Highly linkable - on high-minded steriods

I want to go to there. And while we're at it, here too.

So let's talk about misled people doing selfish things. But perhaps it is not as bad as it seems.

Here is a different example of the same kind of high-minded nonsense as above. I particularly like the quote: "It’s time for the altruists to get over themselves. We cannot afford the price of their convictions."

The high-minded Fed controls interest rates, right? Wrong.

Just how bad are the effects of rent control--one of many forms of high-minded real estate planning? Maybe to the tune of about $1 billion dollars on a $3 billion neighborhood. Dr. Evil would be proud.

Lenin was a prohibitionist!?! Shocking . . . well, no; that makes sense. He was high-minded enough to want to help every aspect of Russian life.

Speaking of turn of the 20th century garbage, apparently my Spidey Sense was correct when it picked up on something rotten in Downton. The George Will piece quoted in the previous link deserves its own link. Still a good show; let's just not romanticize how hard life was for most everyone in prior generations.

Enough negative stuff, for the moment. Let's think about a cool new business idea. While we're at it, let's think about how fabulously wealthy cool new business ideas continue to make us.

Okay, moment's over. You know, college football isn't a business; hey, stop laughing! Like all NCAA sports, it is about pure amateurism.

Sticking with sports, I think I am being consistent when I believe both (1) that Oklahoma State's Marcus Smart was potentially justified in pushing a Texas Tech fan (if the fan had been injured and I was on a jury, I would be giving heavy consideration to a self-defense argument in favor of Smart) and (2) people in public (state-owned) spaces or attending official-state-functions have wide latitude to say nearly whatever they want in the act of cheering. The First Amendment doesn't have a carve-out exemption for your or my high-minded respectfulness or proper etiquette. You don't like cussing, hatefulness, and otherwise ugly slurs coming from the crowd? Quit funding sports arenas and sports teams with taxpayer money.

When it comes to sports and high-mindedness, you don't get any higher than the Olympics. And you'd have to be high not to see through the veil of virtue and right into the corruption, state run-amok wastefulness, and panglossian denial of oppression that is the Olympic gathering. I very much like the stories of so many of the athletes. I like the history of competition. I detest the desire to pretend there hasn't been and doesn't continue to be intense nationalism (an illogical and evil conception) at the heart of The Games. Don't get me wrong. I root for Team USA, but I also root for others. These sports aren't my sports, and some aren't even sports. These are interesting curiosities that viewing for just a few moments will satisfy my interest for four years at least. But if you're really into it, great! Just don't tell me we are obligated to root for our country. And don't tell me it is "us" versus "them". And PUH-LEASE don't tell me how great The Olympics are for world peace, the economy, or NBC ratings.

Saving the best for last, Megan McArdle busts the high-minded bubble of paint-by-numbers educational excellence cum success. "Let your kids fail!" is perhaps the best advice one can give a parent.

I'm Gonna Hire You As My Latex Salesman?

I recently returned to my MBA school as a volunteer helping conduct mock interviews. The interview process at the MBA level is fairly grueling. As such, programs hope to give their graduates every advantage which primarily comes from experience. Unlike most college graduates striking out with a bachelor's degree, MBA students generally have some professional experience and in some cases quite a bit. They are hard driven people who take the process seriously.

I was happy to accommodate. But unlike the position they found themselves, highly stressed, I was totally relaxed. They had just finished a final exam that day and were now facing a potential future employer who will both grade their performance and report back to the career services staff as to how capable I feel they are as a candidate which may affect the opportunities put in front of them. I gave an honest effort to put them through the paces and provide constructive feedback. They did very well--much better than I ever did when I went through the program.

Knowing what the process was going to be, this was my fourth time to conduct mock interviews, I thought wouldn't it be fun to give the candidates absurd questions to see how they handled them. They desperately want to succeed in the interview, which means giving a convincing and meaningful answer in a confident manner. I challenged myself and some drinking buddies to come up with the most ridiculous questions we could short of the truly offensive (that would be too easy). Here is the output of our creative effort. (Note: I did not actually use any of these questions in the mock interviews, but I kind of wish I had.)


Mock Interview Questions for MBA Candidates:

Pretend you are a salesperson and convince me to purchase your soul.

Tell me what you regard as your greatest strength, so I will know how best to undermine you; tell me of your greatest fear, so I will know which I must force you to face; tell me what you cherish most, so I will know what to take from you; and tell me what you crave, so that I might deny you.*

What is the most offensive question I could ask you?

As we go through the rest of this interview I would like for you to answer each of the questions alternating between a Queen's Standard English accent and a Cockney British accent.

Solve this puzzle: There are three strands of string of varying lengths each of a different color (red, blue, and yellow) in a sealed box. You can pull only two of the strands out to compare those two for length. There is a wise man who knows the lengths of all three, but you can only ask him two questions. The questions can only be answered yes or no and he lies every fourth time he is asked a question. You are in a long line of people asking him questions about many topics and you cannot hear the other questions but you can hear the answers. You have the option to make one cut of the strand you do not pull from the box to measure making it two pieces. Describe how you can definitely determine that the red strand is longest. You have 30 seconds. Go!

Would you rather be stranded on an island where after a couple months you eventually die or wrongfully imprisoned in a maximum security facility in a foreign country where you don't speak the language and you eventually die after 20 years?

Thinking about employee morale, which is definitively more appropriate: enjoyment or pleasure?

What are three reasons Mickey Mouse would be your ideal supervisor?

Could you fire your own mother if I promised you a small bonus to do it.

Fart for me just once.

If you were to put $1 into a vending machine to purchase a $.50 item and both the item and the change dropped down to separate bins at the same time, which would you pick up first and why? I expect a thorough answer.

How big a bubble can you blow?

Describe your first haircut.

Pantomime your favorite textbook.

Give me you most fake, fake laugh.

If you were an NFL player, what are three reasons you would resent and two reasons you would not resent Major League Baseball mascots.

What is your favorite shape and why isn't your favorite shape a triangle?

Describe your ideal workday that ends with you being fired.

Give me directions to a place you've never been and don't otherwise know where it is located.

Imagine you had a twin. Now convince me I should not hire your twin.

Name seven competitive advantages of toothpicks as compared to toothfaires.

If you were to add an eighth deadly sin, what would it be?

Give my shoes a backhanded compliment.

Why didn't you bring me a gift today?



*From Darth Plagueis 

Partial List time . . .

As you may remember, I am fond of partial lists. Here below is another.

Partial list of tasks that life is too short for/my time is too valuable to use it doing these things.

• Checkbook and credit card reconciling
• Seeking out cheap gasoline
• Regularly flossing
• Watching the local TV news
• Voting
• Ironing (This includes owning dress shirts that require ironing; wrinkle-free makes ironing or paying for laundry ironing ridiculous.)
• Finishing books that have lost my interest
• Sending out Christmas cards
• Painting my house interior or exterior
• Some cooking--the complexity, skill required, or mess created imply outsourcing is the right call
• Clipping grocery coupons (any level of search costs negate the potential savings)
• Household recycling

PS. This may be the year that mowing the yard goes on this list. I am close. I enjoy it or at least I like that I do a good job on it. Summoning my inner economist . . . we'll see. 

Highly linkable

Let us begin with some stunning photographs that should help to put all of our little problems into some better perspective.

Speaking of perspective, Scott Sumner shows in this post how subtle the relationship is between interest rates and the Fed with implications for monetary policy, et al.

And Arnold Kling has a different perspective on how Austrian macroeconomics should be framed. I agree, and I think there is more agreement between Kling's macro views and Sumner's macro views than I think either of them believe.

New thinking needs to kill the TV news star according to Jeff Jarvis as his perspective has him as mad as hell about TV news. I agree, and I'm not gonna take it any more . . . see the next post.

Crime and Punishment, Law and Order, Optimal Rulebreaking

From Advanced NFL Stats:

Last week a WSJ article about the Seahawks' defensive backs claimed that they "obstruct and foul opposing receivers on practically every play."  I took a deeper look in to the numbers and found that as long as referees are reluctant to throw flags on the defense in pass coverage (as claimed in the article), holding the receiver is a very efficient defensive strategy despite the risk of being penalized.

That is from a guest post by Gary Montry, a professional applied mathematician. The article is very interesting, but gets a little deep into the statistics beyond the points I want to discuss here. Nevertheless, it is a rewarding read that I encourage including being as Brian Burke puts it, "a great refresher on conditional probabilities and Bayes' theorem".

The article made me think a little about how economic efficiency many times runs counter to our intuition and ideals when it comes to wrongdoing. Novices often get confused by the fact that the economically optimal level of pollution, crime, et al. is not at all zero. It is not that a certain level of pollution is a pure good or that some amount of crime is desirable in an absolute sense--these are still and always "bads" rather than "goods". It is just that at some point the benefit of eliminating the next (aka, marginal unit of) crime or amount of pollution is not worth the cost. At that point we tolerate the "bad". Fortunately, economic progress implies that the cost curve for fighting problems is ever declining.

Tying this back to the article, the question is how could the rules or enforcement be restructured so that this manipulation, which is arguably against the spirit as well as the letter of the law of the game, is corrected or reduced. Howard Wasserman's new paper on Football and the Infield Fly Rule, which is on my to-read list, may offer some help here. The paper is an exploration of how some football situations may imply and incite behavior that is counter to the spirit of the game and sportsmanship. I don't expect him to address this specific issue, but I do expect the analysis to offer some help in situations such as this.

The article also got me thinking about how my neighborhood's HOA is considering instituting fines for uncorrected violations of the neighborhood's covenants. At issue mainly is roof-mounted satellite dishes that are visible from the street--because we all know that things like this "obviously" lower property values by "a lot" (economic research forthcoming I'm sure). Here are some of my concerns assuming we even have the authority as an HOA to do this and assuming (a BIG assumption) the covenants are optimal as written:

• Will the punishment (fine) fit the crime? How would we know? If the fine is set so that the behavior is undoubtedly discontinued, we've probably set it too high. If the fine is always paid with no change in behavior, it is not necessarily but could be too low. In fact the optimal fine probably has some of the violations corrected and some continued. But the same people who roll their eyes when economists say we want some level of pollution to continue probably roll their eyes in uproar to think that the neighbor gets to just pay a pittance to continue their property-value-destroying activity. Mrs. Kravitz would be shocked!
• Do we set the fine equal for all violations (that is the proposal on the table)? Is parking a trailer or a boat for "long periods" in a driveway equal to satellite dishes being visible and equal to trash cans out of compliance and equal to dead trees not removed or not replaced by the right kind/size of tree etc.? It seems the answer to the second question is most likely "no", which implies the problems of getting the fines right is growing in magnitude.
• Do we really want the reputation as the neighborhood who runs around assessing fines on one another? Is that property value maximizing? The list and litany of compliance violations came out a bit during the recent HOA meeting. The implication seemed to fall on deaf ears.
• Have we given up on neighborly persuasion? Can't we all just get along? 

Rule making and rule enforcing are endeavors fraught with unintended consequences. Just desires and outcomes are almost always highly debatable and are always evolving. Simplier is usually better. Persuasion is generally preferred to force. Tread lightly. 

PS. I knew I was in trouble when the HOA asked if the trees I had planted were "free-range" or "farmed". 

Highly linkable

We live in a world that changes faster than it used to by orders of magnitude. One near-term example of this is pointed out by Mark Perry where he references a recent article about how much more turnover (demonstrated in terms of shorter average longevity) there is in the S&P 500.

I've been catching up on Bryan Caplan--now you can too:

• He does a better job than I did a while back explaining the economic concept of the value of a statistical life. 
• War, huh, good God, y'all . . . absolutely nothing.
• And now I want him to address the counter to this, which would be: I'm too busy feeding my family to fight tyranny. I suspect that is something many hide behind including those of us in the first world myself included. Think of it in terms of this: I'm too busy enjoying my status as wealthiest humans in history to allow an open borders policy that would enable many, many others to enjoy this as well.

Scott Sumner lays out a great survey on how income inequality is a normal phenomenon that confuses the issue and should be largely ignored.

One mark of an organization about to meet its demise is it opposes changes that are good compromises between what it unrealistically wants (to continue the good times it had in the past) and what it ultimately might get (utter destruction). Perhaps that is at play right now with the NCAA.

One thing Don Boudreaux will not find in the Sears Wish List of 1982 is a time machine that would lock anyone into staying in that state of the world--thank God. That would have been a very bad mistake.

Perhaps Oklahoma will ironically lead the nation out of the government sanctioning of marriage problem.

17 equations that changed humanity. One thing that stood out to me was how misapplications of these or of other equations that then led to some of these took humanity down side roads. Newton's physical equations needed refinement for relativity and quantum mechanics. The normal distribution probably doesn't apply to many areas of asset price behavior and economic change that it is today used for including from later in the list the Black Scholes pricing model. Wish I knew more math . . .

I will be rooting for the local chaps in the upcoming sportsball contest. (HT: Tyler Cowen)

School's out forever! I was just thinking about this (original story link here). I'd like to see it charted over time. I think it would show an increasing propensity to cancel school due to inclimate weather. But this is not a "we're getting soft" effect. Rather I believe it is a wealth effect. As we grow wealthier, we have both the means and the desire to avoid getting out in risky weather. Notice that this would be a cancelling effect against the opposing wealth effect that more wealth means more ability to cope with bad weather. The dominating effect in my hypothesis is akin to putting kids in bike helmets. Biking isn't inherently riskier for kids today; in fact, it is most likely less risky. But it is relatively more costly--that is, the benefit from a helmet to reduce expected cost from an accident on a bike is significantly higher than in the past and sufficiently high enough to justify the helmet expense (cost of buying and cost of wearing).

It Was My Party, And I'll Deny Its Demise If I Want To

You are in the cocktail party business. In this business you throw parties every Friday and Saturday night. There are two characteristics of this business that would have probably surprised those who originated the "industry" 150+ years ago: it is highly profitable and tends to have a natural monopoly aspect. These are self-reinforcing phenomena. Upstart competing party suppliers face strong headwinds namely because the first mover advantage is high--who wants to risk going to the new party if most of the desirable partygoers still attend the incumbent party. Further, being at the right party is everything. It is a who's who of the local scene. Being there exposes one to all the good gossip, but more importantly it is a status-establishing and trust-creating event. Business partnerships and marriages come out of the encounters the gatherings foster.

It is also not cheap to enter this business or do it well. Startup costs include building a facility large enough and entertaining enough to sustain the business, which means accommodating nearly all tastes. Running the business means straddling a delicate balance between indulgence and moderation. Know thy customer is paramount as what will fly at a San Francisco party might be verboten at a Bible Belt party.

The on-going costs are steep as well: music, drink, food, performers, etc. require scale operations done efficiently. Here good supply-chain management has strong rewards.

Thankfully the locals tend to be fairly loyal and almost defensive about their party supplier. When travelling to other cities, people tend to long for the hometown party and feel out of place navigating their way through another town's party.

The typical revenue model holds across the industry. To wit, there is a membership fee that is low on a per-party basis but is high in absolute terms because there are so many parties in a given year (~150 when the special holiday parties are considered). Added to that are the many locals from businesses to individuals who actually pay to have special privileges at the party. These range from reserving/sponsoring rooms some of which are invitation only to being the bartender in a choice corner which grants exposure to desirable partygoers to having a charismatic escort introduce them to interesting attendees and even to having people paid to spread whatever news the sponsor wants spread.

As one can imagine, this is a complex business with a deep and wide book of both accounts payable and accounts receivable. Although it is highly profitable, what actually drives the profits is poorly understood. The salespeople believe that nearly every patronage deal makes not just a profit but a high profit at that. Likewise, the regular staff including performers, waitresses, bartenders, et al. believe the membership fee covers almost all of the revenue the business brings in--this is a false belief as it is nearly the reverse that is true. Additionally, the regular staff is virtually in the dark about how profitable the business actually is suspecting it is only moderately profitable. But although it is highly profitable, nearly all of the profit is driven by just one business line--room sponsorship. What's more these sponsorships are more "bought" than "sold"; in other words there is little the sales staff can do to drive this business, but this truth is poorly understood. Sponsors tend to be large, national companies. If sponsors are interested, they buy across many markets--hopefully yours is included.

Now, the naive interpretation, that this means many business lines can be cut so as to grow the bottom line, is patently false. The party is a bundled good. As such there are many loss leaders when looked at on an individual basis. But these all tend to contribute to being in the business of cocktail parties. It ain't a party unless A, B, C, . . . X, Y, and Z are there. Even if only Z is truly profitable. So if you properly build "it" (a thriving cocktail party), profitable factor Z will come. The rest is necessary but insufficient (for business-sustaining profitability).

Everything is going great until one day someone introduces the world to commercial websites on the Internet. Most importantly businesses who currently are buying room sponsorships now have a new, much lower cost alternative--rooms not just sponsored by a firm but owned and maintained by that firm and open all the time. At the same time individuals are realizing they can have cocktail parties at their homes as well as afternoon parties in the park and get togethers in a large variety of venues that include only their select friends or associates and cater specifically to their tastes and desires. These parties are as small and limited as the industrial cocktail parties were big and open.

Suddenly the cocktail party industry is subject to competitive threats like never before. The business is eroding quickly. Because it was misunderstood, the business's adaptation is clumsy. Efforts to shrink run into threshold problems--you can only get so small until you are no longer truly in the cocktail party business. Efforts to break up into small, nimble units (small parties for select partygoers) falter because efficiencies from economies of scale are lost. Everything the business was good at is now working against adaptation. No one element of the cocktail party was the best in class. It was the whole party itself that was great--value of the whole exceeded the sum of the parts. But that synergy is now gone.

Questions like "Who will supply parties?" are misguided distractions. People will always find ways to get their party on. They don't need the cocktail party industry to do it for them. At least not anymore.

This is my analogy for the newspaper industry. Specifically, cocktail parties are newspapers; memberships are subscriptions; the entertainment and refreshments are journalism; patronage deals are advertising; the Internet is, well, the Internet. In six years as an internal financial analyst learning the business inside and out, top to bottom, I think this analogy best encapsulates the dynamics at work. One thing I learned from my own efforts was that four relatively distinct business units exhausted all the sources of profit--employment ads, national-firm ads, preprint insert ads, and color newsprint or run-of-press (ROP) ads. There was no amount of "feet on the street" that was going to drive this business. My understanding of the business's sources of profit was overwhelmingly met with dismissal. I understand why. It was an awkward thing to hear--that most of the things you as a business are doing are just means to an end. And generating and sustaining a profitable business is a complex process filled with nuance.

The things you do as a business are not necessarily the business you are in. For decades most of McDonald's profits have not been from selling hamburgers, et al. per se. They have been from the real estate fees from franchisees. Newspapers were no more in the profitably selling content business as they were in the putting ink on paper business. It was simply a necessary but insufficient (for business-sustaining profitability) part of the process. I am not saying they didn't do content well. They definitely did. They also were very efficient in running press and delivery operations and great at relationship management with businesses seeking advertising. But ultimately they were cornering the market on an invented commodity--access to eyeballs. The newspaper bundle was a great medium for a very long time with strong competitive advantages. And the culture of the industry was rightfully resistant to change--don't rock the high-profit boat. But add this to the list of advantages that became hindrances.

Journalism (more broadly defined than the very important people would like) will go on. Advertising will go on. Newsprint in some fashions will go on. But the newspaper industry is on the back nine of a decade-or-so-long process of ceasing to exist for all practical purposes.

Denying that the party is over doesn't change the fact that the guests have gone home.