Month: December 2012

Vending machine auction markets in everything

…ecoATM, a firm based in San Diego…has devised and deployed in several American cities a series of ATM-like devices that will automatically analyse your mobile phone, MP3 player or phone charger, and then make you an offer for it. These machines will give you cash in hand or, if you prefer, send the money as a donation to the charity of your choice. The hope is that this hassle-free approach will appeal to people who can’t be bothered to recycle their old phone when buying a new one.

After taking fingerprints and driving-licence details (to discourage crooks from using them to fence stolen goods), ecoATM’s kiosks employ a mixture of computer vision and electronic testing (they will automatically present users with the correct cable and connector) to perform a trick that even the most committed gadget fan might struggle with—telling apart each of the thousands of models of mobile phones, chargers and MP3 players that now exist. They can even make a reasonable guess about how well-used (or damaged) a device is, which can affect its resale value. Any mistakes the machine does make are logged and used to improve accuracy in future.

Once the device on offer has been identified, the kiosk then enters it into an electronic auction. Interested parties bid, and a price is struck in seconds. This auction is the key to ecoATM’s business model, because it means the firm is acting as a broker, rather than carrying a stock of second-hand equipment which it then has to sell. If the owner of the equipment accepts the offer, the kiosk swallows the device and spits out the money.

Really.  The article is here.

Why would you write a bum check to God? (model this)

Maybe you are hoping that God will make the check a good one?  From the Western Wall in Jerusalem:

Rabbi Shmuel Rabinovitch, who oversees Jerusalem’s Western Wall, said a worshipper found an envelope at the site Wednesday with 507 checks in the amount of about $1 million each. They were not addressed to anyone, and it’s doubtful they can be cashed.

Rabinovitch said most are Nigerian. Israeli police spokesman Micky Rosenfeld said some were from the United States, Europe and Asia.

The story is here and for the pointer I thank Mark Thorson.

The story of GiveDirectly

Paul Niehaus, Michael Faye, Rohit Wanchoo, and Jeremy Shapiro came up with a radically simple plan shaped by their own academic research. They would give poor families in rural Kenya $1,000 over the course of 10 months, and let them do whatever they wanted with the money. They hoped the recipients would spend it on nutrition, health care, and education. But, theoretically, they could use it to purchase alcohol or drugs. The families would decide on their own.

…Three years later, the four economists expanded their private effort into GiveDirectly, a charity that accepts online donations from the public, as well. Ninety-two cents of every dollar donated to GiveDirectly is transferred to poor households through M-PESA, a cell phone banking service with 11,000 agents working in Kenya. GiveDirectly chooses recipients by targeting homes made of mud or thatch, as opposed to more durable materials, such as cement or iron. The typical family participating in the program lives on just 65 nominal cents-per-person-per-day. Four in ten have had a child go at least a full day without food in the last month.

Initial reports from the field are positive. According to Niehaus, GiveDirectly recipients are spending their payments mostly on food and home improvements that can vastly improve quality of life, such as installing a weatherproof tin roof. Some families have invested in profit-bearing businesses, such as chicken-rearing, agriculture, or the vending of clothes, shoes, or charcoal.

More information on GiveDirectly’s impact will be available next year, when an NIH-funded evaluation of the organization’s work is complete. Yet already, GiveDirectly is receiving rave reviews.

Here is a good deal more.  Here is one of my earlier posts on zero overhead giving.  Here is Alex’s earlier post.  Just last week I met up with one of the recipients of one of my 2007 donations and I am pleased to report he is doing extremely well as an actor and filmmaker.

Here is the site for GiveDirectly.  Here is one very positive review of the site, from GiveWell.

A Parting Thought: Market v. Political Entrepreneurship

Thanks again to Alex and Tyler for having me as a guest blogger this week. It has been a pleasure sharing thoughts with you about ideas, fashion, and politics.

My last nugget for the week is about how market and political entrepreneurs learn differently from failure. Market entrepreneurs learn from the relentless forces of profit and loss. They even host conferences and websites where they speak openly about their failures. In part because political entrepreneurs lack the same signals of profit and loss, this type of learning does not happen to the same extent in political markets. My co-author Wayne has further analysis on our blog.

What is the potential for 3-D printing?

I think 3-D printing will happen, and indeed already is happening, but I don’t see that it will bring a utopian new future.  From a recent New Scientist article (gated, related version here), here are two points:

…it’s difficult to print an object in more than one or two materials…


…these combined hardware and materials issues mean that only a relatively small proportion of all people will end up printing out objects themselves.  A more likely scenario is the growth of online services like Shapeways…or perhaps neighborhood print shops.

Maybe I’m blind, but I don’t yet see this as a technological game-changer.  It seems more like a way of saving on transportation costs.  To put it another way, what’s the huge gain of making everyone a manufacturing locavore?  Perhaps there will be some new flurry of home-based innovation, based on tinkering from what these printers can drum up, but that seems to me quite speculative.

How to resolve the fiscal cliff

In my latest column, I suggest another strategy, one the current Republican Party seems quite far from:

 To see how this could work, consider this script: Let’s say the Republicans decide to largely give in to what the President Obama is proposing. There is, however, a catch: the president has to agree to raise marginal tax rates on all income classes, not just on the rich. The tax increase would be one-quarter of a percentage point, or some other arbitrary small amount, with larger increases possible for higher incomes, as has been discussed. The deal also stipulates that both the president and Congress must publicly acknowledge that current plans for government spending can’t be financed unless taxes on most or all income groups climb further yet, and by some hefty amount.

Given the slow economy, it is undesirable to reverse all or even most of the Bush tax cuts. A small but publicly trumpeted clawback of some of the cuts would send the right message to voters, while minimizing the macroeconomic fallout. The nice thing about symbols — single shots across the bow — is that they often can suffice.

If people already rationally expect these tax increases, this signal would do neither good nor harm, but perhaps such an approach would nudge political expectations closer to reality without draining the economy.

And this:

In the minds of many moderate and independent voters, the Republicans are currently identified with dysfunctional politics. But this proposal would let them take a credible stand against obstructionism. If the president didn’t like such a deal, he would be the naysayer, and the resulting publicity would shine a bright spotlight on the tax-and-spend mismatch. Suddenly, it would be the Republicans emphasizing the classic American line that “we are all in this together.”

Read the whole thing.

Ideas and Political Entrepreneurs: The Case of Airline Deregulation

Following up on my post from yesterday, the Civil Aeronautics Board (CAB) regulated U.S. airline rates and routes from the 1930s through the 1970s. It also kept mountains of data. Aspiring Ph.D. candidates found worthy dissertation material from the agency’s files. The research lent support to an important idea—regulation was failing in this market—but no one listened to these young academic scribblers.

By the early 70s, an established academic produced a groundbreaking treatise arguing for sensible regulation. Alfred Kahn would soon make the jump from academic to regulator—of public utilities in the State of New York, not airlines.

By the mid-1970s, criticism of airline regulation had moved from academics to economists in think tanks (Brookings, AEI) and in government. At an economic conference on inflation convened by the Ford Administration, the delegates focused unexpectedly on a different idea: existing regulations were producing high prices. Yet as every economist in Washington knows, many reform ideas never become policy. Then came the political entrepreneurs.

First, Senator Ted Kennedy. An ambitious member of the Senate Judiciary Committee and chairman of the subcommittee on administrative procedure, Kennedy saw an opportunity to attack the over-regulated and under-competitive airline industry by critically examining the rules it played by.

Most judiciary subcommittee hearings were mind-numbingly boring, but airlines were sexy, and Kennedy turned the CAB hearings into high theatre, trotting out real but outrageous examples. A flight from Los Angeles to San Francisco (intrastate and thus not CAB-regulated) cost half as much as a flight from Washington to Boston (interstate and CAB-regulated). Even the dimmest reporter could connect the dots. The CAB looked bad. Kennedy looked good, as did the odds for reform.

Then the Carter Administration tapped Kahn to run the CAB. He allowed “experiments” in price flexibility (Super Saver fares). He approved new routes. Eventually, he questioned the agency’s purpose. The CAB had to go. This meant Kahn had to sell a very big idea to the madmen in authority, the decision-makers in Congress.

An accomplished economist who dabbled in theatre on the side, Kahn played his role perfectly. The former academic scribbler was funny, smart, patient and on point. He was a master communicator with press and politicians alike.

Kahn built on Kennedy, who built on the work of intellectuals in Washington’s think tanks and policy circles, who in turn built on good academic research. Importantly, he found allies across the political spectrum, from the American Conservative Union to Common Cause, from business interests to consumer groups. This odd mix prevented easy dis­missal of reform as the pet project of the left, the right, or any special interest.

With passage of the Airline Deregulation Act of 1978, Congress closed the CAB and left behind an unprecedented example of radical reform. A better idea had made its way from academic scribblers, through the intellectuals and on to madmen in authority, who were compelled to act. Yet so much of the story hinges on the actions of Kennedy and Kahn—two very different individuals, two very effective political entrepreneurs.

The FT does Lunch with Tyler Cowen

I thought John McDermott did an excellent job, here was one part I liked:

There is no doubt Cowen is ruthlessly and admirably efficient; an infovore. I suggest he’s also, however, “phenomenally smart”. “I don’t know what that means,” he says. “I mean, I can absorb a lot of information about basketball. I like basketball but I’m not like being smart about it.” And then he’s off again … “Sports is remarkably cognitive. I think it’s underrated just how smart it is. Actually, if I had more time, I would spend more time with sports. Watching it, reading about it, I think it’s oddly underrated.”

The rest of the chat covers food, economics, the future of technology, my life history, and some other matters too.  I also liked this sentence:

He looks up and breaks the news: “They don’t have any food.”

The interview took place on the hottest day in Virginia history.  And please note that when I refer to the Free Democrats of Germany, I don’t mean the party circa 2012.

In Texas, not all joint products are legal (the value of pets)

Here we go:

Last May, the Texas Banking Commission, which regulates funerals and cemeteries [does that make sense to you?], deep-sixed burials of pets in cemeteries for homo sapiens. But Texas still welcomes human burials alongside animals in pet cemeteries.

Do not underestimate the power of arbitrage:

…some Texans are also opting for their own burials–sans Bootsie—in pet cemeteries. The cost of room and board, notes the clip, beats its counterpart in people cemeteries by a mile. So why not think outside the box?

For the pointer I thank Lou Wigdor.

Do interest groups reward politicians for their votes in the legislature?

That is the title of the job market paper of Sungmun Choi, here is the abstract:

Abstract: Interest groups lobby politicians in various ways to influence their policy decisions, especially, their voting decisions in the legislature. Most, if not all, of the studies on this issue examine “pre-vote” lobbying activities of interest groups that occur before politicians vote in the legislature. In this paper, however, I examine “post-vote” lobbying activities of interest groups that occur after politicians vote in the legislature. I first develop theoretical models to show how such post-vote lobbying can be sustained. Then, by using data on the amount of monetary contributions given by interest groups to the members of the U.S. House of Representatives who have served in the 109th (2005-06) through 111th (2009-10) Congress, I find evidence that the politicians who voted in favor of the Emergency Economic Stabilization Act (EESA) of 2008, one of the most significant pieces of legislation and possibly the biggest government bailout in U.S. economic history, received more monetary contributions from the interest groups in the financial sector after passage of the EESA.

Ideas and Political Entrepreneurs: Explaining Institutional Change

None of my entries this week has directly discussed Wayne Leighton’s and my new book, Madmen, Intellectuals, and Academic Scribblers. This post briefly conveys the book’s motivation and argument. A follow up post will illustrate the argument with the case of airline deregulation.

Alex describes Madmen as “revolution without romance,” analogous to Jim Buchanan’s account of public choice as “politics without romance.” It’s an apt comparison because although Madmen is rooted in public choice, we explain why public choice cannot account for political change without incorporating ideas and entrepreneurship.

To do so, we focus throughout the book on three questions:

1. Why do democracies generate policies that are wasteful and unjust?

2. Why do failed policies persist over long periods, even when they are known to be socially wasteful and even when better alternatives exist?

3. Why do some wasteful policies get repealed (for example, airline rate and route regulation) while others endure (such as sugar subsidies and tariffs)?

Traditional public choice answers question #1 (concentrated benefits & diffuse costs) as well as question #2 (transitional gains trap). Yet wasteful institutional arrangements do sometimes get repealed or reformed. In addition to airlines, other network industries such as trucking and energy pipelines were significantly deregulated in the 1970s, followed by income tax reform in the 80s, spectrum license auctions and welfare reform in the 90s, and more.

Madmen argues that better institutions derive from better ideas, through a political process that is driven by key players: madmen, intellectuals, and academic scribblers.

The academic scribblers originate ideas, which must then face off with vested interests and long-held beliefs in the status quo. The “intellectuals” (Hayekian traders in ideas) propagate the ideas they think are best. When political opportunity strikes, it then becomes in the interests of the madmen in authority (those who grip the levers of political power) to implement the new idea and change the rules of the game (that is, to change the institutions). New rules reshape people’s incentives, which in turn directs people’s decisions toward different outcomes—for better or worse.

The process can be revolutionary, creating new institutions through a crisis such as war or depression. Lenin and the Bolsheviks come to mind; so do the American Founders and Franklin D. Roosevelt. At other times, this process can be evolutionary, not born out of a crisis but emerging as part of a nonviolent battle of ideas.

At the end of the day, ideas do not surmount established interests on their own; nor do ideas automatically shape new institutions when political opportunity strikes. Instead, institutions change when political entrepreneurs notice areas of weakness in the structure of ideas, institutions, and incentives, and then find ways to implement different rules in those areas. The entrepreneurs in political change may be philosophers, opinion makers, political leaders, or other types of influencers. What they have in common is access to a stock of ideas, a knack for perceiving times when a different idea can take hold, and the grit to drive madmen in authority toward changing institutions accordingly.

That’s stating things generally. Alex’s post gives flavor to the argument in the case of spectrum license auctions. And tomorrow I will follow up to show how Alfred Kahn and Teddy Kennedy were political entrepreneurs who revolutionized the airlines by implementing a different idea.