The Economic Report of the President
The Economic Report of the President (warning, 4 mb PDF) has just been published. Brad DeLong has already written about 9 posts sniping on just one number from the report – the more than optimistic employment forecast.
My suggestion is to ignore the forecasts and anything said in direct support of the President’s economic policy (this is good advice in any year). Instead, read the ERP because it contains some of the best examples of well-written, jargon-free, economics.
Chapter 4, for example, contains an admirably clear explanation of tax incidence theory (who bears the burden of a tax). Beginning with the classic example of a sales tax, the ERP moves on to a careful discussion of payroll taxes (mostly borne by workers) and capital taxes (a significant fraction born by workers in the long run). The ERP nicely summarizes, “the incidence of a tax depends upon the law of supply and demand, not the laws of Congress.” This chapter would make excellent reading for many econ classes.
You don’t have to read to far between the lines of Chapter 2 to realize that the economists on the CEA reject most of what the administration says about manufacturing. As I noted earlier
Jobs in the manufacturing sector are disappearing and have been doing so for 30 years. The reason this has occured, however, is not because we have “sent the good jobs overseas” and it is not because our manufacturing sector is “rusting.” Jobs have disappeared because the manufacturing sector has been spectaculary successful.
The ERP lays out the data. (Nice to see also that they went out of their way to repudiate China bashing.)
Chapter 11 on the Tort System is also excellent. Critics of the tort system often focus on outrageous examples of the system run amok (e.g. here, here, here, and here) but a larger issue raised by the ERP is that the tort system is an inefficient way of compensating injured people – many people are left uncompensated and the “transactions costs” (read lawyers) eat up a large fraction of any transfer. Health insurance is a much more important and better compensation system. Ironically, tort law is one of the factors making the health care system more expensive.
More common sense from Andrew Sullivan
Why are deficits a problem today? Read here.
Andrew also offers this scary tidbit about liberal bias in academia.
Markets in everything, part III
Had your fill of match.com? But lacking in guts today? Try an on-line break-up. Did you know you can hire someone to do it for you?
Breakupservice.com, founded in 2002, offers a range of options for heartbreakers who have $50 but not, as cofounder and president Ren Thompson puts it, “the nerve, or the know-how,” to write their own good-byes. According to Thompson, between 1,200 and 1,500 men and women annually turn to the Dublin, Calif.-based company for a custom-tailored “Dear John” or “Dear Jane” letter with that special admixture of grace, verve, tact, and distance.
For the less old-fashioned, Thompson or one of his six breakup representatives also break the news by means of a “Happy Ending counseling call” lasting roughly 15 minutes on average. The conversation doesn’t always begin on a happy note. The most common reactions, Thompson says, are “Is this some kind of joke?” or “Are you recording this?” But once people get over the skepticism, Thompson says, it’s a learning experience. “They have an inkling there’s a problem. Now they have some real closure with real answers. We try to help them look at it as a new beginning.”
Starting afresh is also behind the philosophy at LadyLoveWriter.com and its male-oriented counterpart LoveWriter.com. For $89, New Jersey-based scribe Erica Klein (who works by day as a direct-mail copywriter) will conduct a telephone consultation and compose “The Gentle Breakup Letter,” which she e-mails to the client to write out in his or her own handwriting. Would-be heartbreakers answer eight key informational questions on the order form and then choose from three “emotional styles”: “Light and Casual,” “Straightforward But From the Heart,” or “Super-Romantic” (though Klein can’t recall any client opting for the latter).
“We’re good at caring and compassion,” noted Klein.
Just look at one company’s client testimonials:
I met what I thought was a sweet girl. We dated a couple of times then I realized she was completely psycho. She would not take any of the hints I gave as I didn’t want her around but one phone call with a follow-up letter from breakupservice.com did the trick I never heard from her again. Thanks! Charlie M.
One of the companies also performs furniture and pet retrieval, for fees ranging up to $400.
Here is a previous installment of Markets in Everything.
Victory songs are for the birds
Sports fans are not the only ones to celebrate a win with a rousing tune – a chirpy African bird does the same, researchers have revealed.
Mate pairs of the tropical boubou belt out their special victory song after they have deterred would-be invaders from their territory, suggest Ulmar Grafe and Johannes Bitz at the University of Würzburg, Germany.
The discovery was made by accident, the scientists happily admit. They were investigating the birds’ musical repertoire in the Ivory Coast when they noticed that whenever they packed up their equipment and left the bird territories, the birds would trill a particular tune.
To investigate this further, Grafe and Bitz then tried broadcasting recordings of the duets commonly used by boubous in territorial confrontations. They found most mate pairs that stood their ground against the recorded intruders burst into song shortly after the tape was switched off.
“There’s a whole neighbourhood of birds listening into these conflicts, so it’s important to advertise a victory,” says Grafe, a behavioural ecologist. “We think it’s not only to let the loser know they’ve lost, but to let others know that one has been victorious – it serves to lessen further conflicts over territory.”
He adds that there are few animals which vocally celebrate a win in this way. And the tropical boubou is the first documented to perform a duet. “It’s sort of like a rugby team, a whole team display – I don’t know of any other animal example,” he told New Scientist.
I’ll really be impressed when they can hum “We Will Rock You.”
Here is the full story. Thanks to Spitbull.com for the pointer.
The economics of newspapers
Brother Weinberger writes,
“Dan: The real threat to traditional journalism isn’t blogging. It’s eBay, the largest classified ads publisher.”
Anyway, he is absolutely right. Classified advertising accounts for 50 percent of the profits of newspapers, and eBay is taking that franchise away. Without classifieds, newspapers are not a business. They are charity cases.
From the ever-perceptive Arnold Kling.
Food for thought
“A medical examiner’s report on the death of diet guru Dr. Robert Atkins suggests that he had a history of heart attack, congestive heart failure and hypertension…at his death Dr. Atkins [a six-footer] weighed 258 pounds…”
From today’s Wall Street Journal. I’ll agree we can’t draw firm inferences here, but there is always Bayesian updating.
Improving RSVP rates, continued…
Yesterday I asked whether we might increase the rate at which people RSVP, thereby improving the planning of parties.
Bob McGrew of CardinalCollective.com suggests a system of raffles. Give out tickets to people who RSVP yes early on and at the actual event choose a winner. Ridicule the winner and do not grant the prize if it turns out he did not show up for the party. Arianto Patunru proposes a related idea. You receive a ticket in the mail, which you activate by calling in a positive RSVP. You then need the ticket to get in the front door. The tickets are read by a machine, so you can’t make personal pleas to be forgiven. And of course you can’t take cell phone calls from your stranded non-RSVPed friends at the entrance.
Bob McGrew also suggests allowing people to respond with a probability of acceptance, rather than a simple yes or no. (It is an interesting question whether people will undershoot or overshoot with their expressed probabilities, I would predict undershooting so the host feels good when the guest actually comes.) Allowing more information might seem like a no brainer but it runs risks as well. People who would otherwise give a definite answer might instead defer their decision and send you a number like 0.84681. And what do you do with all the numbers you get? Estimate a probability density function?
How about the straightforward approach? The old-fashioned Will Baude suggests a greater reliance on social conventions.
My best idea? Have fewer parties. So many social affairs are about signalling in the first place, and we all know that market economies overinvest in costly signals. Stay home and read your favorite blogs.
Haitian life
Haiti remains mired in possible civil war, but this was not the most depressing Haitian news story of the day. The Washington Post reports on water supplies in Haiti:
…three times a day, she [a mother] fills a five-gallon tub, balances it on her head and walks steadily and gracefully back up to her one-room house, careful not to spill a drop. The water may not be safe to drink, but it is precious.
She said she has no alternative to drinking tainted water, which kills thousands of people in Haiti every year. This is her test for the daily water: “If it is clean, nothing will happen. When the water is not clean, my children get diarrhea.”
It is a risk that millions of Haitians must take each day. Although there has been a public campaign to teach people how to drop a small quantity of bleach into their buckets to purify the water by chlorinating it, no one has been able to instruct families on what to do if they have no money to buy the bleach. So some Haitians decide on their own. “Sometimes,” Zilice said, “I use lemon.”
“When we see the doctor, the doctor will say, ‘Take precautions for the water. Put Clorox so you can drink it,’ ” she said. But when there is no bleach, she said her children sometimes become sick with fever. That is when she boils the water if she can. Boiling water is a luxury for the rich. “I don’t always have money to buy charcoal or gas to boil the water,” she said. “I know it is a risk but I have no choice.”
Or how about this?
“Sometimes you see small children go at 5 in the morning to get water before classes. If they do not walk for water they die.”
Sixty percent of Haiti’s 8.5 million people do not have clean drinking water. It puts this whole RSVP business into perspective.
Oscar odds
There is more betting on the Oscars than ever before. Variety magazine reports that on-line betting on the Oscars has grown 300% over the last three years. The U.K. site Betonsports.com has led the way and expects more than one million dollars worth of Oscar wagers this year. The most heavily wagered category, surprisingly, usually is “Best Director.” Presumably there is too much agreement about what movie will win Best Picture in a given year. Here is one set of odds, not surprisingly Lord of the Rings is a favorite for best picture and director. Sean Penn (Mystic River) and Charlize Theron (Monster) are favored to win leading actor and actress respectively.
“I’d like the genetically modified organic food, please”
It turns out that much of the organic food in the U.K. has genetically modified components, usually soya:
Transgenic soya was found in ten of 25 organic or health food products tested by Mark Partridge and Denis Murphy, biotechnology researchers at the University of Glamorgan in Pontypridd, Wales. Eight of the ten were labelled either as ‘organic’, which should indicate the absence of transgenic ingredients under Soil Association rules, or explicitly as ‘GM-free’.
My take: Who cares? But the study does show just how arbitrary categories and labeling distinctions can be. “It’s all made out of matter,” I am fond of saying.
Pricing airline slots
Lynne Kiesling, after expressing her travel frustrations, offers some good proposals for pricing slots at airports. In response Gary Leff notes the following:
Slot pricing and exchange empirically works quite well, even in the absence of fully developed property rights. As I noted a few weeks ago, one of the more interesting market innovations in airline slots is the ‘grey market’ that has developed at London Heathrow.
Slots ostensibly aren’t property. If an airline gives up the slot it should revert back to a local authority which would then be charged with divvying out that slot. In practice, however, transferable property rights exist. That’s because the slots are “exchangeable” — an airline with a peak afternoon slot can trade with an airline with a useless late night slot. In a completely unrelated action, that airline with the undesireable slot can also send along lots of cash.
Variable pricing to consumers is also a fairly advanced activity already. Airlines already offer peak and off-peak pricing. Usually that’s determined not by peak travel time but is a function of which flight times face competition from low fare carriers. It wouldn’t be difficult for airline pricing to reflect the varied costs facing each flight based on the cost of takeoffs and landings for that given flight.
Gary sees the privatization of air traffic control as a high priority. He also calls for plane-to-plane communications, and greater decentralization more generally, as a means of limiting air traffic control problems. In other words, he wants to make planes more like cars.
When Affirmative Action Kills
The United Network for Organ Sharing says that “justice refers to allocation of organs to those patients in the most immediate need.” As such, skin color should be irrelevant in deciding who gets a transplant. But although proponents are loath to make race an explicit factor in transplant policy they are surreptitiously redesigning the organ allocation system in order to increase the number of blacks who receive transplants. The system is being redesigned to meet the ideals of the social planners despite the fact that such “affirmative action” will result in more deaths overall. As a proponent of financial incentives for organ donors I have often been accused of being immoral. But my conscience is clear – I have never advocated killing people to serve my idea of social justice.
From the Wall Street Journal (Friday, Feb. 6).
New rules for allocating scarce kidneys will result in 6.4% more blacks getting transplants, while slightly increasing the number of unsuccessful transplants, a study finds.
Blacks and other minorities have long been disadvantaged on transplant waiting lists — in part because the scoring system gave strong priority to compatibility between a recipient and the donated organ. Although blacks donate organs as often as whites, they have an extremely wide variety of protein markers on the outside of their cells — making an exact match much harder to find than for whites.
Making matters more acute, kidney disease in blacks is very common, owing to their higher rates of high blood pressure, which takes a toll on the urine-filtering organs. Blacks make up 12% of the U.S. population, but account for 36% of the 56,544 people in the U.S. waiting for a kidney. Prior to the scoring system overhaul, they were 33% less likely to get a kidney than whites.
The new rules, implemented in May by the United Network for Organ Sharing, stop giving priority for a certain type of immunological match known as HLA-B.
The report on the new system, in Thursday’s New England Journal of Medicine, used a statistical method to predict what will happen under the new rules. It finds that, had the new rule been in effect in the year 2000, 2,292 blacks would have gotten kidneys, up 6.4% from the actual number of 2,154 blacks. Meanwhile, 3,954 whites would have gotten the organs, a decrease of 4%. Hispanics would have seen a 4.2% increase. Asians would have seen a 5.9% increase.
Critics feared the new rule could reduce the success rate of transplants, effectively wasting precious organs on people whose bodies were likely to reject them. About 2% more organs will be rejected in people of all races, resulting in the need for another transplant, the study predicts.
Outsourcing medical care
More Americans and other nationals are traveling to Thailand for health care. A heart bypass costs 8-15K instead of 25-35K in the U.S. and arguably the service is better. In addition to a good doctor they will give you limo pick-up and convalescence time in a hotel. You can get a nose job for less than a quarter of the price. If you are uninsured, lightly insured, or stuck in a Canadian queue, why not go abroad for your care? Some Thai hotels are helping to organize care services, in conjunction with medical providers. In 2002 Thai hospitals treated 308,000 patients from abroad.
Are you interested? Check out this site and hope they learned more medicine than English grammar. Nonetheless the doctors are promoted: “Asians often seem to do well in high tech academics… not that well in football, but often very well in the class room / laboratory… pretty good in baseball & gymnastics..”
The suppliers offer their own caveat, however: “I probably wouldn’t have Siamese Twins separated in Siam!”
Worry all you want, the bottom line is that one root canal pays for a luxury vacation.
Singapore and India also are taking in foreign patients, 200,000 and 10,000 accordingly, with predicted growth for the future. Medical products are being outsourced to Asia as well, with significant cost savings.
In an age of skyrocketing medical costs, and pressing fiscal problems, surely this is good news. The thing is, other forms of outsourcing are also good for both your wealth and your health, and for the same reasons.
Some of the information in this post is from the recent Business Week article “Sand, Sun, and Surgery,” not yet on-line.
Why RSVP?
The New York Times notes that RSVP rates seem to be declining, here is another account with a similar conclusion. One Evite.com executive notes that last year’s invitation response rate ran about 63 percent. A variety of wedding and event planners note that people are ignoring invitations to an increasing degree. At the last minute they decide whether or not to show up, but in the meantime you do not hear a peep from them
Perhaps people are experiencing a kind of invitation fatigue. Imagine receiving ten or fifteen invitations a week. The value of time is higher than ever before, and many people wait to see what else will come along. Ironically the Evite.com service may be part of the problem. You can see who else has been invited, and who else has already accepted. You also know that it is especially easy for other people to invite you to other events. In other words, you gain by waiting and sampling more information.
We may be missing out on gains from trade, since the incentive to organize an event declines accordingly. Even if an event is organized, it is more costly to plan it.
Of course organizers make follow-up calls but this only worsens the collective problem in the longer run. Everyone waits to RSVP, figuring they will receive a call in any case.
The economist will wonder what alternative institutions could address this problem. Evite.com could assign a “reliable response” index to each person, akin to an ebay credit rating. Or organizers could send an incomplete invitation. You receive the invitation, but not the exact address or some other critical piece of information. Only those for RSVP are sent the critical information. This proposal, however, has two problems. First, you exclude those who are simply careless rather than manipulating the process. Second, a new convention may evolve whereby you say yes no matter what, whether or not you come. It appears that this practice is already common in Washington, D.C.
Similarly, it does not work to subsidize those who respond early. (For instance lower the overall quality of your event, but promise a bonus to early respondents, such as a hotel discount or a lottery ticket for a door prize. ) You can make early response a dominant strategy, but unless you can punish non-attenders this will not solve the problem. You need to reward both an early and truthful response. Asking invitees to post a bond solves the economic problem, but probably does not help your friendships, especially if the bond is confiscated. If readers have any solutions to the RSVP problem please send them in!
How does the porn industry stop digital pirates?
Just as you can download songs, so can you download digital images. Many hackers, for instance, circulate Playboy’s photos around the web. So how do porn services make money?
Porn services will sue people who sell their images for money, but they don’t usually go after users who share files amongst themselves, read this recent story. The industry is already based on churning out large amounts of product very rapidly and very cheaply. By the time one image is being pirated, another set of images is being promoted in any case.
Furthermore many people have very particular fetishes. They don’t just want images, they want images of a very specific kind. (Use your imagination to fill in the blanks here.) Mood matters as much as the specific practice. Often there is no simple way to describe your fetish and get the proper images to download. So you go to a paid site that specializes in your “thing” and you pay them to select and present it. Free pornographic images are common, but selection and context remain as valuable, albeit cheap, services.
Might this work as a business model for the music industry? Songs without titles? How about groups without names, for that matter? Hard to imagine. Groups need monikers to spread their fame by word of mouth. Peers wish to listen to and talk about the same music, whereby most porn viewers are content to have a more private experience. Furthermore the number of popular songs is limited and fans could assign their own names to the material, thus enabling downloading. Producing a good song is harder and more costly than producing a good porn shot, which again brings us back to a reliance on names and reputation. That being said, when it comes to untried bands, which exist in great profusion, the porn model may be precisely the future direction of popular music.