Category: Economics

So You Think You Can be President? Revisited.

by  Alex Tabarrok in

Last year, I argued that instead of debates presidentidal candidates should have to compete in a series of games.  The problem with debates is that most of the time voters don’t know what a good answer is.  Thus…

…what we need is a way of conveying information to uninformed,
unsophisticated voters in a way that is entertaining yet produces
information about politicians that is correlated with real skills.

I suggested a game show, So You Think You Can be President?, which with different segments would test the candidates ability to solve real problems.

The idea seems to be catching on, as this piece in the NYTimes illustrates.  Frankly, the segments I suggested plus the many excellent comments from MR readers were quite a bit better than those in the Times but it’s good to see that the idea is going mainstream.

Electing Judges

by  Alex Tabarrok in

The NYTimes has a good piece today on judicial elections, pointing out how odd American practice is compared to the rest of the world. 

Contrast th[e] distinctively American method of selecting judges
with the path to the bench of Jean-Marc Baissus, a judge on the
Tribunal de Grand Instance, a district court, in Toulouse, France. He
still recalls the four-day written test he had to pass in 1984 to enter
the 27-month training program at the École Nationale de la
Magistrature, the elite academy in Bordeaux that trains judges in
France.

“It gives you nightmares for years afterwards,” Judge
Baissus said of the test, which is open to people who already have a
law degree, and the oral examinations that followed it. In some years,
as few as 5 percent of the applicants survive.

My work on judicial elections shows that elected judges serve their constituents (see also Judge and Jury). In particular, when the defendant is an out-of-state corporation awards are much higher in states that use partisan elections to select their judges than in other states.  As one judge put it bluntly:

As long as I am allowed to redistribute wealth from out-of-state companies to injured in-state plaintiffs, I shall continue to do so. Not only is my sleep enhanced when I give someone’s else money away, but so is my job security, because the in-state plaintiffs, their families, and their friends will reelect me."

Richard Neely (1988), West Virginia Supreme Court of Appeals.

Price controls by any other name

by  Tyler Cowen in

Mom-and-pop service stations are running into a problem as gasoline marches toward $4 a gallon: Thousands of old-fashioned pumps can’t register more than $3.99 on their spinning mechanical dials.

The pumps, throwbacks to a bygone era on the American road, are difficult and expensive to upgrade, and replacing them is often out of the question for station owners who are still just scraping by.

Many of the same pumps can only count up to $99.99 for the total sale, preventing owners of some SUVs, vans, trucks and tractor-trailers to fill their tanks all the way.

As many as 8,500 of the nation’s 170,000 service stations have old-style meters that need to be fixed – about 17,000 individual pumps, said Bob Renkes, executive vice president of the Petroleum Equipment Institute of Tulsa, Okla.

Here is the full story, thanks to William Griffiths for the pointer.

Taken to the Cleaners, Again

by  Alex Tabarrok in

A tariff on imports of coat hangers from China is raising dry cleaning costs.  The Aplia Econ blog runs the numbers:

Advocates of trade restrictions often argue that protection will save
jobs. Since we can observe price and cost increases associated with
trade restrictions, we can estimate how much it costs to save each job
in a protected industry. According to the NPR story, there are roughly
30,000 dry cleaners in the U.S., and on average, each pays an
additional $4,000 per year due to the hanger tariff. This indicates an
average annual cost of 30,000 firms x $4,000 per firm = $120 million.
According to the U.S. International Trade Commission’s report,
U.S. employment in wire hanger manufacturing was 564 workers in 2004
and fell to 236 workers by 2006. Let’s assume that employment in this
sector would have fallen to zero in the absence of the tariff, and that
with the tariff, employment will recover to 2004 levels. In other
words, assume the tariff "saves" 564 jobs. Dividing the cost of the
tariff to U.S. dry cleaners ($120 million year) by the number of jobs
saved (564 jobs) indicates that each job saved costs about $212,765 per
year. Keep in mind that the typical full-time worker in this sector
earns about $30,000 per year. Even if we assume that industry
employment doubles, the cost of the tariff is still roughly $120,000
per job.

Economists Know the Price of Everything

by  Alex Tabarrok in

In other disciplines to leave your
university because another offers to pay you more entails personal humiliation
and status degradation to a not inconsiderable degree: you are supposed to value
ideas and colleagues and students, not cash. In economics, however, the thrust
of the discipline makes a failure to respond to market forces a moral fault in
itself.

Brad DeLong explaining why public universities are having an especially difficult time hiring and keeping economists now that the privates are boosting salaries to a tremendous degree.  Experience at GMU is consistent.  See David Warsh (here and here) for the backstory.   

The economics of vending machines

by  Tyler Cowen in

Japan has so many, but why?  You can cite love of gadgets, etc. but I want something more general.  After all, Japanese retailing has a very high ratio of small stores serving a local clientele; surely Japanese vending machines are another example — albeit an extreme one — of that more general trend.

First we must look to the shortage of storage space in homes.  I suspect few Japanese want to buy big piles of stuff at Costco.  So buy smaller "portions" and in the meantime the inventories are stored in the vending machines, where they are more or less at your disposal. 

Cars of course are another means of storage and also a way to transport goods in bulk (NB: you carless people have a hard time pigging out at the public library, you poor souls).  But most Tokyo residents don’t use cars so again they buy goods in smaller numbers which again points us to the vending machine.  Buy one disgusting sweet fizzy juice, drink it on the spot, and walk to your nearest vending machine when you need another one.

You’ll notice that vending machines are especially popular for canned and bottled liquids, where the ratio of storage and carry costs to per unit value is relatively high.

This article associates vending machines with the nomadic lifestyle.

Spot the Contradiction

by  Alex Tabarrok in

Daniel Gross’s review of Sachs’ Common Wealth was bizarre.  Consider this:

Even congenital optimists have good reason to suspect that this time
the prophets of economic doom may be on point, with the advent of
seemingly unstoppable developments like….the explosive growth of China and India.

Huh?  What kind of upside down logic makes high growth rates proof of economic doom?  Proving this was no idle slip Gross goes on to say:

Things are different today, [Sachs] writes, because of four trends: human
pressure on the earth, a dangerous rise in population, extreme poverty
and a political climate characterized by “cynicism, defeatism and
outdated institutions.” These pressures will increase as the developing
world inexorably catches up to the developed world. (emphasis added)

Silly me, I thought rising life expectancy, increasing wealth, and lower world inequality, which is what it means to say that the developing world inexorably catches up to the developed world, was a good thing.  And then there is this:

The combination of climate change and a rapidly growing population
clustering in coastal urban zones will set the stage for many Katrinas,
not to mention “a global epidemic of obesity, cardiovascular disease
and adult-onset diabetes.”

Ok, climate change will create problems but how clueless do you have to be not to understand that a large fraction of the world’s people would love to live long enough to die from obesity and other diseases of wealth?

Don’t misunderstand, I know that growth brings problems.  My dispute with Gross is not that he thinks the glass is half-empty and I think it is half-full; my dispute is that Gross thinks the fuller the glass gets the more empty it becomes.

Addendum: Dan Gross writes to say that he was summarizing Sachs’ argument.  Point noted.

Local Bounties

by  Alex Tabarrok in

One benefit of the economic downturn is that the number of people hoping to earn a reward by calling the police with a tip has increased, especially in regions with a lot of home foreclosures. 

For tips that bring results, programs in most places pay $50 to $1,000,
with some jurisdictions giving bonuses for help solving the most
serious crimes, or an extra “gun bounty” if a weapon is recovered…

“We have people out there that, realistically, this could be their
job,” said Sgt. Zachary Self, who answers Crime Stoppers calls for the
Macon Police Department.

The success of these local programs suggests similar international programs could also work.

Hanson on Bounties

by  Alex Tabarrok in

Robin beats me to a story on bounties in the Washington Post.  I couldn’t have said it better so here is his full post.

A Post article today, Bounties a Bust in Hunt for Al-Qaeda:

Jaber Elbaneh is one of the world’s most-wanted terrorism suspects. In
2003, the U.S. government indicted him, posted a $5 million reward for
his capture and distributed posters bearing photos of him around the
globe.  None of it worked. Elbaneh remains at large, as wanted as ever.
…

Since 1984, the program has handed out $77 million to more than 50
tipsters, according to the State Department.  … In 2004, Rep. Mark
Steven Kirk (R-Ill.) visited Pakistan to assess why Rewards for Justice
had generated so little information regarding al-Qaeda’s leadership. He
discovered that the U.S. Embassy in Islamabad had effectively shut down
the program. There was no radio or television advertising. …

In 2004, Congress passed a law authorizing the State Department to post
rewards as high as $50 million apiece — a provision with bin Laden in
mind. Last fall, Rep. Dan Boren (D-Okla.) went further, introducing a
bill that would raise the cap to $500 million. The State Department has
declined to boost the reward for bin Laden, arguing that more money was
unlikely to do any good and would only add to his notoriety.

Let’s see, billions spent via ordinary means, and millions offered
in bounties, and it is the bounties they blame for Al-Qaeda’s notoriety
and failing to catch leaders?  The billions are spent and gone, while
the millions in bounties we only lose when they actually work.  How
then is this data suggesting we should prefer ordinary means to
bounties?

Here is one of my previous posts on bounties.  The Rewards for Justice program has actually brought in some big catches.

Markets in everything, Japan edition

by  Tyler Cowen in

Mobs are legal entities here. Their fan magazines and comic books are sold in convenience stores, and bosses socialize with prime ministers and politicians.

Here is the full story, which focuses on the continuing powerful role of the mob in Japan.  Get this:

The most powerful faction, the Yamaguchi-gumi, is known as "the Wal-Mart of the yakuza" [TC: do they promise "Always Lower Prices"?]  and reportedly has close to 40,000 members.

Bernanke’s bubble laboratory

by  Tyler Cowen in

Manias can persist even though many smart people suspect a bubble,
because no one of them has the firepower to successfully attack it.
Only when skeptical investors act simultaneously — a moment impossible
to predict — does the bubble pop.

…Mr. Bernanke hired finance experts who had broad
interests and were eager to work with the university’s deepening bench
of theorists. He lured Dilip Abreu, known for work in game theory, back
from Yale, to which he had earlier defected. Making a virtue of an
institutional weakness, the absence of a business school, Princeton
assimilated the finance scholars into the economics department and
freed them to pursue research.

They are building on work done by the late Hyman
Minsky, whose once-ignored ideas about investing manias are now in
vogue, and the late economic historian Charles Kindleberger, whose 1978
"Manias, Panics and Crashes" is a classic. But compared with Mr. Minsky
or another student of bubbles, Yale’s Robert Shiller, the Princeton
trio focuses less on mass psychology than on mathematical models. These
they use to show how bubbles can be created even in markets that
include rational, calculating investors.

Here is the full story, interesting throughout.

Retail loyalty card programs

by  Tyler Cowen in

From some time ago, Kevin Drum reports:

I really loathe retail loyalty card programs. 

These programs serve two functions.  First, they are a form of price discrimination.  Buyers who are willing to collect and show the cards pay lower prices while the "I can’t be bothered with this ****" types pay higher prices. 

Second, retail loyalty cards enforce partial collusion ex post in an oligopolistic setting.  In other words, cards and frequent flyer programs "lock in" buyers to their favored firms.  Once that lock-in is accomplished, all firms have weaker incentives to cut price to lure away buyers from their favorites.  (The smarty-pants point is to note that firms have to give buyers a better deal upfront in anticipation of this lock-in but still if the company moves first with a non-negotiable offer it still can come out ahead and raise the P/MC ratio.)

The first function is usually welfare-improving, the second function usually is not.  Overall you personally benefit from loyalty card programs if you don’t mind holding the cards (you have a thick wallet) and you have a strongly favorite company/product anyway.  In the latter case you are likely locked in anyway, so the strengthening of the lock-in effect doesn’t so much restrict your freedom.  This is tricky of course because you might miss out on preemptive price cuts from your favorite firm to keep you, since maybe they don’t otherwise know how much you love their stuff.  Still, I will stick with this mechanism as a plausible guess of the net effect.

You suffer from loyalty card programs if…you hate them.  Not only do the programs and the smiling clerks bug you but you are the kind of person who ends up paying more.  Which means you hate the programs even more.  Which means…

But wait: the equilibrium seems to converge and so Kevin Drum’s anger at retail loyalty card programs remains, in reality, quite low.