Month: July 2011

From the comments

by  Tyler Cowen

Wiki writes:

One way to think about it is how much even relatively wealth Americans (those who travel abroad) willingly pay for expensive internet access while traveling. The answer is: Not very much. Look at how many people put up with less internet than they’re used to or go out of their way to find a cafe with free wifi when hotel charges are on the order of $10 or $15 per hour. But since it often takes search plus travel time (say 15-30 mins) to get to these inconvenient locations that tells me it’s REALLY not worth more than a few hundred dollars a month for most people to have internet for several hours a day in the most convenient locations. And think of all the people who can’t afford to travel or who don’t bother to get smart phones or who pay for neither texting nor email.

The infovores are overvaluing themselves and the relative weight of their consumer surplus in the economy. Certainly compared to those who were heavy users of air travel (in for example the 1960s) or those who first encountered modern highways (1930s to 50s) or who benefited from mail order catalogs and phone books. And certainly compared to users of penicillin.

The fruits of immigration

by  Alex Tabarrok in

A tough new law cracking down on illegal immigrants and those who hire or “harbor” them has created a severe shortage of agricultural labor in Georgia right at harvest time.

The head of a farmer’s group estimates that the state’s $1.1 billion fruit-and-vegetable industry could suffer a loss of $300 million.

Gary Paulk, a blackberry farmer interviewed by PRI’s the World, says he has lost $200,00-250,00 this season, as unpicked berries rot. “Having a fake ID, a first-time offense can be up to 10 years, and a $100,000 fine,” Paulk said. “I mean that’s, that’s like a felony. A felony to use a fake ID to get a job to support your family.”

To combat the shortage, Governor Nathan Deal has authorized using criminal offenders out on probation to replace the mostly Latino migrant workers. It’s not working out so well:

The first batch of probationers started work last week at a farm owned by Dick Minor…So far, the experiment at Minor’s farm is yielding mixed results. On the first two days, all the probationers quit by mid-afternoon, said Mendez, one of two crew leaders at Minor’s farm.

“Those guys out here weren’t out there 30 minutes and they got the bucket and just threw them in the air and say, ‘Bonk this, I ain’t with this, I can’t do this,'” said Jermond Powell, a 33-year-old probationer. “They just left, took off across the field walking.”…

By law, each worker must earn minimum wage, or $7.25 an hour. But there’s an incentive system. Harvesters get a green ticket worth 50 cents every time they dump a bucket of cucumbers. If they collect more than 15 tickets an hour, they can beat minimum wage.

The Latino workers moved furiously Thursday for the extra pay.

Jose Ranye, 37, bragged he’s the best picker in Americus, the largest community near the farm. His whirling hands filled one bucket in 25 seconds. He said he dumped about 200 buckets of cucumbers before lunch, meaning he earned roughly $20 an hour. He expected to double his tickets before the end of the day.

None of the probationers could keep pace. Pay records showed the best filled only 134 buckets a day, and some as little as 20. They lingered at the water cooler behind the truck, sat on overturned red buckets for smoke breaks and stopped working to take cell phone calls.

In short, we have turned good workers into criminals and turned criminals into bad workers, losing on both ends of the deal. Incredible.

Consumer surplus from the internet, revisited

by  Tyler Cowen in

David Henderson raised this question again, as has Bryan Caplan in the past.  Both seem to suggest that the consumer surplus from the internet is quite high or perhaps even “huge,” although I am not sure what number they have in mind.  I am disappointed that they are not engaging with the academic literature on this topic.

1. An 86-page 2010 FCC study concludes that “a representative household would be willing to pay about $59 per month for a less reliable Internet service with fast speed (“Basic”), about $85 for a reliable Internet service with fast speed and the priority feature (“Premium”), and about $98 for a reliable Internet service with fast speed plus all other activities (“Premium Plus”). An improvement to very fast speed adds about $3 per month to these estimates.”

2. A study from Japan found that: “The estimated WTP for availability of e-mail and web browsing delivered over personal computers are 2,709 Yen and 2,914 Yen, on a monthly basis, respectively, while average broadband access service costs approximately 4,000 Yen in Japan.”  By the way, right now the exchange rate is about 80 Yen to a dollar.

3. The Austan Goolsbee paper, based on 2005 data, does a time study to find that the consumer surplus of the internet is about two percent of  income.

4. This paper finds a four percent consumer surplus from the personal computer more generally, not just the internet.

5. Robin Hanson serves up an excellent debunking of some exaggerated consumer surplus claims.

6. Many of the benefits of internet cruising are captured in gdp figures, such as using it to find a job or the money you spend on smart phones.  By the way, here is a good paper on consumer surplus in the book market, though it offers no overall CS estimate from the internet.

You can take issue with these papers for ignoring personal internet use at work, the inframarginal benefits to infovores, or other issues, such as whether the existence of the internet increases workloads in what are supposedly leisure hours.  But there is the place to start and the numbers are not outrageously high, not close to it.

Or put all that aside and think through the problem intuitively, in terms of time use decisions.  Your marginal hour of non-internet leisure time is worth more than spending another hour of time on the internet.  In other words, at the margin your consumer surplus from the internet is about the same as your consumer surplus from going to the movies or taking a walk.  That’s nice, but suddenly the consumer surplus from the internet doesn’t seem like such a big deal any more.  It’s probably not going to add up to millions.  If the internet were as awesome for consumer fun as some people claim, it would have pushed out more of our other uses of leisure time.

What about the inframarginal units of internet use?  Might the consumer surplus there be huge?  If you think of books, movies, newspapers, and CDs as some of the relatively close substitutes for some uses of the internet, we know from cultural economics that the demand curves for those enjoyments are usually smooth, normal, and continuous, more or less.  They don’t have enormous, hidden inframarginal benefits.

Penicillin probably does have such an enormous inframarginal benefit; the initial doses can be of great value but past some margin the value falls to zero or negative.  The internet doesn’t seem to be like penicillin.

You can even make an argument that the inframarginal valuations of internet use are especially low, relative to the marginal values.  Have you ever heard that the internet is “addictive”?  That doing some makes you want to do more?  That the internet has a virtually unending supply of interesting content?  Personally I find that I could read more working papers, without much decline in their interestingness, except that the exigencies of my daily life interfere (at some margin).  Those are all signs that the marginal valuation of the internet does not fall off so drastically as one moves down the demand curve.  If you’re not using the internet more, it’s not because the internet is getting much worse with additional use units, it’s because it is digging into increasingly important parts of your non-internet life.  That brings us back to the inframarginal unit having a value not so far away from the marginal units.

It is likely that the consumer surplus of the internet is in the range of two to four percent of gdp.  On one hand, that’s “a lot” but on the other hand it’s not enough to close the “stagnation gap” in wages since 1973.  It’s not close.  It also may be quite small compared to the consumer surplus from the major innovations from earlier in the 20th century, such as antibiotics, without which I probably would be dead.

Simple numbers about Italy

by  Tyler Cowen in

European banks have total claims and potential exposures of €998.7 billion to Italy, more than six times the 162.4 billion euro exposure they have to Greece, according to Barclays Capital. European banks have €774 billion of exposure to Spain and €534 billion of exposure to Ireland.

In the United States, banks are also more exposed to Italy than to any other euro zone country, to the tune of €269 billion, according to Barclays. American banks’ next biggest exposure is to Spain, with total claims estimated at €179 billion.

But at the end of the day, “if Italy goes, it’s no longer a domino,” said Mr. Gros, the analyst in Brussels. “It’s a brick.”

The link is here.

The culture that is Sweden

by  Tyler Cowen in

Sweden’s The Local reports: A Swedish heavy metal fan has had his musical preferences officially classified as a disability. The results of a psychological analysis mean that the metal lover can now count on having his income supplemented by state benefits.

Roger Tullgren …Photo#3, Photo#4, Photo#5), 42, from Hässleholm in southern Sweden, has just got a new job as a dishwasher at a local restaurant.

Because heavy metal dominates so many aspects of his life, the Employment Service has agreed to pay part of Tullgren‘s salary. His new boss meanwhile has given him a special dispensation to play loud music at work.

“The fact that I am so into music has affected my work situation to the extent that I have had to quit some jobs,” he said.

Here is the link and for the pointer I thank Marcela V.

The Great Fiction

by  Alex Tabarrok in

Catherine Rampell, Bruce Bartlett, and Matt Yglesias are all pushing the chart below from a paper by Suzanne Mettler. According to this gang, people who use, for example, the mortgage interest deduction or who have a 529 college savings program are willfully ignorant about how they benefit from government (Rampell’s terminology).

As Bastiat said, “Government is the great fiction through which everybody endeavors to live at the expense of everybody else.”  What Rampell et al. want to do is to make people believe in this great fiction. But there are always taxpayers and taxeaters, even though government has so wormed its way into every organ of the body politic that it is sometimes difficult to tell which are which. (Indeed, part of Mettler’s point is that the government shell game of ‘hide the subsidy, hide the tax’ is often designed to obscure taxpayers and taxeaters.)

Nevertheless, there are dividing lines. In a laissez-faire world we don’t get rid of 529 programs, instead all savings, not just savings for college, become tax-free. A 529 program is not a government program like food stamps, it is the absence of a government tax. (N.B. I am not taking a position here on the best tax structure.)

People who use 529 programs and who think that they have not used a government social program are not willfully ignorant, they are demonstrating a healthy if fading appreciation of the distinction between civil society and government.  What Rampell et al. implicitly imagine is that the natural state is slavery and any departure from that state a government benefit. Thus, if the government taxes your saving for a college education less than your other savings, you should be grateful for how government has benefited you and your children.

And if the government doesn’t jail you today, you should be grateful for how government has granted you the benefit of liberty.

This is the attitude of a serf not an American.

http://yglesias.thinkprogress.org/wp-content/uploads/2011/02/program.jpg

One reason why joblessness is so bad and so persistent

by  Tyler Cowen in

There is a new Kaufmann study by E.J. Reedy and Bob Litan and it echoes some of the themes raised in TGS:

The United States appears to be suffering from a long-term leak in job creation that pre-dates the recession and has the potential to persist for an unknown time. The heart of the problem is a pullback by newly created businesses, the economy’s most critical source of job creation, which are generating substantially fewer jobs than one would expect based on past experience.

Look at Figure A in the pdf, job creation from start-ups has been falling since the 1980s.  And from the conclusion:

…the conclusions from the data analyzed here are pretty clear, and they are not heartening. Employer businesses have been starting in fewer numbers, with fewer employees, growing slower, and, therefore, generating increasingly fewer new jobs for the U.S. job market.

Read the whole thing.

Addendum: Arnold Kling comments.

Argentina vs. economists (toward a theory of E. Barandiaran)

by  Tyler Cowen in

Here are the grisly details:

Argentina’s government has filed criminal charges against the managers of an economic consulting firm, escalating its persecution of independent economists.

…The government is charging MyS Consultores with “publishing false information about inflation data” to benefit themselves and their clients. The criminal complaint alleges that MyS’s data also lead to speculative behavior in Argentina’s bond market.

…Consumer prices rose 9.7% in May from a year ago, according to the national statistics agency, Indec. But virtually all economists say annual inflation surpasses 20%—one of the world’s highest rates—angering government officials who dismiss inflation as a problem.

…So far this year, the Secretariat has fined at least nine economic research firms 500,000 pesos ($122,000) each. This week, the Secretariat also slapped a second fine on Orlando J Ferreres & Asociados.

“They fine us for saying how much prices have risen,” Mr. Ferreres, director of his eponymous firm, said. “They could seek criminal charges against all of us. We don’t know how far they’re willing to go.”

Mr. Ferreres said the legal actions are part of a strategy to prevent independent economists from publishing potentially negative information during an election year…

Government officials say they hoped the fines would deter economists from “deceiving” the public into making poor financial decisions by publishing inflation estimates that differ considerably from Indec’s consumer price index.

And get this:

Economists point to unrestrained fiscal spending, a booming economy and an expanding money supply as the main drivers of inflation that is at least double that reported by Indec.

They also say the government tacitly admits to high inflation every time it backs collective-bargaining agreements that include annual wage increases of 20% to 30%.

Signaling your ability to signal

by  Tyler Cowen in

Robin Hanson writes:

…people in business signal to each other all the time. In fact, most of the on-the-job business learning that employees do soon after college, such as how to dress well, how to give presentations, how to write memos, how to talk with clients, etc. might be skills that are mainly useful to signal innate features to bosses, co-workers, clients, etc. So employers might pay more for students with prestigious degrees because such degrees signal an ability to learn how to send later business signals. And this extra pay for top degrees could be entirely an investment in signaling, even if after hiring someone no one ever knew of or mentioned their degrees.

Bottom line: If much of human interaction is signaling, then much of human investment is in ways to better signal. Businesses that signal are also willing to invest in better signals.  The fact that a boss is willing to pay more for an employee who went to a better school, even after that boss knows this employee’s “real” abilities, does not show that school isn’t all about signaling.

One way of wording this (which Robin may or may not accept) is that the signaling and learning hypotheses are not always directly opposed.

Thwarted markets in everything

by  Tyler Cowen in

A New York City pet store that’s surrounded by bars has banned drunken puppy-buying.

Workers at Le Petite Puppy in Greenwich Village say customers tend to stumble in after happy hour and purchase a dog without thinking. Drunken customers now are forbidden to even hold the puppies, because they can drop them.

Store owner Dana Rich tells WINS-AM that she instructs people who have clearly been drinking to come back the next day.

Employees say they stress how much work it is to own a dog. They say they would rather lose a sale than send a puppy into an unsafe home.

For the pointer I thank Daniel Lippman.