Posts filed under ‘– Klein –’
Austrian Awakening?
| Peter Klein |
Following the Keynesian Consensus of the 1950s and 1960s Monetarism emerged as an alternative. By the late 1970s, there were Keynesians and Rational Expectations macroeconomists. When I took graduate macro in the late 1980s, I was told there were two schools of thought: New Keynesian and New Classical. (Elwood: “What kind of music do you usually have here?” Claire: “Oh, we got both kinds. We got country and western.”)
Old-style Keynesianism made a roaring comeback in the last two years. But cracks are starting to appear in the consensus edifice. An increasing number of commentators in the popular press are voicing disappointment with the results of deficit spending and money creation (aka “quantitative easing”), the classic Keynesian policy instruments. What are they turning to instead? Not Monetarism or New Classicism, which don’t seem like viable alternatives. Surprisingly, the mainstream press is rediscovering the Austrians.
“We’re All Austrians Now,” declares CNBC, saying the Mises-Hayek theory “provides the best explanation for the business cycle we just lived through.” And pity the poor Fed: “the resurgent popularity of Austrian economics may actually be hampering the ability of the Federal Reserve to reflate the economy with low interest rate policies. Businesses, now aware of the dangers of a low inflation-sparked economic bubble, may simply be refusing to fall for the age-old boom-bust trap.” Sunday’s Newsweek noted “The Triumphant Return of Hayek,” citing “a growing backlash against the Fed’s monetary activism” and adding that Bernanke’s policy “suffers from the same fundamental flaw as Keynesianism, in that it protects inefficient players instead of injecting renewed vigor into the economy.” (Bonus quotation, via Larry White: “Keynesian theory . . . advocates a policy opposed to the interest of large investors and entrepreneurs and then, when this policy is about to be realized, holds the high liquidity preference of investors and the timidity of entrepreneurs responsible for the necessity further to increase taxation and public works.” — Otto von Mering, 1944) Even the staid Economist thinks the Austrian theory deserves more attention from policymakers.
Is there a shift in public attitude toward government management of the economy? Is the opinion-molding class changing its tune? Or are these reports anomalies? If public opinion and opinion among elites is changing, what explains the change? New evidence? Change in ideology? Self-interest?
Entrepreneurial Ability as a Latent Variable
| Peter Klein |
It’s the weekend after Thanksgiving, so naturally I’m thinking about residuals — not leftover turkey and cranberry sauce, but entrepreneurial characteristics and behaviors as residuals, as latent variables that leave traces in outcomes that we can’t otherwise explain. I’ve argued before that common measures of entrepreneurship such as startups, self-employment, patents, venture funding, etc., while related to entrepreneurship, are epiphenomena, manifestations of an underlying, unobservable attribute or behavior such as judgment, alertness, innovation, or adaptation. (These are difficult, if not impossible, to measure directly; asking survey respondents, for instance, “How many opportunities did you identify this month?” is not quite the same thing as measuring Kirznerian alertness!) In a recent musing on strategic entrepreneurship I suggested that
many of the entrepreneurial capabilities we’re really interested in are latent, and best captured as residuals — e.g., something heritable and not explainable by other observables. . . . Mike Wright talked [at the CBS strategic entrepreneurship conference] about mobility, both across firms or projects (habitual entrepreneurs, spin-outs) and across countries (immigrant and returnee entrepreneurs, transnational entrepreneurs). From the perspective of research design, some of these movements may be useful for isolating the “entrepreneurial” essence, such as it is.
Seth Carnahan, Rajshree Agarwal, and Ben Campell have an interesting new paper, “The Effect of Firm Compensation Structures on the Mobility and Entrepreneurship of Extreme Performers,” that takes this kind of approach, measuring entrepreneurial ability as the residual in a wage regression. Most of the variation in wages can be explained by age, experience, race, gender, education, and other observables; what remains is partly measurement error, but can also include a latent ability parameter. Seth, Rajshree, and Ben use this parameter, along with the wage structure of an employee’s existing firm, to explain which employees tend to leave to join new firms, particularly startups. Check it out!
Miscellaneous Data and Measurement Links
| Peter Klein |
- Does Facebook data mining count as human subjects research? Some university IRBs apparently think so, even if the research uses only publicly posted profile information.
- SSRN’s Gregg Gordon explains the importance of knowing what we know we don’t know.
- Forget citation counts and PoP rankings: Do you know your personal social-media influence score? (via Cliff)
- Here’s Robert Merton’s essay on Lord Kelvin’s dictum. (Frank Knight’s alleged interpretation: “If you can’t measure, measure anyway.”)
Prahalad Conference
| Peter Klein |
My colleague Karen Schnatterly, along with Bob Hoskisson and M. B. Sarkar, are organizing a special SMS conference to honor the late C. K. Prahalad. It’s 10-12 June 2011 in San Diego. The conference “will bring together scholars, executives, and consultants who have researched or applied CK Prahalad’s ideas. There will also be a number of panel sessions that include individuals such as Gary Hamel, Yves Doz, and Stuart Hart.” Proposals are due 21 January 2011.
Seven Deadly Sins of Contemporary Quantitative Political Analysis
| Peter Klein |
The rational-choice revolution in political science — universally acknowledged and generally respected, though not always loved — has let to an explosion of quantitative empirical research (making political science, like some strands of sociology, look more and more like neoclassical economics). Philip Schrodt warns, however, against these seven deadly sins:
- Kitchen sink models that ignore the e ects of collinearity;
- Pre-scienti c explanation in the absence of prediction;
- Reanalyzing the same data sets until they scream;
- Using complex methods without understanding the underlying assumptions;
- Interpreting frequentist statistics as if they were Bayesian;
- Linear statistical monoculture at the expense of alternative structures;
- Confusing statistical controls and experimental controls.
The economics literature is somewhat better at 4-7, though clearly susceptible to 1 and 3. (I’m not a logical positivist so 2 isn’t a sin for me.) In any case, this paper is worth reading, particularly for graduate students across the social sciences.
Here are commentaries by Andrew Gelman and Matt Blackwell. Oh, and Schrodt maintains that “[t]he answer to these problems is solid, thoughtful, original work driven by an appreciationof both theory and data. Not postmodernism.” Take that, performativitarians! The paper also includes some historical and philosophical perspective, with “a review of how we got to this point from the perspective of 17th through 20th century philosophy of science, and . . . suggestions for changes in philosophical and pedagogical approaches that might serve to correct some of these problems.”
Mirowski on Backhouse and Fontaine, eds., The History of the Social Sciences since 1945
| Peter Klein |
I enjoyed Philip Mirowski’s first book, though I find his more recent stuff increasingly tendentious and repetitive. Still, a Mirowski review of Backhouse and Fontaine, eds., The History of the Social Sciences since 1945 (Cambridge, 2010) is worth a read. Interesting bit on organizational structure:
The historical generalization overlooked by the editors is that “interdisciplinary” social science units shoehorned into postwar university structures almost uniformly failed, whereas those founded as freestanding think tanks, from RAND to American Enterprise Institute to Cato and the Manhattan Institute, all persevered and succeeded. This is true even for the odd case of Carnegie GSIA, which became the model for other business schools across the nation, but only upon dispensing with the original interdisciplinary structures initially promoted by Herbert Simon (himself then exiled to a Department of Psychology). The lesson may be that the postwar American research university could not sustain true interdisciplinarity in social science inquiry, but that military and corporate sponsors of the think tanks could manage it, but only by yoking it to a format that enforced unquestioned responsiveness to the whims of the funders.
A familiar point of course to students of entrepreneurship and innovation, and yet another reason to suspect that innovation in higher education is more likely to come from outsiders (e.g., the notorious for-profit institutions) than incumbents.
Report on the North Conference
| Peter Klein |
Responsibilities abroad kept me from attending the recent Douglass North celebration, but the University of Missouri was well represented by a group of energetic and enthusiastic PhD students, who sent me the following report:
The conference on Legacy and Work of Douglass North was an outstanding meeting with discussions on the past, present, and future of the New Institutional Economics. Top scholars discussed the contribution and influence of North (and the New Institutional Economics) in a diverse range of fields, covering everything from the impact of the initial contributions to the outlook for continued research.
It’s hard to summarize the insights and contributions from six paper sessions, Elinor Ostrom’s keynote, and the roundtable on North and the Rise of the New Institutional Economics. One takeaway was the depth and breadth of North’s contributions – many speakers were North coauthors working on a wide variety of topics, from many different perspectives (economics, political science, history, cognition, etc.). North’s influence is huge across the social sciences.
One burning issue: what’s the next step for New Institutional Economics? Besides bridging or integrating Northean institutional analysis with Williamsonian organizational economics, many speakers emphasized the need to be more rigorous, to examine more details, to go farther than the “big picture” studies that are so prominent in the field. There are too many grand, sweeping claims, and not enough mundane, middle-of-the-road analysis. (John Nye, for example, expressed concern that some Northean ideas are very difficult to operationalize, a particular problem since younger scholars are confronted with very high standards for formalization, empirical technique, etc.) (more…)
Blinder: Keynesianism is Right, Because Keynesians Are Really Smart
| Peter Klein |
Alan Blinder’s defense of QE2 is as feeble as Mankiw’s defense of “emergency measures” more generally. Blinder’s argument is simply that QE2 isn’t all that different from standard Keynesian fine-tuning (true) and that Ben Bernanke is smarter than critics like Sarah Palin (duh).”To create the fearsome inflation rates envisioned by the more extreme critics, the Fed would have to be incredibly incompetent, which it is not.” This reminds me of Janet Yellen’s unfortunate 2009 statement that “the Fed’s analytical prowess is top-notch and our forecasting record is second to none. . . . With respect to our tool kit, we certainly have the means to unwind the stimulus when the time is right.”
Blinder apparently thinks that the anti-Keynesian backlash is just some quibbles about this little jot or tittle. He cannot grasp that the growing sentiment against monetary central planning, against fine-tuning, against the whole statist monetary establishment, is a rejection of Keynesianism at the most fundamental level. People are tired of the philosopher kings and their pretense of knowledge.
But this is folly to kings. Consider Blinder’s criticism of Bernanke:
What the Fed proposes to do is neither foolproof nor perfect. Frankly, it’s not the policy I would choose. As I’ve written on this page, I’d like the Fed to purchase private securities and to reduce the interest rate it pays on reserves, even turning it negative. The latter would blast reserves out of banks into some productive uses.
Ah, to think like a king! But the days of the monetary monarchy may be numbered.
Social Networking, 1700 to 1750
| Peter Klein |
Some cool dataviz, via the NYT. Social networkers analyzed include Newton, Leibniz, Locke, Voltaire, Bentham, Boyle, Smith, etc. But really, how useful is a super-poke that takes a month to arrive?
Interesting New Books
| Peter Klein |
In place of the “What I’ve Been Reading Lately” posts that show up regularly on certain blogs, I hereby offer something slightly less egocentric, the “What I’ve Been Receiving Lately” post. It contains a list of books I’ve recently received by mail, some by choice, others because publishers sent them (perhaps hoping I’d blog about them — Mission Accomplished!). Not the most scientific sample selection process, but there you go.
- Jesús Huerta de Soto, Socialism, Economic Calculation, and Entrepreneurship (Elgar, 2010). English translation of an important work first published in Spanish in 1992.
- Guinevere Liberty Nell, Rediscovering Fire: Basic Economic Lessons from the Soviet Experiment (Algora, 2010). What the failure of central planning teaches about markets and institutions.
- Koray Çaliskan, Market Threads: How Cotton Farmers and Traders Create a Global Commodity (Princeton, 2010). Economic sociology meets global commodity systems. Contains dust-jacket endorsements from Richard Swedberg and Donald MacKenzie, so expect a review from the orgtheory boys soon.
- Peter J. Boettke, ed., Handbook on Contemporary Austrian Economics (Elgar, 2010). Essays by young Austrian economists associated with George Mason University.
- Robert E. Wright, Fubarnomics: A Lighthearted, Serious Look at America’s Economic Ills (Prometheus, 2010). I think the title says it all.
- Ranjay Gulati, Reorganize for Resilience: Putting Customers at the Center of Your Business (Harvard Business School, 2010). Looks fluffy, but I have a teaching interest in change management so I’ll give it the benefit if the doubt.
- David Stark, The Sense of Dissonance: Accounts of Worth in Economic Life (Princeton, 2009). Also deals with organizational change, but in a more serious way. Ethnographic studies of three organizations dealing with large exogenous shocks. Looks interesting.
Random Thoughts on Strategic Entrepreneurship
| Peter Klein |
A few insights, interesting facts, provocative statements, and other things I managed to remember from the conference:
- As Nicolai mentioned in his post below, there is a lot of exciting work out there on the links between organizational design and characteristics (HRM practices, organizational culture, social learning processes, team characteristics, etc.) and entrepreneurial behavior. This is clearly a hot topic at the boundary of the strategic management, organizational behavior, entrepreneurship, and innovation literatures.
- This emerging literature is pretty eclectic, theoretically and empirically. The conference featured papers with formal models, conceptual theory papers, conventional econometric papers, simulation papers, and of course thought-provoking keynote addresses. The participants came from a variety of academic backgrounds and specialty areas.
- It’s a young field. The four keynote speakers (Mike Wright, Bill Schulze, Shaker Zahra, and Jeff Hornsby) are pioneers in the field, and not that old. (Shulze noted that he had been present “at the birth” of the modern entrepreneurship field, and he looks pretty spry and vigorous to me.)
- The empirical literature still struggles to operationalize entrepreneurship in a meaningful way. Despite various sermons about entrepreneurship being a generalized function, rather than a job description or firm type, most empirical papers use self-employment, management of particular kinds of firms, etc. as proxies. (I’m guilty of this myself, of course.) (more…)
The Thin Mint Effect
| Peter Klein |
A new study finds that as nonprofit organizations increase their for-profit activities, the share of resources going to the core mission decreases. (Thanks to Fast Company for the link and the Thin Mint reference.)
This strikes me as a good illustration of multitask principal-agent problems. The output of for-profit activities is more easily measured than the output of nonprofit activities, giving agents (under performance-based pay) the incentive to increase effort toward those for-profit activities. Mises’s discussion of performance measurement and delegation in Bureaucracy comes to mind as well.
PENSA 20th Anniversary
| Peter Klein |
Congratulations to Decio Zylbersztajn and the rest of the group at PENSA on their 20th anniversary. PENSA, a research center within the University of São Paulo, is the home of New Institutional Economics research and teaching in Brazil (and Latin America more generally), producing papers, training graduate students, hosting international conferences, and other activities. The group celebrated its 20th year with a party this past weekend. You can see current and former PENSA personnel in the photo below, including Decio, my Missouri colleague Fabio Chaddad (to Decio’s right), Luciana Florencio de Almeida (just in front of Decio), Paulo Furquim de Azevedo (back row), Sergio Lazzarini (front row), Sylvia Saes (middle row, right side), and other well-known New Institutional Scholars.
The current issue of the Revista de Administração da Universidade de São Paulo has an article on financial constraints and agricultural contracting in Brazil by Decio, Luciana, and me.
Teaching Analytical Writing
| Peter Klein |
More on academic writing: This paper by Wayne Schiess, “Legal Writing Is Not What It Should Be,” deals specifically with law students, but applies in many ways to academic writing more generally. Quoting from the introduction:
The writing required of students in high school and college is often what I call “self-expression writing” rather than expository writing. Self-expression writing tends to be writer-focused, not reader-focused.That is, self-expression writers focus primarily on expressing their own ideas. This is surely a necessary developmental step for improving writing skill, but it is two steps removed from the skill of analytical legal writing. Once high school and college writers move beyond self-expression, they usually produce writing that can be called “knowledge-telling” or conveying information.
But legal writing is not self-expression, and it is another step beyond knowledge telling. One author has referred to the skill of analytical legal writing as “knowledge transforming.” Thus, legal writing is a form of expository writing in which the focus should be on the reader‟s ability to understand. This is in contrast to self-expression writing, where clearly and effectively conveying information to the reader is secondary to expressing one’s self the way one desires. And it is in contrast to knowledge-telling, in which the primary purpose is conveying information, not analyzing a problem.
Of course, self-expression and knowledge-telling are necessary steps, as I’ve acknowledged. But I can report, based on anecdotal evidence, that some students get little training even in these two developmental steps. Some college curricula do not require much writing at all. For example, in my teaching of the required, first-year legal writing course, I often have students who studied science or engineering in college. Many of these students arrive at law school and tell me they have never written a paper in college.
The kind of writing required for good social science is also what Schiess calls “analytical writing,” and my sense is that few graduate students have any experience with or training in this kind of writing. How to teach it is another question. Schiess has several suggestions that are specific to law schools; how can they be applied to economics or sociology or business administration?
CRSP 50th Anniversary
| Peter Klein |
Maybe you knew this already, but the Center for Research on Security Prices (CRSP) — the provider of most of the stock-price data used in academic and practitioner research on financial markets — is celebrating its 50th anniversary this year. The center has put up a fancy website, full of interesting factoids, to commemorate the occasion. Did you know, for example, that the first CRSP computer was a UNIVAC, donated by Sperry-Rand though the intervention of Leslie Groves? That the initial data collection effort came in three years late and 200% over budget? (Makes me feel better about some of my own projects.) That CRSP hasn’t used tapes for years, though people still refer to the master file as the “CRSP tapes”? (HT: Gregg Gordon.)
CFP: Searle Center Conference on Entrepreneurship and Innovation
| Peter Klein |
I’m a big fan of the Searle Center conferences on entrepreneurship and innovation, organized by Dan Spulber. The Call for Papers for the fourth annual conference, 16-17 June 2011, has just been distributed. “The goal of this conference is to provide a forum where economists and legal scholars can gather together with Northwestern’s own distinguished faculty to present and discuss high quality research relevant to entrepreneurship and innovation.” Details below the fold. (more…)
Entrepreneurial Paradoxes
| Peter Klein |
A new working paper from the always-interesting Peter Lewin: “Entrepreneurial Paradoxes: Implications of Radical Subjectivism.” Sample paradoxes:
- Entrepreneurial opportunities are complicated by uncertainty but would not exist without uncertainty.
- An entrepreneurial opportunity for everyone is an opportunity for no one in particular.
- Entrepreneurial opportunities are subjective and objective; discovered and created.
See the paper for the full set of paradoxes and some informative and challenging discussion.
Entrepreneurial Firms and Job Creation: Size Matters Not
| Peter Klein |
The view that small and new firms create a disproportionate share of new jobs is one of the most important stylized facts of the entrepreneurship literature. But, as always, the devil is in the details. Small and new firms naturally grow at a faster rate than their large, mature counterparts, ceteris paribus, simply because they have few employees to start with. But they differ on a number of other grounds and have a higher hazard rate. What’s the bottom line?
John Haltiwanger, Ron Jarmin, and Javier Miranda have taken a close look at the US data and conclude that age, not size, is what matters.
There’s been a long, sometimes heated, debate on the role of firm size in employment growth. Despite skepticism in the academic community, the notion that growth is negatively related to firm size remains appealing to policymakers and small business advocates. The widespread and repeated claim from this community is that most new jobs are created by small businesses. Using data from the Census Bureau Business Dynamics Statistics and Longitudinal Business Database, we explore the many issues regarding the role of firm size and growth that have been at the core of this ongoing debate (such as the role of regression to the mean). We find that the relationship between firm size and employment growth is sensitive to these issues. However, our main finding is that once we control for firm age there is no systematic relationship between firm size and growth. Our findings highlight the important role of business startups and young businesses in U.S. job creation. Business startups contribute substantially to both gross and net job creation. In addition, we find an “up or out” dynamic of young firms. These findings imply that it is critical to control for and understand the role of firm age in explaining U.S. job creation.
Another Proud Non-Voter
| Peter Klein |
It’s Larry Ribstein. Will he get the same treatment I received a few years ago?
Congratulations to J. C. Won
| Peter Klein |
Congratulations to University of Missouri PhD student Jong Chul Won for being one of three Don Lavoie Memorial Essay Competition Winners for 2010. His paper is “The Emergence, Limit, and Distortion of the Firm: The Entrepreneurship Approach.” The contest is sponsored by the Society for the Development of Austrian Economics. Details are below the fold.
Missouri student Per Bylund was a 2009 winner at the Austrian Student Scholars Conference for his paper “The Theory of the Firm: Coasean Misconceptions and Austrian Solutions.” If you’re interested in entrepreneurship and the theory of the firm, particularly from an Austrian perspective, the University of Missouri is the place to be! (more…)
Organizations and Markets 
Recent Comments