Month: August 2004

Beyond the chains

Interesting piece (subscription required) earlier this week in the Wall Street Journal on how independent bookstores are competing successfully against Barnes & Noble and Borders by actually getting bigger.

The 46-year-old bookseller [Neil Van Uum] has managed to prevail thanks to an unusual retailing strategy: combat the giants by being even more giant. His Joseph-Beth Booksellers in Cleveland is bigger than the Borders, sells merchandise ranging from toys to quilted handbags and boasts a restaurant where flank-steak salad goes for $9.95.

He’s one of a hardy group of survivors that has emerged from the independent bookstore shakeout by supersizing. In Michigan, Schuler Books & Music boasts a 35,000-square-foot flagship in Grand Rapids. In West Chester, Pa., Chester County Book & Music Co. owns a 49,000-square-foot store that includes a New Orleans-style restaurant.

The six stores owned by Joseph-Beth average 30,000-square-feet — or 5,000 square feet more than a typical Barnes & Noble.

It isn’t size alone, though. What the really successful independent stores do is combine consumer friendliness in terms of design, space, and amenities with the kind of knowledgeable and dedicated staff that’s traditionally thought of as characteristic of independents. I think there’s a plausible argument that independent stores underestimated initially how important the experience of shopping was to customers. But that’s no longer the case at the stores the Journal’s talking about, a list to which you’d want to add stores like Powell’s in Portland, Tattered Cover in Denver, and Stacey’s in San Francisco.

These stores are also taking advantage of a genuine market opportunity by being active intermediaries between their customers and book publishers. (Amazon does it via collaborative filtering, while brick-and-mortar rely on staff members.) The real challenge for readers today is figuring out which of the tens of thousands (or more) of books published every year is worth their time. Stores that customers can count on for reliable recommendations should be able to build reputational capital and profit from it. It’s a hard business, though: net profit margins rarely get above 3-4%.

New items in my Mexican village

As many of my readers know, I visit a small Mexican village, San Agustin Oapan, one or twice every year. This pueblo in Guerrero has about 1500 people, most of whom farm corn and paint for a living. You’ll hear more when my book on the place comes out next year, from University of Michigan Press. In the meantime, here are the new items I have noticed in the village this year:

1. Apples

2. Green beans

3. A much improved road. A four hour trip now takes less than an hour and a half, at least if the rains permit. This makes an especially big difference if you have to take your kid to the doctor.

4. Stoves. They were once a rarity, now they are commonplace. It takes the fun out of watching people cook for you, but hey that is progress.

5. Small shops with wrapped items from the larger city of Iguala. Shampoo and band-aids, for instance, are now easy to find.

6. The number of “retail” (and I use that word cautiously) watermelon sellers has gone from one to at least three.

7. The number of pigs has doubled over the last five years, though not always to the benefit of the town streets.

As far as I can tell, most of this does not show up in the growth statistics for Mexico. No one (except for yours truly) comes to the place to count anything. Most of the transactions occur in black or grey markets. And even if the data were recorded, using market prices to measure underestimates the benefits from a sudden introduction of new commodities (in essence the price is falling from infinity to a market level, and the first consumers at the new price might value the item at more than a small amount above the observed price).

It is commonly the case that consumption statistics, when we have them, measure changes in income better than do income statistics.

Globalization does not make everyone better off, but its beneficial effects are commonly underestimated, and undermeasured by available statistics.

Does the European Parliament favor free trade?

Of 384 studied members of the European Parliament, only 12 appear to favor free trade for Europe on a consistent basis. The Swedish representatives appear to be the most free market, the French appear to be the most protectionist. There is one Spanish woman who has voted for free trade every time.

Here is the study.

Thanks to Mit dem Kopf voran (an excellent German-language blog) for the pointer.

Whatever happened to disintermediation?

From the Rocky Mountain News:

Former Nebraska star [running back] Lawrence Phillips was seen in Las Vegas recently pawning one of his Big Eight championship rings — reportedly for $20. “He said he was stuck in Las Vegas,” pawn shop owner Steve Gibson told the Las Vegas Review-Journal. “He said, ‘I need to get out of town.’ Gibson then sold the ring on eBay for a reported $1,700.

Perhaps that’s the definition of desperate: accepting a price that represents a 99% discount to market value. The inevitable next question is: Has Phillips learned from experience and put his other rings up for auction? (As of now, no.)

Framing effects and the airlines

The New York Times reports that as of Friday, Northwest Airlines will charge customers an extra ten dollars when they buy a ticket at a check-in counter and an extra five dollars when they buy a ticket over the phone. (If you buy the ticket from Northwest on the Web, you’ll pay the same price you do today.) The difference undoubtedly reflects the real difference in cost to Northwest of paying a human being to do ticketing, but if the Times’ headline — “Will This Idea Fly? Charge Some Travelers $10 for Showing Up” — is any indication, the strategy looks like a public-relations disaster in the making.

Asked about the idea, Northwest executives reasonably responded that JetBlue and Independence Air charge more for tickets not bought on the Web. But as the Times says:

That is not how JetBlue and Indepdence Air would put it. Rather, their Web sites offer discounts for travelers who buy tickets electronically . . . Tickets bought at the airport or from airline reservation lines are simply sold at the advertised fare with no extra charge or discount.

From a consumer’s perspective, of course, it should be six of one, half a dozen of the other — if you buy your tickets on the Web, you pay less. But if framing effects are as real as they seem to be, then selling price discrimination as a way of offering some consumers a bargain, rather than as a way of charging some consumers a premium, will keep customers happier. That’s why restaurants advertise early-bird specials and movie theaters say they offer discount matinees (rather than saying they charge more at night). Perhaps Northwest should have quietly raised its prices last week and then announced a discount for its Web customers this week.

Addendum: No wonder the airlines can’t make money – earlier Alex noted a similarly dumb idea from Delta.

Back to the Future of Iraq

In the weeks after the Iraq war “concluded” there was lots of discussion about reforming the economy. But the opening of the second front pushed those plans into remission. I hope that it is not yet too late to leave Iraq with better economic institutions. Yet as we seek a way out, our influence diminishes and the chance that the war was fought for nought increases. I was pleased, therefore, to see Nancy Birdsall of the Center for Global Development and Arvind Subramanian, a division chief at the International Monetary Fund try to push reform back onto the agenda.

As the United States, the United Nations, and the Iraqi Governing Council struggle to determine what form Iraq’s next government should take, there is one question that, more than any other, may prove critical to the country’s future: how to handle its vast oil wealth. Oil riches are far from the blessing they are often assumed to be. In fact, countries often end up poor precisely because they are oil rich. Oil and mineral wealth can be bad for growth and bad for democracy, since they tend to impede the development of institutions and values critical to open, market-based economies and political freedom: civil liberties, the rule of law, protection of property rights, and political participation.

Can Iraq avoid the pitfalls that other oil-rich countries have fallen into? The answer is yes, but only if it is willing to implement a novel arrangement for managing its oil wealth with the help of the international community…. the Iraqi people should embed in their new constitution an arrangement for the direct distribution of oil revenues to all Iraqi households — an arrangement that would be supervised by the international community.

The article is in the latest edition of Foreign Affairs, it is well worth reading but if you don’t have a subscription you can find a more succint version of the argument here.

Thanks to Dave Meleney for the pointer.

Maurice Allais is even smarter than you think

Remember Maurice Allais, one of the lesser-heralded Nobel Laureates? He is best known for his work on expected utility theory, more specifically the Allais Paradox. He also made significant though neglected contributions to macroeconomics, monetary theory, welfare economics, capital theory, and the economic history of civilizations. It now turns out he may have made a breakthrough in observational physics and general relativity, read more here.

Plus ca change…

There is a widespread prejudice against the newspapers, based on the belief that they cannot be trusted to report truly the current events in the world’s life on account of incompetence or venality. But in spite of this distrust we are almost altogether dependent on them for our knowledge of widely interesting events….The function of the newspaper in a well-ordered society is to control the state through the authority of facts, not to drive nations and social classes headlong into war through the power of passion and prejudice.

The source? The American Newspaper: A Study in Social Psychology (JSTOR) by one Delos Wilcox writing in the Annals of the American Academy of Political and Social Science…. July 1900.

Mexico, Land of Internet Cafes

Blogging from Mexico is made easier by the large number of cybercafes here. Even a town of 50,000 might have a dozen or more places with decent connections. Population density is high, most people are literate, few have access at home, and the demographics favor the young. The main problem is that not all the keyboards have the appropriate slashes for html links. I thank Alex for filling in the gaps in my posts.

On the issue of Internet access, I was struck by this story from rural India:

For 12-year-old Anju Sharma, hope for a better life arrives in her poor farming village three days a week on a bicycle rickshaw that carries a computer with a high-speed, wireless Internet connection.

Designed like temple carriages that bear Hindu deities during festivals, the brightly painted pedal-cart rolls into her village in India’s most populous state, accompanied by a computer instructor who gives classes to young and old, students and teachers alike.

Can you think of a better way to bridge the digital divide?

With only 12 computers and four Internet connections per 1,000 people, India has one of the world’s lowest Internet usage rates and much of rural India remains oblivious to the sweep of technology. But the villages involved in Infothela all lie within a 50-mile wireless corridor created by the Institute of Technology and linked by high-rise Wi-Fi antennae and amplifiers along the highway.

Until recently, such technology was the privilege of a tiny section of Indians – engineers in the country’s software hubs who earn more money while in their twenties than Bithoor farmers do in a lifetime.

Here is the full story. Here is another version.

Here is a company that uses rickshaws to take cell phones to India´s poor.

Addendum: I am updating this post from a hook-up in a Mexican Wal-Mart, the quickest connection and best keyboard I have had to date.

Darwin and Vitamin D

Brad DeLong shows how productive a little evolutionary theory can be in the right hands. Brilliant.

Amanda Schaffer writes in Slate about how a surprisingly large number of people who live here in the northlands far from the equator need more vitamin D. I am very surprised that this is controversial. When we Cro-Magnon types came out of Africa 60,000-100,000 years ago, none of us were white. Now practically all of us, the bulk of whose ancestors stopped for long in northern Europe or northern China, are remarkably pale indeed. I have heard no reason advanced for this other than that melanin in your skin blocks some vitamin D creation. If true, then there must have been a hell of a lot of selection pressure for low-melanin skin, which implies a hell of a large health cost to blocking even a small amount of sun-mediated vitamin D creation.

Addendum: The ever-intelligent Randall Parker points me to this link with further information on Vitamin D, folate and ultraviolet light.

Until the 1980s, researchers could only estimate how much ultraviolet radiation reaches Earth’s surface. But in 1978, NASA launched the Total Ozone Mapping Spectrometer. Three years ago, Jablonski and Chaplin took the spectrometer’s global ultraviolet measurements and compared them with published data on skin color in indigenous populations from more than 50 countries. To their delight, there was an unmistakable correlation: The weaker the ultraviolet light, the fairer the skin. Jablonski went on to show that people living above 50 degrees latitude have the highest risk of vitamin D deficiency. “This was one of the last barriers in the history of human settlement,” Jablonski says. “Only after humans learned fishing, and therefore had access to food rich in vitamin D, could they settle these regions.”

Tagline borrowing

Alex’s mention of Richard Posner’s blogging at Larry Lessig’s blog gives me an excuse to bring up one of the stranger examples of intellectual-property appropriation I’ve ever come across. With the exception perhaps of the first two Batman movies, I think the best superhero film ever is Alex Proyas’ brilliant Gothic fable The Crow. The movie’s plot is completely straightforward — it’s a revenge tale — but it’s visually overpowering, and Brandon Lee (who died near the end of filming) is great to watch. Anyway, the basic narrative conceit of the movie is that, after having been murdered, Lee has been brought back to life in order to hunt down the killers. As one of the characters explains, when a person dies, a crow carries away his soul. But if the death needs to be avenged, “Then sometimes, just sometimes, the crow can bring that soul back to make the wrong things right.” It’s hardly T.S. Eliot, but the coda is memorable enough.

I was, then, a little disconcerted earlier this summer to see the trailer for Catwoman — a movie about a woman who, after having been murdered, is brought back to life to hunt down her killers — and hear this: “It’s been said that when a person dies, a cat can bring back their soul to make the wrong things right.” And things got even weirder last week when, watching the trailer for the Zhang Yimou film Hero — which Miramax has finally gotten around to releasing here two years after it came out in China — I heard the the voiceover describing Jet Li’s character as a hero who has returned — you guessed it — “to make the wrong things right.”

Now, I tend to be in the Lessig/Posner camp when it comes to intellectual property, so I’m not suggesting that anyone start talking about legal remedies here. And, to be fair, “make the wrong things right” may not be the most unusual sequence of words imaginable. But is it too much to ask for at least a cursory effort at originality from studios, and perhaps a less blatant lifting of others’ words? On the other hand, maybe the references were intended as clever homages to Proyas’ masterpiece, and I just missed it.

What is valid in Marxism?

Brad DeLong offers a scathing and accurate critique of Marxism. He then asks for five valid points in Marxist doctrine. Who better to have a go at this than I?

I am translating all arguments into a modern context and modern analytical terms. Marx as we know him did not write as such. And yes, I do know that you can find many of these ideas in Smith and others.

1. Capitalist systems, especially before reaching contemporary times, can produce less autonomy than small scale production. Standards of living do rise from industrialization. But I look at many of my rural Mexican friends. They could earn somewhat higher wages in factories, but they prefer to paint ceramics at home. It is more fun and they control their time to a large degree. At some point industrialization can undercut the cultures and networks of suppliers that makes such a choice possible. Marx directs our attention to a certain indivisibility of systems.

2. Marxism promotes an alternative idea of freedom, namely freedom from the market. Anyone who has chosen life as a tenured university professor should not claim that such an idea is complete nonsense. Smith thought in terms of marginal tradeoffs. Marx, above all, focused on inframarginal and systematic effects.

3. The benefits of industrialization take a long time to kick in. Reforming postcommunist economies took fifteen years or more. Poland did most things right and people there are still unhappy. So how long should it take to reform feudalism or other preindustrial structures? Forty years? I take seriously the idea that the industrial revolution did not make people better off right away, so did Marx.

4. Being happy at work is one of the most important things in life. Marx saw the importance of this more clearly than did many of the classical economists. And he saw the importance of inframarginal systemic factors.

5. A growing division of labor can make some people unhappier at their jobs.

To sum up, we all know that capitalism brings a “creative destruction,” to use the phrase of Schumpeter. This is all for the better, but Marx saw how strong both the positive and negative sides of this process would be. And he knew that the relevant problems went deeper than just looking at whether people make rational tradeoffs at the margin. That being said, he overestimated the negative side of the market and underestimated how well capitalism could solve its problems concerning the distribution of income.

Of course marxism, as a political program, remains dangerous nonsense. Marx’s blind spots were enormous, and I still cannot understand how generations of the intelligentsia were taken in by the whole thing.

Addendum: The link to Brad´s post has been corrected.

Another proof that .999…=1

Jim Ward sends this nice proof:


+ .33333333333333333333...
+ .33333333333333333333...
= .99999999999999999999....

but 1/3 + 1/3 + 1/3 = 1

Of course this proof requires that we understand that 1/3=.333… but that at least can be shown by long-division. Steve Landsburg, who has a PhD in mathematics in addition to being a brilliant economist, writes to warn, however, that we haven’t defined what we mean by an infinite series like .999… nor have we proven that multipying by 10 (in the earlier proof) is equivalent to moving the decimal point. These are all valid points. As a lay consumer of mathematics, rather than a producer, I find these “proofs” helpful but do take them with a grain of salt.

Addendum: Here is more on Kakutani’s theorem for the mathematically strong of heart.