Month: September 2003

The power of quality certification

Consumer Reports has become so influential among car shoppers that some automakers now send preproduction cars to the magazine’s test engineers for suggested changes before the vehicles hit showrooms.”

At least forty percent of car buyers consult Consumer Reports for information about their forthcoming purchase, at least sixty percent of minivan buyers. The company refuses to accept advertising from automakers. Suzuki and Isuzu have sued the magazine for making false statements and “product disparagement.” For the full story, click here.

Arguments against micropayments

Why not use web technology to charge people very small bits for downloading songs, or reading blogs for that matter? An earlier note of mine discussed mental transactions costs — having to ponder the small charge each time — as a potential problem. An excellent post by Daniel Davies provides further, and better, ammunition against the micropayments idea. His key point: at some point micropayments have to clear through real financial institutions and the real shuffling of paper. Right now we don’t have the technology to do this more cheaply than credit card companies do, and they don’t find very small transactions to be worth their while.

Addendum: Here is a good response in defense of the practicality of micropayments.

Textbook Wars

There is plausible evidence that textbooks have deteriorated over time. A casual comparison of 19th and 20th century middle school textbooks shows the simplification of reading, with modern books presenting simple, dull passages (see examples here). Diane Ravitch attributes poor and inaccurate textbook content to self-censorship on the part of publishers, who fear having their products dropped as a response to noisy interest groups. Risk-averse publishers and simplified texts might be symptoms of a larger trend in American education: the emergence of large school districts who set the textbook market. The number of textbook buyers (school districts) has dropped by 90% since the beginning of the 20th century and creates a situation where publishers create products that cater to a few large, politically sensitive school districts. Milton Friedman makes a similar point when he argues that fewer, larger school districts means centralized, expensive and low quality education.

Tortured Justice

I am angry. The lawyers will get $19 million, the plaintiffs have no damages and I have been involved in an abuse of justice. I received notice yesterday that I was a plaintiff in a class action lawsuit against Bridgestone/Firestone that is about to be settled. I was never injured by Firestone but that’s ok because injured people have their own lawsuit the one I am involved in is for people who were not injured. The lawsuit reads “Plaintiff Does Not Seek To Represent And This Litigation Does Not Involve Any Person Who Alleges That He or She Suffered Any Personal Injury or Property Damage Because Of A Failure Of One Of The Tires” (capitalization in original.) Bear in mind that Firestone has already replaced all four of my tires with a competitor’s brand for free and similarly for many of the other plaintiffs.

The settlement is simple, Firestone agrees to sell and advertise tires (as part of a safety awareness program). The plaintiffs get nothing except for the named plaintiff who gets $2500. The lawyers? “Plaintiff intends to seek, and Firestone will not object to, an award of $19 million for all fees, costs and and expenses…” Plantiff’s attorney Zona Jones says “The outcome is one that we believe is extremely positive.” Yeah, right.

Cases like this should be thrown out by judges. But that is not going to happen because the case was brought in Texas where judges are selected by partisan elections. My research (summary here) shows that awards against out-of-state defendants are much higher in states that select their judges using partisan elections compared to other states. I have little doubt that the plaintiff’s lawyers (or their firm) are big contributors to Judge Donald Floyd’s reelection campaign (this is neither illegal nor uncommon in Texas).

I do not blame Firestone for settling, they comment that they have done so only “to avoid further expense, burden, distraction, and inconvenience of litigation.” But I am outraged that against my will I have been made a party to extortion and am saddened that Firestone believes, probably correctly, that they risk more than 19 million dollars by letting this trashy lawsuit go to court.

Why the EU won’t become a federal government

I was struck by Larry’s Siedentop’s words from today’s Financial Times (subscription required):

…the new member states will be very assertive once the formalities of enlargement are over. We can expect an unapologetic defence of national interests, a suspicion of encroachments from Brussels and an intense dislike of what might be called lurking double standards in the EU…It will be a pluralist vision rather than a unitary one, a preference for something more like a confederation than a federation. For behind the quasi-federalist form projected for Europe that is promoted, at least intermittently, by France, such countries detect a wish to give the EU some of the attributes of a unitary state. Their contribution could decisively shift the balance of the debate away from that particular vision.

Cannabis Emptor

When goods are prohibited, quality tends to fall because of lack of competition and legal recourse. Quality in illegal markets, however, may still beat that available from government production. Health Canada spends millions of dollars growing marijuana for distribution to patients with medical need. The government grown pot is so awful, however, that patients are returning their 30 gram bags and asking for refunds! The government certifies and advertises that their product contains 10.2% THC but independent labs report only 3% THC. Furthermore, the government pot is contaminated with lead and arsenic. “This particular product wouldn’t hold a candle to street-level cannabis,” said Philippe Lucas of Canadians for Safe Access, the group that sponsored the tests. Thanks to Eric Crampton for alerting us to this story.

The value of a lone dissenter

People will often abandon their opinions to conform to what a group expects of them, but a lone voice of reason can save the day. Cass Sunstein’s new book, Why Societies Need Dissent, reports the following (see chapter one):

You can give people a problem and allow them to solve it. Also give them a group of confederates, who unanimously advocate the wrong answer to the same problem. One confederate, proclaiming the wrong answer, will have little influence on the problem solver. Two confederates increased errors to 13.6 percent. Using three confederates increased errors to 31.8 percent. Under some results, more than three confederates do not increase the error rate, although this is controversial. But putting one voice of sanity in the group, who knows and proclaims the right answer, makes a big difference. “Conformity errors” were reduced by an average of three quarters, even if a strong majority of the group leaned the other way. Sunstein draws upon the work of Robert Baron, at the University of Iowa.

The economics of diets

Meat sales are up and bread sales are sluggish. The Atkins diet tells us to dump bread, pasta, and rice, and allows us to eat plenty of meat. Could it be driving this trend? Slate examines the economic impact of diets and offers a cautionary note. Only six million people –about three percent of national population — have tried the Atkins diet. Most people are buying convenience, the growth is beef sales is centered in ready-to-serve products. By the way, sales of Krispy Kreme donuts grew last year. In case you didn’t already know, they are forbidden under the Atkins plan. Cookie and potato chip purchases are up as well. When it comes to weight gain, some economists blame sedentary jobs and cheap, readily available foods.

Addendum: Today’s Wall Street Journal reports that Krispy Kreme sales are now sagging, though keep this in perspective, the company has averaged a 63% growth in operating earnings, per quarter, over the last ten quarters.

Which philosophers will last the ages?

Yes MarginalRevolution is about economics, but most of all it is about ideas. The blog Crooked Timber and legal scholar Lawrence Solum both offer fascinating takes on which contemporary philosophers will still be read decades or centuries from now.

My personal nomination is Derek Parfit. I think his Reasons and Persons will provide a source of conundrums for undergraduates, graduate students, and researchers for many years to come. Parfit is not just a philosopher, he is also a social choice theorist. He challenges our very notions about what it means to say that one outcome is better than another. He ponders how we should think about the timing of costs and benefits, whether personal identity matters for just distribution (who cares what you got yesterday?), how we should regard moral theories that are self-defeating when implemented, and how we should value future generations.

The beast isn’t starving

I caught a lot of flak from conservatives when I wrote in an op-ed that the so-called Bush tax-cuts were a fraud. If spending isn’t cut then in the long run taxes can’t be cut either. Since spending has gone up under Bush, all he has done, I argued, is to raise our future taxes (at precisely the wrong time too given the coming fiscal problems created by demography) . Conservatives complained that I missed the strategic beauty of the Bush plan. A tax cut, they said, will keep spending down, it will “starve the beast.” Well Bush is now asking for another $87 billion to fight the war in Iraq, employment is down everywhere but in the federal government where it is higher than under Clinton, and Bush is already touting how his administration is responsible for the largest increase in Medicare in its 38 year history. Apparently, on the Bush diet you can eat all you want and still lose weight.

Globalization and poverty: a debate

The Cato Institute offers an on-line debate on globalization and poverty, here is the last installment. Johan Norberg, author of In Defense of Global Capitalism, takes on Robert Kuttner, of The American Prospect. I am closer to Norberg’s market orientation, but Kuttner gets the better of this exchange. Norberg needs to concede a clear role for government in development, in producing public goods and basic infrastructure, and emphasize that most developing countries today don’t have strong enough markets or anything close to it. That debate he could win.

Who is Leo Strauss?

Leo Strauss is often considered a leading influence behind the neo-conservatives in the Bush administration. Or perhaps you have met a “Straussian” at a Liberty Fund conference. Or perhaps you have read Allan Bloom praising Strauss. To my mind Strauss is one of the most important twentieth century intellectuals, either directly or indirectly, he taught several generations of scholars how to read classic texts. I’ve had many economists ask me about Strauss (note: I am not a Straussian), here is one good recent summary, by Steven Lenzner and William Kristol, drawn from The Public Interest.

California Recall Postponed

A federal appeals court says the California Recall election should be postponed because some counties will use punch cards (read the decision here).

A quick read suggests that the court did not consider how often punch cards are mistaken. Since no system is perfect, an important question should be: how many more votes will be accurately counted by delaying the vote? Anybody know how accurate the different voting mechanisms are? In short, will the costs of delay be less than the benefits?

Art careers

The world of the arts seems chaotic to outsiders, but there is quite a bit of order. Three books provide insights into the careers of creative individuals. (a) David Galenson’s Painting Outside the Lines argues that outstanding artists tend to have critical insights early in their carreers, or they develop an original vision after decades of slow development. Very little in between. (b) I Bought Andy Warhol is about one art dealer’s mission to purchase an Andy Warhol painting for his own private collection. He talks about the hierarchy of artists and the nuts and bolts of the art dealing business. (c) Hit Me, Fred: Recollections of a Sideman is a biography of Fred Wesley, highly respected trombonist and member of the James Brown band. Wesley discusses the life of those skilled musicians known as “sidemen,” who spend their carreers playing in the ensembles of higher profile musicians. These three books give you a nice view of the business of art in the late 20th century, from the perspective of producers and sellers.