Archive for December, 2008

EJPE Now Available

| Peter Klein |

The Erasmus Journal for Philosophy and Economics has put out its first issue, which you can read online here. Highlights include several articles and reviews about methodology, an interview with Uskali Mäki, and a review of Donald MacKenzie’s An Engine, Not a Camera, much beloved in certain circles. (Via Dan D’Amico.)

18 December 2008 at 10:10 am Leave a comment

Mainstream Journalism, RIP

| Peter Klein |

Last week’s WSJ carried an op-ed from SEC Chair Christopher Cox, “We Need a Bailout Exit Strategy.” The op-ed was nothing special (mostly defending the SEC, of course, though there was a nice Hayekian line about “decentralized decision-making, in which millions of independent economic actors make judgments using their own money, [resulting] in the wisest allocation of scarce resources across our complex society”). What caught my eye was the headline, which suggests a connection between the bailout and the Iraq war, a connection I’ve been meaning to write about.

Remember how journalists felt deceived by the Bush Administration about the war? President Bush said that Saddam Hussein was a “grave and growing threat,” and the media repeated this line. Colin Powell showed pictures of the mobile weapons trailers and the New York Times reprinted them with enthusiasm. When the Administration’s claims proved false, the mea culpas began. Judith Miller resigned in disgrace. Never again, the media cried, will we be used as house propaganda organs. And yet, once the financial crisis began, the exact pattern was repeated. Bernanke and Paulson say there’s a “credit freeze,” that the financial sector is on the verge of collapse, that they alone know what to do — so that’s what the newspapers print. No time to investigate, to interview anyone outside the government, to hold these claims up to any critical scrutiny. If high officials say credit markets are frozen, that only “bold action” from the Treasury, the Fed, and Congress can prevent total meltdown, then that’s the way it is. Virtually every news report on the crisis followed the official script. It’s as if the financial reporters from the Times, the WSJ, the Washington Post, CNN, etc. were embedded with the Treasury. News reports have been little more than government press conferences. Shame, journalists, shame!

Why Oh Why, as Brad DeLong would say, can’t we have a press corps that investigates, rather than simply repeating what the government asserts?

17 December 2008 at 4:43 pm 6 comments

Bygrave on the State of Entrepreneurship Research

| Peter Klein |

William Bygrave surveys the field and concludes that it’s “dominated by quantitative research driven almost exclusively by statistical analysis with SPSS and that qualitative research is seldom published in the leading entrepreneurship journals. He regrets that it is almost impossible to get purely empirical paper published in the leading journal. He pleads with journal editors and their review boards to become less narrow minded and much more pluralistic.”

Bygrave’s assessment is valuable but I think limited by its focus on the “traditional” entrepreneurship  journals (e.g., JBV, ETP, SBE). Newer journals such as the SEJ and, more important, the entrepreneurship research that increasingly appears in the top mainstream strategy, organization, and economics journals tends to have a different, and more varied, character.

17 December 2008 at 11:35 am 3 comments

Ability and Specialization Among Economic Researchers

| Peter Klein |

Forgive the navel-gazing, but some of you may enjoy Todd Kendall’s paper in the December 2008 issue of MDE, “Ability and Specialization Among Economic Researchers,” which looks at the relationship between a researcher’s human capital and the scope of his activities. The sample consists of academic economists at top-50 US universities. Kendall shows that economists from more prestigious PhD programs tend to publish in more general journals, controlling for quality, and to list more JEL subject codes per paper. The quality control is important because the most prestigious journals (as in most fields) are also the most general. But the sample includes prestigious specialty journals and lower-tier general journals.

Naturally I’m tempted to ask for the raw data so I can analyze some sub-samples containing people I know personally. But perhaps it’s better not to go there. I do plan to defend myself against charges of being “eclectic” or “unfocused” by referring to this study and calling myself a “distinguished generalist.” At least it avoids Rothbard’s Law.

17 December 2008 at 10:18 am Leave a comment

Spulber’s Separation Theory of the Firm

| Peter Klein |

Dan Spulber’s new paper, “Discovering the Role of the Firm: The Separation Criterion and Corporate Law,” defines the firm “as a transaction institution [in which] the consumption objectives of the institution’s owners can be separated from the objectives of the institution itself.” 

The separation criterion provides a bright line distinction between firms and other types of transaction institutions. Firms under this criterion include profit-maximizing sole proprietorships, corporations, and limited-liability partnerships. Institutions that are not classified as firms include contracts, clubs, workers’ cooperatives, buyers’ cooperatives, merchants associations, basic partnerships, government enterprises, and government sponsored enterprises. The separation theory of the firm yields insights into corporate law that extend and complement the standard contractarian approach. The separation theory of the firm places emphasis on shareholder property rights and corporate governance.

The separation approach, Spulber argues, suggests that the corporate governance literature may pay too much attention to agency costs while downplaying the benefits of delegation. The paper builds on Spulber’s earlier work on intermediation and develops themes in his forthcoming book on the firm. Worth a look.

16 December 2008 at 12:42 am Leave a comment

Rizzo and Whitman on the New Paternalism

| Peter Klein |

Mario Rizzo and Glenn Whitman offer a Hayekian critique of Richard Thaler and Cass Sunstein in their new paper, “The Knowledge Problem of New Paternalism.” From the abstract:

The “new paternalism” is a set of policy prescriptions based on recent findings in behavioral economics whose purpose is to help individuals overcome a wide variety of behavior and cognitive biases. According to its proponents, it does not aim at replacing the preferences of individuals with those of the paternalist but rather to uncover the “true” preferences of individuals, that is, the preferences they would have if they had perfect knowledge, unlimited cognitive abilities and no lack of willpower.

The purpose of this Article is to show that new paternalist policies founder on the shoals of a profound knowledge problem revealed in Friedrich Hayek’s famous critique of central planning. Feasible policies require not only accurate scientific knowledge but also accurate knowledge of “the particular circumstances of time and place” that constitute the local and personal knowledge of individuals. This knowledge is not accessible by paternalists.

See also this exchange between Rizzo and Thaler in last year’s WSJ.

15 December 2008 at 1:46 am 2 comments

More on the Mythical Credit Crunch

| Peter Klein |

The mainstream media finally picks up the meme. From a Reuters story (via Jeff):

* Overall U.S. bank lending is at its highest level ever and has grown during the current financial crisies.

* U.S. commercial bank lending is at record highs and growing particularly fast since May 2007.

* Corporate bond issuance has declined but increased commercial lending has compensated for this.

As for the interbank market, [a new report] says:

* lending hit its highest level ever in September 2008 and remained high in October and that overall interbank lending is up 22 percent since the start of the financial crisis, taken to be mid-2007.

* The cost of interbank lending, as measured by the interest rates banks charge each other for lending overnight Fed funds, dropped to its lowest level ever in early November and remains at very low levels. . . .

[C]onsumer credit . . . was at a record high in September, the latest date for publicly available data. Local government bond issuance had continued at similar levels to those before the credit crisis, while bank lending for real estate reached a record level in October 2008. . . .

All of [this] drove the Celent report to conclude that the U.S. and other governments may be throwing good money after bad for want of a better idea of what is really happening. “Just like a doctor contemplating an obviously sick and suffering patient, a massive surgical intervention based on a misdiagnosis can only worsen the patient’s condition.”

As usual, you read it here first.

13 December 2008 at 6:28 pm 9 comments

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
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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).
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