Monday, August 31, 2009

Pirate Economics

This week's New Yorker has an excellent review of GMU economist Pete Leeson's book The Invisible Hook. I haven't yet read the book, but Leeson spoke to Russ Roberts about the book on EconTalk earlier this summer. It was a thoroughly interesting (and entertaining) discussion.

From the review:
In Leeson’s opinion, there was a sound economic basis for all this democracy. Most businesses suffer from what economists call the “principal-agent problem”: the owner doesn’t work, and the workers, not being stakeholders, lack incentives; so a certain amount of surveillance and coercion is necessary to persuade Ishmael to hunt whales instead of spending all day in his hammock with Queequeg. Pirates, by contrast, having stolen the ships they sailed, were both principals and agents; they still needed a captain but, Leeson explains, “they didn’t require autocratic captains because there were no absentee owners to align the crew’s interests with.” The insight suggests more than Leeson seems to want it to—does inequity always entail political repression?—and late in the book he backtracks, cautioning that the pirate example “doesn’t mean democratic management makes sense for all firms,” only that management style should be adjusted to the underlying ownership structure. But a certain kind of reader is likely to ignore the hedging, and note that the pirates, two centuries before Lenin, had seized the means of production.
It's great to see Leeson getting so much good press. I knew him as the TA for my favorite economics course at Mason (under one of my favorite professors, another Pete.) The review mentions that Leeson has a tattoo of Supply and Demand on his bicep. It's true, I've seen it. And yes, it's totally badass.