After 36 years, Shoup's writings -- usually found in obscure journals -- can be reduced to a single question: What if the free and abundant parking drivers crave is about the worst thing for the life of cities? That sounds like a prescription for having the door slammed in your face; Shoup knows this too well. Parking makes people nuts. "I truly believe that when men and women think about parking, their mental capacity reverts to the reptilian cortex of the brain," he says. "How to get food, ritual display, territorial dominance -- all these things are part of parking, and we've assigned it to the most primitive part of the brain that makes snap fight-or-flight decisions. Our mental capacities just bottom out when we talk about parking."
At this volume, and with the impermanence of the sandwich, it only makes sense for McDonald's to treat the sandwich as a sort of arbitrage strategy: at both ends of the product pipeline, you have a good being traded at such large volume that we might as well forget that one end of the pipeline is hogs and corn and the other end is a sandwich. McDonald's likely doesn't think in these terms, and neither should you.
Oh and speaking of pipelines:
And for its part, the McRib makes a mockery of this whole terribly labor-intensive system of barbecue, turning it into a capital-intensive one. The patty is assembled by machinery probably babysat by some lone sadsack, and it is shipped to distribution centers by black-beauty-addicted truckers, to be shipped again to franchises by different truckers, to be assembled at the point of sale by someone who McDonald's corporate hopes can soon be replaced by a robot, and paid for using some form of electronic payment that will eventually render the cashier obsolete.
There is no skilled labor involved anywhere along the McRib's Dickensian journey from hog to tray, and certainly no regional variety, except for the binary sort -- Yes, the McRib is available/No, it is not -- that McDonald's uses to promote the product. And while it hasn't replaced barbecue, it does make a mockery of it.
An analysis by complex systems theorists at the Swiss Federal Institute of Technology reveals that a "super-entity" of just 147 companies that controls 40% of the wealth among the world's transnational corporations. And even worse is how tightly integrated these companies are...large pieces tightly coupled is a recipe for economic disaster.
John Driffill of the University of London, a macroeconomics expert, says the value of the analysis is not just to see if a small number of people controls the global economy, but rather its insights into economic stability.
Concentration of power is not good or bad in itself, says the Zurich team, but the core's tight interconnections could be. As the world learned in 2008, such networks are unstable. "If one [company] suffers distress," says Glattfelder, "this propagates."
"It's disconcerting to see how connected things really are," agrees George Sugihara of the Scripps Institution of Oceanography in La Jolla, California, a complex systems expert who has advised Deutsche Bank.
Researchers have found that lower income individuals become more opposed to programs designed to help them if people they perceive as below them will also be helped. I don't have a comment on this except, COMEON!
Instead of opposing redistribution because people expect to make it to the top of the economic ladder, the authors of the new paper argue that people don't like to be at the bottom. One paradoxical consequence of this "last-place aversion" is that some poor people may be vociferously opposed to the kinds of policies that would actually raise their own income a bit but that might also push those who are poorer than them into comparable or higher positions. The authors ran a series of experiments where students were randomly allotted sums of money, separated by $1, and informed about the "income distribution" that resulted. They were then given another $2, which they could give either to the person directly above or below them in the distribution.
It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of a basket of goods and services around the world. At market exchange rates, a burger is 44% cheaper in China than in America. In other words, the raw Big Mac index suggests that the yuan is 44% undervalued against the dollar. But we have long warned that cheap burgers in China do not prove that the yuan is massively undervalued. Average prices should be lower in poor countries than in rich ones because labour costs are lower. The chart above shows a strong positive relationship between the dollar price of a Big Mac and GDP per person.
The size of male organ is found to have an inverse U-shaped relationship with the level of GDP in 1985. It can alone explain over 15% of the variation in GDP. The GDP maximizing size is around 13.5 centimetres, and a collapse in economic development is identified as the size of male organ exceeds 16 centimetres.
That "U-shaped" curve...it looks like something flaccid-ish, innit? (via @atenni)
At a Boston ice cream shop, the cost of ice cream cone has risen 10% in the last four months. The Boston Globe investigated down the supply chain and detailed where the price increases are coming from.
Ice cream may be a deliciously simple combination of milk, butter, and sugar, but the true cost of an ice cream cone is no simple business calculation. Toscanini's price tag is part of complex and increasingly interconnected world economy, one that links a dairy farm in the tiny Western Massachusetts town of Colrain to the sprawling neighborhoods of Beijing.
Also of note: pistachio ice cream might be difficult to find this summer because the cost of pistachios has increased sharply in recent months. (via girlhacker)
Groupon has filed its S-1 and hopes to raise $750M in its initial public offering. Given they're currently losing a staggering $117M per quarter, despite revenues of $644M, they'll be burning through that cash almost as soon as it hits their account.
At the moment, it's costing them $1.43 to make $1, and it doesn't look like it's getting any cheaper. They're already projected to make close to three billion dollars in revenues this year. If you can't figure out how to make money on three billion in revenue, when exactly will the profit magic be found? Ten billion? Fifty billion?
I feel like the Groupon IPO is an elaborate practical joke.
It was a different time and (as DHH notes) a different company, but when Amazon IPOed in 1997, they lost $27.6 million that year on net sales of $147.8 million. That's an 18% loss for Amazon compared to Groupon's, hey, 18% loss. Amazon didn't report their first profit until Q4 2001. No guarantee whether Groupon will ever turn a profit but something to consider anyway. Oh, and probably not relevant but interesting nonetheless: Amazon CEO Jeff Bezos is an investor in DHH's company, 37signals...and until recently, 37signals co-founder Jason Fried was on Groupon's board of directors.
There may also be a medical reason for the decline in crime. For decades, doctors have known that children with lots of lead in their blood are much more likely to be aggressive, violent and delinquent. In 1974, the Environmental Protection Agency required oil companies to stop putting lead in gasoline. At the same time, lead in paint was banned for any new home (though old buildings still have lead paint, which children can absorb).
Tests have shown that the amount of lead in Americans' blood fell by four-fifths between 1975 and 1991. A 2007 study by the economist Jessica Wolpaw Reyes contended that the reduction in gasoline lead produced more than half of the decline in violent crime during the 1990s in the U.S. and might bring about greater declines in the future. Another economist, Rick Nevin, has made the same argument for other nations.
Using data from the ACNielsen HomeScan database, which employed bar-code scanners to track every purchase made by roughly 33,000 U.S. households in 2005, the two economists compared identical products sold in cities big and small, both at high-end grocery stores and discount retailers. In nearly every case, New York products were cheaper than in places such as Memphis, Indianapolis and Milwaukee.
But at the heart of the concept and the business of KidZania is corporate consumerism, re-staged for children whose parents pay for them to act the role of the mature consumer and employee. The rights to brand and help create activities at each franchise are sold off to real corporations, while KidZania's own marketing emphasizes the arguable educational benefits of the park.
Each child receives a bank account, an ATM card, a wallet, and a check for 50 KidZos (the park's currency). At the park's bank, which is staffed by adult tellers, kids can withdraw or deposit money they've earned through completing activities -- and the account remains even when they go home at the end of the day. A lot of effort goes into making the children repeat visitors of this Lilliputian city-state.
A US outpost of KidZania is coming sometime in 2013.
One asked for a new pair of trainers and a television; another for a caravan on a travellers' site in Suffolk, which was duly bought for him. Of the 13 people who engaged with the scheme, 11 have moved off the streets. The outlay averaged £794 ($1,277) per person (on top of the project's staff costs). None wanted their money spent on drink, drugs or bets. Several said they co-operated because they were offered control over their lives rather than being "bullied" into hostels. Howard Sinclair of Broadway explains: "We just said, 'It's your life and up to you to do what you want with it, but we are here to help if you want.'"
£794 per person may sound high but not compared to the estimated £26,000 annually spent on each homeless person by the state.
Michael Lewis continues his tour of economic disasters -- he wrote about Greece and Iceland for Vanity Fair and wrote an entire book on the US subprime mess -- with a piece on Ireland and the country's spectacular rise in becoming Europe's mightiest economic engine and even steeper fall to third-world economic mess.
Even in an era when capitalists went out of their way to destroy capitalism, the Irish bankers set some kind of record for destruction. Theo Phanos, a London hedge-fund manager with interests in Ireland, says that "Anglo Irish was probably the world's worst bank. Even worse than the Icelandic banks."
Ireland's financial disaster shared some things with Iceland's. It was created by the sort of men who ignore their wives' suggestions that maybe they should stop and ask for directions, for instance. But while Icelandic males used foreign money to conquer foreign places -- trophy companies in Britain, chunks of Scandinavia -- the Irish male used foreign money to conquer Ireland. Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was to buy Ireland. From one another. An Irish economist named Morgan Kelly, whose estimates of Irish bank losses have been the most prescient, made a back-of-the-envelope calculation that puts the losses of all Irish banks at roughly 106 billion euros. (Think $10 trillion.) At the rate money currently flows into the Irish treasury, Irish bank losses alone would absorb every penny of Irish taxes for at least the next three years.
In recognition of the spectacular losses, the entire Irish economy has almost dutifully collapsed. When you fly into Dublin you are traveling, for the first time in 15 years, against the traffic. The Irish are once again leaving Ireland, along with hordes of migrant workers. In late 2006, the unemployment rate stood at a bit more than 4 percent; now it's 14 percent and climbing toward rates not experienced since the mid-1980s. Just a few years ago, Ireland was able to borrow money more cheaply than Germany; now, if it can borrow at all, it will be charged interest rates nearly 6 percent higher than Germany, another echo of a distant past. The Irish budget deficit -- which three years ago was a surplus -- is now 32 percent of its G.D.P., the highest by far in the history of the Eurozone. One credit-analysis firm has judged Ireland the third-most-likely country to default. Not quite as risky for the global investor as Venezuela, but riskier than Iraq. Distinctly Third World, in any case.
So, LCD Soundsystem is retiring and to see off their fans, they decided to perform one last show at Madison Square Garden. Except that they didn't think they'd sell the place out and didn't pay too much attention to how the tickets were being sold. When the tickets went on sale last week, they sold out immediately. Many fans didn't get tickets, the band's family and friends didn't get tickets, and even some of the band didn't get tickets. Scalpers bought thousands upon thousands of tickets and the band is hopping mad. So they're adding four more NYC shows right before the MSG gig to give their fans a chance to see them and to screw the scalpers by increasing the supply (and therefore lowering demand and prices).
oh-and a small thing to scalpers: "it's legal" is what people say when they don't have ethics. the law is there to set the limit of what is punishable (aka where the state needs to intervene) but we are supposed to have ethics, and that should be the primary guiding force in our actions, you fucking fuck.
It would be fun if all those scalpers got stuck with thousands of unsellable MSG tickets.
Imagine people's height being proportional to their income, so that someone with an average income is of average height. Now imagine that the entire adult population of America is walking past you in a single hour, in ascending order of income.
The first passers-by, the owners of loss-making businesses, are invisible: their heads are below ground. Then come the jobless and the working poor, who are midgets. After half an hour the strollers are still only waist-high, since America's median income is only half the mean. It takes nearly 45 minutes before normal-sized people appear. But then, in the final minutes, giants thunder by. With six minutes to go they are 12 feet tall. When the 400 highest earners walk by, right at the end, each is more than two miles tall.
George thinks he has been offered a job, but the man offering it to him got interrupted in the middle of the offer, and will be on vacation for the next week. George, unsure whether an offer has actually been extended, decides that his best strategy is to show up. If the job was indeed his, this is the right move. But even if the job is not, he believes that the benefits outweigh the costs.
Economic concepts touched on: cost-benefit analysis, dominant strategy, and game theory. (via what i learned today)
In Jospeh Tainter's The Collapse of Complex Societies, the author argues that the fall of Rome happened because "the usual method of dealing with social problems by increasing the complexity of society [became] too costly or beyond the ability of that society". Basically when Rome stopped expanding its territory, the fallback was relying solely on agriculture, a relatively low-margin affair.
The distances, now no longer adjacent to easily accessible coastline, were making the cost of conquest prohibitive. More to the point, the enemies Rome faced as it grew larger were vast empires themselves and were more than capable of defeating the Roman legions.
It was at this point that Rome had reached a turning point: no longer would conquest be a significant source of revenue for the empire, for the cost of further expansion yielded no benefits greater than incurred costs. Conjointly, garrisoning its extensive border with its professional army was becoming more burdensome, and more and more Rome came to rely on mercenary troops from Iberia and Germania.
The result of these factors meant that the Roman Empire began to experience severe fiscal problems as it tried to maintain a level of social complexity that was beyond the marginal yields of it's agricultural surplus and had been dependent upon continuous territorial expansion and conquest.
Hopefully I don't have to draw you a picture of how this relates to large bureaucratic companies.
See, we have hidden numbers in the words like "wonderful," "before," "create," "tenderly." All these numbers can be inflated and meet the economy, you know, by rising to the occcassion. I suggest we add one to each of these numbers to be prepared. For example "wonderful" would be "two-derful." Before would be Be-five. Create, cre-nine. Tenderly should be eleven-derly. A Leiutenant would be a Leiut-eleven-ant. A sentance like, "I ate a tenderloin with my fork" would be "I nine an elevenderloin with my five-k."
An economist would find it inefficient to carry two lungs and two kidneys -- consider the costs involved in transporting these heavy items across the savannah. Such optimisation would, eventually, kill you, after the first accident, the first "outlier". Also, consider that if we gave Mother Nature to economists, it would dispense with individual kidneys -- since we do not need them all the time, it would be more "efficient" if we sold ours and used a central kidney on a time-share basis. You could also lend your eyes at night, since you do not need them to dream.
Read through to the end for Taleb's list of ten principles for a Black Swan-robust society.
Unsurprisingly finding itself on the bestseller list is a book by Kenneth Rogoff and Carmen Reinhart called This Time is Different, an economic history of the dozens of financial crises that have occurred over the past 800 years. The NY Times has a profile of the authors.
Mr. Rogoff says a senior official in the Japanese finance ministry was offended at the suggestion in "This Time Is Different" that Japan had once defaulted on its debt and sent him an angry letter demanding a retraction. Mr. Rogoff sent him a 1942 front-page article in The Times documenting the forgotten default. "Thank you," the official wrote in apology, "for teaching the Japanese something about our own country."
Bouncers weighed each cue differently. Social network mattered most, gender followed. For example, a young woman in jeans stood a higher chance of entrance than a well-dressed man. And an elegantly dressed black man stood little chance of getting in unless he knew someone special.
A 22-yo architecture student from The Philippines has "beaten" Sim City 3000 by building a city with the largest possible population that sustains itself for 50,000 years. The city, called Magnasanti, is not somewhere you would want to live.
There are a lot of other problems in the city hidden under the illusion of order and greatness: Suffocating air pollution, high unemployment, no fire stations, schools, or hospitals, a regimented lifestyle -- this is the price that these sims pay for living in the city with the highest population. It's a sick and twisted goal to strive towards. The ironic thing about it is the sims in Magnasanti tolerate it. They don't rebel, or cause revolutions and social chaos. No one considers challenging the system by physical means since a hyper-efficient police state keeps them in line. They have all been successfully dumbed down, sickened with poor health, enslaved and mind-controlled just enough to keep this system going for thousands of years. 50,000 years to be exact. They are all imprisoned in space and time.
In an attempt to eliminate Manhattan's travel inefficiencies and encourage more use of public transportation, Charles Komanoff spent three years creating an Excel spreadsheet (you can download it here) that details "the economic and environmental impact of every single car, bus, truck, taxi, train, subway, bicycle, and pedestrian moving around New York City". Based on that research, he's come up with a plan for changing how transportation is paid for in Manhattan below 60th St. (the CBD or central business district).
It would charge $3 to cars entering the CBD on weekday nights, $6 for most of the day, and $9 during rush hour. The subway fare also varies, but is always less than the $2.25 it is today: $1 at night, rising to $1.50 as day breaks, and peaking at $2 during weekday rush hours. Buses are always free, because the time saved when passengers aren't fumbling for change more than makes up for the lost fare revenue. Komanoff's plan also imposes a 33 percent surcharge on every taxi ride, 10 percent of which would go to the cab driver and the rest to the city.
Komanoff's plan is vastly more sophisticated than a simple bridge toll. Instead of merely punishing drivers, he has built a delicate system of incentives and revenue streams. Just as a musical fugue weaves several melodic lines into a complex yet harmonious whole, Komanoff's policy assembles all the various modes of transportation into a coherent, integrated traffic system.
Panera Bread Co converted one of their St. Louis locations into a cafe without prices. I love this model, but I feel like it probably works better with one of a kind products (art, music, movies, books) that are likely to have passionate fans. I hope it works, though. Ron Shaich Panera's chairman had this to say:
I'm trying to find out what human nature is all about. My hope is that we can eventually do this in every community where there's a Panera.
As I note in How We Decide, this data directly contradicts the rational models of microeconomics. Consumers aren't always driven by careful considerations of price and expected utility. We don't look at the electric grill or box of chocolates and perform an explicit cost-benefit analysis. Instead, we outsource much of this calculation to our emotional brain, and rely on relative amounts of pleasure versus pain to tell us what to purchase.
We bought one of those things that no one wanted, one of those things that almost brought down the global economy: our very own toxic asset. This one has more than 2,000 mortgages in it. We paid $1,000, with our own money, for our piece. It used to be worth more like $75,000. Click on the timeline and roll over the states to watch a disaster in progress.
Somewhat of a surprise: they've made more than a third of their money back already.
Companies who target the middle of the market (Sony, Dell, General Motors) are losing customers to companies like Apple & Hermes at the high end and Ikea & H&M at the low end. From James Surowiecki:
The products made by midrange companies are neither exceptional enough to justify premium prices nor cheap enough to win over value-conscious consumers. Furthermore, the squeeze is getting tighter every day. Thanks to economies of scale, products that start out mediocre often get better without getting much more expensive -- the newest Flip, for instance, shoots in high-def and has four times as much memory as the original -- so consumers can trade down without a significant drop in quality. Conversely, economies of scale also allow makers of high-end products to reduce prices without skimping on quality. A top-of-the-line iPod now features video and four times as much storage as it did six years ago, but costs a hundred and fifty dollars less. At the same time, the global market has become so huge that you can occupy a high-end niche and still sell a lot of units. Apple has just 2.2 per cent of the world cell-phone market, but that means it sold twenty-five million iPhones last year.
We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire. Instead, we will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses.
When the financial system went into cardiac arrest in September 2008, Berkshire was a supplier of liquidity and capital to the system, not a supplicant. At the very peak of the crisis, we poured $15.5 billion into a business world that could otherwise look only to the federal government for help. Of that, $9 billion went to bolster capital at three highly-regarded and previously-secure American businesses that needed -- without delay -- our tangible vote of confidence. The remaining $6.5 billion satisfied our commitment to help fund the purchase of Wrigley, a deal that was completed without pause while, elsewhere, panic reigned.
We pay a steep price to maintain our premier financial strength. The $20 billion-plus of cash-equivalent assets that we customarily hold is earning a pittance at present. But we sleep well.
The New Yorker has a nice profile of Paul Krugman in this week's magazine. His political awakening has a somewhat born-again Christian vibe to it.
In his columns, Krugman is belligerently, obsessively political, but this aspect of his personality is actually a recent development. His parents were New Deal liberals, but they weren't especially interested in politics. In his academic work, Krugman focussed mostly on subjects with little political salience. During the eighties, he thought that supply-side economics was stupid, but he didn't think that much about it. Unlike Wells, who was so upset when Reagan was elected that she moved to England, Krugman found Reagan comical rather than evil. "I had very little sense of what was at stake in the tax issues," he says. "I was into career-building at that point and not that concerned." He worked for Reagan on the staff of the Council of Economic Advisers for a year, but even that didn't get him thinking about politics. "I feel now like I was sleepwalking through the twenty years before 2000," he says. "I knew that there was a right-left division, I had a pretty good sense that people like Dick Armey were not good to have rational discussion with, but I didn't really have a sense of how deep the divide went."
Flattery sells, so to further those positive emotions, he insists that sales associates compliment the customer's own watch, even if it's from a competitor.
One such story was our earlier case about the old lady and her troubles with the Revenue Department official over a land title. Fed up with requests for bribes and equipped with a zero rupee note, the old lady handed the note to the official. He was stunned. Remarkably, the official stood up from his seat, offered her a chair, offered her tea and gave her the title she had been seeking for the last year and a half to obtain without success.
His forecast model predicts a country's Olympic performance using per-capita income (the economic output per person), the nation's population, its political structure, its climate and the home-field advantage for hosting the Games or living nearby. "It's just pure economics," Johnson says. "I know nothing about the athletes. And even if I did, I didn't include it."
For the upcoming 2010 games in Vancouver, Johnson predicts that Canada, the US, Norway, Austria, and Sweden will end up with the most medals. (thx, brandon)
There's not a whole lot to do at work this week, right? So how about tucking into all ten hours of a PBS documentary featuring economist Milton Friedman called Free to Choose. Here's part one:
PBS telecast the series, beginning in January 1980; the general format was that of Dr. Friedman visiting and narrating a number of success and failure stories in history, which Dr. Friedman attributes to capitalism or the lack thereof (e.g. Hong Kong is commended for its free markets, while India is excoriated for relying on centralized planning especially for its protection of its traditional textile industry). Following the primary show, Dr. Friedman would engage in discussion with a number of selected persons, such as Donald Rumsfeld (then of G.D. Searle & Company).
There are at least 2 crazy passages in this article about the amount of inflation in Zimbabwe over the past 30 years.
Hyperinflation in Zimbabwe, the former Rhodesia, was a quadrillion times worse than it was in Weimar Germany.
In grade school, quadrillion was always an exaggeration but not here:
The cumulative devaluation of the Zimbabwe dollar was such that a stack of 100,000,000,000,000,000,000,000,000 (26 zeros) two dollar bills (if they were printed) in the peak hyperinflation would have be needed to equal in value what a single original Zimbabwe two-dollar bill of 1978 had been worth. Such a pile of bills literally would be light years high, stretching from the Earth to the Andromeda Galaxy.
Andromeda Galaxy! It's our nearest galactic neighbor but still 2,500,000 light-years away. (via daveg)
This fun little post talks about how the economics of pinball changed as it became more and then less popular.
In 1986, Williams High Speed changed the economics of pinball forever. Pinball developers began to see how they could take advantage of programmable software to monitor, incentivize, and ultimately exploit the players. They had two instruments at their disposal: the score required for a free game, and the match probability. All pinball machines offer a replay to a player who beats some specified score. Pre-1986, the replay score was hard wired into the game unless the operator manually re-programmed the software. High Speed changed all that. It was pre-loaded with an algorithm that adjusted the replay score according to the distribution of scores on the specified machine over a specific time interval.
In the US, when you make under $20,000, there are government subsidies available to help you out. Between $20-40,000 per year, those subsidies are less available, which makes it difficult for people to cross the gap between one and the other.
In fact, until you get past $40,000 a year, any raise or higher paying job you get might actually sink you deeper into poverty.
Given their emphasis on cold, hard numbers, it's noteworthy that Levitt and Dubner ignore what are, by now, whole libraries' worth of data on global warming. Indeed, just about everything they have to say on the topic is, factually speaking, wrong. Among the many matters they misrepresent are: the significance of carbon emissions as a climate-forcing agent, the mechanics of climate modelling, the temperature record of the past decade, and the climate history of the past several hundred thousand years.
I thought about his rant this week as the nation's largest carriers reported first-quarter earnings. Or, more accurately, first-quarter losses. Except for AirTran and JetBlue, they all lost money. The legacy airlines -- Delta/Northwest, American, United, Continental and US Airways -- lost a lot of money. Collectively about $1.9 billion, in fact. Their revenue plummeted, too.
And do you know what most of them wanted to talk about? You guessed it. The baskets of ancillary revenue they're harvesting by charging us fees for checking bags, choosing coach seats or whatever. Forget that their houses are burning down. They found a tap in the bathtub with some water leaking out, so they're thrilled.
In Kashiwa, Japan, there was briefly an unusual cafe where you recieve whatever the person in front of you ordered...and you're ordering for the person behind you.
The Ogori cafe was an unforgettable travel moment, and an idea that has stuck with me: It was a complete surprise in our day. It encouraged communication between total strangers or, in this case, members of the Kashiwa community and a couple of weird guys from Oregon. It forced one to "let go", just for a brief moment, of the total control we're so used to exerting through commerce. It led you to taste something new, that you might not normally have ordered. It was a delight.
An article in Forbes postulates which countries billionaires could purchase, factoring in their estimated worth and the countries' GDPs. On the list: Bill Gates, Warren Buffet, George Lucas, Zambia, Haiti, and Belize.
Update: A valid point to make here is that a billionaire's income isn't an accurate measure of their ability to "purchase" a country based on their GDP, especially if you think of the GDP as the equivalent of rental income. For instance, if a person's net worth is $9 billion, which is equivalent to the Bahamas' GDP, that doesn't mean the billionaire could buy the islands. He or she could only rent it for a year, theoretically. Then again, the idea of countries being up for sale, and individuals purchasing (or renting) them, is a somewhat silly premise. (thx, ian)
Update: Perhaps purchasing countries isn't such a silly premise after all. In 2003, the entire principality of Liechtenstein was up for rent. The tiny country, which borders Switzerland and Austria, attempted a "rent-a-state" program sponsored by Xnet. The idea was to draw attention to the tourist-friendly charms of Liechtenstein by essentially "renting" the country's hotels, restaurants, and sports stadiums en masse. (thx, colin)
Tom Chiarella took a stack of $20 bills with him to New York City just to see what he could get by offering them to the right people at the right time. Turns out, quite a bit. I probably linked to this a few years ago (it's from 2003), but it's worth another look. I just love this kind of thing...probably because I'm too much of a candy ass to ever attempt something similar.
A twenty should not be a ticket so much as a solution. You have a problem, you need something from the back room, you don't want to wait, you whip out the twenty.
I could have stood in line at the airport cabstand for fifteen minutes like every other mook in the world, freezing my balls off, but such is not the way of the twenty-dollar millionaire. I walked straight to the front of the line and offered a woman twenty bucks for her spot. She took it with a shrug. Behind her, people crackled. "Hey! Ho!" they shouted. I knew exactly what that meant. It wasn't good. I needed to get in a cab soon. One of the guys flagging cabs pointed me to the back of the line. That's when I grabbed him by the elbow, pulled him close, and shook his hand, passing the next twenty. I was now down forty dollars for a twenty-dollar cab ride. He tilted his head and nodded to his partner. I peeled another twenty and they let me climb in. As we pulled away, someone in the line threw a half-empty cup of coffee against my window.
I pushed around; the ballsier I became, the more success I experienced. I got tablecloths, a personal garlic press, a dozen extra forks in one meal, chopsticks in a steak house. I bought primo parking spaces from people who had just parallel-parked.
Update: Ah, I've also previously linked to this one, from Gourmet in 2000.
It's just after 8 P.M. on a balmy summer Saturday and I'm heading toward one of New York's most overbooked restaurants, Balthazar, where celebrities regularly go to be celebrated and where lay diners like me call a month in advance to try and secure a reservation. I don't have a reservation. I don't have a connection. I don't have a secret phone number. The only things I have are a $20, a $50, and a $100 bill, neatly folded in my pocket.
According to FilmL.A., the nonprofit organization that coordinates on-location shooting in the city, no permits have been issued in 2009 for car commercials. Although commercial production in the city is flagging anyway -- down 34% in the first quarter -- the 100% drop in tunnel permits suggests "very tough times in the car business," FilmL.A. spokesman Todd Lindgren said.
Inevitably dubbed the "90 nicker knicker allowance", this may or may not be the most reliable indicator yet that the credit crunch is over. (Business is apparently so hectic that the firm has also installed sleeping pods.)
The baked bean index -- my colleague Anthony Reuben noted in the spring how the value of sales of baked beans -- a classic recession food -- had risen 21.6% in April compared with the same month last year. Could a reverse signal the start of a recovery?
The number of people signing up to dating agencies offering extra-marital affairs, on the basis that demand goes up either in times of excessive confidence -- "I won't get caught"; or depression -- "I don't care". (Sex had to figure somewhere.)
Here's an indicator economists should study as they study GDP: speed with which, upon entering a store, you are surrounded by salesmen. (I would record both gather-rate-in fractions of a second-and density.) I was approached by the first salesman as I came in the door, picked up another as I went by the reception desk, picked up a third as I skirted a Buick Enclave. I looked back when I reached the Corvettes. There must have been ten salesmen back there and more coming, spilling out of offices and break rooms like police cruisers appearing from side streets to chase Burt Reynolds in Smokey and the Bandit. We moved in a buzzing cloud around the Corvette. From a distance, we would have made a fine subject for a painting in the National Gallery: Salesmen and Commission; or, Depression and Its Discontents. When I stood and stared and pretended to think, they stood back and stared and pretended to think. "You know, it's not so expensive if you realize you're buying it over the course of three years."
As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system. That vision wasn't sustainable in the face of mass unemployment, but as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations. The renewed romance with the idealized market was, to be sure, partly a response to shifting political winds, partly a response to financial incentives. But while sabbaticals at the Hoover Institution and job opportunities on Wall Street are nothing to sneeze at, the central cause of the profession's failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.
Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets - especially financial markets - that can cause the economy's operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don't believe in regulation.
He goes on to describe the history of macroeconomics (in brief) and how the current theories are flawed. Very interesting long read.
If you can figure out what words are gonna trend on Twitter, you can use the pretweeting site to buy and sell words to make fake money.
Make a (virtual) profit by buying and selling words on twitter. Predict what's going to be hot and buy it up before it hits twitter, and you'll make a killing once people start talking about it.
Well, of course, the big-market teams figured it out. They hired their own Ivy League consultants. They bought even better computers. Walks is only one tiny aspect in it ... but who leads the American League in walks this year? The New York Yankees. Last year? The Boston Red Sox. The year before that? The Boston Red Sox. And so it goes. Now, six years later, it seems to me that the small-market teams are really grasping and trying to find some loophole, some opening that will allow them to win in this tough financial environment.
Parking is heavily subsidized in the US; spaces in cities can cost between $10,000 and $50,000, a high price to pay to house hunks of metal that don't do anything for 95% of the day.
Who pays for this? Everyone. The cost of building all that parking is reflected in higher rents, more expensive shopping and dining, and higher costs of home-ownership. Those who don't drive or own cars thus subsidize those who do.
The indicator I prefer is the Hot Waitress Index: The hotter the waitresses, the weaker the economy. In flush times, there is a robust market for hotness. Selling everything from condos to premium vodka is enhanced by proximity to pretty young people (of both sexes) who get paid for providing this service. That leaves more-punishing work, like waiting tables, to those with less striking genetic gifts. But not anymore.
The same article also mentions the Overeducated Cabbie Index, the Squeegee Man Apparition Index, and the Speed at Which Contractors Return Calls Index.
"It's a prolonged purchase," said Marshal Cohen, senior analyst with the consumer research firm NPD Group. "It's like trying to drive your car an extra 10,000 miles."
For 14 months, we at Azure Capital tried to invest in companies but could not reach an agreement with entrepreneurs and existing investors on valuation and terms -- the gap was too great. Despite meeting with hundreds of companies and reaching the point of discussing terms with a few, we did not make a single new investment.
That gap no longer exists. We recently invested in a company called BlogHer in May. It is an exciting company, whose team and investors were wise enough to realize that taking money now would give them a competitive advantage. And last week we invested in SlideRocket, our second new investment in less than two months.
It is as if the venture-funding environment has finally hit the reset button.
Translation: Now that money is tight, venture capital firms are able to fully dictate the terms of their investments. Entrepreneurs, prepare to part with more of your companies than you wanted to and receive less for the pleasure. Lester goes on to hand-wavingly assert that this is a good thing for entrepreneurs.
"When I lived with money, I was always lacking," he writes. "Money represents lack. Money represents things in the past (debt) and things in the future (credit), but money never represents what is present."
The idea started to take shape when Suelo was on a Peace Corps mission to Ecuador. As he monitored the health of the population of the village he was staying in, he noticed that their health declined as they made more money -- "It looked like money was impoverishing them." You can find out more about Suelo's philosophy on his web site and follow his adventures on his blog, both of which he updates at the public library.
"I'm good at that. I must be good at this, too," we tell ourselves, forgetting that in wars and on Wall Street there is no such thing as absolute expertise, that every step taken toward mastery brings with it an increased risk of mastery's curse.
Eight Michigan credit unions are offering an unusual way to save: putting $25+ into a one-year CD comes with an entry to a raffle with a monthly prize of $400 and a yearly grand prize of $100,000.
This unusual CD is federally guaranteed by the National Credit Union Administration and pays between 1% and 1.5% annual interest, a bit lower than conventional rates. In 25 weeks, the program has attracted about $3.1 million in new deposits, often from people who have never been able to set money aside.
Why not put the lottery effect to work with Kiva? Instead of straight-up loans, enter lenders in a raffle and slightly decrease the return rate to account for the prize money. I bet (ha!) the lending rate would increase accordingly. (via waxy)
Update: Several people pointed out that British Premium Bonds have worked this way for decades. (thx, christopher)
How do you follow up a kooky-titled bestseller like Freakonomics? With a book called SuperFreakonomics. It's due out on October 20 and has a subtitle of "Tales of Altruism, Terrorism, and Poorly Paid Prostitutes".
Flash games are currently the ghetto of the game development industry. Compared to the number of players it serves, the Flash game ecosystem makes little money, launches few careers, and sustains few developer owned businesses. Despite the vast potential of the ecosystem, Flash games contribute surprisingly little to the advancement of game design as an art or a craft.
This is just the first installment...two or three more are yet to come. (via @anildash)
I, Pencil is a 1958 ode to mass production, industrial specialization, commodity economics, and the invisible hand using the manufacture of a simple graphite pencil as an example.
Consider the millwork in San Leandro. The cedar logs are cut into small, pencil-length slats less than one-fourth of an inch in thickness. These are kiln dried and then tinted for the same reason women put rouge on their faces. People prefer that I look pretty, not a pallid white. The slats are waxed and kiln dried again. How many skills went into the making of the tint and the kilns, into supplying the heat, the light and power, the belts, motors, and all the other things a mill requires? Sweepers in the mill among my ancestors? Yes, and included are the men who poured the concrete for the dam of a Pacific Gas & Electric Company hydroplant which supplies the mill's power!
Really great. A nice illustration of embodied energy to boot.
First, you need some water. Fuse two hydrogen with one oxygen and repeat until you have enough. While the water is heating, raise some cattle. Pay a man with grim eyes to do the slaughtering, preferably while you are away. Roast the bones, then add to the water.
Now let us not lose our precious bit of lead while we prepare the wood. Here's the tree! This particular pine! It Is cut down. Only the trunk is used, stripped of its bark. We hear the whine of a newly invented power saw, we see logs being dried and planed. Here's the board that will yield the integument of the pencil in the shallow drawer (still not closed). We recognize its presence in the log as we recognized the log in the tree and the tree in the forest and the forest in the world that Jack built. We recognize that presence by something that is perfectly clear to us but nameless, and as impossible to describe as a smile to somebody who has never seen smiling eyes.
Thus the entire little drama, from crystallized carbon and felled pine to this humble implement, to this transparent thing, unfolds in a twinkle. Alas, the solid pencil itself as fingered briefly by Hugh Person still somehow eludes us! But he won't, oh no.
The top floor of Corbusier's Villa Stein (one of perhaps the top 500 most important houses of the late 19th/early 20th centuries - i.e. a Van Gogh of houses) is for sale for the same price per sq.ft. (approx $1400) as buildings in the same area of suburban Paris, designed by nobody in particular. Meanwhile, Van Gogh's Portrait of Dr. Gachet sold for an inflation adjusted price of $136 million yet a poster of similar square footage and style costs around $10.
In terms of signaling, it's difficult to hang a house on one's parlor wall...buying a Corbusier means living in it wherever it happens to be located, at least part of the year.
More and more, "production" -- that word my fellow economists have worked over for generations -- has become interior to the human mind rather than set on a factory floor. A tweet may not look like much, but its value lies in the mental dimension. You use Twitter, Facebook, MySpace, and other Web services to construct a complex meld of stories, images, and feelings in your mind. No single bit seems weighty on its own, but the resulting blend is rich in joy, emotion, and suspense. This is a new form of drama, and it plays out inside us -- with technological assistance -- rather than on a public stage.
I recently came on a phrase in an article in the journal "Annals of Internal Medicine" about an axiom of medical economics: a dollar spent on medical care is a dollar of income for someone. I have been reciting this as a mantra ever since. It may be the single most important fact about health care in America that you or I need to know. It means that all of us -- doctors, hospitals, pharmacists, drug companies, nurses, home health agencies, and so many others -- are drinking at the same trough which happens to hold $2.1 trillion, or 16% of our GDP. Every group who feeds at this trough has its lobbyists and has made contributions to Congressional campaigns to try to keep their spot and their share of the grub. Why not? -- it's hog heaven. But reform cannot happen without cutting costs, without turning people away from the trough and having them eat less. If you do that, you have to be prepared for the buzz saw of protest that dissuaded Roosevelt, defeated Truman's plan and scuttled Hillary Clinton's proposal.
In Gawande's example, what Verghese is saying is that you can't just make McAllen's healthcare system adopt an El Paso type of system without a whole lot of pain.
Gawande addressed some of the criticisms of his article on the New Yorker site. One of the major criticisms was that McAllen's higher costs were associated with higher levels of poverty and unhealthiness:
As I noted in the piece, McAllen is indeed in the poorest county in the country, with a relatively unhealthy population and the problems of being a border city. They have a very low physician supply. The struggles the people and medical community face there are huge. But they are just as huge in El Paso -- its residents are barely less poor or unhealthy or under-supplied with physicians than McAllen, and certainly not enough so to account for the enormous cost differences. The population in McAllen also has more hospital beds than four out of five American cities.
In an analysis of the global financial system, Duncan Watts says that we should limit the complexity of these sorts of systems because "once everything is connected, problems can spread as easily as solutions".
Traditionally, banks and other financial institutions have succeeded by managing risk, not avoiding it. But as the world has become increasingly connected, their task has become exponentially more difficult. To see why, it's helpful to think about power grids again: engineers can reliably assess the risk that any single power line or generator will fail under some given set of conditions; but once a cascade starts, it's difficult to know what those conditions will be - because they can change suddenly and dramatically depending on what else happens in the system. Correspondingly, in financial systems, risk managers are able to assess their own institutions' exposure, but only on the assumption that the rest of the world obeys certain conditions. In a crisis it is precisely these conditions that change in unpredictable ways.
No one, for example, anticipated that an investment bank as old and prestigious as Lehman Brothers could collapse as suddenly as it did, so nobody had that contingency built into their risk models. And once it did fail, then just as the failure of a single power line increases the stress on other parts of the system, leading to further "knock on" failures, so too did Lehman's unlikely collapse render other previously unlikely failures suddenly much more likely.
This tendency of Republican presidents to preside over growth that occurs so close to re-election has been cited by Bartels as the main reason why Republican presidents have been so successful in achieving two-term presidencies in the post-World War II era. Voters, Bartels believes, are economic myopists, paying attention only to the most recent economic outcomes and not the overall outcomes experienced under a president's rule.
Altruism in business and behaviorial economics is a topic that comes up quite often on kottke.org, even when it's not explicit. (For instance, the central issue in the Atul Gawande article I pointed to yesterday pits the individual financial desires of doctors vs. the health of their patients.) This article from Ode Magazine takes a look at the research done in this area so far and how the idea of altruism in economics is currently on the rise.
The theory is based on the premise that humans evolved in small groups with strong social contracts and plenty of contact with strangers. Cooperation within the tribe was advantageous so long as free riders were punished. It was also the best gambit on encountering strangers. Cooperation, particularly in times of famine, was the only means of survival, so altruism became a favored evolutionary trait.
Atul Gawande discovered that McAllen, Texas spends more per person on healthcare than El Paso (which is demographically similar to McAllen) and set out to find out why. Along the way, he encounters a curious relationship between the amount spent on healthcare and the quality of that care: higher spending does not correlate with better care.
When you look across the spectrum from Grand Junction to McAllen -- and the almost threefold difference in the costs of care -- you come to realize that we are witnessing a battle for the soul of American medicine. Somewhere in the United States at this moment, a patient with chest pain, or a tumor, or a cough is seeing a doctor. And the damning question we have to ask is whether the doctor is set up to meet the needs of the patient, first and foremost, or to maximize revenue.
There is no insurance system that will make the two aims match perfectly. But having a system that does so much to misalign them has proved disastrous. As economists have often pointed out, we pay doctors for quantity, not quality. As they point out less often, we also pay them as individuals, rather than as members of a team working together for their patients. Both practices have made for serious problems.
Obama, you're reading this guy's stuff, yes? Get him on the team.
I changed the bit in the first paragraph about El Paso and McAllen being "nearby". Funny, I thought 800 miles in Texas *was* nearby. (thx, stephen)
I also changed "lower spending correlates with better care" to "higher spending does not correlate with better care"...those two statements are not the same. I misread the results of one of the studies that Gawande mentions. (thx, patrick)
Both houses of Congress have recently passed credit card legislation which will cut down on credit card companies abusing their customers. The NY Times has a guide to what the new legislation could mean for consumers. The bill that passed the House contains some interesting provisions on how card companies can use type.
The House throws in what ought to be called "The Fine Print Rule." Card companies must print their account applications and disclosures in 12-point type or greater. A supervisory board will also probably declare certain hard-on-the-eyes fonts off limits. The Senate is silent on typeface but imposes many other communication requirements.
Section 122 of the Truth in Lending Act (U.S.C. 1632) is amended by adding at the end the following new subsection:
"(d) Minimum type-size and font requirement for credit card applications and disclosures. -All written information, provisions, and terms in or on any application, solicitation, contract, or agreement for any credit card account under an open end consumer credit plan, and all written information included in or on any disclosure required under this chapter with respect to any such account, shall appear-
"(1) in not less than 12-point type; and
"(2) in any font other than a font which the Board has designated, in regulations under this section, as a font that inhibits readability.".
I haven't seen a credit card application or bill in years (we're paperless)...what unreadable fonts are these companies using? Do they set their terms and conditions sections in 6-pt Zapf Dingbats a la David Carson?
What about my alimony and child-support obligations? No need to mention them. What would happen when they saw the automatic withholdings in my paycheck? No need to show them. If I wanted to buy a house, Bob figured, it was my job to decide whether I could afford it. His job was to make it happen.
"I am here to enable dreams," he explained to me long afterward. Bob's view was that if I'd been unemployed for seven years and didn't have a dime to my name but I wanted a house, he wouldn't question my prudence. "Who am I to tell you that you shouldn't do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it's your signature on the mortgage - not mine."
Andrews and his family aren't all that bad off, but my mouth got all cottony while reading this as I extrapolated from his story to the millions of people who made similar deals under much more dire circumstances. A chilling first person tip-of-the-iceberg tale. (via the laboritorium, which calls the piece "an instant classic of economic crisis journalism")
Moreover, pesky bad luck isn't really the picture painted by either filing. Rather, Ms. Barreiro seems to have spent most of the last two decades living right up to the edge of her income, and beyond, and then massively defaulting. If you structure your finances so that absolutely everything has to go right, it's hard to blame the mortgage company when you don't quite make it.
Andrews has been admirably open about many of the poor decisions and the wishful thinking that led him deep into debt. Nonetheless, he has laid much of the blame onto irresponsible bankers and mortgage brokers. The missing bankruptcies substantially undermine this basic narrative arc of Andrews' story. Particularly in his book, the bankers are the villains, America's current troubles are the inevitable denouement of their maniacal greed, and the Andrews household stands in for an American public led, by their own greed and longing and hopeful trust, into the money pit.
Seen through this lens, it's not so much that Andrews was done in by a overly large mortgage...it was that he married a financial anchor.
These bankruptcies did occur, but they had nothing to do with our mortgage woes. They were both tied to old debts from before we were married or bought a house. They had nothing to do with my ability to get a mortgage; nor did they have anything to do with our subsequent financial problems.
Andrews seems to now be arguing that the Chapter 7 filings are not relevant because they didn't affect his ability to get a mortgage. But of course the article and the book is not just about him--rightly, because unless your marriage is pretty dysfunctional, it's a financial partnership. The two bankruptcies seem to reveal that one partner has demonstrated a historic inability to live within their means. So though the bankruptcies don't tell us anything about their ability to get a mortgage on their house, they may tell us quite a bit about their willingness to take on a mortgage. This decision is at least as important as the bank's. I'm sure banks would have given me all kinds of stupid mortgage loans in 2004, but I didn't avail myself of the opportunity.
Option 1: Two tickets to Tuesday night, June 30, Mariners at Yanks, cost for just the tickets, $5,000.
Option 2: Two round-trip airline tickets to Seattle, Friday, Aug. 14, return Sunday the 16th, rental car for three days, two-night double occupancy stay in four-star hotel, two top tickets to both the Saturday and Sunday Yanks-Mariners games, two best-restaurant-in-town dinners for two. Total cost, $2,800. Plus-frequent flyer miles.
The big themes of the day so far are confidence and experts: should we and do we have confidence in the experts? Malcolm Gladwell kicked off the morning with a talk about overconfidence. He talked about the three types of failure possible in a situation like the financial crisis:
1. Institutional failure. The regulators and regulations were not sufficient.
2. Cognitive failure. The bankers weren't smart enough and got in over their heads.
3. Psychological failure. The bankers were overconfident and failed to recognize the direness of their situation.
Gladwell argued that the financial crisis was caused largely by overconfidence, which has two key effects. One is that people become miscalibrated. They think that the predictions that they are making are actually a lot better than they are. Secondly, there's an illusion of control problem in which people think they have control over things that are impossible to control. Fixing the situation will be hard because overconfidence is a useful trait to possess and experts are hard to purge from systems (they're the experts!).
[Experts talking about how experts are wrong! My brain is seizing up.]
Next up were Nassim Taleb and Robert Shiller. Shiller believes that confidence drives the economy and that macroeconomics is flawed because there's no humanity in it. Taleb was very quotable and the most full of doom of all the panelists so far. He doesn't like economists. Like wants them gone from the world, or to at least marginalize their effects so that their opinions and decisions don't affect the lives of normal people. In talking about why this crisis is different than similar situations in the past, he argued that globalization, the Internet, and the efficiency of global financial markets has created an environment where very large and very quick collective movements of money are possible in a way that wasn't before. Taleb had the last word: "people who crashed the plane, you don't give them a new plane".
The panel moderated by Suroweicki was a little odd. Two out of the three panelists kept repeating in reference to the solution to the very complex financial crisis: "this isn't that complicated". There has also been a undercurrent to the discussion so far that the goal of any solution to the financial crisis is to get the economy back to where it was. I'm with Taleb on this one: where we were wasn't very good, why do we want to go back.
The Economist is leading the charge on expensive subscriptions, and its success is one reason publishers are rethinking their approaches. It is a news magazine with an extraordinarily high cover price -- raised to $6.99 late last year -- and subscription price, about $100 a year on average.
Even though The Economist is relatively expensive, its circulation has increased sharply in the last four years. Subscriptions are up 60 percent since 2004, and newsstand sales have risen 50 percent, according to the audit bureau.
I'm always amazed that something as great as The New Yorker can be had for a buck an issue when people routinely pay $4 for burnt coffee, $10 for crappy movies, and $12 for -tini drinks.
As economist Tyler Cowen boldly shows in Create Your Own Economy, the way we think now is changing more rapidly than it has in a very long time. Not since the Industrial Revolution has a man-made creation -- in this case, the World Wide Web -- so greatly influenced the way our minds work and our human potential. Cowen argues brilliantly that we are breaking down cultural information into ever-smaller tidbits, ordering and reordering them in our minds (and our computers) to meet our own specific needs.
Create Your Own Economy explains why the coming world of Web 3.0 is good for us; why social networking sites such as Facebook are so necessary; what's so great about "Tweeting" and texting; how education will get better; and why politics, literature, and philosophy will become richer. This is a revolutionary guide to life in the new world.
I never properly reviewed Cowen's last book (sorry!), but I found it as enlightening and entertaining as Marginal Revolution is. (via david archer)
No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.
It was difficult to choose just one of Taleb's points to excerpt; they're all worth considering. BTW, a Black Swan is an event that is rare, has a large impact, and is deemed predictable after the fact. I might have to push Taleb's book of the same name to the top of my reading list.
Almost all of us, for example, are "loss averse" -- it hurts more to lose £50 than it feels good to win £50. We also value money in relative rather than absolute terms -- we consider £10 irrelevant when buying a house but not when paying for a meal. Similarly, finding £100 will give many people more pleasure than having a heating bill cut from £950 to £835, even though this gains them more in real terms.
5. "Icelanders are among the most inbred human beings on earth -- geneticists often use them for research."
Now this is insulting. Icelanders' DNA shows their roots to be a healthy mix between Nordic Y chromosomes and X chromosomes from the British Isles. The reason genetic-research company deCODE uses Icelandic genes for its research is not because the codes are so homogeneous, but because the population has kept excellent genealogical records dating back thousands of years.
I sort of shrugged my shoulders at this stuff when I read the piece and forged ahead for the financial meat and potatoes, but it doesn't read so well when collected all in one place like this. Was the piece supposed to be a farce? If not, it doesn't reflect well on Lewis or his editors at VF. (thx, micah)
[John] Paulson is a hedge fund manager who has been ridiculously successful betting against banks and other entities that had exposure to the subprime crisis: In 2007, his funds were up $15 billion. In 2008, he didn't do as well: His main fund rose 38 percent in a year when the S&P 500 fell almost 40 percent. His 2007 earnings were in the neighborhood of $3.7 billion. According to Forbes, while 656 billionaires lost money last year, Paulson was one of the 44 who added to their fortunes.
This is the peculiar thing about financial markets: if you know something bad is going to happen (you know, like the global collapse of the financial markets), you can either sound the alarm and save a lot of people a lot of grief or you can make a billion dollars.
Right or wrong, How the Crash Will Reshape America, Richard Florida's analysis of how different areas of the United States are going to be affected by the current financial crisis, is full of fascinating bits.
The University of Chicago economist and Nobel laureate Robert Lucas declared that the spillovers in knowledge that result from talent-clustering are the main cause of economic growth. Well-educated professionals and creative workers who live together in dense ecosystems, interacting directly, generate ideas and turn them into products and services faster than talented people in other places can. There is no evidence that globalization or the Internet has changed that. Indeed, as globalization has increased the financial return on innovation by widening the consumer market, the pull of innovative places, already dense with highly talented workers, has only grown stronger, creating a snowball effect. Talent-rich ecosystems are not easy to replicate, and to realize their full economic value, talented and ambitious people increasingly need to live within them.
And:
But another crucial aspect of the crisis has been largely overlooked, and it might ultimately prove more important. Because America's tendency to overconsume and under-save has been intimately intertwined with our postwar spatial fix -- that is, with housing and suburbanization -- the shape of the economy has been badly distorted, from where people live, to where investment flows, to what's produced. Unless we make fundamental policy changes to eliminate these distortions, the economy is likely to face worsening handicaps in the years ahead.
Others have written about it elsewhere, but the few paragraphs Florida devotes to Detroit are stunning. (thx, peter)
The Trough of No Value is the period in the lifetime of most objects between when they are new (and therefore valuable) and when they are old, rare, and collectable (and therefore valuable).
Who wanted to keep old lunchboxes around? They weren't useful any more. They weren't worth anything. And, since they were almost all used for their intended purpose, many were damaged or worn by use (I vaguely remember owning one that was rusty and had a dent). People naturally threw them away. The "trough of no value" for lunchboxes was long and harsh. That's why they're not so common today as you might guess -- because not that many made it through the trough.
My unsharpened NeXT pencil is still very much stuck in the trough, but I have endless patience. I hope to sell it for 75 cents someday. (thx, danny)
The first time Phil Conners lives out Groundhog Day, he knows nothing about how events will unfold, and acts accordingly -- self centered, short sighted and rash. But by the time Conners lives out his last Groundhog Day, he has perfect knowledge of how everyone around him will behave. He acts accordingly -- maximizing his happiness and the happiness of those around him. The metaphor gets pretty loose, but in this interpretation, Phil's last day is analogous to classical economics, where people act with perfect knowledge and rationality.
My own countercyclical hunch is that Internet use will rise dramatically over the year because a) it has become something that people need (even more than TV...you'll see people scaling back on cable before they send back their cable modem) and b) spending more time using it doesn't cost extra. Plus, unemployment = lots of time to spend online screwing around "updating your resume".
The current inactivity at Port of Long Beach is indicative of larger problems in the highly coupled global economy. Americans are buying fewer goods, including those made abroad, so no new goods are coming in to the port and those that have already arrived are sitting on the docks, including 165+ acres of Toyota cars. Because Americans are not buying foreign goods, China has slowed production. Slowed production means that they don't need cardboard boxes for packaging. Since we ship our used paper to China for recycling into cardboard boxes, hundreds of tons of paper are sitting on the docks, unshipped. The strengthening of the dollar abroad means that American made goods aren't selling and the ships hauling them are unable to leave the port. Nothing is selling anywhere so everything sits in the now-constipated port.
Every industrialized nation in the world except the United States has a national system that guarantees affordable health care for all its citizens. Nearly all have been popular and successful. But each has taken a drastically different form, and the reason has rarely been ideology. Rather, each country has built on its own history, however imperfect, unusual, and untidy.
As usual, Gawande makes a lot of sense. Whatever the solution, we should be doing all we can to avoid something like this from ever happening again:
"When I heard that I was losing my insurance, I was scared," Darling told the Times. Her husband had been laid off from his job, too. "I remember that the bill for my son's delivery in 2005 was about $9,000, and I knew I would never be able to pay that by myself." So she prevailed on her midwife to induce labor while she still had insurance coverage. During labor, Darling began bleeding profusely, and needed a Cesarean section. Mother and baby pulled through. But the insurer denied Darling's claim for coverage. The couple ended up owing more than seventeen thousand dollars.
My inbox is divided about the valuation of Facebook calculated using Burger King Whopper Sacrifice promotion (unfriend 10 people to get a Whopper). The majority say that even if you prevented people from refriending those they unfriended for a Whopper, a value of 12 cents for each friend link is too high and that most links are worth much less than that. That is, Facebook is awash in junk friendships of little value.
A smaller contingent is arguing that Burger King would have to pay much more to break some friendships and that Facebook's valuation is therefore higher than the straight calculation indicates. For instance, getting Johnny Shoegazer to unfriend that girl he likes might take a considerable sum of money. I agree that Facebook is worth more than $1.8 billion in Whoppers but not because some individual links are more valuable than others...it's about groups and networks of links. You might be able to get someone to part with 10 "junk" friends for $2.40 but could you pay them $22 more to essentially shut down their Facebook account for good? I don't think so. It's going to cost much more than that...and for some intense users of the site, the "buyout" amount might be surprisingly high. (I'd probably accept $24 to close my Facebook account. But I pay nothing to use Twitter and ~$25 a year for Flickr and it might take several hundred or even thousands of dollars to entice me to permanently close either of those accounts...I get so much value from them.)
The reason for this seems like it might have something to do with Metcalfe's Law:
Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n^2). [...] Metcalfe's law characterizes many of the network effects of communication technologies and networks such as the Internet, social networking, and the World Wide Web. It is related to the fact that the number of unique connections in a network of a number of nodes (n) can be expressed mathematically as the triangular number n(n - 1)/2, which is proportional to n^2 asymptotically.
In economics and business, a network effect (also called network externality) is the effect that one user of a good or service has on the value of that product to other users. The classic example is the telephone. The more people own telephones, the more valuable the telephone is to each owner. This creates a positive externality because a user may purchase their phone without intending to create value for other users, but does so in any case.
As Facebook accumulates users and friendship links, the service becomes more and more valuable for each user. In Whoppernomics terms, Facebook may well be worth the $15 billion that the Microsoft deal suggested, but there are obviously problems for Facebook in thinking about their value in this way. How do they extract that value from their users? Getting a user to accept a $500 buyout for their Facebook account is different than Facebook asking that user to pay $500 to keep using their account even though the monetary value of the account is the same in either case. What Facebook is betting on is that each user will put up with hundreds of dollars worth of distractions (in the form of advertising and promotions) from their primary goal on the site (i.e. connecting with friends). Also, as Friendster and MySpace and every other social networking site has learned, membership in these services is not exclusive and users may eventually find more value in some other network with (temporarily) less distraction.
Again, assuming that we're not taking this too seriously.
[Update: I had decimal point problems with my math. 100 users = 10 Whoppers = $24, not $240. More updates below...]
Burger King recently introduced a Facebook app called Whopper Sacrifice that allows users to delete ten of their friends in exchange for a Whopper sandwich. Watch the app in action.
What BK has unwittingly done here is provide a way to determine the valuation of Facebook. Let's assume that the majority of Facebook's value comes from the connections between their users. From Facebook's statistics page, we learn that the site has 150 million users and the average user has 100 friends. Each friendship is requires the assent of both friends so really each user can, on average, only end half of their friendships. The price of a Whopper is approximately $2.40. That means that each user's friendships is worth around 5 Whoppers, or $12. Do the math and:
$12/user X 150M users = $1.8 billion valuation for Facebook
That's considerably less than the $15 billion valuation assigned to Facebook when Microsoft invested in the company in October 2007 and the lower valuations being tossed about in recent months.
P.S. Other assumptions for the sake of argument: every user is eligible for the Whopper promotion (it's actually only valid in the US), you can sell all of your friends for multiple burgers (actually limit one per customer), and the "average user has 100 friends" means that Facebook users average 100 friends apiece (no idea what the reality is...if they're using the median instead of the mean then that number could be higher or lower). Oh, and it's also assumed that no one should take this too seriously.
Update: I'm getting some email saying that Facebook friendships require the assent of both parties. Is that the way it works for the BK thing? If I am friends with Mary and I unfriend her through the Whopper Sacrifice app, is she then unable to unfriend me to help get her burger? If so, then the $3.6 billion valuation drops to $1.8 billion because each unfriending event takes care of 2 friend connections, not just one. Anyone? Note: we are already taking this too seriously!
Update: Ok, it looks like unfriending on Facebook takes out two friendship connections, not just one. So that drops each user's share to $12 and the valuation to $1.8 billion. D. Final answer, Regis. (thx, everyone)
Unless we exercise foresight and devise growth-limits policies for the auto industry, events will thrust us into a crisis that will lead to a substantial erosion of our domestic oil supply as well as the independence it provides us with, and a level of petroleum imports that could cost as much as $20 to $30 billion per year. (This in turn would produce a staggering balance-of-payments problem for the United States, and give the Middle Eastern suppliers a dangerous leverage over our transportation system as well.) Moreover, we would still be depleting our remaining oil reserves at an unacceptable rate, and scrambling for petroleum substitutes, with enormous potential damage to the environment.
And:
In short, common sense dictates that we begin a transition to policies designed to avoid an energy impasse that could cripple out transportation system and imperil our economy. We must set growth limits that will allow the automobile and oil industries to maintain economic stability while conserving our resources and preserving our environment. Of course, such a reorientation will require statesmanship as well as public pressure. It will not happen unless corporate self-interest yields to a responsible outlook that serves the broader interests of the nation as a whole. Above all, this shift requires a thorough redirection of the aims of these two industries.
Believe it or not, those words appeared in the magazine in 1972. These views would have seemed out-of-date and old fashioned just a year or two ago but now all those chickens are coming home to roost.
Through war and recession, Americans have turned to the glistening canned product from Hormel as a way to save money while still putting something that resembles meat on the table. Now, in a sign of the times, it is happening again, and Hormel is cranking out as much Spam as its workers can produce.
In a factory that abuts Interstate 90, two shifts of workers have been making Spam seven days a week since July, and they have been told that the relentless work schedule will continue indefinitely.
An indicator based on the theory that a consumer turns to less expensive indulgences, such as lipstick, when she (or he) feels less than confident about the future. Therefore, lipstick sales tend to increase during times of economic uncertainty or a recession.
The most interesting bit of Gladwell's piece is his discussion of the economics of the two different types of artist. The conceptual artist's talent is noticed and rewarded immediately. But conceptual innovators need more help to reach their full potential.
Sharie was Ben's wife. But she was also-to borrow a term from long ago-his patron. That word has a condescending edge to it today, because we think it far more appropriate for artists (and everyone else for that matter) to be supported by the marketplace. But the marketplace works only for people like Jonathan Safran Foer, whose art emerges, fully realized, at the beginning of their career, or Picasso, whose talent was so blindingly obvious that an art dealer offered him a hundred-and-fifty-franc-a-month stipend the minute he got to Paris, at age twenty. If you are the type of creative mind that starts without a plan, and has to experiment and learn by doing, you need someone to see you through the long and difficult time it takes for your art to reach its true level.
"It's the coin of the realm," says Mark Bailey, who paid Mr. Levine in fish. Mr. Bailey was serving a two-year tax-fraud sentence in connection with a chain of strip clubs he owned. Mr. Levine was serving a nine-year term for drug dealing. Mr. Levine says he used his macks to get his beard trimmed, his clothes pressed and his shoes shined by other prisoners. "A haircut is two macks," he says, as an expected tip for inmates who work in the prison barber shop.
The owner had been paying a piece rate -- a rate per kilogram of fruit -- but also needed to ensure that whether pickers spent the day on a bountiful field or a sparse one, their wages didn't fall below the legal hourly minimum. Farmer Smith tried to adjust the piece rate each day so that it was always adequate but never generous: The more the work force picked, the lower the piece rate. But his workers were outwitting him by keeping an eye on each other, making sure nobody picked too quickly, and thus collectively slowing down and cranking up the piece rate.
Over the course of three summers, three different approaches raised the total harvest by 50% the first year, another 20% the second year, and by another 20% the third year.
The Russian/Georgian conflict has proven the McDonald's theory of war wrong. The theory stated that no two countries with McDonald's restaurants would ever go to war with each other. (via mr)
This is a stunning moment in economic history: At one time we worked hard so that someday we (or our children) wouldn't have to. Today, the more we earn, the more we work, since the opportunity cost of not working is all the greater (and since the higher we go, the more relatively deprived we feel).
In other words, when we get a raise, instead of using that hard-won money to buy "the good life," we feel even more pressure to work since the shadow costs of not working are all the greater.
The increasing income inequality in the US is partially to blame, says Conley. Those in the middle and upper middle classes are working harder and longer, trying to keep up with the Joneses who are growing more wealthy at an even faster pace. Conley's got a book coming out in January on the same topic called Elsewhere, USA. (via ah)
When Mr. Gladwell submitted an article about Mr. Galenson's ideas to The New Yorker, he suffered his first rejection from the magazine. "You buy this Galenson stuff?" Mr. Gladwell recalled his editor saying to him. "What are you, crazy?"
But never mind all that, Old Masters and Young Geniuses is one of the most interesting books I've read in the past few years. I haven't studied enough art history to know if Galenson's thesis is correct, but the book presents an interesting framework for thinking about innovation and how to best harness your own creativity.
The main idea is this. Instead of people being super creative when they're young and getting less so with age (i.e. the conventional wisdom), Galenson says that artists fall into two general categories:
1) The conceptual innovators who peak creatively early in life. They have firm ideas about what they want to accomplish and then do so, with certainty. Pablo Picasso is the archetype here; others include T.S. Eliot, F. Scott Fitzgerald, and Orson Wells. Picasso said, "I don't seek, I find."
2) The experimental innovators who peak later in life. They create through the painstaking process of doing, making incremental improvements to their art until they're capable of real masterpiece. Cezanne is Galenson's main example of an experimental innovator; others include Frank Lloyd Wright, Mark Twain, and Jackson Pollock. Cezanne remarked, "I seek in painting."
Galenson demonstrates these differences through analysis of how often artists' works are reproduced in textbooks, auction prices, and museum shows. The pattern is clear, although the method is less than precise in some cases and Galenson has since backed off his thesis somewhat. But the compelling part of the book is what the artists themselves say about how they work. The text is littered with quotes from painters, poets, writers, sculptors, and movie directors about how they perceived their own work and the work of their peers and predecessors. Their thoughts provide ways for contemporary creators to think about how their creativity manifests itself.
We reached a transit camp in Italy about a fortnight after capture and received 1/4 of a Red Cross food parcel each a week later. At once exchanges, already established, multiplied in volume. Starting with simple direct barter, such as a non-smoker giving a smoker friend his cigarette issue in exchange for a chocolate ration, more complex exchanges soon became an accepted custom. Stories circulated of a padre who started off round the camp with a tin of cheese and five cigarettes and returned to his bed with a complete parcel in addition to his original cheese and cigarettes; the market was not yet perfect. Within a week or two, as the volume of trade grew, rough scales of exchange values came into existence. Sikhs, who had at first exchanged tinned beef for practically any other foodstuff, began to insist on jam and margarine. It was realized that a tin of jam was worth 1/2 lb. of margarine plus something else; that a cigarette issue was worth several chocolates issues, and a tin of diced carrots was worth practically nothing.
The cigarette soon became the coin of the realm and at camps with stable populations, there were shops operated by the senior British officer with cigarettes as the currency people used to buy and sell goods to/from the store.
One trader in food and cigarettes, operating in a period of dearth, enjoyed a high reputation. His capital, carefully saved, was originally about 50 cigarettes, with which he bought rations on issue days and held them until the price rose just before the next issue. He also picked up a little by arbitrage; several times a day he visited every Exchange or Mart notice board and took advantage of every discrepancy between prices of goods offered and wanted. His knowledge of prices, markets and names of those who had received cigarette parcels was phenomenal. By these means he kept himself smoking steadily - his profits - while his capital remained intact.
The article also discusses deflation, the shifting availability of currency, credit, price movements, futures markets, paper currency, and price fixing. (via migurski)
One of my friends proposed a theory I find compelling: Our cultural consumption exists on a spectrum from "individual" to "collective". Technology has shifted the balance for both books and music. Digital distrbitution and the iPod have made music consumption much more individualistic, while the internet and global branding have made book consumption increasingly collective.
When eating out, people reported consuming about 35 percent more calories on average than when they ate at home. But importantly, respondents reduced their caloric intake at home on days they ate out (that's not to say that people were watching their weight, since respondents who reported consuming more at home also tended to eat more when going out). Overall, eating out increased daily caloric intake by only 24 calories. The results for urban and suburban consumers were similar.
Yesterday, New York raised the tax on cigarettes by $1.25. With the previous taxes, the city tax of $1.25, and the variable pricing one sees at retail outlets around the city, people are now paying somewhere between $8 and $12 for a pack of cigarettes in NYC. Some smokers are understandably upset about the price but how does it compare to other enjoyments? If smoking a single cigarette takes five minutes and at $10 & 20 cigarettes per pack, smoking costs a smoker $6/hour. Some other NYC diversions, priced roughly by the hour:
Ice skating in Central Park: $4.25/hr
Yankees game (cheap seats): $5/hr
Smoking: $6/hr
Visit to MoMA: $8/hr
After-work drinks: $10/hr
Movie w/popcorn & soda: $11/hr
Dinner @ McDonald's: $11/hr
Dinner @ Daniel: $85/hr
Helicopter tour of NYC: $600/hr
Spitzer-grade call girl: $1000+/hr
For reference, NY State minimum wage is $7.15/hr. (Digg this?)
I was in Vermont over the weekend and talking to a dairy farmer about the rising price of milk. I was surprised when she said that higher sawdust prices was one of the causes. Sawdust? Sawdust, it turns out, is used for bedding the cows and the price of dust has doubled in the past year. I surmise that the downturn in housing construction has meant a reduced demand for lumber and thus less sawdust.
Ms. Stein's rationale for buying lipstick echoes a theory once proposed by Leonard Lauder, the chairman of Estee Lauder Companies. After the terrorist attacks of 2001 deflated the economy, Mr. Lauder noticed that his company was selling more lipstick than usual. He hypothesized that lipstick purchases are a way to gauge the economy. When it's shaky, he said, sales increase as women boost their mood with inexpensive lipstick purchases instead of $500 slingbacks.
Unlike their low-end counterparts, high-end call girls are expected to supply some level of companionship, and often accompany clients to dinners or parties. Because a beautiful and intelligent woman inevitably has other job (and marriage) options, a very high wage is necessary to encourage them to forgo other opportunities, and risk arrest, disease and shame.
And escorts must spend a great deal maintaining their value without immediate compensation. Much time and money is spent on grooming: hair removal, expensive hair-cuts (one stylist I spoke to claims several of his clients are escorts, who spend at least $1,000 a month on extensions and colour) and regular exercise. Many women have had plastic surgery (particularly if they were once men) and maintain an expensive designer wardrobe. Frequent visits to the doctor are necessary to protect against sexually-transmitted diseases.
Like most west Europeans, Britons tend to have more left-wing views than Americans, but the first chart shows that this is often by a surprising margin. ("Left" and "right" are harder to locate than they were: here "left" implies a big-state, secular, socially liberal, internationalist and green outlook; right, the reverse.) The data are derived by subtracting left-wing answers from right-wing ones, for each country and for each main political grouping within each country. A net minus rating suggests predominantly left-wing views and a positive rating suggests a preponderance of right-wing views.
Next month sees the arrival of Asshole: How I got Rich and Happy by Not Giving a S*** About You, by New York author Martin Kihn. "I was the nicest guy in the world - and it was killing me," he says in the book. "My life was a dictionary without the word 'no'. If you asked me for a favour -- even the kind of favour that required me to go so far out of my way that I needed a map, a translator and an oxygen tank -- even if I didn't know you that well, I might hesitate a second, but I'd always say yes."
Kihn walked other people's dogs, traipsed out of his way to bring back the most complicated lunch orders for colleagues and handed over his money to whichever charity or sales scam asked for it. The result of such "kindness" was a dead-end job and a second-rate apartment.
While Gryzb recommends subtle personality changes, Kihn takes it a step further. He picked up tips from the masters - Donald Trump, Scarface and "the guy in my building with a tattoo on his face" -- and decided to "blowtorch away my old personality and uncover the rock-hard warrior within". In his book, Kihn devises a "10-step programme to assholism" for anyone wanting to acquaint themselves with their darker side. He himself signed up to the National Rifle Association, started kickboxing, screamed at colleagues and ate garlic bagels on public transport.
Think you'd be happier if you won the lottery or just had a few extra bucks in your pocket? Think again. Overturning classic economic wisdom, new research shows that it's not how much you have that matters, it's how you spend it. People who donate their dollars to charities or splurge on gifts for others are more content than those who squander all the dough on themselves.
This paper extends interplanetary trade theory to an interstellar setting. It is chiefly concerned with the following question: how should interest charges on goods in transit be computed when the goods travel at close to the speed of light? This is a problem because the time taken in transit will appear less to an observer travelling with the good than to a stationary observer. A solution is derived from economic theory, and two useless but true theorems are proved.
Some of these heuristics were pretty obvious -- people tend to make inferences from their own experiences, so if they've recently seen a traffic accident they will overestimate the danger of dying in a car crash -- but others were more surprising, even downright wacky. For instance, Tversky and Kahneman asked subjects to estimate what proportion of African nations were members of the United Nations. They discovered that they could influence the subjects' responses by spinning a wheel of fortune in front of them to generate a random number: when a big number turned up, the estimates suddenly swelled.
Dueling Kickoffs: To begin overtimes, each team will kick off to each other on consecutive plays. The team that advances the ball furthest will have possession at the point on the field where the ball was advanced. Sudden death is preserved.
Let's look at individuals. Human beings evolved in small groups and hunter-gatherer societies, in which virtually all competition was face to face. That is the environment most of us are biologically and emotionally geared to succeed in, and it explains why our adrenalin surges when a rival wins the boss's favor or flirts with our special someone. But in the new arena, with its faceless and anonymous competitors, those who are driven to action mostly by adrenalin will not fare well. If that's what they need to get things done, they will become too passive and others will overtake them.
To me, the most interesting challenge is maintaining motivation in the absence of visible competition. How do you win a race you might not even know you're running?
The other sex diary is more puzzling and, in a way, more informative. An economist to the core, Keynes organized the second sex diary also year-by-year, but this time in quarterly increments.
Unfortunately for us, however, this second sex diary is in code. And as far as I know, no one yet has been prurient enough to crack it.
Here's what Keynes' tabulation looks like. For every quarter-year from 1906 to 1915, he tallies up his sexual activities and totals them under three categories: C, A, and W.
For each of these headings, he records the number of times each activity occurred, and also when. For example, between May and August, 1911, he performed (if that's the right word) C sixteen times, A four times, and W five times.
China and India combined to produce nearly half the world's economic output in 1820 compared to just 1.8% for the U.S. Our remarkable growth since 1820 has benefited from democratic institutions, a belief in capitalism, private property rights, an entrepreneurial culture, abundant resources, openness to foreign investment, the best universities, immigration and relatively transparent markets.
The transaction-level data we collected suggests that street prostitution yields an average wage of $27 per hour. Given the relatively limited hours that active prostitutes work, this generates less than $20,000 annually for a women working year round in prostitution. While the wage of a prostitute is four times greater than the non-prostitution earnings these women report (approximately $7 per hour), there are tremendous risks associated with life as a prostitute. According to our estimates, a woman working as a prostitute would expect an annual average of a dozen incidents of violence and 300 instances of unprotected sex.
The authors also noted that a prostitute was "more likely to have sex with a police officer than to get officially arrested by one". (via marginal revolution)
One of the most persistent is that of the broken window -- one breaks and this is celebrated as a boon to the economy: the window manufacturer gets an order; the hardware store sells a window; a carpenter is hired to install it; money circulates; jobs are created; the GDP goes up. In truth, of course, the economy is no better off at all.
In fact, Mr. President, your initial pro-war arguments offer the best path toward understanding why the conflict has been such a disaster for U.S. interests and global security.
Following your lead, Iraq hawks argued that, in a post-9/11 world, we needed to take out rogue regimes lest they give nuclear or biological weapons to al-Qaeda-linked terrorist groups. But each time the United States tries to do so and fails to restore order, it incurs a high -- albeit unseen -- opportunity cost in the future. Falling short makes it harder to take out, threaten or pressure a dangerous regime next time around.
Foreign governments, of course, drew the obvious lesson from our debacle -- and from our choice of target. The United States invaded hapless Iraq, not nuclear-armed North Korea. To the real rogues, the fall of Baghdad was proof positive that it's more important than ever to acquire nuclear weapons -- and if the last superpower is bogged down in Iraq while its foes slink toward getting the bomb, so much the better. Iran, among others, has taken this lesson to heart. The ironic legacy of the war to end all proliferation will be more proliferation.
The planned invasion will strike another blow at the structure of international law and treaties that has been laboriously constructed over the years, in an effort to reduce the use of violence in the world, which has had such horrifying consequences. Apart from other consequences, an invasion is likely to encourage other countries to develop WMD, including a successor Iraqi government, and to lower the barriers against resort to force by others to achieve their objectives, including Russia, India, and China.
A plot of Japan's Phillips curve ("a historical inverse relation and tradeoff between the rate of unemployment and the rate of inflation in an economy") looks like Japan itself.
Of course, everyone knows that art and culture help make New York a great place to live. But Currid goes much further, showing that the culture industry creates tremendous economic value in its own right. It is the city's fourth-largest employer, and generates billions of dollars a year in revenue. More important, New York has no real global rival for dominance in the culture industry. Using an economic-analysis tool called a "location quotient," Currid calculates that New York matters far more to fashion, art, and culture than to finance. To exaggerate a bit, if New York suddenly disappeared, stock markets could keep functioning, but we would not be able to dress ourselves or find art to put on the wall. Currid suggests that, in the fight among cities for business, being the center of fashion and art constitutes New York's true "competitive advantage."
New York's cultural economy has reached a critical juncture, argues Ms Currid, threatened by, of all things, prosperity. The bleak economic conditions of the 1970s allowed artists to flock into dirt-cheap apartments and ushered in the East Village scene of the early 1980s. The boom of the past decade, by contrast, has priced budding Basquiats out of Manhattan, pushing them across the water to Brooklyn and New Jersey. Studio flats meant for artists-in-residence get snapped up by bankers. The closure last year of CBGB, a bar that became a punk and art-rock laboratory in the 1970s (and whose founder, Hilly Kristal, died last month) came to symbolise this squeeze.
Ms Currid sees this expulsion of talent as a serious problem. The solution, she argues, lies in a series of well-aimed public-policy measures: tax incentives, zoning that helps nightlife districts, more subsidised housing and studio space for up-and-coming artists, and more.
The $10 began its long journey into Kellener's wallet in 1983, when a beefed-up national defense budget of $210 billion enabled the military to purchase advanced warhead-delivery systems from aerospace manufacturer Lockheed. Buoyed by a multimillion-dollar bonus, then-CEO Martin Lawler bought a house on a 5,000-acre plot in Montana....
Marginal Revolution and CNN (and New York magazine and Reddit and etc.) asked their respective readers: how much did you pay for In Rainbows, Radiohead's new album which is only available as a pay-what-you-want download. I paid around £8.50 (~ US$17), which splits the difference between a typical album price in the UK and the US. (Actually, what I did was download it from elsewhere because Radiohead's online store was down yesterday morning and then went back to pay for it just now.)
Tyler Cowen mentioned "green accounting" and William Nordhaus in a post the other day so I went looking for more information on the subject. Here's one of the more succinct descriptions I found of the problem that green accounting aims to address:
When a majestic, 300-year-old red-wood is cut down and turned into picnic tables, the logging and picnic table-building activities add to the gross domestic product (GDP), while no deduction is made for the loss of that tree and all the nonmarket services it provides. When a paper mill dumps dioxin-laden wastes into a river, the paper-making boosts the GDP, but no deduction is made for the costs associated with the water pollution. Conversely, no addition is made to the GDP for the air and water cleaned by wetlands or old-growth forests.
Within weeks I discovered that restaurants will typically give you four desserts for the price of three if you ask for a sampler. That a draft beer is generally good for a free refill with a little prodding. That you can get an extra 20 percent off at Ikea by pressing past the cashiers, past the floor salespeople, up into the bottommost managerial rungs, by comparing the price of one perfectly well priced dresser with its slightly less well priced but better-sized counterpart one floor down.
Surprisingly, we find few tangible social or political impacts of the Klan. There is little evidence that the Klan had an effect on black or foreign born residential mobility, or on lynching patterns. Historians have argued that the Klan was successful in getting candidates they favored elected. Statistical analysis, however, suggests that any direct impact of the Klan was likely to be small. Furthermore, those who were elected had little discernible effect on legislation passed.
Steven Levitt notes a passage from Edward Conlon's Blue Blood about the difference in pay between the police and homeless panhandling heroin addicts. The answer might surprise you.
The personal lives of CEOs have come under scrutiny lately because what a CEO does in his off-hours seems to have a bearing on how well his company's stock performs. "It found that on average, the stocks of companies run by leaders who buy or build megamansions sharply underperform the market. The researchers don't claim to know why. They theorize that some of these executives might be focused more on enjoying their wealth and less on working hard." (via mr)
Also, I loved that the WSJ published the nickname of "Frederick E. 'Shad' Rowe Jr." Shad Rowe!
Over at Marginal Revolution, Alex Tabarrok is advocating a game show called So You Think You Can Be President? instead of debates to better educate voters about presidential candidates. "Presidential candidates have 12 hours to get a bitterly divorcing couple to divide their assets in a mutually agreeable manner. (Bonus points are awarded if the candidate convinces the couple to stay together.)" Awesome.
A Brief History of Economic Time. "No 18th-century politician would have asked 'Are you better off than you were four years ago?' because it never would have occurred to anyone that they ought to be better off than they were four years ago." (via migurski)
Crime in the three biggest American cities (NY, Chicago, LA) is down...and up almost everywhere else. In part, this is due to the aging of the population in those cities. "Together they lost more than 200,000 15-to 24-year-olds between 2000 and 2005. That bodes ill for their creativity and future competitiveness, but it is good news for the police. Young people are not just more likely to commit crimes. Thanks to their habit of walking around at night and their taste for portable electronic gizmos, they are also more likely to become its targets." Young people, your gizmos are hurting America!
The price of a bottle of Coca-Cola remained a nickel for more than 70 years, until 1959. "The price of sugar tripled after World War I before falling back somewhat; over the past six decades, the price of coffee has gone up eightfold. Coke itself was taxed first as a medicine, then as a soft drink, and survived sugar rationing. All the while, the price stayed at a nickel."
Graphs of the US minimum wage from 1938 to the present. If you take inflation into account, it's been falling pretty steadily since 1968. But also note that number of people directly affected by the minimum wage has declined as well to just over 2% of workers. (via rb)
In a money game with anonymous rich and poor players, rich players will give up some money to help the poor but poor people are more likely to spend their money to make the rich players less rich. Reminds me of the ultimatum game in which people reject free money when they feel like they're getting a raw deal in comparison to someone else.
Ben Stein on "what's new and hot and exciting" in the world on money: "The most sought after jobs in the United States now are jobs in finance in which basically almost no money is raised for new steel mills or coal mines, but immense sums are raised to buy companies, recapitalize them -- which means pay the new owners immense special dividends and other payments for going to the trouble of taking over the company. This process results in fantastically well-paid investment bankers and private equity 'financial engineers' and has no measurably beneficial effect on the economy generally. It does facilitate the making of ever younger millionaires and an ever more leveraged American corporate structure."
Advertising Age reports (via gulfstream) that despite having spent as much as a reported $100 million on advertising and promotion, the (RED) campaign has raised only $18 million to fight AIDS in Africa. (RED) CEO Bobby Shriver responds by saying that the amount will soon be $25 million, they're in it for the long haul, and that there are non-monetary benefits to all of the advertising -- "A phenomenal benefit is that Gap, Apple, Sprint and other sales people are meeting Americans and explaining that 5,500 Africans dying daily of AIDS is preventable".
The (RED) campaign strikes me as part of a larger trend in the US (and perhaps elsewhere too): the idea that if you, the consumer, spend normally (or even increase your spending), it is possible to break the law of conservation of energy and somehow save more money or lives. Other examples of the spend-to-save trend include the Discover Card Cashback Bonus program, the Bank of America Keep the Change program, and hundreds of retail promotions where, golly, if you spend another $20 on something you don't need, you get a free something that you really don't need.
It seems to me that if The Gap really cared about stopping HIV/AIDS in Africa, they would just donate the $7.8 million they spend on (RED) advertising to the Clinton Foundation. If Discover really cared about saving you money, they'd lower their APR to prime + 1.
I realize that the entire US economy is a house of cards kept standing by the escalation of spending and credit card debt by American consumers, but the sad fact is that to save money, you need to cut spending or increase income. And if you really want to help fight AIDS in Africa, instead of buying that (RED) Gap t-shirt for which Gap will donate 50% of its profit to The Global Fund, buy a cheaper one at American Apparel and send the $13 difference to the Global Fund yourself.
The WSJ reports on economist J.C. Bradbury's new book The Baseball Economist, which sounds Moneyball-ariffic. Contrary to popular belief in "protection", Bradbury found that "a weak on-deck hitter makes a batter more likely to get an extra-base hit". Bradbury is also the author of the Sabernomics blog. (via biourbanist)
Joel Kotkin argues that the "superstar cities" (New York, LA, Chicago, Boston, San Francisco) are overrated and overpriced and that the real economic and social action in the US is happening in the more affordable cities (Charlotte, Houston, Las Vegas, Phoenix). This article contains a wealth of buzzwordy phrases...in addition to "superstar cities", Kotkin refers to a "Bloombergian luxury product", "trustafarians", the "Vailization effect", "neocon anti-urbanism", and "Mayor Bloomberg's luxury calculus". (via biourbanist)
Long audio interview with Michael Lewis by economist Russ Roberts on "the hidden economics of baseball and football". "Michael Lewis talks about the economics of sports -- the financial and decision-making side of baseball and football -- using the insights from his bestselling books on baseball and football: Moneyball and The Blind Side. Along the way he discusses the implications of Moneyball for the movie business and other industries, the peculiar ways that Moneyball influenced the strategies of baseball teams, the corruption of college football, and the challenge and tragedy of kids who live on the streets with little education or prospects for success."
James Surowiecki discusses the waste of holiday giving. "Waldfogel's main finding is that, in general, people spend a lot more on presents than they're worth to those who receive them, a phenomenon that he calls 'the deadweight loss of Christmas.'" This is one of my big problems with the whole Christmas thing. Related: gift cards worth billions of dollars are left unredeemed each year.
Tariffs and quotas are extremely hard to get rid of, once established, because they create a vicious circle of back-scratching-government largesse means that sugar producers get wealthy, giving them lots of cash to toss at members of Congress, who then have an incentive to insure that the largesse continues to flow. More important, protectionist rules flourish because the benefits are concentrated among a small number of easy-to-identify winners, while the costs are spread out across the entire population. It may be annoying to pay a few more cents for sugar or ethanol, but most of us are unlikely to lobby Congress about it.
Maybe we should, though. Our current policy is absurd even by Washington standards: Congress is paying billions in subsidies to get us to use more ethanol, while keeping in place tariffs and quotas that guarantee that we'll use less. And while most of the time tariffs just mean higher prices and reduced competition, in the case of ethanol the negative effects are considerably greater, leaving us saddled with an inferior and less energy-efficient technology and as dependent as ever on oil-producing countries.
Maddening. Partisan politics is a not-very-elaborate smokescreen to distract us from this bullshit.
There's evidence that the dot com bubble wasn't all that bad. A study found that "the attrition rate for dot-com companies was roughly 20% a year, which is no different from what occurred during many other industries, such as automobiles, during their early boom periods" and that the market could have supported more smaller niche companies during that time. Also of note: the Business Plan Archive "collects and preserves business plans and related planning documents from the Birth of the Dot Com Era so that future generations will be able to learn from this remarkable episode in the history of technology and entrepreneurship".
At PopTech a few weeks ago, Lester Brown, who has been a leading advocate of environmentally sustainable development for almost 30 years, spoke about the impact of the increasing production of ethanol. As more corn gets used for making automotive fuel, that reduces the amount of grain available for food production. As demand rises, so will the price...no matter what people are using the corn for, be it fuel or food. The countries that will really suffer in this scenario are those that import lots of grain for food.
When Brown said this, I immediately thought of Mexico. When you consider the food culture of Mexico, one of the first things to mind is corn. Corn (maize) was likely first domesticated in Mexico and remains the cornerstone of Mexican cuisine; in short, corn is far more Mexican than apple pie is American. In 1491, his excellent book on the pre-Columbian Americas, Charles Mann tells us that despite corn's high status, Mexico is increasingly importing corn from the United States because it's cheaper than local corn:
Modern hybrids are so productive that despite the distances involved US corporations can sell maize for less in Oaxaca than can [local farmer] Diaz Castellano. Landrace maize, he said, tastes better, but it is hard to find a way to make the quality pay off.
Those great tortillas you had at some local place while on vacation in Mexico? There's an increasing chance they're made from US corn. Mmm, globalizious! Of course, Mexican farmers are getting out of the farming business because they can't compete with the heavily subsidized US corn and Mexico is losing control over one of their strongest cultural customs. Now that ethanol is changing the rules, there's a bidding war brewing between Americans who want to fill their gas tanks and Mexicans who want to feed their children. Odds are the tanks stay fuller than the stomachs.
For reference, here's what increasing ethanol production has done to the price of corn over the past three months:
And that's despite a fantastic US corn harvest. The graph is from this article in the WSJ, which contains a quick overview of the effects that the growing ethanol industry might have.
The Malthusian trap is "a return to subsistence-level conditions as a result of agricultural production being eventually outstripped by growth in population".
The economic case against philanthropy: charity is selfish. "Those organizing fund-raising drives for the United Way tend to be disproportionately real estate agents, insurance brokers, car dealers, and other people with something to sell."
Tyler Cowen takes a closer look at the recent "600,000 deaths in Iraq" claim. "We all know that the political world judges Iraq by the absolute badness of what is going on (which means Bush critics find a higher number to fit their priors), but that is an incorrect standard. We should judge the marginal product of U.S. action, relative to what else could have happened. In that latter and more accurate notion of a cost-benefit test, U.S. actions probably appear worst when deaths are rising over time, and hitting very high levels in the future."
Interesting story from Steven Levitt: stuck in a Vegas poker tournament with a $3000 first prize but needing to go to the airport to catch the last flight of the night, he starts playing very aggressively in order to win big or lose everything so that he can leave. (via gulfstream)
Malcolm Gladwell on how the demographics of companies affects their financial health. At the time of its bankruptcy in 2001, Bethlehem Steel "had twelve thousand active employees and ninety thousand retirees and their spouses drawing benefits. It had reached what might be a record-setting dependency ratio of 7.5 pensioners for every worker." More from Gladwell on the piece here and here.
During the depths of the dot com bust, Julian Dibbell looked online for a job and found one as a commodities trader in the Ultima Online virtual world. During one particularly productive month, he made almost US$4000. Dibbell has a book coming out about the experience, Play Money: Or, How I Quit My Day Job and Made Millions Trading Virtual Loot. In addition to being available at bookstores in meatspace, Play Money will also be on sale in the virtual world of Second Life in the currency of that world (Linden dollars). From the press release:
In-game versions of Play Money designed by Second Life coder/publisher Falk Bergman are available for L$750. These copies can be signed by Dibbell at his in-Second Life interview with journalist Wagner James Au on July 27th. For the Second Life resident who needs something a bit more tactile, L$6250 buys a real-life copy of Play Money, shipped with care to the buyer's real life address, in addition to the standard in-game version.
(At the time of this press release, Linden dollars are trading at approximately L$300.00 to the US$1.00. Adjusted to US dollars, an online copy costs US$2.50, and the price of a real-life copy bought in-game is around US$20.85.)
Larger portions of food cause people to eat more. Anyone who has eaten at Chili's and observed the girth of their clientele already knows this. Related: I remember seeing some research that showed as the size of an HTML textarea increases, the more words people write in it. (via mr)
Update:A self-refilling soup bowl experiment suggests that "visual cues of portion size may influence intake". (thx, justin) Also, adding lanes to heavily traveled roadways increases traffic; that is, supply increases demand.
"The cluster effect is the effect of buyers and sellers of a particular good or service congregating in a certain place and hence inducing other buyers and sellers to relocate there as well."
Friends and finances in 21st century America: "More friends and acquaintances are now finding themselves at different points on the financial spectrum, scholars and sociologists say, thanks to broad social changes like meritocracy-based higher education, diversity in the workplace and a disparity of incomes among professions."
James Surowiecki fills us in on a new investment opportunity, housing futures. "If housing futures work the way they're supposed to, they will shift risk from those who are less able to bear it (individual homeowners with hefty mortgages) to those who are more willing to (speculators looking for a big upside on their investments). In the process, they will effectively provide a form of house-price insurance."
Launch party tonight (4/14) at Eyebeam for Yochai Benkler's new book, The Wealth of Networks. "His book shows why labor done outside the constraints of free markets and giant corporations can still have a huge impact on the economy and social relations. He argues that a 'third mode of production' offers the promise of a more free society, but only if we make the right collective decisions."
Beautiful people commit less crime. "Other studies have shown that unattractive men and women are less likely to be hired, and that they earn less money, than the better-looking. Such inferior circumstances may steer some to crime, Mocan and Tekin suggest."
CEO pay and perks can be a good indicator of how healthy a business is, so it makes sense that investors are interested in just exactly how much chief executives make. "We shouldn't expect to see a dent in executive compensation anytime soon. But in the long run companies that don't balance pay with performance tend to suffer where it matters most -- in the stock market."
Three economists share a cab, getting off at three different destinations. How do they split the fare? For answers, you might look to John Nash or the Talmud.
Surowiecki on the economics of textbooks, i.e. why they cost so damn much. "You can often buy the same textbook abroad for significantly less than it costs in the U.S., so students have learned to buy directly from places like the U.K., and a host of small businesses have sprung up to import books."
