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It’s Ben Sota, doing a show of the Zany Umbrella Circus at the Leslie Nature Center in Ann Arbor.

Duncan Watts had an article in the Boston Globe last week (hattip: Karl Bakeman) looking at how the network structure of the banking industry might have amplified the financial crisis.  Watts comments:

Traditionally, banks and other financial institutions have succeeded by managing risk, not avoiding it. But as the world has become increasingly connected, their task has become exponentially more difficult. To see why, it’s helpful to think about power grids again: engineers can reliably assess the risk that any single power line or generator will fail under some given set of conditions; but once a cascade starts, it’s difficult to know what those conditions will be – because they can change suddenly and dramatically depending on what else happens in the system. Correspondingly, in financial systems, risk managers are able to assess their own institutions’ exposure, but only on the assumption that the rest of the world obeys certain conditions. In a crisis, it is precisely these conditions that change in unpredictable ways.

He suggests that regulators assess a company’s network position and take action to ensure systemic viability:

On a routine basis, regulators could review the largest and most connected firms in each industry, and ask themselves essentially the same question that crisis situations already force them to answer: “Would the sudden failure of this company generate intolerable knock-on effects for the wider economy?” If the answer is “yes,” the firm could be required to downsize, or shed business lines in an orderly manner until regulators are satisfied that it no longer poses a serious systemic risk. Correspondingly, proposed mergers and acquisitions could be reviewed for their potential to create an entity that could not then be permitted to fail.

This is a very interesting idea.  But it also raises a number of intriguing questions worth fleshing out in a little more detail:

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Get the entire book – Grad Skool Rulz: Everything You Need to Know about Academia from Admissions to Tenure – for only $2. You can read it on personal computers, Nooks, Kindles, iPads, and smart phones.

Here’s the bottom line: modern academia is about publishing. Even if you intend on working at a teaching institution, most respectable programs will require that you publish and maintain your active involvement in the scholarly community. Furthermore, if you wish to compete for a research oriented job or top liberal arts college, you must demonstrate an ability to publish in well regarded journals.

So let’s start with an easy question: Who has to publish?

• If you want a good job in most disciplines, you will need to publish something while in grad school.
• Exception 1: Some technical fields have a short time to degree and it is impossible to do anything except complete coursework and write a job market paper. Econ and engineering fit into this mold. It’s all in the unpublished job market paper and sponsorship by disciplinary elites.
• Exception 2: In some qualitative areas, books are the norm, so hiring committees are a little less obsessed about early publications.
• Caveat: Even if you are in a field that is an exception, you will benefit if you can get a good publication.

The harder question – what counts as publishable?

• Learn by reading books and journals in  your area.
• Read what your adviser and professors publishes.
• Usually, it has to be a contribution to knowledge. In other words, it has to tell us something that we didn’t know before.

Next question: where should I publish?

• Every discipline has an informal, but well known, ranking of journals.
• Every field has around 2-5 top journals (In soc: ASR/AJS and many people see SF and Soc Problems as close behind).
• Every field has journals that serve specific specialties. (Org Studies: ASQ. Education: Soc of Education).
• There are well regarded “regional journals” run by professional associations (Soc Quarterly, Soc Perspectives).
• If you want a good job, you will sooner or later have to publish in one or more of these journals. People who get fly outs for good programs usually have one or two pubs in these venues.
• It’s also cool to publish in the journals in related fields – but only if you can persuasively argue that it’s appropriate. E.g., an applied stats person might try to land a piece in JASA. A population studies person might try Demography.
• If you are in a book intensive field, you might try to get a contract in your last year or so of grad school.
• In general, I’d avoid smaller more specialized journals until you get at least one or two higher profile hits in top tier, specialty or good regional journals.

How do I actually get published?

• What counts as publishable is a topic that deserves its own post. But suffice to say that it varies from area to area. Read a lot and talk a lot to figure it out.
• Once that you’ve produced a manuscript, go to the journal website. Now, you can submit through the web site or just mail it to the editor. A few “old school” journals will require paper copies.
• In general, start with more prestigious journals and work your way down. Why? High prestige journals will draw more attention to your work and they have more resources for fast review. They also tend to have better reviewers.  I don’t necessarily mean start with journal #1, but start with a journal that most people consider to be highly regarded and bounce around. Then move to smaller journals after that.
• Get a thick skin. Every academic has piles and piles of rejection letters.

Should I work solo? With a team? What about authorship?

• Working with a team: Pros – teams produce things faster and benefit from a division of labor. Team members (older faculty) may have the connections and knowledge to make the project get published. Also, you don’t have to reinvent the wheel. There’s a lot less risk. Cons – easy to lose your identity and not get credit. Remember, there’s little reward for being author #8 on four articles.
• Working solo/small team: Pros – more freedom to design your own research. You get the lion’s share of the credit. Cons: Since you’re charting unknown waters, there’s a lot more risk.
• In general, the higher the author’s name in the list, the more credit. After three or four authors, no one notices your name and people may assume your an RA on the project, rather than a contributor. If you are working with faculty or on a team, have a discussion with the team leader/faculty member about how you can get the proper recognition for your contribution.

Let’s talk about some myths:

• Do I need a million publications to get a job? Not really. If you have one or two good ones, that’s enough.
• Is it all an insider’s game? Academia, like any job, has its fair share of gaming the system. All older academics will regale you with stories of “such and such got published because the editor was a friend.” So what? That’s life. But academia is also remarkably open. In soc, we have our four lead general journals, about 5-10 high quality specialty journals, some excellent regional journals, and many more respected journals that don’t fit the mold (i.e., Theory & Society, Poetics, etc.) If you try really heard and put out your best work, I promise you’ll get good results

If you have more ideas about publishing as a grad student, please put them in the comments.

Previous installments: strat/work, education, org studies,  culture, urban, soc psych.

Last week, Guillermo asked about good demography doctoral programs. A few words. First, demography exists in multiple disciplines and it also exists as its own distinct research ares. At Berkeley, for example, there is a demography degree program that exists separate from sociology. You can also study demography in public policy programs, econ programs, and even in anthro.

Second, demography is a remarkably fuzzy term. People with wildly differing research agendas all call themselves demographers. So in this post, I’ll limit my self to programs where people study core demography topics: population measurement/ statistics/ models; mortality/morbidity/fertility/immigration at a macro level; health at a macro level; population policy; family formation/social demography.

Two programs come to mind: Penn and Princeton. Penn is knee deep in top class demographers: Linda Aiken, Irma Elo, Hans Kohler, Kristen Harknett, Ross Koppel, Hyunjoon Park, Emilio Parrado, Sam Preston, Herb Smith, Tukufu Zuberi. Princeton has a highly regarded population studies PhD as well. Rather than recite the entire faculty list, click here.

Use the comments to talk up other programs that are strong in demography.

Now we’re talking — the current issue of Wired magazine has a fascinating set of articles on “living by the numbers.“  I love it, evidence-based living.  We can optimize it all: happiness, wealth, potential, longevity, etc.  Ok, despite my sarcastic tone, I’m actually extremely interested in this stuff (a few years ago I slept with my cycling heart rate monitor—not very comfortable—to see what my absolute rock bottom heart rate was;  I know,  lame and TMI.)  Related to evidence-based living, the Seth Roberts self-experimentation stuff is quite fascinating, for example, see this Behavioral and Brain Sciences article.

I might peripherally note that all this evidence-based stuff of course has a problem, namely: based on who’s evidence are we supposed to live our lives, run our organizations or treat our patients?  Evidence obviously is often contested, there are different preferences, interests, interactions, etc.  Evidence might not readily be available.  We may not have time to find/process evidence.  And, add reflexivity to the mix (i.e. the fact that we might actually create ‘evidence’ — think placebo effect — rather than evidence objectively being there), then we’ve got ourselves another problem altogether.  And, if I lived my academic life based on evidence — would it be rational for me to submit articles to journals that reject 95% of what is submitted?  Or, should start-up organizations even be launched given the overwhelming odds against success?  Who decides?

Nelson and Winter’s classic An Evolutionary Theory of Economic Change is a disequilibrium theory of economic production — for an excellent overview, see this (pdf) Nelson and Winter (2002) review piece from the Journal of Economic Perspectives. The evolutionary perspective in economics indeed is a reaction to neoclassical economic models which operate on the basis of, and with a focus on, equilibrium. Evolutionary economics has become a powerful, in part interdisciplinary, project which offers interesting insights about the dynamics of markets and industry structure.

If there is one place where evolutionary economics has been the most influential (as the citation patterns to the classic 1982 book reveal), it’s in the fields of organization theory and strategic management — literatures which relate to the theory of the firm, efforts to understand organizational advantage, organizational heterogeneity and organizational change. However, I’ve wondered about the applicability of evolutionary economics vis-a-vis organizations, particularly intra-organizational dynamics. That is, the central construct that has emerged from evolutionary economics has been the concept of routines, but the routines concept essentially presumes an equilibrium of sorts (routines are defined, inter alia, as ordered and stable patterns — see Markus Becker’s excellent ICC review of organizational routines).  Routines presume an equilibrium rather than problematicizing and explaining how that equilibrium might emerge in the first place.  Thus, evolutionary theory in economics is focused on disequilibria at the population and industry levels but then presumes certain equilibria (i.e. routines) vis-a-vis organizations themselves. Should routines, then, be the central construct of organization theory and/or strategy?  (Ok, ok — we’re painting with a broad brush here.)  If we focus on routines, what falls out of our purview?    If organizations are presumed to have extant ways of doing things, patterned behaviors, etc — undoubtedly so — then its hard to explain how the equilibrium or order emerges in the first place. James Coleman’s “meta-theory” chapter (from Foundations of Social Theory) brilliantly highlights this point: if we start with the premise of various collective constructs — say: norms, routines, culture, whatever — then its difficult to explain their origin, the emergence of order, nor meaningfully address organizational change.

I suppose we might also take a more pragmatic approach.  Routines are central in some situations and not so central in others: sometimes an organization indeed is in equilibrium and other times not. I’m not completely sure how to reconcile the equilibrium and disequilibrium issue — I suppose for purposes of analysis one has to anchor on some kind of equilibrium (or there’s an infinite regress problem), at some level.  I just think that for organizational analysis the routines construct makes too much of stability and order without explaining it.  Depending on our level of focus — individual, social, organizational, etc —  some kind of initial condition and equilibrium necessarily lurks in the model (generally at the level just below the one being studied) or else the effort becomes intractable.  I don’t think that “multi-level” models will necessarily resolves these problems, theories at different levels are often in direct conflict with each other.  If nothing else, I think its healthy to think through one’s assumptions related to what one takes as a given and not when theorizing and studying organizations. Obvious, perhaps.

MSNBC.com has undertaken an ongoing – multi-story – examination of how the current economic crisis is affecting one struggling manufacturing city: Elkhart, Indiana.  I am quoted in today’s story which looks at Youngstown’s decline as a cautionary tale for what can happen when a city loses its major employer (it also briefly makes reference to Allentown’s recovery as a benchmark for how to make it through a crisis of this kind).

It’s nice to get the publicity.  But it also strikes me as a very smart approach to journalism; one that reaches back to the best traditions of the Chicago School of Sociology and, of course, to the Lynds whose Middletown studies of Muncie, IN, in 1920 and 1935 were among the first (and best) community ethnographic studies spanning the city’s salad days and then on into the depression years.

I’m glad to see a major news outlet keeping at least some of the tradition alive and undertaking this kind of in-depth reporting.  But its too bad that we don’t encourage students (or junior faculty for that matter) to undertake these kinds of studies in a way that would contribute to theory and general understanding of social phenomena (major exceptions of course exist, particularly in the work of Sudhir Venkatesh and Mario Small among others). One of the things that made the ethnographic approach of the Chicago School so successful (at least in its day) was that it was a “school”; i.e., body of scholars working both in physical and intellectual proximity.  As any blogger or academic knows, its a largely solitary path we’ve taken for ourselves.  Its difficult to achieve the kind of critical mass that Chicago did in the early 20th century.  Then again, with the advent of the web, maybe than kind of thing is more possible that it has been in a while.  Here’s to hoping at least.

(Photo credit: from Sean Posey’s photo essay on Pittsburgh Steel)

Sean recently drew our attention of Charles Kurzman’s take on Iran: turbulent politics is unpredictable. Reading Kurzman’s essay, I thought he raised good points, and I wanted to add a few comments about what counts as “unpredictable.”

1. Information unpredictability: We may have a good predictive theory, but we don’t have all the relevant information. For example, if you believe the conflict in Iran hinges on the willingness of the police to use violence, then your theory produces predictions, but you may not have the relevant information before the event happens.
2. Computational unpredictability: We may have a good theory, but it requires huge amounts of information or a lot of fancy deductions. In other words, the event may be predictable for a supercomputer.
3. Endogenous unpredictability: The theory suggests that the elements of interaction will change in response to past events. New goals, new people, etc. and that changes the situation in hard to predict ways.
4. Chaotic unpredictability: The theory suggests that actions are very sensitive to small changes in intentions and incentives.
5. Under-determined unpredictability: Maybe the the theory is simple, easy to calculate and has stable components. However, it produces multiple predictions. Game theory 101 models tend to be this way.

My own gut feeling is that revolutionary situations are undedetermined in the short term (e.g., multiple equilibria) and endogenous in the long term. Iran, right now, can be viewed as a conflict between a coalition of reformers and the state incumbents, who might either escalate or back down. The game theory folks out there will recognize this as a “chicken game,” which has multiple equilibria. However, the interaction will create new actors. For example, the murder of Neda Soltan may have drawn new people into the conflict, which may not have been forseen. In the end, maybe revolutions are processes are chains of events, which may be unpredictable in different ways.

The Economist’s Andrew Miller, a.k.a. Bagehot, has engaged Gideon Rachman of the Financial Times in a back-and-forth about the building blocks of revolution.  They list criteria that would, if met, point toward revolution in Iran and they conclude that most of these antecedents are present in Iran today, suggesting that revolution is possibly at hand.

Partly because I made such a point of it earlier, but also because I think it is potentially useful both to interested observers and to academics interested in social movements and social revolutions, I decided engage in a friendly academic fisking of their observations.  Bottom line: I end up being a bit less optimistic than they are.  Their points are listed in bold.  My reading of the literature and of how the situation in Iran measures up follows each.

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I’ve been asked a few times about blog writing. How do you blog? What goes into a successful blog?

• Blogging is free: WordPress and blogspot are both free. For additional customer support, you can pay at Type Pad or Powerblogs.
• Decide whether you want a single person or group blog. I do a group blog because I don’t have to generate all the content myself. I also enjoy interacting with the rest of the crew.
• Have a “beat.” Most good blogs are like magazines. They have an audience and specific set of topics. At orgtheory, we do management, sociology, and related social science topics. We also toss in the occasional fun post. If you write consistently on topics you love, it’ll work.
• Have a point of view. Each one of us has a specific take on things and we let it come out.
• Update. This is the most important issue. A blog that isn’t updated at least once a week or so will wither. That’s why I like the group blog. With six bloggers, you can depend on fresh writing.
• Professional tone. People worry how blogging might affect how people see them. Fair point. I’ve found that common sense goes a long way. Be measured and calm in your writing. Be fun. But don’t be mean. And don’t write about confidential conversations (i.e., what happens in the dept stays in the dept). My experience is that a professional & fun blog isn’t a problem.
• Time management. Here’s what I do. When I have a fun idea, such as when I read an academic journal or book, I make a note, or write it down. About once a week, a few of these ideas will turn into blog posts. It takes about as much time as watching 1 episode of a TV show. I really don’t have time for more than that.

There you go. Here is an older post on blog benefits. If you have other questions, or “how to” ideas, drop them in the comments.

Update: Kandarp asked about how we bring traffic to the blog. I think it’s just through word of mouth and links from other blogs. I also think people find us through google searches. For example, “stakeholder theory” brings you to Brayden’s and Teppo’s posts. I don’t think we do any advertising aside from just putting links on the web page. We also get the occasional “big hit.” Both Brayden and Sean were picked up by super blogger Andrew Sullivan. How he heard about them, I don’t know.

I also recommend Joseph Logan’s comment. Definitely worth reading.

Kamal Munir is up on a soapbox in the Financial Times today about how MBA education should change in light of the financial crisis.  He writes:

To say one credit card is better than the other is fine. To suggest that credit itself is problematic is unacceptable. In financial markets, organisational sociologists reveal how analysts who track stocks give ratings based on mental categories and ritualistic practices rather than any rigorous analysis based on available information. Similarly, they expose the disproportionate weight that utterances from “experts” or “gurus” play in valuing assets. Much too little of this research finds its way into school curricula.

This is a good time for business schools to start creating models that are not only wider in their scope – including political and social dynamics that affect the functioning of markets – but also more complex, acknowledging the sociological phenomena that lead to the legitimisation of various practices.

I think Kamal’s comments offer an interesting counterpoint to the discussion which we’ve touched on a few times about the professionalization of business, mainly sparked by Rakesh Khurana’s book.

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Noam Cohen had an article in the NY Times over the weekend assessing the function of Twitter in the Iranian post-election protests. The piece is worth a read because Cohen doesn’t take a rose colored glass view of Twitter. Tweeting has its problems, including the ability of tweeters to spread false information, and it probably isn’t nearly as instrumental in getting protestors to the streets as some Twitter fans claim. Cohen also comments that more traditional mechanisms of movement mobilization, like face-to-face networking, may have been equally or more influential in getting people to the streets. Skeptics warn us not to over-hype the potential effect of tweeting for changing the world.

The piece did remind me though of one very important function that Twitter has – the ability to make public and global knowledge that is otherwise highly local. Spreading insider information about the Iranian protestors’ situations may be the most important thing that tweeting has done for the movement. Protests that go unnoticed are relatively ineffective in getting anyone to change their behavior, let alone getting governments to alter policies or election results. As E-Z argued in an orgtheory post last year, knowledge (or belief) that is held privately by individuals but not known to be public is relatively ineffective at causing people to act. It’s not sufficient that A & B both share the same knowledge, they need to know that the other has that information in order to instigate action/cooperation.

Everyone can have the same knowledge but not know that they have the same knowledge.  This is “pluralistic ignorance” (a term that is widely credited to Floyd Allport, with the earliest cite I have been able to find being from his 1924 book Social Psychology).  Centola, Willer, and Centola (2005) show how the failure of networks to convey what everyone knows (conveying only local knowledge instead, and thus fostering pluralistic ignorance) can systematically lead people to act counter to their true beliefs.  And Adut shows how widespread knowledge of an indiscretion can persist for a long time, with scandal erupting only when the information becomes publicized in such a way that it becomes common knowledge.  The knowledge that I’m a fraud can become widely disseminated, but this knowledge has no effect on my fate unless it is publicized in such a way that it becomes common knowledge.

One of the primary functions of social movements of any kind is to make otherwise hidden beliefs or knowledge openly known to the public (e.g., consider how the civil rights movement illuminated the conditions of the segregationist South to the broader American public). Protesting is essentially a public spectacle intended to create common knowledge. By protesting activists cause people to pay attention to an issue and thereby transmit information/beliefs about that issue into the public. This was a central insight of Michael Lipsky in his classic APSR paper, “Protest as a political resource.” Lipsky goes further to argue that protest creates audiences, or “reference publics,” that can appreciate the significance of a movement’s issue. The attentive audience to a protest helps offset the relative power disadvantage that a movement has in their fight against institutional authorities (i.e., City Hall, corporations, the Iranian government). By enlisting this public in their fight, movements create a new resource base for their cause.

The “problem of the powerless” in protest activity is to activate “third parties” to enter the implicit or explicit bargaining arena in ways favorable to the protesters. This is one of the few ways in which they can create” bargaining resources. It is intuitively unconvincing to suggest that fifteen people sitting uninvited in the Mayor’s office have the power to move City Hall. A better formulation would suggest that the people sitting in may be able to appeal to a wider public to which the city administration is sensitive. Thus in successful protest activity the reference publics of protest targets may be conceived as explicitly or implicitly reacting to protest in such a way that target groups or individuals respond in ways favorable to the protesters (1145-1146).

Given the restrictions that the Iranian government puts on international media, it’s not clear that protesting alone will get Mousavi’s supporters’ message to the broad international public. Tweeting gives outsiders direct access to the voice of the protestors. Coupled with public protest and an inflammatory situation, tweeting is an audience-creating machine.

You know that joke about the cranky restaraunt customer? “The food is terrible – and the servings are so small!” That summarizes the relationship between economics and sociology. Here’s a few observations:

• Max Weber, an economic historian, defects from the mainstream of the day and becomes a founding figure of sociology.
• Talcott Parsons, a Harvard economist, defects from the mainstream of his day to become a towering figure in the sociological profession.
• Gary Becker, a neo-classical economist, makes it cool for economists in the 1960s to study stuff like race and marriage, long as you call people’s choices “taste” and “preferences.” Gets a Nobel prize for doing so.
• In the 1990s, Steve Levitt becomes the poster child of economics by hooking up with sociologists and policy folks to do theory lite applied stats on sociological topics, like crime.
• After Levitt, economists stampede to sociology and churn out paper after paper of theory lite, stats intensive analysis of sociological topics. In econ, sociology is called “applied micro.” Sociology is a bad, bad word.
• In the 2000s, George Akerlof, a Nobel winner, finds out that “identity” is the new black.

Just the other day, Bryan Caplan wishes that he could call himself a sociologist, if it weren’t for the annoying folks who already use the word. As loyal readers know, I welcome any person who works on important topics that constitute modern sociology. I just wish we’d get a little more love from the customers who regularly dine at our restaraunt!

Previous editions: strat/work, education, org studies,  culture, urban.

I’ll start with where I work, which has one of the deepest programs in this area: Indiana. It’s got a long tradition of pyschology led by Shel Stryker, one of the pioneers of modern soc psych & identity research. We’ve hired an experimentalist (Steve Bernard) and we’ve got great folks doing mental health (Peggy Thoits, Bernice Pescosolido, Eliza Pavalko, Pam Jackson, Jane McLeod). If you count networks as rooted in social psych, you might count folks like Stan Wasserman. We’ve also got folks doing soc psych from interesting perspectives perspectives, like Tim Hallett (soc psych in orgs),  Brian Powell (family/education) and Marty Weinberg (sexuality). Definitely a leader!

Post your comments about other great soc psych programs.

Andrew Perrin points me toward an article by Charles Kurzman in Foreign Policy which argues:

In a year’s time, some of these [Iran] experts will crow that events have confirmed their analyses. Others will quietly remove this week’s remarks from their Web sites.

Yet all of these analyses are wrong, even if events unfold the way they predict. After all, if you make enough predictions, some are bound to look accurate. They are wrong because the outcome of this week’s events is simply unpredictable. Unpredictable means that no matter how well-informed you may be, it is impossible to know what will happen next. Moments of turmoil make a mockery of accumulated knowledge.

Fair enough.  But, that shouldn’t stop us from drawing on our received wisdom to make predictions anyhow.

I have been going back to look at the literature on revolutions (both to make sense of current events and also for scholarly reasons) and I came across a paper by Theda Skocpol written in the aftermath of the Iranian Revolution of 1979.  Skocpol’s first book attempted to delineate structural antecedents of revolutions and their outcomes derived from a comparative analysis of revolutions in France, Russia and China.  Insightful as it was, her argument nevertheless butted up against realities in uncomfortable ways.  The first instance of that was the Iranian Revolution of 1979, the same year Theda’s book was published.  It turns out, her predictions lacked in several ways.  And she was the first to draw out the implications.  She writes:
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Update: The original post contained material that I wrongly assumed was from a public conversation and which was posted in a public forum. That material has been removed. Please accept my apologies if the original post put anyone in an awkward situation.

…..

The Soc Net email list has an interesting thread on criticisms of network analysis, with a post by former guest Ezra Zuckerman who directs us to his own critique. In the discussion, a very interesting point was raised by multiple people: the folks who innovated network analysis in the 1960s and 70s have become a bit disappointed with the way its turned out, because modern works favor individualistic views of networks, rather than structural ones.

I don’t quite buy this criticism. Isn’t it reasonable to ask two simultaneous questions? We can ask how individuals affect networks (e.g., tie formation) and we can ask how networks reflect patterns of behavior, which can be seen as resources (e.g., vacancy chains). Sociology isn’t the idea that all that matters is structure, it’s about discovering the interplay between action and structure.

David Leonhardt’s piece in the NY Times on reforming health care caught my attention today. As I’ve come to expect from him, it’s well written and makes an important point. But for the moment, I’m more interested in its implied critique of the economy. Specifically, I have been wondering whether we are seeing a shift away from critiques which emphasizes fairness and equity and toward ones built around sustainability and I think his article helps articulate what this might mean.

The last time health care was seriously debated in the 1990s, the rhetoric centered on the 40 million uninsured: How could the richest country in the world allow that many people to go unprotected? This time around, the framing has shifted. As Leonhardt lays it out, disparities in distribution are inevitable; some people will get less out of the system than others as a matter of course. But the way we use the system is unsustainable and it threatens to bring low the rest of the economy.  And that justifies getting the government involved.

This is a big shift. The argument for health care in the 90s was based, primarily, on an ideology of fairness. Leonhardt is arguing from a perspective which I see as fundamentally based on an ideology of sustainability: the health care system is so deeply intertwined with other aspects of our society that failing to act presents a fundamental challenge to the rest of society (and, by extension, the economy).

Similarly, look at the proposals for reforming the financial system which were released today. While there was a brief puff of smoke earlier this year about the excessive income of CEOs (and there is at least a token effort in this reform package at addressing that) its motivations have little to do with fairness. They are all about preserving and sustaining society. Banking—this argument goes—is integral to the functioning of just about everything we do. But it is threatened by the baser impulses of individuals acting in their own self-interest. So the government needs to act.

That, to me, is about sustainability. It is apparently what led Ken Lewis, then Chairman and CEO of Bank of America, to advocate in favor of accepting government intervention when his and other big banks were confronted with it by Hank Paulson last year:

I basically finally said: “We are so intertwined with the U.S. that it’s hard to separate what’s good for the United States and what’s good for Bank of America. So don’t do it on the basis of us being told; do it on the basis that things could get a lot worse in America and therefore for us. And they’re almost one and the same…. [W]e thought we were doing somebody a favor, or the country a favor for that matter.

What kind of regulatory policy does this lead to? Here is Columbia Business School Dean R. Glenn Hubbard reacting to the crisis last fall (before becoming one of the advisors to the Administration on the regulatory brief released today):

The financial meltdown that engulfed Lehman and the uncomfortable responses of policymakers… highlight[s] the need for regulatory reform. The problem is actually not too little regulation — both lightly and heavily regulated institutions are in trouble. And some regulations encouraged the growth of high-risk mortgage lending. We do need smarter regulation: a key step is to broaden capital and liquidity requirements and increase them during financial booms to lean against excessive risk-taking.

In other words, there came a point at which failure to act became morally repugnant—first on the part of Ken Lewis and then on the part of regulators—because doing so would undermine the broader social system. But on what basis? It is not out of an impulse toward fairness or even personal gain. Fundamentally, it is rooted in the impulse to maintain the long term stability and viability of society.

What’s going on here? The idea I’d like to explore (at some length, sorry) is whether this is evidence of a shift in mainstream critiques of the economy.

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Update: Alyssa Milano has an Iran tweet - and it’s better than some news websites. C’mon, mainstream media, you’re getting served by Phoebe - show her who the boss is!

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Yes, I know. We can all point to good reports in the MSM about the Iranian crisis and yes, for in depth sustained writing, the MSM still has the resources. And of course, the bloggers, like any others, will report misleading information. But overall, the traditional MSM media has been pathetic compared to a political blog run by rabid liberals (Daily Kos), a semi-conservative magazine writer and his assistants (Andrew Sullivan) and the website of a socialite/author/pundit (the Huffington Post).  Just collecting tweets, youtube clips, and email, these outlets have done a far superior job of being on the front line of world history than news organizations with hundreds of employees and many millions of dollars. Consider this caricature of the MSM media’s reporting.

Day 1:

• Bloggers: Whoa, something is seriuosly wrong in Iran. None of the vote tallies make sense. Communication has been cut and people are getting arrested.
• MSM: It’s Sara Palin!

Day 2:

• Bloggers: The election’s been rigged. Mass demonstrations break out, opposition leaders arrested!!
• MSM: Palin sure hates Letterman, and by the way, did you notice some people are not happy in Iran.

Day 3:

• Bloggers: Things are getting complicated. Fights between students and militias. People are being beaten and shot and disappeared. Amadinejad has left for Russia. Foreign fighters possibly brought in for crack downs. Here are youtube videos.
• MSM: Now that Sara Palin has gotten an apology from Letterman, we can tell you that some people have strong disagreements over the election tally in Iran.

Day 4:

• Bloggers: Mass demonstrations continue, as does violence between state sponsored militias and the opposition. Key Iranian leaders have even hinted that the election should be invalidated. The leader is in Russia, and dissenters have stormed the militia headquarters.
• MSM: From the AP – scroll down to “AP’s revenge” – “Iran’s system does not appear in any immediate danger from the presidential election results unrest.” Other MSM improves, but focuses on issues like the media ban, rather than reporting specific conflicts and developments.

I suspect by mid week, all decent MSM coverage will fade as attention turns to domestic issues, like health care reform and the economy. We should all be thankful for blogs, otherwise, we’d have maybe 30 seconds of Iran coverage and more hours of talk show bickering.

I came across this line from a paper today. I think the quote nicely summarizes why we should be interested in studying organizations as meso-units in society.

Sociological theory typically treats the dynamics of organizations and institutions as exogenous to (or at best weakly linked to) dynamics at the micro level. In contrast, typical economic approaches insist on the necessity of making such links explicit. Economists are much more likely than sociologist to view social organizations and institutions as dependent on concscious choices of individuals. In this view, the dynamics of larger-system properties are to be explained in terms of choices at lower levels, which presumably depend upon the shape of career trajectories. This view is not nearly as individualist as sociologists often claim, because the key insight of neoclassical theories of social behavior is that each individual’s choices are constrained by the simultaneous choices of every other individual in the system….

This essay takes the view that understanding social dynamics requires that effects of institutions on individual choice and the effects of individual choices on institutions be considered simultaneously. Institutional and organizational dynamics define the set of opportunities and constraints for individuals while individual choices shape the dynamics of organizations and institutions….

In the modern world, individuals encounter institutional constraints principally in organizations. They encounter the state in schools, the army, the agencies of taxation, and so on. They encounter the economy as employees of firms or as seekers of jobs located in firms or as the purchasers of services offered by firms. Many efforts at social reform take as their targets these intermediary organizations….Challenges to prevailing institutional arrangements also typically occur in organizations. Often, contending groups create protest organizations to make the challenge. Often times, the challenges are made in existing organizations. In either case, organizations serve as a vehicle for expressing preferences of individuals and for instigating change in the larger system (emphasis mine).

Exactly. Someone summed up quite nicely some 20-plus years ago a major theme I’ve been trying to formulate  in my recent work. The text also provides a nice justification for why we should be interested in studying the interplay of organizational and individual choices. I’ll have more to say on this later once my new paper with Teppo and Dave Whetten comes out in Organization Science.

Anyone know who wrote this? Guesses?

I am looking forward to see what will happen tomorrow: will a mass strike materialize?  Will more senior clerics express a lack of confidence in the election or – more dramatically – in the Supreme Leader?

It’s all very dramatic and exciting and fraught with potential.  But it’s also important to remember that a revolution is not made in a weekend.  It takes time.  In fact, years: the events which led up to the Iranian Revolution in 1979 started in 1977, didn’t begin to build into a mass movement until 1978 and then finally culminated in the coup of 79.

So as this flash point moment recedes, the real work of revolution is going to begin.  Or, it may have been simmering for some time in the form of underground movements, power bases, leadership structures.  I am not familiar enough with the reformists in Iran to know.  But either way, the violence and mass-protests will give way to the building of an alternative power base which will take this movement forward.

As it does, we should pay attention to the process… as orgTheorists.  This is where the rubber in the literature on social movements and institutional change hits the road.  To me, the most interesting unresolved questions in that literature have to do with how movements make the turn from insurgency to establishment.  We will watch this process unfold from a distance in Iran.  One thing the social movements literature teaches us with some certainty is that movements do not appear from whole cloth.  They are mobilizations and their sucess depends on the underlying strength of the coalitions, organizations and networks which unite protesters and bring pressure to bear on the power structure.

Brayden raises the question of how on-line social networks are shaping protest.  But, I have a few more questions based on a reading of earlier revolutions and at least somewhat informed by the literature: Read the rest of this entry »

A few updates:

• “Tehran Bureau” has been crippled by a denial of service attack.
• There have been attacks on student demonstrators.
• In the comments from yesterday, a few argued that there’d be no movement long as security forces sided with the state. Seems like it’s going that way, at least right now. No reports of hesitation from actors within the state.
• Read the comments on this Daily Kos thread. There are reports of non-Farsi soldiers/militia in Tehran.
• Andrew Sullivan has conveyed a message from Mousavi.

My questions: Is there anything surprising about this? Is this sort of repression the typical result of demagogues? Can it ever be stopped? Consider this an open thread.

I’ve always loved Lou Donaldson’s ballad playing. Here’s a 1994 clip of his group in Switzerland rhapsodizing on “Laura.”

Donaldson is also known as a funk player, here’s “The Scorpion.” Enjoy.

I know very little about Iran, so I don’t know how to interpret what’s happening today. The summary, according to bloggers and news sources: the state first publicly reported a win by incumbent Ahmadinejad, but now many believe the election’s been manipulated. Today, there are reports of the arrest of the other major candidate and the opposition, accompanied by riots, demonstrations, and other forms of resistance. Some think it may be a military coup in progress. Other bloggers think this is that last stand of the theocracy and is a “classic” coup.

The question I have: is this a revolution in progress? Is this the state’s last stand or a new phase of authoritarianis, more like the 1989 repression of the Tiananmen movement – crack down following a little liberalization? If I were a hard core early Skocoplian, I’d hazard that its more crack down than system crisis, given that the factions supporting Ahmadinejad are firmly in place and Iran isn’t any under international pressures that would weaken the state. Your thoughts? What would one have to know to make sense of what’s happening?

Update: The website “Tehran Bureau” has pages on election news updates and videos of riots/protests. Here is a twitter on news leaking out from Tehran. Also: a commenter on Andrew Sulilvan correctly notes how the major news media are AWOL and we’re getting live coverage and commentary from bloggers and independent media.

It seems like everyone wants to talk about social mechanisms these days.  As Neil Gross points out in his paper, “A Pragmatist Theory of Social Mechanisms,” no fewer than five different sociological views on social mechanisms have popped up in the last decade. Why the sudden interest in mechanisms? One reason, I think, is that macro-sociological theories have lacked preciseness as causal explanations. Focusing on mechanisms draws attention to the underlying causal pathways in our macro models of society. The same impetus has spurred the call for more research on micro-foundations (you might even say that microfoundations = social mechanisms).

Gross enters this fray and tries to introduce some order with an encompassing definition of social mechanisms:

A social mechanism is a more or less general sequence or set of social events or processes analyzed at a lower order of complexity or aggregation by which—in certain circumstances—some cause X tends to bring about some effect Y in the realm of human social relations. This sequence or set may or may not be analytically reducible to the actions of individuals who enact it, may underwrite formal or substantive causal processes, and may be observed, unobserved, or in principle unobservable (364).

The first part of the definition is pretty standard, I think. Going to a lower level of explanation helps us understand how properties at the focal level of analysis come to be. So, for example, if you want to explain how organizations set strategy, you need to understand how individuals within the organization interact and how their individual beliefs, knowledge, etc. combine to shape strategic choices. Simple enough, right? Gross’s definition departs from previous definitions, however, in recognizing there is a great deal of variation in the kinds of mechanisms that people may impute in a causal process. Some are observable, some are not. Some are formal (i.e., they are universal and appear in almost every setting), while others are specific to the domain of interest.  This last sentence introduces a lot of variability into the study of mechanisms. Rather than searching for a fixed set of causal mechanisms that govern the universe of human relations (e.g., networks in everything or markets in everything), Gross wants to give scholars the leeway to identify a rich index of mechanisms that work quite differently across time and space. Gross’s aim here is to make mechanisms-oriented research more historically and culturally relative.

Read the rest of this entry »

Over at Econlog, Bryan Caplan finds it hard to say what is “economics” when economists produce research that has little direct connection to classical economic questions about incentives and trade-offs. These days, you’ll find economists studying things such as weight, happiness psychology, and AIDS transmission – and producing non-economic answers. In the end, he realizes that economists have begun to drop their ties to pointless academic models and started focusing on real problems. And that’s a good thing! The community of knowledge is always improved when smart people use their tools for addressing important issues.

At the end, Bryan considers how economics might be the science of society – until he realizes that there already is a science of society! It’s called sociology:

Unfortunately, this puts me in an awkward position.  There’s another field that already sounds like “the all-encompassing study of the social world”: sociology.  Not only does sociology have lower status than economics; with honorable exceptions, it’s also well-stocked with academics who aren’t fond of economics.  Tactically, then, it would be foolish to start calling ourselves “sociologists.”  If we were picking names from scratch, though, “sociologists” is exactly what modern economists ought to proudly call ourselves.

Give in to the dark side, Bryan! Let your inner sociologist come out!

On a more serious note, Bryan’s post raises questions about the economics profession and its boundaries. Here’s a thumbnail sketch of modern economics and its relation to other disciplines:

A massive simplification, but it captures important stuff. Until the 1970s, nearly all mainstream economists were stuck in the upper left corner. Then, Becker, Downs, Olson, and others started producing economic analysis of non-commercial topics (e.g., fertility, voting, etc.) Now it was cool to move into the lower left box.

In the 1990s, you saw two new developments that made the right hand side of the table cool. First, economic sociology began to flower as a distinct specialty, inspired by earlier work by Granovetter, Swedberg, Baker, and others.  Second, economists minimized the theory and just did very careful statistics on various non-economic topics. This is embodied in the work that Caplan cites (e.g., Wolfers on happiness, or Ostrom on AIDS transmission). Aside from the boilerplate “life is always about trade-offs,” there’s almost nothing economic at all. For example, one of Ostrom’s big arguments is that AIDS transmission runs along transportation routes in Africa.

What do we do now? Abolish the boundaries between fields? I’m in favor of that. Sociologists and economists can learn a lot of good stuff from each other, but I doubt it will happen. There’s seems to be a lot invested in keeping the boundaries well guarded. The “applied micro” folks find it really convenient to pretend that sociologists haven’t discovered anything of importance on topics like marriage or income, while sociologists believe that they are the noble alternative to evil conservative math-bots. Until that changes, economists will bravely go where others have gone before and the sociologists will continue charging at windmills.

Good for a laugh in Soc 101.

Over at Organizations and Markets, Nicolai Foss posted links to a series of videos by Sidney Winter,  a leading figure in evolutionary economics and strategic management,  discussing the crisis (together with Alice Rivlin, former Vice Chairman of the Federal Reserve), inflation, and economic cassandras.  The videos are interesting, and spurred some debate on Organizations and Markets on how to create robust regulatory systems and the role ideology might play in the process.  My favorite video provides an  ironic,  pragmatic take on the many deaths of capitalism (and its resurrection):

I concur with his last comment: “Capitalism is dead [...] It will be resurrected again [...] We have an opportunity now to design some economic institutions that do make better sense. As we try to approach that task it would really be helpful if we just stopped using all these ideological labels, realizing what a complex world we now live in, and how badly we need carefully designed institutions to promote our economic welfare,” but can we really step out of our ideological worldviews?

Crooked Timber has a guest blogger – Michele Lamont! Very cool. Read her first post, which is about whether philosophers do things that preclude them from engaging with other disciplines. Here’s my take on the topic (e.g., yes, philosophers like formality, and other humanities types don’t), which was written in response to Kieran’s Michigan talk on status within the philosophy profession (scroll down here to get the recording of the lecture). At orgtheory, we’ve discussed Lamont’s recent work on evaluation and her super cool deconstruction article. Also read this new Crooked Timber  post on Lamont’s view of the philosophy profession.

An article in the NYTimes yesterday offers a whirlwind tour of sociologically based theorizing on the significance of President Obama appointing an eighth member of the Supreme Court with an Ivy League education.

From the power structure perspective of William Domhoff (and closer to orgTheory home-base, folks like Don Palmer, Philip Bonacich, Michael Useem…):

There is both a funneling and homogenizing effect from these schools,” said G. William Domhoff, a professor of psychology and sociology at the University of California, Santa Cruz, and the author of “Who Rules America?” The effect, Professor Domhoff said, “plays out in terms of social networks, cultural/social capital, and a feeling of being part of the in-group.” It is one of subtle conditioning — what Sam Rayburn, the former House speaker, meant when he famously said, “If you want to get along, go along.

Then there is a Podolny-esque status argument:

Perceptions of qualifications really matter in this game,” said Lee Epstein, a law professor at Northwestern …. In choosing an Ivy Leaguer, Professor Epstein said, a president might think: “I don’t have to think too much. I don’t have to dig too deeply about whether they’re smart or not, whether they are well trained.”

An oversocialized homophily perspective from Aronowitz:

A president who attended a top university might gravitate toward those with a similar education… the selection of Judge Sotomayor by a president who graduated from Columbia University and Harvard Law was an example of “people wanting to appoint themselves.”

And a functionalist/rational choice/self-selection argument:

From the law schools that basically are the hardest to get into. They admit the best and the brightest, and they may not teach very well, but you can’t make a sow’s ear out of a silk purse. If they come in the best and the brightest, they’re probably going to leave the best and the brightest.

Its graphic even invokes networks terminology by referring to degrees of separation.

Someone at the Times has been reading their orgTheory.  But, in the end, the article is disappointingly non-provocative.  So, never happy to let well enough alone, I will launch headlong into a discussion I may well regret…

Read the rest of this entry »

Social scientists have a certain longing for the social arrangements of the past. That longing surprises me. The general argument is that in the past we had more collaboration and less competition, more friends and less anonymous exchange, more community and less markets, more happiness and less violence.

Anthropology long held to a “noble” view of the past — wikipedia has a decent summary of the “noble savage” argument. But, the bottom line is that the golden age of tribal and communal life was not that golden after all: life was short, threatened by all kinds of violence, many were ostracized and the virtues ascribed to these forms of social organization simply never existed. In short, the data support the opposite argument: things are increasingly better compared to the past. For example, Keeley’s War Before Civilization: The Myth of the Peaceful Savage highlights how there has been a radical reduction in violence — so, even if we factor in the recent two world wars, we are by a magnitude much safer in today’s society compared to tribal life. And, Clark’s Farewell to Alms: A Brief Economic History of the World highlights just how far we have comparatively come in terms of wealth and welfare over the past two centuries (no matter what you think about his provocative book, the comparative data he highlights is hard to argue with) .

Organization theorists also idealize the past. For example, Paul Adler and Charles Heckscher advocate communal arrangements that hearken to the past. Fabrizio et al, in their AMR article, longingly (Fabrizio: correct me if that’s the wrong characterization) point out that the post World War II image of organizations was one of “community” and “family” — a more employee and collaboration-oriented effort compared to the current market ethos where lay-offs and competition seemingly are the norm.

I tend to be skeptical about this type of retrospective idealization. First, on the whole, its tough to make meaningful comparisons between the past and present when we don’t necessarily have all the data (nor counterfactuals, though perhaps some natural experiments), wealth is one thing but there’s a host of intangibles of course as well (“happiness”). Second, scholarly longing-for-the-past tends to take the form where we focus on one or two dimensions without more holistically looking at whether we truly are better off on the margin. So, for example, if lay-offs as a whole have increased, are there commensurate trends where employees now have increased mobility and choice — is that a good or bad thing? For whom?

Third, its seemingly hard to make stereotypical statements about the general ethos of organizations (given vast organizational/organizing heterogeneity), specifically as we have many experiments going on with various types and forms of organizing: open source, organizations emphasizing various mixes of extrinsic and intrinsic rewards, “market” versus “family” oriented organizations, etc.

So, I wouldn’t dare to say that we organizationally live in the “best of all possible worlds,” but might we be inching toward it? Or, are we regressing? Or will the optimal models of organization automatically emerge as organizations compete and as we try out various forms of production? OK, granted, these are ideologically-laden questions — I know. But, the extant longing-for-the-past and generally negative tenor about the present seems quite counter-productive to me.

Finally, economics is getting a huge amount of the blame for everything that is negative in organizations and markets: corporate malfeasance, greed, self-interested behavior, etc. But, didn’t all of these negative factors exist far before the relatively recent introduction of neoclassical economics?

1. Will Wilkinson is upset about economists:

I agree that it is impossible to think intelligently about policy without some minimum of economic literacy. But the economist has no competence whatsoever to tell us, say, the appropriate discount rate to apply to future costs and benefits, to take one important example. I’ve heard philosophical arguments to the effect that the discount rate for future welfare should be zero and that the discount rate should approach infinity as we consider the welfare of furture beings with whom there is no possibility of reciprocity. The funny thing is that I think people get the implications of discount rates wrong, and that both zero and infinity point to more or less maximizing growth. A zero discount rate plus a basic grasp of the relationship between technology and growth plus a reasonable projection of the current trend of technological progress implies an obligation to maximize economic growth rates with no concern whatsoever to avoid the incidence of future externalities of current activity. This is an economic argument, but it is also something rather more. Likewise, an infinite discount rate implies that we should do the best we can for our children and grandchildren, and leave it to our grandchildren to worry about their grandchildren. If we’re doing something now that might hurt people none of us will coexist with 100 years, then so what?

I think the comments are correct. Economics (as currently practiced) has enormously useful tools for counting things – who benefits, who pays, aggregate benefits, how choices follow incentives, etc. This is essential for any rational policy analysis. But it’s silent on how things should be valued, especially when people just disagree on what’s valuable. Wilkinson expands in a later post:

I am thinking that the meanings of “cost” and “benefit” are either contested, due to diversity in reasonable evaluative standards, or their meanings are stipulated for technical purposes.

If the meaning is plural and contested, economists have no special comptence to decide between the different evaluative standards underlying different meanings of “cost” and “benefit”. Economists are people, and people can make arguments and exchange reasons for an against various evaluative standards, but economists do this as people with a conception of value, not as economists.

2.  Lawrence Mead at the Claremont Institute magazine reviews Thaler and Sunstein’s Nudge. He definitely does not like economists. A choice clip:

What economists mainly study in graduate school is not the economy but the mathematical methods required to frame and confirm rational choice hypotheses. They then apply this “tool kit” promiscuously to all manner of questions. Pride in their quantitative skills makes leading economists among the most cocksure figures in academia. In Freakonomics (2005), for instance, Steven D. Levitt and Stephen J. Dubner showed how economic methods can explain numerous puzzles in social behavior. The results are intriquing but also superficial.

For example, Levitt and Dubner show why teachers in public schools have incentives to help their students cheat on achievement tests—to make themselves look better. But they cannot explain why the teachers would violate their professional ethics to do this. Similarly, they show why low-level drug dealers have an incentive to work for low wages—to become drug bosses and make much more. But they cannot explain the climate of failure that causes poor youth to go into the drug trade in the first place. To explain behavior more fully would require the authors to undertake a deeper, more humble inquiry, involving more information sources and more hands-on contact with the phenomena under study. That sort of labor generates few academic plaudits today, and most economists avoid it.

Whoomp! There it is!

3. Matt Yglesias likes economists, but he’s got his finger on a real problem in macro-economics – the misguided need to base macro theories on micro foundations:

But as a methodological matter, it seems deeply unsound. As a general principle for investigating the world, we normally deem it desirable, but not at all necessary, that researchers exploring a particular field of inquiry find ways to “reduce” what they’re doing to a lower level. To make that concrete, in the modern day we have achieved a decent understanding of how principles of chemistry are grounded in physics’ understanding of the behavior of atoms. But it’s just not the case that advances in chemistry were made by demanding that chemists ground all their models in subatomic physics. On the contrary, chemistry moved forward in the first instance by having chemists investigate issues in chemistry and see which models and theories held up. Similarly, though psychology is intertwined with the detailed study of the biology of the brain, it’s not deemed illegitimate to research psychological issues in the absence of a specific neurological theory. Nor, for that matter, do microeconomists generally deem it necessary to explore in detail the psychological foundations of their models. The models are, rather, judged by whether or not they produce fruitful insights about economics. Trying to enhance models with better information about psychology isn’t against the rules, but it’s not required either. What’s required is that the models do useful work.

Yglesias has it right on. A more subtle formulation: correct theories should be consistent with each other, but valuable theories can be logically independent of each other. Or: if X and Y describe the same world (e.g., micro behavior and macro phenomena) then X and Y should not contradict each other, but X and Y can be derived in different ways. As Yglesias notes, that’s how lots of science works, but it’s a lesson that people conveniently ignore, especially in modern economics. At Econlog, Kling adds some historical context, as does David Henderson.

A discussion about whether the U.S. has lost its innovative umph has been roiling across the internets in reaction to Business Week’s provocative cover story.

I think it’s a bit of a stretch to argue that the innovation engine stalled. But I do worry that we’ve drifted toward the wrong kind of innovations. Assume for a moment that there are only two kinds of innovation: (1) innovation that makes you feel good; and, (2) innovation that makes you more productive. Feel good innovations include yummy new snacks, fluffier pillows, wizbangier cars and prettier internet graphics. Productivity enhancing innovations include various so-called “labor saving devices” (e.g., washing machines), information technologies that facilitate coordinated manufacturing, advances in transportation that allow us to spend more time working and less time taking in the scenery.

Both kinds of innovation create value. But they have different implications for creating wealth and, ultimately, prosperity. Feel good innovations are the fruits of wealth; they help us to enjoy life. But fundamentally, they are aimed at capturing a bigger piece of the consumption pie. Productivity-oriented innovations expand the pie.  They represent the great innovations of history: the cotton gin, steel, cars, interstate highways, microchips. These innovations allowed the rest of us to do a better job of doing everyday things. They created surpluses, expanded overall wealth and generated huge increases in prosperity in the 20th century.

Obviously, both kinds of innovation are important. But, wealth creation has to come before wealth consumption.  I wonder whether the balance has shifted too far to the feel-good side of the ledger.

Read the rest of this entry »

My position on American third parties is this: With two exceptions,* third parties are a waste. You are better off working within one of the major parties.

The latest evidence – the Libertarians. In 2008, there’s a huge disenchantment with the GOP and the public is actually on their side on many issues (e.g., the war, decriminalization of some substances, social liberalism). They also nominated Bob Barr, a professional politician. Despite this massive advantage, the libertarians failed to make any dent at all in national politics.  Check out this wiki chart on the 2008 vote tallies. Nobody voted for them (.4% – less than Nader!). Even when they succeed (in relative terms), nobody cares.  They probably tipped two states from McCain to Obama (NC and Indiana – two close states with big Barr votes), but you’d never know it.

In contrast, look at Ron Paul. As the Libertarian candidate in 1988, he was treated as the loony fringe guy and got .5% of the vote, almost the same pathetic tally as Barr 2008. In 2008, running on the same issues (hard core libertatianism) but doing so as an incumbent GOP congressman, Paul got way more attention. His campaign actually got some modest success – he scored 10% or more of the GOP delegates in Iowa, Nevada, Alaksa, Minnesotta, Montana , North Dakota, Washington state, Pennsylvania, Nebraska, and Idaho. In some of these states, he got 20% of the delegates. Some of this is due to others dropping out, but many primaries were early, and you’d think many people would line up behind the winner. This primary tally by itself easily dwarfs whatever he got as the third party candidate.

My lesson from this? Paul hasn’t changed in decades, he just changed the party label and got an immediate and tangible benefit. Barr, the experienced politician, went ronin and now shares the third party ring of hell with Cynthia McKinney, who moved from Congress to getting .12% of the vote on the Green ticket. So if you have strange political ideas, find a way to work in the system, rather than work outside of it – unless your idea of success is hanging out with Mr. Tie-Dye at the local Holiday Inn.

* In American politics, the exceptions seem to be personality based parties (e.g., Perot, Roosevelt) and parties built on a handful of issues that don’t quite fit into the regular parties (e.g., Prohibition, American Independence). But still, they have very limited success – the leaders may get a few seats and an occasional policy victory, but it is not a stepping stone to continued influence.

A listserv I belong to recently sent out a query for summer reading recommendations for MBA students. The responses included books like Growing and Sustaining Competitive Advantage and, the slightly more fun, Economics of Strategy.  I guess I’m the odd man here because the list I gave to my spring quarter MBA class had books like Alinsky’s Rules for Radicals. (Viva la revolucion!) That’s what summer reading should be about, right? Read something that’s different or that don’t usually have the time for and enjoy it!

So what’s on your summer reading lists? Here’s a sprinkling from my own list.

Academic (okay, I’d read these books no matter what season it was) -

• Managed by Markets: How Finance Re-shaped America by Jerry Davis
• Unanticipated Gains: Origins of Network Inequality in Everyday Life by Mario Small

Nonfiction -

• Home Game: An Accidental Guide to Fatherhood by Michael Lewis

Fiction -

• When Will There Be Good News by Kate Atkinson (can’t resist – Atkinson’s first two novels in this series are like candy to me)

What else should I be reading? I’d especially like opinions on new interesting fiction. Here are some past posts on summer reading.

Few days ago the Wall Street Journal reported that the hedge-fund Universa Investments LP, advised by Nassim Nicholas Taleb, author of the Black Swan, was betting that despite the Fed’s best effort things will go terribly wrong (again) and we will end up in deflation or hyperinflation (here, see also Bloomberg here).  Universa’s investment strategy is based, among other things, on buying deep out-of-the money options, with the assumption that the market is underestimating the probability of extreme events. So, for instance, in September 2008, Universa was purchasing out-of-the money options on the S&P 500 index at 90 cents, and when the market crashed they were selling them at around $50. Needless to say they have been quite successful with the crisis.

Taleb is not the only scholar putting his money where is mouth is. Behavioral economists Dick Thaler (Chicago) and Daniel Kahneman (Princeton), are on the board of Fuller & Thaler Asset Management, Inc.,  and leverage their research on behavioral biases to assess market reactions to news and identify mispriced assets.

After reading about these ventures I started wondering: what would an “Economic Sociology” fund look like?

Our field has been studying markets for a few years now, and maybe we already know a things or two that could be “translated” in investment strategies.  Zuckerman’s  “illegitimacy discount” and “structural incoherence“, for instance, might be an interesting starting point to develop an investment strategy on volatility.  Rao, Greve and Davis‘ work on security analysts’ coverage initiation and abandonment, and the literature on social influence among analysts, might help predict analysts’ behavior and stock reactions. Yuval Millo, Daniel Beunza and the Socializing Finance crowd must have discussed this problem, and I bet they will launch a “Performativity fund” one day: what would that fund look like?

I am sure that the “translation” of theoretical insights into investment strategies is a complicated task, but we can learn a lot about our theories and their limits with this thought experiment.

And who knows, maybe in a few years one of you will be profiled in Bloomberg, or GQ, as the new Taleb, hopefully with a better attitude!