One of the greatest economists in the 20th century passed away at the age of 102. His ideas of transaction costs and property rights revolutionized modern economics and altered the way economists thought about markets, firms, institutions, laws, governance, regulations and many more.
2013 is a bad year for new institutional economics, we already lost another great thinker, Armen Alchian, in February this year.
RIP, professor.
Monday, September 2, 2013
Friday, July 19, 2013
Bringing REAL Markets Inside the Firm
Eddie Lampert, CEO of Sears has brought real markets inside one big firm. The results? Disastrous. As Bloomberg Businessweek put it, he really tried to replicate Oakland A's success story in Moneyball, but in fact, he was running his firm like a Hunger Game.
Thursday, April 25, 2013
The Nerdy vs. The Powerful, says Colbert
Three economists from the University of Massachusetts, Amherst recently published a paper, claiming they have found an uncommon spreadsheet coding error in a famous AER paper, 'Growth in a Time of Debt', coauthored by Harvard economists Carmen Reinhart and Kenneth Rogoff. This immediately went viral since the key finding in Reinhart and Rogoff's paper had already become some politicians' cannonball in order to fire pro-austerity plans across the US and the Europe. Specifically, R-R have found that, on average, a greater than 90% debt to GDP ratio would lead to a growth rate of -0.1%. But according to the critics, the authors haven't taken the averages right in their Excel spreadsheet, and the correct number should be 2.2% instead of -0.1%, which is far from stagnation. Later, R-R offered their responses, twice - first rebutting all the critiques but then admitting the coding error while rebutting the rest (here is a nice summary of the entire episode).
I bought most of their second response, yet I still think their Excel error was dumb. Besides, if it were 2.2% rather than the eye-dazzling -0.1%, I would doubt they could ever publish it in the first place. Although Reinhart and Rogoff referred to their JEP piece where they've shown similar results of negative correlations, I still believe what really caught the eyes of economists as well as politicians was the magnitude of that correlation, particularly when the debt-to-GDP ratio passes the 90% threshold.
Interestingly, adding new flavor to this debate is neither economists (see here and here) nor politicians but comedian host Stephen Colbert. He took on this debate yesterday and turned it into something hilarious, something epic. He brought onto the stage one of the critics from UMass, an econ grad student Thomas Herndon, and shouted at these "left-leaning academi-aholes", "nerds! I bet you found them [the errors] on a Friday night with your mom, while the rest of us were going up to The Point and drinking PBR!"
I bought most of their second response, yet I still think their Excel error was dumb. Besides, if it were 2.2% rather than the eye-dazzling -0.1%, I would doubt they could ever publish it in the first place. Although Reinhart and Rogoff referred to their JEP piece where they've shown similar results of negative correlations, I still believe what really caught the eyes of economists as well as politicians was the magnitude of that correlation, particularly when the debt-to-GDP ratio passes the 90% threshold.
Interestingly, adding new flavor to this debate is neither economists (see here and here) nor politicians but comedian host Stephen Colbert. He took on this debate yesterday and turned it into something hilarious, something epic. He brought onto the stage one of the critics from UMass, an econ grad student Thomas Herndon, and shouted at these "left-leaning academi-aholes", "nerds! I bet you found them [the errors] on a Friday night with your mom, while the rest of us were going up to The Point and drinking PBR!"
Saturday, April 20, 2013
Bless Sichuan, bless Ya'an!
Yesterday around 8am local time, a devastating earthquake struck the city of Ya'an in western Sichuan province. At the time, I was still in bed at home in the city of Mianzhu, which is about 100 miles away from the epicenter. The tremor hit so violently that I rushed downstairs without second thought.
According to the public media, the magnitude and impact of this earthquake to Sichuan and China is second only to the Great Sichuan Earthquake (aka Wenchuan Earthquake) 5 years ago. Experts said that both quakes occurred along the same geological fault. So far, over 170 people lost their lives and more than 5,000 were injured. Let's bless everyone in Ya'an and Sichuan!
According to the public media, the magnitude and impact of this earthquake to Sichuan and China is second only to the Great Sichuan Earthquake (aka Wenchuan Earthquake) 5 years ago. Experts said that both quakes occurred along the same geological fault. So far, over 170 people lost their lives and more than 5,000 were injured. Let's bless everyone in Ya'an and Sichuan!
Tuesday, March 5, 2013
The World's First Modern Organization Chart
Business historian Alfred Chandler Jr. (1918-2007) once wrote in one of his most influential works, The Visible Hand, about the momentous impact of managerial innovations, such as corporate accounting, mass production, and the organization chart. From there, he even identified the world's first modern organization chart and described its impacts in granular details.
According to Chandler, the first modern organization chart is the New York and Erie Railroad pioneering plan created by it's manager Daniel McCallum and his associates. The purpose of the plan was to facilitate information flow from the bottom of the organization to its top in an age when the adoption of telegraph had largely increased the scale of the railroad as well as its managerial complexity. However, in none of Chandler's works had we actually seen what the chart looked like. In fact, as later revealed by Chandler in an HBR article published in 1988, "I have never seen a copy of McCallum's chart, but it was described in some detail by Henry Varnum Poor, editor from 1849 to 1861 of the American Railroad Journal. According to Poor, the chart resembled a tree. Its roots represented the president and the board of directors. Its branches were the five operating divisions and the passenger and freight departments. Its leaves indicated the various local ticket and freight agents, crews and foremen, and so on."
But the real curious question is, of course, what does the world's first modern organization chart look like? Caitlin Rosenthal, a postdoctoral fellow at the Harvard Business School finally found out (see below and enlarged here) - and as Chandler already told us, it's really not quite resemble the top-down, pyramid style chart we now see everyday, it's more like a tree and it's bottom-up.
According to Chandler, the first modern organization chart is the New York and Erie Railroad pioneering plan created by it's manager Daniel McCallum and his associates. The purpose of the plan was to facilitate information flow from the bottom of the organization to its top in an age when the adoption of telegraph had largely increased the scale of the railroad as well as its managerial complexity. However, in none of Chandler's works had we actually seen what the chart looked like. In fact, as later revealed by Chandler in an HBR article published in 1988, "I have never seen a copy of McCallum's chart, but it was described in some detail by Henry Varnum Poor, editor from 1849 to 1861 of the American Railroad Journal. According to Poor, the chart resembled a tree. Its roots represented the president and the board of directors. Its branches were the five operating divisions and the passenger and freight departments. Its leaves indicated the various local ticket and freight agents, crews and foremen, and so on."
But the real curious question is, of course, what does the world's first modern organization chart look like? Caitlin Rosenthal, a postdoctoral fellow at the Harvard Business School finally found out (see below and enlarged here) - and as Chandler already told us, it's really not quite resemble the top-down, pyramid style chart we now see everyday, it's more like a tree and it's bottom-up.
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