Jewish World Review Oct. 11, 2013/ 7 Mar-Cheshvan, 5774
The beauty of simplicity
By Paul Greenberg
http://www.JewishWorldReview.com | How simple a great idea can be. Once a great thinker explains it simply. A thinker like Ronald Coase, the economist, teacher and sage who has just died at the remarkable age of 102.
The man could explain how and why today's American economy is so different in structure from the one I grew up with from the 1950s well into the 1970s, which was dominated by Fortune 500 companies and household names like Ford, GM, GE,
Why were all those behemoths created? Ronald Coase explained it simply in his classic paper, "The Nature of the Firm," which may be the best known and most frequently cited treatise on economics since
Those corporations were formed, to use Coase's phrase, to save "transaction costs." Or how much it costs -- in money, time and general hassle -- to conduct a business. Or create an industry. Or just turn out a product. Especially one with a lot of moving parts.
Visiting an insurance company's headquarters in the 1950s, or a newspaper's for that matter, was to be greeted by a sea of desks, complete with one each clerical worker -- little cogs in the great corporate machine.
It was assumed that many of us would spend a lifetime with one company, rising (or falling) through the ranks. It was the age of the Company Man, and there was a distinct
What ever happened to all those corporate giants? Many are still around, if diminished in size and influence, but a great sea change has occurred. By the 1990s, those Fortune 500 companies, pillars of the American economy for decades, had cast off 3 million jobs over a decade of downsizing. Change is stress, and that was a big change, not just in the American economy but the American psyche.
A later book Ronald Coase helped write, "The Dynamic American Firm," would offer some needed perspective on that big change:
"Like 'de-industrialization,' the rapid rise in business services and self-employment over the past several years has set alarm bells ringing in enlightened centers of thought. 'In the future,' one displaced executive told
Ronald Coase's thoughts on American economic organization, blessedly theory-free because they were based on studies of how American businesses actually make decisions, were almost as influential as his 1960 essay on "The Problem of Social Cost," which has been called the most cited law-review article in history. It's an incisive look at how inefficient government regulation, taxation, subsidization and litigation can be when compared to negotiation between competing interests.
His now well-known example: The case of the farmer whose land is being damaged by emissions from passing trains. Coase's solution: not a penalty or fine or still another lawsuit or 10,000-word bill in
Naturally enough, ideas like Ronald Coase's -- great ideas simply explained -- deeply offended his colleagues in academe. He was denied promotion at the
Ronald Coase understood the beauty of simplicity, which seems to elude the kind of "planners" who strew obstacles here, there and everywhere. Like all the stumbling blocks they've put in the way of charter schools, the most promising innovation in public education in years. Or consider Obamacare, which is anything but simple. One more part of that gigantic mechanism seems to crash, stall or somehow fail every day.
When a mathematician cuts through all the complexities in an equation, his solution may be described as elegant. In that sense, Ronald Coase was an elegant thinker.
According to the citation when he was awarded his Nobel in 1991, "Coase may be said to have identified a new set of 'elementary particles' in the economic system." He himself would only smile at such a claim. "I've never done anything that wasn't obvious," he once said. Maybe so -- but it wasn't obvious until he pointed it out.
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