Archive for January, 2007
Introducing Guest Blogger Clifford Grammich
| Peter Klein |
We are pleased to introduce Clifford Grammich as our newest guest blogger. Cliff (PhD, Political Science, Chicago, 1996) conducts independent research on the demographics and sociology of religion. Among other projects, he is chairman of the Religious Congregations and Membership Study operations committee of the Association of Statisticians of American Religious Bodies, the compilers of the only decennial county-level enumeration of religious congregations and their members in the United States. He plans to post about some “market” issues and the “demand” for religion, as well other issues on religion he is currently researching. Welcome, Cliff!
We Got Street Cred
| Peter Klein |
O&M gets this nice endorsement from the tech-oriented Doctor Recommended blog:
If you have spent much time working for The Man or consider yourself an entrepreneur of any stripe, then you have at some point thought about how firms should be organized: flat, horizontal, vertical, Terry Tate-ish, ad nauseam. I find the academic debate surrounding these issues interesting, though at times, completely Ivory Towerish. However, Peter Klein and his Denmarkian friend make the discourse interesting and germane. Plus I have a soft-spot for their Austrian-esque approach to Bureaucracy.
If there’s one thing we Ivory-Tower types hate, it’s being called Ivery Towerish!
The New Model CEO
| Peter Klein |
The firing of Home Depot’s Robert Nardelli, whose Saban-esque compensation package was a flashpoint of controversy during his six-year tenure as CEO, dominates the front page of Thursday’s WSJ. Alan Murray’s column, “Executive’s Fatal Flaw: Failing to Understand New Demands on CEOs,” neatly summarizes the New Corporate Governance:
What Mr. Nardelli missed . . . is that in the post-Enron world, CEOs have been forced to respond to a widening array of shareholder advocates, hedge funds, private-equity deal makers, legislators, regulators, attorneys general, nongovernmental organizations and countless others who want a say in how public companies manage their affairs. Today’s CEO, in effect, has to play the role of a politician, answering to varied constituents. And it’s in that role that Mr. Nardelli failed most spectacularly.
Here’s the problem: Do we really want CEOs to be politicians? If we accept Hayek’s argument that in the political marketplace, the worst get on top, what kind of leader becomes our New Model CEO? (more…)
Agency Costs in Corporations
| Peter Klein |
Law professors are calling this “the best corporate law cartoon ever.” (Click to enlarge.)
More on Walras
| Peter Klein |
Regarding Walras and the development of mathematical economics, Don Lloyd sends along these quotes from The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics by Eric D. Beinhocker (HBS Press, 2006):
The young Walras had a very shaky start to his career, and there was little foreshadowing of his later greatness. As a student, he was twice rejected from the prestigious Ecole Polytechnique due to poor mathematical skills. He instead went to the Ecole des Mines but failed as an engineer, then tried his hand as a novelist but was unsuccessful at that as well. One evening in 1858, a depressed Walras took a walk with his father, a teacher and writer, discussing what he should do with his life. The elder Walras, a great admirer of science, said that were two great challenges remaining in the nineteenth century: the creation of a complete theory of history, and the creation of a scientific theory of economics. He believed that differential calculus could be applied to economics to create a “science of economic forces, analogous to the science of astronomical forces.” The younger Walras was inspired by his father’s vision of a scientific economics and decided to make achieving that vision his life’s work (p. 29).
[I]t was particularly from chapter two of [Poinsot’s Elements of Statics], titled “On conditions of equilibrium expressed by means of equations,” that Walras imported the concept of equilibrium from physics into economics and laid the foundation for the Traditional Economics found in textbooks and journals today. This historical detail is noteworthy, because, as we will see in the next chapter, some critics argue this borrowing of equilibrium from physics was a crucial scientific misstep that has had lasting consequences for the field (p. 31).
Best Paper Title I Read Today
| Peter Klein |
“A Conceptual Framework for Interpreting Recorded Human History” by North, Wallis, and Weingast. Abstract below. (Thanks to Arnold Kling for the pointer.)
Neither economics nor political science can explain the process of modern social development. The fact that developed societies always have developed economies and developed polities suggests that the connection between economics and politics must be a fundamental part of the development process. This paper develops an integrated theory of economics and politics. We show how, beginning 10,000 years ago, limited access social orders developed that were able to control violence, provide order, and allow greater production through specialization and exchange. Limited access orders provide order by using the political system to limit economic entry to create rents, and then using the rents to stabilize the political system and limit violence. We call this type of political economy arrangement a natural state. It appears to be the natural way that human societies are organized, even in most of the contemporary world. In contrast, a handful of developed societies have developed open access social orders. In these societies, open access and entry into economic and political organizations sustains economic and political competition. Social order is sustained by competition rather than rent-creation. The key to understanding modern social development is understanding the transition from limited to open access social orders, which only a handful of countries have managed since WWII.
P.J. O’Rourke Reads The Wealth of Nations
| Peter Klein |
. . . so you don’t have to.
O’Rourke is a funny guy — his chapter on farm policy in Parliament of Whores should be required reading in all courses in agricultural economics and public policy — so this should be an entertaining book. Not sure if I’ll agree with his interpretation of Smith, of course. (Also highly recommended: “Among the Euro-Weenies” from 1988’s Holidays in Hell.)
Microinsurance
| Peter Klein |
We’ve expressed skepticism on these pages for the microfinance movement. Next up for critical scrutiny: microinsurance, which follows largely the same model. See the discussion on the PSD Blog for details, and especially this paper by Jonathan Morduch.
Judgment, Luck, and Intuition
| Peter Klein |
Former guest blogger Lasse Lien asked recently how entrepreneurial judgment is different from luck. Harold Demsetz once asked the same thing about Kirzner’s concept of alertness (“The Neglect of the Entrepreneur, 1983”). In our work on entrepreneurship Nicolai and I have defined judgment in Knightian terms as decision-making when the range of possible future outcomes, let alone the likelihood of individual outcomes, is unknown. In Mark Casson’s formulation, judgment is needed “when no obviously correct model or decision rule is available or when relevant data is unreliable or incomplete.”
If judgment is more than luck, then what is it? How about “intuition,” another kind of decision-making without a formal rule or model? The January 2007 Academy of Management Review features Erik Dane and Michael Pratt’s “Exploring Intuition and Its Role In Managerial Decision Making.” Intuition is defined inconsistently across the literatures in psychology, philosophy, and management, and Dane and Pratt do a nice job summarizing and synthesizing these definitions. Their own concept of intuitions is “affectively charged judgments that arise through rapid, nonconscious, and holistic associations.” They write: (more…)
NASA Didn’t Invent Tang
| Peter Klein |
Or velcro, the microwave oven, teflon, or nylon, not to mention semiconductors, microprocessors, or the internet, to name just a few innovations falsely credited to America’s giant, bloated, and highly inefficient space bureaucracy. Tim Swanson reminds us of all this, and adds:
In the end, regardless of what the state did or did not fund or invent, the take-away principle is the unseen. While everyone with a TV has been able to see the hordes of chemical rockets dramatically blast into the cosmos over the past decades, they were similarly unable to see the productive opportunities foregone and ignored via the reallocation of scarce resources.
The perceived benefits of a vain, nationalized space program include, among others, the fallacious need to fight the mythical shortage of scientists and engineers. Whereas in reality, it has stymied private tourism, exploration, and research for nearly half a century.
Tim also notes that during the Space Shuttle’s development, NASA engineers regularly testified before various appropriations committees that the Shuttle’s estimated failure rate was 1 per 100,000 missions. The actual failure rate has been 1 in 50.
Rubinstein on Behavioral Economics
| Peter Klein |
Ariel Rubinstein (discussed here and here) isn’t high on behavioral economics:
1. The behavioralists’ models are just as unrealistic as the traditional models. “[Matthew] Rabin goes out of his way to beat, if I may use his own phrase, the ‘dead parrot’ of full rationality. Of course there are many facts that are hard to reconcile with full rationality. But the psychology and economics literature has replaced a dead parrot with one that is equally dead. If the ‘time consistent’ model is wrong, then [Rabin’s present-bias model] is equally wrong.”
2. The papers are long and messy. “A major drawback of the behavioral economics models is that they lack both the elegance and generality that characterize the literature of General Equilibrium and Game Theory. The typical paper is messy and terribly long. Simple ideas are lost in poorly formulated models and numerical examples.” (Of course, if you don’t rank elegance and generality as your top theoretical criteria, this criticism isn’t likely to be compelling.) (more…)
Cover Letters From Hell
| Peter Klein |
As a service to our student readers, we suggest you avoid these cover letter mistakes when circulating your CV to potential employers (academic or commercial).
All of us — not only students, but mature professionals as well, particularly in academia — should work hard to avoid jargon-speak.
A writer uses pseudo-legalese because he lacks confidence in his authentic voice. From undergraduates trying to ace our Creativity Test, to MBAs immersed in BizSpeak, applicants feel they must inflate their prose by imitating Dickens, or combing the thesaurus to select — sigh — precisely the wrong word.
Imagine, if you will, two roommates at Thesaurus U.:
“I aspire to obtain a beverage. The vending machine is where my path leads.”
“I wish to accompany you, since I have assembled a myriad of coins.”
“I possess coins, as well. Let’s embark.”
Via Craig Newmark.
The Other O&M
| Peter Klein |
Sometimes people mistake me for this Peter Klein, or this one, or this one. (Memo to other Peter Kleins: If you have any of my journal acceptance letters, could you please forward them? I seem to be missing a few.) As it turns out, “Organizations and Markets” is also the title of an Economic Research Network (ERN) subject matter journal. (ERN, part of SSRN, uses the word “journal” for its lists of abstracts and papers; there’s no peer review involved.) George Baker manages the series; his illustrious advisory board includes names like Gibbons, Hart, Holmstrom, Jensen, Shleifer, and Williamson. Not bad.
Here are the most downloaded papers in the series. You’ll see some familiar items. A sample issue looks like this.
Wonder how much they’d pay for our URL?
Marx and the Marxists
| Peter Klein |
The founders of social movements and schools of thought often try to distance themselves from their followers. (Or their later interpreters do this for them). Thus one can ask if Freud was a Freudian, Ricardo a Ricardian, Walras a Walrasian, Keynes a Keynesian (chapter 5 Keynesian? chapter 12 Keynesian?), and so on. Future scholars will no doubt debate whether Foss was really a Fossian (you have to wonder about some of his disciples).
Andrew Kliman is a True Marxist and argues, in his new book, that fellow Marxists have gone off track by accepting what Kliman calls “the myth of inconsistency.” In other words, contrary to both Marx’s critics and his disciples, there are no internal inconsistencies in Das Capital. “It had to be done,” states one dust-jacket endorsement: “someone has finally rescued Marx from the Marxists.” Bertell Ollman, perhaps today’s most famous living Marxist, says Kliman’s arguments “operate like a buzz saw clearing away the underbrush of misplaced criticisms that have kept the real Capital hidden from most of its potential readers.” Given how many college students have been forced to slog through at least one volume of Marx’s lengthy tome — with little or no exposure to Marx’s critics — it’s hard to believe that Marx’s true message has remained hidden for so long. Nonetheless, devotees of the secondary literature on Marx will surely wish to add this volume to their collections.
Update: Orthodox Freudians have long denied Carl Jung’s claim that Freud had an affair with his wife’s younger sister, but apparently he did after all. (Love the Herald-Tribune headline: “Hotel Log Hints at Desire That Freud Didn’t Repress.”
Update II: Andrew emails to say I didn’t get it quite right: “Actually, I’d be foolish to say that there aren’t inconsistencies in Capital, so I don’t. My argument is restricted to the allegations of inconsistency that are extant. Also, in regard to ‘True Marxist,’ which sounds a bit like Hoffer’s ‘True Believer,’ I point out several times in the book that “logically consistent” doesn’t mean correct or true.”
Pomo Periscope VII: Are We All Pomos Now?
| Nicolai Foss |
As I noted in the first post in the Pomo Periscope series, pomo is increasingly placing its tentacles within the very citadels of reason, that is, economics. However, so far only rather peripheral areas have been invaded, such as the history of economic thought.
Case in point: Ernesto Screpanti and Stefano Zamagni’s An Outline of the History of Economic Thought (OUP, 2005). (more…)
Transaction Costs and the Church
| Peter Klein |
James Emery White, president of the highly regarded Gordon-Conwell Theological Seminary, is thinking about Ronald Coase. In a year-end reflection he writes that the most important phenomena of 2006, for religious organizations, may be the wiki, the blog, and the virtual firm.
[W]hat began with eBay, MySpace, Wikipedia and YouTube may not stop with revolutionizing how companies such as Goldcorp or Proctor and Gamble operate (or are even identified). The heart of the change involves the ever-widening rejection of professional/intellectual elites, and the diminution of those organizations which exist as either the gathering of such elites, or serve as the repositories of their supposedly exclusive knowledge. Further, those organizations that were once thought necessary for basic transactions of other natures — such as communal transactions — may also face a rude awakening.
Such as the church.
As posed by [an article in] USA Today, “So if a core reason companies exist is to lower transaction costs, what happens if that reason goes away?” Do we have reasons for such institutions as a school, newspaper, court of law, or church beyond “transaction costs?” And my great fear is for the church, particularly in light of the woefully inadequate and often heretical ecclesiology present within the Christian faith at large which is already reducing both the value and definition of the church to utilitarian forms.
The economics of religion is a growing field (see Larry Iannaccone’s resource page), but I’m not aware of much work by economists or sociologists on the impact of technology on the existence, boundaries, an internal structure of religious organizations. Any suggestions?
Mongols in Iraq
| Peter Klein |
I mentioned below that I was reading Jack Weatherford’s Genghis Khan and the Making of the Modern World. Here is Weatherford, writing in the 29 December LA Times, on how Genghis would have handled the invasion and occupation of Iraq:
IN HIS FINAL televised speech to the Iraqi people in 2003, Saddam Hussein denounced the invading Americans as “the Mongols of this age,” a reference to the last time infidels had conquered his country, in 1258. But the comparison isn’t very apt — unlike the Mongols, the Americans don’t have the organizational genius of Genghis Khan.
Read the rest for a flavor of what’s in the book.
Going to Nam
| Nicolai Foss |
Since my home country Denmark has now almost completed the transition from capitalism to socialism, other countries must serve as places to do field studies of the functioning of a real market economy. Thus, I will be leaving for Vietnam on Wednesday (here is an Austrian paper on Vietnam’s recent economic experience). Apart from a visit to Kampuchea, I will be staying in that country for all of January. I may have occasion to report for the O&M readership, but I am not sure I will. This trip is considerably more pleasure than business.
VERY Nerdy!
| Nicolai Foss |
If you think that O&M occassionally lapses into nerd territory (admittedly we do!), then please check this out! It is the brainchild of orgtheory.(intra)net’s Kieran Healy. I am sure it can inspire Peter to a post along the lines of “Why are Sociologists Nerdy — Really Nerdy?”
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