Eric Crampton on "Recipe for Disaster"

On Radio New Zealand Nights, Dr Eric Crampton of the New Zealand Initiative talks through the findings of the Initiative's latest report, Recipe for Disaster, about the government's policy preparedness for the next big earthquake.

The effects of rent controls

The example of Mumbai, India.

In this video, from Marginal Revolution University, Alex Tabarrok discusses the effects of rent controls on the supply of rental properties in Mumbai.

Distracting from poverty relief: the Oxfam report debunked

In this podcast, IEA Research Director Dr Jamie Whyte is interviewed by Kate Andrews and they discuss Oxfam's latest report on global inequality, arguing that the poverty-relief charity is attacking the economic system that has lead to the greatest fall in absolute poverty the world has ever seen.

Silent Revolution: the directors cut

The album Silent Revolution by The Benevolent Dictators is an album in which the songs draw on material from the works of Adam Smith. Four songs relate to Smith's A Theory of Moral Sentiments and four related to An Inquiry into the Nature and Causes of the Wealth of Nations.

In the Director's Cut version of Silent Revolution the motivation for and the reasoning behind the songs and the songs relationship to Smith's work is explained.

Alexander the Great: narcissist or hero?

A new working paper by Teodoro Garcia (grad student, Department of History, University of Texas - Rio Grande Valley) on Alexander the Great: Narcissist or Hero?

My paper will not focus on the legend of Alexander rather my paper will focus on what motivates a man enough to conquer most of the known world. I will argue that Alexander’s motivations stem from a rather unhealthy self-love or narcissism that was brought on from an early age through a close attachment to his mother, Olympias.

Why is it I find narcissist so plausible?

No Ordinary Woman: The Life of Edith Penrose

At the Marginal Revolution blog Tyler Cowen writes on the new biography of economist Edith Penrose, No Ordinary Woman: The Life of Edith Penrose, by Angela Penrose. Cowen writes,

What a dramatic and eventful book. Edith Penrose (1914-1996) is a not so well-known but highly underrated economist, with her major contributions coming in the theory of the firm and industrial organization. As a girl, she survived only because her father shot a rattlesnake about to kill her. Later, her first husband was murdered, right before their first child was born. She and her second husband, working in Switzerland, helped Jews escape from Germany, and she later did food planning during the war in England. In 1948 the couple lost one of their three children, right before his third birthday. Later she received a doctorate in economics from Johns Hopkins, studying under Fritz Machlup. Machlup at one point wrote a ten-page letter to her, with the top proclaiming: “I implore you to shut off your hypersensitivity and to overlook it if I sound condescending, arrogant or otherwise unpleasant. I just want to be helpful.”

She headed the Owen Lattimore Defense Fund. Later, she did not feel entirely comfortable teaching at Johns Hopkins (she was treated badly and not tenured) and so she ended up teaching in Baghdad and Beirut and was also an important early faculty member at INSEAD, perhaps their first world class hire. She became an expert on energy economics and multinationals, traveling and advising around the world more or less without stopping. Drawing on her doctoral work, she also published on IP problems for developing economies, an area where she was well ahead of her time.

She enjoyed writing poems and limericks for her own pleasure. She also was known for her “direct questions” and her “disconcerting remarks.”

Cowen makes a couple of other comments which for me are interesting. He says,

I would describe her work as halfway between economics and the business school tradition, broadly in the Austrian school but more descriptive and without the political slant of Mises and Hayek.

and

She was the founding thinker behind “resource-based” theories of the firm, whereby firms are best understood in terms of what resources they have access to, rather than their products. This was a dominant approach from the 1980s onward, though she received only marginal credit for her seminal role. She also focused on which were the slack resources of a firm or not, as a means of ascertaining where the firm was headed, and ran all this analysis through a lens of expectations and perceptions, reflecting her studies with Machlup. She thought in terms of what a firm’s “moat” might be, as you might expect from a contemporary Silicon Valley analyst.

These comments for interesting since an anonymous referee for my upcoming book, A brief prehistory of the theory of the firm, wrote,

Third, I’m a bit befuddled by the fact that Penrose’s work isn’t covered as part of the history. Her work has been very influential and fits neatly in the history of the theory of the firm (as is noted in the manuscript). But she also fits in the overall development of ideas, as one of two branches following the work of Robinson (the other is Coase, as noted by Jacobsen (2008; 2011)).

This gave me purse to think more about why I hadn't included Penrose in the book. I replied to the referee by saying,

I was in two minds about Penrose since her work is pre-1970 [and thus in the time period covered by my book] but is, like Bylund and Winter, more heterodox than mainstream. Penrose is properly more well known in management than economics. The economics mainstream hasn’t taken up Penrose’s ideas to any great degree.

and, in a latter email,

Thinking more about Penrose, I would place her work more in the heterodox category than in the mainstream. Penrose's influence is felt more in strategic management, largely via the resource-based view, than in the mainstream of economics. Rightly, or more likely wrongly, standard economics has not put much effort into developing Penrose's ideas.

And I think I'm right in saying that Penrose has been more influential in management than economics. This related to Cowen's point about Penrose being "halfway between economics and the business school tradition". It is the management, business school, scholars who have developed Penrose's ideas, in the "resource-based theories of the firm", rather than the economists who have followed Ronald Coase, and to a lesser degree Frank Knight.

Cowen is likely right when he says Penrose,

is a not so well-known but highly underrated economist

At least as far as economics is concerned.

The Big Mac index

The Economist’s Big Mac index gives a flavour of how far currency values are out of whack. It is based on the idea of purchasing-power parity, which says exchange rates should move towards the level that would make the price of a basket of goods the same everywhere. Our basket contains only one item, but it is found in around 120 countries: a Big Mac hamburger.

If the local cost of a Big Mac converted into dollars is above $5.28, the price in America, a currency is dear; if it is below the benchmark, it is cheap. The average cost of a Big Mac in the euro area is €3.95, or $4.84 at the current exchange rate. That implies the euro is undervalued by 8.4% against the dollar.

The New Zealand dollar looks a bit cheap.

Emily Oster on diabetes and diet, disease and vaccinations and debunking pregnancy myths

From the Economic Rockstar podcast come this interview of Emily Oster by Frank Conway. Professor Oster (Economics, Brown Univeristy) is the author of “Expecting Better: Why the Conventional Pregnancy Wisdom Is Wrong — and What You Really Need to Know”.

The life of Edith Penrose

Angela Penrose, writer and journalist and daughter-in-law of Edith Penrose, will present 'No Ordinary Woman', the first biography of Edith Penrose, author of The Theory of the Growth of the Firm, a remarkable woman and distinguished scholar. Born in 1914, Edith Penrose spent much of her academic career as Professor of Economics at SOAS, having previously held a joint appointment at LSE and SOAS. As well as the theory of the firm, her research included the international patent system and innovation; multinational firms and foreign investment; oil companies and the economies of the Middle East; and economic development.

In the week Angela Penrose was given The Theory of The Growth of the Firm to read as part of her PPE course at Oxford she met her future husband, Perran Penrose, the son of the author, Edith Penrose. She and Perran went on to teach in Libya, Ethiopia, Burundi, and Zambia where Angela also worked as a journalist. She has extensive experience of communicating in the printed and broadcast media and working directly with children and young people as a teacher and youth worker. She has worked with development and humanitarian organisations and was Director of Policy with Save The Children.

This event is co-organised by the SOAS Department of Economics and the SOAS School of Finance and Management.

Robots and jobs: evidence from the US

From VoxEU.org comes this audio in which Daron Acemoğlu is interviewed by Tim Phillips on the topic "Robots and jobs: Evidence from the US".

Concerns that industrial robots will replace human labour are widespread. Daron Acemoglu discusses how automation creates a displacement and a productivity effect. Furthermore, the effect of automation on employment heavily depends on the sector it is used in.

A link to the audio is available here.

The sugar levy: a briefing

The IEA in London has released a short paper, The Sugar Levy: A Briefing, on the 'sugar levy' that was announced in March 2016 by the then Chancellor, George Osborne, in the UK.

A summary of the paper's conclusion reads:

• In March 2016, George Osborne announced a ‘sugar levy’ on soft drink companies to start in April 2018. Under this policy, companies will be taxed on sales of medium and high sugar drinks (excluding fruit juice and milk-based drinks).
• As an anti-obesity policy, the sugar levy seems arbitrary. Consumption of both sugar and sugary drinks has been falling for years while obesity has been rising. Soft drinks make only a small contribution to average calorie intake. Comparisons between European countries show no correlation between sugary drink consumption and obesity.
• There is unambiguous evidence that ‘sin taxes’ of this sort take a greater share of income from the poor than from the rich. Since low income groups tend to buy larger quantities of SSBs, the impact of the sugar levy will be particularly regressive.
• The Office for Budget Responsibility says the levy will increase inflation by a quarter of a per cent in 2018-19 thereby adding £1 billion to accrued interest payments on index-linked gilts. The inflationary effect will raise the cost of index-linked salaries, pensions and benefits by many millions of pounds. The levy will also require additional funding for enforcement and administration. For the first few years, at least, the sugar levy will be loss-making.
• Hopes of extensive reformulation to reduce sugar content in the soft drink market are highly unrealistic. There is no more sugar to be removed from diet drinks and companies will not change the recipe of their popular original brands. Instead, the levy gives companies the perverse incentive to raise sugar levels up to the threshold of each tax bracket.

Such results should act as a a cautionary tale for those wanting such taxes in other countries.

Here's how we solve Britain's housing crisis

The Institute of Economic Affairs’s Kristian Niemietz and former Head of Research at the Adam Smith Institute Ben Southwood discuss the housing shortage, its supply-side nature and the politics which underpin it.

Interviewed by the IEA's Kate Andrews, the pair examine the historical origins of the housing crisis, which date back to legislation introduced under Clement Attlee’s government in the 1940s.

They also look at the well-organised NIMBY movement (short for “Not In My Back Yard”), and its influence on government policy.

Many of the issues discussed here apply not just to the UK but also to many other countries, like New Zealand.

Silent Revolution by The Benevolent Dictators

Great news, the album Silent Revolution by The Benevolent Dictators is now available. The album is based on the works of Adam Smith. What could be cooler?!!

Songs

1. Fellow-Feeling 03:29
2. Impartial Spectator 04:12
3. Silent Revolution 03:44
4. The Street Porter & the Philosopher 03:51
5. Chinese Earthquake 02:58
6. Pin Factory 02:49
7. The Dumb Specialist 03:50
8. Man of Luxury 04:48

Available in digital and CD formats. Available on Spotify, iTunes, Apple Music, Google Play, and here on bandcamp for web streaming.

Enjoy!!

Fun in the sun

Organizational Economics Workshop
Barcelona Graduate School of Economics
14-15 June 2018.

A non-exhaustive list of topics is:

• Relational contracts
• Theory of the Firm
• Incomplete Contracts
• Internal Organization and Incentive Systems
• Management practices
• Business Law and Economics

Keynote speaker
Robert Gibbons (MIT)

When doing good goes bad

There is a new NBER working paper out on the moral hazard effects of corporate social responsibility.

When Corporate Social Responsibility Backfires: Theory and Evidence from a Natural Field Experiment
by John A. List and Fatemeh Momeni

Abstract:

Corporate Social Responsibility (CSR) has become a cornerstone of modern business practice, developing from a "why" in the 1960s to a "must" today. Early empirical evidence on both the demand and supply sides has largely confirmed CSR's efficacy. This paper combines theory with a large-scale natural field experiment to connect CSR to an important but often neglected behavior: employee misconduct and shirking. Through employing more than 3000 workers, we find that our usage of CSR increases employee misbehavior - 20% more employees act detrimentally toward our firm by shirking on their primary job duty when we introduce CSR. Complementary treatments suggest that "moral licensing" is at work, in that the "doing good" nature of CSR induces workers to misbehave on another dimension that hurts the firm. In this way, our data highlight a potential dark cloud of CSR, and serve to forewarn that such business practices should not be blindly applied.

So "doing good" can result in workers "doing bad".

"The Second World Wars" with Victor Davis Hanson

These videos come from Uncommon Knowledge with Peter Robinson at the Hoover Institution. Robinson interviews Victor Davis Hanson about Hanson's new book, "The Second World Wars".

How were the Axis powers able to instigate the most lethal conflict in human history? Find out in this two part episode of Uncommon Knowledge as military historian, editor of Strategika, and Martin and Illie Anderson Senior Fellow, Victor Davis Hanson, joins Peter Robinson to discuss his latest book, The Second World Wars.

Victor Davis Hanson explains how World War II initially began in 1939 as a multitude of isolated border blitzkriegs that Germany continued to win. In 1941, everything changed when Germany invaded their ally, the Soviet Union, and brought Japan into the war. He argues that because of the disparate nature of World War II, it’s much harder to think about as a monolithic conflict.

World War II was the deadliest conflict in human history with approximately sixty million people killed. Victor Davis Hanson argues that World War II and the many lives lost was preventable, but due to a series of missteps by the Allied forces, Germany believed they were stronger and their enemies weaker than the reality. He argues “it took Soviet collusion, American indifference or isolation, and British or French appeasement in 30s” to convince Germany that they had the military capabilities to invade western Europe. In the aftermath of World War I, the allies believed the cost of the Great War had been too high, while Germany bragged about their defeat as no enemy soldiers had set foot on German soil. Great Britain and France both chose appeasement over deterrence, which encouraged rather than deterred Hitler and Germany from moving forward with their plans.

Could the Axis powers have won? What are the counterfactuals for World War II?

Victor Davis Hanson explains the counterfactuals of World War II, the “what-ifs” that easily could have changed the outcome of the war. If Hitler had not attacked Russia or the Japanese had not attacked Pearl Harbor, the USSR would have never turned on Germany and the United States would have never entered the war. Hanson argues that the leaders of the Axis powers overreached in their strategies, which ultimately caused their downfall. Hanson also explores the counterfactual surrounding the American commanders and the “what-ifs” that could have prevented American success in the war.

Victor Davis Hanson also reflects on his own family history and connections to World War II and how it shaped him as both a person and a scholar in his life today. He talks about his motivations to write his latest book, The Second World Wars, and how his family history and the current political climate inspired him to write it.

Hal Varian interview

Hal Varian is interviewed by James Pethokoukis of the AEI. Varian is, of course, well known by all economics students due to his undergraduate and graduate microeconomics textbooks. Varian is now Google's chief economist. He is professor emeritus at the University of California, Berkeley.

Fighting talk

A new working paper from M E Brady will not go down well with everyone.

"G. L. S. Shackle Was J. M. Keynes's Rival and Opponent: He Was an Austrian and Never a Keynesian of Any Type"

Michael Emmett Brady, California State University - Department of Operations Management

Shackle was a tireless opponent of both Keynes and the Keynesian revolution. He was a 100% Austrian subjectivist. He never was a disciple of Keynes at any time in his life. Shackle was successful in a tricky sleight of hand and legerdemain due to the support of Joan Robinson and Paul Davidson, neither of whom had any idea of the concept of the weight of the evidence from the A Treatise on Probability that was the foundation for Keynes’s uncertainty analysis in both the A Treatise on Probability and General Theory.

Shackle successfully substituted his rival and directly conflicting definition (See for example, pages 162-164 of Epistemics and Economics) of uncertainty, which meant total and complete ignorance. Shackle’s concept of total and complete ignorance goes under the synonyms irreducible uncertainty, fundamental uncertainty, unquantifiable uncertainty, utter uncertainty and radical uncertainty. None of Shackle’s analysis holds except in the special, but important, case of investment in long lived, physical durable capital or producer goods that are subject to innovation, technological change and advance, and obsolescence over time. Keynes’s treatment in the A Treatise on Probability and General Theory is superior to Shackle’s, so there is no need for any consideration of Shackle’s convoluted approach based on possibilities (not probabilities), imagination and the entrepreneur’s private dreams.

Keynes was the first to put forth an original IS-LP (LM) model in October, 1933. This model appeared in the 1934 draft copy of the GT. This original model is very inferior to the final model constructed in chapters 10, 11, 12, 13, 14, and 15 of the GT. It was presented in its entirety in chapter 21 in sections IV, V and VI and briefly in Section IV of chapter 15. The investment multiplier and marginal propensity to consume are both missing. Keynes had not yet integrated Y, Aggregate realized or actual Income, into the LP equation because he had not yet formulated his D-Z model, which allowed him to present an elasticity analysis in Section VI of chapter 21.

There is no Shackleian interpretation of the GT. There is a deliberate, Shackleian misinterpretation of the 1937 QJE article, in which Shackle tries to sabotage the Keynesian revolution by attempting to claim that Keynes was really an Austrian Subjectivist like Shackle.

Fitzgibbons was not able to come to the correct conclusion regarding Shackle simply because his belief in a Shackleian interpretation of Keynes makes no sense because Keynes had always rejected Austrian Subjectivism.

King’s 2002 “history” is a version of Shackle’s claim that Keynes was an Austrian Subjectivist. King’s “History” is completely contradicted by the 1937-38 Keynes-Townshend correspondence, where Keynes agrees with Townshend’s tentative conclusion that the Theory of Liquidity Preference, as presented in the General Theory, is based on Keynes’s TP concepts of weight of the evidence and non numerical probabilities, which are interval valued probabilities that can be indeterminate or imprecise. The Keynes-Townshend correspondence represents a complete rejection of Shackle’s and Joan Robinson’s claims about radical uncertainty being the foundation of the GT.

The Uncertainty fraud is the foundation upon which Post Keynesianism and Institutional economics is founded. This foundation is composed of the myths made up by Joan Robinson and GLS Shackle about Keynes and the GT. These myths were then passed on to hundreds of thousands of readers by way of Paul Davidson during the 37 years, from 1978-2014, that he was the editor of the Journal of Post Keynesian Economics.

A review of the year from the IEA

A round-up of 2017, featuring the IEA's Director General Mark Littlewood and Communications Director Stephanie Lis.

Interviewed by the IEA's News Editor Kate Andrews, the three discuss the state of the Brexit negotiations, the problems in Parliament, Donald Trump's America, and predictions for 2018.

The most valuable companies of all-time

Not sure I totally believe the calculations that underlie the figure but it does still give an indication of just how large companies like Dutch East India Company (known in Dutch as the VOC, or Verenigde Oost-Indische Compagnie) were. Makes me wonder how the English East India Company would look in comparison.

For more information see here.

Courtesy of: Visual Capitalist