Tuesday, February 26, 2008

Earn Rewards Everytime You Stay Married

UTango is offering major amounts of money for remaining a loyal married customer. Don't see anyone crying "Discrimination!" yet, but at least one poll suggests that there are some people out there who don't think that it's worth rewarding.

Monday, February 25, 2008

Money for Nothin'?

A few friends of mine works on commission in jewelry store. The other night, one of them apparently had a bad shift, selling below what he normally does. This was no fault of his; few customers came by. What should be done to improve traffic is not clear, but anyone can tell you that paying my friend a higher base salary will change nothing. His payment is the reward for helping the business do well, not the source of it.

Why then does Paul Krugman continue to insist that low consumer spending is the chief problem with our economy? Like commission, consumer spending is a reward for growth, not its source. Like commission, its fall can be a sign of poor growth. And like anything else, you can't treat the problem by treating the symptoms. Any money sent to the American people is money either taken away from them as taxes, taken from investment as debt, or taken from everyone as inflation. To prescribe a stimulus plan is to prescribe magic, gambling our economy on ignoring the all-too-true adage, "There's No Such Thing As A Free Lunch."

Jobs Americans Won't Do: Win Oscars

All acting Oscars went to foreigners this year, and foreigners also won various other awards. I'm waiting for some nonsensical rant from an anti-immigrant zealot to declare the end of the American film industry since non-Americans are doing so well.

Tuesday, February 19, 2008

Democrats Vow To Block Out Sun

Exit polls from Wisconsin tonight revealed that a 70% of Democrats believe "trade with other countries causes the loss of American jobs." Both candidates argue against outsourcing and support having more jobs kept in America. Competition with cheap foreign labor and goods seems to be a great evil for Democrats.

Perhaps soon we'll see Hillary and Obama blame the sun for its product that floods our nation's borders. A product it sells for free. Free! Think of all those jobs the sun's rays take away: we have fewer electrical engineers, lighting manufacturers, power plant designers, construction workers, steel workers, glass blowers, and so many others. If we are to take their economic argument seriously then we must entertain the value of ending our dependence on foreign light.

Sen. Obama's Two Faces

In the midst of his victory in Wisconsin Obama spoke of respect for the free market and the importance of trade. But a sentence later he declared to give tax breaks to domestic industries to assuage outsourcing.

The logic of the free market does not stop at political borders. Entrepreneurs do not become stupid once they cross over to Mexico or China or Germany. Products made overseas are not inherently undesirable. And ones made within this country are not handed down from God.

Change is the essential element of all free markets and Sen. Obama should know this; he is the candidate for change. So he should celebrate our economy's evolution from manufacturing to service. He should revel in the constant experimentation and that remains so prominent. He praise people who find better ways to make the things we desire, embrace those that invent tomorrow's standards, and inspire more to engage in our oh-so dynamic economy.

Few forces are as potent sources of change--real, positive social change--than that of the free market. But it works best if we leave it unmolested and free to go places some may not want it to. As a self proclaimed free marketer and the candidate of change, Sen. Obama should know this.

Wednesday, February 13, 2008

The Greater the Risk, the Sadder I Am

Michael Shermer at the LA Times wrote about loss aversion: that people are willing to take a financial hit to avoid any pains of regret. This follows nicely from my money and banking on Monday, when we explored the equity premium puzzle.

Adjusted for inflation, equity (stocks) have a much higher payoff than bonds. Over a period of 20-30 years, the former will return at about 8% a year; the latter just 1%. One of the possible explanations is loss aversion: people don't like to see value decrease so they gravitate towards bonds, which are always increasing. Shermer uses loss aversion to explain why people tend to choose B:
A is waiting in line at a movie theater. When he gets to the ticket window, he is told that as he is the 100,000th customer of the theater, he has just won $100.

B is waiting in line at a different theater. The man in front of him wins $1,000 for being the 1-millionth customer of the theater. Mr. B wins $150.

Amazingly, most people said that they would prefer to be A. In other words, they would rather forgo $50 in order to alleviate the feeling of regret that comes with not winning the thousand bucks. Essentially, they were willing to pay $50 for regret therapy.
Another possible reason is the tendency for people to judge their wealth in relative and not absolute terms. I'd rather be wealthier than the people around me, not even more wealthier if it means others become richer than I. In the land of the blind, the one-eyed man is king. Research suggests a lot of people would rather be king than have depth perception.

The origins of loss aversion and relative wealth probably lie in evolutionary psychology. Economics should be particularly interested in this field; it can explain why people dislike free trade, feel economies are zero-sum, and romanticize the poorer but more familiar past.

HT: Brian Hollar

Political Rules

Paul Krugman calls them "Clinton rules," where everything a candidate says is distorted by the other side into a negative ad. Negative campaigning in general sickens Krugman and warns the DNC "...if history is any guide, if Mr. Obama wins the nomination, he will quickly find himself being subjected to Clinton rules. Democrats always do." (Hate Springs Eternal, February 11, 2008)

It's not clear which party engages in more negative campaigning, but I bet it has a lot more to do with the desperation of the campaign than its party. Despite what the electorate claims, negative campaigning works and is especially tempting in the political sphere where the runner-up is still a failure. There is so much to lose. Recall one of the most famous (and most negative) campaign ads in U.S. history, where Democrat Lyndon Johnson suggested Republican Barry Goldwater would be responsible for a nuclear war if he was elected. Mr. Krugman should read his own titles: hate truly does spring eternal.

Do You Want Morphine With That?

It's quite clear that as manufacturing jobs disappear, they are being replaced with service jobs. Really this is only a half-truth; professional and related occupations are increasing at the same rate as the service sector (17%) and each have about the same number of workers (just shy of five million).

Most people bemoan the growth of services. When they think of "service sector" they think of waiting tables and stocking shelves. And yes, in absolute terms most of the new jobs in the next ten years are likely to be in retail.

But the absolute numbers don't really matter; the growth rates do. Suppose we see 1000 jobs added in a high wage sector and 1000 added in a low wage sector. You might think the two are keeping in perfect step with each other. But suppose the former had 10,000 to begin with and the latter had 100,000. Now it's a 10% increase versus just 1%. Percents are much more useful because they show us the trend of employment. Is America heading to a high-wage service sector or a low-wage service sector. These projected numbers from the BLS (2006-2016) have the answer.

25% Health care and social assistance
23% Professional and business services
14% Financial activities
14% Leisure and hospitality
13% Other services
11% Educational services
10% Construction
9% Transportation and utilities
8% State and local government (except hospitals and education)
7% Information
5% Retail

Just because your most common exposure to the service sector is retail doesn't mean that's what is seeing the most growth. Guess we all won't work for Wal-Mart after all.

Tuesday, February 12, 2008

Focus on the Fundamentals

Of the Millennial generation, Michelle Conlin writes "They don't need an economics degree to understand that the middle class is squeezed." You can be sure of that, only because those who with such degrees know better.

Adjusting for fringe benefits and improving quality, people of all income levels are experiencing rising standards of living. Those that rely only on income data miss what those incomes can buy. The vast majority of products are cheaper, either in the form of lower prices or better quality. The evidence is all around us: Americans eat out more, retire earlier, own more cars, and send more kids to college than they did thirty years ago. They have iPods, Internet, laptops, cell phones, cable TV, DVDs, and eBay. More Americans own microwaves, multiple cars, dishwashers, color televisions, and air conditioning. Despite what movies like Office Space claim, working in a cubicle is cleaner, safer, and more pleasant than a factory floor. Health costs are increasing in part because we now have procedures that simply weren't available twenty or thirty years ago. Arnold Kling argues that a key problem with health care in the U.S. is that we have too much expertise, calling it a Crisis of Abundance.

Income data is certainly not nothing, but it's hardly enough to tell us what's really going on. Economies fluctuate, a reality people only seem to acknowledge when they does well. But the fundamentals of the economy are still good, so let's all take a breath and remember the trend is still overwhelmingly upward and the bad times are still brief and rare.

HT: Rhett Butler

Saturday, February 09, 2008

Hillary's War on Health Care

In Lewiston, Maine today Sen. Clinton referred to a time when she used her influence to get an insurance company to pay for a claimant's health care. It shouldn't take a senator to get them to do this, she argued. She called for a cap on insurance premiums yet paradoxically emphasized the importance of preventive care. Sen. Clinton desperately needs a lesson in basic economics.

Any doctor will tell you people can engage in their own preventive care through every day activities: eating healthier, exercising more, quit smoking, having regular checkups. But each of these things require initiative on the part of the patient, not the doctor, not the insurance company. But if we make it cheaper for those with insurance to ignore preventive care (by capping premiums), they won't be as interested in it.

Yet the very companies Clinton demonizes have that incentive. Non-smokers get a better insurance deal than smokers. Those in better shape get a better deal. Companies already reward those who engage in preventive care because they know such people are cheaper to care for. Despite what the Senator suggests, these firms keep their promises and they pay up often. It doesn't take a senator to get them to keep their promises. It does, however, take one to get a company to go beyond their promises and pay for another's mistakes or bad luck. With all the politicians wanting to gut these firms, it's a wonder that anyone stays in this business at all.

Thursday, February 07, 2008

Makes Cents

My little sister shared this bit from Snopes.com, the urban legend police, verifying the rumor that the cost of a penny exceeds its exchange value. A good example of how a monopoly-free coinage market would be more efficient than the Federal Mint? If pennies aren't worth the cost involved, people would just stop making them.

Wednesday, February 06, 2008

SAG Unfair!

So, first, members of the Writers' Guild of America strike. Then the Screen Actors' Guild orders all of its members to boycott the Golden Globe Awards to show support for them. Fashion bloggers all over the world bemoaned the loss: No pretty outfits to "ooh" and "ah" over. No heinous fashion crimes to gossip about. Nothing.

Now, there's rumor of a repeat with the Academy Awards. Solution? I think that the fashion and beauty industry should respond with their own strike! Revenge on the movie stars! Designers and stylists will protest all of the money lost over the last month or so.

Think about it: No free $5,000 shoes. No begging designers. No perfectly orchestrated ensembles. No perfectly done nails, makeup, and hair. No gushing fashion journalists. We'll watch as the SAG members attend next year's big events in last year's get-ups and self-applied dye jobs. Scary isn't it?

Most interesting sentence I've read today

From a book review on the Roman Empire:

The animals of Roman Italy slept in better buildings than the kings of post-Roman northern Europe.

Tuesday, February 05, 2008

Car of the Future?

I mentioned recently a $1 billion prized if you can "Achieve 150 miles per gallon of gasoline in a 3,000 lb. car, using EPA standards; without increasing the cost of a normal car more than 10%." I wonder if this guy knows about it. It looks like he is working for a different prize, although for a bit less money.

Saturday, February 02, 2008

Non-Voters Are Still Citizens

As Super Tuesday draws near, commentators of all stripes agree that only voters get to complain. It's one of the stranger get-out-the-vote strategies: if you don't support one candidate, you're not allowed to point out any the flaws of the political system.

How does this work? If a non-voter protests government corruption, their facts are not falsified and their arguments are not rendered illogical. Are such commentators suggesting we ignore intelligent points simply because someone didn't side with a candidate? Perhaps they believe that the governance of the country is only the business of those who participate regardless of who fund it or the who is affected by it. Should all their rights be ignored, along with freedom of speech? It hardly seems ethical to demand that either people support a candidate or become a second-class citizen.

Protest is a right, not a privilege; it's to be maintained, not earned. One does not need to be part of the institution to note its flaws. Indeed, it is only from the outside where the most insidious failings can be found. In some ways non-voters should garner special attention. They are so disenchanted with the choices at hand, they will refuse to participate even in the face of those who paint silent disapproval as ignorance and irrelevance.