HT: Cafe Hayek
Deirdre McCloskey on the fatal conceit
30 Oct 2014 Leave a comment
in applied price theory, applied welfare economics, comparative institutional analysis, development economics, entrepreneurship, liberalism Tags: Deirdre McCloskey, The fatal conceit, The pretence to knowledge
HT: Cafe Hayek
Joseph Schumpeter | MRUniversity
28 Oct 2014 Leave a comment
in economic history, entrepreneurship, history of economic thought, technological progress Tags: creative destruction, entrepreneurship, Joseph Schumpeter
Policy bubbles alert: the R&D fetish is a major threat to innovation and economic growth
28 Oct 2014 Leave a comment
From Sam Peltzman’s (1991) review of the handbook of industrial organisation
22 Oct 2014 Leave a comment
Hayek on the central role of personal disappointment in economic progress
20 Oct 2014 Leave a comment
in applied price theory, entrepreneurship, F.A. Hayek, industrial organisation, survivor principle Tags: competition as a discovery procedure, FA Hayek, market process, profit and loss
HT: David Henderson
Why does France have so many 49-employee companies?
20 Oct 2014 Leave a comment
in applied price theory, entrepreneurship, labour economics Tags: France, labour regulation, size contigent regulation
France has 2.4 times as many companies with 49 employees as with 50. Under French labour law, once a company has at least 50 employees, management must create three worker councils, introduce profit sharing, and submit restructuring plans to the councils if the company decides to fire workers for economic reasons. The 3,200 page Code du Travail dictates everything from job classifications to the ability to fire workers.
It is unlawful in France to lay workers off to improve the profitability of the company. Michelin laid 451 workers off in 1999, announced an increased profit 2 months soon after. It was successfully sued for €10 million in the Labour Court on the grounds that economic layoffs are justified to preserve the competitiveness of a firm or of the group to which it belongs, but not in order to improve it.
Participants in the French version of the television show Survivors sued the producers for redundancy pay when they were voted off the show by the tribal council.
When entrepreneurs and managers are confronted with laws that introduces a cost of acquiring a size that is beyond a certain threshold such as 49 employees, some will choose to stay below the threshold and stay at an inefficiently small size. The more talented managers are not running the larger firms because of this barrier to growth.
In Firm Size Distortions and the Productivity Distribution: Evidence from France, Luis Garicano, Claire LeLarge, and John Van Reenen found that the cost of the French labour regulations is approximately equivalent to a 5-10% increase in wages. The main losers from the French regulation from this misallocation of managerial talent are workers (and to a lesser extent large firms) and the main winners are small firms.
Piketty on inequality: views of the IGM economic experts
16 Oct 2014 Leave a comment
in applied price theory, applied welfare economics, comparative institutional analysis, constitutional political economy, discrimination, economic growth, entrepreneurship, gender, human capital, income redistribution, industrial organisation, labour economics, Marxist economics, Rawls and Nozick Tags: Daron Acemoglu, James Robinson, Piketty, poverty and inequality, The Great Enrichment
Question: The most powerful force pushing towards greater wealth inequality in the US since the 1970s is the gap between the after-tax return on capital and the economic growth rate?
Daron Acemoglu and James Robinson have a simple explanation for why Piketty is wrong:
But like Marx, Piketty goes wrong for a very simple reason. The quest for general laws of capitalism or any economic system is misguided because it is a-institutional.
It ignores that it is the institutions and the political equilibrium of a society that determine how technology evolves, how markets function, and how the gains from various different economic arrangements are distributed.
Despite his erudition, ambition, and creativity, Marx was ultimately led astray because of his disregard of institutions and politics. The same is true of Piketty.
Utopia, you are standing in it! 
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