Tuesday, December 9, 2014

Highly Linkable

A pre-New Year's Resolution I am setting is to blog A LOT more (and not just more links, but in all honesty how else would you know what to read).

I dubbed this "blog post of the year". Enjoy.

This TED talk was insightful. I really like the points she makes. And this TED talk is a great example of why we should be optimistic about the potential of medicine and technology . . . if we could only let the market do its thing . . . but I digress.

Watching this last night, I thought immediately what my heckle would be, "He's more King than you'll ever be, William!" I had read this by David Boaz the day before to give me strength.

I like Landsburg's three short essays on the Eric Garner tragedy. He brings up great points as well as giving a great economics lesson. I would like to know what happened in the missing 1:18 minutes of that video, but I doubt it would change my opinion that it was excessive, unreasonable force. Sadly, Eric Garner is but a statistic in a long line.

While I continue to be very critical of the Ferguson police and militarized police in general, this piece by Paul Cassell along with his other analysis convinced me that declining to bring charges was most likely judicially correct.

I've been waiting for this knowing it would be an epic takedown the likes of which we haven't seen since the Tri-Lams fought down the tyranny of Alpha Beta. Apparently, old grumpy was too.

I appreciate how Jerry Palm is thinking beyond the seen as he actually does some analysis regarding the Big 12's apparent "need" for a championship game in light of being passed over for a slot in the College Football Playoff. My own view is the 10-team Big 12 is much too unstable to look for quick fixes like adding a playoff game or two new (anyone will do) teams. I predict that more will change in college football than has changed already even though we have seen a lot of change. For universities strategic thinking is highly critical right now as is protecting what really matters--beware what loyalties you sacrifice for.

Lastly, glad to say I'm already doing quite a few of these backup strategies.

Wednesday, November 19, 2014

Highly Linkable - economics, et al. edition

The eagle has landed--at Jardins du Trocadéro?

We want to believe, Charles Murray included, that we can raise our children's IQ, but the case against it keeps growing.

BI has 9 more math facts people have a hard time accepting.

Speaking of mathematics, Steven Landsburg has two wonderful passages on the recent passing of math colossus Alexander Grothendieck (read here then here).

Speaking of passings, economics giant Gordon Tullock died earlier this month. Tyler Cowen had a nice, short tribute. Perhaps more than anyone, Tullock taught us that the correct comparison to market failure is government failure.

Leaving the somber topics, here is some good news. Be sure to check out the "Browse Data" tab at the top.

In more good news, the health/wealth benefits of self-driving cars have enormous promise. Not to be a Debbie Downer, but here is a predicted summary headline of the near future (the second sentence is the scary one) :
Family of four dies in fiery crash as self driving car refused to recognize and decelerate as it quickly approached a crowded intersection. Regulators question technology that saves over 30,000 lives per year. 
Continuing on a theme of counter-intuitive thinking (from one of my favorite counter-intuitive thinkers), the workers of Amazon (commendably) want foremen who push them hard.

I agree with Noah Smith that we need to rethink how economics is taught to MBAs (and so many others).

We could start with this simple, true, and so often misunderstood economic lesson from Scott Sumner.

This one on antidepressants is long, but interesting and thought provoking. (HT: Bryan Caplan)

Highly Linkable - the sports edition

Three different takes on exploitation related to sports.

The new school is exploiting the weaknesses of the old school in football. Love the quote: "We always get the chalk last."

David Berri shows how conventional wisdom exploits many basketball fans' better judgment when it comes to measuring player greatness.

DaBerri also shows us what true exploitation looks like. To those who would condone the coordinated limitation (cartelization) of workers' incomes, you're despicable!

Highly Linkable - the voting edition

I am happy to report that in the recent midterm election the results were very good. No, I don't mean who won and who lost. I am moderately favorable to that, and it was very pleasant to watch all the squirming on MSNBC. The success I refer to is the wonderfully-low voter turnout!

Perhaps we are getting wiser as a society, and more people realize there is no duty to vote.

After all, there are many good reasons not to vote.

Besides, voting is in many cases a moral wrong.

As I put it on Twitter:

Monday, November 17, 2014

Can You Buy Economic Growth?

When you pose the question in that form, the answer should be obvious. Yet time and again we see well intended but mistaken people attempting to get something for nothing. Let’s take a hypothetical example that we see in real life quite often: a city offering a business economic incentives to invest in that city.

In this example we’ll assume the following:
  1. That Company XYZ is looking to create a new research facility.
  2. That the facility will be staffed with 20 new employees (not being relocated from elsewhere in Company XYZ's organization) who will earn on average $100,000 per year in total salary and benefits after taxes. $2,000,000 in NEW JOBS!
  3. That Company XYZ will build a brand new facility on what is currently raw land well within the heart of the city in which it ultimately chooses to locate.
  4. That the facility will be built by a local construction firm resulting in a $1,000,000 net profit to the construction firm.

It has narrowed the search down to Oklahoma City and Wichita, Kansas. From Company XYZ’s point of view and analysis the cities are essentially identical, but rather than flip a coin to determine the winning city, it will conduct a game where both cities compete to attract the investment.

The game involves both city governments coming up with incentives to entice Company XYZ, which essentially means each government taking resources from its citizens to give to Company XYZ’s shareholders. The first important point to make is that economically this is at best a zero-sum game and at worst a negative-sum game—at best the economic result is a breakeven; at worst (and likely) the game destroys resources. What is gained by Company XYZ’s shareholders is lost by citizens of the “winning” city. And IF there are economic gains to being the winning city, those gains are foregone by the losing city; hence, playing the game does not change the economic pie of the total economy. It is likely a negative-sum game because playing the game is not free. It takes resources to at the very least organize an incentive plan, tax the citizens to pay for it (or seize their land), and distribute the lucre incentive package to Company XYZ.

However, being the self-centered people advocates for the game playing must believe them to be, both cities* care only about its own economic gains. Thus, each will evaluate the game outcome only on the basis of how it affects its own city’s economy. Since I live in Oklahoma City, I will present it from the perspective of “us” being OKC.

So are there economic gains to be had? Well, let’s start with the construction of the facility. There is a $1,000,000 profit to be had there. Being the winning city is worth at least $1,000,000. In terms of aggregate economic gains for each city, we don’t care that the gain will go to a single construction firm (a concentrated benefit) at the expense of taxpayers in general paying for whatever incentive package is created (a diffused cost). We might care about the distributional effects (are we taking from poorer taxpayers to give to the richer construction firm?) and we should care that the construction firm might encourage an incentive package worth more than $1,000,000 (an effect of the concentrated benefit/diffused cost**). But the economic gains imply we should spend up to $1,000,000 to get the facility.

Of course, Wichita has the same incentive. How will this play out? It is likely the incentive package will be bid up until all the gain (or more) goes back to Company XYZ—the winning incentive package will be $1,000,000 (or higher). I hear your protest, "But wait, aren't there other economic gains? What about the 20 $100,000 jobs? Giving up the $1,000,000 related to the construction seems a small price for $2,000,000 in NEW jobs." Okay, let’s look at jobs.

Remember that jobs are a means, not an end in themselves. The economic gains from a new job is illusory. If we assume the 20 employees come out of the local economy, we have to consider that they came from somewhere. The personal gain to each is the difference between what they had before and what they have now in the new job (i.e., what total wages and benefits they were expecting to make before compared to the new job’s $100,000). Even if they were unemployed, it is bad economic reasoning to assume their gain is $100,000 annually. We need to compare their next-best alternative, which surely was not zero income for life. It may have been government assistance and family support, but it was more likely the prospects of another job very similar to the $100,000 one at Company XYZ. Why is this so?

Effectively workers compete for the new jobs by offering to work for less than competing workers.*** This competitive process tends to eliminate candidates starting with those who have the most to gain from the new job. In a moderately large economy the eventual candidate pool will be those who would only slightly benefit from taking the new job. Therefore, regardless of what they were doing previously, it is highly likely that the new jobs are only marginally better for the workers who get them.

To be generous, let’s assume the new workers all come from another city—might as well assume Wichita while we’re picking on them. Don’t these new entrants into the local OKC economy represent economic gains in the form of growth? Yes, they do.**** And we can roughly approximate the gross gains to OKC's economy as being $2,000,000 per year. The net gain will be somewhat smaller as these new entrants use city resources, etc. Let’s ignore those costs, though, and just stick with the $2,000,000 figure. Again we are back to the courtship competition between the two cities where each will pay Company XYZ the equivalent of $2,000,000 per year to be the winner.

Let’s tally winners and losers:

Company XYZ (it captured all the gains to be had from the winning city)

Both cities (they each used resources campaigning; the winning city gave up all the economic gains to Company XYZ)

People in the winning city who now have new neighbors

People in the cities from which the relocating employees left

Construction firm

Employees (but only marginally)

This analysis used precise assumptions about profits and jobs that are unrealistic. In reality these facts would not be known with certainty and would almost certainly be very out of analytical reach for the city governments. They are ill-equipped and ill-incentivized to discover and estimate these facts well. Notice we didn't talk about cronyism or corruption. We ignored any fanciful, magic multipliers that would imply a $2,000,000 new job infusion would create more than $2,000,000 in economic gains. The burden of proof is on those who would refute this analysis. Wanting it to be different is not the same as it being different. Quit basing economic and political decisions on hopes, good intentions, and "great" leaders performing miracles behind the curtain.

*Here is the first flaw in this line of argument advocates make. Cities don’t have cares or opinions. Only people within cities have cares, and those cares are not uniform or identical.
**See the late Gordon Tullock and public choice economics.
*** The transition mechanism for this is indirect; so don’t get caught up in the fact that you have never witnessed it directly. It is a market-driven process largely unseen to market participants just as the price of my iPhone accounts for the use of expensive elements like praseodymium, gadolinium, and terbium even though I didn't know those even existed until reading an article about rare elements in iPhones—and I still don’t know and don’t need to know what they do.
****I am assuming the cities want (there I go again) economic growth. It is not at all clear that all members of each city desire this. In fact a lot of behavior, from zoning laws to grumpy complaining to moving just outside of the city, demonstrates that people are not that keen on economic growth.

Sunday, November 2, 2014

Highly Linkable

Catching up on some links to post--unfortunately it has been so long I have forgotten who to hat tip for some of these that deserve it. Don't miss any especially the last one.

Interesting story about the man who smuggles Trader Joe's into Canada.

The most "controversial" problems in math.

Noah Smith offers a very good article on how as clever as we now are, it is not a fine line between us and the market.

If you only want to read one article on the 2014 Economics Nobel Laureate, Jean Tirole, I would suggest you read Tyler Cowen's.

Terrorism is not something to worry much about. Efforts to minimize terrorism are (i.e., we are wasting resources on preventing terrorism). Bryan Caplan has a brief post making both points.

A potential candidate for one side of a WWCF?

Bill Gates on inequality and Thomas Piketty. As an aside, I like Gates' comment made in passing, "Piketty was nice enough to talk with me about his work on a Skype call last month." Things to do today . . . wonder if I can find time to talk to Bill Gates . . . hmm, let's see.

Ritholtz on the economic size of U.S. cities . . . there is a lot of potential economic energy in this world.

Ben Southwood explains how and why central banks cause low interest rates but not by lowering interest rates. (HT: Scott Sumner)

In case you were thinking of wasting your time this coming Tuesday, Hit & Run offers 4 reasons each that Republicans and Democrats are full of s#*t.

Megan McArdle writes about food label laws. We can have too much of anything including information, which is not the same thing as knowledge. Too much information is noise.

Also from McArdle, employers need employees to take vacations. For the employee it might be just a quest for fun, but for an employer it can be everything from a prevention of fraud to a stress-test for capabilities.

I've been making this point for a long time--Andy Schwarz does it better.

Arnold Kling asks some good questions about education.

This one is way too good to be at the bottom of a list--what you don't understand about inequality but should by Phil Birnbaum.

Thursday, October 30, 2014

The Trouble With Not Working For Profit

Arnold Kling writes:
For-profit firms ultimately are accountable to customers, while nonprofit enterprises are only accountable to donors. As a result, consumers are consistently over-charged and ill-served in sectors that are dominated by nonprofits....
The intention heuristic is to evaluate at an action, person, or institution in terms of its stated intention: if the intention is good, then it is good. Instead, we ought to evaluate outcomes. If you do that, then you will find that the small-business sector produces more socially desirable outcomes than the large nonprofit sector....
We should not elevate nonprofits to a higher pedestal than that of for-profit firms. We should stop telling our children that working for a nonprofit is in any way morally superior to working for a profit-seeking enterprise.
Read the whole thing. Over the years reading Kling has served to strengthen my position against a favored status for nonprofit organizations. While Rand gave me a moral position to question their status altogether, this is a more economically founded reasoning that I believe many more will find persuasive.

Borrowing from Kling, my view is that not-for-profit firms should only exist where for-profit firms won't but should--where there is a true, absolute positive externality and little to no internalizable benefits. If the positive externality is strongly believed to be real but there is also a profitable firm(s) operating in that space, then simply subsidize the for-profit firms to get more of what is desired.

A big problem with nonprofits is that they tend to live on past the point when they should. We seem to have an urge to keep inefficient, undesirable nonprofit entities in existence. Part of the problem is the intuitive but incorrect viewpoint that because they don't generate profits, nonprofits need extra help. But a larger part is simply that nonprofits lack the feedback mechanism that for profits have that reveals when resources are being wasted. This poor incentive structure is at work throughout these organizations from the day-to-day operations up through to the overall mission.

Another important difference is that for-profits must pay taxes while nonprofits do not pay taxes giving them an advantage that has deadweight loss implications. This has a vicious-cycle effect to it as the conferred advantage favors the firms not using resources most prudently. Since they can distribute the profits to the owners (presumably when reinvestment would not be in the owners and hence society's best interest), for-profits have built-in incentives to use resources well. Nonprofits must reinvest their profits (proceeds in excess of cost) into their operations even if this is not desirable (further investment would be wasted resources).

A firm should not be advantaged in practice or in esteem because of how it uses the fruits of its endeavors. A rose by any other name would smell as sweet--so too, a profit for any ultimate use.

Friday, October 10, 2014

Highly Linkable

Where was this kinda stuff when I was hacking my way through school NOT understanding things?

I've been saying this for a while now. As Sheldon Cooper might say, "Feel free to not follow this advice IF you want really expensive urine."

Caplan makes the case for open borders in Vox.

Steven Landsburg offers a little perspective on what economics has to offer humanity.

It is looking a little steep, but I still have over three years for my prediction to be true that 50% of the major, regional newspapers in America will not still be printing by the end of 2018. Megan McArdle gives me some hope. It takes just a few large preprint, insert advertisers to pull the plug on what is left of newspapers. Those who decry it fail to understand the blessings of what Schumpeter called creative destruction.

Well, of course, we need a government panel whose job it is to thwart the creation, expansion, or improvement of hospitals.

Bryan Caplan offers what every high school junior needs to consider about going to college.

Saturday, September 20, 2014

Werewolves of London

I am back from my unintentional hiatus which included a jaunt across the pond to London town. Some thoughts and pictures follow:
  • Definitely an amazing place worth many a return. So much to see. So much history. 
  • An international city, which is not the same thing as a foreign city by any means.
  • We left runway number nine in Houston about 6 pm and touched down about 10 am at Heathrow--a tremendous airport, very efficient, clean, accommodating, . . . oh, and it is privately owned for profit . . .  weird how that works
  • The formula for eastern-bound international travel was in effect--sleep as much as you can on the plane and then hit the ground running. Don't stop to rest much less sleep or you'll never recover. We followed this advice taking the train to Paddington Station then the Tube to Waterloo Station finished with a short walk to the hotel to check in and then get out on our way. 
  • The three of us, me plus April and 10-year-old daughter Eva, made our way across the Thames to Parliament, "Hey look kids, there's Big Ben", grabbed sandwiches "to take away" by Westminster Abbey, ate in St. James Park watching the locals, strolled up to Buckingham Palace to gaze at the nonsense that is royalty, went up The Mall to Trafalgar Square, down Whitehall to the horse guards, continued on to Churchill War Rooms, did a loop on the London Eye, then back to the hotel to freshen up before dinner. We fancied a dip in the pool and sauna for a bit before calling an evening of it. A smashing first day. 
  • Day two was a train ride to Bath. The Abbey was an incredible history lesson especially aided by the conversation with the volunteer guide. The Abbey has been in use for over a 1,000 years. Of course, if you want really old, you just have to go next door to the Roman Baths which date from 836 BC. There were many more things to see in this quaint town including the Pulteney Bridge, fine restaurants like Hall & Woodhouse where we ate, and a grocery store where we bought contraband
  • Day three was limited since that is when the CFA conference began for me. We had a slightly eventful breakfast at the hotel where the manager was "being advised that" I was to eat breakfast with the conference downstairs while my "wife and daughter are quite welcomed to enjoy breakfast here in the restaurant". This polite little charade went on for a bit until he kindly relented, made sure I knew he was fine with the decision, curtsied, and left us to be. We had just enough time to take in Harrods. This place has everything including now my facial hair--I treated myself to a royal shave in the men's department. The rest of the day was conference for me, Hyde Park and Notting Hill for the girls. 
  • Day four was solid conference for me. The girls took in Windsor Castle and environs. My evening did come with a gala event at the British Museum of Natural History. Dining under the diplodocus was interesting, but the tour getting there on the double-decker bus was just as good. 
  • Day five was Saturday. The conference ended at noon. The three of us then made our way east along the Thames to Borough Market and past the Globe Theater and then Tower Bridge, which is not London Bridge. The new London Bridge is fairly nondescript and a few blocks away. Of course, the original London Bridge is in Arizona. I am one of what must be a small number of people who have been on both bridges within a three-month span. I can report confidently that neither is falling down. We walked around the Tower of London (lines were too long to get in), but we did get to see the impressive memorial (pictured below) that is on display using ceramic poppies to represent every British or Commonwealth soldier who died in WWI. We began a slow return through the financial district with an intermediate stop at Ye Olde Cheshire Cheese, which has been going strong since it was rebuilt in 1667. Since that pub didn't have WIFI, we headed toward some other options with hopes to watch the OU-Tulsa game, which would start at 5 pm local time. Luckily, we walked right in to find it on the main screen in the third pub we came to. There I sat and watched it with the British doppelganger of Marshall from HIMYM. 
  • Day six was a car ride to, have I told you how awesome Heathrow is?, where I was treated to a very well prepared and free Bombay and tonic. Gotta love to shop at the duty free shop. 
Other thoughts:
  • I heard more cussing by strangers on the street than any trip I could remember. We walked in front of a particularly saucy group of teens in Bath (in school uniforms and all) who must have just discovered the F word. 
  • The eighties are back in Britain--at least the clothes are. Lots of stockings and hose, denim, guys who look like they are about to be saved by the bell, and sheer. Everything is sheer. 
  • They don't understand coffee. 
  • They are somewhere confusingly between automatic gratuity added and tipping voluntary. The level of service didn't seem to correlate (it wasn't noticeably better in tipping-voluntary situations) nor did it rise to a level bloody-well deserving the automatic gratuity in those situations.
  • They are a very orderly, rule-based culture and they expect you to follow the rules. For example, I noticed a distinct lack of car honking despite the congested, confusing roadways.
  • We had several English to English translation problems. In their defense many of those came from what are probably not first-language English speakers. Nevertheless, it was amusing to see how many people couldn't understand me despite us speaking the same language. American idioms like answering a waiter's question "Can I be of any further service" with "I'm good" resulted in a blank stare. At breakfast we never quite got the egg orders right despite numerous morning attempts. Related to the rule-based item above, trying to get made-to-order scrambled eggs was quickly and kindly met with a corrective reply that scrambled eggs were available on the buffet line. Problem was we didn't want those watery eggs. I restrained myself from having a full-blown "Five Easy Pieces" moment by politely asking for an omelet with nothing on it. Just an egg.
  • We flew home on a 787 Dreamliner. The window tinting technology is awesome. No window shades. Just an adjusting dial with an up and down button. There are six settings ranging from full transparency to nearly full opacity (it made broad daylight look like a moonlit night). I want this in my home. I want this in my office. No more dusting blinds or drapes.
  • We didn't get to visit an ancient race of people called the druids, which is to say we left a lot undone for another time.