Archive for September, 2010
| Peter Klein |
A new Australian public-service ad compares fast food to heroin: “You wouldn’t inject your children with junk. So why are you feeding it to them?” (See the ad, along with Katherine Mangu-Ward’s funny meditations on the theme.) But does fast food really contribute to health problems, particularly obesity?
Not much, according to Richard Dunn’s study, “The Effect of Fast-Food Availability on Obesity: An Analysis by Gender, Race, and Residential Location,” in the July 2010 issue of the American Journal of Agricultural Economics (it’s peer reviewed, and not funded by corporations!). Previous research finds links between the number and density of fast-food restaurants and health problems, but has difficulty identifying cause and effect (fast food could make people overweight, but fast food restaurants could be put in areas where people are overweight anyway). Dunn uses the number of interstate exits as an instrument for restaurant location to tease out the causal relations, and finds little overall effect of fast food on obesity — none at all in rural areas, a bit in medium-density areas, and only among women and minorities.
| Scott Masten |
At least that’s what the writers of The Simpsons are predicting. (See upper left-hand corner.) Their Economics Prize predictions: Jagdish Bhagwati, Avinash Dixit, Bengt Holmstrom, and Elhanan Helpman. (via Marginal Revolution)
| Peter Klein |
I respect peer review as much as the next person and have done my share of publishing in peer-reviewed outlets. But I question the belief, expressed often in academic, media, and policy circles, that “not peer reviewed” means “worthless” and “peer reviewed” means “should be accepted without question.” (A corollary belief is that “funded by a private foundation or company” means “biased” while “funded by a government grant” means “neutral.”) In practice, the distinctions are not nearly so clean.
My thoughts on this were triggered by a revealing statement from Ronald Coase, quoted by Josh Gans and George Shepherd in their study of famous economics papers that were initially rejected, about his limited experience with peer review: “I have never found any difficulty in getting my articles published. I have either published in house journals (e.g. Economica) or the article was written as a result of a request (e.g. for a conference) and publication was assured.” Certainly no one would discount the importance Coase’s 1937 and 1960 papers because they weren’t rigorously peer reviewed. (Can you imagine the inane referee remarks that “The Problem of Social Cost” would have generated?) More generally, consider the Journal of Law and Economics during Coase’s editorship in the 1960s and 1970s — the high-water mark of the JLE‘s influence. Or, for that matter, Public Choice under Gordon Tullock, the JPE under George Stigler, or the Journal of Libertarian Studies under Murray Rothbard. These were edited somewhat unevenly, led by charismatic and strong-willed editors with idiosyncratic tastes, yet have been vastly influential in their respective fields.
Peer review serves a useful function and probably improves the quality of published output, on average. But let’s not make a fetish of it.
The Elgar Companion to Transaction Cost Economics, edited by Mike Sykuta and me, has just been published. Twenty-nine chapters cover the basic structure of TCE, its precursors and influences, fundamental concepts, applications and evidence, along with alternatives and critiques. Oliver Williamson was kind enough to contribute an introduction and overview. Co-blogger Foss is in there as well.
O&M readers can get it here 10 percent off the list price! (Actually, anybody can get the deal.) Mike beat me to the punch with an announcement and description, so I’ll just add that we’re really pleased with the final product and grateful to all the distinguished contributors and the production staff.
Here are previous O&M posts on transaction cost economics.
| Scott Masten |
Thanks to Peter, Nicolai, Dick, and Lasse for the invitation to guest blog and for the opportunity to sound off on current issues to a broader audience than just my LCD screen. [Thank you! -- LCD Screen.]
A fairly recent example of such an issue was the discussion — anew — of proposals — anew — to abolish professorial tenure. Earlier this month, the New York Times Sunday Book Review ran an essay titled “The End of Tenure?” This was preceded by a July NYT “Room for Debate” forum on the question “What if College Tenure Dies?” and a proposal a week or so later by the American Bar Association to eliminate the term “tenure” from the ABA standards covering job security and academic freedom. A flurry of blog posts on the merits of tenure — many by law professors — ensued.
Leaving aside the details of the debate, an interesting pattern emerged in the “sides,” with more market-oriented (libertarian- or conservative-leaning) writers tending to be more critical, or at least skeptical of the merits, of tenure (see, for example, here and here; here; and here, compared, for instance, with this. The rule-proving exception is here). (more…)
| Peter Klein |
It’s a real pleasure to introduce Scott Masten as our newest guest blogger. Scott is Professor of Business Economics and Public Policy at the University of Michigan’s Ross School of Business and a leading figure in the transaction cost approach. Trained by Oliver Williamson at Penn, Scott was one of the first (along with David Teece and a few others) to do systematic empirical work on alternative institutions of governance. Scott’s 1984 paper on procurement in aerospace, his 1985 paper (with Keith Crocker) on characteristics of natural gas contracts, and his 1991 paper (with James Meehan and Ted Snyder) on the costs of internal organization are classics in the transaction cost literature. Scott has also made important contributions to law and economics, antitrust, contract theory, and many other areas. He’s a past president of ISNIE, co-editor of JEMS, and, as I learned a few years ago at a conference for Williamson’s 70th birthday, a wickedly funny after-dinner speaker.
We’re delighted to have Scott on the team and look forward to his insights. Welcome, Scott!
| Peter Klein |
Researching and teaching sound economics during the Dark Era (i.e., the Keynesian Revival) can be frustrating and depressing. Keynesian doctrine has been refuted again and again; why won’t this zombie stay dead? What, more generally, is the role of economic education? Can we really transform hearts and minds through reason and dialogue? Or do students and scholars simply seek intellectual cover to justify what they already believe?
Hayek reports that he was originally a mild Fabian but was converted by laissez-faire by Mises’s 1922 book Socialism. Such conversion stories are rare, however, in either direction. With this in mind, I was intrigued by Gary Pecquet and Clifford Thies’s paper, “The Shaping of a Future President’s Economic Thought: Richard T. Ely and Woodrow Wilson at ‘The Hopkins’” (Independent Review, Fall 2010). Pecquet and Thies report that “Woodrow Wilson entered graduate studies at Johns Hopkins University as a classical liberal in his economic views but departed as a progressive. His fateful transformation had much to do with his apprenticeship with Richard T. Ely, who disparaged the laissez-faire policy prescriptions and deductive methodology of classical economics.” Worth a look for those interested in the impact of economic education on economic policy.
| Peter Klein |
It’s a slow news day, blogospherically speaking, so I thought I’d share information about some of my upcoming public appearances, for reasons that have nothing at all to do with self promotion:
“Entrepreneurship, Strategy, and the Financial Crisis: Lessons from the Austrian School”
Sherlock Hibbs Distinguished Lecture in Business and Economics
24 September 2010, 2:00-3:30pm
205 Cornell Hall, Trulaske College of Business
University of Missouri
“Entrepreneurship and the Financial Crisis”
27 September 2010, 7:00pm
N021 Business Complex
Michigan State University
“Getting Out the Word: Alternative Research, Teaching, and Outreach”
Mises Institute Supporters Summit
8-9 October 2010
| Peter Klein |
The Institutional Causes of China’s Great Famine, 1959-61
Xin Meng, Nancy Qian, Pierre Yared
NBER Working Paper No. 16361, September 2010
This paper investigates the institutional causes of China’s Great Famine. It presents two empirical findings: 1) in 1959, when the famine began, food production was almost three times more than population subsistence needs; and 2) regions with higher per capita food production that year suffered higher famine mortality rates, a surprising reversal of a typically negative correlation. A simple model based on historical institutional details shows that these patterns are consistent with the policy outcomes in a centrally planned economy in which the government is unable to easily collect and respond to new information in the presence of an aggregate shock to production.
It is said that when the Nobel Prize in economics was first established, prizes were given for using economics to teach people things they didn’t already know, e.g., that economic growth might increase inequality, that depressions are caused by central banks, that macroeconomic stabilization policy doesn’t work, etc. Now, prizes are given to economists who teach other economists things that regular people already know — politicians are self-interested, you shouldn’t put all your eggs in one basket, institutions matter, different people know different things, etc.
| Nicolai Foss |
The Austrian School of Economics continues to provide grist for the doctrinal historian’s mill. New interpretations are developed. Forgotten manuscripts by prominent Austrians are still being discovered. The discovery of the Mises archive about a decade ago by Jörg Guido Hülsmann comes to mind. I recently had the pleasure of reading four hitherto unpublished Hayek papers (including his talk at Cambridge in 1931, immediately before the lectures at LSE that became Prices and Production, that Joan Robinson later described/dissed in this manner, referring to a question by Richard Kahn: “Is it your view that if I went out tomorrow and bought a new overcoat that would increase unemployment?” “Yes,” said Hayek, “but,” pointing to his triangles on the board, “it would take a very long mathematical argument to explain why”).
Many of those who have done important work on the history of the school includes committed contemporary Austrians (e.g., Joe Salerno, Roger Garrison, Richard Ebeling, etc.), but very substantial research has also been contributed by economists who may may not consider themselves Austrians (this includes many European scholars, such as Hansjoerg Klausinger, Meghnad Desai, Rudy van Zijp, Jacb Birner and many others). This evening I had the opportunity to browse Austrian Economics in Transition, which is an example of this kind of doctrinal history scholarship. The book is edited by Harald Hagemann, Tamotsu Nishizawa, and Yukihiro Ikeda, and was published a couple of months ago by Palgrave MacMillan. It is a collection of essays, 16 in total, by European and Japanese scholar, originating from a conference on Menger in Japan in 2004, and addressing the history of the Austrian School until approximately the end of World War II. (more…)
| Peter Klein |
From 1904-1921, Gillette could have played razors-and-blades — low-price or free handles and expensive blades — but it did not do so. Gillette set a high price for its handle — high as measured by the price of competing razors and the prices of other contemporaneous goods — and fought to maintain those high prices during the life of the patents. For whatever it is worth, the firm understood to have invented razors-and-blades as a business strategy did not play that strategy at the point that it was best situated to do so.
Here’s a PPT version.
Well, as Bogey might have said to Bergman: “We’ll always have printer ink.”
| Lasse Lien |
You may disagree with Paul Krugman, but you cannot deny that he’s dealing with really, really big issues. Here is the abstract from his most recent paper:
This article extends interplanetary trade theory to an interstellar setting. It is chiefly concerned with the following question: how should interest charges on goods in transit be computed when the goods travel at close to the speed of light? This is a problem because the time taken in transit will appear less to an observer traveling with the goods than to a stationary observer. A solution is derived from economic theory, and two useless but true theorems are proved. (JEL F10, F30)
The full reference and the paper can be found here. The next step is to extend Krugman’s work to intergalaxy trade and wormholes in spacetime.
| Nicolai Foss |
With Nils Stieglitz I have written “Modern Resource-Based Theory(ies)” (creative title, eh?) for the Handbook on the Economics and Theory of the Firm (apparently, “economics” and “theory” are different things), edited by Michael Dietrich and Jackie Krafft (Edward Elgar, 2011). The paper is mainly an overview. However, we also argue that there are many indications that the different strands of the RBV are increasingly converging.
| Peter Klein |
Conversations today are constantly hijacked by digital fact-checkers. Every fact or statement, it seems, must be checked or augmented in real time with at-our-fingertips online information. We no longer trust each other to come up with good-enough facts or allow each other add colorful embellishment to our stories. Let me give a recent example to make my point. Over lunch the other day, I shared a story with my colleagues — the surreal experience of being accidently given a presidential suite at a Four Seasons Hotel. “This was an amazing room, probably 3000+ square feet with over-the-top appointments everywhere,” I said. No more than two minutes after making the statement, an associate checked on his BlackBerry the size of the presidential suite, correcting me that it was closer to 2000 square feet.
What happened to natural conversations, those based on what is already in our heads, unburdened by verfication? As the fast food movement has seen an opposing slow food movement take hold and shape, I predict we’ll soon see a similar desire for putting down for a moment all the “information enhancements” that come with mobile, digital-sparring tools.
That’s Anthony Tjan blogging at HBR. As someone who reads a lot of student papers — not to mention newspapers, magazines, and blogs — I tend to favor more fact checking, not less. But I see the point.
This is relevant for teaching and public speaking as well. I don’t record my classes, but I suspect that day is not far off (and some of my public talks are already preserved, for better or worse). Will professors be more rigid, overly cautious, less spontaneous, less natural, knowing that everything they say is ripe for verification, by current or future students (or administrators)? What is the appropriate balance between monitoring and governance and classroom spontaneity, ad hocery, and silliness?
| Nicolai Foss |
It is sometimes instructive to reflect on the massive changes that the University has undergone since the Second World War. On the negative side, the advent of the mass university has very likely led to a dumbing down of the curriculum in many disciplines and a fall in the requirements for entry. It has paved the way for a powerful bureaucratic caste, and the “bureaucrat-professor” who is in the academic industry because of his specialized management skill, and not because of his wish to engage in scholarly pursuits and the training of the most intelligent persons in a given society. On the benefit side, many more people can now share in science and general learning, very likely contributing to economic growth.
As the universities are broadly speaking financed by the taxpayer, politicians and their henchmen in the ministeries of education, science, technology, etc. happily undertake to steer the universities. Thus, inspired by as-yet-largely-unvalidated claims of a general shift in the “mode of knowledge production,” university bureaucrats, managers, and politicians are calling for increased “inter-disciplinarity” and “relevance,” notably in the form of mobilizing multiple disciplines in the context of concrete problem-solving in “business” (the so-called “Mode II”). In the context of business schools, it seems almost de rigeur in certain quarters to deem business schools largely “irrelevant” (meanwhile, business happily employs the products of business schools, paying MBA and other graduates hefty salaries, presumably motivated by the high usefulness, indeed, “relevance,” of these graduates).
Contrast all this with universities not so many decades back. There are not many who stand up on behalf of l’ancien regime of universities. But here are two who do, one implicitly and the other one (much) more explicitly. (more…)
| Dick Langlois |
In Cities and the Wealth of Nations, Jane Jacobs argued that currencies should be promulgated by cities not nation states. If, for example, the currency of Detroit (the cadillac, let us say) could have floated against the currency of San Francisco (the silicon) during the late 20th century, there would have been another margin (other than the movement of capital and people) on which adjustments to technological change and shifting relative prices could have taken place, perhaps making Detroit less of a disaster area. I always found this idea appealing; but, not being a monetary economist and not having heard the idea discussed within professional economics, I wondered whether I might be missing some obvious counter-argument. Recently, however, I saw an NBER Working paper by Barry Eichengreen and Peter Temin that seems to make a similar point. Called “Fetters of Gold and Paper,” it argues that the euro and the dollar-renminbi peg are fixed-exchange-rate regimes like the gold standard. Such fixed-rate regimes may lower transaction costs in good times, but they prevent necessary adjustments in bad times, potentially leading to crises. Adjustment takes place via deflation that would otherwise have taken place through exchange-rate movement.
This is essentially the Eichengreen-Temin story about the Great Depression, which (to oversimplify) isn’t really very different from the Monetarist version. The Monetarists essentially say that gold wasn’t a fetter because there was never a real gold standard; it was a badly manipulated facsimile, which the Fed mismanaged. Eichengreen and Temin acknowledge this, but apply spin so that it was the mentalité of the gold standard that caused monetary authorities to behave as they did. In any case, as Eichengreen and Temin point out, the euro is actually a much stronger version of the fetters problem, since there is no adjustment mechanism akin to gold flows, however imperfect that mechanism might have been. Moreover, countries could (and eventually did) go off the gold standard; but there is no mechanism for countries to pull out of the euro without causing a major crisis. Interestingly, they see Bretton Woods as less of a problem, since there were international adjustment mechanisms in place. Also interestingly (for two economists of a Keynesian bent), they worry at length about the federal budget deficit and the level of government spending in the face of the renminbi peg and the current-account deficit. Usually, free-market economists worry about the budget deficit but not the current-account deficit, whereas left-of-center economists worry about the current account but not the budget. The renminbi peg makes them linked problems.
Which brings us back to Jacobs. The American dollar — one currency for all 50 states — was a prime model for the euro. And a Google search brings up dozens of comparisons between California and Greece. Why should the nation-state — whether the US or Europe — be the appropriate geographical domain of a currency?
| Peter Klein |
Inspired (in some cases, subconsciously) by our post on “How to Read an Academic Article,” several professors have written follow-up or companion pieces offering advice to students and new faculty:
- “How to Review a Literature” by Gabriel Rossman (nice blog template BTW)
- “Writing ‘One Pagers’” by Anthony Evans
- “How to Write Less Badly” by Mike Munger (via Pete Boettke)
- “How to Be Awesome” by Fabio Rojas
Of course there are the classics like Ezra Zuckerman’s “Tips to Article Writers,” Eric Rasmusen’s “Aphorisms on Writing, Speaking, and Listening,” Simon Jones’s “How to Write a Good Research Paper and Give a Good Research Talk,” Kwan Choi’s “How to Publish in Top Journals,” Dan Hamermesh’s “The Young Economist’s Guide to Professional Etiquette,” Richard Hamming’s “You and Your Research,” and George Ladd’s “Artistic Research Tools for Scientific Minds.”
| Peter Klein |
We’ve been bombarded by comment spam the last several days — a much higher volume than usual — and our spam filter is surely making some Type I errors. If you posted a (legitimate) comment and it never appeared, please let us know so we can mark it as legit.
| Lasse Lien |
Apparently yes. Here‘s the evidence.
| Peter Klein |
Who’s more fun? Good Spock or Evil Spock? Bedford Falls or Pottersville? The Narrator or Tyler Durden? Orgtheory.net or Organizations and Markets? As Dick Vitale would say, “Are you serious?” (Thanks to SL for the image.)