Armen Alchian Deserves the Nobel Prize

Tag: Armen Alchian Deserves the Nobel Prize

Special EconTea: The Nuclear Option

There will be a special Econ Tea on Tuesday, May 20 at 2:30 p.m. in Briggs 217 to discuss this paper:

Joseph Michael Newhard, “The Stock Market Speaks: How Dr. Alchian Learned to Build the Bomb,” Forthcoming in Journal of Corporate Finance.

The paper covers the remarkable story of Armen Alchian’s attempt to figure out the fissile material in nuclear weapons.  Here’s Alchian’s telling of the story:

We knew they were developing this H-bomb, but we wanted to know, what’s in it?  What’s the fissile material? Well there’s thorium, thallium, beryllium, and something else, and we asked Herman Kahn and he said, ‘Can’t tell you’… I said, ‘I’ll find out’, so I went down to the RAND library and had them get for me the US Government’s Dept. of Commerce Yearbook which has items on every industry by product, so I went through and looked up thorium, who makes it, looked up beryllium, who makes it, looked them all up, took me about 10 minutes to do it, and got them. There were about five companies, five of these things, and then I called Dean Witter… they had the names of the companies also making these things, ‘Look up for me the price of these companies… and here were these four or five stocks going like this, and then about, I think it was September, this was now around October, one of them started to go like that, from $2 to around $10, the rest were going like this, so I thought ‘Well, that’s interesting’… I wrote it up and distributed it around the social science group the next day. I got a phone call from the head of RAND calling me in, nice guy, knew him well, he said ‘Armen, we’ve got to suppress this’… I said ‘Yes, sir’, and I took it and put it away, and that was the  first event study. Anyway, it made my reputation among a lot of the engineers at RAND.

You can get an ungated version of the the paper here.

As per usual, the availability of refreshments is subject to estimated demand and prevailing market prices.

Armen Alchian: You tell me the rules and I’ll tell you what outcomes to expect

One of my favorite economists died earlier this week, Armen Alchian of the UCLA school of economics.   If you don’t feel like reading any further, there is a Wall Street Journal obituary that probably says whatever I say, only better.  But, since he’s had such a pronounced impact on how I think and what I teach, I’ll add my piece to the dialog anyway.

For those of you who have taken Orgs/Theory of the Firm with me, Alchian, of course, is influential with his piece on team production (Alchian and Demsetz — the grocer article), as well as his work on asset specificity (Klein, Crawford, and Alchian).  These have, of course, been cited thousands of times because they are foundational to how economists think about firms. And his review with Susan Woodward of Oliver Williamson’s vision of transaction cost economics, “The Firm Is Dead; Long Live the Firm,” will undoubtedly leave you smarter for having read it.

Alchian is also renowned for his work that helped to spawn “evolutionary” economics, writing at about the same time as Schumpeter, it turns out.  The paper “Uncertainty, evolution, and economic theory” is also a classic that has also been cited thousands of times, and has shaped how economists think about the dynamics of market competition.

I also cover the Alchian and Allen conjecture during the first week of Econ 300, so the teeming masses of students taking that this Spring should look out for that.  Speaking of Allen, here he is discussing UCLA economics and the liberal arts, cited right here at LU Econ Blog.

If you are interested in reading something touching about Alchian, I suggest this piece by Fred McChesney, which contains this cool story from Alchian himself:

The year before the H-bomb was successfully created [in the 1950s], we in the economics division at RAND were curious as to what the essential metal was—lithium, beryllium, thorium, or some other. The engineers and physicists wouldn’t tell us economists, quite properly, given the security restrictions. So I told them I would find out. I read the U.S. Department of Commerce Year Book to see which firms made which of the possible ingredients. For the last six months of the year prior to the successful test of the bomb, I traced the stock prices of those firms. I used no inside information. Lo and behold! One firm’s stock prices rose, as best I can recall, from about $2 or $3 per share in August to about $13 per share in December. It was the Lithium Corp. of America. In January, I wrote and circulated within RAND a memorandum titled “The Stock Market Speaks.” Two days later I was told to withdraw it. The bomb was tested successfully in February, and thereafter the stock price stabilized.

An awesome precursor to the event study!

For a forceful statement on the economics of property rights, check out Alchian’s piece here that ends with a bang:

Private property rights do not conflict with human rights. They are human rights. Private property rights are the rights of humans to use specified goods and to exchange them. Any restraint on private property rights shifts the balance of power from impersonal attributes toward personal attributes and toward behavior that political authorities approve. That is a fundamental reason for preference of a system of strong private property rights: private property rights protect individual liberty.

Finally, here is our recent guest, Doug Allen, talking about Alchian’s influence.

Predict the Economics Nobel Prize

UPDATE: Professor Gerard picks Paul Romer,  Professor Finkler picks Romer and William Baumol (both at Stern!), Professor Galambos still undecided, see comments for additional picks.

Anxiously Awaiting the Announcement

The 2012 Nobel Prize in Economic Sciences will be announced on Monday 15 October, and once again all the world is riveted in anticipation. The riveted parties include those residing on Briggs 2nd, where we will once again sponsor a Predict the Nobel Prize Contest, with the winner to take home some fabulous prizes.

I don’t see any formal odds online yet, but Thomson Reuters provides some thoughts on Steven Ross for arbitrage pricing theory, Robert Schiller for work on market volatility, and Anthony Atkinson & Angus Deaton for the famous Atkinson & Deaton work on income, consumption, and well-being.

So, submit your pick to Prof Gerard prior to October 15, keeping in mind that the Nobel winner will not necessarily come from that draw (Of course, I’m still partial to Armen Alchian, and I have to believe Jerry Hausman will win sooner or later).  You can also post them in the comments, first come, first serve.

 

For further reading:

Robert J. Shiller 2003. “From Efficient Markets Theory to Behavioral Finance,” Journal of Economic Perspectives, 17(1): 83–104.

Stephen A.  Ross, 2004 “Review of The New Financial Order by Shiller,” Journal of Economic Literature, 42(4): 1098–1101.

Angus Deaton 2008. “Income, Health, and Well-Being around the World: Evidence from the Gallup World Poll,” Journal of Economic Perspectives, 22(2): 53–72.

 

The Principals are Your Pals

I’m a bit behind on both my reading and on updating this blog, so I wanted to point to a series of fascinating articles at David Warsh’s Economic Principals blog.  The first resulted from his trip to Denver for the American Economic Association meetings in early January, where he sensed a possible resurgence of interest in the history of economic ideas.  This possibly rings true for those of us plodding through Capitalism, Socialism, and Democracy this term.

Warsh followed up this dispatch from the AEA meetings with a most interesting piece on how the big brains of the profession are thinking about technological innovation and climate change. The piece starts with another dispatch from Denver, and traces its way back through the cold war to the RAND Corporation (and one of my heroes, Armen Alchian) and beyond.  The piece touches on the contributions of Kenneth Arrow and Richard Nelson, now are both familiar names to anyone interested in the economics of innovation.

And if that’s not enough, this week’s column looks at Paul Samuelson and hedge funds, another hat tip to the history of thought that includes David Ricardo’s Waterloo.  If nothing else, the blog seems to get its principals right.

I also continue to recommend Warsh’s Knowledge and the Wealth of Nations: A Story of Economic Discovery — an excellent pick for the summer reading list.

Yet Another Update on the Economics Nobel

Some wagering odds have arrived on the scene. UPDATE: And here.

Looks like my picks of Thaler and Shiller are leading the way, followed by Weitzman, Hart, Nordhaus, and Tirole.

This time of year, there are typically grumblings about the lack of sufficient talent to justify a yearly Nobel in economics, but that is certainly an impressive list.  Weitzman wrote a paper 30 years ago that still defines the core idea of environmental economics.  No one has done more on the empirical cost-benefit modeling of climate change than Nordhaus.

Tirole is a co-author of a standard graduate industrial organization text,  as well as several highly-influential pieces on the economics of innovation.  This title alone should merit consideration for Tirole — “The Fat Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look.” Is there a more effective title to help teach strategic behavior?

Oliver Hart helped to push agency theory forward, developed a formal theory of the firm that is still being hashed out (in Economics 450 among other places), and probably has substantially expanded our understanding of corporate governance.

It’s probably worth noting that last year’s odds-on favorite, Eugene Fama, is not even among the leaders (UPDATE: The Ladbrokes odds have him 5:1).  Not to mention Armen Alchian.  No, I don’t think there is an absence of talent.

Of course, I’ll write about Shiller and Thaler next week after they win the prize.

UPDATE: Professor LaRocque has predicted Jeffrey Williamson.

Second Annual Predict the Nobel Prize in Economics

As Professor Finkler points out, the Nobel Prize in economics will be awarded on October 11. That must mean that it’s time for the Second Annual LU Pick the Nobel contest.

So, who should you pick? Well, one strategy is to check out the Thomson Reuters picks from Science (Alesini, Kiyotaki, Moore, Murphy). If you don’t like any of those to win, you might peruse the “Vegas” odds and see who you like there. As of me typing this, these odds do not appear to be out yet, but keep an eye out here and check here are last year’s odds. The same favorites from last year are obviously in play for this year — Eugene Fama for his efficient markets and Paul Romer for endogenous growth theory, Aplia, and charter cities.

Another good choice might be Emmanuel Saez, who is fresh off winning a MacArthur “Genius” Grant. As a dark horse, you might pick the prolific blogging superstar, Tyler Cowen, for his work on the economics of culture.

Or, you can always defer to The Simpsons for your pick (Bhagwati).

A sentimental favorite, at least for me, is Armen Alchian. Don Boudreux points us to this essay and says that in a just world he would have already won the prize.

My pick, which I forgot to pick in the original post, is Richard Thaler.  I just hope that pick doesn’t somehow curse me.

To enter the contest, submit a pick in the comments or via email to me. One entry per person, need not be present in Sweden to win. This year’s winner will take home an authentic piece of Schumptoberfest merchandise. Ties will be decided by Random.org at the Economics Tea.

The Liberal Arts and UCLA Economics

Again, welcome back to those returning to campus.  I’m looking forward to getting back myself and cranking up the 300 class.  Meanwhile, a few weeks ago we instituted a segment titled “free market Monday,” which will emphasize the ideas of some seriously pro-market economists.

In that spirit, here is a piece of interest from the latest edition of Econ Journal Watch — an interview with William Allen (of Alchian and Allen fame) about his path to a professorship UCLA, as well as the heyday of the UCLA economics department under the leadership of Armen Alchian (of Alchian; Alchian & Demsetz;  Klein, Crawford, & Alchian fame, among others).  Allen begins with a shout out to the liberal arts, as he extols the virtues of his time at Iowa’s Cornell College:

[E]specially for one who is headed for graduate work, there is much in favor of first attending a small liberal arts college. At Cornell, there was a great deal which could be learned about the various aspects of the world and its evolution in the mandatory year-long freshman courses in English, history, and the social sciences. The learning was facilitated by classes of small size taught by non-T.A.s, and by much interaction with fellow students in the dorms and dining halls. And one can be captain of the tennis team without being a professional jock.

I’m not sure that the mandatory nature of the courses was the linchpin of his undergraduate education (at least I hope not, since my alma mater has no such requirements), but certainly writing and discourse are important.  Indeed, one of my professors in graduate school said that liberal arts students seemed to have a better feel for what an interesting question is.

Continue reading The Liberal Arts and UCLA Economics