Extreme Decentralization at Walmart
| Peter Klein |
A fascinating NY Post story on Walmart by a reporter who went undercover and got hired as an entry-level worker. The story reveals a surprising amount of decentralization for a firm sometimes regarded as some kind of Taylorite dinosaur. (Thanks to Rafe Champion for the pointer.) Excerpt:
Having pledged ourselves, we encountered the aspect of Wal-Mart employment that impressed me most: The Telxon, pronounced “Telzon,” a hand-held bar-code scanner with a wireless connection to the store’s computer. When pointed at any product, the Telxon would reveal astonishing amounts of information: the quantity that should be on the shelf, the availability from the nearest warehouse, the retail price, and (most amazing of all) the markup.
All of us were given access to this information, because — in theory, at least — anyone in the store could order a couple extra pallets of anything, and could discount it heavily as a Volume Producing Item (known as a VPI), competing with other departments to rack up the most profitable sales each month. Floor clerks even had portable equipment to print their own price stickers. This was how Wal-Mart detected demand and responded to it: by distributing decision-making power to grass-roots level. It was as simple yet as radical as that.
We received an inspirational talk on this subject, from an employee who reacted after the store test-marketed tents that could protect cars for people who didn’t have enough garage space. They sold out quickly, and several customers came in asking for more. Clearly this was a singular, exceptional case of word-of-mouth, so he ordered literally a truckload of tent-garages, “Which I shouldn’t have done really without asking someone,” he said with a shrug, “because I hadn’t been working at the store for long.” But the item was a huge success. His VPI was the biggest in store history — and that kind of thing doesn’t go unnoticed in Arkansas.
Markets in Everything, Valentine’s Revenge Edition
| Peter Klein |
A local bar is hosting a “Valentine’s Day Massacre” party this weekend. The centerpiece is a commercial tree shredder. Patrons can bring mementos or personal effects from old boyfriends and girlfriends (and, I guess, former spouses) and have them pulverized into tiny bits. “We’ve even had a wedding dress!” says the radio ad. Presumably more extreme scenarios, like that depicted in the famous wood-chipper scene in Fargo, are prohibited.
Demand for Commodities Is Not Demand for Labor
| Peter Klein |
Minnesota engineering professor David Levinson (via Mankiw), on the “shovel-ready” criterion for stimulus spending:
In the 1930s, when you were literally building with shovels, that might have made sense. That was largely unskilled labor. Today, it’s blue collar, but it’s not unskilled. . . . The guy brushing the asphalt back and forth is unskilled, but the guy operating the steamroller isn’t. And there’s an assumption out there that construction workers are interchangeable between residential and highway projects. But a carpenter isn’t a whole lot of help in building a road.
Modern Keynesian economics, which retains the Master’s belief in homogeneous labor and capital and his focus on macroeconomic aggregates, treats a worker as a worker as a worker. Lending and spending — on anything, it doesn’t matter what — brings idle resources into gainful use. Notes Hayek:
John Stuart Mill’s profound insight that demand for commodities is not demand for labor, which Leslie Stephen could in 1878 still describe as the doctrine whose “complete apprehension is, perhaps, the best test of a sound economist,” remained for Keynes an incomprehensible absurdity (Collected Works, vol. 9., p. 249).
And here’s Craig Pirrong:
There is no such thing as “aggregate output.” There are many industries, many goods, many sectors, all of which rely on specialized resources that are not readily redeployable among them. Directing — via coercion — spending to one sector or another is likely to worsen resource misallocations, rather than mitigate them. I find it particularly bizarre that some of the stimulus appears to be directed at supporting industries and sectors that resources should leave (e.g., construction, automobiles). We almost certainly built too many houses (due to perverse monetary policy, as John Taylor explains it), so resources should leave that business. Why stimulate it?
Alex Rodriguez Admits to Personal Stimulus Package
| Peter Klein |
NEW YORK — Yankees’ star third baseman Alex Rodriguez admitted to receiving a series of personal stimulus packages from 2001 to 2003. “My trainer said my actual output was well below my potential output so we needed to pursue an expansionary nutritional policy.” Now suffering from a debilitating disease caused by prolonged exposure to stimulus, Rodriguez said he had “little choice” but to ask the trainer for even more stimulus, as well as putting every aspect of his personal and professional life under the trainer’s control. “Bold action is needed,” said a spokesperson for Major League Baseball. “We cannot depend on stimulus alone to create home runs or long-term athletic growth, but at this particular moment, only stimulus can provide the short-term boost necessary to lift Alex from a recession this deep and severe.”
Rodriguez’s trainer said he was pleased with his new authority and blamed the player’s health problems on “lack of oversight” by baseball officials. “We didn’t have enough regulation,” he complained. Baseball analyst Paul Krugman said he supported additional stimulus and the trainer’s new powers but worried that the plan “doesn’t go far enough.”
The Future of the Textbook
| Peter Klein |
Cliff Kuang at Fast Company points us to smARThistory, which looks very nice, and asks:
Why the hell are we still teaching kids from textbooks? Granted, the system works. But you’d at least expect more experiments in the genre, along the lines of smARThistory. For one, textbooks for each student routinely cost hundreds, even thousands per year — and a massive chunk of those costs aren’t in the production of the material, but rather its printing and distribution. Better to give kids laptops, and dynamic textbooks with high production values (like smARThistory). You could arrange them with assigned lessons that require modules to be checked off. A system of clicks or periodic questions could ensure that the kids are engaged. And what about flash animations that illustrate physics or math concepts? The list goes on. If done right, a virtual textbook would far outshine any print textbook we’ve ever cracked.
In economics and management we sometimes use online simulations, experiments, and other interactive learning tools, but the traditional textbook (or set of journal articles) reigns supreme. Do the newer tools work? Which are most effective? And, most important, what clever names can we give them? huMANresources? pricECONnections?
Regime Uncertainty
| Peter Klein |
Much wisdom in John Taylor’s piece in today’s WSJ. The housing boom and crash were caused primarily by monetary policy and a government-induced relaxation of borrowing standards. Policymakers mistakenly diagnosed the problem as a lack of liquidity and tried to increase loan volume as early as 2007. Further “stimulus” and even lower federal-funds rates came in 2008, followed by a set of arbitrary interventions (selective bank bailouts, the inexplicable TARP). Taylor places special blame on Bernanke and Paulson for creating regime uncertainty:
On Friday, Sept. 19, the Treasury announced a rescue package, though not its size or the details. Over the weekend the package was put together, and on Tuesday, Sept. 23, Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson testified before the Senate Banking Committee. They introduced the Troubled Asset Relief Program (TARP), saying that it would be $700 billion in size. A short draft of legislation was provided, with no mention of oversight and few restrictions on the use of the funds. . . .
The realization by the public that the government’s intervention plan had not been fully thought through, and the official story that the economy was tanking, likely led to the panic seen in the next few weeks. And this was likely amplified by the ad hoc decisions to support some financial institutions and not others and unclear, seemingly fear-based explanations of programs to address the crisis. What was the rationale for intervening with Bear Stearns, then not with Lehman, and then again with AIG? What would guide the operations of the TARP?
I argued before that the whole “credit crunch” may be a kind of self-fulfilling prophecy. Taylor suggests that more generally, the government, having created the crisis, is now deepening and prolonging it by trying to “fix” the problem is made, a classic example of Mises’s theory of interventionism.
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?
New Theoretical Developments in Strategic Management
| Mike Sykuta |
“New Theoretical Developments in Strategic Management: Opportunities for Research Contributions” is the topic of an interactive online seminar Thursday, 26 February, 12:00-1:30pm EST. The speaker is Michael Hitt, Distinguished Professor of Management and the Joe B. Foster Chair in Business Leadership and the C.W. and Dorothy Conn Chair in New Ventures at Texas A&M University. During the 90-minute seminar participants will explore theoretical developments in strategic management including the resource-based view, institutional theory, and a new concept of strategic entrepreneurship, and will offer updates on how more established theories such as TCE and agency theory are being applied.
The seminar is sponsored by the Agribusiness Economics & Management (AEM) Section of the Agricultural & Applied Economics Association (AAEA). The AEM Section has sponsored online seminars previously on topics that may be new or less familiar to its members, one of the more valuable contributions any professional society provides. Although many of the “new theoretical developments” described above may not seem quite so new to frequent O&M readers, they are certainly more novel in the context of agribusiness research.
You can register for the conference as an individual or as a host location for as many people as can fit into your local class or conference room. This is an especially good opportunity for graduate students and faculty to learn more about the research opportunities in this area. I expect several of our Missouri colleagues and grad students will be participating. Check out the conference website for information about technical requirements and registration.
“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 Recipe for Recovery Is Revealed
| Mike Sykuta |
The Obama administration has apparently revealed its recipe for economic recovery. Based on the rhetoric and policy proposals fronted thus far, the recipe appears as follows:
- Do everything possible to discourage potential high-value executives from working in troubled industries by capping executive pay in struggling industries.
- Eliminate high-powered market-based incentives for mid-level employees to perform their jobs well.
- Encourage distressed companies to renege on long-term contracts that populist politicians find offensive (or consider easy to target so as to appear they are being responsible with taxpayers’ money).
- Dole out a trillion dollars of taxpayer funds to pet projects and interest groups in the name of “economic stimulus” (enabled by the perception of “responsibility” created by their railing against the targets of #1-3).
- Ignore the economic consequences of the incentives created (or destroyed) in #1-3 as well as the fact that someone at some point will have to pay that trillion dollar bill.
- Half-bake under the heat of political pressure and serve to the masses who are starved for quick-fix solutions that only impose costs on “that other guy” or “the rich fat-cats of corporate America.”
I don’t know about you, but I think it will be interesting to see how quickly the soufflé crashes . . . though I’m not looking forward to it being force-fed.
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?
Yet More “Shameful” Interventionist Rhetoric
| Mike Sykuta |
It’s obviously not enough for regulators from the Obama administration to march down Wall Street and mandate changes in the incentive systems of rank-and-file workers or even mandating that these “bonus” payments be rescinded (see here and here). Now banks that received bailout money are being chastised and brow-beaten from the bully pulpit of the White House for honoring long-term contracts signed years before the current “crisis.”
Today’s Wall Street Journal reports Citigroup is considering reneging on its 20-year stadium naming rights deal with the New York Mets to appease the White House and the populist press. Citi has already caved on its commitment to purchase a new corporate jet to replace two aging planes (a move that would likely have enhanced both fuel and environmental efficiency, ironically enough). Although Citi and the Mets claim the deal is still on, the attitude from Washington is remarkable in its complete disregard for the complexity of business deals, if not for the very essence of the institutional structures that support exchange (and contracting).
First, despite all the clamoring about Citi spending $400 million on naming rights while receiving $350 million in TARP funds, the reality is Citi is obligated to pay $20 million a year for 20 years. So while taxpayers are being told they are paying to name the new Mets stadium Citi Field, only a relatively small amount — certainly by bailout standards — is being spent this year. If the purpose of the bailout is to get firms through these troubled times and into a more stable future, we’re not talking about taxpayers taking on a 20-year commitment. (more…)
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!
Organizations and Markets 
Recent Comments