Saturday, April 19, 2014

The Truth About the Consequences of Limitations

Channelling Andy Rooney . . . Have you ever noticed how the large street signs for businesses remain long after the business it advertised has gone out of business? Sometimes the sign remains even if the building itself is destroyed? You ever notice that? You wonder why? Here's why...

Let me put the Ouija Board up before I stop trimming my eyebrows and start being insensitive and cranky. 

Now on to my answer.

There are at least two reasons at work in most communities, and they are related. First, putting up signs costs money. When a business operation ceases, the owners of the existing property probably hope to replace it with or sell it to a new business operation. That business will likely want a sign; so taking one down, which isn't free, just to put up another, also not free, is inefficient. 

Second, putting up signs costs money--no, I'm not being redundantly repetitive as I restate that again. In the second case I have in mind an artificial cost: a legal permit to put up a sign.

Because high-minded people don't like "ugly" signs that help people navigate to places they'd like to go including places they may not realize they want to go until they see the sign (but I digress), the high-minded people impose limitations on signs and billboards. This has the intended effect of reducing the signs that "blight" our view. The also has the unintended effect of encouraging signs to remain standing even after they don't serve an advertising purpose and are presumably maximizing blight including promoting false information... (Sorry, kids. That wasn't a sign for a Happy, Fun Burger. That was a sign for where a Happy, Fun Burger used to be.) 

I had been thinking about this phenomenon recently when I came across this Megan McArdle article on how limiting divorce may limit marriage in an undesirable way. She adeptly points out that limiting exit can limit entry, which means many couples will not take the generally beneficial step of formal marriage. 

We can say this about the sign permit effect: If you make signs and billboards difficult to put up, you'll make them difficult to take down as well. The unintended consequence of limiting signs coming up is that they will tend to stick around after their use life negating the purpose of the original limitation. We can generalize this to include things like marriage and employment, another issue McArdle brings up: If you make things artificially difficult, you risk discouraging the good versions and encouraging the bad versions of that thing. 

PS. One quibble with a point Megan makes in her last paragraph. She writes, "As conservatives are fond of noting, societies, like economies, are very complex organic systems. We do not understand them, much less control them with a few simple tweaks." I would say conservatives are fond of noting this when it serves their particular purposes. While libertarians recoil at the idea of tweaking society with near-ubiquitous consistency, conservatives are far too tolerant of tweaks in the "right" direction. 

Monday, April 14, 2014

How Big is the Middle?

Two recent Scott Sumner posts on inequality (this one and this one) got me thinking about this thing we like to call "middle class" as well as the two classes that bookend it, rich and poor.

The middle class has two interesting characteristics: just about everyone seems to think they themselves are in it, and no one seems to think a public policy action has a chance if it negatively affects it. As much as we might wish to dismiss these two bits of conventional wisdom, there are reasons to believe they are true. First off, they tend to be a bit self fulfilling as our self identification is a key factor to determine the groups to which we belong (you are who you think and say you are). Additionally, if most everyone thinks actions negative to the middle class will be defeated, then those actions will have a harder time finding support.

Second, most distributions that describe socioeconomic class tend to be shaped like the normal bell curve. In a standard normal distribution, just one standard deviation captures ~68% of the population. Two SD capture ~95% of the population. Just how much deviation from the mathematical average should we accept before we jump to the extreme categories truly rich and truly poor? To answer that we probably need a good definition of what are rich, middle class, and poor. Allow me to offer my suggestion.

My definition of socioeconomic class hinges on the scarcity of two good proxies for wealth: time and money. The rich are those who have no scarcity of money or of time. The poor are those who have a scarcity of both time and money. The middle class are those who have a scarcity of one or the other, but not both or neither. Obviously this casts most of American society in the middle class category. I believe that is a feature not a bug for reasons consistent with the arguments above among others.

Those in the middle class may and probable do vacillate between having money in relative surplus and having time in surplus. Consider this a bit of a middle-class trap. It takes a surge in one or the other to escape to the penthouse, but it likewise takes a dramatic turn of bad fortune to descend to poverty's doorstep. This coupled with the enormous absolute wealth America's middle class commands is a testament to just how good we have it.

To defend my definition I ask you to think about it from the standpoint of a person being asked to do something for a charity. A rich person will make time if the event is to their liking. Otherwise, they'll just write a check. A poor person has basically no options to offer help. A middle class person will tend toward doing for charity what they have the relative surplus in. Obviously as that changes over time, their charitable acts must change too. As an aside, this change presents a difficulty for the charities that grow accustom to a particular person's help. It also shows how poorly suited corporate charity initiatives are for large employee bases. A financial "suggestion" to donate to United Way or a plan for everyone to sing "If I Had a Hammer" with Habitat for Humanity are nice for the company PR ad but bad for the employees and by extension the charities they aim to support.

Sunday, April 13, 2014

Highly Linkable

I want to go to there.

We are so amazingly wealthy. Not only can we afford to use resources towards the manufacturing of superfluous jewelry; we can do so to the extent of using this magnitude of technology, craftsmanship in high focus in this case. I am not being sarcastic about affording it. Many manufacturers such as the one showcased here are truly profitable proving they improve upon the status and use of the world's resources.

The French labor unions are working hard to make sure nobody works too hard in France (or perhaps at all eventually--be careful what you ask for).

Speaking of unions and government interference in free-market labor, Ohio Republicans would rather the state subsidize one kind of non-employed workers than have them earn a wage.

Once we as a society realize that environmentalism is economics not religion, we will have advanced significantly from where we stand today. I took this article as a small, positive step in that direction.

First they came for the large fountain drinks . . . a lesson in bad scientism.

This one might be labeled fast and loose statistics applied to television, but it is pretty cool just the same. (HT: BoxScoreGeeks)

I look forward to reading Michael Lewis' Flash Boys, and I expect he'll pull some of the mystery out of high-frequency trading. But as Noah Smith skillfully points out, we just don't know if HFT is on net bad or good--too much remains in the shadows. Perhaps The Shadow knows, but the rest of us are in the dark.

As if we needed another example, Obama is a demagogue and a hypocrite. Thankfully, we have Mark Perry and Andrew Biggs to set us straight on the myth of gender-pay inequality. Unfortunately, they may have goofed on a calculation of the profit opportunity the assumed gap implies. Thankfully, we have Steven Landsburg to shore up the gap and improve still upon the argument. And finally, Megan McArdle offers thorough insight and reasoning on the issue.

Monday, April 7, 2014

It's Such a Fine Line Between Stupid and Clever

A common and easy mistake one can make is to rush to judgment on some issue and confuse stupid behavior with corrupt behavior. Either can look the same to an outside observer. The point of view one takes may simply be being shaped by the bias one brings to the situation.

To take two examples, consider Chris Christie in bridgegate and the NCAA in the student-athlete unpaid employee affair. I don't buy that Chris Christie is so dumb and unconnected as to have not known what was going on. And I also don't buy that the NCAA really believes the nonsense it espouses. But maybe that is just my bias against politicians and high-minded cronies. Still, I prefer to think that Christie is playing dumb without option (that is, he doesn't have any option but to play dumb, not that he is dumb and that's his only option) and the NCAA is crazy like a fox.

Yet, false conspiracy theories abound due to the mistake of always assuming smart people must be corrupt because the only other option is that they, smart people, acted dumbly. Maybe Obama really did believe Solyndra was a good investment and that the NSA was just playing Minesweeper ...

Bundled within all this are unintended consequences--innocence from corruption and stupidity. Case in point is what Megan McArdle brought up in her article which I linked to in yesterday's post. There can be perfectly legitimate reasons for things, especially emergent things, that have large and in some cases overwhelming side effects. Side effects that are unintended but look either stupid or cleverly corrupt.

Sunday, April 6, 2014

Highly Linkable

We're back from an unintended hiatus. Let's begin with some jokes one might overhear in the Lambda^3 house. (HT: Mungowitz)

The world is spinning fast for the NCAA. Northwestern players, et al. can unionize because they have been ruled as employees. If this stands, this potentially changes everything. No apple cart is safe from tipping. Of course, the NCAA isn't hesitating one moment to provide comic relief as events unfold. But Jeffrey Kessler may get the last laugh.

Before we leave the sports realm, the Box Score Geeks want you to remember that the NBA is not McDonald's.

Scott Sumner reflects on what he has learned from Fama and Lucas.

The state will even license con men (and women). Apparently, there is indeed no end to state licensure. I'm sorry, what did you say about the current unemployment rate? . . .

Speaking of employment problems, perhaps your potential employer is agreeing with your current employer not to hire you away. I've witnessed this type gentlemen's agreement in a couple of different situations. Megan McArdle assumes the case against it while, I believe, making more strongly the case why it is not as simple as it would seem. There are complexities here that legislation with its good intentions and unintended consequences may undesirably unravel.

Mike Munger has completed his Mungerfesto with the fifth installment. I give the overall piece a B+. Simply refining the presentation would elevate it to A-. Giving a more thorough treatment to how this is largely a second-best but necessary approach to our world's political economy problems given that the first-best approach is unrealistic (I believe this is his argument of direction versus destination) would make it A+.

I look forward to reading the new book from Max Tegmark recommended by Steven Landsburg. It is always fun to read material completely over one's head. If nothing else, it offers a humility we all should seek.

Speaking of humility . . . wow.

Sunday, March 16, 2014

WWCF: Robot Surgeons or Robot Firefighters?

Which will come first?

Autonomous Robot Surgeons


Autonomous Robot Firefighters

Here the critical consideration is autonomous. Robot-like machines today assist in surgery and firefighting. But they are guided by set routines and humans running remote controls. And while there are autonomous elements to these actions, we are not yet to the point where we need to insure Asimov's three rules are being followed. With surgery it will probably be harder to define when that line is crossed. The simple concept would be turning the power switch to "On" and telling the robot, respectively, remove this patient's appendix or go into that building to find any trapped people.

Obviously, we need a high level of comfort that the robot is up to the job. So perhaps the desire for robot autonomy in these cases comes down to figuring out where the benefits from autonomy are greatest relative to the costs. At first blush the benefit would seem highest in the somewhat random and uncontrolled environment of a fire. Likewise the cost would seem to be lowest--if the robot fails to get you out of the towering inferno where no human could have saved you anyway, the opportunity cost is nil, but not so for a robot botching your nose job. But it is not just the cost of robot error that is a factor. The surgery robot can be reused over and over. The firefighting robot may have a much shorter use life. Recent developments are taking this point into consideration.  

Critical still is what I'll term the "devil you know" factor. Surgery may not always be elective, but generally the patient does exert some discretion as to who performs it. And firefighting technology doesn't have to pass through the death-causing gauntlet that is the FDA. The discussion below this post indicates these issues well.

My guess is that we are 10-20 years away from these technologies, which actually seems close I think. I'll give a slight edge to robot firefighters largely driven by the devil you know factor slowing robot surgery down.

Wednesday, March 12, 2014

Highly Linkable

This is one of the greatest shots I've ever seen of the greatest city on Earth. It looks best perhaps on an HD tablet. Be sure to zoom in for the full effect.

If that puts you in the mood to get stuck between the moon and NYC, perhaps you'll need a place to stay.

If you're traveling to NYC by air, don't be afraid. It is a very safe way to travel. Just look at this stunning visualization of all the air travel in a single day in Europe.

Leaving NYC for now, here is a great story about inventor Alan Adler. Not only did he invent my favorite device for making phenomenal coffee (the AeroPress), but he invented my favorite flying disc (the Aerobie Flying Ring). I still have my Aerobie from the 80s. That sucker can fly and on a line. 

And you thought you'd make it through the link post without any economics homework--not so fast. John Cochrane is breaking down the case for cost-benefit analysis in financial regulation. Reading through this earns you $100 in MagnitudeMoney redeemable at the blog's gift shop (coming soonish). Alright, it's long, but it is worth it.

I'll be back soon with a WWCF and so much more. But in the mean time, catch up on your reading.