In the US federal prison system, cans of mackerel have replaced outlawed cigarettes as the de facto form of currency.
"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.
See also the economics of POW camps.
A British fruit company gave three economists the chance to increase the company's fruit harvest by tinkering with pay schemes of the pickers.
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)
Update: Depending on what you consider a war, the theory has been proven incorrect before. (thx, lots of folks who sent this in)
Social scientist Dalton Conley on how rich people are now working longer hours than poor people in America.
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)
This short NY Times profile of economist David Galenson reminded me that I never shared Old Masters and Young Geniuses with you. The book was recommended to me by Malcolm Gladwell -- which means that many of you can now form your opinion of it without even reading it -- through a talk that he gave a couple of years ago. Gladwell also wrote an article for the New Yorker about Galenson's work but it was rejected:
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.
The transcript of Gladwell's talk is a good introduction to there ideas. Galenson's next book, And Now for Something Completely Different, appears to be available online in its entirety in a preliminary form. Much more information is available on his web site.
How a rough system of barter developed into a more complex system of trade in WWII POW camps. This is fascinating stuff.
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)
A list of fifty things being blamed on rising oil prices. Among them: pizza deliviery prices, weakened demand for wine, "gas rage", and more foot patrol for police officers.
The internet and other technologies have had differing impacts on the music and publishing businesses.
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.
(via short schrift)
New paper: fast food doesn't make you fat.
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.
(via marginal revolution)
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?)
Has the housing downturn had a more-or-less direct effect on the rising price of milk?
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.
Lipstick as economic indicator.
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.
More economic indicators: sushi, Big Macs, steakhouses, Starbucks coffee, Coca-Cola, cigarettes, and Jay-Z.
The economics of high-end prostitutes.
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.
Despite a common heritage, the social, economic, and political differences between the United States and Britain are, in some cases, great.
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.
Compared to Britain, the US is a remarkably conservative nation. The companion chart is a good look at some of the data. (via gongblog)
Point. Being nasty can improve your life.
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.
Counterpoint. The secret to happiness is giving.
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.
(via 3qd)
NY Times columnist and economist Paul Krugman wrote a paper when he was an assistant professor in 1978 called The Theory of Interstellar Trade. Here's the abstract:
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.
An economic discussion about the implications of trading with aliens. No, not illegal aliens.
Why is movie popcorn so expensive? Because it subsidizes movie prices for more movie goers. That and the theaters get to keep all the profit they make on consessions; that's generally not true for ticket sales.
The conventional theories in economics and politics contend that people act rationally. Elizabeth Kolbert reviews a pair of books that suggest that's not really the case.
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.
In tied football games, the team that wins the coin toss often wins the game. Are there better ways to decide overtime games?
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.
Tyler Cowen on invisible competition and how it differs from competing with those around you.
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?
An attempt to decode the sex diaries of noted economist John Maynard Keynes. Keynes kept two diaries related to his sexual activities. The first was a straightforward listing of who/where/when.
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.
How does the GDP of the US today compare with that of other countries in the past?
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.
Very interesting paper on the economics of prostitution by Steven Levitt and Sudhir Venkatesh.
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)
Ten recurring economic fallacies, 1774-2004.
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.
This wasn't meant to be Tyler Cowen day on kottke.org, but you need to check out this concise barnburner of an article written by Cowen for the Washington Post on the cost of the war in Iraq. Taking the form of a letter to President Bush, the article explores the opportunity costs of the war and then offers the real reason why the war has been disastrous:
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.
As a refreshing mint, check out the length of the y-axis on this graph comparing the cost of the war and the amount spent by the US govt on energy R&D. (thx, ivan)
Update: Noam Chomsky, in an August 2002 interview:
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.
(thx, matt)
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.
Two quick reviews of Elizabeth Currid's book, The Warhol Economy, which argues that New York's "vibrant creative social scene" is what makes the city go. First, James Surowiecki in the New Yorker:
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."
And from The Economist:
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 first chapter of the book is available on the Princeton University Press site.
Reaganomics Finally Trickles Down To Area Man.
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.
If you're keen on learning more about green accounting and William Nordhaus' contributions, check out Nature's Numbers and the perhaps not-so-riveting Recommendations to The Bureau of Economic Analysis On Improving the National Economic Accounts. (I will also humbly note that this relates to something I wrote for WorldChanging last December. "The global economy is driven by nature, and yet it's not usually found on the accountant's balance sheet.")
NY Times columnist Paul Krugman writes, in the introduction to his new blog:
The story of modern America is, in large part, the story of the fall and rise of inequality.
Note that he says "fall" and then "rise", not the other way around. A graph in the post illustrates his point nicely.
From the abstract of a new paper on the influence of the Ku Klux Klan by Roland Fryer and Steven Levitt:
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.
The full paper is available on Fryer's web site. (via mr)
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.
Chart of the price of cocaine in countries around the world. Cheapest price is in Colombia ($2/g) while New Zealanders have to pay ~350 times that.
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!
Adding sushi to the ever-growing list of everyday consumables as economic indicators: steak, Big Macs, Starbucks coffee, Coca-Cola, and cigarettes.
Are the USPS's "forever" stamps a good deal for the consumer? "Absolutely not." Stamp prices increase more slowly than the inflation rate so stamps are continually getting cheaper.
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."
Stephen Dubner and Steven Levitt (aka the Freakonomics guys) on the first-world phenomenon of doing menial labor as a hobby. Examples: knitting, cooking, gardening, lawn care. More on the Freakonomics site.
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)
Compared with Snapple, whiteout, and Pepto Bismol ($123.20/gallon), gasoline is surprisingly inexpensive. "$21.19 for WATER - and the buyers don't even know the source. No wonder Evian spelled backwards is Naive."
Update: Rob Cockerham did a more extensive analysis of liquid pricing a few years ago.
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.
Short interview by James Surowiecki of Nassim Taleb about his new book, The Black Swan. "History is dominated not by the predictable but by the highly improbable -- disruptive, unforeseeable events that Taleb calls Black Swans. The effects of wars, market crashes, and radical technological innovations are magnified precisely because they confound our expectations of the universe as an orderly place." Malcolm Gladwell wrote an article on Taleb for the New Yorker in 2002, which Taleb said "put too much emphasis on the far less interesting, more limited -- and rather boring -- applications of my ideas to finance/economic, & less on the dynamics of historical events/philosophy of history, artistic success, and general uncertainty in society". See also an interview in New Scientist, a NY Times op-ed, and a long piece on the Edge site about the black swan idea.
People cruising the streets for parking meters do so because meter pricing is too low. "Underpriced curb spaces are like rent-controlled apartments: hard to find and, once you do, crazy to give up. This increases the time costs (and therefore the congestion and pollution costs) of cruising."
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)
A paper by Linda Bilmes of Harvard's John F. Kennedy School of Government concludes that in addition to the stated cost of the wars in Iraq and Afghanistan by the Bush administration, it will cost $350 - $700 billion for the US gov't to provide health benefits and care over the lifetimes of soldiers who served there. More from the Christian Science Monitor. (thx, marcus)
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."
David Pennock on the steep rise of Apple's stock after announcing the iPhone: "Jobs's speech could not possibly have revealed over $8 billion in previously undisclosed information".
Update: On the other hand, analysts think that Steve Jobs' mere presence at the company is worth $20 billion.
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.
Muhammad Yunus, who came up with the idea of microcredit, received his Nobel Peace Prize yesterday. His Nobel lecture is available in text and video formats.
Although Nintendo finds itself in third place in the video game console wars behind Sony and Microsoft, the company is doing really well financially while Sony and MS are maybe breaking even with their efforts. "Nintendo knew that it could not compete with Microsoft and Sony in the quest to build the ultimate home-entertainment device. So it decided, with the Wii, to play a different game entirely."
Tariffs on imported sugar and ethanol imposed by the US government keep our sugar expensive and is keeping the US from using more efficient methods of saving energy and, oh, by the way, helping the environment. This excerpt from the last two paragraphs of the piece is a succinct description of what's wrong with contemporary American politics:
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.
Surprising factoid from an article on legalizing kidney sales: "America already lets people buy babies from surrogate mothers, and the risk of dying from renting out your womb is six times higher than from selling your kidney". (via mr)
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".
Profile of economist Kevin Murphy, who none other than Steven Levitt calls "the smartest guy in the field".
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".
Video of a Steven Levitt talk on the economics of gangs and why gangbanger is not such a good vocation (for one thing, the job pays less than McDonald's). The board of directors stuff made me think of the co-op on The Wire.
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)
A pair of economists looked at the number of parking tickets accrued by diplomats at the UN (tickets for which they are not charged) to determine each country's corruption level. "Since, as their study reports, there is 'essentially zero legal enforcement of diplomatic parking violations,' the authors hypothesized that any cross-national variation in parking-violation rates should flow from culture alone." The worst offenders were the Kuwaitis, followed by Egypt. Diplomats from Canada, Israel, Norway, Sweden, and Denmark had 0 parking tickets. Here's the whole paper. (thx, susan)
For those unlucky enough not to get a slot, running in a marathon can be achieved by buying somone else's bib or just photocopying a friend's. Bibs for the upcoming NYC marathon are going for a few hundred dollars on eBay and Craigslist. (via clusterflock)
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.
Fascinating charts of how the US Senate votes on issues from a liberal-conservative perspective and a social issues perspective. More charts here. You'll notice that the lines on the graphs are mostly straight up and down which means "it's all economic; all the noise about social issues never actually flows thru into the legislative agenda." That is, the Senate decides issues, even social issues, based mostly on economics.
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.)
Dibbell will be signing his virtual books in Second Life on July 27th. Caterina read Play Money and has some thoughts on its relation to her work/play at Ludicorp. And here's a preview of Chinese Gold Farmers, a documentary on gold farming sweatshops in China.
Will Moore's Law slow down due to a lack of research funds? I've wondered for awhile whether Moore's Law didn't have more to do with the economics of the semiconductor industry than with engineering limits.
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.
Research shows that the lifetime earnings of graduates who enter the job market during recessions are lower than their boom-time colleagues. "Even a decade or more later, the class of 1988 was still earning significantly less. They missed the plum jobs right out of the gate and never recovered."
Big Mac index, meet the Coca-Cola index. The more wealthy, democratic, and the higher the quality of life, the more likely a country's inhabitants are to drink Coke. See also Starbucks as economic indicator.
The World Bank has a comprehensive package on World Cup 2006 and its relation to economics, including an economic analysis of who's gonna win and how the Cup influences economies in the winning/losing countries.
Update: Goldman Sachs has a 50+ page report on World Cup 2006 and economics [PDF link] as well. (thx, beau)
Lottery idea: instead of earmarking revenues for education, why not use the money for individual retirement accounts? The piece includes this startling fact: "Some 20 million Americans spend at least $1,000 a year on lottery tickets". !!!!
"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 s
