Wheelchair Fraud

WSJ: They Get Wheeled on Flights and Miraculously Walk Off. Praise ‘Jetway Jesus.’ 

One viral account had 30 travelers needing wheelchairs to board a Southwest flight — and all but two walking off on their own at arrival, 28 people strolling past the empty wheelchairs waiting at the gate. Another traveler, Carlos Gomez, described a flight delayed by 25 wheelchair passengers and said he sees more "wheelchair fraud" every trip. A flight attendant reportedly told him many able-bodied passengers request wheelchairs for "the VIP experience" — skipping lines, first crack at overhead bins — and that the "healing begins" once they learn they'd have to wait for assistance to get off.

People respond to incentives: Test-Taking Accomodations

WSJ: 

The share of SAT takers getting extra time has increased from 2% to 6.7% in the last decade; on the ACT, it rose from 4.1% to 7%. Qualifying students typically receive 50% more time — and on longer accommodations, up to double the standard limit. The surge is concentrated in wealthy areas, where federal data show that students at affluent schools receive accommodations at more than twice the rate of those at high-poverty schools. 

Why? The payoff is huge (a few points can swing an admission), colleges aren't told who got extra time, and the qualifying bar is easy to clear — a diagnosis you can pay a neuropsychologist thousands to obtain. Same incentive for everyone; very different ability to act on it.

(Lack of) Economies of Scale in Home Building

Brian Potter at Construction Physics takes a deep dive into economies of scale in construction. There are enough homes being built to observe economies of scale ... if they existed. But even manufactured homes don't seem to exhibit economies of scale. He marshals a lot of evidence to document where costs are incurred and how these compare to other industries. The lack of scale economies imply that the industry is rather unconcentrated. There are thousands of home builders with the five largest nationally having less than 25% of the market.

He concludes by trying to answer why there appears to be almost no economies of scale. One answer seems to be that that materials and labor home building costs represent 97% of costs with equipment costs being only 3%. Auto manufacturing, in contrast, is extremely capital intensive and hence firms are large. Home construction Fixed Costs (FC) are just not big enough for declining Average Fixed Costs (AFC) with scale to be too important. In contrast, high rise construction might require high cost excavators, cranes, pavers, pile drivers, etc. driving up the equipment cost share. Consequently, the five largest contractors for these projects have closer to 45% market share. The cost structure determines the market structure.

Hat tip: Marginal Revolution 

Is Business More Charitable than Charity?

“If I do my job right, the value to society and civilization from my for-profit companies will be much, much larger than the good that I do with my charitable giving.” - Jeff Bezos

A new opinion piece in the WSJ by Marian L. Tupy tries to calculate the value of the time saved by Amazon customers. I may quibble with some of his assumptions, but his point is that the cumulative value of the amount of time saved by Amazon customers likely exceeds the size of Bezos's fortune. This is on top of savings from lower prices and better product matching from a greater selection. Nordhaus famously estimated that entrepreneurs appropriate only 2.2% of the value of technological advances. Or Bezos likely got just a sliver of the pie that was created. Nordhaus's estimate could be off by a factor of forty and value appropriation by entrepreneurs would still be less than 100%. The amount of consumer surplus enjoyed typically rises when profit is earned. No one needs to get poorer just because someone else got richer.

I am reminded by a video clip of John Stossel interviewing Ted Turner from 1998 (I am that old). Ted Turner made his fortune creating a media conglomerate but had recently announced he would be giving away $1 billion in charity. Stossel's video makes the point that Turner could "do more good" by investing the $1 billion than giving it away. Charity divides the pie, investment grows the pie.

Selling Mattresses on Memorial Day

A nagging thought kept creeping into my more somber thoughts this Memorial Day. Why did retailers turn a day of remembrance into an opportunity to sell large consumer goods?

Wikipedia provide a nice history of the holiday but a short piece by McNutt & Partners explains some retailing aspects. For generations after the Civil War, it was called "Decoration Day" during which acknowledgement for the sacrifices of the dead were paired with commemorations meant to instill pride for country. It was renamed "Memorial Day" after WWII but a more significant change occurred in 1971 when it was moved from May 30 to create a three-day weekend. This made possible quick vacations and more time to consider large irregular purchases. 

In economic terms, it concentrated demand for mattresses, and similar big-ticket items, into a single weekend (and then two weeks around the date). This is efficient if there are economies of scale so that retail costs fall with sales volume. This may also permit some price discrimination as those who are more demand elastic seek out these deals and schmucks like me pay higher prices the rest of the year.

Biggas Savings

A funny commercial from a while back uses puns aimed at my adolescent sense of humor. Kmart wants to entice potential customers into its store, so it discounts the complementary product. I always enjoyed playing this video to classes.

Fabulous post on central planning from MarginalRevolution

If our textbook gets to an eight edition, this will make it into Chapter 1.

MarginalRevolution on Central Planning:

The dilemma is this. There is a problem of information. Supercomputers will in fact help process information better. But if the information coming in is junk, and if that junk is built into the system because of the incentives that operators have in workplaces to lie, you will not have a planning system that can be put on its feet through the advent of computers or artificial intelligence or anything like that. I don’t see any reason to think that that strategic misalignment of incentives is simply there because of Russian backwardness or poverty.

..the burden of proof is on us, on the Left, if we want to continue with this slogan of replacing the market with the plan. The burden of proof is on us to show that it can work. You might say that along with this ought to come a kind of humility about facts and about the world. ... it would be criminally negligent to ignore the experience of decades upon decades of planning and say to yourself, “Well, that wasn’t what my vision of socialism is, so I’m going to ignore it.” Because if you do that, I can guarantee 100 percent you will end up repeating many of the mistakes and falling into the same dilemmas that the planners did. 

Lessons from Sweden's Capitalist Makeover

WSJ:

• By 1990, center-left raised taxes/spending to 70% of GDP

THEN:

• cuts to unemployment, housing subsidies, pensions
• privatization of public services
• cuts to taxes
• Limit govt. debt to 36% of GDP (vs 129% U.S.)
• govt. spending drops to 24% of GDP (vs. 30% for France, Italy)
• Businesses invent new technologies.
• GDP, house prices, and inequality soar

LESSONS:  

• Incentives drive innovation and inequality
• Innovation drives 2% growth: income doubles in 36 years

HT:  Justin

FDA screens out studies with selection bias

The Free Press:

• ..one of the studies looked at a group of people for six weeks—three weeks after they were vaccinated, and then another three weeks after that. If they were healthy after the second three-week period, the researchers concluded that it meant the vaccine was safe. In addition to the absurdly short length of time—six weeks to conclude the vaccine is safe?—it has an obvious and inherent bias toward healthy people, who are the most likely to get vaccinated. 

•  Another study used an approach called “test negative”: It looked at people who came to the hospital with flu-like symptoms, some of whom had Covid and some of whom didn’t. If the group who were vaccinated had fewer people with Covid, it was supposed to mean that the vaccine worked. But in reality, it could simply mean that people who are vaccinated are more likely to show up at the hospital.

Waning Credit Card Market Power?

 

Historically, Visa and Mastercard earned substantial interchange fees because merchants had few practical alternatives. But FedNow, RTP, “pay-by-bank” systems, and blockchain-based settlement reduce switching costs and create new competitive options for merchants and fintech firms. Recent reporting from American Banker noted that RTP and FedNow transaction volumes are growing rapidly while firms simultaneously experiment with stablecoin-based international transfers that bypass traditional correspondent banking systems. Meanwhile, regulators are increasingly scrutinizing the market power of incumbent payment firms, including a new UK competition probe involving Visa, Mastercard, and PayPal. Network effects can create durable market power, but interoperability, regulatory pressure, and technological innovation can gradually transform even seemingly entrenched monopolies into far more competitive markets.

For decades, Visa and Mastercard benefited from one of the strongest forms of market power: network effects. Consumers tend to apply for cards that are accepted by more retailers and retailers accept cards that are held by more consumers. The resulting feedback loop favored first-mover credit cards and made subsequent entry difficult. But now new payment “rails” are beginning to erode that dominance. Real-time payment systems like FedNow and RTP now allow money to move directly between bank accounts in seconds, bypassing traditional credit card networks entirely. At the same time, stablecoins and open-banking systems are creating alternative methods for transferring funds with lower fees and faster settlement. Reuters recently reported that Visa’s annualized stablecoin settlement volume has already reached roughly $7 billion, while Mastercard is spending up to $1.8 billion to acquire stablecoin infrastructure firm BVNK. These investments reveal that incumbents increasingly view new payment rails as potential substitutes for traditional card networks.