Sunday, July 3, 2022

Bezos vs. Biden: who is the better economist?

 WSJ reports on a spat between world's richest man and world's most powerful one: Inc. founder Jeff Bezos criticized President Biden for pressing gas-station companies to immediately lower their prices at the pump, accusing the president of “misdirection” or “a deep misunderstanding” of market forces that have driven up costs.

The White House replied:

“Oil prices have dropped by about $15 [a barrel] over the past month, but prices at the pump have barely come down. That’s not ‘basic market dynamics.’ It’s a market that is failing the American consumer,” White House press secretary Karine Jean-Pierre wrote on Twitter. 

Lets bring some economic analysis into this war of words by asking the question, "Should President Biden set retail gasoline prices or should individual gas station owners set them?"  To answer it, lets look at who has enough information to make a good decision, and the incentive to do so.  

President Biden noticed that when the price of oil came down, gasoline prices did not fall by a similar amount.  Although oil is an important cost factor for retail gasoline, there are many others: (i) the cost of the real estate (real estate prices have been climbing by 20%/year), (ii) wages (businesses face labor shortages, caused partially by generous government benefits, and businesses have had to raise wages to attract workers), and (iii) the cost of holding inventory, to name a few.  

These costs vary from station to station, and it is unlikely that President Biden, or the economists who work for him, would know the right price for each station.  A price too low and we have excess demand (lines and shortages).  A price too high deters drivers from buying gas and driving (a voluntary wealth-creating transaction).  

OK, so gas station owners have better information.  But who has the better incentive?  President Biden is criticizing high prices because he wants to attract votes in the upcoming election.  In contrast, gas station owners are trying to make money.  Though they have an incentive to price high, they also face competition from rival gas stations.  If they don't give consumers a better deal, consumers will go elsewhere.   

Truth in Blogging:  I have worked both for the Government regulating prices and for the companies that they regulate. 

Wednesday, June 22, 2022

Are algorithms that give us what we want discriminatory?

Ad algorithms "learn" what we want by our behavior, e.g., by maximizing click-through-rates (CTR's).  For example, women are more likely to be shown ads for shampoo and conditioner, while men see ads for products that combine the two :

...Irish Spring offers men one green bottle with the instructions: “Pour it on your head and let gravity do the work.”

Which brings us to the US Justice Department, which charged Meta with "discriminating against Facebook users based on their race, gender, religion and other characteristics." 

To settle the charge, Facebook agreed to Meta said it "would work with HUD" to alter its algorithms to achieve less discriminatory outcomes, i.e., to show us ads that we don't want to see. 

 We have met the enemy and it is we.

Tuesday, June 21, 2022

Reverse currency wars: exporting inflation

From Axios Macro:

In a currency war, e.g., between the US and EU, the US reduces interest rates, which makes investing in the US less attractive, which means there are fewer foreign investors who want to sell euros to buy dollars to invest in the US.  

[We look at this from the point of view of dollar demand and supply, so when you see the word "buy" think "demand"]. 

This reduction in the demand for dollars reduces the price of a dollar, which makes US exports more attractive to foreign consumers which helps US producers, but hurts foreign producers.  To protect their own producers by making the euro weaker, the EU will reduce rates in response.  

In a reverse currency war, the US raises interest rates to combat inflation, which makes the dollar stronger, which slows the US economy by hurting US producers as it makes US exports more expensive.

However, this also stimulates the EU economy by making EU exports to the US look more attractive to US consumers.  To avoid "importing" US inflation, the EU will raise their own interest rates.   

Tuesday, June 14, 2022 shows us the effects of demand and supply shifts.

Predict it allows traders to buy and sell futures contracts ("bet") on political outcomes.  Because the contracts pay off $1 if the event occurs, prices can be interpreted as probabilities.  If something increases the probability that an event will occur, demand for the contracts will increase which drives up the price.  

  • Here are the current prices of two contracts:
  • You can use the history of price movements to answer questions, like "what was the effect of the June 9, 2022 televised hearings on the Jan 6 Capitol riot?"  
    • In the graph below, on June 11, we see a very slight uptick in the probability of Buttigieg as the Democratic nominee, and slight downticks in the probabilities of Biden or Harris.  This segues nicely into a discussion of how quickly market prices reflect changes.  

    • We do not see a similar change in the probability of house House or Senate control

Friday, June 10, 2022

EVs and VGs are the new Razors and Blades









Sony is partnering with Honda to make a new EV automobile. What does Sony bring?

The car business “is shifting toward EVs, and at the same time they’ll be hooked up to a network, so they’re being turned into a tech product,” Mr. Yoshida said.


Currently, drivers’ ability to enjoy a Sony movie or videogame is limited by the need to keep their eyes on the road, but Mr. Yoshida expressed hope that full autonomous driving would spread in the next few years. 

Without having to watch the road, drivers, or rather riders, can enjoy some Sony entertainment. It looks like Sony will implement the common video gaming pricing model popularized by Gillette a century ago of "giving away the razor, to sell the blade." That is, set a low margin on the "system," in this case the autonomous EV, to charge more for the accessories, in this case, connected games and entertainment. This sort of metering price discrimination means that hardcore rider/gamers who consume more entertainment and receive more surplus will be paying larger margins. More casual rider/gamers who consume less will pay less.

Sunday, June 5, 2022

YIMBY's retake the moral high ground

NIMBY stands for “Not in my backyard,” an acronym that proliferated in the early 1980s to describe neighbors who fight nearby development, especially anything involving apartments. ... NIMBYs who used to be viewed as, at best, defenders of their community, and at worst just practical, are now painted as housing hoarders whose efforts have increased racial segregation, deepened wealth inequality and are robbing the next generation of the American dream.

CEQA [California Environmental Quality Act] was meant to serve noble purposes, but it can be manipulated to be a formidable tool of obstruction, particularly against proposed projects that will increase housing density. A CEQA lawsuit “provide[s] a uniquely powerful legal tool to block, delay, or leverage economic and other agendas,” and “is now the tool of choice for resisting change that would accommodate more people in existing communities.” 
...However, when private opposition is joined with official hostility, CEQA becomes an even more fearsome weapon. When the project proponent faces sustained private opposition, plus the combined animus of two levels of local government, the temptation to throw in the towel must be overwhelming. Something is very wrong with this picture. 

 California’s chronic housing shortage shows no signs of abating with construction scarcely half of the 180,000 new units the state says are needed each year to close the demand/supply deficit. 

There is no single reason, but rather a toxic mélange of high costs, regulatory overkill and stubborn resistance from local government officials catering to the not-in-my-backyard sentiments of their constituents. [However, ...] pro-housing pressures may be having some effect:

  • SACRAMENTO: Anyone who doubts the negative impact of high costs on housing should take a look at the budget for a 124-unit affordable housing project on the state-owned site of a former National Guard armory. ... The state is donating the land to the non-profit developer, Bridge Housing Corp., without cost and the City of Sacramento is waiving $468,624 in impact fees. But the budget for the project is still $82.4 million, which works out to about $665,000 per unit — enough to buy a very nice house for every projected low-income tenant.
  • CONCORD: What would be the San Francisco Bay Area’s largest ever housing development, 13,000 units on the site of the former Concord Naval Weapons Station, is stalling out.
  • HUNTINGTON BEACH: Orange County ... finally approved a 48-unit condominium project... Years of court battles with pro-housing groups and pressure from new state laws finally forced the city to throw in its beach towel last month.
  • TIBURON: ... the state Court of Appeal last month slapped down Tiburon’s nearly half-century-long efforts to block construction of a few new homes on a hill overlooking the tiny city.  [see decision above] 

Monday, May 30, 2022

This should work better and cost less than sanctions

 From WSJ:  poach Russian Tech talent

The West should learn from Poland’s example and issue similar visas to Russian tech workers. Russia has an estimated 1.8 million workers in tech, and while many would like to seek opportunities in Western countries, they have few ways in. By the end of March, an estimated 70,000 Russian tech workers had left for countries such as Armenia and Turkey. Even though they’re happy to be welcomed there, many would no doubt prefer a Western country if given a Polish-style welcome. In January, Poland quietly expanded its visa program to include Russians.

Friday, May 27, 2022

Hiring advice at a big tech firm (summary)


There are too few people doing data and analytics jobs.

[Because] Much of their output is hard to measure: making dashboards more accurate and timely, providing strategic insights to the C-suite, creating interesting talking points for IR. 

What matters most is motivation to do this particular job well. ...Think about how to motivate people to succeed, especially with the right metrics and targets, and get really good at clearing out the unsuccessful people in a way that doesn’t unnecessarily damage them or the organization’s esprit de corps. …


Hire consultants to avoid type I errors (visible hiring mistakes) [because labor regulations make these hard to correct...

instead] fill some of your analytical needs with consulting projects or a rent-to-own employment model, lowering the cost of these errors. …


Hiring is a prediction, so I will give the same advice that I give in my contests: Keep track of your predictions (here, the data from the hiring team’s resume screens and interviews) and outcomes so that you can later analyze whether your predictions were correct and where you went wrong. Be careful with this data set, however, because some of the people you hired will end up staying long enough to theoretically stumble on the info later and find out which interviewers didn’t like them on first sight. So either hold all the data yourself or have HR keep it locked up.  …


For interviews, rate each candidate on these categories [using a 1-5 scale]:

  • Technical skill for the role at hand
  • Problem-solving (which everyone understands is a polite term for intelligence)
  • Communications (the candidate’s ability to communicate clearly in spoken and written English)
  • Teamwork (ability to get work done despite the failings of people above, below, and around them), and
  • Drive (motivation to do well in this particular job).



Act I: “How’s it going?” Start with pleasantries based on the resume. Quickly cover any open factual questions about experiences and skills that are relevant to the intended role.


Act II: “Think of a project you worked on that is in any way similar to what we do here and had a lot of positive impact.” Then have a normal human conversation about it. Ask about the project overall, the candidate’s role, and the impact. If the conversation is going well, ask more challenging questions and see if the candidate can explain how their work supported their broader company mission, quantify benefits (a sensible, contextual way see if they are able to estimate and manipulate numbers quickly), and answer questions about unintended consequences or opportunity costs.


Act III: “What ideas do you have for improving the performance of this [i.e., the hiring] company?” If the candidate is fumbling around, guide them toward something useful (e.g., “How might we increase our revenue?”), then drill in with questions about their idea, challenging it, drawing out implications, and asking about competitor responses. 


Act IV: “What questions do you have for me?” Bad responses are: no questions, trivial questions about publicly known facts, or “I used up all my questions with the last three interviewers.” An adequate response is “Tell me more about yourself [i.e., the interviewer] and how you got to where you are.” Top marks are awarded for posing questions that relate to topics that were revealed during the interview, which shows genuine interest, listening skills, and quick thinking.

Thursday, May 26, 2022

Investors Need Not Worry about Climate Risks

Stuart Kirk, the global head of responsible investing at HSBC Asset Management, gave a short and provocative talk on why climate risk will not seriously affect investors (click here for the YouTube page). Short at under 17 minutes and provocative enough to get him suspended (I am glad my university still claims to support academic freedom.)

Key takeaways of his talk: 

  • The most dire forecasts have climate change reducing GDP by 5% over 100 years but this is relative to to a forecast of a 1000% increase (similar to the previous 100 years)
  • Despite continued dire warnings, financial markets hardly respond
  • In order to get the dire forecasts demanded by regulators, banks must "cook the books"

Wednesday, May 25, 2022

The importance of a mom's high school education has a good summary of the evidence in a book review of The Parent Trap.  Among the insights:

Hilger argues that racism does play an important role in explaining Black-white wage differentials but it’s the historical racism that made black parents less skilled and less able to pass on skills to their children. In the twentieth century, Asians, Hilger argues, were discriminated against in the United States at least much as Black Americans. But the Asians that came to the United States had high skills while the legacy of slavery meant that Black Americans began with low skills. Asians, therefore, were better able to overcome discrimination. The success of Nigerians and Jamaican immigrants in the United States also speaks to this point.  (Long time readers may recall that in 2016 I dubbed Hilger’s paper on Asian Americans and Black Americans the Politically Incorrect Paper of the Year .)

The implied causal link in the graph above is from the mom's high school education ==> child's education ==> income.   

As you can see there is an effect but it is almost all from the mother going from having less than a high school education to graduating high school (11 to 12 years). In contrast, the mother can move from graduating high school to having a PhD and there is very little change in the education level of an adoptee.