Archive for May, 2009
You Go, Gordon Gekko!
| Peter Klein |
Several folks in my part of the blogosphere have noted John Hasnas’s terrific op-ed in yesterday’s WSJ, “The ‘Unseen’ Deserve Empathy, Too.” Hasnas invokes the great Bastiat to counter President Obama’s call for judges who have compassion, empathy, and understanding of “people’s hopes and struggles.” As Hasnas points out, judges should consider the effects of legal rulings not only on the parties before the bar, but also on the “unseen” whose lives will be affected:
One can have compassion for workers who lose their jobs when a plant closes. They can be seen. One cannot have compassion for unknown persons in other industries who do not receive job offers when a compassionate government subsidizes an unprofitable plant. The potential employees not hired are unseen. . . .
The law consists of abstract rules because we know that, as human beings, judges are unable to foresee all of the long-term consequences of their decisions and may be unduly influenced by the immediate, visible effects of these decisions. The rules of law are designed in part to strike the proper balance between the interests of those who are seen and those who are not seen. The purpose of the rules is to enable judges to resist the emotionally engaging temptation to relieve the plight of those they can see and empathize with, even when doing so would be unfair to those they cannot see.
This was on my mind when, channel surfing last night, I came across Oliver Stone’s 1987 classic “Wall Street,” which I haven’t seen in its entirety in years. To my surprise (perhaps not yours), I found myself rooting for Michael Douglas’s Gordon Gekko, the corporate raider who serves as the movie’s arch-villain. The main sub-plot revolves around Gekko’s attempted buyout of Blue Star Airlines. Bud thinks the buyout can save the struggling airline, where his father still works, and helps convince the pilots’ and flight attendants’ unions to Gekko’s move. Later, Bud discovers Gekko is really planning to break up the company and sell off the pieces and Bud feels betrayed, leading to a climactic confrontation. (The film feels remarkably fresh, despite the glowing green CRT screens and brick-sized cellular phones, and Douglas’s performance is dazzling.) (more…)
How Many Strategists Does It Take to Change a Light Bulb?
| Peter Klein |
More profound musings from Joe Mahoney and Christos Pitelis, with additional contributions from Anita McGahan, Yasemin Kor, and myself (no attribution is given for individual entries, for our own protection). Please add your suggestions in the comments.
How many strategists does it take to change a light bulb?
“Only one, that will be $125, please.” — strategy consultant
“One, and the one who changes it achieves sustained competitive advantage.” — mainstream strategy scholar
“Approximately 1.0000000000000000000.” — one of the small cadre of mathematicians in the strategy field
“The first person who discovers the burned-out light bulb has an opportunity for entrepreneurial gain.” — Kirznerian strategic entrepreneurship scholar
“The old bulb will be swept away by the perennial gale of creative
destruction.” — Schumpeterian strategic entrepreneurship scholar“Light bulbs are social constructs.” — trendy contemporary management scholar
“I can’t answer without first knowing the relevant players, strategy spaces, and preference maps.” — game theorist (more…)
Sociology that We Like
| Nicolai Foss |
Contrary to the conviction perhaps held by the boys over at orgtheory.net, O&M bloggers are not at all hostile to sociology. In fact, we are highly sympathetic to what is sometimes called “analytical sociological theory,” that is, James Coleman, Raymond Boudon, Jon Elster, Peter Abell, Diego Gambetta, Siegwart Lindenberg, Karl-Dieter Opp, and so on. Here is a nice summary of AST, which — we are told — embraces realism and objectivity, is anti-relativist, appreciates formalization and the use of models, is reductionist, eschews bullshit, etc. (Also check out the nice and entirely well taken acerbic treatment of Foucault on p. 7). Now we only need to know: How exactly does AST differ from microeconomics?
Entrepreneurship Exemplars Conference
| Dick Langlois |
The Center for Entrepreneurship and Innovation at the UConn business school is sponsoring an “exemplars” conference in conjunction with the Entrepreneurship Division of the Academy of Management. The idea of the conference is to help young scholars by providing “exemplars” of good scholarship. Editors from the top management and entrepreneurship journals are here (including frequent O&M participant Joe Mahoney) to comment on these exemplar papers and provide advice.
The conference started last night with a keynote by Venkat Venkataraman and continues through Saturday. You can actually participate in the conference online: register here. I am about to wander over (physically, not electronically) to hear Jay Barney’s keynote at 10:50 EDT.
The Book (Value) of Revelations
| Dick Langlois |
Here’s the abstract of the day:
Irrational Exuberance in the U.S. Housing Market: Were Evangelicals Left Behind?
Christopher W. Crowe
Summary: The recent housing bust has reignited interest in psychological theories of speculative excess (Shiller, 2007). I investigate this issue by identifying a segment of the U.S. population — evangelical protestants — that may be less prone to speculative motives, and uncover a significant negative relationship between their population share and house price volatility. Evangelicals’ focus on Biblical prophecy could account for this difference, since it may enable them to interpret otherwise negative events as containing positive news, dampening the response of house prices to shocks. I provide evidence for this channel using a popular internet measure of “prophetic activity” and a 9/11 event study. I also analyze survey data covering religious beliefs and asset holding, and find that ‘end times’ beliefs are associated with a one-third decline in net worth, consistent with these beliefs providing a form of psychic insurance (Scheve and Stasavage, 2006a and 2006b) that reduces asset demand.
Interestingly, the author is with the International Monetary Fund. When I googled to find where I had seen this abstract, the search returned several links pointing out that many Evangelicals consider the IMF (and the World Bank) to be the work of the Devil. (Not a few economists feel this way as well, of course, but wouldn’t put it in quite the same terms.) If you believe the end times are imminent, why would you bother to hold assets at all?
The Industrious Revolution
| Peter Klein |
Hans-Joachim Voth calls Jan de Vries’s new book on household behavior during the early modern period “staggeringly erudite, insightful, stimulating, and on all the main points, convincing.” The book, The Industrious Revolution: Consumer Behavior and the Household Economy, 1650 to the Present (Cambridge, 2008) builds on de Vries’s earlier concept of an Industrious Revolution, the two centuries before the Industrial Revolution in which consumers increased their production of marketable goods, largely at the expense of leisure time. “The industrious revolution was a household-level change with important demand-side features that preceded the Industrial Revolution, a supply-side phenomenon” (De Vries, 1994). Adds Voth:
The sheer amount of hard work that went into every aspect of these chapters is hard to convey. Surveying the rise of consumer items through the prism of probate inventories shows the author confidently mastering the abundant historical literature in four or five languages. De Vries’ reconstruction of Europeans’ increasing consumption of “colonial luxuries” — sugar, tea, and coffee — alone is going to be useful for all scholars working in the area.
This book may be of interest not only to economic and business historians, but also to management scholars in marketing and consumer behavior.
Way to Go Curtis
| Peter Klein |
A teacher’s greatest accomplishment is seeing his students go where he himself has never gone. So it was with great delight that I saw that one of my former undergraduate students, Curtis Melvin, got his picture on the front page of last Friday’s Wall Street Journal. Larry White and Radley Balko have already written on the substance of the story, which profiles Curtis’s activities as a North Korea sleuth. Way to go, Curtis!
PAL Team on Microfinance
| Peter Klein |
As a microfinance skeptic I was particularly interested in the new paper from the J-PAL team of Banerjee, Duflo, Glennerster, and Kinnan, “The Miracle of Microfinance? Evidence from a Randomized Evaluation.” Despite the pedestrian abstract, the findings are pretty significant:
To date there have been no randomized trials examining the impact of microcredit. Using such a design, 52 of 104 slums in Hyderabad, India were randomly selected for opening of an MFI branch while the remainder were not. We show that the intervention increased total MFI borrowing, and study the effects on new business starts, investment, and consumption. Households with an existing business at the time of the program invest in durable goods, and their profi ts increase. Households with high propensity to become business owners see a decrease in nondurable consumption, consistent with the need to pay a fixed cost to enter entrepreneurship. Households with low propensity to become business owners see nondurable spending increase. We find no impact on measures of health, education, or women’s decision-making.
Ryan Hahn puts it this way: The verdict is in on microfinance. . . . And it’s not pretty.” He means that microfinance does appear to have a positive marginal effect on business formation and expansion, but the effect is modest and does not (at least within a 15-18-month timeframe) have any discernible effect on well-being.
Research Workshop on Institutions and Organizations
| Peter Klein |
The IV Research Workshop on Institutions and Organizations takes place at Insper (formerly Ibmec) São Paulo 5-6 October 2009. Lee Alston and David Stark are keynoting. There are panels on “Judicial Norms and Development,” “New Theories of the Firm,” and “Social Capital and Organization.” There’s an open call for papers, with abstracts due 20 July.
I attended the 2007 version and enjoyed it very much.
More “New Economy” Hyperbole
| Peter Klein |
Wired’s Chris Anderson drinks the New Economy Kool-Aid. It’s the same old argument — information technology reduces transaction costs, leading to a radical disaggregation of industry and society — still supported by little more than a few colorful anecdotes, not any kind of systematic analysis. The new twist is the financial crisis, described by Anderson as “not just the trough of a cycle but the end of an era.”
What we have discovered over the past nine months are growing diseconomies of scale. Bigger firms are harder to run on cash flow alone, so they need more debt (oops!). Bigger companies have to place bigger bets but have less and less control over distribution and competition in an increasingly diverse marketplace. . . . The result is that the next new economy, the one rising from the ashes of this latest meltdown, will favor the small.
Nonsense. The major banks, the Chrysler corporation, and whoever is next to fail have not become nimbler and smaller, but larger; they have become part of the Federal government. Fannie and Freddie have swollen and taken on additional responsibilities. The financial crisis, as argued repeatedly on these pages, was spawned by a credit bubble brought about by loose monetary policy and massive government subsidization of the home mortgage market. It has nothing to do with firms being too large or somehow failing to take advantage of the Next Big Thing in social networking or cloud computing. I mean, seriously, is there anything here that couldn’t have been written ten years ago?
To all the usual reasons why small companies have an advantage, from nimbleness to risk-taking, add these new ones: The rise of cloud computing means that young firms no longer have to buy their own IT equipment, which helps them avoid having to raise money or take on debt. Likewise, the webification of the supply chain in many industries, from electronics to apparel, means that even the tiniest companies can now order globally, just like the giants. In the same way a musician with just a laptop and some gumption can accomplish most of what a record label does, an ambitious engineer can invent and produce a gadget with little more than that same laptop.
Bah. Humbug.
Economists or Catherine Zeta-Jones?
| Peter Klein |
Who would you rather spend time with? I mean, come on, really?
Ferguson on Financial History and the Crash
| Dick Langlois |
I too loved the Ferguson piece in the New York Times. More sound bites: “In the months ahead,” he predicts, “the world will reverberate to the sound of stable doors being shut long after the horses have bolted, and history suggests that many of the new measures will do more harm than good. The classic example is the legislation passed during the British South-Sea Bubble to restrict the formation of joint-stock companies. The so-called Bubble Act of 1720 remained a needless handicap on the British economy for more than a century.”
Deregulation and the Financial Crisis
| Peter Klein |
Niall Ferguson joins Charles Calomiris, Jerry O’Driscoll, Arnold Kling, and many others in questioning the supposed link between “deregulation” and the financial crisis. As Ferguson emphasizes, the timing is all wrong; there is no time-series correlation between specific patterns of regulation and deregulation and particular financial or economic outcomes. The relaxation of Glass-Steagall restrictions on universal banking is an oft-cited example, but, as these writers point out, no one has offered any specific mechanism by which universal banking contributed to the problem (indeed, the opposite is likely to be true). The “laissez-faire caused the crisis” meme may be pithy, but is there any systematic theoretical or empirical evidence for it?
Ferguson has the best line (suggested by Luke): “It is indeed impressive how rapidly the economists who failed to predict this crisis . . . have been able to produce such a satisfying story about its origins.”
Elfenbein and Zenger on Social Capital
| Peter Klein |
Congratulations to Dan Elfenbein and Todd Zenger for winning the ACAC Best Paper Award for “The Economics of Social Capital in De-Socialized Exchange.” Their paper addresses one of my pet peeves, the expansive use of “capital” to describe any ill-defined substance that accumulates and has value. Hence knowledge, experience, and skills become “human capital” or “knowledge capital”; relationships become “social capital”; brand names become “reputation capital”; and so on. I fear this terminology obfuscates more than it clarifies.
I don’t mind using these terms in a loose, colloquial sense: By going to school I’m investing in human capital or diversifying my stock of human capital; if this gets me a high-paying job I’m earning a good return on my human capital; as I get old I forget new things, so my human capital is depreciating rapidly; and so on.
But we shouldn’t take these metaphors too literally. In economic theory capital refers either to financial capital or to a stock of heterogeneous alienable assets, goods that can be exchanged in markets and analyzed using price theory. Their rental prices are determined by marginal revenue products and their purchase prices are given by the present discounted value of these future rents. Knowledge is not, strictly speaking, capital, because it is not traded in markets does not have a rental or purchase price. What markets trade and price is labor services, and it is impossible to decompose the payments to labor (wages) into separate “effort” and “rental return on human capital” components. Some labor services command a higher market price than others because they have a higher marginal revenue product. Some of this wage premium may be due to intelligence or experience, some due to complementarities with other human or nonhuman assets, some due to hard work, and so on. But these are all determinants of the MRP, and hence the wage, not different kinds of factor returns. (more…)
A Second Act for the CAFE Standards
| Peter Klein |
From former guest blogger David Gerard:
As you have no doubt learned, President Obama and Governor Schwarzenegger have teamed up for a healthy bump in the federal Corporate Average Fuel Economy (CAFE) standards, forcing automakers to boost their fleet averages to 35 miles per gallon by 2016. The announcement will dismay many economists, who for many, many reasons have advocated steeper gasoline taxes instead. Lester Lave and I argued that that there were some solid reasons to support some form of CAFE standards in conjunction with higher gasoline taxes. On pragmatic grounds, the CAFE standards have enjoyed public support and gas taxes decidedly have not, so CAFE has carried the day.
The original CAFE measures did not do much in terms of pushing the envelope of vehicle technology, as a change in consumer tastes toward more fuel efficient vehicles in the late 1970s. As a result, the standards were met by altering the mix of vehicles sold, not by any radical improvements in technology. It wasn’t until the early 1980s when oil prices tanked that the CAFE became a serious binding constraint. In contrast, the CAFE standards announced Monday are very aggressive. However, setting the standard is only the first part of the story. The real action takes place during the second act. What happens as the deadline approaches if firms are unable to meet the stricter standards? (more…)
Tweeting Too Hard
| Peter Klein |
Do these people remind you of any of your favorite bloggers — or academic seminar participants? (Via Cliff.)
Plowing Under Rural Sociology
| Peter Klein |
From Randy Westgren:
The aggie world, and to a lesser extent, the sociology world, is reacting to a decision by Washington State University to dissolve its Department of Community and Rural Sociology. There is a great deal of rancor developing about this type of budget-cutting strategy, as opposed to making everyone suffer equally. If one looks closely at the budget documents made public by WSU, the ag school is getting a smaller cut (5% teaching + 8% research) than many colleges, including the B-school (13%, 12 vacant positions). The budget plan can be found here. It looks like the Dean’s decision, rather than the CEO’s (The Dean is an agricultural economist).
I was stunned to see a comment to a piece written in Inside Higher Education on this battle from an engineering prof — well, not actually stunned, more like chagrined.
“As for the rural sociology department, while I can sympathize with their plight in Pullman I do not see the loss as intellectually serious. As a member of an engineering faculty at a major university for more than 25 years, I’ve known quite a few sociologists. Most of them publish little stories that are not much sounder empirically, and usually less interesting substantively, that a good fiction writer. With very few exceptions, sociologists I know and have known are mathophobes! The few who have some ability in math use it on their omnibus snapshots of human populations taken at widely spaced intervals and then try to figure out from those “data” what happened and why. Ridiculous! Continuous observation is probably not possible, but you need closely spaced observations that focus on the specific processes that are the point of your investigation! If you have continuous-time observations, you need calculus in order to analyze your data. If you have closely spaced discrete-time observations, you need something more than shotgun regressions to analyze your data. Most of what sociologists publish is a waste of time and money.”
Obviously, this scholar has not followed the closely reasoned defense of fuzzy, ill-defined concepts at orgtheory.net.
Teppo and Brayden, if you are watching, ask Dave Whetten about his take on the Chancellor of SUNY Albany who undertook a similar department-cutting strategy during the New York State budget difficulties of the late 1970s.
More on Adam Smith’s Metaphor
| Peter Klein |
If you enjoyed our earlier discussion of social science’s most famous metaphor — come on, guys, is “iron cage” even in the same ballpark? — see the current issue of EconJournalWatch, which features essays on the invisible hand by Gavin Kennedy and Dan Klein.
New Editorial Team at the EMR
| Nicolai Foss |
Not long ago after the start of O&M I blogged on the change of editor at the European Management Review, paraphrasing Keynes’s examination of Lloyd George’s pledge on unemployment policy. While EMR is not yet ISI listed and has not surpassed the Journal of Management Studies as the leading Euro management journal, Kogut has most certainly “done it” in terms of boosting the general reputation of the journal. This is another demonstration that an editor with a clear mission, a strong network, and well-defined objectives can rather quickly do wonders for a journal (think Arie Lewin with Organization Science or Joel Baum (et al.) with Strategic Organization).
Kogut has now stepped down as editor, and Professors Maurizio Zollo and Alfonso Gambardella, both of Bocconi University in Milan, carry the mantle. While Zollo is a fullblown management scholar, Gambardella is much more an economist. They share a basic evolutionary outlook. Needless to say, both a very well connected to the US research context in management and economics. The new team’s inaugural issue with a handful of invited paper is available here. Everything is downloadable for free.
ACAC Schedule
| Peter Klein |
The Atlanta Competitive Advantage Conference begins tomorrow. The updated schedule, along with other logistical information, is here. You can also download many of the papers. Emory, Georgia Tech, and Georgia State Universities have co-hosted this event the past five years and it’s become one of the main events for research in strategy, organizational economics, entrepreneurship, and related fields.
The Geography of Sin
| Lasse Lien |
I used to think geography was a dry and slightly boring subject, but then I found this. Peter, where is your house again?
Bad to Awful?
| Peter Klein |
Via John Hagel, here’s a Business Week preview of Jim Collins’s new book, How the Mighty Fall, and How Some Companies Never Give In, a profile of once-successful firms that go under. Will the new book avoid the core methodological fallacy that doomed Collins’s earlier work? Unfortunately, it doesn’t appear so:
At our research lab [sic], we’d already been discussing the possibility of a project on corporate decline, in part because some of the great companies we’d profiled in the books Good to Great and Built to Last had subsequently lost their positions of prominence. On one level this fact didn’t cause much angst; just because a company falls doesn’t invalidate what we can learn by studying that company when it was at its historical best.
True, but without some mechanism for distinguishing treatment and control, such an investigation can never be anything more than a collection of interesting vignettes. Collins and his team seem unable to grasp the fundamental scientific principle of cause and effect. Just because a particular behavior corresponds to a particular outcome (be it success or failure), there is no way to know if that behavior contributed to the outcome, without studying individuals or organizations that exhibited the same behavior but experienced a different outcome.
I eagerly await Phil Rosenzweig’s next book: The Horns-and-Pitchfork Effect.
Headline of the Day
| Peter Klein |
Sandy Ikeda gets the prize for his blog entry on the Obama Administration’s decision not to auction landing slots at NYC airports: “Coase, but No Cigar.”
I wasn’t nearly as clever when I wrote about this problem a while back. I’m still wondering about the question I posed then: Is the political resistance to using prices to allocate scarce resources best explained by public-choice concerns, or by ignorance of how the price mechanism works?
Debt, Relationship-Specific Investments, and Boundaries
| Lasse Lien |
Here is a link to a nice paper by Jayant R. Kalea and Husayn Shahrurb from JFE back in 2007. The key finding in the paper is that low leverage is used as a commitment device to induce customers and suppliers to make relationship-specific investments (RSI). In short; the higher the need for RSI, the lower the choice of leverage. This raises some intriguing questions about the financial crisis. On the one hand the crisis should generally reduce the willingness to make RSI, as leverage and bankruptcy risks are driven upwards. Presumably then, firms will want to take compensating measures, but what can those measures be? The classical Williamsonian response would be vertical integration. For a given sensitivity to RSI, the inventive to integrate vertically should be strongest for highly leveraged firms. But who would want to integrate with a highly leveraged firm in these times? Or vertically integrate with any firm for that matter? And if the crisis is a temporary phenomenon, vertical integration seems pretty drastic. Another obvious counter measure would be to reduce leverage. That is of course easier said than done during the crisis. A third alternative is increased use of hybrids and alliances of various kinds, but it is difficult to see how this can alleviate the fundamental problem of liquidation risk. So is bruxism the only option?
Sid Winter on the Crisis
| Peter Klein |
From a short piece at Knowledge@Wharton:
As computers have grown more powerful, academics have come to rely on mathematical models to figure how various economic forces will interact. But many of those models simply dispense with certain variables that stand in the way of clear conclusions, says Wharton management professor Sidney G. Winter. Commonly missing are hard-to-measure factors like human psychology and people’s expectations about the future, he notes.
Among the most damning examples of the blind spot this created, Winter says, was the failure by many economists and business people to acknowledge the common-sense fact that home prices could not continue rising faster than household incomes.
Says Winter: “The most remarkable fact is that serious people were willing to commit, both intellectually and financially, to the idea that housing prices would rise indefinitely, a really bizarre idea.”
Presumably Sid is referring here to some kind of behavioral anomaly, but what I see is the standard malinvestment story from Austrian business-cycle theory. Even investors with rational expectations, who know that a credit-induced artificial boom can’t last forever, won’t know exactly when the bubble will burst, and can profit from taking advantage of artificially low interest rates while they last.
Design by the Numbers
| Peter Klein |
A new item for our “by the numbers” series. Former Google lead designer Doug Bowman recently quit to take a position at Twitter, citing frustration with Google’s engineer-oriented, data-driven culture:
When a company is filled with engineers, it turns to engineering to solve problems. Reduce each decision to a simple logic problem. Remove all subjectivity and just look at the data. Data in your favor? Ok, launch it. Data shows negative effects? Back to the drawing board. And that data eventually becomes a crutch for every decision, paralyzing the company and preventing it from making any daring design decisions.
Yes, it’s true that a team at Google couldn’t decide between two blues, so they’re testing 41 shades between each blue to see which one performs better. I had a recent debate over whether a border should be 3, 4 or 5 pixels wide, and was asked to prove my case. I can’t operate in an environment like that. . . .
I’ll miss working with the incredibly smart and talented people I got to know there. But I won’t miss a design philosophy that lives or dies strictly by the sword of data.
Adds Keith Sawyer:
Google’s engineer-dominated culture wants to see the numbers, the proof. Artists and designers don’t think that way — they know a design that works in their gut, somehow, when they see it. It’s a holistic phenomenon, and it emerges in some unpredictable way from hundreds of tiny design decisions about line widths and color shades. How, they would ask, could you possibly test every single combination, every possible design? . . . Numbers get you focused on the trees and you forget you’re inside of a forest.
I hold to the basic Misesian position that quantitative empirical analysis is a complement to, not a substitute for, other forms of knowledge acquisition such as a priori theorizing and Verstehen. Needless to say, this doesn’t mean I approve of fuzzy constructs in social-science research.
Confidence
| Peter Klein |
Craig Pirrong is concerned about the stress tests:
[Bernanke] emphasized that they were a “confidence-building exercise.” That seems like assuming the conclusion. I would like a fact-finding exercise, with a clear statement of the findings, good or bad. Stating that the objective is to build confidence suggests a pre-ordained result — Kabuki Theater. It’s like saying that something is needed to build “self-esteem.” Success builds self-esteem, not the other way around. Similarly, success builds confidence; confidence-building does not ensure success.
This reminds me of something I read the other day from Isabel Paterson, quoted by Stephen Cox:
[I am] tired of being told that “credit depends on confidence.” Fudge. Credit depends on real assets, sound money and a clean record. . . . When any one asks us to have confidence we are glad to inform him that the request of itself would shatter any remaining confidence in our mind.
Missouri J-School Tastes the Apple
| Peter Klein |
Many colleges and universities require students to purchase a laptop with particular capabilities. Some schools are considering requiring Kindles or similar book readers. The University of Missouri School of Journalism, however, is going one better by mandating not just a particular type of device — in this case, a portable media player — but a particular brand. In a decision sure to warm Teppo’s heart, the school announced last week that incoming freshmen will be required to own an iPhone or iPod Touch. Not only are these high-end devices, for their class, but in the case of the phone a 2-year AT&T service contract is part of the package. The ostensible reason is to allow students to listen to recorded lectures and other multimedia presentations related to their coursework and projects.
If you think this places an unfair burden on students, given that they can listen to these materials on any personal computer and most portable music players, don’t worry: university officials immediately announced that the requirement won’t be enforced, but is merely a cynical ploy to let students add the cost of the fancy toy to their financial aid applications. No doubt makers of rival devices are delighted by the university’s move.
Professional Defenses
| Nicolai Foss |
In Critical Mass (an excellent book, although its treatment of economics is confused, but that is a different story), Philip Ball recounts an amusing anecdote about James Lighthill, an expert on the physics of fluid flow who did early work applying this part of physics to understanding traffic patterns:
In the Lighthill-Whitham model, the individuality of drivers is entirely submerged beneath average driving behavior. . . . This is ironic, for Lighthill himself was anything but average in his driving habits. He was a persistent speeding offender, but would explain in court that as Lucasian Professor of Mathematics at Cambridge (the chair once occupied by Newton), he was fully aware both of the laws of mechanics and of his social duty not to waste energy. As a result, he told the hapless judges, he felt obliged to desist from braking when going downhill. It seems that this defence was occassionally succesful (pp. 197-98).
Perhaps economists and management scholars should try something similar:
- The Decian Excuse: “Yes, your Honor, I did pay below the minimum wage, but that was because I know that what truly matters to the plaintiff is his intrinsic motivation.”
- The Kirznerian Excuse: “I did sell that stock in my company after learning from the CEO about the breakthrough in our drug development, but I did so in order to close pockets of ignorance in the market.”
- Etc. Please add.
Pomo Periscope XVIII: “The French Don’t Care What You Actually Say as Long as You Pronounce It Correctly”
| Nicolai Foss |
This line from My Fair Lady seems to be an accurate summing-up of the emphasis on rhetorics, conversation etc., a branch of pomo, in certain quarters in economic methodology and related fields and disciplines. Or, so Robert Solow argues in a review in the latest issue of the always-interesting Journal of Economic Methodology of Arjo Klamer’s Speaking of Economics; How to Get Into the Conversation (here is a site dedicated to the book, and here is another review).
Essentially, Solow criticizes those who engage in the conversation talk for not adding any substantive insights on the level of meta-theory (whether positive or normative). ”I have real doubts,” he says about the utility of describing the practice of academic economics as a ‘conversation’ or a bunch of simultaneous conversations. . . . My claim is that it does not advance the serious understanding of what academic economists are up to, and its relation to what the economy is up to” (p. 94). He sums up by saying that “In the end, I did not find find the proposed connection between postmodernism and contemporary economics convincing. Maybe theories with little or no application, theories about chaos and complex systems, and theories that leave practical people clueless about the economy (those are all Klamer’s words) have something to do with the architecture of Frank Gehry or the philosophy of Gilles Deleuze, but the connection needs work” (p. 95). It seems so.
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