Archive for July, 2013

Climate Science and the Scientific Method

| Peter Klein |

This article on climate science skeptics is making the rounds, and drawing the expected denouncements in the usual quarters. It actually makes some reasonable, and quite mild, statements, namely that climate science, like astronomy or evolutionary biology, is a different kind of “science” than physics or chemistry or geology or other mundane sciences. In the former fields, the fundamental assumptions and key mechanisms are usually not falsifiable, the data are often fuzzier than usual, and there is frequently a lot of hand-waiving to fill in gaps.

Many climate sceptics worry climate science cannot be dubbed scientific as it is not falsifiable (as in Popper’s demarcation criterion). They claim that while elements of climate science may be testable in the lab, the complexity of interactions and feedback loops, as well as the levels of uncertainty in climate models, are too high to be a useful basis for public policy. The relationship of observations to these models are also a worry for climate sceptics. In particular, the role of climate sensitivity.

As well as their use of models, the quality of observations themselves have been open to criticism; some of which have been attempts to clean up issues deriving from the messiness of data collection in the real world (eg the positioning of weather stations), while others have focused on perceived weaknesses in the proxy methods required to calculate historic temperature data such as cross-sections of polar ice sheets and fossilised tree rings.

Such claims are of variable quality, but what unites them is a conviction that data quality in various branches of climate science are below those required by “real science”.

What strikes me the most about these “big” sciences is the language and tone typically used to communicate the results to the public. Where scientists in mundane fields express their conclusions cautiously, emphasizing that results and conclusions are tentative and always subject to challenge and revision, climate scientists seem to view themselves as Brave Crusaders for Truth, striking down “Deniers” (who must be funded by the oil industry or some other evil group). They shout that we “know” this or that about climate change, what the planet will be like in 5,000 years, etc. You hardly ever hear other scientists talk like this, or act as if skeptics are necessarily prejudiced and irrational.

31 July 2013 at 8:34 am 29 comments

“Trapped” in Rental Contracts

| Peter Klein |

In today’s feature on the US housing market, an NPR correspondent sadly notes that foreclosure victims are “trapped” in rentals. Why, those poor, unlevered souls, choosing to purchase a flow of housing services over time, rather than buying a huge, illiquid housing asset outright, using borrowed funds. Tragic!

It made me think of similar tragedies:

  • Mercedes and BMW drivers trapped in lease contracts, rather than buying their cars with cash or credit
  • Individuals trapped in wage and salary contracts, rather than raising the capital, arranging the inputs, and bearing the uncertainties to be sole proprietors
  • Companies trapped in outsourcing agreements, rather than owning all upstream and downstream production processes directly, as vertically integrated firms
  • Vacationers trapped in resort hotels, rather than owning their own vacation condos or timeshares
  • Readers trapped by downloading and reading books on their Kindles, essentially “renting” them from Amazon, rather than buying physical books
  • Movie fans trapped in DVD rental agreements with Netflix, rather than owning massive DVD libraries

Don’t these suckers know that goods and services should always be purchased outright, rather than rented or borrowed?

30 July 2013 at 9:18 am 5 comments

More Orson

| Peter Klein |

A useful management tip from the great director:

Orson Welles: Did I ever tell you the story of [Franz Joseph’s] visit to the provinces? It’s a great movie story. You can use it on set almost any day with an assistant director.

Henry Jaglom: What is it?

OW: Franz Joseph is riding in his carriage through this tiny provincial town, plumes and all. The trembling mayor is sitting next to him. He says, “Your Imperial Highness, I have to apologize to you in the profoundest terms for the fact that the bells are not ringing in the steeple. There are three reasons. First, there are no bells in the steeple — ” And Franz Joesph interrupts him and says, “Please don’t’ tell me the other two reasons.” Now, that’s a good answer for every assistant director, everyone in the world that you’ve had working for you in any capacity.

HJ: Where you just want to get a straight answer. . . .

OW: I tell that story when I make a movie, always. When somebody starts with the excuses, I say, “Bells in the steeple.” It stops them every time.

Student: “I didn’t finish the assignment because, well, um. . . .” Professor: “Bells in the steeple!” I’m putting that one on my syllabus.

29 July 2013 at 9:01 am Leave a comment

Two AoM PDWs of Interest

| Peter Klein |

O&Mers attending the AoM conference may find these Professional Development Workshops, sponsored by the Academy of Management Perspectives and based on recent AMP symposia, of particular interest:

The first PDW is on “Private Equity” and features presentations on the managerial, strategic, and public policy implications of private equity transactions. Presenters include Robert Hoskisson (Rice University), Nick Bacon (City University London), Mike Wright (Imperial College London), and Peter Klein (University of Missouri). The private equity session takes place Saturday, Aug 10, 2013 from 11:30AM – 12:30PM at WDW Dolphin Resort in Oceanic 5.

The second is on “Microfoundations of Management,” and features presentations from Nicolai Foss (Copenhagen Business School), Henrich Greve (INSEAD), Sidney Winter (Wharton), Jay Barney (Utah), Teppo Felin (Oxford), Andrew Van de Ven (Minnesota), and Arik Lifschitz (Minnesota). The microfoundations session takes place Monday, Aug 12, 2013 from 9:00AM
– 10:30AM at WDW Dolphin Resort in Oceanic 5

Preregistration isn’t required but please let Don Siegel or Tim Devinney know if you plan to attend, as space is limited.

25 July 2013 at 8:47 am Leave a comment

Orson Welles on Organizational Structure

| Peter Klein |

Welles was perhaps the greatest auteur of cinema and modern theater, so it’s no surprise that he comes out in favor of flatter hierarchies:

OW: [Irving] Thalberg was the biggest single villain in the history of Hollywood. Before him, an producer made the least contribution, by necessity. The producer didn’t direct, he didn’t act, he didn’t write — so, therefore, all he could do was either (A) mess it up, which he didn’t do very often, or (B) tenderly caress it. Support it. Producers would only go to the set to see that you were on budget, and that you didn’t burn down the scenery. But [Louis B.] Mayer made way for the producer system. He created the fellow who decides, who makes the directors’ decisions, which had never existed before.

HJ: Didn’t the other studio heads interfere with their directors?

OW: None of the old hustlers did that much harm. If they saw somebody good, they hired him. They tried to screw it up afterwards, but there was still a kind of dialogue between talent and the fellow up there in the front office. They had that old Russian-Jewish respect for the artist. All they did was say what they liked, and what they didn’t like, and argue with you. That’s easy to deal with. And sometimes the talent won. But once you got the educated producers, he has a desk, he’s gotta have a function, he’s gotta do something. He’s not running the studio and counting the money — he’s gotta be creative. That was Thalberg. The director became the fellow whose only job was to day, “Action” and “Cut.” Suddenly, you were “just a director” on a “Thalberg production.” Don’t you see? A role had been created in the world. Just as there used to be no conductor of symphonies.

HJ: There was no conductor?

OW: No. The konzertmeister, first violinist, gave the beat. The conductor’s job was invented. Like the theater director, a role that is only 150, 200 years old. Nobody directed plays before then. The stage manager said, “Walk left on that line.” The German, what’s his name, Saxe-Meiningen, invented directing in the theater. And Thalberg invented producing in movies. He persuaded all the writers that they couldn’t write without him, because he as he great man.

Clearly Orson would not agree with my take on entrepreneurship and ultimate responsibility, as applied to the arts. Or do well in a restaurant kitchen. I have to admit, though, that Welles has a certain credibility on the subject of creativity.

21 July 2013 at 7:09 pm 2 comments


| Peter Klein |

When I testified last year before Congress on the Federal Reserve System I focused not on monetary theory and policy, but on organization theory, pointing out that an independent, largely unaccountable organization lacking any systematic oversight or governance procedures cannot possibly perform well. O&M readers have heard these complaints before. Not surprisingly, the same issues are key to understanding the debate over the NSA’s domestic surveillance procedures. The NSA’s defenders say its actions are lawful and appropriate and that there is effective oversight and governance, because Congress is briefed on the programs and an independent (albeit secret) court approves specific policies and data requests. “The government does not know,” wrote Richard Epstein and Roger Pilon, “whether you’ve called your psychiatrist, lawyer or lover. The names linked to the phone numbers are not available to the government before a court grants a warrant on proof of probable cause, just as the Fourth Amendment requires.”

Thanks to Edward Snowden’s revelations, we know the first part of this claim is nonsense: a low-level contractor can request names and the content of actual calls with a few mouse clicks. (Even the collection of metadata is itself a gross violation of privacy.) More disturbing, the NSA now admits it has “three-hop” authority, meaning that it can access the calls not only of alleged terrorists, but those in contact with alleged terrorists, and those in contact with those in contact with alleged terrorists. (Watch out, Kevin Bacon!) More interesting is the claim about alleged judicial oversight. We’ve long known that the secret FISA court, which approves surveillance requests, gives the spy agencies what they want 99% of the time. To call the FISA court procedure a rubber stamp is an insult to rubber stamps. And what of the alleged Congressional participation and oversight? We heard this yesterday:

Congresswoman Zoe Lofgren revealed that an annual report provided to Congress by the government about the phone-records collection, something cited by intelligence officials as an example of their disclosures to Congress, is “less than a single page and not more than eight sentences.”

So much for transparency and detailed disclosure. (By comparison, my last annual report to my supervisor, reporting on such issues vital to national security as my academic publications, conference participation, teaching activities, etc., was 14 pages and 2,700 words.)

The bottom line is that, whatever one thinks is the appropriate scope for these surveillance programs, the US intelligence agencies operate without any de facto oversight and governance. Small groups of unelected officials and bureaucrats decide, at their sole discretion, what is and isn’t appropriate for “protecting national security.” You don’t need a course in organization theory to predict how such groups will behave.

18 July 2013 at 8:59 am 1 comment

The Coase Theorem in under 140 Characters

| Dick Langlois |

From the Stanford alumni newsletter:

Goodbye @SUAthletics, Hello @gostanford

Stanford athletics knows how to drive a hard bargain. The department recently traded its longtime Twitter handle, @SUAthletics, to Syracuse University in exchange for a yet-to-be determined order of local goods, including one case of oranges. The fruit will be used to refill Stanford’s 2011 Orange Bowl trophy. Athletics will now tweet as @GoStanford, which had emerged as a more popular choice.

18 July 2013 at 8:41 am Leave a comment

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Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
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).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).