Table of contents(18 chapters)
This volume contains papers given at the third biennial Wirth Institute for Austrian and Central European Studies Conference on Austrian Economics. The conference was held at a beautiful waterfront facility of Simon Fraser University on October 15 and 16, 2010. In spite of all warnings to expect fog and rain in the Pacific Northwest, the weather was sunny and mild, as were the spirits of the conferees. Our topic title, “Austrian Views on Experts and Epistemic Monopolies,” was perhaps a bit misleading because some of the views represented were not “Austrian.” Indeed, the editorial mission of Advances in Austrian Economics has been to promote dialogue between the “Austrian” tradition of economics and other traditions both within in economics and beyond. Participants discussed the problem of experts from several Austrian and non-Austrian perspectives. While representing different points of view, the participants did tend toward the view that experts may pose a problem in one way or another, especially when they enjoy an epistemic monopoly.
I look forward to hearing your presentations of your papers. And, perhaps even more importantly, learning and obtaining new insights from subsequent interaction. As our Austrian School forbears stated, our knowledge as individuals is very limited and all of us will often make mistakes. The increased expertise has not improved this – it may be harder now as each expert knows more and more but about less and less as his field becomes ever more concentrated and thereby shrinks.Yet by our interaction, usually in some form of competition, our varying expertise, differing knowledge and individual approaches will get the total closer to right over time. We’ll approach equilibrium but of course never quite get there since nothing stands still and the world itself is constantly changing.I have always been fascinated by that miracle in which competing entrepreneurs produce an outcome that is more efficient and better than most would have done individually and look forward to obtaining greater insights as you present your papers.We last met in the fall of 2008, a period of rapid financial meltdown and severity of stress none of us had ever experienced. Of course the last similar crisis took place nearly 80 years ago in the 1930s, long before any of us were born. And in that distant past, there were two main suggestions of how to fix it: the Austrian approach and that of J. M. Keynes. Part of the latter's solution was applied then, and again this time.We asked the attendees, most of whom are represented by the papers in this volume, for comments or suggestions: What would you do now?We spent an hour in this discussion and, I believe:1) recognized that the Austrian School approach would be to allow interest rates to revert to normal levels from the artificially low yields which had misled entrepreneurs in the first place, but 2) accepted the reality that today's politicians had to take action and be seen as doing so.Three weeks earlier I had attended two days of meetings of the Hayek Society in Vienna. Along with some academics, the majority of the members consisted of business men, lawyers, practicing economists, psychologists and even politicians including the two Mr. Pauls from the US (Representative Ron Paul by video call). To my surprise, the consensus appeared to be to let business work out its own problems because no person, not even an expert, can know the future and therefore a perfect solution.It appears that the massive infusions of cash by all governments really have shortened the duration of our global problems. We must be grateful, but we also still need a long-term solution. As I said then and repeat now, giving a drunk some more drinks the morning after makes his hangover more bearable, but we still need to find out how to wean him off excessive alcohol. Our governments have spent, and in most cases are continuing to spend much more money to get us past the meltdown. But this money will need to be repaid by future spending cuts. And we are still living with abnormally low interest rates which will at some point mislead entrepreneurs into risky ventures with inadequate returns. We are building the next bubble.While no one knows exactly what we should do, I expect that the insights and views on expertise presented here, may help to clarify this challenge.
Our approach is largely historical, argument by example. We leave it to the theoreticians and empiricists to take the argument in a more technical direction.1 Throughout, we suppose that germs are self-interested and they have a research question, for example, how might our species improve the chances of survival, the answer to which might potentially benefit germs (or, harm them by less).
Purpose/problem statement – Two highly successful complex adaptive systems are the Market and Science, each with an inherent tendency toward epistemic imperialism. Of late, science, notably medical science, seems to have become functionally subservient to market imperatives. We offer a twofold Hayekian analysis: a justification of the multiplicity view of spontaneous orders and a critique of the libertarian justification of market prioricity.
Methodology/approach – This chapter brings to light Hayekian continuities between diverse literatures – philosophical, epistemological, cognitive, and scientific.
Findings – The very precondition of knowledge is the exploitation of the epistemic virtues accorded by society's manifold of spontaneous forces, a manifold that gives context and definition to intimate, regulate, and inform action. The free-flow of information is the lifeblood of civil (liberal) society. The commoditization of medical knowledge promotes a dysfunctional free-flow of information that compromises notions of expertise and ultimately has implications for the greater good.
Research limitations/implications – While we accept that there are irresolvable tensions between these epistemic magisteria we are troubled by the overt tampering with the spontaneous order mechanism of medical science. The lessons of Hayek are not being assimilated by many who would go by the adjective Hayekian.
Originality/value of chapter – On offer is a Hayekian restatement (contra the libertarian view typically attributed to Hayek) cautioning that no one spontaneous order should dominate over another, neither should they be made conversable. Indeed, we argue that the healthy functioning of a market presupposes institutions that should not answer to market imperatives.
When the history of the financial crisis, stock market crash, and ensuing recession of 2007–2009 is written, the appropriate focus would be on the role that “expertise” played in almost every chapter of the story. From the expertise of the mathematicians who guided the models used by financial institutions, to the expertise of those who developed new kinds of mortgage instruments that required very low down payments, to the expertise of US policymakers who told us that new regulations to encourage more widespread homeownership would be an engine of economic growth and prosperity, the actions of those who knew better eventually littered the financial landscape with their errors. In addition to the prior list, which is hardly exhaustive, perhaps the most central set of experts in the story were those associated with the Federal Reserve System, the US central bank. The Fed rarely shies away from using its expertise to cloak its choices in a cloud of jargon and technicalities, even as its every move has significant effects across the US economy and the whole globe. The Fed's decisions to keep interest rates so low after 9/11 and to seize unprecedented powers in the wake of the recession that inevitably followed that earlier policy were both the latest examples of the history of the Fed's ever-increasing claims to expertise that have led to expanding powers and new and more damaging mistakes.
The growth of knowledge literature acknowledges the importance of the institutional context of science for the discovery of knowledge. This chapter argues that in addition to the institutions that connect experts, the institutional context that exists between experts and their subjects importantly influences the relevance of the knowledge that experts discover. When experts are removed from their subject and feedback mechanisms are weak, the type of knowledge discovered by networks of experts has little policy relevance. When experts operate in a network that is closely linked to their subjects, the type of knowledge they discover will have a greater degree of policy relevance. Evidence from P. T. Bauer's work on different networks of experts in the developing world is used to illustrate this theory.
This chapter conceptualizes the Kirznerian entrepreneur as performing a unique and crucial role of driving an open-ended market process. Entrepreneurial alertness is a theoretical concept that occurs prior to choice and consists of changing perceptions of prices and real resource constraints. This chapter emphasizes the role of subjective perception in both arbitraging and innovative entrepreneurship and develops a simple matrix to synthesize these dual roles. This unique epistemic position in the market process qualifies both the arbitraging and innovative entrepreneur as capable of performing functions that are nonreplicable by experts outside the system.
Entrepreneurs have two advantages over credentialed experts. They “know” less of what is false, and they (informally) know more of what is true. They know less of what is false because they are either ignorant of, or willing to ignore, the currently dominant theories. They know more of what is true by having more informal knowledge (whether local, tacit, or inchoate). Funding of projects by firms or governments will rely on expert judgments based on the currently dominant theory. So breakthrough innovations depend on innovative entrepreneurs being able to find funding independent of the insider incumbent institutions, usually self-funding.
This chapter examines whether the view of the jury in cases involving forensic evidence can be changed from that of “naïve automatons” to that of “sophisticated decision makers”; whether the defense and prosecution must provide the jurors with information to help them develop a schema upon which to evaluate the forensic evidence; and whether to remove decision making from the expert forensic scientist and return it to the jury. The chapter uses secondary sources of information collected from criminal cases, the current federal law, as interpreted by the U.S. Supreme Court dealing with expert testimony, studies of how to enable juries confronted with forensic evidence, as well as a framework of learning theory and persuasion games. I argue that expert forensic scientists make errors. Juries are capable of making decisions based on complex forensic evidence if provided the knowledge within which to develop schema to evaluate that evidence. Competition between the defense and prosecution in presenting interpretations of scientifically valid evidence, as well as providing schema to enable the jury to evaluate the information, provides juries with the ability to arrive at a full information decision. Expert nullification of jury decision making should be halted and decision making returned to the jury. The value of this chapter is to integrate learning theory from cognitive psychology with one-shot and extended persuasion games to evaluate the roles of the jury and the expert forensic scientists within the criminal justice system.
Experts respond to the same incentives as people in other areas of human action, and in the same ways. This insight is a truism: Experts are ordinary people, not otherworld creatures. The disciplined pursuit of this common sense observation helps us to reach conclusions about experts that might be surprising or counterintuitive.
This chapter is designed to outline how current methods in formal policy analysis have evolved to better respect limits to an analyst's knowledge. These limits are referred to as model uncertainty both in order to capture the idea that formal policy analysis is predicated on mathematically precise formulations that embody assumptions on the part of an analyst and because model uncertainty, which represents a recognition of the potential for these assumptions to produce unsound analyses, has been an active area of research in economics and statistics for the last 15 or so years. The argumentation in this chapter is not original and is admittedly selective. For Austrian economists, the paper will hopefully be of interest in indicating how empirical work is evolving in a way that better respects limits to a social scientist's knowledge. I certainly do not mean to suggest that these arguments should eliminate the objections that have been raised by some Austrian economists to formal empirical work. Rather, the intent of this chapter is to indicate the possibility of dialog and debate between Austrian and non-Austrian economists on the role of formal empirical work. In several contexts, I have introduced arguments concerning the limits of formal econometric analysis by Hayek and von Mises to both illustrate how the perspectives in this chapter relate to their views in order to suggest why, in my judgment, some of their skepticism is unwarranted.
In his incisive analysis of academic tribalism, Stephen Balch (2004) argues that schools of thought can be catalysts or barriers to disciplinary inquiry, depending on the institutional setting. He cites physics, chemistry, and mathematics as fields in which competing schools of thought generally enhance the marketplace of ideas by increasing the scope and value of intellectual exchange (ibid., p. 2). Balch deems these disciplines “collegial” because, though “rivalries exist among hypotheses and investigators, there is general agreement on the means of resolving them and a strong sense of shared intellectual mission” which enable “internalized checks” to “keep things on the straight and narrow” (ibid., p. 4). By contrast, Balch describes the social sciences and humanities as “adversarial disciplines” in which paradigmatic rivalries “shade into enmities, bear heavily on methods of verification as well as the substance of disputes, involve judgments of value as well as of fact, often reveal an absence of shared mission, and produce results whose employment outside academe is very frequently polemical” (ibid., p. 4). In these contexts, schools become impediments to “serious academic discourse about the human condition” (ibid., p. 2) as the collegial ideal of a “free and open marketplace of ideas” (ibid., p. 1) gives way to balkanized disciplines “divided into enduring factions whose partisans frequently treat their opponents more as foes than colleagues” (ibid., p. 4).
Over the last three quarters of a century, the discourse on economic and social policy has oscillated between two polar opposites: an interventionist approach and a free market-oriented one. The former led to the establishment of the Keynesian welfare state and was dominant in the post-war years, but the latter gained much ground beginning in the 1980s, forcing defenders of the welfare state to retreat into a more defensive position. In the wake of the ‘Great Recession’, however, these two visions are once again sustaining vigorous debates in the global public arena. Economists in their role as policy advisers and public intellectuals, in other words as ‘experts’, have participated actively in such debates; the gains made by (what its critics call) ‘neo-liberalism’ were due, in no small measure, to the growing prestige and influence of Austrian economics. The experts’ discourse tends to be a historical and arguments are often phrased in terms of supposedly ‘cutting edge’ theoretical and empirical advances.1 Yesterday's theories are judged obsolete and irrelevant. I argue that a more historically informed perspective can actually be more rewarding.