Sunday, September 29, 2013

Highly linkable

Back from bi-coastal travel with a backlog of blogs to write. Let's start with some links to get us caught up:

What is probably most amazing about this is that we don't find it as amazing as it is. (HT: Steven Landsburg)

Art Carden is demanding action "FOR THE CHILDREN" a la, Helen Lovejoy, in this first of what will perhaps become an on-going series (there have been three posts in this meme so far).

The United States is incredibly and perhaps paradoxically wealthy.

Caplan shows how Game of Thrones makes the case for pacifism.

The EA Sports proposed settlement in the on-going legal battle between college players and the NCAA cartel is a both a win for the players as well as a win for consumers as pointed out by Sports Law Blog's Rick Karcher. Probability of a strike or other work-stoppage demonstration is rising. A couple of years ago it was rumoured that a team in the NCAA March Madness tournament was planning on a demonstration including perhaps refusal to play if they made the Final Four. The team was eliminated in the Elite Eight round.

Posts like this one make me understand why I relate to Scott Sumner. Perhaps I should discount somewhat my agreement with his views on monetary policy fearing I have an unconscious bias.

Is the magnitude of U.S. gun violence evidence of civil war warranting international intervention? I think not so much. This article is hyperbolic and the arguments within fallacious I believe.  I found the biggest problem with the lumping of suicide deaths by firearms, accident deaths, and violent crime deaths. Those are quite different subjects. Attacking firearms is attacking the particular method and not the underlying conditions. Crimes aided by guns and accidents are the cost side. The benefit side, crimes reduced or prevented (including government-committed) and the joy of gun ownership, is completely ignored. But the article was thought-provoking, nonetheless.

Sunday, September 15, 2013

WWCF: Social condemnation of hunting or human combat?

Which will come first?

Social condemnation of sport hunting
Social condemnation of human combat sports

By social condemnation I mean when will we be past the point where being a hunter or being a fan of a human combat sport is acceptable in polite (general mixed) company. Yes, there is an underlying assumption here that the long-term trend is toward these ends. At some point the argument over rabbit season versus duck season will be moot--it won't ever be either. 

I think these come in degrees as they are long-term developments with stages for each. We need some ground rules on which will represent the true tipping point. First let's look at the levels we must consider.

For sport hunting I see it as a gradual outlawing by the spot an animal represents on the food/intelligence chain:
  1. Apes, monkeys, dolphins, whales, dogs, cats, . . .
  2. Elephants, lions, tigers, bears, oh my, . . . 
  3. Deer, ducks, turkeys, fish . . .
For human combat I see it as a gradual abandonment if not outlawing by the apparent brutality of the sport:
  1. Olympic-style wrestling
  2. Boxing
  3. MMA, cage fighting, etc.
We are already somewhere between 1 and 2 for sport hunting and nearly past 1 for human combat. Consider point three in this list in regard to sport hunting (this would represent a proxy as noted in the next paragraph), and consider how wrestling continues to be on the ropes. Here is my test for WWCF: when five state legislatures outside of New England pass broad legislation outlawing or highly limiting most items of the third type. We've already noted how politicians follow rather than lead. I feel it safe to say if this legislative test is passed, the overwhelming majority of voters must agree with the position. Alternatively, we might get to WWCF through other means such as the market for selling human combat evaporating. 

Note that sport hunting does not include harvesting of fish, lobster, elk, or other game for mass consumption on a secondary market. Hunting a deer and eating it, though, is sport hunting still whether or not the deer's head ends up on the wall. 

I think the key here is considering when does general public opinion pass what I will term a social acceptability threshold. At some point activities that were once common (e.g., smoking cigarettes, chewing tobacco, sexual harassment in the workplace, etc.) become beyond the pale. In the other direction eventually behavior once thought uncouth (e.g., interracial marriage, tattoos, etc.) become acceptable. I believe a large driver of this is the number of people engaging in the particular activity. 

In 1955 about 55% of men and 28% of women smoked. By 1990 the rate for men was equal to the 1955 rate for women while the rate for women had fallen about a fifth to about 23%.

For sexual harassment in the workplace note that female labor force participation may be the critical driver. Positively correlated with the LFPR trend would be female advancement in the workplace--probably with a lag due to the time it takes for the greater numbers of women to be experience-eligible for advanced positions as well as both active and institutional discrimination factors. When Don Draper was running things, the female portion of the labor force was about 33%. By 1990 it was nearly half (45%). 

Perhaps at some point I will have to awkwardly admit I do not have a tattoo. 

As for my prediction, I say that human combat has a shorter shelf life than sport hunting. This despite the fact that in the former behavior the participants are willing and compensated whereas in the latter behavior this is the case only on one side--and the other side doesn't just lose but dies. Alternative methods for population control of pest animals such as deer might accelerate the trend for outlawing sport hunting. But as we get wealthier and healthier, dangerous activities like human combat sports become more costly. This trend I believe dominates.

Thursday, September 12, 2013

Boardwalk Stillwater

This is really a story about prohibition. And prohibition is at its heart a story about economics.

When you make something illegal that is demanded, you get a black market. In this case the thing demanded is successful college football. The prohibitions are on free-market transactions that connect those providing value, college football players, and those who are consuming the value provided, college football fans. When value cannot fully be reflected between suppliers and demanders, externalities exist—in this case positive externalities meaning the market is undersupplying college football along some dimensions*. The market abhors externalities and is only prevented from erasing them by transactions costs that outweigh the benefits. Transactions costs cast shadows upon markets. When those transactions costs are high enough, the communication process revealing gains from trade can break down significantly. Hence, black-market transactions take the place of open-market transactions.

Black markets have two significant downsides: they aren’t as efficient as open, free markets and they come with baggage (technically speaking, negative unintended consequences). Notably in the second case, black markets incentivize suppliers who aren’t as sensitive to the transactions costs as the typical supplier. Additionally, black-market transactions take on forms that are both less efficient in an economic sense and less sensitive to the standards the original prohibitions attempted to uphold. To wit: Gangsters are successful because they are more willing and able to break the rules and the rules attempt to prevent what otherwise would come to be.

The local response has been predictable in nature and course but surprising in intensity. The clan has been attacked, and all members are called to unquestioned defense. I believe most of the response track has followed something similar to the stages of grieving, and I predict it will continue in such a fashion.

First has come Denial. This couldn’t be true because I don’t want it to be can be read between the lines of many responses. Some examples have been along the lines of: “The players making the accusations are disgruntled former troublemakers,” “There are no documents revealed proving these payments happened,” “One of the authors is an OU alum who dislikes OSU.”

Next will come Rationalization. I expect the group response to be along the lines of: “This happens everywhere, why single us out?” “Most of this isn’t that bad in the grand scheme of things,” “These events are taken out of context; it isn’t that bad.”

Next will come Acceptance along with Anger (I said similar to the stages of grieving, not mirroring it). Expect both some contrivance and sorrow along with a few scapegoats offered up. Eventually, though, someone significant must be to blame, and that person or group of persons will have to pay. Remember, I’m not saying what the NCAA or general public response will be. I am predicting the response from inside the community affected.

As for the response from general public opinion, the Oklahoma State brand has been badly tarnished. The labels these accusations will bring will not easily or quickly be erased. Assuming the accusations are completely true, which I do not, but I do believe they are largely and substantively true, I have already found and expect further to find interesting inconsistencies. There is what sounds bad given our mores: marijuana use along with other drugs, sexual arrangements, payment of college athletes for work performed (playing football well) and work not performed (housework, construction, etc.), and academic leniency and fraud. And then there is what does not sound so bad again given our mores including what is absent in the accusations: alcohol use, athlete exploitation, and unrealistic academic expectations. It is like our social norms on toleration and prohibition were determined by coin flip.

Take us home, Radiohead.

*There is nuance here. The aggregate supply of college football may be sufficient or excessive due to subsidies but at the same time there are specific shortages. For example, it could be that resources aren’t reaching their optimal use by being underemployed—football quality is too low at Oklahoma State and is too high elsewhere.

Wednesday, September 11, 2013

Highly linkable

One of the greatest economists ever, Ronald Coase, passed last week. He was 102 years old. He was still an active, working economist. His two great contributions, The Nature of the Firm and The Theory of Social Costs, fundamentally changed the field. In these he established the importance of transactions costs within firms and how that leads firms to be authoritarian and how assignment of property rights matters in a world of social costs when transaction costs are not zero. These are likely the first and second most cited papers in the history of economics. Here is a good summary of Coase's work and here is an appreciation written upon his passing. Both are well worth reading.

Malcolm Gladwell does an expertly crafted job in this The New Yorker piece pointing out the tension between the general social distaste for athletic differences equalized by certain means (chemical and biological therapies) and the general acceptance of athletic differences generated by natural or surgical means. The contradictions defy good reasoning.

At Advanced NFL Stats John Morgan shows how to lie with statistics. Just remember, it's not a lie if you believe it.

Sunday, September 8, 2013

WWCF: Solar power or passive heating and cooling systems?

Which will come first?

Economical solar power
Economical passive heating and cooling systems

The key here is the leading term economical. It is not enough to develop the technology--especially not in simply a proof of concept form. We are interested in when we can truly use these technologies. In some limited cases we are already there for both types, but those are indeed limited. The essence of this puzzle is when can we expect to see these things widespread including in average households. And while these are related in many cases, I don't think I'm splitting hairs here to make the distinction.

A passive heating and cooling system (or either one alone to satisfy the achievement) would be something akin to geothermal but not necessarily limited to such. The roof and attic of my house are exceptionally hot in the summer. Once the sun goes down, my attic cools a lot faster than my garage because the soffits work air through the attic accelerating cooling. There is an opportunity in this greenhouse effect. Similarly, my brother's basement has a more moderate climate (albeit more humid) than the ground floor and upstairs of his house. To qualify a passive system would rely on a minimal amount of catalytic energy to initiate a system that would use these energy properties to the effect of a desired cooling or heating result. To be clear, using my attic heat in the summer to run a generator to cool my house counts.

Solar is the great, green hope. The power the sun rains down on us continually during the day, which is obviously a big impediment to solar energy, is fountain of youth and El Dorado all rolled into one. The future society that can economically use this energy will be quite rich. It is important to note that the there is a bit of chicken and egg here as the society may be rich enough to develop the technology as much so as the technology makes that society rich.

The trends in the economics of geothermal look less favorable as compared to solar (note: the links here are not supposed to be a comprehensive look at the economic trends affecting these technologies). Geothermal capital costs are exceptionally high since the target tends to be on the large scale as opposed to the household level. In the larger consideration of all passive-type, non-solar solutions, many of those potential technologies probably fall into the category of those in need of a happy accident (we aren't specifically looking for these breakthroughs). Because solar is thought of and more so developed for the individual end user, that probably gives it the edge in this WWCF. The other leading factor is that solar is a more politically attractive cause resulting in a lot more "investment" using the best kind of money, OPM. 

My guess is that solar edges out passive systems by less than a decade, but both are 30+ years away. The standard error is large in these estimates; so I have very little confidence in my guess about solar winning. I'm sure others have a firmer grip on this, and I will follow up with new information as I discover it. 

Thursday, September 5, 2013

The value of authenticity

Business Insider has an article about a new technology, 3D printing that replicates paintings, and the implications are interesting. The article focuses a lot on worries that the technology will threaten the art market. These concerns are misplaced for at least three reasons.

First and foremost, the ability to more easily satisfy demand for fine art including "priceless" masterpieces is a feature not a bug. Certainly those who have invested in art will be worse off in direct proportion to the magnitude that this new technology offers a good substitute. But that is simply a transfer from those who own the art to those who would like to own the art. We would have that same effect if we simply took the art from the current owner and gave it to someone who wanted it. But where that property-rights violating transfer probably is utility reducing since the one who loses the art probably valued it more than the one who received the art, this technology is utility enhancing since it creates value on net. The owner still has the art. Someone who values it for less than the current owner wished to relinquish it prior to the technology's advent now has greater access to it--the price of purchasing the art is lower and hence may now be in reach. And others can enjoy the art by replication in a way not previously possible.

We would see the same effect if we stumbled upon a second Mona Lisa truly painted by Leonardo da Vinci. The Louvre might be upset, but the world would gain a second painting of artistic value. The loss in value to the first would be more than displaced by the gain of now having a second.

Second, the value of art is inherently the value of the creation, not simply the monetized utility of those who yield satisfaction from owning, viewing, possessing, etc. the art. Great art has value even if no one is around to appreciate it. The most popular band is not necessarily the band with the best musical artistry. The best food is not made and could not be made for mass consumption. There really is something to expert opinion on matters artistic rather than appeal to popularity--the so called ad populum fallacy. Unfortunately for those in the business of art and art investment, this technology serves to decouple somewhat the artistic appreciation from the financial appreciation.

Third, having more art more widespread enhances us culturally. The promise of this technology advances the football considerably. Greater availability and exposure means more minds can appreciate, admire, and aspire. The economies of scale are the initial effect. The substantial secondary effect is to deepen the market for art. Music is more widespread today than ever by orders of magnitude. At the same time music appreciation, depth, quality, and variety are greater than ever and growing at a compounding rate.

The lesson here is that sharing and duplication continues to be the future. Only the selfish suffer.

It is also interesting how this technology will serve to clarify the value of authenticity. We will now be better able to see how much the average patron really likes a particular painting versus how much the average patron really likes authenticity. We might also learn a lot about how popular certain artists and works are removed from the rarity via authenticity of the work itself--for example, how many people will be hanging Picassos in the living room? And if no one really likes to look at a particular work, does that imply a change in value? I've thought for some time that a future with machines building mastercrafted furniture, art, clothing, etc. will create a world where the truly old and authentic takes on heightened meaning. But a counter force to this is not just how much easier and cheaper it is to preserve antiques (both yesterday's and tomorrow's). It is more strongly how uninteresting authentic may become when everything old is new again.