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Abstract:
In the Economic Viewpoints section we welcome extended reviews of important works on economics and political economy. Deirdre McCloskey's The Bourgeois Virtues is one of the most ambitious and important works published in classical liberal political economy for at least half a century.

Abstract:
F. A. Hayek's significant intellectual contribution to a number of scholarly disciplines was grounded in his critique of socialist economics. This article sets out how Hayek's critique of classical and market socialism led to the development of his wide-ranging research programme in the social sciences and shows that the implications of this research programme remain crucial to academic research and public policy in the twenty-first century.

Abstract:
This paper suggests that contemporary economics is characterized by three key features. First, it is focused on 'big questions' in political economy and is willing to look outside economics to search for these questions and their answers. Second, contemporary economics is empirically focused. 'Grand theory' has taken a back seat to empirical explorations of institutions in particular. Third, modern economics has been dramatically influenced by 'freakonomics' - the application of economic principles to unusual and unorthodox topics - and is increasingly directed at a popular lay audience. We argue that these particular areas of modern economics’ evolution are not unrelated. The development of each key feature is connected to the others.

Abstract:
The discipline of political economy was born from the intellectual exercise of comparative analysis to understand the “wealth of nations.” Understanding the historical patterns in the rise and decline of prosperity remains a central issue in modern political economy. This paper explores “comparative historical political economy,” which traces the causal mechanisms that explain differences in wealth and well being. The central argument is that political economy is comparative and historical, and that comparative historical analysis is how the discipline generates useful knowledge.

Abstract:
In this paper, we examine the resiliency of community recovery after a natural disaster. We argue that a resilient recovery requires robust economic/financial institutions, political/legal institutions, and social/cultural institutions. We explore how politically and privately created disaster preconditions and responses have contributed to or undermined institutional robustness in the context of the Gulf Coast's recovery after Hurricane Katrina. We find that where post disaster resiliency has been observed, private-sector responses contributing to the health of these institutional arenas are largely responsible. Where post disaster fragility and slowness has been observed, public-sector responses contributing to the frailty of these institutional arenas are largely the cause. In other words, we engage in a comparative institutional analysis of civil society, entrepreneurial commercial society, and government agencies and political actors in the wake of a natural disaster.

Abstract:
Property rights are a key aspect of the rules governing economic interactions, providing individuals with dependable information and incentives. Well-defined and stable property rights encourage the effective use of existing scarce resources and also provide the incentive to innovate. In this context, we explore the impact of government takings on entrepreneurship and the market process. By changing the rules of the game, takings distorts the market process by shifting the opportunities and incentives facing entrepreneurs. The use of takings also introduces "regime uncertainty" whereby the predictability of the rules of the game is weakened. These costs of takings are typically overlooked because they involve unrealized entrepreneurial opportunities that cannot be captured in standard cost-benefit calculations.

Eminent Domain, Takings, Entrepreneurship, Regime Uncertainty

Abstract:
This paper explores the political economy of F.A. Hayek with emphasis on the continued relevance of his work for contemporary scholars. We focus on the theme of coordination throughout Hayek's research program. This general theme can be traced from Hayek's technical economics up through his later writings in political philosophy. After considering Hayek's major works in political and legal theory, we conclude by discussing the contemporary implications of Hayek's political economy. Specifically, we discuss eight areas where modern economists should pay close attention to the main lessons and themes in Hayek's writings.

Hayek, Political Economy

Abstract:
Reconstruction involves military occupation with the aim of rebuilding and reforming both formal and informal institutions along liberal democratic lines. We contend that successful reconstructions require mechanisms which make reforms credible over the long-run. In the absence of a signal of sustained credible commitment, institutional reforms will not be trusted by the populace resulting in the failure of the broader reconstruction. The incentive, information and epistemic aspects of the credible commitment problem are analyzed. We also consider potential solutions to the problem of credible commitment. Absent such solutions, attempts to "export" institutions via military occupation should be either limited in their scope or curtailed entirely.

credible commitment, institutions, military occupation, reconstruction, reform

Abstract:
The turn of the century witnessed the emergence of several new democracies wrestling with the past of oppressive state regimes that committed atrocities on their own citizens. In East and Central Europe, the former Soviet Union, Latin America, South Africa, and the Middle East, new governments and their citizens are determining precisely how to balance past and present. In the mid-20th century, Germany and Japan had to negotiate a similar political terrain. Our paper is focused on past injustices perpetrated by totalitarian regimes and using basic economic reasoning we attempt to clear a path for reconciliation and thus hope for a future of peace and prosperity.

transitional justice

Abstract:
This paper argues that there are two tiers of entrepreneurship important for economic development. One is concerned with investments in productive technologies that improve productivity and better service consumer needs. The other is concerned with the creation of protective technologies that secure citizens’ private property rights vis-à-vis one another. In the developing world where governments cannot or do not protect citizens against predation, “institutional entrepreneurs” devise private mechanisms of property protection, providing the security required for productive entrepreneurship to grow. However, private protection technologies can be a double-edged sword. While private protection technologies enable some investment and exchange by securing citizens’ property where government does not, potential constraints on these technologies’ effectiveness may simultaneously limit their ability to expand investment and exchange beyond modest levels.

Abstract:
The economic approach to politics revolutionized the way scholars in economics and political science approached the study of political decision-making by introducing the possibility of government failure. However, the persistent and consistent application of neoclassical models of economics also seemed to suggest that once the full costs were accounted for, this failure was an illusion. This paper counters these arguments associated with George Stigler, Gary Becker and more recently Donald Wittman, at the core of the economic theory that underlies their approach. In contrast, we develop an alternative model of political economy grounded in the Austrian conception of the dynamic market process.

Abstract:
This paper discusses the inherent tension in the notion of entrepreneurship as developed by Ludwig von Mises and Israel Kirzner. Given that entrepreneurship is an omnipresent aspect of human action, it cannot also be the "cause" of economic development. Rather, for economic development to take place, certain institutions must be present in order for the entrepreneurial a spect of human action to flourish. After further developing this theoretical insight, an in-depth analysis of the institutions necessary for entrepreneurship are considered.

Economic Development, Austrian Economics, Entrepreneurship

Abstract:
The current approach to the war on terror is largely ineffective. Central to this approach are negative sanctions against actual and potential terrorists coupled with attempts to spread liberal democracy through war, occupation and reconstruction. We argue that negative sanctions are unsuccessful and in many cases counter productive in reducing terrorism. Further, we postulate that efforts to impose liberal democracy in weak and failed states via occupation and reconstruction have in large part failed. Only be returning to a position of principled non-intervention can the war on terror ultimately be won.

War on terror, social change, liberal democracy

Abstract:
Over the past decade, economists have increasingly focused on happiness research. The main focus has been on understanding the interconnection between economic outcomes and the resulting happiness of economic actors. The work in this area has yielded many implications for policy in a number of areas, including public finance (government expenditure and taxation), welfare policy and labor law. This chapter will critically reexamine the happiness and economics research program and the resulting policy implications through an Austrian/Public Choice lens. It is our contention that the main insights of these schools of thought have been neglected in this area of research.

Behavioral Economics, Economics and Happiness, Austrian Economics, Public Choice

Abstract:
We contend that the transformation of economics from a discipline that studies the economy to one that is entrusted with its control has threatened the very soul of economics. The false pretense of scientific management led economists to promise to accomplish tasks that they cannot legitimately achieve. We provide three cases where the scientistic pretensions of economists got the better of them in the 20th century: Keynesian demand management, the practice of cost/benefit analysis by regulators and lawyers, and the debate over market socialism. If our argument is right, the role of the economist should move from high priest back to lowly philosopher.

Abstract:
While markets are all around us, not all markets are the same. Markets come in a variety of colors based on the legality of activities in the specific market. As such, there is no market economy per se, but instead various shades of markets. The different shades of markets that are evidenced in practice directly depend on the institutional environment that makes certain activities legal or illegal. Shifts in the institutional environment are a result of entrepreneurial activity over the rules of the game. The rules of the game and resulting shade of the market in turn impact entrepreneurs acting within those rules and hence economic development or the lack thereof.

Abstract:
We argue that in the 20th century economic theory took a path that purged human actors from economic analysis. We describe this evolution as the result of four competing visions in economics: the analytic narrative approach pursued by the classical economists, New Institutional Economics, and Austrian economics, the approach of the old institutional economics, the approach of modern neoclassical economics, and an approach that blended neoclassical economics with a particular form of game theory, which we call formalistic historicism. We contend that only the first of these visions is consistent with acting man as the center of economic analysis. Movement back to human-centered economics requires a return to this vision.

Abstract:
This paper argues that Mises's methodological position has been misunderstood by both friends and foes alike. On the one hand, Mises's critics wrongly characterize his position as rejecting empirical work. On the other hand, his defenders wrongly interpret his stance as rejecting empirical analyses on the grounds that they contradict apriorism and push economics towards historicism. We show that Mises's methodological position occupies a unique place that is at once both wholly aprioristic and radically empirical.

Abstract:
We examine the ability of focal points to transform situations of potential conflict into situations of cooperation. In performing this function, focal points convert "worst-case scenarios" into "better-case scenarios," which are easier for political economic systems to handle. Focal points thus contribute to the ability of political economies to perform well in the face of less than ideal conditions, enhancing systemic robustness.

Abstract:
Robust political economy requires that both the assumptions of agent benevolence and omniscience be relaxed so that both incentive issues and knowledge problems can be adequately addressed. In this article we seek to (1) develop an understanding of the application of robustness in areas outside of political economy and use this understanding to further our appreciation of the nature of robustness in political economics, (2) explore the robustness of liberalism by considering how it performs under both worst-case motivation conditions and worst-case information conditions in the context of the arguments advanced by the classical economists and Friedrich von Hayek, and (3) explore the fragility of socialism under both best-case incentive conditions and best-case information conditions in the context of the arguments advanced by Ludwig von Mises and Friedrich von Hayek.

Abstract:
Official economic statistics reveal that Russia's economic system has continually contracted since 1989. Indeed, by the end of 1996 the Russian economy was basically half the size that it was in 1989 - a steeper fall than what the US experienced during the Great Depression of the 1930s. The Russian people have endured great economic hardship over the past decade with an estimated 22% of population now living below the official poverty line. Thus, the period of so-called market reforms in Russia does not show obvious improvements in the well being of its citizens. This has led to an emerging consensus within the professional and popular literature which argues that the triple transition - transforming the economy, the polity, and the national psychology - is too difficult to be left to the market. In contrast to this argument, we contend that it is precisely because the transition is so complicated and so important that market forces must be allowed to play the crucial role in the transition.

Abstract:
Both Hayek and Arrow provide arguments about the inability of the vote process to yield a coherent social choice. Hayek demonstrated that planning is incompatible with democracy; its coherence requires dictatorship. Arrow demonstrated that voting fails to produce rational social choices; social rationality can be assured only when there is a single will. In both, the substitution of a single will for many wills is ruled as incompatible with a free society. Because market socialism relies upon either the existence of a meaningful, stable social welfare function or democratic decision-making to allocate resources, the complementary arguments of Hayek and Arrow imply that market socialism requires dictatorship to achieve coherence.

Abstract:
With the collapse of communism in the late 1980s the field of comparative political economy has undergone major revision. Socialism is no longer considered the viable alternative to capitalism it once was. We now recognize that the choice is between alternative institutional arrangements of capitalism. Progress in the field of comparative political economy is achieved by examining how different legal, political and social institutions shape economic behavior and impact economic performance. In this paper we survey the new learning in comparative political economy and suggest how this learning should redirect our attention in economic development.

Comparative economics, culture, economic development, institutions

Abstract:
In his recent article, "Is Socialism Really 'Impossible'?," Bryan Caplan questions the long-standing Austrian claim that socialism is impossible. Although Caplan is to be commended for engaging the arguments of Austrians such as Mises and Boettke, we contend that his arguments miss the mark. Caplan fundamentally misunderstands the Austrian proposition concerning socialism's impracticability and fails to appreciate the traditional argument made by socialists that Mises was addressing. For reasons we reveal below, Caplan's argument constitutes the triumph of cleverness over correctness, rather than the damning critique of the Austrian position he believes he has provided.

Socialism, economic calculation

Abstract:
While both errors of overoptimism and errors of overpessimism are possible in the face of imperfect information, the presence of option value from deferring a decision to exchange causes trader errors to be overpessimistically biased. This is problematic because unlike errors of overoptimism, errors of overpessimism are not 'automatically' revealed to the agents who make them. Furthermore, owing to the 'bad news principle of irreversible investment', these errors are likely to persist. We show how entrepreneurial activity corrects such errors and prevents their persistence, creating a tendency towards market efficiency despite the presence of imperfect information.

Imperfect information, equilibration, entrepreneurship

Abstract:
Research examining the importance of path dependence and culture for institutions and development tells us 'history matters', but not how history matters. To provide this missing 'how', we provide a framework for understanding institutional 'stickiness' based on the Regression Theorem. The Regression Theorem maintains that the stickiness, and therefore likely success, of any proposed institutional change is a function of that institution's status in relationship to indigenous agents in the previous time period. This framework for analyzing institutional stickiness creates the core of what we call the New Development Economics. Historical cases of post-war reconstruction and transition efforts provide evidence for our claim.