The Rise and Fall of American Growth is a New York Times Best-Seller!

GordonWe’re thrilled to announce that The Rise and Fall of American Growth by Robert J. Gordon will enter the New York Times Best-Seller list at #18 this month. Gordon’s book, which makes a critical contribution to debates surrounding economic stagnation, has been generating a wave of interest, with Adam Davidson’s New York Times Magazine piece on the book set to appear in print on Sunday. Davidson writes that the book “is this year’s equivalent to Thomas Piketty’s ‘Capital in the 21st Century’: an essential read for all economists, who are unanimously floored by its boldness and scope even if they don’t agree with its conclusions.” Robert Atkinson also mentioned the book in the Harvard Business Review, where he calls the stagnation of productivity “the central economic issue of our time.”

Gordon argues that economic growth cannot and will not continue unabated, demonstrating that the life-altering scale of innovations between 1870 and 1970 were unique, and can’t be repeated in our modern society. He contends that the nation’s already-slow productivity growth will be further held back by rising inequality, stagnating education, an aging population, and the rising debt of college students and the federal government:

Gordon infographic

Robert Gordon asks: Has the era of unprecedented growth come to an end?

This will be the fifth appearance of a PUP book on the New York Times bestseller list since 2000. The list includes our classic titles Irrational Exuberance, by Robert Shiller, On Bullshit, by Harry Frankfurt, This Time is Different, by Carmen Reinhart and Kenneth Rogoff, Alan Turing: The Enigma, by Andrew Hodges, and, now, Robert Gordon’s The Rise and Fall of American Growth. Congratulations to Robert Gordon and the Princeton University Press staff who have worked hard to bring this important book the attention it deserves.

Joel Brockner on “bad process” in the Yahoo layoffs

Many feel that upper management in some of the most prominent companies has lost touch with how to care for employees on every rung of the ladder.  In his book The Process Matters: Engaging and Equipping People for Success, Joel Brockner addresses managers who want to promote a high-quality work environment for employees. Today he writes about the problem of management manipulation in the case of Yahoo’s recent, unexpected rash of layoffs. Brockner insists that it was the method used by management rather than the action of firing the employees that lead to such an outcry.

Yahoo Lawsuits Begin Over Management Manipulation

by Joel Brockner

Process matters jacketYahoo has been going through tough times so we shouldn’t be surprised to hear, as the New York Times recently reported that, “More than one-third of the company’s work force has left voluntarily or involuntarily over the last year.” It also comes as little surprise that among the involuntarily departed, some are suing for wrongful termination. It’s tempting to chalk up the negative reactions of former employees to economic considerations. After all, when people’s livelihood is at stake, it’s understandable for them to be looking elsewhere or for giving their former employers hell to pay.

However, many studies show that it’s not simply decisions that are economically unfavorable that are causing the upset. Rather, the combination of economically tough decisions and people’s perceptions of the decisions being handled poorly are putting them over the edge. Those filing suit at Yahoo claim that the way in which the layoffs were implemented was unfair, in several respects. First, the layoffs allegedly violated both state and Federal law which requires 60 days advance notice. Furthermore, there was considerable consternation about how it was decided which employees would be laid off and which would remain. On paper, it is hard to argue with Yahoo’s method: based on their Quarterly Performance Review (QPR), those people who received the least favorable evaluations were the ones targeted for dismissal.

The problem, however, is not with making layoff decisions on the basis of (de)merit, but rather, with people’s perceptions of the way in which the QPR was done. According to the New York Times, “The Q.P.R. process was opaque and the employees did not know who was making the final decisions, what numbers were being assigned by whom along the way, or why those numbers were being changed,” the lawsuit says. “This manipulation of the Q.P.R. process permitted employment decisions, including terminations, to be made on the basis of personal biases and stereotyping.”

I suppose we also shouldn’t be terribly surprised to hear that the combination of a bad outcome and a bad process makes people very upset. After all, there is an expression in everyday life that captures such a state of affairs: “Adding insult to injury.” People feel injured by the bad outcome, and they are insulted by the way in which it was carried out. However, one thing we are learning from research and experience is that the expression, “adding insult to injury” doesn’t do justice to how aggrieved people feel when they find themselves in that situation. In mathematical terms, the expression, “multiplying insult times injury” is more like it. This is why I advise people in authority positions (executives, as well as teachers and parents) that whenever they have to make the tough decisions they should do whatever they can to ensure that the process for making and carrying them out is as high-quality as possible. This is not to say that that those on the receiving end will be happy; grudging acceptance comes closer to how most people will take it. But, grudging acceptance is a lot better than what authorities are likely to encounter when those on the receiving end feel like they have had the injury of an unfavorable outcome multiplied by the insult of an unfair or otherwise flawed process.

So, the Yahoos of the world who are faced with having to be the bearers of bad news have a choice. By investing in a well-handled process, they can minimize (read: not eliminate) the ire that translates into actions like lawsuits. Alternatively, by ignoring the quality of the process, they are at peril for more lawsuits or other expressions of discontent. Over and above the ethical imperative of handling the process well, there is an economic one: would you rather spend resources needed to handle the process well, or the far greater resources you are likely to need to defend yourself in a court of law?

Joel Brockner
 is the Phillip Hettleman Professor of Business at the Columbia Business School. He is the author of A Contemporary Look at Organizational Justice: Multiplying Insult Times Injury and Self-Esteem at Work, and the coauthor of Entrapment in Escalating Conflicts. His most recent book is The Process Matters: Engaging and Equipping People for Success.

The Process Matters: Joel Brockner critiques Twitter’s most recent layoff method

Process Matters coverAccording to Joel Brockner, author of The Process Matters: Engaging and Equipping People for Success, an overemphasis on “results only” in the workplace is as widespread as it is detrimental. As Brockner aims to demonstrate in his opinion piece in Fortune magazine, the process managers use to reach their goals is itself critical. He critiques Twitter’s recent decision to block employee email accounts as a way of notifying staff of layoffs, while professing the highest respect and consideration for its employees. Brockner explains:

While the generous exit package may have been well-intended, the message of utmost respect fell by the wayside because the approach Twitter took was a process disaster… Given Twitter’s professed intentions, it seems that they could have found a more dignified way to tell people that they were being let go. But Twitter isn’t alone in process dysfunction.

Brockner continues to discuss the potential reasons for such a managerial mishap: perhaps the misstep isn’t obvious, or the managers are simply unaware of its unintended consequences. Yet he maintains that executives should prioritize improving managerial-employee processes, because ultimately the company will, “pay now or pay (a lot more) later.”

Read the full opinion piece in Fortune here.

Joel Brockner is the Phillip Hettleman Professor of Business at the Columbia Business School. He is the author of A Contemporary Look at Organizational Justice: Multiplying Insult Times Injury and Self-Esteem at Work, and the coauthor of Entrapment in Escalating Conflicts.

PHISHING FOR PHOOLS and CLIMATE SHOCK included in the long list for FT & McKinsey Business Book of the Year Award

Climate ShockPhishing for Phools jacketThe long list for the FT & McKinsey Business Book of the Year Award has been published, and we’re thrilled to see that two Princeton University Press titles have been included. Nobel Prize winners George Akerlof and Robert Shiller’s new book on on economic trickery, Phishing for Phools, and Gernot Wagner and Martin Weitzman’s examination of the global crisis of climate change, Climate Shock have both been listed in the top 15. Other titles appearing include Ashlee Vance’s biography of Elon Musk, Martin Ford’s study of jobs and automation, The Rise of the Robots, and Anne-Marie Slaughter’s take on how to narrow the gender gap, Unfinished Business.

Read more about this year’s long listed titles and the other books recognized during the award’s 11-year history here.

The shortlist of up to six finalists will be published on September 22nd.  The £30,000 prize will be awarded on November 17th in New York.

Find sample chapters of Climate Shock and Phishing for Phools here and here respectively.

 

 

Forecasting & Business Charts [Slideshow]

The slideshow below, assembled by Walter Friedman, author of Fortune Tellers: The Story of America’s First Economic Forecasters, brings together several forecasting and business charts from the early twentieth century.

More information on many of these charts and the forecasters themselves is in Friedman’s book which you can sample here. If you would like to download a PDF of these images and captions, please right click and save this file.

Fortune Tellers 2
Fortune Tellers 1
1 The Babson Compositplot, 1921
2 Irving Fisher's Diagram of the Equation of Exchange, 1912
3 Irving Fisher's Diagram of the Equation of Exchange, 1912
4 John Moody's View of the Economy, 1904
5 James H Brookmire's Barometer, 1907
6 Brookmire's Barometer Chart
7 Harvard Economic Service Chart
Karl Karsten's Map of Business Conditions
9 Brookmire's Cycle Chart of Business and Banking
10 Malcolm Rorty's Depiction of the Business Cycle
11 Babson's Map of the United States for Merchants and Bankers, 1911
12 Brookmire's survey of business conditions in the United States

A new type of forecasting

The years from the turn of the century to World War I were a fertile time for many business analysts, including the scientific management exponent, F. W. Taylor. While some experts sought to improve the inner workings of firms, other tried to make sense of the very atmosphere in which business operated.

Who were the Fortune Tellers?

After the Panic of 1907, economic forecasters began producing newsletters.

Roger W. Babson published Babson’s Reports, which featured the Compositplot of ups and downs. In 1909, John Moody, who is today remembered for his credit rating company, started his own weekly market report. In 1910 Irving Fisher, a pioneer of mathematical economics, published the first of several charts, intended for economic prediction, in the Journal of Economics. Around this same time, James Brookmire, the son of a grocer in St. Louis, founded the Brookmire Economic Chart company and began publishing forecasts on a regular basis.

The most influential forecasting chart of the period belonged to the Harvard Economic Service, which, in 1922, founded a weekly newsletter that featured its A-B-C curve. Along with these charts were other efforts to map economic activity, including Malcolm Rorty’s sketch of the business cycle and several attempts to capture the geography of business within the U.S.

The Babson Compositplot, from 1921

The large shaded areas marked A, B, C, D, E, F, and G, represent depressions below and expansions above the “normal” line. Babson believed that areas of expansion (B, for instance), would be equal to areas of recession (C, for instance) that followed. The chart also contained a wealth of other information, including stock prices, bond prices, and commodity prices.

Source: Roger W. Babson, Business Barometers Used in the Accumulation of Money (Wellesley Hills, Mass: Babson Institute, 1921), insert.

Irving Fisher’s Diagram of the Equation of Exchange for use in forecasting, 1912

While Fisher did not produce a forecasting chart, he did create a diagram to illustrate the Equation of Exchange (MV + M’V’ = PT), which he depicted showing a mechanical balance. The left side of the balance symbolized the left side of the equation, with a small weight standing for M, the money in circulation, and a larger bank book standing for M’, deposits in checking accounts. The distance to the left of the fulcrum of the weight represented the velocity of circulation (V) and the distance of the bankbook, the velocity of circulation of bank deposits (V’).

(continued in the next slide)

Irving Fisher’s Diagram of the Equation of Exchange for use in forecasting, 1912

The volume of trade (T) was represented by a tray on the right, with the index of prices (P) at which these goods were sold, represented by the distance of the tray to the right. The diagram showed the changes in the values for all the components of the Equation of Exchange from 1896 to 1911. To predict the future, Fisher thought, one needed to look especially at recent changes in the bank deposits, which, if rising rapidly, indicated a coming crisis.

Source: Irving Fisher, “‘The Equation of Exchange,’ 1896-1910,” The American Economic Review 1:2 (Jun 1911): p. 299.

John Moody’s view of the economy

In this 1904 chart, Moody encapsulates a firm-centered view of the economy, in this case showing the dominance of the Morgan banking interests and Rockefeller’s Standard Oil. Moody wrote at the top of the chart, “The large circle in the center of the chart indicates the dominant position of the Trust-formed industries of the Nation; directly linked to and representing this dominant force we find two groups of capitalists, the Standard Oil, or Rockefeller, and the Morgan groups.” Moody’s diagram resembled something of a family tree of capitalism.

Source John Moody, The Truth about The Trusts: A Description and Analysis of the American Trust Movement (New York: Moody Publishing Company, 1904), between pages viii and ix.

James H. Brookmire’s Barometer, close-up

James H. Brookmire’s Barometer depicted three indexes of economic sectors—business activity, the stock market (an index of thirty-two stocks), and banking resources. The small print reads, “Condition of business, banking, and the stock market in February, 1907, foretelling the panic of October, 9 months later.”

Source: The Brookmire Economic Chart Company, A Graphic Record of Fundamental, Financial and Business Conditions Since 1885 (St. Louis: Brookmire, 1913).

Brookmire’s Barometer Chart

Here, Brookmire combined his barometer with a chart of values over time for general business (a black line), average stocks (in shaded line), and banking (in sold red).

Source: The Brookmire Economic Chart Company, A Graphic Record of Fundamental, Financial and Business Conditions Since 1885 (St. Louis: Brookmire, 1913).

Harvard Economic Service Chart

Harvard Economic Service Chart, like Brookmire’s Barometer, was a leading indicator model. Persons believed that Group A (representing stocks) forecast Group B (representing business activity); in turn Group B forecasted Group C (representing banking). In this way, the three indexes together created a view of overall business conditions and, in Person’s words, “future tendencies.” The graph above showed historical values from 1903 to 1908.

Source: Warren M. Persons, “The Index: A Statement of Results,” Review of Economic Statistics 1:2 (April 1919): 112.

Karl Karsten’s “Map of Business Conditions”

Economist Karl Karsten showed American states in relative proportion to their population and shaded according to condition of “business activity,” with the darkest states (New Hampshire and Vermont) representing poor levels. The chart revealed the relative geographic distribution of business activity and population—still very weighted toward New England, Pennsylvania (with the rise of the steel industry in Pittsburgh), and Illinois (with the growth of Chicago and its meatpacking plants and grain industry).

Source: Karl Karsten Papers, Library of Congress, Washington, D.C.

Brookmire’s Cycle Chart of Business and Banking

This chart shows how the ups and downs of business activity tended to deplete and then free up banking resources. As business activity ran from “normal” to “prostrate,” banking resources climbed from “normal” to “abundant” and even “plethoric.” When business activity subsequently climbed to “feverish” and “hazardous,” at the peak of the cycle, banking resources fell to “overextended” and even “critical.”

Source: The Brookmire Economic Chart Company, A Graphic Record of Fundamental, Financial and Business Conditions Since 1885 (St. Louis: Brookmire, 1913).

Malcolm Rorty’s depiction of the business cycle

In this graph, capitalist economies had four discernible phases: revival, prosperity, liquidation, and depression. Above each of these four, Rorty included a list of economic conditions common to each to help readers determine the end of one phase and the start of the next. Note that the chart showed an especially sharp drop of business activity during times of liquidation or crisis.

Source Rorty, Some Problems in Current Economics (1922).

Babson’s Map of the United States for Merchants and Bankers, 1911

The map showed regions where failures were increasing (shown in squares) and business declining (shown in circles).

Brookmire’s survey of business conditions in the United States

Regions were color-coded to indicate whether crop production was good, fair, or poor. Cities were marked with stars if they were numerous business failures, with diamonds if they held dull opportunities for salesmen, and ampersands if the opportunities for salesmen were improving.

Source: The Brookmire Economic Chart Company, A Graphic Record of Fundamental, Financial and Business Conditions Since 1885 (St. Louis, Mo., 1912).

Fortune Tellers 2 thumbnail
Fortune Tellers 1 thumbnail
1 The Babson Compositplot, 1921 thumbnail
2 Irving Fisher's Diagram of the Equation of Exchange, 1912 thumbnail
3 Irving Fisher's Diagram of the Equation of Exchange, 1912 thumbnail
4 John Moody's View of the Economy, 1904 thumbnail
5 James H Brookmire's Barometer, 1907 thumbnail
6 Brookmire's Barometer Chart thumbnail
7 Harvard Economic Service Chart thumbnail
Karl Karsten's Map of Business Conditions thumbnail
9 Brookmire's Cycle Chart of Business and Banking thumbnail
10 Malcolm Rorty's Depiction of the Business Cycle thumbnail
11 Babson's Map of the United States for Merchants and Bankers, 1911 thumbnail
12 Brookmire's survey of business conditions in the United States thumbnail