Posts filed under ‘– Klein –’
Thoughts on AIG
| Peter Klein |
Nothing has annoyed me more in the last 24 hours than the constant parade of angry, self-righteous, and ill-informed denunciations of AIG coming from Capitol Hill and the mainstream media. No one, of course, likes the thought of a failing, taxpayer-supported firm paying large bonuses to executives. But let’s talk some common sense here.
- The main lesson is that AIG should never, ever have been bailed out with taxpayer dollars. I said that at the beginning, and I stand by it even more today. AIG should have declared bankruptcy. Under bankruptcy there are well-established, orderly procedures for winding down a firm, distributing the remaining assets among the various legal claimants, and so on. Injecting taxpayer money without any serious thought about the implications of government subsidy and/or ownership for management and governance is just plain dumb. Naturally, that’s what Congress and the last President — people who know exactly zilch about what companies do and how they are run — did.
- Performance-based pay is a complicated subject. There are dozens, if not hundreds, of theoretical and empirical studies on the effects of performance-based pay on company performance, the benefits and costs of various compensation formulas, and the like. As Jensen and Murphy wrote back in 1990, “It’s Not How Much You Pay, But How.” Of course, the people screaming the loudest right now haven’t a clue about any of this. (more…)
Management Theory and the Current Crisis
| Peter Klein |
Here is a short piece by Nicolai and me written for a general audience, “Management Theory Is Not to Blame.” We discuss the role of resource heterogeneity in management theory and critique the vulgar Keynesianism that dominates mainstream commentary on the crisis. The graphic with the shovel alone is worth the click. Comments welcome here or at the Mises blog.
L’effet de Klein
| Peter Klein |
In 2006 I spent two weeks in Paris to visit colleagues and give a series of seminars. My first seminar was scheduled for a Tuesday in March. That day students decided to go on strike to protest a proposed labor law, the host university was closed, and my seminar was canceled. The next seminar was scheduled for the following Tuesday. Sure enough, that was the next day of protests, and that talk was canceled as well.
Now I am in France again to give some lectures at the University of Angers and ESC Rouen. Tomorrow I was planning to go by train from Angers to Rouen for an afternoon seminar. So, guess what’s planned for tomorrow? You guessed it: general strike. Trains are shut down, so no Rouen seminar for me.
Sooner or later someone in France is going to run some Granger causality tests and I will be banned from the country forever.
Update (Thursday): Here are some photos I took of this morning’s activity in Angers. For those who can’t read French, the signs say “Klein Go Home” and “French Lectures for French Professors.”
John Nash’s Dissertation
| Peter Klein |
Thanks to Dave Prychitko for linking to the original, which I hadn’t seen before. Things I didn’t know about the dissertation:
- The symbols and equations are hand-written (standard practice for 1950, I assume).
- There is no discussion of social-science applications — in fact, no discussion of any applications other than poker.
- The bibliography contains two items, von Neumann and Morgenstern (1944) and an earlier paper by Nash.
- The whole thing is only 27 pages long.
Conference on Law and New Institutional Economics
| Peter Klein |
Vic Fleischer and Phil Weiser have organized a conference on Law and New Institutional Economics at the University of Colorado, 4-5 June 2009. Along with Lee Fennel, Mark Ramseyer, Henry Smith, and Eric Talley, Vic and Phil will facilitate discussion of classic (Demsetz 1967, Klein, Crawford, and Alchian, 1978) and contemporary papers dealing with property rights, contract design, behavioral finance, the teaching of NIE, and more. See the link for details.
“I’m 30 Years Old, and I Made $600 Last Year”
| Peter Klein |
Bart Simpson explains graduate school (via Per):
My favorite Matt Groening take on grad school remains this one.
The Political Economy of Vertical Integration
| Peter Klein |
An understudied area in the organizations literature is the effect of organizational form on lobbying, rent-seeking, tax-rate arbitrage, and similar kinds of political behavior. The accounting literature on transfer pricing looks at the ability of vertically integrated multinationals to shift income between tax jurisdictions to reduce the overall tax burden, and regulators have expressed concerns about diversified multinationals putting downward pressure on environmental and labor regulations (by threatening to withdraw production from countries with high tax or regulatory burdens). Of course we know that as industries mature, firms are more likely to open lobbying offices in state or national capitols. But, in general, we know little about how firms organize to take advantage of political processes and institutions.
Joseph Fan, Jun Huang, Randall Morck, and Bernard Yeung have a new NBER paper on vertical integreation in China showing that vertical integration in highly interventionist environments may be aimed not at reducing transaction costs, protecting relationship-specific investments, and the like, but at rent-seeking and the pursuit of other forms of political privilege. Abstract:
Where legal systems and market forces enforce contracts inadequately, vertical integration can circumvent these transaction difficulties. But, such environments often also feature highly interventionist government, and even corruption. Vertical integration might then enhance returns to political rent-seeking aimed at securing and extending market power. Thus, where political rent seeking is minimal, vertical integration should add to firm value and economy performance; but where political rent seeking is substantial, firm value might rise as economy performance decays. China offers a suitable background for empirical examination of these issues because her legal and market institutions are generally weak, but nonetheless exhibit substantial province-level variation. Vertical integration is more common where legal institutions are weaker and where regional governments are of lower quality or more interventionist. In such provinces, firms led by insiders with political connections are more likely to be vertically integrated. Vertical integration is negatively associated with firm value if the top corporate insider is politically connected, but weakly positively associated with public share valuations if the politically connected firm is independently audited. Finally, provinces whose vertical integrated firms tend to have politically unconnected CEOs exhibit elevated per capita GDP growth, while provinces whose vertically integrated firms tend to have political insiders as CEOs exhibit depressed per capita GDP growth.
High-Tech Austrians
| Peter Klein |
Austrian economists are social and cultural conservatives who bury their noses in thousand-page tomes, favor bow ties and vests, and gaze longingly toward Old Vienna, right? Guess again! These guys are on the cutting edge. To wit:
- You can follow the (in-progress) Austrian Scholars Conference on Twitter and watch the plenary sessions online.
- Both volumes of Murray Rothbard’s Austrian Perspective on the History of Economic Thought are now available as free e-books (1, 2).
- There are a bunch of Austrian economics groups on Facebook; this is the largest.
Why They Heart Keynes
| Peter Klein |
Luigi Zingales offers Straight Talk on Keynes (via Casey Mulligan):
Keynesianism has conquered the hearts and minds of politicians and ordinary people alike because it provides a theoretical justification for irresponsible behavior. Medical science has established that one or two glasses of wine per day are good for your long-term health, but no doctor would recommend a recovering alcoholic to follow this prescription. Unfortunately, Keynesian economists do exactly this. They tell politicians, who are addicted to spending our money, that government expenditures are good. And they tell consumers, who are affected by severe spending problems, that consuming is good, while saving is bad. In medicine, such behaviour would get you expelled from the medical profession; in economics, it gives you a job in Washington.
Three comments: First, the “hangover” metaphor, while not exactly accurate, is an effective way to communicate the basics of the Mises-Hayek malinvestment theory of the business cycle. Use it! Second, Zingales’s description applies equally well to the 1930s and 1940s, when the Keynesian consensus emerged. It’s important to remember that massive deficit spending to “cure” the Depression began with Hoover and Roosevelt in the early 1930s, long before the General Theory appeared. Keynes’s book did not propose a new direction for economic policy; it provided an allegedly scientific rationale for policies already in place, policies government officials were eager to defend and protect. (The use of expansionary fiscal and monetary policy to increase output had long been derided by serious economists as nonsense, as the domain of “monetary cranks” and other snake-oil salesmen).
Third, the Keynesian delusion afflicts not only policymakers, but professional economists as well. I’ve long suspected that the appeal of Keynes to people like Krugman and DeLong is ultimately based on aesthetic, not scientific, grounds. Deep in their hearts, they just don’t like private property, markets, and individual choice. They don’t think ordinary people are capable of making wise decisions and think they, the elites, should be in charge. They resent the fact that most people don’t want their lives controlled by liberal intellectuals. Technical arguments about the effectiveness of monetary and fiscal policy, the relationship between aggregate demand and output, the experience of the 1930s, and the like are really beside the point. For Keynesian economists, the belief that markets are naturally unstable in the absence of government planning is a matter of faith.
New McKinsey Videos
| Peter Klein |
Acumen Fund founder and CEO Jacqueline Novogratz shares stories of social-sector entrepreneurship in an excerpt from her new book, The Blue Sweater. A video interview with the author takes you behind the book.
Google’s chief economist says executives in wired organizations need a sharper understanding of how technology empowers innovation.
Tarun Khanna says their common optimistic entrepreneurialism makes them a formidable force.
Watching the Growth of Walmart
| Peter Klein |
This animated map showing the US growth of Walmart from 1965 to 2007 proves the adage that a picture is worth a thousand words. Lots of other cool visualizations at FlowingData, like the Heavy Metal Band Names Flowchart. (Thanks to SKK.)
Change Management Bleg
| Peter Klein |
I am giving some lectures next week at the University of Angers, France, a series on change management and another on globalization. (And hanging out with old friend Guido Hülsmann.) I have some change-management materials prepared but am looking for additional readings, classroom exercises, cases, etc. If you have any teaching materials on change management suitable for MBAs or undergraduates (whose first language isn’t English!), I’d appreciate seeing them.
Ah, Democracy!
| Peter Klein |
I learned this week from Doug French that Dissident Books has published a new edition of H. L. Mencken’s classic and extremely politically incorrect Notes on Democracy. Who but Mencken could write that the common man “is not actually happy when free; he is uncomfortable, a bit alarmed, and intolerably lonely. He longs for the warm, reassuring smell of the herd, and is willing to take the herdsman with it.” As for democratically elected politicians, Mencken reminds us how quickly all those sappy paeans to the people’s will evaporate when a “crisis,” real or imagined, is on the horizon. “All the great tribunes of democracy, on such occasions, convert themselves, by a process as simple as taking a deep breath, into despots of an almost fabulous ferocity. Lincoln, Roosevelt and Wilson come instantly to mind.”
This was on my mind when I read (via Kathryn Muratore) about a new study appearing in Science finding that children looking at pictures of political candidates correctly pick the eventual winner 64% of the time. Apparently we are hard-wired to prefer pretty faces, even when supposedly choosing based on policy views, ideology, “the issues,” etc . So much for the rational voter.
What Does a Trillion Dollars Look Like?
| Peter Klein |
As they say, trillion is the new billion, where bailouts and government debt are concerned (1, 2). Just how much is a trillion dollars anyway? Here it is in pictures (via MGK).
Best Time Waster of the Day
| Peter Klein |
No, not reading these. It’s this online version of wastepaper-basket basketball. I’ve already wasted about 30 minutes today playing. (Via EclectEcon)
Ben Jones on the Burden of Knowledge
| Peter Klein |
Ben Jones, who does very interesting work on innovation and economic growth, has a new paper on the “burden of knowledge,” the idea that as an economy’s knowledge base increases, the amount of education necessary to be an effective innovator increases as well, mitigating the effects of knowledge accumulation on growth. Abstract:
This paper investigates a possibly fundamental aspect of technological progress. If knowledge accumulates as technology advances, then successive generations of innovators may face an increasing educational burden. Innovators can compensate through lengthening educational phases and narrowing expertise, but these responses come at the cost of reducing individual innovative capacities, with implications for the organization of innovative activity – a greater reliance on teamwork – and negative implications for growth. Building on this burden of knowledge mechanism, this paper first presents six facts about innovator behaviour. I show that age at first invention, specialization, and teamwork increase over time in a large micro-data set of inventors. Furthermore, in cross-section, specialization and teamwork appear greater in deeper areas of knowledge, while, surprisingly, age at first invention shows little variation across fields. A model then demonstrates how these facts can emerge in tandem. The theory further develops explicit implications for economic growth, providing an explanation for why productivity growth rates did not accelerate through the 20th century despite an enormous expansion in collective research effort. Upward trends in academic collaboration and lengthening doctorates, which have been noted in other research, can also be explained in this framework. The knowledge burden mechanism suggests that the nature of innovation is changing, with negative implications for long-run economic growth.
Blue Eagle Redux
| Peter Klein |
Assuming this is not a joke, Obama has unveiled a new stimulus-plan logo. Projects funded by the American Recovery and Reinvestment Act — primarily roads and bridges, I presume — will sport this handsome emblem. It lacks the 1930s-era fascist style of the NRA’s Blue Eagle but is much in the same spirit. Will those who maintain these roads and bridges be fined for failing to display the logo? (Business owners without a Blue Eagle could be fined up to $500 — more than $8,000 in today’s dollars — and get six months in jail.) Will consumers be encouraged to bycott those without the colorful insignia?
Jason Taylor and I have written that the Blue Eagle may be more important than economic historians have realized. In the early days of the NRA it seems to have played a strong cartel-enforcement role. Eventually business owners and consumers learned that NRA officials were not punishing cartel violations and the Blue Eagle began to disappear from store windows and newspaper advertisements. Our analysis is game-theoretic, but I’m sure our friends from that other discipline would proffer a different explanation based on institutional legitimacy and that stuff.
Mises Quote of the Day
| Peter Klein |
OK, so the great line attributed to George W. Bush — “the problem with the French is they don’t have a word for entrepreneur” — turns out to be apocryphal. But check out this passage from the recent Mises collection, Marxism Unmasked, as noted in David Gordon’s review:
In French, the words “organize” and “organizer” were unknown before the end of the eighteenth century or the beginning of the nineteenth century. With regard to the term “organize,” Balzac observed “This is a new-fangled Napoleonic term. This means you alone are the dictator and you deal with the individual as the builder deals with stones.” (p. 45)
Thanks to Jeff Herbener for the pointer.
Sarasvathy at Missouri
| Peter Klein |
Saras Sarasvathy comes to our campus this Thursday, 5 March, for a seminar on the effectuation approach to entrepreneurship. Details are at the McQuinn Center site. Those of you within driving distance to Columbia should consider coming over. Friday she’s keynoting the Gateway Entrepreneurship Research Conference at St. Louis University.
Saras presented this material last summer at SMG, before Nicolai; here’s another opportunity to brainwash her into adopting the Foss-Klein perspective. Kool-Aid for lunch!
Update: Can she build on the excitement generated by Jimmy John?
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