Capitalist Eggs

Our new colleague, Russ Roberts, author of the economic romance (really!), An Invisible Heart, gave a talk on economic growth where he briefly mentioned the staggering improvements in egg production over the past century. Here are some facts.

Last year the United States produced 86.7 billion eggs.

An early 20th century hen – or a third world hen today – laid perhaps an egg or two a week. Today’s hens lay approximately 5 eggs a week.

Prior to World War II a hen-house might hold 400 hens. Today, a typical hen-house, contains 150,000 hens.

Today’s “hen-houses” are really high-tech factories. The eggs are collected automatically on conveyor belts, graded by robots according to external factors like shape, color, size and also internal factors like consistency and yolk size. See here for a pictorial power-point presentation of the process.

Most amazingly, did you know that from the time it leaves the hen to the time it reaches your table an egg is unlikely to have been touched by human hands!

Addendum: I do not claim that capitalism is good for the chickens.

Who should get prizes?

Leszek Kolakowski just won a new prize, the Kluge Prize, which is worth $1 million.

This is the nature of the prize:

The prize…is meant to highlight fields of study as varied as anthropology, history, philosophy, sociology and religion for which there is no major international award. It was conceived by the librarian of Congress, James H. Billington, and financed by the philanthropist John W. Kluge, who had no say in selecting the winner, library officials said.

In other words, it is intended to supplement the Nobel Prize. Kolakowski, a brilliant author, polymath, and critic of Marxism, is more than deserving. See also Jacob Levy’s excellent post on the matter, rebutting the charge that the award was politically motivated by “right-wing” considerations. After all, Kolakowski teaches at Oxford, hardly a hotbed of radical right sentiment.

In general we would expect that new prizes are awarded to the relatively old; Kolakowski is 76. Remember Cato’s Milton Friedman Prize of last year? It was awarded to the 85-year-old Lord Bauer, who died right before the award ceremony.

Presumably a new prize is seeking to build up its reputation, so its first few awards should be sterling in quality, not very controversial, and designed to generate maximum publicity. Once a prize is more established, the prize givers can take more chances, or use the prize to certify the quality of younger achievers, or use the prize to spur greater achievement.

Robin Hanson wonders why we don’t use more prizes today, in lieu of grants, to encourage science. In the eighteenth century, prizes not grants were the dominant means of encouraging science. One drawback of prizes is that they tend to be awarded in the interests of the prizegiver, and not necessarily to stimulate maximum scientific output. Arguably prizes should be awarded when people are younger, not older, if only for incentive reasons. Still, prizes make the most sense when you cannot predict where new innovation is coming from, and thus you do not know who should get the grants. As our world becomes more complex, less hierarchical, and more decentralized, I predict a greater reliance on prizes to stimulate science.

New music merger?

Sony and BMG might merge, bringing together the world’s second and fifth largest music companies. That would pair Tori Amos and Michael Jackson (Sony) with Outkast (BMG). The resulting firm, supposedly designed to cut common administrative costs, would be almost as large as the industry leader, Universal. Here is the full story.

My take: Regulatory approval is not certain, arguably unlikely, but regulators should not worry about market power issues. This is a desperation merger in a fading industry. The real “industry sector” includes file sharing, once you count that, and the accompanying zero price, the concentration issues do not look so bad. On the other hand, shareholders should not worry if they don’t get regulatory approval. I would expect a mess more than any significant cost savings, as the merger does not address the underlying problems faced by either company.

The future of energy

…the power generation capacity found under the hoods of cars in Germany or America is ten times that of all of the nuclear, coal, and gas power plants combined in those countries.

A compelling and clever fact. The author, Vijay Vaitheeswaran, argues that our energy future is one of decentralization, relative plenty, and lower levels of pollution. His new book is titled Power to the People: How the Coming Energy Revolution Will Transform an Industry, Change Our Lives, and Maybe Even Save the Planet.

We are told that the future will bring hydrogen fuel cells, micropower in lieu of a centralized power grid, and paeans to the visionary genius of Amory Lovins. I am all ready to sign up, except the evidence is missing, at least within the book. The author offers a compelling picture, and it may well be true. But if he is right, why isn’t the price of oil falling over the last few years? Will fuel cells really limit pollution, once we take into account the energy needed to construct the cells? What unknown contingencies could stop his predictions from coming true?

I recommend this book for its enthusiasm and sweeping vision. I also very much liked his treatment of the California power crisis, which is more sophisticated than Paul Krugman’s, among other interesting bits. But I am not yet ready to go short on the shares of either the power companies or the price of oil.

Can more rain make the road safer?

Here’s the scoop:

In an analysis of more than 1 million fatal crashes in 48 states, Daniel Eisenberg, a post-doctoral researcher at UC Berkeley’s School of Public Health, was surprised to find that the more it rained or snowed in a month, the fewer deadly traffic accidents there were. Specifically, in any given month, an additional 10 centimeters of rain is linked with a 3.7 percent decrease in the fatal crash rate.

“I had expected to see a positive relationship between the amount of precipitation and the rate of fatal traffic accidents, but my analysis revealed a more complex connection between the two,” said Eisenberg.

He also discovered that the risk of an accident on a rainy day increases with the length of the dry spell preceding it. If there has been rain or snow day after day, the danger due to wet conditions falls.

In other words, if you are used to dangerous roads in recent times, you will drive more carefully. But we are weak, feeble creatures who forget about past dangers all too quickly. Click here for the full story.

The researcher suggests an additional explanation for the phenomenon:

“Oil and debris accumulate on the road when it hasn’t rained for a while, making the roads slicker when it first starts to rain,”

Eisenberg finds another interesting result:

…overall, precipitation had a larger impact on nonfatal traffic accidents.

“For any given day in the state, on average, each centimeter of precipitation increases the risk of fatal crashes by about 1 percent, but for nonfatal crashes, the increased risk is 11 percent,” said Eisenberg.

So, on any given day, rain or snow will lead to increases in nonfatal injury crashes and fender benders much more so than to increases in accidents that involve death.

“People who slow down when the weather is bad may not slow down enough to avoid all crashes, but, on average, they at least reduce the severity of the collision,” said Eisenberg.

In other words, to kill yourself being drunk, very stupid, very unlucky, or a very bad driver are the critical ingredients, not the rain.

Trying to make people punctual

After years of whiling away wasted hours, Ecuadoran businesses and civic groups have launched a campaign to force people accustomed to habitually missing appointments and deadlines to start showing up on time.

“Symptoms: Rarely meets obligations on time, wastes people’s time, leaves things to the last minute, no respect for others,” reads a poster that has been appearing around the country, dealing with chronic lateness syndrome as if it were a disease.

“Treatment: Inject yourself each morning with a dose of responsibility, respect and discipline. Recommendation: Plan, organize activities and repair your watches.”

This is the new campaign in Ecuador, which aims to encourage timeliness. It is organized and funded by the private sector. And who, pray tell, are the biggest offenders when it comes to tardiness?

The most flagrantly late are public functionaries and military officials, Ecuadorans agree, and their president has been steeped in both cultures.

The program even includes incentives. If you are on time for a meeting, you are greeted with a pleasant sign telling you to come on in. The red flip side of the sign reads: “Do not enter, the meeting started on time.” N.B.: I want one of these.

Ecuadoreans are notorious for their lateness; for dinners scheduled for 8, people start assembling at about 10:30.

The private sector in the United States also has tried to combat tardiness, although the initial problem is less severe. Note, however, that CEOs are more often late for meetings than not, 60 percent of the time. Here is one attempt to reign in abuses:

A popular solution is charging $1 to $5 a minute to anyone who arrives late [for a meeting]. The money can be donated to charity, or saved toward an office party. Nielsen says ISD has tried late fees. They work for a while, but enforcement usually falls by the wayside after a couple of months, he says.

Such solutions won’t work on CEO offenders with big egos, Mina says. Locking the door after the meeting starts, or telling the CEO that a 2 p.m. meeting starts at 1:45 can be “career-limiting moves,” he says.

One source mentions a European study finding that the French are especially late. The Japanese have a reputation for being very punctual.

The origins of human freedom

I had lunch today with Paul Rubin, a very smart law and economics scholar who also likes chicken tacos. Paul has just published a book on the Darwinian origins of politics and human freedom.

Here is a very brief summary from Randall Parker at Futurepundit:

Rubin sees both the impulse for support of the welfare state and the opposition to high taxes and the resentment toward freeloaders as all consequences of Pleistocene adaptations. Helping others in tough times might lead to their helping you out at a later point. At the same time. food was too scarce to tolerate freeloading. Rubin also argues that libertarianism is contrary to human nature and that humans want to meddle in each others’ lives. Read the whole review. Very interesting.

He is referring to Denis Dutton’s recent review of the book on aldaily.com, worth reading as well. It also summarizes the book nicely and in much more detail.

Here is Parker’s provocative conclusion:

My guess is that the distribution of alleles for the desire to be altrustic or to enforce rules or to force people not to be freeloaders will be found to be different in different parts of the political spectrum. A lot of political divisions will turn out to be, at least in part, due to average differences in personality characteristics that have their origins in the Pleistocene era. my bet is that once people start genetically tinkering with their offspring purer forms of socialists, libertarians, social conservatives, and other political types will be born and the political divisions within some societies and between societies will become greater as a result.

On this point, I do suspect that much of our political orientation springs from our basic inborn temperament. Shouldn’t this make us more skeptical of any particular views we happen to hold? It may feel right to have those views, but hey, that would be a genetic accident, and not a reflection of which policies are actually good for us.

Don’t stop at Google

Here are thirty useful Internet search tips, as pointed out by Brad DeLong, channeling Elizabeth Lane Lawley, who is in turn channeling Mary Ellen Bates.

My favorite idea is number 17:

Use Teoma.com to identify experts’ sites, link-rich pages. (Look at “resources” section on results page; these are “link-rich” sites on your topic.)

And let’s not forget the last suggestion:

Some searches are simply not meant to be done online.

The economics of sneakers, and LeBron James

LeBron James, basketball player for the Cleveland Cavaliers, and just out of high school, signed a $90 million contract to promote Nike shoes. Given his debut performances, this now appears to be a bargain.

Consider the following facts, taken from yesterday’s Financial Times (registration and subscription required):

1. The U.S. market for branded athletic shoes is about $7.8 billion a year.

2. Nike commands 39 percent of this market, although this is down from 48 percent in 1997.

3. The older Air Jordan shoes sold for $175 a pair, but are now unacceptably out of date. Jordan, of course, has retired, and for the third and probably final time in his career.

4. Market competition is growing. Brands such as New Balance emphasize the substance of the shoe, rather than any famous endorser. Nike requires some means of product differentiation.

5. Kobe Bryant, another Nike endorser, has seen his star fall as of late.

6. LeBron has played only a few games, but so far his performance is far ahead of other basketball high school phenoms, such as Kevin Garnett or Kobe Bryant. Cleveland has been one of the worst teams in recent basketball history, but most NBA teams are including Cleveland, that is LeBron, in their specialty packages of the best games of the season.

7. The deal itself has generated enormous publicity for Nike, it is mentioned in most articles about James.

Nike pays LeBron only $10 million upfront, the rest comes over seven years. Right now, Nike appears to have made a steal. And remember, they laughed when Nike paid Michael Jordan $2.5 million in 1985.

Abuses at mutual funds

Mutual funds control some $7 trillion for about 95 million investors.

But to this economist, much about the industry is a puzzle. Why, for instance, do so many investors seek out funds other than minimum commission, “buy and hold” funds? This could be a significant market failure, since managed funds do not in general outperform the market and generally charge higher fees. Alternatively, we might think that investors enjoy trying to beat the market, and that they are consuming a kind of gambling service. Investment clubs, for instance, are almost certainly a bad financial idea, especially if you do them with your friends. But maybe they improve your social life.

The current abuses include the `unholy trinity’ of illegal late trading, abusive market timing and related self-dealing practices. In other words, the mutual fund keeps the good trades for itself, or offers them to favored investors. The practice now appears to be widespread, read the above link or here.

This reminds me of the equilibrium we often observe in the car dealership market. When you buy a new car, most dealers put you through hell. You have to fill out all sorts of paperwork, taking up half your day and locking you in psychologically to sticking around through protracted negotiations, based on deceit and lies. Most buyers don’t leave and go elsewhere, in part because they know they can only expect to start all over again with the same. And as long as it is not too visible, you don’t feel too bad about your initial investment decision.

I suspect we see the same kind of stickiness with mutual funds. Many investors will not be shocked by the recent revelations. But why bother switching to another fund? Once you get there, you can expect more of the same.

I’ve never seen a good analysis of which market features lend themselves to this kind of outcome. Could it be the occasional allocation of large sums of cash that lies at the root of the problem? But why can’t firms make credible commitments to honesty up front? Clearly fraud is not the norm for all industries, the restaurant sector does not work this way. I suspect legal penalties alone will never solve the problem, our best hope is that technology, and monitoring, somehow change to make mutual funds, and buying a car, more like the experience of going to a nice restaurant.

Hail to the further decline of big media

Nielsen reports that men, ages 18-34, are watching 8 to 12 percent less prime-time network television than a year ago; this is a significant decline over the course of only a single year.

Commentators cite the growing appeal of DVDs, video games, and personal video recorders, among other developments. For instance, DVD sales are up 70 percent in the last year. 23 million homes will have broadband Internet access by the end of this year. 21 million American homes now have digital cable. And 70 percent of all watchers with TiVo skip the commercials.

The change since the 1970s has been enormous:

The general audience decline started as a trickle. In 1977, on an average night, 93 percent of the 90 million TV viewers were watching the three major networks. By the week of Oct. 6-12, 2003, the six major commercial networks had 53 million viewers, down 24 percent from the previous year.

I have heard that Seinfeld, a huge show in its time, would not have been in the top ten programs of the 1970s, if measured by the number of people watching.

About $60 billion is spent on television advertising every year, and perhaps we can expect this number to start declining.

The above information is taken from the November 3-9 issue of Variety, although forget the link if you are not a subscriber. In my view this is all good news across the board.

Our corporate income tax

Cato tells it like it is:

The United States should be a leader but has fallen behind on tax reform. For example, the United States now has one of the highest corporate tax rates among major nations. The chairman of the president’s Council of Economic Advisers, Glenn Hubbard, believes that “from an income tax perspective, the United States has become one of the least attractive industrial countries in which to locate the headquarters of a multinational corporation.” …

One-third of the sales of the 500 largest U.S. companies is now from their foreign affiliates. …

A new survey by the accounting firm KPMG, which takes into account both national and subnational taxes, found that the average 40 percent U.S. federal and state corporate rate combined is almost 9 percentage points higher than the OECD average in 2002 of 31.4 percent. …

In all there are six often-overlapping anti-deferral regimes that create a complex web for Americans to navigate through when investing abroad. The U.S. international tax rules are generally considered the most complex and aggressive among the industrial nations. In a 1999 report, the National Foreign Trade Council concluded that “U.S. anti-deferral rules have been subject to constant legislative tinkering, which has created both instability and a forbiddingly arcane web of rules, exceptions, exceptions to exceptions, interactions, cross references, and effective dates, giving rise to a level of complexity that is intolerable.” …

The complexity of tax rules on U.S. foreign income is so great that one estimate found that 46 percent of federal tax compliance costs for Fortune 500 companies stemmed from rules on foreign income. As a result, U.S. companies are at a tax disadvantage in world markets. … Intel’s vice president for taxes testified before Congress that, “if I had known at Intel’s founding what I know today about the international tax rules, I would have advised that the parent company be established outside of the U.S.”

Thanks to RegionsofMind for the link. My bottom line: I’d rather have cut the corporate income tax than have cut the tax on dividends.