Nobel isn’t enough,” I would answer: Exactly. A Nobel does not place one above the law.  Sorry, Professor, you’re going to have to live with the same rules that apply to the rest of us.

Johan Norberg: The Left and Vargas Llosa

The award of the Nobel Prize in Literature to liberal writer Mario Vargas Llosa engendered much praise from libertarians and very little criticism that I’ve noticed. But I wasn’t reading the Swedish newspapers, where, according to Cato senior fellow Johan Norberg, lefties went ballistic at the awarding of the prize to a non-leftist:

In Sweden’s biggest newspaper, Aftonbladet, three writers ripped him to pieces on the first day after the announcement of the Nobel Prize. One wrote that the prize was a victory for the Swedish right; one said it was a victory for the Latin American authoritarian right; one accused him of being not just ‘neo-liberal’ but also ‘macho’ (what Vargas Llosa did not know is that it is only acceptable for female authors to write about sex nowadays; when men do it, apparently, it is chauvinist and distasteful).

Aftonbladet’s Martin Ezpeleta even claimed that the prize was a victory for racists, because Vargas Llosa once wrote an essay attacking the ideology of multiculturalism. That the same essay also called for a more open immigration policy meant nothing to Ezpeleta – until others called his bluff and he quietly omitted the charge of ‘racism’ from his article and pretended that it had never been there….

The attempts to portray Vargas Llosa as a supporter of the authoritarian, conservative right in Latin America are just embarrassing. The only piece of evidence in the Aftonbladetarticle was that he supported Sebastián Piñera in Chile’s last presidential election – which doesn’t make sense in any way since Piñera is a moderate, democratic politician who has attacked the authoritarian tradition of Chile’s right and voted against Pinochet in the referendum on his rule in 1988.

Vargas Llosa’s attempt to hold all rulers to the same standards is what makes the claim that he betrayed the left so revealing. A lot of intellectuals have condemned rightist dictatorships in Peru and Chile, and a lot of intellectuals have condemned leftist dictatorships in Cuba and Nicaragua, but few have, like Vargas Llosa, condemned them both….

Mario Vargas Llosa’s Nobel Prize

The news that Peruvian novelist Mario Vargas Llosa won the Nobel Prize for literature has gratified me beyond words. The award is a huge boost for liberty in Latin America.  Through his literary genius, prolific essays, and ceaseless activism, Vargas Llosa long established himself as perhaps Latin America’s most well-known public intellectual, and certainly its most well-known classical liberal. For decades, he has used his ability to reach a mass audience to promote the principles of the free society, becoming the region’s foremost advocate of democratic capitalism.

It was not always so. In the 1960s when his first novels appeared to wide acclaim, Vargas Llosa was representative of the Latin American intellectual establishment in his admiration of the Cuban revolution and his advocacy of radical leftist politics. Even then, however, anti-authoritarianism and a concern for the individual were prominent themes in his novels. In an example of independent thinking that characterizes Vargas Llosa’s commitment to the truth, he broke with the intellectual establishment in the early 1970s, strongly denouncing Fidel Castro’s revolution and turning away from statism in general. His increasingly forceful defense of individual liberty was strengthened by his discovery, by the 1970s, of the work of Nobel laureate Friedrich Hayek, whom Vargas Llosa cites as one of the three biggest intellectual influences on his thinking (the others being Karl Popper and Isaiah Berlin)

An extremely versatile communicator, Vargas Llosa has explored Latin America’s deepest social problems and has demystified the utopian vision of demagogic leaders so common in Latin American history. A major theme of his 1981 novel, The War of the End of the World, for example, was that collectivist promises of a better life, or happiness, can only end in fanaticism—especially if various brands of collectivism are pitted against each other—precisely because civilization depends on the primacy of the individual and a close regard to the real world as opposed to dogmatic reliance on abstract but erroneous ideas of how the world might work. 

In places like Russia or Latin America where there is little or no tradition of individual liberty and people place little trust in the main institutions of society, the novelist often holds a special, almost God-like place. Fair or not, he is viewed as trustworthy because his ideas are his own and because he has somehow managed to remain independent from the corrupting influences of society. This has given Vargas Llosa a standing from which he has regularly offered up statements that have instantly provoked debate and that have often passed into national lexicons. In 1990, for example, during a visit to Mexico, he famously referred to the system of government under Mexico’s long-ruling PRI party as the “perfect dictatorship.” That scandalized the political class and the intelligentsia through much of Latin America, but any Mexico City cab driver would tell you that it was absolutely true. 

Last year at a conference organized in Caracas by the market-liberal CEDICE think tank and at a time when Hugo Chavez was radicalizing his socialist revolution, Vargas Llosa declared, “We don’t want Venezuela to become a totalitarian communist state.” That provoked Chavez to challenge him and the “neoliberals” to a nationally televised debate, in what turned out to be a ploy that Chavez backed out of once Vargas Llosa accepted the challenge. Vargas Llosa thus won the debate without holding it. The whole episode was prominently reported in the region and was a blow to Chavez, emphasizing the closed and cowardly nature of his regime.

When Vargas Llosa writes and speaks about economics, the effect is similar, as when he explains that historically in Latin America capitalism never existed. For those wishing to understand how Latin American economies really work, and how the free market is the most compatible economic system with the way Latin Americans live, I still recommend Vargas Llosa’s prologue to the early editions of Hernando de Soto’s classic, The Other Path, as one of the clearest statements about the region’s political economy. 

Perhaps the best example of Vargas Llosa’s influence in setting the agenda is in his native Peru. At the end of the 1980s, after President Alan Garcia had driven the country to ruin, Vargas Llosa decided to run for president, having already rallied mass protests against Garcia’s plans to further socialize the country. Vargas Llosa articulated an explicitly libertarian campaign platform, calling for radical market reforms. He lost the 1990 election to Alberto Fujimori, who ran a gradualist platform and relied on scare tactics and dirty tricks to win over the electorate.

But Vargas Llosa’s ideas won. After Chile, Peru became the Latin American country that implemented the most radical and comprehensive set of reforms in a short period of time. The reforms led to high growth and were highly popular. When Fujimori then abrogated the constitution and closed the Congress, Vargas Llosa rightly criticized the move and the abuses that followed. But the economic reforms that subsequent democratic governments stuck to or deepened have transformed the country and so far turned it into a Latin American success story. As such, Peru is showing Latin Americans the superiority of market democracy as opposed to populist authoritarianism. It is no wonder that Alan Garcia, currently Peru’s president for a second time, is the bitterest of rivals with Hugo Chavez. Alan Garcia is now yet another of Vargas Llosa’s converts.

I owe a debt of gratitude to Vargas Llosa, a fellow Peruvian. I have been influenced by him from a young age and, when studying at Northwestern University during his run for president, his libertarian platform informed my studies and ran in stark contrast to the lectures given by my leftist professor of Latin American politics. I’m honored that Vargas Llosa has since become a friend, generously supportive of Cato’s efforts and helpful as always to all of us throughout the region who promote liberal principles. Through his conduct and his ideas, he continues to be a teacher.

Gracias Mario.

Whitehouse.gov Switches to Drupal

There was some buzz earlier this year when the White House used the free, open-source Drupal content management platform for Recovery.gov. Now the administration’s marquee Web site Whitehouse.gov will be using it.

The AP story linked just above does a good job of recounting the benefits of open source in this application: chiefly, low cost and high security.

Arnold Kling wrote recently on the Library of Economics and Liberty blog relating the work Elinor Ostrom did to win the Nobel prize in economics to how the Internet enables private provision of public goods—no regulation, little to no centralized authority at all.

Open source is nothing if not an example of that, and it’s good to see this use of open source joining many others across the big, beautiful Internet.

Paul Krugman vs. The Daily Show

In a recent New York Times column (“The Uneducated American”), Paul Krugman writes that, “for the past 30 years our political scene has been dominated by the view that any and all government spending is a waste of taxpayer dollars.” As a result, Krugman continues, U.S. education has been “neglected” and “has inevitably suffered.”

Readers who put their trust in Krugman might thus conclude that per pupil spending has stagnated or declined. In reality, as the chart below reveals, it has more than doubled since 1970, after adjusting for inflation.

Paul Krugman may not be an “uneducated American,” but he’s certainly a badly misinformed one.

andrew coulson cato education spending

Much more troubling is the fact that Krugman and the Times are spreading this misinformation on a grand scale. And that got me thinking about Jon Stewart. When Time magazine recently asked Americans to name their most trusted newscaster, the comic and Daily Show host won in a landslide.  Many pundits have taken this as a sign of the Apocalypse, worrying that so many Americans are getting their facts from a presumptively unreliable source. But is the Daily Show really less reliable than Paul Krugman and the New York Times?

To find out how they stack up on this particular question, I Googled the Daily Show’s website for any discussion of education spending. The most relevant hit was an exchange in the show’s on-line forum. In it, a commenter claims that spending per pupil has risen by a factor of 10 since 1945, after adjusting for inflation. That’s not too far off the mark. The actual multiple is just under 8. So folks who get their facts from the Daily Show’s website will be better informed on this subject than those who trust the Nobel Prize winning New York Times economist.

Not only is Krugman wrong to claim that public schools have been financially “neglected,” he is wrong to imagine that higher public school spending spurs economic growth – which is the central point of his column. Better academic achievement does help the economy – but, as the chart above illustrates and many scholarly studies have demonstrated, higher public school spending does not improve achievement. And by raising taxes without improving achievement, it may actually slow economic growth.

Media elites have been wringing their hands over the collapse in public demand for their products, over the two thirds of Americans who now doubt their credibility, and over the fact that more people now get their information from the Daily Show’s website than the New York Times’s.

Perhaps the media might attract more readers and rebuild trust if they were to stop publishing material less reliable than the blog discussions on a comedy show’s website. Just a thought.

Nobel Prize Goes to Ostrom and Williamson

In a stunning upset, Elinor Ostrom and Oliver Williamson have won the Nobel Prize in Economics over President Barack Obama.

Lynne Kiesling of Knowledge Problem is pleased:

Both Ostrom’s work on governance institutions and common-pool resources and Williamson’s work on governance institutions and the transactional boundary of the firm contribute meaningfully to our understanding of how individuals coordinate their plans and actions in decentralized, complex systems.

Arnold Kling stresses the implications of their work for issues of decentralized knowledge and centralized power.

The official description of Ostrom’s work by the Swedish Bank identifies some implications for regulation:

The main lesson is that common property is often managed on the basis of rules and procedures that have evolved over long periods of time. As a result they are more adequate and subtle than outsiders — both politicians and social scientists — have tended to realize. Beyond showing that self-governance can be feasible and successful, Ostrom also elucidates the key features of successful governance. One instance is that active participation of users in creating and enforcing rules appears to be essential. Rules that are imposed from the outside or unilaterally dictated by powerful insiders have less legitimacy and are more likely to be violated. Likewise, monitoring and enforcement work better when conducted by insiders than by outsiders. These principles are in stark contrast to the common view that monitoring and sanctioning are the responsibility of the state and should be conducted by public employees.

Paul Dragos Aligica and Peter Boettke of George Mason University showed excellent prescience in publishing a book this summer on the work of Ostrom, her husband Vincent, and their colleagues at Indiana University, Challenging Institutional Analysis and Development: The Bloomington School.