Creative Instruction
The Globe and Mail has a piece onLaurence Kolikoff’s assessment of the U.S. fiscal situation, and it’s not pretty. The official estimate is that government debt is about 60% of GDP ($13.5-trillion). Kotlikoff says “Let’s get real,” and puts the figure at more like $200 trillion.
For those of you that want to go straight to the source, Kotlikoff lays out his case in the IMF publication, Finance & Development.
The Federal Reserve Bank of St. Louis (which you know offers numerous publications that contain a fabulous array of macroeconomic data) recently announced a contest to produce a YouTube video that helps explain the factors of production in general and the role of entrepreneurs in particular to high school students. For some of you, this is too good an opportunity to pass up. Go to St. Louis Fed to learn the details.
After yesterday’s spirited discussion of the nature of the long-run supply curve, tomorrow we will kick off with the classic brownie problem:
Brownies sell for $12 a dozen and are available only in packs of a dozen. You choose to buy two packs a month. If sellers begin offering brownies at $1 each, what can you say about the quantity you will buy?
Check into Econ 300 Friday for the answer.
The Lawrence Scholars in Law kicked off in style with a capacity crowd (35-40 students) and a festival-type atmosphere, with about 15 students joining us for dinner. As I said in my introductory remarks, the alumni talent on hand for our panel was extraordinary. Each is a lawyer and a member of the Lawrence board of trustees, and each is very enthusiastic about he prospects for the LSL program.
A couple of points emerged from the discussion. The first is that there is no right major that you need to choose to apply. Our four panelists came from four different majors — history, government, economics, and piano performance. The second theme seemed to be that a law degree opens up many doors, not just the door to the big law firm.
Panelist Jeff Riester also pointed prospective law students to Law School: Getting In, Getting Out, Getting On, by Michael Ariens. This seems like a good resource, and pre-law advisor Steve Wulf and myself will hold onto it if you care to take a look at it.
We are planning one LSL per term this year, and we would like to encourage you to provide us with feedback, as well as input into content for future programs.
More from The Lawrentian.
I spent the day yesterday at Beloit College, where the 2010 Miller Upton Forum is under way.
The weather was not ideal for driving across Wisconsin, but the unusual conditions produced some amazing scenery.Before the Forum began, I had a chance to catch up with a friend, Daniel Barolsky, who was a Postdoctoral Fellow at Lawrence during the first year of the Fellows program. We all know that the first crop of Fellows was the best. I came in the second year of the program as a Fellow, so Daniel and I overlapped two years at LU. Anyway, we sat down in the Bushel and Peck’s, which is the center of activity in Beloit. It is a very interesting place–they have gourmet groceries, coffee, food, and ambience conducive to conversation. If you go, do stick to American coffee–that’s definitely their forte. If you get their bottomless cup, you will end up going through the art gallery in the back, which leads to the restroom. Oh, and the frozen chickens are stored back there, too.
The Forum itself started with a panel on Entrepreneurship and the Liberal Arts. Our own Prof. Finkler presented as part of a distinguished panel, describing the great many things we do in the name of I&E at Lawrence. He started with an image of the “Creative Instruction” cup that I presented to Prof. Gerard to signify his Chief of Schumptoberfest title. Prof. Finkler then summarized Schumptoberfest, In Pursuit of Innovation, Entrepreneurship and Finance, Entrepreneurship in the Arts and Society, and the many ways we build innovation and entrepreneurship into our courses at LU (including the upcoming Economics of Innovation course–watch this space for updates!) He also talked about the center we are developing, the Lawrence Innovation Bridge, where student ventures will have a space to grow. Robyne Hart from the ACM’s Chicago BES program also presented, outlining the indisputable advantages of being in Chicago, a hub of innovation and entrepreneurship. Consider making that a part of your Lawrence experience. From Wake Forest University, Betsy Gatewood presented on education, entrepreneurship and the liberal arts. She should know, being the Director of their Office of Entrepreneurship and Liberal Arts. They have an astounding variety of courses in all disciplines that relate to Entrepreneurship–take a look and let everyone at Lawrence know that you’d like to see more of that stuff here, too. Finally, Beloit’s own Jerry Gustafson gave an eloquent, entertaining, erudite, evocative and overall excellent monologue on entrepreneurship and education. We’ll see if we can make that available to you somehow. Finally Israel Kirzner himself reacted to what had been said. He thanked the panelists for all he had learned from their talks, pointing out that much of it was “refreshingly new” to him. Then he went on to make a distinction between studying the role of entrepreneurs in the economy (what he has done) and studying entrepreneurship, what makes an entrepreneur, etc.
Prof. Kirzner reiterated that distinction in the evening panel discussion on his work. The participants were (from left to right in the pic) Roger Koppl, Deirdre McCloskey, Virgil Storr, and Israel Kirzner. Much was said about expertise, entrepreneurship, piracy and shipwrecking, but to me the most interesting comments came from McCloskey, who started by describing, in the way of a confessional, here transformation from Chicago-school Samuelsonian anti-entrepreneurship economist to a fan of Kirzner. Max U, the protagonist of price theory, is a sociopath, says McCloskey, and we need a much better model of Human Action than that. Of course she has done much to round out our view of human action in her several books, the most recent of which is Bourgeois Dignity: Why Economics Can’t Explain the Modern World . She went on to reiterate the argument that some of us know from Schumptoberfest: Samuelsonian equilibrium economics has no place for the entrepreneur, because equilibrium looks at what happens after the entrepreneur’s work is done. As Jerry Gustafson put it, “by the time the theorist arrives on the scene, the entrepreneur has vanished.” There was much talk about what exactly Kirzner meant by “alertness.” He himself put it as “knowing what is around the corner,” and reminded us that by definition it cannot be taught. Apparently that comment (it is not possible to teach entrepreneurship) was made to him by Baumol many years ago. In response, Jerry Gustafson and others made the argument that neither is it possible to teach someone how to be a virtuoso violinist or pianist–but it certainly is possible to enhance one’s innate abilities in those areas. So it is with entrepreneurship: the true entrepreneur is born, not made, but we can certainly enhance those aptitudes through education. Perhaps more importantly, having entrepreneurship programs opens students’ minds (alerts them to) to the possibility of pursuing an entrepreneurial life. Gustafson added that having an entrepreneurship center like CELEB gives students an opportunity to try their hand at entrepreneurship in a safe place, where failure is not catastrophic and there is friendly help that makes starting a venture a learning experience. Our own dreams of the Lawrence Innovation Bridge go along these lines, too.
If you have any questions or comments about any of this stuff, click below and comment, or talk to us.
Slate has a very nice piece on investors buying US Treasury bonds that yield negative interest rates! Now, why on earth would someone buy a bond with a negative interest rate? Though the answer is not complicated, it is more than a sentence explanation, so I will let you read it for yourself. Let me just say, inflation is involved.
For those of you not versed in corporate finance (or “core-fin,” as it’s known), the article provides a good summary of how debt markets work.
The LSB season opens this year with the Alternative Investments and hedge funds event, this coming Sunday. Bob Perille himself is leading this one, and it’s promising to live up to the high standards we have come to expect from him and his colleagues. This year’s event will be different from last year’s, however, so come even if you attended last year. Jason Spaeth is skype-ing in, participating as an LSB panelist for the first time, and he is going to be introducing the industry. Another good reason to come is the actual, real-life, taken-from-the-trenches (or tranches?) offering memoranda that Mr. Perille always brings. You get to work on those in teams, and, in the past, Mr. Perille has offered a prize of $100 for the team with the best presentation on their “mini case study.” So don’t miss your chance to learn something interesting about the world you live in–whether you want to become a private equity whiz or not.
Firmly on the coattails of the extraordinary success of the Lawrence Scholars in Business program, the inaugural Lawrence Scholars in Law event kicks off at 5:30 on Wednesday, October 27 in the Hurvis Room of the Warch Campus Center.
Who should attend this session? I would suggest anyone who is thinking about a law career should clear their schedule for this one. Also, anyone who isn’t sure about their own career ambitions might consider poking her head in. Many students these days work for a few years before returning to pursue a law degree. And liberal arts majors generally, and economics majors in particular, have potential to succeed.
The talent on hand for this program is exceptional. We have five successful attorneys, each a partner or a shareholder (what’s the difference? Good question to ask) with a major law firm. And each with a member of the Lawrence University Board of Trustees. They are:
Professor Gerard will also be on hand to moderate.
Please sign up in the Career Center or e-mail careercenter@lawrence.edu to make your intentions known.
You are welcome to bring your dinner to the program. Or, better yet, plan to dine with the five panelists afterwords.
The Schumptoberfest celebration was a smashing success, with at least one of us understanding the Williamson debt-equity financing argument a little better at the end than at the beginning. Thanks to all those who participated, especially Professor Galambos, who took time out from his sabbatical leave to read “100” pages and keep me in line.
As per usual with these events, we received word that there were some items left behind. Here is a partial accounting: a set of dentures, a hearing aid, “a leather whip, a live rabbit, a tuba, a ship in a bottle, 1,450 items of clothing, 770 identity cards, 420 wallets, 366 keys, 330 bags and 320 pairs of glasses, 90 cameras and 90 items of jewellery and watches.”
Thanks to Tom for the tip.
Last year’s Entrepreneurship in the Arts & Society course included An Evening of Baroque Dance and spawned the formation of Lawrence Baroque on campus. Lawrence Baroque is one of many that is inviting you to stop by the Lawrence Chapel Tuesday at 8:30 p.m. to try out some of the new acquisitions from the James Smith Randolph collection of early winds! The invitation is extended to all, from professionals to novices. So stop by if you can spare a major second.
The event is part of the Lawrence University Collective of Early Music (LUCEM) the campus early music initiative at Lawrence, and, in addition to Lawrence Baroque, the Lawrence University Musicology Association, Harmonia, and Alta Capella are also involved.
That’s the title of Monday’s panel in the Hurvis Room of the Warch Campus Center at 6:30, and it should be a corker. Ever since the Supreme Court decided Citizens United v. Federal Election Commission this past January, all you-know-what has broken loose about money in U.S. politics. The president famously called out the court in his State of the Union address, with Justice Alito brazenly mouthing the words, “not true.” And it hasn’t gotten any friendlier from there. Now, that’s entertainment!
Of course, over here in the econ department, we wonder “Why is there so little money in U.S. politics?”
The event will cover a lot of ground, including these Common Cause talking points:
We will welcome panalists from both sides of the aisle, including State Representatives Penny Bernard Schaber (D-Appleton) and Dean Kaufert (R-Neenah), Andrea Kaminski from the League of Women Voters, and Jay Heck of Common Cause in Wisconsin.
Given the number of co-sponsors, I’m guessing there is ample interest. The co-sponsors are: the Lawrence Government Department, the College Republicans, the League of Women Voters of Appleton, League of Women Voters of Wisconsin, the Education Fund, the American Association of University Women – Appleton Branch, and the Wisconsin Alliance for Retired Americans.
I am moderating the event, so I hope to see you there.
Describe the industrial structure and to evaluate the interrelationships between firm size, market structure, and innovation in your assigned industry. You should address the following questions:
Next, determine where you come down on the “Schumpeter hypothesis” in terms of market structure and innovation. Write down a thesis statement and three supporting points to argue for or against Schumpeterian-type arguments. These might include:
We will spend Sunday morning talking about these industries. We will begin by going around and providing a brief description of each industry. After that, each group will state its thesis and then discuss its supporting arguments.
William James Adams, (2006) “Markets: Beer in Germany and the United States,” Journal of Economic Perspectives, 20(1): 189-205
Emek Basker (2007) “The Causes and Consequences of Wal-Mart’s Growth.” Journal of Economic Perspectives, 21(3): 177–198
Kal Raustiala and Christopher Jon Sprigman (2009) “The Piracy Paradox Revisited,” Stanford Law Review, 61(5).
Following up on Chapter VII of Capitalism, Socialism, & Democracy from last time, we move on to some rather more modern treatments of the economics of innovation. We start with Professor Galambos’ and a slightly modified version of the primer he gives to his students in his excellent course, In Pursuit of Innovation (coming this winter).
Galambos wades through some basics of innovation policy and the industrial enlightenment before arriving at the question of allocative efficiency on pages 4 and 5. Again, the conventional treatment is that there is a tradeoff between the promise of monopoly profits and the efficiency properties of competitive industries. And, recall, this is a tradeoff that Schumpeter explicitly rejects.
Continue reading Schumptoberfest Readings: Galambos, Teece, and Blaug
Come one come all to Wednesday’s talk by Professor Finkler about parallels between the Great Depression of the 1930s and the Great Recession that was recently declared over. The presentation will highlight the lessons to be learned from the Great Depression and to what degree we have learned them. The talk will take place in Steitz Hall 102 at 4:30, Wednesday, October 20th.
As I sift through material for my environmental economics course (Econ 280) this winter, I have found some very interesting material on the political economy of climate change. Ryan Liazza in the New Yorker walks through the process by which an idea becomes a bill becomes a law — or, in this case, doesn’t become a law. It is difficult to understand environmental economics and policy without knowledge of these tortured dealings, the underlying institutional rules, and that pesky electorate.
Over at the Economix blog, David Leonhardt has been doing yeoman’s work, provides another perspective on the political economics of climate change legislation, looks at what EPA could reasonably do to curb CO2 emission without such enabling legislation, and has a couple of pieces (one here, one here) on so-called clean energy.
I will also use this paper on “carbon geography” to illustrate how economists go about these political economics questions. I don’t think we as economists ever expected serious climate legislation, certainly nothing approaching the types of reductions needed to stabilize atmospheric concentrations.
I
n the second post here, I will simply concentrate on Chapter VII of Capitalism, Socialism, and Democracy, and try to tie together some themes for the weekend. For our purposes, I have numbered the paragraphs 1-13.
As we proceed into this chapter, it is probably useful to keep in mind that at the time of this writing, the national income accounts and measurement of economic output were even more primitive than they are today. So, one question is how did economists in 1942 think about “growth” and “output”?
The null hypothesis is immediately stated in the opening sentence of the chapter — that there is some question that “capitalist reality” stifles economic growth. I take “capitalist reality” to mean the consolidation of firms and increasing concentration of industries as they mature. This is going to get at the essence of a “Schumpeterian Hypothesis,” (see the last sentence of paragraph two for a germination of this idea — “big business may have had more to do with creating that standard of life than keeping it down.” We’ll get to the efficiency implications of this in a bit, but for the moment note that he offers two possible rationales for the antagonism toward large firms. One is the idea that growth occurs despite the “managing bourgeoisie” (that is, monopolists restricting output and jacking prices). The second is that this worked for a while, but it cannot proceed indefinitely.
Continue reading Schumptoberfest Mark VII, The Gales of Creative Destruction
The Wall Street Journal has a piece on whether it is possible to time the market, or whether one should stay in to make sure they are in when the big, tasty gains come along. The story goes that investors should stay in the market because the lion’s share of gains accrue on only a few days. If you missed the ten best days over the past 40 years, for instance, you would miss out on half the total gains during that period (yes, you read that correctly). With that in mind, you’d better be sure to have your stakes on the table when they spin the wheel.
But, there’s a catch. What if you managed to be out of the market on the ten worst days? Well, it turns out that missing the ten worst days would have been even better for your portfolio than being in on the ten best days. Yowza!
This is pretty interesting and all, but the real reason I bring it up is that the hero of the WSJ piece is my graduate school colleague, Javier Estrada. Professor Estrada is the head of the Department of Financial Management at the International School of Management at la Universidad de Navarra (that’s in Pamplona, Spain), a widely published scholar in investment and finance, and the author of a couple of popular finance books. Anyone that finds themselves in Spain should stop in and see him, as he is a genuinely friendly and engaging character. And I never knew he was so well read.
The Roubini Global Economics (RGE) University Program has just launched and is now available to Lawrence University at www.roubini.com. We are one of the first schools to get on board with this program so that is our good luck.
You will need to log in, at which point you can check out the Site Navigation Guide for the University Program (you’ll need to be logged in to see this page). We are quite fortunate to have access to the Roubini research, and I know you will find this useful as you root around in there.
Nouriel Roubini is an economics professor at New York University and something of an iconic figure, known as Dr. Doom. Even The Daily Show taps into Roubini’s notoriety.
So, please check out the resource and let us know what you think. We have surprisingly good access to the RGE University Program, and they are anxious to hear your feedback.
Here’s an interesting fact — a legislator with a degree in political science is more likely to vote to cut research funding for, wait for it, political science. Perhaps they know something?
Here’s from Uscinski and Klofstad.
In October 2009, political scientists learned of a Senate amendment sponsored by Tom Coburn (R-OK) that would eliminate political science funding from the National Science Foundation budget. The American Political Science Association condemned the proposed amendment, and concerned political scientists contacted their senators to urge the amendment’s defeat. On November 5, 2009, the amendment was defeated 36-62 after little debate. This article examines the vote on the Coburn Amendment to understand the role that senators’ personal, constituency, and institutional characteristics played in their votes. Logit analysis reveals that even after controlling for party, several factors significantly predict the vote, including the number of top-tier political science Ph.D. programs in the senator’s state and whether the senator graduated with a bachelor’s degree in political science.
Zing!
Joseph Uscinski and Casey A. Klofstad. 2010. “Who Likes Political Science?: Determinants of Senators’ Votes on the Coburn Amendment”. PS: Political Science and Politics October: 701-706.
This is a first in a series of short posts to guide the Schumptoberfest readings. I included these readings literally to give you an introduction to Schumpeter and the “Schumpeterian Hypotheses.”
These introductory readings shouldn’t take terribly long to read — perhaps an hour. I will carefully go through Chapter VII of Capitalism, Socialism, and Democracy in my next post.
Paul J. McNulty “Austrian Competition,” From The New Palgrave Dictionary of Economics, 2nd edition
The first reading from Paul McNulty on how Austrian economists view competition immediately invokes Schumpeter as a critic of the model of perfect competition. As many of you know, the model of perfect competition that I love and teach in price theory, is essentially an equilibrium construct. That is, we expect to be moving toward a long run competitive equilibrium, where price = average costs for the marginal firm in the industry. (Incidentally, the way that firms compete in the fourth paragraph is largely what Industrial Organization is all about). Schumpeter, in contrast, espouses a “disequilibrium” theory, and argues that competition isn’t about allocative efficiency as much as it’s about, that’s right, creative destruction.
