Political Entrepreneurs

The Economic Engine of Political Change

Paul Krugman, Wiliam Baumol, Bob Tollison, and the economics of economics

November 27th, 2018 by Edward Lopez

A few years ago Paul Krugman argued that the economics blogosphere had become the main forum for debate and discussion of economics. It’s the instant blogs, he said, not the circuitous peer-reviewed journals, where the action is. Actually, Krugman continued, the academic journals “ceased being a means of communication a long time ago – more than 20 years ago for sure.” Instead, scholars began circulating papers in advance of publication, and serious papers started gaining discussion and citations in other research long before coming into peer-reviewed print.
Notice the diffuse academic entrepreneurship that implicitly supports Krugman’s point. As Wayne and I write in Chapter 3 of Madmen:
In the marketplace of economic ideas, scholars are in the business of crafting arguments, techniques, theorems, policy recommendations, and so forth, all in the hope of exchanging their craft for the currency of readership, praise, influence, and ultimately some prominent place in the body of economic scholarship. Economists act like idea entrepreneurs…
If the journals are too slow, entrepreneurial scholars will seek out cost-effective ways to speed things up. Before email, circulating pre-prints meant stuffing a bunch of envelopes, mail merging a bunch of cover letters, and paying lots of postage. But as everyone started using email (roughly “more than 20 years ago”), the cost of circulating pre-prints fell. And it fell a lot. The technology allowed entrepreneurial scholars to speed up pre-publication communications relative to peer-reviewed journals. So if Krugman is right that most of the action left the journals about a generation ago, it’s because of this combination of idea entrepreneurship and new communication technology.
Haven’t the journals tried to keep pace? My sense is that they’ve tried very hard, but have made only modest progress. One important and helpful change has been the near total abandonment of print. The journals are not unique in this trend, which has captured the publishing world, but unlike books and magazines it seems like journals have gone almost all-in with digital. Also, most publishers now make available papers that have been accepted but not yet “published” in a numbered volume or issue. A second important change has been the digitization of submissions, with software such as Editorial Manager. These tools do more than speed up submissions, they also measure how long peer-reviewers take to return their reports and how often they decline requests to review. Naturally, peer reviewers care about their reputations at journals; therefore, knowing that editors have at hand referees’ decline rates and return times is an incentive for those referees to work, and work faster. Still, it seems that neither digital distribution nor digital submission has been a game changer for the speed of peer-reviewed outlets. They’re still slow.
Enter the academic entrepreneurs at SSRN, founded by two financial economists in 1994 (“more than 20 years ago”) as Social Science Research Network. The goal was to facilitate rapid dissemination of scholarly communications. Essentially an academic startup, SSRN is now the world’s largest repository of open-access research, and a couple of years ago it was bought out by Elsevier, one of the largest publishers of academic journals. Its tagline is “Tomorrow’s Research Today”. Well, today I received an email from SSRN announcing their new initiative called First Look
First Look is a place where journals and other research experts identify content of interest prior to publication. It can include a wide range of early stage content types including working papers, proceedings, preprints, accepted papers, and papers under consideration. First Look is a partnership between SSRN and some of the world’s most influential journals to provide rapid, early and open access to evolving scholarly research.
Okay. So the journals might still be slow, but they’re also still trying to speed things up. Time will tell. For now, a separate but related observation: I’m struck by the contrast between the large-scale, concentrated innovation behind First Look, against the small-scale, diffuse innovation behind blogs and email.  The late William Baumol’s work on “routinized” entrepreneurship explains this well. He draws attention to the prevalence and importance of large-scale innovation, such as R&D in large corporations. Sometimes called the “David-Goliath symbiosis“, Baumol’s theory of innovation combines the startup entrepreneur with the corporate entrepreneur — the breakthrough innovator with the incremental innovator. It’s a rich theory, developed over much of the second half of his career. Overall Baumol argues that people focus too much on small-scale innovation to the neglect of large-scale innovation, when the latter often contributes more to economic growth than does the former. I think this helps understand the economics trade, and all those idea entrepreneurs out there, large and small. It also illustrates the point that economics applies to ideas as much as it does to goods & services, a point that implicitly supports both Madmen and this blog. As the late great Bob Tollison wrote in his SEA presidential address, “An economist cannot take a measure of the world without obeying its postulates.” I think this is so true.
By the way, in the same piece that hooks this post, Krugman also made a normative point about the ascension of blogs. He said it was a good thing that the economics blogosphere had become the main forum for debate and discussion. Using blogs, economists short-circuited the often dysfunctional “gatekeeper” role of peer-review, and this opened debate to “any old Joe”.  I don’t think Krugman was as right about the democratizing effect of blogs as he was about the slowness of journals. While the blogosphere certainly flourished in the early 2000’s, it has become more concentrated since 2008. Sure, any old Joe (say, this one!) can still post any old entry. But if peer-review had become a gatekeeper to journal entry decades ago, today’s clicks and pingbacks can be elusive to all but the “top” bloggers.

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.189, ch.7)

The most successful entrepreneurs know what they do well, they know the market and the opportunities within it, and they choose those activities that create the most value. This is true in economic as well as political markets.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.178, ch.7)

[W]hen the right elements come together at the right time and place and overwhelm the status quo, it is because special people make it happen. We call them political entrepreneurs.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.176. ch.7)

While we started this book with Danny Biasone saving basketball, we end it with Norman Borlaug saving a billion lives. These stories are not that different. Both faced vested interests, which were reinforced by popular beliefs that things should be a certain way—that is, until a better idea came along.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.174, ch.6)

Because there was a general belief that homeownership was a good thing, politicians found the public with open arms.... Everybody was winning—except Alfred Marshall, whose supply and demand curves were difficult to see through the haze of excitement at the time, and except Friedrich Hayek, whose competition as a discovery procedure was befuddled... In short, once politicians started getting credit for homeownership rates, the housing market was doomed.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.166, ch.6)

Everyone responded rationally to the incentives before them. In short, the rules that guided homeownership changed over time, which in turn changed the incentives of these actors. And bad things happened.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.153, ch.6)

They understood the economics. The ideas had already won in ... the regulatory agency itself. All that remained to be overcome were some vested interests and a handful of madmen in authority.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.146, ch.6)

If the idea for auctions of spectrum use rights had been part of the public debate since at least 1959, why didn’t the relevant institutions change sooner? What interests stood in the way?

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.121, ch.5)

When an academic scribbler comes up with a new idea, it has to resonate well with widely shared beliefs, which in turn must overcome the vested interests at the table. Many forces come together to explain political change, even though it may seem like coincidence of time and place.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.120, ch.5)

It’s the rules of the political game that deserve our focus, not politicians’ personalities or party affiliations.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.119, ch.5)

In short, ideas are a type of higher-order capital in society. Like a society that is poor in capital and therefore produces little consumer value, a society that is poor in ideas and institutions will have bad incentives and therefore few of the desirable outcomes that people want.

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