Several years back, Alex Tabarrok pointed out the mystery of real estate commission. No matter where you go, or what's being sold, real estate agents take 6% of the home's selling price (typically, 3% goes to them and 3% goes to the the agency they work for). This is bizarre: why would agents in Montana be charged the same percent as agents in California, where homes are much more expensive? Is the increase in work to sell a home really so perfectly proportional to its price? Seems unlikely.
I ran into a real estate agent on the train while traveling to New Haven, CT on Thursday and asked her about it. She insists it's not true. Even before the crash, commission's negotiable: she's done 4% or 5% for some buys and she's charged 7% for major sales (such as if selling the home requires that she rents a helicopter and takes aerial photographs). If she's selling a home and finds a buyer willing to be represented by her, she takes a smaller commission on each (though she gets more overall; 4% twice is more than 6% once). "Everything's negotiable," she says. That's reassuring.
While she's been in the business since the mid 1990s, this is just one data point. Still, with so much freedom of entry and variation across real estate markets, I'm more likely to believe that this 6% level is more urban legend than industry practice.
Saturday, February 27, 2010
Thursday, February 11, 2010
Pictures From Snowmageddon
I normally don't do personal stuff here but the pictures from the twin blizzards are pretty interesting (and should be convincing to those knowledgeable of Midwestern winters that if I complain about the snow, it's not because I've gone soft).
The first shots are from the first blizzard. In this shot, I've already dug out the back area (which took about an hour). Yes, I actually had to do some digging to confirm the car was mine (the snow was originally hiding the plate and my IHS bumper sticker).
There is, of course, some economics in this post. For one, I note a similar mystery that Bryan Caplan pointed out. For example, here's the milk section at the local supermarket I visited today (note the soy milk, way at the end, is pretty well stocked).
Bryan thinks it's strange that the brand name stuff is grabbed more than the off brand. As staple products, if people like them five times as much, why isn't there five times as many of it? Several days into the storms, I still found other strange juxtapositions.
Some of this might have been due to constant restocking but based on Caplan's observations (and others that went out right before the storm concur), it's equally possible that this is not the case.
It also highlights the problem of inflexible prices, especially during a crisis. It's probably due to price-gouging laws, which exist is most, if not all, states. Luckily when I went today, I was able to get everything I needed (but only because the nearby Wal-Mart just restocked its milk).
The first shots are from the first blizzard. In this shot, I've already dug out the back area (which took about an hour). Yes, I actually had to do some digging to confirm the car was mine (the snow was originally hiding the plate and my IHS bumper sticker).
There is, of course, some economics in this post. For one, I note a similar mystery that Bryan Caplan pointed out. For example, here's the milk section at the local supermarket I visited today (note the soy milk, way at the end, is pretty well stocked).
Bryan thinks it's strange that the brand name stuff is grabbed more than the off brand. As staple products, if people like them five times as much, why isn't there five times as many of it? Several days into the storms, I still found other strange juxtapositions.
Some of this might have been due to constant restocking but based on Caplan's observations (and others that went out right before the storm concur), it's equally possible that this is not the case.
It also highlights the problem of inflexible prices, especially during a crisis. It's probably due to price-gouging laws, which exist is most, if not all, states. Luckily when I went today, I was able to get everything I needed (but only because the nearby Wal-Mart just restocked its milk).
Friday, February 05, 2010
Ryanair: Cheap, Reliable, and Safe
Ryanair ranks in the bottom 10 of 581 companies on ethics (based on social responsibility, environmental awareness, etc), compiled by Geneva-based Covalence. Henry at Crooked Timber notes that Ryanair is unique among its low ranked brethren: it seems to covet its slimly image.
Ryanair is trying to attract well-informed consumers who will see the add-on charges beforehand and adjust for it; they end up with a very cheap airfare (it's apparently an inexpensive way to travel) and no surprises. Ill-informed consumers end up footing the bill. This is a nifty argument but I don't see it holding in equilibrium, especially when you're issuing press releases about charging for using the bathroom. Something like that is likely to get out to even the poorly informed consumer.
Ryanair is signalling safety. Since they are inexpensive, the company is showing where they get revenue from thus customers aren't afraid that they got a deal because the firm skimped on safety checks. But it seems that the safety regulations which govern air travel would put customers' mind at ease. At the same time, you could argue the fear is that they cut corners in other ways, such as paying their flight attendants very little which would result in rude service.
Ryanair is signally honesty and reliability. When you travel, there's a lot of stress so when you discover some small fee it seems like a much bigger problem than it is. By outlining all their add-on costs before you pack your bags, they're cutting out uncertainty (and the fear of uncertainty). Yeah, you have to pay to use the bathroom, but since you knew about it ahead of time, it doesn't seem as bad as if you discovered it after drinking six glasses of water. Since everyone knows companies spin the truth in commercials, blatantly not spinning it sends a strong signal that "this is all you will have to deal with."
What I like about this last argument is that it bears a striking resemblance to Domino's "sorry we had horrible pizza but now it's good" campaign. Some commentators laugh at it, replaying old commercials touting the flavor of Domino's "cardboard." But no one really cares; every pizza chain says their pizza is great. But Domino's admitting a lot of people didn't like and now we're fixing it speaks volumes. Down right honesty is often an under appreciated business practice.
The company prides itself not only on being perceived as having no social conscience, but as having a reputation for screwing its customers as systematically and mercilessly as possible. Which other airline’s CEO would announce that he wanted to charge passengers to use the toilet as a publicity stunt? Clearly, Ryanair thinks that this reputation is a money spinner for them (it is quite deliberately cultivated), and they have indeed made quite a lot of money. But why (if they are right) would a reputation for shafting your customers be a commercial asset for a consumer-oriented business in a relatively competitive sector? The standard economic account doesn’t seem to provide much insight. Help me out here.There are many sloppy explanations, but three good ones stand out.
Ryanair is trying to attract well-informed consumers who will see the add-on charges beforehand and adjust for it; they end up with a very cheap airfare (it's apparently an inexpensive way to travel) and no surprises. Ill-informed consumers end up footing the bill. This is a nifty argument but I don't see it holding in equilibrium, especially when you're issuing press releases about charging for using the bathroom. Something like that is likely to get out to even the poorly informed consumer.
Ryanair is signalling safety. Since they are inexpensive, the company is showing where they get revenue from thus customers aren't afraid that they got a deal because the firm skimped on safety checks. But it seems that the safety regulations which govern air travel would put customers' mind at ease. At the same time, you could argue the fear is that they cut corners in other ways, such as paying their flight attendants very little which would result in rude service.
Ryanair is signally honesty and reliability. When you travel, there's a lot of stress so when you discover some small fee it seems like a much bigger problem than it is. By outlining all their add-on costs before you pack your bags, they're cutting out uncertainty (and the fear of uncertainty). Yeah, you have to pay to use the bathroom, but since you knew about it ahead of time, it doesn't seem as bad as if you discovered it after drinking six glasses of water. Since everyone knows companies spin the truth in commercials, blatantly not spinning it sends a strong signal that "this is all you will have to deal with."
What I like about this last argument is that it bears a striking resemblance to Domino's "sorry we had horrible pizza but now it's good" campaign. Some commentators laugh at it, replaying old commercials touting the flavor of Domino's "cardboard." But no one really cares; every pizza chain says their pizza is great. But Domino's admitting a lot of people didn't like and now we're fixing it speaks volumes. Down right honesty is often an under appreciated business practice.
Thursday, February 04, 2010
The Myth of Magic Medicare
Insurance companies are greedy. Everything its CEOs work for is to make as much profit as possible. They are hesitant to do anything that increases their revenues, and anxious to adopt anything which decreases their costs. Until today, I didn't think anyone would disagree with this until tonight, when Congressman Anthony Weiner went on The Daily Show.
Congressman Weiner argues that Medicare should be expanded to all citizens, citing its very low administration costs (about 3% of its total payouts) as a way to save money. Insurance companies, by contrast, have about 12% overhead.
What magic has Medicare mastered to keep its overhead so low, magic that continues to allude our greedy insurance companies? It's not economies of scale. Medicare has about 45 million customers, while AIG covers 74 million. Even if you adjust for the fact that AIG covers people worldwide while Medicare only works within the US, such a massive difference in overhead is hard to explain with just economies of scale. After you measure your customers in the millions, those efficiency gains from volume tend to disappear. Otherwise we'd have far fewer insurance companies (I counted 31 health insurance companies in the US from this Wikipedia list with 27 confirmed as currently active). It's hard to think of another argument which could possibly justify this vast difference in overhead between the public and private sectors. I wonder how Rep. Weiner explains it; perhaps insurance companies don't care as much about profits as we thought. Or government is far more cut throat than anyone possibly imagined. Or maybe the folks at Medicare has some sort of genie/manager.
Now you could argue that Medicare doesn't have to worry about paying for advertisers nor state taxes. That's a lot better but 9 percentage points for TV commercials and taxes is hard to believe. There are two other explanations which justify this difference and neither of them help Weiner's argument.
First, Medicare covers only those over 65. Since the elderly, on average, need more medical assistance than the rest of us, the payouts in relation to administration costs drastically increase. It's not that Medicare has some secret which keeps overhead low; its payouts are just biased upward.
Second, Medicare spends very little money investigating the claims it accepts. And medical insurance fraud is a big problem. Just because you're spending less money, doesn't mean it's actually saving money.
Congressman Weiner argues that Medicare should be expanded to all citizens, citing its very low administration costs (about 3% of its total payouts) as a way to save money. Insurance companies, by contrast, have about 12% overhead.
What magic has Medicare mastered to keep its overhead so low, magic that continues to allude our greedy insurance companies? It's not economies of scale. Medicare has about 45 million customers, while AIG covers 74 million. Even if you adjust for the fact that AIG covers people worldwide while Medicare only works within the US, such a massive difference in overhead is hard to explain with just economies of scale. After you measure your customers in the millions, those efficiency gains from volume tend to disappear. Otherwise we'd have far fewer insurance companies (I counted 31 health insurance companies in the US from this Wikipedia list with 27 confirmed as currently active). It's hard to think of another argument which could possibly justify this vast difference in overhead between the public and private sectors. I wonder how Rep. Weiner explains it; perhaps insurance companies don't care as much about profits as we thought. Or government is far more cut throat than anyone possibly imagined. Or maybe the folks at Medicare has some sort of genie/manager.
Now you could argue that Medicare doesn't have to worry about paying for advertisers nor state taxes. That's a lot better but 9 percentage points for TV commercials and taxes is hard to believe. There are two other explanations which justify this difference and neither of them help Weiner's argument.
First, Medicare covers only those over 65. Since the elderly, on average, need more medical assistance than the rest of us, the payouts in relation to administration costs drastically increase. It's not that Medicare has some secret which keeps overhead low; its payouts are just biased upward.
Second, Medicare spends very little money investigating the claims it accepts. And medical insurance fraud is a big problem. Just because you're spending less money, doesn't mean it's actually saving money.
Monday, February 01, 2010
How the Middleman Can Save You Money
Tonight's Daily Show featured Austan Goolsbee of the Council of Economic Advisers to the President. He argued in favor of the government taking over lending to students and cutting the middleman (various financial intermediaries) to save money. Cutting the middleman is a time-honored way to try to boost efficiency but it doesn't always work. Middlemen exist for a reason. In this case, they provide specialized knowledge and an incentive for efficiency since they keep the profits and suffer the losses (most of the time anyway).
This isn't simply a matter of buying your mattress directly from the factory (though, even there the middleman probably has better customer relations). Lending money is hard because because you have to avoid the twin pitfalls of those who can't pay you back and those who won't pay you back (aka adverse selection and moral hazard). People still default on loans despite various inventive mechanisms banks developed over the years to avoid these pitfalls; mistakes are easy to commit.
But it's even easier when you're not fighting for your life. No matter how well trained a government employee is, they are much less likely to get fired for approving a lot of loans which later default than for an employee at a for-profit company.
It still might be cheaper for the government to provide this service directly (though I'm skeptical). But it's not simply a matter of pocketing the middleman's cut.
This isn't simply a matter of buying your mattress directly from the factory (though, even there the middleman probably has better customer relations). Lending money is hard because because you have to avoid the twin pitfalls of those who can't pay you back and those who won't pay you back (aka adverse selection and moral hazard). People still default on loans despite various inventive mechanisms banks developed over the years to avoid these pitfalls; mistakes are easy to commit.
But it's even easier when you're not fighting for your life. No matter how well trained a government employee is, they are much less likely to get fired for approving a lot of loans which later default than for an employee at a for-profit company.
It still might be cheaper for the government to provide this service directly (though I'm skeptical). But it's not simply a matter of pocketing the middleman's cut.
Tuesday, January 12, 2010
The Meaning of Wealth
While defending China's long term prospects, Robert Fogel paints a bleak picture for Europe.
GDP is a useful proxy for wealth but its dangerous to forget it's just a proxy. This idea stretches all the way to Adam Smith (as so many great ideas do). He noted that all jobs are relativity equal if take the large picture (including educational requirements, work hours, effort, stress, independence, and of course pay). Natural differences in the nature of work will be balanced by the size of the salary. (Later called compensating wage differentials.) Professors have great freedom and jobs, but don't get paid that much given their educational background. CEOs get paid a lot but have to work long hours. Some people prefer the salary and become management; some prefer flexibility in their time and become professors.
Like GDP, we use salary as a rough estimate of how successful we are. But, when pressed, we know it's more than that. Not all of us wish to work the 80-100 hour weeks of a CEO, stock broker, or high-powered lawyer. Nor do all of us wish to go to school for years and years, only to have all that work result in less than six figures a year (save rare exceptions).
On the macro scale, you can say it's different. More spending means more jobs and no matter how bohemian you enjoy your lifestyle, you still need to eat. If the people prefer time, rather than stuff, then their economy is in a bad position; you can't sell time. But you can; by making life easier for your customers, you effectively sell time. This is what the services industry is all about. While I agree that Europe's shrinking population is a problem, the preferences of its people is not.
In another way, Europe's culture confounds economists. Citizens of Europe's wealthy countries are not working longer hours to make higher salaries and accumulate more goods. Rather, European culture continues to prize long vacations, early retirements, and shorter work weeks over acquiring more stuff, at least in comparison to many other developed countries, such as the United States...A promenade in the Jardin du Luxembourg, as opposed to a trip to Walmart for a flat-screen TV, won't help the European Union's GDP growth.No doubt that the laws requiring long vacations and strong job security has had unintended consequences for the countries' economy and employment rates. But stuff (GDP) is not wealth. It is a source of wealth, but it is not wealth. The closest thing to wealth is happiness (a notoriously difficult thing to measure). Its people's priority over non-pecuniary benefits is not confounding at all.
GDP is a useful proxy for wealth but its dangerous to forget it's just a proxy. This idea stretches all the way to Adam Smith (as so many great ideas do). He noted that all jobs are relativity equal if take the large picture (including educational requirements, work hours, effort, stress, independence, and of course pay). Natural differences in the nature of work will be balanced by the size of the salary. (Later called compensating wage differentials.) Professors have great freedom and jobs, but don't get paid that much given their educational background. CEOs get paid a lot but have to work long hours. Some people prefer the salary and become management; some prefer flexibility in their time and become professors.
Like GDP, we use salary as a rough estimate of how successful we are. But, when pressed, we know it's more than that. Not all of us wish to work the 80-100 hour weeks of a CEO, stock broker, or high-powered lawyer. Nor do all of us wish to go to school for years and years, only to have all that work result in less than six figures a year (save rare exceptions).
On the macro scale, you can say it's different. More spending means more jobs and no matter how bohemian you enjoy your lifestyle, you still need to eat. If the people prefer time, rather than stuff, then their economy is in a bad position; you can't sell time. But you can; by making life easier for your customers, you effectively sell time. This is what the services industry is all about. While I agree that Europe's shrinking population is a problem, the preferences of its people is not.
Sunday, January 03, 2010
Not Quite a Wage Control
The Heritage Foundation issued this summary of what the Senate Health Care bill will change when. Some of these summaries looks suspiciously harsh (such as the one claiming the bill won't allow insurance companies to revoke the insurance from someone who committed fraud). Another, less obviously exaggerated, one caught my eye: In 2012, "Health insurance company employees may not be paid more than $500,000 per year."
I was curious to see how this was worded so I checked the Senate bill where it's listed under Section 9014. The section is strangely worded (of course), making references to deductions and the Section 162 of the 1986 tax code. After consulting that, I got an idea what this clause was actually about.
For one, the change doesn't occur until 2013, not 2012, but that's a minor point. Moreover, the "payment cap" isn't really a cap. It just means that if you make more than half a million a year and work for health insurance provider, you can't take any deductions relating to trade or business expenses (as allowed by the 1986 reform). I don't know how big of an impact this will have on health insurance employees making more than $500,000 a year as I have no idea what their business deductions are, but it's not a wage control.
I was curious to see how this was worded so I checked the Senate bill where it's listed under Section 9014. The section is strangely worded (of course), making references to deductions and the Section 162 of the 1986 tax code. After consulting that, I got an idea what this clause was actually about.
For one, the change doesn't occur until 2013, not 2012, but that's a minor point. Moreover, the "payment cap" isn't really a cap. It just means that if you make more than half a million a year and work for health insurance provider, you can't take any deductions relating to trade or business expenses (as allowed by the 1986 reform). I don't know how big of an impact this will have on health insurance employees making more than $500,000 a year as I have no idea what their business deductions are, but it's not a wage control.
Friday, January 01, 2010
Public Domain Day
It's Public Domain Day, the day when hundreds of authors' works enter the public domain. Here's a complete list. Some highlights:
-William Butler Yeats, who won the Nobel Prize in literature in 1923
-Sigmund Freud, famed psychologist
-Zane Grey, a prolific Old West novelist
-Luis Philip Senarens, one of the most prolific dime novelists of his day
-Henry Salt, credited as the first writer who argued that animals should have rights
-Zona Gale, Pulitzer Prize-winning playwright
-Siney Howard, a playwright and screen writer who won a posthumous Academy Award for the screenplay of Gone With the Wind
-William Butler Yeats, who won the Nobel Prize in literature in 1923
-Sigmund Freud, famed psychologist
-Zane Grey, a prolific Old West novelist
-Luis Philip Senarens, one of the most prolific dime novelists of his day
-Henry Salt, credited as the first writer who argued that animals should have rights
-Zona Gale, Pulitzer Prize-winning playwright
-Siney Howard, a playwright and screen writer who won a posthumous Academy Award for the screenplay of Gone With the Wind
Tuesday, December 29, 2009
Another Reason to Buy a House
Megan McArdle points out some reasons to buy a home--such as avoiding costs to moving and having the freedom to customize your space--but she forget a key issue: avoiding horrible landlords. While buying a house comes with the risk of getting a lemon, landlords can be the same way. They can be behind on repairs, rude, or lax on the law (which can cause many problems for you later). In one place I lived, a surprise investigation revealed that one of the rooms was not legally occupied since it lacked the proper amount of window space. A huge headache followed, eventually resulting in the occupant leaving the house.
There's something to be said for removing another person from the upkeep equation. While you lose the chance of professional specialization, you also remove the possibility of negligence which often accompanies a new (or even experienced) landlord. Many of these problems go away when you own your own home (sure, the plumbing still needs fixed, but now you're depending on the plumber instead of depending on the landlord who's depending on the plumber).
There's something to be said for removing another person from the upkeep equation. While you lose the chance of professional specialization, you also remove the possibility of negligence which often accompanies a new (or even experienced) landlord. Many of these problems go away when you own your own home (sure, the plumbing still needs fixed, but now you're depending on the plumber instead of depending on the landlord who's depending on the plumber).
Sunday, December 27, 2009
Santa the Slaver
In countless Christmas movies, we get the impression that the elves of Santa's workshop are happy, joyful people who do all their work for fun. It's part of the myth: who would want toys from a man who forces elfin creatures to do his bidding only to then give away all of their hard work to strangers and force them to start all over? The more you think about Santa, the more I realize those elves are his slaves.
(1) Santa has no income. Maybe all those fake Santas which crowd the malls bump up part of their paycheck to the big man (think of it like a franchise), but that wouldn't be enough to cover the cost of materials, let alone labor.
(2) There's no way that the North Pole is the elves' natural habitat. They don't have the fur needed comfortable survive there. Typically elves live in the forest. Now, obviously, Santa wants to be isolated from the humans which is why he lives in the North Pole. But there are plenty of other places he could be, places more hospitable for his elves (here's a map of the world based on how long it takes to get to a major city). The Amazon is quite isolated, as is the Sahara Desert. The Himalayas are warmer than the North Pole if you don't go too high. All are viable candidates. But Santa picked one of the most inhospitable places on the planet for one reason: to keep the elves indoors. If he was in the Amazon, in a place they were comfortable in, they might run outside instead of working. Not only did Santa kidnap them, he's trapped them in a work camp.
(3) But if they like to work, then it's ok, right? Well, if they like to work, why do they need Santa? Why not just stay in their natural habitat and send toys out into the world? Hauling cargo is work, too. Yes, they won't have Santa's magical powers to deliver them all on Christmas Eve, but so what? Unless you're talking about something that could spoil or die (which accounts for a tiny fraction of presents), they can be delivered weeks or even months in advance. It's more likely that after Santa kidnapped them, he lied, claiming the presents had to come out on the 24th and only the 24th, thus "justifying" the kidnapping.
(4) But what about all the shots from movies and television with the happy elves? For one, that's fantasy and you're mistaking what's fake for what's real. (Grow up, seriously.) Besides, Santa's an all powerful being (which brings up the question of why he doesn't make the toys himself): he brain-washes them.
(1) Santa has no income. Maybe all those fake Santas which crowd the malls bump up part of their paycheck to the big man (think of it like a franchise), but that wouldn't be enough to cover the cost of materials, let alone labor.
(2) There's no way that the North Pole is the elves' natural habitat. They don't have the fur needed comfortable survive there. Typically elves live in the forest. Now, obviously, Santa wants to be isolated from the humans which is why he lives in the North Pole. But there are plenty of other places he could be, places more hospitable for his elves (here's a map of the world based on how long it takes to get to a major city). The Amazon is quite isolated, as is the Sahara Desert. The Himalayas are warmer than the North Pole if you don't go too high. All are viable candidates. But Santa picked one of the most inhospitable places on the planet for one reason: to keep the elves indoors. If he was in the Amazon, in a place they were comfortable in, they might run outside instead of working. Not only did Santa kidnap them, he's trapped them in a work camp.
(3) But if they like to work, then it's ok, right? Well, if they like to work, why do they need Santa? Why not just stay in their natural habitat and send toys out into the world? Hauling cargo is work, too. Yes, they won't have Santa's magical powers to deliver them all on Christmas Eve, but so what? Unless you're talking about something that could spoil or die (which accounts for a tiny fraction of presents), they can be delivered weeks or even months in advance. It's more likely that after Santa kidnapped them, he lied, claiming the presents had to come out on the 24th and only the 24th, thus "justifying" the kidnapping.
(4) But what about all the shots from movies and television with the happy elves? For one, that's fantasy and you're mistaking what's fake for what's real. (Grow up, seriously.) Besides, Santa's an all powerful being (which brings up the question of why he doesn't make the toys himself): he brain-washes them.
An Item From Santa's Lap
Paul Krugman applauds the Senate health care bill for, among other things, forcing insurance companies to cover patients with pre-existing conditions. This has been a long standing point of reform: why should a family be forced to cover the expenses of a medical problem when they had no role to play in the development of the condition. It's not as if they're smokers suffering from lung cancer. And many families can't afford the very expensive treatments that come with such conditions. But insurance companies can and so, the argument goes, they should pay.
For one, I'm not sure they can, but there's a deeper point. A pre-existing condition is tragic, doubly so if burdened on a family who cannot afford to properly address the issue. But that does not translate into forcing someone else to shoulder the burden, whether the target is insurance companies, hospitals, or the U.S. government (though the last is most justified since, in theory, it works for all of us). Some believe that doesn't matter; covering such individuals is the right thing to do. But that misses the larger picture. Even if they could afford it and even if they could continue to afford it for the foreseeable future, it would be ethically wrong to force one group to shoulder the problems of another group. Yes, I know we do this a lot already, but that's hardly grounds to keep doing it.
Here's an analogy. Some people are born ugly, or stupid, or socially awkward. Such people have difficulty getting dates or maintaining friendship. While befriending a person with such a pre-existing condition just to be nice would be seen as an admirable act of kindness, no one would agree to a policy which forces people to befriend or date such individuals. It would be seen as unethical, even if the individual is not able to "afford" such loneliness (i.e. they are suicidal).
It's all well an good to ask for things but you have to think about where they come from.
For one, I'm not sure they can, but there's a deeper point. A pre-existing condition is tragic, doubly so if burdened on a family who cannot afford to properly address the issue. But that does not translate into forcing someone else to shoulder the burden, whether the target is insurance companies, hospitals, or the U.S. government (though the last is most justified since, in theory, it works for all of us). Some believe that doesn't matter; covering such individuals is the right thing to do. But that misses the larger picture. Even if they could afford it and even if they could continue to afford it for the foreseeable future, it would be ethically wrong to force one group to shoulder the problems of another group. Yes, I know we do this a lot already, but that's hardly grounds to keep doing it.
Here's an analogy. Some people are born ugly, or stupid, or socially awkward. Such people have difficulty getting dates or maintaining friendship. While befriending a person with such a pre-existing condition just to be nice would be seen as an admirable act of kindness, no one would agree to a policy which forces people to befriend or date such individuals. It would be seen as unethical, even if the individual is not able to "afford" such loneliness (i.e. they are suicidal).
It's all well an good to ask for things but you have to think about where they come from.
Monday, December 14, 2009
Patent Number 5,547,091
When I shop for toothpaste, I prefer the caps with the flip top so I don't have to remove the cap when I brush my teeth. I usually forget to look since I tend to forgot to buy it in the first place but today I remembered. In my search for the flip-top cap, I discovered only one brand, Colgate, has them. Moments after I thought that was strange, I suspected the answer. A search at the PTO website confirmed my suspicions. It's patent number is 5,547,091. Here's the abstract:
A closure for a container having a dispensing nozzle include a central aperture to receive the nozzle. In one embodiment, the nozzle extends through the aperture and projects upwardly from the base cap. The base cap further includes a top wall inclined with respect to the central axis of the base cap to assist in dispensing of the contents of the container. A cap lid is hinged to the base cap by a snap hinge assembly.The patent was issued on August 20, 1996. Thus, on 2016, the "who didn't replace the cap on the toothpaste" arguments will evolve into "who didn't shut the toothpaste" arguments. And we'll all be happier for it.
Sunday, December 13, 2009
Darwin Zero
I found this post via Megan McArdle concerning the data surrounding climate change in the wake of "climategate." It's an interesting post but it's long. It's a case study on a temperature record station, Darwin Zero, and how climatologists adjust the raw data to something that is consistent across the past century. There's good reason to have adjustments (changes in station location, instruments, time of temperature recording, etc) but the adjustments to Darwin Zero are very...strange.
From the author:
This doesn't mean that all adjustments are suspect or that climatologists are lying or even that these are falsifications (though you can bet I'd like to know the reasoning behind those adjustments). And over the years, I've become more sympathetic of climatologists' claims (decentralized researchers all saying about the same thing is a good litmus test for truth). But it does highlight the need for publicly available raw data and comprehensive explanations for all the adjustments. If the scientists really want to convince people, transparency is key.
From the author:
Yikes again, double yikes! What on earth justifies that adjustment? How can they do that? We have five different records covering Darwin from 1941 on. They all agree almost exactly. Why adjust them at all? They’ve just added a huge artificial totally imaginary trend to the last half of the raw data! Now it looks like the IPCC diagram in Figure 1, all right … but a six degree per century trend? And in the shape of a regular stepped pyramid climbing to heaven? What’s up with that?
This doesn't mean that all adjustments are suspect or that climatologists are lying or even that these are falsifications (though you can bet I'd like to know the reasoning behind those adjustments). And over the years, I've become more sympathetic of climatologists' claims (decentralized researchers all saying about the same thing is a good litmus test for truth). But it does highlight the need for publicly available raw data and comprehensive explanations for all the adjustments. If the scientists really want to convince people, transparency is key.
Monday, December 07, 2009
Ten Red Balloons
DARPA's awarding $40,000 to the first person or team to find ten red balloons which were spread all over the country on December 5th. The goal is to learn how people organized in large teams use computers to socially network. What software will we see? Will there be spying? Attempts to misinform other teams? I'm not clear how they will measure all they want to measure, but the prospects look very interesting.
December 5th was the 40th anniversary of Arpanet, the Internet's precursor.
HT: Alex Tabarrok
Update: Here are the results.
December 5th was the 40th anniversary of Arpanet, the Internet's precursor.
HT: Alex Tabarrok
Update: Here are the results.
Sunday, November 29, 2009
The Paradox of Happiness
Disciplines are always most interesting when they cross with other disciplines and the economics of happiness is no exception. Talking to some of my friends the other day (one versed in anthropology and another in psychology), we noted how much people value a sense of genuine accomplishment and is probably why, in some cases, wealthy people aren't as happy as less wealthy people. (Setting aside the lower mortality rates in poorer societies.)
For example, the people of the indigenous tribe that must work every day to get a meal are going to be happier (assuming they are successful) than the middle management who, while isn't concerned about getting his next meal, has no sense of accomplishment and feels as though his life is wasted. (This, by the way, is how many mid-life crises take root.) Indeed, people who have the option to leave their tribe in favor of modern life tend not to take it (I know this is very common among the Amish, and I'm sure a similar story can be told for other groups).
However, I argue that the wealthier, accomplished person will be happier than the less wealthy accomplished person ("accomplished" being defined as the standard of the society...for example, getting a book published in the wealthier society versus bringing home a kill in the less wealthy one). Some expressed doubt to the claim, so here's my reasoning.
First definitions: p (probability of achieving an accomplishment); S (happiness from achieving survival); s (happiness from surviving); A (happiness from achieving something else); and a (happiness from that something else). This draws the distinction, for example, between the sense of achievement from a book published and the royalties received from getting a book published. Note I'm also assuming it's equally likely to achieve something in a rich society and in a poorer society. This is primarily to make the math easier.
A person would be indifferent between two societies if:
p(S+s) = p(A+a)+s,
where the right-handed side is the wealthier society (they get the benefits of survival without trying) and the left-handed side is the indigenous society. Simplifying reveals:
S-A = a+((1-p)/p)s
In other words, there must be a larger sense of accomplishment from surviving than from other accomplishments to make a person indifferent. To make a person prefer the less wealthy societies (which I strongly doubt), the premium (S-A) would have to be greater than a+((1-p)/p)s, which I doubt since both values are positive and a might well be quite large.
Now consider the scenario when p=1, or when you are comparing people in each society who have made achievements (either in survival or in something else). The equation becomes:
S-A = a
If we think of such individuals in each society as sharing common traits (intelligence, drive, etc), then this means that more capable people are less likely to prefer modern society compared to less capable people--it all depends on the additional satisfaction derived from achieving survival versus achieving something else. While I imagine this premium to be quite small, the fact that this (simple) model predicts "stronger" people are more likely to prefer an environment that is more dangerous seems to be quite the paradox.
For example, the people of the indigenous tribe that must work every day to get a meal are going to be happier (assuming they are successful) than the middle management who, while isn't concerned about getting his next meal, has no sense of accomplishment and feels as though his life is wasted. (This, by the way, is how many mid-life crises take root.) Indeed, people who have the option to leave their tribe in favor of modern life tend not to take it (I know this is very common among the Amish, and I'm sure a similar story can be told for other groups).
However, I argue that the wealthier, accomplished person will be happier than the less wealthy accomplished person ("accomplished" being defined as the standard of the society...for example, getting a book published in the wealthier society versus bringing home a kill in the less wealthy one). Some expressed doubt to the claim, so here's my reasoning.
First definitions: p (probability of achieving an accomplishment); S (happiness from achieving survival); s (happiness from surviving); A (happiness from achieving something else); and a (happiness from that something else). This draws the distinction, for example, between the sense of achievement from a book published and the royalties received from getting a book published. Note I'm also assuming it's equally likely to achieve something in a rich society and in a poorer society. This is primarily to make the math easier.
A person would be indifferent between two societies if:
where the right-handed side is the wealthier society (they get the benefits of survival without trying) and the left-handed side is the indigenous society. Simplifying reveals:
In other words, there must be a larger sense of accomplishment from surviving than from other accomplishments to make a person indifferent. To make a person prefer the less wealthy societies (which I strongly doubt), the premium (S-A) would have to be greater than a+((1-p)/p)s, which I doubt since both values are positive and a might well be quite large.
Now consider the scenario when p=1, or when you are comparing people in each society who have made achievements (either in survival or in something else). The equation becomes:
If we think of such individuals in each society as sharing common traits (intelligence, drive, etc), then this means that more capable people are less likely to prefer modern society compared to less capable people--it all depends on the additional satisfaction derived from achieving survival versus achieving something else. While I imagine this premium to be quite small, the fact that this (simple) model predicts "stronger" people are more likely to prefer an environment that is more dangerous seems to be quite the paradox.
Saturday, November 21, 2009
The Value of the Original
The Original of Laura, the last novel of Vladimir Nabokov, was published last week. Normally, a new novel doesn't get a lot of media attention but this one's a little different: Nabokov didn't want it to be published. In fact, he wanted it burned.
It was in his last will and testament that all unfinished works of his should be destroyed. When Nabokov died in 1977, his family didn't carry out this wish. They were emotionally distraught and procrastinated the decision, putting the work in a bank vault. For thirty years, a battle of what The Times called "the demands of the literary world versus the posthumous rights of an author over his art" worn on. Eventually, the literary world won...sort of. The novel, apparently, isn't very good (at least in the state it's in).
According to the author's son, destroying the manuscript was something he never seriously considered. Such an attitude makes me nervous; not only did his son fail to follow an aspect of his last will and testament (as did his wife, who died in 1991), it has the potential to shrink the number of good novels.
Nabokov, like many writers, clearly didn't want works published that fail to live up their standards: even after death (the idea that you leave a part of yourself behind after you die is, I'm sure, a motivation for many writers). Suppose the standard attitude of posthumous publishing becomes "ignore last requests and publish anyway." I guarantee you, some aging authors will be less willing to even start a novel in fear that they won't be able to complete it before their death, even if it turns out they could. This can cost the literary world something very valuable. While suffering from tuberculosis, and certainly concerned he might die soon, Orwell worked on 1984, which was only published a year before his death. Mark Twain, Jane Austen, Charles Dickens, and Jules Verne (to name a few) also published several works near the end of their lives.
It was in his last will and testament that all unfinished works of his should be destroyed. When Nabokov died in 1977, his family didn't carry out this wish. They were emotionally distraught and procrastinated the decision, putting the work in a bank vault. For thirty years, a battle of what The Times called "the demands of the literary world versus the posthumous rights of an author over his art" worn on. Eventually, the literary world won...sort of. The novel, apparently, isn't very good (at least in the state it's in).
According to the author's son, destroying the manuscript was something he never seriously considered. Such an attitude makes me nervous; not only did his son fail to follow an aspect of his last will and testament (as did his wife, who died in 1991), it has the potential to shrink the number of good novels.
Nabokov, like many writers, clearly didn't want works published that fail to live up their standards: even after death (the idea that you leave a part of yourself behind after you die is, I'm sure, a motivation for many writers). Suppose the standard attitude of posthumous publishing becomes "ignore last requests and publish anyway." I guarantee you, some aging authors will be less willing to even start a novel in fear that they won't be able to complete it before their death, even if it turns out they could. This can cost the literary world something very valuable. While suffering from tuberculosis, and certainly concerned he might die soon, Orwell worked on 1984, which was only published a year before his death. Mark Twain, Jane Austen, Charles Dickens, and Jules Verne (to name a few) also published several works near the end of their lives.
Thursday, November 19, 2009
A Quick Logic Lesson
Earlier today, I published a post exploring the idea of America exiling its prisoners instead of incarcerating them (specifically to Madagascar). I don't seriously endorse the idea but given the burden our prison system is under, I thought it was interesting to explore. However, I decided that it needs to be thought about more carefully so I unpublished it and saved it for a later date.
In the brief time it was up, a commentator wrote (and I'm paraphrasing because I forgot to copy/paste) that Hitler wanted to send Jews to Madagascar (I think we chose the same island) and he/she hoped I wasn't planning something like that. That doesn't work.
The ethical problem with Hitler's plan was not that he wanted to exile a group from a country. It is that he wanted to treat a group of people differently from everyone else on immaterial grounds (ie, religion). Ignoring the nature of the crime for the moment, treating prisoners differently from non-prisoners is not unethical; we do it everyday when we send them to jail. The Hitler analogy is false.
In the brief time it was up, a commentator wrote (and I'm paraphrasing because I forgot to copy/paste) that Hitler wanted to send Jews to Madagascar (I think we chose the same island) and he/she hoped I wasn't planning something like that. That doesn't work.
The ethical problem with Hitler's plan was not that he wanted to exile a group from a country. It is that he wanted to treat a group of people differently from everyone else on immaterial grounds (ie, religion). Ignoring the nature of the crime for the moment, treating prisoners differently from non-prisoners is not unethical; we do it everyday when we send them to jail. The Hitler analogy is false.
Sunday, November 08, 2009
Tea Party History
With the "Tea Party protests" so popular among some Americans as a way to defy big government, a history lesson from one of my favorite books seems appropriate.
Most believe that the original Boston Tea Party was a protest against taxes on tea. In reality, the Americans weren't drinking that much British tea; local merchants have been boycotting it for five years, relying on smuggled Dutch tea instead. So, the British decided to remove some of the taxes on British tea in an attempt to make it competitive with Dutch tea.
Loyal British merchants would be granted the right to sell this cheap tea, effectively running the American merchants out of business. That's what the tea party was all about and why those merchants threw their competition into the ocean. (Granted, this would grant a monopoly on British tea to Loyalists, but the problem with monopolies is they increase price and restrict outputs which wouldn't be an issue here, given it has to compete with Dutch tea.) The famed party wasn't a protest of tariffs, it was a protest for a lack of tariffs, as bootleggers supported Prohibition and drug dealers benefit from the DEA.
The Tea Party wasn't celebrated in the colonies, either. The systematic destruction of private property highlighted Massachusetts' reputation as a place for warmongers and Benjamin Franklin demanded that the protesters pay full restitution to the owners of the destroyed tea.
As much as I empathize with the concerns of the modern protesters, this probably isn't the thing you want to be referencing to get your point across.
Most believe that the original Boston Tea Party was a protest against taxes on tea. In reality, the Americans weren't drinking that much British tea; local merchants have been boycotting it for five years, relying on smuggled Dutch tea instead. So, the British decided to remove some of the taxes on British tea in an attempt to make it competitive with Dutch tea.
Loyal British merchants would be granted the right to sell this cheap tea, effectively running the American merchants out of business. That's what the tea party was all about and why those merchants threw their competition into the ocean. (Granted, this would grant a monopoly on British tea to Loyalists, but the problem with monopolies is they increase price and restrict outputs which wouldn't be an issue here, given it has to compete with Dutch tea.) The famed party wasn't a protest of tariffs, it was a protest for a lack of tariffs, as bootleggers supported Prohibition and drug dealers benefit from the DEA.
The Tea Party wasn't celebrated in the colonies, either. The systematic destruction of private property highlighted Massachusetts' reputation as a place for warmongers and Benjamin Franklin demanded that the protesters pay full restitution to the owners of the destroyed tea.
As much as I empathize with the concerns of the modern protesters, this probably isn't the thing you want to be referencing to get your point across.
Sunday, October 25, 2009
Singles in DC
DC is apparently packed with single men and women, according to the Pew Research Center. With a national average of 52% (men) and 48% (women) married, the District sports a mere 28% (men) and 23% (women) married. The next lowest numbers are 47% (men) for Alaska and 43% (women) for Rhode Island. (These numbers are for the 15 and older crowd.)
One commentator believes this is due to the unique demographics of DC: very high black population (less likely to marry) and very high Democratic population (more likely to marry later). Another points to the 8.2% gay population as the culprit (along with the marry later point). These are certainly factors, but there's a much more obvious reason that I think carries the bulk of the explanation.
Married people tend to want to start families which generally means a bigger home and unless there's also a big raise, that means moving to the suburbs. In most states, moving to the suburbs can but not always means changing your state. But in DC, it always means leaving DC and heading to Maryland or Virgina (or West Virgina). So the states include both the city proper and the suburbs but DC includes only the city proper. Big difference.
One commentator believes this is due to the unique demographics of DC: very high black population (less likely to marry) and very high Democratic population (more likely to marry later). Another points to the 8.2% gay population as the culprit (along with the marry later point). These are certainly factors, but there's a much more obvious reason that I think carries the bulk of the explanation.
Married people tend to want to start families which generally means a bigger home and unless there's also a big raise, that means moving to the suburbs. In most states, moving to the suburbs can but not always means changing your state. But in DC, it always means leaving DC and heading to Maryland or Virgina (or West Virgina). So the states include both the city proper and the suburbs but DC includes only the city proper. Big difference.
Friday, October 09, 2009
The Economics of the Movie Ticket
A couple of days ago, Nicholas Tabarrok noted the strange economics of the film industry at MR. Movie theaters do not charge lower prices for movies that are unpopular. Similarly, highly anticipated movies have the same ticket price as movies that are proven flops. Why is that?
If the movie theater charged different prices for movies, it would need to hire individual ticket takers for multiple theater entrances at the multiplex--one for each theater that's seating at the time (otherwise people would just buy the cheapest ticket). This is a drastic increase in costs both in payment to the employees and to management, who must now organize a complex system of employees.
Instead, the theater simply adjusts how long a movie is being shown. Good movies are shown for a while, bad movies leave the theater quickly (making room for theaters showing the good movie). It's not as direct as individual pricing, but it's much more cost effective.
If the movie theater charged different prices for movies, it would need to hire individual ticket takers for multiple theater entrances at the multiplex--one for each theater that's seating at the time (otherwise people would just buy the cheapest ticket). This is a drastic increase in costs both in payment to the employees and to management, who must now organize a complex system of employees.
Instead, the theater simply adjusts how long a movie is being shown. Good movies are shown for a while, bad movies leave the theater quickly (making room for theaters showing the good movie). It's not as direct as individual pricing, but it's much more cost effective.
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