Author Archives: Arnold Kling

Defining the term culture

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From a paper by Gary Gorton and others.

A sensible list of elements in that package, though neither nearly exhaustive nor likely satisfactory to all, is as follows, adapted from a variety of such lists in the literature:
• unwritten codes, implicit rules, and regularities in interactions;
• identities, self-image, and guiding purpose;
• espoused values and evolving norms of behavior;
• conventions, customs, and traditions;
• symbols, signs, rituals, and group celebrations;
• knowledge, discourse, emergent understanding, doctrine, ideology;
• memes, jokes, style, and shared meaning;
• shared mental models, expectations, and linguistic paradigms.

Pointer from Tyler Cowen.

The paper goes down hill from there, ending up with a mathematical model. I think that the best way to approach the issue of corporate culture is to ask what problems various practices are supposed to solve. I think that in general there are three types of problems, all of which plague the process of central planning in general:

1. Coordination/resource allocation. Without a price system, how do you allocate resources efficiently? For example, the corporate organization chart is supposed to help with coordination. Also supposed to address the coordination problem is that bane of every white-collar worker, the business meeting.

2. Incentives/principal-agent problems. How do you implement systems that are not gamed to the advantage of individuals within the firm but to the disadvantage of the owners of the firm?

There are many problems of this type. And there are various errors that could be made in either direction, e.g. giving middle managers too much incentive to take risks or too much incentive to be risk-averse.

3. Playing the game of evolution: stick with the status quo; copy another player; or innovate. Each alternative has its pros and cons, depending on market conditions and internal capabilities. If your business plays the game well, you coalesce around making the right moves. If you don’t, you make too many mistakes and you lose.

Hiring practices are important here. If you always promote from within, that will bias you toward playing “status quo.” If you hire a lot of senior management from other firms, that will bias you toward “copy.” If you hire junior people and advance them quickly, that will help you play “innovate.”

Office workers trickling back

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The WSJ reports,

The number of workers returning to traditional office space has been edging higher since the week of Labor Day, when an average of 31% of the workforce was back in the 10 major cities monitored by Kastle Systems. The average hit 35% during the week that ended Oct. 1 and 36% during the week that ended Oct. 8, a new high during the pandemic period, said the security company that tracks access-card swipes.

The Kastle Systems Office Occupancy Barometer seems like a really interesting indicator to follow.

Keeping up with the FITs, No. 21

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They’re at it again. One example:

Matt Yglesias writes,

what you don’t want to do, as a political movement, is run around looking for reasons to exile people from your political coalition. A non-trivial number of rank-and-file Democrats have a range of views on LGBT issues that put them at odds with the bulk of progressives. It is very important that those people keep voting for Democrats, or else Donald Trump is president again and progress on things like military service becomes impossible.

My thought:

He wants progressives to engage in rational political behavior. Tactically, you want to try to tolerate people with whom you do not always agree. But I would argue that Woke progressivism is not a political movement in that sense. Political movements are inclusionary, but it is in the nature of Wokeism to be exclusionary. Exercising the power of shaming, shunning, and excommunicating is at the essential core of Wokeism. The Woke would rather lose elections while retaining their power to intimidate than have it be the other way around.

New FITs links on wokeism

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The 20th edition of Keeping up with the FITs.

Wilfred Reilly writes,

According to the best publicly available data, members of most minority groups dislike PC culture more than whites do. Eighty-eight percent of Native American Indians, 87 percent of all Hispanics, 82 percent of Asian Americans, and 75 percent of blacks (vs. 79 percent of whites) call political correctness “a problem” for the United States. Per several studies, the only group that strongly supports the movement of speech in a more woke direction is made up of young liberal white women.

This is not so surprising. The moral dyad theory, as described in my review of The Mind Club, says that we simplify complex moral situations by assigning one party the role of unfeeling agent and the other party the role of helpless person who feels pain. In the case of political correctness, white males become the unfeeling agents and others become helpless feelers. In the extreme example, the party with agency is a robot and the party with only feelings is a baby. But a full human adult has both agency and feelings. So PC not only insults white males by treating them as unfeeling; it also insults others by treating them as infantile.

Some great FITs links

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I recommend checking this out. Concerning the last link in the essay, I write

Many of my readers know that in Specialization and Trade I pointed out that the political process for industrial policy is to subsidize demand and restrict supply, which is never what orthodox economics recommends for dealing with market failures. Subsidizing demand while restricting supply has ambiguous effects on output (in the case of housing, for example, the net effect is probably negative) while certainly raising prices.

This refers to Noah Smith’s link to a paper by Steven M. Teles, Samuel Hammond, and Daniel Takash.Their paper is called Cost Disease Socialism, which I think of as synonymous with “subsidize demand and restrict supply.”

I differ from Noam and from the authors in that I don’t believe that “cost disease socialism” is some sort of mistake or aberration. Instead, it is the inevitable path for industrial policy, given the way political incentives work. See Specialization and Trade.

Seminar: any more participants?

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I write,

Somewhat to my surprise, only a few of the paid subscribers so far have applied to participate in the seminar on Institutional Irrationality. I’m surprised that more folks prefer just to watch.

Anyway, if you have not applied because you don’t think your chances of acceptance are good, think again. Please apply by 6 PM New York time on October 25 if you wish to be one of the six attendees who will be unmuted during the seminar.

The essay includes procedures for applying.

Is Inflation a “high-class problem”?

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I would put it this way.

High unemployment is a really bad problem. If you think that inflation is the price that you pay for avoiding high unemployment, then you can legitimately say that inflation is the problem you prefer to have.

So I think that most of the attacks on Jason Furman and others who picked up on his tweet are being uncharitable. Moral: don’t try to make a subtle economic point in a tweet!

But I would also say that I reject the premise that inflation is the price that you pay to avoid high unemployment. So I would argue against Furman and others on that level.

I also think that inflation hurts the middle class and the poor more than it hurts the rich, because inflation creates confusion, and rich people are better able to navigate through the confusion. I could say more, but I already have, in my essay What’s Wrong with Inflation?

Matt Levine on basic finance

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Matt Levine writes,

principally, you can divide the thing into more than two tranches of claim. (Very safe super-senior claims get paid first, quite safe senior claims get paid next, then somewhat risky mezzanine claims, then quite risky equity claims.)

. . .Much of what happens in finance is some form of this move. And the reason for that is basically that some people want to own safe things, because they have money that they don’t want to lose, and other people want to own risky things, because they have money that they want to turn into more money. If you have something that is moderately risky, someone will buy it, but if you slice it into things that are super-safe and things that are super-risky, more people might buy them. Financial theory suggests that this is impossible but virtually all of financial practice disagrees.

The link goes to the Modigliani-Miller theorem. That theorem says that moves like this do not eliminate risk–they just redistribute it.

I like to say that the nonfinancial sector wants to hold short-term riskless assets and issue risky long-term liabilities; the financial sector accommodates this by doing the opposite. But the debt and equity claims issued by the financial sector have to be owned by someone. Ultimately, households hold those claims, but with government regularly stepping in, particularly to redistribute losses.

Every day, Levine seems to come across a new scheme by which financial intermediaries are getting away with issuing liabilities that are riskier than they are represented as being. These are schemes that will not end well.

Wesley Mouch watch

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Casey Mulligan writes,

Largely by stepping toward an economy in which workers bear the burden of distributing healthcare and housing with little regard to ability or willingness to pay, the Build Back Better bill (BBB) would implement the single largest permanent increase in work disincentives since the income tax came into its own during World War II.

…

The implicit employment and income taxes in BBB would increase marginal tax rates on work by about 7 percentage points. I expect that such a change in the disincentive would reduce full-time equivalent employment by about 4.5%, or about 7 million jobs.