Month: July 2014

Those new service sector jobs: human props to sell real estate

The future is in marketing, right?:

When the Mueller family sits for dinner, the leftover broccoli and crepes are already wrapped in plastic, the kitchen is beyond spotless, and the rest of the home is so tucked-away tidy it looks like they just moved in. In a way, they have: Every inch of furnishing, every little trinket and votive candle, sits precisely as designers placed it five months ago. That would make them the most perfect suburban ideal, except for one catch: This isn’t actually their home. Bob and Dareda Mueller and their three grown sons are, instead, part of an “elite group” of middle-class nomads who have agreed to an outlandish deal. They can live cheaply in this for-sale luxury home if it looks as if they never lived here at all.

The home must remain meticulously cleaned and preserved: the temperature precisely pleasant, the mirrors crystalline clear. If a prospective buyer wants to see the home, they must quickly disappear. And when the home sells, they must be gone for good, off to the next perfect place.

That they do everything an owner would do — sleeping, making memories, learning the home’s quirks and secrets — imbues an otherwise-empty home with an unmistakable energy, say executives with Showhomes Tampa, the home-staging firm that moves them in. It also helps the homes sell faster, and for more money.

“They have to live a very different, very difficult life,” said Kim Magnuson, a sales director. Added franchise owner Linda Saavedra, “The home managers act like human props … and (with buyers) it’s like magic. It works phenomenally well.”

The full story is here, and for the pointer I thank Ted Frank.  File under Markets in Everything.

Should LeBron James hurry up and decide?

Joshua Tucker says yes:

…if LeBron waits until every other play has signed, those players will all have made their decisions not thinking they have the maximum chance of winning a championship.  Because they value both winning and making money, every one of those players will have signed for more money than they would have needed to sign had Lebron already signed with that team.  LeBron, upon joining that team, will therefore be playing with players who were more expensive than they needed to be.  This in turn means that whatever team he joins will either (a) have less money to sign LeBron or (b) have less money to sign other players besides LeBron and the free-agents they have already signed.  Either way, LeBron gets less of what he wants (defined here as money + likelihood of winning) than if the other free agents had known he was going to be on that team before he signed.

Therefore the converse should also hold: by moving sooner, LeBron should be able to get more of what he wants. By virtue of being the single best free agent available, Lebron instantly adds more to a team’s chance of winning a championship than any other player, and therefore will drive down the cost of acquiring other players to complement him as he seeks out additional championships.

But I don’t think that is right.  LeBron needed to find out if Wade and Bosh are willing to take significant pay cuts, to help Miami bring in better players.  So far it seems he is learning the answer is “no.”

More formally, you can think of this as threshold and discontinuity issues kicking in.  If LeBron signs quickly with Miami, and Wade and Bosh are selfish in pecuniary terms, Miami can’t do much of anything to become a decent contender.  That is because the salary cap makes it very difficult to bring in other good players at reasonable cost (the “luxury tax”).  No major free agents have stepped forward and shown their willingness to take a big pay cut to play with LeBron.

If that is indeed what has been learned, LeBron now can pit a few other teams against each other — Cleveland, the Lakers, maybe even Phoenix and Houston — and ask how big a financial commitment to winning they are able to make.  (Miami of course can be kept in the mix.)  It takes a while for those teams to signal their intentions, and that also requires waiting on LeBron’s part, if only to let the bids escalate.  That is the way to extract greater sacrifices from other players and also from the owners, a factor which I don’t see Tucker putting at the center of his analysis.

Of course LeBron won’t wait very long.  At some point each team has put its best plan on the table and then he will choose (for reasons similar to those outlined by Tucker), which is likely quite soon.  Still, it is privately optimal for him to start that process with some waiting and with a minimum of non-committal rhetoric, which is indeed what we are observing.

There is something about bubbles we don’t understand

According to the Central Statistics Office, residential house prices in Dublin rose 22 per cent in the year to May. The last time Irish house prices were rising so fast was between 2002 and 2005, the years immediately before the crash. This is sparking talks of a new price bubble – mostly, so far, around the dinner table.

That doesn’t have to be a new bubble, and you will note that these prices remain well below their pre-crash peaks.  Still, prices seem to be moving pretty fast in the market.  It remains my view that some regions of the U.S. did not have a real estate bubble at all, and that for these regions it is the price bust which is the anomaly, not the initial run-up.  It is an interesting question what percentage of the world that might hold for.

The FT story is here.

Assorted links

Sentences to ponder, CEO panopticon edition

As wearable health monitors become more sophisticated, some companies, rather than sending their CEO to a public hospital for a check-up twice a year, may choose to monitor them remotely. What is good enough for high-performance teams of athletes could come to be seen as essential for executives looking for an edge over rivals.

Shared data will then become tradeable insider information, as Mr Benioff pointed out. The answer to Mr Dell’s query was that Mr Benioff had had a cold and decided to skip his workout. But imagine if, instead, the interruption to his regime had signalled to his network of high-powered friends and investors that he had suffered a stroke.

That is from Andrew Hill at the FT, there is more here, interesting (but gated?) throughout.

Scott Sumner on why no Kansas miracle?

He reports:

The past two years Kansas reduced its state income tax rates. As a result, the top rate of income tax faced by Kansas residents (combined state and federal) rose from 41.45% in 2012 to 48.3% in 2013 and then fell a tad to 48.2% in 2014 (if they don’t itemize.) That’s a pretty tiny drop in the top marginal tax rate in 2014, and a much bigger rise in 2013.

I consider myself a moderate supply-sider, but I certainly wouldn’t expect such a tiny tax cut to significantly affect behavior. And any effects that did occur would happen very gradually, over a period of many years. For instance, firms might be slightly more likely to move to Kansas. But even after the tax cut, the top rate is almost as high as in Massachusetts, so Kansas is certainly not a tax haven like Washington or Texas, which have no state income tax.

I can’t imagine any serious economist predicting that the Kansas rate cut would boost Kansas GDP by 25% or more. Why did I pick that figure? Because the Kansas state income tax top rate fell from 6.45% in 2012 to 4.8% in 2014, which is roughly a 25% rate cut. In order for that rate cut to boost Kansas tax revenues, you’d have to see Kansas GDP rise by more than 25%. That’s obviously absurd.

There is more here.

How big a deal is replication failure?

From Jason Mitchell at Harvard:

Recent hand-wringing over failed replications in social psychology is largely pointless, because unsuccessful experiments have no meaningful scientific value.

Because experiments can be undermined by a vast number of practical mistakes, the likeliest explanation for any failed replication will always be that the replicator bungled something along the way. Unless direct replications are conducted by flawless experimenters, nothing interesting can be learned from them.

Three standard rejoinders to this critique are considered and rejected. Despite claims to the contrary, failed replications do not provide meaningful information if they closely follow original methodology; they do not necessarily identify effects that may be too small or flimsy to be worth studying; and they cannot contribute to a cumulative understanding of scientific phenomena.

Replication efforts appear to reflect strong prior expectations that published findings are not reliable, and as such, do not constitute scientific output.

The field of social psychology can be improved, but not by the publication of negative findings.   Experimenters should be encouraged to restrict their “degrees of freedom,” for example, by specifying designs in advance.

Whether they mean to or not, authors and editors of failed replications are publicly impugning the scientific integrity of their colleagues. Targets of failed replications are justifiably upset, particularly given the inadequate basis for replicators’ extraordinary claims.

The full piece is here, I don’t quite buy it but a useful counter-tonic to a lot of current rhetoric.  I found this in my Twitter feed, but I forget whom to thank, sorry!

Addendum: An MR reader sends along this related argument.

Same sex parents and adopted children

The largest-ever study of same-sex parents found their children turn out healthier and happier than the general population.

A new study of 315 same-sex parents and 500 children in Australia found that, after correcting for socioeconomic factors, their children fared well on several measures, including asthma, dental care, behavioral issues, learning, sleep, and speech.

Do note this:

Perceived stigmas were associated with worse scores for physical activity, mental health, family cohesion, and emotional outcomes. The stigmas, however, were not prevalent enough to negatively tilt the children’s outcomes in a comparison to outcomes across the general population.

There is more here, from German Lopez, the study itself is here.

German leberkas meatloaf and sweet sausages with mustard arbitrage

A man exploited the perks of business-class travel to feast for free 35 times in a year at Deutsche Lufthansa AG (LHA’s) Munich airport lounge — without ever taking off.

The man used the flexibility of the one-way fare to Zurich to repeatedly reschedule his travel plans after gaining access to food and drink, Munich district court said in a statement. Lufthansa canceled the ticket after more than a year and refunded the price, only for the man to purchase a replacement.

The court ruled that lounge services are provided on the assumption that travelers will seek to fly, and ordered the man to pay Lufthansa 1,980 euros ($2,705), equal to about 55 euros per visit or more than twice the cost of the 744.46-euro ticket. Lufthansa pursued a prosecution only after the man bought the second ticket with the intention of resuming his foraging raids.

Business-class fares typically offer the flexibility to rebook when plans change, while offering perks such as access to premium lounges, conference facilities and showers. The Munich facility at Lufthansa second-biggest hub offers Bavaria’s Loewenbraeu beer on tap, together with local delicacies including leberkas meatloaf and sausages with sweet mustard.

The link is here and for the pointer I thank Hugo Lindgren.  And yes, I know there are various spellings of “leberkas.”

What does real business cycle theory predict about the cyclicality of prices?

At least since King and Plosser 1984, the core prediction is that prices are procyclical and perhaps a leading indicator as well.  Think of inside money/credit as another input into production, and real business cycle theory as showing a general comovement of economic variables.  That means broader measures of the money supply go up in good times and fall in bad times.  Of course you don’t need real business cycle theory to get to those rather general conclusions, but they are fully consistent with real business cycle theory and will fall out of most sensible models with credit.

Now consider prices.  If money supply expansions/contractions come more quickly than output expansions/contractions, the price level will be pro-cyclical in an RBC model, at least during the early stages of the cycle before other outputs adjust.  Especially on the upswing it is easy to imagine how optimistic expectations give rise to some M2 which comes before the actual output rise.  And in bad times the broader aggregates won’t put much pressure on prices.  You can think of the broader “comovement effects” as outweighing possible interest rate effects.

Paul Krugman has a post attacking a bunch of people, but he is not focusing on what RBC models actually imply, and have implied for a long time.  (He sticks with attacking the easier target, namely those who predicted very high inflation from the high monetary base.)  It is not that “RBC models explain the crisis,” but rather demand and supply side models have more in common than is often recognized, all the more once you move beyond the immediate short run.

Furthermore there is nothing in the behavior of prices which rules out a significant (and I would say non-exclusive) role for the supply side.  On top of that the pure demand side theories predicted more deflation than we have ended up seeing and thus they would do well to incorporate some supply-side considerations.

How does education lower the demand for children?

It doesn’t always, but sometimes it does and here are some reasons why:

Caldwell identifies five mechanisms by which education reduces fertility by reshaping the economic relationship of parents and children. First, education reduces the ability of a child to work inside and outside the home – not just because school and studying take up time, but also because the child’s student status makes others reluctant to enforce traditional duties. Second, education increases the expense of raising a child, again not just because school is expensive, but because education increases a child’s demands on his parents for non-school expenses in a manner Caldwell describes as unprecedented. Third, education increases the dependency of children, reframing a formerly hard-working, productive child as primarily a producer and citizen. Fourth, schooling speeds up cultural change and creates new cultures. Finally, fifth, in the developing world education specifically transmits the values of the Western middle class, which is contemptuous of traditional “family morality” as described above.

That is from The View from Hell, via bullet-biting Ben Southwood on Twitter.

Not surprisingly, that is a post from the UK.  And if you’re wondering, there is a discussion involving the word “women” later in the post.

Swedish emotion markets in everything

The world’s first “emotional” auction, where people pay with feelings rather than money, has taken place in Sweden.

Bids were generated by the way people’s biometrics – heart rate and sweat changes – altered when they saw an item for sale.

Note that if you click on the link, it will make sounds and set a video in motion, caveat emptor.  Via Colin Camerer.  If all markets were run on this basis, what is it you would take home at the end of the day?  And who would be taking you home?

Assorted links