Sunday, April 26, 2015

Wedding Industrial Complex

"It's wedding season, kid!" 

People amply agree it is out of control until it is their little princess going through the rite of passage. At that point they rush headlong into all the trite and sometimes ridiculous traditions including songs, bouquet tossing, and smashing cake in faces not to mention all the apes in tuxedos riding in limos. The nonsense starts with an arms race in diamond rings and doesn't end until the honeymoon on the International Space Station catered by the Food Network. But is it really that out of bounds? Despite going from something around $6,000 in the 1930s (inflation adjusted to 2013) to around $30,000 (or over $31,000 according to this), this growth does not outpace the growth in real GDP per capita

The importance of de gustibus non est disputandum must be invoked here. Yes, these expenses would nicely make a down payment on a home [or insert your own favorite worthy cause], but it is not your (the outsider's) decision to make. In fact one shouldn't look back with second-guessing regret about their own decision years ago to spend all that money on a wedding and reception they can scarcely remember. You are a different you than you were then. You're not better now or were better then. You are just different. And in most cases the preferences you have now are not relevant to the decisions you made then.

Sunday, April 19, 2015

Highly Linkable

Want to know how much better life is? Look to the Easter Bunny.

Water, water everywhere . . . before you get caught up in the hyperventilating panic, read this and listen to this. Thirsty for more? Try this and this and don't miss this including the block quote at the bottom from a reply to Mother Jones.

They weren't wanting for water at Woodstock as these rainmakers played on. (HT: Tyler Cowen)

Jeffrey Tucker blends up market confusion.

Arnold Kling offers some brief but vital points on sustainability properly considered under the wisdom of economics.

While we're on the subject of the environment, Ronald Bailey asks a great question with wide applicability, but in this case he focuses on global warming. I could make my thoughts on this a much longer post, but for now allow me to make four points:

  • Climate change is a fact! Well, yes. But that is not the debate of substance. No serious thinker believes the climate is static. Many in the environmental movement seem to take as a given that the climate should not change, that species should not go extinct, that man most certainly should not alter his environment . . . in extreme conflict with evidence and reason. This emanates from a status quo (change-hating) bias in opposition to the scientific viewpoint of adaptation. The serious questions are more subtle. 
  • It is important to understand what we can know versus what we most certainly cannot yet prove. Is the climate changing (evolving)? Yes. Are the actions of man partially responsible? Yes. Do we know how much? Not with any reasonable amount of precision. Can we make confident predictions of how the climate will be in the future? No, at best we can make a range of predictions resting on high sensitivity to a host of assumptions. Can we "solve" climate change? No, this kind of question is intellectually bankrupt.
  • There are many implications behind possible climate futures. The good news is we won't be simply thrust into one via time warp. We will have time to continue to discover solutions to various problems including adapting to climates different than what we have become accustomed to as opposed to the impractical luxury of always avoiding those climate changes. Much of Florida might be underwater in 100 years. It is not obvious that Florida as currently conceived is morally superior to things that might significantly affect Florida in the future--assuming we even can pinpoint what those causal things are. Regardless, the future generations will most likely be fabulously wealthier than we are today. They will have resources that we cannot possibly dream of to resolve climate changes. 
  • Beware top-down, all-powerful solutions. This is good advice almost always. Especially this is true when the problem is multifaceted and ill-defined. 
David Henderson has a very good grasp on freedom of association and its implications.

Here's an idea: take a super-powerful organization that is failing at two things and give them a third important task to fail at. Brilliant!

Megan McArdle shows two examples (one for the young and one for the old) where government is making systematic errors that WILL have colossally bad effects.


Wednesday, April 15, 2015

The Bundle Is Dead

Advertising-financed, pushed, bundled-content media is quickly dying. For newspapers there are two critical truths: the medium has changed (newsprint is now online), and (much less understood in the industry) the nature has changed (one-way production and distribution of "the news" from one to many is no longer reality). The second point is the more important. We now can have access in depth to a much, much wider array of news and it is a two-way channel, "a conversation" in the words of BuzzMachine, that is many to many many times over. Often this is in a more raw, unrefined form. And it extends much beyond news into all aspects of media entertainment--it's not just Hildy Johnson that we're losing.

Before fretting that this is all a huge net loss, remember we used to have milk delivered to our doorstep--Those were the days! That was the cost-effective method, but it was a lot more expensive than milk is today. As markets evolve, the value propositions shift. There are always tradeoffs. More of everything for less cost is not ever a near-term option. So you shouldn't be surprised when to get the same channel lineup in a cord-cut world you have to pay as much or more than you pay today. Some of us are enjoying bundles that will not for long be profitable. This media trend began in earnest for print about 15 years ago. It began for radio about 10 years ago. And it began for television about 5 years ago, and it is accelerating.

Bundling was a natural and rewarding byproduct of economies of scale--falling average fixed costs created by mass production. But we are progressing past that part of economic growth into an era dominated by falling total fixed costs--Moore's Law has crossed a tipping point in magnitude. As that unfolds, we will continue to see the withering of business models singularly reliant on a combination of high fixed costs as a barrier to entry and the consequent economies of scale in production and marketing.

Monday, March 30, 2015

Highly Linkable

Doin' the wave. (don't miss the video at the bottom)

Michael Pollan drops in to see what condition LSD's condition is in. [HT: Tyler Cowen]

Guess I'll have to dial back my snobbish detesting of the imbeciles who are doing tomatoes "wrong".

And while we're getting off our dietary high horses, Megan McArdle offers some balanced food for thought.

Accountability is an important concept. We should apply it to important institutions like the Fed; so argues Scott Sumner and George Selgin. Bash the Fed!

We end with three on immigration: First, Adam Davidson in the NYT Magazine debunks the myth of the job-stealing immigrant (HT: John Cochrane). Second, Bryan Caplan challenges the idea of immigrant idleness. Third, Arnold Kling reasonably dismisses the conservatarian argument against immigration.

Sunday, March 15, 2015

On The Boats, And On The Planes . . .

For roughly 70 years since end of World War II, we've been trying to bring America to "them". Isn't it time we gave bringing "them" to America a try?

What a better way to demonstrate the virtues and strengths of our relatively free and open society? This is my essay for Open Borders Day 2015.

We've spilled oceans of blood and mountains of treasure fighting for change in foreign lands. It seems that the best way to make the world safe for democracy is to let the most people into the world's leading democracy.

Instead of exporting The American Dream as an ideal, why not import those who wish to live the dream on very soil from which it springs? I know, I know . . . goods are imported, people are . . . well, they are largely denied a chance to voluntarily participate in a society in which they desperately want to belong. Why must that be?

Do we fear they will arrive only to be wards of the state where they take more than they provide? Then have them forfeit or delay eligibility to the programs we fear they will overuse. Or have them pay an entry fee (tax) of a substantial amount.

Do we fear they will arrive only to begin voting for policies truly "un-American"? Then let them in conditional on not being citizens; therefore, not eligible to vote. Let them stay indefinitely in this status or perhaps be eligible for citizenship after however many years we believe it takes for the assimilation we desire. Of course, I might quibble that all these fears and restrictions are themselves un-American. Nevertheless, let us not argue a side point while those who await our decision suffer.

Do we fear they will arrive only to drive down natives' wages and dilute our standard of living?
Then we must be talking about productive, working people. Now ask yourself how much better or worse off your local community would be if a substantial number of the workers exited (or were removed) from said community.

Another way to look at this is to say, "then for goodness sake let them in!" Surely they will do less economic damage to us as fully part of our national economy being both producers and consumers than if they continue to afflict us with their asymmetric warfare of only being low-cost producers from afar. Disagree with that framing of the economics? Good. You should, but perhaps not for the reason you suspect--assuming you hold the immigration-diluted-economy fear.

Eventually all production must be matched with consumption. If would-be immigrants are producing from abroad things we are buying from them, they directly or indirectly must eventually buy from us (consume our production)--accepting our IOUs is consuming our production in the future. They are already producers and consumers in our economy--they just do it inefficiently from far away. If all of this leads you to the conclusion that we should close the borders to both things as well as people to preserve our economy, I would remind you that economies don't get larger by getting smaller. The bigger the market, the more it can provide, the more specialization it can allow, the more productive and efficient and creative and prosperous it can become.

It is kind to say that our attempts at bringing America to the world has been expensive and with varying results. But why would we expect otherwise? We seem to be solving the problem in the worst possible way--we are trying to move an entire country and ethos to a person rather than move the person to the country.

Someone is knocking at the door. Do us all a favor. Open the door. Let 'em in.

Saturday, March 14, 2015

Highly Linkable

Remembering the lessons of "Swamp Thing", 3-D printing DNA can make us more of what we already are.

Flying without getting the window seat is like dieting without looking in the mirror--where's the satisfaction?

And while you're flying, make one of these your destination.

This photo set represents the good, the bad, and the ugly of humanity. Prepare yourself before clicking.

Every bridge in America. (HT: Tyler Cowen)

A great example of how in well-functioning markets outcomes satisfy along multiple dimensions.

Bryan Caplan recycles a great piece that speaks to making the perfect the enemy of the good--don't let your quest for purity extinguish your chances for progress.

Scott Sumner provides example applications of what he calls The Wittgenstein Test. This is an effective way to check one's reasoning that I plan to start employing on myself.

Arnold Kling seems to not realize that "I want this to be; therefore, it is feasible" is a logical argument for some people.

It seems that the Republicans will be running with tax-reform as a central part of their agenda for 2016--one can hope, but don't hold your breath waiting for results. To that end Sumner says Rubio-Lee is great; co-blogger David Henderson says not so fast.

Disagreements about that particular bundle of tax proposals aside, I'm sure Henderson would agree with Sumner's analysis here of why a pure wage tax equals a consumption tax and that taxing capital income is VERY BAD.

One last one from Sumner: I agree with his analysis on what Democrats really want and where reducing inequality ranks. To those who want progress against inequality, which one should though the devil is in the details, I'll give the same advice as above--continue breathing.

Sunday, March 8, 2015

WWCF: Ultra-Luxury Shopping Malls or Widespread, Pervasive Free Samples?

Which will come first?

Ultra-Luxury Shopping Malls

or

Widespread, Pervasive Free Samples

We've been hearing about the death of malls for some time.

Evolution of shopping: It used to be an expensive luxury to go shopping--imagine Christmas shopping downtown in the big city in a black and white movie. The economies of scale both in production (better machines allowing low-cost labor to be more productive) and marketing (a big umbrella venue in the form of the traditional mall) worked for decades to make shopping more and more affordable. Malls couldn't exist until these factors reached a critical threshold. Then they became prolific. But something funny happened on the way to the Ridgemont Mall stereo store. 

Now shopping is again becoming too expensive for malls to provide it but not because of resource limitations but because of better alternatives. In both cases (the pre-mall and soon post-mall eras) opportunity cost are high (remember, opportunity cost is the only economically meaningful way to look at cost). It used to be that one needed to purchase a lot and purchase wisely given one's time investment in going shopping along with the goods offered for sale being a relatively big sacrifice. In steady progression the falling cost of goods and the improved experience meant that malls could command our shopping attention because they lowered the opportunity cost. Malls generally offered a more efficient alternative; although, the entertainment value of the mall cannot be overlooked. The mall was a big tent, bundled package much like a newspaper. It had a little bit of everything and could afford to accommodate nearly every taste because of the volume. Certain high-margin sales, which translated into profitable leases for the landlords, created opportunities for many low-margin sales--the marginal cost of adding costume jewelers and Orange Julius is pretty low once the mall is built and being paid for by anchor department stores.

However, today we have reached a state in which the alternative method of shopping, ordering online, dominates the efficiency of physical shopping by many orders of magnitude.* Compounding this problem for malls is the fact that there are many alternative forms of entertainment that make hanging out at the mall seem fairly dull. Hence, today the resource limitation is the ever-growing value of our time.

Are malls dead? Only malls as we knew them and in such numbers as we knew them. I predict a resurgence of destination shopping with and because of vastly enhanced luxury experiences. The retailer or landlord who masters this will enjoy rewards some will find surprising. These may not be the one-stop shop where "this mall has everything" and "the people of today's world hang out," but they will attract our time and wallet in a way that today's shopping malls cannot. I am thinking the magnitude of these differences will approach the differences between a day at Harrod's versus a trip to Wal-Mart and the experience at Bass Pro Shops and Cabela's versus the local bait shop. 

To be clear a qualifying "luxury mall" would have the following qualities:
  1. It would be a destination unto itself not just a shopping trip--many customers would go for the experience with no expectation of buying anything.
  2. It would offer a large variety of goods rather than a single theme.
  3. It would have a significant common space independent of any particular retailer.
  4. It would make past generations of mall goers feel completely out of the shopping league.

That was a long way to go to get to the first half of this WWCF. The second half will come quicker. Goods are getting fantastically cheaper as is shipping. Our time and attention continues to be scarce--in fact, it grows more scarce as our options of what to do with our time improve. One solution for marketers is simply giving the goods they wish to sell away for trial. Instead of targeted advertising to demographically attractive households, how about targeted distribution of the goods themselves? I am thinking a $100 purchase of household items from Amazon will come with a curated box of complementary items for free. The first of the month brings an unsolicited trial supply of "things you never knew existed and cannot possibly live without." Eventually, many households will come to expect this as the primary way to discover new, perishable goods. 

Which comes first? The adaptations to the mall experience have a bit of incumbency advantage being that the mall has a more symbolic and established position in our shopping lives. However, the sampling idea may have a faster ramp up. To make the competition more determinable I'll say the creation of the fifth luxury-type mall (new construction or massive renovation of existing space) competes against the regular delivery of unsolicited free sample goods to >500,000 households. These thresholds hopefully capture an established trend rather than a one-off beta test. I predict the free sample idea to come within 10 years and just before the luxury mall idea can qualify, but I believe both will spur along the other making it a quick finish. 


*Don't be misled by statistics that show only a small effect coming from online sales. I contend that heterogeneous-consumer, high-fixed costs businesses are generally very sensitive to small decreases in demand because they rely on a diverse, network-effect customer base that is harder to understand (hence, harder to regain once it begins to slip) and they cannot scale downward effectively.