Arnold Kling  

David Brooks on Book 1

The Myth of Shock Therapy... Creative Destruction...

From Poverty to Prosperity gets a nice review from David Brooks. He writes,

"From Poverty to Prosperity" includes interviews with major economists, and it is striking how they are moving away from mathematical modeling and toward fields like sociology and anthropology.

Read the whole thing. It's probably a better short summary of the book than we could have written ourselves.

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COMMENTS (7 to date)
parviziyi writes:

The "protocol economy" is a better and clearer ideation than Arnold's own statement that "today's work force produces organizational capital rather than widgets". I was originally confused about what Arnold meant, and now Davaid Brooks has explained it to me. Brooks chooses "the protocol society" rather than "the protocol economy". Either one is more on-target than "organizational capital".

E. Barandiaran writes:

I stopped reading Brooks after the first paragraph in which he explains clearly what he means by making protocols. The last sentence of this paragraph says: "Even when you are buying a car, you are mostly paying for the knowledge embedded in its design, not the metal and glass."
In 1978, a great economist, the late Ken Boulding, published his book "Ecodynamics: A New Theory of Societal Evolution". Among the many original ideas that he discussed there were these two: "The production of all these artifacts involves the three essential factors of production: know-how, energy, and materials." (p.15). And then "Human history is characterized by a phenomenon that is virtually unkown in prehuman biological system: niche expansion through the production of artifacts." Indeed his idea of "know-how" is not different from what Brooks calls protocol.

Alex writes:


Sociology in general and anthropology in particular are pure mumbo-jumbo. It is no better science than Freudian psychology.

Sociology and anthropology of today is based on ideology not scientific values. The ideology of postmodern thought; post-structuralism, post-colonialism.

We need not have post-modern economics with college departments based on ideology such as gender studies.

If economics is going from mathematics to human behavior and psychology it should go to the science of behavior i.e. Skinners behavioral psychology (Behaviorism).

If economics want to stay in the semi-scientific state it is now, it cannot start doing mumbo-jumbo science of Behavioral Economics, sociology and anthropology.

What is next discerning the entrails of sacrificed animals like the Augurs did in ancient Rome to predict behavior?

parviziyi writes:

Here's a comment from a commenter at the NYTIMES website: "Brooks states, wrongly I claim, that "when you are buying a car, you are mostly paying for the knowledge embedded in its design, not the metal and glass." Just today it is being reported that Ford is offering early retirement and buyouts to all 41,000 of its UAW employees. Why? Because labor costs are the main drivers of automobile production overhead and not the design engineers in the back rooms.... Mr. Brooks analogy of metal and software is a false one because it doesn't address the cost of the labor involved in production."

When you buy a car you are mostly paying for production labor, and not for "the knowledge embedded in design". So Brooks is in error there. And I think Arnold was likewise in error. But the "protocols" concept, a.k.a. "know-how" or "SOPs" (standard operating procedures) or "organizational capital", applies everywhere in the organization, and everywhere in the economy, and competitiveness and prosperity critically depends on it.

E. Barandiaran writes:

Your latest comment reflect a misunderstanding of what are the main drivers in the production of any artifact. In an earlier comment I mentioned Boulding's redefinition of the factors of production--know-how, energy and materials. The three are essential in the sense that they are drivers in the production of any artifact. Some economists may highlight the contribution of one of the three factors in the production of some artifacts or in the production of most artifacts during a particular period of time, but all three are essential for all artifacts and at any time. I'm sure you agree that workers (as suppliers of energy) must have the know-how to produce automobiles, otherwise whatever they are able to produce would hardly be automobiles. And once automobiles have been produced I hope you understand what it means to say that knowledge is embedded in their design as something different from the materials used in their production.

Colin K writes:

I don't think it diminishes FP2P, but Brooks's statement that "if you are making steel, it costs a medium amount to make your first piece of steel and then a significant amount for each additional piece," seems way off.

The capital cost of a steel mill or aluminum smelter is often measured in multiples of hundreds of millions, while the output is priced in hundreds of dollars per ton.

Likewise, I've worked in software for ten years, and have never seen a company of significant scale where marginal cost approached anything near zero. Google's current 10Q shows cost of revenue plus R&D as equaling ~53% of revenue. They have a 30% margin business overall which is great, but it hardly strikes me as a new kind of economics--didn't Ford put up similar numbers in the first decade of the Model T?

Eric H writes:

I look forward to reading FP2P.

Isn't building organizational capital what entrepreneurs have done since the very beginning? I don't find Brooks' insight particularly novel, just a little confused. Protocols, or recipes, affect the delivery and use of know-how, energy and materials. They always have and always will. Each factor of production is useless without a recipe with which to combine it with other factors.

Brooks' statement that we pay more for the protocol to make a car than the glass and steel with which it is made might be true now in 2009. I don't think it is unreasonable to believe the ratio of protocol cost to total cost continually variable and dependent on the price of each factor.

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