“One thing at a time Mel. What do you think of the New York Times piece?”

You always pull the same stunt, don’t you Rafe. You make some mendacious claim then go off on some tangent when you can’t back it up. It’s downright ungentlemanly behaviour on your part and certainly not in keeping with the spiffing traditions of this fine old blog.

As to the NYT piece, here’s my counter-google that trumps it: http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis

Beg to differ. Boettke’s proposition is: “Only individuals choose.” I say that is individualist.

Methodological individualism is a social science approach to the study of human affairs. It does not imply individualism for an MI approach can deliver information on collectives. A non-MI approach would be to, say, collect records of what a certain institution has done in certain circumstances (and maybe predict its behaviour).

Boettke is a social scientist and I expect he does take an MI approach. However his proposition 1 is a statement of conclusion, not approach. The “only” makes it, well, dogma. It makes the statement individualist (and tells us something about Boettke).

Leave off the “only” and apply MI. Individuals choose. Yes, they may choose to adopt a collective decision. Already MI has brought us away from individualism. Nobody knows what the collective will choose but all involved individuals choose to surrender their choice. The decision will become known after the vote or whatever – a collective choice. Thus an MI approach can show that collectives can choose.

I am too busy to debate the fine detail…

No, too far out of your depth. As usual.

As I have been writing here for many years now, there were a 1,000 things that led to the current crisis. However, I have chosen to focus on, in priority of significance, causation and impact, items # 1-10. Other people seem to wish to focus upon items #67, 219, and 467.

No doubt some bad loans were made as a consequence of the CRA (Community Reinvestment Act) and other initiatives, but they were marginal in the overall scheme of things. Robert Gordon wrote about these matters back in April this year. The whole article’s worth a read but let me just quote his last paragraph:

It’s telling that, amid all the recent recriminations, even lenders have not fingered CRA. That’s because CRA didn’t bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA — or any federal regulator. Law didn’t make them lend. The profit motive did.

“The discussion is not methodological individualism. It is about Boettkes propositions. Nothing wrong with MI.”

But MI is Boettke’s first proposition. I can see there is a sense in which collectives and traditions (and objective knowledge in Popper’s “world 3″ sense) transcend individuals. That is a very interesting conceptual and practical matter which means that MI has to put into a context of Situational Analysis where the situation contains elements that do transcend the individual.

On the topic of the limited range of ideological positions:

But for their beliefs people choose from a very short prix fix menu, not a la carte. You can have left or you can have right, each being a collection of dishes that go together – you are not allowed to mix dishes across the two menus. Is allowed the right word? SOMETHING is putting a remarkably restricted order into the world of beliefs.

This is a topic dear to my heart because I think that the left/right option is far too limited. Hayek identified a position that is neither conservative nor radical which he called an Old Whig stance. I am inclined to call it classical liberalism. I think there is scope for a larger menu than the right/left options. Must think about it some more.

Scoffing and insults like “mystical group mind” indicate a lack of sound argument.

The discussion is not methodological individualism. It is about Boettke’s propositions. Nothing wrong with MI. As you say it is individuals who have opinions and who vote for the collective resolution.

The point, though (if you wish to consider it), is that the resolution is (or may be) not one that any individual could make. Analysis at the level of the level of the individual does not suffice. The resolution reflects the minds of those who make it and of the past – the traditions. Collective resolutions, and thus their economic consequences, are moderately predictable. A survey of the members’ minds will be a very poor, or hopeless, predictor of collective decisions.

In other words, a collective such as a party or religion or a firm has an existence – a life – that transcends its individual members.

With reference to the prix fix at No 23, how do YOU account for the limited menu?

I have no problem with autodidacts getting involved in discussions — that’s what we’re all doing here. But I lose patience when thr autodidacts pontificate on issues way out of their depth, dismiss as incompetent anyone whose conclusions they dislike (whether or not they understand how these were reached), and pour scorn on eminent writers whose work they aren’t even up to reading.

Evidence please …

Peter Boettke can speak for himself and I will put in a word for the autodicacts. Of course I am not sufficienty paranoid to think that James had me in mind when he wrote that comment and in fairness to critics of autodidacts, there is a tendency for the self-taught to (a) be over-impressed by their favorite person, (b) to have massive gaps in their reading, and (c) mispronounce a lot of foreign names and technical terms because they have never heard anyone say them out loud. So it is easy to mock your friendly neighbourhood autodidact but be tolerent, persuade him to broaden his scope of reading and fill in some gaps, you might make a friend and improve the contribution of an independent scholar!

James, please feel free to post your website address here so we can compare your list of publications and cv with that of Peter Boettke.

This is being debated among the Austrians at present and I think the point is conceded that doctrinaire libertarians have damaged the perception of Austrian economics as Ingolf suggests. However one of the elements of Austrianism (not listed in the 10 points) is the notion of “value freedom”, so scientists can pursue the truth without immediate regard to values, even though as citizens and responsible moral agents they will consider the desirability of actions and policies.

For example the aim of Austrian critiques of State interventions is to find whether specific interventions can achieve the stated intentions (leaving aside for the moment whether the intention is desirable). It has also been noted that deregulation and the retreat from intervention is a kind of intervention (an action by the Government) and this calls for the same kind of analysis in terms of intentions and outcomes.

MI does not deny the existence of groups, collectives and societies, nor does it ingore the existence of shared ideas and feelings. However when you talk about the decision of a board or a committee (or indeed an election), it is based on rules of procedure (which may call for a simple majority, more than a simple majority or consensus) and the outcome is achieved by counting the votes of the individuals, not tapping into some group mind.

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980′s.

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

With the advent of “welfare economics,” regardless of how this might be defined, such previously admissible methodological fuzziness no longer passes muster. If idealized market interaction processpure or perfect competitionis used as the standard for deriving conditions which are then to be employed as norms for interference with actual market process, the question of objective measurement must be squarely faced. If prices “should” be brought into equality with costs of production, as a policy norm, costs must be presumed objective, in the sense that they can be measured by others than the direct decision-maker.
Only Hayek and Mises seemed to be completely aware of this problem and of its major importance, although many other economists seem to have been vaguely disturbed by it. Subjectivist economics, for Hayek and Mises, amounts to an explicit denial of the objectivity of the data that informs economic choice. The acting subject, the chooser, selects certain preferred alternatives according to his own criteria, and in the absence of external change he attains economic equilibrium. This personalized or Crusoe equilibrium is, however, wholly different from that which describes the interactions among many actors, many choosers. In the latter case, the actions of all others become necessary data for the choices of the single decision-maker. Equilibrium is described not in terms of objectively determined “conditions” or relationships among specific magnitudes, e.g., prices and costs, but in terms of the realization of mutually reinforcing and consistent expectations. The difference between these two approaches, the objectivist and the subjectivist, is profound, but it continues to be slurred over in the neoclassical concentration on the idealized market interaction process in which all individuals behave economically. In an unchanging economic environment populated by purely economic men, the two approaches become identical in a superficial sense. In a universe where all behavior is not purely economic, where genuine choice takes place, the important differences emerge with clarity.
At this juncture in the development of economic theory, we must, I think, ask why the convincing arguments of Hayek exerted so little weight. Without question, objectivist economics continues to carry the day, and few of its practitioners pause to examine critically its methodological foundations. There are, no doubt, several reasons for this failure, but undue attention paid to the definition of equilibrium, although of immense importance in itself, may have retarded acceptance of the more general subjectivist notions. Neutral readers of the impassioned debates on socialist calculation might have been led to think that the central issue was really one that involved the possibly erroneous derivation of policy criteria from stationary equilibrium settings. Indeed this is an issue, but the subjectivist critique is obscured here. As noted earlier, this concentration on equilibrium, of which Hayek, Robbins, and to a lesser extent Mises, all are guilty, left the way open for Lerner to drop all references to general equilibrium in his derivation of the policy rules that explicitly require the introduction of objectively measurable costs.

Some choice quotes from Chapter Three.

The following specific implications emerge from this choice-bound conception of cost:

1. Most importantly, cost must be borne exclusively by the decision-maker; it is not possible for cost to be shifted to or imposed on others.
2. Cost is subjective; it exists in the mind of the decision-maker and nowhere else.
3. Cost is based on anticipations; it is necessarily a forward-looking or ex ante concept.
4. Cost can never be realized because of the fact of choice itself: that which is given up cannot be enjoyed.
5. Cost cannot be measured by someone other than the decision-maker because there is no way that subjective experience can be directly observed.
6. Finally, cost can be dated at the moment of decision or choice.

Re the deer and beaver, the story suggests would would be the purely rational position, but it is not evidence of real life. For example, the guy with the two deer might think beaver tastes like crap. Or the beaver guy might have had a good hunt and now has a surplus of beaver threatening to rot. Also, the story contains an assumption that is an obvious fallacy, things are rarely so comparable.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980′s.

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

As for your second point, this is what Smith says:

If among a nation of hunters, for example, it usually costs twice the labour to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer.

Where is the subjective element?

There is no standard of greater or lesser satisfaction other than individual judgments of value, different for various people and for the same people at various times. What makes a man feel uneasy and less uneasy is established by him from the standard of his own will and judgment, from his personal and subjective valuation. Nobody is in a position to decree what should make a fellow man happier.

To establish this fact does not refer in any way to the antitheses of egoism and altruism, of materialism and idealism, of individualism and collectivism, of atheism and religion. There are people whose only aim is to improve the condition of their own ego. There are other people with whom awareness of the troubles of their fellow men causes as much uneasiness as or even more uneasiness than their own wants. There are people who desire nothing else than the satisfaction of their appetites for sexual intercourse, food, drinks, fine homes, and other material things. But other men care more for the satisfactions commonly called “higher” and “ideal.” There are individuals eager to adjust their actions to the requirements of social cooperation; there [p. 15] are, on the other hand, refractory people who defy the rules of social life. There are people for whom the ultimate goal of the earthly pilgrimage is the preparation for a life of bliss. There are other people who do not believe in the teachings of any religion and do not allow their actions to be influenced by them.

Praxeology [what Mises calls the study of human action] is indifferent to the ultimate goals of action. Its findings are valid for all kinds of action irrespective of the ends aimed at. It is a science of means, not of ends. It applies the term happiness in a purely formal sense. In the praxeological terminology the proposition: man’s unique aim is to attain happiness, is tautological. It does not imply any statement about the state of affairs from which man expects happiness.

At the risk of overgeneralising, the perception of Austrian economics has probably been quite badly damaged by those more interested in using it as a weapon in politics than in the study of economics itself.

People are not guided by a higher force? They must be. How else do you explain the astonishingly limited range of economic / political positions around the world? Certainly people (and collectives) decide based on belief. But for their beliefs people choose from a very short prix fix menu, not a la carte. You can have left or you can have right, each being a collection of dishes that go together – you are not allowed to mix dishes across the two menus. Is “allowed” the right word? SOMETHING is putting a remarkably restricted order into the world of beliefs.

If game theorists aren’t Austrians they are pretty close. What I said stands: they (Austrian, rat choicer, or free marketeer – don’t need to get into the quibbles between sects) SAY sanctimoniously that utility is purely subjective and they ASSUME cynically that more money is the only utility.