| Peter Klein |

Paul Ehrlich, author (with Anne Ehrlich) of The Population Bomb (1968), one of the biggest, um, bombs of the last several decades, is unrepentant. Ehrlich’s main thesis was that the world was running out of natural resources, and population growth was expanding exponentially, leading to an inevitable decline in living standards. Needless to say, none of the three predictions came true, and Bomb became one of those books that cultural anthropologists study for its train-wreck value. Now, apparently for laughs, the Electronic Journal of Sustainable Development has invited the Ehrlichs to write “The Population Bomb Revisited” for a forthcoming symposium. After all these years, the Ehrlichs are no closer to grasping the Econ 101 concept of “resources,” namely means used by human actors to achieve desired ends — not physical stocks of raw materials, but raw materials interacted with human knowledge and purpose.

To give you a flavor of the piece, consider this passage:

Equally silly statements are made about the relationship of human numbers to prosperity. As late as 2007, echoing Chairman Mao and Julian Simon, demographer Nicholas Eberstadt called people the “wealth of modern societies” (Eberstadt 2007). People, of course, can be regarded as productive assets (embodying, as economists would put it, “human capital”), but it is an error to consider increases in human numbers as automatically expanding real wealth — the capacity for wellbeing. Given the growing scarcity of natural resources, population growth normally reduces per capita genuine wealth, and can even shrink a nation’s total wealth (e.g., Arrow et al. 2004). If wealth were a function of population size, China and India each would be three to four times as rich as the United States and more affluent than all the nations of Europe combined, Africa’s wealth would outstrip that of North America or Europe, and Yemen would be three times as well off as Israel (Population
Reference Bureau 2008).

So, either population and real wealth have a negative linear relationship, or they have a positive linear relationship. Because the latter is untrue,  the former must be true. QED! The fact that population (and population growth) per se and real wealth have no statistically significant correlation — because the main determinants of economic well-being are knowledge, institutions, culture, stocks of accumulated capital, and the like — seemingly has not occurred to these distinguished Stanford University scholars.

(NB: Paul Ehrlich is widely known as something of a jerk, personally, and he does not disappoint here, managing to throw in a gratuitous jibe at Julian Simon, the guy who did the most to expose Ehrlich as a quack: “Perhaps the biggest barrier to acceptance of the central arguments of The Bomb was — and still is — an unwillingness of the vast majority of people to do simple math and take seriously the problems of exponential growth. . . . A classic example was the statement by a professor of business administration, specializing in mail-order marketing, Julian Simon, who found prominence as a critic of environmental science.” Simon was indeed a professor of marketing; he also happened to write three statistics books, and new a little about quantitative methods. The Ehrlichs can’t seem to get beyond high-school algebra.)

| Peter Klein |

That’s the name of a new sociology blog started by grad students Josh McCabe, David Pontoppidan, and Brian Pitt. I’m already enjoying the first few posts. These guys are influenced by economics (in particular, Austrian economics), so watch out.

| Peter Klein |

I see that registered users of SSRN can now post comments on other people’s papers. Maybe this feature has been around for some time but I just noticed it. Is this a small step toward open-source peer review? Or a move toward social networking? (What’s next, the SSRN status update or Super Poke?)

| Benito Arruñada |

In a new paper with Xosé H. Vázquez we explore the consequences of using different behavioral assumptions in training managers on their future performance. We argue that training with an emphasis on the standard assumptions used in economics (rationality and self-interest) leads future managers to rely excessively on rational and explicit safeguarding, crowding out instinctive contractual heuristics and signaling a “bad” type to potential partners. In contrast, the behavioral assumptions used in management theories, because of their diverse, implicit, and even contradictory nature, do not conflict with the innate set of cooperative tools and may provide a good training ground for such tools.

We present tentative confirmatory evidence by examining how the weight given to behavioral assumptions in the core courses of the top 100 business schools influences the average salaries of their MBA graduates. Controlling for the average quality of their students and some other school characteristics, we find that average salaries are significantly higher at those schools whose core MBA courses contain a higher proportion of management courses as opposed to courses based on economics or technical disciplines.

Analytical education based on rationality and self-interest is not necessarily wrong. But blind emphasis on conscious, “rationalistic” safeguarding may be as damaging as full reliance on gut feelings for establishing one’s relationships. The point is that although calculative safeguarding may play an important role in specific transactions, economic agents need to consider its tricky interaction with automatic contractual heuristics. Thus, whereas economics may offer a good education for certain impersonal tasks, it may be harmful for individuals playing a leadership role.

MBA programs with a higher proportion of courses using management theories produce better-paid managers not because of the quality of these theories but because their courses present a less dogmatic and more descriptive approach to the contractual process. This helps future managers identify different relational frameworks, encouraging a contingent — and more successful — approach to economic and social exchanges. Management theories, which  not only handle concepts related to rationalistic opportunism but also involve others like trust, intrinsic motivation, ethical values or, more generally, emotions, do not interfere with the adaptive nature of our contractual heuristics. They present a diverse and sometimes even contradictory nature of human behavior.

Our results have implications for contract theory, changing the nature of the contracting problem. If there were a single type of human being prone to moral hazard or opportunism, the recipe would consist of designing incentive alignment mechanisms. However, if there are actually several human types or, if individuals are actually programmed to respond differently depending on the particular situation and partners they face, then the main challenge in contracting is not necessarily to protect parties against opportunism but to discriminate potential partners and contracting situations in order to display a different relational strategy in each transaction.

| Peter Klein |

I haven’t read all the obituaries of Robert S. McNamara, who died early this morning, but the ones I’ve seen focus almost exclusively on his tenure as US Secretary of Defense during the Vietnam War. Few mention how he got to be Secretary — an HBS professorship, WWII experience in procurement as a member of Tex Thornton’s “Whiz Kids,” a stint at Ford Motor Company after the war, and the presidency of Ford just before taking the job as Defense Secretary. The Times notes, in passing, that “Mr. McNamara had risen by his mastery of systems analysis, the business of making sense of large organizations — taking on a big problem, sorting it out, studying every facet, finding simplicity in the complexity.” Um, OK, I guess that’s one way to describe it. In any case, none of the obituaries I’ve seen so far discusses this in any detail, or seems to realize that McNamara’s approach to managing large organizations is controversial among researchers and practitioners.

Here’s a brief comment I made last year on McNamara’s management style.

| Benito Arruñada |

Brad Taylor doubts in his reaction to my previous post on organizations and markets in morality that:

The moral authority of the Church was anywhere near complete in even the most ardently Catholic societies. The Church claimed a monopoly on morality, and many people went along with it to a greater or lesser degree. This seems pretty close to what government does today. The state doesn’t simply create laws aimed at resolving the inevitable conflicts among people, but attempts to influence public opinion through various types of propaganda – telling people not to smoke or get drunk and dance, for example.

I would not claim that the Church enjoyed a monopoly, only that the production of morality was more organizational — i.e., it took place within organizations (the Church itself was divided in several organizations), was more centralized, and was made by specialized moralist experts (mainly, theologians and priests, but even with some specialization of priests between those who focused on taking care of parishes, preaching, and confessing). In contrast, I am inclined to think that morality is now produced more in the market: it is less centralized and is produced by generalists.

It is true, as Brad says, that governments play an increasing role, especially in many European countries where they (1) control most education, even introducing new mandatory courses on “Good Citizenship”; (2) run their own TV stations, with plenty of scope to manipulate its contents; and (3) are actively running advertising campaigns about everything from global warming to racism or the use of condoms.

However, there are many other powerful sources of morality that are purely market driven: e.g., Hollywood movies and commercial TV series; biologists, pop stars, and former politicians moonlighting as preachers for their favorite causes; reality shows; gossip media; and so on.

| Nicolai Foss |

I am reading Ben Goldacre’s Bad Science in which Dr. Goldacre explodes the ridiculous claims of medical quacks of all stripes (e.g., homeopathy, the idiocies of the media re the interpretation of research results, hostility towards “mainstream medicine,” etc.). The book is much needed and very, very entertaining.

And it makes me think that management research needs its Goldacre. A few quick ideas:

1. Perhaps we need something akin to the Cochrane Collaboration. We can all agree that “evidence-based management” is a good idea. Indeed, it is such a good idea that there should be no need for writing books or blogs about it. We should all embrace and internalize the idea. However, in practice, there is probably much too little effort devoted to meta-analysis and other synthetic efforts in management research.
2. There are quacks in management. Some of them write books. Some consult. Shrugging the shoulder is the typical reaction on the part of management academics. Should we treat them more harshly? Should management quacks be identified and fought?
3. Perhaps the majority of research articles in management end with a variation over “There is a need for more research.” Articles in medicine used to end similarly. However, as Goldacre notes (p. 57), “… it is a little known fact that this very phrase has been banned from the British Medical Journal for many years, on the grounds that it adds nothing: you may say what research is missing, on whom, how, measuring what, and why you want to do it, but the hand-waving, superficially open-minded call for ‘more research’ is meaningless and unhelpful.” Amen!

| Peter Klein |

Will it be the next to burst? Yes, say Joseph Marr Cronin and Howard E. Horton. “Consumers who have questioned whether it is worth spending $1,000 a square foot for a home are now asking whether it is worth spending $1,000 a week to send their kids to college. There is a growing sense among the public that higher education might be overpriced and under-delivering.” Of  course it is, which explains the unbridled hostility of the higher-ed establishment toward alternative organizational models. Adds Mark Taylor:

Make no mistake about it, education is big business and, like other big businesses, it is in big trouble. What people outside the education bubble don’t realize and people inside won’t admit is that many colleges and universities are in the same position that major banks and financial institutions are: their assets (endowments down 30-40 percent this year) are plummeting, their liabilities (debts) are growing, most of their costs are fixed and rising, and their income (return on investments, support from government and private donations, etc.) is falling.

These commentators do not, however, speculate on root causes. There’s no doubt the traditional model for producing higher education is grossly inefficient and that there’s been tremendous overinvestment in facilities and staff (malinvestment, in Austrian lingo) over many decades. But why, and why now? One hypothesis is that the democratization of higher education that began in the 1960s not only increased enrollments, but created a wedge between expectations of faculty (we’re here to create and disseminate knowledge and to challenge, engage, and enlighten our students — in the humanities, to teach them political slogans) and those of students (we’re here to party, find mates, and prepare for the job market). Another possibility is that political correctness has distorted the curriculum, creating large and well-funded departments in ethnic studies and postmodern literatre with high overhead and few students, leaving insufficient resources for, and interest in, traditional subjects like math and history. What are some other  hypotheses? (Thanks to Dennis Lubahn for the pointers.)

| Peter Klein |

Scott joins the “You’re the Boss” blogging team (via Dane Stangler).

| Peter Klein |

O&M, like other niche academic blogs, deals occasionally with the history and sociology of this or that school of economic or management thought. We think often about professional strategy — how to promote our ideas, how to secure financial and institutional support, how to recruit students and fellow-travelers (”groupies,” according to Nicolai), what competing and complementary movements and schools of thought (not to mention rival blogs) are up to, and so on.

Given our close association with the Austrian school, you might be surprised to learn that the founding Austrians were not at all “strategic” in this sense. They held strongly to the view that truth wins out in the long run, so there is no need to build formal institutions or establish a “movement.” This comes out in a passage from Mises’s recently released Memoirs (a new translation of his earlier Notes and Recollections):

It is necessary to correct the misunderstandings that can be called forth by using the expression “Austrian School.” Neither Menger nor Böhm-Bawerk wanted to found a school in the sense customarily used in university circles. They never attempted to turn young students into blind disciples, nor did they, in turn, provide these same students with professorships. They knew that through books and an academic course of instruction they could promote an understanding suited to dealing with economic problems, thus rendering an important service to society. They understood, however, that they could not rear economists. As pioneers and creative thinkers, they recognized that one cannot arrange for scientific progress, nor breed innovation according to plan. They never attempted to propagandize their theories. Truth would prevail of its own accord when man possessed the faculties necessary to perceive it. Using impertinent means to cause people to pay lip service to a teaching was of no use if they lacked the ability to grasp its substance and significance.

Menger made no efforts to extend favors to colleagues that would be reciprocated with recommendations for appointments. As minister and then ex-minister of finance, Böhm-Bawerk could have used his influence; he always spurned such behavior. Menger did make occasional attempts, without success, to prevent the promotion of those, for example, Zweideneck, who had no sense of what was going on in economics. Böhm-Bawerk made no such attempts. In fact, he advanced rather than hindered the appointments of Professors Gottl and Spann at the Brünner Technische Hochschule.[8]

Menger’s position on such questions is best illustrated by a note discovered by Hayek while perusing Menger’s scientific papers. It reads, “In science, there is only one sure method for the ultimate triumph of an idea: one should allow any contrary notion to run its course completely.”

See also Joe Salerno’s piece on economics as a vocation, not a profession. What do you think — how important  are the professional trappings of an academic “movement”?