Posts filed under ‘– Klein –’
Rizzo on “Methodological Exclusivism”
| Peter Klein |
Great anecdotes on contemporary social-science methodology in Mario Rizzo’s post, “The Failure of Macroeconomics” (including the comments). Young economist to senior scholar: “All that is in Adam Smith.” Senior scholar: “Maybe — but until my theory it was not science.” Deepak Lal asks distinguished colleague what should be done about the current crisis. Reply: “I do not consider that an intellectually respectable question.” My own beloved dissertation adviser indulged my quirkier interests, but stated plainly: “Methodology is a swamp.” And of course there’s the famous Ed Leamer analogy.
Here’s Mario’s take:
This is the great problem with economics today: methodological exclusivism (or in my more intemperate moments I call it “methodological fascism”).A young person goes to graduate school. He or she is filled with the excitement of ideas. Today, in particular, some may come with a great desire to understand what has happened in the real world of the bailouts, recessions, stimulus, and so forth. And then academic reality hits.
Formal modeling, axiomatic foundations, tractability, technical power, and topological studies. Shall I get an MA in mathematics? Do I need to take a third semester of macro-econometrics? . . .
It seems pretty clear that what we have is a collective insecurity. If we open the floodgates to methodological inquiry, or even worse, to methodological pluralism, we shall become like political science, or God forefend, like sociology. So let’s keep those with disruptive instincts out of the profession. If this is not possible, then let’s at least keep them out of the good schools.
If you’re feeling subversive, you can browse our methodology/theory of science archive for more forbidden thoughts. (more…)
The Organization of Firms Across Countries
| Peter Klein |
Interesting new NBER paper by Nicholas Bloom, Raffaella Sadun, and John Van Reenen, “The Organization of Firms Across Countries” (ungated version here, may be older):
We argue that social capital as proxied by regional trust and the Rule of Law can improve aggregate productivity through facilitating greater firm decentralization. We collect original data on the decentralization of investment, hiring, production and sales decisions from Corporate Head Quarters to local plant managers in almost 4,000 firms in the US, Europe and Asia. We find Anglo-Saxon and Northern European firms are much more decentralized than those from Southern Europe and Asia. Trust and the Rule of Law appear to facilitate delegation by improving co-operation, even when we examine “bilateral trust” between the country of origin and location for affiliates of multinational firms. We show that areas with higher trust and stronger rule of law specialize in industries that rely on decentralization and allow more efficient firms to grow in scale. Furthermore, even for firms of a given size and industry, trust and rule of law are associated with more decentralization which fosters higher returns from information technology (we find IT is complementary with decentralization). Finally, we find that non-hierarchical religions and product market competition are also associated with more decentralization. Together these cultural, legal and economic factors account for four fifths of the cross-country variation in the decentralization of power within firms.
The emphasis on institutional determinants of organizational form makes this a welcome addition to the (slim) set of papers relating institutional arrangements to the institutional environment. (more…)
Social Media Venn Diagram
| Peter Klein |
In case you haven’t seen it (via Randy):
From the good folks at Despair, Inc. Don’t miss their new bailout-themed tees here and here. And here’s a good one for Facebook users.
Videos from Entrepreneurship Research Exemplars Conference
| Peter Klein |
Dick blogged previously about the Entrepreneurship Research Exemplars Conference held at UConn in May. The conference organizers have uploaded videos of the keynote speeches by Howard Aldrich, Jay Barney, Mike Hitt, Duane Ireland, Patricia McDougall, and Venkat Venkataraman. You can also watch the editor/author panel sessions in which editors of AMJ, AMR, ET&P, JAP, JBV, JOM, JMS, Org Science, SEJ, and SMJ discuss publication strategies and authors of recently published papers talk about their experiences with writing and revision (Fabio, direct ’em here!). I especially like the SEJ session featuring Yasemin Kor’s discussion of this excellent paper, which I’m told is the most-downloaded paper on the SEJ website. Go figure.
The Five-Minute University
| Peter Klein |
This clip is making the rounds. How many of you Old Timers remember Father Guido Sarducci? Both economics and business get mentioned.
Lamoreaux and Sokoloff’s Financing Innovation in the United States
| Peter Klein |
Nice EH.Net review by Charles Calomiris of Naomi Lamoreaux and Sokoloff’s edited volume Financing Innovation in the United States: 1870 to the Present (MIT Press, 2007).
Anyone interested in the organization of innovation, and the nexus between finance and the organization and process of innovation, must read this book. All of the chapters are original, scholarly, and packed with insightful gems (truly a font of inspiration for Ph.D. students), and the analysis manages to be both sophisticated (theoretically and statistically) and accessible to a broad audience. While the volume is too rich to boil down to a single theme, the editors’ introduction does point to a common thread that runs through many of the essays: “… perhaps the most striking aspect of the record of innovation over American economic history is the flexibility that technologically creative entrepreneurs have exhibited in adjusting their business and career plans so as to obtain financing for, and extract returns from, their projects.”
Goldman Sachs, Best in the Business
| Peter Klein |
The business of political capitalism, that is. Like Enron, Goldman operates primarily in the nebulous world of public-private interaction. It is the US’s most politically powerful financial firm, skilled at navigating the byzantine regulations governing the virtually nationalized US financial sector. Goldman’s eye-popping $3.4 billion second-quarter earnings shouldn’t surprise anyone; as Craig Pirrong notes, these earnings reflect good old-fashioned moral hazard, with Goldman exploiting its too-big-to-fail status by taking on huge amounts of risk:
Goldman knows it is too big to fail. How does it know this? Well, the government bailed out AIG not so much for AIG’s sake, but for the sake of big AIG counterparties — most notably Goldman. Moreover, given the conventional wisdom that the government’s primary error in the financial crisis was its failure to bail out Lehman — a piker compared to Goldman — it doesn’t take a rocket scientist to figure out that it won’t repeat that mistake in the future, and let Goldman go down. So Goldman knows it can get bigger, and take more risk. It is the classic heads Goldman wins, tails the sucker taxpayer eats the loss gambit. If nobody steps in to rein in the firm, it will continue to add risk, thereby enhancing the value of the Treasury put hiding in the equity entry on its balance sheet.
Somebody should be stepping in — but nobody is. Why not? Partly, no doubt, it is Goldman’s political heft. It is likely too that important policy makers don’t want to crack down on a major source of risk capital to the markets in the fear that this would impede a recovery. Even though in reality, that risk capital is your money and mine, with the exception that we have no chance of capturing the upside, and are left with a good chunk of the downside. This is a piece with the hair-of-the-dog strategy being pursued by Treasury and the Fed.
Teaching Generation Me
| Peter Klein |
Thanks to Maria Rodriguez for passing along this gem: Jean M. Twenge, “Generational Changes and their Impact in the Classroom: Teaching Generation Me,” Medical Education 43(5): 398-405. From the abstract:
Methods: This paper reviews findings from a number of studies, most of which rely on over-time meta-analyses of students’ (primarily undergraduates’) responses to psychological questionnaires measuring IQ, personality traits, attitudes, reading preferences and expectations. Others are time-lag studies of nationally representative samples of high school students.
Results: Today’s students (Generation Me) score higher on assertiveness, self-liking, narcissistic traits, high expectations, and some measures of stress, anxiety and poor mental health, and lower on self-reliance. Most of these changes are linear; thus the year in which someone was born is more relevant than a broad generational label.
In the immortal words the Bette Midler character from Beaches: “But enough about me, let’s talk about you. . . . What do you think of me?”
Kline Mystery Solved
| Peter Klein |
Thanks to Maureen Kline for solving the Peter Kline mystery:
Hi, just came across this post although it’s over a year old and you have surely solved the mystery by now; the “real” Peter Kline is my father, who currently lives in the Washington DC area (Silver Spring, MD). He started out as an English and Drama teacher in Washington area private schools, and co-founded Thornton Friends School in the 1970s. The school had a very innovative approach and great success, particularly in turning around “problem students.” Eventually he and his then-wife Nancy turned the school over to others to pursue other projects, and Dad has been “free-lancing” ever since, mainly training teachers in various school systems around the country, writing the books you mentioned, and doing extensive training within companies (Kodak, IDC and others).
Update: PK himself checks in with a comment to the original post.
Peter: If you get any of my letters from the Nobel Committee, will you please pass them on?
Ken Lay as Political Capitalist
| Peter Klein |
This blog has taken a special interest in Ken Lay, not just because of his local connections but also because he typifies the modern CEO of a regulated industry, more lobbyist and PR man than manager. Lay, a long-time energy regulator before becoming Enron CEO, was skilled in the ways of Washington — making his reputation as poster-boy for “unbridled capitalism” all the more ironic.
Here is Rob Bradley, quoting from his book Political Capitalism, on Lay and Enron:
Who was Ken Lay, the architect and chairman of Enron from its formation in the mid-1980s until its bankruptcy? The once-celebrated visionary of the energy industry was not an engineer, as were most leaders in the energy sector. Lay did not possess an accounting or finance background, as did some senior executives. He never clawed his way up the corporate ladder in various operational divisions, much less built a company from scratch. No, Enron’s leader was a Ph.D. economist, interested in the big picture and the ways of political power. His résumé was top-heavy with Washington experience, acquired at three federal jobs, the last two regulating the energy industry. . . .
Government favor propelled Enron’s profit-centers in domestic power plants, natural gas and electricity marketing, wind and solar power, infrastructure in underdeveloped countries, and unconventional natural gas production. Enron was all about complex federal laws and administrative regulations, such as special provisions within the Natural Gas Policy Act of 1978, Public Utility Regulatory Policies Act of 1978, Omnibus Budget Reconciliation Act of 1990, and Energy Policy Act of 1992 — or FERC rulings such as Regulation of Natural Gas Pipelines after Partial Wellhead Decontrol (FERC Order No. 436: 1985), Pipeline Service Obligations and Revisions to Regulations Governing Self-Implementing Transportation Under Part 284 of the Commission’s Regulations (FERC Order No. 636: 1992), and Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities (FERC Order 888: 1996). The arcane was pure gold to Enron.
Corrected Winter Quote
| Peter Klein |
I misquoted Sid Winter in this post. Here’s what he actually said:
“High standards for statistical techniques are tending to crowd out high standards for performance on the central scientific task, causal explanation.”
I was going from memory, then later found the exact wording in my notes. The meaning is the same, but I wanted to correct this for the historical record.
Department of They Just Don’t Get It
| Peter Klein |
Paul Ehrlich, author (with Anne Ehrlich) of The Population Bomb (1968), one of the biggest, um, bombs of the last several decades, is unrepentant. Ehrlich’s main thesis was that the world was running out of natural resources, and population growth was expanding exponentially, leading to an inevitable decline in living standards. Needless to say, none of the three predictions came true, and Bomb became one of those books that cultural anthropologists study for its train-wreck value. Now, apparently for laughs, the Electronic Journal of Sustainable Development has invited the Ehrlichs to write “The Population Bomb Revisited” for a forthcoming symposium. After all these years, the Ehrlichs are no closer to grasping the Econ 101 concept of “resources,” namely means used by human actors to achieve desired ends — not physical stocks of raw materials, but raw materials interacted with human knowledge and purpose. (more…)
The Sociological Imagination
| Peter Klein |
That’s the name of a new sociology blog started by grad students Josh McCabe, David Pontoppidan, and Brian Pitt. I’m already enjoying the first few posts. These guys are influenced by economics (in particular, Austrian economics), so watch out.
New Directions for SSRN
| Peter Klein |
I see that registered users of SSRN can now post comments on other people’s papers. Maybe this feature has been around for some time but I just noticed it. Is this a small step toward open-source peer review? Or a move toward social networking? (What’s next, the SSRN status update or Super Poke?)
McNamara
| Peter Klein |
I haven’t read all the obituaries of Robert S. McNamara, who died early this morning, but the ones I’ve seen focus almost exclusively on his tenure as US Secretary of Defense during the Vietnam War. Few mention how he got to be Secretary — an HBS professorship, WWII experience in procurement as a member of Tex Thornton’s “Whiz Kids,” a stint at Ford Motor Company after the war, and the presidency of Ford just before taking the job as Defense Secretary. The Times notes, in passing, that “Mr. McNamara had risen by his mastery of systems analysis, the business of making sense of large organizations — taking on a big problem, sorting it out, studying every facet, finding simplicity in the complexity.” Um, OK, I guess that’s one way to describe it. In any case, none of the obituaries I’ve seen so far discusses this in any detail, or seems to realize that McNamara’s approach to managing large organizations is controversial among researchers and practitioners.
Here’s a brief comment I made last year on McNamara’s management style.
The Higher Education Bubble
| Peter Klein |
Will it be the next to burst? Yes, say Joseph Marr Cronin and Howard E. Horton. “Consumers who have questioned whether it is worth spending $1,000 a square foot for a home are now asking whether it is worth spending $1,000 a week to send their kids to college. There is a growing sense among the public that higher education might be overpriced and under-delivering.” Of course it is, which explains the unbridled hostility of the higher-ed establishment toward alternative organizational models. Adds Mark Taylor:
Make no mistake about it, education is big business and, like other big businesses, it is in big trouble. What people outside the education bubble don’t realize and people inside won’t admit is that many colleges and universities are in the same position that major banks and financial institutions are: their assets (endowments down 30-40 percent this year) are plummeting, their liabilities (debts) are growing, most of their costs are fixed and rising, and their income (return on investments, support from government and private donations, etc.) is falling.
These commentators do not, however, speculate on root causes. There’s no doubt the traditional model for producing higher education is grossly inefficient and that there’s been tremendous overinvestment in facilities and staff (malinvestment, in Austrian lingo) over many decades. But why, and why now? One hypothesis is that the democratization of higher education that began in the 1960s not only increased enrolments, but created a wedge between expectations of faculty (we’re here to create and disseminate knowledge and to challenge, engage, and enlighten our students — in the humanities, to teach them political slogans) and those of students (we’re here to party, find mates, and prepare for the job market). Another possibility is that political correctness has distorted the curriculum, creating large and well-funded departments in ethnic studies and postmodern literature with high overhead and few students, leaving insufficient resources for, and interest in, traditional subjects like math and history. What are some other hypotheses? (Thanks to Dennis Lubahn for the pointers.)
Scott Shane Blogging at the NYT
| Peter Klein |
Scott joins the “You’re the Boss” blogging team (via Dane Stangler).
The Professional Strategy of the Early Austrian Economists
| Peter Klein |
O&M, like other niche academic blogs, deals occasionally with the history and sociology of this or that school of economic or management thought. We think often about professional strategy — how to promote our ideas, how to secure financial and institutional support, how to recruit students and fellow-travelers (“groupies,” according to Nicolai), what competing and complementary movements and schools of thought (not to mention rival blogs) are up to, and so on.
Given our close association with the Austrian school, you might be surprised to learn that the founding Austrians were not at all “strategic” in this sense. They held strongly to the view that truth wins out in the long run, so there is no need to build formal institutions or establish a “movement.” This comes out in a passage from Mises’s recently released Memoirs (a new translation of his earlier Notes and Recollections):
It is necessary to correct the misunderstandings that can be called forth by using the expression “Austrian School.” Neither Menger nor Böhm-Bawerk wanted to found a school in the sense customarily used in university circles. They never attempted to turn young students into blind disciples, nor did they, in turn, provide these same students with professorships. They knew that through books and an academic course of instruction they could promote an understanding suited to dealing with economic problems, thus rendering an important service to society. They understood, however, that they could not rear economists. As pioneers and creative thinkers, they recognized that one cannot arrange for scientific progress, nor breed innovation according to plan. They never attempted to propagandize their theories. Truth would prevail of its own accord when man possessed the faculties necessary to perceive it. Using impertinent means to cause people to pay lip service to a teaching was of no use if they lacked the ability to grasp its substance and significance. (more…)
Does Macroeconomic Theory Influence Macroeconomic Policy?
| Peter Klein |
Not really, according to John Wood’s History of Macroeconomic Policy in the United States (Routledge, 2008). As David Wheelock notes in his EH.Net review:
Wood argues that U.S. fiscal and monetary policy have been remarkably consistent over the decades and largely uninfluenced by macroeconomic theory. Economists have rationalized more than influenced policy, Wood contends, and the direction of influence between economic theory and practice is primarily from the latter to the former.
This is of course the classic explanation for the spread of Keynesianism after 1936: rather than proposing a new approach to macroeconomic policy, the General Theory simply rationalized the massive deficit-spending and easy-money policies already in place (and long desired by disreputable economists such as Foster and Catchings).
Pioneers of Law and Economics
| Peter Klein |
Profiles of the leading scholars in contemporary law and economics, now out from Edward Elgar. Congratulations to Josh Wright and Lloyd Cohen for putting this together. Table of contents below the fold. (more…)
Organizations and Markets 
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