Ep. 23 Peter Klein Discusses Christina Romer, Bill Clinton, Israel Kirzner, and Entrepreneurship
Austrian economist Peter Klein talks with Bob about his unusual (for a Rothbardian) career path, including his time working for the Council of Economic Advisors to Bill Clinton. They discuss Klein’s work on entrepreneurship, and how his views differ from those of Israel Kirzner.
Mentioned in the Episode and Other Links of Interest:
- Peter Klein’s official page.
- The infamous Romer-Bernstein unemployment forecast for the Obama stimulus package.
- Christina Romer’s paper (with co-author David Romer) showing large economic effects from tax changes.
- A “Liberty Matters” debate among Austrian economists (including Klein) on the work of Israel Kirzner.
- Apply for Mises University.
The audio production for this episode was provided by Podsworth Media.
About the author, Robert
Christian and economist, Chief Economist at infineo, and Senior Fellow with the Mises Institute.
Great, thought-provoking episode!
At at least two points you talked about conceptual dichotomies between not just the Austrians and the mainstream, but within the Austrian school itself. However, they sound like they could be synthesized. Those are the arbitrage versus uncertainty view of entrepreneurship and the role of the capitalist versus the manager and their respective claim to being “entrepreneurial.”
In the first debate, it’s hardly an “either or.” Peter’s rock example did successfully introduce uncertainty and the possibility of loss into the analogy, that Kirzner’s missed. But there still needs to be a green piece of paper peaking under a rock that you either stumble upon, or skillfully anticipate. I think there is a real sense in which “the circumstances need to be right,” a real sense in which one needs to be lucky (and the skillful anticipation of the future versus luck might be the third dichotomy of interest, but that’s harder to bring together), as well as a real sense of being better at seeing the future as others and acting upon it decisively. Being good at forecasting the future under uncertainty as the only critereon is troublesome. If one, when theoretically presented with various business plans, always picked the best one (out of some deep understanding of the markets), but never actually created or sought out these plans, that person wouldn’t be a great entrepreneur. Or it seems to be to all-encompassing, if the “acting wisely under uncertainty” criterion includes the aformentioned. But the same thing works the other way around for Kirzner. The better “anticipater” is the one who actually sees those projects, that turn out to be great. So the uncertainty argument is baked into it. The guy who sees the $20 bill on hte street but runs in front of a car wasn’t actually good at anticipating opportunities.
The entrepreneur as a manager vs capitalist dichotomy seems to be on a spectrum, to me. Peter emphasizes the importance of “skin in the game,” and rightly so. But in reality, managers do have skin the game. They do gain from making a profit, even if they don’t own stocks. From profit-based bonuses, to promotions, to being able to leverage their reputation into their own future business. And they gain to lose, too. From not being promoted, to being fired. To create an extreme case, let’s say the owner of a dying firm is approached by a young, brave manager. The manager offers a deal: He keeps all the profits (and pays for losses), but in turn he pays the de jure owner a fixed rent. Clearly, the manager is more entrepreneurial here than the owner, who acts like an investor in a “risk free” savings account. Along the spectrum of distribution of possible gains from successful business, everyone is “entrepreneurial” to some degree. Even the assembly worker who predicts investing his time and labor into this firm and line of business is the best deal for him, in the long run. A better way to decide the “entrepreneurial-ness” of someone in this context might just be the degree to which they minimize or maximize risk for potential gain. In that sense, though, the lottery player is the ultimate entrepreneur (albeit a bad one).