My Framework
Jan08
Miscellaneous11

My Framework

Tyler Cowen, Scott Sumner, and Arnold Kling have all given their macro frameworks. It’s a good exercise, even if I’m a little late to the party. So, here are the basic propositions with which I approach the world.

A few notes beforehand: mine starts a bit further back than the examples so far. I’ve tried to be more systematic; the list starts with epistemology and ends with macroeconomics. It might seem like a mismatch of momentousness, but since I’m a specialist to some extent, I’ve tried to organize the points to reflect an approximately equal amount of mental energy spent on each major point, with a broad trajectory from general to specific.

1. The universe is intelligible.

2. The language faculty – i.e. the recursive manipulation of arbitrary symbols – is the decisive difference between human and animal consciousness.

3. The fact-value distinction is irreducible.

4. Variation and selection are necessary and sufficient to explain complex order.

5. Wherever possible, we should prefer to rely on known ordering forces rather than conscious planning for social arrangements.

6. Demand curves slope downward; supply curves slope upward.

7. The frictions in a selection process are just as analytically important as the selection process itself.

8. Economic organization, not (just) technical progress, is the key to economic growth and development.

9. The two most significant transaction-cost-reducing innovations in human history so far have been liberalism and monetary exchange.

10. Social norms are generally not rationally justifiable; they must be accepted either tout court or on the basis of a mythology.

11. Increasing returns are the primary explanandum in economic development and international trade.

12. Say’s Law works.

13. Short-run demand fluctuations depend only on the total volume of spending.

14. Banking is important.

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11 Comments

  • 1

    Samuel

    Jan 08, 2016 at 18:42 | Reply

    I can endorse essentially every point but #10. I think norms are reasons for action and therefore inherently rational. 1 through 5 are basically the precepts of a Hegelian. And I’m also a market monetarist. Can I just repost this as my own? ;)

    • 2

      Cameron Harwick

      Jan 08, 2016 at 18:49

      I put in #14 specifically to piss off Sumnerite market monetarists after cozying up to them with #13. Apparently it didn’t work!

      Also, I hope this doesn’t mean I have to read Hegel now. I tried it once and understood why Carnap would want to burn philosophy to the ground.

    • 3

      Samuel

      Jan 08, 2016 at 20:45

      Scott Sumner thinks banking is unimportant in the sense of pure macroeconomic theory. I think he’s right on that in the sense that collapsing NGDP causes financial crisis, not the other way around. That doesn’t change the fact that financial intermediation is still super important, and affects how supply and demand shocks interact and propagate.

  • 4

    Samuel

    Jan 08, 2016 at 20:55 | Reply

    http://sweettalkconversation.com/2016/01/08/my-framework/

  • 5

    Brad

    Jan 09, 2016 at 1:06 | Reply

    I really enjoyed this write-up. I’m not superstitious enough to do macro (:D), so unfortunately I don’t have anything I would call a “macro framework” but many of your points are not explicitly macro and broadly edifying (4 and 7 are interesting, and I would love to see an expansion of those, especially the former).

    I’ll say I find it fascinating that while i don’t disagree with many of your points, I use very few of them in my personal work. I do, however, take some disagreement with points 5, 10, and 12 (and maybe 8). Mostly, I want to emphasize that the distinction between the market and other ordering mechanisms (and jointly, the distinction between Sowell’s empiricism and rationalism) is far more blurry than your framework implies.

    If I have time next week I may try to respond to those points (the tl;dr would be “Samuels’ ineluctable necessity of choice, Diamond coconut model, McCloskey AND Marx, flavored with behaviorism and Burke”). But who knows, my intuition is that what works for me in micro and policy analysis probably will not translate to anything resembling a full-fledged macro framework.

    • 6

      Cameron Harwick

      Jan 09, 2016 at 1:17

      You’re right about the distinctiveness of “the market”. I guess the way I meant it here is one particular well-understood, powerful, and benign selection mechanism among a panoply of selectors for social behavior – in particular the one involving monetary exchange and lubricated by the norm “liberalism”, without denying the importance of other mechanisms lubricated by other norms.

      Don’t feel the need to make it a macro framework; I took the exercise to be something like “articulate your worldview in a bulleted list”. Macro just happens to be the thing I think a lot about. None of the things in your tl;dr list ring any bells for me, so I’ll look forward to reading it!

  • 7

    B Cole

    Jan 09, 2016 at 20:49 | Reply

    Lots to like in this post.

    One quibble: if you look at the federal government, I’m not sure it’s lefties or righties that make more market intrusions. Most of your income and capital gains taxes are consumed by national security, if you include the Department of Defense, the VA, the Department of Homeland Security, the black budget and prorated debt. Add in the USDA, the Department of Commerce and heavy rural subsidies, and remember ethanol, and it becomes a question of which party is worse. By the way, the VA runs a large, purely communist healthcare program.

    Then consider ubiquitous property zoning in every municipality in the United States, and guess who takes an intense interest in zoning – – property owners.

    The righties do blab about free enterprise more.

    • 8

      Cameron Harwick

      Jan 09, 2016 at 22:16

      You’re right as far as day to day politics. However, in the Right’s case that seems to be more due to a lack of principles than any real normative threat. “Rightism” as a political disposition is characterized by particularism; the US just had the good fortune that liberalism was a big part of its particulars for a while, hence the blab about free enterprise by its right-wingers. So there’s really not a coherent global rightist ideology in the same way as there is for leftism (which is not, of course, to deny the many varieties of leftism), so i don’t think of it as a threat separate from unprincipled and (for that reason) friction-laden rent seeking.

  • 9

    Ray Lopez

    Jan 09, 2016 at 21:03 | Reply

    Author says: “However, #5 suggests something like Free Banking would be more stable and robust than even an ideal monetary policy target.” – well said. To quote a folk song, ‘if it’s good enough for grandpa, it’s good enough for me’. The 19th century did OK (see Maddison on the data) on a free or managed Gold Standard. No reason it can’t work again now.

  • 10

    Prakash

    Jan 11, 2016 at 2:59 | Reply

    Hi Cameron,

    Good writing. I’m another reader from Moneyillusion. :)

    I have a question regarding free banking vs a targeted monetary policy. When people mention free banking, very few go ahead to answer the question about what currency the government taxes in. Because eventually that becomes the money of the realm and the management of that medium of account (monetary policy) becomes important.

    One way I might see a way around that would be every government employee declaring her acceptable currency basket and the government aggregates these and declares that it will accept currencies in that proportion. Even within such a setup, I can envisage a gresham’s law race occurring where people seek to unload weaker currencies and accept stronger ones until many years later, we will be down to one currency.

    In short, I don’t believe that leaving it to free bankers is going to answer the monetary policy question.

    • 11

      Cameron Harwick

      Jan 11, 2016 at 14:27

      I don’t see this as a huge problem. You pay taxes right now with a check or straight from your bank account; i.e. using liabilities of Wells Fargo or Bank of America, etc., which get settled at the clearinghouse (the Fed does this now, but didn’t always). You don’t send cash to the government. Same with free banking. The usual conception (and the historical experience) is many currencies (bank liabilities) using the same unit of account, denominated in terms of some “outside” (base) money. Other than the fact that the government controls the issue of base money now, the situation isn’t all that different from what we do today.

      So the government doesn’t have to throw its weight behind a particular medium of exchange; presumably it would be able to accept any liability that its bank accepts at par, no different from today. It may have to throw its weight behind a unit of account – but that’s subject to such strong network externalities that it probably has to be a “convention taker” rather than a “convention maker” in most cases. Similarly, the US doesn’t have an official language, but the government would have a hard time governing using anything but English.

      That said, you’re probably right that the political economy of free banking is underdeveloped. The government will have to use a bank – but that tends to morph into “give me favorable loans/buy my bonds and I’ll give you privileges”, which gets the ball rolling toward central banking. So the constitutional issue is central: how does a government credibly commit not to go down that road? I don’t think I’ve read anything specifically addressing this question, but it probably requires a government that doesn’t constitute an overwhelming portion of GDP, which would de facto privilege whatever bank it used.

      And that, in turn, depends on a deep normative commitment to liberalism on the part of the population.

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Hi, I'm C. Harwick, an economics PhD candidate in Virginia with an interest in monetary theory, institutional evolution, and folk music.

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