Posts filed under ‘Former Guest Bloggers’
New NSF Solicitation
| Steve Phelan |
This call might be of interest to organizational economists:
From Jack M at the NSF:
NSF issued a new solicitation on Virtual Organizations as Sociotechnical Systems yesterday. Proposals are due 2 June.
Further information and a link to the solicitation itself can be found at:
http://www.nsf.gov/funding/pgm_summ.jsp?pims_id=503256&org=NSF&sel_org=NSF&from=fundThis is a wonderful opportunity for US-based social scientists working on topics pertinent to virtual organizations, broadly construed. A synopsis and list of some potential topics is provided below. (more…)
More on Blind Freddy
| Steve Phelan |
Apologies to everyone for my lengthy absence. Since January 1, I have been working in a new administrative role in the College of Business at UNLV {shock, horror}. (Details can follow after a formal announcement is made).
Further to my argument several months ago that “blind freddy” could have seen the mortgage problems, here is a nice insider view from Calculated Risk:
But a whole lot of these loans that are failing right now were originated as 100% CLTV stated-income loans, because the guidelines agreed to by the issuer allowed that. I am scratching my head over the logic here: I spent most of the early years of this decade, just as a for instance, blowing my blood pressure to danger levels every time I looked at the underwriting guidelines published by ALS, the correspondent lending division of Lehman. ALS was a leader in the 100% stated income Alt-A junk. And I kept having to look at them because my own Account Executives keep shoving them under my nose and demanding to know how come we can’t do that if ALS does it. I’d try something like “because we’re not that stupid,” and what I’d get is this: “But if ALS can sell those loans, so can we. All we gotta do is rep and warrant that they meet guidelines that Wall Street is dumb enough to publish.” Every lender in the boom who sold to the street wrote loans it knew were absurd, but in fact they had been given absurd guidelines to write to. What on earth good did it do to have those originators represent and warrant that they followed underwriting guidelines to the letter, when those guidelines allowed stated income 100% financing on a toxic ARM with a prepayment penalty?
The argument is that mortgage originators were not so much committing massive fraud but rather that banks were following lax guidelines that those on ‘the Street’ did not view as problematic (or perhaps that the ultimate investor did not view as problematic).
Law of Unintended Consequences
| Steve Phelan |
Nice post by Alex Tabarrok on the law of unintended consequences. He concludes by saying:
Does the law of unintended consequences mean that the government should never try to regulate complex systems? No, of course not, but it does mean that regulators should be humble (no trying to remake man and society) and the hurdle for regulation should be high.
Brain Flows
| Steve Phelan |
Further to my comments on the best and brightest entering the finance industry, David Wessell at the WSJ reports that 15% of male Harvard graduates from 1990 work in the finance industry compared with only 5% of 1970 graduates. Furthermore, those Harvard grads in the finance industry were earning 195% of the salary of those in other industries. The article later goes on to state that “some of the brainpower drawn to Wall Street would have been more productively employed elsewhere in the economy.” The question is whether all this is a free market outcome or is some sort of distortion misallocating resources?
Legal Entrepreneurship
| Steve Phelan |
I just had lunch with the general counsel of an internet retailer, which is headquartered here in Las Vegas. He was bemoaning the fact that the biggest headache in his job is patent infringments… (more…)
Prediction markets
| Steve Phelan |
One of the memes rattling round the blogosphere today is the failure of prediction markets to predict Hillary Clinton’s win in New Hampshire – in fact, to radically write off her prospects after the Iowa outcome. Paul Krugman goes so far as to entitle his blog on the subject “nobody knows anything” (as opposed to Surowiecki’s wisdom of crowds).
Surowiecki argues that wise crowds need: a) diversity of opinion, b) independence, c) decentralization (i.e. local knowledge), and d) a mechanism to aggregate private judgments. Which leads me to ask: What is the missing element in prediction markets? To the degree that investors in prediction markets are receiving their information from common national media sources then it would seem that diversity, independence, and decentralization are missing.
Immigration and the Housing Bubble
| Steve Phelan |
Brad De Long’s analysis of the current financial crisis published in the Taipei Times on 01/01/08 received some attention in the blogosphere yesterday. For a crisis resulting in a sustained fall in asset values, he recommends either 1) nationalizing the debt or 2) inflating the price of nominal assets. As I was reading the article (and another on the fact that an 3 million excess housing units were created in the boom above long term trends) it occurred to me that a third path might be available — increased immigration. (more…)
My Pet Peeve
| Steve Phelan |
One of my pet peeves is when academics assume that people in industry are a little “dim.” For instance,
It would be churlish to point out that the fact that one should be extremely leery of arguments that diversification radically improves the safety of bond investments was well known back by Edgar L. Smith and others back in 1923.
This quote from Brad De Long here.
I’m not picking on Brad because it happens quite a bit in my experience. The “oh my gosh, we academics have known since 1923 that diversification of bonds does not reduce systematic risk that much, you dumbasses.”
Contrast this view with the fact that the brightest minds in a generation have been taking jobs on Wall Street. So the smartest people are the biggest dumbasses???
In these matters, I prefer to assume plausible deniability. Reducing systematic risk by combining geographically diversified BBB bonds sounds just plausible enough to avoid litigation for fraud and/or negligence. Now that’s smart!
A False Dichotomy?
| Steve Phelan |
John Mathews recently sent me a conference paper on Kirznerian, Schumpeterian, and Ricardian approaches to entrepreneurial dynamics.
Aside from questioning the resource-based theory of entrepreneurship, the paper also attempts to resolve the Kirznerian/Schumpeterian schism in entrepreneurship — namely whether entrepreneurs drive the economy towards equilibrium (Kirzner) or disequilibrium (Schumpeter). (more…)
Rent and Quasi-Rent
| Steve Phelan |
In a recent paper in the Journal of Business Venturing, Sharon Alvarez attempts to construct a theory of entrepreneurship and the firm. The central question is why new resource combinations are sometimes carried out by entrepreneurs starting new ventures rather than within established firms. (more…)
EU Research Productivity
| Steve Phelan |
Interesting post over at Vox EU on EU Research Productivity. Basically a recent study examines the ISI List of Highly Cited Researchers (HCRs) by country,
the United States gets the lion’s share with 66% of the total number of HCRs, while the EU17 (EU15 plus Norway and Switzerland) has 22.3%.
They then use an econometric model to estimate the effects of R&D expenditure as % of GDP, GDP per capita, Anglo-Saxon academic institutions, and the proportion of English speakers.
Raising R&D to 3% of GDP was predicted to increase EU share to only 28%. Interestingly, university governance reforms were predicted to increase performance the most (by an additional 9%).
The article is very vague about the supposed institutional benefits conferred by the US/UK academic system that generate the higher performance. If this result is true, then what is the reason? Is it more efficient incentives such as an up-or-out promotion based on top tier publications? Is it better PhD training? Is it higher rewards for top performers?
That being said, is the “the list of highly cited researchers on ISI” an appropriate dependent variable to measure comparative research performance? Is it biased towards US researchers? Note that English proficiency only explained 3-4% of the performance gap.
A Critique of Economics from an Unusual Direction
| Steve Phelan |
Charlie Munger, the second largest shareholder in Berkshire Hathaway after Warren Buffett (and a member of the Forbes Wealthiest 400) gave a speech at UCSB a few years ago. The full transcript of his speech can be found here. (more…)
Entrepreneurship and Dyslexia
| Steve Phelan |
Strange story in the NY Times on Dec 6 (HT: Freakanomics).
Some of the highlights:
The report, compiled by Julie Logan, a professor of entrepreneurship at the Cass Business School in London, found that more than a third of the entrepreneurs she had surveyed — 35 percent — identified themselves as dyslexic.
And…
“Entrepreneurs are hands-on people who push a minimum of paper, do lots of stuff orally instead of reading and writing, and delegate authority, all of which suggests a high verbal facility,” Mr. Dennis said. “Compare that with corporate managers who read, read, read.”
Indeed, according to Professor Logan, only 1 percent of corporate managers in the United States have dyslexia.
I guess we can call this a compensatory theory of entrepreneurship. Professors are doomed as readers, too, I guess.
Ratings Agencies
| Steve Phelan |
One of my hobbies is to perform counterfactual exercises in organization design (yes, sad, I know). Here is my current challenge. Ratings agencies like Moody’s are paid by the issuers of securities rather than the purchasers of the securities. This creates an agency problem because the rater has an incentive to give high ratings to stay in the good graces of the issuer — who will presumably “shop around” to get the best ratings.
Assuming this arrangement is efficient then what are the counterbalancing factors that offset the agency costs? How much would agency costs have to increase to trigger an adjustment in design? Was the the subprime fiasco such a trigger? What would the new design look like?
I know that economists are reluctant to second-guess how the market will work out its problems — but strategists are in the business of being proactive about these things :-)
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?
(more…)
Was Whole Foods Choking On Their -5% Net?
| David Hoopes |
I’ve used a couple of Ben and Jerry’s cases over the years. One of the interesting things about B&J is that they seem to suffocate under their desire to “do good.” In general, it seems they would have been able to donate a good deal more to charity if they had run their business to be a good business. Then, Ben and Jerry could have taken their salaries or capital gains or dividends and given them to their favorite charities.
Whole Foods, like B&J had a concentrated ownership for quite a while. I don’t know what it’s like now. For a long time John Mackey and his Dad owned 51%. John did not take a large salary. So, giving away Whole Foods’ profits was like he was spending his own money anyway. And, anyone involved with WFM after John got rid of his co-founders knew WFM was John’s thing.
The point with WFM is that it’s an unusual example of corporate charity in part because of concentrated ownership, the marketing benefits of donating money, and the political inclinations of many if not most of its employees (far more left-wing than J. Mackey). Unlike B&J, WFM did not suffocate itself by not paying professional executives. Also, Mackey never felt guilty about turning a profit and is a tried and true capitalist (guilt free).
I worked for Whole Foods when they only had two stores in Austin (oh so long ago). I’m afraid John considered me a pest (I suppose I was).
Did they ever buy Wild Oats? That’s another story.
Integrity and the Academy: Are Academicians in a Position to Preach About Social Responsibility?
| David Hoopes |
Do college faculty — generally untrained in ethics (except for philosophy professors, etc.) — have any business teaching social responsibility and ethics? This question comes from my most recent post.
I interviewed for a job at the Army War College a few years back. I was fortunate enough to hear a high-ranking general speak to the students (mostly lt. colonels). One of things he said is that he stayed in the armed services because of the high integrity of its members. I know in some corners this will be scoffed at. However, I think there is no small amount of truth to this.
I thought, “Cannot say that about academia.” Why so cynical? There are many things one could complain about. There are more passive-aggressive people in the academy than most other place. Academics seem especially prone to speaking with a forked tongue.
The clearest example I can think of is the tenure process. Certainly the tenure process can bring the worst out in people. Beyond that, it is amazing how sexually biased the tenure process seems to be. It is especially amazing to see how entrenched the “old boy” network is among men who fancy themselves liberal or progressive.
I have no proof that the tenure process is sexually biased. Nevertheless, in management it certainly seems easy to think of women getting left out of the loop. Thus, fewer social interactions, fewer coauthored papers, less mentoring. Now part of this may have to do with where I have worked: schools that have had multiple discrimination and harassment charges brought against them.
Yet, I don’t think this is limited to management departments. It’s pretty strange that an institution that fancies itself as being so progressive is so backwards when it comes to mentoring and networking women through the old (or young) boys clubs.
Here is a link that offers some evidence. I found the stuff at the bottom of the page most useful.
Teaching Social Responsibility
| David Hoopes |
I am on the planning committee and the goals committee here at Cal State Dominguez Hills. At a recent meeting it came up that one of the schools goals was academic excellence and social responsibility. I suggested that they are two very different topics but was roundly rebuked. I have a few problems with considering social responsibility to be part of the same goal as academic excellence for college professors.
My first complaint is that “social responsibility” is not very easy to define or operationalize. Usually, it seems to imply donating money to some left wing cause. I might be able to find some left wing causes I like. However, I’m not sure how teaching students to tithe is similar to teaching students a course of study or an academic discipline.
My second complaint is that I don’t think academicians are qualified to teach social responsibility. I admit to being jaded and cynical. But I do not find academicians to be shining examples of virtue. Getting a Ph.D. in management, economics, or sociology hardly qualifies one to determine what students should consider to be socially virtuous.
I do think colleges (especially state funded) have some obligation to promote citizenship and promote and encourage ethical and moral behavior. Additionally, I am very happy to have those who specialize in ethics and related topics to teach them (the philosophy department?).
However, again, I don’t see this as our primary mandate. I might feel better about this if I felt that academics were paragons of ethical and moral behavior. On the contrary, I am continually disappointed in the standards to which academicians hold themselves. Having worked a variety of odd and not so odd jobs before heading to the academy I feel pretty comfortable saying that academicians certainly do not appear to have superior ethical and moral behavior.
What, you might ask, makes me think of academics as being ethically or morally lacking? Well that’s for another post.
Pure Inflation and Nominal Interest Rates
| Steve Phelan |
Can someone with a solid macro background tell me if this paper supports Austrian monetary theory (or not)?
Relative Goods’ Prices and Pure Inflation, by Ricardo Reis and Mark W. Watson, NBER WP 13615, November 2007 [open link]:
Abstract: This paper uses a dynamic factor model for the quarterly changes in consumption goods’ prices to separate them into three components: idiosyncratic relative-price changes, aggregate relative-price changes, and changes in the unit of account. The model identifies a measure of “pure” inflation: the common component in goods’ inflation rates that has an equiproportional effect on all prices and is uncorrelated with relative price changes at all dates. The estimates of pure inflation and of the aggregate relative-price components allow us to re-examine three classic macro-correlations. First, we find that pure inflation accounts for 15-20% of the variability in overall inflation, so that most changes in inflation are associated with changes in goods’ relative prices. Second, we find that the Phillips correlation between inflation and measures of real activity essentially disappears once we control for goods’ relative-price changes. Third, we find that, at business-cycle frequencies, the correlation between inflation and money is close to zero, while the correlation with nominal interest rates is around 0.5, confirming previous findings on the link between monetary policy and inflation.
(HT: Mark Thoma at Economist’s View)
Capabilities and Comparative Advantage
| Steve Phelan |
Brad DeLong recently posted an interesting set of questions on his blog about corporate nationality: (more…)
Organizations and Markets 
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