Posts filed under ‘– Klein –’

Douglass C. North (1920-2015)

| Peter Klein |

north_postcardI’m sorry to report that Doug North passed away yesterday at the age of 95. North was a key figure in the “cliometrics revolution” which sought to apply neoclassical economic theory and quantitative methods to the study of economic history, for which he received a Nobel Prize. He was also a founder, along with Ronald Coase and Oliver Williamson, of the “New Institutional Economics.” His work on economic growth, the role of institutions on national and international economic performance, the relationship between economic and political institutions, and many other fields has been extremely influential.

I don’t yet see many obituaries online but they will appear soon in the usual places. Here are some previous O&M posts on North. Here’s his Wikipedia entry. We’ll add some detailed commentaries soon.

I met North at the inaugural ISNIE conference in St. Louis in 1997, and saw him occasionally after that. He was friendly and approachable and interested in the work of younger scholars. North was an interdisciplinary thinker but always considered himself an economist first and foremost. I remember a small-group dinner at which he revealed an interesting conversation among the founders of International Society for New Institutional Economics (now SIOE). Coase had proposed calling the new organization the “International Society for New Institutional Social Science.” North reported that he replied, “Ronald, if you call it that, I will wish you well, but I won’t ever attend!”

Here is a nice reminiscence from Mike Sykuta.

Update: Here are obits in the NYT and WaPo. The former describes North in a way that makes economic history sound pretty interesting: “a diminutive, effervescent bon vivant [who] indulged his interests in haute cuisine, photography, fast cars, flying his own plane, hunting, fishing, tennis, hiking and swimming, pursuing some of them into advanced age.” (There is a story, perhaps apocryphal, about Washington University agreeing to pay North’s moving expenses when he took a professorship in St. Louis, then finding out later that transporting his wine collection required a refrigerated truck costing tens of thousands of dollars.)

24 November 2015 at 4:20 pm Leave a comment

Science, Technology, and Public Funding

| Peter Klein |

This piece by Matt Ridley builds on Terence Kealey’s critique of government science funding, and also echoes Nathan Rosenberg’s critique of the linear model of science and technology. We have pointed out similarly that arguments for public science funding are usually not very scientific.

When you examine the history of innovation, you find, again and again, that scientific breakthroughs are the effect, not the cause, of technological change. It is no accident that astronomy blossomed in the wake of the age of exploration. The steam engine owed almost nothing to the science of thermodynamics, but the science of thermodynamics owed almost everything to the steam engine. The discovery of the structure of DNA depended heavily on X-ray crystallography of biological molecules, a technique developed in the wool industry to try to improve textiles.

Technological advances are driven by practical men who tinkered until they had better machines; abstract scientific rumination is the last thing they do. As Adam Smith, looking around the factories of 18th-century Scotland, reported in “The Wealth of Nations”: “A great part of the machines made use in manufactures…were originally the inventions of common workmen,” and many improvements had been made “by the ingenuity of the makers of the machines.”

It follows that there is less need for government to fund science: Industry will do this itself. Having made innovations, it will then pay for research into the principles behind them. Having invented the steam engine, it will pay for thermodynamics.

I have argued repeatedly against the “laundry list” rationale for public funding, the listing of technologies and products that came out of government programs, as if that were justification for these programs. Ridley agrees:

Given that government has funded science munificently from its huge tax take, it would be odd if it had not found out something. This tells us nothing about what would have been discovered by alternative funding arrangements.

And we can never know what discoveries were not made because government funding crowded out philanthropic and commercial funding, which might have had different priorities.

24 October 2015 at 3:28 pm Leave a comment

Deaton’s Critique of Randomized Controlled Trials

| Peter Klein |

Because we’ve been somewhat skeptical of randomized-controlled trials — not the technique itself, but the way it is over-hyped by its proponents — you may enjoy Angus Deaton’s critique of RCTs in development economics. I learned of Deaton’s arguments from this excellent piece by Chris Blattman in Foreign Policy. Here is the key paper, Deaton’s 2008 Keynes Lecture at the British Academy.

Instruments of Development: Randomization in the Tropics, and the Search for the Elusive Keys to Economic Development

Angus Deaton

There is currently much debate about the effectiveness of foreign aid and about what kind of projects can engender economic development. There is skepticism about the ability of econometric analysis to resolve these issues, or of development agencies to learn from their own experience. In response, there is movement in development economics towards the use of randomized controlled trials (RCTs) to accumulate credible knowledge of what works, without over-reliance on questionable theory or statistical methods. When RCTs are not possible, this movement advocates quasi-randomization through instrumental variable (IV) techniques or natural experiments. I argue that many of these applications are unlikely to recover quantities that are useful for policy or understanding: two key issues are the misunderstanding of exogeneity, and the handling of heterogeneity. I illustrate from the literature on aid and growth. Actual randomization faces similar problems as quasi-randomization, notwithstanding rhetoric to the contrary. I argue that experiments have no special ability to produce more credible knowledge than other methods, and that actual experiments are frequently subject to practical problems that undermine any claims to statistical or epistemic superiority. I illustrate using prominent experiments in development. As with IV methods, RCT-based evaluation of projects is unlikely to lead to scientific progress in the understanding of economic development. I welcome recent trends in development experimentation away from the evaluation of projects and towards the evaluation of theoretical mechanisms.

Blattman says Deaton has a new paper that presents a more nuanced critique, but it is apparently not online. I’ll share more when I have it.

12 October 2015 at 9:40 pm 1 comment

Angus Deaton and Modern Economics

| Peter Klein |

151013-angus-deaton-mn-0735_03fca06ed5077fbef855ea45627fe638.nbcnews-ux-2880-1000Angus Deaton has won the 2015 Nobel Prize for his work on measuring consumption and inequality. You can find lots of discussion in the usual places; Lynne has a nice summary here. I don’t know Deaton’s work well but he has been on the unofficial short list for the last several years and his work is important and influential for economic growth and development, poverty and health, and related areas.

I can’t help poking a little fun at the economics profession, however. You may have heard the joke that economists used to win the Nobel prize for explaining to the general public something that previously only economists understood, but now they win it for explaining to their fellow economists something that the general public has always known, e.g.:

  • Politicians care about themselves (Buchanan).
  • Don’t put all your eggs in one basket (Markowitz, Miller,and Sharpe).
  • You can’t fool all of the people all of the time (Lucas).
  • Some people know more than others (Akerlof, Spence, Stiglitz).

Deaton’s major insight: aggregate measures of consumption and inequality conceal important differences among individuals.

12 October 2015 at 11:10 am 6 comments

I Agree with Larry Summers

| Peter Klein |

Justin Fox reports on a recent high-powered behavioral economics conference featuring Raj Chetty, David Laibson, Antoinette Schoar, Maya Shankar, and other important contributors to this growing research stream. But he refers also to the “Summers critique,” the idea that key findings in behavioral economics research sound like recycled wisdom from business practitioners.

Summers [in 2012] told a story about a college acquaintance who as a cruel prank signed up another classmate for 60 different subscriptions of the Book-of-the-Month-Club ilk. The way these clubs worked is that once you signed up, you got a book in the mail every month and were charged for it unless you (a) sent the book back within a certain period of time or (b) went through the hassle of extricating yourself from the club altogether. Customers had to opt out in order to not keep buying books, so they bought more books than they otherwise would have. Book marketers, Summers said, had figured out the power of defaults long before economists had.

More generally, Fox asks, “Have behavioral economists really discovered anything new, or have they simply replaced some wrong-headed notions of post-World War II economics with insights that people in business have understood for decades and maybe even centuries?”

I took exactly the Summers line in a 2010 post, observing that behavioral economics “often seems to restate common, obvious, well-known ideas as if they are really novel insights (e.g., that preferences aren’t stable and predictable over time). More novel propositions are questionable at best.” I used a Dan Ariely column on compensation policy as an example:

He claims as a unique insight of behavioral economics that when people are evaluated according to quantitative measures of performance, they tend to focus on the measures, not the underlying behavior being measured. Well, duh. This is pretty much a staple of introductory lectures on agency theory (and features prominently in Steve Kerr’s classic 1975 article). Ariely goes on to suggest that CEOs should be rewarded not on the basis of a single measure of performance, but multiple measures. Double-duh. Holmström (1979) called this the “informativeness principle” and it’s in all the standard textbooks on contract design and compensation structure (e.g., Milgrom and Roberts, Brickley et al., etc.) (Of course, agency theory also recognizes that gathering information is costly, and that additional metrics are valuable, on the margin, only if the benefits exceed the costs, a point unmentioned by Ariely.)

Maybe Larry and I should hang out.

22 September 2015 at 12:03 pm 6 comments

More on the Linear Model of Science and Technology

| Peter Klein |

51eaYmA7XfL._SY344_BO1,204,203,200_As Joel Mokyr notes, one of Nathan Rosenberg’s important contributions was to debunk the “linear model” in which basic science begets applied science, which begets useful technology.

Technology in his view is not the mechanical “application of science” to production; it is a field of knowledge by itself, quite different in its incentives, its modes of transmission, and its culture. It is affected by science, but in turn provides “pure research” with its instruments and much of its agenda. In many cases, [Rosenberg] noted, scientists were confronted by the fact that things they had previously declared to be impossible were actually carried out by engineers and mechanics and had to admit somewhat sheepishly that were possible after all.

The same issue is raised in Margaret Jacob’s book The First Knowledge Economy: Human Capital and the European Economy, 1750-1850 (Cambridge University Press, 2014), which “argues persuasively for the critical importance of knowledge in Europe’s economic transformation during the period from 1750 to 1850, first in Britain and then in selected parts of northern and western Europe.” In other words, as noted by Erik Hornung:

She especially focusses on the marriage between theoretical sciences and applied mechanical knowledge which helped creating many technological innovations during the Industrial Revolution. She, thus, aims at rectifying the prevalent hypothesis that technological progress resulted from tinkering of skilled but science-ignorant engineers. An impressive set of new archival sources supports her argument that English engineers were, indeed, well aware of and heavily influenced by recent advances in natural sciences.

14 September 2015 at 5:03 pm Leave a comment

Mokyr on Rosenberg

| Peter Klein |

Further to Dick’s post on Nathan Rosenberg, here is an obituary from Joel Mokyr, who with Rosenberg’s passing is probably the most eminent living historian of innovation and technology. The review appeared on EH.Net.

The economic history profession has lost one of its most original, creative, and wide-ranging minds in the passing of Nathan Rosenberg on Aug. 24, 2015. Rosenberg was one of the founding fathers of Cliometrics, a member of the first group of Cliometricians that with coining the term “congregated at Purdue University in the late 1960s, and which included other luminaries among them Lance Davis, Jonathan Hughes, and Stanley Reiter (who is widely credited Cliometrics”). By 1970, this group had moved away from West Lafayette and dispersed to institutions such as Northwestern and CalTech. Rosenberg was hired by the University of Wisconsin, and was a member of a different group of influential and distinguished economic historians in Madison, including at one time or another Jeffrey Williamson, Peter Lindert, Morton Rothstein, Rondo Cameron, and Claudia Goldin. While at Wisconsin, Rosenberg was the editor of the Journal of Economic History and instrumental in its growing focus on the new economic history that was theoretically informed by economics and quantitatively more sophisticated — the very essence of the Cliometric Revolution.

In 1974, Rosenberg moved to Stanford, where he taught for more than a quarter century until his retirement in 2002. As department chair at Stanford between 1983and 1986 he helped build the department and maintain its position as one of the top economics departments in the country. Moreover, his leadership guaranteed that economic history remained an integral part of the undergraduate and Ph.D. programs and includes some of its most distinguished practitioners such as Gavin Wright and Avner Greif, as well as younger and promising scholars. Today, thanks to Rosenberg’s initiative and entrepreneurship, the Stanford department is housed in a gorgeous building named after Ralph Landau, whose support for research and teaching in economics was first stimulated by a fortuitous meeting with Rosenberg. The partnership with Landau, a chemical engineer and entrepreneur fascinated by economics, led to a fruitful scholarly collaboration between him and Rosenberg, especially in two well-regarded collections they edited together. Thanks in large part to Rosenberg’s resourcefulness, the graduate program at Stanford has thrived and produced many distinguished members of the economic history profession and applied economists working on innovation. While not all of them worked with him directly, his influence on the flourishing of economic history at Stanford was undeniable. Many of the former graduate students he trained and inspired co-authored and co-edited papers and books with him, such as David Mowery with whom he wrote Technology and the Pursuit of Economic Growth (Cambridge University Press, 1989). Without exception these young economists admired and adored him; two of them, Scott Stern and Shane Greenstein, were my former colleagues, and the three of us were instrumental in Northwestern awarding him an honorary doctorate in 2006, in the same class of honorary degrees as the then little-known junior senator from Illinois. If ever there was an academic conspiracy that can be called a true labor of love, this was it. (more…)

7 September 2015 at 9:25 pm Leave a comment

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Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).


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