Archive for September, 2009
| Peter Klein |
Concepts of debt figure centrally in Western religion, while the notion that debt is something to be avoided, or incurred with caution, has long been important in Western capitalism. Without institutions facilitating borrowing, capitalism would not have developed to the degree that it has; but the belief that debt could be dangerous was until recently also an important part of capitalism. It is only lately, Atwood notes, that debt has been celebrated as positively benign, “a thing we’ve come to feel is indispensable to our collective buoyancy.” From being a necessary tool in productive enterprise, debt came to be viewed as an instrument of wealth creation. Using cheap credit, hedge funds and investment banks were able to multiply their profits, while society at large — including some in its poorest groups — came to see taking on large amounts of debt as a way of building up capital. Now that this structure of debt is unwinding, older ideas may be on their way back: “We seem to be entering a period in which debt has passed through its most recent harmless and fashionable period, and is reverting to being sinful.”
Latest news from Washington: “The Federal Reserve said Wednesday that it would keep short-term interest rates near zero for the foreseeable future, even though the central bank acknowledged that the economy was recovering from its long downturn.”
| Peter Klein |
No, not Milton Friedman, but John Milton. See “Areopagitica: Milton’s Influence on Classical and Modern Political and Economic Thought” by Isaac M. Morehouse in the excellent new online journal Libertarian Papers. Says Morehouse:
Milton’s work has something to teach economists not only in its content but in its style and strategy. Milton did not restrict his theories on free speech to scholarly journals. Though his rhetorical style hardly seems accessible to the masses today, he intentionally wrote a short pamphlet with conscious allusions to popular sentiment in order to communicate rather complex ideas to the body politic. Economists who lament the lack of economic knowledge among the “man on the street” and the preponderance of antigrowth economic policy which result have much to learn from Milton. He wrote his work because he truly wanted change. For that reason, he made it accessible to the people whose hearts and minds he would have to win to see change come about. Modern economists would do well to more frequently attempt communication with more than a handful of scholars.
Along these lines I have to admit that I admire Paul Krugman, not because of the substance of arguments, which I find puerile and unformed, or his writing style, which is haughty and shrill, but because he tries to write for a popular audience, not just to his fellow specialists. (OK, actually, Krugman seems to have quit doing or writing about serious economic research, and doesn’t seem to have read a journal article in the last 15 years, but you get my point.)
Update: See also “Heroic Milton, Happy Birthday” from the NYRB.
| Peter Klein |
This year it’s Esther Duflo, leader in the experimental approach to poverty reduction. She joins past economist-MacArthur fellows Matt Rabin, Avner Greif, Kevin Murphy, Nancy Folbre, Michael Kremer, and (way back in 1983, Alice Rivlin).
| Peter Klein |
One of the most interesting papers I saw presented at this year’s ACAC meeting was Ron Adner and Daniel Snow’s “‘Old’ Technology Responses to ‘New’ Technology Threats: Demand Heterogeneity and Graceful Technology Retreats.” They show how incumbents sometimes react to disruptive innovation by repositioning the old technology as a niche product, aimed at specialized users or enthusiasts. Their examples are fascinating. One-way pagers, for example, are still popular in hospitals because their low-powered signals work better around, and interfere less with, complex medical equipment. Many audiophiles prefer vinyl records, with their rich, analog sound, to digital media. (Needles for high-end turntables sell for thousands of dollars.) Calligraphers prefer fountain pens to ball-point pens. And so on. Adner and Snow present a taxonomy of “reactive” strategies by incumbents facing innovative entrants and characterize the benefits and costs of each strategy. Here’s the abstract:
We explore the implications of a real and common alternative to attempting the transformation required to embrace a new, dominant, technology — the choice to maintain focus on the old technology. In considering this choice we distinguish between ‘racing’ strategies, which attempt to fight off the rise of the new technology by extending the performance of the old technology, and ‘retreat’ strategies, which attempt to accommodate the rise of the new technology by repositioning the old technology in the demand environment. Underlying our arguments is the observation that the emergence of a new technology does more than just create a substitute threat — it can also reveal significant underlying heterogeneity in the old technology’s broader demand environment. This heterogeneity is a source of opportunities that can support a new position for the old technology, in either the current market or a new one. Using this lens we explore the decision to stay with the old technology as a rational, proactive choice rather than as a mark of managerial and organizational failure. We then consider the distinctive challenges and organizational dynamics that arise in technology retreats, and their implications for the ways in which managers and scholars should approach questions regarding the management of capabilities, lifecycles, and ecosystems.
I came across another example this summer, in a NY Times piece on a Dutch firm resurrecting the Polaroid camera. And there was the 2006 Darren Aronofsky film The Fountain, which used a low-tech combination of soap bubbles, oils, and other liquids rather than digital technology to create its unusual visual effects.
| Glenn MacDonald |
The US bankruptcy process is designed to be an orderly way to preserve any value that is left in the bankrupt business, and treat the creditors fairly and consistent with their contractual rights. This process has been honed through use and generally functions highly effectively. The point of preserving value is obvious enough. Fair treatment of creditors is not about fairness per se, but rather about investor investor protection generally, i.e., in the US, to promote efficient credit markets, investors are generally well protected, including in bankruptcies. The recent GM bankruptcy is an interesting case of how this process can be made to fail, mainly through rushing the process and dictating its outcome rather than by letting the process do what it was designed to do.
Specifically, much value was wasted. For example, among car aficionados, there are few brands more revered than the Pontiac GTO; this persists despite the weak offering brought out in 2004. Where is the GTO? On the scrap heap with the rest of Pontiac. A more deliberate bankruptcy would have preserved this value, e.g., by folding parts of Pontiac into Chevrolet. Second, GM’s creditors rightly claimed they were wronged by allowing the sale of all good GM assets to the new GM, owned mostly by the government and the UAW, and denying them the rights to argue their case to the bankrupcy court. They correctly argue they were robbed.
Who are the main beneficiaries of this mess? To the extent that despite the poor reorganization, GM is actually worth something, obviously the Federal government and the UAW benefit from the treatment of creditors. But more importantly, this is terrific for GM’s competitors, who have much to gain from GM’s remaining value being wasted through a weak product line, politically driven lack of cost reduction as inefficient facilities are retained, etc.
| Lasse B. Lien |
If you haven’t been brilliant lately, here is a possible explanation. It’s not at all your fault, it’s just that your colleagues are too good-looking. Note, though, that this excuse can apparently only be used by men.
Abstract: The present research tested the prediction that mixed-sex interactions may temporarily impair cognitive functioning. Two studies, in which participants interacted either with a same-sex or opposite-sex other, demonstrated that men’s (but not women’s) cognitive performance declined following a mixed-sex encounter. In line with our theoretical reasoning, this effect occurred more strongly to the extent that the opposite-sex other was perceived as more attractive (Study 1), and to the extent that participants reported higher levels of impression management motivation (Study 2). Implications for the general role of interpersonal processes in cognitive functioning, and some practical implications, are discussed.
Isn’t this a classic case of a negative externality? Surely there must be some kind of taxation or side payment scheme that can reduce this burden to society.
Source: Johan C. Karremans, Thijs Verwijmeren, Tila M. Pronk, and Meyke Reitsma, “Interacting with women can impair men’s cognitive functioning,” Journal of Experimental Social Psychology 45(4), July 2009, 1041-44.
| Peter Klein |
What are your favorite famous misquotes in social science? E.g., everybody knows Lord Acton’s dictum: “Power corrupts, and absolute power corrupts absolutely.” Except he actually wrote “power tends to corrupt, and absolute power corrupts absolutely.” Likewise, Adam Smith didn’t say that the merchant is led “as if by an invisible hand” to promote an end not his intention; he said the merchant “is in this, as in many other cases, led by an invisible hand. . . .” And, to get to the really deep thinkers, Gordon Gekko didn’t say “greed is good,” but “greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit. . . .” I love you, man!
On a related note, David Levy and Sandra Peart explain that Thomas Carlyle’s description of economics as the “dismal science” had nothing to do with Malthusian overpopulation. Carlyle actually despised the economists because they supported the emancipation of slaves and believed, in Levy and Peart’s words, “it was institutions, not race, that explained why some nations were rich and others poor.”