Monday, October 31, 2022

Truth in Education: which majors go into which jobs?

Research from Conlon & Patel showing that "many more students expect to attain their major’s stereotypical career than actually work in that job: 

  • 65% of prospective art majors expect to be artists (only 17% are), 
  • 63% of biology majors expect to be doctors(23% are), 
  • 42% of communications/journalism majors expect to be writers or journalists (4% are), 
  • 62% of psychology majors expect to be counselors (21% are), 
  • Majors more likely to end in disappointment:  "—e.g., fine arts, humanities, communications, psychology—have both rare stereotypical careers and low-paying alternatives." 
  • Majors less likely to end in disappointment: "STEM, business, education, and nursing, either because these majors’ stereotypical careers are objectively quite common or because wages are high even for those who end up in non-stereotypical careers."
Related Information on choice of majors (past blog posts)

Friday, October 28, 2022

What happens when you reduce a wealth tax?

 Evidence from Switzerland:

...1 percentage point drop in a canton's wealth tax rate raises reported taxable wealth by at least 43% after 6 years.  
Wealth reported to the government goes up because: 
  • Less tax evasion as the benefits of evading the wealth tax decrease (Ch03); 
  • Wealthy people migrate to lower-tax areas (Ch02); and 
  • House prices rise, increasing wealth, as the benefit of living in a lower-tax area increase housing demand (Ch09).
BOTTOM LINE:  markets discipline governments.

Thursday, October 27, 2022

zan, zindiqi, azadi (women, life, freedom)

From The Economist:

At the funeral women ripped off their headscarves. Police shot back with tear-gas, sparking protests that quickly spread. In scores of cities across an array of provinces they chanted Amini’s name, crying “Death to the dictator!”—the same cry that had toppled the shah in 1979. Could it happen to the ayatollahs? ...
For the first time in the Middle East, women have been leading the protests. They have had enough of men in turbans controlling how they must dress, travel and even work. By law, they still need male guardians to go between provinces or stay in hotels. If they have no male relative, a local mullah may have them married off. ...
Many religious Iranians are appalled by the corruption as well as the violence perpetrated in the name of their faith. They fume at the sight of ayatollahs’ sons driving Ferraris or Porsches. ...
What is certain is that Mr Khamenei and the Islamic regime are both in deeper trouble than at any time since the shah was toppled in 1979. They are dithering, unsure whether to repress more brutally or give ground. The protests could yet fizzle out, as they have before. But this time there is at least a chance that they will persist. The beginning of the end of the Islamic regime must surely be in sight. ■

Evidence that Chinese are "running for the exits"

To exit, they sell their renminbi to buy dollars, increasing the supply of yuan, driving down its price (in terms of dollars).  Note that the vertical axis runs from a high of 6.2 yuan/dollar (16.1¢) to a low of 7.2 yuan/dollar (13.8¢).  

See earlier post, Time to run for the exits in China?, where I pre-register these hypotheses.
If this article is right, look for a devaluation of the yuan, and an appreciation in Bitcoin. 

Bono mugged by reality

MR Revolution reports:
...I thought that if we just redistributed resources, then we could solve every problem. I now know that’s not true. There’s a funny moment when you realize that as an activist: The off-ramp out of extreme poverty is, ugh, commerce, it’s entrepreneurial capitalism. I spend a lot of time in countries all over Africa, and they’re like, Eh, we wouldn’t mind a little more globalization actually.

Wednesday, October 26, 2022

Who won the PA senate debate last night?

 Talk is cheap, lets ask a prediction market.

Time to run for the exits in China?

The Financial Times reports that wealthy Chinese are trying to:
“Now that ‘the chairman’ is firmly in place . . . I have already received three ‘proceed’ instructions from various ultra-high net worth Chinese business families to execute their fire escape plans,” Lesperance said. ...
China’s rich, he said, are not only worried about rumours of an official wealth tax that would replace informal “common prosperity” donations. They are also increasingly concerned for their personal safety, even once they have left. ...
“The family motto has always been: ‘Keep a fast junk in the harbour with gold bars and a second set of papers’. The modern equivalent would be a private jet, a couple of passports and foreign bank accounts,” Lesperance says. “That is the world we are in . . . it is tough stuff.”
Gold bars show up on scanners at the airport. Maybe use crypto instead. 

BOTTOM LINE: If this article is right, look for a devaluation of the yuan, and an appreciation in Bitcoin. 

 RELATED: China’s property crash: ‘a slow-motion financial crisis’
...the slumping property market, the sputtering investment engines of local governments and a hefty burden of national debt signals the end for a model of growth that has not only transformed China but also been the biggest generator of global economic expansion for well over a decade. ...
In the free markets of the west, financial crises can erupt suddenly, taking governments and investors by surprise. But in China’s state-driven economy, infirmities metastasise more slowly as Beijing deploys political and financial capital to battle against the turning tide. This gives proceedings a more stately aura, but it does not mean that underlying problems are any less severe, analysts say.

Tuesday, October 25, 2022

How likely is a Red Wave on Nov 8?

Ask the prediction market that President Biden is trying to shut down. [The CFTC withdrew its "no-action" letter to PredictIt in August.]  

The contract which pays $1 if Republicans win the Senate is trading at $0.64 (in RED), implying a 64% probability.  The market is also predicting an 89% chance of a Republican House.  

Note that these kinds of prediction markets are easy to set up and can help Firms make more accurate predictions about their industry, and about their own strategies.

Why men pay to stay married

Steven Landsburgh's classic article

In the year following a divorce, women's living standards fall by 27 percent while men's living standards rise by 10 percent. What explains this?
...A 30-year-old woman who wants a family is getting close to the point where she has to choose the best of her available suitors. A 30-year-old man can always choose to wait another five or 10 years till someone better comes along. In general, the longer you spend searching for something—be it a car, a house, or a life partner—the happier you're going to be with the one you end up with. So—again, with myriad exceptions—a woman's optimal strategy is to settle for an imperfect mate and then try to change him. A man's optimal strategy is to search until he finds someone close to perfect. It's therefore no surprise that women, more often than men, should end up regretting their choices. 
In hindsight, it all makes sense. Once you realize there's a biological clock, you should be able to predict that men (having searched long and hard for the perfect partner) would make financial sacrifices to preserve their marriages, and that women who stay married to imperfect partners would be kept in their marriages by financial rewards—or, to say the same thing another way, that women who leave their marriages would make financial sacrifices. (And you should also be able to make a lot of auxiliary predictions, such as this one: Wives try harder to mold their husbands than husbands try to mold their wives—because husbands wait until they've found wives who need relatively little molding.) Fairness never had anything to do with it.

Monday, October 24, 2022

Book Review: Chaos Monkeys:

 Chaos MonkeysObscene Fortune and Random Failure in Silicon Valley is an autobiography of a Physics PhD from Berkeley who:

  • Went to Goldman Sachs to model credit derivatives; 
  • Founded a startup to be the Goldman Sachs of online ads:  instead of moving companies to their highest valued uses it moved ads to the best content .  
  • Created FBX (Facebook Ad Exchange) that allows advertisers to bid for targeted users.

The NY Times begrudgingly gave it a good review (they were able to look past the self-interested behavior the book celebrates and satirizes) because of its "educational value."  The book teaches readers:

1.  To anticipate opportunistic behavior caused by the incentive conflicts between entrepreneurs, angel investors, and venture capitalists.  

2. To understand how ad exchanges (i) find the highest-value ads for each piece of content, and (ii) find the highest-value content for each ad.  

3. How (not) to navigate the internal politics of Facebook, as it moves from a small startup ("move fast and break things") to a mature bureaucracy (self-interested bureaucrats), in a fast-changing environment.  

Useful tips for those working at startups:

  • Acquisitions are mainly about people, not ideas or technology.  Any acquired technology will require continuous updating, so the people who can do that are more valuable than technology they create.
  • Negotiate your stock bonus vesting schedule:  the longer it is, the less value it has because it "locks you in" to one company, regardless of whether that is your highest valued use  
  • Facebook's "one ask" policy on office romances.  To avoid creating a hostile work environment for the few women who worked at Facebook, it allowed employees only one time to ask another employee out.  If (s)he says "no," and you ask again, HR comes knocking.  

I found the book informative, a fun read, and loved the surprising ending.   Highly recommended.

How to choose a mate in Kansas

The Kansas State House of Representatives recently added language to a bill to include the option of covenant marriage. If the bill is passed into law, Kansas will join Arkansas, Arizona and Louisiana as the only states with covenant marriage laws

You can learn something about your potential mate if he or she wants a "traditional" rather than a "covenant" marriage:
...under the "traditional" marriage, a couple is entitled to a no-fault divorce after a six-month separation.
When a couple opts for the "covenant" marriage, they agree to waive their right to the no-fault divorce. In the event that the marriage does fall apart, only adultery, abuse, abandonment or a lengthy separation will allow a divorce to take place.
See The Contractual View of Marriage on how relationship-specific investment differentiates marriage from a series of meaningless spot market transactions.

What is the cost of marriage?

To an economist, the cost of an activity is what you give up to pursue it.
In the year following a divorce, women's living standards fall by 27 percent while men's living standards rise by 10 percent.
Steven Landsburg's classic column on Why Men Pay To Stay Married argues that the difference is a compensating differential, the "price" that men pay to women to compensate them for the relatively unpleasant job of marriage.
If men stay in marriages that cost them a lot of money, that just proves they really like being married. They're getting something they value, and they're paying for it.
When I first read this 8 years ago, I thought it was funny. Now, after 19 years of marriage [originally posted in 2007], I wonder why the price is so low.

If you subsidize homelessness, you get more of it

This article
The Way Los Angeles Is Trying to Solve Homelessness Is ‘Absolutely Insane’ misses the big picture in two ways:
  1. It ignores the simple idea that if you subsidize anything, like homelessness, you get more of it; and
  2. The NIMBY wars over zoning that raise the price of housing is one of the causes of homelessness.  
On the plus side, it describes the costs of the NIMBY wars in LA in ironic detail:
When do Angelenos want affordable housing? Now! Where do they want it? Not here!
And it documents the added cost of the zoning which reduces supply.
“If you look at the inflated cost [$500,000/unit] that comes along with all of the regulation and rules and restrictions and limitations,” Galperin said, “then basically all of this money is going to feed the beast of covering the cost of the regulations. ... We’ve created an absolutely insane system.”
PREDICTION: Nothing will get done, despite Homelessness being voters' #1 concern: "The politics of the affordable housing crisis are terrible. The politics of what you’d need to do to solve it are even worse."

Former student Mike Saint (deceased) said as much a while ago in his book NIMBY Wars: The Politics of Land Use


Tuesday, October 18, 2022

Get rich quick: turn a brown company green

The WSJ has a get-rich-quick scheme on their editorial page.  Since green companies carry a 300-basis-point equity-valuation premium over brown ones, buy a brown one, turn it green, and then sell it. 

Here is an example: 
According to Cushman & Wakefield, midmarket offices with LEED certifications carry a 77.5% premium over noncertified offices. Upgrading buildings from “brown” to “green” would generate significant financial value.

If you could do this in a year, put 20% down and borrow the rest from a bank at 5%, you would generate a 167.5% return.

WARNING:  Correlation is not causality.  It could be that valuable companies are the ones that go green because they are the only ones that can afford it.  If so, do not try this, unless of course the government pays you to do it.

Teacher's note:  Quick is an adjective, not an adverb.  See Hold on Loosely by 38 Special.


What President Trump got right: Regulatory Reform

 from Discourse:

  • ...Trump instituted the first federal regulatory budget. He imposed caps on the amount of cost federal agencies could impose on Americans with their rules. Joe Biden dismantled the budget, but a cap is an idea that’s making waves in the states and is sure to make a comeback at the national level. States like Ohio and Virginia have both adopted a version of the regulatory budgeting idea and they are even setting aggressive reduction goals on the order of 25 to 30%. 
  • Trump’s most famous regulatory policy was probably his “one-in, two-out” program where for every new rule two had to be eliminated. Intellectuals hated this simple policy, calling it a “gimmick” in the media. However, its simplicity also makes it useful as a communication device. This helps explain why Idaho, Arizona, Texas, Ohio and Oklahoma have all adopted some version of this policy since Trump took office. 
  • Trump, and populists generally, have a reputation for being anti-science. A lot of people don’t know this, but the data behind some of the U.S. Environmental Protection Agency’s most expensive air pollution regulations is not accessible to researchers. So the studies that justify billion-dollar regulations can’t be replicated because no one can access the data. The Trump administration created a requirement for the Environmental Protection Agency to give greater consideration to studies whereby the underlying health data is publicly available and reproducible. So, who in fact is anti-science here? 
  • The Trump administration was, in other ways, also more sensible on energy and climate issues. Trump instituted a National Environmental Policy Act reform to accelerate the approval of energy and infrastructure projects. Biden scaled back Trump’s reforms, but permitting reform will be critical to the implementation of the Inflation Reduction Act, a Biden priority. The progressive dream of a clean energy future won’t be possible if solar and wind farms, along with the transmission lines to connect them to the grid, can’t be built because permitting requirements and lawsuits drag projects out for years.

TRUTH IN BLOGGING:  I served as Chief Economist of the FTC and DOJ/Antitrust during the Bush and Trump administrations.  

Friday, October 14, 2022

Does it matter that ESG goals are hard to measure?

From Steve Hayward:
If businessmen do have a social responsibility other than making maximum profits for stockholders, how are they to know what it is? Can self-selected private individuals [management] decide what the social interest is?
In other words, if managers can pick their own vague performance metrics, expect them to shirk or follow objectives of their own choosing.  One would think that management consultants would recognize this, but look at PwC:
...PricewaterhouseCoopers published a “sustainability survey” of 140 major U.S. corporations, arguing that “companies that fail to become sustainable–that ignore the risks associated with ethics, governance and the ‘triple bottom line’ of economic, environmental and social issues–are courting disaster.” The triple bottom line, PwC concluded, “will increasingly be regarded as an important measure of value.”
To be fair, PwC's Guide to Key Performance Indicators, seems to recommend clear performance metrics: 
Key performance indicators (KPIs), both financial and non-financial, are an important component of the information needed to explain a company’s progress towards its stated goals,
... in addition to "management accountability," and "corporate transparency." But pursuing ESG, with the conflicting "triple bottom line" makes it harder to hold managers accountable. Claiming to be Green is easy.  Doing it is much harder.  And no one wants to talk about the tradeoffs which, as Hayward notes, may be substantial:
Despite its flexible criteria, the DJSI (Dow Jones ESG Index) lagged the Dow Jones Industrial Average significantly. Over the last decade it has achieved an annual return of 5.2 percent, while the DJIA has returned 15 percent per year, and the S&P 500 14.8 percent.
And don't you violate your Fiduciary duty if you follow ESG goals at the expense of profit? 

Here are past blog posts on performance measurement. 

BOTTOM LINE: If you cannot measure it, you cannot control it.

Wednesday, October 12, 2022

What do markets say about Democratic Chances in the midterm elections? trades contracts that payout $1 if the event occurs, so the prices can be interpreted as probabilities.  The graph above shows that the probability of a Democratic win has fallen from about 68% to 52%.

Below, the probability that Republican's will win the House has risen to about 81%.

Tuesday, October 11, 2022

Marketing to influencers

Are central banks in a prisoner's dilemma?

...A rate rise in one country may attract money from investors elsewhere, causing the currency to strengthen. This means a reduction in import costs, which may help to cool domestic inflation. But other economies then face higher import bills, which exacerbates their inflation problems. Uncoordinated policy tightening can become its own sort of currency war, in which each country works to shift the burden of inflation elsewhere, with the net result being too much tightening.

Source: The Economist 

Monday, October 10, 2022

Is EU headed for recession because of US?

When the Pope called on the US to stop raising interest rates because it would force the rest of the world into recession, he must have been reading my previous post, What happens when US Interest Rates Rise?  

Now the The FT reports that the EU is saying the same thing, that US efforts to fight inflation by raising rates will lead to recessions in other countries:

The Federal Reserve is leading a worldwide rush of central bank rate rises that risks tipping the world into a recession, the EU’s top diplomat said, as he warned the union is not fighting its corner in the world. 
Josep Borrell, the high representative of the 27-member bloc, said central banks were being forced to follow the Fed’s multiple rate rises to prevent their currencies from slumping against the dollar...

Friday, October 7, 2022

Can negative bond yields last?

If bond yields are less than inflation ("negative real interest rates"), there is an arbitrage opportunity: borrow money in the bond market (at 3% in the graph above) and invest it in an asset (stocks, housing, gold) whose price will increase with inflation (8%).

This kind of arbitrage increases demand for borrowing, driving up the price of borrowing (the yield), until bond yields are driven above the inflation rate.  

You can probably make money if you know when this will happen.  


Thursday, October 6, 2022

Its getting more expensive to die

Demand for funeral services is increasing as death rates climb, but supply is hampered by staffing problems caused by silly licensure requirements:
...the primary reason students reject a funeral career is the embalming requirement.
Fortunately, there is an easy solution: replace licensure with voluntary certification. Give consumers the option of paying for the embalming training.  If they want it they will pay for it.  

Historically, licensure was adopted as a barrier to entry that raised prices (a dirty way of creating a sustainable competitive advantage).  


What happens when US interest rates rise?

A rise in US interest rates puts less developed countries with $ denominated debt in a dilemma: 
  • If they don't raise rates, their currencies devalue as the US becomes a more attractive place to invest.  This resulting $ appreciation makes it harder to pay back $ denominated debt.
  • If they do raise rates, their currencies don't change, but high interest rate slows their domestic economies.
Reuters reports that countries are raising rates to keep their currencies strong which means low inflation, but at the cost of lower incomes, and unemployment.
HT:  Cramer

Tuesday, October 4, 2022

Effects of gender preferences

 NBER working paper:

Currently, women are 3-15 times more likely to be selected as members of the AAAS [American Academy of Arts and Science] and NAS [National Academy of Science] than men with similar publication and citation records.

Saturday, October 1, 2022

China directing banks to sell $ to buy ¥

Article: Such an increase in the supply of $ would reduce the price of a dollar, the exchange rate. This would help Chinese consumers by making domestic goods, including imports, less expensive; but hurt Chinese firms by making their exports look more expensive to Americans.