Category: Books

Stigler on Berle and Means

I remember George Stigler in class making some reference to a book by Berle and Means, and asking if any of us had ever heard of them. None of us had. My memory is that he looked sort of sadly amused.
At least one of Stigler’s important papers had taken on, and refuted, some of the important claims of the Berle and Means book.
Now, decades later, I recently read a wonderful book on the Great Depression called The Forgotten Man. It turns out that Berle was very important in the growth of government in FDR’s New Deal.
I now realize what I did not realize when I took Stigler’s class—that Stigler had done something significant in refuting errors that supported misguided policies that hurt the economy.
It is a sad fact of life that future generations will not remember, or appreciate, the triumphs of the ‘good guys’ because they do not appreciate the impact of the good guys’ adversaries.
Stigler had beaten Berle so fully that the younger generation did not even recognize Berle’s name. And in not recognizing Berle’s name, or his significance, they could not appreciate the value of what Stigler had accomplished.

Book reference:
Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.

Schumpeterians Lead Ranking of Business Gurus

GuruGraphic.gif Source of graphic: online version of the WSJ article quoted and cited below.

The top two business gurus in the WSJ‘s latest ranking, have each written major books that make substantial use of Schumpeter’s concept of creative destruction. (The Hamel book is Leading the Revolution, and the Thomas Friedman book is The Lexus and the Olive Tree.)
Others among the top 20 gurus who have written favorably of the process of creative destruction, include Clayton Christensen, Jack Welch, and Tom Peters.

(p. B1) The guru game is changing.
Psychologists, journalists and celebrity chief executives crowd the top of a ranking of influential business thinkers compiled for The Wall Street Journal. The results, based on Google hits, media mentions and academic citations, ranked author and consultant Gary Hamel No. 1.
But Dr. Hamel is the only traditional business guru in the top five, which includes two journalists, Thomas Friedman and Malcolm Gladwell, and a former CEO, Bill Gates. Mr. Gladwell is among three thinkers in the top eight who focus on psychology. His 2005 book “Blink: The Power of Thinking Without Thinking” examined the role of snap judgments in decision-making. Howard Gardner, a professor of education at Harvard best known for the theory of “multiple intelligences,” is No. 5, while Daniel Goleman, a psychologist who has written about “emotional intelligence,” ranks eighth.
Thomas H. Davenport, a management professor at Babson College, compiled the ranking, employing the same methodology he used in a 2003 book, “What’s the Big Idea?” Several well-known business gurus fell lower in the updated list, including Michael Porter and Tom Peters, who topped the 2003 ranking and dropped to Nos. 14 and 18, respectively. Harvard’s Prof. Porter noted that his last book was on health care rather than general management, and that “I feel like my recent work continues to have an impact in my various fields.”
Dr. Davenport says the changes show that time-strapped managers are hungry for easily digestible advice wherever they can find it. Today, the most pressing themes include globalization, motivation and innovation. Traditional business gurus writing “weighty tomes” are in decline, he says.

For the full story, see:
ERIN WHITE. “New Breed of Business Gurus Rises; Psychologists, CEOs Climb in Influence, Draw Hits, Big Fees.” Wall Street Journal (Mon., May 5, 2008): B1.

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Source of table:
ERIN WHITE. “What Influential Business Thinkers Focus On; Top Gurus Ponder Manager’s Worries, New Approaches.” Wall Street Journal (Mon., May 5, 2008): B6.
(Note: the online version of the article has the title: “Quest for Innovation, Motivation Inspires the Gurus; Leading Thinkers Apply Varied Skills For Global Solutions.”)

Franklin Roosevelt Exposed in The Forgotten Man

ForgottenManBK.jpg

Source of book image: http://blog.syracuse.com/shelflife/forgotten.jpg

Amity Shlaes’s new history of the Great Depression is at once depressing and encouraging. It is depressing in showing how vulnerable human progress is to the threat from a dishonest, slick orator, who has not a clue about how the economy works. It is encouraging in that it shows so clearly that the length and depth of the Great Depression was due to easily avoidable mistakes in policy, rather than due to some fundamental flaw in capitalism, as has occasionally been claimed.
Although the book does not shy away from pointing out the flaws of Coolidge, Hoover and Willke, it mainly shows how F.D.R.’s routine whimsical policy reversals and double-dealings, alienated not only his original opponents, but many of his early friends and allies.
The New Deal policies to seize business profits, reduced business incentives to take risks: if the risks turned out badly, the business would lose the investment, while if the risks turned out well, the profits would be taxed away by the federal government.
In addition, the sheer unpredictability of New Deal policies further led the prudent to delay investments, thereby further impeding recovery.
The book is well-written, and should be equally well-read.

The reference for the book is:
Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.

Creative Destruction Brings Triumph of Brain Over Brawn in the Labor Market

(p. 435) . . . , the inexorable growth in the proportion of our GDP that is conceptual, especially technological, has increased the value of intellectual power relative to the value of human brawn many times over many generations. I am old enough to remember when physical prowess on the job was the source of legend and reverence. A large statue of Paul Bunyan, the mythical logger, still oversees the northern Minnesota lake country. Stevedores of a century ago were extolled for their brute strength. Today, the activities once carried out by stevedores are often run by young women at a computer console.

Source:
Greenspan, Alan. The Age of Turbulence: Adventures in a New World Economic Flexibility. New York: Penguin Press, 2007.

Much Health Spending “Does Nothing to Improve Our Health”


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Shannon Brownlee is the author of “Overtreated” which “diagnoses the big flaw in medical spending.” Source of caption and photo: online version of the NYT commentary quoted and cited below.


(p. C5) Fortunately — if that’s the right word — there is an obvious candidate for cost-cutting: all that care that brings no health benefit. It’s not hard to find examples. Scientific studies have shown that many treatments, including spinal fusion, routine episiotomies and neonatal intensive care, are overdone. These procedures often help specific subsets of patients. But for a lot of people, and “Overtreated” is full of stories, the treatments are a modern-day version of bloodletting.
“We spend between one fifth and one third of our health care dollars,” writes Ms. Brownlee, a senior fellow at the New America Foundation and former writer for U.S. News & World Report, “on care that does nothing to improve our health.”
Worst of all, overtreatment often causes harm, because even the safest procedures bring some risk. One study found that a group of Medicare patients admitted to high-spending hospitals were 2 to 6 percent more likely to die than a group admitted to more conservative hospitals.

For the rest of the commentary, see:
DAVID LEONHARDT. “ECONOMIC SCENE; No. 1 Book, And It Offers Solutions.” The New York Times (Weds., December 19, 2007): C1 & C5.

Blindly Imitating a False Vision of Ancient Sculpture


TrojanArcher.jpg “Trojan Archer from the Temple of Aphaia on Aegina.” Source of caption and photo: online version of the WSJ article quoted and cited below.


Ayn Rand’s Howard Roark in The Fountainhead railed against the mindless imitation of the classics, as embodied for instance in the Parthenon. In sculpture there has also been blind imitation of white classical figures, such as one that has recently been installed next to the Arts and Sciences Building on my campus at the University of Nebraska at Omaha.
One imagines that Rand and Roark would have been amused by the article quoted below, that shows that the classical sculptures were actually rich in color.

(p. D8) The Venus de Milo: white. The Apollo Belvedere: white. The Barberini Faun: white. The passing centuries may have cast their pall of grime, yet ever since the Renaissance rediscovered antiquity, our Platonic ideal of classical statuary has been bare marble: bleached, bone white.
The Greeks and Romans did not see it that way. The current show “Gods in Color: Painted Sculpture of Classical Antiquity” — through Jan. 20 at the Arthur M. Sackler Museum on Harvard University’s campus — makes a bold attempt to set the record straight. On view are replicas painted in the same mineral and organic pigments used by the ancients: pulverized malachite (green), azurite (blue), arsenic compounds (yellow, orange), cinnabar or “dragon’s blood” (red), as well as charred bone and vine (black). At first glance and quite a while after, the unaccustomed palette strikes most viewers as way over the top. But few would deny that these novelties — archers, goddesses, mythic beasts — look you straight in the eye.
. . .
By the 18th century, practitioners of the then-new science of archaeology were aware that the ancients had used color. But Johann Joachim Winckelmann, the German prefect of antiquities at the Vatican, preferred white. His personal taste was enshrined by fiat as the “classical” standard. And so it remained, unchallenged except by the occasional eccentric until the late 20th century.

For the full story, see:
MATTHEW GUREWITSCH. “CULTURAL CONVERSATION With Vinzenz Brinkman; Setting the Record Straight About Classical Statues’ Hues.” The Wall Street Journal (Tues., December 4, 2007): D8.
(Note: ellipsis added.)

Lomborg Shows How Kyoto Protocol Wastes Money


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Source of book image:
http://images.tdaxp.com/tdaxp_upload/cool_it_md.jpg


(p. D7) Standing in the practical middle is Bjorn Lomborg, the free-thinking Dane who, in “The Skeptical Environmentalist” (2001), challenged the belief that the environment is going to pieces. Mr. Lomborg is now back with “Cool It,” a book brimming with useful facts and common sense.
Mr. Lomborg–“liberal, vegetarian, a former member of Greenpeace,” as he describes himself–is hard to fit into any pigeonhole. He believes that global warming is happening, that man has caused it, and that national governments need to act. Yet he also believes that Al Gore is bordering on hysteria, that some global-warming science has been distorted and hyped, and that the Kyoto Protocol and other carbon-reduction schemes are a terrible waste of money. The world needs to think more rationally, he says, about how to tackle this challenge.
. . .
Mr. Lomborg cites studies showing that by implementing Kyoto–at a cost of trillions of dollars–we might be able to achieve a 3% reduction in fluvial and coastal flooding damages. If we instead adopted smart flood policies–e.g., an end to public subsidies that encourage people to settle in flood plains, a shrewder use of levees–we could achieve a 91% reduction in damages at a fraction of the Kyoto cost.



For the full review, see:
KIMBERLEY A. STRASSEL. “BOOKSHELF; A Calm Voice in a Heated Debate.” The Wall Street Journal (Thursday, September 13, 2007): D7.
(Note: ellipsis added.)

“The Quiet Emergence of Pro-Nuke Greens”


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Source of book image: http://ecx.images-amazon.com/images/I/41hyNtYMzmL._SS500_.jpg

(p. D8) Start with a novelist and former New Yorker magazine fiction editor living on the East End of Long Island, a sometime antinuclear activist (remember Shoreham?) and a determined organic vegetable gardener who spent her childhood in 1950s New Mexico having atom-bomb nightmares. Team her with another lifelong greenie, a man with a doctorate in organic chemistry who grew up on an Idaho ranch without electricity and whose day job, over the course of a long career, has included pioneering something called probabilistic risk assessment (the underpinnings of climate-change analysis, but that’s another story). Send the pair off on a grand tour of the nuclear-power world, from dust-blown uranium mines to the depths of a pilot facility for Uncle Sam’s waste deposit at Nevada’s Yucca Mountain. And then wait for them to come back with the predictable diatribe against nuclear power.
Happily, you’ll wait in vain. “Power to Save the World” is a picaresque, flat-out love song to the bad boy of the great American energy debate — as good a book as we’re likely to get on a subject mired in political incorrectness, general unfathomability and essentially limitless gut fears. It’s also the latest plot point for one of the few unassailably positive byproducts of global-warming mania: the quiet emergence of pro-nuke greens, led by such impeccable apostates as Whole Earth founder Stewart Brand and James Lovelock, the British chemist best known for his Earth-is-a-living-organism “Gaia ypothesis.”

For the full review, see:
Reiss, Spencer. “BOOKSHELF; Green With (Nuclear) Energy.” The Wall Street Journal (Tues., November 20, 2007): D8.


Mooning the Future


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Source of book image:
http://a1055.g.akamai.net/f/1055/1401/5h/images.barnesandnoble.com/images/24530000/24539427.jpg

In an ideal world, a famous railroad mogul like Cornelius Vanderbilt, would be a consistent defender of technological progress. But moguls can differ in their motives and are not always consistent. Consider the following from a new biography of Vanderbilt:

(p. D9) The arrival a few years earlier of the first steamships, clanking loudly and belching flames and smoke, provoked scorn from sailors, who waved their hats in condescension and “sometimes also turned their backs, bent down, and revealed their bare ends to the dignified ladies and gentleman who had paid lofty prices to flirt with the future. Cornelius sometimes made such a salute.”



For the full review, see:
JULIA FLYNN SILER. “The Tides of Fortune.” The Wall Street Journal
(Weds., December 19, 2007): D9.

Co-Working in the Free Agent Nation

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“Web entrepreneur Alex Hillman got together with a group of work-at-home businesspeople to create a hip space to work in Philadelphia.” Souce of caption and photo: online version of the Omaha World-Herald article quoted and cited below.

(p. 1D) “I always felt an obligation to the coffee shop. I was taking up precious space,” Hillman said. “I was definitely drinking more coffee than I should have, so I wasn’t sleeping.”

 Even before he left his job, he had begun to learn about co-working, not to be confused with job-sharing, where two people take turns in the same stall in the cube farm.

Instead, think of co-working as an entrepreneurial version of parallel play, with owners of their own small businesses working side by side in a drop-in place that looks like a coffee cafe, minus the barista, with all the accoutrements of what’s hip: high ceilings, beer fridge, pool table and Internet access.

Paying as little as $175 a month, they mostly work on their own. But they also trade ideas, help solve problems, and move in and out of loose collaborations.

Today’s technology — wireless access, cell phones, BlackBerries and laptops — makes a mobile work force possible.

“I think when people work at home they have to come up with new ways to interact with people,” said Daniel H. Pink, one of the first authors to write about independent contractors in his 2001 book “Free Agent Nation.”

For the full story, see: 

THE PHILADELPHIA INQUIRER.  “Workplace; A step up from working in pj’s.”   Omaha World-Herald   (Monday, September 17, 2007):  1D & 2D.

 

The refererence to the Pink book is:

 Pink, Daniel H. Free Agent Nation: How America’s New Independent Workers Are Transforming the Way We Live. New York: Warner Business Books, 2001.

 

Why Entrepreneurs Are Needed to Bring Important Innovations to Market

 

   Source of book image:  http://www.bigbadbookblog.com/wp-content/uploads/Blink.jpg

 

In my classes I sometimes comment on the failure of much marketing research, sometimes quoting the founder of Sony on using his own judgment on what is useful to customers.

There’s some useful insight into this issue in Malcolm Gladwell’s stimulating Blink book.  He argues, and presents examples, that marketing research can provide useful information when the product being evaluated is familiar to the customers being surveyed.  But when the product is new and unfamiliar, it may take awhile for the customer to figure out what they think of it.  There initial reaction will usually be negative, simply as a reaction to the unfamiliarity.  But with time, the product may grow on them as they figure out what “jobs” the product might be able to do for them in the full context of their lives.  (The “jobs” formulation is Christensen’s, not Gladwell’s.)

What is worse, it is precisely those innovations that are most innovative, and ultimately prove most useful, that are most unfamiliar, and hence are most likely to be panned by customers in initial evaluations. 

This has implications for why an entrepreneur-friendly economy is so important for innovations.  Incumbent firms are apt to rely on some formal (a.k.a. marketing research) methods to evaluate new innovations.  So if innovations are to be introduced, it is crucial that there be entrepreneurs with the courage, passion, knowledge, and financial means to pursue the innovation through the period of skepticism.

 

The reference for the Blink book, is: 

Gladwell, Malcolm.  Blink: The Power of Thinking without Thinking.  Back Bay Books, 2005.