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  • Lego's Open Source Innovation Success

    Listening to Johanna Blakley talk about the fashion industry as a center for innovation even though there is no copyright protection got us thinking about other fields where companies are innovating while having to forgo some traditional intellectual property concerns. And then we saw this brief discussion of open source innovation with Eric Von Hippel , professor of technological innovation at MIT. Lego had seven engineers work for seven years to develop Lego Mindstorms--the legendary plastic block company's line of Lego-block robots. Mindstorms have become the company's top selling item. But along the way to becoming so popular, the Mindstorms were hacked by some very eager consumers, and changed considerably within a few weeks of hitting the market. Eric Von Hippel says that Lego's decision to not fight the hackers, but to encourage them, helped the product and the company. It is a prime example of a company recognizing how consumers have changed, and that the trick to real innovation is working with them. Here is Von Hippel speaking at the 2008 World Innovation Forum:

  • How IT is Driving Innovation in the Digital Age

    Erik Brynjolfsson , an economist at MIT's Sloan of Management and director of the MIT Center for Digital Business , studies the relationship between Information Technology (IT) and innovation. He argues that, historically, companies that embrace new technology move ahead while those that do not become "laggards." And, he says, that gap has widened in the Digital Age. Now, Brynjolfsson says IT is setting off a "revolution in innovation," in four areas: "measurement, experimentation, sharing and replication." Watch the full interview with Brynjolfson here .

  • Simon Johnson Argues For Shrinking 'Too Big To Fail' Banks

    Simon Johnson--Professor of economics at MIT , a member of the Panel of Economic Advisers for the Congressional Budget Office , former chief economist for the IMF --and his co-conspirator at Baseline Scenario , James Kwak --formerly a McKinsey consultant and now a student at Yale Law School--came out with a new book this spring. 13 Bankers follows a theme that Johnson has been pushing for the last few years: the danger of concentrated financial power. He spoke about the book, and his argument that the 'too big to fail' banks need to be harnessed before financial crisis hits yet again, in this Thoughtcast interview: Simon Johnson Defies 13 Bankers "Too Big to Fail" from thoughtcast on Vimeo . For more on 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown , including an excerpt, click here .

  • Simon Johnson: Beware the Loop

    Simon Johnson has become one of the most active public economists since the global economic crisis. Professor of economics at MIT , a member of the Panel of Economic Advisers for the Congressional Budget Office , former chief economist for the IMF --Johnson's has a long list of credentials to back his writing at Calculated Risk and elsewhere. And he has been sounding warning about the fragility of the financial sector post-crisis. In his speech at the Roosevelt Institute 's Make Markets Be Markets conference, Johnson implored the audience to recognize the difference between a downward slide caused by "a series of unfortunate events," and a "loop" caused by systemic changes: Simon Johnson on the Doom Cycle (MMBM) from Roosevelt Institute on Vimeo .

  • Acemoglu on Institutions, Prosperity, and What Makes Poor Countries Poor

    MIT economist Daron Acemoglu believes institutions matter when it comes to generating prosperity. And in analyzing what makes rich countries rich, and poor countries poor, one has to look primarily at government. Or as he writes in Esquire : "Put simply: Fix incentives and you will fix poverty. And if you wish to fix institutions, you have to fix governments." How do we know that institutions are so central to the wealth and poverty of nations? Start in Nogales, a city cut in half by the Mexican-American border fence. There is no difference in geography between the two halves of Nogales. The weather is the same. The winds are the same, as are the soils. The types of diseases prevalent in the area given its geography and climate are the same, as is the ethnic, cultural, and linguistic background of the residents. By logic, both sides of the city should be identical economically. And yet they are far from the same. On one side of the border fence, in Santa Cruz County, Arizona, the median household income is $30,000. A few feet away, it's $10,000. On one side, most of the teenagers are in public high school, and the majority of the adults are high school graduates. On the other side, few of the residents have gone to high school, let alone college. Those in Arizona enjoy relatively good health and Medicare for those over sixty-five, not to mention an efficient road network, electricity, telephone service, and a dependable sewage and public-health system. None of those things are a given across the border. There, the roads are bad, the infant-mortality rate high, electricity and phone service expensive and spotty. The key difference is that those on the north side of the border enjoy law and order and dependable government services — they can go about their daily activities and jobs without fear for their life or safety or property rights. On the other side, the inhabitants have institutions that perpetuate crime, graft, and insecurity. Read What Makes a Nation Rich? One Economist's Big Answer here . And take a closer look at the accompanying map/graphic (above) by clicking here .

  • Robert Merton on Derivatives and the Global Economic Crisis

    Robert Merton was rewarded a Nobel Prize in Economics (along with Myron Scholes ) for his work on " Analytical optimal control theory as applied to stochastic and non-stochastic economics ." Or, to put it another way, he and Scholes were recognized for coming up with new ways of determining the value of derivatives. In this lecture at MIT he explains how put options, a type of derivative, are at the center of understanding the root cause of the global economic crisis: Here's a good one page summation of Scholes and Merton's work on derivatives from Nova . (Hat tip to Greg Mankiw and Arnold Kling)

  • MIT Economists Look for Silver Linings

    Five prominent MIT economists gathered in early October to talk about the root causes of the global economic crisis, and they warned that actions taken in the following few weeks could make all the difference in determining the length and severity of the crisis. And they all agreed that tough times were coming. This week, they gathered again. And nearly six months after their first panel, their talk remains sobering, but they did speak to some positive signs they are seeing. Richard Caballero , head of the MIT economics department, chaired the panel. He opened by saying "Don’t take it personally — I really hope this is the last of these panels." He was joined by Andrew Lo of the Sloan School of Management; Bengt Holmstrom , Professor of Economics, and James Poterba , Professor of Economics. For comparison sake, you can watch the the October 8 panel featuring the same economists here .

  • Simon Johnson: Break Up the 'Banking Elite'

    Simon Johnson was chief economist for the International Monetary Fund in 2007 and 2008. Now he is a professor at MIT, is a senior fellow at The Peterson Institute for International Economics , and blogs about the global economic crisis at The Baseline Scenario . For the last several months, he has been among the most vocal public economists warning that the US government's response to the crisis is far from enough. Now, in a new piece for the May issue of The Atlantic , Johnson warns that the very people who lead the way into the financial crisis--the management of America's biggest banks--are being given too much say in how to respond to the crisis. In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people. But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them. Read The Quiet Coup from The Atlantic here . Johnson has been making the rounds today to sound the warning in person. You can watch the five-minute version, from MSNBC: Or for a more extensive, 50-minute version from On Point with Tom Ashbrook , download the podcast or listen here :