Month: September 2006

Why Can’t We Have a Better Press Corps?

Kathleen Day’s article in the Washington Post on Wal-Mart’s plan to offer a $4 price for many generic pharmaceuticals is a classic example, practically a caricature, of anti-market, anti-big-business bias.   Here with emphases added are some choice quotes from the front page article:

Retailing giant Wal-Mart Stores Inc., known for forcing prices down to
dominate nearly every market it enters, said yesterday that it would
sell nearly 300 generic drugs for $4 per prescription…

Using its might as the nation’s largest retailer and its legendary
ability to force suppliers to cut prices to the bone, the company will
begin the $4 price program in its 65 stores in the Tampa area today…

…the program has the potential to transform the $230 billion
prescription-drug business the way Wal-Mart has transformed other
industries, including groceries and toys, where its aggressive pricing
has forced some competitors out of business and allowed it to dominate
entire categories of merchandise.

In the entire article there is not a single positive mention from the reporter of consumer benefits or Wal-Mart productivity.  It’s not until inside the fold that you even get a hint of consumer benefits and then it’s in the context of an absurdly biased attack on Wal-Mart.

Wal-Mart executives, criticized by labor unions and consumer groups
that say the company shortchanges its employees on pay and health care,
said they started the program to help families and retirees, especially
those on Medicare.

The only thing missing is how Wal-Mart executives achieve their legendary efficiencies by eating small children for breakfast.

For comparison the AP story, written by Mitch Stacy, covers the same angles but without bias or rancor and it’s better written.  Here’s the first sentence:

the world’s largest retailer, plans to slash the prices of almost 300
generic prescription drugs, offering a big lure for bargain-seeking
customers and presenting a challenge to competing pharmacy chains and
makers of generic drugs.

Making school choice work

Here is a new policy paper by Caroline Hoxby, written for a New Zealand context.  It is an admirable brief summary of the U.S. evidence on school choice, almost like a response to Ezra Klein.  Here is a summary.  Her conclusions are that successful school choice requires:

  • Supply flexibility, which means that schools should have the ability to open where there is demand for them, expand with increased demand and contract with reduced demand
  • Money should follow students, which means that funding policies must be designed so that schools that are in demand have the funds to expand and those that are not in demand lose funds and must contract; and
  • Independent management of schools, which means that schools must be free to innovate in a range of areas, including pedagogy, teacher pay, budget allocation, and the way the school is organised.

Hoxby stresses that these conditions are rarely found together.  By the way, the paper does not cover either Chilean or Colombian experience with vouchers.

What do on-line daters want?

Like this:

Outcomes are strongly increasing in measured looks.  In fact, the looks ratings variable has the strongest impact on outcomes among all variables used in the Poisson regression analysis.  Men and women in the lowest decile receive only about half as many e-mails as members whose rating is in the fourth decile, while the users in the top decile are contacted about twice as often.  Overall, the relationship between outcomes and looks is similar for men and women.  However, there is a surprising “superstar effect” for men.  Men in the top five percent of ratings receive almost twice as many first contacts as the next five percent; for women, on the other hand, the analogous difference in outcomes is much smaller.

Or this:

Height matters for both men and women, but mostly in opposite directions. Women like tall men (Figure 5.4).  Men in the 6’3 – 6’4 range, for example, receive 65% more first-contact e-mails than men in the 5’7 – 5’8 range.  In contrast, the ideal height for women is in the 5’3 – 5’8 range, while taller women experience increasingly worse outcomes.  For example, the average 6’3 tall woman receives 42% fewer e-mails than a woman who is 5’5.  We examine the impact of a user’s weight on his or her outcomes by means of the body mass index (BMI), which is a height-adjusted measure of weight.  Figure 5.5 shows that for both men and women there is an “ideal” BMI at which success peaks, but the level of the ideal BMI differs strongly across genders.  The optimal BMI for men is about 27.  According to the American Heart Association, a man with such a BMI is slightly overweight.  For women, on the other hand, the optimal BMI is about 17, which is considered under-weight and corresponds to the figure of a supermodel.  A woman with such a BMI receives 90% more first-contact e-mails than a woman with a BMI of 25.  Finally, regarding hair color (using brown hair as the baseline), we find that men with red hair suffer a moderate outcome penalty.  Blonde women have a slight improvement in their outcomes, while women with gray or “salt and pepper” hair suffer a sizable penalty.  Men with long curly hair receive 18% fewer first-contact e-mails than men in the baseline category, “medium straight hair.”  For women, “long straight hair” leads to a slight improvement in outcomes, while short hair styles are associated with a moderate decrease in outcomes.

pp.21-22 tell us about income and education.  And this:

38% of all women, but only 18% of men say that they prefer to meet someone of their own ethnic background.

African-American and Hispanic men get only half as many first-contact emails from white women as do white men; Asian men get only about one-quarter as many.

Freakonomics 2.0

1. Dubner describes the forthcoming revised edition of the book.

2. Commentary on the recent and apparently pro-market Swedish elections.

3. The World Chess championship match starts Saturday in Kalmykia, Europe’s only Buddhist republic.  Here is one very good analysis of the players.

4. Hal Varian on the county-specific theory of American income inequality; the high-tech boom seems to play a big role.

What features would you like to see in future supermarkets?

So asks The New York Times (TimesSelect).  Randall Williams responds:

I like to try interesting recipes which often have exotic ingredients.  But I often don’t need a whole bottle or bunch of a spice or other ingredient that I might never use again.  It would be great to have an “assembly area” similar to the deli section where I could take my recipe and get a tablespoon of this and an ounce of that, measured into little plastic cups that I could take home to cook with.

The excess bundling is a form of price discrimination.  If you can’t be bothered to go to an ethnic market, which is both cheaper and sells in more flexible quantities, they figure you will pay the higher price.

As for me, I used to wish for shorter check-out lines, but now usually I get them.  Dark chocolate is there too.  I still would like ready-to-buy, truly fresh cooking stocks (beef and chicken), better magazines, and home delivery. 

We should expect supermarkets to overinvest in encouraging impulse purchases.  (Wegman’s should put a given item in only one place and yes I will learn where that is.)  Maybe that is the economic problem with home delivery.  Smells, squeezes, and full-size items — not Internet links — sell profitable foodstuffs.  The boring bulk stuff which is easy to order over the Internet also brings the lowest profit margins, I believe.

Here is a (non-gated) article on how supermarkets are evolving.

What do you wish for, and what is the analysis behind your wish? 

Perfect competition, or collusion?

Takashi Hashiyama, president of Maspro Denkoh Corporation, an electronics company based outside of Nagoya, Japan, could not decide whether Christie’s or Sotheby’s should sell the company’s art collection, which is worth more than $20 million, at next week’s auctions in New York.

…he resorted to an ancient method of decision-making that has been time-tested on playgrounds around the world: rock breaks scissors, scissors cuts paper, paper smothers rock.

In Japan, resorting to such games of chance is not unusual.  "I sometimes use such methods when I cannot make a decision," Mr. Hashiyama said in a telephone interview.  "As both companies were equally good and I just could not choose one, I asked them to please decide between themselves and suggested to use such methods as rock, paper, scissors."

Christie’s won, and here is the full story, via Jason Kottke.

How to be happy

The utterly charming Seth Roberts, best-selling author and paragon of scientific  self-experimentation, visited GMU last week.

Seth told us how to be happy.  "See other people’s faces in the morning."  Faces on TV work as well as real faces.  Conversational distance is ideal.  In his view, seeing faces at night makes people unhappy.

The best way to sleep better is to stand all day.  Also you should stop eating breakfast.  Seth claims we are programmed to wake about three hours before our usual breakfast time.  (Oddly this started happening to me about two weeks before his visit.)

Most college professors have too few skills to be useful teachers and we should reward diverse kinds of achievement.  Given the importance of division of labor in modern economies, there should be many ways get an "A."  Students should receive more individualized attention.

Here is Alex’s earlier post on Seth, and here.  Here is Seth’s blog.

On the bottom of Seth’s home page is some fascinating Powerpoint on economics: "In the beginning, hobbies.  Diversify expertise: procrastination."

Here are three things statistics textbooks don’t tell you.

Seth is a true American original and his work deserves the attention of every thinking person.

The Minimum Wage Fantasy

MaxSpeak is pushing a letter from economists, already signed by notables Alan Blinder, Clive Granger, Rebecca Blank and others, to raise the minimum wage.  Don’t worry, I won’t bore you with the usual story about unemployment.  A small increase in the minimum wage will have only a small unemployment effect, nuff said.  Nevertheless, parts of the letter strikes me as absurd.  The letter says, for example, that "The minimum wage is also an important tool in fighting poverty."  Rubbish.  But don’t take my word for it. 

The minimum wage is a blunt instrument for reducing overall poverty, however, because many minimum-wage earners are not in poverty and because many of those in poverty are not connected to the labor market.  We calculate that the 90-cent increase in the minimum wage between 1989 and 1991 transferred roughly $5.5 billion to low-wage workers…. an amount that is smaller than most other federal antipoverty programs, and that can have only limited effects on the overall income distribution.

The source? Card and Krueger in Myth and Measurement (p.3).

The letter also states that most of the people earning the minimum wage are adults.  Most workers are adults so this is hardly surprising.  What is more surprising is that 25% of the workers earning the minimum wage are teenagers, even though teenagers are a much smaller percent of the workforce.  In addition, over half the workers earning the minimum wage are younger than 25.  The letter can spin things how it wants but it would be more informative to say that most of the workers earning the minimum wage are young workers who with a little age and experience would have their wages increased in anycase.

That brings me to a second strange statement, the idea that "the minimum wage helps to equalize the imbalance in bargaining power that
low-wage workers face in the labor market."  One wonders how bargaining power is defined.  Do these economists really believe that the fat cats are getting rich slurping up surplus from the low-wage workers?  If you measure bargaining power as a difference between wages and marginal productivity it is surely high wage workers who lack bargaining power.

The real rebuke, however, to the bargaining power idea is this: a lot of people earning the minimum wage are teenagers but more than 90 percent of working teenagers earn more than the minimum wage.  Either most teenagers are very good bargainers or wages depend less on "bargaining power" than on productivity.  Either way the letter is confused.

The debate over the minimum wage is more about rhetoric than reality. 

Global warming reversal?

Rumor has it that George Bush will shift course on global warming and support limits on carbon dioxide emissions.

I suspect that the United States is far more likely to take unilateral action on this issue than to engage in a multilateral treaty.  Americans enjoy feeling like magnanimous leaders, plus they believe that foreigners take advantage of them in treaties.  In contrast, the standard "international public goods" analysis suggests that each country will refuse to restrict emissions unless other major countries do the same.  This analysis neglects expressive voting, whereby voters choose policies to make themselves feel good, rather than to maximize their incomes.  After all, no single voter is decisive over the final outcome, so why not vote your conscience?  This suggests, by the way, that the global warming hold-outs will be the non-democracies.

Comments are open, but don’t debate the science of global warming per se, you already had a chance to do that.