Market Power

"Sportz Makes You Stupid"

Phil Miller — 2009-11-06T13:19:00-06:00

Sportz is everywhere. There's so much of it that it's contributed to the inflation of all the numbers and values in the sports industry, and as a result we now have a Sports Bubble. It's up to each of us to stand up to the TV or the sports blog. We need to point the finger of shame and yell out, "That's not sports." We need to stick together, stand and fight, and somehow rise above what we've been sold.

A Game Theoretical Theory of the Bailouts and CEO Salary Cuts

Phil Miller — 2009-11-06T08:12:00-06:00

Charles Gasparino has an interesting column in the WSJ in which he details the bailout mania that seems to have gripped the Feds over the past 30 years. He argues that repeated past actions by the Feds since the 1980's have shown that the next time that large financial institutions find themselves in dire straights because of investments gone bad, Father Government will come to the rescue with wallets wide open. That makes managers at such institutions more likely to take on risks they otherwise would not.

Mr. Forstmann knows a thing or two about greedy investment bankers: He's been calling them on the carpet for years, most famously during the 1980s when he fulminated against the excesses of the junk-bond era. He also knows that blaming banking greed alone can't by itself explain the financial tsunami that tore the markets apart last year and left the banking system and the economy in tatters.
The greed merchants needed a co-conspirator, Mr. Forstmann argues, and that co-conspirator is and was the United States government.

"They're always there waiting to hand out free money," he said. "They just throw money at the problem every time Wall Street gets in trouble. It starts out when they have a cold and it builds until the risk-taking leads to cancer."

Mr. Forstmann's point shouldn't be taken lightly. Not by the press, nor by policy makers in Washington. But so far it has been, and the easy money is flowing like never before. Interest rates are close to zero; in effect the Federal Reserve is subsidizing the risk-taking and bond trading that has allowed Goldman Sachs to produce billions in profits and that infamous $16 billion bonus pool (analysts say it could grow to as high as $20 billion). The Treasury has lent banks money, guaranteed Wall Street's debt and declared every firm to be a commercial bank, from Citigroup with close to $1 trillion in U.S. deposits, to Morgan Stanley with close to zero. They are all "too big to fail" and so free to trade as they please—on the taxpayer dime.

I've been critical of the decision by the Obama Administration pay czar, Kenneth Feingberg, to cut the pay of CEO's at some financial institutions that have gotten bailout money. There are believable anecdotes that some of the top talent have already left those institutions lest their pay get cut in the future and I'd like to think that the government would like to have the best people available running financial institutions, particularly those that have received bailouts.

The trade-off is that the threat of pay cuts by the Feds could limit some of the moral hazard that comes with the expectation of government bailouts. The Feds have already shown that over the past 25 years, a time spanning 5 administrations of various political stripes and numerous congresses, that if a financial institution is at a risk of failure, chances are good that government will help prop it up. If I'm a senior executive at a big bank, I'll rationally believe this and I will take risks I otherwise wouldn't.

But now that the government has taken steps to cut the pay of senior managers at those institutions, I will think twice about taking some big risks because I expect that I may bear some of the losses. That's the theory, at least.

The problem is that in such a repeated game with no end, will the government have the guts to cut salaries again? Will they play the pay cut game the next time around if it's not politically feasible to do so, even if it's the right thing to do economically? And what of the unintended consequences that are sure to crop up as executives adjust which, surely, they will? If nothing else, unintended consequences are often met with band-aid remedies that create more unintended consequences which beget even more band-aid remedies. And so on, and so on, and so on.

Before this sort of regulatory behavior becomes believable, investors will have to see it happen more than once. If not, then it becomes a statistical oddity in the history of financial regulation and not a credible threat.

Mixed Strategy Game Theory in College Football

Phil Miller — 2009-11-06T07:19:00-06:00

In game theory, a pure strategy is where a player does not randomize between options. For many game situations, this is not an optimal way to play the game. Would a prison guard want to always to do his rounds in exactly the same fashion time after time after time? No because the prisoners will rationally expect him to continue his beat in the same way and the prisoners will do what they will do when he's away.

Mixed strategies, on the other hand, is randomizing between options. A prison guard might do his rounds at different times during his shift. He may even do more or fewer rounds than he usually does just to shake things up.

It's no different in sports. A pitcher who throws the same pitch gets hammered. A pitcher who "tips his pitches" also gets hammered. Teams have to shake things up to keep the opponents honest. A recent Columbia Daily Tribune on the Missouri Tiger running game shows how the coaching staff is using the tools it has at its disposal to craft an effective running game. An excerpt:

On Saturday, Missouri (5-3, 1-3 Big 12) used the two-back look on 13 of its 75 plays from scrimmage, running out of it 11 times for 36 yards. The Tigers had more success trampling the Buffs with their more conventional one-back shotgun set (138 yards on 28 carries), but as Gary Pinkel’s team continues to deploy more two-back looks — a tailback lined up on each side of quarterback Blaine Gabbert in the shotgun — the running game discovers something it might have been lacking: unpredictability.
“It gives the defense a new look,” said tailback Derrick Washington, MU’s busiest runner against the Buffs with 99 yards on 22 carries. “Usually we line up with one back in the shotgun and we always run the ball to the opposite side. And some defenses just slant to that side thinking we’ll run there. But now, we keep them guessing because either back can get the ball and go either way with it.”
“It’s making it tough on reads,” added backup tailback De’Vion Moore, who chipped in 58 yards on eight carries, including the game’s longest run from scrimmage, a 31-yard dash in the opening quarter. “You see one back go one direction and another back go another direction. It’s like, ‘OK, which back are we keying?’ It’s all about speed on the field and players who can make plays.”

Price Ceilings and Queues

Phil Miller — 2009-11-06T01:32:00-06:00

It's well known in economics that when price ceilings are in effect, leading to shortages, other rationing systems come into place. Queues are one example. I ask my students if price ceilings help direct a good to people who can't afford it. My answer is no, not necessarily. I ask them what if the only non-price rationing system was a queue. Wouldn't that ensure that the least fortunate (those with the lowest value of time) get the good. My answer is no, not necessarily. Why? Because those with a higher value for time can (if they have the cash) can pay others to wait in line for them. But does this really happen.

Um, yeah.

An unemployed Gatineau man has been doing a modest but steady business in the past week by standing in line at flu clinics for people who can’t line up themselves.

And he says the city’s security measures haven’t slowed him down.

For $15 an hour, the man who calls himself Johnny Z lines up for hours to get the ticket, or more recently the wristband, that entitles the wearer to a flu shot.

The person who hires him takes his wristband and comes to the clinic for a shot later in the day.
From Canada, hat tip to Tyler Cowen. I saw kids do this for World Series tickets for scalpers in Los Angeles many years ago (sorry, Angel and Dogder fans!) sometimes getting in line before midnight for a sale the following morning. The Canadian health system tried to switch from tickets to wristbands to restrict reselling, but Johnny's found a workaround for that.

Goods and services tend to go to those most willing and able to pay for them. Limiting the ability of prices to ration goods doesn't change this tendency. It drives people to find ways around the rules, just like water always tries to get around barriers keeping it from seeking the deep.

Tweet of the Year

Phil Miller — 2009-11-05T20:13:10-06:00

@MizzouRah1839 @afastidioushat @MizzouRah1839 @drewmagary: Holy shit, they have Holtz calling games? Now the closed captioning won't work.

Should the New York Times Get Rid of Its Sports Section?

Phil Miller — 2009-11-05T18:42:00-06:00

Tyler Cowen:

I was reading an NYT account of its finances and came across the following:

More radical moves, like dropping the sports section, have been rejected because they would undermine the quality of The Times or would not save much money, Keller said.
"Or"? Which is it? It would not undermine the quality of the paper from a Platonist point of vew; the NYT sports section isn't even as good as USA Today. It's hard to believe the section is cheap to produe, but if it were that again would imply it wasn't so special.
Is Keller trying to say something like: "We also don't think the section is that good, but if we cut it we'll lose those subscribers who take only one paper and still demand minimum sports coverage"? For these subscribers, is it not possible to rent out somebody else's sports section and stick it in the paper with a NYT label on it and maybe an extra article about the Knicks?

I get my sports news from the papers that cover Mizzou athletics, mostly the Kansas City Star, the St. Louis Post-Dispatch, and the Columbia Daily Tribune. I rarely look at the sports sections of my local paper or the online versions of other papers in the state. I suppose if the NYT sports section goes away, I wouldn't notice.

Horrendous Graduation Rates

Phil Miller — 2009-11-05T15:01:00-06:00

Consider the following data:

Six year graduation rates in percentage terms over the past 12 years: 12, 15, 22, 12, 16, 18, 15, 14, 16, 18, 16, and 13.

Where is this from? A Bob Huggins coached team? The University of Kansas' football team, the Fighting Manginos? Some other rogue athletic department?

Nope. Not even close. Those are the reported graduation rates at Chicago State University. The whole university, not just the athletic department. Here's the source. See also this and this for additional commentary.

The Best Paragraphs I've Read Today

Phil Miller — 2009-11-05T14:06:51-06:00

Don Boudreaux on what ails public education in the US:

Suppose that newspapers were run by government and funded by taxpayers, and that each American was assigned to read only the newspaper published in his or her local area. Clearly, the resulting quality of journalism would be atrocious.
Would anyone seriously suggest that this problem would be solved if only there were better schools of journalism, or higher pay for journalists, or more people who are “called” to journalism, or newspaper readers who take more active roles in digesting and interpreting the news? Surely not. All sensible people would understand that these fixes would all fail as long as newspapers faced no competition – indeed, as long as journalism is produced by the state.

I recall hearing that the US has one of the highest rates of church attendance in the world and a lot of that has to do with the fact that people are free to choose what religion they want to follow.

How to Create or Save 9 Jobs with only $900

Phil Miller — 2009-11-05T12:19:42-06:00

OK, so the 9 jobs were given because, well, some number had to be entered into a government web form. Story here. Via Greg Mankiw.

My question is this: what is the value of resources wasted in answering questionnaires to be used for propaganda purposes?

I Predict More Calls for a Salary Cap in MLB

Phil Miller — 2009-11-05T12:18:00-06:00

Congratulations to the Yankees and their fans for the Yankees' victory over the Philly Phil's in the 2009 World Series. Now that that's over, I predict we'll hear more calls for salary restrictions in the name of competitive balance now that the big, bad Yanks have returned to the throne. Never mind that baseball already has a luxury tax, aka a Yankees Tax, that is designed to alter the balance of competition in baseball and never mind that it has been several years since the Yanks last made the Series, let alone won it. What many people want is a salary cap.

Keep in mind that college sports already has a salary cap on player wages. Still, the same teams keep showing up in the top 25 rankings year after year after year. Sure, there is always going to be some churning in the polls and within conferences. Randomness is inherent in sports and is a big reason for the churning. But in football, Texas and Oklahoma continue to dominate the Big 12. Michigan and Ohio State continue to dominate the Big 10. And the same teams keep showing up in the gutters. Yes, I'm thinking of you Baylor and Duke.

Nebraska has been down for some time now, but I expect they'll be back on top of the heap that is the Big 12 North. If you haven't noticed, they have sold out there stadium (which now seats over 80,000) for the better part of the past 5 decades. Every. Game. Since. The. Early. Sixties.

And what of women's basketball in college? They also are encumbered by a salary cap and the competition is dominated by Tennessee, Duke, Baylor and a few others.

The main driver of competitive balance, especially when considered over the long haul, is the underlying demand that each team faces. It is this demand that drives the revenue schools bring in and that drives the demand for players, coaches, facilities, etc. The Yankees and Red Sox have had the upper hand in the AL east for years because they have a higher demand for their games relative to their divisional bretheren. Duke and North Carolina dominate ACC basketball because they have higher demand relative to their conference mates.

So what do salary caps do? Instituting salary caps forces teams to find other ways to compete for talent, but it does not alter the underlying demand that teams face. So salary caps will, therefore, not alter competitive balance. If you want to level the playing field, you need to level the demand that teams face first.

Good luck with that.

College Sports, Profitability, Labor Market Collusion, and Freedom

Phil Miller — 2009-11-05T11:21:00-06:00

From the Orlando Sentinel:

The economic model for major college athletics is collapsing like an overmatched offensive line under a relentless blitz. That's the unmistakable message from a recent survey of university presidents.

The survey for the Knight Commission on Intercollegiate Athletics found that less than a quarter of 95 presidents at universities with the largest sports programs believe the status quo is financially sustainable. The presidents at these Division I-A schools fingered exorbitant salaries for football and basketball coaches as the main culprit.

The most recent NCAA study on the finances of the 119 Division I-A athletics programs found that only 25 generated surpluses in the 2008 budget year, and 94 ran deficits that had to be covered from other sources. For every school like the University of Florida, whose marquee teams generate big bucks, there were almost four bleeding money.

We need to be careful when interpreting the data from which we draw conclusions on the health of college sports programs. A huge problem is on the accounting side of the ledger where the accounting practices of schools lead to misleading tallies on costs and revenues.

First, consider the revenue side of the ledger. Sales of souvenirs, clothing, etc. are often credited to the university as a whole even if the sales were made as a result of the school having, say, a football team. In a perfect world, we'd be able to tell if a sale of a shirt with a school logo on it was due to the school itself or its athletic program.

There are also problems on the cost side of the accounting reports. Schools will usually use the "face value" of tuition when it tallies up the value of its scholarships to deduct from its income statements. But the true cost of having an athlete on scholarship is the marginal, or added cost, of having the athlete on campus. If classes are not at capacity, the added cost of having one more athlete on campus is nowhere near full tuition. For instance, if I teach a my Sports Economic class and there is an open seat in my class, then having an athlete (or any other student for that matter) take that class adds nothing to the cost of instruction from the university's stand point. Added across an entire program or across the entire athletic department, and the scholarship cost of programs are likely much less than reported.

To complicate things even further, keep in mind that college athletic departments are non-profits, which means that for tax reasons, they have to spend what they take in in revenue. Then there is Title IX which places further restrictions on how athletic departments can divide up their resources.

So, in short, we have to take the revenue and cost measures with a grain of salt for these reasons*.

Still, that doesn't stop the Sentinel from recommending slashing coach salaries via collusion.

A panel from the Knight Commission plans to recommend seven cost-saving changes for university athletics programs to the NCAA. Those include cutbacks in season lengths and team travel. But the panel is ignoring the middle linebacker in the room: sky-high coaching salaries.

It's ironic that university presidents would cite salaries for coaches as the biggest problem, yet do nothing about it. Until they declare a truce in their bidding war, athletics programs will be on shaky ground.

Apparently the salary cap on the athletes isn't good enough for them. Now let's bring in collusion to control coach salaries.

What the Sentinel sees as a problem will not go away because of the intense demand fans have for football and men's basketball. It is this demand that is the underlying driving force that causes colleges and universities to do what they do in their athletic programs. Fan demand for sports brings the revenues that then go to paying the expenditures for resources that produce the "good" that is college sports.

Artificially controlling coaching salaries does not alter the underlying demand fans have for a given sport and only drives athletic department personnel to search for different ways to compete for coaching talent.

Let's not forget that MLB teams got busted for this type of collusion not once, not twice, but three times in the late 1980's. The law doesn't always look favorably on collusion.

Moreover, this call for collusion to control coaching salaries is an assault on economic freedom. Basically the Sentinel is telling coaches that they can't be paid what they are worth and it tells coaches and colleges that they cannot contract with whom they desire at the terms they wish. This sort of thing should not happen in a free society.

The only way to control salaries in the long term is to control the revenue that flows to colleges because of their athletic programs. But it is human nature to accept revenues when they are being dangled in front of you, so this is a next-to-impossible pipe dream.

HT Stephen Karlson

*For an excellent examination of the accounting practices of athletic departments, see this article by Brian Goff that appeared in the April 2000 issue of the Journal of Sport Management. He argues that while some of the top division 1 (aka Football Bowl Subdivision) schools do lose money, the publicly published data exaggerates the number.

People Tend to Move to Where They Expect the Highest Standard of Living...

Phil Miller — 2009-11-05T07:59:00-06:00

that is to places with the most economic freedom and more limited government.

More important, the key group leaving New York and other so-called "youth-magnets" comprises the middle class, particularly families, critical to any long-term urban revival. This year's Census shows that the number of single households in New York has reached record levels; in Manhattan, more than half of all households are singles. And the Urban Future report's analysis found that even well-heeled Manhattanites with children tend to leave once they reach the age of 5 or above.
The key factor here may well be economic opportunity. Virtually all the supposedly top-ranked cities cited in this media narrative have suffered below-average job growth throughout the decade. Some, like Portland and New York, have added almost no new jobs; others like San Francisco, Boston and Chicago have actually lost positions over the past decade.
In contrast, even after the current doldrums, San Antonio, Orlando, Houston, Dallas and Phoenix all boast at least 5% more jobs now than a decade ago. Among the large-narrative magnet regions only one--government-bloated greater Washington--has enjoyed strong employment growth.

A useful graphical test of this hypothesis would be to have something like this graphic of economic freedom and something like this graphic of employment changes side-by-side or imposed over one another.

HT Craig Newmark

The Indoctrination Continues

Phil Miller — 2009-11-05T07:19:38-06:00

This morning I woke up my kids with the use of my cell phone alarm which is set to play the Missouri Fight Song. Both boys marched out of bed and to their closets to the beat of the music.

More Created or Saved Funny Math

Phil Miller — 2009-11-04T15:12:33-06:00

2 + 2 = 6 created or saved.

President Barack Obama's economic recovery program saved 935 jobs at the Southwest Georgia Community Action Council, an impressive success story for the stimulus plan. Trouble is, only 508 people work there.
The Georgia nonprofit's inflated job count is among persisting errors in the government's latest effort to measure the effect of the $787 billion stimulus plan despite White House promises last week that the new data would undergo an "extensive review" to root out errors discovered in an earlier report.
About two-thirds of the 14,506 jobs claimed to be saved under one federal office, the Administration for Children and Families at Health and Human Services, actually weren't saved at all, according to a review of the latest data by The Associated Press. Instead, that figure includes more than 9,300 existing employees in hundreds of local agencies who received pay raises and benefits and whose jobs weren't saved.

Garbage in. Garbage out. Previous post here. As Ed Lazear noted, firms have an incentive to overcount these numbers in hopes of receiving more from the government tit next time.

Via Glenn Reynolds.

Update: If the Obama administration were in charge of baseball statistics, then Mariano Rivera would have created or saved 190 games this year.

Putting off the Coming Energy Apocalypse - Again

Phil Miller — 2009-11-04T13:14:00-06:00

People respond to incentives. When a product is profitable, that gives people an incentive to develop substitutes. These developments do not magically come about. They are the result of hard work, luck, and opportunity, and sometimes it takes awhile. From the Wall Street Journal:

From the time of the California energy crisis at the beginning of this decade, it appeared that the U.S. was headed for an extended period of tight supplies, even shortages, of natural gas.
While gas has many favorable attributes—as a clean, relatively low-carbon fuel—abundance did not appear to be one of them. Prices had gone up, but increased drilling failed to bring forth additional supplies. The U.S., it seemed, was destined to become much more integrated into the global gas market, with increasing imports of liquefied natural gas (LNG).
But a few companies were trying to solve a perennial problem: how to liberate shale gas—the plentiful natural gas supplies locked away in the impermeable shale. The experimental lab was a sprawling area called the Barnett Shale in the environs of Fort Worth, Texas.
The companies were experimenting with two technologies. One was horizontal drilling. Instead of merely drilling straight down into the resource, horizontal wells go sideways after a certain depth, opening up a much larger area of the resource-bearing formation.
The other technology is known as hydraulic fracturing, or "fraccing." Here, the producer injects a mixture of water and sand at high pressure to create multiple fractures throughout the rock, liberating the trapped gas to flow into the well.
The critical but little-recognized breakthrough was early in this decade—finding a way to meld together these two increasingly complex technologies to finally crack the shale rock, and thus crack the code for a major new resource. It was not a single eureka moment, but rather the result of incremental experimentation and technical skill. The success freed the gas to flow in greater volumes and at a much lower unit cost than previously thought possible.
In the last few years, the revolution has spread into other shale plays, from Louisiana and Arkansas to Pennsylvania and New York State, and British Columbia as well.
The supply impact has been dramatic. In the lower 48, states thought to be in decline as a natural gas source, production surged an astonishing 15% from the beginning of 2007 to mid-2008. This increase is more than most other countries produce in total.

The low-hanging fruit has already been picked. But the more profitable it becomes to pick ever-higher fruit, the more likely it will be to be picked. That's the profit motive at work.

Investing in Athletics in College - Think at the Margin

Phil Miller — 2009-11-04T11:24:00-06:00

The University of North Texas is going to build a new 30,000 seat stadium with luxury suites (of course). It's scheduled to open in 2011.

"If you look at America's great universities, you'll see that they all have the three A's in common: great academics, great arts and great athletics," said UNT president Gretchen M. Bataille in a release. "All are key to a vibrant alumni community and continued growth. And all require great facilities. I am committed to ensuring that UNT, like many of the nation's best research universities, strives to be excellent in everything we do."

Supporters argue that athletic success can benefit colleges in many ways. It can provide positive advertising for the colleges. It can create a sense of community among students. It's a consumption product that students (as well as faculty and staff) find desirable.

One tangible offshoot of these benefits comes in the form of donations made to a college. There is some evidence that having a "successful*" football and men's basketball team leads to more donations being made to colleges. However, there is also lots of evidence that this type of athletic success does not lead to increased donations. Moreover, even if success leads to more donations, it is not clear if these are new donations or if they are donations that would have gone to academics. Lastly, those that do find a positive impact on donations usually find a modest increase.

So the research, taken as a whole, is unclear.

But never mind the evidence. Let's build a model.

Suppose that UNT will see an increase in overall donations if it has a successful football team and suppose those marginal donations end up being around $500,000 for each "successful" year. There are lots of resources that go into making a "successful" football team. There is the coaching staff and ancillary staff, there is stadium construction and maintenance, there are recruiting costs etc. What if, at the margin, it costs $1,000,000 more to have a successful team relative to an unsuccessful team. Clearly, investing in the football team for this reason is a bad idea.

Moreoever, being successful is a risk in and of itself. Winning involves uncertainty and investment in football is going to improve the marginal probability of being successful. So in the example above, the expected donations are less than the supposed actual donations, which makes the investment even more of a bad idea.

Moral of the story - use your microeconomics and think at the margin.

*In the studies I've read that have focused on Division 1 schools, football "success" is defined as being in the final AP poll, and/or making it to a bowl game, and/or a "winning tradition" (using bowl games and poll appearances over time). Basketball success is defined as being in the final poll and/or making it to the NCAA tournament and/or having some measure of tradition. There are other measures too, but these are more-or-less standard controls for success.

Via Stephen Karlson who notes that there are schools outside of the intersection of the set of successful athletic schools and successful academic schools. Like this one.

College Sports Success and Tuition

Phil Miller — 2009-11-04T03:53:00-06:00

It is hypothesized that college athletics bring interest from potential students. Some of the research I have been reviewing on sabbatical provides empirical support to this. If true, we should find a price effect (second paper). Donald Alexander and William Kern in the International Journal of Sports Finance.

This paper explores the impact of intercollegiate athletic performance on tuition rates. A number of recent studies have examined the advertising effect generated by participation in intercollegiate sports. These studies have attempted to ascertain whether athletic performance improves student quality, graduation rates, and state appropriations. Only one previous paper examines the impact of intercollegiate athletics on tuition, and it found a positive impact on out-of-state tuition rates from participation in the NCAA men’s basketball tournament. In this paper, we find that athletic performance as measured by win-loss records in football and basketball impacts both in-state and out-of-state tuition rates, though it appears that the effects are largely confined to members of the six major power conferences.

So, do lower state subsidies drive schools to invest in their football and men's basketball programs when it becomes apparent that state government is less willing to subsidize education? Theoretically, game models should be able to tease this out.

Another quick thought: many schools have moved from Division 2 to Division 1AA (aka FCS). What impact has their move had on their tuition?

Here's a Google search on the paper title that provided no ungated versions. Do your worst ;-)

Welcome to The Pile. Enter at Your Own Risk.

Phil Miller — 2009-11-03T20:45:00-06:00

Ever wonder what happens under the pile during football games? This video ain't got nuthin'.

"It just depends on what team you’re playing, but some guys are dirty out there," Weatherspoon said of the action that unfolds under the pile. "I won’t say any names, but some guys, when you’re just standing around the pile, a guy might step on your feet with his sharp cleats. You never know what you’re going to see down there."

..."Hey, believe me, stuff like that happens all the time," MU tailback Derrick Washington said of Spikes' eye gouge. "People are always hitting and punching, pinching you."

Pinching what exactly? Yep, you guessed it.

"I’ve had my stuff grabbed on a few occasions," Washington said. "It’s not fun down there at all."

Consider yourself warned.

BTW, it's not kosher to pinch a man's package. But I guess all is fair in love and war.

"Kansas Man Remains Jailed for Lawyering"

Phil Miller — 2009-11-03T19:41:47-06:00

Story here. Related story here.

Surely we don't want a hack giving us advice. But how much of this is turf protection on the part of lawyers?

Yes, Virginia. That's a rhetorical question.

"More Blistering Criticism of U.S. Higher Education"

Phil Miller — 2009-11-03T14:24:00-06:00

Craig Newmark has links to several very interesting pieces on what's ailing U.S. higher education. Each link is worth a careful read by anyone who cares about the direction of colleges and universities in the US.

The Birth of a New Ocean

Phil Miller — 2009-11-03T13:37:00-06:00

From Yahoo! News:

A 35-mile rift in the desert of Ethiopia will likely become a new ocean eventually, researchers now confirm.
The crack, 20 feet wide in spots, opened in 2005 and some geologists believed then that it would spawn a new ocean. But that view was controversial, and the rift had not been well studied.
A new study involving an international team of scientists and reported in the journal Geophysical Research Letters finds the processes creating the rift are nearly identical to what goes on at the bottom of oceans, further indication a sea is in the region's future.

Here's a Science Daily news release on the new rift. Here's a post on the subject at Scientific Blogging.

Cable TV and Women in India - Is This Economics?

Phil Miller — 2009-11-03T12:37:32-06:00

From Capital Ideas comes this discussion of Emily Oster's research with Robert Jensen on the status of women in India. (HT JC Bradbury):

Jensen and Oster found large effects of cable on both of these variables. Women who live in villages that introduce cable see large declines in both the number of acceptable beating situations and son preference; villages that do not introduce cable see no change. This change happens between 2001 and 2002 for villages that introduce cable in 2002, and between 2002 and 2003 for villages that introduce cable in 2003. In other words, the timing of the change in attitudes lines up with the timing of the change in cable access.
Indicators involving changes in actual behaviors, as opposed to attitudes, likewise suggest substantial improvement in women’s status. Jensen and Oster measured female autonomy based on responses to questions about participation in household decision making: does the woman make choices about obtaining health care, purchasing goods, do they need to get permission to visit friends and family, etc. Overall autonomy increased significantly after the introduction of cable and, again, this change happened at the same time as the cable introduction. The authors also found a decrease in pregnancy after cable introduction.

Interesting stuff. Here is an NBER Digest about the paper. and here's a link to the abstract of the NBER version of the paper. I have no bone to pick with the research (it's out of my field of interest), but is this really economics? Economics deals with human behavior under scarcity. Clearly the research deals with an aspect of human behavior, but I don't see where scarcity comes into play.

The Right to Tell Someone Else They Must Go Without

Phil Miller — 2009-11-02T19:05:17-06:00

King:

Philip Greenspun:
Health insurance is a basic human right ... which is why Congress proposes to leave 18 million people still uninsured in the year 2019 (source). I’m getting more and more confused by our politicians. A lot of them have offered beautiful speeches about how it is both a tragedy and a violation of basic human rights for a person to live in the U.S. without health insurance. At present, millions of Americans are not customers of health insurance companies. After the proposed $1 trillion health care reform has had six years to work, we’ll be left with… millions of Americans who have no insurance. If this is indeed a moral issue, how can it be moral to leave millions in the same supposedly inhuman situation that they’re in right now?
I am trying to remember who said this first -- maybe it was Philip Howard? -- but you get in arguments with people about costs and benefits and what should be paid for by whom, and then someone stands up and says "but this is a right." And argument stops, because if something is a right you can't demand that it be limited by feasibility or cost-benefit studies. It just ends debate.

Let's just ignore the question of what health care is (aspirin? allergy medicine? routine check ups?). Health care, like any service, is produced with scarce resources, which implies opportunity costs. Isn't saying that health care is a right the same as saying that a person has the right to tell someone else must go without something they desire and that second person has the duty to go without?

Another Failed Yellow Bike Program

Phil Miller — 2009-11-02T12:46:00-06:00

From the New York Times:

Just as Le Corbusier's white cruciform towers once excited visions of the industrial-age city of the future, so Vélib', Paris's bicycle rental system, inspired a new urban ethos for the era of climate change.

Residents here can rent a sturdy bicycle from hundreds of public stations and pedal to their destinations, an inexpensive, healthy and low-carbon alternative to hopping in a car or bus.

But this latest French utopia has met a prosaic reality: Many of the specially designed bikes, which cost $3,500 each, are showing up on black markets in Eastern Europe and northern Africa. Many others are being spirited away for urban joy rides, then ditched by roadsides, their wheels bent and tires stripped.

With 80 percent of the initial 20,600 bicycles stolen or damaged, the program's organizers have had to hire several hundred people just to fix them. And along with the dent in the city-subsidized budget has been a blow to the Parisian psyche.

The give a sociologist's account that the destruction is due to class warfare. Maybe, but these programs have failed in other parts of the world and it boils down to a common property problem. The users of the bikes are not held accountable for the costs of ownership, especially if the bikes are damaged. But they get the benefits that come with vandalism.

"We found many stolen Vélib's in Paris's troubled neighborhoods," said Marie Lajus, a spokeswoman for the police. "It's not profit-making delinquency, but rather young boys, especially from the suburbs, consider the Vélib' an object that has no value."

Sometimes the bikes are also victims of good old adolescent anarchic fun. These attitudes are expressed by the "freeriders," and a bicycle forum, where a mock poll asks riders whether the Vélib' can do wheelies, go down stairs and make decent skid marks.

If you don't have to pay for your abuse of the bike, then you are more likely to abuse the bike. Keep better records about who is actually using the bikes and go after those who damage them, you'll go a long way to solving the problem.

Broken Windows, Sort Of

Phil Miller — 2009-11-02T11:42:00-06:00

From the Denver Post:

Tennessee police said a mechanic was drumming up business by tampering with parked cars, then charging to help start them. Police arrested 41-year-old Christopher Walls of Johnson City on Thursday night.
Investigators said Walls disabled cars parked at restaurants, waited for the owners to try to start them and then offered his services as a mechanic. Police said Walls charged between $40 and $200 to get the vehicles running again.
He's charged with two counts of theft under $500, but police suspect there are other victims. They're urging anyone else who thinks they were scammed to call them.

Here's a "slow pitch softball" question: he was allegedly trying to stimulate his business. Why would the overall economy not be stimulated?

Update: make him "The Stimulus Czar." LOL

The Economics of Race Horse Ownership

Phil Miller — 2009-11-02T10:36:00-06:00

The economics of horse racing looks a lot like the economics of other sports. There are the usual costs of ownership. There is prize money. There is the focus on competitive balance. There is revenue sharing. This LA Times article presents some numbers that show how difficult it is to turn a profit in horse racing. A snippet:

In allowance races, there are set conditions -- weight, experience -- meant to level the playing field. In claiming races, every horse can be "claimed" or bought for a predetermined price, the idea being that owners will enter horses of like value and ability.

Last year in California, the average purse at these lower echelons was $20,400, the TOC reports. The winner received 60%, second place took 20%, on down to 2% for fifth.

So a horse crossing the line first in an average race earned $12,240. And the owner, after paying a 10% winner's share to the jockey and another 10% to the trainer, walked away with about $9,800.

Figuring that most horses run seven to 10 times a year, it takes a lot of winning to cover expenses.

Phili's Chili

Phil Miller — 2009-11-02T09:23:00-06:00

Many moons ago, Doc asked me to post my recipe for chili. I've been pretty generous with my recipes here on this blog, but I couldn't part with the intellectual property that is my chili recipe.

Yes, I actually own a piece or two of intellectual property. But I digress.

Here, after all these moons, is Phili's Phamous Chili recipe. As usual, t = teaspoon and T = tablespoon

Spices*:

1/3 cup chili powder
1 t salt
1/2 t cumin
1/2 t black pepper
1/2 t paprika
1/2 t ground mustard
1/4 t crushed red pepper
1/4 t cayenne pepper
1/4 t sage
1/4 t garlic powder

Other ingredients:

2.5 quarts of canned fresh tomatoes (I've never used store-bought canned tomatoes for this recipe)
1 pound of ground beef
1/8 cup vinegar
One pound of dry pinto beans, washed and cooked
1 cup of diced fresh onion

I combine the tomatoes and the spices into a large pot and stir until the spices are dissolved. Then I add the beans, the vinegar, and the onion. Lastly, I add the raw ground beef directly to the chili. I put the chili over medium heat, cover, and cook for about an hour (long enough to cook the meat), stirring occasionally.

The result is a medium to mild chili that has always been a hit at parties and tailgates. Even my wife, who is not too fond of spicy food, loves it. Not only is it good as a bowl of chili per-se, but the leftovers are great for chili dogs.

When I've felt spicy, I've added cayenne pepper sauce, fresh hot peppers (cayennes, for example), or tabasco sauce to make the chili hotter. But, usually, I just go with the recipe as given above.

*I make this recipe so often that I have made a big container of the chili spice mix listed above. Nowadays I just add 1/3 heaping cup of my chili mix to the other ingredients.

The Bad Math of Jobs Created or Saved

Phil Miller — 2009-11-02T09:03:38-06:00

From the Denver Post.

The federal government reported Friday that Colorado created or saved 8,094 jobs through grants, loans and contracts funded by the American Recovery and Reinvestment Act.
Problem is, the figure is wrong, according to an analysis of recovery.gov data by The Denver Post.
Although a Colorado Springs Head Start program reported it had created or preserved 269 jobs, the real number was three, according to an interview with a program manager. And although the largest private contract in the state funded with stimulus dollars was estimated at $166 million, the number was off by tens of millions, apparently because of a data-entry error, contract information shows.

Edward Lazear: Stimulus and the Jobless Recovery

Phil Miller — 2009-11-02T08:57:00-06:00

Stanford economist Edward Lazear describes the jobless recovery this time around. He makes two skeptical points that I will highlight (but read the whole thing).

After reporting GDP, the government released new numbers claiming that the stimulus programs have "created or saved" over a million jobs. These data were collected from responses by government agencies that received federal funds under the American Recovery and Reinvestment Act of 2009. Agencies were required to report "an estimate of the number of jobs created and the number of jobs retained by the project or activity." This report is required of all recipients (generally private contractors) of agency funds.
Unfortunately, these data are not reliable indicators of job creation nor of the even vaguer notion of job retention. There are two major problems. The first and most obvious is reporting bias. Recipients have strong incentives to inflate their reported numbers. In a race for federal dollars, contractors may assume that the programs that show the most job creation may be favored by the government when it allocates additional stimulus funds.

Point number 2 invokes the broken windows fallacy.

Another subtle but important point: During the cash-for-clunkers program, sales of small cars like Honda Civics went up while sales of large SUVs like the Ford Expedition went down. To discern the net effect of the program on auto sales, it is necessary to take into account not only the addition to sales of subsidized models but also the reduction in sales of discouraged models. Reporting the positives without the negatives would be misleading and would complicate attempts to objectively evaluate the success of the program.
Yet this type of gains-only reporting is precisely what the government is doing with respect to the figures on stimulus-induced new hires. When the government reports this figure, it wants us to believe that the new hires came from the pool of the unemployed and that they are net additions to the stock of employed workers. But the data do not speak to the number of workers who left their current jobs to fill government-sponsored jobs.

Taking a longer-term view and using some of Professor Lazear's wording, the data do not speak to the number of workers who would have eventually gotten a job in the future had they not gotten government-sponsored jobs. I realize that part of the logic of the stimulus is to put people in jobs now. But economies have business cycles, they grow and retract . It's important to at least acknowledge that a person with a government-sponsored stimulus job would likely have had a different job sometime in the future.

In any case, the real answer to "how many jobs were created or saved" is the difference between employment that an economy would have with and without the stimulus. In a perfect research world, we'd be able to observe the economy without the stimulus and with the stimulus while holding everything else the same. This would allow us to count the difference in employment.

But the world is less than perfect and the data we have is less than perfect. For instance, how do we entangle the effects of the stimulus with the myriad other effects that also affect employment? At this point, there hasn't been enough time to collect and analyze the data that is available to put even rough, believable estimates on job creation. The administration is tooting its own horn as we'd expect any adminstration to do, and it is collecting and reporting data to this end.

Markets in Everything: KISS Potato Heads

Phil Miller — 2009-11-02T07:56:42-06:00

Say what you want about their music, but the members of KISS have never shied away from trying to make a buck and giving their fans something in return. This time it's the KISS Potato Heads.

They'll look great next to the Kiss plush toys . Just in time for the holidays.

Hotel Mouse Pads

Phil Miller — 2009-11-01T20:21:00-06:00

We're bloggers. That means we carry our laptops with us when we travel.

The internet access at hotels has been generally improving. It's usually free, now - a change from even just a year ago. The hotels are also doing better with the hardware (plugs and ethernet cable connections) than they used to.

But no mouse pads.

Post here (via Glenn Reynolds).

My wife and I stayed at a Westin in Chicago two weeks ago. As you'd expect of a Westin - a hotel that caters to the business traveller who, in turn, is probably using other people's money (i.e. his/her employer's), they charged us for internet access, but they did provide us with a mouse pad. It wasn't just any old mouse pad. It was a round mouse pad. It was about 8 inches in diameter and was plenty big enough. I was afraid that I might miss the corners of a typical rectangular pad, but I didn't miss it in the least.

But I'd rather have internet access at no extra charge than a mouse pad. You see, I always bring a handy dandy fake leather portfolio - nothing but the best - and an optical mouse with me when I'm on the road.

Mouse pad? I don't need no stinkin' mouse pad. Even though I happily used that pad the Westin provided, I can blog without a mouse pad. But I can't blog without an internet connection.

Anyways, my guess as to why they don't provide mouse pads: with optical mice, substitutes that can easily function as mouse pads, and the fact that mouse pads are easy to carry, hotel-provided pads are unnecessary.

Athletics vs. Academics at the Margin

Phil Miller — 2009-11-01T18:00:00-06:00

Perfesser Whitehead responds to a reader of his blog:

But, I digress. Back to the Hokies:
Some faculty members interviewed for this story said that while there has been no official mandate handed down by the school, it has been implicitly suggested that they cancel afternoon classes before Thursday night games in order to clear campus parking lots. While students may welcome an early start to the weekend, such a notion does not sit well with those who say it sends a message that athletics are more important than academics.
Isn't this confusing marginal and total? There would be no college football without the college. A school can shut down its football program but not vice versa. Therefore, the total value of academics exceeds the total value of athletics. But, a Thursday night football game is a special event with a large marginal value. The marginal benefit of that game is likely greater than the marginal cost of an afternoon of canceled classes.

Here is the article that John's reader is referring to. Yes, the reader confused marginal and total. When Mizzou played Nebraska on a Thursday night game 4 weeks ago, a similar scene played out. Mizzou's football stadium, Faurot Field, is located on the far south side of the campus. The old basketball arena, the Hearnes Center, stands across the street and to the east of the stadium. There are huge parking lots just south and east of the Hearnes Center that are used for general parking during the school week and tailgating on Saturdays. The university opened up the parking lots to RV's the evening before the game and to cars on the afternoon of the game. The university relaxed some of the policies regarding parking garages near the stadium so that students and professors would have some place to look for a space, but they also suggested that professors cancel their Friday classes.

Friday classes? BWAHAHAHAHAHA. Now that's funny.

Anyways, the idea of diminishing marginal utility says that scarce events are more valuable at the margin than are common events. This was the first Thursday evening game since 1992 (and the second ever), so such games are extremely rare events at Mizzou. It was also the first conference game of the season against a traditional powerhouse, Nebraska. Never mind the recent struggles that the Bug Eaters have had. The white helmet with the red stripe down the middle and the red N still carries weight with Mizzou fans. It was a big game.

Asking professors to cancel classes does not say that the university administration thinks that athletics are more important than academics overall. But for that one particular game, the marginal value of the game was probably greater to the university than the marginal value of the classes that would be canceled which, incidentally, was probably expected to be less than 100% of all Friday classes.

You know, if they taught at a Division 2 university, they would never have to worry about this stuff.

Halloween Joke

Phil Miller — 2009-10-31T10:08:42-05:00

Q: What do you get when you take the insides out of a hot dog?

A: A hollow weenie.

I'll be here all week.

Doc's Gold Medal

Phil Miller — 2009-10-31T08:56:05-05:00

A little over a week ago, Doc announced he had sold a 10K, approximately 2 ounce gold medal he won as a teaching award from UWO. He also asked readers to guess how much he had sold it for.

I took the market value of pure gold and adjusted it by a factor of 10/24 (24K gold is pure gold) and got a result of approximately $920. I was right in that he sold it for less than what it was worth, but my estimate of $800 was way off. I correctly guessed the "why" reason (high opportunity costs), but my guess was so general that it's barely worth even mentioning now. But I'll take what I can get. However, my reasoning for "why now?" wasn't even in the same universe. The price and the reason.

Price: $454 Canadian

Why so low? One reason was because of the high transactions costs that someone who lives in "the boonies" will have to pay to get it sold. Instead of incurring those costs directly, he incurred them indirectly by selling the medal at below market value.

See. I told you I got the opportunity cost part right.

A second reason was that the medal actually weighed a bit less than 2 ounces.

But as for why now? My guess was that John believed that there was a bubble. But it had nothing to do with John believing there was a bubble.

At the same time, Eliot had some good insight about my motives in selling the medal. I figured that if I didn't sell it, it would become a part of my estate when I die, and my heirs would sell it as part of a box of crud for only a song to someone who buys up boxes of stuff at estate sales. And, as Eliot noted, I really don't have a tonne of warm feelings about the issuer of the award.

I did not adjust for disutility, but the thought did cross my mind in my calculations.

Simple Yeast Starter

Phil Miller — 2009-10-30T23:54:00-05:00

As long-time readers know, this blog also serves as my recipe collection. This recipe is a simple yeast starter to help ensure that I have enough yeast when I brew beer. The starter is approximately of gravity 1.040.

2 cups water
1/2 cup dry malt extract (DME). The type of DME matches the type of beer style you are going to brew. If you are planning on brewing a stout, use dark DME. If you are planning on brewing a brown ale, use amber DME, and so on.

I mix the DME with the water in an ordinary sauce pan and thoroughly dissolve the DME. Then I bring the wort mixture to a rolling boil for 10". TAfter the 10 minutes are up, I remove the wort from the burner, cover, and let it sit for two minutes. Next I cool the wort to about 65 degrees using an ice bath (i.e. I put the sauce pan into a large frying pan and completely and thoroughly surround the perimeter with ice cubes). It takes about 10 minutes to cool to the desired temperature.

After the wort has cooled, I pour the wort into a sanitized beaker, shake it vigorously to aerate, and pour in the yeast. I install a rubber plug and put an airlock in place. Lastly, I shake the beaker one more time to mix the yeast with the wort and then put the beaker in a dark room (usually my closet).

In a couple of days, there should be sufficient activity to allow me to brew my desired batch of beer.

Rest Assured: Sam, The PowerCat, is Safe

Phil Miller — 2009-10-30T12:38:44-05:00

Halloween can be bad luck for black cats.
Because of superstitions about the felines and witchcraft, several area pet shelters don't allow the animals to be adopted in the days leading up to Oct. 31. They fear the animals could be abused or killed by disturbed individuals.
Although reports of such incidents are rare, some shelter officials say they're taking no chances. Others, including the Nebraska Humane Society in Omaha, however, say they are confident that pre-adoption background checks and counseling will weed out potential abusers.
The Cat House in Lincoln has a “blackout” policy during October and discourages black cat adoptions, said Carol Mathias, publicity coordinator and owner of four cats. Mathias said pure white cats can also be targeted.

I worry about this each Halloween, for we have a Halloween cat living here. A living, breathing, rambunctious Halloween decoration, Sam has thankfully never been the target of ne'er-do-wells.

Halloween Candy Rules!

Phil Miller — 2009-10-30T11:08:18-05:00

As a child, Christmas was my favorite holiday for obvious reasons. Christmas still occupies a favored place in my mind, and raising two kids brings back the magic every year. But speaking purely as an adult Christmas takes third place in American holidays in my book. In first place is the Fourth of July. I prefer the Fourth over any other holiday because it gives me the opportunity to make things blow up without having my neighbors give me odd looks.

My second favorite holiday, if you want to call it a holiday, is Halloween. What is it that I like about Halloween? For one thing, I get to take my kids trick-or-treating which reminds me fondly of when I was a kid and would go door-to-door to get candy from total strangers.

But one of the things I like the most these days is that Halloween gives me a chance to go out and buy a lot of candy without feeling guilty about it. I always make sure to buy more candy than what I expect to have given out at my house so that I have some to munch on for the next, oh, 6 months or so. What's better than to have loads of Milky Ways, Butterfingers, Snickers, Reese's Peanut Butter Cups (lots of RPBC's), and Nestle Crunch Bars on hand. I have enough to feed me and my family in the event of a nuclear holocaust. Plus we'll have enough of a sugar high to allow us to rebuild all of society in this unfortunate event.

Lucy

Phil Miller — 2009-10-29T01:58:00-05:00

I had the pleasure of being in Chicago last week. One of the things I did was visit the Field Museum (named, by the way, for realtor Marshall Field). One of the displays at the Field Museum is a depiction of the skeleton of Lucy, a person who lived over 3 million years ago. The actual remains, on display in Addis Ababa, were considered the oldest remains found on record...

until now. HT Art Diamond.

Green Jobs = Broken Windows

Phil Miller — 2009-10-28T14:55:00-05:00

Spending on green jobs will likely not create a net increase in jobs.

Day Two: Virtumonde Still Appears to be Gone

Phil Miller — 2009-10-28T13:30:00-05:00

It appears that the measures I took to rid my computer of the Virtumonde trojan horse were successful. The pop-ups are gone, Windows Updater is still turned on, and my Google search results lead me to the correct page when I click them. Here's what I did.

Close the web browser when the pop ups appeared
Run an anti-spyware program (I ran SpyBot).
Run a second anti-spyware program (I ran AdAware) as insurance.
Reboot the computer with the internet connection turned off (I unplugged my cable modem)
Run an anti-spyware program again (I used SpyBot). I still found a remnant of Virtumonde at this point.
Reboot the computer with the internet connection turned on.
Run an anti-spyware program yet again. Again, I used SpyBot. At this point, the program found no spyware.
Open browser and cross your fingers.

This process took three to four hours. You may be able to clear your computer by using fewer steps, but this is what ended up working for me. I've had my computer on for over 24 hours since then and I have had no problems.

How to Reduce Water Shortages

Phil Miller — 2009-10-28T12:20:00-05:00

Consider a typical demand curve. When the price of the good rises, it gives consumers an incentive to reduce the amount they'd like to have. In times of shortages, reducing quantity demanded is one way to alleviate the problem.

The supply side of the tap water market is controlled by public utilities, and political considerations such as "I want to get re-elected" take center stage when debating ways to control water shortages. The result is that about every proposal gets debated - every proposal, that is, but raising prices.

Why Is the H1N1 Vaccine So Slow to Market in the US?

Phil Miller — 2009-10-28T11:17:33-05:00

While the H1N1 flu virus seems to be running its course here in Minnesota and in other parts of the US, the vaccine for the virus hasn't even hit the market. It's quite possible that the course will be run before the vaccines even come out.

Even though many will no doubt blame the private companies that are producing the vaccines for being so slow, Scott Gottlieb argues that it's the US regulatory process that is to blame for the snail's pace. Part of this could be the fear that regulators will get much more blame for things that go wrong than they will get in praise if things go right.

I can't say for sure, but both of my kids had H1N1 flu-like symptoms - fatigue, fever (103.5 for one, 100+ for the other), persistent cough - three weeks ago. My wife had mild symptoms soon after that. My mom and I, so far, haven't had any symptoms.

Something to Scare Your Ass

Phil Miller — 2009-10-28T11:14:00-05:00

Follow the link for things that will scare your booty.

"Soros Launches Effort to Battle Free Market Zeal"

Phil Miller — 2009-10-28T11:08:12-05:00

More power to George Soros. Disciplines move forward when they open themselves to skeptical questioning, even if the questioning involves questioning the fundamental freedom of people to contract with whom they please. Bring it on.

HT MR.

Reducing Costs = Reducing Revenue

Phil Miller — 2009-10-28T10:00:00-05:00

When I buy a Reese's Peanut Butter Cup at Walgreens and spend a dollar, that's my expenditure. But that dollar becomes Walgreen's revenue and it goes to cover the myriad expenses that went into getting that candy into my hand. Short version of the story: your expenditures are somebody else's revenue.

Needless to say, when I spend more, someone's revenue goes up. When I spend less, someone's revenue goes down. Let's also keep in mind that for my money, I get something else in return. Greg Mankiw:

A dominant government insurer, however, could potentially keep costs down by squeezing the suppliers of health care. This cost control works not by fostering honest competition but by thwarting it.
Recall a basic lesson of economics: A market participant with a dominant position can influence prices in a way that a small, competitive player cannot. A monopoly — a seller without competitors — can profitably raise the price of its product above the competitive level by reducing the quantity it supplies to the market. Similarly, a monopsony — a buyer without competitors — can reduce the price it pays below the competitive level by reducing the quantity it demands.

We see the downside of this cost-cutting quest by the Obama Administration. By cutting future revenues, we reduce the incentive to provide and we reduce the incentive to invent and to innovate. Sure, many people with a lot of accumulated human capital in the medical care industry aren't probably going to make career-changing decisions to leave the industry. But there will be people in the future who will steer themselves away from the industry because of the reduced income. With that comes reductions in health products, treatments, quality, etc - all those things that provide consumers with benefits.

Simply put, you cannot make the ceteris paribus assumption that everything else will be held equal. With a reduction in costs comes a reduction in benefits, and I am far from convinced that this is a positive trade-off.

HT Stephen Karlson.

It's Not Just a Medium of Exchange Anymore

Phil Miller — 2009-10-28T09:12:46-05:00

John Whitehead:

I was sitting in church this past Sunday morning listening to the annual stewardship sermon "... and money is not just a medium of exchange..." and I'm thinking "... amen preacher, it's also a unit of account and a store of value."

This Does Not Bode Well for the Future of America

Phil Miller — 2009-10-28T08:29:13-05:00

I spent Columbus Day in Sunnyvale, fittingly, meeting with a roomful of new arrivals. Well, relatively new. They were Indians living in Silicon Valley. The event was organized by the Think India Foundation, a think-tank that seeks to solve problems which Indians face. When introducing the topic of skilled immigration, the discussion moderator, Sand Hill Group founder M.R. Rangaswami asked the obvious question. How many planned to return to India? I was shocked to see more than three-quarters of the audience raise their hands.
...Many students wanted to stay for a few years after graduation if given a choice—58% of Indians, 54% of Chinese, and 40% of Europeans. But they see the future being brighter back home. Only 7% of Chinese students, 9% of European students, and 25% of Indian students believe that the best days of the U.S. economy lie ahead. Conversely, 74% of Chinese students and 86% of Indian students believe that the best days for their home country’s economy lie ahead. National Science Foundation studies have shown that the “5 year stay rates” for Chinese and Indians science and engineering PhD’s have historically been around 92 % and 85% respectively (NSF tracks these 5 years at a time, and the vast majority stay permanently). So something has clearly changed.

As they say, read the whole thing. How long will it be until they stop coming to the US in the first place to get their education? HT Stephen Karlson.

Virtumonde: It's What's Been Bothering Me

Phil Miller — 2009-10-27T12:31:44-05:00

Yesterday I posted about the problems I have been having with my computer, mostly unwanted pop-ups.

I am having trouble with Firefox and it's a problem that started this morning after my mother turned on the computer and opened the program. Whenever Firefox is open, I get pop-ups that I never used to get. They aren't pop-ups that appear when I click on a link. They are pop-ups that appear out of nowhere.
In addition, I'm getting a strange thing happening when I perform a Google search and get my search results. When I click on a link I am immediately taken to a new search engine (whose name I won't mention here for obvious reasons). I am able to get to my desired page by clicking the back button and then clicking on the link a second time.

As It turns out, there wasn't a problem with Firefox per-se. Instead, my computer has been infected with the Virtumonde Trojan Horse, a nasty program that causes pop-ups to appear. It apparently also can block the Microsoft Update process. See here for more details. I spent the morning running spyware and anti viral programs (with my internet service disconnected), then restarting my computer, and then repeating that process.

I am not sure how my computer got infected, but it probably got infected on Sunday at some point. My kids spent a good portion of the day playing online games at various sites, and it's possible they unknowingly downloaded the program.

So far, I haven't had a problem with the pop-ups since I last rebooted. I was able to run a Google search and did not have the problem I was having yesterday. Hopefully I have solved the problem, but I know better than to get too excited at the moment.

NCAA Knight Commission Report: Control Coach Salaries!

Phil Miller — 2009-10-27T09:46:00-05:00

"College Presidents Want Change, Feel Powerless to Do It." They say that

The report said 85% of the presidents surveyed felt football and basketball coaches' salaries are "excessive in the context of higher education," and in a sentence italicized for emphasis: "Coaches' salaries are seen as the greatest impediment to sustainability" of athletics programs. But the presidents do not support pursuit of a federal anti-trust exemption that might help schools control salaries.

So, they have a desire to control input costs while not desiring to control the revenues that drive the competition in the market for inputs like coaches in the first place. In this way, the supposed amateur sports act a lot like their for-profit bretheren. Major League Baseball instituted the reserve clause back in the 1800's to limit competition for players. MLB also has a luxury tax that theoretically controls salaries. The NBA, the NFL, and the NHL all have salary caps. And colleges have their own version of the salary cap... on players, where the cap is $0.

While there is a salary cap on players in college sports, there is no salary cap on the salaries of coaches. It has been argued that this cap allows coaches to capture some of the monetary gains that would have otherwise gone to players. The rest of the money gets transferred to the athletic department where rules like Title IX determine how it gets divided up among the department's variety of interests. Control the coaching salaries, and the money will just flow somewhere else.

As long as the revenues are there, athletic departments will have an incentive to attract the resources that help them generate the revenues. Limiting college coach salaries will merely give athletic directors and their staff members an incentive to find other ways to compete for inputs.

Cutting Costs in the NBAThe NBA

Phil Miller — 2009-10-27T08:31:00-05:00

NBA teams are looking at ways to cut costs, reportedly due to the weak economy. Some are even keeping their rosters at the allowed minimum. Here's the story.