Wednesday, August 29, 2018

Another Semester Has Started

Welcome to any new students. The entries usually have something to do with a basic economic principle that is related to a recent news story.

Here is something I wrote for The Ranger (the school paper of San Antonio College where I used to teach) back in 2011 titled "Why is college so hard?"

Students might wonder why college, and SAC in particular, is hard. This might sound trite, but I think the faculty at SAC want students to achieve success in life and that means that classes have to be hard if you are going to learn and understand the concepts which provide a foundation for that success.

I think my own experience as a community college student over 30 years ago helps me understand this. My teachers took their subjects seriously and maintained high academic standards. They got me excited because of the expertise they brought to their teaching. Now that I have been a teacher for over 20 years, I can see how important that was.

After finishing my A.S. degree at Moraine Valley Community College (MVCC) in Palos Hills, Ill., I transferred to and graduated from the University of Chicago with a degree in economics. But it was my community college teachers prepared me to handle the rigors of the U. of C.

Later, I got a Ph. D. in economics from Washington State University. But I've accomplished some other things I never could have dreamed of when I began taking classes at MVCC and I think my teachers there paved the way for me.

In 2005, I had a letter to the editor published in The Wall Street Journal (I have now had five published there, three in The New York Times and three op-eds in the Express-News). This one was several paragraphs long, nearly as long as some of their op-ed pieces. It was the first letter in the letters section that day, and I got the top headline. It dealt with NAFTA and trade agreements.

As nice as that was, I got a big shock a few days later when I got a letter in the mail, on official stationery, from Richard Fisher, the president of the Federal Reserve Bank of Dallas. He complimented me on my letter and said it was superb. I had never even met him or ever tried to contact him before.

Wow. I graduated from high school with a 2.7 GPA, and when I started at MVCC, I had no idea what I would do with my life. If you had told me then that someday I would have a letter in the WSJ and get that kind of compliment, I doubt I would have believed you.

Then an adjunct professor at the business school at the University of Chicago contacted me a few years ago and wanted to know if it was OK for her to assign a paper I wrote on entrepreneurs for a class she was teaching on innovation. (Of course, I said yes).

That professor was Nancy Tennant Snyder. She has a Ph. D. from George Washington University and is a vice president at Whirlpool. Business Week magazine has called her one of the leading innovators in the world. She also cited two of my papers in one of her books.

Then I got an email from John Joseph, a professor at the University of Edinburgh. He is an expert on language and politics. He wanted to know if he could include an essay I wrote in a four-volume work he was planning. I again said yes and it was published last year (and it is called Language and Politics).

It is a collection of essays. Mine is titled "The Intersection of Economic Signals and Mythic Symbols." Other contributors include Jeremy Bentham and George Orwell. When I was a community college student, I never imagined being included along with the likes of those great thinkers.

The co-authors of the book The Economics of Public Issues have thanked me in each of the last three editions for my helpful suggestions. Almost all of the people they thank are from big universities. One of the co-authors of this book, Douglass North, is a Nobel Prize winner. Never imagined someone like that would value my input when I started out as a community college student.

Getting such recognition in cases like this gives me a sense of achievement. I know I have made a scholarly contribution to the world. And I want all SAC students to have a chance for this same kind of success (as an academic or any in line of work). I think all SAC faculty do. That is why school is hard, and that is why I'm thankful that my community college teachers were experts who maintained high academic standards.

Saturday, August 18, 2018

Joseph Schumpeter And Me

Jeffery S. McMullen of Indiana University published an article in the academic journal "Business Horizons." It is titled

"Are we confounding heroism and individualism? Entrepreneurs may not be lone rangers, but they are heroic nonetheless."

At the end of the post is a link to this article.

McMullen cites a paper I wrote in the 1990s and mentions my name in the same sentence as Joseph Schumpeter, an important economist from the 20th century.

Click here to read a short bio of him

A few years ago I wrote a post called "My Favorite Economist Is Joseph Schumpeter."  Here it is
""Why is this blog called The Dangerous Economist? Back in the early 1990s, I wrote a paper called "The Creative-Destroyers: Are Entrepreneurs Mythological Heroes?" It compares the entrepreneur in capitalism to the hero in mythology. I was never able to get it published in an academic journal. One referee even said the idea was dangerous. I doubt much harm would have befallen the U.S. economy had this paper been published. It is now online at

Creative Destroyers

A shorter version is at

Shorter Version

If you clicked on the link about why I chose this name for my blog and then these articles and read them you would have discovered some of the things that I list below and they would have pointed you to Schumpeter.

The process whereby innovations occur was called "Creative Destruction" by Schumpeter in his book Capitalism, Socialism, and Democracy. "Creative Destruction" was

"The opening of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U. S. Steel illustrate the same process of industrial mutation if I may use that biological term-that incessantly revolutionizes the economic structure from with in, incessantly destroying the old one, incessantly creating the new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in" (p. 83).

In his book The Hero with a Thousand Faces, Joseph Campbell described the action of the hero with

"The standard path of the mythological adventure of the hero is a magnification of the formula represented in the rites of passage: separation-initiation-return: which might be named the nuclear unit of the monomyth. A hero ventures forth from the world of common day into a region of supernatural wonder: fabulous forces are there encountered and a decisive victory is won: the hero comes back from this mysterious adventure with the power to bestow boons on his fellow man. "(p. 30)

Campbell (1968) also has a section called "The Cosmogonic Cycle" which "unrolls the great vision of the creation and destruction of the world which is vouchsafed as revelation to the successful hero" (p. 38). The connection to Schumpeter's theory of creative destruction is clear. A successful entrepreneur simultaneously destroys and creates a new world, or at least a new way of life. Henry Ford, for example, destroyed the horse and buggy age while creating the age of the automobile. But even more to the point is the fact that the hero finds that the world "suffers from a symbolical deficiency" (p. 37) and that "the hero appears on the scene in various forms according to the changing needs of the race" (p. 38). The changing needs and the deficiency may directly correspond to the changing market conditions or the changing desires for products. The entrepreneur IS the first person to perceive the need or opportunity for market profits.

Joseph Campbell's book inspired George Lucas to make the Star Wars movies."
Link to the article by Jeffery S. McMullen of Indiana University. March 2017 Business Horizons.

The full text of the article is at the link.

Here is the paragraph where he mentions my name.
"While such mythological heroism –— either super or mundane –— has long ruled the box office, it appears to be out of vogue in scholarly research on entrepreneurship. This is ironic, given that modern entrepreneurship theory is deeply rooted in such a narrative. Cyril Morong (1994), for example, demonstrates how the entrepreneur of Schumpeter’s theory maps onto the hero’s journey as described by Joseph Campbell. In his Theory of Economic Development, Joseph Schumpeter (1934) clearly taps into the ethos of existentialism, arguing that the entrepreneur is motivated by the joy of creating, the dream of founding a private kingdom, or the will to conquer. These motives give Schumpeter’s entrepreneur the courage necessary to bear uncertainty and impose his will –— much like a Nietzschean ├╝bermensch –— onto his social system by introducing innovative new combinations of resources. In doing so, the entrepreneur transforms the economy and, by extension, society. Thus, one of the most in fluential theories of entrepreneurship conceives of the entrepreneur as a mythological hero Are we confounding heroism and individualism? Entrepreneurs may not be lone rangers, but they are heroic nonetheless." 
Here are the last three paragraphs.

"Are entrepreneurs lone rangers? No, but that does not mean that entrepreneurship occurs without heroic individualism. Like entrepreneurship, true heroism is interdependent by its very nature. Even if an entrepreneur were somehow able to go it alone, his or her success would still depend on customers as well as other possible stakeholders (e.g., employees, investors, suppliers, distributors, etc.). Similarly, it is difficult to imagine how anyone could be heroic without a somewhat intimate knowledge of and concern for others’ welfare. Entrepreneurs must bear the costs of their actions before they receive the benefits, which only come if the costs the entrepreneurs incur ultimately benefit someone else.

Therefore, before we declare the heroic entrepreneur a myth, perhaps we should consider the term ‘myth’ as literally as Campbell has. Any innovative act exhibits an element of uncertainty and thus requires a corresponding degree of courage. Although this may only be a moment’s adrenaline rush, it is more likely an extended ride on an emotional rollercoaster that exhausts as well as elates. It is a hero’s journey of existential import and consequence. If this is true, then extraction of heroism from entrepreneurship is misguided, as it would do nothing to correct for scholars’ undersocialization of the entrepreneurial act. Instead, it would merely neglect the courage and sacrifice required from individuals like Elon Musk, who may not act alone, but nonetheless must act if entrepreneurship is to occur.

Ignoring this fact is not only likely to produce bad science but also may affect practice via bad policy. To the extent that policymakers erroneously believe heroism is unnecessary, they are likely to underestimate the costs entrepreneurs must incur not just to succeed, but also to try at all. Lack of sympathy about such sacrifices would likely shape institutional (dis)incentives. Thus, to deny that entrepreneurship is a heroic act is to neglect the need to reward its success and to forgive its potential failure. For these reasons, it may behoove scholars, policymakers, and practitioners alike to think twice before throwing out the baby of heroism with the bathwater of individualism."

Friday, August 17, 2018

Youth Unemployment Hits 52-Year Low

Data suggest more opportunities are available to some groups that historically struggled to find jobs

See By Andrew Duehren of The WSJ.

I post something every month about the percentage of 25-54 year olds employed, since those are people in prime working years. That has been going up for the most part since November 2011. But things are getting better for even younger workers. That is good news, of course. But maybe even better that as they age this experience they are getting now will benefit them.

"Of Americans between 16 and 24 years old actively looking for work this summer, 9.2% were unemployed in July, the Labor Department said Thursday, a drop from the 9.6% youth unemployment rate in July 2017. It was the lowest midsummer joblessness rate for youth since July 1966."

"Low unemployment among young people shows that in a tight labor market more opportunities are opening to groups that historically have struggled to find jobs.

Similarly, the unemployment rate among older Americans who don’t have a high-school diploma fell to a record low this year. The jobless rate also fell sharply for those who completed high school but never attended college. Among racial groups, the unemployment rate for Latinos fell to 4.5% in July, the lowest rate on records back to the 1970s.

The jobless rate for black Americans touched a record low this year before rising in the past two months. For black youth, the jobless rate ticked up this summer to 16.5% from 16.2% in 2017, meaning this segment of the population hasn’t benefited as much as many others looking for work.

While millions of young people continue to enter the labor force in the summer months, the labor-force participation rate among young Americans—a measure of how many people are actively seeking employment—is still low by historical standards.

In July, the labor-force participation rate was 60.6% among young Americans, the same rate as last year and the highest since 2009. In 1989, the summer youth labor-force participation rate was 77.5%, and it has declined since.

Paul Harrington, an economist at Drexel University who studies the labor market for young people, said one reason for the decrease in the share of teenagers and young adults seeking summer work is the popularity of extracurricular activities and unpaid internships."