The power of retailing
…the gap between the United States and the other advanced economies is large and has been growing over the past ten years…it is likely that the gap will continue to grow over the next ten years…at the beginning of the twenty-first century, the U.S, economy seems to be in a class by itself. Why is that?
…I think the reasons go a long way back. The United States adopted the view that the purpose of an economy was to serve consumers much earlier than any other society. The United States continues to hold this view more strongly than almost any other place.
Retailing isn’t simply the final step at which goods are sold to consumers. Retailing is the stage where an economy elicits informationa about what consumers really want. Retailing stands at the heart of rational economic calculation.
For a much longer expansion on this theme, see William Lewis’s The Power of Productivity. This is the last time I will be covering this fascinating book, so here is my final pitch: buy it and read it.
Public choice question for the day: Why do no governments seem to view retailing as a strategic industry?
Why so many perfect games in baseball?
…in the first 60 years of the 20th century, there were 4 perfect games in baseball, a game where a pitcher pitches a complete game and no one on the other team reaches first base. In the next 45 years, there have been 11, so the rate of perfection has roughly quadrupled.
Of course Randy Johnson just pitched a perfect game this last week.
Michael Coffey, of The New York Times, claims that higher returns to celebrity have increased the returns to extraordinary performances. But the more general fact is one of declining variance across athletic performances. Wilt Chamberlain dominated his contemporaries (one year he averaged fifty points and twenty-eight rebounds per game), but now basketball talent is more tightly clustered. Many runners can do a four-minute mile, and so on. So I doubt the Coffey explanation. It is now harder to stand out from the crowd, especially as we consider longer time frames of achievement.
Nor can you argue that pitchers are gaining on hitters across the board. Home run totals have skyrocketed. Russ Roberts makes a good point; he cites better fielding, which boosts the chance for a perfect game but doesn’t stop home runs. And of course we are simply playing more games of professional baseball [Richard Squire tells me about twice as many].
Or consider a statistical explanation. Yes, more excellent performers will mean that overall achievement is more tightly bunched. But at the same time, the flow of one-time “outlier performances” can rise. You have more “perfect game capable” pitchers trying to pitch perfect games than ever before. No one of them will achieve the lifetime dominance of Cy Young, but today’s best pitch or best pitched inning is better than Cy Young’s. This holds, even though batters have improved as well. We are dealing with the extremes of the distributions, not the bunching of the means as calculated across lifetime achievement. So we get more perfect pitches today than we did eighty years ago. Now just inch up the temporal unit from “pitch” to “game” and you can get to the required result…
What really impresses me:
A perfect game, nah. A sherpa just made it up Mount Everest in less than thirteen hours; even very good climbers can require at least four days.
Ten percent of the world’s music market
That’s cell phone ringers. I doubt if the estimated numbers measure the true “world” market, but the point remains that this is an important and growing revenue source.
And how is this for a marketing question?
The rise of the ringtone throws up some puzzling questions for the music industry. “One of the things we have to look at is why kids are perfectly happy to spend £3.99 on a ringtone, but they think a similar amount is too much to pay for a single,”
Phone users will buy different ringers and change their ringer, depending on the time of day or their social circle. And did you know that there is a Ringtone magazine.
Auctions in everything
A California town just sold on ebay for $700,000:
A Southern California financial adviser is the proud new owner of what he called an “absolutely gorgeous” 32.8-hectare (82-acre) piece of land among the redwoods, about 435 kilometers (270 miles) northwest of San Francisco and 50 kilometers (30 miles) from the Pacific Ocean.
“There’s a mile and a half of river frontage. It’s very green and beautiful. Great weather,” said Krall, of Laguna Hills. “In San Francisco, $700,000 doesn’t buy you a one-car garage.”
But selling a whole town is not as easy as you might think:
In December 2002, Bridgeville became the first town “sold” on eBay. Almost 250 bids were cast during the town’s month on the electronic auction block. Bidding started at $5,000 and went well beyond the asking price of $775,000 to close at $1,777,877.
But no buyer ever appeared, no check arrived and the deal fell through.
A dozen more potential deals failed, prompting real estate agent Denise Stuart to post the property last year on more standard listings that brokers routinely share.
Would you want this place?
Bridgeville, which dates to the early 1900s, includes a post office, a cemetery and more than a dozen cabins and houses. It needs a new well and several buildings need to be renovated.
The town, which once had 100 residents, has been “severely neglected,” Krall said. His associates plan to move this summer to start cleaning it up, and will live there as caretakers.
Here is the full story. But that’s not my style. If I had the money, and the acquisitive instinct, I would buy a whole island.
The burdens facing French food
Consider the value-added taxes that were “harmonized” all over Europe during the 1990s. They benefit fast-food chains, since the tax on takeaway is only 5.5 percent, while they penalize sit-down restaurants, whether humble bistros or haute cuisine, which pay 19.6 percent. When President Jacques Chirac ran for re-election in 2002, he promised to reduce the tax, but such is the nature of the new Europe that all 25 countries will have to approve the measure for it to take effect–in 2006.
That’s just the beginning, here is the full story. Thanks to Michael at the ever-excellent 2blowhards.com for the link.
On the brighter side, here is a video of a French chef serving cicadas.
Advice for a newly minted Ph.d.
I couldn’t agree more. And while you’re at it, here is Brad DeLong’s interesting post on divorce and voting patterns.
How much privacy did you expect?
Have you heard the latest?:
DidTheyReadIt.com, which will launch Monday, allows anyone to secretly track e-mails they send. You’ll see whether someone opens your e-mail, how long the recipient keeps it open – even where geographically the recipient is reading it.
And that’s for only $50 a year, check it out.
How are the pundits responding?
The reaction could be harsh. “It will freak people out,” says Internet expert Esther Dyson.
“It violates our electronic space in a way that’s as uncomfortable as someone violating our physical space,” says Mitchell Kertzman, a partner at technology investment firm Hummer Winblad.
But I am not very upset. So much of privacy has to do with expectations. No one expects that their behavior in a shopping mall is private, so no one complains when it is not. Have you ever noticed that Europeans, who are so worried about privacy rights, also are such big fans of the public downtown shopping experience? But just imagine the privacy critique:
“You walk around, the whole world can watch you. They see what you look like, which stores you frequent, what credit cards you use, and what you buy. And if you wear light-colored pants, some people can even see your underwear line.”
For better or worse, we need to get over this idea of the Internet as a private or confidential sphere. Gmail, of which I am a big fan, is just the beginning. In the longer run (it’s already on the way) I expect competing communications spheres. An easy-to-use sphere, which is essentially open and fair game, and a private sphere, which is slightly harder to use and less universal but fully confidential. I’ll predict that most people prefer the open sphere, but of course time will tell. Not everyone will get what they want, but hey, Taco Bell won’t sell me a Chillito anymore either.
Addendum: Here is a related anti-privacy idea: “A pair of sunglasses that can detect when someone is making eye contact with the wearer has been developed by Canadian researchers. Besides being useful in singles bars, its inventors say the system could play a key role in video blogging, a hi-tech form of diary keeping.” So if you don’t want to be detected, don’t look.
Also, check out this post on “Brad and Dad.”
The Laffer Curve, Italian style
The good news is that the Sicilian Mafia has slashed the rates it charges “clients.” The bad news is that it has vastly expanded its client base.
“Pagare tutti, pagare meno,” roughly translated as “everybody pays, everybody pays less,” is the new slogan Sicilian magistrates and mayors are using to describe what the Mafia is doing these days.
Here is the full story, courtesy of Craig Newmark.
Markets in self-constraint
A dental appliance designed to help dieters take smaller bites and eat more slowly hits the market Wednesday.
It’s the latest addition to the $40 billion weight-loss industry, which caters to millions of Americans who are trying to lose weight. Some experts say the device may be helpful in changing behaviors. Others say this shows how truly desperate Americans have become.
The small retainer-like device, called the DDS System, fits into the top of a person’s mouth, filling much of the upper cavity. The price: $400 to $500. It’s available only through dentists who have been trained in fitting the appliance.
“You can pop it in when you go out to lunch and pop it out when you’re finished,” says William Longley, founder of Scientific Intake in Atlanta, which is making and marketing the product. The effect on speech is minor [sic], and it doesn’t interfere with swallowing, he says. Longley cites a study in Japan that showed those who ate more slowly weighed less. But some aren’t convinced.
And how does it work?
The appliance was the brainchild of a woman who had torus palatinus, a bulge of bone that grows from the center of the palate. She said it helped her stay thin all her life because she had to take smaller bites and eat more slowly. She got a patent on the appliance and licensed it to Longley almost three years ago.
…Researchers found that those wearing the dental appliance on the second day ate about 25% less food (in weight) over the course of a day than those who weren’t wearing one…
It usually takes patients a couple of meals to get used to wearing it.
“It doesn’t work if you have it in your pocket,” Longley says. And patients can override the benefits of the system by drinking milkshakes or other high-calorie drinks, he says.
Just think, people used to make fun of this sort of idea.
What is driving Argentina’s economic recovery?
The modest soybean:
Two years after hitting rock bottom, Argentina’s economy is on the rebound. Although the 10-month-old government led by President Nestor Kirchner has taken credit, economists are praising the soybean – a small, round legume packed with protein that is at the margin of Argentina’s beef-heavy cuisine but at the heart of its economy.
Soybean prices have soared to their highest levels since 1988, bringing in billions of dollars in foreign currency and powering the economy’s 8.7 percent growth last year.
Taxes on soybean exports, meanwhile, have been a godsend for the cash-strapped government, providing a huge chunk of its budget surplus.
In recent years, soybeans have swept across Argentina’s vast plains, replacing other crops and cattle to become the nation’s top export.
The nation’s once formidable industry is still in ruins, and widespread unemployment in sprawling, urban slums remains, but the small towns that dot the sparsely populated pampas are bustling.
An emerging group of soybean-growing businessmen equipped with cell phones and sport utility vehicles is driving the boom. They have amassed huge tracts of land, building expansive agro-industrial operations that have begun displacing the region’s gauchos and small-scale farmers.
And who is buying all these soybeans?
Most of the soybeans are exported to China and other Asian countries, where they are crushed into a meal used as feed for livestock.
Here is the full story.
I have long wondered: why don’t individual investors diversify more? OK, it is bad for a country to be so heavily dependent on one crop. But surely individual investors — most of all soybean growers — should internalize these risks and hold a more diversified portfolio. Many of them don’t.
What is the upshot? Is the resulting high volatility simply the only way to get high growth? Perhaps you need non-diversified positions to generate the proper entrepreneurial incentives. On top of that, perhaps you need volatile upswings to cover your fixed costs as you move to the next stage of progress, a’ la Andrei Shleifer. Smoother growth patterns would lead to a lower average rate of growth. Or does raw hubris cause individual investors to diversify too little, thereby leading to a social inefficiency? Or how about the old days, when Kenneth Arrow argued that individual investors don’t take enough risk? I am inclined to agree with Shleifer, but these are some of the genuinely open questions in development economics.
Oil prices and time
Allow me to quote the ever-intelligent Arnold Kling:
In forecasting oil prices, I tend to defer to the efficient markets hypothesis. In some sense, oil in the ground has to compete with bonds and other interest-bearing assets. So, a reasonable approximation is that oil prices should be expected to go up at the interest rate. So, if the interest rate is 5 percent, then oil prices should go up at 5 percent, plus something for storage cost. If people thought oil prices were going to rise faster than that, they would keep the oil in the ground. If they thought that oil prices were going to rise more slowly than 5 percent (if that is the interest rate), then they would sell oil and buy bonds.
So my tendency is to assume that markets are efficient and predict that oil prices will rise at the interest rate.
This is called the Hotelling rule. But hey, didn’t Julian Simon tell me that most natural resource prices, in real terms, are falling over time? And surely the evidence is on his side. What gives?
Is oil exempt from Simon’s prediction? (How do VCRs fit into the picture?, the gentle reader might ask…)
Do markets systematically underestimate the rate of technical change, and thus the rate of price decline?
Or are falling prices an equilibrium because arbitrage-ready inventories are already essentially zero (no more selling is possible and the Saudis won’t pump more), and natural resource costs of production are falling rapidly as well? In other words, yes prices are falling but you can’t sell tomorrow’s oil today at a profit. Prices will be lower tomorrow but costs of production will be lower too. Good enough, but then the Hotelling rule doesn’t hold at the relevant margin.
I’ve never had good answers for these puzzles. Here is one useful survey of some models and the literature, scroll down a bit for the most relevant parts. Try this article as well. This literature suggests that most of the standards “outs,” such as changing costs of production, or new discoveries, don’t square the circle for anything other than the short-run. Holding oil still ought to yield (risk-adjusted) market rates of return, unless again investors are fooled into underestimating how much prices will fall.
My take: In my gut I don’t believe in the Hotelling rule. But I couldn’t tell you why not; I do understand that the arbitrage conditions of the model are fairly simple. If you wish to create some disagreement over lunch, raise this question with some economists you know. In the meantime, if you’re not confused, it means you don’t know what is going on.
Bigger than you think
The universe, that is. New estimates for its size, based on measured microwave radiation, are up to 78 billion light years. And that’s a minimum. The bad news? Given this size, it is less likely that light can “wrap around” an odd-shaped universe, allowing us to see what the earth looked like four billion years ago. And here’s more evidence that the universe is dominated by “dark energy,” causing it to expand, possibly forever.
How to persuade the rich, or Cannes update
The first German film to compete in Cannes in 11 years, it [The Edukators] tells the story of three idealistic youths who break into rich people’s villas and move around their furniture, leaving behind notes with messages such as: “You have too much money.”
Their aim is not to steal from the rich to give to the poor, but to make their targets question their privileges. When they are surprised by one of the homeowners, they kidnap him and are forced to put their ideals into practice.
“I’m really happy to present this film in the country where the word revolution was invented,” Weingartner told a news conference in this French Riviera resort.
As is often the case, the remainder of the story surpasses any comment I could offer:
Critics at Cannes clapped and cheered during scenes in which the kidnappers and their victim intelligently debate how youthful idealism eventually fades.
Weingartner avoids a simplistic ending, but leaves open the possibility that each of them is changed by the experience.
Here is the full story. Here is more information on the movie. Don’t forget that the alternative title of the film is “The Fat Years are Over.”
Supply curves slope upwards
You might think that the labor supply of the dead is fairly inelastic. Well, it is not so simple as meets the eye:
These days, the icon of Renaissance art is Florence’s greatest single brand and the global Michelangelo market is booming. You might imagine that as the years go by, the chances of finding a long-lost Michelangelo would shrink. But no. As one expert has observed, as the price tag on the world’s greatest artists keeps soaring, so, miraculously, more hidden Michelangelo gems keep being discovered.
There is more:
According to Wallace, the rate at which Michelangelo finds are turning up – including documents, drawings, and even a candlestick – has gone from one every two years a century ago to two a year on average from 1996 onwards. In the past year, he observes, three finds have been attributed to Michelangelo, most recently a small wooden statue of Christ, which went on display at the Horne museum in Florence earlier this month.
Now here is the clincher:
Some of the most highly publicised finds have subsequently “been shot down in flames” as they fail to withstand the scrutiny of the world’s experts, says Timothy Clifford, Michelangelo expert and director of National Galleries of Scotland.
Here is the full story. Most Renaissance artists did a wide variety of anonymous small commissions, especially in their early years. So there probably are “unknown Michelangelos” out there; it is less clear that we will ever know what came from his hand.
Patents for everything
While browsing at Barnes and Noble this last week, I picked up the interesting title Patently Absurd: The Most Ridiculous Devices Ever Invented, by Christopher Cooper.
What struck me was how appealing many of the inventions sounded.
OK, I’m not ready to put up venture capital for “Bird Diaper” or “Dust Cover for Dog“. And it was scary to read about “Firearm Mounted in a Shoe Heel,” patented in 1971.
But how about a combined fork and chopsticks? A “Night Light for a Toilet,” attached directly to the seat, would come in handy. I like the fork that warns when you are eating too fast. It is now well-known that slower eating is healthier and keeps your weight down. Some may prefer a wind sail for your bicycle.
The sociologist will be interested in “Interpersonal-Introduction Signaling System.” Using a small hand-held device, you broadcast a signal indicating that you are interested in meeting someone. You can be rejected without (major) embarrassment on either side.
No, contrary to the impression you might sometimes get from this blog, there are not markets in everything. If you wish to be woken by light corks falling on your face, well…they tried this idea in 1882 and it did not take off. But if there is no market, at least there is a patent. Read this short article on the recent proliferation in patents in the United States. Here are some other web sites with descriptions of absurd patents.
The book, appropriately, had been remaindered. And there is always hope for the future, as at least one of their examples has come true. Amphibious motorcycle anyone?
Addendum: Check this out, maybe there really are markets in everything.