How good is the Dutch social welfare miracle?

Despite recent economic troubles, the Dutch social welfare state is commonly considered one of the most successful in Western Europe. The country also is reputed to have low unemployment, a 2002 estimate (see the above link) cited an unemployment rate of 4.1 percent, other measures give a figure closer to seven percent. In any case note that measured unemployment rates are higher in most other parts of the EU, Ireland being one exception.

I now learn that the Dutch miracle may not be so special after all:

…disability leave…can be taken at full salary for a year and, after a single day’s work, is renewable for another year, and so on indefinitely. If one includes the disproportionate number of Dutch goldbrickers as unemployed, then the job-creation part of the miracle looks more like a magician’s sleight of hand. Even though the Netherlands is at the very top of longevity charts, estimates of persons on disability run from 8 to 13 percent of the workforce – between two and three times the EU average. They raise the true rate of Dutch unemployment into double digits.

This may be one reason why the Dutch economy grew only 0.3 percent in 2002.

The quotation (p.378) is from John Gillingham’s excellent European Integration, 1950-2003: Superstate or New Market Economy?.

Penny facts and optimal denominations

$10.5 billion in small change sits around people’s homes.

The average U.S. transaction produces 4.7 coins in change.

Eliminating the penny would lower this figure to 2.7 coins.

The average Canadian transaction produces 5.9 coins in change (Canada has a dollar coin), this would be 3.9 coins in a pennyless world.

A mathematical technique known as Diophantine equations can be used to calculate the coin denominations that would produce the least amount of expected change per transaction. If we replaced the dime with an 18-cent coin, the average number of coins per transaction would fall from 4.7 to 3.89. If we must keep the dime, adding a 32-cent coin would give us a figure of 3.46. The best solution of all would be to combine an 18-cent piece, and actually use the half-dollar coin, for a figure of 3.18 coins per transaction. N.B.: These calculations do not consider the limited ability of Americans to do math in their heads.

These facts are taken from the October issue of Discover magazine, although only a small fragment of the article is available on-line.

Thomas Sargent’s excellent The Big Problem of Small Change (co-author Francois Velde) provides a fascinating historical look at how our denominations evolved, and why we use fixed denominations rather than monies with floating exchange rates against each other, as in medieval times. Imagine having a daily rate for how much a dime is worth, vis-a-vis a quarter. Sargent and Velde claim that fixed rates, combined with a willingness of the central bank to trade at those rates, offers the best possible mix of denominations. They stress that this solution requires good safeguards against counterfeiting.

According to one poll, seven percent of Americans use coins to stabilize table legs, seventy-three percent to scratch off lottery tickets.

One individual wisecracked: “Actually the United States does have an 18-cent coin…It’s called the Canadian quarter.”

Addendum: About $600 worth of coins pass through the hands of a typical American each year. Using pennies may make an average cash transaction three seconds longer.

Second addendum: Professor Bainbridge tells us that the penny will never be abolished, and that sales tax is the reason why. He also cites this link on why abolishing the penny would raise government expenditures by more than a billion dollars, due to CPI effects.

The higher the bill, the lower your tip percentage

Two psychologists studied nearly 1000 tips for restaurants, hair salons and with cab drivers. The larger the bill, the smaller the percentage tip. This is consistent with a reciprocal “payment for service” model. You pay the waiter enough to get the job done, but you don’t feel he has to work much harder to bring you a more expensive entree. Or you might simply be feeling poorer, the larger the bill.

Note that the effect levels off for sums larger than $100. After that point larger bills don’t lead to smaller tips in percentage terms. Servers also get bigger tips when they split the bills for large groups. Read here for more detail. Other research shows that servers get bigger tips if they resemble or can mimic the customer.

More confusion at the Iowa Electronic Market?

Share prices this morning at the Iowa electronic market are confusing. The average price for “recall vote share yes” is $.475 and “recall vote share no” is $.490. Sounds simple enough – very close, but Davis survives the recall. But look: “Gray Davis in” is $.40 while “Gray Davis out” is $.632?? Very confident now that Davis will get the boot. Why the radical disconnect between the two markets? Once again, if you have insights, please feel free to mail them in.

Joseph Stiglitz interview

Here is one excerpt:

WIRED: Who deserves the most blame for the crash?
STIGLITZ: I identify three or four culprits. The deregulation movement went too far, too fast. Then I have to give some blame to the Fed. Greenspan gave the “irrational exuberance” speech but didn’t do anything about it. And there was the bad accounting framework, which emphasized stock options and created a series of perverse incentives. Wall Street and Silicon Valley conspired to maintain those bad standards.

Now this bit will enrage some people I know:

STIGLITZ: I don’t like the word deregulation. I like to say “finding the right regulatory structure.”


Problems facing the Euro

Read this good article on the difficulties of maintaining the Eurozone. Here are some of the big problems:

France and Germany, which have the biggest economies of the 12 countries that use the euro, are breaking the strict budget rules governing the currency by running huge public-spending deficits. Growth continues to sputter in the euro zone, while the United States is showing initial signs of recovery. Unemployment has risen to 12.5 million. And the near-record-high value of the currency is hurting competitiveness by dampening exports. Last week voters in Sweden overwhelmingly rejected adopting the euro in favor of keeping their national currency, the krona.

Mom works, child eats

Childhood obesity rates have tripled since the early 1970s. Television, junk food, and fast food are all reasons. A recent study from the Chicago Fed highlights the role of working mothers in this problem. When the mother works, the child watches more TV, eats more junk food, and has fewer good meals at home, thereby becoming heavier. A causal impact is found, however, only for families in the top quarter of income distribution. Could hired nannies bear some part of the blame? The authors also note that schools have a financial incentive to encourage children to eat meals that are not very good for them (an argument for more school choice I might add), click here for more on that topic.

How have newspapers changed since the early 1960s?

1. They devote more space to news, about twice as much.

2. Hard news gets lower priority for space. Business coverage, sports, and special features have all risen in relative prominence, business coverage doubling in percentage terms.

3. Front pages are much more local in their orientation. Foreign stories are down from 20 percent to 5 percent.

4. Female bylines have increased from 7 to 29 percent.

5. Stories are longer.

6. Papers print more letters to the editor.

And what about overall feel?

Papers of the 1960s seem naively trusting of government, shamelessly boosterish, unembarrassedly hokey, and obliging. There was apparently no bottom to the threshold for local news and photos. Writing was matter of fact, and stories were surprisingly often not attributed at all, simply passing along an unquestioned, quasi-official sense of things. The worldview seemed white, male, middle-aged, and middle-class, a comfortable and confident Optimist Club bonhomie. With it came a noblesse oblige sense of purpose. A paper was inextricably woven into its community, a self-anointed major player almost preening with pride and duty.

From a 1999 study by Carl Sessions Stepp, recently republished in Breach of Faith: A Crisis of Coverage in the Age of Corporate Newspapering.

Addendum: Bruce Bartlett adds: “You neglected to note that over the same period, newspaper circulation fell like a rock. Perhaps people would read more papers if they were more like those in the ’60s.”

Small, Medium, Large

Ever wonder why product quality often comes in threes? (Basic, Regular, Premium. Bronze, Silver, Gold. Third, Second, and First Class etc.) When there are only two product qualities consumers are torn between two “extremes,” either of which makes them uneasy. Add a third quality and you create a happy medium. Simonson and Tversky (the cite is in the link below) report that when offered a low-end and a midrange microwave oven consumers chose the midrange 45% of the time. But when offered the same two ovens plus a high-end oven they significantly increased their purchases of the midrange. Even when few consumers buy the premium product the mere fact that it is offered can increase sales of the midrange product. Hal Varian calls this Goldilocks pricing (see discussion beginning at p.10).

OPEC, Iraq and Taxes

OPEC unexpectedly announced a cutback in production today. I wonder if the administration tacitly encouraged the cutback? At the very least, I suspect that they are secretly pleased. The increase in oil prices will mean greater funds for rebuilding Iraq – funds that the administration is having difficulty getting Congress to approve. Unlike a tax, the increase in oil prices does not require Congressional approval.

Smart credit cards: markets in self-constraint

The bottom line is simple:

Researchers at the University of Pennsylvania have one-upped “smart” credit cards with embedded microchips: They’ve developed a technique that lets ordinary card users program in their own spending parameters…The technology could let employers better manage spending on corporate cards or permit parents to get teenage children emergency credit cards usable only at locations like car repair shops, hotels or pay phones.

Programmable credit cards could let cardholders limit expenditures, for instance, to $100 a day or to spending only on certain days or at certain establishments, Gunter said. The programmable card’s added layer of security could also help cut fraudulent online use of credit cards, which has grown into a significant problem for consumers and industry. The same technology could be used in cell phones that use a smart card, Gunter said, to provide owners with ways to regulate the use of the phone by others.

For the full account click here.

What caused the London power blackout?

Today’s Financial Times offers an interesting Op-Ed (registration and subscription required), here are two bottom lines:

First, since the 1990s the rate of investment in the British electricity grid has nearly doubled.

Second, British electricity is more reliable than ever before:

The halcyon days when ‘things were better’ never existed. Since privatisation, the number of power cuts has fallen by 10 per cent and the duration of those cuts has fallen by nearly a third.

OK, the author is Callum McCarthy, chief energy regulator in the UK, and he presumably has a vested interest in defending the status quo. And I don’t understand his convoluted take on overcapacity and price history, as I read McCarthy he is committed to both high and low prices at the same time, these equivocations make me more skeptical about his conclusions. Still, his perspective deserves wider circulation.