Professor William Niskanen R.I.P

williamniskanenThe death has been announced of Professor William Niskanen formerly the President of The Cato Institute, of a stroke following heart surgery.

 picture of Milton Friedman

He was a student of Milton Friedman’s at Chicago. From there he migrated by way of Berkley to The Pentagon where he helped Robert McNamara introduce cost benefit analysis to The Defence Department however the experience was disillusioning. He found lying so pervasive that when some years later the government announced the success of the Apollo mission to the moon he found himself momentarily doubting whether in fact the mission had in fact taken place! Later he resigned from a position at Ford when that company lobbied the government to make the import of Japanese cars more difficult, saying:
“A common commitment to refrain from special favours…serves the same economic function as a common commitment to refrain from stealing.”

 picture of Robert MacNamara

According to his obituary in The Daily Telegraph
“as an academic economist Niskanen was best known for his contributions to public choice theory, a field that examines the choices made by bureaucracies based on the assumption that public officials, like private sector businessmen, [italics supplied] generally act [or fail to act- comment supplied!] In their own self-interest.”

Apartheid era sign

This certainly explains interesting- and disturbing- phenomena that I observed when I was in South Africa in the spring of 1989. At that stage the absurd regulation of apartheid were being dismantled. But at the same a host of new regulations ostensibly designed to reduce the health hazards of smoking were being introduced. The bureaucrats concerned may well have genuinely believed that they were acting in the public interest- and perhaps they were- but it was also all too obvious that crusade against smoking providing them with a justification for imposing new regulations to make up for the ones they had been forced to abandon. It would be interesting to know whether anything similar happened in the southern states of The United States after the end of the Jim Crow Laws- which also discriminated against blacks.

Duke University Church

I am neither an expert on Professor Niskanen nor his work, but I was once privileged to hear him speak. I think that he had flown down from George Mason to Duke University, where I was then studying, and addressed an audience assembled by the Economics Department- to talk about- the death penalty.

I remember a distinct sense intellectual excitement and anticipation in the audience before he spoke, perhaps because we were then more used to discussing the death penalty in the context of politics or even of theology- easy to do on a campus so dominated by its chapel as that at Duke- But what, I wondered, had economics to do with the death penalty?

In Niskanen’s view quite a lot.

He argued that the death penalty could be shown to have saved lives. He explained that the early studies that concluded that the death penalty did not have a deterrent effect had been flawed. They had compared data from states which did not practice the death penalty with those states in which the death penalty was legal. The problem being that several of the states in which the death penalty was still legal did not in fact ever use it. This meant that comparisons between states in which the death penalty was illegal and those, in which the death was legal but never used, tended to underestimate its deterrent effect. Criminals- he argued- in those states in which the death penalty was still on the books but never employed would hardly be likely to be deterred from committing murders by a penalty that they knew they would not suffer.

John Locke

(Described with the advantage of hindsight all this appears obvious, but in Lockean terms it was in fact no small achievement to break the customary association between the death penalty and its legal status which ultimately what was being discussed)

 

Instead, Niskanen argued, the correct approach to the problem was to find out what deterrent effect each individual execution had? I remember being intrigued at this point, although I immediately realised how complicated such an analysis must have been and wondered how it had been done. Niskanen never explained these practical matters, but in employing the method he did he revealed himself to be a true exponent of the Chicago school with its emphasis on empirical research. I for one found myself flattered to be taken so to speak inside his thought process as he closed on the answers that he was seeking.

This impression was reinforced as he proceeded. His first analysis of the data suggested that the death penalty had a considerable deterrent effect and saved (as I remember this first figure about 8 lives.) This had struck Niskanen as being an improbable result, and consequently he had rechecked the data, and done everything he could to improve the methodology of the study and once more interrogated the computer (in those days of course computers being lumbering objects into which one fed stacks of punch cards) and discovered that each execution in The United States saved between twelve and twenty lives!

death row gurney

I am not sure now that I am happy with either Professor Niskanen’s method or his the conclusion suggested by his study. Of course I still relish the shrewdness with which he spotted the flaw in the early studies that denied deterrent effect to the death penalty; I admire the elegance of his alternative study was designed; and I enjoyed the skilful way in which he lectured to an unsympathetic audience.

Nevertheless I now doubt that he was right. My sense is that it is not the severity of the punishment but the chance of apprehension and conviction which prevents crime- although I might be told by a social scientist that in this I am deluded. More troubling though I am uncomfortable with an argument which seeks to justify the death penalty by reference to the number of executions regardless of whether or not those executed were in fact guilt or not. The trouble with what I take to have been Professor Niskanen’s argument is that it seems to work equally well if those who are executed are only believed to have been guilty by other potential criminals.

I can think of no more potent a justification for state sponsored injustice.

Is it not potentially disastrous to justify the death penalty by an argument which is ambivalent about whether or not the person executed is in fact guilty? With hindsight it seems to me that this moral and political failure of the sort of reasoning that Professor Niskanen employed reveals the weakness of the kind of exclusively empirical argument so loved by the Chicago school. (In Lockean terms the danger is that once the association between the death penalty and its legal status had been broken-see above- then the risk exists that link between the death penalty and guilt will also be broken.)

While I am now unsure of the kind of argument in which Professor Niskanen was such a master;I have no doubts about him. He was a man of high principle, powerful intellect, skilled in his discipline, a fine speaker, and a notable teacher with a commanding physical presence. It is no surprise to learn that he was widely regarded as one of the most honest men in Washington. May he rest in peace.

William NiskanenI have left this piece unchanged, but reflection suggests that the scholar who spoke at Duke was in fact James Buchanan, but to make matters more complicated he was- I think-quoting Niskanen’s work. To make matters even more complicated I did hear Niskanen speak much later, I think at The  Philadelphia  Society. RM

William Niskanen, born March 13 1933, died October 26 2011.

What’s in a Name

Robert C.B.Miller

When the EBI was being formed, Robert Miller the brother of the founder and TCD graduate, with his friend Peter Clarke was invited by FA Hayek was invited to have lunch at the Reform Club in London. When the question of the name for the proposed institute was raised Hayek immediately asserted that it must be the Edmund Burke Institute, rather than the original proposal – the Irish Enterprise Institute modelled on the American Enterprise Institute. Following Hayek’s pronouncement the question was decided. Hayek had become a British citizen and used every summer to visit London to meet his friends Ralph Harris (Editorial Director) and Arthur Seldon (General Director) and the Institute of Economic Affairs in Pall Mall. He would stay at the Reform Club – hence in the invitation.

It was during this later part of his life that Hayek did some of his most interesting work. This included the publication of his two IEA paper ‘Choice in Currency’ (1975) and ‘The Denationalisation of Money’ (1976). In these booklets, he advocated eliminating the ‘lender of last resort’ role of central banks – forcing issuers of currency to be very conservative in issuing notes or accepting deposits not very largely backed by the medium of exchange.

He also advocated the abolition of legal tender laws so that buyers and sellers can chose which medium of exchange they preferred. He also pointed out that choice in currency would ensure freedom from inflation as the market would select currencies which delivered stable prices, rather than ones which depreciated. If a currency began to lose its stability people would move quickly to a better competitor. He also wondered what kind of price stability would people select for their preferred currency. In other words would the market select a currency which was stable in terms if Consumer Price Index or the Wholesale Price Index. Or indeed whether, given the choice, people would prefer price stability in terms of gold or a bundle of commodities.

Theatre & the Arts

Frederic Bastiat

Ought the State to support the arts? There is certainly much to be said on both sides of this question. It may be said, in favor of the system of voting supplies for this purpose, that the arts enlarge, elevate, and harmonize the soul of a nation; that they divert it from too great an absorption in material occupations; encourage in it a love for the beautiful; and thus act favorably on its manners, customs, morals, and even on its industry.

It may be asked, what would become of music in France without her Italian theater and her Conservatoire; of the dramatic art, without her Théâtre-Français; of painting and sculpture, without our collections, galleries, and museums? It might even be asked, whether, without centralization, and consequently the support of the fine arts, that exquisite taste would be developed which is the noble appendage of French labor, and which introduces its productions to the whole world. In the face of such results, would it not be the height ofimprudence to renounce this moderate contribution from all her citizens, which, in fact, in the eyes of Europe, realizes their superiority and their glory?

To these and many other reasons, whose force I do not dispute, arguments no less forcible may be opposed. It might first of all be said, that there is a question of distributive justice in it. Does the right of the legislator extend to abridging the wages of the artisan, for the sake of adding to the profits of the artist? Mr. Lamartine said, “If you cease to support the theater, where will you stop? Will you not necessarily be led to withdraw your support from your colleges, your museums, your institutes, and your libraries? It might be answered, if you desire to support everything which is good and useful, where will you stop? Will you not necessarily be led to form a civil list for agriculture, industry, commerce, benevolence, education? Then, is it certain that Government aid favors the progress of art? This question is far from being settled, and we see very well that the theatres which prosper are those which depend fupon their own resources.

Moreover, if we come to higher considerations, we may observe that wants and desires arise the one from the other, and originate in regions which are more and more refined in proportion as the public wealth allows of their being satisfied; that Government ought not to take part in this correspondence, because in a certain condition of present fortune it could not by taxation stimulate the arts of necessity without checking those of luxury, and thus interrupting the natural course of civilization.

I may observe, that these artificial transpositions of wants, tastes, labor, and population, place the people in a precarious and dangerous position, without any solid basis. These are some of the reasons alleged by the adversaries of State intervention in what concerns the order in which citizens think their wants and desires should be satisfied, and to which, consequently, their activity should be directed. I am, I confess, one of those who think that choice and impulse ought to come from below and not from above, from the citizen and not from the legislator; and the opposite doctrine appears to me to tend to the destruction of liberty and of human dignity. But, by a deduction as false as it is unjust, do you know what economists are accused of? It is, that when we disapprove of government support, we are supposed to disapprove of the thing itself whose support is discussed; and to be the enemies of every kind of activity, because we desire to see those activities, on the one hand free, and on the other seeking their own reward in themselves.

Thus, if we think that the State should not interfere by subsidies in religious affairs, we are atheists. If we think the State ought not to interfere by subsidies in education, we are hostile to knowledge. If we say that the State ought not by subsidies to give a fictitious value to land, or to any particular branch of industry, we are enemies to property and labor. If we think that the State ought not to support artists, we are barbarians, who look upon the arts as useless.

Against such conclusions as these I protest with all my strength. Far from entertaining the absurd idea of doing away with religion, education, property, labor, and the arts, when we say that the State ought to protect the free development of all these kinds of human activity, without helping some of them at the expense of others—we think, on the contrary, that all these living powers of society would develop themselves more harmoniously under the influence of liberty; and that, under such an influence no one of them would, as is now the case, be a source of trouble, of abuses, of tyranny, and disorder. Our adversaries consider that an activity which is neither aided by supplies, nor regulated by government, is an activity destroyed. We think just the contrary. Their faith is in the legislator, not in mankind; ours is in mankind, not in the legislator.

Thus Mr. Lamartine said, “Upon this principle we must abolish the public exhibitions, which are the honor and the wealth of this country.” But I would say to Mr. Lamartine—According to your way of thinking, not to support is to abolish; because, setting out upon the maxim that nothing exists independently of the will of the State, you conclude that nothing lives but what the State causes to live.

I oppose to this assertion the very example which you have chosen, and beg you to note, that the grandest and noblest of exhibitions, one which has been conceived in the most liberal and universal spirit—and I might even make use of the term humanitarian, for it is no exaggeration—is the exhibition now preparing in London; the only one in which no government is taking any part, and which is being paid for by no tax.

To return to the fine arts. There are, I repeat, many strong reasons to be advanced, both for and against the system of government assistance: The reader must see that the object of this work leads me neither to explain these reasons, nor to decide in their favor, nor against them. But Mr. Lamartine has advanced one argument which I cannot pass by in silence, for itclosely connected with this economic study. “The economical question, as regards theatres, is comprised in one word—labor. It matters little what is the nature of this labor; it is as fertile, as productive a labor as any other kind of labor in the nation. The theatres in France, you know, feed and salary no less than 80,000 workmen of different kinds; painters, masons, decorators, costumers, architects, etc., which constitute the very life and movement of several parts of this capital, and on this account they ought to have your sympathies.” Your sympathies! Say rather your money.

Further on he says: “The pleasures of Paris are the labor and the consumption of the provinces, and the luxuries of the rich are the wages and bread of 200,000 workmen of every description, who live by the manifold industry of the theatres on the surfeit of the republic, and who receive from these noble pleasures, which render France illustrious, the sustenance of their lives and the necessities of their families and children. It is to them that you will give 60,000 francs.” (Very well; very well. Great applause.) For my part I am constrained to say, “Very bad! very bad!” confining this opinion, of course, within the bounds of the economical question which we are discussing. Yes, it is to the workmen of the theatres that a part, at least, of these 60,000 francs will go; a few bribes, perhaps, may be abstracted on the way. Perhaps, if we were to look a little more closely into the matter, we might find that the cake had gone another way, and that those workmen were fortunate who had come in for a few crumbs. But I will allow, for the sake of argument, that the entire sum does go to the painters, decorators, etc. This is that which is seen. But whence does it come?

This is the other side of the question, and quite as important as the former. Where do these 60,000 francs spring from? and where would they go, if a vote of the legislature did not direct them first toward the Rue Rivoli and thence toward the Rue Grenelle? This is what is not seen. Certainly, nobody will think of maintaining that the legislative vote has caused this sum to be hatched in a ballot urn; that it is a pure addition made to the national wealth; that but for this miraculous vote these 60,000 francs would have been forever invisible and impalpable.

It must be admitted that all that the majority can do is to decide that they shall be taken from one place to be sent to another; and if they take one direction, it is only because they have been diverted from another. This being the case, it is clear that the taxpayer, who has contributed one franc, will no longer have this franc at his own disposal. It is clear that he will be deprived of some gratification to the amount of one franc; and that the workman, whoever he may be, who would have received it from him, will be deprived of a benefit to that amount. Let us not, therefore, be led by a childish illusion into believing that the vote of the 60,000 francs may add anything whatever to the well-being of the country, and to national labor. It displaces enjoyments, it transposes wages—that is all. Will it be said that for one kind of gratification, and one kind of labor, it substitutes more urgent, more moral, more reasonable gratifications and labor?

I might dispute this; I might say, by taking 60,000 francs from the taxpayers, you diminish the wages of laborers, drainers, carpenters, blacksmiths, and increase in proportion those of the singers. There is nothing to prove that this latter class calls for more sympathy than the former. Mr. Lamartine does not say that it is so. He himself says that the labor of the theatres is as fertile, as productive as any other (not more so); and this may be doubted; for the best proof that the latter is not so fertile as the former lies in this, that the other is to be called upon to assist it.

This comparison between the value and the intrinsic merit of different kinds of labor forms no part of my present subject. All I have to do here is to show, that if Mr. Lamartine and those persons who commend his line of argument have seen on one side the salaries gained by the providers of the comedians, they ought on the other to have seen the salaries lost by the providers of the taxpayers: for want of this, they have exposed themselves to ridicule by mistaking a displacement for a gain. If they were true to their doctrine, there would be no limits to their demands for government aid; for that which is true of one franc and of 60,000 is true, under parallel circumstances, of a hundred million francs. When taxes are the subject of discussion, you ought to prove their utility by reasons from the root of the matter, but not by this unfortunate assertion: “The public expenses support the working classes.” This assertion disguises the important fact, that public expenses always supersede private expenses, and that therefore we bring a livelihood to one workman instead of another, but add nothing to the share of the working class as a whole. Your arguments are fashionable enough, but they are too absurd to be justified by anything like reason.