Econolosophy — History v Statistics

History and statistics serve a common purpose: to understand the causal force of some phenomenon. It seems to me, moreover, that statistics is a simplifying tool to understand causality, whereas history is a more elaborate tool. And by “more elaborate” I mean that history usually attempts to take into account both more variables as well as fundamentally different variables in our quest to understand causality.

To make this point clear, think about what a statistical model is: it is a representation of some dependent variable as a function of one or more independent variables, which we think, perhaps because of some theory, have a causal influence on the dependent variable in question. A historical analysis is a similar type of model. For example, a historian typically starts by acknowledging some development, say a war, and then attempts to describe, in words, the events that led to the particular development. Now, it is true that historians typically delve deeply into the details of the events predating the development – e.g., by examining written correspondence between officials, by reciting historical news clippings to understand the public mood, etc. – but this simply means that the historian is examining more variables than the simplifying statistician. If the statistician added more variables to his regression, he would be on his way producing a historical analysis.

There is, however, one fundamental way in which the historian’s model is different from the statistician’s: namely, the statistician is limited by the fact that he can only consider precisely quantified variables in his model. The historian, in contrast, can add whatever variables he wants to his model. Indeed, the historian’s model is non-numeric.[1]

Econolosophy

History v Statistics

There are advantages and disadvantages of quantitative, numeric methods and qualitative, non-numeric methods. In the first place, qualitative, non-numeric methods can incorporate qualitative, non-numeric methods, but the reverse does not apply, since quantification is limited to that which can be reduced to quantity without sacrificing anything that is relevant.

This is clear in equating price with value, for example. Value is qualitative and price is quantitive. The key assumptions on which conventional economics rests involve the quantification of economic value independent of other values in terms of price discovered in markets, as well as the quantification of utility. These are simplifications that eliminate from consideration a great deal that is both qualitative and also relevant. While a calculus of utility is an arbitrary construct, there is no moral calculus at all.

On the other hand, history is able to view context holistically in terms of both quantity and quality. Whereas power other than market power is irrelevant in conventional economics, it is central in history.  It is also central in economics as Marx and institutionalists recognize.

 

FlipChart Rick — Hierarchy Works

There has been a lot of excitement about Zappos new hierarchy free, self-organising, boss-less organisation. The holocracy, as it’s known, is all very zeitgeisty. My Twitter timeline is full of articles about smashing corporate hierarchies and getting rid of executives. Last year, Gary Hamel, described in Fortune magazine as ‘the world’s leading expert on business strategy’, told the CIPD conference that “management is a busted flush” and organisations should be getting rid of their managers. And, of course, everyone knows that Generation Blah don’t like hierarchy. Executives, reporting lines, procedures, organisation charts – all that stuff is just so square, daddio.

 At what looks like the other extreme of management philosophy, Amazon has gone for a neo Taylorist model with high control over workers at all levels in the organisation. It’s not very trendy and, on the whole, my Twitter timeline doesn’t like Amazon.

But, of course, Amazon owns Zappos. Under one corporate roof, what looks like a social experiment is taking place. Two rival philosophies of management are being tested out.

Pieria
Hierarchy Works
FlipChart Rick

The chief difference between hierarchical and consensual organization is selection of leadership. 

Hierarchical organization operates from a chain of command with leadership slot filled from above and preserved by title, rank, and privilege ("perks"). Retention may be ruthlessly based on performance, but the fact remains that the structure is crystalline and rigid.

Consensual organization is based on natural leadership. A leader is one whom others choose to follow owing to superior qualities not restricted to achieving objectives effectively and efficiently in Drucker's Management-by-Objectives style. Deming's Total Quality Management is closer, but it still subordinates people to results and process to structure, whereas they need to be balanced and harmonized for synergy. 

Abraham Maslow's Eupsychian Management and Theory Z (different from Ouchi's theory z and an extension of MacGregor's contrast of theory x and theory y) are much more in the consensual style of creating a holistic culture of success and fulfillment, quantity and quality. Not coincidentally, Maslow was a friend of anthropologists Ruth Benedict and Margaret Meade, and their influence lead him to study tribal culture and incorporate it into an analysis of a psychology of human nature as universal rather than basing a theory on a particular temporal, geographical and cultural subset of humanity. It is therefore no accident that his management ideas are closer to the consensual and incorporate a wider range of quality. See "Abraham Maslow: Father of Enlightened Management" by Edward Hoffman, Training Magazine, September 1988, pages 79-82.

The devil is in the details, however. A theoretical management style must be instantiated in a particular context. Scott Adams has made a lot of people laugh and himself a lot of money by lampooning management by fad, for example.

The challenge is integrating the many facets of organizational structure and management into institutional arrangements and culture through a combination of explicit rules and implicit customs and conventions, which involves integrating the scientific (quantity) and humanistic (quality) approaches. See, for instance, The Capitalist Philosophers: The Geniuses of Modern Business–Their Lives, Times, and Ideas by Andrea Gabor, Times Business (2000) for a summary of the ideas of Frederick Winslow Taylor, Mary Parker Follett, Chester Barnard, Fritz Roethlisberger and Elton Mayo, Robert McNamara, Abraham Maslow and Douglas McGregor, W. Edwards Deming, Herbert A. Simon, Alfred Du Pont Chandler and Alfred Sloan, and Peter F. Drucker.

Bonnie Kavoussi — Tupperware Brands CEO Rick Goings: U.S. Is 'A Walmart Market'

Ask the CEO of Tupperware Brands, and he'll tell you Americans are cheap.

Rick Goings accused U.S. consumers of not valuing "quality" while explaining Tupperware's disappointing sales in North America, during an earnings call Tuesday....

"They buy price," Goings said of Americans. "Europe buys quality, Japan quality."

My friends in import/export tell me much the same thing. Americans are interested in price and quantity rather than quality, whereas international buyers are interested in quality and are willing to pay the price to get it. But I'm not sure that this is anything that new, i.e., Wal-Mart inspired. 

Rather, it's likely that Wal-Mart has been successful seemingly because Americans want inexpensive goods and don't care if they are cheap, too, since "stuff" is not expected to last long anyway. 

International buyers have a different mentality, wanting high quality products that will last them for some time. In other words, non-Americans tend to be savvy shoppers, while American enjoy shopping. Utility is a cultural thing, apparently.

The Huffington Post
Tupperware Brands CEO Rick Goings: U.S. Is 'A Walmart Market'
Bonnie Kavoussi

James K. Galbraith — How the Economists Got It Wrong

An oldie but goodie from Jamie Galbraith, hat tip to Philip Pilkington.

The deeper problem is the nearly complete collapse of the prevailing economic theory--of the structure of thought that supports their policy ideas. It is a collapse so complete, so pervasive, that the profession can only deny it by refusing to discuss theoretical questions in the first place.


The prevailing theory is the idea that price and quantity are set in free competitive markets through the interaction of supply and demand. It is this idea, and no other, that lies at the core of the economist's way of thinking. And it is also the source of the profession's problem in getting almost anything important right.



The notion of supply and demand as the organizing principle for everything is a few decades more than a century old. (It was not so for Smith, Ricardo, Malthus, Marx, or Mill.) The key player in the Anglo-Saxon tradition is Alfred Marshall; in the continental tradition, no doubt, Leon Walras. In the twentieth century, great economists including Keynes, Joseph Schumpeter, and John Kenneth Galbraith have tried to break the grip of this notion on the professional imagination. But they have not succeeded.

The American Prospect (December 19, 2001)
How the Economists Got It Wrong
James K. Galbraith | Lloyd M. Bentsen Jr. Chair in government-business relations at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin, a senior scholar of the Levy Economics Institute, and chair of the Board of Economists for Peace and Security.