Worries over the slowing Chinese economy spilled out into the streets of Hebei province last weekend as two construction firms battled with bulldozers while competing for the same business. That is some end-times shit right there.
kottke.org posts about economics
The link between health and wealth Apr 12 2016
If you're poor, you might want to consider moving to a place where your life expectancy will be reasonably high. In many parts of America, there is only a minor gap between the life expectancies of the wealthy and the poor.
But in some other parts of the country, adults with the lowest incomes die on average as young as people in much poorer nations like Rwanda, and their life spans are getting shorter.
If you're rich, you're probably OK right where you are (regardless of where that happens to be). Here are some remarkable numbers from the NYT Upshot: The rich live longer everywhere. For the poor, geography matters.
How to win at Monopoly and piss off your friends Feb 08 2016
If you're forced into playing Monopoly by friends, you can employ this simple strategy to ensure they will never ever ask you to play again.
With a second monopoly completed, your next task is to improve those properties to three houses each, then all of your properties to four houses each. Six properties with three houses will give you more than half of the houses in the game, and four houses each will give you 75% of the total supply. This will make it nearly impossible for your opponents to improve their own property in a meaningful way. Keep the rulebook nearby once the supply gets low, as you will undoubtedly be questioned on it. At this point, you will be asked repeatedly to build some friggin' hotels already so that other people can build houses. Don't.
At this point, you more or less have the game sewn up. If losing a normal game of monopoly is frustrating, losing to this strategy is excruciating, as a losing opponent essentially has no path to victory, even with lucky rolls. Your goal is to play conservatively, lock up more resources, and let the other players lose by attrition. If you want to see these people again, I recommend not gloating, but simply state that you're playing to win, and that it wasn't your idea to play Monopoly in the first place.
It is difficult to read this without thinking about income inequality in the real world.
The American Slave Coast: A History of the Slave-Breeding Industry by Ned & Constance Sublette is a book which offers an alternate view of slavery in the United States. Instead of treating slavery as a source of unpaid labor, as it is typically understood, they focus on the ownership aspect: people as property, merchandise, collateral, and capital. From a review of the book at Pacific Standard:
In fact, most American slaves were not kidnapped on another continent. Though over 12.7 million Africans were forced onto ships to the Western hemisphere, estimates only have 400,000-500,000 landing in present-day America. How then to account for the four million black slaves who were tilling fields in 1860? "The South," the Sublettes write, "did not only produce tobacco, rice, sugar, and cotton as commodities for sale; it produced people." Slavers called slave-breeding "natural increase," but there was nothing natural about producing slaves; it took scientific management. Thomas Jefferson bragged to George Washington that the birth of black children was increasing Virginia's capital stock by four percent annually.
Here is how the American slave-breeding industry worked, according to the Sublettes: Some states (most importantly Virginia) produced slaves as their main domestic crop. The price of slaves was anchored by industry in other states that consumed slaves in the production of rice and sugar, and constant territorial expansion. As long as the slave power continued to grow, breeders could literally bank on future demand and increasing prices. That made slaves not just a commodity, but the closest thing to money that white breeders had. It's hard to quantify just how valuable people were as commodities, but the Sublettes try to convey it: By a conservative estimate, in 1860 the total value of American slaves was $4 billion, far more than the gold and silver then circulating nationally ($228.3 million, "most of it in the North," the authors add), total currency ($435.4 million), and even the value of the South's total farmland ($1.92 billion). Slaves were, to slavers, worth more than everything else they could imagine combined.
Just reading that turns my stomach. The Sublettes also recast the 1808 abolition of the transatlantic slave trade as trade protectionism.
Virginia slaveowners won a major victory when Thomas Jefferson's 1808 prohibition of the African slave trade protected the domestic slave markets for slave-breeding.
I haven't read the book, but I imagine they touched on the fact that by growing slave populations, southern states were literally manufacturing more political representation due to the Three-Fifths clause in the US Constitution. They bred more slaves to help politically safeguard the practice of slavery.
Update: Because slaves were property, Southern slave owners could mortgage them to banks and then the banks could package the mortgages into bonds and sell the bonds to anyone anywhere in the world, even where slavery was illegal.
In the 1830s, powerful Southern slaveowners wanted to import capital into their states so they could buy more slaves. They came up with a new, two-part idea: mortgaging slaves; and then turning the mortgages into bonds that could be marketed all over the world.
First, American planters organized new banks, usually in new states like Mississippi and Louisiana. Drawing up lists of slaves for collateral, the planters then mortgaged them to the banks they had created, enabling themselves to buy additional slaves to expand cotton production. To provide capital for those loans, the banks sold bonds to investors from around the globe -- London, New York, Amsterdam, Paris. The bond buyers, many of whom lived in countries where slavery was illegal, didn't own individual slaves -- just bonds backed by their value. Planters' mortgage payments paid the interest and the principle on these bond payments. Enslaved human beings had been, in modern financial lingo, "securitized."
Slave-backed securities. My stomach is turning again. (via @daveg)
Update: Tyler Cowen read The American Slave Coast and listed a few things he learned from it.
2. President James Polk speculated in slaves, based on inside information he obtained from being President and shaping policy toward slaves and slave importation.
3. In the South there were slave "breeding farms," where the number of women and children far outnumbered the number of men.
Update: In his book The Half Has Never Been Told: Slavery and the Making of American Capitalism, Edward Baptist details how slavery played a central role in the making of the US economy.
As historian Edward Baptist reveals in The Half Has Never Been Told, slavery and its expansion were central to the evolution and modernization of our nation in the 18th and 19th centuries, catapulting the US into a modern, industrial and capitalist economy. In the span of a single lifetime, the South grew from a narrow coastal strip of worn-out tobacco plantations to a sub-continental cotton empire. By 1861 it had five times as many slaves as it had during the Revolution, and was producing two billion pounds of cotton a year. It was through slavery and slavery alone that the United States achieved a virtual monopoly on the production of cotton, the key raw material of the Industrial Revolution, and was transformed into a global power rivaled only by England.
The London Underground recently conducted an experiment on one of the escalators leading out of the busy Holborn station. Instead of letting people walk up the left side of the escalator, they asked them to stand on both sides.
The theory, if counterintuitive, is also pretty compelling. Think about it. It's all very well keeping one side of the escalator clear for people in a rush, but in stations with long, steep walkways, only a small proportion are likely to be willing to climb. In lots of places, with short escalators or minimal congestion, this doesn't much matter. But a 2002 study of escalator capacity on the Underground found that on machines such as those at Holborn, with a vertical height of 24 metres, only 40% would even contemplate it. By encouraging their preference, TfL effectively halves the capacity of the escalator in question, and creates significantly more crowding below, slowing everyone down. When you allow for the typical demands for a halo of personal space that persist in even the most disinhibited of commuters -- a phenomenon described by crowd control guru Dr John J Fruin as "the human ellipse", which means that they are largely unwilling to stand with someone directly adjacent to them or on the first step in front or behind -- the theoretical capacity of the escalator halves again. Surely it was worth trying to haul back a bit of that wasted space.
Leaving aside "the human ellipse" for now,1 how did the theory work in the real life trial? The stand-only escalator moved more than 25% more people than usual:
But the preliminary evidence is clear: however much some people were annoyed, Lau's hunch was right. It worked. Through their own observations and the data they gathered, Harrison and her team found strong evidence to back their case. An escalator that carried 12,745 customers between 8.30 and 9.30am in a normal week, for example, carried 16,220 when it was designated standing only. That didn't match Stoneman's theoretical numbers: it exceeded them.
But not everyone liked being asked to stand for the common good:
"This is a charter for the lame and lazy!" said one. "I know how to use a bloody escalator!" said another. The pilot was "terrible", "loopy," "crap", "ridiculous", and a "very bad idea"; in a one-hour session, 18 people called it "stupid". A customer who was asked to stand still replied by giving the member of staff in question the finger. One man, determined to stride to the top come what may, pushed a child to one side. "Can't you let us walk if we want to?" asked another. "This isn't Russia!"
There's a lesson in income inequality here somewhere...1
Ok, explicitly: the people standing are poor, the people walking are rich, and speed is income. When the walkers redistribute some of their speed to the whole group, on average everyone gets to where they're going faster. But the walkers are unwilling to give up walking because they believe their own individual speed will prevail. "This isn't Russia!" indeed.↩
How climate change will affect world economies Oct 22 2015
A new study from scientists and economists at Stanford and Berkeley has taken a stab at determining how climate change will affect the world's economic activity. As part of their study, they look at which countries might benefit from climate change and which might lose out. As you might expect, countries in the Northern Hemisphere with cooler climates stand to benefit while the rest of the world will not. Here are some of the projected big winners (the Nordic countries) and losers (the Middle East):
Saudi Arabia -96%
United Arab Emirates -94%
Canada (+247%) is another one of the potential big winners while the US (-36%) stands to lose out...along with all of Africa, South America, India, and China. This quote by one of the study's lead authors, really grabbed me by the throat:
What climate change is doing is basically devaluing all the real estate south of the United States and making the whole planet less productive. Climate change is essentially a massive transfer of value from the hot parts of the world to the cooler parts of the world. This is like taking from the poor and giving to the rich.
Among other many things, anthropogenic climate change is an issue of discrimination.1 Rich, predominantly white countries caused the problem and can do the most to limit the damage, but climate change will disproportionately affect poor countries, poor people (even in rich countries), women, and people of color. The rich need to do something about it so that the poor will not suffer. The problem is, the world's wealthy have a long history of not being incentivized to help anyone but themselves. I hope this will turn out differently...or, as sometimes happens, the desires of the wealthy and the needs of the poor dovetail into action of joint benefit.
In fact, with no offense to those who rightly rail against causes of discrimination around the world, I would go so far to say that this is by far the largest and most important discriminatory issue the world faces today. Climate change will permanently remake the entire world and its economy, and the poor, women, and people of color stand to lose huge.↩
Danny Meyer: no more tipping at my restaurants Oct 14 2015
Eater has the scoop: Danny Meyer's Union Square Hospitality Group is eliminating tipping at all of their full-service restaurants.
Big news out of Manhattan: Dining out is about to get turned on its head. Union Square Hospitality Group, the force behind some of New York's most important restaurants, will announce today that starting in November, it will roll out an across-the-board elimination of tips at every one of its thirteen full-service venues, hand in hand with an across-the-board increase in prices.
Why are they doing this? In part because cooks get the shaft at restaurants:
Under the current gratuity system, not everyone at a restaurant is getting a fair shake. Waiters at full-service New York restaurants can expect a full 20 percent tip on most checks, for a yearly income of $40,000 or more on average -- some of the city's top servers easily clear $100,000 annually. But the problem isn't what waiters make, it's what cooks make. A mid-level line cook, even in a high-end kitchen, doesn't have generous patrons padding her paycheck, and as such is, on average, unlikely to make much more than $35,000 a year.
I hope this catches on.
Mo' money, mo' happiness Oct 13 2015
Four years into a twenty-year study of the mental conditions of kids living in rural North Carolina, a quarter of the participants experienced a dramatic increase in annual income. The researchers used this opportunity to find out how that increase in wealth affected the wellbeing of the kids. What they learned is that even a little money goes a long way.
Not only did the extra income appear to lower the instance of behavioral and emotional disorders among the children, but, perhaps even more important, it also boosted two key personality traits that tend to go hand in hand with long-term positive life outcomes.
The first is conscientiousness. People who lack it tend to lie, break rules and have trouble paying attention. The second is agreeableness, which leads to a comfort around people and aptness for teamwork. And both are strongly correlated with various forms of later life success and happiness.
How to make a $1500 sandwich Sep 22 2015
Making a sandwich completely from scratch took this guy six months and cost $1500. He grew his own vegetables, made his own butter & cheese, made sea salt from salt water, and harvested wheat for bread flour. And that's with a few shortcuts...he didn't raise the cow & chicken from a calf & chick or the bees from a starter hive.
The economic history of one NYC block Aug 14 2015
Economist William Easterly and some of his colleagues built a site that focuses on the economic development of a single block in NYC, Greene Street between Houston and Prince. In the past 175 years, use of the block has gone from wealthy residential to sex work to garment manufacturing to artist galleries to luxury retail.
133 Greene Street, for example, has been part of the large Bayard farm, a grand residential home, a brothel, a garment factory, part of a slum, an art gallery, and is today the home of luxury co-op residences and a Dior Homme store.
Many of these shifts took only a decade and could have been very difficult to anticipate.
The site was built to accompany an academic paper on economic development.
By 1870, the Greene Street Block contained 14 brothels, the highest concentration of any block in the City. Just as surprising was the sudden end of prostitution on the block. Brothels still abounded in 1880, but during the next decade entrepreneurs demolished and rebuilt almost the entire block as castiron factories and warehouses, and what was left of the red-light district moved up town.
The site is a little confusing to navigate, but is worth checking out in detail. For instance, check out how quickly the garment manufacturing industry shifted from downtown to the present-day Garment District.
Procrastination vs. impatience Aug 07 2015
From the abstract of a paper on the relationship between impatience and procrastination, this caught my eye:
We find substantial evidence of time inconsistency. Namely, more that half of the participants who receive their check straight away instead of waiting two weeks for a reasonably larger amount, subsequently take more than two weeks to cash it.
Yet there are problems with this outlook, aside from just feeling disappointed when things don't turn out well. These are particularly acute in the case of positive visualisation. Over the last few years, the German-born psychologist Gabriele Oettingen and her colleagues have constructed a series of experiments designed to unearth the truth about 'positive fantasies about the future'. The results are striking: spending time and energy thinking about how well things could go, it has emerged, actually reduces most people's motivation to achieve them. Experimental subjects who were encouraged to think about how they were going to have a particularly high-achieving week at work, for example, ended up achieving less than those who were invited to reflect on the coming week, but given no further guidelines on how to do so.
In one ingenious experiment, Oettingen had some of the participants rendered mildly dehydrated. They were then taken through an exercise that involved visualising drinking a refreshing, icy glass of water, while others took part in a different exercise. The dehydrated water-visualisers -- contrary to the self-help doctrine of motivation through visualisation -- experienced a significant reduction in their energy levels, as measured by blood pressure. Far from becoming more motivated to hydrate themselves, their bodies relaxed, as if their thirst were already quenched. In experiment after experiment, people responded to positive visualisation by relaxing. They seemed, subconsciously, to have confused visualising success with having already achieved it.
In a similar way, it may be that the people who received their checks right away but didn't cash them "relaxed" as though they had actually spent the money, not just gotten the check. (via mr)
This book was endlessly fascinating to me, like reading the user's manual on how my brain works for the first time. Like, wait, I don't have to be anxious about not setting goals? And it can actually make me happier? Sign me up!↩
The Waffle House Index Jul 23 2015
The Waffle House Index is an informal metric used by FEMA administrator Craig Fugate to evaluate how bad a storm is. Basically, whether the Waffle House in town is open or serving a limited menu can tell you something about how bad the storm was and how much recovery assistance is necessary.
If you get there and the Waffle House is closed? That's really bad. That's where you go to work.
What's going on in Greece? Jun 29 2015
Socrates once wrote, "He is richest who is content with the least." Even the great Greek philosopher would be feeling a little too rich today in Greece where citizens, greeted by news that the nation's banks would be closed for the week, lined up at ATMs and employed the Socratic method with the repetition of the question: "Where the hell's my money?" And if you've taken a look at your stock portfolio, there's a decent chance you've asked your broker the same question. Here's an overview of the Greek economic crisis from NYT Upshot, and the latest updates from BBC.
This global economy stuff is all Greek to me. If you're feeling the same, you might appreciate Quartz's guide to everything you need to know about this unfolding Greek tragedy, Mashable's list of the five things you need to know about the meltdown, and Felix Salmon's helpful explainer.
He simply wants to stress to you, and perhaps even himself, that he occupies the high ground. In doing so, he happens to increase the likelihood that he will wind up in the back of an ambulance.
About the time Katrina struck, New Orleans was the jail capital of America, incarcerating people at four times the national average. Since that time, the city has reduced its local inmate population by 67%. What was the trick? First, they stopped treating jailing like a business. And second, they built a smaller jail. No really. That was a key factor. And get this; during the period New Orleans stopped jailing so many people, there has been an overall reduction in crime. Smaller jails. Less crime. Jazz hands.
[This item is syndicated from Nextdraft, but I had to add a little something about induced demand. Like building bigger roads resulting in more traffic (not less), building bigger jails means you want to fill them with criminals. Kudos to New Orleans for building a smaller jail and finding ways to adjust to the reduced supply of jail cells. -jkottke]
What is the best charitable cause in the world? Jun 16 2015
The Atlantic's Derek Thompson examines the act of giving and goes in search of the best charitable cause in the world.
Perhaps the most piercing lesson from effective altruism is that one can make an astonishing difference in the world with a pinch of logic and dash of math.
See also Doing Good Better.
Time travel for financial gain Jun 03 2015
Tyler Cowen was recently asked how he'd best use a time machine for financial gain. Here was the specific query:
Suppose you had a time machine you that you solely wanted to use for financial gain. You can bring one item from the present back to any point in the past to exchange for another item that people of that time would consider of equal value, then bring that new item back to the present. To what time period would you go, and what items would you choose to maximize your time-travel arbitrage?
Cowen notes some difficulty with an obvious approach:
The obvious answer encounters some difficulties upon reflection. Let's say I brought gold back in time and walked into the studio of Velazquez, or some other famous painter, and tried to buy a picture for later resale in the present. At least some painters would recognize and accept the gold, and gold is highly valuable and easy enough to carry around. Some painters might want the gold weighed and assayed, but even there the deal would go fine.
The problem is establishing clear title to the painting, once you got back home. It wouldn't turn up on any register as stolen, but still you would spend a lot of time talking to the FBI and Interpol. The IRS would want to know whether this was a long-term or short-term capital gain, and you couldn't just cite Einstein back to them. They also would think you must have had a lot of unreported back income.
So establishing present ownership of a past item is an issue...as is authentication via carbon dating. I don't have a specific scheme in mind, but I would think any general approach would also need to minimize the butterfly effect of your trade so that, for example, your existence in the present is not disrupted. So you can't trade Leonardo an iPhone 6 for the Mona Lisa. But maybe you could trade $1 for a winning ticket for last week's $300 million lottery jackpot...or would the numbers change somehow because of your visit? What if you bought 100,000 shares of Apple stock in 2003? How would that action effect the present? What is a large enough action to make you rich but with a small enough effect to keep the present otherwise unchanged? Since I didn't see any super-compelling solutions in the comments at MR, I'm gonna open the comments here...I know someone has been thinking about this extensively or has a link to a good discussion elsewhere. Please stay on topic, mmm'kay?
I saw Mad Max: Fury Road yesterday (enjoyed it) but have a few questions.
1. With gasoline in such short supply, I'm surprised the various groups in the movie didn't take more advantage of solar power to generate energy for electric vehicles and such. Sunshine is obviously abundant in post-apocalyptic Australia and from the looks of what was scavenged from before the nuclear war and the ingenuity on display in getting what they found to function, they should have been able to find even rudimentary solar cells and get them to work.
2. Speaking of energy scarcity, I wonder if the troop-pumping-up and opponent-intimidating function of the flamethrowing guitar player was worth all of the fuel spewed out of the end of his instrument and energy consumed by the incredible number of speakers on his rig.
3. The roads in the movie were in remarkable shape, aside from the swampland. Who was responsible for their upkeep? Even dirt roads need maintenance or they develop potholes and washboarding. And for what reason were they kept in such good condition outside of the Citadel/Gas Town/Bullet Farm area? Aside from Furiosa's Rig, the chase party, and two smallish motorcycle gangs, I saw no other vehicular traffic on the roads...and who would have been semi-regularly traveling out past the canyon anyway? To where? For what?
4. What was the political and economic arrangement between the Citadel, Gas Town, and the Bullet Farm? Did the Citadel trade their water and crops for gas and bullets? Or was Immortan Joe, as the defender of the lone source of abundant fresh water in the region, the defacto leader of all three groups? The People Eater and Bullet Farmer certainly came a'running when Joe needed help retrieving his wives. There were obviously other sources of water in the region -- how else did the biker gangs survive? -- so you'd think that Gas Town and the Bullet Farm could have teamed up to squeeze Joe into giving them a better deal or even overthrowing him. Point is, there seemed to be a surprising lack of political friction between the three groups, which seems odd in an environment of scarcity.
5. Surely land was plentiful enough that large solar stills could have generated enough fresh water for people to live on without having to rely on the Citadel for it.
High-rent blight in the West Village May 27 2015
Shuttered storefronts. Abandoned retail locations. Small businesses that fall like the House of Cards & Curiosities on Eighth Avenue. These are the signs of urban blight we usually associate with economic downturns or poor, forgotten neighborhoods. But these shuttered storefronts are in one of America's wealthiest neighborhoods; NYC's West Village. As The New Yorker's Tim Wu explains, some urban blight emerges when economic times are too good and rents get too high. And we're not just talking about mom and pop here. Even Starbucks is closing some Manhattan locations due to rent hikes.
Expensive wine is for suckers May 21 2015
Wine ratings are all over the place, particularly when price enters the picture. This video explains that the most expensive wine is not always the best tasting wine, but you might prefer it anyway.
Asking "who's the customer?" May 07 2015
If you've bought a ticket to an event in the past, oh, 15-20 years, chances are you got it from Ticketmaster. Chances are also pretty good that you think Ticketmaster completely sucks, mostly because of the unavoidable and exorbitant convenience fee they charge. And that probably has you wondering: if everyone who uses the service hates Ticketmaster so much, how are they still in business? Because ticket buyers are not Ticketmaster's customers. Artists and venues are Ticketmaster's real customers and they provide plenty of value to them.
Ticketmaster sells more tickets than anybody else and they're the biggest company in the ticket selling game. That gives them certain financial resources that smaller companies don't have. TM has used this to their advantage by moving the industry toward very aggressive ticketing deals between ticketing companies and their venue clients. This comes in the form of giving more of the service charge per ticket back to the venue (rebates), and in cash to the venue in the form of a signing bonus or advance against future rebates. Venues are businesses too and, thus, they like "free" money in general (signing bonuses), as well as money now (advances) versus the same money later (rebates).
Read that whole Quora answer again...there's nothing in there about TM being helpful for ticket buyers. It turns out asking "who's the customer?" is a great way of thinking about when certain companies or industries do things that aren't aligned with good customer service or user experience.1
Take Apple and Google for instance. Apple sells software and hardware directly to people; that's where the majority of their revenue comes from. Apple's customers are the people who use Apple products. Google gets most of their revenue from putting advertising into the products & services they provide. The people who use Google's products and services are not Google's customers, the advertisers are Google's customers. Google does a better job than Ticketmaster at providing a good user experience, but the dissonance that results between who's paying and who's using gets the company in trouble sometimes. See also Facebook and Twitter, among many others.
Newspapers, magazines, and television networks have dealt with this same issue for decades now.2 They derive large portions of their revenue from advertisers and, in the case of the TV networks, from the cable companies who pay to carry their channels. That results in all sorts of user hostile behavior, from hiding a magazine's table of contents in 20 pages of ads to shrieking online advertising to commercials that are louder than the shows to clunky product placement to trimming scenes from syndicated shows to cram in more commercials. From ABC to Vogue to the New York Times, you're not the customer and it shows.
This might be off-topic (or else the best example of all), but "who's the customer?" got me thinking about who the customers of large public corporations really are: shareholders and potential shareholders. The accepted wisdom of maximizing shareholder value has become an almost moral imperative for large corporations. The needs of their customers, employees, the environment, and the communities in which they're located often take a backseat to keeping happy the big investment banks, mutual funds, and hedge funds who buy their stock. When providing good customer service and experience is viewed by companies as opposite to maximizing shareholder value, that's a big problem for consumers.
Update: I somehow neglected to include the pithy business saying "if you're not paying for the product, you are the product", which originated in a slightly different phrasing on MetaFilter.
Update: One example of how maximizing shareholder value can work against good customer service comes from a paper by a trio of economists. In it, they argue that co-ownership of two or more airlines by the same investor results in higher prices.
In a new paper, Azar and co-authors Martin C. Schmalz and Isabel Tecu have uncovered a smoking gun. To test the hypothesis that institutional investors gain market power that results in higher prices, they examine airline routes. Although we think of airlines as independent companies, they are actually mostly owned by a small group of institutional investors. For example, United's top five shareholders -- all institutional investors -- own 49.5 percent of the firm. Most of United's largest shareholders also are the largest shareholders of Southwest, Delta, and other airlines. The authors show that airline prices are 3 percent to 11 percent higher than they would be if common ownership did not exist. That is money that goes from the pockets of consumers to the pockets of investors.
How exactly might this work? It may be that managers of institutional investors put pressure on the managers of the companies that they own, demanding that they don't try to undercut the prices of their competitors. If a mutual fund owns shares of United and Delta, and United and Delta are the only competitors on certain routes, then the mutual fund benefits if United and Delta refrain from price competition. The managers of United and Delta have no reason to resist such demands, as they, too, as shareholders of their own companies, benefit from the higher profits from price-squeezed passengers. Indeed, it is possible that managers of corporations don't need to be told explicitly to overcharge passengers because they already know that it's in their bosses' interest, and hence their own. Institutional investors can also get the outcomes they want by structuring the compensation of managers in subtle ways. For example, they can reward managers based on the stock price of their own firms -- rather than benchmarking pay against how well they perform compared with industry rivals -- which discourages managers from competing with the rivals.
BTW, asking who the customer is doesn't help in every situation where bad service and contempt for the customer rears its ugly head. See cable companies, mobile carriers, and airlines. Companies also have other conflicts of interest that interfere with good customer experience. Apple, for instance, does all kinds of things that aren't necessarily in the best interest of the people buying their products. And as the Ticketmaster example shows, determining a company's true customer isn't just a matter of where the revenue comes from. It's never simple.↩
This is a potential problem with kottke.org as well. Almost all of my revenue comes from advertising. My high regard for the reader keeps me pretty honest (I hope!), but it's difficult sometimes.↩
The Hidden Effects of Cheap Oil Mar 31 2015
Today's drop in crude-oil prices, which began in the summer of 2014, may be as disruptive as the quadrupling of oil prices that created the oil shock of 1974.
For most of us, lower oil prices simply translate as better prices at the gas pump. But the value of oil has big consequences around the world. From Moisés Naím in The Atlantic: The Hidden Effects of Cheap Oil.
Every TV news report on the economy Mar 30 2015
From Charlie Brooker's Weekly Wipe, here's how every single news report on the economy plays out:
Dennis and Pamela People are affected by numbers, and since they have a child, you'll empathize with what they say while I nod in their direction.
"Well, it's been hard because of the numbers."
"Yeah, it has been hard, mainly because of the numbers."
Brooker, you may remember, is the creator of Black Mirror. (via mr)
Supply, demand, and equilibrium Jan 30 2015
From Marginal Revolution University, three short videos on the economic concepts of supply, demand, and equilibrium using oil as an example good.
Putting a price on the priceless Jan 28 2015
In their latest full episode, Radiolab examines the concept of worth, particularly when dealing with things that are more or less priceless (like human life and nature).
This episode, we make three earnest, possibly foolhardy, attempts to put a price on the priceless. We figure out the dollar value for an accidental death, another day of life, and the work of bats and bees as we try to keep our careful calculations from falling apart in the face of the realities of life, and love, and loss.
I have always really liked Radiolab, but it seems like the show has shifted into a different gear with this episode. The subject seemed a bit meatier than their usual stuff, the reporting was close to the story, and the presentation was more straightforward, with fewer of the audio experiments that some found grating. I spent some time driving last weekend and I listened to this episode of Radiolab, an episode of 99% Invisible, and an episode of This American Life, and it occurred to me that as 99% Invisible has been pushing quite effectively into Radiolab's territory, Radiolab is having to up their game in response, more toward the This American Life end of the spectrum. Well, whatever it is, it's great seeing these three radio shows (and dozens of others) push each other to excellence.
The Shake Shack Economy Jan 22 2015
The food is fresh. Natural. Locally sourced. Sometimes even organic. That might sound like your local farmer's market, but it's actually part of a new and growing movement in the fast-food industry. Think Shake Shack, Chipotle, Panera. While we're not exactly seeing tractors in the drive-thrus, the rise of these chains (and the pressure on their predecessors that placed a lot more emphasis on the fast than the food) tell us a lot about economic inequality, the modern workday, and fries. From The New Yorker's James Surowiecki: The Shake Shack Economy.
Healthcare: America's Bitter Pill Jan 06 2015
Steven Brill has written a book about the making of the Affordable Care Act called America's Bitter Pill: Money, Politics, Backroom Deals, and the Fight to Fix Our Broken Healthcare System.
America's Bitter Pill is Steven Brill's much-anticipated, sweeping narrative of how the Affordable Care Act, or Obamacare, was written, how it is being implemented, and, most important, how it is changing -- and failing to change -- the rampant abuses in the healthcare industry. Brill probed the depths of our nation's healthcare crisis in his trailblazing Time magazine Special Report, which won the 2014 National Magazine Award for Public Interest. Now he broadens his lens and delves deeper, pulling no punches and taking no prisoners.
Malcolm Gladwell has a review in the New Yorker this week.
Brill's intention is to point out how and why Obamacare fell short of true reform. It did heroic work in broadening coverage and redistributing wealth from the haves to the have-nots. But, Brill says, it didn't really restrain costs. It left incentives fundamentally misaligned. We needed major surgery. What we got was a Band-Aid.
I haven't read his book yet, but I agree with Brill on one thing: the ACA1 did not go nearly far enough. Healthcare and health insurance are still a huge pain in the ass and still too expensive. My issues with healthcare particular to my situation are:
- As someone who is self-employed, insurance for me and my family is absurdly expensive. After the ACA was enacted, my insurance cost went up and the level of coverage went down. I've thought seriously about quitting my site and getting an actual job just to get good and affordable healthcare coverage.
- Doctors aren't required to take any particular health insurance. So when I switched plans, as I had to when the ACA was enacted, finding insurance that fit our family's particular set of doctors (regular docs, pediatrician, pediatric specialist that one of the kids has been seeing for a couple of years, OB/GYN, etc.) was almost impossible. We basically had one plan choice (not even through the ACA marketplace...see next item) or we had to start from scratch with new doctors.
- Many doctors don't take the ACA plans. My doctor doesn't take any of them and my kids' doc only took a couple. And they're explicit in accepting, say, United Healthcare's regular plan but not their ACA plan, which underneath the hood is the exact same plan that costs the same and has the same benefits. It's madness.
- The entire process is designed to be confusing so that insurance companies (and hospitals probably too) can make more money. I am an educated adult whose job is to read things so they make enough sense to tell others about them. That's what I spend 8+ hours a day doing. And it took me weeks to get up to speed on all the options and pitfalls and gotchas of health insurance...and I still don't know a whole lot about it. It is the most un-user-friendly thing I have ever encountered.
The ACA did do some great things, like making everyone eligible for health insurance and getting rid of the preexisting conditions bullshit, and that is fantastic...the "heroic work" mentioned by Gladwell. But the American healthcare system is still an absolute shambling embarrassment when you compare it to other countries around the world, even those in so-called "developing" or "third world" countries. And our political system is just not up to developing a proper plan, so I guess we'll all just limp along as we have been. Guh.
I hate the word "Obamacare" and will not use it. It's a derisive term that has been embraced for some reason by ACA/Obama supporters. It needlessly politicizes an already over-politicized issue. ↩
The best behavioral economics of 2014 movies Dec 17 2014
Legal scholar Cass Sunstein presents his annual list of the movies that best showcased behavioral economics for 2014.
Best actor: In 1986, behavioral scientists Daniel Kahneman and Dale Miller developed "norm theory," which suggests that humans engage in a lot of counterfactual thinking: We evaluate our experiences by asking about what might have happened instead. If you miss a train by two minutes, you're likely to be more upset than if you miss it by an hour, and if you finish second in some competition, you might well be less happy than if you had come in third.
"Edge of Tomorrow" spends every one of its 113 minutes on norm theory. It's all about counterfactuals -- how small differences in people's actions produce big changes, at least for those privileged to relive life again (and again, and again). Tom Cruise doesn't get many awards these days, or a lot of respect, and we're a bit terrified to say this -- but imagine how terrible we'd feel if we didn't: The Top Gun wins the Becon.
The economics of Seinfeld Dec 01 2014
Scenes from Seinfeld can help illustrate economic concepts like incentives, thinking at the margin, and common resources. For instance, in The Strike from season nine (the episode that popularized Festivus), Elaine angles for a free sandwich:
Elaine has eaten 23 bad sub sandwiches, and if she eats a 24th, she'll get one free. She is determined to do it, even though Jerry advises her to ignore sunk costs and walk away.
See also the economics of The Simpsons.
The givers and the takers Nov 19 2014
Michael Lewis on a new book about billionaires, the increasing economic inequality in America, and the impact of the behavior of the very rich is having on politics and happiness. The camp breakfast anecdote at the beginning of the article is gold.
You all live in important places surrounded by important people. When I'm in the big city, I never understand the faces of the people, especially the people who want to be successful. They look so worried! So unsatisfied!
In the city you see people grasping, grasping, grasping. Taking, taking, taking. And it must be so hard! To be always grasping-grasping, and taking-taking. But no matter how much they have, they never have enough. They're still worried. About what they don't have. They're always empty.
You have a choice. You don't realize it, but you have a choice. You can be a giver or you can be a taker. You can get filled up or empty. You make that choice every day. You make that choice at breakfast when you rush to grab the cereal you want so others can't have what they want.
The piece is filled with Lewis-esque observations throughout. Like:
Rich people, in my experience, don't want to change the world. The world as it is suits them nicely.
The American upper middle class has spent a fortune teaching its children to play soccer: how many great soccer players come from the upper middle class?
But the studies about the effects of wealth and privilege on human behavior are what caught my eye the most.
In one study, Keltner and his colleague Paul Piff installed note-takers and cameras at city street intersections with four-way stop signs. The people driving expensive cars were four times more likely to cut in front of other drivers than drivers of cheap cars. The researchers then followed the drivers to the city's cross walks and positioned themselves as pedestrians, waiting to cross the street. The drivers in the cheap cars all respected the pedestrians' right of way. The drivers in the expensive cars ignored the pedestrians 46.2 percent of the time -- a finding that was replicated in spirit by another team of researchers in Manhattan, who found drivers of expensive cars were far more likely to double park.
Living in Manhattan, I see stuff like this all the time and it's becoming increasingly difficult to think of the rich and privileged as anything other than assholes, always grasping, grasping, grasping, taking, taking, taking.
We the Economy Oct 29 2014
We the Economy is a series of 20 short videos that attempt to explain important economic concepts. For instance, acclaimed director Ramin Bahrani did a video about regulatory capture starring Werner Herzog, Patton Oswalt, and the Sherman Antitrust Act of 1890.
Anchorman director Adam McKay directed an animated My Little Pony-esque video about wealth distribution and income inequality featuring the voice talents of Amy Poehler, Maya Rudolph, and Sarah Silverman.
Paul Allen and Morgan Spurlock are behind the effort, with Bob Balaban, Steve James, Catherine Hardwicke, and Mary Harron directing some of the other videos. (via mr)
The true cost of a cheeseburger Jul 22 2014
Cheeseburgers are the coal of the food world, with externalities in spades; in fact it's unlikely that producers of cheeseburgers bear the full cost of any aspect of making them.
This made me think of something I wrote for Worldchanging several years ago about a True Cost rating:
Wealth doesn't just magically materialize into your bank account. It comes from the ground, human effort, the flesh of animals, the sun, and the atom. The global economy is driven by nature, and yet it's not usually found on the accountant's balance sheet. Perhaps it should be. I'd like to know the true cost of the stuff I buy. Embodied energy and carbon footprint calculations are a good start, but it would be nice if the product itself came with a True Cost number or rating, like the nutritional information on a cereal box or the Energy Star rating on a refrigerator.
When True Cost is factored in, conflict diamonds become a morally expensive choice to make when they're fueling turmoil in the world. Likewise clothing made in sweatshops. Organic tomatoes flown in from Chile may be less expensive at the register, but how much carbon dioxide was released into the atmosphere flying/driving them to your table? What's the energy cost of living in the suburbs compared to living downtown? Do the people who made the clock hanging on my wall get paid a fair wage and receive healthcare? Just how bad for the environment is the laptop on which I'm typing?
The best way to spend a dollar Jul 09 2014
Two dozen people offer you their best advice on how to invest a single dollar.
I don't have any awesome ideas for how to invest a buck, unfortunately. That is my weakness. My first instinct was to invest it in a stripper's g-string or a barista's tip jar. But I'm not sure how that translates as investment. I do know that the more frequently you visit/tip a barista -- your neighborhood barista, who does not work at a Starbucks -- the more often you are treated like family and you get free coffee. I think that the more you invest in a stripper, the less you get free things from that stripper.
Mixed signals vs. noise Jun 19 2014
Over the course of his 3000 columns at The Motley Fool, Morgan Housel has learned a few things:
I've learned that short-term thinking is at the root of most of our problems, whether it's in business, politics, investing, or work.
I've learned that debt can cause more social problems than some drugs, yet drugs are illegal and debt is tax deductible.
I've learned that finance is actually very simple, but it's made to look complicated to justify fees.
Unfortunately, the list is undermined almost completely by the get-rich-quick advertising on the site, including this bit at the end of the article, which I can't even tell is an ad or just a promotion:
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.
Short-term thinking is at the root of most of our problems, click here now. Now!
What is Mother Earth worth? Jun 12 2014
A group led by Dr. Robert Costanza has calculated the value of the world's ecosystems...the group's most recent estimate puts the yearly value at $142.7 trillion.
"I think this is a very important piece of science," said Douglas J. McCauley of the University of California, Santa Barbara. That's particularly high praise coming from Dr. McCauley, who has been a scathing critic of Dr. Costanza's attempt to put price tags on ecosystem services.
"This paper reads to me like an annual financial report for Planet Earth," Dr. McCauley said. "We learn whether the dollar value of Earth's major assets have gone up or down."
The group last calculated this value back in 1997 and it rose sharply over the past 17 years, even as those natural habitats are disappearing. This line from the article stunned me:
Dr. Costanza and his colleagues estimate that the world's reefs shrank from 240,000 square miles in 1997 to 108,000 in 2011.
Coral reefs shrank by more than half over the past 17 years...I had no idea the reef situation was that bad. Jesus.
Restaurant ticketing systems are a hot ticket Jun 09 2014
For three years, Nick Kokonas's trio of eating/drinking establishments in Chicago (Next, Alinea, and Aviary) has been using a ticketed reservation system. In this epic piece, Kokonas details why they started using tickets and what the effect has been (emphasis mine):
Our ticket implementation strategy at Alinea was to create a "higher-touch" system than we had previously used at Next. Every customer buying a ticket at Alinea must include a cell phone number where we can reach them. About a week before they dine with us we call every customer to thank them for buying a ticket to Alinea, ask if they have any dietary restrictions or special needs, and generally get a feel for their expectations and whether it is a special occasion. We can, in fact, spend more time (not less) with every single one of our customers because we are only speaking with the customers we know are coming to dine with us. Previously, we answered thousands of calls from people we had to say 'no' to. Now we can take far more time to say 'yes'.
The results on Alinea's business are staggering. Bottom line EBITDA profits are up 38% from previous average years. No shows of full tables are almost non-existent and while partial no-shows still occur they are only a handful of people per week at most. That allows us to run at a far greater capacity with less food waste and more revenue.
Will be interesting to see if more restaurants adopt this model...I bet a bunch of restaurateurs' eyes lit up at the 38% increase in profit. But not every restaurant is Alinea and not every restaurateur is a clever former derivatives trader.
Reimagining Monopoly May 14 2014
Mike Merrill reimagines the game of Monopoly to better represent the modern financial system by adding the banker as a player, convertible notes, and Series A financing.
Each player starts with only $500. That's a nice bit of cash, but it's going to be expensive to build your capitalist empire. Baltic Avenue will cost you $80, States Avenue is $140, Atlantic is $260, and that leaves you just $20. Even if you're the first to land on Boardwalk you won't be able to afford the $400 price tag. Another $200 from "passing Go" is not going to last that long. You need more money.
At the start of the game the banker will offer each player a convertible note of $1000 at a 20% discount and 5% interest*. Armed with $1500 the player is now ready to set out on their titan of the universe adventure! (Of course players are not required to take the convertible note.)
That sounds fun? (via waxy)
Think Like a Freak May 09 2014
Steven Levitt and Stephen Dubner, the co-authors of the immensely popular Freakonomics, are back with their third book in the series: Think Like a Freak. In it, rather than discussing what they think, they talk about how they think.
Levitt and Dubner offer a blueprint for an entirely new way to solve problems, whether your interest lies in minor lifehacks or major global reforms. As always, no topic is off-limits. They range from business to philanthropy to sports to politics, all with the goal of retraining your brain. Along the way, you'll learn the secrets of a Japanese hot-dog-eating champion, the reason an Australian doctor swallowed a batch of dangerous bacteria, and why Nigerian e-mail scammers make a point of saying they're from Nigeria.
The book is out on May 12, but of course you can preorder, etc.
Update: Excerpt in the WSJ.
The economics of The Simpsons May 02 2014
Homer Economicus is a new book which uses the fictional world of Springfield on The Simpsons to explain the basic concepts of economics.
Since The Simpsons centers on the daily lives of the Simpson family and its colorful neighbors, three opening chapters focus on individual behavior and decision-making, introducing readers to the economic way of thinking about the world. Part II guides readers through six chapters on money, markets, and government. A third and final section discusses timely topics in applied microeconomics, including immigration, gambling, and health care as seen in The Simpsons. Reinforcing the nuts and bolts laid out in any principles text in an entertaining and culturally relevant way, this book is an excellent teaching resource that will also be at home on the bookshelf of an avid reader of pop economics.
Uneasy lies the head that wears a crown Apr 30 2014
I really liked this bit from Rolling Stone's interview with Game of Thrones writer George R.R. Martin:
Ruling is hard. This was maybe my answer to Tolkien, whom, as much as I admire him, I do quibble with. Lord of the Rings had a very medieval philosophy: that if the king was a good man, the land would prosper. We look at real history and it's not that simple. Tolkien can say that Aragorn became king and reigned for a hundred years, and he was wise and good. But Tolkien doesn't ask the question: What was Aragorn's tax policy? Did he maintain a standing army? What did he do in times of flood and famine? And what about all these orcs? By the end of the war, Sauron is gone but all of the orcs aren't gone -- they're in the mountains. Did Aragorn pursue a policy of systematic genocide and kill them? Even the little baby orcs, in their little orc cradles?
Reading Capital in the Twenty-First Century Apr 29 2014
Last week, I noted on Twitter that a 700-page academic book by a French economist topped the best sellers list on Amazon. Well, Thomas Piketty's Capital in the Twenty-First Century is still #1 on Amazon, even though the hardcover is currently out of stock. If you're curious about this anti-Kardashian moment in our culture but don't want to dive in fully, you can read the book's introduction on Harvard University Press's site.
The distribution of wealth is one of today's most widely discussed and controversial issues. But what do we really know about its evolution over the long term? Do the dynamics of private capital accumulation inevitably lead to the concentration of wealth in ever fewer hands, as Karl Marx believed in the nineteenth century? Or do the balancing forces of growth, competition, and technological progress lead in later stages of development to reduced inequality and greater harmony among the classes, as Simon Kuznets thought in the twentieth century? What do we really know about how wealth and income have evolved since the eighteenth century, and what lessons can we derive from that knowledge for the century now under way?
It is massive (696 pages) and massively ambitious (the title is a very conscious echo of Karl Marx's Das Kapital). It came out in France last year to great acclaim, which meant that those in the English-speaking world who pay attention to such matters knew that something big was coming. Over the past few weeks it has become one of those things that everybody's talking about just because everybody's talking about it. That, and it really is important.
Is it worth reading? Martin Wolf of the Financial Times called it "enthralling"; a couple people I know have described it as "a slog." I'd liken it to a big river -- muddy and occasionally meandering, but with a powerful current that keeps pulling you along, plus lots of interesting sights along the way. There are endless numbers and (ugly but generally understandable) charts, but also frequent references to the novels of Balzac and Austen, and even a brief analysis of Disney's The Aristocats. Regular people can read this thing; it's just a matter of the time commitment. You should definitely buy it, if your place on the income distribution allows it. It looks good on a bookshelf, plus every copy sold makes Piketty wealthier, allowing us to discover whether this alters his views about inequality.
Always buy the bigger pizza Feb 26 2014
Planet Money: always buy the bigger pizza because geometry.
The math of why bigger pizzas are such a good deal is simple. A pizza is a circle, and the area of a circle increases with the square of the radius.
So, for example, a 16-inch pizza is actually four times as big as an 8-inch pizza.
And when you look at thousands of pizza prices from around the U.S., you see that you almost always get a much, much better deal when you buy a bigger pizza.
Is Bitcoin a speculative bubble? Dec 13 2013
Bitcoin is a digital currency that has increased in value in US$ by 900% over the past six months. Jason Kuznicki says Bitcoin is definitely a speculative bubble and has three graphs to illustrate his point. I found this one particularly interesting...it plots transactions vs. total Bitcoin market cap:
This chart shows a dramatic reduction in the total number of transactions, irrespective of size, per dollar of bitcoin's market cap, from December 2012 -- December 2013. In absolute terms, market cap has generally gone up, and the number of transactions has mostly just bounced around a lot. The total value of bitcoin is going up, but it's mostly getting parked rather than being put to work. Apparently there just aren't a lot of appealing ways to spend bitcoin, anecdotal news stories to the contrary notwithstanding.
Instead, an increasing amount of bitcoin's putative value (as measured in USD) is being squirreled away by larger and larger miner-investors. It's not fueling a diversifying, all-bitcoin economy: if it were, transactions would be keeping up with or even outpacing market cap, particularly if bitcoiners came to rely increasingly on bitcoins and decreasingly on dollars for day-to-day purchases. That's very clearly not happening.
The Wire's Omar Little once said to Marlo Stanfield, "Man, money ain't got no owners, only spenders." Bitcoin seems to have the opposite problem. (via mr)
French cafe charges extra for rudeness Dec 12 2013
A cafe in Nice, France charges rude customers five times more for a cup of coffee than those who say hello and please.
"A coffee" will set you back €7, according to the sign, while "a coffee please" is a little more affordable, at €4.25.
If you want keep your expenses down, and stay friends with your local barista, however, the best option is "Hello, a coffee please," which will only cost you €1.40.
The manager says that although the pricing scheme has never been enforced, customer civility is up. Cheekiness is on the rise as well:
"Most of my customers are regulars and they just see the funny side and exaggerate their politeness," he said, adding "They started calling me 'your greatness' when they saw the sign."
Mind the income gap Dec 09 2013
We are divided by an increasingly wide income gap. Often, this gap can be seen from across a street or park (even if we sometimes try not to look). The NYT takes us for a journey into the world of a homeless girl named Dasani in a multipart piece called Invisible Child:
On the Brooklyn block that is Dasani's dominion, shoppers can buy a $3 malt liquor in an airless deli where food stamps are traded for cigarettes. Or they can cross the street for a $740 bottle of chardonnay at an industrial wine shop accented with modern art.
Here's David Simon, creator of The Wire, on the two Americas:
I live in one, on one block in Baltimore that is part of the viable America, the America that is connected to its own economy, where there is a plausible future for the people born into it. About 20 blocks away is another America entirely. It's astonishing how little we have to do with each other, and yet we are living in such proximity.
How to make a t-shirt Dec 03 2013
From the cotton in the fields to the manufacturing machines to the container ships, NPR's Planet Money looks at the often complex world behind the making of a simple t-shirt.
We flew drones over Mississippi. We got mugged in Chittagong, Bangladesh. We met people whom we'll never forget -- the actual people who make our clothing. At every location we had radio reporters and videographers.
Amazon Prime Air Dec 02 2013
You're probably sick of this news already, but Amazon says they're working on 30-minute package delivery by drone.
The goal of this new delivery system is to get packages into customers' hands in 30 minutes or less using unmanned aerial vehicles.
Putting Prime Air into commercial use will take some number of years as we advance the technology and wait for the necessary FAA rules and regulations.
More likely that Amazon will buy a fledgling drone delivery company in the next year or two and begin rolling out same-day delivery of items weighing less than 2 pounds in non-urban areas where drone flights are permitted.
Tyler Cowen is already out of the gate this morning talking about the economics of drone delivery:
You would buy smaller size packages and keep smaller libraries at home and in your office. Bookshelf space would be freed up, you would cook more with freshly ground spices, the physical world would stand a better chance of competing with the rapid-delivery virtual world, and Amazon Kindles would decline in value.
But for now, Amazon Prime Air sure is providing lots of Cyber Monday PR for Amazon.
Convert money to happiness with expensive wine Nov 13 2013
Felix Salmon shares perhaps the most reliable technique for turning money into happiness: buying and drinking expensive wine.
But here's the trick: if you can't buy happiness by spending more money on higher quality, then you can buy happiness by spending money taking advantage of all the reasons why people still engage in blind tastings, despite the fact that they are a very bad way to judge a wine's quality. If you know what the wine you're tasting is, if you know where it comes from, if you know who made it, if you've met the winemaker, and in general, if you know how expensive it is -- then that knowledge deeply affects -- nearly always to the upside -- the way in which you taste and appreciate the wine in question.
Restaurant ditches tipping, service gets better Sep 30 2013
Jay Porter recently wrote a series of posts about his experience running a restaurant that abolished tipping. Here's part one:
This is a summary of the experiences I had in our no-tipping lab, and in my next few posts I'll dig a little deeper into each of them. Then I'll finish this series by talking about what I've learned this year from a couple new friends who are researchers from the University of Guelph, and who have brought me in contact with some deeper thoughts about the tipping issue, from the social justice side. After seeing what they and their colleagues have uncovered, I've become convinced that thoughtful cultures who value civil rights will make tipping not just optional but illegal; and that this could actually happen sooner rather than later, when courts assess the reality of the situation.
If you want the Cliff Notes version, Porter wrote a shorter piece for Slate.
When we switched from tipping to a service charge, our food improved, probably because our cooks were being paid more and didn't feel taken for granted. In turn, business improved, and within a couple of months, our server team was making more money than it had under the tipped system. The quality of our service also improved. In my observation, however, that wasn't mainly because the servers were making more money (although that helped, too). Instead, our service improved principally because eliminating tips makes it easier to provide good service.
This is a presentation and therefore missing a bunch of key context, but Michael Dearing's The Five Cognitive Distortions of People Who Get Stuff Done is interesting reading nonetheless. The five distortions are:
1. Personal exceptionalism
2. Dichotomous thinking
3. Correct overgeneralization
4. Blank canvas thinking
That last one is likely a head-scratcher to those of us without economics backgrounds; here's what Dearing has to say about it:
Definition - sees creative destruction as natural, necessary, and as their vocation
Benefits - fearlessness, tolerance for destruction and pain
Deadly risk - heartless ambition, alienation
Consider the economics of lobster Aug 20 2013
There are a lot of lobsters in the sea. You could even call it a glut. Over the past few years, the massive lobster harvests have resulted in a significant reduction in what buyers are paying for a lobster off the boat. So why aren't we seeing major price drops at our local restaurants? Here's part of the reason: A luxury good is considered a luxury good in part because it's priced like one. Cheap lobster could throw the rest of your menu into chaos.
Studies have shown that people prefer inexpensive wines in blind taste tests, but that they actually get more pleasure from drinking wine they are told is expensive. If lobster were priced like chicken, we might enjoy it less.
In The New Yorker, James Surowiecki cracks open the surprising complexity of lobster prices.
The economics of Trading Places Jul 11 2013
A recent episode of Planet Money explores what the movie Trading Places can teach us about financial markets.
On today's show, we talk to commodities traders to answer one of the most important questions in finance: What actually happens at the end of Trading Places?
We know something crazy happens on the trading floor. We know that Eddie Murphy and Dan Aykroyd get rich and the Duke brothers lose everything. But how does it all happen? And could it happen in the real world?
Also on the show: The "Eddie Murphy Rule" that wound up in the the big financial overhaul law Congress passed in 2010.
One of my favorite movie moments is Eddie Murphy's breaking of the fourth wall in this Trading Places scene:
The power of failure Jun 27 2013
Malcolm Gladwell on economist Albert Hirschman, who embraced the roles of adversity, anxiety, and failure in creativity and success.
"The Principle of the Hiding Hand," one of Hirschman's many memorable essays, drew on an account of the Troy-Greenfield "folly," and then presented an even more elaborate series of paradoxes. Hirschman had studied the enormous Karnaphuli Paper Mills, in what was then East Pakistan. The mill was built to exploit the vast bamboo forests of the Chittagong Hill Tracts. But not long after the mill came online the bamboo unexpectedly flowered and then died, a phenomenon now known to recur every fifty years or so. Dead bamboo was useless for pulping; it fell apart as it was floated down the river. Because of ignorance and bad planning, a new, multimillion-dollar industrial plant was suddenly without the raw material it needed to function.
But what impressed Hirschman was the response to the crisis. The mill's operators quickly found ways to bring in bamboo from villages throughout East Pakistan, building a new supply chain using the country's many waterways. They started a research program to find faster-growing species of bamboo to replace the dead forests, and planted an experimental tract. They found other kinds of lumber that worked just as well. The result was that the plant was blessed with a far more diversified base of raw materials than had ever been imagined. If bad planning hadn't led to the crisis at the Karnaphuli plant, the mill's operators would never have been forced to be creative. And the plant would not have been nearly as valuable as it became.
"We may be dealing here with a general principle of action," Hirschman wrote, "Creativity always comes as a surprise to us; therefore we can never count on it and we dare not believe in it until it has happened. In other words, we would not consciously engage upon tasks whose success clearly requires that creativity be forthcoming. Hence, the only way in which we can bring our creative resources fully into play is by misjudging the nature of the task, by presenting it to ourselves as more routine, simple, undemanding of genuine creativity than it will turn out to be."
Gladwell's piece is based on Jeremy Adelman's recent biography of Hirschman, Worldly Philosopher.
Tipping should be outlawed Jun 21 2013
Elizabeth Gunnison Dunn offers six reasons why tipping, particularly at restaurants, should be eliminated.
The friendships I've formed with restaurant employees over the years have made me think seriously about why hospitality workers are singled out among America's professionals to endure a pass-the-hat system of compensation. Why should a server's pay depend upon the generosity -- not to mention dubious arithmetic skills -- of people like me?
The recipe for the cronut Jun 04 2013
Cronuts are donuts made from croissant dough and they are all the rage here in NYC. They were invented by chef Dominique Ansel and they are only available in limited quantities at his bakery in Soho. Apparently people start lining up for them at 6am and all 200 of the world's daily supply of cronuts are gone within minutes of opening. Naturally, a black market has sprung up, with cronuts selling on Craigslist for upwards of $25/item:
Kevin Roose has some ideas for Ansel about expanding the reach of the cronut, but in the meantime, Edd Kimber replicated the treat at home with a quickie croissant dough.
Since I wont be in New York any time soon I thought I would see if I could replicate them at home, and you know what? They are pretty damn good! Now the dough I'm using isnt a proper croissant dough, its my quick dough made with just 20 minutes active work which, compared to traditional croissant dough is a snap to make.
Update: Pillsbury has gotten into the act as well with a cronut recipe that uses their crescent dough.
The updated Big Mac index Feb 04 2013
For their Big Mac index (a way to look at currency exchange using global Big Mac pricing) this year, the Economist has released an interactive tool for exploring the data.
The Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their "correct" level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries. For example, the average price of a Big Mac in America at the start of 2013 was $4.37; in China it was only $2.57 at market exchange rates. So the "raw" Big Mac index says that the yuan was undervalued by 41% at that time.
They're also made the data set available in .xls format for at-home analysis.
Crooks are stealing Tide to trade it for drugs Jan 08 2013
I had no idea that laundry detergent could be so interesting. Procter & Gamble has done such a good job positioning Tide as a luxury laundry detergent that they can charge a premium for it and people will still buy.
Shoppers have surprisingly strong feelings about laundry detergent. In a 2009 survey, Tide ranked in the top three brand names that consumers at all income levels were least likely to give up regardless of the recession, alongside Kraft and Coca-Cola. That loyalty has enabled its manufacturer, Procter & Gamble, to position the product in a way that defies economic trends. At upwards of $20 per 150-ounce bottle, Tide costs about 50 percent more than the average liquid detergent yet outsells Gain, the closest competitor by market share (and another P&G product), by more than two to one. According to research firm SymphonyIRI Group, Tide is now a $1.7 billion business representing more than 30 percent of the liquid-detergent market.
Because of this premium status and because laundry detergent is not usually well-guarded in grocery stores, Tide has become a large target for theft and subsequent resale, either for cash or crack on street corners across the nation.
What did thieves want with so much laundry soap? To find out, he and his unit pored over security recordings to identify prolific perpetrators, whom officers then tracked down and detained for questioning. "We never promised to go easy on them, but they were willing to talk about it," Thompson says. "I guess they were bragging." It turned out the detergent wasn't being used as an ingredient in some new recipe for getting high, but instead to buy drugs themselves. Tide bottles have become ad hoc street currency, with a 150-ounce bottle going for either $5 cash or $10 worth of weed or crack cocaine. On certain corners, the detergent has earned a new nickname: "Liquid gold." The Tide people would never sanction that tag line, of course. But this unlikely black market would not have formed if they weren't so good at pushing their product.
Please don't let this be a hoax, it's almost too good to be true. (via @mulegirl)
The autism advantage Nov 29 2012
In the NY Times, Gareth Cook writes about the advantages some companies have found in employing people with autism.
To his father, Lars seemed less defined by deficits than by his unusual skills. And those skills, like intense focus and careful execution, were exactly the ones that Sonne, who was the technical director at a spinoff of TDC, Denmark's largest telecommunications company, often looked for in his own employees. Sonne did not consider himself an entrepreneurial type, but watching Lars -- and hearing similar stories from parents he met volunteering with an autism organization -- he slowly conceived a business plan: many companies struggle to find workers who can perform specific, often tedious tasks, like data entry or software testing; some autistic people would be exceptionally good at those tasks. So in 2003, Sonne quit his job, mortgaged the family's home, took a two-day accounting course and started a company called Specialisterne, Danish for "the specialists," on the theory that, given the right environment, an autistic adult could not just hold down a job but also be the best person for it.
I particularly liked Tyler Cowen's observations:
Tyler Cowen, an economist at George Mason University (and a regular contributor to The Times), published a much-discussed paper last year that addressed the ways that autistic workers are being drawn into the modern economy. The autistic worker, Cowen wrote, has an unusually wide variation in his or her skills, with higher highs and lower lows. Yet today, he argued, it is increasingly a worker's greatest skill, not his average skill level, that matters. As capitalism has grown more adept at disaggregating tasks, workers can focus on what they do best, and managers are challenged to make room for brilliant, if difficult, outliers. This march toward greater specialization, combined with the pressing need for expertise in science, technology, engineering and mathematics, so-called STEM workers, suggests that the prospects for autistic workers will be on the rise in the coming decades. If the market can forgive people's weaknesses, then they will rise to the level of their natural gifts.
In an op-ed for the NY Times, Warren Buffett proposes a minimum tax on high incomes, specifically "30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that". He argues that higher tax rates will not curtail investment activity.
Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent - and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then. Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.
Under those burdensome rates, moreover, both employment and the gross domestic product (a measure of the nation's economic output) increased at a rapid clip. The middle class and the rich alike gained ground.
What sort of town is Richard Scarry's Busytown? Nov 28 2012
From a planning and transportation professional, a deconstruction of Busytown, the fictional town that features in many of Richard Scarry's children's books, including What Do People Do All Day?, Busy, Busy Town, and my personal favorite, Cars and Trucks and Things That Go.
Scarry moved to Switzerland in 1968, and if nothing else, Swiss architecture permeates the old town center of What Do People Do All Day. The Town Hall of Busytown on the cover is nothing if not Tudor. There is a small gate through which a small car is driving. Something to note about the vehicles in Busytown is that they are all just the right size for the number of passengers they carry. The Bus on the cover is full, with a hanger-on. The taxi holds one driver in the front and one passenger in the rear. The police officer (Seargant Murphy) is riding a motorcycle. When he has a passenger, the motorcycle always has a sidecar. Similarly, each window in town has someone in it, sometimes more than one person. Of course, this is a busy town, so the activity makes sense. The cover of this includes the grocery store, butcher, and baker (no supermarkets in 1968 Busytown), one block in front of Town Hall. One thing to note about the Butcher is that he is a pig, and clearly butchering sausages.
The self-slaughter and cannibalism of the pigs is documented in Merlin Mann's Scarry Pigs in Peril Flickr set.
Nonetheless, Busytown is a place that works. Literally, in that it appears to enjoy full employment, and also in the sense that it has few obvious social problems. The police force, consisting of Sergeant Murphy, Policeman Louie and their chief, is charged with 'keeping things safe and peaceful' and 'protecting the townspeople from harm', which appears to largely consist of directing traffic, ticketing hoons and apprehending the town's notorious thief, Gorilla Banana [sic].
Now of course one could opine that it's in fact diffuse surveillance and self-surveillance that keep such remarkable order. All those open windows and doors, all that neighbourly cheerfulness, have a slightly sinister edge to them, if you're inclined to look for it, as do the lengths that some of the citizens will go to in order to promote proper behaviour amongst children.
Update: And here's another installment of the Busytown police blotter.
Traffic officer reported busiest traffic jam ever at intersection of Main and Hippopotamus. Gridlock started when a peanut car stalled in the intersection and the elderly cricket driver was unable to restart the vehicle. Officer and several drivers assisted the elderly cricket in moving his vehicle to the side of the road, where it was then struck by an alligator car driven by a female rabbit. Officer reported smelling alcohol in the female rabbit's breath and placed her in handcuffs until backup arrived. Officers then cleared the jam with the aid of two tow trucks.
Serfing the web Nov 26 2012
I wondered how long it would be before someone connected Facebook and especially Twitter with the idea of extractive and inclusive economic systems forwarded by Daron Acemoglu and James Robinson in Why Nations Fail. The winner, in a delightfully over-the-top fashion, is David Heinemeier Hansson from 37signals.
Twitter started out life as a wonderfully inclusive society. There were very few rules and the ones there were the people loved. Thou shall be brief, retweet to respect. Under this constrained freedom, Twitter prospered and grew rapidly for the joy of all.
Budding entrepreneurs built apps that made life better for everyone. Better, in fact, than many of Twitter's own attempts. They competed for attention on a level playing field and the very best rose to the top. Users saw that this was good and rewarded Twitter with their attention. Twitter grew.
Unfortunately this inclusive world was not meant to last. From the beginning, an extractive time bomb was ticking. One billion dollars worth of eagerness for return. Hundreds and hundreds of hungry mouths to feed in a San Francisco lair.
And thus began Twitter's descent into the extractive.
Chrystia Freeland provided the gist of the book in a NY Times essay earlier in the fall:
Extractive states are controlled by ruling elites whose objective is to extract as much wealth as they can from the rest of society. Inclusive states give everyone access to economic opportunity; often, greater inclusiveness creates more prosperity, which creates an incentive for ever greater inclusiveness.
Time for some new economic rules? Nov 15 2012
From before the election, which seems like it was several months ago already, a piece from Clayton Christensen about how investors and companies should shift their thinking about allocating capital. Christensen's gist is that efficiency is creating pools of excess capital which is not being reinvested into the types of industry that create jobs.
The Fed has been injecting more and more capital into the economy because -- at least in theory -- capital fuels capitalism. And yet cash hoards in the billions are sitting unused on the pristine balance sheets of Fortune 500 corporations. Billions in capital is also sitting inert and uninvested at private equity funds.
Capitalists seem almost uninterested in capitalism, even as entrepreneurs eager to start companies find that they can't get financing. Businesses and investors sound like the Ancient Mariner, who complained of "Water, water everywhere -- nor any drop to drink."
It's a paradox, and at its nexus is what I'll call the Doctrine of New Finance, which is taught with increasingly religious zeal by economists, and at times even by business professors like me who have failed to challenge it. This doctrine embraces measures of profitability that guide capitalists away from investments that can create real economic growth.
Read all the way to end; Christensen offers some suggestions for shifting capital allocation.
Is the US becoming an extractive state? Oct 22 2012
Following up on her piece in the New Yorker on how hedge fund billionaires have become disillusioned with President Obama, Chrystia Freeland says that the 1% are repeating a mistake made many times throughout history of moving from an inclusive economic system to an extractive one.
Extractive states are controlled by ruling elites whose objective is to extract as much wealth as they can from the rest of society. Inclusive states give everyone access to economic opportunity; often, greater inclusiveness creates more prosperity, which creates an incentive for ever greater inclusiveness.
In the early 14th century, Venice was one of the richest cities in Europe. At the heart of its economy was the colleganza, a basic form of joint-stock company created to finance a single trade expedition. The brilliance of the colleganza was that it opened the economy to new entrants, allowing risk-taking entrepreneurs to share in the financial upside with the established businessmen who financed their merchant voyages.
Venice's elites were the chief beneficiaries. Like all open economies, theirs was turbulent. Today, we think of social mobility as a good thing. But if you are on top, mobility also means competition. In 1315, when the Venetian city-state was at the height of its economic powers, the upper class acted to lock in its privileges, putting a formal stop to social mobility with the publication of the Libro d'Oro, or Book of Gold, an official register of the nobility. If you weren't on it, you couldn't join the ruling oligarchy.
The political shift, which had begun nearly two decades earlier, was so striking a change that the Venetians gave it a name: La Serrata, or the closure. It wasn't long before the political Serrata became an economic one, too. Under the control of the oligarchs, Venice gradually cut off commercial opportunities for new entrants. Eventually, the colleganza was banned. The reigning elites were acting in their immediate self-interest, but in the longer term, La Serrata was the beginning of the end for them, and for Venetian prosperity more generally. By 1500, Venice's population was smaller than it had been in 1330. In the 17th and 18th centuries, as the rest of Europe grew, the city continued to shrink.
BTW, Acemoglu and Robinson have been going back and forth with Jared Diamond about the latter's geographical hypothesis for national differences in prosperity forwarded in Guns, Germs, and Steel. I read 36% of Why Nations Fail earlier in the year...I should pick it back up again.
A list of economic policies that, according to economists, would benefit the economy but would never fly for political reasons.
Four: Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you're taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households.
Five: Tax carbon emissions. Yes, that means higher gasoline prices. It's a kind of consumption tax, and can be structured to make sure it doesn't disproportionately harm lower-income Americans. More, it's taxing something that's bad, which gives people an incentive to stop polluting.
A brief history of money Jul 03 2012
Writing for IEEE Spectrum, New Yorker staff writer James Surowiecki writes about the development and evolution of money, from that of tribal societies to today's highly abstracted currencies.
It's really in the seventh century B.C.E., when the small kingdom of Lydia introduced the world's first standardized metal coins, that you start to see money being used in a recognizable way. Located in what is now Turkey, Lydia sat on the cusp between the Mediterranean and the Near East, and commerce with foreign travelers was common. And that, it turns out, is just the kind of situation in which money is quite useful.
To understand why, imagine doing a trade in the absence of money-that is, through barter. (Let's leave aside the fact that no society has ever relied solely or even largely on barter; it's still an instructive concept.) The chief problem with barter is what economist William Stanley Jevons called the "double coincidence of wants." Say you have a bunch of bananas and would like a pair of shoes; it's not enough to find someone who has some shoes or someone who wants some bananas. To make the trade, you need to find someone who has shoes he's willing to trade and wants bananas. That's a tough task.
With a common currency, though, the task becomes easy: You just sell your bananas to someone in exchange for money, with which you then buy shoes from someone else. And if, as in Lydia, you have foreigners from whom you'd like to buy or to whom you'd like to sell, having a common medium of exchange is obviously valuable. That is, money is especially useful when dealing with people you don't know and may never see again.
In this same vein, this reply on Reddit to "Where has all the money in the world gone?" is also worth a read.
The thing to remember is that all throughout, from the initial trade to this central-banking system, all of this money is debt. It is IOUs, except instead of being an IOU that says "Kancho_Ninja will give one bushel of apples to the bearer of this bond in October", it says "Anyone in town will give you anything worth one bushel of apples in trade."
The money is not an actual thing that you can eat or wear or build a house with, it's an IOU that is redeemable anywhere, for anything, from anyone. It is a promise to pay equivalent value at some time in the future, except the holder of the money can call on anybody at all to fulfill that promise -- they don't have to go back to the original promiser.
Facebook's current valuation in BK Whoppers May 16 2012
Facebook's going public in a few days and will finally get a real valuation attached to it. During a 2009 Burger King promotion that doled out free Whoppers for deleting some of your Facebook friends, I estimated Facebook's valuation at about $1.8 billion.
What BK has unwittingly done here is provide a way to determine the valuation of Facebook. Let's assume that the majority of Facebook's value comes from the connections between their users. From Facebook's statistics page, we learn that the site has 150 million users and the average user has 100 friends. Each friendship is requires the assent of both friends so really each user can, on average, only end half of their friendships. The price of a Whopper is approximately $2.40. That means that each user's friendships is worth around 5 Whoppers, or $12. Do the math and:
$12/user X 150M users = $1.8 billion valuation for Facebook
At the time, Facebook's estimated worth was anywhere between $9-15 billion, about an order of magnitude more than the company's 2009 Whopper valuation. According to the company's Key Facts page, Facebook has 901 million monthly active users as of the end of March 2012. Doing the math again:
$12/user X 901M users = $10.8 billion valuation for Facebook
Right now, the price range for the IPO is $34-38 a share which would put the company's overall valuation at $104 billion, the same order of magnitude more than the current Whopper valuation.
Now, I'm no economist, but that's a lot of hamburgers.
The inflation of everything Apr 26 2012
Women's clothing sizes are getting larger, you can stay at 6-star hotels, and schools at all levels are giving out As to ever more students. It's the inflation of everything.
Estimates by The Economist suggest that the average British size 14 pair of women's trousers is now more than four inches wider at the waist than it was in the 1970s. In other words, today's size 14 is really what used to be labelled a size 18; a size 10 is really a size 14. (American sizing is different, but the trend is largely the same.) Fashion firms seem to think that women are more likely to spend if they can happily squeeze into a smaller label size. But when three out of four American adults and three out of five Britons are overweight, the danger is that size inflation reduces women's incentive to eat less. Meanwhile, food-portion inflation has also made it harder to fight the flab. Pizzas now come in regular, large and very large. Starbucks coffees are Tall, Grande, Venti or (soon) Trenta. "Small" seems to be a forbidden word.
Inflation is also distorting the travel business. A five-star hotel used to mean the ultimate in luxury, but now six- and seven-star resorts are popping up as new hotels award themselves inflated ratings as a marketing tool. "Deluxe" rooms have been devalued, too: many hotels no longer have "standard" rooms, but instead offer a choice of "deluxe" (the new standard), "luxury", "superior luxury" or "grand superior luxury".
Facebook and Instagram as company towns Apr 11 2012
One of the more thought-provoking pieces on Instagram's billion dollar sale to Facebook is Matt Webb's Instagram as an island economy. In it, he thinks about Instagram as a closed economy:
What is the labour encoded in Instagram? It's easy to see. Every "user" of Instagram is a worker. There are some people who produce photos -- this is valuable, it means there is something for people to look it. There are some people who only produce comments or "likes," the virtual society equivalent of apes picking lice off other apes. This is valuable, because people like recognition and are more likely to produce photos. All workers are also marketers -- some highly effective and some not at all. And there's a general intellect which has been developed, a kind of community expertise and teaching of this expertise to produce photographs which are good at producing the valuable, attractive likes and comments (i.e., photographs which are especially pretty and provocative), and a somewhat competitive culture to become a better marketer.
There are also the workers who build the factory -- the behaviour-structuring instrument/forum which is Instagram itself, both its infrastructure and it's "interface:" the production lines on the factory floor, and the factory store. However these workers are only playing a role. Really they are owners.
All of those workers (the factory workers) receive a wage. They have not organised, so the wage is low, but it's there. It's invisible.
Like all good producers, the workers are also consumers. They immediately spend their entire wage, and their wages is only good in Instagram-town. What they buy is the likes and comments of the photos they produce (what? You think it's free? Of course it's not free, it feels good so you have to pay for it. And you did, by being a producer), and access to the public spaces of Instagram-town to communicate with other consumers. It's not the first time that factory workers have been housed in factory homes and spent their money in factory stores.
The whole idea of [blog] comments is based on the assumption that most people reading won't have their own platform to respond with. So you need to provide some temporary shanty town for these folks to take up residence for a day or two. And then if you're like Matt -- hanging out in dozens of shanty towns -- you need some sort of communication mechanism to tie them together. That sucks.
So what's an alternative? Facebook is sort of the alternative right now: company town.
Back to Webb, he says that making actual money with Instagram will be easy:
I will say that it's simple to make money out of Instagram. People are already producing and consuming, so it's a small step to introduce the dollar into this.
I'm not so sure about this...it's too easy for people to pick up and move out of Instagram-town for other virtual towns, thereby creating a ghost town and a massively devalued economy. After all, the same real-world economic forces that allowed a dozen people to build a billion dollar service in two years means a dozen other people can build someplace other than Instagram for people to hang out in, spending their virtual Other-town dollars.
Also worth a read on Facebook/Instagram: Paul Ford's piece for New York Magazine.
Facebook, a company with a potential market cap worth five or six moon landings, is spending one of its many billions of dollars to buy Instagram, a tiny company dedicated to helping Thai beauty queens share photos of their fingernails. Many people have critical opinions on this subject, ranging from "this will ruin Instagram" to "$1 billion is too much." And for many Instagram users it's discomfiting to see a giant company they distrust purchase a tiny company they adore - like if Coldplay acquired Dirty Projectors, or a Gang of Four reunion was sponsored by Foxconn.
So what's going on here?
Money, Power and Wall Street Apr 05 2012
Frontline is doing a four-hour show about the world financial crisis, which, according to many people featured on the program, is ongoing.
Since 2008, Wall Street and Washington have fought against the tide of the fiercest financial crisis since the Great Depression. What have they wrought? In a special four-hour investigation, FRONTLINE tells the inside story of the struggles to rescue and repair a shattered economy, exploring key decisions, missed opportunities, and the unprecedented and uneasy partnership between government leaders and titans of finance that affects the fortunes of millions of people around the world.
The program airs on April 24th.
How much would the Death Star cost to build? Feb 20 2012
Over at the Centives economic blog, they figured out how much it would cost to build the Death Star in 2012 dollars. Spoiler: A lot. It would cost a lot.
We began by looking at how big the Death Star is. The first one is reported to be 140km in diameter and it sure looks like it's made of steel. But how much steel? We decided to model the Death Star as having a similar density in steel as a modern warship. After all, they're both essentially floating weapons platforms so that seems reasonable.
Writing for Grantland, economists Tyler Cowen and Kevin Grier imagine how the NFL might end due to the increasing visibility of head injuries.
This slow death march could easily take 10 to 15 years. Imagine the timeline. A couple more college players -- or worse, high schoolers -- commit suicide with autopsies showing CTE. A jury makes a huge award of $20 million to a family. A class-action suit shapes up with real legs, the NFL keeps changing its rules, but it turns out that less than concussion levels of constant head contact still produce CTE. Technological solutions (new helmets, pads) are tried and they fail to solve the problem. Soon high schools decide it isn't worth it. The Ivy League quits football, then California shuts down its participation, busting up the Pac-12. Then the Big Ten calls it quits, followed by the East Coast schools. Now it's mainly a regional sport in the southeast and Texas/Oklahoma. The socioeconomic picture of a football player becomes more homogeneous: poor, weak home life, poorly educated. Ford and Chevy pull their advertising, as does IBM and eventually the beer companies.
Is this how soccer finally conquers America? Not that soccer doesn't have its own concussion-related problems.
Debunking the Manhattan skyscraper bedrock myth Jan 25 2012
Economist Jason Barr and his colleagues measured the bedrock depth in Manhattan and correlated it with building height. In doing so, they busted the long-held belief that there were no skyscrapers between Midtown and the Financial District because of insufficient bedrock.
What the economists found was that some of the tallest buildings of their day were built around City Hall, where the bedrock reaches its deepest point in the city, about 45 meters down, between there and Canal Street, at which point the bedrock begins to rise again toward the middle of the island. Indeed, Joseph Pullitzer built his record-setting New York World Building, a 349-foot colossus, at 99 Park Row, near the nadir, as did Frank Woolworth a decade later.
The parking problem Jan 06 2012
Parking is expensive to create -- up to $140,000 per space in an underground garage -- but is low-cost or even free to use, which results in strange economic situations and irrational human behavior.
After 36 years, Shoup's writings -- usually found in obscure journals -- can be reduced to a single question: What if the free and abundant parking drivers crave is about the worst thing for the life of cities? That sounds like a prescription for having the door slammed in your face; Shoup knows this too well. Parking makes people nuts. "I truly believe that when men and women think about parking, their mental capacity reverts to the reptilian cortex of the brain," he says. "How to get food, ritual display, territorial dominance -- all these things are part of parking, and we've assigned it to the most primitive part of the brain that makes snap fight-or-flight decisions. Our mental capacities just bottom out when we talk about parking."
McRibonomics Nov 09 2011
This is likely the best piece you'll read about the economics of the McRib and McDonald's motivation in its periodic reintroduction.
At this volume, and with the impermanence of the sandwich, it only makes sense for McDonald's to treat the sandwich as a sort of arbitrage strategy: at both ends of the product pipeline, you have a good being traded at such large volume that we might as well forget that one end of the pipeline is hogs and corn and the other end is a sandwich. McDonald's likely doesn't think in these terms, and neither should you.
Oh and speaking of pipelines:
And for its part, the McRib makes a mockery of this whole terribly labor-intensive system of barbecue, turning it into a capital-intensive one. The patty is assembled by machinery probably babysat by some lone sadsack, and it is shipped to distribution centers by black-beauty-addicted truckers, to be shipped again to franchises by different truckers, to be assembled at the point of sale by someone who McDonald's corporate hopes can soon be replaced by a robot, and paid for using some form of electronic payment that will eventually render the cashier obsolete.
There is no skilled labor involved anywhere along the McRib's Dickensian journey from hog to tray, and certainly no regional variety, except for the binary sort -- Yes, the McRib is available/No, it is not -- that McDonald's uses to promote the product. And while it hasn't replaced barbecue, it does make a mockery of it.
The capitalist cabal Oct 21 2011
An analysis by complex systems theorists at the Swiss Federal Institute of Technology reveals that a "super-entity" of just 147 companies that controls 40% of the wealth among the world's transnational corporations. And even worse is how tightly integrated these companies are...large pieces tightly coupled is a recipe for economic disaster.
John Driffill of the University of London, a macroeconomics expert, says the value of the analysis is not just to see if a small number of people controls the global economy, but rather its insights into economic stability.
Concentration of power is not good or bad in itself, says the Zurich team, but the core's tight interconnections could be. As the world learned in 2008, such networks are unstable. "If one [company] suffers distress," says Glattfelder, "this propagates."
"It's disconcerting to see how connected things really are," agrees George Sugihara of the Scripps Institution of Oceanography in La Jolla, California, a complex systems expert who has advised Deutsche Bank.
Do attractive athletes make more money? Aug 19 2011
In discussing whether Jeff Francoeur was worth the 2 year contract extension granted by the Royals, Jonah Keri wondered if Francoeur scored a more lucrative contract because he was handsome. Turns out, he probably did. As longtime Kottke acolytes, you already knew this phenomenon applied to regular people.
To put this result in perspective, we found that a "good-looking" quarterback like Kerry Collins or Charlie Frye earned approximately $300,000 more per year than his stats and other pay factors would predict. Meanwhile, quarterbacks like Jeff George and Neil O'Donnell, who, sadly, were not found to have very symmetrical faces, suffered an equivalent penalty.
Poor, poor, Neil O'Donnell. Did you ever wonder if good looking people get paid more because they're better at what they do? Eli Cash's follow up to Wild Cat and Old Custer tackles this question. "Well, everyone knows attractive people get paid more. What this book presupposes is... maybe they deserve it."
Last place aversion Aug 16 2011
Researchers have found that lower income individuals become more opposed to programs designed to help them if people they perceive as below them will also be helped. I don't have a comment on this except, COMEON!
Instead of opposing redistribution because people expect to make it to the top of the economic ladder, the authors of the new paper argue that people don't like to be at the bottom. One paradoxical consequence of this "last-place aversion" is that some poor people may be vociferously opposed to the kinds of policies that would actually raise their own income a bit but that might also push those who are poorer than them into comparable or higher positions. The authors ran a series of experiments where students were randomly allotted sums of money, separated by $1, and informed about the "income distribution" that resulted. They were then given another $2, which they could give either to the person directly above or below them in the distribution.
The other side of this is Warren Buffett wanting the government to charge him higher taxes.
The Big Mac Index Aug 01 2011
The Economist has updated their Big Mac Index, a "fun" measure of how purchasing power varies from country to country.
It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of a basket of goods and services around the world. At market exchange rates, a burger is 44% cheaper in China than in America. In other words, the raw Big Mac index suggests that the yuan is 44% undervalued against the dollar. But we have long warned that cheap burgers in China do not prove that the yuan is massively undervalued. Average prices should be lower in poor countries than in rich ones because labour costs are lower. The chart above shows a strong positive relationship between the dollar price of a Big Mac and GDP per person.
The economics of penis size Jul 21 2011
A paper authored by Tatu Westling of Helsinki University explores the relationship between the GDP growth of countries and the penile length of their residents.
The size of male organ is found to have an inverse U-shaped relationship with the level of GDP in 1985. It can alone explain over 15% of the variation in GDP. The GDP maximizing size is around 13.5 centimetres, and a collapse in economic development is identified as the size of male organ exceeds 16 centimetres.
That "U-shaped" curve...it looks like something flaccid-ish, innit? (via @atenni)
The economics of an ice cream cone Jun 22 2011
At a Boston ice cream shop, the cost of ice cream cone has risen 10% in the last four months. The Boston Globe investigated down the supply chain and detailed where the price increases are coming from.
Ice cream may be a deliciously simple combination of milk, butter, and sugar, but the true cost of an ice cream cone is no simple business calculation. Toscanini's price tag is part of complex and increasingly interconnected world economy, one that links a dairy farm in the tiny Western Massachusetts town of Colrain to the sprawling neighborhoods of Beijing.
Also of note: pistachio ice cream might be difficult to find this summer because the cost of pistachios has increased sharply in recent months. (via girlhacker)
The Groupon IPO Jun 03 2011
I don't really have an opinion about it, but David Heinemeier Hansson does:
Groupon has filed its S-1 and hopes to raise $750M in its initial public offering. Given they're currently losing a staggering $117M per quarter, despite revenues of $644M, they'll be burning through that cash almost as soon as it hits their account.
At the moment, it's costing them $1.43 to make $1, and it doesn't look like it's getting any cheaper. They're already projected to make close to three billion dollars in revenues this year. If you can't figure out how to make money on three billion in revenue, when exactly will the profit magic be found? Ten billion? Fifty billion?
To which John Gruber adds:
I feel like the Groupon IPO is an elaborate practical joke.
It was a different time and (as DHH notes) a different company, but when Amazon IPOed in 1997, they lost $27.6 million that year on net sales of $147.8 million. That's an 18% loss for Amazon compared to Groupon's, hey, 18% loss. Amazon didn't report their first profit until Q4 2001. No guarantee whether Groupon will ever turn a profit but something to consider anyway. Oh, and probably not relevant but interesting nonetheless: Amazon CEO Jeff Bezos is an investor in DHH's company, 37signals...and until recently, 37signals co-founder Jason Fried was on Groupon's board of directors.
Why the crime decline? May 31 2011
Nice summary of the current thinking about why crime is falling in the US even though the unemployment rate is relatively high. One possible culprit is leaded gasoline:
There may also be a medical reason for the decline in crime. For decades, doctors have known that children with lots of lead in their blood are much more likely to be aggressive, violent and delinquent. In 1974, the Environmental Protection Agency required oil companies to stop putting lead in gasoline. At the same time, lead in paint was banned for any new home (though old buildings still have lead paint, which children can absorb).
Tests have shown that the amount of lead in Americans' blood fell by four-fifths between 1975 and 1991. A 2007 study by the economist Jessica Wolpaw Reyes contended that the reduction in gasoline lead produced more than half of the decline in violent crime during the 1990s in the U.S. and might bring about greater declines in the future. Another economist, Rick Nevin, has made the same argument for other nations.
NYC groceries cheaper than in rest of the US May 27 2011
It seems that item for item, food in New York City is actually cheaper than in many other parts of the country.
Using data from the ACNielsen HomeScan database, which employed bar-code scanners to track every purchase made by roughly 33,000 U.S. households in 2005, the two economists compared identical products sold in cities big and small, both at high-end grocery stores and discount retailers. In nearly every case, New York products were cheaper than in places such as Memphis, Indianapolis and Milwaukee.
A Disneyland of child labor Apr 13 2011
The Morning News has a piece today on KidZania, a theme park for kids where they work and buy stuff just like grown-ups.
But at the heart of the concept and the business of KidZania is corporate consumerism, re-staged for children whose parents pay for them to act the role of the mature consumer and employee. The rights to brand and help create activities at each franchise are sold off to real corporations, while KidZania's own marketing emphasizes the arguable educational benefits of the park.
Each child receives a bank account, an ATM card, a wallet, and a check for 50 KidZos (the park's currency). At the park's bank, which is staffed by adult tellers, kids can withdraw or deposit money they've earned through completing activities -- and the account remains even when they go home at the end of the day. A lot of effort goes into making the children repeat visitors of this Lilliputian city-state.
A US outpost of KidZania is coming sometime in 2013.
That's the title of an article written by Michael Lewis in 1989.
A big quake has hit Tokyo roughly every 70 years for four centuries: 1923, 1853, 1782, 1703, 1633.
Pay the homeless Mar 03 2011
If a small experiment conducted in London is any indication, a cost effective way to help the homeless may be to simply give them money.
One asked for a new pair of trainers and a television; another for a caravan on a travellers' site in Suffolk, which was duly bought for him. Of the 13 people who engaged with the scheme, 11 have moved off the streets. The outlay averaged £794 ($1,277) per person (on top of the project's staff costs). None wanted their money spent on drink, drugs or bets. Several said they co-operated because they were offered control over their lives rather than being "bullied" into hostels. Howard Sinclair of Broadway explains: "We just said, 'It's your life and up to you to do what you want with it, but we are here to help if you want.'"
£794 per person may sound high but not compared to the estimated £26,000 annually spent on each homeless person by the state.
The Celtic Paper Tiger Feb 16 2011
Michael Lewis continues his tour of economic disasters -- he wrote about Greece and Iceland for Vanity Fair and wrote an entire book on the US subprime mess -- with a piece on Ireland and the country's spectacular rise in becoming Europe's mightiest economic engine and even steeper fall to third-world economic mess.
Even in an era when capitalists went out of their way to destroy capitalism, the Irish bankers set some kind of record for destruction. Theo Phanos, a London hedge-fund manager with interests in Ireland, says that "Anglo Irish was probably the world's worst bank. Even worse than the Icelandic banks."
Ireland's financial disaster shared some things with Iceland's. It was created by the sort of men who ignore their wives' suggestions that maybe they should stop and ask for directions, for instance. But while Icelandic males used foreign money to conquer foreign places -- trophy companies in Britain, chunks of Scandinavia -- the Irish male used foreign money to conquer Ireland. Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was to buy Ireland. From one another. An Irish economist named Morgan Kelly, whose estimates of Irish bank losses have been the most prescient, made a back-of-the-envelope calculation that puts the losses of all Irish banks at roughly 106 billion euros. (Think $10 trillion.) At the rate money currently flows into the Irish treasury, Irish bank losses alone would absorb every penny of Irish taxes for at least the next three years.
In recognition of the spectacular losses, the entire Irish economy has almost dutifully collapsed. When you fly into Dublin you are traveling, for the first time in 15 years, against the traffic. The Irish are once again leaving Ireland, along with hordes of migrant workers. In late 2006, the unemployment rate stood at a bit more than 4 percent; now it's 14 percent and climbing toward rates not experienced since the mid-1980s. Just a few years ago, Ireland was able to borrow money more cheaply than Germany; now, if it can borrow at all, it will be charged interest rates nearly 6 percent higher than Germany, another echo of a distant past. The Irish budget deficit -- which three years ago was a surplus -- is now 32 percent of its G.D.P., the highest by far in the history of the Eurozone. One credit-analysis firm has judged Ireland the third-most-likely country to default. Not quite as risky for the global investor as Venezuela, but riskier than Iraq. Distinctly Third World, in any case.
LCD Soundsystem ticket debacle Feb 14 2011
So, LCD Soundsystem is retiring and to see off their fans, they decided to perform one last show at Madison Square Garden. Except that they didn't think they'd sell the place out and didn't pay too much attention to how the tickets were being sold. When the tickets went on sale last week, they sold out immediately. Many fans didn't get tickets, the band's family and friends didn't get tickets, and even some of the band didn't get tickets. Scalpers bought thousands upon thousands of tickets and the band is hopping mad. So they're adding four more NYC shows right before the MSG gig to give their fans a chance to see them and to screw the scalpers by increasing the supply (and therefore lowering demand and prices).
oh-and a small thing to scalpers: "it's legal" is what people say when they don't have ethics. the law is there to set the limit of what is punishable (aka where the state needs to intervene) but we are supposed to have ethics, and that should be the primary guiding force in our actions, you fucking fuck.
It would be fun if all those scalpers got stuck with thousands of unsellable MSG tickets.
Picturing economic inequality Feb 09 2011
Dutch economist Jan Pen devised a clever way of picturing economic inequality: as the height of people walking past you.
Imagine people's height being proportional to their income, so that someone with an average income is of average height. Now imagine that the entire adult population of America is walking past you in a single hour, in ascending order of income.
The first passers-by, the owners of loss-making businesses, are invisible: their heads are below ground. Then come the jobless and the working poor, who are midgets. After half an hour the strollers are still only waist-high, since America's median income is only half the mean. It takes nearly 45 minutes before normal-sized people appear. But then, in the final minutes, giants thunder by. With six minutes to go they are 12 feet tall. When the 400 highest earners walk by, right at the end, each is more than two miles tall.
(via ben fry)
The economics of Seinfeld Nov 12 2010
Dozens of scenes from Seinfeld used to explain economic concepts. For instance, in an episode from season five:
George thinks he has been offered a job, but the man offering it to him got interrupted in the middle of the offer, and will be on vacation for the next week. George, unsure whether an offer has actually been extended, decides that his best strategy is to show up. If the job was indeed his, this is the right move. But even if the job is not, he believes that the benefits outweigh the costs.
Economic concepts touched on: cost-benefit analysis, dominant strategy, and game theory. (via what i learned today)
Complexity and the fall of Rome Oct 28 2010
In Jospeh Tainter's The Collapse of Complex Societies, the author argues that the fall of Rome happened because "the usual method of dealing with social problems by increasing the complexity of society [became] too costly or beyond the ability of that society". Basically when Rome stopped expanding its territory, the fallback was relying solely on agriculture, a relatively low-margin affair.
The distances, now no longer adjacent to easily accessible coastline, were making the cost of conquest prohibitive. More to the point, the enemies Rome faced as it grew larger were vast empires themselves and were more than capable of defeating the Roman legions.
It was at this point that Rome had reached a turning point: no longer would conquest be a significant source of revenue for the empire, for the cost of further expansion yielded no benefits greater than incurred costs. Conjointly, garrisoning its extensive border with its professional army was becoming more burdensome, and more and more Rome came to rely on mercenary troops from Iberia and Germania.
The result of these factors meant that the Roman Empire began to experience severe fiscal problems as it tried to maintain a level of social complexity that was beyond the marginal yields of it's agricultural surplus and had been dependent upon continuous territorial expansion and conquest.
Hopefully I don't have to draw you a picture of how this relates to large bureaucratic companies.
Inflationary language Jul 30 2010
Comedian and entertainer Victor Borge used to do a bit where he'd muse about the application of economic inflation to language.
See, we have hidden numbers in the words like "wonderful," "before," "create," "tenderly." All these numbers can be inflated and meet the economy, you know, by rising to the occcassion. I suggest we add one to each of these numbers to be prepared. For example "wonderful" would be "two-derful." Before would be Be-five. Create, cre-nine. Tenderly should be eleven-derly. A Leiutenant would be a Leiut-eleven-ant. A sentance like, "I ate a tenderloin with my fork" would be "I nine an elevenderloin with my five-k."
Here's the whole routine:
Building a Black Swan-robust society Jul 15 2010
New Statesman has an excerpt of the new-for-the-paperback postscript from Nassim Taleb's The Black Swan, which book was probably the most interesting one I've read in quite some time (if you can handle some of the ridiculous posturing).
An economist would find it inefficient to carry two lungs and two kidneys -- consider the costs involved in transporting these heavy items across the savannah. Such optimisation would, eventually, kill you, after the first accident, the first "outlier". Also, consider that if we gave Mother Nature to economists, it would dispense with individual kidneys -- since we do not need them all the time, it would be more "efficient" if we sold ours and used a central kidney on a time-share basis. You could also lend your eyes at night, since you do not need them to dream.
Read through to the end for Taleb's list of ten principles for a Black Swan-robust society.
800 years of financial folly Jul 12 2010
Unsurprisingly finding itself on the bestseller list is a book by Kenneth Rogoff and Carmen Reinhart called This Time is Different, an economic history of the dozens of financial crises that have occurred over the past 800 years. The NY Times has a profile of the authors.
Mr. Rogoff says a senior official in the Japanese finance ministry was offended at the suggestion in "This Time Is Different" that Japan had once defaulted on its debt and sent him an angry letter demanding a retraction. Mr. Rogoff sent him a 1942 front-page article in The Times documenting the forgotten default. "Thank you," the official wrote in apology, "for teaching the Japanese something about our own country."
Social status and nightclub bouncers Jun 15 2010
A professor from the Kellogg School of Management wondered: what rules do the bouncers at exclusive night clubs use to filter some clientele into the club and leave others out in the cold?
Bouncers weighed each cue differently. Social network mattered most, gender followed. For example, a young woman in jeans stood a higher chance of entrance than a well-dressed man. And an elegantly dressed black man stood little chance of getting in unless he knew someone special.
Dear Leader meets Sim City Jun 03 2010
A 22-yo architecture student from The Philippines has "beaten" Sim City 3000 by building a city with the largest possible population that sustains itself for 50,000 years. The city, called Magnasanti, is not somewhere you would want to live.
There are a lot of other problems in the city hidden under the illusion of order and greatness: Suffocating air pollution, high unemployment, no fire stations, schools, or hospitals, a regimented lifestyle -- this is the price that these sims pay for living in the city with the highest population. It's a sick and twisted goal to strive towards. The ironic thing about it is the sims in Magnasanti tolerate it. They don't rebel, or cause revolutions and social chaos. No one considers challenging the system by physical means since a hyper-efficient police state keeps them in line. They have all been successfully dumbed down, sickened with poor health, enslaved and mind-controlled just enough to keep this system going for thousands of years. 50,000 years to be exact. They are all imprisoned in space and time.
Update: In 1922, Le Corbusier designed an "ideal" city with 3 million inhabitants. (thx, diana)
Taming Manhattan's traffic May 28 2010
In an attempt to eliminate Manhattan's travel inefficiencies and encourage more use of public transportation, Charles Komanoff spent three years creating an Excel spreadsheet (you can download it here) that details "the economic and environmental impact of every single car, bus, truck, taxi, train, subway, bicycle, and pedestrian moving around New York City". Based on that research, he's come up with a plan for changing how transportation is paid for in Manhattan below 60th St. (the CBD or central business district).
It would charge $3 to cars entering the CBD on weekday nights, $6 for most of the day, and $9 during rush hour. The subway fare also varies, but is always less than the $2.25 it is today: $1 at night, rising to $1.50 as day breaks, and peaking at $2 during weekday rush hours. Buses are always free, because the time saved when passengers aren't fumbling for change more than makes up for the lost fare revenue. Komanoff's plan also imposes a 33 percent surcharge on every taxi ride, 10 percent of which would go to the cab driver and the rest to the city.
Komanoff's plan is vastly more sophisticated than a simple bridge toll. Instead of merely punishing drivers, he has built a delicate system of incentives and revenue streams. Just as a musical fugue weaves several melodic lines into a complex yet harmonious whole, Komanoff's policy assembles all the various modes of transportation into a coherent, integrated traffic system.
Restaurant chain opens pay what you can cafe May 19 2010
Panera Bread Co converted one of their St. Louis locations into a cafe without prices. I love this model, but I feel like it probably works better with one of a kind products (art, music, movies, books) that are likely to have passionate fans. I hope it works, though. Ron Shaich Panera's chairman had this to say:
I'm trying to find out what human nature is all about. My hope is that we can eventually do this in every community where there's a Panera.
The neuroscience of Costco Apr 01 2010
Jonah Lehrer on what our brains are up to when we're shopping at Costco.
As I note in How We Decide, this data directly contradicts the rational models of microeconomics. Consumers aren't always driven by careful considerations of price and expected utility. We don't look at the electric grill or box of chocolates and perform an explicit cost-benefit analysis. Instead, we outsource much of this calculation to our emotional brain, and rely on relative amounts of pleasure versus pain to tell us what to purchase.
My First Toxic Asset Mar 29 2010
The Planet Money podcast bought a toxic asset and is tracking what happens to the 2000+ mortgages that are bundled up into it over time.
We bought one of those things that no one wanted, one of those things that almost brought down the global economy: our very own toxic asset. This one has more than 2,000 mortgages in it. We paid $1,000, with our own money, for our piece. It used to be worth more like $75,000. Click on the timeline and roll over the states to watch a disaster in progress.
Somewhat of a surprise: they've made more than a third of their money back already.
The economics of the mushy middle Mar 22 2010
Companies who target the middle of the market (Sony, Dell, General Motors) are losing customers to companies like Apple & Hermes at the high end and Ikea & H&M at the low end. From James Surowiecki:
The products made by midrange companies are neither exceptional enough to justify premium prices nor cheap enough to win over value-conscious consumers. Furthermore, the squeeze is getting tighter every day. Thanks to economies of scale, products that start out mediocre often get better without getting much more expensive -- the newest Flip, for instance, shoots in high-def and has four times as much memory as the original -- so consumers can trade down without a significant drop in quality. Conversely, economies of scale also allow makers of high-end products to reduce prices without skimping on quality. A top-of-the-line iPod now features video and four times as much storage as it did six years ago, but costs a hundred and fifty dollars less. At the same time, the global market has become so huge that you can occupy a high-end niche and still sell a lot of units. Apple has just 2.2 per cent of the world cell-phone market, but that means it sold twenty-five million iPhones last year.
Worth a read as always.
We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire. Instead, we will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses.
When the financial system went into cardiac arrest in September 2008, Berkshire was a supplier of liquidity and capital to the system, not a supplicant. At the very peak of the crisis, we poured $15.5 billion into a business world that could otherwise look only to the federal government for help. Of that, $9 billion went to bolster capital at three highly-regarded and previously-secure American businesses that needed -- without delay -- our tangible vote of confidence. The remaining $6.5 billion satisfied our commitment to help fund the purchase of Wrigley, a deal that was completed without pause while, elsewhere, panic reigned.
We pay a steep price to maintain our premier financial strength. The $20 billion-plus of cash-equivalent assets that we customarily hold is earning a pittance at present. But we sleep well.
Here's to sleeping well.
Paul Krugman profile Feb 26 2010
The New Yorker has a nice profile of Paul Krugman in this week's magazine. His political awakening has a somewhat born-again Christian vibe to it.
In his columns, Krugman is belligerently, obsessively political, but this aspect of his personality is actually a recent development. His parents were New Deal liberals, but they weren't especially interested in politics. In his academic work, Krugman focussed mostly on subjects with little political salience. During the eighties, he thought that supply-side economics was stupid, but he didn't think that much about it. Unlike Wells, who was so upset when Reagan was elected that she moved to England, Krugman found Reagan comical rather than evil. "I had very little sense of what was at stake in the tax issues," he says. "I was into career-building at that point and not that concerned." He worked for Reagan on the staff of the Council of Economic Advisers for a year, but even that didn't get him thinking about politics. "I feel now like I was sleepwalking through the twenty years before 2000," he says. "I knew that there was a right-left division, I had a pretty good sense that people like Dick Armey were not good to have rational discussion with, but I didn't really have a sense of how deep the divide went."
How to sell luxury in a recession Feb 19 2010
Flattery sells, so to further those positive emotions, he insists that sales associates compliment the customer's own watch, even if it's from a competitor.
(via lone gunman)
Zero rupee note combats Indian bribery Feb 05 2010
Petty bribery is common in India, but the introduction of a zero rupee banknote has given some would-be bribers pause.
One such story was our earlier case about the old lady and her troubles with the Revenue Department official over a land title. Fed up with requests for bribes and equipped with a zero rupee note, the old lady handed the note to the official. He was stunned. Remarkably, the official stood up from his seat, offered her a chair, offered her tea and gave her the title she had been seeking for the last year and a half to obtain without success.
Products that did well during the recession Feb 04 2010
Predicting Olympic medal counts Jan 21 2010
Economics professor Daniel Johnson makes accurate Olympic medal predictions using a handful of indicators that are unrelated to sports.
His forecast model predicts a country's Olympic performance using per-capita income (the economic output per person), the nation's population, its political structure, its climate and the home-field advantage for hosting the Games or living nearby. "It's just pure economics," Johnson says. "I know nothing about the athletes. And even if I did, I didn't include it."
For the upcoming 2010 games in Vancouver, Johnson predicts that Canada, the US, Norway, Austria, and Sweden will end up with the most medals. (thx, brandon)
Update: Johnson's predictions were a bit off.
Free to Choose with Milton Friedman Dec 28 2009
There's not a whole lot to do at work this week, right? So how about tucking into all ten hours of a PBS documentary featuring economist Milton Friedman called Free to Choose. Here's part one:
PBS telecast the series, beginning in January 1980; the general format was that of Dr. Friedman visiting and narrating a number of success and failure stories in history, which Dr. Friedman attributes to capitalism or the lack thereof (e.g. Hong Kong is commended for its free markets, while India is excoriated for relying on centralized planning especially for its protection of its traditional textile industry). Following the primary show, Dr. Friedman would engage in discussion with a number of selected persons, such as Donald Rumsfeld (then of G.D. Searle & Company).
The enormity of Zimbabwe's inflation Dec 15 2009
There are at least 2 crazy passages in this article about the amount of inflation in Zimbabwe over the past 30 years.
Hyperinflation in Zimbabwe, the former Rhodesia, was a quadrillion times worse than it was in Weimar Germany.
In grade school, quadrillion was always an exaggeration but not here:
The cumulative devaluation of the Zimbabwe dollar was such that a stack of 100,000,000,000,000,000,000,000,000 (26 zeros) two dollar bills (if they were printed) in the peak hyperinflation would have be needed to equal in value what a single original Zimbabwe two-dollar bill of 1978 had been worth. Such a pile of bills literally would be light years high, stretching from the Earth to the Andromeda Galaxy.
Andromeda Galaxy! It's our nearest galactic neighbor but still 2,500,000 light-years away. (via daveg)
Pinball economics Nov 17 2009
This fun little post talks about how the economics of pinball changed as it became more and then less popular.
In 1986, Williams High Speed changed the economics of pinball forever. Pinball developers began to see how they could take advantage of programmable software to monitor, incentivize, and ultimately exploit the players. They had two instruments at their disposal: the score required for a free game, and the match probability. All pinball machines offer a replay to a player who beats some specified score. Pre-1986, the replay score was hard wired into the game unless the operator manually re-programmed the software. High Speed changed all that. It was pre-loaded with an algorithm that adjusted the replay score according to the distribution of scores on the specified machine over a specific time interval.
The poverty trap Nov 16 2009
In the US, when you make under $20,000, there are government subsidies available to help you out. Between $20-40,000 per year, those subsidies are less available, which makes it difficult for people to cross the gap between one and the other.
In fact, until you get past $40,000 a year, any raise or higher paying job you get might actually sink you deeper into poverty.
SuperFreakonomics not so super Nov 10 2009
In a New Yorker book review this week, Elizabeth Kolbert tears Levitt and Dubner a new one over the geoengineering chapter of SuperFreakonomics, calling the pair's thinking on the issue "horseshit".
Given their emphasis on cold, hard numbers, it's noteworthy that Levitt and Dubner ignore what are, by now, whole libraries' worth of data on global warming. Indeed, just about everything they have to say on the topic is, factually speaking, wrong. Among the many matters they misrepresent are: the significance of carbon emissions as a climate-forcing agent, the mechanics of climate modelling, the temperature record of the past decade, and the climate history of the past several hundred thousand years.
Airlines nickel and diming themselves to death Oct 13 2009
The airlines that added the most fees (for food, to check bags) in the past few months saw their revenues decline the most.
I thought about his rant this week as the nation's largest carriers reported first-quarter earnings. Or, more accurately, first-quarter losses. Except for AirTran and JetBlue, they all lost money. The legacy airlines -- Delta/Northwest, American, United, Continental and US Airways -- lost a lot of money. Collectively about $1.9 billion, in fact. Their revenue plummeted, too.
And do you know what most of them wanted to talk about? You guessed it. The baskets of ancillary revenue they're harvesting by charging us fees for checking bags, choosing coach seats or whatever. Forget that their houses are burning down. They found a tap in the bathtub with some water leaking out, so they're thrilled.
The no control cafe Oct 09 2009
In Kashiwa, Japan, there was briefly an unusual cafe where you recieve whatever the person in front of you ordered...and you're ordering for the person behind you.
The Ogori cafe was an unforgettable travel moment, and an idea that has stuck with me: It was a complete surprise in our day. It encouraged communication between total strangers or, in this case, members of the Kashiwa community and a couple of weird guys from Oregon. It forced one to "let go", just for a brief moment, of the total control we're so used to exerting through commerce. It led you to taste something new, that you might not normally have ordered. It was a delight.
A holiday on the George Lucas coast Oct 06 2009
An article in Forbes postulates which countries billionaires could purchase, factoring in their estimated worth and the countries' GDPs. On the list: Bill Gates, Warren Buffet, George Lucas, Zambia, Haiti, and Belize.
Update: A valid point to make here is that a billionaire's income isn't an accurate measure of their ability to "purchase" a country based on their GDP, especially if you think of the GDP as the equivalent of rental income. For instance, if a person's net worth is $9 billion, which is equivalent to the Bahamas' GDP, that doesn't mean the billionaire could buy the islands. He or she could only rent it for a year, theoretically. Then again, the idea of countries being up for sale, and individuals purchasing (or renting) them, is a somewhat silly premise. (thx, ian)
Update: Perhaps purchasing countries isn't such a silly premise after all. In 2003, the entire principality of Liechtenstein was up for rent. The tiny country, which borders Switzerland and Austria, attempted a "rent-a-state" program sponsored by Xnet. The idea was to draw attention to the tourist-friendly charms of Liechtenstein by essentially "renting" the country's hotels, restaurants, and sports stadiums en masse. (thx, colin)
What a well-placed $20 gets you Sep 24 2009
Tom Chiarella took a stack of $20 bills with him to New York City just to see what he could get by offering them to the right people at the right time. Turns out, quite a bit. I probably linked to this a few years ago (it's from 2003), but it's worth another look. I just love this kind of thing...probably because I'm too much of a candy ass to ever attempt something similar.
A twenty should not be a ticket so much as a solution. You have a problem, you need something from the back room, you don't want to wait, you whip out the twenty.
I could have stood in line at the airport cabstand for fifteen minutes like every other mook in the world, freezing my balls off, but such is not the way of the twenty-dollar millionaire. I walked straight to the front of the line and offered a woman twenty bucks for her spot. She took it with a shrug. Behind her, people crackled. "Hey! Ho!" they shouted. I knew exactly what that meant. It wasn't good. I needed to get in a cab soon. One of the guys flagging cabs pointed me to the back of the line. That's when I grabbed him by the elbow, pulled him close, and shook his hand, passing the next twenty. I was now down forty dollars for a twenty-dollar cab ride. He tilted his head and nodded to his partner. I peeled another twenty and they let me climb in. As we pulled away, someone in the line threw a half-empty cup of coffee against my window.
A few months later, Chiarella tried the same technique in Salt Lake City, Vegas, and LA.
I pushed around; the ballsier I became, the more success I experienced. I got tablecloths, a personal garlic press, a dozen extra forks in one meal, chopsticks in a steak house. I bought primo parking spaces from people who had just parallel-parked.
Update: Ah, I've also previously linked to this one, from Gourmet in 2000.
It's just after 8 P.M. on a balmy summer Saturday and I'm heading toward one of New York's most overbooked restaurants, Balthazar, where celebrities regularly go to be celebrated and where lay diners like me call a month in advance to try and secure a reservation. I don't have a reservation. I don't have a connection. I don't have a secret phone number. The only things I have are a $20, a $50, and a $100 bill, neatly folded in my pocket.
A bunch of odd economic indicators that I have read about recently. The use of the 2nd Street Tunnel in Los Angeles in car commercials:
According to FilmL.A., the nonprofit organization that coordinates on-location shooting in the city, no permits have been issued in 2009 for car commercials. Although commercial production in the city is flagging anyway -- down 34% in the first quarter -- the 100% drop in tunnel permits suggests "very tough times in the car business," FilmL.A. spokesman Todd Lindgren said.
The reinstatement of the £90 lingerie-and-blouse allowance at London law firm Clifford Chance:
Inevitably dubbed the "90 nicker knicker allowance", this may or may not be the most reliable indicator yet that the credit crunch is over. (Business is apparently so hectic that the firm has also installed sleeping pods.)
And from this article, several others, including:
The baked bean index -- my colleague Anthony Reuben noted in the spring how the value of sales of baked beans -- a classic recession food -- had risen 21.6% in April compared with the same month last year. Could a reverse signal the start of a recovery?
The number of people signing up to dating agencies offering extra-marital affairs, on the basis that demand goes up either in times of excessive confidence -- "I won't get caught"; or depression -- "I don't care". (Sex had to figure somewhere.)
(via schott's vocab log)
Update: The 90-pound knicker allowance is bollocks. (thx, cheryl)
Update: How about the closing speed of car salesmen around a prospective buyer?
Here's an indicator economists should study as they study GDP: speed with which, upon entering a store, you are surrounded by salesmen. (I would record both gather-rate-in fractions of a second-and density.) I was approached by the first salesman as I came in the door, picked up another as I went by the reception desk, picked up a third as I skirted a Buick Enclave. I looked back when I reached the Corvettes. There must have been ten salesmen back there and more coming, spilling out of offices and break rooms like police cruisers appearing from side streets to chase Burt Reynolds in Smokey and the Bandit. We moved in a buzzing cloud around the Corvette. From a distance, we would have made a fine subject for a painting in the National Gallery: Salesmen and Commission; or, Depression and Its Discontents. When I stood and stared and pretended to think, they stood back and stared and pretended to think. "You know, it's not so expensive if you realize you're buying it over the course of three years."
Update: And a bunch more from Time's Cheapskate blog.
How did economists miss the crash? Sep 08 2009
Paul Krugman writes in How Did Economists Get it So Wrong? (where the "it" is the 2008 recession):
As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system. That vision wasn't sustainable in the face of mass unemployment, but as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations. The renewed romance with the idealized market was, to be sure, partly a response to shifting political winds, partly a response to financial incentives. But while sabbaticals at the Hoover Institution and job opportunities on Wall Street are nothing to sneeze at, the central cause of the profession's failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.
Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets - especially financial markets - that can cause the economy's operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don't believe in regulation.
He goes on to describe the history of macroeconomics (in brief) and how the current theories are flawed. Very interesting long read.
Buy trending words on Twitter Sep 01 2009
If you can figure out what words are gonna trend on Twitter, you can use the pretweeting site to buy and sell words to make fake money.
Make a (virtual) profit by buying and selling words on twitter. Predict what's going to be hot and buy it up before it hits twitter, and you'll make a killing once people start talking about it.
Moneyball inefficiencies erased Aug 07 2009
Unsurprisingly, the MLB teams currently drawing the most benefit from the lessons of Moneyball are those with lots of money operating in big markets.
Well, of course, the big-market teams figured it out. They hired their own Ivy League consultants. They bought even better computers. Walks is only one tiny aspect in it ... but who leads the American League in walks this year? The New York Yankees. Last year? The Boston Red Sox. The year before that? The Boston Red Sox. And so it goes. Now, six years later, it seems to me that the small-market teams are really grasping and trying to find some loophole, some opening that will allow them to win in this tough financial environment.
Parking really isn't free Aug 07 2009
Parking is heavily subsidized in the US; spaces in cities can cost between $10,000 and $50,000, a high price to pay to house hunks of metal that don't do anything for 95% of the day.
Who pays for this? Everyone. The cost of building all that parking is reflected in higher rents, more expensive shopping and dining, and higher costs of home-ownership. Those who don't drive or own cars thus subsidize those who do.
The argument comes from a book called The High Cost of Free Parking.