Tag Archives: economics

Annoyed Thoughts About Planned Parenthood

I try not to comment on abortion because I’m baffled that it’s a major political issue, but the recent leak of Planned Parenthood videos and the ensuing effort to remove the taxpayer funding provided to PP are forcing me to point out two stupidities that I’ve seen circulated on Facebook and am currently watching on Larry Wilmore’s show. (If you haven’t seen it, it’s all the worst things of the Daily Show combined.)

1. “Planned Parenthood is the only place poor women can go for health care!” – Didn’t we just spend years installing a massive, expensive, invasive, and terrible federal program that ensures that even the poor have access to regular medical care like everyone else? Hasn’t the administration bragged about the program’s success? (Larry Wilmore has.) Shouldn’t you have to pick one between ‘everyone has health care access’ or ‘they have no place else to go for health care’?

2. “Taxpayer money can’t be used for abortions!” – Yeah, probably technically true, but also doesn’t matter. Money is fungible. If I want to give you money but don’t want you to spend it on drugs, I could pay your rent. Of course, you can then use your money which you were going to use for rent to buy drugs, so it’s no different than if I had bought you drugs. Same with abortions.

That is all.

Stockholm Tries To Help Seattle

A while ago I mocked an article that praised Stockholm’s rent control scheme as one way to prevent high rents in a place where construction of rental units is not keeping up with demand. I pointed that rent control was the cause of the shortage of housing, not a reason to institute rent control. Economists are universal in their loathing of rent control, and Stockholm has become proof that they’re right. This was driven home by a recently published letter from a Stockholm resident to the city of Seattle which is considering instituting rent control. Key excerpt:

Look at the inner city – people are waiting for 10-20 years to get a rental apartment, and around 7-8 years in my suburbs. (Red keys = new apartments, green keys = existing apartments).

Stockholm City Council now has an official housing queue, where 1 day waiting = 1 point. To get an apartment you need both money for the rent and enough points to be the first in line. Recently an apartment in inner Stockholm became available. In just 5 days, 2000 people had applied for the apartment. The person who got the apartment had been waiting in the official housing queue since 1989!

Perhaps nominal rents are “low” in Stockholm, but that ignores two things:

1. The cost of waiting years or decades for a rental is a massive cost that just isn’t reflected in the price.

2. The price for something you can’t get is infinity.

In any case, I’m just glad I mocked that article when I had the chance.


Better Financial Habits: A Project-Based Approach

Let’s say you incur an unexpected wasteful expense – perhaps you forget to cancel a hotel reservation and have to pay a fee, or your car is towed because you didn’t pay attention to the signs (hypothetically ). It’s a frustrating experience, and one that most people would rather forget and move on from. However, I’ve found that that sort of unforced error can be a great motivator to make permanent changes to your financial habits. [This works even if you already have excellent financial habits and helps you squeeze that last bit of savings from your daily and weekly routines.]

Let’s work through the hotel example: you pay $700 more than you had to because you didn’t cancel and book someplace cheaper in time. If you’re like most people, unless your finances are completely wrecked by this* you’ll probably cut back on something for a couple of days and then return to your regular life. This is a mistake.

*(and they shouldn’t be – your cash cushion should be able to pay a few months rent, let alone a weekend in Jersey)(…hypothetically speaking).

Here’s what you do: Write the number 700 down in a place you keep notes and access regularly. I use a spreadsheet, though in the past I’ve used a dry-erase board. Notebooks, smartphones, anything you normally use works. 700 is your starting point. The goal is to get that number to zero by cutting your spending in small ways until the savings add up to 700. A couple of guidelines:

1. Don’t cut out big items. If you have another big trip planned, don’t cancel it to offset the first mistake. Your finances should enable you to live a good life, not hold you back.

2. Don’t go crazy with austerity. You can stay home eating Ramen for a few weeks and get the job done, but that’s not sustainable.

3. Look for new habits. Instead of big things, look for savings in places where you have been meaning to make a change, or where you can develop a permanent new habit.  (It’s easier to make one change at a time, but don’t let me stop you from trying for more.)

Perhaps you get a $3 coffee every day on the way to work, or you get a couple of diet cokes at the vending machine, or you buy the $7.99 salad special at lunch, or you pay for an expensive garage instead of a cheaper one three blocks away. Start making coffee at home, buy a case of diet coke for your office, brown-bag your lunch, and park further away and walk a few minutes. Every time you do, note your savings and update your running total.

That seems straightforward, but it actually does a few things:

1. You feel better. You just do, when you get to erase a mistake.

2. You hold yourself accountable. It’s easy to feel you’ve “done enough” to offset the error. This way, you actually get your finances back where they need to be.

3. When it gets to zero, you can stop – but you don’t have to. If the process took long enough, your habit becomes part of your new routine. You’ll instinctively put on a pot of coffee in the morning, refresh your diet coke stash weekly, pack a sandwich with carrots nightly, and routinely park down the street.

It won’t always work – it’s not magic – but some of these habits will stick with you. If they don’t, don’t worry. You’ll make another mistake soon.

The Long Run Catches Up With Minnesota

My streak of being right seems to be continuing. In 2013 I disputed Matt Yglesias’s argument that high local taxes are not an obstacle to economic growth, and that cutting taxes is not a good way to attract development to your jurisdiction. Among other things, I argued that a snapshot of laws and development at any given point don’t account for the destructive effects of bad policy over time – a rich jurisdiction will still look good for a while after adopting bad policy, even if the policy destroys opportunity in the long run. I argued that California and New York have bad policies that take advantage of their unique assets like Hollywood and New York City, and said

The counterpoint is Minnesota, a high-wage, high-tax jurisdiction without unique assets. Let’s see how they hold up in the long run.

It seems like the long run has been catching up with Minnesota:

The state has lost residents every year since 2002, with young adults most eager to leave. About 9,300 18- to 24-year-olds move out annually, according to the Minnesota State Demographic Center. …By 2020, the state is forecast to have a shortage of more than 100,000 workers.

It looks like Minnesota’s particular mix of policy is not that great at creating opportunities for its young people. This makes sense: raising taxes or other costs won’t drive all business away (as many have invested in their location and will profit more from staying than moving) but it is much more effective at preventing new business from being created. For example, raising the minimum wage won’t drive your fast food restaurants out of business, but it will give those who would open a restaurant an incentive to go to a lower cost jurisdiction. These opportunities are now being created outside of Minnesota, and the young people know it.

Who’s Confirming Me Now?

1. A while back I wrote:

Cats are widely acknowledged to have won the internet over dogs, which has prompted a lot of explanations as to why. This recent Australian piece argues that lower costs of producing and disseminating cat videos have resulted in a spike of such videos. … This cat lover invokes the cat lovers’ craving of community, humans’ innate tendency to like cats, and a jealousy of their lazy, independent lifestyles. … There are thousands of other articles, each presenting some version of the theories above. I’ve looked around a bit, but I haven’t seen my own theory:

Dog lovers are outside throwing sticks and frisbees. Cat lovers are at home, filming their cats.

On CNN, they advance the same theory:

And that might be the ultimate explanation for why cats are so big on the Web. As enigmatic, homebound individuals with unconventional obsessions, unusual interests and limited social skills, “They have a lot in common with the people who spend the most time on the Internet,” says Joshua Green, vice president of digital strategy at Arnold Worldwide. “The centrality of cats to the digital world is because they have a cultural connection to the people who live there. The fact is, cats are just better nerd pets.”

2. I also wrote:

It is BECAUSE it’s sold that clean water is plentiful: someone makes money collecting dirty water, purifying it, bottling it, and delivering it to your local supermarket where you can pick up a refrigerated bottle for 99 cents. The only reason some people don’t have clean water is because they don’t have money to buy it. To fix the problem of access to clean water, the only workable solution is to make everyone rich enough to buy it at market prices.

Blog-favorite Megan McArdle, writing about the drought in California, agrees:

California’s proposal is far too heavy on top-down regulatory management, and far too light on pricing. … California’s problem is … that its population uses more water than it has to. And the reason people do this is that water in California is seriously underpriced.

Her piece is actually worth reading in its entirety, especially if you think water is the next scarce resource.

Allstate Defends Female Drivers By Showing Women Are Bad At Math

This Allstate commercial has been airing for a while and I’ve been meaning to call it out for being very stupid:

Rough transcript of the relevant part:

Woman: Remember when you said men are superior drivers?
Man: Yeah?
Woman: Yeah. Then how’d I get this Allstate safe driving bonus check? So weird, right?

Do you see the error? Of course you do. You read this blog. If not, try this instead:

Woman: Remember when you said men are taller than women?
Man: Yeah?
Woman: Yeah. Then how is it that I’m tall? So weird, right?

You see it now, right? Men can be better drivers EVEN IF this particular woman is also a good driver. Stats about populations are true on average, not literally true of every person in each population. It’s basic statistics and common sense, both of which this female character doesn’t seem to know or have.

(Re the underlying question: Freakonomics has a comprehensive review that shows that women get into more accidents per mile driven but men’s accidents tend to be more serious.)

In Which I Avenge Myself On A Nobel Prize Winner

I’ve mentioned this before, but former economist and current Democratic hack Paul Krugman once called my senior thesis “modest but not surprising.” As a result, I pick on him whenever I can. Fortunately, he makes it easy. After Wal-Mart announced raises for its employees, PK couldn’t contain his glee at what he considers vindication:

Walmart is ready to raise wages…. And its justification for the move echoes what critics of its low-wage policy have been saying for years: Paying workers better will lead to reduced turnover, better morale and higher productivity. What this means, in turn, is that engineering a significant pay raise for tens of millions of Americans would almost surely be much easier than conventional wisdom suggests. Raise minimum wages by a substantial amount; make it easier for workers to organize, increasing their bargaining power; direct monetary and fiscal policy toward full employment, as opposed to keeping the economy depressed out of fear that we’ll suddenly turn into Weimar Germany. It’s not a hard list to implement — and if we did these things we could make major strides back toward the kind of society most of us want to live in.

The emphasis is mine, because that’s where the error is. Krugman is correct that “paying workers better will lead to reduced turnover, better morale and higher productivity,” but only because Wal-Mart is doing it and most firms are not. If Wal-Mart pays more than comparable competitors, current employees will work harder to keep their jobs because losing a Wal-Mart job means settling for a lesser-paying job elsewhere. This reduces turnover (as fewer people leave), higher productivity (as employees get more experienced and also try harder), and better morale. Wal-Mart also gets to pick better candidates from the hiring pool because it pays better, giving them higher productivity still. However, if Wal-Mart’s competitors pay the same, all of these gains go away. You can slack a little more at work because if Wal-Mart lets you go, Kroger pays comparable wages – why try harder?

Basically, what’s a smart move for Wal-Mart isn’t necessarily a great move for the entire economy. What Krugman is really saying is that he’d really like for employers to pay low-skilled employees more. I do, too. But that’s not something you can dictate.

You’d think a Nobel Prize winner would know that.

T. Rowe Price And Statistical Innumeracy

T. Rowe Price has been running commercials for years telling us that “Over 70% of our funds beat their 10-year Lipper average.” (The Lipper Average is an industry-measure of average performance.) They’re still using it, and it’s even on their website, so it must be working for them. Measuring against average market performance is the right benchmark for investments, but investing in T. Rowe Price doesn’t actually guarantee you above-market performance. I don’t even mean the usual “past performance doesn’t guarantee future results.” I mean, even if you’d invested in ten funds ten years ago, and 70% of them outperformed the Lipper average, you may well have lost money. Assume a Lipper average of 9%, and the table below as a sample investment you made ten years ago.

Fund Initial Investment Final Amount Rate of Return
1 100 110 10
2 100 110 10
3 100 110 10
4 100 110 10
5 100 110 10
6 100 110 10
7 100 110 10
8 100 50 -50
9 100 50 -50
10 100 50 -50
Total 1000 920 -8

The losses you suffer in the 30% of funds that are below average may well erase all gains you get in the 70% that exceed the average. Your total return then may well be not only below the average, it may be below zero.

This is not an indictment of T. Rowe Price – they’re probably a fine bank or whatever. But “70% of our funds exceed their Lipper average” doesn’t really provide you with useful information. Don’t fall for it.

Email Disclaimers And The Environment

A few months ago, I wrote about how the IRS had probably killed people, or at least caused significant property damage (which you can translate into lives lost), by requiring a disclaimer attached to emails. The disclaimer is no longer required, but that doesn’t change the underlying logic of the costs of unnecessary language. Jeff Bennion at Above The Law puts some numbers to the principle, using the frequently encountered missive to “Please Consider The Environment Before Printing This Email.” He notes:

That disclaimer creates a .3 kb file size difference. Now, if every business email had that at the bottom, that would be 27,000,000,000 kb a day of data, or 27,000 gb of useless data being added every day to internet storage servers. That would be almost 10 million gigs of data a year of people patting themselves on the back for proclaiming their greenness. This data lives in server rooms where servers are kept on constantly. Only about half of the electricity costs of server data centers go towards running the servers. The other half is keeping the always-on servers cool so that the plastic Ethernet connectors do not overheat.

I know what you’re saying right now: “Not all 90 billion emails are including that at the bottom, so your estimates are way over.” True, but by that logic, it’s okay if only 10% of the population throws “Do not pollute” 6-pack-ring-shaped flyers into the ocean because it’s not everybody. Or, it’s okay to throw just a few cans out the window onto the highway if you are doing it to proclaim to others that you are against littering. The point is that it is a pointless gesture that, as a whole, does more harm than good.

As I mentioned in my original article, there are additional costs (reading, printing time, printing paper, printing ink, etc) involved in this. Nice to see the concept explored, though.

There’s more to this but I won’t write it. I’m saving lives.

Book Review: Average Is Over

Average Is Over, by Tyler Cowen

Blog-favorite Tyler Cowen’s last book came out in 2011, but I reread it recently after a flurry of reviews and criticism over the past few years. In particular, the participants in the largely pointless current debate about inequality would do well to read this book closely. It makes several predictions about America (it’s largely US-centric) in the next few decades.

At the center is Cowen’s prediction of an even more unequal distribution of wealth and/or income: at the top, 15% or so of the cognitive elite will have excellent lives; the remainder will be more underclass than middle class. The cause of this polarization are the increasing returns to working with machine intelligence – computers capable of making predictions with higher accuracy than humans.

The running example in the book – one that Cowen spends way more time on than is useful – is freestyle chess, combining human players with chess programs. The programs themselves are capable of defeating human grandmasters, but combined with a human they perform even better. Cowen predicts that jobs of the future will be similar: computers guiding humans who occasionally overrule the computers. The skills involved are cognitively demanding: interpreting computer data, analyzing it, and, perhaps most difficult, accepting computer recommendations that run counter to human instinct. Increased computer intelligence will permeate medicine, law, and business in a way that won’t be easy for many to handle. Those that can handle it will do well in the future.

Cowen spends quite a bit of time on the future of the underclass, which is less bleak than it sounds. Technology will make education and entertainment cheap and available, even if wages stagnate and housing becomes to resemble shantytowns more than today’s urban landscapes. (My guess is this prediction is least likely to come true, certainly in the short timeframe covered by the book.)

One interesting idea I didn’t expect was Cowen’s prediction that the world, for a while, will become more annoying as we adapt it to the machines. He compares it to customer service phone trees: machines still handle clear-cut things best, so our future is likely to be more regularized so the machines can handle it. In the longer run, they might catch up to us, but in the nearer future, we’ll just have to deal with a lot more stupidity.

Cowen’s predictions have been quite controversial – though often because the dissenter wishes he weren’t right – but this book is an important analysis of the near future. Highly recommended.