Month: December 2013

Purchasing power parity across Israel and the Palestinian territories

I’ve already remarked how much the West Bank reminded me of visiting Israel.  I did some googling, and found only a source from 2000, yet it is consistent with my admittedly limited experience (not for Gaza) in 2013:

Most likely, Israeli prices are the upper level of prices for the WBG residents. Anecdotal evidence suggests that the price level in the WBG in fact may be a bit lower than in Israel, especially for a number of non-tradable goods, e.g., housing, and, in Gaza, for some food products, fresh fruits and vegetables. The (statistically significant) parallel movement in the price of level of tradable goods, e.g., food, clothes and furniture in the WBG and Israel, however, generally supports the assumption that most prices in Israel and the WBG are nearly the same.

Assorted links

1. The old Cincinnati library.

2. Be very afraid: it seems North Korea is ruled by young people.  Roman emperors who started young were usually terrible.

3. Have non-compete agreements gone too far?

4. Will robot telemarketers become pervasive?  And I liked this bit:  “…while Americans accept customer service and technical help from people with non-American accents, they do not take well to telemarketing calls from non-Americans. The response rates for outbound marketing via call center are apparently abysmal.”

5. Ways in which TPP might count.  And here is Krugman on TPP.  I would note that the foreign policy considerations of TPP are probably the most important factor in its assessment.

6. Larry Kudlow on the sequestration re-do.

Triply stupid policies

Doubly stupid policies are pretty common, but here is a triply stupid one:

Unique to racino legislation is the allocation of a statutorily set percentage of gaming revenue to purses to support racing and breeding operations in the state.

So what are the three layers of stupidity here?  First, there shouldn’t, as a special legal category, be racinos (that’s casino-style gaming at racetracks).  Second, this legislation is a response to competition from state lotteries, which in general I do not favor.  Third, the money from a dubious policy should not be spent “to support racing and breeding operations in the state.”  Those operations can pay their own way: how about spending the money on poor people, rather than on sectors which extract money from a disproportionately lower income clientele?  Or spending money on animal welfare without at the same time having to subsidize a “legally privileged against competitors” commercial sector?

So what is the background here?

A key theme of the enabling legislation in most states permitting casino-style gaming at racetracks [i.e., racinos] is preservation of the racehorse and greyhound racing and breeding industries in light of competition from other forms of gaming, such as state lotteries and casinos.

In other words, the racinos receive special legal exemptions to help the racetracks compete with state lotteries.  (Why not opt for the simpler solution of no state lottery in the first place?  Or some other notion of a regulatory level playing field?  Oh, how my brain HURTS to ponder how this “problem” arose in the first place.)  But it gets worse.  Often “racino gaming devices” are placed under the state lottery’s regulatory authority.  (Note to self: when attempting to protect B against competitive ravages from A, do not appoint A as regulatory overseer of B.)

So might we have a quadruply stupid policy here?

But wait, on second thought government lotteries, while I do not favor them, perhaps should not be described as “stupid” policies, since there are some reasonable albeit in my view misguided arguments on their behalf.   So maybe we are just back to triply stupid after all, I am not sure.

That is all from Richard Thalheimer’s “The Economics of Racetrack-Casino (Racino) Gambling,” from The Oxford Handbook of the Economics of Gambling, edited by Leighton Vaughan Williams and Donald S. Siegel.

Dear readers, can you think of examples of triply or even quadruply stupid laws and policies?

French price discrimination on the basis of politeness

Be polite, or be prepared to pay.

That’s the message a French cafe is sending its customers. Employees of La Petite Syrah in Nice, France, posted a menu that rewards politeness and punishes rudeness. A photo was posted on Twitter with the line, roughly translated to “There are still people who know how to live!”

So, here’s the deal. Customers who can only be bothered to mumble, “un cafe” (without a greeting or a “please”) can expect to pay 7 euros ($9.63).

A lot of money for a cup of java. Fortunately, there are simple ways to cut that cost dramatically. If the customer includes a “s’il vous plait” (“please”), the price goes down to 4.25 euros ($5.85). But wait — don’t order quite yet.

If you really want to save cash, greet your barista with a “Bonjour” (“Good day” for those who never saw “Beauty and the Beast”) and the cost drops again, this time to a perfectly reasonable 1.40 euro ($1.93).

This may be a marketing vehicle for the cafe, although the manager claims it was started as a joke.  I am not sure what is the most plausible theory for how this might actually be effective price discrimination.  There is more here, and I thank Mark Thorson and Ray Lopez for the pointers.  Jason Kottke offers more detail.

Assorted links

Guns, Suicides and Natural Experiments

Slate has a number of articles today on guns and violence including It’s Simple: Fewer Guns, Fewer Suicides by Justin Briggs and myself. The Slate article is based on our paper that I covered in an earlier post but here is some new material including one stunning fact that got cut from the Slate piece:

Suicide kills more people than all of the world’s armed conflicts combined.

and the results of two important natural experiments:

..our findings appear robust and are consistent with a series of “natural experiments” from around the world. For example, following the 1996 killing of 35 people in Port Arthur, Australia, a strong movement for gun control developed in Australia. States and territories made uniform and more stringent regulations for the possession of firearms, and instituted a buy-back of the newly illegal guns, most of which were rifles and shotguns. As Andrew Leigh and Christine Neill determined in a paper published in the American Law and Economics Review, these changes resulted in a reduction of the country’s firearm stock by 20 percent, or more than 650,000 firearms, and evidence suggests that it nearly halved the share of Australian households with one or more firearms. The effect of this reduction was an 80 percent fall in suicides by firearm, concentrated in regions with the biggest drop in firearms. Meanwhile there was little sign of any lasting rise in non-firearm suicides.

Suicide is a leading cause of death among adolescents and young adults, and limiting access to guns during those formative, sometimes unsteady years can have a real effect on suicides. In Israel most 18- to 21-year-olds are drafted into the Israeli Defense Forces and provided with military training—and weapons. Suicide among young IDF members is a serious problem. In an attempt to reduce suicides, the IDF tried a new policy in 2005, prohibiting most soldiers from bringing their weapons home over the weekends. Dr. Gad Lubin, the chief mental health officer for the IDF, and his co-authors estimate that this simple change reduced the total suicide rate among young IDF members by a stunning 40 percent. It’s worth noting that even though you might think that soldiers home for the weekend could easily delay suicide by a day or two, the authors did not find an increase in suicide rates during the weekdays. These results are consistent with interviews with near-fatal suicide survivors, who often say their decision was spontaneous and who typically go on to live long lives.

Our Slate article also includes a cost-benefit calculation that will probably upset many people.

Addendum: By popular demand Elsevier has given us a link to our research article, Firearms and Suicides in US states (pdf), that should work for everyone until late January.

The Media Doesn’t Talk About Suicide

Slate has been collecting media reports on gun deaths since Newton. What they found was a big discrepancy between the gun deaths reported in the media and the actual gun deaths as counted by the CDC. Chris Kirk explains:

The CDC counts about 32,000 people killed with guns each year, while Slate’s database only has one-third of that. Why the huge discrepancy?

Earlier this month Slate launched an effort to categorize the gun deaths in our system. That effort verified the source of the discrepancy: suicides. We’ve missed nearly all gun-related suicides, because our information is based on media reports, and the media typically avoid reporting on suicides.

The Media’s Picture of Gun Violence (suicides in red)

Media

The CDC’s Picture of Gun Violence (suicides in red)

CDC

Justin Briggs and I also have an article in Slate on suicides and guns. I’ll cover that  in another post.

*Addiction by Design*

The author is Natasha Dow Schüll and the subtitle is Machine Gambling in Las Vegas.  I read this on the flight back home and it is a good choice for one of the very best books of the year, as well as one of the best books on “behavioral economics” and “nudge.”

Almost every page in this book is instructive.  Here is one good passage of many:

…his department noticed nearly three times as many deaths by heart attack occurring in Clark County as in other counties.  A closer look revealed that two-thirds of the cardiac arrests took place in casinos and realized that the high rate of death had to do with the delays encountered by paramedic teams negotiating their complicated interiors.  Although they arrived at casino properties within four and a half to five minutes of a call, it took them an average of eleven minutes to reach victims inside.

The casinos, by the way, very often do not let the rescue teams come in through the main front door, for fear of putting off their customers.

The very best parts of the book are about the elaborate private sector strategies to milk the clientele for greater yield, and how those desires interact with the very competitive nature of the market:

…the industry has since attempted to strategically steer players…toward the cherry-dribbling, slow-bleeding pole of play, a profit-from-volume formula that one industry member has referred to as the “Costco model of gambling.”

And:

While in the past the typical gambling addict had been an older male who bet on sports or cards for ten years before seeking help, now it was a thirty-five-year-old female with two children who had played video for less than two years before seeking help.

And:

“In my life before gambling, she tells me, “money was almost like a God, I had to have it. But with gambling, money had no value, no significant, it was just this thing — just get me in the zone, that’s all…You lose value, until there’s no value at all.  Except the zone — the zone is your God.”

The book’s home page is here, and the author’s home page is here.  This is an impressive book.  It is also a brilliant study of man-machine interaction and I found it to be a complete page turner.

While we are on the topic, I very recently received a review copy of The Oxford Handbook of the Economics of Gambling, edited by Leighton Vaughan Williams and Donald S. Siegel, which appears to be excellent.

Stanley Fischer and the Palestinians

Palestinian Monetary Authority Chief Jihad Al Wazir suggested Mr. Fischer was skilled at navigating political sensitivities to focus on economic challenges.

“During Stan’s tenure [at the Bank of Israel], the relations remained on a professional level,” Mr. Al Wazir said from Ramallah. “It was devoid of politics. There was an understanding of the issues.”

…Mr. Al Wazir said Mr. Fischer helped ease strain in the Palestinian banking system during recurring liquidity crises because of shortfalls in foreign aid and occasional freezes in Israeli transfers of tax revenue collected on the behalf of Palestinians. He helped to get shipments of cash into the Gaza Strip’s blockaded economy.

That is from this story.  Here is much more on Fischer and the Palestinians.  Here are Fischer’s parting comments upon leaving his job in Israel.

Central Planning for Parking

Central planning is everywhere discredited except for central planning of parking places in American cities. Here from an excellent post is Matt Yglesias.

Are members of the Rockville, Maryland Town Council experts in real estate development? In parking management? Are they putting their own money on the line in the success or failure of projects in the center of their town? Of course not! Nonetheless:

Mayor Bridget Donnell Newton said she attended the Christmas tree lighting recently and was unable to find a parking space in Town Center. Councilman Tom Moore said he would like to get a briefing on Town Center parking from city staff before making a decision.

And:

Councilwoman Virginia Onley said the proposed parking reduction was her biggest concern with Duball’s plan. In Petworth, she said, some apartment residents have a Safeway downstairs. In Rockville, Town Center residents have to get in their cars to go to Safeway.

Suppose other kind of business decisions were made this way. Maybe someone wants to open a burger joint in Rockville, but he doesn’t want to serve milkshakes. One councilman says the last time he wanted to get a milkshake there was a very long line, so obviously the new burger place must serve milkshakes. Another councilman protests that he doesn’t even like burgers. Aren’t more people vegetarians these days?

Market forces aren’t good at everything. But striking a balance between the demand for some service (parking) and the cost (including opportunity costs) of providing it, is exactly what market forces are good at. And yet somehow when it comes to parking spaces no politician in America is radical enough to suggest that the solution is to build as much parking as people want to pay for.

Tyler Cowen’s West Bank ethnic dining guide

I can recommend two places:

1. Siri (that is how they pronounced it, I don’t know the transliteration), a small restaurant on one of the main streets in the center of Ramallah.

They serve hummus, foul, and foul ringed with hummus, get the latter.  The accompanying vegetables were more strongly marinated than they typically would be in Israel, a plus in my view.

2. Laymoon [The Lemon restaurant], Ariha (Jericho)

The chicken musakhan, with piles of red onions and slivered nuts over bread, seasoned with generous doses of sumac and allspice, is very tasty.  The restaurant is also a nice place to sit outside and enjoy the weather, or to catch an Arabic-language film on their large outdoor screen.

I walked by many other places and in general they looked good.  The various fruits I purchased on the street were all winners, the small oranges and the dates most of all.  There is much less variety, but dish by dish my impression from a small sample was that the food in West Bank cities is slightly better than that of Tel Aviv.

Ariha was attracting a lot of Nigerian church tourism.

Overall I noticed how much economic growth and globalized advertising were to be seen in Ramallah.  My biggest surprise was how much being in Ramallah felt like…being in Israel.  Except the citizenry seemed less religious.

Stanley Fischer on the Israeli economy

The word is that Stanley Fischer will be nominated to be #2 at the Fed, good news in my view.  Here is Ari Shavit recounting his meeting with Stanley Fischer:

…he [Fischer] utters the relevant figures in slow, measured, Anglo-Saxon Hebrew.  In the years 2004 to 2008, Israel’s average annual growth rate was 5.2 percent.  While the world was in crisis in 2010-11, Israel’s average annual growth rate was 4.7 percent.

…Fischer tells me there are four reasons for this success: reducing government spending dramatically (from 51 percent of GDP in 2002 to 42 percent in 2011); reducing the national debt significantly (from 100 percent of GDP in 2002 to 75 percent in 2011); maintaining a conservative and responsible financial system; and fostering the conditions required for Israeli high-tech to continue to flourish.

There is then a discussion of how Israeli R&D and starts-ups are so strong and how dynamic the tech sector is.  Fischer then turns to the problems:

“We have four problems,” he says.  “Our education system has deteriorated, and it endangers our ability to sustain technological excellence.  The employment rate among ultra-Orthodox men is only 45 percent.  Most Arab women do not work.  Fewer than twenty business groups control much of the local market and thus restrict competition.  Right now the high-tech miracle helps to conceal these four problems that are weighing down the wider economy.  But in the long term, these problems endanger Israel’s ability to remain prosperous and successful.”

That is from Ari Shavit’s excellent new book My Promised Land: The Triumph and Tragedy of Israel, reviewed here.

Trudge rather than Nudge?

A Chinese factory worker says walking in huge iron shoes weighing more than 200kg each can cure back pain, but faces hefty competition in his bid to build the country’s heaviest footwear.

“I’ve been walking with iron shoes for seven years,” said Zhang Fuxing, before strapping two crudely welded iron blocks to his feet.

“After they reached 400kg, I felt very proud. Next spring I plan to add 50kg.”

Zhang took a deep breath before each wrenching step in the towering footwear, with every impact leaving him struggling for balance.

It took him more than a minute to take 10 paces, but he claims to walk up to 15 metres each day in the shoes, which he has gradually increased in weight, and touts them as a cure for back pain and hemorrhoids.

There is more here, including a photo, via the excellent Mark Thorson.  But wait, there is more:

Zhang believes his shoes to be the heaviest in China, but admits that competition from a number of other eccentrics renders his claim uncertain.

One of two Chinese iron shoe wearers to share a Guinness World Record for walking 10 metres backwards in heavyweight iron boots is Zhang Zhenghui from Changsha. According to a 2010 report by Xinhua news agency, he has gold-painted shoes weighing more than 200kg.

Lai Yingying, an entertainer from Fujian in the east, was shown by state broadcaster CCTV wearing shoes tipping the scales at a total of 300kg.

A runner, Liu Mei, took to exercising in metal footwear after growing bored of tying sandbags onto his trainers, the state-run China News Service reported, and challenged other exponents to compete for the title of “Iron Shoe King”.

Does Basel III encourage banking fragmentation in Europe?

I had not considered this point before:

Basel III and related regulation generally work against building scale. Larger capital charges based on size, leverage and complexity, and a bias toward ringfenced subsidiaries, may make for a safer global banking system, but applied across euro area countries, and in the absence of a strong banking union, they constitute a recipe for less efficiency and greater fragmentation.

It is an excellent piece by Gene Frieda (FT gated), here is more, on the consequences of an imperfect banking union:

Banks will continue to hold primarily national assets and their size will be constrained by their resident deposit bases. Any reconvergence of funding costs comes not as a function of greater confidence, but from the forced reimposition of national financing constraints.

Loan pricing, on the other hand, will remain highly differentiated amid elevated periphery default risk, as highly indebted economies will be unable to grow their way out of a debt trap. A complete banking union would remove these national financing constraints and promote a greater flow of credit to viable entities.

This will lead to strong deflationary pressures and indeed you will note that private loan growth in the eurozone remains negative, a sign the crisis is not over.  And then there is this:

Finally, given the lack of common fiscal backstops for the banking sector, the ECB’s independence is compromised. Indeed, without a credible backstop, supervisory responsibilities cannot be separated, giving rise to conflicts between monetary policy and financial stability objectives.

I would add that a full and perfect banking union probably is politically impossible, not just by a small amount but by a long mile.  Berlin/Brussels cannot guarantee a country’s banks without also guaranteeing the sovereign as well, either directly or indirectly (in the limiting case, imagine that sovereign nationalizing a bank to get the guarantee explicitly).  I just don’t see that in the cards.