My article, just accepted by Ekonomisk Debatt, will be published after translation by the Swedish Economics Association in May.
The argument is half-Hayekian in the sense it argues for an important role for the decentralized, private sector creation of the medium of exchange, which Hayek presumably would have approved of, but anchored in a government monopoly for creating base money that Hayek did not favor, but which dates back to antiquity.
The decentralized enterprise that sustains the dynamism of economies makes top-down monetary interventions, such as quantitative easing, that target aggregates such as overall inflation, futile. Moreover, economic stability and dynamism also require prudent, decentralized lending to decentralized borrowers. But, sustained monetary interventions aimed at aggregate inflation (or employment) targets induce imprudent credit extension, jeopardizing stability and dynamism.
This seminar examines the development of practical knowledge intended to transform “existing conditions into preferred ones, ” as Simon (1996) put it. Such knowledge is embodied in artifacts that do not exist in nature including physical objects, organizations, practices, and paradigms. Knowledge of what naturally happens or naturally is — of facts (such as of atomic structure), of physical laws (as of planetary motion), and of axiomatic theorems and models (e.g. in geometry or micro-economics) – lies outside our scope, except to the degree that we can harness such knowledge to develop and use artifacts.
By traditional intellectual standards, studying practical knowledge may seem undignified and uninspiring. The ancient Greeks venerated contemplation, music and the other arts, abstract truths, and mathematical reasoning. Merchants and craftsmen (including, presumably, builders of large hollow horses) occupied the bottom rung of Plato’s idealized society; their knowledge and toil was but a means towards the realization of the good life by a small enlightened class. Modern society has raised science into the pantheon of the wisdom we venerate. And, while engineers, physicians, lawyers, entrepreneurs, managers, and accountants can secure higher incomes, many continue to regard the development of that practical knowledge as subordinate – a mere application or translation of more profound scientific ideas. Similarly, although Western universities started by offering practical medical education, some in the upper reaches of the Academy now regard professional schools as verging on the teaching of trades that have no place in institutions of higher learning.
I have just completed a paper that represents “first thoughts” arising from a project on medical innovations that I am doing with Katherine Stebbins McCaffrey and Srikant Datar. This paper draws on a case history of HIV/AIDS that Katherine has been working on, my reading of medical history and my prior work on “multi-player” innovation.
Although it is not a “policy” paper it concludes thus:
In medicine too, we should expect that an FDA that made safety its primary focus would reduce the incidence of dangerous drugs or devices brought to market. Meanwhile, scaling back the regulation of efficacy promises two important benefits. Sharply reducing the costs of regulatory compliance should foster some of the hectic, frugal innovation that we find in so many other fields. And, replacing centrally supervised randomized trials with more pluralistic evaluations (by medical associations, insurers and other third-party payers, and on-line communities of consumers) should improve the matching of treatments and patients. True, useless treatments might increase with more innovations coming to market. But, as is the case outside medicine, widespread sharing of diverse experiences of actual use, might also yield more knowledge of what works best and under what circumstances. We could sip a little more of the holy grail of personalized medicine on the cheap, simply by allowing more ad-hoc user experimentation.
We certainly should not suppress science, disdain bio-tech and Big Pharma, or replace trained physicians with Maoist barefoot doctors, but we could be less credulous about imminent research breakthroughs and offer more scope for nurse practitioners and even completely un-credentialed outsiders to innovate. Placing ever-larger bets on exclusive innovation is a poor remedy for its debilities. Harnessing the enterprise and ingenuity of the many and for the many should be the way ahead.
Download the paper here
Widespread private and public cheating in Greece is old hat. Michael Lewis documented it splendidly in Vanity Fair in 2010.
What’s “novel” in this just published piece (tho Ive made it a few times before) is that the Euro doesn’t need or can’t have “convergence” of standards of living or in the quality of governance. Rather the common currency needs rules and structures that *minimize* the supporting standardization and regimentation.
“Standardize and centralize only when necessary” is a staple of modern management. And figuring out what and how to centralize (establishing “loose tight controls as Peters and Waterman put it) are an important part of a CEOs job. (more…)
A civil libertarian and free-speech absolutist’s concern about the Charlie Hedbo demonstrations
Mass demonstrations of solidarity in favor of free speech and against the Charlie Hebdo killings are understandable, but they could inadvertently give cover to actions that subvert the very liberties the protesters cherish. Legitimate public outrage should not be channeled into declaring or escalating wars on Islamic (or any other kind of) terror. Democracies should coolly rely on existing tools and procedures against criminal conspiracies.