Tuesday, August 20, 2019

Alfred Kahn on clear writing

Economist Alfred Kahn died this week at age 93. Although he is most remembered for deregulating the airlines industry, Vanderbilt students know him through his essay,My War Against Bureaucratese," the gobbledygook written by government bureaucrats designed to hide what they are really doing.  Here are a few of his most salient points:
  • “Every time you’re tempted to use ‘herein’ or ‘hereinabout’ or ‘hereinunder’ or, similarly, ‘therein,’ thereinabove’ or ‘thereinunder,” and the corresponding variants, try ‘here’ or ‘there’ or ‘above’ or ‘below,’ and see if it doesn’t make just as much sense.”
  • “The passive voice is wildly overused in government writing. Typically its purpose is to conceal information. One is less likely to be jailed if one says, ‘He was hit by a stone,’ than if he says, ‘I hit him with a stone.’ The active voice is far more forthright, direct, humane.”
  • The use of ‘presently’ to mean ‘now’ is another pomposity. If you mean ‘now,’ why don’t you say ‘now’?
  • “Why use ‘regarding’ or ‘concerning’ or ‘with regard to’ when the simple word ‘about’ would do just as well? Unless you’re trying to impress somebody. But are you sure you want to impress anybody who would be impressed by such circumlocutions?
  • “Outreach makes me upchuck.” Sometimes the demands of pomposity and dynamism converge—as in using “input” as a verb, “specifics” for “details” and constantly “implementing” things and “addressing issues.”
Professor Kahn began this war as part of his succesful effort to deregulate the airline industry. He is the hero of Thomas McCraw's Pulitzer Prize Winning book Prophets of Regulation. Interestingly, the villain of the book is Louis Brandeis for his role in creating the FTC.

Colleague Mike Shor's MBA Writer puts phrases from student memos together to generate sentences that sound all too familiar.

To proactively manage profit, our key initiative objective pushes the envelope toward systematized reciprocal capability.

Enabling continuity, enterprise optimization accelerates the movement towards third-generation contingencies.

Monday, August 19, 2019

Is Sweden Socialist?

Its not even close:
...while people like Bernie Sanders use Sweden as a talking point of socialism, “most of the world would look up at Sweden and say that they are way more capitalist than we are.”

They seemed to have been headed that way when reality set in:
“In 1960 the United States and Sweden were about the same level of income and had about the same size of government. And what happens is 1960 is both governments got bigger, but Sweden’s got really big and Sweden’s growth rate really started to suffer,” he said.

As things now stand, Lawson said Sweden has much less income than the United States, and the high cost of its social services has shown its negative impact. “Maybe it’s a price they’re willing to pay, but the vitality of the Swedish economy has slowed and not kept pace with the rest of Europe—and certainly not with the United States.”

DOJ blocks printing merger

My former employer successfully challenged a merger in the printing industry :
The U.S. Justice Department’s lawsuit opposing Quad’s acquisition of LSC focused on the “intense rivalry” between the two printers that has contributed to the multi-year trend of gradually declining prices for publication printing.

This kind of enforcement is designed to preserve competition. However, the delay and uncertainty surrounding the merger seems to have damaged one of the companies so it is not clear how much competition remains:
The aborted deal left LSC a damaged company. During the nine months when it appeared to be headed to the altar with Quad, it lost salespeople and customers, ...

HT:  Margaret

DDT is making a comeback! (book recommendation, Factfulness)

Paul Hermann Müller won the Nobel Prize in 1948 for “his discovery of the high efficiency of DDT as a contact poison against several arthropods.” For two and a half years in the early 1980's, my late wife Lisa (pictured above) rode a motorcycle around the Golden Triangle in Thailand, spraying swamps with DDT and giving out Malaria pills to villagers.  However, DDT has since been banned by what Factfulness author calls "Chemophobia."  Even the WHO seems to recognize the mistake:

... Today, the World Health Organization promotes the use of DDT to save lives in poor settings by killing malaria mosquitoes, within strict safety guidelines...

The Factfulness book (I listened to it on Audible) also dispels various myths about "us vs. them," "developing vs. developed world," or the myth that things are getting worse.  Highly recommended for anyone interested in poverty.

Thursday, August 15, 2019

Homeowners' cartel is raising prices

In past posts, we have characterized housing supply restrictions as a homeowners cartel in that they benefit homeowners by limiting what their neighbors can do with their property. MarginalRevolution.com summarizes evidence that regulations are limiting increase of housing supply.  Since supply cannot respond, price adjusts instead.


Monday, August 12, 2019

When prices go up, eventually demand becomes elastic

Story of a women and her US surgeon who flew to Cancún to get and perform a knee replacement:
The hospital costs of the American medical system are so high that it made financial sense for both a highly trained orthopedist from Milwaukee and a patient from Mississippi to leave the country and meet at an upscale private Mexican hospital for the surgery.

When the price gets high enough, eventually, people find substitutes. 

Ms. Ferguson gets her health coverage through her husband’s employer, Ashley Furniture Industries. The cost to Ashley was less than half of what a knee replacement in the United States would have been. That’s why its employees and dependents who use this option have no out-of-pocket co-pays or deductibles for the procedure; in fact, they receive a $5,000 payment from the company, and all their travel costs are covered.

Dr. Parisi, who spent less than 24 hours in Cancún, was paid $2,700, or three times what he would have received from Medicare, the largest single payer of hospital costs in the United States. Private insurers often base their reimbursement rates on what Medicare pays.

Why do women bid less for gigs?

They offer 4% lower prices, win jobs more frequently, and earn higher expected revenue (prob[win]*price) than men:  New working paper:

...we provide empirical evidence for a statistically significant 4% gender wage gap among workers, at the project level. We also find that female workers propose lower wage bills and are more likely to win the competition for contracts.

This raises the obvious question, whether women bid more aggressively than men because they think that the opportunity cost of their time is lower, or because they are bidding optimally, and men are not.

Effects of the trade war: Chinese selling US assets

As the trade war with China heats up, we begin to see its effects: highly leveraged Chinese firms are being forced to sell US assets so that they have enough money to service debt, especially as they earn less from trade with the US.
The government’s dramatic about-face from encouraging aggressive overseas acquisitions to cracking down on risky lending and overseas transfers underscores worries over the risk that the nation could run short of enough US dollars to make the interest and principal payments on its mounting debt at a time when the current account balance is coming under pressure.

HT:  MarginalRevolution.com

Are we on the eve of a recession?

In the graph above, we plot two time series, the percentage growth in GDP (in red) and the difference between long and short term interest rates (in blue).  The red series has a mean somewhere between 1% and 2%.  The so-called "yield curve" (in blue) is usually positive to account for the greater risk of long term bonds.  

In all of past recessions in the graph, when the blue line has dipped close to zero before the red line goes negative.  Recently the difference has approached zero, which could be a signal of a coming recession.  Here is the theory:

Under unusual circumstances, investors will settle for lower yields associated with low-risk long term debt if they think the economy will enter a recession in the near future. For example, the S&P 500 experienced a dramatic fall in mid 2007, from which it recovered completely by early 2013. Investors who had purchased 10-year Treasuries in 2006 would have received a safe and steady yield until 2015, possibly achieving better returns than those investing in equities during that volatile period.

In other words, (i) if the alternative to holding treasuries is investing in the stock market, and (ii) you expect the stock market to fall in the the short term, then get out of equities into long-term bonds.  This drives up the price of long-term bonds.  Higher bond prices imply a lower yield because yield=(bond payment)/price.  

NOTE: there is one "false positive" for this indicator, in 1967, when the dip in the yield curve did not signal an immediate recession.  

DISCLAIMER:  If I really knew that a recession were coming, I wouldn't be teaching school, and I probably wouldn't tell you.  

Argentine peso drops 25% against dollar following leftist victory

The graph above shows that the price of argentine peso in dollars went from 45 to 61 pesos/dollar, a depreciation of the peso by about 25%, following the election victory by a "leftist."

We can infer several things from the Chart. First the depreciation of the peso indicates that the markets think that demand for dollars will increase in the new regime.  Speculators' increase in demand for dollars may be due to the expectation that the leftist regime may may try to print pesos to stimulate the economy, weakening the peso.  If speculators expect the peso to be weaker in the future, they should sell pesos to buy dollars now to preserve wealth.  That looks like what is happening.