Posts filed under ‘– Klein –’
Viral Marketing
| Peter Klein |
My friend Tom Woods has written a new book, Meltdown, that explains the economic crisis from an “Austrian” perspective. Tom is a historian by training but has an excellent grasp of economic theory and policy (disclaimer: I consulted on the book). The book is aimed at the intelligent lay reader and was produced very quickly (Tom writes faster than I read) to take advantage of today’s unique educational moment. The book went on sale today.
Tom is promoting the book via the usual means (scholarly and popular websites and blogs, email lists, some TV and radio appearances) and some of his admirers have launched a viral marketing campaign, based at GetTomonTV.com. Can viral marketing work to promote a quasi-academic book? Will policy wonks, economic journalists, and concerned citizens blog, text, and twitter like Blair Witch groupies or Christian Bale fans? How does one promote books (and, for that matter, journal articles) in the Web 2.0 world? Most important, how do I use this knowledge to promote myself?
ESNIE 2009
| Peter Klein |
The European School on New Institutional Economics is taking applications for its 2009 Summer Institute, 18-22 May in Corsica. Speakers include Kenneth Binmore, Peter Murrell, John Wallis, Peter Maskell, Scott Masten, John de Figueiredo, Jackson Nickerson, Florencio Lopez-de-Silanes, and Antonio Estache. PhD students and junior faculty are encouraged to apply. Deadline is 8 Mar 2009.
Econ Courses at Open Yale
| Peter Klein |
Robert Shiller on financial markets and Ben Polak on game theory. Thanks to Joshua for the pointer and a link to Academic Earth, an aggregator for free online courses from several top US universities.
Speaking of Executive Compensation. . . .
| Peter Klein |
Chris Manion has a dream:
Obama Cuts Salaries for Presidents of Universities that Receive Federal Money
$100,000 annual cap enrages literati, “Violates academic freedom,” one president declares, from his limousine’s satellite phone.
Obama Limits Baseball Salaries to $100,000 per Player per Year
Administration points to baseball’s antitrust exemption as authority; “This could force our players to gamble on the side and maybe throw the world series even” says players union president.
Obama Limits Salaries of Former Government Employees
$100,000 a year ceiling enrages lobbyists, retired generals, and Trent Lott.
Obama Caps Federal Retirement Pensions
“These benefits should be no higher than those of the private sector taxpayers who pay the taxes to support them,” President says. Government Employee Union president threatens a general strike, scratches his head for a moment, and then retracts statement “pending further discussions.”
And then I woke up.
In my dream the President announces a cap on compensation for TV and movie stars, recording artists, writers, Hollywood directors and producers, celebrity speakers, and investors. “In this time of economic hardship, for Tom Cruise to earn millions for Valkyrie, even though Lions for Lambs was a total flop, for President Clinton to pick up $500,000 for recycling the same boring speech, and for George Soros to rack up interest and dividends even though he completely missed calling the financial crisis, is the height of irresponsibility. It is shameful. And I will not tolerate it as President.”
Google: Too Big to Fail?
| Peter Klein |
It’s horrible to contemplate, but is Google a future candidate for subsidization and regulation under the essential facilities doctrine? Matt Asay wonders. It’s right to ask these questions, but I think people who worry about the catastrophic effects of a Google failure on the economy underestimate how quickly market participants adapt to changes in product offerings, even in the presence of network effects.
Business 101
| Peter Klein |
In announcing his caps on executive compensation this morning the President noted his outrage that Wall Street executives have “paid themselves customary lavish bonuses.” Apparently he is unaware that executive pay in large companies is set by a compensation committee, and typically by a formula determined well before performance results are realized. I guess he thinks executives just decide how much to pay themselves, based on whatever they feel like. He’s also upset about “executives being rewarded for failure,” suggesting he doesn’t know the difference between absolute and relative performance evaluation. Don’t they teach Business Organizations at Harvard Law?
“We Are All Monetarists Now”
| Peter Klein |
“We are all Keynesians now,” Milton Friedman famously remarked in 1965. He meant that all mainstream macroeconomists, regardless of political persuasion, accepted the basic aggregate income-expenditure framework (and assumption of homogeneous capital) that underlies the neo-Keynesian model. How this model came to displace its predecessors, and how it remains in force today, despite the New Classical revolution and New Keynesian counterrevolution, is one of the most interesting stories of twentieth-century intellectual history. Greg Mankiw’s warm fuzzy for Bob Lucas — really a poke at Paul Krugman — is instructive in this regard. As is this anecdote shared by Steve Medema:
I was attending the small Claremont-Bologna monetary conference about a decade ago, and the participants included Friedman, Modigliani, Tobin, and Samuelson. I was sitting in a shuttle van that would take us to dinner, talking with Milton and Rose Friedman. Modigliani approached the van, saw Friedman, shook his hand vigorously, and exclaimed, “Milton, I’m a monetarist now!”
Keynesian, New Keynesian, Monetarist, and New Classical macroeconomics are variations on a theme. The capital-based macroeconomics of the Austrian school represents an entirely different approach, one I hope to blog more about soon. (See also: “Revenge of the Aggregates.”)
Update: Even Dick Armey, writing in today’s WSJ, gets it:
Keynes’s thinking was a decisive departure from classical economics, because arbitrary “macro” constructs like aggregate demand had no basis in the microeconomic science of human action. As Hayek observed, “some of the most orthodox disciples of Keynes appear consistently to have thrown overboard all the traditional theory of price determination and of distribution, all that used to be the backbone of economic theory, and in consequence, in my opinion, to have ceased to understand any economics.”
As Keynes’s Cambridge colleague Gerald Shove supposedly remarked (according to Joan Robinson), “Maynard never spent the half hour necessary to learn price theory.” Sadly, the same seems true of many of Keynes’s modern disciples.
The Gig Economy
| Peter Klein |
Tina Brown heralds the rise of the “Gig economy”:
No one I know has a job anymore. They’ve got Gigs.
Gigs: a bunch of free-floating projects, consultancies, and part-time bits and pieces they try and stitch together to make what they refer to wryly as “the Nut” — the sum that allows them to hang on to the apartment, the health-care policy, the baby sitter, and the school fees.
Love the term. She cites poll results on the number of young, educated, skilled workers who bounce from job to job but — as usual with these kinds of breathy pronouncements — doesn’t offer any time-series data. Reliable evidence on “nonstandard labor” (self-employment, part-time work, independent contracting, and the like) is hard to come by, and we don’t really know how much of the Gig economy (like the “new economy”) is actually new. Self-employment rates have generally risen in OECD countries during the 2000s, but I’m not sure about the other data series. Can anyone suggest recent academic studies?
Andrew Gelman on Significance Testing
| Peter Klein |
A very insightful post on the McCloskey-Ziliak / Hoover-Siegler controversy, paradigmatic examples of signficance testing in economics, rational addiction, and other econometrics-related issues. An excellent discussion starter for a graduate course in research methods. Or your next dinner party.
Personal trivia: I’ve interviewed both Steve Ziliak and Mark Siegler for academic jobs. Both were deemed too smart to be a good fit.
Raising Rivals’ Costs
| Peter Klein |
Last spring, Microsoft supported bills in the New York and Connecticut legislatures to impose strict regulations on businesses that gather personal information online for marketing purposes. The bills would hurt Microsoft, too, given that it also wants to sell advertisements based on customer behavior. But the self-inflicted wound may be worth it for the damage it causes Google.
Thanks to Jesse Walker for finding the passage in Wired’s very interesting story on the political economy of digital competition, which is just as nasty as in “old economy” industries. And don’t even get me started on Apple’s threat to go nuclear on Palm.
Hayek on the Austrians
| Peter Klein |
Those of you longing for a copy of my favorite volume in Hayek’s Collected Works, but unwilling to pay the hefty University of Chicago Press or Routledge price, can now get a handsome paperback edition for only $12, thanks to Liberty Press. The brilliant introduction and copious editor’s footnotes alone are worth the price!
Attacking Incentive Pay is the “Height of Irresponsibility”
| Peter Klein |
Imagine you’re a salesperson at a company. In order to create an incentive for you to bust your tail, the company negotiates with you a leveraged compensation plan under which you receive a relatively small base salary plus fairly generous commissions on the sales you close. Suppose you do a bang up job one year, but the company as a whole suffers a loss because of some poor decisions beyond your control (or because of developments in the macroeconomy, such as the bursting of an asset bubble facilitated by government-sponsored entities). Now imagine that the government perceives your company to be strategically important and therefore decides to subsidize it by, say, buying its preferred stock or extending it a loan. Would it be “the height of irresponsibility” for your employer to honor your legitimate compensation expectations and pay you the wages that you effectively earned under your implicit deal with the firm? And what would happen if your employer didn’t pay you what you legitimately expected? Wouldn’t you and the other successful salespeople at your company immediately bolt, leaving the company with a much less effective sales force?
I have little to add to Thom’s excellent post on Obama’s populist attack on bonuses except to note that the compensation system is just one element of a firm’s organizational architecture (along with the allocation of decision rights, systems of performance evaluation, and so on). The firm, as Holmström and Milgrom put it, is an incentive system, and the elements of this system interact in complex and nuanced ways. The idea that regulators can simply march in and dictate changes to one element or another, based on popular prejudice, without affecting the performance of the system, is typical of the hubris of the intellectual.
Facebook in the Classroom
| Peter Klein |
According a new survey, 76 percent of undergraduates here at the University of Missouri are on Facebook at least once a day, and they are more likely to get school-related information from Facebook than from email.
I’ve never used Facebook as an academic resource. If you have, could you share something about your experiences? For example, I could create Facebook Group pages for my courses and use them for announcements, discussion, chat, hosting course materials, etc. Facebook isn’t a substitute for Blackboard, or one of the other specialized teaching platforms, however; it lacks testing and grading features, doesn’t automatically import membership lists from enrollment data, isn’t supported by university IT people, etc. How can Facebook and Blackboard be used effectively as complements?
Stimulus Haiku
| Peter Klein |
From the great Bob Higgs:
Billions come bursting
From huge hydrants of money
I am stimulatedCredit freeze thaws now
Fed heats pipes until they steam
Winter is lovelyConsumers feel fine
Ready to mortgage their souls
John Maynard Keynes smilesSaving’s so passe
Capital stock may be assumed
Let K be capitalGiant debt you bet
Chinese will serve fine dinner
Children cannot voteLike rose in springtime
Welfare state blossoms anew
Laughter heard in hell
Feel free to try your hand in the comments section below. See also Bob’s reflections on the Inauguration.
Update: See also Morgan Reynolds’s bailout version of “I Fought the Law.”
Chapman on the US Economy
| Peter Klein |
My colleague, coauthor on several forthcoming projects, and former PhD student John Chapman was on Hugh Hewitt’s show last night, talking about the US economy. Like me John blames the Fed, not hedge funds and derivatives markets, for the housing bubble and crash. John’s investment advice: “Short the dollar and prepare for the 1970s.” Listen here (John comes on around 25:10).
The Hot Hand
| Peter Klein |
Watching UNC beat Clemson in basketball last week — Clemson has lost all 54 games it has played in Chapel Hill, the longest such streak in the nation — I was reminded of the behavioral economics literature on the “hot hand” (Gilovich, Vallone and Tversky, 1985; Camerer, 1989; Brown and Sauer, 1993), a version of the gambler’s fallacy in which people put too much weight on past results in predicting future performance. There is debate about hot-hand effects in sports, where the behavior of players and teams (unlike that of dice or roulette wheels) can certainly be affected by knowledge about past contests. If you’re on a team that has lost every game to a particular opponent, how can you not get nervous down the stretch? But such effects are hard to distinguish, empirically, from random error.
I haven’t seen much on hot-hand effects at the level of the firm, though there is a healthy literature on autocorrelation of stock returns (see Boudoukh, Richardson, and Whitelaw, 1994, for one survey). The business press often describes a firm being on a “hot streak” following a string of successful products or performance results (think Apple, Pixar, Google, etc.). If above-normal performance is anomalous, then investing in such firms is a mistake. If a firm’s hot hand reflects superior resources, strategies, market positioning, etc., and these advantages persist, then its hot hand may be real.
PS: When I taught at Georgia I used to know a great Clemson joke. Originally Clemson’s name was simply “Clem,” but it was decided that “Clem University” didn’t sound very distinguished, so they added “s” for chivalry, “o” for honor, and “n” for knowledge.
Update (2 February): Brian McCann notes that, including last night’s game, the NFC has won twelve consecutive Super Bowl coin tosses.
“Beta Culture” and Opportunity Cost
| Peter Klein |
I enjoyed this rant on “beta culture” — the trend toward earlier and earlier releases of hardware and software, before many bugs are worked out — but wish the author understood the concepts of opportunity cost and marginal analysis. I used to assign Gene Callahan’s classic “Those Damned Bugs!” in my introductory classes to explain these concepts. Would it be nice if new products worked perfectly right out of the box? Sure. Is perfection worth the wait? Probably not. That isn’t to say that all new products are launched on the right side of the temporal benefit-cost margin — the BlackBerry Storm might qualify as alpha, not beta — but using the problems of some new products to crusade against early release more generally misses the mark.
New Leoni Collection: Law, Liberty, and the Competitive Market
| Peter Klein |
Transaction Publishers and the Instituto Bruno Leoni have just published a new collection of essays by Bruno Leoni, Law, Liberty, and the Competitive Market, edited by Carlo Lottieri. The essays elaborate on Leoni’s distinction between law and legislation, and the analogy between the latter and centralized economic planning, themes introduced in his best-known book, Freedom and the Law. Richard Epstein provides an informative introduction.
Disaster Socialism
| Peter Klein |
As I noted elsewhere yesterday, the “stimulus” bill making its way through Congress is a fine illustration of the Higgs effect, the tendency of government to expand massively in response to “crises,” real or imagined. Naomi Klein’s “Disaster Capitalism” thesis is exactly backward: “disasters” are inevitably followed by huge increases in the public sector at the expense of the private. Anyway, if you have any doubt that the current legislation has precious little to do with economic stimulus, consider the details of the House’s proposed $825 billion package, which includes:
- $1 billion for Amtrak
- $2 billion for child-care subsidies
- $50 million for the National Endowment for the Arts
- $400 million for global-warming research
- $2.4 billion for carbon-capture demonstration projects
- $650 million for digital TV conversion coupons
- $8 billion for renewable energy funding
- $6 billion for mass transit
- $600 million for the federal government to buy new cars
- $7 billion for modernizing federal buildings and facilities (including $150 million for the Smithsonian)
- $252 billion is for income-transfer payments ($81 billion for Medicaid, $36 billion for expanded unemployment benefits, $20 billion for food stamps, and $83 billion for the earned income credit for people who don’t pay income tax)
- $66 billion for education
Now I should state, for the record, that unlike other critics of this particular stimulus package, I don’t favor government “stimulus” packages of any kind. I’m not a Keynesian, after all.
Department of Irony, Cass Sunstein Edition
| Peter Klein |
Harvard’s Cass Sunstein has been tapped by Obama to head the Federal Office of Information and Regulatory Affairs (to be “regulation czar,” in the vernacular). One of his main tasks, presumably, will be to sell the new financial-market and related regulations accompanying the “stimulus” bill. I hope Sunstein will re-read his recent working paper with Richard Zeckhauser, “Overreaction to Fearsome Risks”:
Fearsome risks are those that stimulate strong emotional responses. Such risks, which usually involve high consequences, tend to have low probabilities, since life today is no longer nasty, brutish and short. In the face of a low-probability fearsome risk, people often exaggerate the benefits of preventive, risk-reducing, or ameliorative measures. In both personal life and politics, the result is damaging overreactions to risks. We offer evidence for the phenomenon of probability neglect, failing to distinguish between high and low-probability risks. Action bias is a likely result.
Cass, will you please explain “action bias” to the President and Congresssional leaders before they completely restructure the US economy in response to the current economic downturn?
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