Month: March 2013

I would have titled the post differently, shortened it, brought out more implications, and made it less dependent on the mathematics.  Still, this contribution from Heteconomist has that special something, namely insight.

The first key point is that if you learn more on the job on a regular basis (i.e., your job is interesting), you become harder to replace from the point of view of your boss.  Over time you win more of the bargaining surplus.  That means we end up with jobs with an inefficiently low level of learning and jobs are too boring relative to an optimum.

The post closes with this:

A different application of the argument presented here would be to consider the circumstances under which instances of bad luck in competition for employment could have long-lasting effects on the earnings of individual workers. Workers who luckily gain appointment into good jobs, perhaps initially contrary to merit, will get the opportunity to learn on the job and lock in their advantage, whereas unlucky workers consigned to bad jobs, again perhaps contrary to merit, might have a tough time reversing their fortunes.

I like the present application, though, in which capitalist deskilling emerges partly as a response to the effects on worker discipline that are potentially created by on-the-job learning.

Applications to nepotism are left as an exercise to the reader.  For the pointer I thank @Interfluidity.

To maximize profit, airlines want to charge higher prices to consumers who are willing to pay more (inelastic demand) and lower prices to those who won’t buy unless the price is low (elastic demand). In essence, this comes down to charging business travelers more and leisure travelers less. In our textbook, Tyler and I discuss some of the classic methods of distinguishing these two types of consumers. Business travelers, for example, are more likely to want to travel at the last-minute so airlines give discounts to those who book several weeks in advance. Business travelers are also less likely to want to stay over a Saturday so a Friday to Sunday flight is cheaper than a Monday to Wednesday flight. In our next edition, we will have to include a brilliant new method pioneered by GetGoing.com. Here from the NYTimes is how it works:

Instead of bidding, you choose two places you would like to visit (say, Miami and Los Angeles), select your travel dates and flights, then enter your credit card details. GetGoing randomly chooses one of the two trips and books your ticket, which you can’t change or cancel.

… GetGoing promises savings of up to 40 percent off published airfares, but the coin flip reassures the airlines that they are giving these discounts to leisure travelers, not business travelers who would pay a higher price because they have to fly.

Genius!

Hat tip: William Gadea.

Cyprus of course differs from the U.S. in many significant ways, and furthermore I recoil at the notion that America is the “next Greece,” or who otherwise make inappropriate international comparisons.

Still, what if we try to look for the closest parallel possible? What is the closest the United States could come to a Cyprus-like situation?

The all-too-vulnerable arm of our U.S. financial system is money market funds.  That is about $2.7 trillion on the books, much of it driven by regulatory arbitrage.

Ten percent of the assets of money market funds are supposed to be liquid.  Yet the average capital cushion is quite low, as the industry resists attempts to impose a legal one to three percent buffer (here is one proposal for capital cushions and a class A/class B structure).  Post Dodd-Frank it is much harder, arguably impossible, for the Fed to bail out money market funds, as was done in 2008.  So our control over our own currency may not pay off on this issue.

There are repeated and largely unheeded warnings of money market funds as a source of systemic risk.  Some of the common proposals for money market funds involve “standby liquidity fees” and “temporary redemption gates.”  Sound familiar?  Of course losses on these assets could not approach the Cyprus level but still we could have a disastrous run.

I am not suggesting there is an easy way to solve this problem, or that a crisis will happen anytime very soon.  I am simply noting that, along at least one dimension, we are more vulnerable than is commonly realized.  We are just a little more like Cyprus than one might think.