In a new article on Public Discourse, Samuel Gregg explores social contract theory and how that may apply to the current budget battles:

In very broad terms, social contract theory is a way of understanding the relationship between governments and the people. It holds that, having agreed upon the need for a government, individuals create a state on the basis of mutual promises. This permits the state to claim that its authority is based on a delegation of people’s rights to pursue their particular interests in their own way.

Read more on Gregg: Social Contracts, Human Flourishing, and the Economy…

In a new essay for Public Discourse, Acton Research Director Samuel Gregg explains why we shouldn’t only focus on public sector unions as examples of organizations that seek government power and taxpayer dollars to advance their ends. “A considerable portion of the business community is equally culpable,” Gregg writes. Excerpt:

Read more on Samuel Gregg: Business vs. the Market…

At Public Discourse, Acton’s Research Director Samuel Gregg examines why many European governments are so hesitant to engage in much needed but painful economic reforms – especially reforms that involve diminishing the size of expansive welfare states. The causes are many, but in “Fatal Attraction: Democracy and the Welfare State,” Gregg zeroes in on a potentially damaging linkage between democratic systems of government and the growth of large welfare states that seek to provide economic security to ever increasing numbers of people. Substantive economic reform becomes extremely difficulty in these circumstances. Gregg writes:

Read more on Fatal Attraction: Democracy and the Welfare State…

The Public Discourse recently published my article, Rethinking Economics in the Post-Crisis World. Text follows:

In the wake of the financial crisis, we need an economics with greater humility about its predictive power and an increased understanding of the complicated human beings who, when the discipline is rightly understood, lie at its center.

Apart from bankers and politicians, few groups have received as much blame for the 2008 financial crisis as economists. “Economists are the forgotten guilty men” was how Anatole Kaletsky, former economics editor and current editor-at-large for the London Times, put it earlier this year when explaining why “a bank with just $1 billion of capital [would] borrow an extra $99 billion and then buy $100 billion of speculative investments.”

Greed and sheer imprudence played a role, but so too, Kaletsky argued, did those (unnamed) economists who posited that their models proved that events such as the collapse of Lehmann Brothers in 2008 or Long Term Capital Management in 1998 were mathematically likely to happen once every billion years.

Kaletsky’s broader point was that contemporary mainstream economics had been sufficiently discredited by the financial crisis that the entire discipline required what he called an “intellectual revolution,” or it risked being dismissed as a rather suspect sub-branch of statistical analysis and mathematical modeling.

Kaletsky is hardly alone in arguing that economists need to rethink key aspects of their discipline. Though unwilling to call for a total paradigm shift, the Economist recently opined that the financial crisis has raised profound questions of coherence about two areas of economics: macro-economics and financial economics. “Few financial economists,” the Economist observed, “thought much about illiquidity or counterparty risk, for instance, because their standard models ignore it.” Likewise, the Economist commented, “Macroeconomists also had a blindspot: their standard models assumed that capital markets work perfectly.”

All this is certainly true. But the key expression to note here is “their standard models.” Read more on Public Discourse: Rethinking Economics in the Post-Crisis World…