Accounts!

The Spring issue of Accounts, the Economic Sociology Section newsletter, is out. Grab it here, at the Michigan Economic Sociology and Organizations Cluster website. This issue features an interview with SocFinance blogger Daniel Beunza, an essay by Monica Prasad, reviews of Krugman’s newest book and Peggy Somer’s Genealogies of Citizenship as well as a blogroll by OrgTheory’s Fabio Rojas. Check it out!

Hahvahd

I’m headed to Cambridge, MA tomorrow. I’ve never been there, or to Harvard, before, though I did make it to Boston for last year’s ASA. I will be attending the Objects of Knowledge, Objects of Exchange conference on Friday and Saturday. On Wednesday and Thursday, I’ll be poking through my first ever archival collection: the papers of Simon Kuznets. If anyone out there is around Boston and wants to get coffee or somesuch on Wednesday or Thursday, or can recommend anywhere great to eat or sit around and do work at near Harvard’s campus, send me an email or leave a comment!

Mimetic Isomorphism in Action: Newsletter Edition

I am currently laying out the next issue of Accounts*, the economic sociology section’s newsletter, and I just had to decide how to format book reviews. Lacking any clear reason for choosing one of the infinitely many similar options, I decided to go ahead and just take AJS’s style for book reviews and modify it for two columns. Why AJS? High status, easy to find reviews in JStor. Is this mimetic isomorphism, pure and simple? Or, to add another twist, is this a better example of the performativity of organizational theory, because I was thinking about DiMaggio and Powell while I was copying the form?

* Look for the next issue sometime in the coming week or two!

From Trust-Busting to Too Big To Fail

This morning, while clearing out a backlog in my RSS feeder, I watched this interesting 60 Minutes clip about the FDIC. The clip follows the FDIC as they take over and sell off a small bank. The FDIC has posted the clip on their website here, so you can imagine they come out looking pretty good (and perhaps deservingly so – as they note, not a single insured dollar has been lost since the FDIC was created). At one point, 60 Minutes discusses with Bair, the chair of the FDIC, whether or not she thinks we should limit the size of banks. Here’s the transcript (from the news story version):

“Ben Bernanke, the chairman of the Federal Reserve, says that the system is unfair for smaller banks, and that’s just the way it is,” [CBS Reporter] Pelley pointed out.

“Well, I think that’s true,” [FDIC Chairwoman] Bair agreed. “And going forward, I think we need to really review the size of these institutions and whether we should do something about that, frankly.”

Bair surprised Pelley when she suggested that maybe the mega banks, those bailed out by taxpayers, shouldn’t be allowed to exist in the future.

“I think that may be something that Congress needs to think about,” she said.

“Actually limit how big a bank can be?” Pelley asked.

“Yeah. Well, you know, I think taxpayers rightfully should ask that if an institution has become so large that there is no alternative except for the taxpayers to provide support, should we allow so many institutions to exceed that kind of threshold,” she explained.

“The idea would be that no bank would grow so large that it posed a systemic risk to the economy,” Pelley said.

“Systemic risk, that’s right,” Bair agreed.

80 years ago, the rationales for breaking up large businesses were all about preventing them from being too powerful and thus too profitable and thus driving out the competition and making everyone worse off by making a market no longer competitive. Now the rationale is about being too risky, and in particular, posing too big a risk to the economy as a whole (not even a single market)*. The combination of institutional and ideological changes that make this switch possible are pretty staggering.

* To be fair, the older rationales are still employed (think of the big Microsoft case), but this systemic risk argument seems utterly different and new (though I’ll need to do more research and report back before I’m certain… unless someone out there already has?).

The Unified Bothan Information Scale

Famously*, while giving the origins of the stolen plans for the second Death Star, Mon Mothma sadly reported that “Many Bothans died to bring us this information.” The line has become something of a minor hit in certain internet circles, as a quick google search reveals. Naturally, this line gives rise to an interrogative spin-off: “How many Bothans died to bring us this information?” I think this would make an excellent scale to measure the empirical content of a research project, article, dissertation, etc. For example, a journal article based on a pilot interview study might have required the death of 10 Bothans**, while a project that surveyed 1000 migrants at the US-Mexico Border for a dissertation project could have required the death of 50 or 100 Bothans. We could call this measure something like “The Unified Bothan Information Scale”, although I would accept sillier names.

Ok, clearly it is past my bedtime.

*That is, famously to anyone who has spent hours playing Star Wars related games, reading Star Wars related books, and reading Wookiepedia to make fun of while participating in Star Wars fandom.
**Perhaps, for qualitative work, N_Bothans ~ N_sample? Presumably for quantitative work, the relationship would be concave, as the information content of surveys diminishes, as well as the number of Bothans who have to die to bring you a larger N.

Academia Gone Wild

As I mentioned in an earlier post, I’m a big fan of Sociology humor and have participated in making some of my own at our department’s annual cabaret. So, this post just catalogs some of my favorite Sociology, Economics, Math, Philosophy and Statistics humor videos, including my own performance of “I am the very model of a modern sociologist” (at the end of the post). Did I leave something hilarious out? Leave a link in the comments! Also, it’s a long post!

Time, Time, Time is a… Social Construction?

I love Daylight Savings Time, but not for the reasons cited by most of its supporters: longer days, energy savings, etc. No, I love Daylight Savings because it is my favorite example of the arbitrariness of fundamental aspects of social life. By arbitrary, I do not mean random or haphazard, but rather something like “arbitrated”, achieved by consensus, debate, politics, etc. and not essential. DST shows that time itself is arbitrary, or socially constructed. It’s been a long time since we fixed time zones, so it’s easier to forget how those were arbitrary as well, and their justification seems more essential or natural (i.e. the sun comes up at different times based on your location). But DST is purely social – we want more daylight or lower energy usage and we get that (or try to, at least) by tricking other social arrangements that rely on a fixed clock. It’s great.

So, if it comes up for a vote at any point, I’d vote for keeping DST. Sure, eliminating it would be a great example of the arbitrariness of time, but only for a decade or two, and then all the intro soc students will blink uncomprehendingly. DST requires us to change our clocks twice a year (until, of course, everything with a clock also has DST built in, like our computers and cell phones) and thus reminds us that we have fixed our days into 24 hours in a particular way and, if we like, we can fix time differently.

“Thou still unravished bride of quietness,
Thou foster-child of silence and slow time…”

Jon Stewart on Competing Presidential Approval Indicators

Here’s a snippet from the Daily Show’s excellent coverage of the financial crisis last week. You can find just the relevant clip here (it’s the third clip down, though the whole episode is fantastic). Jon is talking about the all-knowing Dow as a presidential approval indicator, as seen on any major financial news network:

Yes, the Dow knows all and it doesn’t like what it sees. But you people just don’t get it, giving Obama 60% approval ratings. F*ing morons. I know you people, you six-pack sippin’, iceberg lettuce-eating, America-loving non-elitists. Sitting down in your ivory basements thinking, “Isn’t the Dow Jones Industrial Average just a short twitch numerical representation of a bunch of guesses about other people’s assumptions about the financial well-being of an arbitrarily chosen group of 30 out of tens of thousands of possible companies?” No! You’re wrong! It is a real time, cause and effect precision barometer of how the president is doing. It’s been that way for years!

Why Academic Macroeconomics Can’t Save Us

Willem Buiter, professor of political economy at the LSE and former central banker, has an excellent critique of modern macroeconomics at VOX EU today. His argument has three main positions, not entirely novel but all excellently argued. The first is a rejection of the idea of “markets in everything” or “complete markets”:

It is clear that, when searching for an appropriate simplification to address the intractable mess of modern market economies, the starting point of ‘no markets’, that is, autarky or no trade, is a much better one than that of ‘complete markets’. Goods and services that are potentially tradable are indexed by time, place and state of nature or state of the world. Time is a continuous variable, meaning that for complete markets along the time dimension alone, there would have to be rather more markets for future delivery (infinitely many in any time interval, no matter how small) than you can shake a stick at. Location likewise is a continuous variable in a 3-dimensional space. Again rather too many markets. Add uncertainty (states of nature or states of the world), never mind private or asymmetric information, and ‘too many potential markets’, if I may ruin the wonderful quote from Amadeus attributed to Emperor Joseph II, comes to mind. If any market takes a finite amount of resources (however small) to function, complete markets would exhaust the resources of the universe.

I really like the idea that we need to start from the assumption of *no* markets, rather than markets everywhere with some failures, and work forwards, asking along the way, “For every good, service or financial instrument that plays a role in your ‘model of the world’, you should explain why a market for it exists – why it is traded at all.” I think this argument fits nicely with most of the economic sociology critiques of economics – markets are social structures, and perilous ones at that, and they are hard to bring into existence and maintain, and thus their existence (rather than their lack) is the interesting story.

His second argument is that even given the existence of markets, there is no reason for them to behave rationally unless there is some auctioneer at the end of time making everything work out nicely (e.g. a central planner). Thus, the efficient markets hypothesis leads to models of planned economies, not market ones. It’s very counterintuitive at first glance, but actually a rather elegant argument.

The friendly auctioneer at the end of time, who ensures that the right terminal boundary conditions are imposed to preclude, for instance, rational speculative bubbles, is none other than the omniscient, omnipotent and benevolent central planner. No wonder modern macroeconomics is in such bad shape. The EMH is surely the most notable empirical fatality of the financial crisis. By implication, the complete markets macroeconomics of Lucas, Woodford et. al. is the most prominent theoretical fatality. The future surely belongs to behavioural approaches relying on empirical studies on how market participants learn, form views about the future and change these views in response to changes in their environment, peer group effects etc. Confusing the equilibrium of a decentralised market economy, competitive or otherwise, with the outcome of a mathematical programming exercise should no longer be acceptable.

Lastly, even if we buy that in the long-run prices somehow converge to where they should be, modern macroeconomics has linearized reality to the point of making their models worthless for policy purposes because they ignore all the messy interactions between markets, even in the short term:

If one were to hold one’s nose and agree to play with the New Classical or New Keynesian complete markets toolkit, it would soon become clear that any potentially policy-relevant model would be highly non-linear, and that the interaction of these non-linearities and uncertainty makes for deep conceptual and technical problems. Macroeconomists are brave, but not that brave. So they took these non-linear stochastic dynamic general equilibrium models into the basement and beat them with a rubber hose until they behaved. This was achieved by completely stripping the model of its non-linearities and by achieving the transubstantiation of complex convolutions of random variables and non-linear mappings into well-behaved additive stochastic disturbances.

Alright, that’s enough big quotes. The whole article is only a few thousand words, I highly recommend it.

T. Roosevelt For One World Government?

From Roosevelt’s 1907 State of the Union Message (quoting an earlier speech):

The makers of our National Constitution provided especially that the regulation of interstate commerce should come within the sphere of the General Government. The arguments in favor of their taking this stand were even then overwhelming. But they are far stronger to-day, in view of the enormous development of great business agencies, usually corporate in form. Experience has shown conclusively that it is useless to try to get any adequate regulation and supervision of these great corporations by State action. Such regulation and supervision can only be effectively exercised by a sovereign whose jurisdiction is coextensive with the field of work of the corporations–that is, by the National Government.

If you update the last sentence, it reads pretty well.