The wisdom of deliberate mistakes

Before the breakup of the Bell System, U.S. telephone companies were permitted by law to ask for security deposits from a small percentage of subscribers. The companies used statistical models to decide which customers were most likely to pay their bills late and thus should be charged a deposit, but no one knew whether the models were right. So the Bell companies made a deliberate mistake. They asked for no deposit from nearly 100,000 new customers randomly selected from among those who were considered high risks. Surprisingly, quite a few paid their bills on time. As a result, the companies instituted a smarter screening strategy, which added millions to the Bell System's bottom line. Usually, individuals and organizations go to great lengths to avoid errors. Companies are designed for optimum performance rather than for learning, and mistakes are seen as defects. But as the Bell System example shows, making mistakes--correctly--is a powerful way to accelerate learning and increase competitiveness. If one of a company's fundamental assumptions is wrong, the firm can achieve success more quickly by deliberately making errors than by considering only data that support the assumption. Moreover, executives who apply a conventional, systematic approach to solving a pattern recognition problem are often slower to find a solution than those who test their assumptions by knowingly making mistakes. How do you distinguish between smart mistakes and dumb ones? The authors' consulting firm has developed, and currently uses, a five-step process for identifying constructive mistakes. In one test, the firm assumed that a mistake it was planning to make would cost a significant amount of money, but the opposite happened. By turning assumptions on their heads, the firm created more than dollar 1 million in new business.     

Why did policy ignore the harbingers of the crisis?

An analysis of the monetary authorities’ reports for 2005 to 2007 reveals that they were well aware of the risks of the financial crisis. They, however, tended to overemphasise the risks outside their control and to neglect those, at least partially under their control. Central banks should and could have acted already in 2005. Academic studies and their own assessments clearly indicated an accumulation of risks. Monetary authorities didn’t react as (1) they believe in self-regulating markets, and (2) in monetary instruments’ ineffectiveness to prevent bubbles, as well as (3) their tendency to assigning an extremely low probability to potential risks. This is not untypical for expert assessments: Risk assessment for complex systems is extremely complicated. If feasible at all, it would require extraordinarily complex techniques to take into account the tight coupling of system components and their complex interaction. This will not be possible in the foreseeable future. As a result reducing the system’s complexity appears to be the only way to reduce the probability and the severity of future financial crises.     

Managing change strategically: the technical, political, and cultural keys.

Managing strategic change is increasingly a way of life for organizations faced with the turbulent economic, political, and cultural forces of the 1980s. To manage such change, organizations and their managers will have to confront basic questions regarding the organization's technical, political, and cultural foundations. The technical questions include: What business(es) should we be in? How should we be organized to accomplish our strategy? What kinds of people do we need, and how will they be acquired, developed, and rewarded? The political questions include: Who gets to influence the mission and strategy of the organization? How is power allocated both vertically and horizontally across the organization? Who gets promoted to what key positions? The cultural questions include: What values and beliefs are necessary to support the organization's strategy? What subcultures are desirable, and should there be an overarching corporate culture? How should the human resources system shape and mold the culture?     

The East Asian Dollar Standard, Fear of Floating, and Original Sin

Before the crisis of 1997/98, the East Asian economies—except for Japan but including China—pegged their currencies to the US dollar. To avoid further turmoil, the IMF argues that these currencies should float more freely. However, the authors’ econometric estimations show that the dollar's predominant weight in East Asian currency baskets has returned to its pre‐crisis levels. By 2002, the day‐to‐day volatility of each country's exchange rate against the dollar had again become negligible. Most governments were rapidly accumulating a “war chest” of official dollar reserves, which portends that this exchange rate stabilization will come to extend over months or quarters. From the doctrine of “original sin” applied to emerging‐market economies, the authors argue that this fear of floating is entirely rational from the perspective of each individual country. And their joint pegging to the dollar benefits the East Asian dollar bloc as a whole, although Japan remains an important outlier.     

Synchronised Business Cycles in East Asia and Fluctuations in the Yen/Dollar Exchange Rate

Because many authors have proposed stimulating the ailing Japanese economy by monetary expansion and yen depreciation, we explore the repercussions of depreciating the yen against the dollar on the other East Asian economies – which largely peg to the dollar. Since 1980, economic integration among Japan's neighbours – China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand – has intensified and (except for China and Singapore) their business cycles have been highly synchronised. These cycles have been closely linked to fluctuations in the yen/dollar exchange rate – through changes in the export competitiveness, inflows of foreign direct investment and intra‐Asian income effects. We show that a major yen devaluation would have a negative impact on incomes in other East Asian economies and that it is not a sensible policy option for Japan.     

Bank credit and economic activity: Evidence from the texas banking decline

In the latter half of the 1980s, banking difficulties were concentrated in Texas. Because of the magnitude of these financial difficulties, interest has focused on whether an alleged inability or unwillingness of Texas banks to extend loans hampered economic growth in the state. Using various measures of banking-sector activity and economic activity in Texas over the period 1976:I-1990:IV, a structural VAR model of the Texas economy is estimated. Variance decompositions measure the interdependence of the banking and real sectors of the economy. Our results indicate a strong effect from the real sector to the financial sector. We find little evidence, though, that the deterioration observed in the Texas banking sector contributed to reduced economic growth.     

Neuere Literatur zum Thema internationale Liquidität

Ohne ZusammenfassungDie Besprechung beschränkt sich im wesentlichen auf die Bücher und Broschüren, die in letzter Zeit bei der Redaktion einliefen und von dieser dem Autor mit der Bitte um eine Sammelbesprechung übersandt wurden.