Paul Krugman the academic, Martin Wolf the economic journalist: Bottom line – read Wolf’s great new book

MartinWolf2011ByDaphneBorowski.pngPaul KrugmanI’m a big, though not uncritical admirer of Paul Krugman – of his straightforwardness and his aggression in what is almost always a worthy cause. And yet, reading Martin Wolf’s magnificent book rather inauspiciously titled The Shifts and the Shocks: What We’ve Learned-and Have Still to Learn-from the Financial Crisis, I’m struck by how modest Krugman’s achievement is.

Before his decisive turn with the coming of George Bush’s presidency and what Krugman saw as the rampant dishonesty of the campaigning and discourse of the right, Krugman styled himself as an aggressive defender of centrism, puncturing the fallacies of the heroes of the right and left. As he put it, he liked to catch them with their hands in the intellectual cookie jar and expose them in his pieces. Thus in his attacks on the ‘policy entrepreneurs’ of the Clinton era and before, like Lester Thurow and Robert Reich, he’d frequently ‘catch’ each of them not paying sufficient respect to the subtleties of comparative advantage and allegedly committing themselves to various other alleged intellectual fallacies.

While I was quite sympathetic to the points he was making on policy – these guys were often somewhere between little and a lot too slick in the way they presented their stuff - I didn’t really think that Krugman had demonstrated that they had in fact committed themselves to those fallacies. If you tried to read them ‘with’ the grain as it were, to get what they were trying to say – knowing also that they’re trying to communicate with people who are not steeped in economics – it wasn’t clear they were mistaken logically whether or not you ultimately agreed with them.

By contrast on the right we had all sorts of hijinks – massive tax cuts that paid for themselves, full Ricardian equivalence, modelling the Great Depression as a spontaneous holiday and various other grand themes thrown together with the flimsiest of evidence. In any event since Krugman has self-identified as a fighting Liberal, he’s been fantastically good at skewering his opponents – almost always when they need skewering, and at the same time he’s kept producing interesting academic(ish) papers. And in economics where models should be used to test, train and illustrate economic intuition and shouldn’t take over the show, academic(ish) papers are usually better than academic papers. Yet there’s been something missing. Continue reading

How the aged crowd out the young, and how it’s inefficient

This paper is pretty interesting. The last generation has seen the triumph of the baby boomers in attracting resources to themselves, at the cost of other generations, most obviously illustrated in throwing off the shackles of university fees (so other generations and the uneducated could pay for their university education) and then returning to ramp up fees on the oncoming generations. Ditto for the pension – which they’ll enjoy but get later generations to self-fund. Ditto all the tax breaks for self-funded boomers and on it goes though quite possibly the effect of house prices may be as or more important than all that.

Meanwhile think how those who rise to a certain position in the workforce tend to stay there, regardless of merit. This is not so true at the very top of large companies any more that seem to turn over their CEOs pretty quickly and ruthlessly (thought the terms of separation show a great deal of ruth). So economists tend to think of firms as making efficient decisions to survive competition, but they’re full of humangoes, and humangoes, just like mangoes have soft squishy bits that tend to do pretty much what they’re going to do whatever the state of competition is.

Demographics and Entrepreneurship

: by James Liang, Hui Wang, Edward P. Lazear – #20506 (IO LS)

Abstract: Entrepreneurship requires creativity and business acumen. Creativity may decline with age, but business skills increase with experience in high level positions. Having too many older workers in society slows entrepreneurship. Not only are older workers less innovative, but more significant is that when older workers occupy key positions they block younger workers from acquiring business skills. A formal theoretical structure is presented and tested using the Global Entrepreneurship Monitor data. The results imply that a one-standard deviation decrease in the median age of a country increases the rate of new business formation by 2.5 percentage points, which is about forty percent of the mean rate. Furthermore, older societies have lower rates of entrepreneurship at every age.

Managers wresting control from owners: it’s nothing new …

Contractual Freedom and the Evolution of Corporate Control in Britain, 1862 to 1929
by Timothy W. Guinnane, Ron Harris, Naomi R. Lamoreaux – #20481 (DAE)

Abstract:British general incorporation law granted companies an extraordinary degree of contractual freedom to craft their own governance rules. In this paper we study the uses to which this flexibility was put by examining the articles of association written by three samples of companies from the late nineteenth and early twentieth centuries. We find that incorporators consistently wrote rules that shifted power from shareholders to directors, that the extent of this shift became greater over time, and that Parliament made little effort to restrain it. Although large firms were less likely to enact the most extreme provisions, such as entrenching specific directors for life, they too wrote articles that gave managers essentially unchecked power. These findings have implications for the literature on corporate control, for the “law-and-finance” argument that the common law was more conducive to financial development than the code-based systems of civil law countries, and for the debate on entrepreneurial failure in Britain during the late nineteenth and early twentieth centuries.

Ray Monk Lecture at 6.00 pm tonight: Go if you can

Ray MonkAs a council member of the National Library I had the privilege of not only going to this lecture last Friday night but of having dinner with Ray, the benefactors of the lecture (John Seymour – whom I taught Legal Writing and Research alongside in 1990 or thereabouts – and his wife Heather) and some other nice people that night.

In any event, I really loved the lecture which is a tour of biography through the ages and addresses Samuel Johnson’s five questions/issues about biography. What are they? Well you’ll have to come along to the lecture to find out.

In any event, one thing I loved is that in discussing biography, and the question of whether the subject of the biography has a privileged position in understanding himself that the biographer can never penetrate. Monk discussed Wittgenstein’s private language argument in a way that had relevance for my own thinking about private and public goods. Wittgenstein’s argues for the priority of the public and the shared – just as I would put public goods – specifically emergent public goods prior to private goods.

Anyway, go if you can. As you know I occasionally get a bit carried away with enthusiasm for something or other and the chiming of the private language argument with all my priors may have pushed me over the edge into this malady, but I can also report that everyone else I spoke to thought it was a wonderful lecture. And Ray was kept to time (I think 40 minutes) by Anne-Marie, our National Librarian – an otherwise wonderful woman – who nevertheless deprived us of another ten or twenty minutes of the lecture in which Oppenheimer would have been wound into the narrative alongside fellow biographees Wittgenstein and Bertrand Russell.

Italian Film Festival: a bit late

Films

Marina Play Trailer

True story of beloved singer, songwriter and accordionist, Rocco Granata, from his early life as an immigrant in Belgium to his emergence as a worldwide musical phenomenon with his 1959 song Marina, one of the biggest international hits of that era.1948 Calabria, in southern Italy, poor local worker Toto Granata leaves his wife Ida and two children to work in the Belgian mines, promising to return wealthier. But like countless others, instead of returning after a few years as planned, his family are forced to join him and adjust to a new life as immigrants in a foreign country. It is here Toto’s only son Rocco discovers his sole joys lie in young love and the music that will eventually immortalise him.

☆☆☆☆ IMDB

Show Timings

PALACE CINEMA COMO

Wednesday 17 Sep 7:00pm

Wednesday 17 Sep 7:15pm

Saturday 20 Sep 6:45pm

Sunday 21 Sep 1:45pm

Monday 22 Sep 8:45pm

Wednesday 24 Sep 1:45pm

Friday 3 Oct 1:45pm

Friday 3 Oct 9:00pm

Saturday 11 Oct 4:15pm

KINO CINEMAS

Wednesday 17 Sep 7:00pm

Friday 19 Sep 1:00pm

Friday 19 Sep 6:00pm

Wednesday 1 Oct 1:00pm

Saturday 4 Oct 6:00pm

Tuesday 7 Oct 6:00pm

Saturday 11 Oct 1:00pm

PALACE WESTGARTH

Wednesday 17 Sep 7:00pm

Wednesday 17 Sep 8:30pm

Thursday 18 Sep 4:30pm

Friday 26 Sep 7:00pm

Monday 29 Sep 4:30pm

Thursday 2 Oct 9:30pm

Thursday 9 Oct 4:30pm

Saturday 11 Oct 9:00pm

PALACE BALWYN

Monday 22 Sep 1:30pm

Sunday 28 Sep 4:00pm

Tuesday 30 Sep 9:00pm

Thursday 2 Oct 1:30pm

Sunday 5 Oct 6:30pm

Thursday 9 Oct 8:45pm

Sunday 12 Oct 4:00pm

PALACE BRIGHTON BAY

Wednesday 24 Sep 6:30pm

Friday 26 Sep 1:30pm

Tuesday 7 Oct 1:30pm

Wednesday 8 Oct 6:30pm

Friday 10 Oct 6:30pm

Lots more films below the fold Continue reading

Why ‘how to’ guides on innovation are of limited use: An ‘untheory’ of innovation

Looking for a graphic for this blogpost, it was amazing how many of the pictures were of besuited men looking anything but innovative. Not a woman or unbesuited person for miles around. But I digress …

Thinking about how to write a fairly substantial review of knowledge and innovation in the urban water industry, I listed all the things that need to go well for innovation to thrive. What began as a kind of memo to self turned into a kind of unmanifesto, which is to say an explanation for why theorising about innovation can’t be taken very far (or, to be more circumspect, perhaps it can, but I’ve never found it very useful.) In fact there’s lots of writing about innovation – far too much – but most of it – including the best of it – is incredibly light on theory and is in fact storytelling. This is a complement to it, not a criticism. If there’s not much point to theory, The thing is, so many things have to work well together that that is the secret of innovation. And this challenge of ‘alignment’ – of purposes, of people of populations (I meant systems, but it didn’t start with ‘P’ and I’m going for memorability here!) – will be particular to particular projects. There’s little of a general nature that can be said about them. Anyway, what began as a memo to self is now an important part of the way I think about this stuff. A theory of the non-theorisable. The things that must be finessed for innovation – doing things in new and better ways – to thrive in an industry or wider system are many and varied. Just listing them gives an indication of the difficulty of the task owing to its complexity and many faceted nature.

From creation to implementation
  • Innovation must be initiated either by those with a problem to solve or an opportunity to seize or elsewhere within the system. Where this is not spontaneous, it may require careful cultivation and the application of financial and other resources.
  • Once innovations are generated, they must become known to those who can use them beneficially including in some situations, those who are unaware of any specific problems, but who nevertheless can use such innovations to advantage.
  • Those who become aware of new knowledge must understand how to implement it to advantage.
Governance of innovation
  • A specific innovation may solve problems for some levels of a system but it may involve new routines, higher costs, inconvenience or disruption elsewhere. There will often (generally?) be no well-accepted means of determining priorities between the various considerations arising. Continue reading

Time for the ‘reform’ mantra to be modernised: My AFR column of yesterday

The Hawke LegacyBy the time economic reform matured as a political project – let’s date it from Paul Keating’s announcement about its popularity with the resident galah in every pet shop – it was already on the slide into the kind of ideological formula of mercantilism that Ken Henry so powerfully critiqued earlier this week.

Australia was a standard-bearer in areas like trade and agricultural protection, the two airline policy and shopping hours. There, with the stroke of a pen, we swept away the detritus of a century’s ad hoc political favouritism. And unlike our peers in the Anglosphere, we also expanded funding for the safety net – bolstering equity.

But beyond that, as we’ve learned (or have we?), considering policy alternatives against a criterion as crude as how ‘free market’ they are doesn’t work so well. In infrastructure, utility and financial reform, where monopoly and asymmetric information problems abound, regulation remains inevitable and new rent seeking political pathologies lie in wait for those unpicking the old ones. Here our reform efforts brought forth excessively priced toll-ways, desalination plants and airports with the political and official insiders championing the changes parachuting into lucrative careers with the corporate beneficiaries of their reforms to lobby their successors. We’ve seen massive over-investment in electricity transmission and under-investment in other infrastructure.

And yet our policy elite speak as if ‘reform’ is well articulated and will take us back to the glory days of the 1990s Australian ‘reform boom’ that preceded the subsequent resources boom. “Gary Banks’ List” assembled by the former Productivity Commission (PC) chairman – is a canonical PC endorsed reform ‘to do’ list. It was – tellingly enough – cobbled together some months after Glenn Stevens assured a Parliamentary Committee of its existence. John Edwards recently suggested, only slightly exaggerating, that its adoption wouldn’t make a measureable difference to growth.

With national income falling in the most recent national accounts, here are some contemporary challenges and opportunities absent from the list – all of which escape prevailing reform formulas: Continue reading