Archive for May, 2010

Coming to an HBS Case Near You

Monday, May 31st, 2010

A few months ago I had a series of posts on the Amazon-Macmillian-Apple fracas, related to publishing and sale of e-books.  A recent New Yorker piece provides a very nice discussion of the role of technological innovation and competition in reordering the publishing business, with Apple, Amazon, and Google all playing major roles.  One of the more interesting aspects is the blurring of the lines as firms integrate, disintegrate, or just try to make money.  My favorite line in the piece is this:

In (Amazon’s Russ) Grandinetti’s view, book publishers—like executives in other media—are making the same mistake the railroad companies made more than a century ago: thinking they were in the train business rather than the transportation business.

I’m not sure I have much to add to the article at this point, except to say that I recommend it.  And that you will probably be reading some version of this story as a business school case if you happen down the MBA route.

In fact, you will probably be discussing this in an Industrial Organizations course if you aren’t careful.

Econ Picnic, Hiett Patio

Monday, May 31st, 2010

Come Even if You Have a Boo Boo

As you have undoubtedly heard, the Economics Department Picnic will be Tuesday, June 1 at 6 p.m. on the Hiett Patio. I’m new here, so I don’t know where that is, but this can be a Hayekian moment for you. As the saying goes, don’t wait until the last minute, unless the marginal benefits of doing so exceed the marginal costs.

I’m told from a reliable source — student representative to the Econ Social Committee, Suzie Kraemer — that there will be pizza.

And economists.

No Holiday Econ TeaBA

Monday, May 31st, 2010

Grill, Baby, Grill

We kick off the final week of classes with a holiday, perhaps an apt metaphor for where many of you have been mentally for the past week.  The holiday preempts the usual slot for the Economics TeaBA, paving the way an afternoon barbecue for the missus and me.

We get back to serious business in my courses Wednesday. In environmental economics (Econ 280), small groups will be reviewing the cost-benefit analysis of the Minerals and Management Services offshore leasing program. Then in the afternoon, the political economy of regulation course  (Econ 240) will be going through some of the administrative regulations governing offshore drilling, truly a look at how the sausage is made.  If you are interested, stop on in to see whether they’ve learned anything.

So, I’m headed over to the parade.  Hope to see you there.

“I often have tender, concerned feelings for people less fortunate than me”

Saturday, May 29th, 2010

Is that a Mike-n-Ike?

In another sure sign of the apocalypse, college students these days just don’t care that much about their fellow man.

Compared with college students of the late 1970s, current students are less likely to agree with statements such as “I sometimes try to understand my friends better by imagining how things look from their perspective,” and “I often have tender, concerned feelings for people less fortunate than me.”

The researchers put together a survey that elicits an “empathy” score (you can take the test yourself) and today’s kids scored 40% lower than generations of yore. That seems like a lot.  From this, the authors of the study conclude that people in my generation are more likely to donate a vital organ to a complete stranger, whereas today’s generation is more prone to knock over its grandmother for the last Mike-n-Ike’s.

Seriously, though, I wonder how much today’s lower score has to do with the language of the survey.  It seems a bit dated to me.  On the other hand, it’s hard to believe anyone ever talked that way.  I also wonder how such specious unpublished research winds up at the top of my RSS feed.

I just wanted to share that with you all.  I worry, you know.  Have a good weekend!

The Capitalist & The Entrepreneur

Thursday, May 27th, 2010

Professor Klein explaining the difference between "Austrians" and "Australians"

The Capitalist & The Entrepreneur is a new book that contains some of the collected works of Austrian economist and Oliver Williamson student, Peter Klein.  Professor Klein is the source of some of our juiciest material – define juiciest how you will — on the nature of the relationship between the entrepreneurship and the theory of the firm.

This could be your lucky summer if you happen to be a fan of Professor Klein, as he is teaching a course, Entrepreneurship in a Capitalist Economy. The course meets every Tuesday night beginning June 7 and running into September.

Where?

On the internets, of course.

For those of you with interest in the course or the book, both Professor Galambos and I have copies for your perusal.

Gulf Oil, Energy Independence, and “Drain America First”

Thursday, May 27th, 2010

In a recent weblog, economist Jeff Frankel makes a strong case that the best way to gain energy independence – whatever that might mean – is to leave the oil in the gulf until a real emergency arises.  He notes that the “drill, baby, drill” advocates essentially want to drain America of oil before we buy from others.  This makes no economic or security sense.

Costs of the Administrative State

Wednesday, May 26th, 2010

If you’ve ever scratched your head and wondered where I get all of that data on regulatory budgets and staffing, scratch no more — the new A Decade of Growth in the Regulators’ Budget: An Analysis of the U.S. Budget for Fiscal Years 2010 and 2011 is here!

Brought to us by former OIRA head, Susan Dudley, the brief combs the U.S. budget for all the summary statistics on agency appropriations and staffing.  (For those of you who can’t see the axes here, along the X axis is years, beginning in 1960 and ticked off in five-year increments.  Up the Y axis is billions of 2005$ in $10 billion increments).

Regulation Costs

A page turner, I know.  The brief reveals that outlays and staffing are at their all-time highs, which does not surprise me.  I do, however, marvel at the growth of Homeland Security.  In real terms (2005$), the Homeland Security budget has gone from $8.8 billion in 2000 to more than $20 billion today, accounting for more than 40% of U.S. regulatory spending and more than half the personnel as well.  Mind boggling.

As I hope will become a tradition here, feel free to play the “my favorite part of the regulatory budget report” game.  The winner will receive at least one sticker.

Liability for Harm Versus Regulation of Safety

Tuesday, May 25th, 2010

That’s the classic question that Steven Shavell posed 25 years ago, and the debate over whether these two are potentially substitutes continues today.

The BP catastrophe has certainly brought more than its share of discussion on the issue.  Paul Krugman weighs in on the side that the continuing spill is Exhibit A that liability is a failure the private sector needs a stern regulatory hand to guide it.  Tyler Cowen frames the argument and takes Krugman to task on one point:

There is in fact an agency regulating off-shore drilling and in the case under question it totally failed.

Point, Cowen.

Of course, not all regulation is as inept as the Minerals Management Service (MMS) seems to be in this case.  One problem is that MMS is charged both with regulating environmental and safety concerns AND is responsible for approving leases to the provide sector.

And, which do they choose? According to the Washington Post:

Minerals Management Service officials, who can receive cash bonuses in the thousands of dollars based in large part on meeting federal deadlines for leasing offshore oil and gas exploration, frequently changed documents and bypassed legal requirements aimed at protecting the marine environment, the documents show.

Emphasis is mine, though the point sort of jumps out at you, doesn’t it? But, it’s not like the appearance of financial impropriety is a new thing with the MMS.  On the heels of the spill, in fact, President Obama recommended bifurcating the agency to mitigate the clear incentive compatibility problem.

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Are Patents the Engine of Growth?

Sunday, May 23rd, 2010

Great post by Richard Langlois at the Organizations and Markets blog about the extent to which “James Watt’s steam-engine patents retarded innovation in steam technology and slowed the British industrial revolution.”

Typically, we teach that the patent is an imperfect solution to the “appopriability” or “positive externality” problem, where individuals and firms are reluctant to innovate because they cannot capture the full value of their efforts due to competitors copying the innovation.  The patent offers temporary monopoly power in exchange for the inventor disclosing technical information to the public. Watt certainly benefited from that protection.

In this case, however, some say the patents were so broad in scope that they allowed Watt to stifle competitors altogether.  There is an on-going discussion in the innovation world about this “strategic patenting,” and the Langlois piece is a nice introduction if you are interested.

Rumor has it that Professor Langlois’ book, The Dynamics of Industrial Capitalism, will be featured in this fall’s I&E Reading Group.  Watch this space.

Our Readers Respond

Sunday, May 23rd, 2010

As you can imagine, a blog like this generates a lot of reader response.  From our post on the American Power Act, astute reader NS writes in:

Captured?

Pithy, yes.  He also sends along this piece on the flow of corporate money supporting the bill.  For those of you interested, the capture theory posits that firms often “capture” regulators, and consequently legislation &/or regulation is used as a means to redistribute resources from one group to another. I’d probably go with the Becker model on this one, but he gets an A for brevity and wit.

Also on the corporate interest front comes this great article from alert reader “Mr. O.” The “beverage lobby,” folks with a lot a stake in the soda (a.k.a. “pop”) tax, have dispensed with the niceties and are offering up cold hard cash to quash it:

Yet with the nation’s obesity burden and states and municipalities parched for new cash sources in this recession, the beverage lobby isn’t underestimating the tenacity of those who would impose taxes. So they’ve unveiled a new tact in Philadelphia: abandon the tax and the beverage industry will donate $10 million over two years to the Pew Charitable Trusts to fund health and wellness programs in this city, if Pew would accept the funds, reported BNET.com.

I kid you negative, Mr. O was laughing out loud (LOLZing, as the kids say) at the audacity of this proposal.

So, for any of you other readers out there that identify something of interest, please bring it to our attention. If it clears the bar, it might be you seeing your initials right here on the blog.

Imagine that.

Penultimate TeaBA

Sunday, May 23rd, 2010

It’s time to get ready for the penultimate Economics TeaBA of the 2009-2010 season. As per usual, the fun starts at 4:15 Monday in Briggs 217.

The Economics TeaBA came pretty much out of nowhere and has become a centerpiece of the economics co-curricular activities at Lawrence. Dozens of students have been treated to hot beverages, high-calorie snacks, along with both casual and serious discussions with the economics faculty and other esteemed attendees. In the past few weeks, we’ve enjoyed the company of EPA Administrators, mathematics professors, professors emeriti (is that the plural of emeritus?), and visiting economists /standup comedians.

So, we never really know what the Economics TeaBA will hold. All I can say is that this week’s will be the penultimate experience.

That’s Entertainment

Saturday, May 22nd, 2010
AC10-119 LSB Entertainment Industry Summit Poster

Click to Enlarge

For those of you grousing about looking for the whens and wheres of the Lawrence Scholars in Business Entertainment Summit, you’ve come to the right place. It is today at 4 p.m. in the Hurvis Room of the Warch Campus Center. Dinner to follow at 6, space permitting.

This is the final LSB event of the year, and should appeal to folks of all stripes, from the economics majors to the Conservatory and Arts students.

Click the poster for the full report.

Who Takes the Summers Off? I&E Reading Group Announces Its Summer Selections

Friday, May 21st, 2010

Given the dwindling attendance in my courses, either the weather has become appreciably better, Midwestern style, or Professor Finkler is giving another macro exam. Both are sure signs that summer is just around the corner.  That means it’s time to unveil the Innovation & Entrepreneurship Reading Group‘s summer books.

The first book comes recommended from Professor Garth Bond, who offers us Moneyball: The Art of Winning and Unfair Game.  I’ll let him tell you about it:

It’s a bit off the beaten path, but it is a great  read and certainly raises questions about innovation in a decidedly different context: Michael Lewis’s Moneyball.  If you’re not familiar  with it, it’s basically a book about the sabermetric revolution in  baseball, focusing on Billy Beane and the Oakland A’s in the early 2000s.  It is decidedly about the difficulties involved in introducing  innovation into baseball, exploring where and how new ideas arose and  how they actually came to be implemented (and ultimately copied).  I  think it might be particularly interesting because many of us have a  hard time thinking of sports as just another industry, so that it can  challenge our abstract theories by applying them to matters of the  heart.  The other nice thing about the book is that it is extremely  approachable and short.

That is a clear winner.

If you are still on the fence after that, consider that Hollywood is (potentially) making a movie version of the book that will star Brad Pitt.  Here is a review — of the book, not the movie — from the San Francisco Chronicle.

The second book is The Marketplace of Ideas: Reform and Reaction in the American University by Louis Menand.  This is a provocative piece about why although academics tend to be liberal as a bunch, but institutional change within the academy is slow going.

Menand is a brilliant writer, and the book certainly adds much to the discussion of  “how can we at Lawrence be more innovative.”  Here is the review at Slate that tipped me off to the book.

Also a clear winner.

The tentative meeting date for the faculty group will be in late July.  You should be able to find out more right here on this blog, or on our group site on The Moodle. In early July, I will begin “live blogging” and posting some associated content. As was the case with the first book, any students interested in reading should let me know so we can get together to discuss it.

Those of you not interested in the I&E Reading Group might find some of these useful.

Two Tales, One American Power Act

Thursday, May 20th, 2010

The American Power Act is the latest climate bill making its way through the Senate. For both of my classes this term we have talked about the tradeoffs between policies that economists like and policies that might have a chance of passing. Ted Gayer at Brookings definitely puts the APA in the latter camp:

The bill auctions only 24.8 percent of the allowances in the early years (the share devoted to auctions is highlighted in blue), the remainder of the allowances being given away to such things as electricity local distribution companies, trade-exposed industries, refiners, commercial developers of carbon capture and storage, and a National Industrial Innovation Institute. The auctioning ramps up to 79.5 percent of allowances in 2030, and then full auctioning only occurs in 2035

And concludes:

By failing to use a full allowance auction to offset economically harmful taxes and deficits, the Senate bill sacrifices economic gain for political support from interest groups.

Robert Stavins, on the other hand, seems to look up at the sky and see a different color.  Stavins is perhaps the most prominent environmental economist in the field, and he  seems pretty upbeat about the whole thing:

Over the entire period from 2012 to 2050, 82.6% of the allowance value goes to consumers and public purposes, and 17.6% to private industry. Rounding error brings the total to 100.2%, so to be conservative, I’ll call this an 82%/18% split.

I’m going to have to side with Gayer on this one.  It may well be the case that on average the “value” goes to some “public purposes,” but it sure doesn’t seem that way looking at the early splits (Here’s the blown up version for those of you preparing to squint).

Gayer Table

For the first 13 years of the program, more than half of the allowances are going to industry, it appears.  Not until 2025 do we see the industry percentage phased out (rapidly) and the auction percentage jump (also rapidly).  So, to put it another way, today’s Congress is committing the 2025 Congress to implement the tough changes that will accompany climate change. I am going to put the odds on this commitment being credible as “improbable.”

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If you love numbers, you’ll love the US Debt Clock

Wednesday, May 19th, 2010

If you want real time numbers on the macroeconomic character of the U.S. economy including debt levels, check out U.S. Debt Clock. org.  If the numbers themselves won’t get you, the dizzying changes certainly will.