Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Saturday, November 27, 2004

Gingerbread Cookies

Some of the fanciest and most impressive gingerbread cookies in the universe are made by Bernadette and Mary. I've known them for over a decade, and they are terrific, hard-working people.

Their cookies are not cheap, but they are the best-decorated you'll ever see and the best-tasting you'll ever taste. They use top quality ingredients, and they ship their cookies anywhere in the world. They can be reached here (I get nothing from any click-throughs, so you know I really mean it).

Friday, November 26, 2004

Oregon: a change in who pays for land-use preservation

Oregon has very restrictive measures on growth and development. These measures make it virtually impossible for cities and towns to grow beyond certain comparatively small, well-defined areas. The effect of these restrictions is to limit the supply of urban land, driving its price upward; at the same time the policies depress the value of rural land. These effects, in turn, mean that the owners of rural land have implicitly (in an opportunity cost sense) been bearing the cost of no-growth policies, while the owners of urban land have been benefiting.

November's election has changed who will bear the costs of the no-growth policies (link from the NYTimes, registration required):
Under a ballot measure approved on Nov. 2, property owners who can prove that environmental or zoning rules have hurt their investments can force the government to compensate them for the losses - or get an exemption from the rules.

As the state enacted increasingly restrictive covenants on the uses to which one could put one's land, rural landowners were being forced to bear the implicit costs of these restrictions. As one put it:
Whatever the benefits of Oregon's land-use rules,... "the people paying the cost are property owners. ...If Enron does something like this, people call it theft," he said. "If Oregon does it, they call it land-use planning."

Now, under the new scheme, all the taxpayers in the state will bear the costs of land use restrictions. The restrictions themselves are not being overturned; the only change has been in who will bear the costs of the restrictions.

This change will undoubtedly mean that some land will be freed up for development: it is really easy to be in favour of pristine nature when you can force someone else to bear the costs; but voters and legislators tend to think again if the costs are spread across all the voters.

The folks at PERC undoubtedly understand this.

Exchange Rates, Deficits, and Risk

The reason foreign prices of the U.S. dollar decline is usually that people no longer want to hold as many U.S. dollars as they did. One reason not to want to hold U.S. dollars is concern that the risk of doing so has increased. This is precisely the point made by Alan Greenspan. From the NY Times (free registration required):

"Current account imbalances, per se, need not be a problem," he said in a characteristically technical speech, "but cumulative deficits, which result in a marked decline of a country's net international position - as is occurring in the United States - raise more complicated issues."

Mr. Greenspan said foreign investors, in part because they fear having too much money at risk in the United States, would eventually become reluctant to take on more such assets.

The major risk facing foreign holders of U.S. dollars is not that the U.S. will default on its T-bills; rather, it is that the U.S. will increasingly monetize its debt and create inflationary pressures. The risk of future inflation is a risk that those folks left holding U.S. dollars will not be able to buy as much with them in the future as they can now. To some extent they can hedge against this risk in the forward markets, but if many people become concerned about this risk, the impact of their sales in the forward markets will have repercussions in the spot market.

Update (link from Newmark's Door). You want to read more about economic risk in the U.S.? Read this.

It is NOT OKAY to murder in the name of one's God

As I said in one of my very early postings, I disapprove of the use of murder to promote one's religion. In a recent piece in the Wall St. Journal's opinion section, Bridget Johnson wonders why Hollywood celebrities haven't made more of a fuss about the Van Gogh murder in Holland. Hear, hear!

(Thanks for the pointer to AlanP and BenS).

Thursday, November 25, 2004

The PLO (Philistine Liberation Organization)

Many years ago I became frustrated with pretentious and arrogant put-downs of common, ordinary low-brow culture. I think people ought to be liberated from the pressures and insinuations of inferiority promulgated by the cultural elite, and to that end I wrote a piece announcing the formation of The Philistine Liberation Organization, of which I am the self-proclaimed chair. Here's the introduction to our manifesto:

I have been subjected to the biases and special pleadings of the artsy culture vultures long enough. They sneer at anything which isn't in their own mold (mould?) of avant-gardishness. They perpetuate stupid jokes by laughing at people who quite seriously say, "I may not know much about..______... but I know what I like."
It is time for the rest of us to revolt against this claptrap of self-indulgent behaviour which passes itself off as "the actualization of one's self potential," and which somehow has, unfortunately, [in Canuckland, at least] bedeviled enough politicians that fully 65.7% of our tax dollars go to supporting these alleged artistes through direct grants and purchases of junk [Voice of Fire - - need I say more?] that any sensible person would pay someone else to haul off to the municipal landfill site. It is time for a new organization to be formed to aid this revolution. To that end, I hereby announce the formation of The P.L.O.
Okay. I confess. I made up that number of 65.7%.

This manifesto has been at my personal website for years. It has also been circulated on the internet by a judge from the 9th circuit.

In its November 26th, 2004, issue, the Chronicle of Higher Education published a discourse on Philistinism, which includes references to the PLO manifesto [in the last paragraph] :

[O]ne can find today, on the Net, the manifesto of "The Philistine Liberation Organization." It maintains that real flowers "wilt and need care" compared with plastic ones, that Barry Manilow's songs "capture the meaning of life," that a lot of French paintings "look as if the artist needed glasses."

Thanks to Albie Miranda for bringing that piece to my attention. I expect, judging from the tone of the entire piece, that the author has, at best, mixed feelings about the PLO. In a much more scholarly fashion, Tyler Cowen has written, In Praise of Commercial Culture. I highly recommend it.

Here's the conclusion to the PLO Manifesto:

The purpose of our organization, it must be made clear, is to promote tolerance and open-mindedness -- to lampoon arrogance and self-indulgent pomposity. We don't really care if you like Shostakovich, escargot, and Birkenstocks.

We also don't really care if you like Neil Diamond, pizza, and Kodiak Grebs. We do, however, become disturbed if you try to tell us what we should like; and we have apoplexy if you try to get us to pay for what you think we should like.

Personally, I'm not that keen on Stompin' Tom Connors or Hockey Night in Canada (Canada's two leading cultural icons), but I am delighted they exist.


Ben Mathis-Lilley writes in Slate that last Friday's fight was great fun for spectators watching the game on tv and will be great for the commercial aspects of the game. Yeah, sure, if the NBA wants to move in the direction of the NHL or , worse, the WWF.

Who knows? Maybe moving in that direction will be profitable for the sport. If so, Commissioner Stern had better hope that Artest somehow gets some sort of appeal granted to him.

Wednesday, November 24, 2004

On Dan Rather

Back in the summer of 1968, when students were protesting the War in Vietnam and taking on the establishment during the Democratic National Convention in Chicago, I thought Dan Rather was pretty darned good with his interviews from the floor of the convention. Over the years, I began to wonder about this assessment, though. Here's a recent take of Canadian David Frum writing for the National Review on-line (link courtesy of Instapundit):
What would the world be saying of Dan Rather if, say, he managed an automobile manufacturer? Over his 24 years at the helm of CBS News, he has led his program from first place to third, losing more than half his audience along the way. Throughout his career he has been embroiled in controversy and scandal, culminating in his broadcast of forged documents - and his insistence that they might well be genuine long after the falsehood was obvious to everybody else. He leaves his news program in worse editorial and economic shape than at any time since it was launched five decades ago. If CBS were a car company, Rather would be universally condemned as a business and moral failure, one who broke faith with his colleagues, his customers, and his shareholders. Fortunately for Rather, CBS is a media organization. So he will exit the scene hailed as an American legend and a hero for our time.

Well, now, let's not go overboard. After all, the 3 major news networks have all lost market share to CNN and Fox.

Marginalism, Tournaments, and Extra Effort

The theory of tournaments and economic theory in general provide an explanation for why tournament winners (e.g. in golf, tennis, beauty contests, or many olympic events [via endorsements, etc.]) receive so much more prize money than second place finishers. Clearly the productivity or talent or skill or beauty of the winner is not much greater than that of the runner-up. So the differentials in the prizes do not reflect any of the usual marginal productivity determinants of compensation.

And yet, if you were running a competitive tournament (other than auto racing and the like), you would want big prizes for first place finishers. Similarly, if you are a stockholder in a major corporation you want much bigger salaries for the CEOs than for the senior VPs. You want to hold out big prizes for the winners so that all the contestants will put forth LOTS of effort to win: if the extra compensation for winning were not very large, then there is a reasonable chance that contestants would not give that "extra effort" to try to win -- they would be more likely to be content to settle for second-place winnings (and the attendant lower levels of effort), and your tournament (or corporation) would not be as good.

If this is true, we should see many more attempts at spectacular plays in do-or-die situations (e.g. if a team will be eliminated from making or staying in the play-offs if it loses; or if golfers are on the last few holes of a major tournament) than during the regular season. During the regular season, it makes far less sense to risk injury by making a diving catch in baseball or a lunge that might land you awkwardly in some other sport; in eco-speak, the marginal benefit of the spectacular play is outweighed by the expected marginal cost, including the risk of injury. Likewise, in golf, if you're trailing by one shot or tied near the end of the tournament, the extra benefits of making a spectacular shot might very well be greater than the costs of trying it and failing; earlier in the tournament you would have more incentive to play safer shots to try to stay close.

During playoffs, especially when your team (or you) are facing elimination, the expected incremental benefits of making a spectacular but dangerous play might very well outweigh the expected incremental costs

Are there any specific tests of this hypothesis? How about comparing numbers and/or seriousness of injuries in these games versus during the regular season? Or what about the number of golf shots in the water in these situations vs. earlier in the match?

An Alternative to "6-second Abs"

Here's a link to an R-rated site with a tongue-in-cheek alternative to the 6-second abs infomercials. Thanks to Jack for the pointer.

It sort of reminds me of the fabulous weight-loss plan in Duddy Kravitz, by Canada's best-ever author, Mordecai Richler. Unfortunately that part of the novel was left out of the movie, starring Richard Dreyfus when he was young.

Tuesday, November 23, 2004

An Amusing Clock/Calendar

This is a fun little clock and calendar for your computer, sent to me by Jack.

I've had this running for some time, now, and have run spybot. I've also taken a look at the code, and I can't find any hidden spyware or other evil little inclusions (but given how little I know, that isn't saying much). I think this is safe.

The Economics of Banning Pit Bulls

In Ontario there have been several attacks on pedestrians by pit bulls and similar dogs. In reaction to these attacks, the provincial gubmnt has proposed a ban on pit bulls .

My knee-jerk reaction to these stories has been: why must legislators be involved with pit-bull incidents? Why not leave it to the tort system to determine a standard of care for pit bull owners and rely on victims to sue the socks off negligent owners? The threat of a suit should provide a strong incentive for owners to keep their dogs muzzled. It should also provide a strong incentive for people to reconsider their choice of pets -- it is reasonable to expect, on average, that if there's a chance of being sued big-time if one's dog attacks you or your pet or child, fewer people will choose to own such dogs in the first place.

At the margin, I believe this stuff. At the same time, I understand the desire for more restrictions on pit-bull ownership than the incentives provided by the tort system.

  • Reliance on the incentives/disincentives provided by the tort system usually ignores the fact that people who have very little wealth are essentially judgement proof -- the threat of a lawsuit does not provide much of a disincentive for them.
  • Some people incorrectly estimate the probability that their pets might injure someone else. On average people who make such mistakes are also more likely to make other mistakes in their lives and hence are less likely to have much worth suing them over.

If the tort system is inadequate for handling cases involving judgement-proof tort-feasors, the threat of criminal sanctions might provide an additional incentive for pet owners to take an appropriate level of care.

But it could very well be that the costs of prosecuting such cases, relative to the benefits, are very high compared with the expected costs and benefits of an outright ban. So maybe the ban is an efficient solution.

If the ban were successful, the number of pit bulls would decline tremendously. Would they be placed on the endangered species list?

Monday, November 22, 2004

Noise Canceling Headphones

After having watched an infomercial about noise canceling headphones, I had to look into them. They contain circuitry designed to offset and cancel out background noise; those who have them tend to love them, especially on buses, on subways, on planes, near noisy PC fans, or in sociology classes.

The cream of the crop is Bose, but they are pretty pricey. At the other extreme, Panasonic makes a very inexpensive set, but it doesn't get great reviews. My own preference is for the Sennheiser headphones.

The NBA, Punishment, and Credible Threats

Last Friday's brawl between the Indiana Pacers and the Detroit Pistons (and more than a few fans) has led to lengthy suspensions of four of the players involved. There's a very good discussion of the events and the suspensions at Off-Wing Opinion.

Aside from the "hard" foul and the fisticuffs that followed on the court, the reason this brawl has attracted so much attention is that players charged into the audience, pummeling some fans who had been hurling epithets, beer, and dreck at them.

If players want to deter this type of fan behaviour, here are some of their options:

  1. they can rely on (or negotiate with) the league to require home teams to install/hire more security,
  2. they can count on (or negotiate with) the league and the teams to prosecute the offending fans in criminal court,
  3. they can take civil action themselves, suing the fans for some sort of intentional tort, and/or
  4. they can take some sort of retaliatory/deterrence-creating immediate, physical action themselves.

If they think the deterrence value of the first three possibilities is likely to be low, they will have an increased incentive to pursue the fourth option. They can do it themselves, or they can encourage a bench player (or other team employee [e.g. bulky "trainer"]) to act as team enforcer/security guard.

Holding the players liable for charging into the crowd, regardless of the provocation, will certainly deter such behaviour by the players. The suspensions handed out by the NBA will have this effect, in a probability sense; so will the inevitable civil suits by the injured fans against the players, even if the suits are eventually unsuccessful. At the same time, holding the fans liable for the provocations will also lead to less reason for players to charge into the crowd.

My take: Just in case there is any doubt, I approve of the suspensions. What the players did was not self-defence; it was retaliation, pure and simple. Charging into the crowd might, though, help pose a credible threat to unruly behaviour by fans. [No, Jimmy, don't throw your Coke at the visitors or they might come up here and beat the snot out of you].

[Update: I wrote this piece based on early reports of 20 -30 game suspensions. No, I don't support a season-length suspension of Artest. I hope he sues the fans for their actions and the Pistons for not providing adequate security. Sure, he contributed to the problem, but I hope he tries to make others accept and bear some responsibility for his losses.]

From the league's long-run perspective there are probably other, more cost-efficient and profit-enhancing mechanisms to accomplish the twin goals of reducing fan harrassment and reducing the incentive for players to charge into the crowd. To that end, the league should fine the home teams who do not provide adequate security, the players should be encouraged to sue the socks off the offending fans, and the teams should lean on local authorities to proceed with criminal charges against such fans.

However, if the league does not do these things, if the league believes the status quo is profit-maximizing because it increases media and fan interest in the games, then the NBA will slowly devolve into something more akin to professional wrestling.

Sunday, November 21, 2004

And They Laughed at the USA Today

From 1983-1993 we ran a summer two-week programme to teach the fundamentals of economics to journalists (opportunity costs, anyone?). During that era, many of the participants sneered at the upstart USA Today, citing its lack of depth and over-reliance on short articles, photos, and graphics.
Oops. Look what's happening to the Washington Post: (link via Drudge)

In an effort to win new readers, Downie said Post reporters will be required to write shorter stories. The paper's design and copy editors will be given more authority to make room for more photographs and graphics.

The paper will undergo a redesign to make it easier for readers to find stories. It is considering filling the left-hand column of the front page with keys to stories elsewhere in the paper and other information readers say they want from the paper, which they often consider "too often too dull," Downie said.

Consumer sovereignty is a very powerful economic force, whether we like it or not.

If you like comedies and are interested in journalism, Ben (my socionomist friend) highly recommends The Front Page.

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