Arnold Kling  

But I Still Disagree with Brad DeLong

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Maybe Brad DeLong is Right... Greed and Price-Gouging...

when he writes,


Shouldn't the fact that WalMart finds it more efficient to be a bureaucracy of 1.5 million people--rather than to split itself up into 15,000 companies of a hundred employees each--make Arnold Kling a little hesitant in his declarations that FEMA was bound to foul up this badly no matter what?

FEMA is one agency, with no competition, that never was very effective at its old mission (which seems to have been providing assistance to disaster victims weeks or months after disaster), trying to transition to a new mission (doing something about disasters in real time) in the midst of what is probably a demoralizing re-organization (being buried in DHS).

Wal-Mart is the (temporary) winner of a decades-long, ruthless, competitive process in national retailing. My understanding is that they won through superior logistics management--getting the right stuff from the right suppliers to the right stores at the right time.

The fact that Wal-Mart is not highly decentralized reflects the importance of economies of scale in its logistics capability. It says nothing about the likelihood that centralized government programs will work as intended.

I am not sure that there are economies of scale in FEMA's situation. In fact, local knowledge and improvisation are probably pretty important in handling disaster situations. So, the short answer to Brad's arguments is this:

1) The economies of scale that are evident in Wal-Mart's business may not figure so prominently in FEMA's organizational challenge.

2) Just because a company that has emerged from decades of competition is regarded as efficient is no reason to expect a government agency to show comparable efficiency.


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CATEGORIES: Business Economics



COMMENTS (16 to date)
Brad Hutchings writes:

According to an interview with former FEMA director Michael "Brownie" Brown in the NYT today, FEMA has about 2600 employees scattered throughout the country and their job is to coordinate disaster relief among state and federal resources, obviously (through their lack of numbers) not to provide the footsoldiers. FEMA's response to Katrina in Alabama and Mississippi was excellent. But when confronted with a state that is both basically French and totally corrupt, the going was a little more difficult. Brownie also said that when Honoré marched into town, things started going well.

mcwop writes:

Size does not matter. After all, Wal-Mart had trucks of goods in the Katrina zone before the government did. The matter at hand is that the government sucks at providing many crucial services.

Some backup

Let's remember this the next time the government tells Wal-Mart how it should do things.

I wonder if J. Bradford knows what's become of the Wal-Mart of the 70s, WT Grant?

But, ultimately, it's the incentives they face, not how large the organization is.

Matt McIntosh writes:

Good lawd, an economics PhD that doesn't understand the different incentives faced by Wal-Mart and FEMA? I'm almost embarrassed for him.

Impeach Brad DeLong. Impeach him now.

David Thomson writes:

I am flabbergasted by the naiveté of Brad DeLong’s remarks. Wal-mart is forced to compete for business. Governmental agencies have a monopoly---and can often coerce a citizen to do their bidding. They are inclined to get fat and lazy. Wal-Mart can never afford to be so nonchalant. Why am I forced to say something so obvious? Oh gosh, will I now also have to point out that the sun rises in the morning or 2+2=4?

Who would DeLong say something so patently ridiculous? Is it perhaps due to the fact that he attended Harvard University where the adulation of big government is almost a required dogma of belief? Yes, I think that might have something to do with it.

Timothy writes:

Well, DeLong has said in the past that he's sympathetic to Marxism so I'm not exactly surprised by his postion on this.

It was bad enough he said it once, but he repeated his blunder again in response to a commenter:

There is no magic "market dust" that the market sprinkles on organizations to make them efficient. Managers *make* organizations efficient. Managers of organizations embedded in markets have strong incentives--the fear of losing your job and the desire for more commodious living--to work hard at making their organizations more efficient. But there are other possible motivators as well: the pleasant feeling of a job well done, the pleasant feeling of having helped someone, the shame of public humiliation when you have messed up, loyalty to the person who put you in the job, and so forth.

I think we would all agree that these alternative motivating factors were not sufficient to induce appropriate performance and effort on the part of George W. Bush, Michael Chertoff, and Michael Brown. But this is at least as much a statement about who they are as a statement about whether FEMA could have been expected to do a reasonable job in New Orleans.

Posted by: Brad DeLong Sep 15, 2005 5:42:01 PM


And got undressed by another:

Brad, you seem to have missed the point of the Intelligent Design analogy. Walmart wasn't just created and managed, it also *evolved* into what it is now, in a competitive marketplace. Sure, the managers tried to make it successful, but the reason Walmart is big is that the strategies those managers came up with *worked*. It might have been good sense or it might have been sheer blind luck that led to the structure Walmart now has, but in a competitive marketplace companies that are well-adapted for their market niche grow and those that aren't shrink. So we have reason to believe, simply due to the fact that Walmart is big, that it is relatively efficient. We have no similar reason to believe the same of FEMA.

In short, the market *does* sprinkle "magic market dust" on organizations to make them more efficient. Just like evolution sprinkles magic evolution dust on species to make them more efficient. It's a weeding-out process and a growth dynamic that can't possibly apply to government programs unless government programs are regularly allowed to fail, go broke, and be dismantled.

Posted by: Glen Raphael Sep 15, 2005 6:43:42

Tony writes:

Ummm.. you're article said that the government was doing horrible because it's large and centralized. He pointed out that many free-enterprise organizations choose to remain large and centralized.

So of course you ignore this and yell "Walmart faces competition!", which wasn't your original point. And the people get to jump in accusing him of being a horrible demagogue and not deserving his PhD.

Jim Glass writes:

Well...

"Of the 19 leading textbooks ... only 2 references are made to entrepreneur, only 5 to institutions, only 8 to property rights, and not a single reference to economic freedom, invention, or tacit knowledge. It is quite obvious that economists have eradicated entrepreneurship and institutions from core Ph.D. training...." Econjournalwatch [pdf]

And now I read Dierdre McCloskey on how econ departments are eliminating economic history from the curriculum too.

So is it surprising that so many economists don't know so many basics of economics? Like the importance of little things like "competition"?

Or that they are unable to compute even a high-school level example of opportunity cost...?

Paul J. Ferraro and Laura O. Taylor of Georgia State University asked some 200 economists, many with PhDs from top-economics programs, at the 2005 annual meetings of the American Economic Association, a simple question ...

78 percent of the economists gave the wrong answer! [Alex Tabarrok ]

... while no doubt being able to use calculus to compute an nth derivative.

So if one of them wants to be an Intelligent Designer social engineer, following in the footsteps of so many who have failed at that before -- *and* to get indignantly self-righteous about it -- as long as things like the systemic effects of competition aren't considered, and the warning lessons of history aren't either, what's to stop him?

Tom Myers writes:

I'm wondering if either Arnold Kling or Brad Delong realize that WalMart is being sued, in part, for being too heavily decentralized? (The class action argument also claims that it's centralized, and of course it's both.) I've put some thoughts on this at
On Being the Right Size for Disaster-Handling. I don't have an answer, just more questions and (links to) a little data.

Jon writes:

Arnold seems to have this fatalistic assumption that anything the government does is bound to fail. Brad's only point was that Bush's appointments were so lousy, even bureuacratic interia could not protect FEMA from the damage.

Arnold -- do you expect every city to maintain adequate search and rescue for such a large scale disaster? Unless you do, a well run federal agency is the only game in town.

Adam writes:

Why is it ridiculous to expect a city and state to be able to maintain adequate search and rescue for large scale disastors?

Chris Bolts writes:

I don't think Arnold is arguing that everything that government does results in failure, but that since the government faces no need to innovate or it can never develop the efficiencies that businesses are forced to do through competition (as he states in his 2nd point).

There is no physical way that a city can keep up to date on search and rescue operations in times of disaster, but if you reside in an area that receives the second highest number of hurricane hits, you'd think it would be high on that city's priority list to think of ways to guard against it, especially if that city is below sea level AND is surrounded by bodies of water to the west, east, and south.

Victor writes:

Geez. How many ways can someone be wrong? There's the hindsight bias (how did he know that Wal-Mart's bureaucracy would prove the correct model as opposed to K-Mart or Walgreens or JCPenny or Sears). There's the fact that Wal-Mart is forced to be responsive to a singular goal: profits. To the extent that they diverge from this goal, opportunities arise from competition to drive them out of the market. (i.e., how many people here think that Wal-Mart would sent their employees to sexual harrassment training the day after a huge corporate disaster, rather than responding in full force?).

Government bureaucracies are responsible to the administration, but overall failure carries with it few personal or government consequences. When was the last time institutional failure led a reduction in the size of the institution or a reduction in tax collections? People don't willingly buy services from the gov't; they pay for them at gunpoint. The only way we can punish an inefficient gov't is by changing our political leaders every couple of years, and even their impact is only tangential. If Wal-Mart's bureaucracy reaches would fail to a similar degree, all we would have to do is cease to shop there.

Truly amazing. I agree with Jim Glass: economists are losing sight of the forest.

Jon writes:

Some of the things said here are pretty amazing:

but overall failure carries with it few personal or government consequences

Huh? Just after a high government official was forced to resign? and "Ukrainian President Viktor Yushchenko fired his seven-month-old government"

There are plenty of government programs or institutions that get cut when they are deemed failures or not worthwhile. Maybe not many recently under Bush.

Also

that since the government faces no need to innovate
.
Did you hear of something called the Manhattan project? NIH? Who put up all of those satellites that track the hurricanes?

Chris Bolts writes:

[quote]Did you hear of something called the Manhattan project? NIH? Who put up all of those satellites that track the hurricanes?[/quote]

All of the research that led to the innovations you mentioned was done in the private sector, but whether we would have nuclear power, advanced health technologies, or the ability to track hurricanes via satellites due to government is entirely debatable. Of course, I don't have as much knowledge on either project so I'll leave that up to the experts.

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