Posts filed under ‘– Klein –’
Ross Emmett on Innovation
| Peter Klein |
Here are some provocative videos on innovation from Ross Emmett. The series is called “The Constitution of Innovation.” The first three are posted at vimeo:
- Why “Picking Winners” Robs Us All of a Better Future
- National Innovation Systems: Too “National”; Not “Constitutional”
- The Promise of Failure
See Ross’s website for more information.
Mannepalooza at Austrian Scholars Conference
| Peter Klein |
Tune in here at 3:45 EST today for a live broadcast of the ASC session, “The Contributions of Henry G. Manne,” organized by yours truly. Panelists include me, Alexandre Padilla, Richard Vedder, Thomas DiLorenzo, and Henry Manne. And buy your copy of the Collected Works.
Update: audio files are now available: Klein, Padilla, Vedder, DiLorenzo, Manne.
Interesting Paper on Research Design
| Peter Klein |
Ed Leamer famously argued, back in 1983, that empirical economists should do more sensitivity analysis. A new NBER paper by Joshua Angrist and Jörn-Steffen Pischke says that econometric practice has indeed gotten much better, not because of sensitivity analysis, but because of a new focus on research design. “[T]he credibility revolution in empirical work can be traced to the rise of a design-based approach that emphasizes the identification of causal effects. Design-based studies typically feature either real or natural experiments and are distinguished by their prima facie credibility and by the attention investigators devote to making the case for a causal interpretation of the findings their designs generate.” They are clearly right that identification has become a Really Big Deal (choosing a dissertation topic in economics is sometimes referred to these days as “the search for a good instrument”). But natural experiments and instrumental variables have their own potential problems as well. Perhaps Verstehen can still play a role.
Shareholder-Stakeholder Smackdown: Jensen, Freeman, Mintzberg, Khurana
| Peter Klein |
This looks like a fun event. Watch the Big Guys debate the future of the firm, management, and management education. It’s Fordham University’s W. Edwards Deming Memorial Conference, 11 May 2010 in New York City. Kudos to Mike Jensen for his willingness to walk into what will be, presumably, a line of fire. And remember, management theory is not to blame.
Mises Quote of the Day
| Peter Klein |
Nothing can be known about such matters as inflation, economic crises, unemployment, unionism, protectionism, taxation, economic controls, and all similar issues, that does not involve and presuppose economic analysis. All the arguments advanced in favor of or against the market economy and its opposites, interventionism or socialism (communism), are of an economic character. A man who talks about these problems without having acquainted himself with the fundamental ideas of economic theory is simply a babbler who repeats parrotlike what he has picked up incidentally from other fellows who are not better informed than he himself.
This is from Mises’s introduction to the 1959 edition of Böhm-Bawerk’s massive 3-volume set, Capital and Interest. Mises gives some further admonitions: “A man not perfectly familiar with all the ideas advanced in these three volumes has no claim whatever to the appellation of an economist.” This is, shall we say, a minority view. And my personal favorite: “A citizen who casts his ballot without having studied to the best of his abilities as much economics as he can fails in his civic duties. He neglects using in the appropriate way the power that his citizenship has conferred upon him in giving him the right to vote.”
Those lacking time to study Capital and Interest in its entirety may enjoy this new edition of Böhm-Bawerk’s essay “Control or Economic Law,” which is more easily digested.
Google Public Data Explorer
| Peter Klein |
How long before we are doing all our empirical research on Google?
You can bet that commercial and subscription-based academic data providers like Thompson Financial, CRSP, Compustat, Global Insight, etc. are paying close attention. (BTW I still think the World Freedom Atlas is cooler.)
It Was the Best of Times, It Was the Worst of Times
| Peter Klein |
Many are enjoying the irony of Sandra Bullock winning a best-actress Oscar (for The Blind Side) and a worst-actress Razzie (for All About Steve) in the same year. It made me think of Robert Hodgson’s recent paper in the Journal of Wine Economics, noting that wines winning awards in a particular competition are no more likely to win awards in other competitions. “An analysis of the number of Gold medals received in multiple competitions indicates that the probability of winning a Gold medal at one competition is stochastically independent of the probability of receiving a Gold at another competition, indicating that winning a Gold medal is greatly influenced by chance alone.” Perhaps acting awards work the same way?
Jobs Of Yesteryear: Obsolete Occupations
| Peter Klein |
A fascinating pictorial from NPR on jobs made obsolete by technological innovation. Great illustrations of the labor-market side of creative destruction. (Planet Money via Russ Roberts.)
Org. Structure and Diversification
| Peter Klein |
The March 2010 issue of the Journal of Industrial Economics has just come out, and it features my paper with Marc Saidenberg, “Organizational Structure and the Diversification Discount: Evidence from Commercial Banking.” I’m quite happy with the paper, which went through many rounds of revision and consumed a great deal of time and energy. I blogged the details earlier. The published version is behind a firewall; if you can’t get through I’d be happy to mail you a copy.
Gene Fama’s Autobiography
| Peter Klein |
Here’s an autobiographical essay by Gene Fama written for the Annual Review of Financial Economics. Fama’s work on agency theory (with Mike Jensen) and on corporate finance (with Ken French) should be of particular interest to O&Mers, though some may disagree with his introductory claim that “[f]inance is the most successful branch of economics in terms of theory and empirical work, the interplay between the two, and the penetration of financial research into other areas of economics and real-world applications.”
Fama’s Chicago-Booth colleagues add the following note about Fama’s institutional leadership, presumably directed at today’s Fama-bashers:
Rather than rest on his laurels or impose his own views on the group, Gene has always sought the truth, even when it appeared at odds with his own views. . . . The current finance group at Chicago includes a diverse set of people who specialize in all areas of modern finance including, behavioral economics, pure theory, and emerging, non-traditional areas such as entrepreneurship and development that were unheard of when Gene arrived at Chicago. Contrary to the caricatured descriptions, there is no single Chicago view of finance, except that the path to truth comes from the rigorous development and confrontation of theories with data.
I, Taco
| Peter Klein |
Some California design students tracked the ingredients in their favorite local taco and came up with this cool image.
Of course, it’s supposed to show us the horror of all those food miles, but what I see is the miracle of the market.
How Grad School Is Just Like Kindergarden
| Peter Klein |
Another gem from the PhD Comics guy (click to enlarge).
Vertical Integration and the Informational Content of Prices
| Peter Klein |
Many years ago, when I was taking Williamson’s Economics of Institutions class at Berkeley and fishing around for dissertation topics, I had the idea to do some empirical work on the relationship between inflation and vertical integration or conglomerate diversification. The basic idea is that monetary expansion not only raises price levels, but also increases the dispersion of relative prices — introducing “noise” into the price mechanism — giving entrepreneurs an incentive to internalize transactions, on the margin, they would have otherwise conducted in the market. My interest was partly piqued by an off-hand remark by Dick in a review of Chandler’s Scale and Scope:
Things began to go wrong in the 1960s with the wave of conglomerate diversification, that is, with diversification by companies into areas wholly unrelated to their “core competence.” ITT was the paradigm of this phenomenon. Originally an international maker of telephone switching equipment, it bought, among other things, an insurance company and the maker of Hostess Twinkies. Chandler sees this as an inefficient practice, with many of the disbenefits of overextended British personal capitalism. There is no historical precedent for such unrelated diversification, he notes, except for German Konzerne during the hyperinflation of the 1920s. What is interesting — and what Chandler doesn’t mention — is that it is precisely inflation, in this case the Lyndon Johnson inflation of the 1960s, to which many have pointed as the cause of the wave of conglomerate mergers. The conglomerate is in effect an “internal capital market” that invests in a diversified portfolio of unrelated interests. But why? The stock market is much better at diversifying away risk than is such an arrangement, and it has many other advantages as well. In a time of inflation, the argument goes, price signals become distorted as managers find it difficult to disentangle changes in relative prices (that is, real prices) from changes in the price level. In such a world, the internal information and control within a conglomerate may have advantages that outweigh the disadvantage.
But, in any case, the trend in the less-inflationary 80s was the opposite one, the breaking apart of corporate holdings. . . .
The idea that conglomerate diversification, and “hierarchies” more generally, are responses to conditions in external markets has proven very useful in my own work; it also appears in Amar Bhidé’s neglected 1990 paper on diversification. Dick’s review cites a 1989 paper by Don Boudreaux and Bill Shughart linking US inflation rates and a measure of vertical integration but I couldn’t find such a relationship for diversification, and ended up going in a different direction. (more…)
Quote of the Day: Bartley on the Marketplace of Ideas
| Peter Klein |
I happened to be looking today through Unfathomed Knowledge, Unmeasured Wealth by W. W. Bartley, III, who passed away shortly after this book was published. Bartley, a student and colleague of Karl Popper and the Founding Editor of The Collected Works of F. A. Hayek, was a brilliant and penetrating thinker whose work is not very well known outside of a few professional circles. Unfathomed Knowledge, a book about higher education (with the subtitle “On Universities and the Wealth of Nations”), was written for a general audience and is full of insights about the crazy business of academia. Here’s one passage:
Analogies have often been drawn between a free market in ideas and free markets in goods and services. Yet intellectuals tend to dislike such comparisons. They see the free market in ideas as something on a higher plane, qualitatively different from free markets in commodities and the like. Many of them indeed even hate the marketplace as traditionally conceived, and would want nothing to do, even analogically, with a free market in coal, housing, fish, or petroleum.
Take a few examples. Several scholars, including Edward Shils, of the University of Chicago, strongly protested the analogy when it was drawn by Michael Polanyi at the Congress for Cultural Freedom. One called Polanyi’s comparison between free markets in goods and in ideas “clever but questionable” in that a man who offers commodities in the free market “is not bound by anything” whereas in science one is bound to an objective method. Shils added that members of the scientific community, by contrast to businessmen and traders, act in accordance with overriding standards, a “common law” above and beyond individuals.
Such a position does not withstand examination. Someone offering commodities in a market — far from being “not bound by anything” — is governed by enforceable law relating to fraud, credit, contract and such like. The analogy does have limits, but of a different sort: in the marketplace of ideas, fraud, plagiarism, theft, false advertising (including false claims to expertise and the whole mystique of expertise), “conspiracies of silence,” casual slander and libel, breach of contract, deceit of all sorts are more common than in business — simply because there are few readily enforceable penalties against offenders, whereas “whistle-blowers” are severely punished. This is so especially in those areas (the humanities, social sciences, the arts — as opposed to the profitable fields) where the transaction costs of enforcing such things as property rights, priority claims, or even accurate report5ing usually outweigh the advantage in doing so, and where the transaction costs of trying to defend oneself against such things as slander are prohibitive.
New Issue of QJAE
| Peter Klein |
The new issue of the Quarterly Journal of Austrian Economics (volume 12, no. 3) has several papers of likely interest to O&Mers. For instance:
Jack High, “Entrepreneurship and Economic Growth: The Theory of Emergent Institutions”
This paper enlarges Menger’s theory of the origins of money by making explicit the role of entrepreneurship in the theory and by extending the theory to market institutions other than money. Drawing on the research of anthropologists, archaeologists, and historians, the paper considers the origins of three institutions that underlie economic growth — the division of labor, monetary accounting, and private property. Menger’s generalized theory of the origins of institutions is used to interpret each of these institutions.
Laurent A.H. Carnis, “The Economic Theory of Bureaucracy: Insights from the Niskanian Model and the Misesian Approach”
Governmental interventions in the economy take numerous forms, and they require the existence of a public authority, a bureaucracy, to implement them. This article proposes an analysis of the origins and the dynamics of bureaucracy, and discusses means of escaping bureaucracy’s disadvantages. I will proceed by means of a comparison between the theories of Niskanen and Mises, two impressive and very representative works from the Public Choice School and the Austrian School of economics. Although Mises and Niskanen share a common analysis of the defect of bureaucratic management, there are strong disagreements between the two authors about the reasons for the existence of bureaus and about their functioning and their deficiencies. Inevitably, the means proposed by Niskanen and Mises for escaping the disadvantages of bureaucracy are different and cannot be reconciled.
Scott Galloway Is My New Hero
| Peter Klein |
For this brilliant performance in his Brand Management class at NYU (via Cliff). Says he to whiny MBA student:
You state that, having not taken my class, it would be impossible to know our policy of not allowing people to walk in an hour late. Most risk analysis offers that in the face of substantial uncertainty, you opt for the more conservative path or hedge your bet (e.g., do not show up an hour late until you know the professor has an explicit policy for tolerating disrespectful behavior, check with the TA before class, etc.). . . .
In addition, your logic effectively means you cannot be held accountable for any code of conduct before taking a class. For the record, we also have no stated policy against bursting into show tunes in the middle of class, urinating on desks or taking that revolutionary hair removal system for a spin. However, xxxx, there is a baseline level of decorum (i.e., manners) that we expect of grown men and women who the admissions department have deemed tomorrow’s business leaders.
And the life lesson:
Getting a good job, working long hours, keeping your skills relevant, navigating the politics of an organization, finding a live/work balance . . . these are all really hard, xxxx. In contrast, respecting institutions, having manners, demonstrating a level of humility . . . these are all (relatively) easy. Get the easy stuff right xxxx. In and of themselves they will not make you successful. However, not possessing them will hold you back and you will not achieve your potential which, by virtue of you being admitted to Stern, you must have in spades. It’s not too late xxxx. . . .
Bravo!
Industry-Level Effects of Government Spending
| Peter Klein |
A consistent theme of this blog’s postings on the financial crisis and recession is that the Keynesians focus on too high a level of aggregation. As economists and management scholars we care primarily about industries, firms, and individuals, not abstract macroeconomic aggregates like GDP, the “price level,” etc. Heterogeneity matters, and the way stimulus programs affect the allocation of resources across firms and industries is as important, or more important, than their economy-wide effects.
A new NBER paper by Christopher Nekarda and Valerie Ramey uses disaggregated industry-level data to examine the effect of the current US stimulus program on output, employment, real wages, and productivity. They find, not surprisingly, that increases in government spending directed toward a specific industry raise that industry’s short-term output and employment but — contrary to New Keynesian predictions — reduce that industry’s real wages and productivity.
Nekarda and Ramey note that stimulus spending has been directed disproportionately to durable-goods manufacturing and that these industries have higher returns to scale than other industries, possibly explaining how reductions in industry-level productivity could look like productivity gains in the aggregate. In other words, stimulus spending reduces efficiency in all industries, but directs resources toward industries that were more efficient to begin with, giving the appearance of a positive aggregate effect. Thoughtful and provocative.
Comparative Institutional Analysis and the New Paternalism
| Peter Klein |
Comparative institutional analysis — defined as the assessment of feasible organizational or policy alternatives — is at the heart of the new institutional economics. Most economists and management scholars recognize, at least implicitly, that individuals and organizations don’t think, act, and choose with reference to some kind of global optimum, but are always evaluating trade-offs among imperfect alternatives. Yet, when it comes to public policy, even trained economists and strategy scholars easily lapse into Nirvana mode. Recent examples discussed her at O&M include the debate over Fed independence, the role of financial regulators more generally, and the “soft” or “libertarian” paternalism favored by Obama’s man Cass Sunstein, among others.
The new paternalism literature suggests that private actors suffer from biases and cognitive limitations such as lack of willpower or self-control, status quo bias, optimism bias, and susceptibility to framing effects leading them to make decisions that are inconsistent with their own preferences. By making marginal changes to the options available to market participants (“nudges”), the private benefits and costs of various actions, and the informational environment in which choices are made, market participants can be led to make “better” choices without reliance on heavy-handed, top-down regulation. The problem, of course, is that this literature virtually ignores the cognitive and behavioral limitations affecting policymakers. Incentive problems are an obvious example, along with the “slippery-slope” problem: the vulnerability of new paternalist proposals “to slippery slopes that can lead from modest paternalism to more extensive paternalism” (Rizzo and Whitman, 2009, p. 667).
Mario Rizzo and Glen Whitman’s have written an excellent set of papers on the new paternalism, the latest of which focuses on the knowledge problem, and how dispersed, tacit knowledge about preferences and constraints limits policymakers’ ability to plan paternalist policies that actually make people better off. The paper is here, and Mario blogs about it here. Highly recommended!
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