Last week Chris Bertram asked me to tweet the covers of books I’ve enjoyed, which I interpreted for the most part as books which made a big impact upon me. This set me thinking: what academic papers have also done so? Here’s a list of 11 – an arbitrary number, in arbitrary order, E&OE. “The elasticity of demand with respect to product failures” by Werner Troesken (pdf). This describes how Americans continued to buy snake oil for decades despite it being of dubious efficacy. It is of clear political relevance today: populists are using many of the tactics snake oil sellers used. But it has even wider relevance. It reminds us that whilst markets are selection devices they do not necessarily select for the best products, and can select for the worst. Bjorn-Christopher Witte’s analysis of
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Last week Chris Bertram asked me to tweet the covers of books I’ve enjoyed, which I interpreted for the most part as books which made a big impact upon me. This set me thinking: what academic papers have also done so? Here’s a list of 11 – an arbitrary number, in arbitrary order, E&OE.
“The elasticity of demand with respect to product failures” by Werner Troesken (pdf). This describes how Americans continued to buy snake oil for decades despite it being of dubious efficacy. It is of clear political relevance today: populists are using many of the tactics snake oil sellers used. But it has even wider relevance. It reminds us that whilst markets are selection devices they do not necessarily select for the best products, and can select for the worst. Bjorn-Christopher Witte’s analysis of how bad but lucky fund managers can thrive is another example of this tradition.
“Momentum” by Narasimhan Jegadeesh and Sheridan Titman. This paper, more perhaps than any other, killed off my full confidence in the efficient markets hypothesis. Unlike many papers claiming to uncover “anomalies”, this one has been replicated many times. I suspect that momentum, along with the out-performance of defensive stocks, are the only two robust anomalies.
“The nature of the firm” by Ronald Coase (pdf). This is one of very few papers to have inspired an entire field of economics, and it remains hugely relevant today for analysing why firms exist at all, and why they might merge or subcontract. If you to read a coherent case for central planning, you should read this rather than anything Marx wrote.
“Can government policies increase national long-run growth rates?” by John Landon-Lane and Peter Robertson (pdf). This made me sceptical of centrist or technocratic claims that structural reforms can boost longer-term growth: Dietz Vollrath added to my doubts.
“Depression babies” by Ulrike Malmendier and Stefan Nagel. They shows that investors whose formative years were spent in recessions how fewer equities even years later than those who grew up in happier times. This is empirical evidence for Napoleon’s claim that “to understand the man you have to know what was happening in the world when he was twenty.” Our views of the world are coloured not just by current facts but by our personal histories.
“Income inequality influences perceptions of legitimate income differences” by Kris-Stella Trump. She shows (perhaps inconsistently with Malmendier and Nagel!) that as inequality increases so too does our idea of what are fair inequalities. This means we reconcile ourselves to inequality a – finding corroborated by other research (pdf). We don’t need to invoke conspiracy theories or to blame the media to explain why people aren’t as radical as we would like. This is in the tradition described by John Jost – of how capitalism generates an ideology which helps legitimate the system. It’s also one of many examples of how modern social science has vindicated some of Marx’s claims.
“What do bosses do?” by Stephen Marglin. This shows that the factory system originated not in a need to increase efficiency, but in bosses’ desire to better oppress workers. It reminds us that capitalism is not just about efficiency but exploitation too, and that the choice of method of production isn’t about technology alone but also about power: Skott and Guy’s nice paper is in this tradition. Marglin’s paper has been contrasted to Greg Clark’s (pdf), which argues that the factory system was in effect a way for workers to achieve a self-discipline they couldn’t otherwise get. For me, the contrast highlights two different approaches to economics – a study of lived experience on the one hand, against “as if” abstract theorizing on the other.
“Restructuring and productivity growth in UK manufacturing” by Richard Disney, Jonathan Haskel and Ylva Heden (pdf). They show that lots of productivity growth comes not from existing plants upping their game but from entry and exit. This is consistent with the fact that financial crises have long-lasting adverse effects upon productivity: it’s because they increase credit constraints (or fears thereof) and so retard entry. It also means that if we want to increase productivity we need a healthy market economy with lots of entry and exit.
“Firm growth: a survey” by Alex Coad. He shows that firm growth is a “fundamentally random process” – a finding consistent with that (pdf) of Chan, Karceski and Lakonishok, and with the fact that growth stocks have generally been overpriced in most stock markets. Stock-pickers, then, should remember William Goldman’s words: nobody knows anything. It might be a stretch, but this is consistent with the possibility that lots of success is due to dumb luck.
“Profit squeeze and Keynesian theory” by Stephen Marglin and Amit Bhaduri. This addresses a paradox – that whilst post-war Keynesians thought high wages would add to aggregate demand and hence investment, they ended up squeezing profits and so slowing growth. For me, the paper shows that an analysis of class struggle is essential in understanding macroeconomics, but also that policies that succeed in some circumstances can fail in others.
“In search of new foundations” by Luigi Zingales. This shows that questions such as how a firm should be financed, owned and controlled depend upon what it’s assets are – how important are things such as implicit contracts, intangible capital, growth options or human capital as well as physical capital. You can read it as being in the Coase-Hart-Williamson tradition of transactions cost economics. Or you can see it as more Marxian – as showing that technology shapes class relations.
Some of you might notice conflicts between these papers. For example, Disney et al’s finding that entry and exit – market forces – raise productivity sits uneasily with Troesken’s view that markets can select adversely. And the radical ignorance suggested by Coad is inconsistent with Jegadeesh and Titman’s finding that there are ways of picking stocks that beat the market. This, though, merely highlights a fact about the social sciences – that what’s true in some contexts isn’t true in others, that there are very few generally true theories. As Niels Bohr said: “the opposite of a great truth is another great truth.”