Friday, December 31, 2010

How to live rent-free the rest of your life. OR, Five Big Mistakes Criminals Make During Police Interrogations.

 "...the technique of violence was first developed in 2 million B.C. by the australopithecines and tried by forthwith primates, who had no brains to speak of, but nonetheless invented the tomahawk and used it on each other. This practice led to the enlargement of the brain, another useful weapon. Yes, murder was invented even before man learned to think. Now, of course, man has become known as the 'thinking animal.'"
- spoken during the credits of Death Race 2000 (1975).


One of the reasons I love reality television is that it can make you feel like an expert in fields you have no personal knowledge or training in whatsoever. From watching many episodes of A&E's crime show, "The First 48" I feel pseudo-enlightened about the workings of the criminal justice system, and I'm here to share that almost-wisdom with you.

Monday, December 6, 2010

The printing presses have broken down; how will we inflate the currency now?

This just in. A recent printing run, in hundred dollar bills, has substantial defects that make many of the notes unusable. How big of a printing run? Just $110 billion worth. From CNBC:
At the time, officials announced the new bills would incorporate sophisticated high-tech security features, including a 3-D security strip and a color-shifting image of a bell designed to foil counterfeiters.
But the production process is so complex, it has instead foiled the government printers tasked with producing billions of the new notes.
An official familiar with the situation told CNBC that 1.1 billion of the new bills have been printed, but they are unusable because of a creasing problem in which paper folds over during production, revealing a blank unlinked portion of the bill face.
A second person familiar with the situation said that at the height of the problem, as many as 30 percent of the bills rolling off the printing press included the flaw, leading to the production shut down.
The total face value of the unusable bills, $110 billion, represents more than ten percent of the entire supply of US currency on the planet, which a government source said is $930 billion in banknotes. For now, the unusable bills are stored in the vaults in "cash packs" of four bundles of 4,000 each, with each pack containing 16,000 bills.
Officials don’t know exactly what caused the problem. "There is something drastically wrong here," a person familiar with the situation said. "The frustration level is off the charts."
Because officials don’t know how many of the 1.1 billion bills include the flaw, they have to hold them in the massive vaults until they are able to develop a mechanized system that can sort out the usable bills from the defects.
Sorting such a huge quantity of bills by hand, the officials estimate, could take between 20 and 30 years. Using a mechanized system, they think they could sort the massive pile of bills, each of which features the familiar image of Benjamin Franklin on the face, in about one year. [Emphasis added.]
The total cost of producing the bad bills was $120 million, excluding whatever it will take to sort the good from the bad. The unusable bills will have to be burned; frankly, it might be cheaper to just burn the entire print run, compared with sorting over 1.1 billion items of currency.

Apparently, during this print run of 1.1 billion, no one checked at the beginning/middle for quality control. A private firm that operated like this would be out of business. With almost a third of the prints unusable, I can't imagine many repeat customers... other than the federal government.

Kidding aside, this poses some tangible problems for the Federal Reserve, whose strategy has depended on getting currency flowing in the economy. With at least a year's delay before this money will actually be reaching consumers' hands, it complicates monetary policy. Facing an already Herculean task of managing market perceptions and signals, having this additional lag between action and effect could make the results of Fed decisions even more difficult to anticipate.

Tuesday, November 16, 2010

"Coupon Lady Money Saving Madness" is madness indeed.

So, I found a video on the internet which should have bargain-hunters, cheapskates, and economists (to be redundant) foaming at the mouth. By using coupons and mail-in rebates, a woman was able to cut her grocery shopping bill down from over $150.00 to just $9.43. Find the video here. So why isn't everyone saving 97% on their shopping, and putting the grocery stores out of business?

The reason most people don't do this (and never will) is because it's inefficient. Yes, it's very impressive to see someone save ~$145 off their groceries, but the real question is how much time did it take, in coupon saving, organization, and so on, in order to accomplish that? The woman in the video said she collects coupons, sends in rebates, and plans all her shopping in advance... If it took her 14 hours, she effectively earned $10/hour for her coupon-clipping work. However, I'm guessing it took longer than that, and her "wage" was actually much lower.

For people who have jobs, it'd be more effective to spend those extra hours working than clipping coupons. If you don't have a job or are paid a very low wage, coupon clipping could make sense. However, there are a variety of other ways to make money on the internet - filling out surveys, using ShortTask, or advertising on Twitter - to name just a few. For an hourly rate, you can almost certainly do better than coupons.

If you're a college student, spend that time studying instead -- you're going to school to make more money later, so focus on grades, not penny-ante coupons (unless you're studying english or sociology, in which case I suggest dropping out and coupon-clipping full time, because it'll be more profitable).

There's an efficient level of coupon saving, which depends on your income and how you value your time. For highly paid professionals, the efficient amount of coupons might be zero, while some others may gain a small benefit from spending their time that way. Taking coupons to an obsessive level, as this woman appears to have, is just wasting time for yourself and everyone in line behind you.

Friday, November 5, 2010

Scary statistics for the medical economics debate.

[The shaded box is around my response.] Survey Source.
Stumbling around the internet awhile back, I came across this medical ethics questionnaire. In addition to providing a haven for procrastinators, this survey also shows the distribution of answers that others have made. Most of the questions were fairly ho-hum with predictable splits of opinion. However, the skew of answers to an economics-related question startled me.

When asked "what level of involvement should the government have in setting prescription prices?" a whopping 56% of the responders said "Create Price Ceilings" and 8% more thought the government should set all prescription prices. Apparently, 64% of those polled trust bureaucratic regulators more than the market when it comes to pricing medicine.


I can appreciate the sentiment behind price ceilings on prescription medication: it's undeniable that many people can't afford treatment they need to stay healthy. However, price ceilings are just a bad idea. 

Source.
For those unfamiliar, a brief rundown on the economics of price ceilings. When the government mandates a below-market price for a good, it creates several negative side-effects. Most immediately, amount supplied decreases. Faced with a lower price, manufacturers will cut back on production. In context of prescription medications, this means less drugs being developed, tested and sold to the public. Ailments that could potentially be treated will continue to harm people. Slightly more subtle is dead-weight loss, which represents market transactions which could have occurred, but did not. In other words, some people could have benefited by paying the higher price to get the drug, but the price ceiling prevented them from doing so. As a result, both consumers and producers lose out, although the outcome for the person seeking medication is perhaps most tragic.

High costs for prescription medications are definitely a problem; health care costs in general have been rising much faster than the general rate of inflation, putting important treatments out of reach for many people. High drug prices have also helped drive up health insurance costs, presenting a large drag on businesses.

Instead of an artificial cap on prescription prices, it would be more productive to look at the supply-side factors which keep those costs high. The lengthy FDA approval process alone costs "about $800 million per approved drug" and creates instant pressure for the company to charge high prices and recoup their investment upon release. Taking aim at these restrictions would be better than capping prices and ultimately smothering the development of life-saving medications.

Monday, October 25, 2010

New wood-based substitute for plastic shows that the greatest resource is still human ingenuity.

Resource exhaustion has been a common theme in public dialogue, from the days of Thomas Malthus up to today. The National Energy Policy Institute recently published a documentary entitled "The End of Suburbia: Oil Depletion and the End of the American Dream." I didn't watch it, but a staff writer for the California Chronicle describes its general "claim that the suburbs wouldn't exist without cheap oil." Enjoy your SUVs while you can, I guess.

In this film, and similar pieces on 'a coming age of energy scarcity', the unspoken assumption is that oil resources are fixed so they must eventually run out. A seemingly intuitive claim, but perhaps a false one. Some economists (most famously the late Julian Simon) have argued that natural resources are functionally infinite. As a resource becomes more scarce the price rises, causing people to search for substitutes. To quote Simon himself:
Ivory used for billiard balls threatened to run out late in the 19th century. As a result of a prize offered for a replacement material, celluloid was developed, and that discovery led directly to the astonishing variety of plastics that now gives us a cornucopia of products (including billiard balls) at prices so low as to boggle the 19th century mind.

Thanks to human ingenuity and technological advance, previously useless materials can become resources for the future. Now, due to concerns about the environmental effects of plastic and the future price of oil, the next stage in this process has arrived with Arboform.

Discovered in the last two years by German researchers, this plastic substitute uses lignin (a component of wood usually discarded during paper production) combined with flax and other fibers to form a mold-able substance with similar properties to plastic. Some Arboform products - golf tees, furniture, baby toys, and women's designer shoes - have already been introduced. According to one of the scientists, "By just using lignin, we could technically replace a quarter of the world's plastic production." 

Obviously, oil is still relatively cheap, and plastics are still the most economical choice for most products -- or I'd be typing this on an Arboform keyboard. However, if in the future oil were more scarce, the paper industry is already producing 130 million pounds of lignin per year; a ready substitute for petroleum-based plastics. Similar substitutes are being developed in the fields of transportation and power production, and will become more profitable and widely used if oil is ever depleted. Given the availability of substitutes informed by instant feedback from prices, there's no reason to expect the "suburban lifestyle" is in much danger from oil scarcity.

As long as market prices operate, running out of resources is one danger we can stop fearing. Arboform is just one example of how innovators can turn today's problem into tomorrow's opportunity.

Sunday, October 10, 2010

Fermi Paradox makes discovery of new habitable planet a good news/bad news situation.

In the latest science news, a planet has been discovered which could potentially support life. A neighborly 20.3 light years away, Gliese 581g has liquid water and enough gravity to maintain an atmosphere -- making it a fairly good imitation of earth.

Great news, right? Homo sapiens now has the potential to spread across the galaxy, leaving the barren rock of Terra behind as we forge into the great empty unknown. Unfortunately, the actual "getting there" part is still a ways off. Even worse, this discovery may not bode well for the future of humanity.

Tuesday, September 28, 2010

Laws against 'texting and driving' haven't made us any safer.

We've all seen it: alarming, dangerous driving behavior perpetrated while under the influence of cell phones. In response to this threat, many locales (including my home state of Washington) enacted bans on texting-while-driving. Has the menace of distracted drivers been curbed?

According to a USA Today article, traffic accidents have actually gone up in areas where anti-phone laws were enacted. To quote the most interesting part:
"Texting bans haven't reduced crashes at all," says Adrian Lund, president of the Insurance Institute for Highway Safety, whose research arm studied the effectiveness of the laws.

Thursday, September 23, 2010

Teamster wisdom on political economy

If God allowed everybody to die in bed, the government would regulate that we'd have to sleep standing up."

-Alex (on History Channel show Ice Road Truckers, Season 2 Episode 4).

------------------------------------------

For context: Alex is driving a big-rig and hauling a 45-ton piece of mining equipment across the arctic ocean. The road he's driving on consists of nothing but frozen ice, and there's a blizzard rapidly approaching.

In addition to steady nerves and a dry sense of humor, the man has an intuition for political economy. I'll just let the quote above stand on its own. Thoughts?

Wednesday, September 15, 2010

The reason why 99.8% of all 'get rich instantly on Twitter' claims are hoaxes.

I purposely exclude 0.2% of 'make-money-off-Twitter' plans from the "hoax" category, because I'm sure some very smart person out there will go and prove my generalization wrong. Until that blue moon arrives, I'll explain why all the Tweet-gurus offering to make you big bucks for doing nothing are just yanking your chain.

Not familiar with the "instant money on Twitter" phenomenon? In my endless quest for self-publicity, I've stumbled across a lot of statuses like
"Making $500 dollars per week from home off Twitter while on autopilot. Come see how!!!!" 
or similar. Sounds appealing, but is it too good to be true? Yes, yes it is. Some economic thinking can reveal why.

1)  There are no barriers to entry on Twitter. All it takes is an e-mail address and lack of respect for grammar (just kidding) and you can start a Twitter account. Economists would describe this as an open market. Entry and exit are free, and there are are large number of Twitter users - over 75 million now - but that number could easily grow (or decline) in the future.

Tuesday, September 14, 2010

Bedbugs. Yet another reason to hate Rachel Carson (aside from 800 million dead of malaria).

The history of malaria is interesting, in a macabre sort of way. A hardy parasite spread by insects, the cause of malaria was unknown for most of human history. The name we know today comes from the French phrase for "bad air," reflecting the common observation that malaria cases peaked around swampy areas. Their solution in Algeria - drain the swamps - was effective, but costly.

Malaria, the organism, is extremely difficult to kill. However its crucial vector, the mosquito, is vulnerable when combated with the correct chemical tool. In 1939, Paul Mueller discovered just that: DDT. This insecticide is cheap, effective, and quite safe for humans. Some claim it causes cancer, but their evidence has since been disputed. By comparison the malaria problem is undeniable and catastrophic, with millions dying on a yearly basis. As said by Wenceslaus Kilama, the Chairman of Malaria Foundation International "this is like loading up seven Boeing 747 airliners each day, then deliberately crashing them into Mt. Kilimanjaro."The imagery is hard to overlook.

The history of bed bugs is less interesting, but in a much more annoying way. Like malaria, bed bugs have plagued humanity since the dawn of time. They cause irritation, swelling, and definitely a terrible night's sleep. We're still combating this invasive parasite as well -- a national Pest Convention is meeting to discuss the issue. Exterminators have been caught by surprise as bed bug infestations have sprung up in the last several decades across the country, and surprisingly little is known about them.

What do malaria and bed bugs have in common? They've both been increasing since DDT usage was halted thanks to Rachel Carson's book, Silent Spring. Some people claim that bed bugs' modern upsurge is just due to increased travel. I think the facts say otherwise, given the almost total eradication of bed bug cases during the heyday of DDT's popularity. That issue aside, there's no disputing the deadly impact of malaria -- a plague that can easily be prevented by regular spraying of DDT.

The public outcry prior to the DDT ban is a classic example of action taken without full understanding of the consequences. Enough has been written on this already, so I won't belabor the point. Ultimately, Rachel Carson isn't the only one to blame; fault rests with the politicians and lobbyists who listened to her before all the evidence was in. Now, the public at large is feeling the consequences from decisions made forty years ago. With bed bugs infesting the Big Apple, maybe it will get people itching for change in our national pest control priorities.

Monday, September 13, 2010

Statistical Fallacy #002: Confusing Correlation with Causation. Does a strong handshake really make you live longer?

Even highly educated and intelligent medical researchers aren't immune to statistical errors. A recent study in the British Medical Journal referenced 33 other studies on personal mobility and life expectancy, and compiled their results. According to Reuters, 
They found simple measures of physical capability like shaking hands, walking, getting up from a chair and balancing on one leg were related to life span, even after accounting for age, sex and body size. 
While the phrase "accounting for age, sex and body size" makes this process sound very objective and scientific, there are obviously a lot of other factors that can play a role in life expectancy. Personal differences, such as leading a more active lifestyle, could cause someone to have both more hand strength and also better health in general which contributes to their longevity.


While statistics saying "the death rate over the period of the studies for people with weak handshakes was 67 percent higher than for people with a firm grip" sound very dramatic, it's hard to say if that relationship is reverse-causal; in other words, having a weak grip may signal your lifespan will be short, but will improving your grip really make you live longer? Probably not, which suggests it's far more likely that a common variable - for example, sitting on the coach all day - causes both weak hands and a lower life expectancy.


Common sense says that working with a stress ball or doing forearm exercises to develop a crushing handshake probably won't substantially reduce your chance of death from heart disease, cancer, stroke, or the other leading causes of death for adult Americans. However, this is exactly the impression given by the Reuters article title "Want to live longer? Get a grip!" Heavens forbid someone took this seriously and developed gorilla-like forearms only to find out their fitness investment had been in vain.

Friday, September 10, 2010

Private funding for prison rehabilitation -- latest British innovation.

Say what you will about eccentricities in the United Kingdom's political structure, they aren't afraid to try some new things. Particularly, in the area of penal reform.The U.K. prison system is struggling with extremely high recidivism rates; according to the BBC "60% of criminals who serve short sentences reoffend within a year of leaving prison."

So what's the plan? Much like purchasing a bond, investors can put money into the rehabilitation program (currently limited to male inmates with sentences less than one year). If reoffenses among the subject group drop by a specified amount, the investors receive dividend payments.

Quoting the BBC:

Saturday, September 4, 2010

Attention Undergrads -- you're still paying for all those classes you skipped.

Graph made by Mark Kantrowitz of FinAid.org
We've reached a momentous, but little celebrated moment in financial history. Credit card debt has been surpassed by student loans (including both federal and private). Let's give a big 800 billion cheers for education!

You can see this trend in the graph to the left. Notice how in 2008, credit card debt peaked and has now declined, while student loan debt has gone up at a steadily increasing rate. The modern family unit (mom, dad, and the federal government) have been paying a larger and larger bill, and for those who can't afford it, the slack has been taken up by private lenders. Unlike credit card bills, which fluctuate with the larger economic climate, student loan debt just kept going up and up.

Education is always a good investment, right? With costs of tuition rising by 8% per year, one might expect students would soak up every valuable minute of classroom instruction. That hasn't been the case. While tuition rates have gone up steadily, student attendance has gone down. This trend has been especially strong in recent years. According to Blair Hedges, a biology teacher,

Monday, August 30, 2010

The 'Landes Law' on imperialism and its domestic corollary.

Historian David S. Landes
In his New York Times bestseller The Wealth and Poverty of Nations: Why Some are so Rich and Some so Poor, David Landes claims
"a law of social and political relationships, namely, that three factors cannot coexist: (1) a marked disparity of power; (2) private access to the instruments of power; and (3) equality of groups or nations." [63]

Penned in 1998, this writing still sheds some interesting light on our recent foreign policy adventures in Afghanistan and Iraq. Conspiracy theories and "blood for oil" slogans aside, private companies did have a large involvement in immediate invasions as well the as follow-up occupations. Along with industry lobbying and corporate connections in the White House, condition (2) seems to have been justified. The marked disparity of power and inequality between groups hardly even need discussion.


On face, the principle at work here seems accurate. As Landes argues, "Where one group is strong enough to push another around and stands to gain by it, it will do so." However, this incentive isn't limited to foreign policy. I'll propose the following corollary to Landes Law:

Welfare State Corollary: three factors cannot coexist: (1) a marked disparity of specialized interests; (2) private access to the instruments of government; and (3) national government running a balanced budget.

In other words, when an interest group (e.g. farmers, doctors, bus-drivers, etc.) has enough political influence, it will push others around through the legislative process, as long as it stands to gain by doing so. When a multitude of such interests exist, satisfying all their demands will flout any efforts at a balanced budget (unless taxes are incredibly high, and there's an interest group against that too).

While Landes' Law poses a serious challenge to efforts at global peace, the Welfare State Corollary has implications on our current political system's ability to respond to the current financial crisis. I'll leave it to the reader to decide on the accuracy of this analogy.

Tuesday, August 24, 2010

Statistical Fallacy #317: Holding Constant that which Changes. See: 'median household income'.

Alternately, 
"Torture numbers, and they'll confess to anything."*
  Our inquisitionist of the day hails from Bloomberg. In an article today, Venessa Wong wrote the following:
While many Americans dream of a windfall that will take care of their financial needs for life, the sobering reality is most of us are not getting far: U.S. Census Bureau data show median household income barely changed in the 10 years following 1998 as the price of housing and other goods increased. In consumer price index-adjusted dollars, the median household income in 2008 was $50,303, compared with $51,295 in 1998. [Emphasis added.]
 What's wrong with the above? In a fairly common maneuver to paint a doom-and-gloom image of the times, average household size is treated as a constant to compare incomes over time. That just isn't the case.

The problem with using 'median household income' as a measuring stick is that it's actually a factor of two other variables: combined income, and number of people per household. The latter aspect is conveniently overlooked by pessimists, who are looking to demonstrate a negative trend over time. When everything is considered, a different picture emerges.

Sunday, August 22, 2010

Busting the 'egg scandal' wide open.

These eggs were not broken to make an omelet.
Recently, Wright County Egg and Hillandale Farms, both located in lovable Iowa, have come under fire for "poisoning" the public with salmonella from their eggs. An egg source for 13 different retail brands, this news has rocked supermarkets nationally, and an even wider recall might be in the works.

"The history of ignoring the law makes the sickening of 1,300 and the forced recall of 550 million eggs shockingly understandable," says William D. Marler, a Seattle attorney representing someone who became ill from a 'dangerous' egg salad. (They're all dangerous in my opinion, especially on a hot day).

The numbers above got me wondering. What proportion of the recalled eggs were contaminated with salmonella? If 550,000,000 eggs resulted in 1,300 people becoming sick, the chance of any one egg making someone ill is .000236% . Eat a whole dozen, and your odds skyrocket to .0028%, a roughly one-in-35,000 chance of becoming ill from a tainted egg.

Surely, if you're one of those 1,300 people, hearing the numbers won't cure your stomach-ache and flu symptoms, but it should be reassuring for the other 99.99% of the population. Salmonella can be dangerous for the very young and very old, but many cases are so mild they aren't even reported.

Thursday, August 19, 2010

Don't recycle your green glass, plastic or paper. That's right, trash it for the planet.

Recently in the news, the Mayor of New York expanded the state's recycling program to encompass more plastics; supposedly, this will divert 8,000 tons of plastic from landfills each year. My question is, what's so bad about throwing garbage in the trash?

With all our trash in the Dakotas, as it should be.
Maybe this makes sense to New Yorkers -- their state did birth the "trash crisis" myth which has followed American politics home like a stinky dog. However, recycling has remained a national craze, even though landfills are generally cheap and available across the country. Fun fact: If all American trash were brought to one huge landfill, and "you keep filling up this landfill for 100 years, and if you assume that during this time the populations of the United States doubles, then the landfill will cover about 160,000 acres, or 250 or so square miles, with trash 400 feet deep." Source. That may seem like a lot, so to put it in perspective, see the attached diagram which compares the 3,717,813 square miles of the lower 48 to this hypothetical landfill. Doesn't look so big now, does it?

Recycling colored glass, paper and plastic isn't just unnecessary; it's also inefficient. Let's count the ways:

Saturday, August 14, 2010

Money Melts the Pounds Away -- an in-depth look at The Biggest Loser outcomes.

No, this is not veiled commentary on my social life.
Obesity is a growing issue in the industrialized world generally and the United States in particular. The science behind obesity is still developing, but the popular culture response has already begun. Reality television, which has previously attempted to resolve our lovelessness, joblessness, and lack of fashion has now begun to confront the ‘American lifestyle.’ 

Television network NBC’s hit reality series “The Biggest Loser” takes a group of overweight individuals and sequesters them in a large housing and gym facility. There, under the oversight of expert personal trainers and medical personnel, they attempt to lose weight as quickly as possible. Taking place within a competitive team setting, at the end of each week the people who lost the least weight risk being eliminated. At stake is $250,000 cash for the winning player and a $100,000 prize for the eliminated player losing the most weight by the finale.

The Biggest Loser's game-show world bears only loose relation to the reality of an average person looking to drop a few pounds. However, its dramatic format and inspiring message have proved a global success, with the creation of Biggest Loser UK, Biggest Loser Australia, and Biggest Winner Arab (to name a few). The American version of the show has produced nine seasons since 2004, with a tenth being filmed as of this writing. 
 
With each contestant’s weight loss announced weekly, this television series provides a wealth of data on weight loss under ideal and controlled conditions. With 6 to 8 daily hours of exercise, a rigidly structured diet organized by top-rate personal trainers along with a strong monetary incentive, participants on The Biggest Loser have every advantage in losing large amounts of weight. Some drop over twenty pounds, or over 5% of their body mass, in a single week. The vast majority go on to change their lives by adopting healthier eating habits and frequent exercise. These results demonstrate weight loss at the absolute limit of human capacity. 
 
While every participant on The Biggest Loser puts in a monumental effort to lose weight, there can only be one winner. Contestants experience different outcomes in weight loss in spite of a generally high standard of effort. There have been many debates in the bio-medical field on whether obesity is caused by genetics, culture, age, or something else entirely, and a consensus has yet to emerge. With its wide demographic variety, The Biggest Loser provides an opportunity to test how these differences impact optimal-scenario weight loss. 

Sunday, August 8, 2010

The case for a private military -- let the market take a shot.

At the end of a previous blog post, I speculated on the possibility of an all-private military. The idea: instead of having the DOD do the work of recruiting, training, and then deploying our military personnel, the federal government could just handle the top-level strategy then hire out for troops to implement it. Unconventional? Yes. Effective? Possibly.

Currently, the U.S. army is staffed on an all-volunteer basis. People have to willingly choose to put their life on the line. That system just isn't working -- the military is facing a serious recruitment shortage. When you look at the numbers, it's obvious why:

Saturday, August 7, 2010

Why won't the U.S.P.S. just go out of business? Oh wait, they're not allowed to.

Ah, the Postal Service. Famous for friendly service, reasonable fees, and murderous rampages. In spite of birthing the saying "going postal" the USPS has still taken the coveted "most trusted government agency" for the last five years (probably because you have to give them your things before they break and steal them, unlike most other federal agencies). What I wonder is, if everyone trusts them so much, why can't they turn a profit? Let's find out.

Sunday, August 1, 2010

Is Hoarding a disease, or just un-economic? Some advice for the cluttered.

Who doesn't need 70,000 empty beer cans?
People with their finger on the pulse of reality TV (like myself) are shocked and disgusted by the spate of shows surrounding the issue of "hoarding." For the unexposed: the premise of such a show is that people with a serious clutter problem ("hoarders") ask for help from the reality television deities to clean their places. Then, the audience gets to be amused and disgusted as the hoarder whines, moans, and otherwise impedes the cleaning crew from taking out the junk. Apparently it's a successful formula, because several different networks are now doing "Hoarder" themed shows.

Economics does a lot of theorizing about consumption, and generally the assumption is that more = better. Presumably, a person will only buy something if it makes them happier or brings them some sort of utility. TV about hoarders is a case study in diminishing returns from possessions. In other words: the first 10 antique lamps and teddy bears were wonderful, but after there are 500 and you're sleeping on a single chair while living in fear of death by trash-alanche, then more stuff has become a dis-utility.

Thursday, July 29, 2010

Retrospective on ShortTask vs. Predictify. Only the strong survive!

Internet business bears some resemblance to the law of the jungle, or perhaps Lord of the Flies -- the strong survive and eat the tattered remains of the weak (OK, so maybe I only read the beginning and the end). As a case study, let's compare ShortTask, which is still in business, with Predictify, a website that has closed its doors. Along the way, there are some lessons for other online entrepreneurs on how to avoid pitfalls of the past.

Both ShortTask and Predictify harnessed the power of the web for commercial purposes. A brief background:

Wednesday, July 28, 2010

If Bernie Madoff had a hobby... an exploration of D.O.D. accounting practices

In the news: Special Inspector General for Iraq Reconstruction says that 96% of the money from the Development Fund for Iraq cannot be accounted for. This is very different, and probably worse, than saying those funds were ineffective. Based on press releases, the Department of Defense just hasn't a clue where the money went. To further illustrate the situation, see the attached pie chart.

No one has ever accused the military of being efficient, but even with the infamous $640 toilet seat we at least knew where the money went. If there's one thing a giant bureaucracy like the D.O.D. should be good at, it's keeping paperwork. Those times seem to have changed since the Bush presidency and Iraq invasion.  

So where did those 8.7 billion dollars go? As a personal guess, we'll probably find Jimmy Hoffa before those funds are fully accounted for. However, based on the record so far, it's likely that money was eaten up by the fraud, bribery and theft which has plagued reconstruction efforts from the start. How did this problem begin?

Tuesday, July 27, 2010

"Mayhem is Coming" -- the new Allstate ads are hilarious

While I was getting my reality TV fix last night, I was exposed to the most hilarious insurance ad I've ever seen. A preface: when I started this blog all those weeks ago, I made a solemn oath to keep it about serious subjects, not whatever random crud I stumbled across on YouTube. Well, these were so funny I had to break that promise.

Monday, July 26, 2010

Krugman on "Greed and Cowardice" in the climate debate

Was Paul Krugman famous for his work in economics, or was it environmental studies? Right now, I'm not sure. From an op-ed article yesterday:
It has always been funny, in a gallows humor sort of way, to watch conservatives who laud the limitless power and flexibility of markets turn around and insist that the economy would collapse if we were to put a price on carbon.
Source. An intelligent person like Mr. Krugman can spot a bad argument, especially when it applies to his home discipline of economics. The passage above contains logical flaws which should have stood out to a Nobel Laureate.

- "Putting a price on carbon" is a bit more complicated than grabbing the sticker gun and tagging away like a manic grocery store employee.

Saturday, July 24, 2010

Kitchen Nightmares -- restaurant makeover or yelling contest? Let the numbers decide.

Gordon Ramsay's show, Kitchen Nightmares, has brought hope to the greasy spoons and dirty dive restaurants across America (but mostly New York) for two seasons now. Ramsay made his name first as a soccer player, then gourmet restaurant owner, and now as a TV host to a variety of competitive cooking shows, most notably Hell's Kitchen. He's been named the #1 most successful restauranteur in the world thanks to his kitchen acumen, high standards and vitriolic temper.


For Fox's show Kitchen Nightmares, Gordon Ramsay visits restaurants which are financially floundering and attempts to turn them around. This may mean producing an entire new menu, renovating the d├ęcor, or installing state-of-the-art kitchen appliances. In spite of these efforts, many still go belly-up after Ramsay leaves.

Before the show starts, most Kitchen Nightmare restaurants are under a mountain of debt. The stubborn owner of Sabatiello's was over a million in the hole before Gordon Ramsay showed up. Facing such a dismal business scenario, even expert advice can only go so far. Are heavily indebted restaurants doomed to bankruptcy, or is Gordon Ramsay not the miracle worker he's sold as?

With some simple econometrics, we can take a stab at answering that question. Data were collected on the amount of debt, proportion of male owners, and whether each restaurant was still open. After watching the twenty-one episodes from Season 1 (so I like reality TV, sue me) and running it through a regression program, here are the results:

Tuesday, July 20, 2010

Big money selling free computer games

Video game producers have been accused of many things, from greediness to promoting Satanism, so it was a surprise yesterday when software development company Valve released a new, professionally-made game free of charge. That's right, Alien Swarm (a top-down, cooperative shooting game) is available to play for the click of a button. To really shock and amaze, Valve also released the full source code for others to emulate or modify.


Sunday, July 18, 2010

Blast From the Past -- Moonshine


In the 1920s and 1930s we had economic stagnation following a record boom, flappers, widespread appreciation of Jazz music, growing popularity of the automobile, and illegally produced liquor. Now in 2010, we've still got the first and last items from that list. There's been a spate of recent news articles discussing the moonshine phenomenon in the United States. According to the BBC, up to a million Americans have participated in the illegal production of alcohol. Statistically, you might be one of them.

Wednesday, July 14, 2010

You Only Live 22 Times -- Death of the James Bond Legacy


As a male American born in the last 50 years, I can say with confidence that the mythical figure of James Bond has influenced my upbringing and views on action movies. The Bond series has grossed $1.6 billion in the box office, making it the #3 most successful movie series of all time. The early movies turned Sean Connery into a legend, and built up the "action-movie cred" for the following Bonds. Through the Cold War and beyond, James Bond resonated with a culture that glorified adventure and perceived itself in a global struggle against evil. However, the times seem to be turning against iconic 007.

Tuesday, July 13, 2010

Are minimum wage hikes the answer to recession?

The current economic downturn has caused belt tightening by businesses globally, and much of the hardship has been felt by low-paid workers. In response, many have called for a higher mandated minimum wage. From California and Minnesota to Azerbaijan and Nigeria (just in recent news) the issue has been a political hot-button.

In the economics literature, a consensus has not emerged on whether minimum wages cause unemployment. According to basic economic theory, any binding price floor (e.g. minimum wage laws) will cause a surplus of the good in question. In the labor market, that means unemployment. While politicians and pundits tout the benefits of "a living wage" or the difficulty of living off $8.25 an hour they conveniently ignore those unable to find work as a result. Until relatively recently, this trade-off was at least acknowledged. However, a study conducted by Card and Krueger, which found no impact on the fast food industry in Pennsylvania and New Jersey from a minimum wage increase, fueled a new round of optimism regarding higher price floors on wages. Is economic theory put on hold when discussing the labor market, or is this just too good to be true?

You can read my paper on minimum wages and unemployment here. By comparing state unemployment levels to their unemployment rates in 2008 while controlling for other job-related factors, a positive relationship between minimum wages and unemployment rates was found (it's a riveting read, I promise). It was presented at the SIRC on April 24, 2010.

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