Why did Martha's Vineyard homes increase from $700K to $1M in 2021?

NIMBYism restricts development (supply), so that the only thing that can adjust to an increase in demand (induced by the pandemic) is the price. From a 2021 NY Times letter to the editor: 

In the end, what really reads in this strange piece is that this gentleman didn’t like the Water Street apartments in Vineyard Haven for some reason, and is nervous about the Lambert’s Cove development. To this, there is of course an argument to be expressed and heard. But when it takes the form of such cynical bloat, it becomes a mockery of its own argument. It makes clear that the spirit of “not in my backyard” is as much of an obstacle to continuing to preserve the Island’s community as some self-interested folks, such as those who are pretending to oppose the housing bank out of supposed “environmental” issues. 

 ... I am also absolutely and constantly baffled when people complain about the one, sole affordable housing developer on the Island, a developer which takes great pains to protect the environment and build in accordance with what natural environment and cultural environment exists there, such as preserving and occasionally building around trees and trying to tear down as little as possible — and then conveniently miss the fact that every other building in Edgartown, for instance, has been torn down and turned into a McMansion over the past three years. If this attitude doesn’t come from self-interested hypocrisy, it comes from an extreme level of blindness.

Why is the $ appreciating against the £?

The $ will appreciate against the £ for trade or investment reasons. Either US exports to Great Britain begin to look more attractive than Great Britain's exports to the US, or investing in the US looks starts to look more attractive than investing in Great Britain. 

 

After the UK government unveiled plans to fund new tax cuts by ramping up borrowing, investing in Great Britain suddenly looks riskier.  As a result, investors sell £ and buy $ to invest in the US, increasing the demand for dollars, and driving up the price of a $ (the exchange rate).

The result of the $ appreciation is that producers in Great Britain are helped (because their exports look cheaper to Americans) but consumers in Great Britain are hurt, because prices for goods sold in Great Britain (including imports) increase.  

Is there a bubble in higher education?

The returns to education to those who finish a degree (especially in a STEM major) are huge.  The high price of college easily pays for itself several times over.

HOWEVER, if you major in a non-STEM subject it may not.  Similarly, if you drop out without a degree (a quarter to a half of all students), you will have smaller debt but also a smaller salary which makes paying off the debt much harder.  

The big increases in tuition seem to track the increases in subsidies offered by the government.  

Most of this info is taken from Marginal Revolution Blog Posts on Higher Education.

More evidence that cooperation works--but only in repeated games

In our textbook, we talk about the tradeoff between conflict and cooperation in a prisoners' dilemma. In a repeated game [play coauthor Mike Shor's online game], the best strategies exhibit the following characteristics:

1. Be nice--no first strikes
2. Be provokable--retailiate immediately if your rival cheats
3. Be forgiving
4. Be clear--make sure your rival can interpret your moves
5. Dont be envious--focus only on your slice of the profit pie

Now we have more evidence that punishment is not a good strategy.

In Nowak's experiment, the students played more than 8,000 games of prisoner's dilemma, using dimes to reward and punish. The normal game of prisoner's dilemma gives two players two options: cooperate or defect. If both cooperate, each ends up winning a dime. If both defect, each gets nothing. If one cooperates and the other defects, the cooperative player loses 20 cents and the defector wins 30 cents. Nowak then added a "costly punishment" component. A player could choose to punish someone who didn't cooperate. That penalized the non-cooperative person 40 cents, but the other player had to pay a dime to mete out the punishment. When Nowak compared how much money people earned or lost in the long run, there was a noticeable correlation between punishment and overall money. The players who punished their opponents the least, or not at all, made the most money. Those who punished the most made the least money.

How do insurers identify good drivers?

The previous post reminded me of the importance of Credit Scores as a screening device.  Here is a post from a couple of years ago.  And I am still curious to hear about unique uses of credit history (see question at end). 

The FTC's Bureau of Economics relased their FACTA study, which concludes that:

1. Credit scores effectively predict ... the total cost of [auto insurance] claims.
2. Credit scores permit insurers to evaluate risk with greater accuracy, which may make them more willing to offer insurance to higher-risk consumers ... . [note: this is why you can call up GEICO, let them look at your credit report, and get an auto insurance quote over the phone].
3. ..as a group, African-Americans and Hispanics tend to have lower scores than non-Hispanic whites and Asians.
4. ...scores effectively predict risk of claims within racial and ethnic groups.
5. The Commission could not develop an alternative scoring model that would continue to predict risk effectively, yet decrease the differences in scores among racial and ethnic groups.

So even though credit scores help insurance companies price insurance more accurately, point 3 implies that some groups pay more, on average, than others. The policy issue behind the study is whether the government ought to ban the use of credit history for anything but making loans. As point 4 implies, banning the use of credit scores would result in higher prices for good drivers, regardless of their race or ethnicity.

Theory tells us that in states which ban the use of credit scores to price insurance (California and Massassachusetts) insurance companies would find it more costly to distinguish high from low risks, so they may lump them together (called "pooling"), and price insurance at the average risk. Or they may be concerned that only high risks would be willing to buy high-priced insurance (what economists call "adverse selection") and price high or, if price controls prevent high prices, exit the market.

I would be curious if any of our readers know of novel uses of credit scores as a screening mechanism, or if they have developed better predictors (point 5) in a particular application, like pricing insurance or screening job applicants.

Are you odious?

The Economist opines on shortages in Egypt and Tunisia:

The government’s price-fixing exacerbates the problem. Dairy farmers, for example, must sell their milk for 25% less than it costs to produce, and the government is not making up the difference. ...Many have left the business or thinned their herds.

Relatedly, Tyler Cowen has a simple test to determine if a person is "odious," i.e., as bad as Hitler:

I’ll just ask myself, well, are their views worse than the views of someone who wants price controls on prescription drugs?

[In case you didn't understand the test, drug price controls kill thousands of people each year by reducing supply.]

Why is the CFTC trying to shut down PredictIt.org?

PredictIt.org contracts (that pay off $1 if an event occurs) are selling at prices that imply the following probabilities:

• 55% that a Republican wins the 2024 Presidential Election 
• 75% that Republicans win the 2022 House majority
• 65% that Democrats win the 2022 Senate majority

So why are President Biden's appointees at the CFTC trying to shut down PredictIt.org?  A spokesperson for the CFTC said that the reason “remains confidential within the commission.”  

Washington Post and Chicago Tribune editorials suggest that it is because polls, the alternative to prediction markets, have a liberal bias, and this bias reduces Republican votes.  

PredictIt has sued the CFTC:

Unlike pundits and polls, with their quirky methodologies and unspoken partisan biases, prediction markets are much more transparent and accurate in the information they provide.

See past blog posts using prediction markets.

What do grade non-disclosure policies do?

 From WSJ:

• students take harder classes;
• spend more time on extracurricular activities; but 
• are less likely to stay at their first job out of school for longer than a year

What do the EU and criminals have in common?

Criminals are willing to risk future punishment for the current gains of crime.  In other words they have high discount rates.  It looks as if the EU does as well.

The WSJ reports:

The European Union outlined a sweeping plan to claw back about $140 billion in profits and revenue from companies enriched by soaring energy prices in a bid to stabilize the bloc’s energy markets in response to Russia’s punishing assault on the continent’s economy.

Short-run/immediate/direct impact: 

redistribute some energy companies’ windfall profits and revenue to cushion the blow of high prices for consumers.

Long-run/future/indirect impact: 

Reduced incentive to conserve (demand), develop alternate sources or invest in new capacity (supply).

Bottom line:  EU is fixing todays problems but creating bigger ones in the future. 

The One Lesson of Eonomics: The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

The Economics of Wine