Economics – Page 158 – artdiamondblog.com

Nobel-Prize-Winner Views Success as Rigged (Except for Nobel Prizes)

(p. 245) . . . , Solow interprets the evidence on intergenerational mobility as showing that the economy is not very meritocratic. (Oddly, he exempts the economics profession. He seems to believe that lack of success is often the result of bad luck or a rigged system, unless you are an economist, in which case it’s your own fault.) Although I noted in my article that those born into extreme poverty face particularly difficult obstacles, I view the rest of the economy as more meritocratic than Solow does. In addition to the Kaplan and Rauh study, I recommend a popular book called The Millionaire Next Door (Stanley and Danko 1996). Written by two marketing professors who extensively surveyed high net worth individuals, the book reports that the typical millionaire is not someone who was born into wealth but rather is someone who has worked hard and lived frugally.

Source:
Mankiw, N. Gregory. “Correspondence: Response from N. Gregory Mankiw.” Journal of Economic Perspectives 28, no. 1 (Winter 2014): 244-45.
(Note: ellipsis added; italics in original.)

The Stanley and Danko book that Mankiw praises (and I use in my Economics of Entrepreneurship seminar) is:
Stanley, Thomas J., and William D. Danko. The Millionaire Next Door: The Surprising Secrets of America’s Wealthy. First ed. Atlanta: Longstreet Press, 1996.

“Different Structural Models Can Fit Aggregate Macroeconomic Data About Equally Well”

(p. 1149) There is an apparent lack of encompassing-forecasting and economic models that can explain the facts uniformly well across business cycles. This is perhaps an inevitable outcome given the changing nature of business cycles. The fact that business cycles are not all alike naturally means that variables that predict activity have a performance that is episodic. Notably, we find that term spreads were good predictors of economic activity in the 1970s and 1980s, but that credit spreads have fared better more recently. This is of course a challenge for forecasters, as we do (p. 1150) not know the origins of future business cycle fluctuations. Much needs to be learned to determine which and how financial variables are to be monitored in real time especially in an evolving economy when historical data do not provide adequate guidance.
Explanations for the Great Recessions usually involve some form of nonlinearity. The sudden nature of the downturn following the collapse of Lehman is consistent with nonlinearity being part of the transmission mechanism. At the same time, we lack robust evidence of nonlinearity from aggregate low-frequency macroeconomic data. Essentially, there is an identification issue as different structural models can fit aggregate macroeconomic data about equally well.

For the full article, see:
Ng, Serena, and Jonathan H. Wright. “Facts and Challenges from the Great Recession for Forecasting and Macroeconomic Modeling.” Journal of Economic Literature 51, no. 4 (Dec. 2013): 1120-54.

Did Intel Succeed in Spite of, or Because of, Tension Between Noyce and Grove?

(p. C5) . . . , much more so than in earlier books on Intel and its principals, the embedded thread of “The Intel Trinity” is the dirty little secret few people outside of Intel knew: Andy Grove really didn’t like Bob Noyce.
. . .
(p. C6) . . . there’s the argument that one thing a startup needs is an inspiring, swashbuckling boss who lights up a room when he enters it and has the confidence to make anything he’s selling seem much bigger and more important than it actually is. And Mr. Malone makes a compelling case that Noyce was the right man for the job in this phase of the company. “Bob Noyce’s greatest gift, even more than his talent as a technical visionary,” Mr. Malone writes, “was his ability to inspire people to believe in his dreams, in their own abilities, and to follow him on the greatest adventure of their professional lives.”
. . .
Noyce hid from Mr. Grove, who was in charge of operations, the fact that Intel had a secret skunk works developing a microprocessor, a single general-purpose chip that would perform multiple functions–logic, calculation, memory and power control. Noyce had the man who was running it report directly to him rather than to Mr. Grove, even though Mr. Grove was his boss on the organizational chart. When Mr. Grove learned what was going on, he became furious, but like the good soldier he was, he snapped to attention and helped recruit a young engineer from Fairchild to be in charge of the project, which ultimately redefined the company.
. . .
Remarkably, none of this discord seemed to have much effect on the company’s day-to-day operations. Mr. Malone even suggests that the dysfunction empowered Intel’s take-no-prisoners warrior culture.
. . .
So while the humble, self-effacing Mr. Moore, who had his own time in the CEO’s chair from 1975 to 1987, played out his role as Intel’s big thinker, the brilliant visionary “who could see into the technological future better than anyone alive,” Mr. Grove was the kick-ass enforcer. No excuses. For anything.

For the full review, see:
STEWART PINKERTON. “Made in America; A Born Leader, a Frustrated Martinet Built One of Silicon Valley’s Giants.” The Wall Street Journal (Sat., July 19, 2014): C5-C6.
(Note: ellipses added.)
(Note: the online version of the review has the date July 18, 2014, and has the title “Book Review: ‘The Intel Trinity’ by Michael S. Malone; A born leader, an ethereal genius and a tough taskmaster built the most important company on the planet.”)

The book under review is:
Malone, Michael S. The Intel Trinity: How Robert Noyce, Gordon Moore, and Andy Grove Built the World’s Most Important Company. New York: HarperCollins Publishers, 2014.

Locke and Smith Showed How Economic Life Has Moral Value

(p. 241) Andrzej Rapaczynski discusses “The Moral Significance of Economic Life” in the most recent issue of Capitalism and Society. His abstract summarizes the argument (p. 242) compactly: “Much of the modern perception of the role of economic production in human life–whether on the Left or on the Right of the political spectrum–views it as an inferior, instrumental activity oriented toward self-preservation, self-interest, or profit, and thus as essentially distinct from the truly human action concerned with moral values, justice, and various forms of self-fulfillment. This widely shared worldview is rooted, on the one hand, in the Aristotelian tradition that sees labor as a badge of slavery, and freedom as lying in the domain of politics and pure (not technical) knowledge, and, on the other hand, in the aristocratic medieval Christian outlook, which–partly under Aristotle’s influence–sees nature as always already adapted (by divine design) to serving human bodily needs, and the purpose of life as directed toward higher, spiritual reality. . . . As against this, liberal thinkers, above all Locke, have developed an elaborate alternative to the Aristotelian worldview, reinterpreting the production process as a moral activity par excellence consisting in a gradual transformation of the alien nature into a genuinely human environment reflecting human design and providing the basis of human autonomy. Adam Smith completed Locke’s thought by explaining how production is essentially a form of cooperation among free individuals whose self-interested labor serves the best interest of all. The greatest “culture war” in history is to re-establish the moral significance of economic activity in the consciousness of modern political and cultural elites.” Capitalism and Society, December 2013, vol. 8, no. 2, http://capitalism.columbia.edu/volume-8-issue-2.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 28, no. 1 (Winter 2014): 235-42.
(Note: italics, and ellipses, in original.)

Climate Models Allow “the Modeler to Obtain Almost Any Desired Result”

Integrated assessment models (IAMs) are the commonly-used models that attempt to integrate climate science models with economic effect models. In the passage quoted below, “SCC” stands for “social cost of carbon.”

(p. 870) I have argued that IAMs are of little or no value for evaluating alternative climate change policies and estimating the SCC. On the contrary, an IAM-based analysis suggests a level of knowledge and precision that is nonexistent, and allows the modeler to obtain almost any desired result because key inputs can be chosen arbitrarily.

As I have explained, the physical mechanisms that determine climate sensitivity involve crucial feedback loops, and the parameter values that determine the strength of those feedback loops are largely unknown. When it comes to the impact of climate change, we know even less. IAM damage functions are completely made up, with no theoretical or empirical foundation. They simply reflect common beliefs (which might be wrong) regarding the impact of 2º C or 3º C of warming, and can tell us nothing about what might happen if the temperature increases by 5º C or more. And yet those damage functions are taken seriously when IAMs are used to analyze climate policy. Finally, IAMs tell us nothing about the likelihood and nature of catastrophic outcomes, but it is just such outcomes that matter most for climate change policy. Probably the best we can do at this point is come up with plausible estimates for probabilities and possible impacts of catastrophic outcomes. Doing otherwise is to delude ourselves.

For the full article, see:
Pindyck, Robert S. “Climate Change Policy: What Do the Models Tell Us?” Journal of Economic Literature 51, no. 3 (Sept. 2013): 860-72.

HR Regulations and Fear of Lawsuits Keep Managers from Firing Workers Who Do Not Work

(p. 1B) The biggest problem in your workplace has a name. His name is Jeff. . . .
Jeff sits two cubicles down from us, or three, or four. His real name may be John, Juan or Joan. He gets to the widget factory late, he leaves early and always mucks up his part of any group project. He complains, loudly, about the smallest things, and when you bring doughnuts for your birthday he probably takes three and then talks with his mouth full, too.
. . .
(p. 2B) . . . , morale suffers greatly when most of a company’s employees perceive that their supervisor is failing to deal with their low-performing co-worker, month after month, year after year.
For this, Hoogeveen blames a corporate culture that is so concerned about HR regulations, and the often-imagined threat of litigation, that bosses often fail to take into account how the trouble employee affects the larger climate.
. . .
. . . if Jeff doesn’t improve, he needs to be fired. This is perhaps the worst part of a boss’s job, Hoogeveen thinks. His eyes mist as he recalls firing an employee whom he liked, but who was simply a bad fit at QLI.
It’s human nature to avoid this conflict, to maintain the status quo and let Jeff be, he says. That’s what can and does happen at most Omaha companies.
But it’s bad for the employees, and it’s bad for business.
“A lot of this stuff is incredibly easy to understand,” says Omaha’s workplace mechanic [Kim Hoogeveen]. “It’s incredibly difficult to live.”

For the full story, see:
Hansen, Matthew. “Workplace Guru: Don’t Let Problem Worker Slide.” Omaha World-Herald (Mon., July 21, 2014): 1B-2B.
(Note: ellipses, and bracketed name, added.)
(Note: the online version of the article had the title “Hansen: Don’t let Jeff — the problem worker — slide, workplace guru says.”)

Entrepreneur Gutenberg’s Press Creatively Destroyed the Jobs of Scribes

(p. 32) Poggio possessed . . . [a] gift that set him apart from virtually all the other book-hunting humanists. He was a superbly well-trained scribe, with exceptionally fine handwriting, great powers of concentration, and a high degree of accuracy. It is difficult for us, at this distance, to take in the significance of such qualities: our technologies for producing transcriptions, facsimiles, and copies have almost entirely erased what was once an important personal achievement. That importance began to decline, though not at all precipitously, even in Poggio’s own lifetime, for by the 1430s a German entrepreneur, Johann Gutenberg, began experimenting with a new invention, movable type, which would revolutionize the reproduction and transmission of texts. By the century’s end printers, especially the great Aldus in Venice, would print Latin texts in a typeface whose clarity and elegance remain unrivalled after five centuries. That typeface was based on the beautiful handwriting of Poggio and his humanist friends. What Poggio did by hand to produce a single copy would soon be done mechanically to produce hundreds.

Source:
Greenblatt, Stephen. The Swerve: How the World Became Modern. New York: W. W. Norton & Company, 2011.
(Note: ellipsis, and bracketed word, added.)

Countries that Protect Jobs Stifle Economic Growth

(p. 240) In an “Interview” conducted by Jessie Romero, John Haltiwanger discusses changing patterns of job creation and destruction: “But now we’re seeing a decline in the entry rate and a pretty stark decline in the share of young businesses. . . . But it’s also important to recognize that the decline in the share of young firms has occurred because the impact of entry is not just at the point of entry, it’s also over the next five or 10 years. A wave of entrants come in, and some of them grow very rapidly, and some of them fail. That dynamic has slowed down. . . . If you look at young small businesses, or just young businesses period, the 90th percentile growth rate is incredibly high. Young businesses not only are volatile, but their growth rates also are tremendously skewed. It’s rare to have a young business take off, but those that do add lots of jobs and contribute a lot to productivity growth. We have found that startups together with high-growth firms, which are disproportionately young, account for roughly 70 percent of overall job creation in the United States. . . . “I think the evidence is overwhelming that countries have tried to stifle the [job] destruction process and this has caused problems. I’m hardly a fan of job destruction per se, but making it difficult for firms to contract, through restricting shutdowns, bankruptcies, layoffs, etc., can have adverse consequences. The reason is that there’s so much heterogeneity in productivity across businesses. So if you stifle that destruction margin, you’re going to keep lots of low-productivity businesses in existence, and that could lead to a sluggish economy. I just don’t think we have any choice in a modern market economy but to allow for that reallocation to go on. Of course, what you want is an environment where not only is there a lot of job destruction, but also a lot of job creation, so that when workers lose their jobs they either immediately transit to another job or their unemployment duration is low.” Econ Focus, Federal Reserve Bank of Richmond, Second Quarter 2013, pp. 30-34. http://www.richmondfed.org/publications/research/econ_focus/2013/q2/pdf/interview.pdf.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 28, no. 1 (Winter 2014): 235-42.
(Note: italics, ellipses, and bracketed word, in original.)

How Sega Came Out of Nowhere to Leapfrog Near-Monopolist Nintendo

Source of book image: http://images.eurogamer.net/2014/usgamer/original.jpg/EG11/resize/958x-1/format/jpg

(p. C10) “Console Wars” tells how Sega, an unremarkable Japanese manufacturer of games played in arcades, came out of nowhere to challenge Nintendo for dominance of the videogame world in the first half of the 1990s. Nintendo, which had revived the stagnant home videogame category a few years earlier, had something close to a monopoly in 1990 and behaved accordingly, dictating terms to game developers and treating retailers as peons. Sega, in Mr. Harris’s telling, was a disruptive force in a highly concentrated market, introducing more advanced gaming technology, toppling Nintendo from its perch and becoming the largest seller of home videogame hardware in the U.S. by late 1993.

Mr. Harris’s hero is a former Mattel executive named Tom Kalinske, who became president of Sega of America, then a small subsidiary, in 1990. Mr. Kalinske assembled a team of crack marketers who would not have gone near Sega but for his reputation and persuasiveness. Within a year and a half, according to Mr. Harris, Mr. Kalinske’s leadership, along with a new gaming system called Genesis and a marketing assist from a mascot named Sonic the Hedgehog, made Sega the U.S. market leader in videogames.
And then, after only three years at the top, Sega fell from its pedestal. Sega’s management in Japan, suffering mightily from not-invented-here syndrome, rejected Mr. Kalinske’s proposals to collaborate with Sony and Silicon Graphics on new gaming systems. Instead, over his objections, Sega pushed out its ill-conceived Saturn game console in 1995. While Saturn flopped, Sony struck gold with its PlayStation; Silicon Graphics sold its chip with amazing graphics capabilities to Nintendo; and the game, so to speak, was over.
. . .
The author admits he has taken liberties: “I have re-created the scenes in this book using the information uncovered from my interviews, facts gathered from supporting documents, and my best judgment as to what version most closely fits the historical record,” he writes. The result is more a 558-page screenplay than a credible work of nonfiction.

For the full review, see:
MARC LEVINSON. “Sonic Boom; How a no-name company took on Nintendo, tied its fate to a hyperactive hedgehog, and–briefly–won.” The Wall Street Journal (Sat., May 24, 2014): C10.
(Note: ellipsis added.)
(Note: the online version of the review has the date May 23, 2014, an has the title “Book Review: ‘Console Wars’ by Blake J. Harris; How a no-name company took on Nintendo, tied its fate to a hyperactive hedgehog, and–briefly–won.”)

The book under review is:
J., Harris Blake. Console Wars: Sega, Nintendo, and the Battle That Defined a Generation. New York: HarperCollins Publishers, 2014.

Conserving Whales by a Market in Whale Shares

(p. 218) Ben A. Minteer and Leah R. Gerber propose “Buying Whales to Save Them.” “Under this plan, quotas for hunting of whales would be traded in global markets. But again, and unlike most ‘catch share’ programs in fifisheries, the whale conservation market would not restrict participation in the market; both pro- and antiwhaling interests could own and trade quotas . . . . Conservation groups, for example, could choose to buy whale shares in order to protect populations that are currently threatened; they could also buy shares to protect populations that are not presently at risk but that conservationists fear might become threatened in the future.” “Despite the widely acknowledged failure of the IWC [International Whaling Commission] moratorium to curtail unsustainable whaling, the whale conservation market idea has proved to be wildly controversial within conservation and antiwhaling circles. . . . Many critics of the idea are also plainly not comfortable with the ethics of putting a price on such iconic species–that is, with using contingent market methods for what they believe should be a categorical ethical obligation to preserve whales. On the other hand . . . the vulnerable status of many whale populations and the failure of the traditional regulatory response to halt unsustainable harvests call for a more innovative and experimental approach to whale policy, including considering unconventional proposals, such as the whale conservation market.” Issues in Science and Technology, Spring 2013, http://www.issues.org/29.3/minteer.html.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 27, no. 4 (Fall 2013): 211-18.
(Note: italics, ellipses, and bracketed words, in original.)

Required Recycling Can Waste Resources

(p. 215) Cato Unbound offers four essays on “The Political Economy of Recycling.” In the lead essay, Michael Munger asks: “Recycling: Can It Be Wrong, When It (p. 216) Feels So Right?” “There are two general kinds of arguments in favor of recycling. The first is that ‘this stuff is too valuable to throw away!’ In almost all cases, this argument is false, and when it is correct recycling will be voluntary; very little state action is necessary. The second is that recycling is cheaper than landfilling the waste. This argument may well be correct, but it is difficult to judge because officials need keep landfill prices artificially low to discourage illegal dumping and burning. Empirically, recycling is almost always substantially more expensive than disposing in the landfill. Since we can’t use the price system, authorities resort to moralistic claims, trying to persuade people that recycling is just something that good citizens do. But if recycling is a moral imperative, and the goal is zero waste, not optimal waste, the result can be a net waste of the very resources that recycling was implemented to conserve.” There are sharp and lively comments from Edward Humes, Melissa Walsh Innes, and Stephen Landsberg. June 2013, at http://www.cato-unbound.org/issues/june-2013/political-economy-recycling.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 27, no. 4 (Fall 2013): 211-18.
(Note: italics in original.)