To Serve and Protect Whom?
Last week I wrote:
According to this stunning account
local law enforcement officials prevented refugees, at gun point, from
leaving New Orleans and then stole their food and water to boot.
The story seemed so incredible that I cautioned readers but the Washington Post is now verifying the main account:
A suburban police chief is defending himself against
accusations of racism for ordering the blockade of a bridge and turning
back desperate hurricane victims… Police Chief Arthur Lawson Jr. ordered officers to block a bridge
leading into the community [of Gretna], which is almost two-thirds white. New
Orleans is two-thirds black.
Thanks to Robin Hanson for the pointer.
Fear of Floating
The Washington Post has a good article on an interesting email scam.
Typically, here’s what happens: You advertise a car for sale
online. A fraudster posing as a buyer responds via e-mail agreeing to
purchase the car for the asking price…Next, the scammer persuades the buyer to
accept a cashier’s check or personal check for significantly more than
the agreed-upon price. The excess is allegedly to cover the cost of
shipping the car abroad. Or the check’s too big, he claims, because it
had already been cut for a car deal that fell through. Or the buyer
simply apologizes for the mistake.The key to the
scam is duping the seller to deposit the check and, once it clears in
the seller’s account, return the excess money via an irreversible wire
transfer, such as Western Union.
Now what always confused me about this scam is that it seems very easy to avoid. Just wait for the check from the scammer to clear, right? Wrong.
The scam turns on most people’s misunderstanding of the
check-clearing process. Bank clerks and managers usually aren’t experts
at identifying counterfeit checks. So they deposit the check and tell
the seller it requires 48 hours to "clear." Then the money appears on
the seller’s account statement and can be withdrawn.Most
people assume that means the check is valid. But the real
check-clearing process can take weeks. Phony checks generally aren’t
nabbed until after the seller has wired the overpayment to the scammer.
And after the wire transfer is picked up, it’s gone.
Bryan Caplan Nails It
If you want to grow, you can learn a lot more from Hong Kong than Harvard.
More here.
Seth Roberts in NYTimes
Seth Roberts may soon be waking up to see his own face on television. That ought to make him happy! Roberts, as you may recall, is the Berkeley psychologist whose novel self-experiments have led to some strange but important new ideas. Stephen Dubner, who read about Roberts on MR, and Steve Levitt have just profiled him in the NYTimes Magazine; they do an especially good job of explaining Seth’s theory of weight loss:
[Roberts] had by now come to embrace the theory that our bodies are
regulated by a "set point," a sort of Stone Age thermostat that sets an
optimal weight for each person. …But according to Roberts’s
interpretation of the set-point theory, when food is scarcer, you
become less hungry; and you get hungrier when there’s a lot of food
around.This may sound backward, like
telling your home’s furnace to run only in the summer. But there is a
key difference between home heat and calories: while there is no good
way to store the warm air in your home for the next winter, there is a
way to store today’s calories for future use. It’s called fat….During an era of scarcity –
an era when the next meal depended on a successful hunt, not a
successful phone call to Hunan Garden – this set-point system was
vital. It allowed you to spend down your fat savings when food was
scarce and make deposits when food was plentiful. Roberts was convinced
that this system was accompanied by a powerful signaling mechanism:
whenever you ate a food that was flavorful (which correlated with a
time of abundance) and familiar (which indicated that you had eaten
this food before and benefited from it), your body demanded that you
bank as many of those calories as possible….So
Roberts tried to game this Stone Age system. What if he could keep his
thermostat low by sending fewer flavor signals? One obvious solution
was a bland diet, but that didn’t interest Roberts. (He is, in fact, a
serious foodie.) After a great deal of experimenting, he discovered two
agents capable of tricking the set-point system. A few tablespoons of
unflavored oil (he used canola or extra light olive oil), swallowed a
few times a day between mealtimes, gave his body some calories but
didn’t trip the signal to stock up on more. Several ounces of sugar
water (he used granulated fructose, which has a lower glycemic index
than table sugar) produced the same effect. (Sweetness does not seem to
act as a "flavor" in the body’s caloric-signaling system.)The results were astounding. Roberts lost 40 pounds and never gained it back.
I can verify the appetite suppressing properties of the fructose water. A glass of fructose water and I can easily go without lunch. The only problem is that the sophists lure the unsuspecting to lunch anyway.
UHaul Pricing and Free Drinks for Women Nite
Here is my analysis of UHaul pricing and the larger implications for not only ‘women drink free nites’ but many other markets.
Why is it so more expensive to rent a UHaul van to travel from LA to Las Vegas ($454) than from Vegas to LA ($119) (more here). Since the direct cost is similar the first thing an economist might think of is price discrimination. But the rental market is highly competitive, especially when we take into account substitutes such as train, private car etc., so that seems like a non-starter. A good answer needs to recognize that UHaul operates a network with significant inter-customer externalities.
Let us suppose that as the day dawns UHaul has the optimal number of trucks at each of its locations. At the end of the day, UHaul would like the same number of trucks at each of its locations. But this is possible only if departures equal arrivals and to help achieve that balance UHaul lowers the price on the low demand Vegas to LA trip and raises it on the high demand Vegas to LA trip. (It’s more complicated than this because there are many more than bi-directional considerations but you get the idea.)
Put differently, a customer who travels from Las Vegas to LA reduces the cost to UHaul of running its network because it lets UHaul sell an LA to Las Vegas trip. The direct costs may be similar but the indirect costs related to running the network are very different. UHaul’s pricing strategy reflects both the direct and indirect costs.
Network economics has some similarities to platform economics. A bar, for example, is a platform which mediates transactions (pecuniary and non-pecuniary!) between two sorts of customers, men and women. If men have a higher demand for going to a bar with many women (LA to Las Vegas) than women have of going to a bar with many men (Las Vegas to LA) then in a competitive market the bar must set a higher price for men than for women. In this context, far from being an example of monopoly power, differential pricing is a result of competition.
More generally, there are many examples of platform markets. The developer of a mall has as customers shoppers and shops. A video game console sells itself to players and programmers. A credit card must have users and merchants. In some places differential pricing for men and women at nightclubs is illegal. But in a platform market such differential pricing can make both men and women better off. Similar things can be said about practices in other platform markets which look anti-competitive at first glance but in fact are the result of competition in the context of a platform.
More on platform economics, also called two-sided markets, in Rochet and Tirole.
Bonus points to Larry White, Mark Weaver and Michael Stack for sending in answers and double bonus points to Larry for suggesting that some of theory could be tested by looking at drink pricing at gay bars.
Today, I am an American
On Friday, I took the oath and became an American citizen. I can’t claim to be escaping an authoritarian regime or hopeless poverty. Indeed, the security guard at the INS saw my passport and said "What you doing here? Why you want to be American? Free medical care, free welfare. I want to be Canadian." So why did I make the leap? There are plenty of pragmatic reasons. I have a home here, a job, a life. The United States has been good to me.
But the deciding factor in my choice was emotional. Four years ago when I awoke to the devastation, I felt that my country had been attacked. And if that is how you feel then what more needs to be said?
UHaul 2
Inspired by my earlier post, Chris Robinson has written some clever code to query UHaul prices which he then analyzes. Also, like a true statistical gentleman, he makes the data available to all.
Steve Levitt chimes in on whether this is freaky enough – no, it’s encouraging. but not quite there yet.
Me? I am still hoping that someone will follow up on my suggestion that these prices explain why women drink free nights are a good idea.
Law Enforcement Prevented Refugees from Leaving
According to this stunning account local law enforcement officials prevented refugees, at gun point, from leaving New Orleans and then stole their food and water to boot.
Comments at the site appear to verify the account which cries out for a full investigation.
Housing the Poorest Hurricane Victims
Since many victims have had to travel quite a distance to obtain temporary shelter and many will have to move further from New Orleans to obtain permanent housing within a reasonable time, these vouchers should be available to any public housing agency in the country to serve families displaced by the hurricane. To avoid delays in getting assistance to these families, the vouchers should be allocated to housing agencies on a first-come-first-served basis and any low-income family whose previous address was in the most affected areas should be deemed eligible. We should not take the time to determine the condition of the family’s previous unit before granting a voucher.
Getting the poorest displaced families into permanent housing is an urgent challenge. It requires bi-partisan support for Congress to act promptly, quick action by HUD to generate simple procedures for administering these special vouchers, and housing agencies in areas of heavy demand to add temporary staff to handle the influx of applications for assistance.
Even with the best efforts of all parties, the proposed solution will not get all the low-income families displaced by Hurricane Katrina into permanent housing tomorrow. However, it will be much faster than building new housing for them. And it will show them that the federal government cares about their plight and is working to do what it can to help.
Ivory Tower
Ivory tower economist gets apartment to match.
Thanks to Newmark’s Door for the pointer.
Essays on Cost
For those further interested in the opportunity cost question, the Library of Economics and Liberty is featuring this month L.S.E. Essays on Cost edited by James Buchanan and George F. Thirlby and including essays by Hayek, Coase and others.
This sentence from Buchanan’s preface caught my eye:
In any general theory of choice cost must be reckoned in a utility rather than in a commodity dimension.
Buchanan’s short book Cost and Choice is also available.
Not Just Low Prices
From the Washington Post:
While state and federal officials have come under harsh
criticism for their handling of the storm’s aftermath, Wal-Mart is
being held up as a model for logistical efficiency and nimble disaster
planning, which have allowed it to quickly deliver staples such as
water, fuel and toilet paper to thousands of evacuees.In
Brookhaven, Miss., for example, where Wal-Mart operates a vast
distribution center, the company had 45 trucks full of goods loaded and
ready for delivery before Katrina made landfall. (emphasis added).
The tragedy of Jonathan Kozol
Jonathan Kozol has spent a good deal of his life writing eloquently and passionately about children and the sad state of education in America. The depths of his passion and caring are to be admired and applauded. The tragedy is that his eloquence has often been put to ill use attacking the one reform that would really help – private schools and school choice. Kozol’s good intentions, therefore, earn him no free pass from me.
In a recent interview he said:
[Private schools] starve the public school system of the presence of well-educated,
politically effective parents to fight for equity for all kids.
Kozol’s argument can be summed up thusly:
Letting people escape over the Berlin Wall starves the East German system of the presence of well-educated,
politically effective people to fight for the equity of all East Germans.
Barricading parents into the poor schools their government offers them is like barricading people into communist East Germany. People, even well-educated, politically effective people, should not be used as tools to further some social engineering scheme.
But is the argument even true? Kozol, draws on Hirschman’s great book Exit, Voice and Loyalty, but like many who read that book he shows no sign of understanding any of its subtleties.
Yes, exit and voice can be substitutes and reducing exit may increase voice. But more often than not, voice and exits are complements. When you complain of delay where is your voice more likely to be heard; at a restaurant or at the department of motor vehicles?
It’s the threat of exit that makes people listen.
Moreover, shutting down exit does not guarantee that voice will arise. The people whose children are stuck in the worst-performing schools have neither voice nor exit – they are like the people of New Orleans who did not have the means to escape nor the political power to compel help from others.
Finally, we go to the data. Kozol’s argument implies that places with more exit should have worse public schools. But in fact a large body of research shows that the opposite is true. Places with more choice – whether that choice comes from private schools, charter schools, or even choice among public schools – have better schools. Exit and the threat of exit makes educators listen.
But will Kozol listen? Sadly, I think not because his fundamental opposition to vouchers is not economic but aesthetic. He says:
Vouchers elevate the lowest instincts of humanity over the most beautiful instincts.
Need I quote Adam Smith in response?
Taxes and Prices
Suppose there is an
auction for a pearl. The person with the highest demand is willing to
pay $5000 the person with the next highest demand is willing to pay
$4999. The winner must pay a tax of $1000 to the government.
With
the tax the two bidders bid until the price reaches $4000 at $4000
(note that $3999+$1000 tax= net of $4999) the low bidder drops out and
the high bidder wins. Total price to the high bidder is $5000, $4000
to the seller and $1000 to the government.
Now with no tax a
price of $4000 leaves two bidders in the ring so the price must rise
higher. In fact, the price must now rise to $5000 to get the second bidder
to drop out. Final price to the high bidder is $5000 – the seller gets
$1000 more in revenues and the government gets nothing.
If one wants to challenge the gas-tax argument then to place to do so is to argue that a temporary reduction in the tax, leading to more profits for the oil companies, will stimulate supply enough to have a significant effect on reducing price. Any other argument is incorrect.
Government Stops Red Cross from Entering New Orleans
I did not see the Red Cross in all the pictures of New Orleans broadcast over the past week. Where were they?!! Don Boudreaux at Cafe Hayek points us to the incredible answer:
According to
the Disaster FAQs section of the American Red Cross’s website:
- Access to New Orleans is controlled by the National Guard and local
authorities and while we are in constant contact with them, we simply cannot
enter New Orleans against their orders.
- The state Homeland Security Department had requested–and continues to
request–that the American Red Cross not come back into New Orleans following
the hurricane. Our presence would keep people from evacuating and encourage
others to come into the city.
It’s one thing for the government to be incompetent, this I expect. But then get the F. out of the way. People are dying.