kottke.org posts about economics

The best behavioral economics of 2014 moviesDec 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.

(via @tylercowen)

The economics of SeinfeldDec 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 takersNov 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.

And:

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 EconomyOct 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 cheeseburgerJul 22 2014

Mark Bittman on the true cost of producing a hamburger, after accounting for externalities like carbon generation and obesity.

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?

(via subtraction)

The best way to spend a dollarJul 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. noiseJun 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 ticketJun 09 2014

Alinea stats

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 MonopolyMay 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 FreakMay 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 SimpsonsMay 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.

(via mr)

Uneasy lies the head that wears a crownApr 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?

(via mr)

Reading Capital in the Twenty-First CenturyApr 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?

Or you can try Vox's short guide to Capital or HBR's Capital in a Lot Less than 696 Pages.

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 pizzaFeb 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:

Bitcoin Transactions

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 rudenessDec 12 2013

French Rude CafeA 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."

(via eater)

Mind the income gapDec 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-shirtDec 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 AirDec 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.

Back in January, riffing off a piece by John Robb, I speculated that Amazon would be an early mover into delivery-by-drone:

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 wineNov 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 betterSep 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.

The Five Cognitive Distortions of People Who Get Stuff DoneSep 10 2013

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
5. Schumpeterianism

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

(via ★interesting)

Consider the economics of lobsterAug 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 PlacesJul 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 failureJun 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 outlawedJun 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?

(via @LonestarTacoNYC, who are starting back up at New Amsterdam Market this weekend)

The recipe for the cronutJun 04 2013

CronutCronuts 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:

Cronut Craigslist

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.

Update: In his forthcoming cookbook, Ansel reveals the recipe for the cronut and it's not for the faint of heart...the recipe takes three days to make.

The updated Big Mac indexFeb 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 drugsJan 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 advantageNov 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.

Warren Buffett: a minimum tax rate for the wealthyNov 28 2012

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.

(via df)

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.

Scarry Pig Butcher

See also this examination of What Do People Do All Day?:

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.

(via @inthefade)

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.

(thx, elaine)

Serfing the webNov 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.

Freeland is riffing on an argument forwarded by Daron Acemoglu and James Robinson in Why Nations Fail. Their chief example cited by Freeland is that of Venice:

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.

Six policies economists love that politicians hateJul 25 2012

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 moneyJul 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 WhoppersMay 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 everythingApr 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 townsApr 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.

Although he doesn't use the term explictly, Webb is talking about a company town. Interestingly, Paul Bausch used this term in reference to Facebook a few weeks ago in a discussion about blogging:

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?

First, to understand this deal it's important to understand Facebook. Unfortunately everything about Facebook defies logic. In terms of user experience (insider jargon: "UX"), Facebook is like an NYPD police van crashing into an IKEA, forever - a chaotic mess of products designed to burrow into every facet of your life.

Money, Power and Wall StreetApr 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.

(via marginalrevolution)

How professional football might end (sooner than you think)Feb 13 2012

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 mythJan 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.

(via @bobulate)

The parking problemJan 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."

(via @hotdogsladies)

McRibonomicsNov 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.

(via @joeljohnson)

The capitalist cabalOct 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 aversionAug 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.

(Via @chrisfahey)

The Big Mac IndexAug 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 sizeJul 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 coneJun 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 IPOJun 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.

(via @kbandersen)

NYC groceries cheaper than in rest of the USMay 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.

(via stellar)

A Disneyland of child laborApr 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.

Kidzania

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.

How a Tokyo Earthquake Could Devastate Wall Street and the Global EconomyMar 16 2011

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.

(via @daveg)

Pay the homelessMar 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 TigerFeb 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 debacleFeb 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 inequalityFeb 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 SeinfeldNov 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 RomeOct 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 languageJul 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:

(via bobulate)

Building a Black Swan-robust societyJul 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 follyJul 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 bouncersJun 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 CityJun 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 trafficMay 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 cafeMay 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.

(via @cdefazio)

The neuroscience of CostcoApr 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 AssetMar 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 middleMar 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.

Warren Buffett's 2009 annual letter to shareholdersMar 11 2010

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 profileFeb 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 recessionFeb 19 2010

Or: how to talk someone into buying a $30,000 watch.

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 briberyFeb 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 recessionFeb 04 2010

They include camping gear, Hyundai cars, and upscale generic products. (via mr)

Predicting Olympic medal countsJan 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 FriedmanDec 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:

Here's part two and part three...all the rest are available on Google Video (aside from part six for some reason). From Wikipedia, a brief description of the series:

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 inflationDec 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 economicsNov 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 trapNov 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.

(via migurski)

SuperFreakonomics not so superNov 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 deathOct 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.

(via @kyleridolfo)

The no control cafeOct 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.

(via mr)

A holiday on the George Lucas coastOct 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 youSep 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.

Aha, turns out I linked to a similar article by Chiarella in which he haggles on items like hot dogs, TiVos, and gasoline. (via big contrarian)

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.

(thx, david)

The baked bean index and other economic indicatorsSep 21 2009

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: But wait, there's more! Sex dolls, vendor gifts, and the Puma Index.

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.

Update: And still more! Hair dye (more is sold in down times) and complimentary kids crayons at restaurants (50% fewer crayons per package).

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 TwitterSep 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.

This is like Google Adwords except with play money. (via waxy)

Moneyball inefficiencies erasedAug 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 freeAug 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.

The Hot Waitress IndexAug 03 2009

To the ever growing list of odd economic indicators (sushi, lipstick, Coca-Cola), we can now add the hotness of your waitress.

The indicator I prefer is the Hot Waitress Index: The hotter the waitresses, the weaker the economy. In flush times, there is a robust market for hotness. Selling everything from condos to premium vodka is enhanced by proximity to pretty young people (of both sexes) who get paid for providing this service. That leaves more-punishing work, like waiting tables, to those with less striking genetic gifts. But not anymore.

The same article also mentions the Overeducated Cabbie Index, the Squeegee Man Apparition Index, and the Speed at Which Contractors Return Calls Index.

Update: A possible related metric: the quality of street musicians.

Update: Yet another economic indicator: men's underwear.

"It's a prolonged purchase," said Marshal Cohen, senior analyst with the consumer research firm NPD Group. "It's like trying to drive your car an extra 10,000 miles."

The VCs' upper handJul 27 2009

Cameron Lester, a partner at a VC firm, on A Golden Age for Venture Capital:

For 14 months, we at Azure Capital tried to invest in companies but could not reach an agreement with entrepreneurs and existing investors on valuation and terms -- the gap was too great. Despite meeting with hundreds of companies and reaching the point of discussing terms with a few, we did not make a single new investment.

That gap no longer exists. We recently invested in a company called BlogHer in May. It is an exciting company, whose team and investors were wise enough to realize that taking money now would give them a competitive advantage. And last week we invested in SlideRocket, our second new investment in less than two months.

It is as if the venture-funding environment has finally hit the reset button.

Translation: Now that money is tight, venture capital firms are able to fully dictate the terms of their investments. Entrepreneurs, prepare to part with more of your companies than you wanted to and receive less for the pleasure. Lester goes on to hand-wavingly assert that this is a good thing for entrepreneurs.

Living without moneyJul 24 2009

Daniel Suelo, who lives in a cave near Moab, Utah, has gone without using money since 2000.

"When I lived with money, I was always lacking," he writes. "Money represents lack. Money represents things in the past (debt) and things in the future (credit), but money never represents what is present."

The idea started to take shape when Suelo was on a Peace Corps mission to Ecuador. As he monitored the health of the population of the village he was staying in, he noticed that their health declined as they made more money -- "It looked like money was impoverishing them." You can find out more about Suelo's philosophy on his web site and follow his adventures on his blog, both of which he updates at the public library.

OverconfidenceJul 23 2009

Malcolm Gladwell's piece in this week's New Yorker about the psychology of overconfidence is pretty much a transcript of the speech he gave at the New Yorker Summit a couple of months ago. Gladwell's thesis is that the overconfidence of experts caused the current financial crisis.

"I'm good at that. I must be good at this, too," we tell ourselves, forgetting that in wars and on Wall Street there is no such thing as absolute expertise, that every step taken toward mastery brings with it an increased risk of mastery's curse.

Gambling your money away to a safe placeJul 22 2009

Eight Michigan credit unions are offering an unusual way to save: putting $25+ into a one-year CD comes with an entry to a raffle with a monthly prize of $400 and a yearly grand prize of $100,000.

This unusual CD is federally guaranteed by the National Credit Union Administration and pays between 1% and 1.5% annual interest, a bit lower than conventional rates. In 25 weeks, the program has attracted about $3.1 million in new deposits, often from people who have never been able to set money aside.

This reminds me of a recent observation by Sam Arbesman:

An intriguing coincidence: The repayment rate of individual loans in Kiva (a broker for individual loans around the world) is 98.50%, which is quite similar to the payback percentage of Las Vegas slot machines.

Why not put the lottery effect to work with Kiva? Instead of straight-up loans, enter lenders in a raffle and slightly decrease the return rate to account for the prize money. I bet (ha!) the lending rate would increase accordingly. (via waxy)

Update: Several people pointed out that British Premium Bonds have worked this way for decades. (thx, christopher)

SuperFreakonomicsJul 13 2009

How do you follow up a kooky-titled bestseller like Freakonomics? With a book called SuperFreakonomics. It's due out on October 20 and has a subtitle of "Tales of Altruism, Terrorism, and Poorly Paid Prostitutes".

The economics of Flash gamesJul 09 2009

As an avid player of Flash games (when I've got time), I found Dan Cook's post on the economics of the Flash game platform really interesting and applicable to anyone who is offering content online and wants to get paid for it.

Flash games are currently the ghetto of the game development industry. Compared to the number of players it serves, the Flash game ecosystem makes little money, launches few careers, and sustains few developer owned businesses. Despite the vast potential of the ecosystem, Flash games contribute surprisingly little to the advancement of game design as an art or a craft.

This is just the first installment...two or three more are yet to come. (via @anildash)

No one knows how to make a pencilJul 09 2009

I, Pencil is a 1958 ode to mass production, industrial specialization, commodity economics, and the invisible hand using the manufacture of a simple graphite pencil as an example.

Consider the millwork in San Leandro. The cedar logs are cut into small, pencil-length slats less than one-fourth of an inch in thickness. These are kiln dried and then tinted for the same reason women put rouge on their faces. People prefer that I look pretty, not a pallid white. The slats are waxed and kiln dried again. How many skills went into the making of the tint and the kilns, into supplying the heat, the light and power, the belts, motors, and all the other things a mill requires? Sweepers in the mill among my ancestors? Yes, and included are the men who poured the concrete for the dam of a Pacific Gas & Electric Company hydroplant which supplies the mill's power!

Really great. A nice illustration of embodied energy to boot.

Update: A old Cardigan article by Dean Allen shares a certain kinship with I,Pencil.

First, you need some water. Fuse two hydrogen with one oxygen and repeat until you have enough. While the water is heating, raise some cattle. Pay a man with grim eyes to do the slaughtering, preferably while you are away. Roast the bones, then add to the water.

Update: From Transparent Things by Vladimir Nabokov:

Now let us not lose our precious bit of lead while we prepare the wood. Here's the tree! This particular pine! It Is cut down. Only the trunk is used, stripped of its bark. We hear the whine of a newly invented power saw, we see logs being dried and planed. Here's the board that will yield the integument of the pencil in the shallow drawer (still not closed). We recognize its presence in the log as we recognized the log in the tree and the tree in the forest and the forest in the world that Jack built. We recognize that presence by something that is perfectly clear to us but nameless, and as impossible to describe as a smile to somebody who has never seen smiling eyes.

Thus the entire little drama, from crystallized carbon and felled pine to this humble implement, to this transparent thing, unfolds in a twinkle. Alas, the solid pencil itself as fingered briefly by Hugh Person still somehow eludes us! But he won't, oh no.

(thx, matthew)

Why are famous paintings worth more than famous houses?Jun 26 2009

David Galbraith calculates that if buildings by famous architects were priced like paintings, a Le Corbusier building would be worth more than the entire US GDP.

The top floor of Corbusier's Villa Stein (one of perhaps the top 500 most important houses of the late 19th/early 20th centuries - i.e. a Van Gogh of houses) is for sale for the same price per sq.ft. (approx $1400) as buildings in the same area of suburban Paris, designed by nobody in particular. Meanwhile, Van Gogh's Portrait of Dr. Gachet sold for an inflation adjusted price of $136 million yet a poster of similar square footage and style costs around $10.

In terms of signaling, it's difficult to hang a house on one's parlor wall...buying a Corbusier means living in it wherever it happens to be located, at least part of the year.

Create Your Own Economy, onlineJun 25 2009

Tyler Cowen previews a portion of his upcoming book, Create Your Own Economy, for Fast Company.

More and more, "production" -- that word my fellow economists have worked over for generations -- has become interior to the human mind rather than set on a factory floor. A tweet may not look like much, but its value lies in the mental dimension. You use Twitter, Facebook, MySpace, and other Web services to construct a complex meld of stories, images, and feelings in your mind. No single bit seems weighty on its own, but the resulting blend is rich in joy, emotion, and suspense. This is a new form of drama, and it plays out inside us -- with technological assistance -- rather than on a public stage.

More on US healthcare costsJun 24 2009

I've got two follow-ups to share with you regarding Atul Gawande's New Yorker piece about healthcare costs in the US (kottke.org post). In the Wall Street Journal, Abraham Verghese argues that in order for a healthcare reform plan to be successful, it has to include cost cutting.

I recently came on a phrase in an article in the journal "Annals of Internal Medicine" about an axiom of medical economics: a dollar spent on medical care is a dollar of income for someone. I have been reciting this as a mantra ever since. It may be the single most important fact about health care in America that you or I need to know. It means that all of us -- doctors, hospitals, pharmacists, drug companies, nurses, home health agencies, and so many others -- are drinking at the same trough which happens to hold $2.1 trillion, or 16% of our GDP. Every group who feeds at this trough has its lobbyists and has made contributions to Congressional campaigns to try to keep their spot and their share of the grub. Why not? -- it's hog heaven. But reform cannot happen without cutting costs, without turning people away from the trough and having them eat less. If you do that, you have to be prepared for the buzz saw of protest that dissuaded Roosevelt, defeated Truman's plan and scuttled Hillary Clinton's proposal.

In Gawande's example, what Verghese is saying is that you can't just make McAllen's healthcare system adopt an El Paso type of system without a whole lot of pain.

Gawande addressed some of the criticisms of his article on the New Yorker site. One of the major criticisms was that McAllen's higher costs were associated with higher levels of poverty and unhealthiness:

As I noted in the piece, McAllen is indeed in the poorest county in the country, with a relatively unhealthy population and the problems of being a border city. They have a very low physician supply. The struggles the people and medical community face there are huge. But they are just as huge in El Paso -- its residents are barely less poor or unhealthy or under-supplied with physicians than McAllen, and certainly not enough so to account for the enormous cost differences. The population in McAllen also has more hospital beds than four out of five American cities.

Too complex to existJun 16 2009

In an analysis of the global financial system, Duncan Watts says that we should limit the complexity of these sorts of systems because "once everything is connected, problems can spread as easily as solutions".

Traditionally, banks and other financial institutions have succeeded by managing risk, not avoiding it. But as the world has become increasingly connected, their task has become exponentially more difficult. To see why, it's helpful to think about power grids again: engineers can reliably assess the risk that any single power line or generator will fail under some given set of conditions; but once a cascade starts, it's difficult to know what those conditions will be - because they can change suddenly and dramatically depending on what else happens in the system. Correspondingly, in financial systems, risk managers are able to assess their own institutions' exposure, but only on the assumption that the rest of the world obeys certain conditions. In a crisis it is precisely these conditions that change in unpredictable ways.

No one, for example, anticipated that an investment bank as old and prestigious as Lehman Brothers could collapse as suddenly as it did, so nobody had that contingency built into their risk models. And once it did fail, then just as the failure of a single power line increases the stress on other parts of the system, leading to further "knock on" failures, so too did Lehman's unlikely collapse render other previously unlikely failures suddenly much more likely.

This is essentially the same point that Nassim Taleb makes in The Black Swan re: Extremistan and Mediocristan.

The President and the economyJun 15 2009

On the Freakonomics blog, Dmitri Leybman tells us about the three main ways that the President's political party can have an impact on the economy.

This tendency of Republican presidents to preside over growth that occurs so close to re-election has been cited by Bartels as the main reason why Republican presidents have been so successful in achieving two-term presidencies in the post-World War II era. Voters, Bartels believes, are economic myopists, paying attention only to the most recent economic outcomes and not the overall outcomes experienced under a president's rule.

Altruism in economicsMay 29 2009

Altruism in business and behaviorial economics is a topic that comes up quite often on kottke.org, even when it's not explicit. (For instance, the central issue in the Atul Gawande article I pointed to yesterday pits the individual financial desires of doctors vs. the health of their patients.) This article from Ode Magazine takes a look at the research done in this area so far and how the idea of altruism in economics is currently on the rise.

The theory is based on the premise that humans evolved in small groups with strong social contracts and plenty of contact with strangers. Cooperation within the tribe was advantageous so long as free riders were punished. It was also the best gambit on encountering strangers. Cooperation, particularly in times of famine, was the only means of survival, so altruism became a favored evolutionary trait.

One of my favorite books on altruism and economics is Robert Wright's Nonzero.

The causes of increased healthcare spending in the USMay 28 2009

Atul Gawande discovered that McAllen, Texas spends more per person on healthcare than El Paso (which is demographically similar to McAllen) and set out to find out why. Along the way, he encounters a curious relationship between the amount spent on healthcare and the quality of that care: higher spending does not correlate with better care.

When you look across the spectrum from Grand Junction to McAllen -- and the almost threefold difference in the costs of care -- you come to realize that we are witnessing a battle for the soul of American medicine. Somewhere in the United States at this moment, a patient with chest pain, or a tumor, or a cough is seeing a doctor. And the damning question we have to ask is whether the doctor is set up to meet the needs of the patient, first and foremost, or to maximize revenue.

There is no insurance system that will make the two aims match perfectly. But having a system that does so much to misalign them has proved disastrous. As economists have often pointed out, we pay doctors for quantity, not quality. As they point out less often, we also pay them as individuals, rather than as members of a team working together for their patients. Both practices have made for serious problems.

Obama, you're reading this guy's stuff, yes? Get him on the team.

Update: Dr. Peter Orszag is the Director of the Office of Management and Budget for the White House and is working on some of the problems that Gawande talks about in this article. Here's a 40-minute video of Orszag speaking on "Health Care - Capturing the Opportunity in the Nation's Core Fiscal Challenge". (thx, todd)

I changed the bit in the first paragraph about El Paso and McAllen being "nearby". Funny, I thought 800 miles in Texas *was* nearby. (thx, stephen)

I also changed "lower spending correlates with better care" to "higher spending does not correlate with better care"...those two statements are not the same. I misread the results of one of the studies that Gawande mentions. (thx, patrick)

Congress considers font readabilityMay 19 2009

Both houses of Congress have recently passed credit card legislation which will cut down on credit card companies abusing their customers. The NY Times has a guide to what the new legislation could mean for consumers. The bill that passed the House contains some interesting provisions on how card companies can use type.

The House throws in what ought to be called "The Fine Print Rule." Card companies must print their account applications and disclosures in 12-point type or greater. A supervisory board will also probably declare certain hard-on-the-eyes fonts off limits. The Senate is silent on typeface but imposes many other communication requirements.

From the bill itself:

SEC. 14. Readability requirement.

Section 122 of the Truth in Lending Act (U.S.C. 1632) is amended by adding at the end the following new subsection:

"(d) Minimum type-size and font requirement for credit card applications and disclosures. -All written information, provisions, and terms in or on any application, solicitation, contract, or agreement for any credit card account under an open end consumer credit plan, and all written information included in or on any disclosure required under this chapter with respect to any such account, shall appear-

"(1) in not less than 12-point type; and

"(2) in any font other than a font which the Board has designated, in regulations under this section, as a font that inhibits readability.".

I haven't seen a credit card application or bill in years (we're paperless)...what unreadable fonts are these companies using? Do they set their terms and conditions sections in 6-pt Zapf Dingbats a la David Carson?

Economics reporter gets caught in mortgage bubbleMay 15 2009

Edmund Andrews, an economics reporter for the New York Times, confesses that he got caught up in "catastrophic binge on overpriced real estate" and signed a "reckless mortgage" for more money than he and his new wife could afford.

What about my alimony and child-support obligations? No need to mention them. What would happen when they saw the automatic withholdings in my paycheck? No need to show them. If I wanted to buy a house, Bob figured, it was my job to decide whether I could afford it. His job was to make it happen.

"I am here to enable dreams," he explained to me long afterward. Bob's view was that if I'd been unemployed for seven years and didn't have a dime to my name but I wanted a house, he wouldn't question my prudence. "Who am I to tell you that you shouldn't do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it's your signature on the mortgage - not mine."

Andrews and his family aren't all that bad off, but my mouth got all cottony while reading this as I extrapolated from his story to the millions of people who made similar deals under much more dire circumstances. A chilling first person tip-of-the-iceberg tale. (via the laboritorium, which calls the piece "an instant classic of economic crisis journalism")

Update: According to a nice bit of reporting by Megan McArdle, Andrews failed to mention that his second wife has declared bankruptcy twice, once while married to Andrews.

Moreover, pesky bad luck isn't really the picture painted by either filing. Rather, Ms. Barreiro seems to have spent most of the last two decades living right up to the edge of her income, and beyond, and then massively defaulting. If you structure your finances so that absolutely everything has to go right, it's hard to blame the mortgage company when you don't quite make it.

Andrews has been admirably open about many of the poor decisions and the wishful thinking that led him deep into debt. Nonetheless, he has laid much of the blame onto irresponsible bankers and mortgage brokers. The missing bankruptcies substantially undermine this basic narrative arc of Andrews' story. Particularly in his book, the bankers are the villains, America's current troubles are the inevitable denouement of their maniacal greed, and the Andrews household stands in for an American public led, by their own greed and longing and hopeful trust, into the money pit.

Seen through this lens, it's not so much that Andrews was done in by a overly large mortgage...it was that he married a financial anchor.

Update: Andrews responds to McArdle's claims:

These bankruptcies did occur, but they had nothing to do with our mortgage woes. They were both tied to old debts from before we were married or bought a house. They had nothing to do with my ability to get a mortgage; nor did they have anything to do with our subsequent financial problems.

And McArdle responds to his response. (This is getting complicated!)

Andrews seems to now be arguing that the Chapter 7 filings are not relevant because they didn't affect his ability to get a mortgage. But of course the article and the book is not just about him--rightly, because unless your marriage is pretty dysfunctional, it's a financial partnership. The two bankruptcies seem to reveal that one partner has demonstrated a historic inability to live within their means. So though the bankruptcies don't tell us anything about their ability to get a mortgage on their house, they may tell us quite a bit about their willingness to take on a mortgage. This decision is at least as important as the bank's. I'm sure banks would have given me all kinds of stupid mortgage loans in 2004, but I didn't avail myself of the opportunity.

(thx, pamela)

The economics of the new Yankee StadiumMay 12 2009

Ticket prices at the new Yankee Stadium are so high that if a New Yorker wants to watch a Mariners/Yankees game from the best seats, it would be a lot cheaper to fly to Seattle, stay in a nice hotel, eat fancy dinners, and see two games.

Option 1: Two tickets to Tuesday night, June 30, Mariners at Yanks, cost for just the tickets, $5,000.

Option 2: Two round-trip airline tickets to Seattle, Friday, Aug. 14, return Sunday the 16th, rental car for three days, two-night double occupancy stay in four-star hotel, two top tickets to both the Saturday and Sunday Yanks-Mariners games, two best-restaurant-in-town dinners for two. Total cost, $2,800. Plus-frequent flyer miles.

(thx, david)

New Yorker Summit: financeMay 05 2009

The big themes of the day so far are confidence and experts: should we and do we have confidence in the experts? Malcolm Gladwell kicked off the morning with a talk about overconfidence. He talked about the three types of failure possible in a situation like the financial crisis:

1. Institutional failure. The regulators and regulations were not sufficient.

2. Cognitive failure. The bankers weren't smart enough and got in over their heads.

3. Psychological failure. The bankers were overconfident and failed to recognize the direness of their situation.

Gladwell argued that the financial crisis was caused largely by overconfidence, which has two key effects. One is that people become miscalibrated. They think that the predictions that they are making are actually a lot better than they are. Secondly, there's an illusion of control problem in which people think they have control over things that are impossible to control. Fixing the situation will be hard because overconfidence is a useful trait to possess and experts are hard to purge from systems (they're the experts!).

[Experts talking about how experts are wrong! My brain is seizing up.]

Next up were Nassim Taleb and Robert Shiller. Shiller believes that confidence drives the economy and that macroeconomics is flawed because there's no humanity in it. Taleb was very quotable and the most full of doom of all the panelists so far. He doesn't like economists. Like wants them gone from the world, or to at least marginalize their effects so that their opinions and decisions don't affect the lives of normal people. In talking about why this crisis is different than similar situations in the past, he argued that globalization, the Internet, and the efficiency of global financial markets has created an environment where very large and very quick collective movements of money are possible in a way that wasn't before. Taleb had the last word: "people who crashed the plane, you don't give them a new plane".

The panel moderated by Suroweicki was a little odd. Two out of the three panelists kept repeating in reference to the solution to the very complex financial crisis: "this isn't that complicated". There has also been a undercurrent to the discussion so far that the goal of any solution to the financial crisis is to get the economy back to where it was. I'm with Taleb on this one: where we were wasn't very good, why do we want to go back.

Raising prices and gaining readersApr 22 2009

Feeling undervalued, some magazines are raising their prices and gaining both readership and revenue.

The Economist is leading the charge on expensive subscriptions, and its success is one reason publishers are rethinking their approaches. It is a news magazine with an extraordinarily high cover price -- raised to $6.99 late last year -- and subscription price, about $100 a year on average.

Even though The Economist is relatively expensive, its circulation has increased sharply in the last four years. Subscriptions are up 60 percent since 2004, and newsstand sales have risen 50 percent, according to the audit bureau.

I'm always amazed that something as great as The New Yorker can be had for a buck an issue when people routinely pay $4 for burnt coffee, $10 for crappy movies, and $12 for -tini drinks.

Create Your Own EconomyApr 22 2009

Create Your Own Economy

I don't think he's talked about it on his site yet, but Tyler Cowen has a new book coming out called Create Your Own Economy: The Path to Prosperity in a Disordered World.

As economist Tyler Cowen boldly shows in Create Your Own Economy, the way we think now is changing more rapidly than it has in a very long time. Not since the Industrial Revolution has a man-made creation -- in this case, the World Wide Web -- so greatly influenced the way our minds work and our human potential. Cowen argues brilliantly that we are breaking down cultural information into ever-smaller tidbits, ordering and reordering them in our minds (and our computers) to meet our own specific needs.

Create Your Own Economy explains why the coming world of Web 3.0 is good for us; why social networking sites such as Facebook are so necessary; what's so great about "Tweeting" and texting; how education will get better; and why politics, literature, and philosophy will become richer. This is a revolutionary guide to life in the new world.

I never properly reviewed Cowen's last book (sorry!), but I found it as enlightening and entertaining as Marginal Revolution is. (via david archer)

A world without Black SwansApr 14 2009

Nassim Nicholas Taleb lists ten principles for a Black Swan-proof world. Most points relate directly to the current economic situation in the US.

No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

It was difficult to choose just one of Taleb's points to excerpt; they're all worth considering. BTW, a Black Swan is an event that is rare, has a large impact, and is deemed predictable after the fact. I might have to push Taleb's book of the same name to the top of my reading list.

Mo' money, mo' socioeconomic issuesApr 10 2009

New Scientist has collected a bunch of studies related to the pychological impact of money on people.

Almost all of us, for example, are "loss averse" -- it hurts more to lose £50 than it feels good to win £50. We also value money in relative rather than absolute terms -- we consider £10 irrelevant when buying a house but not when paying for a meal. Similarly, finding £100 will give many people more pleasure than having a heating bill cut from £950 to £835, even though this gains them more in real terms.

Michael Lewis telling fish tales?Mar 23 2009

Jonas Moody, who has lived on Iceland for the past seven years, takes Michael Lewis to task for some inaccuracies and other odd things in his Vanity Fair piece about the country's economic crisis.

5. "Icelanders are among the most inbred human beings on earth -- geneticists often use them for research."

Now this is insulting. Icelanders' DNA shows their roots to be a healthy mix between Nordic Y chromosomes and X chromosomes from the British Isles. The reason genetic-research company deCODE uses Icelandic genes for its research is not because the codes are so homogeneous, but because the population has kept excellent genealogical records dating back thousands of years.

I sort of shrugged my shoulders at this stuff when I read the piece and forged ahead for the financial meat and potatoes, but it doesn't read so well when collected all in one place like this. Was the piece supposed to be a farce? If not, it doesn't reflect well on Lewis or his editors at VF. (thx, micah)

Up in a down marketMar 19 2009

Mother Jones magazine has a list of ten people who have profited from the current financial crisis.

[John] Paulson is a hedge fund manager who has been ridiculously successful betting against banks and other entities that had exposure to the subprime crisis: In 2007, his funds were up $15 billion. In 2008, he didn't do as well: His main fund rose 38 percent in a year when the S&P 500 fell almost 40 percent. His 2007 earnings were in the neighborhood of $3.7 billion. According to Forbes, while 656 billionaires lost money last year, Paulson was one of the 44 who added to their fortunes.

This is the peculiar thing about financial markets: if you know something bad is going to happen (you know, like the global collapse of the financial markets), you can either sound the alarm and save a lot of people a lot of grief or you can make a billion dollars.

How the Crash Will Reshape AmericaMar 10 2009

Right or wrong, How the Crash Will Reshape America, Richard Florida's analysis of how different areas of the United States are going to be affected by the current financial crisis, is full of fascinating bits.

The University of Chicago economist and Nobel laureate Robert Lucas declared that the spillovers in knowledge that result from talent-clustering are the main cause of economic growth. Well-educated professionals and creative workers who live together in dense ecosystems, interacting directly, generate ideas and turn them into products and services faster than talented people in other places can. There is no evidence that globalization or the Internet has changed that. Indeed, as globalization has increased the financial return on innovation by widening the consumer market, the pull of innovative places, already dense with highly talented workers, has only grown stronger, creating a snowball effect. Talent-rich ecosystems are not easy to replicate, and to realize their full economic value, talented and ambitious people increasingly need to live within them.

And:

But another crucial aspect of the crisis has been largely overlooked, and it might ultimately prove more important. Because America's tendency to overconsume and under-save has been intimately intertwined with our postwar spatial fix -- that is, with housing and suburbanization -- the shape of the economy has been badly distorted, from where people live, to where investment flows, to what's produced. Unless we make fundamental policy changes to eliminate these distortions, the economy is likely to face worsening handicaps in the years ahead.

Others have written about it elsewhere, but the few paragraphs Florida devotes to Detroit are stunning. (thx, peter)

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