05 Nov 2012

I Think Bryan Caplan Should Tweak His Quality Control Setting

Bryan Caplan, Federal Reserve, Rothbard, Scott Sumner 29 Comments

Yesterday at EconLog Bryan Caplan had a post entitled “Optimal Open-Mindedness” in which he wrote:

Lately a few people have accused me of being “closed-minded.”  As they’d predict, I reject the accusation.  I say my degree of openness is close to optimal. Consistent with Bayesian reasoning, I am as reluctant to claim vindication by events as I am to admit refutation by events.  (If you disagree, I am always willing to entertain a bet).

The root problem, as far as I can tell, is that most people underestimate the extent to which a wide variety of theories are consistent with a wide range of events.  In this sense, they’re too closed-minded.

During the 2008 financial crisis, for example, most economists started proclaiming that events had overturned most of what economists thought.  I, in contrast, (a) never ruled out events like those of 2008, and (b) didn’t see how heterodox views made the events of 2008 any more likely than more orthodox views.

Well, here’s what Bryan wrote before the crisis struck:

Two weeks ago, I relayed [my challenge to Jeff Hummel]: “Agree or disagree: In developed countries during the last 10-15 years, central banks have become (close to) the most efficient state enterprise.”

Now you can hear Jeff’s response (as well as the full lecture): Although he favors the abolition of central banking, his answer to my question is basically Yes. And I agree on both counts. Another rough patch may be coming, but it would be hard to improve over the 2-3% inflation combined with stable output and employment that central banks delivered in the 90s and 00s.

But why have central banks…out-performed other state-owned enterprises? My best guesses [he goes on to list his explanations for the relative success of central banking–RPM]…

I think it’s significant that Bryan wrote the above in August 2008. I’m wondering just what the heck would have had to happen, for Bryan to change his priors. Note that my critique applies whether you are a Rothbardian or Scott Sumner. If your worldview is so closed-minded that you can reconcile your opinion that “central banks do a great job” with the events of 2008, then I’m thinking it is too closed-minded.

29 Responses to “I Think Bryan Caplan Should Tweak His Quality Control Setting”

  1. Menschenfreund says:

    He already revisited his position some time ago:

    • Bob Murphy says:

      Are you guys using the same dictionary I am? From now on I am going to post contradictory predictions every day. Then no matter what happens, I can point to a post validating what I said.

      Caplan in his post from two days ago clearly is saying that his pre-2008 worldview is consistent with what happened, that he didn’t see anything to make him adjust his economic model.

      • Chris H says:

        But the point is he always thought the fed was second best to a truly free market policy as his 2008 post shows. And I don’t think menschenfreund is interpretting the 2010 post correctly. It’s not that Caplan has changed his underlying theory in that post , only his optimism regarding that the fed will /follow/ that theory. His prescriptions on how the Fed should act are the same.

        If you notice, what he lists as still believing in in his 2012 post are the policy prescriptions for the Fed. He does not say his optimism of the Fed as an institution is as high as it was. One can believe that the course of action one prescribes is correct while at the same time having the optimism that that course will be followed plummets.

        I suppose my motivation for defending Caplan though might be based on the fact that I have a hard time buying that he’s a closed minded guy. Anyone who thinks Rothbard got the description of the the state just about perfectly and wasn’t born into an anarchist family needs to have quite a bit of open-mindedness. http://econlog.econlib.org//archives/2009/02/econlog_book_cl_4.html

        • Bob Murphy says:

          Chris, Caplan said “there might be a rough patch coming” in August 2008, before he went on to praise the actual performance of central banks–not what he thinks would have happened in alternate universe where they followed his policy advice. Then he went on to give theories for why the actual performance of central banks was so much better than that of other government agencies. Now, after the absolute disaster central banks have caused, he is acting like he was always open to such a possibility, and that he isn’t at all embarrassed by what happened. That’s crazy.

  2. Chris H says:

    Well he does offer you the ability to test his willingness to remain irrational to the extent that he is doing so. If Dr. Caplan’s beliefs are based upon irrational adherence to bad theories then if you make bets based upon different predictions from good theories and Dr. Caplan’s theories you should come out on top. Even if every single prediction doesn’t break your way, the majority of them should. This should be hard to resist given how awesome that Better’s Oath of his is!

    Though to be fair to Dr. Caplan, he wasn’t actually arguing that central banks are good (he did agree that they should be abolished after all). Instead he’s arguing that they are better than just about anything else government tries to do. That is some very faint praise there.

    • Adrian Gabriel says:

      Chris good point. Caplan is pulling the old GMU “I’m Austrian but think inflation is good if we use Milton Friedman’s Monetarism to create it,” method. Little do they understand that they are Keynesians. Friedman made similar remarks once and ended up with manipulated Keynesian models is all, that’s what his Monetarism is all about. I made a tribute to these types of contradictory people. Selgin, White and Horwitz fall in the same category, the intelligentsia is made up of a lot of sad statists:


      • Matt Tanous says:

        Actually, Caplan says he isn’t an Austrian. Something about how businessmen are magically able to separate the government manipulation from the market rate, and thus not be fooled. He’s not able to do this, but obviously businessmen can, right?

      • Shimmy says:

        Caplan doesn’t claim Austrianism at all. He actually has a piece called, “Why I’m not an Austrian economist.”

        His explanation for why ABCT is wrong is some kind of rational expectations variant, which blows my mind. Based on what I’ve seen of his work, he’ll talk about signaling in various contexts and yet disregard it when expounding on bubbles, which is central to ABCT. Whatever the case, I think calling him a statist is bizarre since he’s a free market anarchist last I checked. He’s wrong sometimes, but no one is perfect and besides, he’s a fellow traveller.

        Also, I wouldn’t put Caplan in the same camp as Selgin and White in regards to money. So far as I know, they have always been hyper critical of Fed moves compared to Caplan. Just because they don’t mainline the Misesian full reserve/no fiat commandment doesn’t make them Keynesians.

  3. Blackadder says:

    In September of 2008, Caplan wrote the following:

    If the bail-out happens, and unemployment stays below 8% for the next two years, I’m going to become less confident that the bail-out prevented disaster. After all, even a near-miss with disaster should look pretty ugly. Alternately, if the bail-out happens, and unemployment hits 8% or higher during the next two years, I’m going to become more confident that the bail-out prevented disaster. I still won’t be convinced, but I’ll be less skeptical than I am now.

    After unemployment did go above 8%, I reminded Caplan of this statement, and he wrote the following:

    I now admit to having underestimated the severity of the threat, and marginally reduce my skepticism about the effectiveness of the bail-out. I still think it’s a bad idea, but at least it’s no longer much ado about nothing.

    So Bryan has adjusted his priors in response to the financial crisis (or at least claims to have done so), though perhaps not in a way that Bob would or should find satisfying.

    • Major_Freedom says:

      After unemployment did go above 8%, I reminded Caplan of this statement, and he wrote the following:

      I now admit to having underestimated the severity of the threat,

      Ah yes, the Keynesian method. Never blame the policy in the sense of it doing positive damage, always say that the bad ex post experience is a result of insufficient policy and that “we underestimated just how bad things were.”

      That isn’t updating one’s prior. That is maintaining central banking is positively beneficial (if done in accordance with rules Caplan approves of, of course).

    • Matt Tanous says:

      Wait, what? If the bailout happens and things are as good as the predictions of those making the argument for the bailout, this is bad, but if it happens and shit is still bad, then the bailout worked? Yet another reason to find Caplan utterly irritating and inane.

      “If the firefighters pour gasoline on the fire, and it goes out, I’m going to be less confident that gasoline puts out fires. After all, even putting out a fire should involve some damage. Alternately, if they put gasoline on the fire, and the fire gets worse afterwards, I’m going to be more convinced that gasoline puts out fires. I still won’t be convinced, but I’ll be less skeptical than I am now.”

      Even from a purely empirical view, Caplan’s statement is completely backwards.

      • skylien says:

        Oh and I thought my reading comprehension was in the toilet since I couldn’t believe what I actually read…

        • Jason B says:

          Yeah, same here Sky. I kept reading it over and over, and I was able to get my head around it, but I couldn’t understand why he wrote it. So then I started trying to invent scenarios that would fit what he wrote, but I couldn’t come up with any that fit both of his statements. If I came up with a scenario to fit the first statement, then it wouldn’t fit the second, and vice versa. Does anyone have a link that explains his train of thought here?

          Matt, you can’t use the “gasoline on fire” example because that’s not the method Caplan used to formulate his statements. I don’t know what method he used. I tried to figure it out for a few minutes, but I couldn’t get anything to square both statements. If you can figure out an example to square both statements then you’ll at least be able to come up with something to fit.

          • Matt Tanous says:

            “Matt, you can’t use the “gasoline on fire” example because that’s not the method Caplan used to formulate his statements.”

            The example was to indicate the absurdity. If one is against the bailouts because they would make things worse, then the analogy fits just fine. If I believe gasoline makes fires worse, not better, then if I see things get better after dumping some on the fire, then this should weaken my stance. And if things do in fact get worse, then my stance makes sense and I should keep it. Caplan’s statement was actually the opposite – that if things happen as he predicts, then he would start thinking he was wrong.

          • Matt Tanous says:

            Basically, he was saying that if the bailout “worked”, then there was no disaster, and if it didn’t work, then it totally saved us.

            Murphy already went over this: http://consultingbyrpm.com/blog/2010/05/no-one-takes-caplan-seriously-on-bayes-law-not-even-bryan.html

  4. Blackadder says:

    Actually, a little more digging bring up this Caplan post from 2010:

    At yesterday’s lunch, Tyler asked us to name the most important lesson we learned from the crisis of 2008. My answer: The Fed is much worse than I thought. I used to think we could trust an economist of Bernanke’s caliber to deliver tolerably good macro performance using inflation targeting – and avoid giving barbarous politicians the excuse to push bailouts and “fiscal stimulus.” Instead he threw his own principles to the wind, joined the sky-is-falling chorus, and helped end the Great Moderation.

    In all fairness, you might object, “Didn’t you always hate the Fed?” But in all honesty, my answer is No. Yes, the Austrians – especially Rothbard – taught me to loathe the Fed in my late teens, and blame it for all macroeconomic evils. By grad school, however, I came to see the flaws in the Austrian theory of the business cycle. And while grad school taught me about mainstream and public choice critiques of central banking, it also persuaded me to consider the possibility that the Fed turned over a new leaf after the 1970s.

    So it’s not like Bryan thinks the Fed did a great job during the crisis or that he didn’t change his views as a result.

    • Bob Murphy says:

      So it’s not like Bryan thinks the Fed did a great job during the crisis or that he didn’t change his views as a result.

      Then his post two days ago was extremely misleading, wasn’t it? He certainly made it sound like his views before 2008 have not been falsified by subsequent events. But, my theory “Caplan wrote a dumb post” is so broad that no evidence you show me will make me alter it.

      • Anonymous says:


        The post two days ago is puzzling. Best I can figure, he doesn’t think his current views on the Fed aren’t based on heterodox theories (this is the point of the Sumner post he links to in the post).

      • Blackadder says:


        The post from two days ago was puzzling. I assume Bryan would say that his current position is economically orthodox (that at least is the point of the Sumner post he links to). But I suspect that he has forgotten just how much he has moved on this issue.

  5. Major_Freedom says:

    I always say that I am not so open minded so as to allow my brain to fall out.

    • Bharat says:


    • Matt Tanous says:

      Being “open-minded” is a stupid ideal anyway. What one should do is be rational in examining their worldview. The distinction becomes clear once someone tells you that you are not open-minded because their inane theory about how taxes are voluntary (or some similar nonsense) is something you utterly reject as the absurdity it is.

      • Christopher says:

        The distinction becomes clear once someone tells you that you are not open-minded because…

        So far I was on board. I though you were gonna say something like “… because you don’t believe that the matrix exists.” or “… because you aren’t open-minded towards racists views.”.

        But then, well…

        • Matt Tanous says:

          Taxes are, by definition, not voluntary. The dictionary has it right when it calls it “a compulsory contribution to state revenue”.

          Now, you might say this is justified or whatever. I’m not making that argument here. I’m saying the point that taxes are voluntary – like club dues or something – is utterly and completely absurd.

          But more importantly, the charge of being closed-minded is often levied as a last recourse in discussion and debate. If the other person remains unconvinced of your view – or rightly points out they have rejected the argument you are making in the past, for stated reasons – you just call them closed-minded and arrogant. Some people have actually skipped the whole discussion part with me – I start with “after much consideration, my views on the matter are X, for reasons A, B, and C” and the reply is “you are just closed-minded”.

          • Christopher says:


            I am not saying taxes aren’t compulsory. What I am saying is that “utterly rejecting a different view on grounds of absurdity” doesn’t seem like a convincing example of rationality trumping open-mindedness.

            Your debate partners seem to have a strange definition of open-minded which seems to require agreement with them. Maybe that’s the point you should be hitting at. The fact that you rejected their argument for “stated reasons” implies that had considered it first. That actually makes you open-minded.

            • Matt Tanous says:

              “What I am saying is that “utterly rejecting a different view on grounds of absurdity” doesn’t seem like a convincing example of rationality trumping open-mindedness. ”

              It is absurd because it is in contradiction to logic – a claim that A is not-A. The problem you see might have to do with the fact that, like the term “awesome”, people don’t use the term “absurd” correctly.

              But in correct context, it is in fact rational to reject things on the basis of absurdity. If someone told me roads were made of chocolate, the same reason would lead me to reject that.

              “Your debate partners seem to have a strange definition of open-minded which seems to require agreement with them. Maybe that’s the point you should be hitting at.”

              That tends to be the basis behind the claim, whoever makes it. If you are telling someone to “be open-minded” , then it is very likely that you are upset that they are rejecting your argument for reasons you disagree with.

      • Major_Freedom says:

        I think “be open minded!” is a left over expression derived from the radical empiricist philosophy of Locke, Berkeley and Hume.

        To them, the mind is a tabula rasa, passive, empty, and the only valid knowledge is knowledge derived from sense experience. Thus, one’s mind must be “open” to sense data at all times.

        Contrast that with the radical rationalist philosophy of Leibniz, Kant, and Mises, and here the mind is not a tabula rasa, but has a priori knowledge, it is not passive but active, it is not empty but contains structural knowledge of reality by the act of thinking, and there exists valid knowledge derived from self-reflection. Thus, one’s mind ought not be always open, but be aware of the logical constraints (knowledge) of its own self, its own structure, that way, we can gather how reality MUST be structures, provided of course the “gap” between mind and reality is bridged (i.e. praxeology).

        99% of the time Mr. Smith wants others to be open minded only because he want to fill their open minds with his own non-passive, active convictions, so as to better control them, even if unintentionally and subconsciously.

  6. Peter says:

    Central banks do exactly what they’re intended to do and they do it very well. Sadly.

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