Kinds of returns to scale: constant. That's all.

Forget about maths disentangled of economic theory. Even if you can have a mathematical function of degree different than zero, in economics there are just constant returns to scale. If you have the appearance of decreasing returns to scale, that's because an input remains fixed after all. The same is true in the case of apparent increasing returns to scale, save by the fact that in this second case, production is still in the stage of increasing marginal returns.

Lie sold as truth

Some "economists" (lobbyists in scientific disguise) dedicate their work not to clarify truth but to elaborate lie so that, through unnecessary complication of explanations, it becomes harder to understand the phenomenon in consideration on the one hand, and lie acquires the venerable appearance of truth on the other.

Respect for the public authority

Holding the hand of the public authority in your own hands and then kissing it... The whole idea is avoiding that he can move it.

A proposal for market-led higher education

A proposal for several distinct but related industries, in principle decentralized:

Classroom rental. Or rather classroom, laboratory, or any other room (and tools) for teaching. A possible business model consists in auctioning classrooms for a definite period of time. So, the first rental company determines the length of terms, be semesters, thirds, quarters, etc. I guess that the auctioning would be directed towards teachers directly. Such aspects as classroom quality, building location, and period length would be a good contested by the firms serving the market, and this good would be separated from other industries such as teaching and certification. They could also, as a byproduct, sell curriculum prospects of registered students to the curriculum companies.

Teaching proper. The teacher would produce content for the courses and pedagogical ways of teaching. He would design syllabi, choose books if any, would arrange exercises as teaching tools, and would choose the number of classes to teach per week. The business model would consist in announcing the course, gain prestige, and charge students which attend the course, although of course class tasting could occur. Alternatively or supplementally, a patron could sponsor fully or partially a chair, so that would-be teachers could compete for that chair (maybe through ways arranged by the sponsor himself). For a new, innovative course or a new teacher, some sort of angel investment or joint venture could be advisable. Indeed, the teaching industry could be split between pure teaching and course design, although the common knowledge required would probably imply at least a moderate vertical integration among these two industries.

Curriculum. Specialized companies would work making research among potential employers of professionals on the one hand and offered courses (and the course design industry) on the other, so as to create a list of courses (a curriculum) ideal for distinct employers. These "curriculum companies" could also analyze which curricula are more demanded in the market, which are fashion and which ones outdated. They could also have statistics of how much students are enrolled under (at least stated) curricula. Employers could pay for the curriculum company to design curricula tailored at different levels for such employers or otherwise to know fashionable or otherwise successful curricula given market demand. They could even know potential supply of such curricula currently and for the foreseeable future. Curriculum companies could also sell advise services to new students so as for these to know the best prospects of curriculum ranked by employability or other variable.

Certification. Besides the mere course attendance, students could buy the service of course-attendance certification. They could also buy the service of course evaluation. This would create a specialized industry of individual course certification as well as of complete curriculum accomplishment.

This decentralization of the different industries which make higher education, would create competition among the different parts of higher education so that the student can get the best of each. It would also create room for innovation (for instance in course or curriculum designing) which, however, if failing, wouldn't attempt against the whole process of higher education. It would also create a closer relation between higher education programs and employers requirements. It would allow for smooth evolution of career curricula. Last but not least, it would allow that compromised professionals could deep and update their higher education as much as they want. Market has proved more effective than central planning in virtually every human activity. Higher education seems to be not the exception.

(In)tolerance

The plea for "tolerance" is often no more than the first stage of a malicious ideology in trying to crush and ultimately ban the establishment. "Tolerance" is a favorite marketing strategy to immunize from criticism what has been previously seen as evil by turning such criticism into politically incorrect. The plea for "tolerance" is frequently disguised intolerance against traditional values, a killer crying for mercy while committing his crime.

A proposal for a Bachelor's degree program in economics

I SEMESTER:
Math I: differential calculus
Statistics I: descriptive
General Epistemology
Introduction to Praxeology: introductory chapters of "Human Action" and spontaneous order ("I Pencil")

II SEMESTER:
Math II: integral calculus
Statistics II: inferencial
Methodology of Economics (Friedman's "Methodology of Positive Economics" and more)
Finance I (core of CFA I)

III SEMESTER:
Math III: linear algebra
Statistics III: inferential
Microeconomics I: Demand theory
Monetary Theory: theory of value of money

IV SEMESTER:
Math IV: differential equations, recurrence relations, topology
Econometrics I
Microeconomics II: Production theory
Macroeconomics I

V SEMESTER:
Econometrics II
Finance II (core of CFA II)
Macroeconomics II
Microeconomics III: industrial organization

VI SEMESTER:
Econometrics III
Finance III (core of CFA III)
Macroeconomics III
Game Theory (all Gibbons's book)

VII SEMESTER:
Public finance (Musgrave's and Musgrave's book)
International Trade (first two parts of Krugman's book)
History of economics (Blaug's book)
Auctions (theory and experiments)

VIII SEMESTER:
Public choice
International finance (second half of Krugman's book)
Economic historiography (methods of economic history)
Development economics (emphasis on Bauer, Easterly, etc.)

All the courses would belong to one of four departments:
* Department of Mathematics and Statistics
* Department of Microeconomics
* Department of Macroeconomics
* Department of Methodology and History

Krugman economics

If some agent has been stealing from another and a policy of avoiding  stealing is imposed, the robber losses. So, by worsening some agents, such a policy is not unambiguously good for the economy and maybe it should even be avoided.

This is how I interpret Krugman economics from his book on international trade. Some agents "lose" because they are not allowed anymore to benefit, say, from protectionism (until here, we agree), so a trade liberalization is not unambiguously good for the economy (with which I disagree). Plus, how is that trade liberalization should be undertaken if no (necessarily artificial) protectionism had been imposed before in the first place?

Against a labor theory of value

The demand for a good of higher order cannot change save by a change in the price of some good of lower order which it helps to produce.

Church and freedom

The Catholic Church needs the help of people who truly believe in and are students of freedom for her to understand her limits on political proposals, her best way to fight poverty, and her development of a theology of free will harmonious with economic and political sciences and the rule of law.

People who truly believe in and are students of freedom can benefit from the Catholic Church, so that they remain humanitarian and full of charity, understand that free will and respect of free will is not the same than selfishness or disdain, but that true respect of freedom must be close to love for the neighbor.

Love of freedom and fear of God share major features: realizing that one is not almighty and cannot rule over whatever caprice one can have, to trust in powers which are beyond our full comprehension but which we revere by acknowledging that they operate for our ultimate benefit.

Freedom and fear of God are not just compatible but ultimately of mutual necessity as well as totalitarianism and atheism are at the end both sides of one same coin.

There cannot be God without freedom and there cannot be freedom without God. Both Church and classical liberals must understand that or scorn it at their own peril. It is civilization and that which we regard distinctively human which is at stake.

So wrong, Mr. Varian

"Transitivity is a hypothesis about people's choice behavior, not a statement of pure logic." Intermediate Microeconomics, 8/e, page 36.

Self-consciousness on methodology

"More than other scientists, social scientists need to be self-conscious about their methodology."

Milton Friedman, "The Methodology of Positive Economics"

Externality = violation of a property right = coercion = the opposite of freedom = anchor to underdevelopment

I mean, if somebody is smoking in the park and I'm reading there and I don't like the smoke, such as Coase shows, the externality is not merely a matter of the smoker causing a damage to me (Pigou's naïveté). Damage is not a sufficient condition to have a (negative) externality. If and only if a violation of a property right occurs, have we an externality. The other way of seeing an externality, i. e. the need to internalize, consists precisely in the need to put a stop to such a violation of the property right, to such a coercion. Externalities can be defined only in the context of a register of property rights, since they are precisely violations to such a register. On the other hand, even in a completely internalized society where there would be no externalities at all, we could have damages and benefits perceived by some agents by the actions of other agents. The feature of those damages and benefits, however, would be so, in such a system, that our damaged or benefited agents would no have any right whatsoever over putting a stop to the damages or continue enjoying the benefits happening by the actions of other agents, which we re are assuming to be the proprietors of the things causing damages and profits to other agents in our example.

And linking the concept of coercion to the work of Friedrich Hayek in his "The Constitution of Liberty", in which he defines freedom as "that condition of men in which coercion of some by others is reduced as much as is possible in society" (page 11). This is, freedom is the absence of coercion. Coercion is the opposite of freedom. Whereas there is freedom there's no coercion, whereas there's coercion there's not freedom.

This is important, for instance, to understand the key feature by which we can tell a society in which the development advances at a reasonable pace from one in which that reasonable pace is not present. Anyone who has lived in an underdeveloped (*) country bears witness that externalities are a key feature of those countries either because a property register existing it is violated (corruption, blackmail, theft, and a regrettable etcetera) or because there is not such a register in the first place (on which the work by Hernando de Soto is particularly illustrative).

(*) In order to emphasize backwardness, but euphemistically called sometimes "developing" as if full stagnation would be possible and as trying to convey basically the opposite idea of what really happens in countries composed of mostly poor people under world standards, i. e. almost absence of a developing pace.

Beyond a college assignment

After 18 years and a lost count, I guess that Friedman's paper is the thing I have most re-read.

In praise of Rothbard the economist

It's usual to consider Murray Rothbard as the most eccentric, radical, intolerant, pure kind of Austrian economist, the remotest land to Neoclassicism.

I guess that this view about Rothbard comes from his anarcho-capitalistic political views, sharp tongue, and being author of a rare criticism on Adam Smith in which the otherwise deemed as the father of modern economics and a champion of the free market is left as an "inveterate plagiarist" inconsistent in his defense of laissez-faire. But note that this three "defects" of Rothbard deal with his activities as a political philosopher, agitator, and historian, but none essentially with his capability as an economist.

However, there's just no much of a picture of Rothbard the pure economist. I think that this is because people just don't use to read Rothbard's work on economics, in particular Man, Economy, and State. Why reading a 1441 pages long treatise which is merely a secondhand paraphrase to the original and in any case shorter Human Action?

Well, in order to understand the irreplaceable role of Rothbard in the tradition of the Austrian School in particular and the economic science in general we have to pay attention to Rothbard background in the first place.

Rothbard, at difference of the previous generations of the Austrian school economists, is a born American, natively speaking English, and being originally trained in the tradition of Neoclassical economics. He understands and feels Anglo-American culture and Anglo-American (aka Neoclassical) economics in a way in which no native Austrian could dream of, and which certainly neither Hayek nor Mises master at that level. Rothbard is a natural.

It is only after earning a BA and a MA on economics at Columbia University that he stumbled onto the Austrian school while reading a book by so orthodox authors as George Stigler and Milton Friedman.

He then begins to learn Austrian economics in a passionate, intense and deep way, eventually being guided by the Mises itself. Due to the early stage in which he begins to study under Mises in America (less than six years after Mises migrated) and the intensity of his learning, it can be hardly an exaggeration to call Rothbard the first Austrian economist of the American era of the school. (A few American economists, say Benjamin Anderson, had previously studied in the Austrian school tradition but they had done so in Austria and in a time in which Austrian economics wasn't seen as different of mainstream economics, i.e. before Keynes. They couldn't be bridges since there were no gaps.)

So, what is really Rothbard? If you take seriously Rothbard as an economist and pay no attention to his caustic rhetoric (if there were ten ways of saying something Rothbard was to choose the most upsetting), you're going to discover an originally Neoclassical trained economist then turned into conversant with Austrian economics and you can see all the way his strong Neoclassical influence, from the authors he quote, through the use of graphs, through the examples he uses, through the concepts he uses, through the very analysis he undertakes. Hide the author's name from his Man, Economy, and State and ask someone to guess if the analysis is either Austrian or Neoclassical, and, behold, you bet not anyone is going to be sure or give the same answer than anybody else.

Rothbard is no less than a bridge to teach Austrian economics to Neoclassical trained economists (notwithstanding being an utmost tool to learn economics from scratch). He goes far beyond the translation of Nationalökonomie into Human Action so that Anglo-American students learn Austrian economics. Because Man, Economy, and State is not a translation from German into English. It is a translation from Austrian into Neoclassical. Even more, he at once puts Neoclassical economics into Austrian dress and "Neoclassicalizes" Austrian economics.

Rothbard is a sort of Saint Paul, an apostle to the Gentiles. Because of that plus its neat exposition and Easter-bunny pieces of original contribution, I have no doubt in recommending,at least to the beginner, Man, Economy, and State over Human Action.

In this stage of the Austrian school's evolution, characterized by its being mostly American and flourishing in English language (with a terrific impulse of internet, the great Privatseminar where everybody from Costa Rican proletarians to Harvard mollycoddles can learn and teach), the potential contribution of Rothabard cannot be underestimated.

Clash of titans?

Are Mises's definition of "economics" and Hayek's definition of "market" incompatible with each other? Mises defines economics as the science whose study subject is purposeful behavior. On the other hand, Hayek stresses the fact that a spontaneous order is by itself purposeless, it doesn't have a purpose of its own. Relating these two odeas, one could be led to the perplexing conclusion that economics doesn't deal with the analysis of the spontaneous order of the market. Since this doesn't seem to match common sense or the usefulness of economics, then either Mises or Hayek or both have not the most useful definition of their respective concepts, or the relation above between the definitions of economics and spontaneous order is not the most suitable. I feel that the problem is with Mises.

A-realistic assumptions

Tons of mischief would have been saved in the epistemology of economics had Friedman referred to the a-realism of the assumptions rather than to its unrealism. Friedman's whole point is easily understood and made compatible with, say, praxeological epistemology if you realize that the role of assumptions is to describe only the relevant elements of reality, therefore remaining necessarily silent to the rest of the description of reality. Assumptions can't be fully descriptive. That's the essence of Friedman's. But this feature refers to a lack of conveying information, not to the conveying of false information.

When the assumption of "perfect information" is given, this is just an economic way of saying that no attempt of analysis will be made with the theory to explain the imperfection of information. The assumption is a clause of resignation. Yes, a very coarse, superficial, and ultimately wrong exegesis would state that perfect information is an unrealistic assumption because information isn't really perfect, but the true role of the assumptions is rather a-realistic: to give up the possibility of analyzing the role of the imperfection of information, to abstract the phenomenon to study from informational rough edges, to specialize the theory in certain other problems not related to information. But, what's of the most importance regarding Friedman's conclusions: this resignation is content-meaningful. It's not just irrelevant whether it's a-realistic or not: it is precisely the way in which the very boundaries of the explanatory power of the theory is defined, it alone tells us what for and what not for is the theory! You have to pay close attention to the propositions stated through assumptions because they tell you when can you use the theory. Maybe if we understand this, we can be not so harsh as Hayek when he bitterly criticizes the whole equilibrium analysis (see his "The Use of Knowledge in Society") or when Kirzner does the analogous with the model of perfect competition (in "Competition & Entrepreneurship)".

I think that the true contribution of Friedman can be stated as "the violation of the assumptions of a theory have no appreciable effect on the implications of such a theory". (Compare to page 18 in the original edition of the essay.)

Additionally, even if more implicitly and less frequently quoted, I think that an important contribution of Friedman's essay is the fact that every theory is a construction, a designed, and in this sense, artificial, explanation of reality; that there is no such a thing as a "real" or utopically true explanation beyond the theory.

Economists and the market

You can classify economists into two groups: on the one side, those radicals who believe that the market is the final solution to any economic problem, on the other side, those who don't understand the market.

The lesson of economics most often forgotten

Factors affecting a free labor market ultimately are reflected in wages, not in unemployment. Persistently high unemployment is due exclusively to minimum wages.

Recent evolution of Costa Rican public finance

I was just reviewing data on the statement of operations of the central government of Costa Rica and I thought that maybe some of you can find interesting findings.


Data are for the central government of Costa Rica. Although Costa Rica is a unitary republic, the central government is somewhat similar to the "federal government". It excludes municipalities and state owned companies. Data are for the period Dec-06 through Jan-12 and are measured in multiples of real colones of Dec-06. The source is www.bccr.fi.cr.

As you see, there was a surplus since Dec-07 through Dec-08. Basically, the deficit has been increasing since then. The maximum deficit occurred in Oct-11. A first interesting finding is that the deficit was due more to income reduction than to expenditure expansion.














Reviewing sources of income, one finds that, on average, collection of customs taxes account for 28% of income and earnings taxes for 27%.
Customs diminished 24% in the period Oct-08 through Nov-09. This occurred mainly due to the international financial crisis and consequent shrinkage of international trade.

This diminution accounts for the main source of deficit increase.

On the side of expenditure, the main findings are these: on average, payrolls account for 37% of expenditure and current transfers for 36%. They constitute by and large the main source of expenditure. However, they didn’t increase meaningfully; i.e. their growth didn't accelerate.

However, if you see total expenditure you may notice a hump in for Dec-10 through Dec-11. This was due to a 50% increase in transfer of capital to other public sector institutions. All over the period Dec-06 through Jan-12, this item alone accounts for 7% of expenditure.

Protectionism and Krugman

Imagine you begin to sell some good you produce. People buy a lot of product. You just can't cope with so much demand. You invest an important share of your wealth in a very specific machine only useful for manufacture the good you sell. You invest because you expect demand for your good to continue growing. But once you have made the investment, that by the way nobody commanded you to make, you realize that people are beginning to buy from a foreign firm which is selling cheaper than you can, even after the investment of your machine. Yes, you get hurt. But you get hurt because the expectations you built disappointed you, not because the owners of that foreign firm are violating any right you were previously entitled to on the budgets of the potential buyers of your good. However, if in order to avoid competition by the foreign competition you coerce either buyers or other sellers or both so that they cannot make transactions among themselves, it is you the violator. Aren't you?

It is tragicomic to me when noble Krugman et al, in their "International Economics", 9/e, page 51 et seq., say some people get hurt because of trade. Yes, they get hurt, but they get hurt as I get hurt when somebody informs me that my plan to travel to your farm on next Saturday accompanied by Angela Lansbury and by Mr. Obama in order to enjoy a Jim Carrey's play with live music by the original Sepultura's lineup is not going to be possible. It is just a correction on my expectations, precisely the damn thing which markets do, so that we can keep as coordinated as possible in a world sometimes less than ideal.

But if the situation is explained so that it looks that I got hurt because somebody else's "fault", consequently implying a violation of a right of mine (to fullfill my expectations even at expense of violating a true right of others), I guess the analysis is not the best, to say the least.

Not everybody wins with trade? Some people get hurt with trade? In the devious sense setted out by Krugman et al... Well, dah! Because, yes, according to my plan I get hurt when cruel Mr. Obama prefers to be in political meetings than to enjoy Max Cavalera's twist and shout, but this is very different than violating a presumed right of mine. You cannot avoid feeling some hideous taste to deception in Krugman exposure.

And this is what our children are learning in their international trade courses. So primitive a stage, we still are in.