Posts filed under ‘People’
Sameulson on the Crisis
| Peter Klein |
Is it wrong to pick on a 94-year-old? Mario Rizzo doesn’t think so, and neither do I — if it’s Paul Samuelson, perhaps the most influential economist of the twentieth century and bête noire to Austrians, libertarians, and many other types I hold near and dear. Samuelson, champion of “scientific” economics (i.e., the nineteenth-century physics model so effectively skewered by Phil Mirowski), the neo-Keynesian synthesis, and the everything-but-the-kitchen-sink approach to economics textbooks, now says prediction is impossible and deficit spending unsustainable. What’s next, a startling pronouncement that, contrary to what Samuelson wrote in the pre-1991 editions of his textbook, the Soviet Union was not actually more productive than the US?
Bonus Keynesian material (via Ross Emmett): Did Keynes die of a bad tooth?
Peter L. Bernstein (1919-2009)
| Peter Klein |
I was saddened to learn (from Kenneth Anderson) that Peter L. Bernstein, author of Against the Gods: The Remarkable Story of Risk and other popular works, died June 5. Bernstein was a terrific writer and a clear and provocative thinker with a gift for making difficult concepts accessible. I was greatly influenced by an earlier book, Capital Ideas: The Improbable Origins of Modern Wall Street, which I came across in graduate school while searching for a dissertation topic. Bertstein’s characterization of the brokerage industry in the 1960s and early 1970s, before the deregulation of brokerage fees — an Old Boys Club, lacking competition and innovation — inspired me to examine the role of corporate internal capital markets in replicating the resource-allocation function normally performed by external capital markets, and how the growth and development of financial markets following liberalization contributed to the end of the conglomerate period.
Here are obituaries in the WSJ and NYT and here is Bernstein’s wiki.
Introducing Guest Blogger Benito Arruñada
| Peter Klein |
We’re delighted to announce Benito Arruñada as our newest guest blogger. Benito is Professor of Business Organization at Pompeu Fabra University in Barcelona, a former President of ISNIE, and a prolific researcher in the areas of organization, law and economics. Most of his work focuses on the organizational conditions that facilitate impersonal exchange, from property titling or business regulation to moral systems. He has published widely in journals such the Journal of Law and Economics, Industrial & Corporate Change, Harvard Business Review, Journal of Law, Economics, and Organization, Journal of Economic Behavior & Organization, Journal of Comparative Economics, and International Review of Law and Economics.
Benito will be blogging about his new book on property and business formalization, Building Market Institutions: Property Rights, Business Formalization, and Economic Development, coming out next year from the University of Chicago Press, and other topics that strike his fancy. Welcome, Benito!
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.
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.”
Keynesian Economics in a Nutshell
| Peter Klein |
An earlier post on Keynesian economics in four paragraphs has proven extremely popular. Here’s Keynesian economics in just one-and-a-half paragraphs, courtesy of Mario Rizzo:
Clearly, DeLong is a rigid aggregate demand theorist. He talks about output and employment as if it were some homogeneous thing. In his mind, macroeconomics is just about spending to increase the production of stuff. Yes, there is lip service to the idea that the stuff should have economic value. But that is easy when you assume that the only alternative is value-less idleness. . . .
The sectoral problems generated, not only by exogenous shocks but by the low interest rate policy of the Fed, are of critical importance. The aggregate demanders are blind to this.
Here at O&M we take the opposite perspective, namely that heterogeneity matters. Actually, as Mario has pointed out in a series of posts (1, 2, 3), Keynes himself was much better than his latter-day followers. Keynes may have been wrong — deeply, deeply wrong, in my view — but he was no fool. As for today’s Keynesians. . . .
Update (14 April): See also Mario’s fine essay in the April Freeman, “A Microeconomist’s Protest.”
Adam Smith’s Famous Metaphor
| Peter Klein |
The indefatigable Gavin Kennedy explains, for the umpteenth time, that Adam Smith was ambivalent about market capitalism and that the famous metaphor of the “invisible hand” was not meant as a generalized defense of the market. As Gavin points out, Smith’s detailed analysis of the market economy appears in Books I and II of the Wealth of Nations, while the invisible hand metaphor appears only once, in Book IV, where Smith defends British merchants who, despite mercantilist export subsidies, preferred to keep their capital invested at home, to the benefit of the British economy. Notes Gavin:
So inconsequential was [Smith’s] use of The Metaphor that neither he, nor anybody else until the late 19th century, commented upon it. . . .
Moreover, it was only in Chicago in the 1930s that The Metaphor was generalised into Smith’s so-called “law” of markets. Paul Samuelson (1948, 1st edition), in his famous textbook, Economics (16 editions), publicised this invention with the inevitable affect on modern economics, as tens of thousands of his readers took it on trust as true.
To be sure, the relevant passage in Smith also includes the famous lines, “By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good,” and the remark that “What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.” But Smith’s statements need to be understood in context; he is discussing the specific problem of trade monopoly, arguing against trade and industrial policies that subsidize particular markets or industries.
Helland at Missouri
| Mike Sykuta |
Eric Helland will be on campus this Friday, 6 March, to give a seminar on the effects of insurance reimbursement policies on the provision of medical services. In this paper, Helland and his co-author Paul Heaton compare the level and number of treatments recommended for auto-injury trauma patients in Colorado before and after a change in state law that shifted the burden from more generous auto-policy reimbursements to less generous, traditional health-insurance policies. Following the change, doctors recommended more reimbursable treatments per patient despite negligible changes in the character of auto injuries or in the health outcomes of those cases.
This is the latest in a stream of research Eric has done examining the (sometimes perverse) incentive systems created by different market and regulatory structures and the political economy of such outcomes, including issues of corporate governance (here), class-action lawsuits (here), and workings of the judicial system (here and here).
Eric’s talk is part of the Economics Department’s seminar series. If you are within driving distance, I’m sure you would find it worth your while.
Waugh’s House of Wittgenstein
| Peter Klein |
The Saturday Wall Street Journal features Janes Penrose’s review of Alexander Waugh’s House of Wittgenstein, a profile of the prominent Viennese family that produced not only the philosopher Ludwig, considered by many the greatest of the twentieth century, but also pianist Paul. Their father, Karl, was an important Austrian industrialist, and their home, nicknamed Palais Wittgenstein, a Viennese landmark. The WSJ also offers a sample chapter.
Hayek enthusiasts will of course remember that Hayek and Wittgenstein were second cousins, though they did not appear to know each other well (see Hayek’s “Remembering My Cousin Ludwig Wittgenstein” in Hayek, Collected Works, vol. 4, pp. 176-81). My old boss Bill Bartley, founding editor of Hayek’s Collected Works, wrote a controversial Wittgenstein biography in 1973 (Bartley’s book was the first to discuss Wittgenstein’s homosexuality publicly, for which Bartley was condemned by Wittgenstein’s literary executors and outcast by the Wittgenstein establishment). Hayek is also mentioned briefly in the popular book Wittgenstein’s Poker, which we discussed before.
John Gray argues that Hayek’s theory of language, as presented especially in The Sensory Order, was strongly influenced by Wittgenstein (even the numbering system copies that of the Tractatus). There are, writes Gray, “many evidences that Wittgenstein’s work reinforced Hayek’s conviction that the study of language is a necessary precondition of the study of human thought, and an indispensable prophylactic to the principal disorders of the intellect. Examples which may be adduced are Hayek’s studies of the confusion of language in political thought and, most obviously, perhaps, of his emphasis on the role of social rules in the transmission of practical knowledge.”
Skidelsky on Keynes and Hayek
| Peter Klein |
Keynes biographer Robert Skidelsky delivered the Manhattan Institute’s 2006 Hayek Lecture on Keynes and Hayek. The lecture will be broadcast this Sunday, 1 March 2009, 3:00 EST, on C-Span 2’s Book TV series. It will presumably appear later on C-Span’s YouTube channel. (Thanks to Warren for the pointer.)
Robert Burns and Adam Smith
| Peter Klein |
I’m sure you’re all busy this week preparing your Burns Supper. I’ll be celebrating on Sunday, of course, the 250th anniversary of Burns’s birth (this Burns, not this one). To honor the occasion Gavin Kennedy has written about the influence on Burns of Adam Smith, whose Theory of Moral Sentiments Burns knew well. Reflecting on the famous lines from Burns’s “Poem About a Louse” — O wad some Pow’r the giftie gie us / To see oursels as ithers see us! — Gavin notes that
Burns’s poem is a way into Smith’s “impartial spectator.” Both men would have agreed that “to see oursels as ithers see us” expresses their different perspectives; Burns, pessimistically, reminding us of human frailty and its consequences, and Smith, optimistically, mapping how humans develop and maintain their moral senses. Smith, contrary to the poet’s assertion, says we do have the power “to see oursels as ithers see us” and he explains how. We have this power, if we wish to use it, from what we may crudely describe as akin to a conscience (though it was much more) in a weak resistance to self-deceit.
Smith is explicit and his stance inspired Burns’s verse:
. . . self-deceit, this fatal weakness of mankind, is the source of half the disorders of human life. If we saw ourselves in the light in which others see us, or in which they would see us if they knew all, a reformation would generally be unavoidable. We could not otherwise endure the sight. (TMS III.4.6)
The DeLong Hall of Honor
| Peter Klein |
Brad DeLong continues to be one of the stupidest smart people around. When the House failed to pass the $700 billion bailout the first time back in September, and the stock market fell by $1.3 trillion, Brad estimated the true cost of the bailout at $100 billion (ha!), added $2 trillion in lost wages from its failure to pass, and accused House Republicans of having a required benefit-cost ratio of 30-to-1. Of course, the bailout bill passed a week later, and the stock market fell by another $1.2 trillion. Oops! In general, there’s no economic policy issue that Brad can’t spin into a childlike morality play pitting noble, enlightened Democrats against vile, stupid Republicans.
His latest post in this vein, characterizes all economists who publicly oppose Obama’s proposed stimulus plan “ethics-free Republican hacks.” Most of the individuals quoted aren’t actually Republicans, but never mind. You Go, Girl! When I saw that my colleague Mike Sykuta made the list, I was jealous, and upset that I hadn’t written anything specifically opposing the stimulus. So, Brad, I want you to know that I reject the stimulus plan, and the sophomoric Keynesian reasoning behind it, lock, stock, and barrel. Will you please include me in your next Hall of Shame? (BTW I am not now, and have never been, a Republican.)
Update: See also Boudreaux and Horwitz and their commentators.
Schumpeter on Methodological Individualism
| Peter Klein |
Via Lani Elliott, here’s a PDF excerpt from Joseph Schumpeter’s first book, Das Wesen und Hauptinhalt der theoretischen Nationalokonomie (The Nature and Essence of Theoretical Economics), published in 1908. The book made quite a splash in the German-speaking world and Schumpeter received many requests for an English translation, but he wouldn’t allow it, or to have the book reprinted in German. In 1980 a single chapter, “Methodological Individualism,” was translated and published in pamphlet form, with a short introduction by Hayek (which I included here). The pamphlet has been very difficult to get until now. Thanks to Lani for tracking it down and Jeff Tucker for hosting a copy.
Hayek remarked:
Many of [Schumpeter’s] students will be surprised to learn that the enthusiast for macroeconomics and co-founder of the econometrics movement had once given one of the most explicit expositions of the Austrian school’s “methodological individualism.” He even appears to have named the principle and condemned the use of statistical aggregates as not belonging to economic theory.
That this first book of his was never translated is, I believe, due to his understandable reluctance to see a work distributed which, in part, expounded views in which he no longer believed.
On Schumpeter’s changing views see also Thorbjørn Knudsen and Markus C. Becker’s “The Entrepreneur at a Crucial Juncture in Schumpeter’s Work: Schumpeter’s 1928 Handbook Entry Entrepreneur,” Advances in Austrian Economics 6 (2003): 199–234.
Krugman’s Got the Disease
| Peter Klein |
Paul Krugman suffers increasingly from what might be called Stiglitz’s Disease, the inability to read (or cite) anyone but oneself. Some years ago Krugman wrote a rather silly and superficial piece on the Austrian theory of the business cycle, which he called the “hangover theory” of recessions. Krugman’s essay provoked strong reactions from Roger Garrison, John Cochran, David Gordon, and Bob Murphy, all of whom have considerable expertise regarding this particular theory. Naturally, Krugman didn’t read any of these responses because they weren’t written by, well, Paul Krugman. So, a couple of days ago, Krugman again trots out his “hangover” metahpor, oblivious to the fact that his original essay got the Austrian theory completely wrong. Ah, the joys of being a full-time dilettante!
Off to Boot Camp
| Peter Klein |
I’ll be in Utah this week for the Society for Entrepreneurship Scholars conference, also known as “Manuscript Boot Camp.” It’s a sort of cross between a regular academic conference and a professional development workshop, with an interesting and unusual format. The conference is organized around a set of competitively selected working papers written by PhD students and junior faculty, who will be paired with a rotating series of senior scholars for one-on-one mentoring sessions designed to improve the quality of the papers for publication. These sessions, combined with plenary roundtables and lots of informal interaction, should make for a fun and professionally valuable event, for all concerned. I wish more workshops were organized this way.
The set of senior scholar-mentors includes many of the biggest names in entrepreneurship and strategy research, people like Rajshree Agarwal, David Deeds, Greg Dess, Jeff Dyer, Bill Hesterly, Bob Hoskisson, Jeff Reuer, Harry Sapienza, Bill Schulze, Dave Whetten, and your humble correspondent. More important, the participant list includes several bloggers — me and orgtheory’s Teppo Felin among the mentors, Brian McCann of Management R&D and former O&M guest blogger Chihmao Hsieh among the mentees — so expect good during- and post-conference reporting in the blogosphere.
My only concern, expressed to co-organizer Bill Shulze yesterday, is fitting that many egos into a single room. His solution: “free beer.”
The Almost-Convergence of Mises, Parsons, and Popper
| Peter Klein |
O&M dabbles in economics, sociology, and the history and methodology of science so Rafe Champion’s new paper, “Mises, Parsons, and Popper: Comparison and Contrast of Praxeology, the Action Frame of Reference, and Situational Analysis,” may be of interest. Here’s the abstract:
During the 1930s three lines of thought converged on a common model of explanation in economics and the human sciences. Working in Europe, Ludwig von Mises of the Austrian school developed what he called “praxeology” to explore the sciences of human action. In the United States, Talcott Parsons, under the influence of Marshall, Pareto, Durkheim and Weber, offered the “action frame of reference” and in Australasia (in exile from Austria) Karl Popper elaborated “situational analysis”. Common features of the three models are methodological individualism, rejection of instrumentalism in favour of the search for real explanatory theories, and the use of a rationality principle to link the ends and means of action. General acceptance of the common features of these models would have significantly altered the criteria for theory development and appraisal in economics and the other social sciences. In the event, the three lines of thought did not merge to create a critical mass that might have made a difference in the scientific community at large. Their potential synergy has yet to be explored and there is scope for a synthesis of their most robust features with some modifications to each, especially to correct the views of Mises and Parsons on the methods that are effective in the natural sciences. A strange feature of the situation is that the three principals and their followers have, up to date, almost completely refrained from public comment or discussion of the work of the other two parties.
Comments are welcome here or at Rafe’s site.
Hayek Speaks on Inflation and Unemployment
| Peter Klein |
Kudos to Jeff Tucker for unearthing this 1975 interview from Meet the Press. Notes Jeff:
The line of questioning he endures is hilariously naive and idiotic. We think we have a Keynesian problem now; it’s clear that these people really believe that policy makers can manipulate the economy like a machine, trading off unemployment for inflation and back again, with no trouble.
John Cochran suggests another Hayek appearance from 1975, this one a lecture at the University of Colorado (provided by Fred Glahe). Here are a few more from the Mises.org audio archive. And see also the new book.
Christina Romer to Head CEA
| Peter Klein |
Obama has named Christy Romer, one of my old professors, to head the Council of Economic Advisers. She’s smart, organized, a great communicator; I expect her to be highly effective. She is a moderate Keynesian, of the New Keynesian variety, best known for her revisionist work challenging the postwar Keynesian consensus view that activist monetary and fiscal policy has lessened the severity of the business cycle compared to the bad old laissez-faire days. See, for example, “Is the Stabilization of the Postwar Economy a Figment of the Data?” AER, June 1986, and “Remeasuring Business Cycles,” JEH, September 1994. A recent Journal of Economic Perspectives piece and her entry on business cycles in the Concise Encyclopedia of Economics summarizes this work. Here is more. (Of course, doubts about the effectiveness of Keynesian stabilization policy have not dampened most macroeconomists’ enthusiasm for, well, Keynesian stabilization policy.)
I met Christy in my first year of graduate school when she co-taught, with Barry Eichengreen, my course in US economic history. I subsequently served for two semesters as her head TA in the large economics principles course (600 students, 16 TAs, one head TA, one professor — quite an operation). Berkeley had in those days a system in which the dissertation adviser (in my case, Oliver Williamson) does not serve on the dissertation proposal committee, and Christy kindly chaired the proposal committee for me, even though the topic (conglomerate diversification) was not in her general area. She is a great teacher and a great manager, careful, patient, and fair. Naturally my top choice for CEA chair would have been somone with views just like, um, mine, but of the realistic candidates Christy is an excellent choice.
Write Like Toni Morrison
| Peter Klein |
Remember the Universal Translator? Peter Wood, in like manner, provides a useful guide to translating regular English prose into the style of Nobel-prizewinning author Toni Morrison, probably the most frequently assigned writer on US college campuses. The basic rules:
- Misuse common phrases
- Embrace inconsistency
- Omit words to create more forceful expression
- Mix up parts of speech
- Chop in self-conscious micro-sentences
He provides some wonderful examples. For instance, this office memo:
Just to remind you, I will be out of the office Tuesday to meet with our supplier, Acme Explosives. Please finish your work on the 2Q budget and let the account rep know that Mr. Coyote’s order will be shipped Thursday.
becomes
The reminding can’t wait the hurry of it. I explain. I know you know of Tuesday, I and Acme Explosives is soon together meet. You can please work, perhaps, the budget’s second quarter, and knowledge the account rep of Mr. Coyote’s Thursday shipment.
Wood also reminds us that Morrison is “the undisputed master of wandering verb tenses” and that she “knows how deftly to insert evocative foreign terms.”
But it is the anachronistic little details that are Morrison’s signature. My favorite occurs late in the book: “Ice-coated starlings clung to branches drooping with snow.” This is the 1690s, two centuries before the eccentric bird lover Eugene Schiffelin introduced starlings to the U.S. by releasing sixty of them in Central Park.
Schiffelin had no idea how the birds would proliferate, crowd out native species, and form enormous squawking, twittering, whistling flocks that seem to fill up whole forests. Starlings seem to propagate as fast as clichés and to descend like clouds of effusive blurbs on overpraised books.
Bill Shughart’s Review of Prophet of Innovation
| Peter Klein |
It’s in the December 2008 issue of Managerial and Decision Economics. Excerpt:
Many readers, as I did, will close Prophet of Innovation with a feeling of dissatisfaction. On the plus side, McCraw’s life of Joseph Alois Schumpeter is not as dauntingly long as it seems: Nearly 30% of the volume is devoted to notes and other end matter, and so the text runs to a more digestible 506 pages. Generous line spacing and a respectable number of archival photographs speed the pace of reading.
On the minus side, Prophet of Innovation pales in comparison with the recent and far more penetrating biographies of John D. Rockefeller, Sr. by Ron Chernow, of J. P. Morgan by Jean Strouse, and of Andrew Mellon by David Cannadine. In the end, one doesn’t know Joseph Schumpeter quite as fully as one now knows those titans of industry. And we certainly don’t know him as well as we know Robert Skidelsky’s John Maynard Keynes, who was born the same year (1863). Something is missing from Prophet of Innovation, perhaps because McCraw chose not to be “concerned with Schumpeter’s economic thinking, narrowly construed” (p. xi). That choice, in my judgment, fatally compromises any attempt to tell the story of a man who lived and breathed economics over a distinguished, remarkably productive academic career that spanned four decades, taking him from the classrooms of the University of Vienna, where he (and Ludwig von Mises) studied under Eugen von Böhm-Bawerk, to Harvard Square.
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