Posts filed under ‘– Klein –’
Headline of the Day
| Peter Klein |
Sandy Ikeda gets the prize for his blog entry on the Obama Administration’s decision not to auction landing slots at NYC airports: “Coase, but No Cigar.”
I wasn’t nearly as clever when I wrote about this problem a while back. I’m still wondering about the question I posed then: Is the political resistance to using prices to allocate scarce resources best explained by public-choice concerns, or by ignorance of how the price mechanism works?
Sid Winter on the Crisis
| Peter Klein |
From a short piece at Knowledge@Wharton:
As computers have grown more powerful, academics have come to rely on mathematical models to figure how various economic forces will interact. But many of those models simply dispense with certain variables that stand in the way of clear conclusions, says Wharton management professor Sidney G. Winter. Commonly missing are hard-to-measure factors like human psychology and people’s expectations about the future, he notes.
Among the most damning examples of the blind spot this created, Winter says, was the failure by many economists and business people to acknowledge the common-sense fact that home prices could not continue rising faster than household incomes.
Says Winter: “The most remarkable fact is that serious people were willing to commit, both intellectually and financially, to the idea that housing prices would rise indefinitely, a really bizarre idea.”
Presumably Sid is referring here to some kind of behavioral anomaly, but what I see is the standard malinvestment story from Austrian business-cycle theory. Even investors with rational expectations, who know that a credit-induced artificial boom can’t last forever, won’t know exactly when the bubble will burst, and can profit from taking advantage of artificially low interest rates while they last.
Design by the Numbers
| Peter Klein |
A new item for our “by the numbers” series. Former Google lead designer Doug Bowman recently quit to take a position at Twitter, citing frustration with Google’s engineer-oriented, data-driven culture:
When a company is filled with engineers, it turns to engineering to solve problems. Reduce each decision to a simple logic problem. Remove all subjectivity and just look at the data. Data in your favor? Ok, launch it. Data shows negative effects? Back to the drawing board. And that data eventually becomes a crutch for every decision, paralyzing the company and preventing it from making any daring design decisions.
Yes, it’s true that a team at Google couldn’t decide between two blues, so they’re testing 41 shades between each blue to see which one performs better. I had a recent debate over whether a border should be 3, 4 or 5 pixels wide, and was asked to prove my case. I can’t operate in an environment like that. . . .
I’ll miss working with the incredibly smart and talented people I got to know there. But I won’t miss a design philosophy that lives or dies strictly by the sword of data.
Adds Keith Sawyer:
Google’s engineer-dominated culture wants to see the numbers, the proof. Artists and designers don’t think that way — they know a design that works in their gut, somehow, when they see it. It’s a holistic phenomenon, and it emerges in some unpredictable way from hundreds of tiny design decisions about line widths and color shades. How, they would ask, could you possibly test every single combination, every possible design? . . . Numbers get you focused on the trees and you forget you’re inside of a forest.
I hold to the basic Misesian position that quantitative empirical analysis is a complement to, not a substitute for, other forms of knowledge acquisition such as a priori theorizing and Verstehen. Needless to say, this doesn’t mean I approve of fuzzy constructs in social-science research.
Confidence
| Peter Klein |
Craig Pirrong is concerned about the stress tests:
[Bernanke] emphasized that they were a “confidence-building exercise.” That seems like assuming the conclusion. I would like a fact-finding exercise, with a clear statement of the findings, good or bad. Stating that the objective is to build confidence suggests a pre-ordained result — Kabuki Theater. It’s like saying that something is needed to build “self-esteem.” Success builds self-esteem, not the other way around. Similarly, success builds confidence; confidence-building does not ensure success.
This reminds me of something I read the other day from Isabel Paterson, quoted by Stephen Cox:
[I am] tired of being told that “credit depends on confidence.” Fudge. Credit depends on real assets, sound money and a clean record. . . . When any one asks us to have confidence we are glad to inform him that the request of itself would shatter any remaining confidence in our mind.
Missouri J-School Tastes the Apple
| Peter Klein |
Many colleges and universities require students to purchase a laptop with particular capabilities. Some schools are considering requiring Kindles or similar book readers. The University of Missouri School of Journalism, however, is going one better by mandating not just a particular type of device — in this case, a portable media player — but a particular brand. In a decision sure to warm Teppo’s heart, the school announced last week that incoming freshmen will be required to own an iPhone or iPod Touch. Not only are these high-end devices, for their class, but in the case of the phone a 2-year AT&T service contract is part of the package. The ostensible reason is to allow students to listen to recorded lectures and other multimedia presentations related to their coursework and projects.
If you think this places an unfair burden on students, given that they can listen to these materials on any personal computer and most portable music players, don’t worry: university officials immediately announced that the requirement won’t be enforced, but is merely a cynical ploy to let students add the cost of the fancy toy to their financial aid applications. No doubt makers of rival devices are delighted by the university’s move.
Remembering Hayek
| Peter Klein |
In honor of today’s special day several writers have written personal reminisces of F. A. Hayek. Here are two by David Gordon and Mario Rizzo. (And here’s a 2003 remembrance from Ronald Hamowy.) The boys at orgtheory will get a kick out of the Merton reference in Gordon’s post.
Here’s an indirect Hayek reference that will amuse one or two of you. I was reading emails on my BlackBerry this afternoon while walking through the St. Louis airport and came across this passage, sent by a friend, from Terry Eagleton’s new book:
Because there is no necessity about the cosmos, we cannot deduce the laws which govern it from a priori principles, but need instead to look at how it actually works. This is the task of science. There is thus a curious connection between the doctrine of creation out of nothing and the career of Richard Dawkins. Without God, Dawkins would be out of a job. It is thus particularly churlish of him to call the existence of his employer into question.
Right after reading this, and pondering the word “cosmos,” I look up and see that I’m walking under a big sign, “Taxis.”
My “No New Economy” Slides
| Peter Klein |
Here, for the curious, are my slides from this morning’s talk at the Law and Economics of Innovation conference, titled “Does the New Economy Need a New Economics?” (Short answer: no.) This will eventually morph into a paper so comments are most welcome (and thanks to those who have already helped). I’m looking forward to Susan Athey’s keynote later today.
Phishing Scam Targets Academics
| Peter Klein |
Some of you may have received a weird email this morning, purportedly from Elsevier, soliciting “manuscripts in all Fields of human Endeavour.” It has the general form of a call for submissions but gets the details wrong, e.g., asking authors to submit all papers to a central address, with Elsevier then deciding which of its subject-area journals is appropriate — a “special publication procedure,” it says — and, craziest of all, promising decisions within one week of submission. It also bears the usual marks of a phishing scam, such as as reply-to address that does not end in “elsevier.com.”
My guess is that naive authors, after being sucked into corresponding with the fake editors, will at some point be asked for credit card information to cover submission fees or page charges. Sadly, our publish-or-perish climate will probably lead some inexperienced scholars to fall for it. Anybody know of similar scams targeting academics?
M&A Bloggers Needed
| Peter Klein|
The Law Professors Blogs Network needs someone to take over its Mergers and Acquisitions Law Blog. Details here.
Zupan on Leadership
| Peter Klein |
I’m not sure if leadership counts as an ill-defined, un-measured core construct but it certainly is an elusive one. Here is Mark Zupan’s attempt to get a handle on it. In brief, he describes leadership as the ability to convert a single-period prisoner’s dilemma game into a multiple-period game. “In a very fundamental way, leadership involves creating opportunity from a seemingly intractable setting that, if otherwise left to its own resolution, confines us to an inferior equilibrium. . . . This paper shows how effective leaders make this traverse through vision; enrolling others to participate in the ongoing play of the reformulated prisoner’s dilemma; commitment; integrity; communication; and authenticity.” Check it out.
My old friend Dwight Lee and I used to joke that we’d respond to the rise of leadership courses and programs in the MBA curriculum by developing our own program in followership, letting us exercise our comparative (and absolute) advantage freely. Of course no management concept is too droll to have its own academic literature.
Cheer Up With the Depression Bundle
| Peter Klein |
Sorry, couldn’t resist the headline. But check it out: Murray Rothbard’s America’s Great Depression, Bob Murphy’s Politically Incorrect Guide to the Great Depression and the New Deal, Dave Beito’s Taxpayers in Revolt, and John T. Flynn’s Roosevelt Myth, all for $49! That’s quite an uplifting deal.
More great news: Contra Keynes and Cambridge, vol. 9 of Hayek’s Collected Works, is now out in paperback from Liberty Fund, and just $14.50.
The Ethics of Bankruptcy
| Peter Klein |
I like this 2003 HBR piece from Joe Bower and Stuart Gilson on bankruptcy. Substitute “Chrysler” and “foreign auto makers” for “WorldCom” and “competing telecom firms” and you’ll get the idea:
WorldCom’s bankruptcy, however, highlights an important, potentially very large social cost of the U.S. bankruptcy system. Competing telecom firms, which have played by the accounting rules and have used more prudent financing, now find themselves — once again — at a competitive disadvantage relative to the company. Unlike WorldCom, these firms had to stay current on their debt and service their lease obligations. They did not get to write down their assets and debt, nor have they been able to reduce taxes by claiming that their profits never existed.
Is this fair? Do the benefits of the system outweigh its costs? The system works well to protect assets and employees, to be sure. But are WorldCom’s assets and employees really the ones that should be protected? What about those of more efficient firms? In capital-intensive industries like petrochemicals, steel, telecoms, and airlines, doesn’t bankruptcy law make it harder for efficient companies to drive inefficient assets out of business? In the majority of bankruptcy cases in these industries, the top managers are gone, but old capacity returns to the market with an improved balance sheet. This can easily prolong a period of industrywide overcapacity as well as unfairly disadvantage competitors.
Their focus is bankruptcy resulting from corporate fraud, but the question applies equally well, in my view, to bankruptcy resulting from managerial incompetence.
BTW, for a primer on bankruptcy, Michelle White’s 1989 Journal of Economic Perspectives paper, “The Corporate Bankruptcy Decision,” is a good place to start.
Macroeconomic Policy Quote of the Day
| Peter Klein |
Mike Rozeff makes the Hayekian point that is probably obvious to the O&M community, but virtually absent from public debate:
Bernanke is just a man. He is fallible. We learned this week that he pressured Bank of America into absorbing Merrill Lynch. In doing this, he pressured the leader of Bank of America into withholding critical information from his shareholders about Merrill Lynch losses. Technically, he can be charged with conspiracy to defraud. The loans he had the FED make to AIG look far from wise. A number of his other actions are highly questionable in making various kinds of loans to questionable borrowers.
I am saying that Bernanke doesn’t actually know what he’s doing. But I am using him only as an example. He’s not special. The more important point is that no one knows how to do fiscal and monetary policy, and they never have and never will. No one. For that reason alone, which is a narrowly practical one, no one should have those powers.
“New Economy” Bleg
| Peter Klein |
The heady dot-com days of the late 1990s brought breathy pronouncements from journalists and some academics that the “new economy” had changed all the old rules. Intellectual capital, not physical capital, is the source of value, so plant and equipment is irrelevant. Information goods are produced at zero marginal cost so firms should give away, rather than sell, their products. Profits don’t matter, only installed base counts. Managerial hierarchy is obsolete; cost curves are flat; supply-and-demand analysis is passé; even opportunity costs don’t matter anymore. The dot-com crash and subsequent shakeout brought many people back to their senses, but even today we continue to hear hyperbolic claims about the newness of the new economy.
I’d like to include some of these wildly exaggerated claims in my talk next week at the GMU/Microsoft forum. Can readers supply some quotes I can use (the more outrageous the better)? Like this:
[W]hen it comes to technology, even the most bearish analysts agree the microchip and Internet are changing almost everything in the economy.
— Greg Ip, WSJ, 18 January 2000
One curious aspect of the Network Economy would astound a citizen living in 1897: The very best gets cheaper each year. This rule of thumb is so ingrained in our contemporary lifestyle that we bank on it without marveling at it. But marvel we should, because this paradox is a major engine of the new economy. . . . Through most of the industrial age, consumers experienced slight improvements in quality for slight increases in price. But the arrival of the microprocessor flipped the price equation. In the information age, consumers quickly came to count on drastically superior quality for less price over time. The price and quality curves diverge so dramatically that it sometimes seems as if the better something is, the cheaper it will cost.
— Kevin Kelly, New Rules for the New Economy, 1998
Once a marketing gimmick, free has emerged as a full-fledged economy. . . . The rise of “freeconomics” is being driven by the underlying technologies that power the Web. Just as Moore’s law dictates that a unit of processing power halves in price every 18 months, the price of bandwidth and storage is dropping even faster. Which is to say, the trend lines that determine the cost of doing business online all point the same way: to zero.
— Chris Anderson, Wired, February 2008
Why have [stock] exchanges at all? Certainly not to help investors. Exchanges are at last being exposed as anachronisms, sustained by inertia and by the desire of incumbents, with help from regulators, to keep raking in monopoly rents. But the curtain is coming down.
— James Glassman, WSJ, 8 May 2000
I’m sure there are much more colorful statements (i.e., straw men for me to knock down) out there. Any suggestions?
Best Financial-Markets Sentence I Read Today
| Peter Klein |
From Gene Fama:
George Soros claims (in his op-ed in the Wall Street Journal) that the Efficient Market Hypothesis is invalid, because prices in financial markets “always provide a biased view of the future, and that distortions of prices in financial markets may affect the underlying reality.” Thoughts?
EFF: All the evidence I know says that market predictions are unbiased. It’s understandable, however, that hedge fund managers are immune to this evidence since it’s a threat to their existence.
Tweets That Might Get You Fired
| Peter Klein |
Some of these made me laugh (via FastCompany). I assume they’re real. If I had more time I’d perform a similar exercise, searching online for tweets that might get one of my students an F.
As ResumeBear reminds its readers:
It may not seem important to you now, but what you post and share online could come back to haunt you someday when you least expect it. Everything on the internet can be archived, which means it is also searchable. Your online profiles might be just for friends now, but later on, your online content might keep you from getting that scholarship, the job of your dreams or even prevent you from running for public office.
Think before you post — especially before you post to social networking sites or blogs.
Wait a minute, I blog, don’t I?
Knights, Raiders, and Targets
| Peter Klein |
When doing my dissertation research long, long ago I was influenced by an edited volume called Knights, Raiders, and Targets: The Impact of the Hostile Takeover (Oxford University Press, 1988). It collected the proceedings of a 1985 Columbia Law School conference that must have been terrific. The authors include Robert Shiller, John Coffee, Mel Eisenberg, Oliver Williamson, David Ravenscraft and F. M. Scherer (previewing results of their important 1987 book), Richard Roll, Michael Bradley, and Gregg Jarrell, among others, with several contributions appearing in a comments-and-replies format. I just learned that one of the editors, Louis Lowenstein of Columbia Law, passed away this month. I’m not familiar with his best-known book, What’s Wrong With Wall Street: Short-Term Gain and the Individual Shareholder (1988). Apparently it proposes a tax on short-term trading profits to reward buy-and-hold investors, which doesn’t sound great to me.
Take My Joke, Please
| Peter Klein |
Like other boring professors, I try to liven up my lectures and after-dinner speeches with a few jokes. Naturally, this effort is plagued by radical uncertainty. And of course I steal the jokes. Indeed, I maintain a computer file of one-liners and funny stories — none original — for possible future use. Then again, as Fabio notes, many stand-up comedians are known as prodigious copiers. Milton Berle once said another comedian made him laugh so hard, “I nearly dropped my pencil.”
Good thing I’m not a professional comedian. According to this paper by Dotan Oliar and Christopher Jon Sprigman, the community of stand-up comedians is characterized by strong social norms that take the place of formal rules in enforcing “ownership” of jokes. A complex system of norms has emerged over the last half-century that “regulates issues such as authorship, ownership, transfer of rights, exceptions to informal ownership claims and the imposition of sanctions on norms violators. Under the norms system, the level of investment in original material has increased substantially.” Presumably the community of professional comedians satisfies the Ellickson requirements of being a small, well-defined, close-knit group. Lucky for me I’m not in it. (HT: orgtheory commentator Johann.)
O&M Turns Three
| Peter Klein |
Saturday, April 25, 2009, marked this blog’s three-year anniversary. During the past three years we’ve served up 1,801 posts, hosted 4,597 comments, and entertained 525,624 unique users (that last figure comes from StatCounter and may or may not mean anything). Thanks to the O&M community for making blogging such a fun and interesting experience!
Jargon Watch: “Green Shoots” of Recovery
| Peter Klein |
Thanks to Bill Easterly for noticing that Chauncey Gardner is In the House. G7 officials are now telling us they see “green shoots” of recovery. Can’t you just imagine this behind-the-scenes conversation at the summit?
President “Bobby”: Mr. Gardner, do you agree with Ben, or do you think that we can stimulate growth through temporary incentives?
[Long pause]
Chance the Gardener: As long as the roots are not severed, all is well. And all will be well in the garden.
President “Bobby”: In the garden.
Chance the Gardener: Yes. In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.
President “Bobby”: Spring and summer.
Chance the Gardener: Yes.
President “Bobby”: Then fall and winter.
Chance the Gardener: Yes.
Benjamin Rand: I think what our insightful young friend is saying is that we welcome the inevitable seasons of nature, but we’re upset by the seasons of our economy.
Chance the Gardener: Yes! There will be growth in the spring!
Benjamin Rand: Hmm!
Chance the Gardener: Hmm!
President “Bobby”: Hm. Well, Mr. Gardner, I must admit that is one of the most refreshing and optimistic statements I’ve heard in a very, very long time.
[Benjamin Rand applauds]
President “Bobby”: I admire your good, solid sense. That’s precisely what we lack on Capitol Hill.
Actually, this level of analysis can also be found at the typical graduate macroecomomics seminar. Oops, did I say that?
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