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We start with a cool invention: the invisible bicycle helmet.

James Altucher bundles some great life advice in this collection of lessons learned while day trading.

Grantland has two right down the middle: one on maximum overdrive coming to baseball and another on the coach who never punts (a theory after my own heart). While never is probably not the optimal strategy, as the authors mention, the current state is sub optimal from a winning perspective.

As long as we're bucking conventional wisdom, here is something to put in your pipe: popular hysteria about crack and meth is just that--hysteria. Mark Perry shows the way pointing towards an article in the NYT by friend of free thinking John Tierney.

But I thought we should just say no; that drugs = total life destruction was a fact. Well, facts aren't always so factual. Here is a completely different example from Russ Roberts where he shows Simpson's Paradox. One would think that if every sub group of a larger group saw a decline in a measured factor that the larger group itself must exhibit a decline as well. Doh! Not necessarily and importantly not in this case of supposed income inequality.

They're about to start paying you to live in Switzerland--and paying well: ~$2,000 per month just for calling the land of cheese and chocolate home. I like the idea of a negative income tax. I like the idea of largely replacing the social safety net with fixed cash transfers. I think it is a third or perhaps even second-best solution. But $2,000 per month? We've gone from supplement to substitution really fast. Sure it might spur entrepreneurship, but do we really want someone leading the life of Riley starting a business, using capital? Oh, we don't.

One thing all those Swiss might start doing is going to college. But what is the value of that anyway? Here is one version of the debate from the Bleeding Heart Libertarians. Here is the same but Muppetized.

Finally, in most situations where a dispute from within a fraternal order (and one that is not like the typical world) is made public, there is more there than what at first meets the eye. Such is the case with the Miami Dolphin's locker room hubbub suggests Russ Roberts.

WWCF: Computerless companies or Flipped companies?

Which will come first?

 Most major U.S. corporations do not have company-owned personal computers 

or
Most major U.S. corporations have "flipped" the work week

Here is some explanation. My prediction is that at some point in the future many firms will find it unnecessary and undesirable to have the firm own and maintain computer hardware for individual employees. Instead the firm will just have some company servers hosting software/apps/websites that employees can tap into to do their job using a computer device(s) they own themselves. With technology ownership comes the burdens of keeping the technology running and safe. And increasingly employees use the technology for personal purposes blurring the lines between who that machine really serves. In fact many if not most are already practicing BYOD(evice) through smart phones and tablets. It seems it is just a matter of time before a company's technological connection with employees is more like the current connection between companies and customers. 

For this half of the WWCF to come first, we need to see a majority of major U.S. corporations adopt this policy on near company-wide scales. And this might be close at hand. IBM is offering advice on the idea. And reading between the lines of a few studies suggests we all but may already have a winner. These seem premature. I think for this to be fully achieved we would need a bit of a cultural change--employees will need to see not having their own computer/device(s) used as the way to connect to the firm and do their jobs as an antiquated concept. We are not quite there yet.

As for a "flipped" work week, I am referring to the idea that workers have fewer days in the office than days out of the office. This might mean workers would do the bulk of their work away from the office, or this might mean just a few highly concentrated days of uninterrupted work surrounded by multiple leisure days. In any event less time spent in the office leads economist David Levinson to believe we are nearing the end of auto traffic (and while we're off on this tangent, here is Reihan Salam's take on Levinson's vision). But back to the point. While I agree this indeed is a trend, I'm not sure Levinson's quick timeline is accurate. All the more so since a majority of major U.S. corporations is the benchmark. 

Getting there in either case means fighting against culture, bureaucracy, and conventional wisdom not the least of which includes that which has worked should not be hastily disregarded. In my estimate these inertial forces push back our winner until after 2033 (20 years from today). And I think BYOD will be the winner. Both the firm and the employee will tend to like this outcome. As for being at the office, it's an increasingly nice prison. And from the firm's perspective, the power of "being there" is real and difficult to replace. You can ask the gardener to bring his own shovel, but you can't ask him to weed from home.

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The more I read about pirates the less I think the Jack Sparrow saga is based on true events. (HT: Tyler Cowen)

What do you mean the cost of health care is going up?!?

But surely there aren't simple, compromise solutions that while they may not be first best, are second best and far and away better than the Obamamess?

Finally, here is a great summary of what market "efficiency" is really all about. One of many money quotes:

Efficiency implies that professional managers should do no better than monkeys with darts. This prediction too bears out in the data. It too could have come out the other way. It should have come out the other way! In any other field of human endeavor, seasoned professionals systematically outperform amateurs.

We need more teacher pay inequality

A recent conversation with a relative who I am quite sure is a very good teacher got me thinking about the conventional wisdom regarding teacher pay--specifically, that teachers are underpaid.

While I feel strongly about this particular teacher's abilities, I do not feel as strongly that she is "underpaid" despite being in a position of relative low pay when considering hours and effort that go into her job. Likewise, I don't think she herself necessarily believes she is "underpaid", though that would be a common and understandable instinctive feeling. If I have to guess, I would say she is indeed underpaid, but as you will see that is not a guess I can arrive at lightly nor can I have much confidence in it.

Here are my thoughts:

A status of being low paid is only meaningful in a relative sense. However, a status of underpaid is also a relative status, but the two are not congruent. Underpaid is a deeper sense of relative--kind of a second derivative in a manner of thinking. To be low paid simply means having a lower absolute level of income in some comparison. To make that comparison more meaningful one should seek a good apples-to-apples arrangement. Obviously comparing a $40,000 a year job to a 10,000 Euro per month job doesn't tell us much. We get more information in comparing a $20 per statutory hour job with a $30 per statutory hour job, but we don't get a whole lot more. Most professionals including many teachers put in time beyond the standard work day.

Suppose we could get a standardized denominator of effort hours (we can't just use hours because an hour spent scanning people in at the local gym is not the same as an hour spent fighting a fire). How meaningful would that comparison of pay then be? The answer is "a lot more meaningful but still significantly short of deep economic significance". Certainly that information would help guide a lot of career decisions, but it still doesn't tell us if someone is underpaid. To get that comparison, we need to know if a particular person should make more. The person should make more (technically speaking, command a greater share of society's resources) if the value of her teaching (resource she creates) is worth more than the total pay she receives (resources she uses). Our best bet to know this answer (and this is a loose use of the term know since we actually can only hope to have a really good guess) is through a market process--and you thought I was going to say government omniscience.

Notice that the market answer is usually the standard to judge the righteousness of outcomes not because we define optimal resource allocation as the outcome the market creates but because we believe (with really good reason) that under the right conditions the market will elicit optimal resource allocations. Those right conditions are when markets are deep, cheap, and esteemed (lots of knowledgeable buyers and sellers with low transactions costs where property rights are firm, clear, and respected). We need a substantial degree of all of these to describe a market as a free market. The free market is not God. The free market is our way of discovering how a benevolent, omniscient dictator (a god-like super creature) would allocate resources.

But the education market is not conducted under very favorable conditions to elicit good allocations. Transactions costs are high and knowledge is expensive. Government separates buyer and seller insulating sellers from the discipline the market would otherwise provide*. We can probably expect a few outcomes from this as it relates to teacher pay. Pay differentials will become compressed where bad teachers are overpaid and good teachers are underpaid. Resource allocation communication and decisions will be further polluted pushing good teachers out of the profession or encouraging them to shirk while inducing bad teachers to enter the profession.

Because of this, I am led to believe that my relative is indeed likely underpaid (I have a lot of inside information about how good a teacher she is). However, (and now isn't this ironic?) for the same reason I believe she is underpaid, I cannot have much confidence in this judgment. That is at the heart of the problem with heavily government-influenced markets--they obfuscate knowledge inhibiting the communication process the market wants to provide.


*Nature abhors a vacuum and the market abhors bad resource allocation. In this sense the market naturally works toward being a free market. It is because of this positive feedback loop, a virtuous cycle, that markets are so powerfully good.

Did we really expect Big Bird to be good at running the world's largest health insurer?

In 2009 in the midst of an economic and financial crisis, the President of the United States chose to direct his administration's efforts toward solving the problems of health insurance as he saw them. For some reason he believed massively increasing third-party payment (a condition that we have no evidence and no theory to suggest should work) was the key solution along with price controls, production quotas, and government-provided alternatives. There were lots of reasons to believe this would not work out well, but the generally overlooked one was the world's largest mega-conglomerate has a horrible track record of getting from intentions to effective and efficient execution.

The virtues of Obama's intentions were well disputed. Arguments were also strongly and sufficiently offered against the effect these policy changes would bring about. But few, Megan McArdle the exception, predicted the websites wouldn't work. Yet we shouldn't be surprised. All reasonable philosophies of political economy leave room for the failure of democratic governance. Coming from a libertarian, free-market philosophy, I believe these schemes are destined to fail because government lacks the proper incentives. But others coming from a progressive philosophy should expect that sinister Republicans, conservatives, tea-partiers, et al. will thwart the efforts of the enlightened. It only becomes utopian nonsense when after the supposed thwarting the defense of failure is "It would have worked if it weren't for you meddling kids."

The website failure is a demonstrative microcosm for why Obamacare is doomed. These aren't glitches, this is a canary in the coal mine.

A challenge to Landsburg

Steven Landsburg is an economist I greatly admire. The depth and uniqueness of his mind and viewpoint are quite amazing. So it is with trepidation that I challenge an argument he has made several times before and has touched on in another guise yet again. I expect it is likely that I am not refuting Landsburg. More likely I am misunderstanding the argument and hence not addressing it or I'm making a weak argument--a weakness I cannot see.

The main argument is about wasteful competition. The first appearance I can recall is here. Followed by another here. Then came this very interesting question about taxing novelists for the same reason we may want to tax carbon. He followed the post with another for clarification.

There are multiple arguments being made in these posts, and I agree substantially with many. Where I disagree is in this concept of wasteful competition--that the additional athlete, football team, novelist, etc. is more socially costly than beneficial. If I have it correctly, the argument runs as follows:

1. The resources devoted to a marginal addition in output for good X can be substantial.
2. In many cases the output of good X before the marginal increase was already substantial.
3. The gain from the marginal addition of good X is slight.
4. Therefore, we have wasted resources on the margin since the gain does not justify the cost. There is a market failure.

I think there is more going on here. On the surface he appears to lack an appreciation for quality. It is as if at the extreme (perhaps an unfair reductio ad absurdum) he believes mediocrity is the optimum. Yes, that is an unfair characterization, but it is getting toward my point. Looking deeply I do not think we can be so linear in how we think about marginal improvement. It is multidimensional and part of a larger purpose.

The resources that flow into a given endeavor only look out of proportion to the marginal output when we narrowly define the output. The nth cereal on the aisle may not add much to the quality of my breakfast, but it may be a natural and unavoidable byproduct of the magnificent process that brings me cheap cereals (and so much more) on demand and basically without fail.

Consider also that although cost curves decline as quantity produced increases while economies of scale persist, only usually does quantity produced mirror the progression of time. It doesn't have to be the case that quantity and time are interchangeable as the X-axis. So while it may seem wasteful in isolation to see yet another novel published, that may be part of the cost of the first novel.

Finally, innovation often comes in unexpected surges emerging from dull periods of slight and arguably inefficient activity. The iPod was not just one more MP3 player. ESPN was not just one more way to see the already-watched sports.

As for competition and the fear it may become wasteful, be scared. You can't help that. But don't be afraid. We have to strive on for better and higher possibilities.

PS. Here is how I answered the novelist taxation question.

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As politicians seemingly fiddle as we begin to dance on the ceiling, it is important to realize it is going to be okay. This actually is business as usual--it is just not usually so obviously unproductive. Wasting resources (through an unfettered process of spending money) apparently looks to the media and much of the public as productive progress. It is not. Arguing about the terms under which the money spending process will continue apparently does not look as productive. It is not that different.

Hey, guy who sells ethanol. Is it a good idea to create and foster a monopolistic environment in which you can operate?

Ethanol guy: "Yes!"

Everybody else: "Hell no, are you kidding!?!"

Casey Mulligan makes a strong case about just how high and damaging tax rates are today including as a result of Obamacare. Grumpy says he may be underestimating how bad it is.

Here is the long (and excellent) and the short on why Fama was an excellent choice to share the Noble Memorial Prize in Economics as announced today. Shiller and Hansen are also fine choices in my opinion. It is just that I believe Fama casts a big longer and a bit stronger shadow.