Archive for December, 2010

Love, Marriage, and Money

| Peter Klein |

Most interesting passage I read today:

Contrary to prevailing interpretations that attribute the [historical] rise in voluntary, romantic unions to an increased sexual division of labor and the domestication of family life, Howell argues that true companionship between husband and wife was necessary to weather the challenges of commercial life. In her words, “love was by no means the antithesis of the market. It was the market’s helpmate” (p. 141).

It’s from Francesca Trivellato’s review of Martha C. Howell, Commerce before Capitalism in Europe, 1300-1600 (Cambridge, 2010). As Howell notes, “the commercialization of society was not just an economic history as we understand the term but a social, legal, and cultural story, and it is incomprehensible if told from the perspective of one of these modern conceptual categories alone.”

19 December 2010 at 3:30 pm 2 comments

Short Course on Network Economics

| Peter Klein |

I’m teaching a five-week, online course starting in January called “Networks and the Digital Revolution: Economic Myths and Realities.” It’s offered through the Mises Academy, an innovative course-delivery platform that is becoming its own educational ecosystem. A description and course outline is here, signup information is here. I’d love to have you join me!

17 December 2010 at 12:24 pm 3 comments

Friedman, 1953

| Lasse Lien |

Some things just cannot be ignored. A prime example is Friedman’s 1953 essay “The Methodology of Positive Economics.” As most O&M readers will know Friedman’s key claim is that a theory should be judged by its predictive accuracy, not the realism of its assumptions. On the contrary, a theory that makes dramatic (i.e., unrealistic) simplifying assumptions and still generates good predictive results is considered a better theory than a more complex (i.e., realistic) theory with the same predictive performance. Few texts, and surely no other text on economic methodology, is loved, hated, and cited by so many. In much of mainstream economics Friedman’s position — or some version thereof — is routinely relied upon. For example, imagine defending game theory on the realism of its assumptions.

In 2003, on the 50 year anniversary of its publication, a conference was held at the Erasmus University in Rotterdam where the legacy of this paper was discussed. In 2009 a book was published containing a collection of papers from this conference, edited by Uskali Mäki. A link to this book can be found here, and a recently published (harsh) review of the book can be found here. Note that the book review makes interesting reading even if you do not intend to read the book (but have read the original essay).

If this is your cup of tea, you might also like this remarkable paper.

16 December 2010 at 1:58 pm 12 comments

Megachurches and Management Education

| Peter Klein |

This month’s Fast Company profiles Willow Creek, perhaps the world’s most famous megachurch. The article opens by describing a conversation between Willow Creek pastor Bill Hybels and management guru Peter Drucker:

Hybels decided that one of his unique contributions [to ministry] could be to create a resource for pastors who didn’t have firsthand access to thinkers like Drucker. The need was clear. A 1993 survey of evangelical pastors by seven seminaries found that while they said their education had prepped them well in church history and theology, they felt undertrained in administration, management, and strategic planning. “In the 1950s, a pastor preached on Sundays, did weddings and funerals, and visited the sick,” says Dennis Baril, senior pastor of the Community Covenant Church in Rehoboth, Massachusetts, which hosts a satellite summit site every year. “I have almost 50 ministries that need to be put together, scheduled, organized, and led. It’s a different skill set.”

Church conferences did little to address that need. “Most of them are pastors learning from pastors,” says Jim Mellado, who wrote a 1991 Harvard Business School case study on Willow Creek. “If you only hear preaching from the choir, you’re never stretched. You never see things from another perspective.”

Sounds a bit like university administrators, most of whom learn administration from, well, other university administrators. (Who may have been English professors in a previous life.)

Here’s the HBS case on Willow Creek, and here are Mike Porter’s PowerPoint slides from his 2007 presentation at Willow Creek’s leadership summit. Interesting factoid from the Economist via Wikipedia: in 2007, five of the world’s ten largest Protestant churches were in South Korea.

15 December 2010 at 10:01 am 2 comments

In Defense of English

| Peter Klein |

Co-bloggers Nicolai and Lasse probably speak better English than I do, despite the handicap of Scandinavian birth, but I sure like it. So does Rishidev Chaudhuri:

To me, the most striking thing about English is its diversity of vowels, something I only noticed after many years of speaking the language. English, in many dialects, has about 15 vowels (not counting diphtongs). Listen to the vowels through these words: a, kit, dress, trap, lot, strut, foot, bath, nurse, fleece, thought, goose, goat, north. There are languages that have more (Germanic ones tend to be vowel rich), but there aren’t many of them, and none that I know well enough to frame a sentence in. And compare this vowel list to the relative paucity of vowels in so many other languages. Hindi really has only about 9 or 10 vowels; Bengali, which has lost several long-short distinctions has slightly fewer (though lots of diphtongs). Some languages (including these two) do include extra vowels formed by nasalizing existing ones; these nasalized vowels often sound lovely, but feel very similar to their base vowels. It’s more a flourish than a genuinely new creation. Japanese and Spanish have about 4 or 5 apiece, and I’m told that Mandarin and Arabic have about 6.

English, then, is capable of exceptionally rich assonance and exuberant plays on vowel sound.

I mean, savor the delights of “methodological individualism” or “apodictic certainty” or “heteroskedasticity consistent standard errors” and tell me it isn’t sheer poetry!

14 December 2010 at 10:54 am 3 comments

“Robert S. McNamara and the Evolution of Modern Management”

| Peter Klein |

That’s the title of a new HBR article by Phil Rosenzweig (author of the excellent Halo Effect). I’ve been interested in McNamara and his role in business history since grad school, when I was researching “management by the numbers” and similar techniques that flourished during the conglomerate boom in the 1960s. (See previous O&M posts on McNamara here and here.) Rosenzweig provides a nice summary of some of strengths and weaknesses of McNamara’s dispassionate, “rational,” quantitative approach (see especially the sidebar, “What the Whiz Kids Missed”). Lots of information and ideas related to decision theory, organizational design, multitasking, performance evaluation, innovation, etc. Excerpt:

Whether at Ford or in the military, in business or pursuing humanitarian objectives, McNamara’s guiding logic remained the same: What are the goals? What constraints do we face, whether in manpower or material resources? What’s the most efficient way to allocate resources to achieve our objectives? In filmmaker Errol Morris’s Academy Award–winning documentary The Fog of War, McNamara summarized his approach with two principles: “Maximize efficiency” and “Get the data.”

Yet McNamara’s great strength had a dark side, which was exposed when the American involvement in Vietnam escalated. The single-minded emphasis on rational analysis based on quantifiable data led to grave errors. The problem was, data that were hard to quantify tended to be overlooked, and there was no way to measure intangibles like motivation, hope, resentment, or courage. . . .

Equally serious was a failure to insist that data be impartial. Much of the data about Vietnam were flawed from the start. This was no factory floor of an automobile plant, where inventory was housed under a single roof and could be counted with precision. The Pentagon depended on sources whose information could not be verified and was in fact biased. Many officers in the South Vietnamese army reported what they thought the Americans wanted to hear, and the Americans in turn engaged in wishful thinking, providing analyses that were overly optimistic.

13 December 2010 at 10:25 am 3 comments

Kiffin Goods

| Peter Klein |

US college football fans may appreciate this paper, written by three University of Tennessee economists:

Kiffin Goods
by Omer Bayar, William Neilson, and Stephen Ogden
February 2, 2010

Abstract: In this paper, we investigate the possibility of a managerial input that experiences increasing compensation along with decreasing intensity. We call this type of input a “Kiffin Good” after the head football coach Lane Kiffin. We propose a novel production process that might lead to Kiffin behavior.

The Kiffin Good is described as the supply-side equivalent of the so-called Giffen Good — for the latter, the quantity demanded increases with price, while for the former, price rises as quantity falls. (Note that some of us have politically incorrect views on Mr. Giffen’s famous paradox.)

10 December 2010 at 11:17 am 1 comment

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