Results for “department why not” 186 found
More on Arrow’s theorem
Dirk writes:
I vote that this post deserves a follow up post with more clarification. If anyone is against this please express your vote with inaction. Us laymen would like to understand this a little better. For the record, the reason I got on a tangent about the law of large numbers was that I watched Boudreaux's lecture and understood it in terms of 3 parties but kept thinking if there were 3000 parties it was unlikely that exactly 1000 would have preference A, 1000 preference B, and 1000 preference C. I guess I'm used to thinking in terms of run-off elections and not the sort in the example. That is why I couldn't grasp why things should "collapse" back to an island situation where n = 2 or 3.
Arnold Kling comments as well and not everyone is happy.
Return to the oft-neglected difference between intra-profile and inter-profile versions of the theorem. Most commentators and expositors have in mind an intra-profile version of the theorem. They set up an example of people and preferences and show how cycling or some other paradox of choice or voting is possible. Observers then wonder whether this cycling is likely as the number of people increases, or as preferences change, and indeed sometimes it is not, as Gordon Tullock pointed out long ago and as Dirk above wonders.
That's interesting stuff, but those fun and practical-sounding expositions are not Arrow's theorem as Arrow wrote it up. Think of Arrow's theorem as modal in nature: "Maybe there is no paradox with current preferences, but there exist possible preferences where everything goes screwy, under any decision rule satisfying a few criteria." Arrow showed that claim is related to something like: "if we apply a specified decision-making procedure across all possible preference configurations, consistent application means the same person gets her way each time."
That's called Arrovian dicatorship, but it does not have to be either harmful or unjust or not even necessarily undemocratic. It just means that one person — the same person — is always getting her first choice, across these modal worlds with differing preference configurations.
This more metaphysical and more originally Arrovian version of the theorem is perhaps why Arnold Kling finds it difficult to apply the theorem to practical problems. It is not about the likelihood or relevance of cycling (though it is a jumping-off point for those analyses). It is instead a deep result about the implications of consistency, combined with limited information about the value of ordinally ranked outcomes.
The intra-profile versions are still important. For intra-profile versions of Arrow, start with Kemp and Ng (1976). Here is a good summary article on that literature. Samuelson, by the way, remained somewhat recalcitrant when it came to the theorem.
Allowing in even limited amounts of interpersonal comparability defuses the paradox, as shown by Kevin Roberts (ReStud, 1980) and Amartya Sen (see the essays in Choice, Measurement, and Welfare). That said, interpersonability can lead to other paradoxes, as shown by Derek Parfit and his Repugnant Conclusion. Paradoxes everywhere, and you must choose which ones to live with.
I take the practical upshot of Arrow's interprofile theorem to be this: when you make a judgment, it is our assessment of the interpersonal comparisons (or intersport importance comparisons, for scoring a decathlon) which is doing all the work. Be very careful with those.
Neither Tullock nor Samuelson was happy with Arrow's theorem, especially when it came to practical implications, so it is fine if you wish to add your name to that list. But I also think they each missed Arrow's point a bit and that of the major economists of his time he was probably the deepest thinker, albeit not the best practical thinker.
Underappreciated economists: Eric van den Steen
Can a professor at HBS be underappreciated? I believe so. Eric van den Steen is in my view one of the best young microeconomists. He is not a mere technician but rather a dealer in ideas. Oddly, I don't hear his name mentioned often by ordinary, non-frontier economists.
Here is his page of research papers. I am most struck by his paper on the theory of the firm. It is an explicitly Knightian and non-Coasian model of the firm. Unlike many authors, van den Steen does not require that the "firm mode of organization" lower transactions costs in the traditional sense (ever try to get a favor from your purchasing department?).
Instead his model starts with the Aumann model of disagreement and he suggests that control rights in the firm follow from a (figurative) auction over who gets to rule the cooperative venture. It's bidding on the basis of relative certainty to break the initial disagreement. If you bid for the capital goods, and turn the relationship into a "firm," you have greater authority over the other agent, because you can threaten to separate that agent from the capital goods. The winner then installs low-powered incentives because the loser still disagrees with him, and the winner doesn't want the loser to be too motivated to pursue his own vision, thus subverting the winner's orders and recommendations. Overall, the firm increases cooperation among agents but lowers motivation for non-ruling agents and that trade-off determines whether or not a firm will displace a market transactions based on decentralized control of separate decisions.
It's one of the few articles on theory of the firm which make sense to me, the other candidate being Julio Rotemberg's brilliant but poorly explained "A Theory of Inefficient Intrafirm Transactions." I view the Coasian tradition as somewhat of a dead end in industrial organization. Internally, firms aren't usually more efficient than markets although there are good non-transactions cost reasons — including rent-seeking — why they exist.
Here is Eric's paper on the costs and benefits of homogeneity. It's worth reading just about all of his work. Hail Eric van den Steen!
Advertising markets in everything
Goldman Sachs Group Inc., winning its first job managing a share sale by an Indian state-owned company, may earn next to nothing for the privilege.
The most profitable securities firm in Wall Street history tied for the lowest bid among 17 banks vying to manage the $1.8 billion offer by Power Grid Corporation of India Ltd., three people with knowledge of the matter said. Goldman Sachs and SBI Capital Markets Ltd. said they’d do the work for a fee equal to 0.00000001 percent of the sale proceeds. That means the firms stand to reap about 2 rupees (4 cents) each on the deal.
The full story is here and I thank Mehul Kamdar for the pointer. There were other low bidders, including JP Morgan. Why bid four cents I wonder, why not bid one cent?
Here is a related page, from what is propitiously called the Department of Disinvestment.
What are markets demanding?
Paul Krugman, like many other bloggers, asks a good question:
Why, then, are Very Serious People demanding immediate fiscal
austerity?The answer is, to reassure the markets – because the markets
supposedly won’t believe in the willingness of governments to engage in
long-run fiscal reform unless they inflict pointless pain right now. To
repeat: the whole argument rests on the presumption that markets will
turn on us unless we demonstrate a willingness to suffer, even though
that suffering serves no purpose.And the basis for this belief that this is what markets demand is …
well, actually there’s no sign that markets are demanding any such
thing. There’s Greece – but the Greek situation is very different from
that of the US or the UK. And at the moment everyone except the
overvalued euro-periphery nations is able to borrow at very low interest
rates.
Here is a short bit from today's morning news:
The euro slid 2.5 percent last week versus the greenback as
credit-default swaps on France, Austria, Belgium and Germany rose,
sending the Markit iTraxx SovX Western Europe Index of contracts on 15
governments to a record.
The French in particular are having serious and formerly unexpected problems and that is one of the two major EU countries, not Greece or Iceland. The French also don't have one of those impossible debt-gdp ratios.
In the blogosphere, discussions of market constraints are too heavily influenced by interest rates, which also "measure" an ongoing flight to safety. (U.S. rates have fallen of late, but does that mean our fiscal position has improved? Hardly.) All of these austerity-promoting leaders are in constant communication with their finance ministers and departments and many of them are hearing glum, on the ground reports from relatively competent bureaucracies. Furthermore many of these politicians seem to have the discipline to engage in a bit of worst-case thinking, rather than just looking at modal outcomes.
Call me naive, but I believe that most of these politicians would in fact prefer to spend the money and hand out goodies to favored constituencies.
What may be destroying economic recovery is not fiscal contraction, but rather lack of trust, "Trust" is an underused word in macroeconomics.
Also, do not forget Cowen's Third Law, namely that: "All propositions about real interest rates are wrong."
The real interest is only one indicator of where fiscal policy is at. The point that interest rates serve multiple functions, and don't always communicate direct market information very well, comes from…John Maynard Keynes. Let's at least keep that possibility in mind.
What makes an economist?
When you read about a shortage of women's restrooms, your first thought is whether there is some way of charging for usage.
As it stands, Congress is preparing a bill to regulate the ratio of men's to women's rooms in federal facilities. I would think the theatre and symphony orchestra is where reform is needed, not at the Treasury Department. Men might benefit too ("husband leaving" and "wife leaving" are often complements) and I wonder why Tiebout competition has not enforced better outcomes.
The origins of mutton barbecue
Here is one account:
The one truth about barbecue seems to be that people use what they've got. In Texas it's beef, in the Carolinas it's pork, and in Western Kentucky it's mutton. Thanks to the tariff of 1816, wool production in the then Western United States became profitable and suddenly people found themselves with a lot of sheep on their hands.
Any story of the origin of barbecue starts with a meat that is too tough and undesirable to be sold for a profit. Mutton barbecue is no different. Aging sheep who no longer produced good wool became a virtually unlimited resource, but the meat was too tough and too strong tasting to be worth anything so people turned to the tried and true methods of low and slow cooking. In the early days a whole sheep would be cooked for long hours over a low fire. A mixture of salt water would be mopped over it and it would be served up with a dipping sauce of vinegar and hot peppers and stuck between a couple slices of bread. In Kentucky this "sauce" is called a dip, specifically Mutton Dip or Vinegar Dip.
Call it the Protectionist Theory of Barbecue, plus or minus a bit of hysteresis. I've seen or heard of mutton barbecue only in Kentucky and then only parts of Kentucky, the southwest and a bit in Lexington. I wonder if they have mutton barbecue in North Africa or the Middle East. In general it is an open question why barbecue traditions have for so long been so geographically concentrated.
From The New Yorker, here is another account:
How come this is the only area where mutton is barbecued?" I asked an Owensboro merchant who had been kind enough to give me change for a nickel parking meter.
"I expect because there are so many Catholics here," he said.
I didn't want to appear ignorant. "Yeah," I said. "I suppose that'd do it."
As I was searching my mind for some connection between the Roman rite and mutton consumption, the merchant told me that the large Catholic churches in town have always staged huge picnics that feature barbecue and burgoo–burgoo, another staple of Owensboro barbecue restaurants, being a soupy stew that I, for some reason, had always associated with southern Illinois. In the early days, the church picnics apparently served barbecued goat. In fact, Owensboro might have arrived at barbecued mutton by a process of elimination, since people in the area seem willing to barbecue just about any extant mammal. In western Kentucky, barbecue restaurants normally do "custom cooking" for patrons who have the meat but not the pit, and among the animals that Posh & Pat's offers to barbecue is raccoon. The Shady Rest, one of the most distinguished barbecue joints in Owensboro, has a sign that says "If It Will Fit on the Pit, We Will Barbecue It. It is probably fortunate that the people of the area settled on barbecued mutton as the local delicacy before they had a go at beaver or polecat
In other words, they don't know either. What would Robin Hanson say?: Something like: "Food isn't about eating!"
I thank Brandon Sheridan for the pointers.
The economic theories of the MLA
A resolution calling for full- and part-time faculty members to “be eligible for tenure” and expressing the view that “[a]ll higher education employees should have appropriate forms of job security, due process, a living wage and access to health care benefits” passed in a 81-15 vote, but not without concerns from delegates that the wording went too far – or not far enough.
Ian Barnard, an associate professor of English at California State University-Northridge, said he wanted to see the resolution extended to include a call for all faculty to be eligible not only for tenure but also for full-time employment. Simply voicing support for a lecturer to continue to be guaranteed one course per semester was, he said, “really weak … a way for us to cop out,” for departments to avoid paying for health benefits and for adjunct faculty to continue bouncing around among many jobs just to make ends meet.
The full story is here. Why don't journalists demand something similar? You can pinch yourself, but it really is 2010.
By the way, here are some facts:
In 1960, 75 percent of college instructors were full-time tenured or tenure-track professors; today only 27 percent are.
Going Galt
The Obama administration orders huge pay cuts:
Under the plan, which will be announced in the next few days by the Treasury Department, the seven companies that received the most assistance will have to cut the cash payouts to their 25 best-paid executives by an average of about 90 percent from last year. For many of the executives, the cash they would have received will be replaced by stock that they will be restricted from selling immediately.
And for the 25 best-paid executives, the total compensation, which includes bonuses, will drop, on average, by about 50 percent.
The companies are Citigroup, Bank of America, the American International Group, General Motors, Chrysler and the financing arms of the two automakers.
There is no way this will work as advertised. If the administration actually follows through, most of these executives will quit and get higher paying jobs elsewhere. Executives not directly affected by the pay cuts will also quit when they see their prospects for future salary gains have been cut. Chaos will be created at these firms as top people leave in droves. Will the administration then order people back to work?
Addendum: Larry Ribstein has an excellent post on this issue and see Max Fisher for an interesting explanation of the timing and a good roundup.
China committee of the day
Today's Financial Times writes about the Central Organization Department of China:
To glean a sense of the dimensions of the organization department's job, conjure up a parallel body in Washington. The imaginary department would oversee the appointments of US state governors and their deputies; the mayors of big cities; heads of federal regulatory agencies; the chief executives of General Electric, Exxon-Mobil, Walmart and 50-odd of the remaining largest companies; justices on the Supreme Court; the editors of The New York Times, The Wall Street Journal and The Washington Post; the bosses of the television networks and cable stations; the presidents of Yale and Harvard and other big universities and the heads of think-tanks such as the Brookings Institution and the Heritage Foundation.
All equivalent positions in China are filled by people appointed by the party through the organization department.
I would not want to be on the bad side of the Central Organization Department. The full article, which is interesting throughout, is here. It's also related to why I don't see China just evolving into a normal democracy.
“Too big to take a pay cut”
Here is my latest column. It's about how politicization is behind the financial crisis (in part), why we haven't learned very much from the financial crisis, why we are treating the health care sector just as we have been treating the banks, and why Atlas Shrugged is selling so many more copies.
Excerpt:
We should stop using political favors as a means of managing an
economic sector. Unfortunately, though, recent experience with health care reform
shows we are moving in the opposite direction and not heeding the basic
lessons of the financial crisis. Finance and health care are two
separate issues, of course, but in both cases we’re making the common
mistake of digging in durable political protections for special
interest groups.
One disturbing portent
came over the summer when it was reported that the Obama administration
had promised deals to doctors and to pharmaceutical companies under the
condition that they publicly support health care reform. That’s another
example of creating favored beneficiaries through politics.
If these initial deals are falling apart, it is only because reform
met with unexpected resistance. Even after Mr. Obama’s speech Wednesday
night, we’re still at the point where the medical sector is enshrined
as “too big to take a pay cut,” which is not so far removed from the
banking motto of “too big to fail.” In finance and health care, a
common political dynamic has created similar trends, namely,
out-of-control costs, weak accountability, and the use of immediate
revenue patches to postpone dealing with fundamental problems.
Even
worse, these political deals threaten open discourse. The dealmaking
may be inhibiting some people in health care from speaking out in
opposition to the administration’s proposals. Robert Reich, who served
as secretary of labor in the Clinton administration, deserves credit
for complaining about this arrangement, but not enough people are asking where such dealmaking might stop.
The banking sector has been facing similar constraints; if bankers criticize the Treasury
or the Fed, they risk losing their gilded cages and could get a bad
deal when the next bailout comes. When major economic sectors can be
influenced in this way, are we really very far from the nightmare
depicted by Ayn Rand in “Atlas Shrugged”?
The conclusion is this:
In short, we should return both the financial and medical sectors and,
indeed, our entire economy to greater market discipline. We should move
away from the general attitude of “too big to take a pay cut,”
especially when the taxpayer is on the hook for the bill. If such
changes sound daunting, it is a sign of how deep we have dug ourselves
in. We haven’t yet learned from the banking crisis, and we’re still
moving in the wrong direction pretty much across the board.
A Swedish tragedy, in one short act
Wife: Let's send her the bag
Husband: That will take forever.
(Later)
Husband: Swedish postal delivery has been privatized. [TC: More accurately, it is open to private competition.]
Wife: Where do we find a post office?
Aide: In the main train station
(Later)
Wife: Why isn't there a post office in the train station?
Different aide: It is gone.
Wife: Why are there no post offices around?
Wife (again): What do you do if you wish to mail something?
Yet another aide, in halting English, with a Middle Eastern accent: I do *not* wish…to do that. I do not do it.
(Much later, in the basement of a department store, surround by lottery promotions and cigarette racks, husband and wife are mailing the aforementioned computer bag)
A fourth and different aide: This is the only post office in central Stockholm (TC: how can that be true?)
Husband: In the United States the postal service absorbs too many workers; Sweden represents efficiency.
Wife: If I cannot mail the bag, this is inefficiency.
Editor's note: The dialog with several other aides has been omitted due to publication constraints.
Pharmaceutical R&D
In an over-the-top post Megan McArdle goes all Xena warrior princess on Ezra Klein and Jerry Avorn. I especially liked this bit: Here's Avorn on why we need not worry that regulating drug prices will reduce innovation:
There are a couple reasons that this is a specious argument. One is that according to their filings with the SEC, the drug companies only spend about 15 cents of every dollar on research and development. That's compared to more than 30 cents in administration and marketing and more than 20 cents on shareholder equity. As an investment in R&D, I think any venture capitalist would say a company spending 15 percent on research is not a robust innovation engine.
and here is McArdle swinging the sword of truth:
This makes about as much sense as saying that Dr. Jerry Avorn cannot be that smart because his brain only weighs about three pounds. Presumably, you can't be really smart–really innovative–unless your brain is at least 30 percent of your body weight!
This is obviously ludicrous–so why would Dr. Avorn say it about an R&D department? Like your brain, the R&D department is part of a complex system that does a lot of important stuff. You can argue that the R&D department is the most important part of a company, not least because it couldn't survive long without it. I think the same thing about my brain–but I'd still be just as dead without my liver. You certainly can't prove anything about my effectiveness as a journalist by pointing out that [my brain] weighs less than my bones. So how big should a "brain" be? Hard to say. But let's look at some companies that are generally recognized as pretty innovative, and their R&D as a percentage of revenue:
Apple: three cents out of every dollar
Google: ten cents out of every dollar
Intel: fifteen cents out of every dollar
Genzyme (innovative biotech startup!): sixteen cents of every dollar
US Government: three cents out of every dollar
I can assure Dr. Avorn that any venture capitalist would be happy to invest in these hidebound laggards who haven't had a new idea in centuries. The first few, anyway.
By the way, I liked Jerry Avorn's book Powerful Medicines (see also here) but I thought it was weak on economics, a fact which really shows in this interview (he does make a few good points about comparative effectiveness research).
Apportioning Blame for the Deficit
David Leonhardt's column breaking down the "causes" of the budget deficit has been widely reported and the bottom line repeated many times:
President Obama’s agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying.
Tyler hitting hard
That's how Dan Klein described this piece to me. The end of the piece runs as follows:
One has to wonder if anyone who has read [Henry] George
could lend a hand to the production of the screed of mistruths and
error that is The End of Poverty. I prefer to be subtler, but this movie does not allow it.
I guess I did not signal magnanimity with that one. I believe the movie is coming out soon.
Addendum: David Henderson adds comment.
How easy is it to fill those Treasury jobs?
In a search for "non-compromised" candidates, Matt writes:
positions. Timothy Geithner needs a Deputy Secretary. And then there’s
a need for an Under Secretary of the Treasury for Domestic Finance, an
Assistant Secretary for Financial Institutions, and an Assistant
Secretary for Financial Markets. There are other positions in the
department, but those are the four where you might think that
experience with high finance specifically was vitally necessary. It’s
only three jobs. And you can’t tell me that there aren’t four people
alive in the United States who have experience with finance but lack
compromising relationship[s]. Why not Simon Johnson, for example? Give him
one of the jobs, and a quarter of your problem would be solved. Indeed,
if you even got three non-bankers to fill four of the
positions, I think that would create a lot of piece of mind. Nouriel
Roubini, to give another name well-known to the blogosphere, seems
perfectly well-qualified for a job at Treasury–he’s even worked in the
past as a “senior adviser” to Tim Geithner.
One point is that both Johnson and Roubini were born outside of this country and perhaps neither is an American citizen. More fundamentally, the job requires close to a 24/7 time commitment, a huge cut in pay (might Roubini earn 50K per talk?, along with enjoying complete personal freedom), an ability to "stick to message" and give up the right to speak one's mind in public, managerial and person-handling skills, a smooth enough temperament, the ability to tolerate a gross imbalance between responsibility and resources, the possible end of an academic career (for some people it's hard to keep on caring), and a very real chance to fail and fall flat on one's face. Toss in near-perfect tax records and regular payment of Social Security contributions for one's Green Card-holding housekeeper.
That's all without even being in charge. Is Geithner an easy guy to work with? You won't know until you say "yes."
I once, by sheer accident, ran into Johnson in the lobby of an NPR studio and he was smiling.
How many brilliant academics even manage to make good deans?