Month: April 2013

Hoarding and aesthetics

Here is an excerpt from an interesting piece by Bonnie Tsui, from Pacific Standard, I liked this excerpt:

…hoarders literally see and treat their stuff differently.  The physical world of hoarders…is much ore expansive than what the rest of us perceive, and is often free of the rules that we are wont to impose.  Even more intriguing, Frost told me that some of the neurological hallmarks of hoarding might indicate a giftedness in the aesthetic appreciation of the physical world, rather than pure illness.  One of his patients had a pile that built up in the middle of her dorm room over the course of a week; she started perceiving shapes, colors, and textures, and it became a work of art — something with aesthetic value.  “She couldn’t dismantle it, because that would destroy it,” Frost said.

Which are the world’s best airports?

I heard that President Obama’s speech today cited this study of the world’s top airports.   Singapore and Incheon (South Korea) take numbers one and two respectively, and the U.S. does not show up until Cincinnati [sic] appears at #30.  I can vouch that Singapore indeed has an awesome airport.

Nonetheless, might I submit that the entire method here is fallacious, at least for purposes of public policy?  An economist would rank airports on the basis of combined consumer plus producer surplus.  In that approach, busy airports which attract a lot of customers will tend to fare much better, even if those airports experience more glitches.  Because America is a large country, with a paucity of passenger rail service, we should expect its airports bear a relatively high burden and indeed they do.

Of course busyness of airport does not map directly into surplus, because price and service quality matter too.  Still, you can take volume as a very rough proxy for benefits experienced, noting that a truly terrible airport actually will lose some business.  Here is a list of the world’s busiest airports, the U.S. does quite well, and indeed #1 is Atlanta.  Singapore is suddenly #15 and Incheon falls to #29.

You still might think that American airports require lots of upgrades, and maybe so.  But also keep in mind that air travel in this country has declined since 9/11, some regional airports are being shuttered or are losing flights, so it is not obvious that quality or size of airport is the relevant binding constraint in every instance.

What should you make of the method of a study which ranks Cincinnati as the best airport in the United States?

The survey methodology for the study is here, consumer surplus is not mentioned.

Assorted links

Apple Diversity has Grown

Mother Jones has a fun piece on apple hunters, people who track down long-forgotten apple varieties, sometimes to a single, ancient tree which they then clone in order to resurrect its unique apples. It’s a fun, human-interest story but Mother Jones also repeats a number of errors about apple diversity. Most notably:

In the mid-1800s, there were thousands of unique varieties of apples in the United States, some of the most astounding diversity ever developed in a food crop. Then industrial agriculture crushed that world. The apple industry settled on a handful of varieties to promote worldwide, and the rest were forgotten. They became commercially extinct—but not quite biologically extinct.

Mother Jones is tame compared to The New Internationalist which really ramps up the imagery:

Lincoln was assassinated. So were Washington and Jefferson. In fact all three Lincolns were wiped out. In the end it wasn’t so much an assassination as a massacre, with 6,121 of the 7,098 American apple varieties that blossomed last century now extinct….In less than a century, market pressures for uniformity have slaughtered crop diversity.

All of this is highly misleading at best. The innovative Paul Heald and co-author Sussanah Chapman show that the diversity of the commercial apple has increased over time not decreased (pdf). It is true, that in 1905 W.H. Ragan published a catalog of apples with some 7000 varieties. Varieties of apples come and go, however, like rose varieties or fashions and Ragan’s catalog listed any apple that had ever been grown during the entire 19th century. (Moreover, most varieties are neither especially good nor especially unique). At the time Ragan wrote, Heald and Chapman estimate that the commercially available stock was not 7000 but around 420 varieties. What about today?

The Fruit, Berry and Nut Inventory for 2000 lists 1469 different varieties of apples, a massive gain in terms of what growers can easily find for sale. The Plant Genetic Resources Unit of the USDA, in Geneva, New York, maintains orchards containing an additional 980 apple varieties that are not currently being offered in commercial catalogs. Scions from these trees are typically available to anyone who wishes to propagate their variety. The USDA numbers bring the total varieties of apples available to 2450.

In fact, there are more than 500 varieties of apples from the 19th century commercially available today–thus there are more 19th century apples available today than probably at any time in the 19th century!

It is true, of course, that when you go to a typical supermarket there aren’t hundreds of varieties of apples for sale but neither were there hundreds of varieties for sale in the past. In fact, I strongly suspect that the average consumer today has more choices of apple than ever before. I stopped in at Whole Foods last night and counted seven varieties of apple for sale, that’s amazing. Over the year, Whole Foods probably sells 15 varieties. Moreover, I likely also consume other varieties in pies, juice and cider. A few more varieties are available a short drive from my home.  Indeed, with all these choices it’s a wonder that Barry Schartz isn’t complaining about information overload and choice exhaustion.(Isn’t it interesting how critics of markets always find something to complain about? Either the market is overloading us with choices or tyrannizing us with too few choices.)

It is true that in a large and diverse country such as the United States there were probably more apple varieties grown in significant numbers in the 19th century but that confuses geographic diversity with what we actually care about which is consumption diversity or option availability. I explained this idea in my post, What is New Trade Theory? on Paul Krugman’s Nobel prize.

Consider the simplest model (based on Krugman 1979).  In this model there are two countries.  In each country (or region), consumers have a preference for variety but there is a tradeoff between variety and cost, consumers want variety but since there are economies of scale – a firm’s unit costs fall as it produces more – more variety means higher prices.  Preferences for variety push in the direction of more variety, economies of scale push in the direction of less.  So suppose that without trade country 1 produces varieties A,B,C and country two produces varieties X,Y,Z.  In every other respect the countries are identical so there are no traditional comparative advantage reasons for trade.

Nevertheless, if trade is possible it is welfare enhancing.  With trade the scale of production can increase which reduces costs and prices.  Notice, however, that something interesting happens.  The number of world varieties will decrease even as the number of varieties available to each consumer increases.  That is, with trade production will concentrate in say A,B,X,Y so each consumer has increased choice even as world variety declines.

Increasing variety for individuals even as world variety declines is a fundamental fact of globalization.  In the context of culture, Tyler explains this very well in his book, Creative Destruction; when people in Beijing can eat at McDonald’s and people in America can eat at great Chinese restaurants the world looks increasingly similar even as each world resident experiences an increase in variety.

Thus it may well be the case that more apples varieties were grown in large quantities in the 19th century but there are both more varieties commercially available today (our stock of genetic diversity is higher) and individual consumers have low-cost access to more apple varieties than ever before.

There is no great rent-seeking stagnation

An enterprising young French man, however, has solved the problems of anyone who has encountered a malfunctioning vending machine by inventing a robot that can go inside one and ‘steal’ any item.

Here is the link, which offers a video in French and some unnecessary noise if you click on it.

For the pointer I thank the excellent Mark Thorson.

*My Struggle*, volume two

It arrives at my house today, by Karl O. Knausgaard.  Last year I read volume one and found it to be the equal of the great continental novels of the early part of the 20th century.  Here is Rachel Cusk at The Guardian on volume two; “…this deserves to be called perhaps the most significant literary enterprise of our times.”  That is not an exaggeration.  Here is related coverage from Literary Saloon.

Assorted links

Why so little demand for protectionism?

Paul Krugman asks a very good question, namely why the political pressures for protectionism in the midst of recessions and depressions have been so weak.  While I do not disagree with his points (which cite institutions such as the WTO and EU), I am surprised by what he leaves out.  Here is a summary of Spence and Hlatshwayo on U.S. labor markets:

Looking back on the period from 1990 to 2008, the co-authors found that 97 percent of the 27.3 million U.S. jobs created were in the non-tradable sector. (The five largest non-tradable sectors, mentioned above, contributed 65 percent of the 1990-2008 jobs growth.) “The employment creation occurred mostly in non-tradable sectors — where we don’t have international competition,” Spence said.

In other words, with more jobs in the service sector, we are practicing increased “protectionism by any other name,” often with the law and with regulation but in many cases cultural barriers and lack of trade networks will suffice.  Trade costs for many services are in any case high and thus the constituency for protectionism or further protectionism is not quite there.  The workers who might have supported tariff-based or quota-based protectionism thirty-five years ago already have lost their jobs to foreign trade and they or their descendents have moved to more heavily protected service sectors.  As we should recall from the literature on the gravity equation, explicit tariffs are only a small part of the actual barriers to trade.

A second issue is the where the actual burden of foreign competition is falling, given a much higher degree of globalization.  The Mexicans are worried about Chinese competition, but they are not mainly worried about Chinese competition pulling Mexican consumers away from Mexican products (chili peppers are one exception here).  Mostly they are worried that Chinese competition has taken away many of Mexico’s export markets elsewhere, and putting tariffs on Chinese goods coming into Mexico won’t stop that.

Auctions for airline upgrades

Airlines overseas have started auctioning off upgrades, with travelers in economy or premium-economy cabins bidding against each other for seats that offer better space, food, service and sleep. Bids for premium seats that otherwise might fly empty begin online weeks in advance and typically close 48 hours before takeoff. The company behind the auction technology says it may come to the U.S. soon.

Here is much more.

Observations on search theory in modern macro and in blogosphere macro

Let’s say you are 22, full of energy, don’t feel you need to marry soon, and have lots of cash in your bank account.  Many people in this position feel they can “date around” a lot, without fear of the repercussions.  They can enter into short-term relationships without much agonizing in advance, and simply break up if it doesn’t work out.

Alternatively, imagine you are 39, run down and vulnerable, wanting kids soon, and in a precarious financial situation.  You probably won’t date casually the same way.  You will treat every romantic relationship as if it is a significant investment.  You will be more careful, because the cost of mistakes is higher, and the cost of serial “running around” is higher too.  Search is tougher and you will apply higher standards to search.

In good times employers are like the 22-year-old and they will take chances with many different employees.  In 2009-2013, they often have seemed more like the 39-year-old.  They are waiting and watching, rather than trying out lots of dates.

Of course this analogy points to just one possible factor, it is hardly a comprehensive account of current unemployment, even if you ignore any possible problems in the story.

Note that the terms “involuntary unemployment” and “voluntary employment” do not make sense here, and usually it is a mistake to insist on one or the other.  There are jobs and for that matter dates in North Dakota, so how high does the cost of moving have to be to distinguish one category from the other?  Is theory going to supply an answer here?  No.  When you see arguments for either the “voluntary” or “involuntary” nature of unemployment, that is a good sign someone is trying to mix moral issues into positive issues.  It is also a move away from the concept of marginal analysis.

It is better to say that the quantity and quality of employer search is suboptimal and the outcomes are suboptimal too.  In this particular case, employers become choosier in their search, and raise their discount rates, without taking into account the social costs those decisions impose on the pool of available labor.

You also will note this explanation, and many others like it, differs from the traditional invocation of “sticky wages.” Sticky wages do apply to a large number of already employed workers (pdf), but the concept does not readily transfer to workers who are looking for a job.  There is a great mass of evidence for sticky nominal wages for workers who already hold jobs.  There is a good but not great deal of evidence for sticky and indeed possibly irrational reservation wages for the current unemployed, but this phenomenon is conceptually indistinguishable from what some people (not me) like to call “voluntary unemployment.”  If you insist on stickiness for the unemployed, you will quickly end up somewhere you probably do not wish to go.

Taking established labor market results for the employed and automatically transferring those same concepts to the unemployed, without critical scrutiny, is one of the most common mistakes in blogospheric economics.  You don’t see that mistake committed very much in standard academic macroeconomics and that is one of the advantages of modeling.

I sometimes hear it suggested that the sticky wage incumbent workers have “eaten up” all of the nominal gdp and there are only breadcrumbs left for the unemployed.  Yet most companies seem to be sitting on enough cash and enough profits to make additional hires if they want to; it cannot be asserted that the sticky wage incumbents are “soaking up” most corporate liquidity.  Plus in a full model velocity and credit will be endogenous so a cash constraint would end up doing all of the work here, not sticky wages.

I once heard Bryan Caplan mention (I am not sure how seriously) that insiders will resent outsiders hired at lower wages and thus the outsiders cannot get hired.  With the decline of unions if anything I observe the opposite — insider resentment is directed at the higher-wage hires — but in any case there is simply no mass of evidence behind this claim, not enough for it to serve as a major explanation of one of our largest economic and social problems.  One is led to this kind of move if one has to justify the claim that unemployment is “involuntary,” whereas a better question is why the quality of job market match is going down.

There is the macroeconomics of the academy and the macroeconomics of the blogosphere.  The latter does not devote nearly enough attention to search theory, combined with other market imperfections of course.

If you’d like to read one recent macro piece on search, there is Marcus Hagedorn and Iourii Manovskii, “Job Selection and Wages over the Business Cycle,” published in the latest AER but with an ungated version here.  It is not some kind of explanatory holy grail but it does illustrate the kind of questions contemporary macro is asking.

What is the implied liquidity preference of President Obama?

If not for the political issues involved with owning shares of specific companies, I might also ask about his implied equity premium:

The Obamas paid $45,046 in mortgage interest in 2012, which appears from the disclosure statement to be at a 5.625% interest rate with Northern Trust. That suggests an outstanding principal balance of about $800,000.

On the other hand, the bulk of their investments are in Treasury notes. Based on the disclosures, I estimate they hold about $3 million in Treasury notes (also held by Northern Trust), yielding 0.71% if averaging a five-year maturity.

By selling some of those Treasuries and paying off the mortgage, they would effectively be getting five more percentage points on the amount; they would also be about $40,000 better off each year before taxes, not to mention being less exposed to notes that could take a hit from possible rising rates.

The Obamas would pay more in taxes but make much more after taxes — especially since they aren’t getting the full deduction anyway, due to the AMT. That’s more money going to the U.S. Treasury and more money for them; Northern Trust would be the loser.

That is all via Greg Mankiw.  In any case he does not seem to think that bonds are a bubble, but does seem interested in recapitalizing the banking sector, small steps toward a better world.

Assorted links

Mark Bittman’s *VB6*

The subtitle is Eat Vegan Before 6:00 to Lose Weight and Restore Your Health . . . for Good.  This is an excellent book (recipes too) which comes to grips with the notion that virtuous eating also has to be fun and privately beneficial and involve a minimum of self-constraint or for that matter calculation costs.  As I’ve argued in my own An Economist Gets Lunch, eating less meat is the most socially beneficial change in your dietary habits you can make.  Here’s one very good way to do it.

Of course the economist in me wonders why Bittman chose “vegan before 6 p.m.” rather than after 6 p.m. or for that matter after some point closer to the middle of the day.  Is it simply two meals vs. one?  Or is it that the prospect of meat and dairy in the evening makes vegan eating during the day more tolerable, whereas the opposite would require too much retrenchment to be sustainable?  For most workers, free time also comes at the end of the day.  I have never heard of a society where you wake up, have five or so hours of free time, head off to work, and then come back home and go right to bed.  Yet surely at least a few of you wake up at 3 a.m. and construct such a daily pattern for yourselves, without much societal support of course.  What is it that sets you apart?

The politics of infrastructure in India

Tapan Kumar Chowdhury, 62, a retiree now working as an activist in the colony, said legalized status would be likely to improve sanitation and local health standards through installation of a true sewage system. But he remained skeptical about whether the election-year promises would be carried out, noting that politicians preferred to keep colonies vulnerable so that residents remained more beholden to them for even incremental improvements. “They have a vested interest in keeping us illegal and unauthorized,” he said, “so they can use us as a vote bank.”

Here is more.