Make the LEAP!

Filed Under (Other Topics, U.S. Fiscal Policy) by Don Fullerton on Mar 2, 2012

Academic research is inherently a “public good”, which means that once a professor does all the research work and writes the paper, the social marginal cost of another reader is ZERO!  If the research is useful, then it could be useful to additional readers at no extra cost whatsoever.  Any charge for reading it would discourage those who could benefit while imposing no social cost whatever.  Thus, the optimal price to charge per reader is zero.

But that’s not what journals charge.  Non-profit associations might charge very little to subscribe to their journals, basically enough to cover their printing cost and mailing cost.  Now, however, any research paper can be provided even more cheaply on a website.  One useful purpose of an academic journal, still, is for the editor and reviewers to pass judgment on whether the research is good enough to be published, and to make further suggestions for improvement before publication.   So, each paper to be published has some cost to review it and some cost to post it on the web.  Even then, the social marginal cost of one additional person to read it is still zero!

How can a non-profit journal cover the cost of editing and reviewing the paper, and still provide free access?  Just as for many kinds of “public good”, the nonprofit organization might need donations!

Even worse is the still-huge number of academic journals that are published not by a non-profit research association or by a university press, but by a private for-profit company.  Those private publishers own the copyrights, and so they can charge a high enough price to make money, above and beyond their costs.  And even worse than most private for-profit publishers is Elsevier.

Elsevier had a good idea, years ago, when they founded a large number of field journals in economics and in other disciplines.  Elsevier now owns about 90% of the private for-profit academic journals, a virtual monopoly, so they charge huge prices and make huge profits.  Those journals have become prestigious, and so authors want to publish in them.  In order to “get in good” with the editors, those potential authors are willing to review other submitted papers for free.  Elsevier uses all this free help from university professors who are reviewers, to improve the quality of the product that they sell, in order to make even higher profits.

I don’t blame Elsevier, a private company, for trying to make money.  They have done a good job of it.  But as university professors, we do NOT need to provide free help to them!  I highly recommend reading a paper by Ted Bergstrom called “Free Labor for Costly Journals” in which he points out that we academic researchers at non-profit or state-run universities are helping private publishers make profits.  I would also recommend a new blog by Prof. Jacob Vigdor of Duke University.   

Mathematicians are forming a boycott of Elsevier.  For another example, the nonprofit “Association of Environmental and Resource Economists” (AERE) are discussing whether to break away from Elsevier and start a new non-profit journal (read about all the difficulties in an article starting on page 23 of the AERE Newsletter).   Finally, Ted Bergstrom has lots of info on his website.

We are stuck in a “bad equilibrium.”  University researchers want to publish in the prestigious journals, which are often journals of private publishers like Elsevier.  So those researchers review for free, for Elsevier, and they want their university to subscribe to those good journals of Elsevier.  And profits are made, by Elsevier.  We’d all be better off if we could “leap” to the “good equilibrium” where only non-profit associations and universities publish academic journals, at cost.  Then when we review papers for free for those journals, and when the universities subscribe to those journals, we are all contributing to a public purpose, the provision of a public good.

In Memory of Paul Samuelson

Filed Under (Other Topics) by Jeffrey Brown on Dec 14, 2009

I was saddened to hear the news that Paul Samuelson – the first American to win the Nobel Prize in economics – died today at the age of 94.  To those who do not study economics for a living, it is difficult to communicate just how enormously influential Samuelson’s work has been.  Whether you agree with his worldview or not, there is no doubting the virtually unparalleled impact he had on the field of economics.  A truly brilliant mind – even into this 90′s – there is virtually no sub-field of economics to which he did not provide foundational insights.

Those of us who earned our PhD in economics at MIT owe him a special debt of gratitude, as he helped to launch MIT’s program into one of the best in the world – a position it still holds today. 

Rather than simply re-reporting what is so widely being reported already, I will simply refer the interested reader to a few of the tributes by fellow economists on both sides of the ideological and political aisle.  Greg Mankiw and Paul Krugman both have nice blog tributes, and many others are coming out by the minute.

Thank you, Paul Samuelson.  Rest in peace.

A Personal Reflection on “the Night that Changed the World” – November 9, 1989

Filed Under (Uncategorized) by Jeffrey Brown on Nov 10, 2009

Twenty years ago today, I stood – along with hundreds of German citizens – on top of the Berlin Wall in front of the Brandenburg Gate.  The night before – November 9, 1989 – East Berlin’s Communist party spokesman, Gunther Schabowski, had announced that East Germans would be allowed to travel to West Germany.  After 28 years of travel restrictions, East and West Berliners alike immediately took to the streets.  By the time I arrived at the Brandenburg Gate on the night of November 10, chaos still reined.  Indeed, as I climbed up the wall and jumped down onto the East Side of the Wall – after ceremoniously taking a whack at it with a hammer borrowed from an ecstatic West Berliner – my progress was immediately blocked by a line of East German soldiers.  There they stood, shoulder-to-shoulder, standing before a line of water cannons that were aimed straight at those of us foolish enough to jump down onto their side of the Wall.  Coming only 5 months after the Tiananmen Square massacre in Beijing, none of us knew just how the East German military would react.  Fortunately, this demonstration turned out very differently. 

 

I knew at the time, of course, that I was witnessing history.  After all, the Berlin Wall was the ultimate, tangible symbol of the East-West divide that marked the Cold War.  As an undergraduate at the time (it would be another decade before I earned my economics PhD), however, I did not have the training to fully appreciate that I was also witnessing the end of the most powerful and persuasive economic experiment ever conducted on the relative merits of free-market capitalism versus central government planning.  Even lacking the terminology to fully describe it, however, I could see the results of the experiment.  As I walked the nearly-deserted streets of East Berlin on November 11, I was stunned by the obvious economic decay in the East: the old cars that spewed emissions, the often-bare shelves in the stores, the poor quality food, the decaying buildings.  Not to mention the enormous display of “revealed preference” by the tens of thousands of East Berliners so anxious to escape to the West. 

 

It was one of those experiences that left an indelible mark on my thinking.  And while I could not quite find the words to describe it at the time, I instinctively understood that whatever they were doing in East Berlin, it clearly had not worked.  In the following weeks, as I also visited Prague during its democratic demonstrations, as well as Budapest, I quickly discovered that the failings of central planning were not unique to East Berlin.  It has been a disaster everywhere.    

 

I credit Alan Greenspan’s book, “The Age of Turbulence,” for helping me put it all into appropriate perspective many years later.  He noted (page 131) that:

 

“Controlled experiments almost never happen in economics. But you could not have created a better one than East and West Germany, even if you had done it in a lab.  Both countries started with the same culture, the same language, the same history, and the same value systems.  Then for forty years they competed on opposite sides of a line, with very little commerce between them.  The major difference subject to test was their political and economic systems: market capitalism versus central planning.  Many thought it was a close race.”

 

He goes on (page 132) to note that:

“The fall of the wall exposed a degree of economic decay so devastating that it astonished even the skeptics.  The East German workforce, it turned out, had little more than one-third the productivity of its western counterpart … The same applied to the population’s standard of living.  East German factories produced such shoddy goods, and East German services were so carelessly managed, that modernization was going to cost hundreds of billions of dollars.”

 

Finally, (p. 382) he notes that “The fall of the Berlin Wall exposed a state of economic ruin so devastating that central planning, earlier applauded as a “scientific” substitute for the “chaos” of the marketplace, fell into terminal disrepute.  There was no eulogy or economic postmortem.  It just disappeared …”

 

The economic and financial market disruption of the past 24 months has been difficult for many in the U.S. and around the world.  To those who have lost jobs, witnessed their 401(k) values plummet, or watched helplessly as their house values fell below the balance of their mortgage, it is tempting to want the government to protect us from these risks. But we should be careful what we ask for. 

 

The lessons learned from the failed central planning experiments of the Cold War are not just lessons of history.  They are fundamental lessons about how to successfully structure an economic system.  Given a choice between a system that assumes the government knows best and a system that allows individuals and markets to operate freely, I will always choose the latter.