Coyote Blog

Marginal Revolution notes a recent piece by Jeffrey Rosen about potential libertarian supreme court nominees.  In particular, they noted this quote:

...Epstein was promoting a legal philosophy far more radical in its
implications than anything entertained by Antonin Scalia, then, as now, the
court's most irascible conservative. As Epstein sees it, all individuals have
certain inherent rights and liberties, including ''economic'' liberties, like
the right to property and, more crucially, the right to part with it only
voluntarily. These rights are violated any time an individual is deprived of his
property without compensation -- when it is stolen, for example, but also when
it is subjected to governmental regulation that reduces its value or when a
government fails to provide greater security in exchange for the property it
seizes.

Whoa, how crazy is that?  I find it depressing that believing in the right to part with property "only voluntarily" is today considered so wildly out of the mainstream that it is necessarily a disqualification to be a Supreme Court judge.  The courts today are terribly important battle ground in protecting individual rights against both creeping socialism and paternalism.  Unfortunately, neither Republicans nor Democrats can be trusted with leading this battle.  Each wants the judiciary to protect individual rights in one area and restrict them in another.  The left supports limitations on political speech via campaign finance restrictions and an unfettered right of government to invade personal property.  The right wants limitations on non-political speech via "community standards" on entertainment and hopes to regulate America's sexual practices.

Most people interested in politics are constantly hoping their party is the winner in the race to power.  I just wish I had a horse in the race.

I've written a couple of times about how I find the whole process of tipping in this country to be irritating.  There is absolutely no logical framework you can come up with to say why we are expected to tip restaurant workers but not, say, retail workers.  Tipping has long, long ago passed the point where it was a practice to reward good service and has instead become a way for employers to shift the burden of paying wages to their employees onto their customers.  For example, I wrote (or more accurately, ranted) here:

Unfortunately, restaurants and other service establishments have
twisted this act of reward and generosity into having customers pay the
wages of their staff.  Restaurants are simultaneously increasing
tipping expectations (from 15% to 20%+) while requiring tips on more
and more occasions by building them automatically into the bill.

The event that brought my irritation to a boil the other day
actually happened valet parking my car at a restaurant.  As background,
the establishment charged $4 to valet park your car.  Now, I am not a
socialist, so I accept that value is not driven by cost but rather by
what I am willing to pay for it, and I was willing to pay $4 to avoid
having to walk a few blocks from the free lot  (those of you from
Boston or NY are wondering what the fuss is about -- a valet parking
charge of any amount is virtually unprecedented in Phoenix, at least
until recently).

So I paid my $4, and then I saw the sign:

"Our employees work for tips"

What?
You mean I just paid your company $4 for what amounts to about 5
minutes of labor, and now you are telling me that in addition, I need
to pay your employees' wages for you too?  This is pretty nervy - I
mean, other than a percentage concession payment they are probably
making to be the parking company at that location, what other costs do
they have?  I didn't want to hurt the young guy actually doing the
parking, but for the first time in years I didn't tip the valet.  That
little sign turned, for me, an act of goodwill into a grim obligation,
extorted from me by guilt.

I bring all this up because I saw an interesting piece the other day on Marginal Revolution:

1. Two studies show little relationship between quality of waiter service and
size of tip.

2. Hotel bellboys can double the size of their tips, on average, by showing
guests how the TV and air conditioning work.

3. Tipping is less prevalent in countries where unease about inequality is
especially strong.

4. The more a culture values status and prestige, the more likely that
culture will use tipping to reward service.

5. Tips are higher in sunny weather.

6. Servers can increase their tips by giving their names to customers,
squatting next to tables, touching their customers, and giving their customers
after-dinner mints. (query: how do lap dances fit into this
equation?)

7. Drawing a smiley face on the check increases a waitress's tips by 18
percent but decreases a waiter's tips by 9 percent.

8. In one study, waitresses increased their tips by 17 percent by wearing
flowers in their hair.  In general it pays to look distinctive albeit not freaky

I have written several times that one of the perverse effects of lawsuits aimed at unsafe products is that they generally punish any company that has an open, honest internal debate on safety.  However, as I wrote here, that honest internal debate is critical to selling safe products and services.

Today, Marginal Revolution links a New Yorker article that points out the same deadly paradox:

Merck would seem to have one big thing in its favor: the company voluntarily withdrew Vioxx from the market. But while Merck executives may have hoped to persuade people that they were acting responsibly, plaintiffs' attorneys have taken the withdrawal as an admission of guilt...internal company documents show that Merck employees were debating the safety of the drug for years before the recall.

From a scientific perspective, this is hardly damning. The internal debates about the drug's safety were just that"”debates, with different scientists arguing for and against the drug....While that kind of weighing of risk and benefit may be medically rational, in the legal arena it's poison. Nothing infuriates juries like finding out that companies knew about dangers and then "balanced" them away. In fact, any kind of risk-benefit analysis, honest or not, is likely to get you in trouble with juries....Viscusi has shown that people are inclined to award heftier punitive damages against a company that had performed a risk analysis before selling a product than a company that didn't bother to. Even if the company puts a very high value on each life, the fact that it has weighed costs against benefits is, in itself, reprehensible. "We're just numbers, I feel, to them" is how a juror in the G.M. case put it. "Statistics. That's something that is wrong."...

Before a jury, then, a firm is better off being ignorant than informed.

This, from Marginal Revolution, is kind of funny for its irony value:

For years, France has fought what is sees as an American cultural invasion, powered by Hollywood movies, U.S. pop music and giant brands like Coca-Cola.  Now, it is going to great lengths to save an American cultural icon in its backyard: Disneyland

The French government has just finished helping Walt Disney Co. bail out Euro Disney SCA, the operator of two Disney theme parks outside Paris.  A state-owned bank is contributing around $500 million in investments and local concessions to save Euro Disney from bankruptcy.  This comes after 17 years during which French leaders have spent hundreds of millions of dollars and countless hours to ensure that the land of Money [ed: Monet?] could keep Mickey Mouse.  Still saddled with debt, Euro Disney is gambling that expensive new attractions and an improved tourism climate will deliver a turnaround.

I am not sure the Euro Disney site will ever work.  The main problem is that it was put in the wrong place.  The plurality of European tourists go to Spain for vacation - Spain is the Florida/California of Europe, with its warm weather and nice beaches.  Putting a theme park in northern France may seem geographically logical, on the transportation nexus between England, France, and Germany, but it makes no sense for tourism -- its in a great place for a distribution warehouse, but no one wants to take their vacation there. 

The equivalent would be putting a Disney theme park in Chicago.  Chicago is a wonderful town and sits astride the #1 transportation hub in the US, but few people want to go there on their vacations, at least not for about 9 months of the year (by the way, due to ocean currents the situation is not that comparable, but note that Euro Disney is actually NORTH of Chicago!)

Best laid plans.... I try to run a small business and economics blog and 90% of the hits I have gotten over the last 2 days have been on Tsunami before and after pictures.  OK, well, I have have been updating the original before and after post with links to people who really are blogging the tsunami and its aftermath.  Nature has some amazing before-after satellite shots, including these, which are wider angle views of the original shots I posted:

These shots are chilling, and help explain the death toll better than any single photos I have seen:

Makes me think of Atlantis.  Hat tip to the Nature site to Marginal Revolution.

For more before and after images, look here and  here and here (in this last link see the powerpoint download in the lower left).  This site has a ton of tsunami blog links, including pictures and video.  Here is a link-filled roundup (new 1/4) and an older one here, and another here.  And here is a dedicated blog.  Here is a 1/5 roundup of Indian blog posts about the tsunami and its aftermath.  And here is a local blog with news.  And here is the Amazon Red Cross donation page.

Update:  A more recent roundup as of 1/11 here.

Best laid plans.... I try to run a small business and economics blog and 90% of the hits I have gotten over the last 2 days have been on Tsunami before and after pictures.  OK, well, I have have been updating the original before and after post with links to people who really are blogging the tsunami and its aftermath.  Nature has some amazing before-after satellite shots, including these, which are wider angle views of the original shots I posted:

These shots are chilling, and help explain the death toll better than any single photos I have seen:

Makes me think of Atlantis.  Hat tip to the Nature site to Marginal Revolution.

For more before and after images, look here and  here and here (in this last link see the powerpoint download in the lower left).  This site has a ton of tsunami blog links, including pictures and video.  Here is a link-filled roundup (new 1/4) and an older one here, and another here.  And here is a dedicated blog.  Here is a 1/5 roundup of Indian blog posts about the tsunami and its aftermath.  And here is a local blog with news.  And here is the Amazon Red Cross donation page.

Update:  A more recent roundup as of 1/11 here.

When I get an odd or inappropriate Christmas gift, I usually get a good chuckle with the family and then try to figure out who to recycle it to next year (though the Chia Shrek may be a keeper).

When economists get a bad gift, they try to quantify deadweight loss to the economy.  And, according to Marginal Revolution, the number is substantial.

Update:  more here at TCS

Why Aren't There More Private Schools?  This is a conversation my dad and I have had any number of times - as he has sat on the board of a number of public and private schools / districts and I have, given frequent moves, oven shopped for schooling for my kids.

The first, perhaps most obvious answer is that there is not that large of a market, because few people can afford to pay two tuitions for their kids (i.e. public school tuition via property taxes and then a separate private school payment).  But, I think that that answer is wrong.  This country is tremendously wealthy, both on average and at the top end.  Most really good private k-12 schools are oversubscribed -- with competitive entry requirements and long waiting lists.  We have all heard stories about New York City schools where you have to practically go straight from the act of conception to the admissions office to have a chance to get the kid in.

I have my own experience with this, in many cities, but take Seattle for example.  In the east side suburbs, their are 3-5 high quality private elementary schools, and for the most part, they are all way oversubscribed.  One of them admits something like 6% of applicants.  And charges $10,000+ a year for kindergarten and more for later years.

What other industries are there where 94% of the demand for a $10,000+ product goes unmet by new entrants?  And unmet for decades, not just in a short period of mismatched capacity?  Just look at iPods - how many people jumped into the market with copycat products when they saw the popularity of this product, and Apple's inability to keep up with demand?

But what really got me thinking about this problem was when I moved back to Phoenix.  Despite having my kids in some of the best schools in every city we have lived in, the absolute best is, of all places, here in Phoenix.  How do I know it is the best?  Well, my son went to kindergarten at this Phoenix school, and then we moved to Seattle for two years.   In Seattle, we went to what was supposed to be about the best elementary school on the east side -  Gates sent some of his kids here, as did the McCaws, and many other people who could afford any place they wanted.  At the end of second grade, the school told me my son could have skipped second grade, which means he could have skipped first grade there too.  In two years, he never learned anything more than he learned in one year of kindergarten in Phoenix.

There are two other interesting things about this Phoenix-area private school, beyond just its excellence:

• It is by far the cheapest we have ever attended, less than half what we paid in Seattle and well under the average per-pupil spending in public schools
• It is for profit - not a charity or foundation.  It has no donations, government grants, endowments, etc.  It runs itself for profit, it is inexpensive, and the education is great.

The school is not perfect -- it has a strong focus on academics, without the big theater programs or art programs or photography classes you might find in a large public school, so we have to supplement that stuff outside of school.  But my point is, why aren't there more schools like this?  Why aren't people jumping in to fill this market?  This is more than of academic interest to me.  I am a big supporter of school choice, but to support choice you have to believe that private schools will be created to meet the new demand vouchers would open up.

Thus it is with great interest that I saw this post at Marginal Revolution about the barriers to starting a private school.  They link this article from the Reason foundation.  The Reason Foundation argues that a lot of micro-regulation, particularly zoning, limits private schools, especially when zoning boards are dominated by people who have an interest in protecting public schools from competition.

In the context of my Seattle story earlier, by the way, note this proposal that came out a while back to actually ban private school (and church) construction in large parts of the county that Seattle is in. 

UPDATE:

There were several responses to this along the lines of 'so what - everyone has to navigate basic permitting processes'.  That may be, but my experience is that zoning is stacked against private schools, even before you consider the proposed total ban on private school construction described in the article I linked above.  For example, in the Seattle eastside suburbs, one private school that needed to move to larger quarters was unable to find a site within a 20 mile radius where they were allowed to build a private school.  Residential zoned tracks did not want more traffic from a school, and they were not allowed to have a school with little kids in most commercial zoned tracks.  The point is that private schools face permitting hurdles that go beyond what most businesses face, and, as I mentioned earlier, most zoning boards are packed with people who have a vested interest in not allowing new private schools to be built anywhere.

I had no idea this is what they were doing, but it is insane (via Marginal Revolution):

THE queue of angry motorists stretches for miles. Baghdad's petrol stations are drier this month than they have been since just after the American-led invasion of Iraq in 2003. Some drivers wait for as much as 24 hours, sleeping in their vehicles. When told that there is no petrol, some have lost their tempers and started shooting. How, asks a furious driver, can an oil-producing country run out of fuel?

Ask an insurgent, and he will assure you that the American army steals the oil for its tanks. Others might blame the lack of capacity at Iraqi oil refineries or the fact that the insurgents keep blowing up the pipelines. But the most important reason is that the government has fixed the price of petrol at approximately zero"”barely one American cent a litre.

I wonder if the problem in the electic power sector is similar.  See the post for the whole article, from the Economist.

I have written a number of times that our health care system will never work right until the person making the choices about health care is the same one bearing the costs of those choices.  Today, individuals and doctors make choices but insurance and employers pay the cost.  As a result, neither individuals nor doctors are very price sensitive, and have every incentive to sign up for every expensive diagnostic imaginable, particularly given whats going on in malpractice law.   Insurers who pay the bills are trying to control more of the decision making, but this just pisses everyone off.  Unfortunately, many want to fix this by putting both selection and payment in the governments hands - ughh.  My preference is of course to find a way to let individuals continue to make choices for themselves, but bear more of the cost.  MSA's are one such approach, I am sure there are others.

Marginal Revolution has an interesting post pointing out that the market for college textbooks has a similar disconnect -- professors choose the book but students pay for them, resulting in rapidly rising textbook costs.

When was the last time you paid attention to the cost of any medical procedure (not your copay or share - but the actual cost)?  When was the last time you balanced whether to have an incremental medical procedure, such as an extra test, based on cost vs. benefits?  If you are like most Americans, the answer is "not lately" because our health care system does not give the end consumer any of the normal incentives to "shop" that they would when, say, buying a TV.

Marginal Revolution has a great post on laser eye surgery, probably one of the most popular medical procedures not covered by traditional insurance (I would normally guess "most" popular surgery, but having lived in Dallas and Scottsdale, I am all-too-aware of the popularity of breast implant surgery as well).  Guess what - it is one of the few medical procedures with high satisfaction and falling prices.

I had some links on Social Security reform here. 

One thing I forgot to mention -- No matter what we decide to do, please, please do not let the government invest social security funds in private equities.  I am all for giving individuals control of their social security funds and allowing these individuals to make their own investment choices.  But, allowing the government to invest in equities will lead to all sorts of problems:

1. The most obvious is creeping socialism and regulation, particularly of companies that are not well-loved by the intelligentsia.  Mad at Dick Cheney?  Pass a law that the trust fund can't invest in Haliburton.  Don't like Dan Rather?  Pass a law that the trust fund can't invest in CBS.  You get the idea.  The mere threat of disowning the company's equity from the trust fund investments portfolio would force companies to kowtow to the populist notion of the moment.
2. If you worry about private individuals manipulating the stock market, just wait until the government has the incentive to get in the game.  The government has all kinds of ways, from small (control of economics data) to large (interest rates and SEC regulations) to manipulate the market for short term gain. 

Marginal Revolution also has an interesting post on whether the historic equity premium would still exist if the government invested massively in equities.

One of the less remarked on casualties of 9/11 and the war on terror is any progress on a number of issues that GWB looked like he might tackle (e.g. social security and tort reform).    While the war is far from over, and I have had mixed feelings about some part of it (e.g. here), the infrastructure seems to be in place to fight the war while also tackling some new domestic issues.

Jane Galt, over at Asymmetrical Information, has a nice post about new momentum in the Bush administration to tackle social security.  It is unlikely that Bush could draw any more hatred than he already has, so he might be the right person to finally grab the third rail.

UPDATE #1

Marginal Revolution tackles social security and links to other good sources.

Marginal Revolution cites a James Surowiecki article on branding, arguing that increased information flow, particularly over the Internet, is reducing the power of brands.  This seems right to me.  Brands exist and command premiums for many reasons.  One role of brands is that they serve to reduce risk - without any other information about a product, many people would likely assume an electronics product from Sony to be more trustworthy than a no-name brand with the same features, and might be willing to pay a premium for the Sony product. However, with all the review information on the Internet, people may be more comfortable buying the off-brand, if it has good reviews, and saving the Sony premium.

Of course, brands serve some communication roles that are likely not threatened by the Internet.  For example, high end brands like Prada or Gucci have power because they allow the owner to communicate things about themselves to others.

I would argue that, even with Internet reviews, brands will continue to be powerful in the service sector.  In fact, with the growing complexity of some service offerings and the increasingly high standards of consumers, they may be more important.  Why?  Consistent product quality is much easier than consistent service quality.  A no-name product maker can get high quality product all over the world from one single factory -- all they have to do is to get that one location right.  This is much easier to do than with McDonalds, where there are thousands of locations, or even in our business, where we have hundreds of locations.  Service quality happens in real time, often in many dispersed locations miles away from supervision and the management staff. 

Also, in many cases, service failures are more critical and are harder to correct than product failures.  If my printer does not work, I get mad and box it up and return it for a new one.  But what happens if FedEx fails me on a critical shipment?  Or worse, what if United Airlines fails on me mid-flight? 

An interesting way to prove this is to go to a site like epinions.  Service reviews are generally much more variable than product reviews.  Compare Fedex, who's review is a mix of the lowest and highest scores, with this Apple Ipod, where reviews are much more consistent.  Even when products get a mix of low and high scores, often the low scores are driven by service and support and not the product itself.  In positioning their brand today, does Dell emphasize the product or their service around the product?

One of the government habits that consistently irritate me is the public funding of stadiums.  Never has so much public money been transferred for so little economic benefit to so many billionaires who don't need it.  For example, Seattle ponied up hundreds of millions of dollars for a stadium for Paul Allen, one of the five richest people in the world (and who probably has spent more than the cost of the stadium searching for aliens). 

Credit the owners of sports teams, I guess, for they have learned to use gun-to-the-head threats of moving the team out of town to get local taxpayers to vote them new stadiums.  I mean, for god sakes, we are building a stadium here in Arizona for the hapless Cardinals (and here is our new Glendale Arena, constructed by taxpayers just in time for the NHL strike - but we get roller derby!) Some thoughts:

• Public funding is totally unnecessary.  Many private owners have built their own stadiums, either through private capital or Personal Seat Licenses.  In fact, with naming rights and luxury boxes, there are more revenue streams than ever to pay for these stadiums.
• Its all about blackmail. If the mayors of the 50 largest cities in the country got together tomorrow and made a no-public-stadium funding pledge, then owners would be forced to build their own stadiums.  Congrats to Los Angeles for resisting the the NFL's outstretched hand.  What the owners have created is a classic prisoners dilemma for the cities (see update#1 below)
• Sports teams bring little net economic benefit.  No disinterested economist has found any justification for the premise that they improve the local economy - instead, they just shift benefit around.
• Teams take better care of stadiums they actually own.  Private stadiums are steadily improved, year-in and year-out.  Public stadiums (I am thinking of Veterans Stadium and the Astrodome in particular) are used up and thrown away.
• Teams always underestimate the tax burden of the stadium and the implied subsidy.  Often you see them arguing that the stadium will be funded only out of the revenues from the stadium itself -- well if that's the case, then why does the public need to be involved at all?

Here is a Cato paper debunking the economics of the proposed new DC baseball stadium.  Matt Welch has a great article on this topic in Reason here.  Hit and Run has an update today on the Angels' jacking both Anaheim and Tempe at the same time.  Makes Me Ralph (lol) has a series of posts here, just keep scrolling.  For even more, see the website Field of Schemes and the related book Field of Schemes : How the Great Stadium Swindle Turns Public Money into Private Profit.

UPDATE#1

Marginal Revolution makes the counter-case for public funding, citing a study by two economists who try to put a value on the intangibles of having a team in town.

I have to disagree for three reasons:

• I am against taxing for such value.  If everyone finds value, find a free-market approach to get the same thing.  Have a telethon or something.  And by the way, this value is fleeting and much more limited than owners let on.  One good example - has anyone south of Chicago noticed that the NHL season has not started?
• This is a very slippery slope argument.  How many times have you heard politicians say something like "Everyone I know would pay a dollar a week to get this, its not that much".  Yeah, it sounds great, but a dollar a week per person in the US gets us a new $15 billion a year program or tax. 
• Most importantly, though, is that private enterprises don't NEED the public funding to make stadiums work.  If the product works, like the NFL, they don't need public funding.  And if the product isn't working, like the NHL, then no amount of public funding, like our new arena here, will save it.  Team owners get public funding only because they can, not because they have to.  And they can because of the threat of moving the team out of town.  This is a classic prisoner's dilemma.  If all major cities collude and refuse to fund public stadiums (like the two prisoners agreeing not to cooperate with police) then everyone except the owners is better off, because the NFL will still exist but without public subsidies. 

UPDATE #2

A nice post with lots of good links from Houston's Clear Thinkers.  A nice blog based in my old hometown and birthplace.

One of my favorite blogs, Marginal Revolution, pointed to a digital beauty contest here.  The imagery is pretty amazing - this, for example, can hardly be discerned from a photo of a real person.

This imagery reminded me of the old Turing test.  I don't hear much about Turing tests nowadays, which is odd, because we are so close to having systems that will pass it.  (Jerry Pournelle, in the old Chaos Manner columns in Byte, use to write a lot about Turing tests).    In a Turing test, a person is connected in some blind manner to another entity, and they have to determine if it is a machine or a live human.  Having a computer pass a Turing test means that a human, in interacting with it blindly, could not discern that it was not another human.  In the same way, one could propose a Turing test for digital imagery like the one above, ie is it Live or is it Memorex?

By the way, no one asked me, but in my mind the reigning beauty queen of digital imagery is still Aki from the otherwise forgettable computer-animated movie Final Fantasy. 

For several years, I worked for a major supplier to the commercial airline industry.  Eventually, I had to leave, because the entire industry just drove me nuts - some of the worst structural problems in any industry I have seen combined with an incredible unwillingness to do anything about them.  Marginal Revolution reminds me about the airline industry with this post.

Through the 1990s, the average weight of Americans increased by 10 pounds, according to the Centers for Disease Control and Prevention. The extra weight caused airlines to spend $275 million to burn 350 million more gallons of fuel in 2000 just to carry the additional weight of Americans, the federal agency estimated in a recent issue of the American Journal of Preventive Medicine (fee req'd).

As entertaining as this is, the industry is still totally unwilling to address the real problems in the industry.

Continue reading ‘Airline Industry and Inventory Pooling’ »

Good News via Robert Samuelson and Marginal Revolution.

While the number of people living under the poverty line have crept up, there is actually good news under the surface that has gone unreported (good news - unreported - your kidding me!)

Compared with 1990, there were actually 700,000 fewer non-Hispanic whites in poverty last year. Among blacks, the drop since 1990 is between 700,000 and 1 million, and the poverty rate -- though still appallingly high -- has declined from 32 percent to 24 percent. (The poverty rate measures the percentage of a group that is in poverty.) Meanwhile, the number of poor Hispanics is up by 3 million since 1990. The health insurance story is similar. Last year 13 million Hispanics lacked insurance. They're 60 percent of the rise since 1990.

To state the obvious: Not all Hispanics are immigrants, and not all immigrants are Hispanic. Still, there's no mystery here. If more poor and unskilled people enter the country -- and have children -- there will be more poverty. (The Census figures cover both legal and illegal immigrants; estimates of illegal immigrants range upward from 7 million.) About 33 percent of all immigrants (not just Hispanics) lack a high school education. The rate among native-born Americans is about 13 percent.

So, much of the increase in the people under the poverty line can be traced to immigration of low-skilled Hispanics trying to make a better life for themselves in this country. Of course, when these people first arrive, with no English, often lacking a high school education, and initially, no permanent job, they are going to be below the poverty line. Over time, many will find the American dream and move up (easy proof: if that were not so, why are so many trying so hard to immigrate here?) If we had been collecting the statistics carefully in the early 20th century, we would have seen a similar effect with the immigration of low-skilled Irish, Italian, German, etc. workers to this country. Surely, during this burst of immigration, it would have appeared that the poverty rates were going up, but not one would in retrospect argue anything but that everyone was getting steadily wealthier through this period.