The tractability of our principal-agent framework also enables us to investigate several extensions. First, we introduce ex ante investments and show that there is a type of “holdup” in this framework, where workers underinvest in skills that increase their productivity in their current coercive relationship (since workers that are more productive with their current employer are coerced more) and overinvest in skills that increase their outside option (since coercion is decreasing in their outside option).
Sunday, May 30, 2010
Friday, May 28, 2010
Wednesday, May 26, 2010
To briefly summarize, Sam finds a parallel between hunter-gatherer societies of the distant past and intellectual property economies of the 21st century. In both societies, a "big kill" (either a Kudu or a new software idea, for example) is characterized by high fixed costs and extremely low marginal costs and where the social pressures to share in the wealth are great. Sam has worked for over a decade now on showing how such hunter-gatherer societies died out and were replaced by domesticated farming, replaced by the private property regime, about 10,000 years ago if I recall his previous work correctly. He now thinks we are seeing a phasing back to the ancient model as creative commons and other open-source projects as well as a more knowledge-based economy gain prominence.
This is not intended to be a criticism, only to recognize the great significance of such an undertaking. However, I do wonder whether Bowles, in following this approach, is making some implicit assumptions about evolution and history that are not supported by the evidence. Taking a more modern view of property rights development -- that of the evolution of capitalism -- one has to question whether such a process can simply be undone. In Bowles' model, new property rights regimes arise due to competition within "firms" among different property rights models, where the efficiency or "evolutionary fitness" of different groups will determine outcomes. It's a symmetric setup because competition can be rerun countless times. This is not an explanatory model of capitalism that I've ever heard of, unless I'm missing something in translation (between the biological and economic history lingo). In fact, it seems more like an economic model of perfect competition, where the timeless nature of equilibrium knows no distinction between forward and reverse.
It just strikes me as very strange that Sam is taking this approach, since he is obviously quite familiar with the asymmetries inherent in relationships defined by economic power. And if economic power drives history... well?
What am I missing? Any thoughts?
Tuesday, May 25, 2010
The era of strong unions, high minimum wages, high top marginal tax rates, etc.
was also a period of rapid growth and rising living standards. That doesn’t
prove causation; it does disprove the widespread dogma that these things are
always economically devastating. And it’s telling that so many on the right have
airbrushed the whole postwar generation out of history.
This post reminded me of an article I recently read and suggested as optional reading for my Econ 362, American Economic History class which has a similar thesis but that it pertains to the long run: the history of the U.S. economy is built on laissez-faire government, so any modern attempt to regulate, say, the financial system, is to turn back on historical principles of American democratic capitalism. The article is here. A good excerpt:
American capitalism also developed at a time when government involvement in theBut as I hinted at in an earlier post, one can extend Krugman's argument against the conservative commentary of Reagan back to the early nineteenth century at least: government has, through various channels throughout history, substantially altered the growth trajectory of the economy across crucial dimensions such as labor market "policy" and property development.
economy was quite weak. At the beginning of the 20th century, when modern
American capitalism was taking shape, U.S. government spending was only 6.8% of
gross domestic product. After World War II, when modern capitalism really took
shape in Western European countries, government spending in those countries was,
on average, 30% of GDP. Until World War I, the United States had a tiny federal
government compared to national governments in other countries. This was due in
part to the fact that the U.S. faced no significant military threat to its
existence, which allowed the government to spend a relatively small proportion
of its budget on the military. The federalist nature of the American regime also
did its part to limit the size of the national government.
So in summary, Krugman praises regulation and general state policy in the economy as eliciting the strongest combination of successful capitalism and redistribution to counter the evil effects of inequality. Conservatives, on the other hand, either want to say such redistribution coupled with capitalism's success never happened or is a "deviation from optimal performance" (as in the case of the long run view of history), or simply ignore the success altogether (as with the "Golden Age" story). Something is seriously wrong with conservatives when they can't even develop a consistent critique.
If I were conservative and I wanted to critique the policies of the U.S. over the course of the last 200 years, I might as well become an anti-modern country bumpkin. Don't get me wrong, there's nothing wrong with that at all! -- in fact, I would say it's the most faithful type of conservatism there is. But that's for a later post!
Keeping with a common theme on this blog lately, how best to drive this point of institutionally contingent markets on the popular front?
Still waiting to hear suggestions!
Monday, May 24, 2010
I feel sure that with a little more experience we shall use the new-found bounty of nature [once we are at the stage of technology at which we can solve the 'economic problem'] quite differently from the way in which the rich use it to-day, and will map out for ourselves a plan of life quite otherwise than theirs. For many ages to come the old Adam will be so strong in us that everybody will need to do some work if he is to be contented. (368-369)
People were required to work in order to meet their basic material needs but they also benefited from the challenge and difficulty of work itself. Marx suggested that human beings were drawn to work as a means to realise their 'species being' and he considered the participation in work as the basis for a contented and fulfilled life. ("The 'work as bad' thesis in economics: origins, evolution, and challenges," Labor History Vol. 50, No.1 [Feb. 2009]: pg. 48)
Sunday, May 23, 2010
the economic problem may be solved, or be at leas within sight of solution, within a hundred years. This means that the economic problem is not -- if we look into the future -- the permanent problem of the human race (366)
Thursday, May 13, 2010
Second, industrial policy needs to rely on both carrots and sticks. Given its risks and the gap between its social and private benefits, innovation requires rents – returns above what competitive markets provide. That is why all countries have a patent system. But open-ended incentives have their own costs: they can raise consumer prices and bottle up resources in unproductive activities. That is why patents expire. The same principle needs to apply to all government efforts to spawn new industries. Government incentives need to be temporary and based on performance.
Wednesday, May 12, 2010
Lipsey was the protagonist and protector of the doctrine of the Phillips curve, which held that a tradeoff existed between unemployment and inflation. At the 1968 American Economic Association meetings Milton Friedman countered Lipsey's arguments in what was perhaps one of the great arguments in economics.
Some professors date Harvard and MIT's rivalry in economics back to an unmistakable controversy in the early '40s when Paul Samuelson, then a graduate student at Harvard, was passed over for a faculty appointment at the University. At the time, widespread reports attributed Harvard's failure to hire Samuelson to anti-Semitism.
Samuelson accepted an offer from MIT's young, unspectacular department, and proceeded to dominate the field of economics as few other scholars have in the century. Almost single-dedly, he attracted a long string of outstanding graduate students and faculty members to MIT, most notably Robert Solow.
"It will take half a century for Harvard to recover from that anti-Semitism," Otto Eckstein. Warburg Professor of Economics, told Business Week recently. Part of that effort to recover has included regular tenure offers to Solow and Samuelson, reportedly including an offer of a University Professorship to Samuelson.
We see here a potential validation of our hypothesis from above -- from a Crimson article in 1982!
But there is much, much more to come, as we enter the early to mid 70s and the ideological bias extends itself to other much more important political spheres.
Coming up, then?
...and much, much more.... stay tuned!