Monday, August 29, 2022

The Opportunity Cost of Masking

CNN Medical Analyst changes her mind about masking:
Masking has harmed our son’s language development, and limiting both kids’ extracurriculars and social interactions would negatively affect their childhood and hinder my and my husband’s ability to work.
Analysis from
For most of the pandemic, many Americans and most public health officials refused to acknowledge the reality of tradeoffs. In 2021, The New York Times described a phenomenon known as “Covid Absolutism.” It consists of two primary factors: 1. Taking every conceivable step that could reduce the spread of Covid regardless of its actual effectiveness; 2. Downplaying or ignoring the unintended consequences and tradeoffs of these policies.
Unfortunately, politicians on both sides of the aisle never admit to tradeoffs when they discuss policy. That may be what makes economists valuable.

Friday, August 26, 2022

Do Workplace Diversity Programs Work?

The Economist suggests that they don't: 
Frank Dobbin and Alexandra Kalev ... collected data on anti-discrimination training programmes and ... found that ... the group [whose representation increased among managers] were white men. 
One large experiment compared the effects ... interventions to reduce unintentional biases, such as reading a vivid story with a black hero and a white villain. ... all reduced implicit bias ... But when retested one to five days later, the effects of all interventions had faded.
Nonetheless, these ineffective programs remain popular because judges view them of "evidence of compliance with civil-rights laws..."

Thursday, August 25, 2022

Collapse of Britain's Single Payer

from link:
Breast cancer sufferers had critical mammograms cancelled due to the pandemic. Nine out of ten NHS dental practices are not accepting new adult patients. GPs are quitting in droves. An unwell father of two waits 20 hours in A&E, refusing to leave until he gets a blood test, which ultimately reveals he is suffering from terminal leukaemia. A patient who, during lockdown, had his blood pressure managed remotely finally discovers his problem isn’t high blood pressure: he’s got a brain tumour.


Tuesday, August 23, 2022

President Biden pours “roughly half trillion dollars of gasoline on the inflationary fire already raging"

Right after Congress passed President Biden's spending bill, increasing subsidies to consumers for Electric Vehicles,
GM and Ford had raised the prices of certain electric models by between $6,000 and $8,500, roughly matching the $7,500 tax credit introduced under the inflation bill.
Anticipating crticism, GM and Ford say, "The price hike was 'completely unrelated' to Democrats' inflation bill," said a GM spokesperson. (link)

Now, Larry Summers has warned the President that student debt cancellation would make inflation even worse [as above, by increasing demand.] 

And, as deserving as college students may be, there are better uses for the money:

“Debt relief rather than head start? Adequate funding of fundamental science? COVID care? Strengthening opportunities for non-college workers? I don’t get it.”

UPDATE:  Megan McArdle (Wash Post) piles on:

How many ways can a single policy be bad? This one could cost the federal government somewhere between $400 billion and $600 billion, completely unpaid for. Its legality is at best an abuse of the law to address the “national emergency” of upcoming midterm elections. It will pour “roughly half [a] trillion dollars of gasoline on the inflationary fire that is already burning,” says Jason Furman, formerly the top economic adviser to President Barack Obama. And with the income caps set so high, it remains an extremely regressive policy, heaping benefits on the most affluent demographics, while leaving everyone else to pay the cost through some combination of higher taxes, lower benefits, or higher inflation and interest rates.

HT: Cramer 

Before risk-adjustment, Medicare Advantage applicants had to climb four flights of stairs

Since the plans were paid a fixed "per member per month" fee (pmpm), they could increase profit only by reducing costs.  So they located their sign-up rooms on fourth-floor walk-ups to "screen out" higher-cost applicants.

After risk adjustment (higher payments to plans to compensate them for covering higher-risk patients), they did enroll people with higher risk scores, but ...

... those people still tended to be significantly below the average cost in their risk category.  (NBER)

HT: Cramer

Sunday, August 21, 2022

Hidden cost of the shutdown in Britain

From Yahoo:

The pandemic shutdown ==> delayed medical care ==> increased cancer and diabetes deaths today
“These come through more slowly – if cancer is not treated promptly, patients don't die immediately but do die in greater numbers more quickly than would otherwise be the case.”
The Government has admitted that the majority of the excess deaths appear to be from circulatory issues and diabetes – long-term, chronic conditions that can be fatal without adequate care.

Saturday, August 20, 2022

CEO's are talking price elasticity!

They probably read Chapter 6 and the NY Times Reports on what it calls their "obsession" with the idea that consumers purchase fewer items as their price increases.

Keurig Dr Pepper

“The good news is our brand strength has held up well in the face of new pricing with modest elasticity impacts across our portfolio during the quarter.”
— Robert J. Gamgort, chief executive

Callaway Golf

“To offset inflationary pressure, we have raised prices nicely this year and, as the avid golf consumer is both affluent and passionate, there has been no discernible pushback.”


“The rising cost for essential items and customers’ reprioritization of spending led to significant mix shifts in our business.”
— John David Rainey, chief financial officer

Southwest Airlines

“Leisure travelers have a price elasticity effect where you can’t go much higher.”
— Andrew M. Watterson, chief commercial officer

Procter & Gamble

“As they are more exposed to inflation broadly in the marketplace, with the highest inflation in 40 years, it’d be naïve to assume the consumer is not looking at their cash outlay and their spending even in our categories.”

— Andre Schulten, chief financial officer


“I think you’re seeing a macro environment change in the second quarter, and particularly towards the middle to end of the quarter, with the inflation really hitting the consumer, and you saw an inflection point in the consumer behavior.”
— Stephen B. Bratspies, chief executive


“We anticipate, as the drag of high interest rates, high inflation and uncertainty continues to impact the consumer, that they will soften as the year goes on.”
— Andrew Rees, chief executive


“In Sweetgreen’s 15-year history of sales patterns, we’ve never seen this before. Our historical seasonality always showed growth during this period.”

— Mitch Reback, chief financial officer 


“In the first half of the year, we saw minimal price elasticity across our portfolio,” Michele Buck, the chief executive of Hershey, told investors. “We continue to expect more elasticity in the second half of the year than what we have experienced year to date.”

HT:  David

Thursday, August 18, 2022

Digitization and University Market Structure

Arizona State University (ASU) will enroll 140,759 students this year. They plan on continuing to increase enrollment aggressively. Some are larger, but for decades most higher-tier US universities have enrolled 30,000 to 40,000. ASU was at around 50,000 students less than a decade ago. So this is a huge jump. This can be interpreted as the university Minimum Efficient Scale (MES), where costs per unit is at its lowest, has increased three or four fold.

ASU has done this by being aggressive about online education. Nearly half of these students will be online. Michael Smith has a project examining the economics of digitization in higher education. Digitization represents some key differences. For example, quality of instruction may be harder to maintain, but this may simply reflect fits and starts in using the technology. But a nearly universal finding is that information goods scale considerably. And this increases the MES considerably. More of ASU's enrollment increases are from out-of-state students and international students than most universities. If this trend continues, more students will be served by many fewer universities that are not constrained regionally. Or, competition between universities will increase dramatically. Who will the winners and losers be?

Wednesday, August 17, 2022

Exchanging dollars (USD) for Argentine Pesos (ARS)

 From Free Think:

ARS has a pegged exchange rate, meaning its value is not set by market demand like USD but rather is set by government mandate — and the pegged exchange rate almost always overstates the value of the peso. As a result, there is a thriving black market ... If you bring $1 USD to a legal exchange, you get just 110 ARS pesos, whereas you’ll get 215 ARS pesos in return for that same dollar at a cueva ["cave" or illegal "black market"].

And the government keeps printing money, which devalues the currency, and eats into savings:

If you’d saved $100,000 USD worth of pesos in 1995, they would be worth about $310 USD today. In the mid 1990s, 1 ARS = $1 USD; as of July 2022, the value is 322 ARS = $1 USD. Anyone who held onto pesos in that time would have had their life savings obliterated.
Argentinians have learned that it’s much better to save in other countries’ currencies, and the favorite for decades has been USD, particularly in the form of $100 bills.

As a result, Argentinians are using Crypto (mostly stable coins), rather than ARS, to move money around, mostly in illegal "black markets."   

BOTTOM LINE:   Crypto will make it harder for a country with its own currency to profit by printing money (no one will accept it) and make it easier to evade taxes (because governments cannot track transactions in cryptocurrency.  


Tuesday, August 16, 2022

100 Rules for living (lot of econ in these)

5. “Use models.” — Don’t recreate the wheel. Learn from others and save time. 

12. “Set goals. And work backwards.” — Use big goals and small goals. Milestones can expose whether you undershot or overshot.

19. “Think probabilistically.” — Think grey. Not black and white. This comes from Annie Duke and her book, Thinking in Bets. Assign percentages to your beliefs instead of speaking in absolutes.

20. “Short engagements. Test situations.” — Test partnerships and commitments with trial runs. Build a small project together before going all in.

21. “Red team. Blue team.” — Approach decisions as a critic and a supporter. Answers often reveal themselves.

25. “Use simple language. Few syllables. Short sentences. Short paragraphs.” — Simplicity is hard to achieve. Work hard so your audience doesn’t have to.

26. “Our brains are built to enjoy stories.” — Stories help information stick.

28. “Don’t argue. Bet.” — Test belief through sacrifice not words.

29. “Appeal to interest, not reason.” — We don’t care about what makes sense. We care about what makes sense for us.

34. “The more you understand incentives, the less you take things personally.” — Incentives drive behavior. Sometimes it’s not personal. Change incentives instead of trying to change people.

41. “Negotiation and business are about alternatives.” — Good decisions are relative. It’s about choosing the best option among alternatives. Know your BATNA.

47. “If you decide to only do what works. You’re leaving a lot of opportunity on the table.” — Experiment.

54. “Keep it simple.” — Stay away from unnecessary complexity. “Everything should be made as simple as possible, but not simpler.” -Einstein

57. “Start with problems. Not solutions.” — Start by studying the problem instead of offering solutions. Study the lock before you make a key.

67. “Copy businesses that are working. These are formulas. Steal and improve them.” — Find a proven market. Study the problem. Be different or better or both.

95. “Get the incentives right.” — It’s the most important thing in management. You get what you reward. Align incentives.

HT:  Donna

Airbnb and the Housing Market

Vacationers, who use Short-Term Rentals (STRs) such as Airbnb, represent additional demand for residential property. In the short-run, the housing stock is fixed and the STR market represents an outward shift in demand against a vertical supply. Prices should rise.

To test this, researchers have looked at jurisdictions that have restricted STR entry and reduced the number of STRs. Baron, et al. recently showed that fewer STR restrictions both increases housing values and entry shifts some of the the supply from Long-Term Rentals (LTRs) to STRs. That is, while vacationers and homeowners are better off, traditional renters are worse off because they have to compete with a new source of demand. 

Increased housing value should increase the return to investing in residential property. In the longer-run,the supply curve may be upward sloping, but need not be vertical. New research by Bekkerman et al forthcoming in Marketing Science shows that when STRs are less restricted, there is more investment in residential properties. STRs lead to more and better properties.

Monday, August 15, 2022

Departing FTC Commissioner plugs coauthor's book

A plug from a departing FTC Commissioner seems more significant than from one just starting out.  Interview with Noah Phillips (link): 

The best thing I have read recently is Greg Werden [career economist at Department of Justice, Antitrust Division], Foundations of Antitrust, so well written. It’s so readable. Right? A lot of the stuff I do is not particularly readable, but I think his book is terrific.

PS. The photo above is of John Sherman of the Sherman Antitrust Act, brother of William T Sherman of Civil War fame.  

Effects of Airbnb restrictions on housing prices

 In an earlier post, we reported that Airbnb reduced rental housing price spikes, as when a convention comes to town.  An article (link) documents effects of what are called "Home-Sharing Ordinances," or HSO's, designed to prevent Airbnb from operating in a city:

Our first result is that HSOs are very effective in reducing Airbnb listings. The ordinances strongly reduced the number of Airbnb listings of entire properties and rooms by about 50% in the long run. We further show that room listings have not been reduced when offering rooms is still allowed, ... 
Our second result is that the HSO reduced house prices and rents by about 2% on average. ... Hence, the decision to implement an HSO is a political one, with a clear group of winners and losers ... : owners lose from HSO-induced house price reductions, whereas (long-term) renters benefit from lower rents.

Tuesday, August 9, 2022

New Harmony's Socialist Experiment failed due to adverse selection

Each year, I begin teaching capitalism to MBA's in New Harmony, Indiana, site of a failed socialist experiment by Robert Owen, a British Industrialist who bought the town from some hard working Germans, and then invited people to his socialist utopia.  He learned something:

"a plan which remunerates all alike, will, in the present condition of society, ultimately eliminate from a co-operative association the skilled, efficient and industrious members, leaving an ineffective and sluggish residue, in whose hands the experiment will fail, both socially and pecuniarily."

Monday, August 8, 2022

Gender pay gap, 3 years after college



Determining why those gaps appear earlier isn’t simple. The federal data don’t account for such factors as recipients of the same degrees seeking different types of jobs and career paths, some of which pay far more than others. Studies have shown that men tend to negotiate salaries more aggressively than women, and women at times shy away from ambitious goals for fear of being unprepared. Even when women and men have identical academic credentials, women sometimes choose lower-paying career paths, pursuing a passion rather than a high paycheck.

The median pay for men from the California State University, Fullerton, nursing master’s program, for instance, was $199,000 three years after graduation, compared with $115,000 for women. The school said that is largely because women in the program gravitated toward nurse midwifery, which pays less than specialties like anesthesiology.

Saturday, August 6, 2022

The tradeoff between equality and efficiency

WSJ reports on Arthur Okun's famous "leaky bucket" metaphor:
[Since] 1980, the American elite began to earn vastly higher incomes while workers outside the top quintile of earners endured a period of relative stagnation.  [Note the use of the term "relative."  Income in all quintiles has increased].  ...The share of income captured by the top 1% has grown from 8% to 20%. ...
Policies intended to fix inequality often have costly side effects, ... Social policies were like buckets—but they were leaky buckets. For every dollar expended, policies to aid the poor might deliver only 80 or 90 cents. Buckets with the biggest leaks could squander most of the benefits. The leak could result from poorly designed incentives or from inefficiency. Okun’s point was that policy makers should devise programs that get the best of this trade-off—those with the smallest leaks
In general, Conservatives accept this tradeoff, but Progressives do not:
According to Jason Furman, a former Obama adviser, “Forty years of progressives have defined themselves around the rejection of this [leaky bucket] metaphor, arguing that inequality-reducing policies promote economic growth by allowing people to better utilize their human capital.”

Monday, August 1, 2022

How economists think about inequality

In my managerial econ class, I often get asked about inequality (links).  My points are two:
  1. Consumption inequality is less than income inequality due to our progressive taxes and government programs (Medicare, Social Security), where higher income citizens pay more taxes and receive fewer benefits as a percentage of income.  
  2. Inequality can be the result of incentive pay.  If we reduce inequality, we weaken the link between pay and performance, which reduces the size of the proverbial pie.  
Neither of these arguments will persuade students, but it does get them to engage, if only to show the flaws in these arguments, and I view that as a win.  

What Works? Friendships Between Rich and Poor.

 From NY Times:

The study found that if poor children grew up in neighborhoods where 70 percent of their friends were wealthy — the typical rate of friendship for higher-income children — it would increase their future incomes by 20 percent, on average.