McCraw (2007, p. 112) quotes from Schumpeter’s diary:
Really, I don’t quite regret any of my efforts and failures—every one of them taught me something about myself and life that uniform success would have hidden.
Source:
McCraw, Thomas K. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Cambridge, Mass.: Belknap Press, 2007.
Who will attempt to calculate the value conferred on mankind by the unknown inventor of the plough?
Source:
Say, Jean-Baptiste. A Treatise on Political Economy. Philadelphia: Lippincott, Grambo & Co., 1855; translator C. R. Prinsep, ed. Clement C. Biddle. Fourth-fifth edition.
First published: 1803, in French.
The quotation is from BOOK I, CHAPTER VI “Of Operations Alike Common To All Branches of Industry.”
Full text is posted at: http://www.econlib.org/library/Say/sayT.html
(Note: Say is one of the earliest economists to recognize the importance of entrepreneurs. Today he is best known for his Say’s Law. He lived from 1767-1832.)
Michael Crichton speaking on environmentalism at the Fairmont Hotel on September 15, 2003. Source of photo: Bill Adams’ posting at http://www.pbase.com/bill_adams/image/21439440
The papers announced yesterday (11/6/08) that Michael Crichton had died of cancer a couple of days earlier (11/4/08).
I had mixed feelings about his stories. On the one hand, they seemed mainly to stir up unrealistic fears about technology, which I see as mainly a benefit to humanity. On the other hand, they often involved intelligent heroes who struggled against danger, and won (or at least partly won).
Crichton’s best story may have been one of his last, State of Fear. In that book, he took on the environmental movement, and showed in a powerful appendix, how some scientists and scientific institutions have failed us, by creating fear that is not grounded in the free exchange of ideas and evidence.
Crichton did not have to take on this issue—it earned him vituperative enemies, and probably lost him some readers. But in the end, he too was an intelligent hero who struggled against danger—the danger of politically correct closed minds.
Michael Crichton, Rest in Peace.
P.S.: Crichton had some scientific credentials. Here are a couple of interesting facts about his life:
(p. A27) At Harvard, after a professor criticized his writing style, the younger Mr. Crichton changed his major from English to anthropology and graduated summa cum laude in 1964. He then spent a year teaching anthropology on a fellowship at Cambridge University. In 1966 he entered Harvard Medical School and began writing on the side to help pay tuition.
. . .
In 1969, after earning his medical degree, Mr. Crichton moved to the La Jolla section of San Diego and spent a year as a postdoctoral fellow at the Salk Institute for Biological Studies. Already inclining toward a writing career, he tilted decisively with “The Andromeda Strain,” a medical thriller about a group of scientists racing against time to stop the spread of a lethal organism from outer space code-named Andromeda.
For the full obituary, see:
WILLIAM GRIMES. “Michael Crichton, Author of Thrillers, Dies at 66.” The New York Times (Thurs., November 5, 2008): A27.
(Note: ellipsis added.)
Michael Crichton during an April 11, 2002 lecture at the Harvard Medical School (from which he graduated). Source of photo: http://www.hno.harvard.edu/gazette/2002/04.18/11-crichton.html
“Amit Chatwani, writer of Leveragedsellout.com and a book, “Damn It Feels Good to Be a Banker.”” Source of caption and photo: online version of the NYT article quoted and cited below.
(p. A28) Happy hour in the financial district has its own taxonomy. The other night amid the several sidewalk tables on Stone Street, Amit Chatwani, the 26-year-old behind the satirical Wall Street blog Leveragedsellout.com, broke down the scene within seconds of his arrival.
The young woman carrying a canvas “deal bag” with the Goldman Sachs logo was most likely a bank associate, he surmised. The younger-looking man reading the so-counterintuitive-it’s-intuitive business book “The Black Swan” was an analyst with big-picture dreams. And the rest of the tables were filled with tech-support and human-resources staff, he figured.
“They have to be back-office, because it’s too early for bankers to be out,” Mr. Chatwani said. “They could be traders, I suppose. Or compliance and risk management, which is basically middle-office that’s treated as back-office.”
But Mr. Chatwani would be the first to admit that his assessments of the culture of Wall Street are not, at the moment, holding their value. His book, written under the name Leveraged Sell-Out and entitled “Damn It Feels Good to Be a Banker,” was published by Hyperion in August, giving it a fair claim to some kind of Worst Timing Ever Award.
For the full story, see:
ERIC KONIGSBERG. “Attn, Satirist of the Spoiled of Wall Street: Bad Timing, Dude.” The New York Times (Thurs., October 16, 2008): A28.
The reference for The Black Swan book mentioned above, is:
Taleb, Nassim Nicholas. The Black Swan: The Impact of the Highly Improbable. New York: Random House, 2007.
A marvelous review of The Black Swan, is:
Diamond, Arthur M., Jr. “Review of The Black Swan: The Impact of the Highly Improbable.” Journal of Scientific Exploration 22, no. 3 (Fall 2008): 419-22.
Source of book image: online version of the NYT review quoted and cited below.
(p. E1) Yeltsin’s grievance against the Communists began before he was born, in an all-too-common history of family heartbreak that Mr. Colton pieces together with a good deal of original reporting. The Yeltsins were dispossessed for the bourgeois crime of having built a farm, mill and blacksmithing business. Yeltsin’s grandfather died a broken man. His father was charged with the catch-all crime of “anti-Soviet agitation and propaganda” for grousing at his job on a construction site, and sent to a forced-labor camp for three years.
When Yeltsin joined the Communist Party, it was not out of devotion to the professed ideals but because a party card was a requirement for promotion to chief engineer in the construction industry. And when he moved into the hierarchy, he was already a man who chafed at party orthodoxy. No radical, he “nibbled at the edges of what was admissible,” Mr. Colton writes, pushing for market prices in the local farm bazaars, encouraging entrepreneurial initiative in the workplace, complaining that the top-down system smothered self-reliance.
For the full review, see:
BILL KELLER. “Books of The Times; The Making of Yeltsin, His Boldness and Flaws.” The New York Times (Weds., May 7, 2008): E1.
(p. 222) For Yeltsin’s contemporaries, deliverance from Marxist scripture and Soviet srtuctures took many forms. For him, it was an ease with the market and recoil against the overbearing state. Mikhail Fridman, who became one of Russia’s first billionaires as a banker and oilman, makes the point well:
Yeltsin as an individual who had inner freedom . . . instinctively moved toward the market as the end. That is because . . . as my namesake Milton Friedman says, “Capitalism is freedom.” . . . [Yeltsin thought] it was necessary to give people freedom and they would make out well. How exactly to do that he did not know. [But he did know] that it was necessary to free people from control: We were squeezing them dry. He thought that if we let them go they could move heaven and earth. . . . This is the level on which he thought about it. . . . He took a dim view of all these [Soviet] controls. [He felt that] the controllers had long since believed in nothing.
. . .
(p. 525) Stewart, working as a photojournalist, taped Yeltsin’s remarks on August 24, 1990, in Dolinsk. She calls them “laissez-faire populism.”
Source:
Colton, Timothy J. Yeltsin: A Life. New York: Basic Books, 2008.
(Note: ellipses and bracked words in Fridman (sic) quote were made by Colton; other ellipses were added by me.)
(Note: the quote from p. 525 is from endnote number 38.)
Wabash economics professor Ben Rogge’s best lecture focused on a question made famous by Schumpeter: “Can Capitalism Survive?” In some ways, Ben’s message was a pessimistic one.
But near the end of his lecture, Rogge included the following quote from Schumpeter’s Capitalism, Socialism and Democracy:
(p. xi) This leads to the charge of “defeatism.” I deny entirely that this term is applicable to a piece of analysis. Defeatism denotes a certain psychic state that has meaning only in relation to action. Facts in themselves and inference from them can never be defeatist or the opposite whatever that might be. The report that a given ship is sinking is not defeatist. Only the spirit in which this report is received can be defeatist: The crew can sit down and drink. But it can also rush to the pumps.
Source of quote:
Schumpeter, Joseph A. Capitalism, Socialism and Democracy. 3rd ed. New York: Harper and Row, 1950.
Reference to Rogge’s collection of essays that includes the title essay mentioned above:
Rogge, Benjamin A. Can Capitalism Survive? Indianapolis: Liberty Fund, Inc., 1979.
Source of formula title and of formula: online version of the WSJ commentary quoted and cited below.
(p. A17) Here’s how ill-conceived regulation poisoned the system. Until recently, bank CEOs and regulators slept well at night thanks to a financial model developed in the 1990s called “value at risk” or VaR. It assesses historical variances and covariances among different securities, informing financial institutions of the risks they’re taking. By assessing risk factors across all securities, VaR can compare historical levels of risk for given portfolios, usually up to a 99% probability that banks would not lose more than a certain amount of money. In normal times, banks compare the VaR worst case with their capital to make sure their reserves can cover losses.
But VaR can’t account for extreme unprecedented events — the collapse of Barings in 1995 due to a rogue trader in Singapore, or today’s government-mandated bad mortgages bundled into securities that are hard to value and unwind. The “1% likely” happened. And because the 1% literally didn’t compute, there was no estimate of the stunning losses that have occurred.
Yale mathematician Benoit Mandelbrot pointed out the shortcomings of the VaR model in his “The (Mis)behavior of Markets,” published in 2004. He noted that bell curves work for, say, disparities in the height of people. In markets, instead of flat tails of rare events at either end of the bell curve, there are “fat tails” of huge upsides and huge downsides. Markets are more complex than the neat shape of bell curves.
Last year’s bestselling nonfiction book had a similar theme. In “The Black Swan,” former trader Nassim Nicholas Taleb pointed out that extreme outcomes are actually common, warning that financial engineers — “scientists,” as he calls them — ignore these unlikely outcomes at their peril. But today’s credit panic was not entirely unpredictable. Mr. Taleb was prescient in writing, “The government-sponsored institution Fannie Mae, when I look at their risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: Their large staffs of scientists deemed these events ‘unlikely.'”
For the full commentary, see:
L. GORDON CROVITZ. “The 1% Panic.” The Wall Street Journal (Mon., OCTOBER 13, 2008): A17.
(Note: the online version of the article had the following added subtitle: “Our financial models were only meant to work 99% of the time.”)
For the Taleb book mentioned in the commentary, see:
Taleb, Nassim Nicholas. The Black Swan: The Impact of the Highly Improbable. New York: Random House, 2007.
For an insightful review of the Taleb book, see:
Diamond, Arthur M., Jr. “Review of the Black Swan: The Impact of the Highly Improbable.” Journal of Scientific Exploration 22, no. 3 (2008): 419-22.
(p. 152) The early market is driven by the demands of visionaries for offerings that create dramatic competitive advantages of the sort that would allow them to leapfrog over the other players in their industry.
Source:
Moore, Geoffrey A. Living on the Fault Line: Managing for Shareholder Value in the Age of the Internet. 1st ed. New York: HarperCollins Publishers, Inc., 2000.
McCraw on Schumpeter’s History of Economic Analysis:
(p. 460) . . . , Schumpeter compared Keynes to David Ricardo: “His work, is a striking example of what we have called above the Ricardian Vice, namely, the habit of piling a heavy load of practical conclusions upon a tenuous groundwork, which was unequal to it yet seemed in its simplicity not only attractive but also convincing. All this goes a long way though not the whole way toward answering the questions that always interest us, namely the questions what it is in a man’s message that makes people listen to him, and why and how.”
Source:
McCraw, Thomas K. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Cambridge, Mass.: Belknap Press, 2007.
(Note: ellipsis added.)
(Note: italics in original.)
Source of book image on the left:
http://images.barnesandnoble.com/images/25780000/25788683.jpg
Source of book image on the right: http://www.churchillsociety.org/Churchill%20Book%20Discussion%20Group.htm
Several recent books support a common conclusion that freedom is fragile, and its preservation can sometimes depend on the courage of a few individuals. I recently heard discussions on C-SPAN of a couple of books (images above) on WW2 that emphasize this point. Hitler might very well have succeeded in the long-term conquest of continental Europe, and even Great Britain, if Churchill and a few others had not taken a stand.
Earlier, also on C-SPAN, I heard John Ferling make a similar point with regard to the American Revolution. (See the images of his two relevant books below.) Were it not for the actions of George Washington, and a few others, the revolution very well might have failed.
One can view this as a bad news, good news, story. In earlier entries on the blog, I have quoted articles suggesting that the French are especially bothered by how “precarious” life can be. Well, the bad news is, that on this, the French may be right.
But, on the other hand, the stories of Churchill, and Washington, also tell us that with some courage and determination and wisdom, individuals can sometimes make a big difference in how stories end. That is the good news.
(And yes, Nassim, luck matters too.)
Books referred to:
Ferling, John. Almost a Miracle: The American Victory in the War of Independence. New York: Oxford University Press, USA, 2007.
Ferling, John. A Leap in the Dark: The Struggle to Create the American Republic. 1st ed. New York: Oxford University Press, USA, 2003.
Lukacs, John R. Blood, Toil, Tears and Sweat: The Dire Warning: Churchill’s First Speech as Prime Minister. New York: Basic Books, 2008.
Olson, Lynne. Troublesome Young Men: The Rebels Who Brought Churchill to Power and Helped Save England. 1st ed. New York: Farrar, Straus and Giroux, 2007.
Source of book image: http://www.bookswim.com/images_books/large/The_Worst_Hard_Time_The_Untold_Story_of_Those_Who_Survived_the_Great_American_Dust_Bowl-119185970830588.jpg
Timothy Egan’s book presents an engrossing picture of what life was like in a particular time and place in U.S. history. The time is the 1920s and 1930s, and the place is the lower “high” plains, mainly of Oklahoma and Texas. Egan is a master of telling us meaningful stories about the goals and struggles of particular people, so that we care when the land blows away from them, and they suffer.
You will need, however, to look elsewhere for a deep understanding of the causes of what happened. Egan mainly aims at describing, not explaining. And when he explains, he mainly rounds up the usual suspects one would expect a New York Times reporter to round up (e.g., Herbert Hoover).
(For deeper and more illuminating explanations of what was going on during the worst of the period, you’d do better by consulting Amity Shlaes’s The Forgotten Man.)
References to books mentioned above:
Egan, Timothy. The Worst Hard Time: The Untold Story of Those Who Survived the Great American Dust Bowl. Boston: Houghton Mifflin, 2006.
Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.
