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Howard Kunreuther and Erwann Michel-Kerjan were interviewed on Knowledge @ Wharton. The podcast and transcript are available here.
The interview covers the current financial crisis, recent natural disasters (Hurricane Katrina), and impending pandemics (swine flu). This is a very interesting conversation and well worth a listen.
In his Wall Street Journal op-ed, David Neumark, professor of economics and co-author of Minimum Wages argues that the minimum wage increase set for July may push many young and unskilled workers out the labor market. "The reduction in jobs for youths might be an acceptable price to pay if a higher minimum wage delivered other important benefits." But evidence suggests that "employers may opt for a teenager, who may have high potential, over an adult who, because he still earns a low wage, likely has much lower potential."
The broader debate yields heated opinion on both sides, but the narrower question--Should minimum wages be increased during hard times, elicits interesting responses.
Neumark believes a delayed increase would support job growth in the long term. "Given present economic conditions, the imperative should be to create and enhance job opportunities....Minimum wages, like most public policies, confront us with trade-offs. An employed, low-skilled worker who keeps his job earns a slightly higher wage. But a worker who loses his job, or a labor market entrant or unemployed worker who cannot find a new job, pays a much higher cost."
For a perspective on the human cost of unemployement, today's New York Times has an article about the newly unemployed finding work on the Jersey Shore.
Paul Krugman was awarded the Nobel Prize for Economics this morning, according to a Reuters article posted this morning. Krugman is a New York Times columnist, professor of economics and international affairs at Princeton University, and staunch Bush critic. He is also the author of several MIT Press classics, including: Geography and Trade, Rethinking International Trade, The Age of Diminished Expectations, Development, Geography, and Economic Theory, and Pop Internationalism. He was favored to win the award, but told Reuters it came as a surprise:
I rushed to take a shower … I called my wife and I called my parents. I've not yet managed to get myself a cup of coffee,” he said.
But lack of caffeine did not stop him offering an ad-hoc diagnosis of how the world economy was faring.
"We are now witnessing a crisis that is as severe as the crisis that hit Asia in the 90's. This crisis bears some resemblance to the Great Depression."
Praising world leaders' efforts to staunch the financial bleeding, he added: "I'm slightly less terrified today than I was on Friday."
Congratulations Professor Krugman!
The story of the day, of course, is the Bush Administration's proposed $700 billion plan to bail out America's ailing financial institutions. Henry Paulson, Secretary of the Treasury, and Ben S. Bernanke, Chairman of the Federal Reserve, have been testifying before what appear to be deeply skeptical Congressional committees on the nature and necessity of the bailout.
Many voices have been raised against the Administration's plan. Among them are a list of economists who signed this petition decrying certain aspects of the proposed bailout. Several of our authors are signatories to the petition. One of them is David K. Levine, of Washington University in St. Louis, who is coauthor of The Theory of Learning in Games. We asked him for a few additional words on the financial crisis and the proposed cure, and he sent us the following thoughts, edited from posts he's done at the Against Monopoly blog.
The original proposal for a bailout says simply that the Treasury secretary is given a 700 billion dollar credit line and told to go out and play the mortgage backed security market, appointing whoever he chooses, and buying and selling without any oversight, concurrent or retroactive. Can I imagine a better prescription for political corruption? I'm not imaginative enough. I'm imaginative enough to think that however good the intentions of the (politically appointed) Secretary might be, the people who do the buying and selling will feel sympathetic to their friends and will want to do what they think the boss man would "want them to do" towards his friends. Some will not give in to the temptation. Others will. And on the other side those who receive lesser bailouts will think that it is unfair and driven by politics - regardless of whether or not it is.
Current negotiations seem to be in the direction of expanding the authority of the Treasury secretary to buy more kinds of securities, and providing a toothless oversight board. This does not seem an improvement.
Hat tip to Brainiac's Chris Shea for noticing the petition.
Marshall Sahlins -- emeritus professor of anthropolgy and the social sciences at the University of Chicago and the author of the Zone title Culture in Practice -- has written an angry essay in the Chronicle of Higher Education on the university's plans to establish a Milton Friedman Institute. Friedman, of course, was one of the twentieth century's most influential and controversial economists, an extoller of free market power and a hater of governmental regulation. Fittingly, the university plans to underwrite the institute's cost with donations from the private sphere; perhaps less fittingly, those who contribute more than one million dollars will have the right to participate in the institute's academic deliberations.
Sahlins - who earlier this year signed an open letter to university president Robert Zimmer expressing deep reservations at the idea - thinks that an institute with Friedman's name on it funded by private dollars "will brand the University of Chicago as an academic instrument of a certain ideology." Here is the nub of his argument:
The Milton Friedman Institute will provide the rich and powerful with the best self-promoting ideas their money can buy. For its part, the university will be compromised by this commodification of knowledge in which a certain orthodoxy about free markets and self-serving individualism easily proves to be the highest bidder...If we allow the university to be outsourced to extra-academic, partisan interests, it will become a money-based political economy of truth values.
Read the whole essay here. Hat tip to Christopher Shea, who has some additional thoughts about Sahlins's essay at the Boston Globe's Brainiac blog.
There's a rising fascination with Rome and many think they are a
precurser to US power today. Are we a good Rome or an evil one? Alice Amsden (Escape from Empire) and Cullen Murphy (Are We Rome?) square off on the issue of "Empire" on PRI's Open Source radio. Here's the interesting lead-in from Chris Lydon's introduction:
There are two wonderfully distilled small books here on what has seemed to me the underlying choice of our time: Empire or Republic? The oldest warning from our Founders, who knew their Roman history, is that the republic was ours only, as Franklin said, “if you can keep it.” Furthermore, it seems that the broadest underlying consensus off the presidential blarney trail is that Empire is the name of what has gone wrong in our country. My consensus ranges back to the warnings of George Washington and John Adams but also Mark Twain and William James. Among contemporaries it includes opposite figures like Pat Buchanan and the late Susan Sontag, the repentant Niall Ferguson and the left-conservative Norman Mailer, not to mention Chalmers Johnson and Gore Vidal.
Empire as a debating theme may not be ripe yet for presidential politics, but let us make it the stuff of a radio hour and this open thread, please.
And an interesting hour it was. Listen to the conversation here. Contribute to the ongoing online discussion here.
Sadly, this interview is one of the final segments, their website reports. They are going on hiatus for the summer in the hopes of finding more funding.
Entrepreneur.com recently announced their 9 best classic business books of the past 30 years. Out of the Crisis, published in 1982 and written by W. Edwards Deming, secured one of those spots.
W. Edwards Deming was a statistician from Iowa who has been attributed to revolutionizing Japanese industry in the second half of the 20th century. How did this happen?
After World War II, General MacArthur was given responsibility to rebuild Japan's manufacturing industry. Deming worked as a census consultant to the Japanese government, where he taught the theories and fundamentals of statistical process control to Japanese business leaders. He visited Japan for many years to consult and later to witness economic growth that he had predicted as a result of application of these techniques learned from Walter Shewart at Bell Laboratories.
Entrepreneur.com's take on why Out of the Crisis "mattered", and why it still matters today:
Why it mattered: Deming introduced statistical methods for quality measurement and improvement in post-war Japan, guiding its rise to manufacturing superstardom. In the 1970s, U.S. business leaders worried about Japanese inroads asked Deming for help, beginning the quality revolution here.
Deming's teachings challenged American business practice at almost every point. Among his most revolutionary ideas were the notions that poor management--not slacker workers--was responsible for most quality problems, and the way to boost quality was to carefully measure defects and the effects of changing processes.
Why it still matters: Although much low-hanging, quality-management fruit has been picked, increasingly rigorous applications of Deming's theories--notably the approach called Six Sigma--can still provide significant advantage over less disciplined competitors.
Deming's famous 14 points of management address matters far-removed from the statistical methods he's most remembered for. Among other things, he strongly advocated a customer focus, using market demands to define the standards of good quality, long before it was popular.
Deming's concepts might not only be applied to business - they might also be applied to educational reform as well, according to this recent article in the Fordham University online newsletter.
Cheryl Schonhardt-Bailey, author of From the Corn Laws to Free Trade: Interests, Ideas, and Institutions in Historical Perspective, reminds us of the political and economic origins of a very popular magazine:
Any reader of The Economist is aware of that publication’s commitment to free trade, but less well known is the dramatic context in which James Wilson founded the new paper in September 1843—i.e., the historic struggle for repeal of the protectionist Corn Laws in Britain. One might pause at this point to ask the relevance of such an event to the 21st century, but as Anne Krueger (former managing director of the IMF) recently noted, “the debate over the Corn Laws is a powerful reminder of how little has fundamentally changed in the way the debate over free trade is conducted.”(1) The early 1840s were a time of protests, turmoil and agitation throughout Britain as the Conservative government under Sir Robert Peel staunchly refused to consider changing decades of protection for agriculture (known as the Corn Laws). As Parliament consisted of mostly landowning aristocrats, those in power were also perceived to be the chief beneficiaries of the Corn Laws, which raised the spectre of class conflict between the middle class industrialists who sought free trade in agriculture as a means to expand the export of manufactured goods and landowners, who sought to preserve both their economic and political monopoly.
So how did The Economist enter into the story? By spring of 1843, Wilson had frequently assisted the free trade lobby (the Anti-Corn Law League) in its repeal campaign with his well-argued speeches and essays, which relied on statistical figures and facts to demonstrate the case for free trade, but were expressed plainly and clearly.(2) In summer 1843, the League was dissatisfied with the press coverage it was receiving and Wilson proposed to found a new publication, The Economist, which would be “devoted to the ideas of free trade but not an avowed organ of the League.”(3) As an independent newspaper, Wilson and the League hoped it would appeal to important individuals who were interested in economic issues but averse to the overt pressure tactics of the Anti-Corn Law League.(4) The less well-known part of the story is that the League provided substantial financial assistance to The Economist – for instance, in purchasing 20,000 copies of the paper to distribute to leading Tories who might be persuaded by the succinct and persuasive (and independent) arguments of The Economist to support free trade, and reputedly also in donating funds directly to the newspaper.(5)
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