December | 2007 | Organizations and Markets

Financial Innovation

| Steve Phelan |

In his recent NY Times op-ed, Paul Krugman railed against the evils of financial innovation:

How did things get so opaque? The answer is “financial innovation” — two words that should, from now on, strike fear into investors’ hearts.

O.K., to be fair, some kinds of financial innovation are good. . . . But the innovations of recent years — the alphabet soup of C.D.O.’s and S.I.V.’s, R.M.B.S. and A.B.C.P. — were sold on false pretenses. They were promoted as ways to spread risk. . . . What they did instead — aside from making their creators a lot of money, which they didn’t have to repay when it all went bust — was to spread confusion, luring investors into taking on more risk than they realized.

Folsom’s (1991) “Myth of the Robber Barons” contrasts “political entrepreneurs,” who basically engage in rent-seeking, from “market entrepreneurs,” who seek entrepreneurial rents and improve social welfare. (HT: Rafe Champion.) I’m wondering if we need a new category of entrepreneurs?
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3 December 2007 at 2:51 am stevphel 18 comments

Pros and Cons of Academic Blogging

| Peter Klein |

Scott Eric Kaufman, a PhD candidate in English literature who blogs at Acephalous, says academic blogging connects scholarship to the wider world:

There’s no reason our community needs to consist solely of people we knew in grad school. Why not write for people who don’t already how you think about everything? Why not force yourself to articulate your points in such a way that strangers could come to know your thought as intimately as your friends from grad school do?

The informal publishing mechanisms available online can facilitate such communication so long as bloggers write for an audience informally. Senior faculty might continue to orient their scholarly production to the four people whose scholarly journals don’t pile up in the corner of the living room, slowly buried beneath unpaid bills and unread New Yorkers. Whether they know it or not, bloggers write for an audience larger than the search committees we hope to impress. They have already started eye-balling the rest of the world, asking themselves how they can communicate with it without seeming to pander to it.

But the signal-to-noise ratio is very low, counters Adam Kotsko, a PhD student in theology: (more…)

3 December 2007 at 12:14 am Peter G. Klein 3 comments

Austrian Economics and Pictograms: A Connection?

| Nicolai Foss |

Here is a possible research subject for a historian of ideas. The invention of pictograms is very often ascribed to Otto Neurath, Austrian philosopher (hardcore positivist) and political economist. Of course, pictograms go back much longer. For example, “A” is essentially a pictogram, namely the inverted head of a cow. Still, Neurath contributed very significantly in coming up with new designs for pictograms, designs that are still with us, codifying the art of the pictogram, disseminating and propagandizing for their use, etc.

Now, Neurath was a participant in the Böhm-Bawerk seminar, and a contemporary of Ludwig von Mises whom he clearly knew. Mises didn’t symphatize with Neurath’s view, and this lack of sympathy may have been reciprocated by Neurath. Still, it is at least conceivable that Mises’ views on prices as necessary for rational economic action may have influenced Neurath-the-inventor-of-the-pictogram (Mises’ views were formed and published before Neurath’s work on pictograms). Prices summarize information and provide direction in a complex world. Pictograms do the same. A possible connection?

2 December 2007 at 1:27 pm Nicolai Foss 4 comments

Hawthorne Experiments Online Exhibition

| Peter Klein |

As part of its 100th anniversary HBS is featuring a number of online exhibitions, including this one on the famous Hawthorne Experiments from 1924 to 1933. A nice set of photos, documents, and commentary.

Here is Jeffrey Sonnenfeld’s 1985 article on the Hawthorne studies (JSTOR), emphasizing their role in challenging the Taylorite “scientific management” paradigm and laying the groundwork for the modern discipline of organizational behavior. “The prevailing notions of the time of the Hawthorne studies were that individual human behavior was to be corrected for and controlled. The study of purely formal static social structures all but disappeared with the publication of the Hawthorne research. . . . [T]he Hawthorne researchers were the first to emphasize the social complexities of organization life and what came to be called a systems approach (p. 115).”

Here is the Wikipedia entry on the Hawthorne effect, the phenomenon of subjects in a behavioral experiment changing their behavior in response to being observed (or, more generally, anyone behaving differently in response to attention). The section of the exhibit on the Hawthorne effect is slicker but less detailed.