Confessions of a Supply-Side Liberal

A Partisan Nonpartisan Blog

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Von Günter Heismann in the Süddeutsche Zeitung: Economists Ken Rogoff and Miles Kimball Want to Abolish Cash

I made it into the German press for wanting to demote—not abolish—cash, along with Ken Rogoff, who does indeed want to get rid of cash. (i wrote about Ken Rogoff’s views here.Google Translate works fine on this article. Thanks to Rudi Bachmann for letting me know about this article. 

See what I have to say about breaking through the zero lower bound with electronic money in "How and Why to Eliminate the Zero Lower Bound: A Reader’s Guide." The article in the Süddeutsche Zeitung should have mentioned that I visited the European Central Bank and three of its associated national banks (France, Germany and Italy) to talk about how to keep paper currency from creating a zero lower bound. 

Filed under emoney money

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Rich People Who Believe in Behavioral Economics

From Harvard Magazine, July-August 2014:

… the [Harvard] Faculty of Arts and Sciences disclosed a $17-million donation from the Pershing Square Foundation—founded by Bill (William A.) Ackman ‘88, M.B.A. ‘92, CEO of the Pershing Square Capital Management hedge fund, and Karen Ackman, M.L.A. ‘93—for a “foundation of human behavior” initiative grounded in behavioral economics and other disciplines. That gift provides for three new professorships and a research fund.

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Clay Christensen, Jerome Grossman and Jason Hwang on the Three Basic Types of Business Models

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In The Innovator’s Prescription, Clay Christensen, Jerome Grossman and Jason Hwang make good use of a typology of business models laid out by C. B. Stabell and Øystein Fjeldstad in their May, 1998 Strategic Management Journal article “Configuring Value for Competitive Advantage: On Chains, Shops and Networks." Modifying Stabell and Fjeldstad’s terminology a bit for clarity, Clay and his coauthors call the three types of business models solutions shops, value-adding processes, and facilitated networks. Clay, Jerome and Jason argue that these three types of business models are so different that it is difficult to efficiently house them under one roof. They give these definitions for these three types of business models (from about location 360):

Solution Shops 

These “shops” are businesses that are structured to diagnose and solve unstructured problems. Consulting firms, advertising agencies, research and development organizations, and certain law firms fall into this category. Solution shops deliver value primarily through the people they employ—experts who draw upon their intuition and analytical and problem-solving skills to diagnose the cause of complicated problems. After diagnosis, these experts recommend solutions. Because diagnosing the cause of complex problems and devising workable solutions has such high subsequent leverage, customers typically are willing to pay very high prices for the services of the professionals in solution shops. 

The diagnostic work performed in general hospitals and in some specialist physicians’ practices are solution shops of sorts. …

Value-Adding Processes

Organizations with value-adding process business models take in incomplete or broken things and then transform them into more complete outputs of higher value. Retailing, restaurants, automobile manufacturing, petroleum refining, and the work of many educational institutions are examples of VAP businesses. Some VAP organizations are highly efficient and consistent, while others are less so.

Many medical procedures that occur after a definitive diagnosis has been made are value-adding process activities….

Facilitated Networks

These are enterprises in which people exchange things with one another. Mutual insurance companies are facilitators of networks: customers deposit their premiums into the pool, and they take claims out of it. Participants in telecommunications networks send and receive calls and data among themselves; eBay and craigslist are network businesses. In this type of business, the companies that make money tend to be those that facilitate the effective operation of the network. They typically make money through membership or user fees.

Networks can also be an effective business model for the care of many chronic illnesses that rely heavily on modifications in patient behavior for successful treatment. Until recently, however, there have been few facilitated network businesses to address this growing portion of the world’s health-care burden. …

Clay, Jerome and Jason’s central idea is that medicine will be more efficient if there is one medical institution designed for inherently expensive “solution shop” activities such as difficult diagnoses, other much more convenient and inexpensive clinics for the routine treatment of well-diagnosed diseases, and online networks for patients to discuss their contribution as patients to disease management with others who have the same disease. What wouldn’t survive would be the current hospital model where the solution shop aspect of what they do confers high expense on many other activities that don’t have to be so expensive. Here is the way Clay, Jerome and Jason say it: 

The two dominant provider institutions in health care—general hospitals and physicians’ practices—emerged originally as solution shops. But over time they have mixed in value-adding process and facilitated network activities as well. This has resulted in complex, confused institutions in which much of the cost is spent in overhead activities, rather than in direct patient care. For each to function properly, these business models must be separated in as “pure” a way as possible.

This is not just a matter of static efficiency:

The health-care system has trapped many disruption-enabling technologies in high-cost institutions that have conflated two and often three business models under the same roof. The situation screams for business model innovation. The first wave of innovation must separate different business models into separate institutions whose resources, processes, and profit models are matched to the nature and degree of precision by which the disease is understood. Solution shops need to become focused so they can deliver and price the services of intuitive medicine accurately. Focused value-adding process hospitals need to absorb those procedures that general hospitals have historically performed after definitive diagnosis. And facilitated networks need to be cultivated to manage the care of many behavior-dependent chronic diseases. Solution shops and VAP hospitals can be created as hospitals-within-hospitals if done correctly.

Further Musings: Even apart from this application to health care, I have found the typology of solution shop, value-adding process and facilitated network very interesting to think about for understanding my own work life (as a complement to the kind of analysis I talked about in my post "Prioritization").  

I work at the University of Michigan. Universities combine research—which is quintessentially a solution shop activity—with teaching, which has a big component of value-adding processes. And of course, Tumblr, Twitter and Facebook, where I put in effort as a blogger, are facilitated networks.

The idea of a value-adding process highlights the gains to be had from routinizing something. It is good to periodically ask oneself if there is anything in my daily activities that I can make more routine and streamlined.  

The idea of a facilitated network highlights the gains to be had by having users do a lot of the work. That in turn is related both to the benefits of laissez faire under a decent system of rules and the idea of delegation, which typically involves giving up some control at the detailed level.  

I find for me, however, that I love the “solution-shop” aspect of life so much that I think I resist routinization. I don’t know if this is what I should be doing, but I would rather keep thinking about how I am doing things than have everything fade into the background of routine. That does cost me extra time, as I do things inefficiently because I am thinking too much about them as I do them.  

Here is a link to a sub-blog of all of my posts tagged as being about Clay Christensen’s work

Filed under health clay

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Math Camp in a Barn

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Image created by Miles Spencer Kimball. I hereby give permission to use this image for anything whatsoever, as long as that use includes a link to this post. For example, t-shirts with this picture (among other things) and http://blog.supplysideliberal.com/post/92400376217/math-camp-in-a-barn on them would be great! :)

I like Naomi Schefer Riley’s account in the Wall Street Journal of Ben Chavis’s math camp in North Carolina’s poorest county: "Math Camp in a Barn: Intensive Instruction, No-Nonsense Discipline" (googling the title of a Wall Street Journal article jumps over the paywall, so my link is to the search page). Naomi’s article illustrates two related principles I have written about. First, almost anyone can learn math with enough hard work and a can-do attitude, as Noah Smith and I write in “There’s One Key Difference Between Kids Who Excel at Math and Those Who Don’t.” Second, a key element of learning is simply time spent learning, as I write about in "Magic Ingredient 1: More K-12 School." Lengthening the school year is one of the most straightforward ways to increase learning, especially in hard subjects. Naomi points out the arithmetic of math instruction: 

From 8:30 a.m. to 4 p.m. Monday through Friday the children learn math, interspersed with some reading, physical education and lunch. Each gets 120 hours of instruction during the three weeks, equivalent to what they would get in a year at a typical public school.

Among many other serious problems with education in the United States, our attachment to the idea of summer vacation is an important one. 

Filed under education