BY Kevin

In a fascinating and vicious reply to Adam Thierer, Malcolm Wallop presents Tech Central Station readers with two seemingly different figures for two purposes. The first demonstrates that the Baby Bells are still monopolies in the provision of local telephone service:

Mr. Thierer argues unperceived that the Bells are no longer monopolies. In fact, since the passage of the Telecommunications Act of 1996, local competition has developed at a glacial pace and the Bell monopolies still control between 85% and 90% of the local markets. That's hardly a competitive environment, but why let a few inconvenient facts get in the way of a good argument.

I agree. The environment is not competitive. But later on Mr. Wallop uses a second figure to show that the policy requiring local telecom monopolies to interconnect and/or sell unbundled network elements has been successful:

In December of 2002, 22 well-respected national and state free-market organizations, urged the FCC to protect consumers from the Bell monopolies efforts to thwart competition by denying competitors access to their infrastructure. These organizations ... believed then that local competition would lead to lower prices, better service and superior quality for consumers. The marketplace has now borne out the wisdom of this pro-competitive policy: More than 19 million consumer and small business phone users are now served by competitors, and even the Bells themselves have been forced to lower prices and improve service to meet this competitive threat... where it exists.

I don't find Mr. Wallop persuasive at all, because these two statements of his are for the most part inconsistent. Let me summarize:

1. The Bells are still "monopolies", as evidenced by their 85% market share.
2. Government policy is "pro-competitive", as evidenced by 19 million phones serviced by competitors.

Mr. Wallop fails to demonstrate how a government policy that proceeds at a "glacial pace" can also be "pro-competitive". When he tries to prove that forced infrastructure sharing is effective competition (with point #2), he has already undermined himself with point #1.

Using both the number and percent variants of the same type of statistic (phone users) is not just confusing; I'm led to believe that it is intentionally misleading... but I'm no telecom expert.

2/27/2004 04:36:58 PM
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BY Kevin

An infrequent reader wondered if T&B would provide an XML feed.

Providing too much consumer choice is what T&B is all about, so we'll provide two XML feeds. One is Blogger's own Atom format, and the other is the clumsy but more widely readable Blogstreet feed.

2/25/2004 01:37:22 PM
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BY Kevin

My exploratory and declaratory posts about gay marriage (I'm now in favor) at Kikuchiyo News have garnered some Vodka attention. My position (a liberty defense) is open to serious criticism, no doubt.

2/25/2004 09:58:57 AM
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BY Kevin

Incredible:

THE laziest woman in Britain is exposed by The Sun.

Bone idle Susan Moore has finally had her benefits stopped after an astonishing 16 YEARS on the dole.

Super-sponger Susan, 34, has not done a day’s work since dropping out of college in 1988.

But amazingly, she insists she isn’t lazy — and is appealing against the decision to stop her claiming £65-a-week Jobseeker’s Allowance.

Susan, who says she needs to RELAX at weekends, has never even been for a job interview — and turned down work at a supermarket because it was five miles away.

But yesterday she said: “I don’t see why I shouldn’t get Jobseeker’s Allowance. I’m not a scrounger, I want to work but nothing suitable’s come up.”

Via Dave Barry.

2/24/2004 04:45:43 PM
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BY Kevin

GMU Economics Professor Russell Roberts has a fine pro-outsourcing essay in Businessweek:

CREATIVE CYCLE. When an American outfit creates a call center in India or sends some of its software-design business there, it's able to do more with less -- more output with fewer workers, less capital, and fewer raw materials. Costs go down.

These savings come from different sources -- innovation and productivity changes, importing goods rather than making them, or using foreign labor for services that used to be done in-house. All of these allow companies to get more from less, which means America is more productive as a nation. The result is higher wages and a better standard of living for the average American.

That's the story of the last 100 years of the U.S. economy. In 1900, 40% of the country's work force was in agriculture. Today, the percentage is about 2%. That transition was driven by innovation, getting more from less. Prices fell. People spent less money on food. That freed cash to to be used on new products, and new companies could be created.

FEWER FACTORIES, MORE OUTPUT. During the transition, farm employment dwindled, but tens of millions of new, higher-wage jobs were then able to come into existence. The U.S. would be a lot poorer if the country had insisted on keeping those farm jobs. The change was hard on a lot of farmers, but it was good for almost every American. The children and grandchildren of those farmers enjoy the benefits today.

The same transition has happened in manufacturing over the last 50 years. Businesses have found new ways to get more from less. Some of those ways involve new technology or importing goods that were once made here. Both result in fewer manufacturing workers and greater output.

Thought Experiment: Let's look at some of the best jobs that have been lost to robots or foreigners. In 1913, Henry Ford instituted the $5 day for a 9 hour shift. These jobs were hard assembly line positions, but were extremely desirable work. With changes in technology, these jobs were lost.

But just how good were they? For their day, these jobs earned double the average manufacturing wage. But they are nothing special to speak of in today's terms. Deflating the $5 a day wage by the CPI-U (which is not really appropriate, but this is a blog post, not a dissertation) Ford's $5 a day is a wage of 5*(184/9.9)=$93 per day in 2003 dollars, or $10.35 per hour. The average Wal-Mart supercenter employee working in the grocery section--by opponents' accounts, some of the WORST JOBS EVER--makes about $10 an hour (page 25), not including benefits.

So some of the lowest-skilled service industry workers today are making as much or more than the best technically-skilled assembly line workers of Henry Ford's day. And that's because of outsourcing.

Hat Tip: Don Boudreaux

2/24/2004 03:57:22 PM
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BY Kevin

An interesting but light interview with Sepp Moser, author of the 1986 German language book "How Safe is Flying?" ("Wie sicher ist Fliegen?"), apparently updated and revised in February 2004.

The one aspect of his interview I want to focus on is the safety of low-cost airlines. They tend to have older tails than their high-cost foes, but are just as safe:

swissinfo: What kind of impact are low-cost airlines having on aviation safety?

S.M.: According to the statistics they don’t influence safety in any negative way.

In fact, low-cost airlines as we have them now are as safe as so-called high-cost or network airlines. Safety is a matter of culture and not about spending millions of dollars.

In Switzerland we had a safety audit after two accidents in this country. The audit came to the conclusion that the only low-cost airline we had at that time, [Crossair], was the safest.

So you can’t say that low-cost equals dangerous.

Mr. Moser insists that "safety is a matter of culture." I am inclined to defer to the experts, even if the BBC is not. Consumer Reports Travel Editor Bill McGee insisted in 2002:

[Low-Cost Airlines] have to meet the same FDA standards as the big carriers. Also, because they are smaller, they are generally able to incorporate new safety requirements quicker.

Noting the strong cultural stance and adamant regulatory requirements towards safety, several questions still remain for economists. What is the actual relationship between airplane accidents and the price paid by airlines for maintenance and upkeep? Do smaller airlines incorporate safety requirements quicker? If so, isn't that an indication that their maintenance, while low-cost, is also more efficient, and perhaps even better?

Have these issues been previously examined in detail?

2/24/2004 11:03:28 AM
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BY Ian

So, there's this small story out of Colorado that a few of you may have heard about. That is, the one or two of you who pay attention to the national media.

(Please note that, while in the following I may refer to the various recruiting strategies without judgement, I do hold a strong dislike for them, and do not mean to denigrate the horrible experiences suffered during such events by discussing them as "strategies." It is simply the language that most suits the discussion that is to follow.)

Every time this happens, it seems to me, people begin to decry the commercializing of college sports, while the sports institutions fall back onto the time-tested "few bad apples" defense. From my perspective, both of these ignore the real issue behind the matter: the recruiting methods used are simply necessities brought on by severe mutual distrust among sports programs.

It seems rather trivial to say that one college uses recruiting tactics such as parties, lavish entertainment, and the promise of sex because the others do it. I think, though, that this mutual reinforcement (the constant, "well, if they're doing it, I have to do it too") is not only the heart of the issue, but possibly the best place to attack the problem. If you will grant me leeway, I don't think it's entirely unrealistic to believe that, given a choice, universities and coaches would prefer to recruit based on native ability and fit with a team program, and leave it at that.

So why don't they? Because someone, somewhere, decided that they might have an edge on getting a star high school athlete if they showed him or her an exceptionally good time while they visited. A nice dinner. A tour in a nice car. Maybe a little get-to-know-your-possible-teammates thing. And then, as they say, all hell broke loose.

Sounding familiar? To me, too. Seems like, if all the coaches and administrators of athletic programs could just get their acts together, they might be able to return to "the way things used to be" (at least, a better way than we have today). An agreement of some sort, say, to all hold up certain principles in the recruiting process might help out. The trouble is, how much can any one program rely on the others to stick with the plan? If everyone flies on the straight and narrow for a while, and suddenly State U decides, to heck with it, this year we're bringing in rock stars and kegs, who do you think gets an advantage in attracting the best players (and with it a better chance at titles, the money that comes in from alumni, etc...)? State U, of course. But hey, coaches are nothing if not strategically smart people. They can see that coming a mile down the road. So instead of getting stabbed in the back next year, everyone decides to chuck the program. What are you going to do? Not have the entire season because no one supported the contract?

By now, I'm being unnecessarily oblique. As you have undoubtedly noted, the whole thing sounds like a version of the Prisoner's Dilemma. The programs could all have a shot at a better outcome, but because of rationality on the part of all the "players" (read: athletic program administrators, coaches, and whoever sets the recruiting practices), they reach the worst outcome. Additionally, it seems fair to say that in every recruiting season there is a reasonable belief that there will be a recruiting season again next year, and that such belief is present every year, this is in fact an example of an infinitely-repeated PD game. The tragedy, of course, is that despite the fact that the players know what the outcome will be (to deviate from the plan to recruit cleanly), they have chosen to deviate at every period. It only makes sense that, at every point that a choice has to be made about recruiting efforts, the player should choose "dirty" methods.

Certainly, the motivations for having the best players have gotten caught up in the drive for greater alumni donations, better presence on TV, and more, but this hasn't changed the basic fact that one of the main points in having a coach on a sports team is to improve the chances of winning games. One of the best ways to improve those chances is to get the best players. (Ever heard the old joke about whom to pick for your team between the two baseball players who get to first base after a hit at the same speed, the guy who does it in perfect form, or the guy who has horrendous form? The one with bad form, since once he improves that, he'll be better than the other guy. Same point can be made about recruiting.) So, even with the baser motivations for star players, this devolution of recruiting practices can't be laid at the feet of commercializing college sports.

In numerous games, repetiton can actually improve the chances for cooperation, since players learn the tactics of all the others, change their strategies, and so on. Obviously, this isn't working in the world of the NCAA. But can it? Possibly.

To try to answer that, here's another question: how does the IRS prevent some people from cheating on their taxes? After all, the number of people paying taxes dwarfs the number of people who review tax forms. Surely lots of people could get away with it. Sure, the fines and jailtime if you're caught are a deterrent, but really, if you're good, what're the chances you'll get caught? The folks at the IRS can't read everything with a fine-tooth comb, and certainly don't have time to check every last transaction... Which is where audits come in.

It's not only the probability of attracting the attention of an eagle-eyed IRS bureaucrat that people take into consideration when spending entire weekends in front of forms jokingly labeled "EZ"; the haunting thought of audits also creep in. And auditing can happen to anyone, cheat or not. The point isn't to check up on suspicious people (though, in practice there is some of that), it's to check up on everyone as a way to enforce cooperation among taxpayers. This puts the government and its citizens into a sort of round-robin on cheating and audting (simultaneous or sequential, depending on your tastes for laying out the issue) that finds a way for compliance to be enforced at a cost less than full Big Brother control over filing, with some deterrent effect against those people for whom getting caught would be more costly than having complied in the first place. Since the price of cheating on taxes is set pretty high, we can think of potential tax frauds as conditioning their behavior on the probability of getting caught. The random audit increases this probabilty, and thus decreases the likelihood of someone to cheat (and hopefully the incidence of cheating, depending on the distribution before the audits were implemented).

Why not have the NCAA audit programs? Placing each sports team into a system that gives them all equal chances of being selected for audit, the NCAA would investigate whatever program got the nod, regardless of reports about cheating (on whatever standards might be agreed to). It should be entirely possible for a team to be investigated 2, 3, even 4 times in a row (with appropriately diminishing odds, of course), since it would essentially come down to the roll of a fair die. Perhaps with the constant threat of potential investigation, potential cheaters would reconsider their behavior and choose to cooperate. Of course, there are then issues with punishment and compliance when a team is selected as part of the random sample and found to be cheating, but that's for another time.

Not to be melodramatic, but wouldn't the cost to the NCAA be far less than the price paid for any of these recruiting methods getting out of hand and incurring cases of molestation, rape, overdosing, and whatever else may go on? Now, I'm not naive, it's a good bet that some of the recruiting tactics will simply get more subtle, get pushed further underground. But, in lieu of doing nothing at all, maybe it's time to call the Treasury in to play a little man-to-man defense?

2/22/2004 10:33:12 PM
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BY Dragos

Here is a link to an interview with Clayton Christensen from HBS. He is one of the firsts looking into what disruptive innovation is all about and according to Espen Andersen (one of my tech strategy proffesors and one of his Harvard buddies) he is famous for being called in the middle of the night by Intel's Andy Grove and questioned about his thoughts from then-latest book The Innovator's Dilemma

2/21/2004 06:23:08 AM
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BY Kevin

I don't believe that advertising is evil or wasteful overall, nor do I think we consumers are supplied with too many choices. However, today my wife presented me with a data point that undermines both these beliefs. We're in the opthamologist's waiting room, when I notice a pack of advertising reply-to cards for American Baby offering a free subscription. I handed one to my wife, who erupted with laughter at the sight of the following options:

Apparently, if you don't want a subscription, you should check the box "No", fill in the information, and mail the card back. This is definitely a choice that consumers need not have...

2/19/2004 06:03:25 PM
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BY Ian

I try to keep down the number of times I point to other blogs and and chat about what they say there. This isn't because I see it as poor material; rather, I so rarely have something to say that others have not already said.

In this instance, however, I'm going to pipe up because the topic hits so close to home: econometrics textbooks. (Boy, I've certainly made things around T&B exciting, haven't I?)

Alex Tabarrok at Marginal Revolution suggests the Stock and Watson book (available here) Introduction to Econometrics), and Lynne Kiesling at The Knowledge Problem concurs.

To which I must say: ehhh...

Now, I mean no slight against the authors of the book. Rather, I feel I must register a word of caution to those professors teaching econometrics to any group that seeks to do more than just read econometric research with an informed eye. I was lucky enough to have an excellent econometrics professor for my first class, and while she did choose to use the Stock and Watson book, she often went well beyond it in order to convey a fuller undertsanding of what was going on. So while the book was decent enough to read, it ultimately leaves one unsatisfied. (That is to say, it left this one and others in my class unsatisfied; it should be realized that this review is coming from someone who wishes to use the techniques in research, and so am a very specifc audience that may not correspond to the ones Professors Kiesling and Tabarrok are addressing.) The rather breezy attention to each topic is probably just about perfect for those who have little need to go beyond reading and thinking critically about study results, but more than that will be difficult. As anyone who knows me can attest, I am not the most numbers-driven of people. But I have found that exposure to the formulas, coupled with good, clean descriptions, provides far better intution about the mechanics of econometrics than can a book that uncouples the two, as I think Stock and Watson do by leaving much of the formula manipulations to the appendices.

(NB: For an serious attempt at regression-without-those-funny-letters, try Kennedy's A Guide to Econometrics. Decently written, but if one never glances at the "Technical Notes", one need not be confronted with too many equations at all. Perhaps that's the point of the book...I can't be sure.)

Now, never one to carp without offering a suggestion, the book I've personally found most helpful is Damodar Gujarati's Basic Econometrics. My econometrics class this quarter required Johnston and DiNardo's Econometric Methods, a book I find to be...let's say rough going. In it's place, I've turned to the Gujarati book time and again as the better tool for learning. The examples are better and carried out more fully, the descriptions clear, and, I think, the whole thing is layed out in a far more compelling way than Stock and Watson.

Just some thoughts from an econometrics student's perspective. Take it with the necessary amount of salt...and Vivarin, for those who find this topic to be soporiferous in the extreme.

Oh, and one more thing. Should you, or someone you know, be in or about to start statistics/econometrics classes, be careful to keep at a good distance any news coverage of studies of any kind. Reading the "coverage" will only lead to massive frustration. Trust me on this.

2/19/2004 03:57:16 PM
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BY Dragos

This is the title of an article from last week's HBR Working Knowlegde. I found some interesting similarities between an organization stuck in neutral when in need for implementing a strategy and the Romanian (business) environment - or society if you like.

"The lack of openness lies behind many failures to implement strategy. We've become convinced that the most powerful way for leaders to realign their organization is to publicly confront the unvarnished truth about the barriers blocking strategy implementation. Typically, this involves looking closely at the roles and decision rights of various parts of the business, as well as changing the behavior of people at all levels. Public, organization-wide conversations about such fundamental issues are difficult and likely to be painful. But pain contributes to a species' survival by triggering learning and adaptation; it can have the same effect on organizations. Businesses and the people inside them don't learn to change unless they have the courage to confront difficult truths."

This is what is happening in Romania right now, it isa semi-closed society and because most initiatives fail to uncover the truth, they lead to only superficial change (if that). Authors recommendation is society-wide conversations whereas all stakeholders are involved in honest communication. It is however the nature of the conversation that matters ("strategy is all about communication" one of my strategy professors used to claim all the time - he is a strong adept of Porter's ideas); as such, here are some ideas to be kept in mind and applied thereof by the Romanian leaders:

1. A conversation about strategy needs to move back and forth between advocacy and inquiry - communication is a two way street from top-down and from down to top. It looks like here it is only one way, messages like "don't bother, we know what we've got to do coz we know what's best for you" are quite frequent, be it from governemnt representatives or Parliament ones.

2. The conversation has to be about the issues that matter most -- identify the list of the most important strategic issues and then focus on discussing about it across the entire society level. Apparently they did identify, or so they claim, but it is not like I am seeing public debates about them too often.

3. The conversation has to be collective and public - that would help realigning the national strategy with the general consensus (see the obsessive EU integration - this is not necessarily a good example because EU integration must be part of a wider national strategy). However, the view is presenting only one side of the EU integration coin, the downsides are approached like "we'll deal with them when we'll face them"

4. The conversation has to allow employees to be honest without risking their jobs - people must be sure that openly talking about inefficient strategies or measures will not affect their lives - -this is what is NOT happening mostly in the public and administrative sector, where people are (still) comfortable with a work environment inherited from the 45 years of communism. They are reluctant to taste the change or even think about it, consequently the few that dare to challenge "the system" are either excluded or leave by themselves.

5. The conversation has to be structured. That is you will have to speak up what you have to say, there is this tendency to say what "domnul director" (that is the MD, or the minister or whatever leader) wants to hear or has on its agenda. This comes at the cost of the lack of spontaneity, and there is this general belief that "domnul director" is too busy to listen to my "small little things". Believe it or not, it is quite widespread on the Romanian society level. If you dare to speak up and honestly name things you are to be judged.

2/19/2004 12:23:36 PM
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BY Kevin

I've got a problem with the outsourcing debate: both sides are economists. To be sure, outsourcing is based on certain economic premises and its effects are projected and measured in economic terms. But in ultimately, outsourcing isn't really an economic issue: it's a political one.

That's Simon, at Kikuchiyo News, who not only wants to shift the outsourcing debate away from economic theory towards political reality, but wants to focus exclusively on what politicians can do to ease the transitional burdens of job losses. I'm not willing to let him confiscate outsourcing just yet, as I think economists--in this debate, at least--need to examine more closely the microdata that is at their disposal. Simon continues:

But this is basically a political question: how the government... will respond to the demands of the jobless population.... If they are a growing constituency, then politicians have two choices: (1)If they think that the transition effects can be managed in the present climate, they can push for that. (2) If they think that the present state of the economy prevents effective management of job-displacement problems, they will attack outsourcing itself.

Political economists have a role here too. On the whole, I think economists need to take better care in distinguishing net job stagnation from the incidence of gross job gains and losses. While net job gains have been small, it is gross losses that initiate the transitional burden, and gross gains that may ease or terminate the burden.

However, the incidence of the gross gains changes the nature and makeup of the political constituency that Simon is concerned about. If the fruits of creative destruction are distributed as to create a large class of long-term unemployed (which, from the data about average duration of unemployment, hasn't happened), then politicians might find themselves more compelled to pander to the unemployed minority.

It seems to me that much of the political concern over net job stagnation hides exactly where the gross gains and gross losses are taking place, and perhaps we economists ought to look at them in detail before giving up either side of the discussion to noneconomists.

2/18/2004 09:52:35 PM
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BY Ian

Ok, so this isn't really an example of the ol' white whale of microeconomics (one of them, anyway), but I thought it was really interesting:

But what people are buying isn't half as interesting as why they're buying it. "There was the stock market drop and 9/11, and then all of a sudden we're in a long-term war," says Wendy Liebmann, president of WSL Strategic Retail, a consulting firm. Trying to gain control in a world that seems chaotic and unreliable, consumers are not waiting for the other Jimmy Choo to drop. "They're pushing back," says Liebmann. "They're saying, `I have to make choices today.' " For consumers, when it comes to buying luxury goods, special services, or even expand-your-horizons experiences, "don't put off till tomorrow" has become more than a homespun aphorism; it's become a way of life.

It's not that the luxury goods have suddenly improved to the point where the price makes more sense than a cheaper alternative, it's simply that people are buying more expensive things because the shadow of the future is looming over them. In the face of this, how do people make judgements about the value of the luxury goods they're now consuming at higher levels?

Would it be untoward to suggest that perhaps, as an indicator of value, they look at price? The lead character from the story is pictured this way:

Karl Rutter used to buy $300 suits off the rack at Century 21, a discount retailer in Manhattan. But these days he pays more than twice that for Hugo Boss and Calvin Klein suits that he picks up at Saks. That's not all: He recently bought a $450 Louis Vuitton wallet, a $220 Mont Blanc pen, and a $245 pair of Gucci loafers.

The brand names are mentioned for a reason. What makes Gucci loafers better than, say, Kenneth Cole? Is the stitching that much better? And even if it were, is Mr. Rutter really in the position to evaluate the differences? He very well might be (not knowing Mr. Rutter, I'll err on the side of saying he could well be a very savvy shoe-buyer), but that simply can't hold for the range of goods that are suddenly winding up in his (and others') shopping bags.

It is, I must admit, a rather select group of people and under very specific circumstances that these goods with higher prices are being demanded in greater quantity than lower-price substitutes. But then, the group of people for whom some goods are demanded less when their income rises is limited at any one point in time, isn't it?

2/16/2004 04:44:45 PM
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BY Kevin

Tyler Cowen writes about progressive fines for speeding:

Legality and constitutionality surely do not favor this idea in the U.S., but how about efficiency? I say no. Richer individuals on average have higher valuations of time... Equal dollar fines are consistent with the rule of law... True, efficiency is unlikely to suggest strictly equal dollar fines, but if the choice is equal dollar fines or discretion I will prefer the former.

I'm inclined to agree with him as a practical matter, but pure theory tells me something different. To me equity of outcomes (desiring that the poor speed as much as the rich) suggests progressive fines, but I think efficiency requires that the marginal costs should equal the marginal benefits--meaning that an instance of speeding should be permitted (or mandated?) when its expected social costs are lower than its social benefits. The social costs include (and, I think, are dominated by) higher expected accident costs; the social benefits are the increased product from, on average, highly productive people. Shouldn't the fine be set at the level of expected social costs divided by the probability of being caught while speeding? If so, the rich will then speed more than the poor.

2/16/2004 12:50:50 PM
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BY Kevin

The official urban unemployment rate for China at the end of 2002 was about 4% (time-series here), but unofficial estimates range from 10% to 20% with rural estimates much higher.

Are there any anonymous surveys of what Chinese economists think of the National Bureau of Statistics?

2/16/2004 11:58:21 AM
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BY Kevin

Alex Rodriguez is headed to the Yankees, and the deal was closed with some interesting additions:

They offset that reduction in value by giving Rodriguez a hotel suite on the road (an old players' perk) and allowing him to link his Web site to the Yankees' Web site (a new perk).

The Rangers, who will work out Rodriguez's New York State tax payments, agreed to purchase Rodriguez's house in Texas (he is so eager to flee the Rangers that he will not be going back anytime soon) and his suite at the American Airlines Arena.

I don't follow baseball much anymore, so perhaps some reader can fill me in as to why on earth Mr. Rodriguez needs the Yankees permission to link to their web site.

2/16/2004 10:38:37 AM
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BY Dragos

Here is a very interesting link: someone had the idea of having Romania as a country for sale at Ebay. The ad says:

"The government of Romania's biggest fear is to "sell the country." They do whatever they can to make foreign investment difficult. Perhaps they are afraid someone will buy it, fix it, and then make it hard for the crooked government to have it good."

Apart from the comic of the situation I should add that back in the beginning of the 90s "we're not selling our country" was the favourite populist slogan of the former communists - usually people from the 2nd and 3rd layers of governemnt or public administration - when agitating and manipulating the crowds against any reformistic measure anybody would come up with. It is interesting to notice that in spite of the sarcasm and bad feeling a foreigner not familiar with Romania would take away from the ad, most people who went to Romania remained pleasantly surprised by the fact they can have a relatively Western-like lifestyle at a very cheap level, by friendly people always happy to talk to them or show around (beatiful women :)) and by lots of interesting places for all tastes.

What Romania lacks badly now is a healty business environemnt given by a consistent governmental strategy (now it is just reactive rather than proactive) and a proper marketing tool for a promoting several opportunities that would make a good investment.

2/15/2004 03:29:47 AM
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BY Kevin

The false idea that WM doesn't provide health insurance appears to be common knowledge to many reasonable people. In fact, I encountered commenters at Businesspundit and Knowledge Problem who thought WM was slacking in health insurance provision.

In the comment sections to those posts, I referred people to page 23 of this study and page 25 of this report, which state that WM pays 2/3 of healthcare premia, requires employees to pay range of medium to high deductibles, and has no coverage limit on catastrophic care. Also note that approximately 90% of WM associates have coverage either through the WM plan or through a family member's plan, but employees must pay for dependents in full.

However, a far more readable source of information is Dan Weintraub's--"Health care for Wal-Martians":

[WM] does offer benefits, and it says that about half of its workers subscribe to them, which is about average for retail operations in America... A company VP quoted in the piece says Wal-Mart typically covers medical bills exceeding $100,000 for at least 800 employees a year, and 20,000 cases cost the firm more than $10,000 each. Wal-Mart has paid for more than 300 organ transplants in the past five years, each costing more than $1 million... The idea of health insurance, after all, is to prevent unexpected medical bills from bankrupting and devastating an individual. In this regard Wal-Mart’s coverage might be on the cutting edge. While it leaves individual workers responsible for routine expenses, Wal-Mart’s coverage steps in when things get serious and then covers everything, forever. Doesn’t sound so bad.

2/12/2004 04:12:23 PM
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BY Ian

Or, "Now that I've met you, would you object to never seeing each other again?"

A lot of the econ related blogs I read make reference to various and sundry modelling tools/software/websites for things like macro issues and more. While all that's well and good, isn't there something out there for us game theory fans?

Much to my surprise, there is: Gambit. Now, for those of you who have...steeped...for longer in this world, it may be old news. But I just found it today and while the interface leaves a great deal to be desired, it's not a bad little program. Lets you build extensive form games, compute various forms of equilibria, and everything else that strikes me as fun (yes, I should be getting help for that, I realize).

The only downside is that, well, I really ought not use it. The point of learning game theory is to be able to do it. So, while I had fun with it for a while, I can't return to using it for a few more weeks. But, oh the temptation...

Ok. PSA over.

Oh, and if there are better ones out there, feel free to let me know.

2/10/2004 11:31:00 PM
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BY Ian

It's a good thing no one around T&B knows me personally. If they did, they would have long since grown tired of me rehashing a particular story from one quarter of school. I'll save the details and leave it at this, a paper I produced for a class was given what was, by my standards, a low grade. The only commentary on the paper was that my theory was unsound; no mention was made of the process by which I argued my point.

In a nutshell, the theory was simply that one of the reasons for the growth of fundamentalist groups in the Middle East could well be that people were turning to them because they were better at providing the social goods the state could not. Including a great deal of research from a previous paper (one which received a far better grade, I must say), I believed that there were good, rational reasons (in the strictest economic sense) for the growth in popularity and membership in fundamentalist groups.

Lo and behold, an edition of the Economist just a few weeks old, mentions the very same thing (subscription required). Their reason for saying so? A working paper by Eli Berman looking at the economic rationality of extremist groups. (Needless to say, Mr. Berman's is a far better and more comprhensive paper than mine ever meant to be or ever could have been.)

Clearly, I'm biased, but I find the paper fascinating and highly compelling. Of course, my admiration for it may in part be that I also utilized Laurence Iannaccone's research on the economic underpinnings for religious membership, behavior, and more. (I also highly recommend the collection of work Rational Choice Theory and Religion.) In my case, it was to examine the rationality of suicide bombers, relying in particular on Hamermesh and Soss' "An Economic Theory of Suicide" (sorry -- wasn't able to find a draft or free copy) as well as Becker's work on crime. It was neither wholly successful nor fully fleshed out (5 weeks is too short a time), but I thought it had some traction. Put quickly, the theory was suicide bombers could be considered to be acting rationally, economically speaking, if we posit that with a solid disbelief in living past the next few years, and with diminishing possibility for economic gain (short lives with no job or advancement), the utility gained from the chance of killing the perceived enemy, combined with greater utility from increasing participation in religious groups could together be greater than the utility from continuing life. The sense of imminent death (because, say, opponent retaliation is seen as indiscriminate, religious indoctrination, etc) greatly increases the discount factor of both future and current value, which might help explain why so many "middle class" people often decide to become bombers. The crux, and the weak point, admittedly, being the notion that there is positive utility in killing.

As I said, I think there are kinks to be worked out. For instance, it strikes me that there might be some value to thinking of this possible person as a "pivotal voter." Robert Pape has done a good deal of work to show that suicide bombing can be considered both rational and, in several cases, successful. If we think of the potential suicide bomber in the way we consider potential voters, the expected utility from voting increases the more the potential voter believes she will be the pivotal point, deciding the issue in her favor. With an increasing belief that his sacrifice will be the deciding act in forcing the hand of the other side, (taking into consideration that the strategic goals of terrorist organizations are often far smaller in scope than their rhetoric would have you believe) an individual may be more and more willing to become a bomber.

But really, I'm not hung up about the whole thing. Not at all. Really.

Update: On re-reading this, my timeline seems odd. First was the paper on bombers, then during a different quarter came my (disliked) paper on social good provision by terrorist organizations. The problematic grade was on the second. And, it should be noted for disclosure, Robert Pape was my professor when writing the first paper.

2/8/2004 01:12:15 PM
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BY Kevin

Just Procrastinating picks up on my Wal-Mart story below, and comments:

In my job I do some work with the folks at Wal-Mart and while they are generally nice people, you basically have to do whatever the fuck they tell you to, and quickly. They are so big that they are in a position to bully their suppliers, which they do.

This is a common--and entirely accurate--perception by a lot of folks of the way WM deals with suppliers. Since this method has led to outsourcing of manufacturing jobs, many people think WM should be stopped. A reasonable commenter on that post pointed out a FastCompany article I missed, The Wal-Mart You Don't Know by Charles Fishman, as an example of evidence of how Wal-Mart kills communities.

I think the article is informative, well-written, and perceptive about the WM pressure mechanism, but completely incorrect in its macroeconomic conclusions. I see little in the article which relies on accurate data. However, many people disagree with me. Many bloggers-- PixelShatter, Toast and Tea, The Black Hole, Deckchairs on the Titanic, Joe Hill, Blab-o-Rama, Sleep not Work, leekangkoog--are fascinated by the power of WM, and most of these sympathize (in the main) or completely agree with the article's normative analysis. Here, in short, is the core thrust of the article:

[Wal-Mart] is, in fact, so big and so furtively powerful as to have become an entirely different order of corporate being.

Wal-Mart wields its power for just one purpose: to bring the lowest possible prices to its customers. At Wal-Mart, that goal is never reached.

From this everything else follows. The article notes that there hasn't been a retailer this dominating since A&P had 80% of the grocery market. My big problem with the article is that the author doesn't seem to realize he's hit upon the source of economic growth, and insists on treating the admittedly costly and messy process of economic growth as "high cost":

To survive in the face of its pricing demands, makers of everything from bras to bicycles to blue jeans have had to lay off employees and close U.S. plants in favor of outsourcing products from overseas.

In other words, Wal-Mart's pressure made specific producers realize that they could produce some low-quality goods more cheaply if they were made elsewhere. This is a direct cost to those who lose their jobs, but how much is that loss? The author relies on the probably true and very compelling stories--not hard data, and he fails to follow up on what happens to all those Americans after they lose their manufacturing jobs. 1 or 5 or 10 years later, are they better off or worse off? Is American capital earning a higher or lower rate of return? The author answers:

But there is no question that the chain is helping accelerate the loss of American jobs to low-wage countries such as China.

The canard about China stealing US manufacturing jobs appears to be false, as the number of manufacturing jobs in China has also fallen. If this is true, then where are all the factory jobs in China going? Nowhere--more goods are produced by fewer people--in the US, China, and everywhere else.

"But you can't buy anything if you're not employed. We are shopping ourselves out of jobs."

This is undeniably true--in the same exact way we "shopped" ourselves out of farm jobs and into factory jobs by buying cheap food, we are now "shopping" ourselves out of factories and into services by buying cheap goods. Some of those jobs lost are making bicycles, blue jeans, and of course, pickles:

The gallon was hoisting Vlasic and hurting it at the same time...[WM said,] 'We want the $2.97 gallon of pickles. If you don't do it, we'll see if someone else might.' I knew our competitors were saying to Wal-Mart, 'We'll do the $2.97 gallons if you give us your other business.' "

WM figured out that pickle companies were not competing vigorously enough with one another, and forced the issue by helping Vlasic become the market leader, which it willingly choose to do, rather than let a competitor take its place. For all I know the pickle market could have been perfectly competitive, but WM realized that there was a cheaper way to produce and distribute pickles, and compelled its pickle supplier to meet that standard. How could it possibly force a company to lose profits? Under threat that it would lose even more. As a result, once WM forced the price down, profits dropped for Vlasic--but they dropped even more for its competitors.

Wal-Mart is legendary for forcing its suppliers to redesign everything from their packaging to their computer systems. It is also legendary for quite straightforwardly telling them what it will pay for their goods.

Of course WM could just purchase firms that are operating inefficiently, and integrate vertically. But if it were to do this too extensively, like automobile firms once did, it probably would be considered an antitrust violation.

In the end, the business bloggers tell me that the "big fear" of business is having their products become indistinguishable commodities. Brand Mantra writes extensively on this subject, and insists the brands that folded to WM were the ones that were on their way to becoming commodities already:

So WalMart is commoditizing brands? I don't think so. They're simply determining who's willing to be a commodity brand and who isn't. Levi's is prostituting itself to WalMart because it had already lost its brand value. Leaders who know the value of their brands, who know they're delivering value and that their brand has a loyal following, will not succumb to the WalMart commodity-confirming machine.

2/6/2004 06:40:41 PM
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BY Jamie

Election time in Oregon. This headline and article from Astoria is too precious to pass over. It appears the public has again made a choice. The frustrating part - for many voters - is that they'll be back next year.

2/5/2004 11:27:55 AM
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BY Kevin

I just received notice that I have passed both the Public Choice and Law and Economics field exams. (No, I did not bribe the committee members.) Celebrations, featuring a selection of Georgian semi-sweet wines, will be in order tonight.

2/4/2004 04:53:21 PM
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BY Kevin

Some Little Noticed Protectionism

In his post "Three Centuries of India-bashing" Dutch blogger Ivan Janssens discusses the impact of the new US federal law (incorporated into the omnibus proposal signed by President Bush on Jan 23) that prohibits the international outsourcing of A-76 jobs, a relatively small subset of jobs currently done by federal workers that must be put up for competitive bidding.

Under Budget Circular A-76, federal agencies must bid against companies for work performed by federal employees. But according to Section 647(d) of the Consolidated Appropriations Act of 2004, “An activity or function of an executive agency that is converted to contractor performance under Office of Management and Budget Circular A-76 may not be performed by the contractor at a location outside the United States except to the extent that such activity or function was previously performed by government employees outside the United States.”

The India Times is all over this one (read this, and follow the links at the bottom). A very balanced Dayton Daily News editorial criticizes Sen. George Voinovich of Ohio, one of the amendment's sponsors, and notes that U.S. business and Indian government leaderhip takes this as a very bad indication of future policy :

It's the cool season in New Delhi. but Indian Prime Minister Atal Bihari Vajpayee's protest about a new law that restricts overseas outsourcing of certain government work was anything but.... He called the measure "unfair..."

Sen. Voinovich, a self-proclaimed free-trader who never would have insisted that a manufacturing company couldn't take a plant overseas, is more conflicted than he wants to admit. He needs to explain why, in this instance, what's good for the private sector isn't good for government, too.

This particular federal ban isn't the heart of the issue. What India really fears is what the restriction represents: an increasing willingness by governments to adopt protectionist laws. Sen. Voinovich's measure is just one of a growing number.

2/4/2004 03:09:54 PM
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BY Kevin

Going Places

T&B congratulates GMU Economics Ph.D. candidate Scott Beaulier on joining the Economics faculty of Mercer Univeristy.

2/3/2004 07:08:28 PM
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BY Kevin

When Wal-Mart Attacks...

LOS ANGELES -- This city is on the verge of telling the nation's largest retailer to get lost.

In contrast to The Washington Post, T&B believes that people living inside the City of Los Angeles have diverse and conflicting voices; it is the ruling class who has the power and desire to tell Wal-Mart to get lost. In particular, it is the city government that wants to ban Wal-Mart Supercenters; we have little idea what the people outside of government actually want. The distinction between government and governed is critical in this context, and should not be ignored--even for a good opening line.

The LA City Council is proposing a law that will require special permission for Wal-Mart to open up Supercenters--permission that will then never be granted by the government. It is clear that those supporting the ban have many prior beliefs but little empirical evidence to support their contentions that 1) a majority of LA residents don't want WM Superstores in LA, 2) such stores will be hurtful to a broad swath or a critical minority of residents, 3) healthcare costs to the city will increase, or 4) healthcare coverage of workers will decrease.

"We don't believe their business model is good for the kind of economic development that we want in the places where we need it most. And we want people to realize that the 10 cents they may save on a jar of pickles could mean paying another $5 in taxes for all the extra visits to local emergency rooms."

In other words, WM Supercenters are to replace union grocers and Mom-and-Pop stores, destroying good jobs, and decreasing the share of workers with health coverage. All because stupid consumers will not see that it is against their own interests to shop at supercenters.

What does the science of economics have to say about the ordinance effectively banning supercenters? What do expert economists forecast? Where are the voices of reason and sanity?

LA is facing a delicate political situation, and the dirty details of politics always create major problems for economic analysis. In this case, there are dueling economic impact statements--one, funded by the city council (The Rodino Report), says WM big boxes cause a net decrease in jobs, the other, funded by Wal-Mart, predicts a net increase in jobs. Who needs a two handed economist when there are boatloads of one-handed economists ready to prostitute themselves? The results are truly pathetic:

A study commissioned last year by the city of Los Angeles concluded that the arrival of such mega-stores would result in net loss of jobs and force other employers to lower wages. It recommended approving restrictions on big-box retailers.

Another report issued last week by the Los Angeles County Economic Development Corp. reached the opposite conclusion. That study, which Wal-Mart financed, said the arrival of mega-stores selling groceries could save households in Southern California an average of nearly $600 a year and that consumers' ability to pump that money into other parts of the regional economy would help create far more jobs than would be lost from smaller businesses that could not compete with retailing giants....

[S]ome local officials have denounced the study as biased because Wal-Mart funded it.

This calls for a reminder: Governments are not populated by truth-seekers. It is absurd to suggest that the study funded by the government is not biased in favor of the city council board members who approved its funding, while Wal-Mart's study is biased because its corporate board members approved that funding. In fact both studies are long on "potential" results and short on "actual" data. We have reason to believe that both are equally biased, and it is only with careful thought that we accept anything presented in either document. Read the reports. The city council is driven by ideological preconceptions about the impacts of big-boxes, and Wal-Mart is driven by an unsatiated desire for profit. However, I find Wal-Mart's report more convincing in general, mainly because of this sensible overall assessment (page 33):

Economic change is often accompanied by turmoil, from which some people benefit and some people lose. To compete with Wal-Mart major supermarket chains with union contracts will try to close the wage gap between their employees and Wal-Mart's. They will close the gap not through outright wage reductions for existing employees, but through lower starting rates for new employees and gradual erosion of real wages over time. Employees in a single sector of the retail industry will thus bear the brunt of competition with Wal-Mart... the loses are not trivial. Since the costs are concentrated among a relative few, they will be actutely felt....

The Rodino report tells a different, and to me, less compelling set of stories. All the following are declared possible, without any inference about liklihood:

* Big box retailers and superstores may negatively impact the retail labor market... The difference... may be as high as $8.00 per hour....
* Lack of health care benefits... can result in a greater public financial burden...
* Big box retailers and superstores often can result in the reduction of consumer choice due to their tendency to cannibalize competing retail businesses. Wall Street investment bankers are currently recommending against investments in stocks with grocery assets that compete with Wal-Mart...
* Municipal revenues may actually decrease... due to big box retailers' lower prices... [and] local store closures... futher reduce sales tax and property tax revenues
* When a big box retailer or superstore closes a store, the huge vacancy created often results in a long term blighting...
* Big box retailers and superstores often destroy attempts to create pedestrian-oriented communities

Whomever is correct, the WaPo tells us that Wal-Mart will find out whether voting citizens think it is in their own interest to shop in big boxes,

Wal-Mart also is taking the battle to the ballot this spring. In the Los Angeles suburb of Inglewood and in Contra Costa County near San Francisco, two places where local leaders also have sought recently to stop its supercenters from opening, the company has succeeded in getting measures on the ballot that, if approved by voters, would clear the way for its expansion plans....

[I]n 2002 voters in the border town of Calexico easily overturned a measure their leaders had passed to block Wal-Mart and similar retailers from doing business.

So here's what I think will happen. If Wal-Mart superstores open up inside LA, my best guess is that it will 1) increase employment (with lower wages and benefits compared to union grocers, and similar wages and higher benefits compared to Mom and Pop stores), 2) drive other grocers out of business, 3) decrease food and other consumer goods prices, 4) increase traffic in some areas, decrease it in others, 5) be a net wash on healthcare and city budget issues, 6) decrease the power of the LA City Council.

If the ordinance passes, then Wal-Mart tells us precisely what it will do, and what will happen (page 39 of its report):

[A]ny perceived negative implications of Wal-Mart Supercenters will still occur if the City of Los Angeles makes doing business within the city too unappealing...

Wal-Mart will build Supercenters to serve residents of the City of los Angeles. The real choice, therefore, is not between Wal-Mart and no Wal-Mart. Rather, the choice is whether Wal-Mart will serve Los Angeles residents from within the city's boundaries or from without...

UPDATE: More on WM in my post When Wal-Mart Attacks its Suppliers.

2/3/2004 05:53:13 PM
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