Month: September 2017

Young Americans are also less spiritual

Another common narrative about trends in American religious belief says that spirituality has replaced religion. …That might have been true at one time, but no longer.  iGen’ers are actually less spiritual as well as being less religious.  iGen’ers and late Millennials ages 18 to 24 are the least likely of all age/generation groups to say they are a “spiritual person,” showing a pronounced break even with older Millennials in their late twenties and early thirties…

Of course, these differences could be due to age instead of generation; perhaps younger people have always been less spiritual.  However, slightly fewer 18- to 24-year-olds in 2014-2016 (48%) described themselves as a moderately or very spiritual person than in 2006-2008 (56%).

That is from the new and excellent Jean M. Twenge, iGen: Why Today’s Super-Connected Kids are Growing Up Less Rebellious, More Tolerant, Less Happy — and Completely Unprepared for Adulthood.

Wednesday assorted links

What I’ve been reading

1. George W. Bush, Portraits of Courage: A Commander in Chief’s Tribute to America’s Warriors.  Not only are the paintings good, but this book is the perfect antidote to too much time spent on Twitter, especially if you read the text about all the injuries sustained.

2. Dennis C. Rasmussen, The Infidel and the Professor: David Hume, Adam Smith, and the Friendship That Shaped Modern Thought.  A beautifully written book, with wonderful balance, about a beautiful friendship.  Recommended.

3. Richard White, The Republic for Which It Stands: The United States During Reconstruction and the Gilded Age, 1865-1896.  This will make the year’s “best of” list for sure.  I’m not usually a fan of reading a 900 pp. plus survey book to cover a period of more than three decades.  Usually too much stays superficial, and the author does not apply consistent quality standards to the whole work, if any of it.  But this book is interesting and informative on virtually every page, and it is unfortunately all too relevant for the current day.  Here is a good Kyle Sammin review.

Two books I have only browsed, but both look good:

Lizzie Collingham, The Hungry Empire: How Britain’s Quest for Food Shaped the Modern World, with a slightly different title for the U.S. edition, and

Brian Fagan, Fishing: How the Sea Fed Civilization.

There is also:

Thomas S. Mullaney, The Chinese Typewriter: A History, is a thorough and informative treatment of what its title suggests.  Here is a WSJ review.

John L. Campbell and John A. Hall, The Paradox of Vulnerability: States, Nationalism & the Financial Crisis, considers the state capacities of Denmark, Ireland, and Switzerland in responding to the financial crisis.  I liked what was there, though wanted more.

Barry Riley, The Political History of American Food Aid: An Uneasy Benevolence, I have only perused bits, but it seems to be the book to read or own on this topic.

Social media are making price gouging too difficult these days

That is the topic of my latest Bloomberg column.  Here is one bit:

Let’s say bottled water was selling at $42.96 a case at the local Best Buy, as shown in this photo. A customer can take out his or her smartphone, snap a photo and post it on social media. The photo may go viral, and many people, including the legal authorities, will be mad at the company.

The reluctance to raise prices is especially strong for nationally branded stores. A local merchant may not care much if people in Iowa are upset at his prices, but major companies will fear damage to their national reputations. The short-term return from selling the water at a higher price is dwarfed by the risk to their business prospects. More and more of the value of business capital is intangible capital, more than 84 percent of the S&P 500 by some estimates. That’s why Best Buy so quickly apologized for its store selling the water at such a high price, blaming the incident on an overzealous local manager.

Consider an alternative: Instead of raising prices to very high levels, let’s say that the local big-box store sells out quickly during an emergency and has empty shelves for water. If those photos circulate, they will be interpreted as signs of general tragedy and want, rather than selfish corporate behavior. It’s too subtle an image to snap the price tag at pre-storm levels, contrast it with the empty shelves, and lecture your Facebook friends about the workings of market-clearing supply and demand and the virtues of flexibly adjusting prices.

Beware the culture of the image!  As I’ve said before, we should levy a micro-tax on photos on Twitter.

Here is Don Boudreaux on price gouging.  Here is David Henderson on price gouging.  I agree with them both.

Where does the gravity equation come from?

From Thomas Chaney, in the latest JPE:

The gravity equation in international trade states bilateral exports are proportional to economic size, and inversely proportional to geographic distance. While the role of size is well understood, that of distance remains mysterious. I offer an explanation for the role of distance: If (i) the distribution of firm sizes is Pareto, (ii) the average squared distance of a firm’s exports is an increasing power function of its size, and (iii) a parameter restriction holds, then the distance elasticity of trade is constant for long distances. When the firm size distribution follows Zipf’s law, trade is inversely proportional to distance.

Here are earlier, ungated versions.

Tuesday assorted links

Why you should read more about religion

So many religious facts have a very long half-life for their relevance.  Say you learn about how the four Gospels differ — that’s still relevant for understanding Christian divisions or Christian theology today.  Reading about the Reformation?  The chance of that still being relevant is much higher than if you were reading about purely secular divisions in internal German or Swiss politics in those same centuries.

Jews, Buddhists, Hindus, Sikhs, or Muslims?  Facts from many centuries ago still might matter.  And the odds are that people a few centuries from now still ought to read about the origins of Mormonism.

In few other areas do past facts stand such a high chance of remaining relevant for so long.

As an empirical matter, “rationalists” tend not to read so much about religion, but that is precisely the unreasonable thing to do.

If you’d like to see a potential counter, here is some poll evidence that many people don’t care so much about the divisions of the Reformation any more.  It still matters a great deal whether you are in Catholic, Protestant, Orthodox, or “mixed” Europe.

I am indebted to a conversation with Bryan Caplan for the main point, though he is not liable for my formulation.

Why are VC returns correlated over time but mutual fund manager returns not??

Try on these propositions for size:

1. Intangible-rich businesses are harder to fund with debt, because the lenders cannot take home much in the way of physical assets.

2. Intangible assets, because of their potentially scalable nature, can produce the kind of “home run” successes that VC investors look for.

3. Given that intangible investments are relatively uncertain, the idea of successive funding “rounds,” with successive evaluations at each stage, makes more sense in those cases, and that too matches the VC model.

4. Companies with lots of intangible assets try to take over markets that are “contested,” but note that leading VC firms behind these investments are heavily invested in the entire ecosystem.

5. If a good VC company is plugged into the right social networks, and investing in a highly productive ecosytem, it can reap high returns year after year, and from a relatively “within-sector” diversified position.  The VC companies can outperform the broader market, even if the VC leaders themselves would not be superior “stock pickers” in a mutual fund context.  That said, the VC leaders may not be well diversified across sectors, and so a systemic tech bust can hurt them.

6. Not everyone can build those social networks with equal facility, so VC advantages can endure for considerable periods of time for the leading firms.  It is the ability to “position socially and manage contestedness and spillovers and maintain the flow of good deals” that is so hard to scale up.

That is all from the forthcoming Capitalism Without Capital: The Rise of the Intangible Economy, by Jonathan Haskel and Stian Westlake.  Their discussion of venture capital offers further points of interest, including a discussion of why it is so hard to replicate VC environments in other settings.  Here is my previous post on the book.

Does the National Flood Insurance Program Have Redistributional Effects?

Our findings indicate that premiums as a percentage of coverage purchased are regressive: premium shares are larger than income shares for lower-income zip codes. Payouts, however, also as a percentage of coverage purchased, are progressive, meaning lower-income zip codes receive a larger portion of claims paid. Overall net premiums (premiums – payouts) divided by coverage are also regressive.

That is from a recent paper by Bin, Bishop, and Kousky, via the excellent Kevin Lewis.  Here is Politico on the fight to thwart flood insurance reform.

Intangible investment and monopoly profits

I’ve been reading the forthcoming Capitalism Without Capital: The Rise of the Intangible Economy, by Jonathan Haskel and Stian Westlake, which is one of this year’s most important and stimulating economic reads (I can’t say it is Freakonomics-style fun, but it is well-written relative to the nature of its subject matter.)

The book offers many valuable theoretical points and also observations about data.  And note that intangible capital used to be below 30 percent of the S&P 500 in the 70s, now it is about 84 percent.  That’s a big increase, and yet the topic just isn’t discussed that much (I cover it a bit in The Complacent Class, as a possible source of increase in business risk-aversion).

Here is one option Haskel and Westlake lay out, though I am not sure to what extent they are endorsing it, as opposed to merely presenting it:

1. More intangible capital means greater spillovers across firms.  Consider Apple inventing the iPhone, and many other companies free-riding upon the original R&D.  Of course Apple itself was free-riding upon earlier attempts to build smartphones and tablets.

2. In essence, free-riding companies receive more intangible assets, a kind of free lunch on the side of what otherwise would be expenditures on fixed costs.  But receiving these intangible benefits itself requires a kind of scale, so they are not available to each and every potential entrant.

3. Corporate profits go up for some of the winners, but monopoly has not risen in the traditional sense.  In fact, more companies are competing for the smart phone market.

4. Eventually those profits will fall, as for instance iPhone imitators will force Apple to lower prices for its devices.  But that long-run can be quite far away, and as you probably know after ten years iPhone prices have pretty much held firm.

5. Now how big a productivity gain comes from those cross-firm externalities?  It might depend on how many other firms are sufficiently well-scaled to receive the intangible external benefits from the first-mover innovators (this part of the argument in particular I am not sure I find in the book).

6. The so-called “superstar” firms are those that scale up to capture intangible externalities from many other sources, not just one or two.  That includes Google and Facebook, but most firms don’t have the talent or cash pile to make that leap.  Therefore these gains remain concentrated, income inequality goes up, both in general, and across business firms, as indeed we observe in the data.  Since entry into “holding a position to capture a broad swathe of intangible externalities” to tough to accomplish, this state of affairs can persist for some while.  Yet, still, in no particular market are mark-ups over marginal cost worse, nor are monopoly problems worse from the point of view of consumers.  Profits of the superstar firms are much higher.  Arguably that is a pretty decent description of the American economy today.

7. You can think of these conditions, collectively, as arranging a big transfer to some leading businesses, yet without distorting too many other margins.

Now, I’ve put that all into my language and framing, rather than theirs.  In any case, I suspect that many of the recent puzzles about mark-ups and monopoly power are in some way tied to the nature of intangible capital, and the rising value of intangible capital.

The one-sentence summary of my takeaway might be: Cross-business technology externalities help explain the mark-up, market power, and profitability puzzles.

You should all pre-order and then read this book, due out in late November.  I thank PUP for the review copy.

From the comments — a further note on planes and flying

You need to look at ticket prices inclusive of fees, not just fares. Those have continued the long run trend of falling in inflation-adjusted terms, although not every year.

Airline products across carriers have become less variable/more standardized. Price is only one element of competition. There are significant barriers to entry in the airline industry, not least of which is the prohibition on foreign ownership of US airlines. However that is hardly the only one.

The major reason Alaska Airlines purchased Virgin America was access to gates and in some cases slots at major congested airports. You not only have government-owned airports entering long-term leases with incumbent airlines, you frequently have capture of the bureaucrats running those airports by their major incumbent airline tenants. And where you have multiple airports in a metropolitan area, they’re frequently jointly run by the same bureaucracy rather than competing.

Airlines are highly profitable, though not nearly as profitable as two years ago, the biggest delta has been fuel cost tied to the price of oil. Consolidation allowed airlines to capture much of the gains of lower fuel prices for a period of time, but the smaller number of carriers returned to expansion and competition on the basis of price competing away some of those savings-driven prices.

All that said the only monopoly air routes in the US are the ones no one wants to fly and that require government subsidies in order to entice carriers into the market. Which isn’t to say that consumers wouldn’t benefit from more competition than we have today.

That is from Air Genius Gary Leff.

Sunday assorted links

1. Should Silicon Valley billionaires love Henry George?

2. Brian Eno, Stewart Brand, and Kevin Kelly list books for preserving/restoring civilization.

3. “At KPRO, a new KFC restaurant that serves salads, paninis and fresh juice instead of deep-fried chicken in Alibaba’s home base of Hangzhou, customers can authenticate their payments by having their faces scanned.”  Link here.

4. Movies are doing terribly, TV is doing fine.

5. There are several internet articles about a new Raghuram Rajan book this week (in which country?), but neither Amazon US nor UK seems to know about it.

6. A janitor at Kodak vs. a janitor at Apple (NYT), recommended.  And here is an observation from Michael Mandel.

Big Data Surveillance

Newly minted sociologist Sarah Brayne spent two and a half years studying the LAPD as it shifted from traditional methods to what she calls big data surveillance.

This article examines the intersection of two structural developments: the growth of surveillance and the rise of “big data.” Drawing on observations and interviews conducted within the Los Angeles Police Department, I offer an empirical account of how the adoption of big data analytics does—and does not—transform police surveillance practices. I argue that the adoption of big data analytics facilitates amplifications of prior surveillance practices and fundamental transformations in surveillance activities. First, discretionary assessments of risk are supplemented and quantified using risk scores. Second, data are used for predictive, rather than reactive or explanatory, purposes. Third, the proliferation of automatic alert systems makes it possible to systematically surveil an unprecedentedly large number of people. Fourth, the threshold for inclusion in law enforcement databases is lower, now including individuals who have not had direct police contact. Fifth, previously separate data systems are merged, facilitating the spread of surveillance into a wide range of institutions. Based on these findings, I develop a theoretical model of big data surveillance that can be applied to institutional domains beyond the criminal justice system. Finally, I highlight the social consequences of big data surveillance for law and social inequality.

Here’s one bit, not far from what one would see on CSI:

For example, after a series of copper wire thefts in the city, the police found the car involved by drawing a radius in Palantir
around the three places the wire was stolen from, setting up time bounds around the time they knew the thefts occurred at each site, and
querying the system for any license plates captured by ALPRs in all three locations during those time periods.

And another:

I encountered several other examples of
law enforcement using external data originally
collected for non–criminal justice purposes,
including data from repossession and collections
agencies; social media, foreclosure, and
electronic toll pass data; and address and
usage information from utility bills. Respondents
also indicated they were working on
integrating hospital, pay parking lot, and
university camera feeds; rebate data such as
address information from contact lens rebates;
and call data from pizza chains, including
names, addresses, and phone numbers from
Papa Johns and Pizza Hut. In some instances,
it is simply easier for law enforcement to purchase
privately collected data than to rely on
in-house data because there are fewer constitutional
protections, reporting requirements,
and appellate checks on private sector surveillance
and data collection (Pasquale 2014).
Moreover, respondents explained, privately
collected data is sometimes more up-to-date.

Hat tip: Kevin Lewis.