Thursday, June 27, 2013

No Great Stagnation: Celebrity Escort edition

That title should get some search hits . . .

In the vein of argument against Tyler Cowen's Great Stagnation story, I offer this low-hanging fruit. Among the many, many things my grandfather kept from his many, many travels to the State Fair of Oklahoma were two new car brochures. One is for the 1983 Chevy Celebrity and the other is for the 1984 Ford Escort. These were once considered automobiles worth of use by famous and heroic investigative reporters. Today they are . . . I'll let you judge for yourself. Enjoy!

PS. I know the Tempo ≠ Escort exactly.

Tuesday, June 25, 2013

Recycling my mind

You may remember that here at MM we are always looking for ways to change our minds. In fact, it is an ongoing resolution. Well, we may have found my jewel of the Nile for this year.

I referenced this recycling conversation in my last blog post. I highly encourage you to read all the essays and followup conversation. Mike Munger makes what is for me the first rational point I've ever encountered theoretically supporting mandatory recycling programs. Recycling is an economics and business issue. It is about optimal use of resources. The problem might be that we have too little of it. Why? Because the incentives might be messed up. How? Because we want them to be. I don't mean choose them to be in some sinister, corporate-cronyism sort of way (although there is plenty of that in the larger political economy of recycling). I mean truly want them to be . . . to a degree and as an unintended consequence.

The intention is to make landfills artificially cheap by subsidizing them so that illegal and undesirable dumping is minimized. As a result the relative incentive to recycle is lower than it should be as compared to landfilling. In his response essay Steven Landsburg raises very good and strong concerns about what that actually implies for a recycling effort. Remember, I said theoretical case for mandatory recycling. It is in seeing now a theoretical defense of mandatory recycling (or preferably some less coercive means of encouraging recycling) that I have changed my mind. To that point and in his last response in "The Conversation" Munger makes a very Coasian/Hayekian point about how we need to shift the incentives (Coase would emphasize property rights here) but that he doesn't know, a la Hayek, what that solution(s) will actually be. I agree very much with that thought process.

Another very important point raised throughout the issue is how the moral crusade for recycling is quite an awful thing. It magnifies and worsens all that is bad about excessive recycling, and most mandatory recycling is excessive. A little neglected in the issue is the simplistic but problematic solution of fighting the subsidy come incentive problem with an additional subsidy--this time for recycling. That would be the road to a farm bill for waste/recycling. You think I hate mandatory recycling now . . .

Sunday, June 23, 2013

The Cape Crusaders

I've just returned from a family vacation in Cape Cod and Maine. We spent four lovely days in Cape Cod followed by two in lower-coastal Maine with Portsmouth as our base of operations. Here are some thoughts:
  • There is plenty to do on the Cape as well as plenty of ways to do nothing but relax. It is a highly recommended retreat. 
  • It is hard for an outsider to appreciate how out in the country Cape Cod can be. As we learned navigating our way back from Scituate (see "Boston detour" below), you travel from rural to rural. And New England is not the flat, open, grid-patterned world a midwesterner is used to.
  • To uncharitably generalize, Cape Cod is the Upper East Side gated by Branson . . . if the Upper East Side were in the country and the cast of Hair Spray ran Branson. This is quite unfair, but it gives a sense of how diverse some of it is. 
  • There are different traffic norms up there. I noticed stopping to let people in including stopping on a busy two-lane road to let someone make a left turn. As a result, many drivers proceed with the expectation that you will allow for this. Hence, many times cars pulled in front of us or stopped to wait for us with the drivers giving irritated looks when I didn't notice what they were expecting from me.
  • In many places there was a tolerance and incorporation of weeds (I'm saying in the small green spaces of nice businesses) that would not be acceptable in this part of the country (particularly Texas and Oklahoma).
  • But there is seemingly less tolerance for "neglect" of a property or perhaps more respect for what "neglect" a neighbor will see. Upkeep is impressive in almost all corners. In that same vein you see a bit of the delicate balance between historic devotion and modern adaptation. Political signs about proposition XYZ being "wrong" for [insert a Cape Cod town] allude to this. Of course one problem is  what if the Cape Cod style of house falls out of fashion. What if population/ownership turnover leaves these many properties significantly less desirable? 
  • On the road the exit numbers do not match the mile markers. They simply count up from the road's origin. This seems so wrong that we can call it stupid. Am I missing something? Isn't the system in the west superior in every sense? And do we really need a full mile marker sign every tenth of a mile? Is this a kickback to Big Sign? 
  • The Boston Detour aka, the Undependable Train, a lesson in good business practices, character, and adaptation. To my three-year-old son, Max, there are two things in this world: trains and not trains. On Tuesday we were to do a bit of the former by riding the Cape Cod train from Hyannis to Provincetown. This is a narrated scenic ride with one departing at 11:30 and one departing at 2:30. Since we were 30 minutes away in Chatham, the 2:30 was the better option leaving us time before to take in Sandwich (a place but we did coincidentally eat a sandwich there). Upon navigating the mess that is Hyannis, we arrived at the train depot about 1:45. The whiteboard sign out front read "TUESDAY: no trains today [frowny face]". Ever the optimist, I went inside to confirm our fear. Two people sat chatting, and it took them a minute to process that I might need some assistance. Once awoken from their unresponsiveness, they were friendly, but the answers I was given were unsatisfactory on several levels. I was told mechanical issues halted today's trains. But then I was told that I really should make reservations rather than just walk up. You see sometimes they don't have enough customers to run the trains. But then I was told there is no way to know, which I would like to being that I was coming from some distance away, because often they have a lot of walk-up traffic at the last minute. Contradictions aside, the fact remained that I had to go out to the car to tell a little boy he was not going to ride a train today. The letdown was as predictable as it was sad. We scrambled for ideas. There are lots of commuter trains in the area running to Boston. If we could connect with one, that might save the day. Thankfully smartphone technology enabled that brainstorm hope to become a reality. We headed toward Plymouth, but after further research we opted to go farther to Scituate for the best chance to make a train with time to spare. Thirty minutes later we were waiting at the station enjoying donuts with plenty of time before the 3:40 arrived. Into Boston we went. We emerged from South Station as rush hour was projecting people into it. We cleared the crowds and made our way to Quincy Market. Lobster rolls, clam chowder, and pizza recharged us. Outside we saw a familiar performance: a street performer we had seen a little over a year before in Denver. Her act, style, and looks were unmistakably the same. Time was ticking and we wanted to do a little more. We went to the North End both for me to see the fruits of the Big Expense Dig remarking how "close" the North End is to downtown now (it is amazing the effect) and to enjoy some treats from Mike's Pastry. The charm of the streets and excitement of the restaurants made me long for more time. But we didn't have it. After a moment enjoying gelato, the kids didn't want pastry, we began our trek back to South Station. Only now the overcast had turned to sprinkles which turned to drops. We had one umbrella between the four of us walking with the youngest curled under the stroller's awning. While at first we thought we could make it, the heavier rainfall was changing our minds. We ducked into a doorway for cover. By luck it was a CVS. Inside we fled for two essential items. Our unexpected detours had us in need of both an additional umbrella as well as a phone charger. Remember, outside of Boston travel is rural to rural. The combination of navigation and train planning had drained our phones. The pictures of Boston finished them off. Getting back from the train station to the main highway in the rain-filled dark was not an attractive idea sans Google Maps. At this point I was excited for the character building exercise I was about to put my kids through. We had about .7 miles to walk, much of it uphill, in significant rain, with temperatures dropping, and pushing a stroller. But they didn't even flinch. In fact they enjoyed it. My daughter protested loudly when we considered a subway ride escape. We made it to South Station. The imaginative story we concocted on the train-ride back will be the inspiration for a future post. This could have been a low-point or breaking point in the trip. Instead it was just another highlight.
  • The apparent housing irrationality: I thought I had stumbled onto an obvious business mistake. On the scenic highway 6A leading into Provincetown, there are quite a few condos for rent. In the pictures below is the group that first caught my eye. They start at $200,000 a piece. Presumably the ones with ocean access are even pricier. Zillow has them at $325M. They appear to be the size of Monopoly pieces. My conclusion of an apparent business mistake came when I spotted similar real estate about a half-mile down and farther from town that was for sale--price undisclosed. The second set of properties was in shambles. Something seemed amiss. Was this a great arbitrage opportunity? Was it simply irrationality on the part of the sellers of the highly priced condo properties, et al? Land restrictions perhaps were to blame, but that didn't quite jibe unless coupled with building/renovation restraints. Materials and labor would be perhaps $50 per square foot. These were priced at approximately $2,000 per square foot. If that is the going rate, the dilapidated property and many others are free hundred dollar bills laying in the street. How could a freely functioning market let such a disequilibrium exist? My first conclusion was a poor one--that uninformed/disengaged sellers were suffering housing crisis amnesia. My second conclusion wasn't much better--that government restrictions must be preventing supply at a drastic affect. Upon more thoughtful reflection, I think I have the missing consideration: risk. While all of the prior explanations probably were at play somewhat, we should never underestimate the effect of uncertainty. This was no disequilibrium per se. Once I had properly channeled von Mises, it became clear. Markets are only in equilibrium in textbook models. In the real world markets are constantly moving toward equilibriums taking in new information and realizing new knowledge. Pricing down the quaint, efficiency condos carried a big risk of lost profit. Investing heavily in renovating the run down properties or converting raw land was far from a sure bet as well. The next sale at $325M might be the last for a long while or it might be the start of a boom. These huge unknowns implied huge bid/ask spreads--just what we found travelling highway 6A.
  • I couldn't help but notice how recycling has gone cultish in New England. No sooner had I done so I saw this excellent Cato Unbound issue on environmentalism. More on that to come . . .
  • Portsmouth is an awesome town worth a weekend excursion for those in the area. 
  • Travelling up the shoreline in Maine was excellent. I needed a lot more time for Maine. 
  • The people of New England seem to have an appreciation for summer that is more taken for granted in the south. Their summers are beautiful. And the experience of them is a truer glimpse of nostalgic (perhaps stereotypical) Americana to me that what we see in the hot Southwest. I like it.
  • Two gripes related to the rental car. First, we rented a Chevy Traverse. The short review on it is it sucks. The longer review is that it seems to be a car built by a factory in 1985 who happened to know about some technological and style features demanded by people in 2013. Remember how Soviet warplanes always had a "strange" resemblance to their better designed American counterparts? In Soviet Russia, Chevy Traverses you. Second, do we really need severe tire damage gating around rental cars? This is the best way to prevent theft? How many times is a driver in a confusing situation (like the Manchester Airport's rental car return garage) backing into these compared to how often a thief is deterred by them? 
  • Speaking of the airport, the Stasi have a new method of winning compliance. The TSA agent who checks IDs gave my kids TSA sticker badges. I was hoping they would refuse when offered, and they did hesitate like it was a trick--smart kids. I had to bite my tongue. I found this little propaganda infuriating. Don't make my kids an advertisement for your unwarranted policies and ridiculous behavior. 
  • Let's not end on a sour note. This was a great vacation. Here are some pictures:

These are $200,000+ condos.

Wednesday, June 5, 2013

The tip of the iceberg

Should tipping be banned? That is the topic of a recent Freakonomics podcast. Listen to the whole thing.

Tipping expert Michael Lynn says if he had his druthers he would outlaw tipping. I found the reasoning for this conclusion lacking. Most of his research is based on survey data, which by its nature comes with a full shaker of salt. Of course many of the results of the survey research agrees with conventional wisdom priors, and this is a rare instance when I tend to agree with conventional wisdom. Hard to say that the surveys tell us much when they simply tell us what we already believed.

Confirmation bias is seductive. For example, we are told that physically attractive females earn better tips especially from men. What isn't so clear is if assuming they could earn more, the female servers actually deliver superior service to that target audience. Or perhaps they are take the game theory to the next level. Since the men are a sure thing, the female servers focus their attention on other patrons. The men appreciate them just the same while the other patrons get superior service. In this case tips rise from all patrons when compared to the alternative--non-attractive servers for the men and standard or inferior service for other patrons.

The major case Lynn finds against tipping is that it is de facto racially, et al. discriminatory assuming the survey results match reality. Here is where the reasoning is poor. Association with an outcome potentially undesirable, such as black waiters making less tips than white waiters when other factors besides race are supposedly held constant, is then construed as being the undesirable behavior per se. It is as if tipping were the cause of the discrimination rather than simply a correlated symptom of the problem. This is the logic of the disparate impact doctrine. Unfortunately, eliminating tipping even if it is truly used in a discriminatory manner including simply having a discriminatory result doesn't eliminate racial discrimination or disparate impact.

A bigot can exert harm in ways that may be more harmful if the tool of tipping is removed. This is true if the discrimination is done consciously (disparate treatment) or unconsciously (disparate impact). Without the ability to choose a restaurant blind to the color of the staff knowing the bigot can always tip less if the server is of an "undesirable" race (from the perspective of the bigot), the bigot may be lead to only consider restaurants that have low to no proportion of "undesirable" races employed within. In this thinking tipping is a more subtle tool for exerting bigoted behavior. Take away the tool, and the bigot is left with only more blunt means of acting out the bigotry.

Throughout the podcast there seemed to be an air of confusion about what the purpose of tipping is and a dismissiveness in the sense that a practice while long standing and ubiquitous was nevertheless illogical.

The purpose of tipping is to properly align incentives and minimize principal agent problems. It is not a gift. It is not a requirement. A tip should be understood as part of the compensation withheld until service is rendered to be delivered directly from the patron with potential variability depending on quality. It is an emergent solution to a knowledge and cooperation problem.

Some more thoughts:

  • Those eligible for tips should be those with an ability to perform above or below the standard. 
  • "They work for tips" is not adequate reasoning for how much one should tip. That is simply the definition of the service arrangement. 
  • Inflation does not imply that the rate used for a standard tip should change, say from 15% as the old norm to 18% as the new norm. That is really bad math.
  • For tipping to be effective, one must be willing to differentiate. At the least that means tipping a minimum amount (perhaps 10%) subject to upward revision if service is excellent. More desirably it means a willingness to tip zero for horrible service or negative (complaining to the manager) and a willingness to tip very well for excellent service.
  • Tipping based on a percentage of the cost of goods is generally fine, but there is a floor and ceiling on this causing the rate to become an S curve rather than a straight line. If I order a Coke at the bar while my friends drink beer, I don't simply tip 15% on the $2.00 soft drink. Likewise, an expensive dinner for my wife and I where the before-tip bill is $300 might only rate a $50 tip even if service is excellent. 

Tuesday, June 4, 2013

Highly linkable

Deer are 1.75x more deadly than terrorists. That is not the main takeaway from this presentation at the Cato Institute on risk and cost-benefit analysis, but the fact remains that deer accidents kill more people than terrorists--something to think about the next time you're enduring a TSA feel up pat down.

I thought this photo project was touching and telling. The differences were touching--the differences in wealth. The similarities were telling--the similarities in toys.

Check out these trees.

This is based on survey data, so take it with a grain of salt, but it is nevertheless pretty interesting for the dating crowd. Now if we only knew how long to wait to call a girl who is in one's dating green zone . . .