Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts

Wednesday, December 30, 2015

Tax dodging by the super rich

This is a "no duh" story to end 2015, but the explicit details are interesting (more so than the typical corporate inversions we've recently heard about). During the Clinton years, the 400 highest income American households paid an effective rate of 27%. Now it's 17%. And because payroll taxes hit the less wealthy harder, that 17% rate means that the highest-income Americans are paying about the same tax rate as a family with $100K household income (80th percentile in the US). How can that be democratic and just?

Like their gated communities and hedge funds, there is an exclusive-access world of private tax dodging infrastructure that the super-rich pay millions in fees to access (including political contributions), but it saves them tens or hundreds of millions in taxes per household. These families span the political landscape, which is especially dismaying for the supposed "progressive rich." If they adopt the same practices as the Kochs, then they are just adding to the problem instead of fighting it.

Their biggest source of tax savings is of course that schlubs like us earn wages as income, while they earn the bulk of their money through complex investment vehicles, shell corporations, and trusts - and those barely get taxed. They need pricey lawyers and bankers to set up, but it pays off. The NYT article said that the rich treat it like a fun game - like an easter egg hunt to find all the possible loopholes to screw Uncle Sam and the 99%. But I'm sure they don't think of the impact that way - they "deserve" the rewards because they're just more clever/influential than the rest of us. Some of the arrangements are so complex that the underfunded and maligned IRS can't even keep track, and they are supposedly the custodians of the rulebook. But they don't craft the tax policy, they just do their best to interpret and enforce it.

The NYT article failed to state what the total tax losses are to the US due to these practices by the super rich. But I wouldn't be surprised if it numbers in the tens of billions. Maybe that is not a huge # vs. the total US income tax revenue (over a trillion per year), but it could buy a lot of road repairs and school programs. And besides the actual revenue, cracking down should send the message that the rich do not get to play by a different set of rules. They already enjoy vast socioeconomic advantages that enable them to grow their wealth, and maybe some of those advantages should be reduced too, but at least they should not weasel their way out of their patriotic and civic obligations.

Otherwise IMO they are more damaging to the country than all the deranged mass shooters and ISIS-inspired amateur terrorists, because the cheating rich are undermining US principles of equality, justice, and community, which hurts us all. Remember the old saying (paraphrase), an accepted injustice anywhere diminishes justice everywhere.

Saturday, October 31, 2015

Chinese investors and techies inflating global real estate

I know we're probably tired of the cliched lamenting over "the good old days", but this NYT piece by a CA author describes the boom-and-bust cycle of "CA dreaming" since the Gold Rush. One generation feels like the prevailing dream is dead, but then a new dream comes to take its place.

But what about now, as our state is more constrained than ever (economically, environmentally, maybe culturally)? The inclusive middle class, environmentally-sustainable (if it ever was) CA dream seems to be in jeopardy now, replaced by the "tech dream" that only a small subset of wealthy folks can enjoy, and constant environmental crises (that the rich can mostly insulate themselves from). Of course the top earners in medicine, entertainment, finance, etc. can still partake in the dream; contrary to media hype, tech is only like 10-15% of CA's workforce and GDP. But we don't need CA to be a bunch of high-end condos, yoga studios, "$20 burger" foodie joints, plus the old suburban infrastructure (golf courses, Costcos, 5BR McMansions) grandfathered in - when the tech yuppies want to leave SF to get more space. There's more to CA than that, otherwise what's the point of paying the high prices to experience it?
Top schools ostensibly lead to top salaries, which lets your kids afford to live in the top school districts later and continue your legacy. But why is there such inequality in public schools that creates real estate bubbles in the neighborhoods near the best schools? What kind of "free society" do we have when some schools have metal detectors and 1990s computers, and some schools are like this?

I don't mean to be like "woe is me, my life is so hard." I'm not happy with some aspects of my situation, but I'm trying to keep perspective. What's scary is a big % of Americans have it much tougher, in CA and elsewhere. So what is the solution? Clearly it doesn't have to be this way, and there are many "mid-cap" cities that have a great rep for affordability, quality of life, and good jobs/schools (SLC, Raleigh-Durham, Denver, etc.). They make it work without being socialist. But it's just a shame that CA, the most populous and most economically important state, is becoming an exclusive country club with an entrance fee of $300K household income. "This land is your/my land," remember? Can't we do a better job sharing and making things easier for those with fewer resources (especially as our resources are further strained by environmental problems and gov't failures)?

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I foresee housing and land as a large problem in the future, more so than now.  People want to live near where they work.  And culture and food and art follows the places where people live and have money.  So desirable living areas will always be clumpy.  California just happens to be very desirable for a variety of reasons so I can't see a way to get these problems resolved.  And ultimately there will be a distribution of incomes available to people in these areas.  People have a very hard time voting in poor people into their neighborhoods by mandate and capitalism won't provide for them when demand exceeds supply.  Not sure I have any solutions but to say that your (and my) situation is in some objective sense terrific.  To be able to, but not easily, afford to live in a world city, raise a family, take vacations, you are a global elite.  But as you noted, locally you are a B- so it is hard to feel as good as you should.  I think if you consider only asian households you are more like a C+ haha.

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Yeah that is true, but I think a common complaint is that the high prices are forcing out the "traditional" artists and culturalists from SF, so all you have left are the wealthy consumers and capitalists.

An over the top documentary about it from Pelosi's daughter: Alexandra Pelosi on RT w Bill Maher -- Destructio…: http://youtu.be/ksTRKwCDCLM

Haha in Asian households, B- = whipping and C+ = sent to foster care!

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http://m.sfgate.com/news/article/Million-Dollar-Shack-documentary-Bay-Area-housing-6582122.php

First time I heard of the "ghost house" term referring to empty homes
that investors just bought to park their cash, but didn't bother to
rent out. You can guess where most of the investors are from. I wonder
what % of prime BA cities' housing stocks are affected. Probably
small, but enough to affect prices.

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This apparently has been going on in certain neighborhoods in London and other world cities for a while.  A product of Chinese money disallowed from buying stocks and the poor bond returns.  Can't blame them for finding the opportunity but it is hurting the locals.

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Agreed, it's legal, but it's making the median home price in Vancouver rise to $1.5MM (c'mon, Vanc. is nice but not that nice). According to that video, it's happening all over the Pac. Rim (NZ, AUS, SEA, SoCal), and I guess the desirable parts of Europe too (I guess Russians, Saudis, Emiratis, etc. are doing the same, but there are fewer such buyers).

This seems to be another global consequence of China's social-economic policies. Unlike the US, where ~50% of households own some stock (which is still way too low considering the ROI), for China it's like under 20% - maybe this is driven by the unproven (some might say corrupt) nature of their markets, and the cultural tendencies of Chinese to put their savings in cash or physical assets. So if retirement was more secure in China (better kids:parent ratio, more functional equities markets, gov't safety net), maybe there would be less demand for foreign property. And if Chinese are using illicit funds to buy real estate, then I also fault Beijing for not enforcing the laws and regs to make that harder to pull off. And I also fault parties in the US for not checking where the foreign buyers' funds came from. As you know, to get approved for a mortgage we practically have to sacrifice our firstborn, but it's all-cash home purchase, no questions asked.

But I assume that only the wealthiest 10% of Chinese have the funds to buy overseas real estate anyway - though 10% of China is still a shitload of buyers. This is offensive and I'm just joking, but sometimes I miss the '80s when the US and Western Europe were the only rich nations, and Japan was the only rising economic power to worry about. :)

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I think in China the basic idea is that land is something you can physically own and see with your own eyes. Chinese people (well people everywhere, but maybe moreso in China) feel that it isn't too hard to be an amateur expert in property prices - that you can beat the market basically. Finally, property prices are perceived to be relatively stable compared to other forms of investment.
Compare that with stocks, where who knows how to value anything. Stock markets in China are basically thought of as gambling markets (actually not too far off....), whereas property investment is the slow and steady, tried and true investment strategy. Everyone understands (or thinks they understand) real estate markets. Understanding stock markets is not something that the average Chinese person has much experience in.

Additionally, for very wealthy Chinese there is the idea that you want a property (or perhaps multiple) overseas where you can escape if things get bad in China. The Chinese don't like pollution any more than we do and most realize that overseas places are a lot nicer than most cities in China.

Finally, getting permission to convert money into foreign currency is a lot easier if you're buying property than if you're buying stocks.

Of course, the smart strategy would be to invest in low-cost index funds in a Vanguard coop account, but I guess Vanguard's marketing team hasn't made too many inroads in China yet :-P

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These days it seems that very little in the Chinese economy is slow and steady :P - they had a major RE bubble too with levels of speculation likely exceeding those of US-CAN. I could sympathize if the average Chinese person doesn't have a lot of good options for capital gains to save for their retirement, but I assume that it's the top 10% who are the ones buying most of the foreign property (i.e. the average Chinese can't pay $1.5MM cash for a CA condo).

I don't know if funds/pensions are very popular in China, but that overcomes the investor ignorance problem. Most Westerners have no idea about equities too, but at least they leave it in the hands of pros and pay them a commission (this strategy only screws them every decade or so with a widespread financial crisis :). And as you said, you can lower risk by diversifying (equities tend to outperform REITs and most single properties in the long term).

So there is a difference between a justifiable need for financial security, and greed. I am not sure what category most Chinese overseas RE buyers are, maybe both, but probably skews towards greed. That is legal but unfortunate in my book. And of course the same can be said of domestic speculators.

There is some harm in speculators manipulating the price of securities or silver. But then again, most people aren't paid directly from capital gains (except pensioners and rich fund mgrs). But if people are inflating the prices of life necessities, like oil, water, and housing - then it's a bigger deal. Like when oil rose to $120+ a barrel, some were saying that this wasn't the speculators' fault - it was just normal supply and demand. Maybe so, but it's pretty hard to precisely pin down causality in market price, which is of course an aggregation of many factors. But huge inflation in inelastic goods tends to hurt many but only benefit few.

Bottom line, I wish people would at least buy homes with the intent to use them, or make them available to those who need them. I understand that not all of us are "entitled" to an affordable picket-fence place with a 5 mile commute. It would be nice, but there is always going to be inequality in housing. Though I think we are at pretty bad levels in most of the economic centers of the world.

BTW - if you made it to the end of that YT video, you saw that horrendous quote from the real estate mogul d-bag with the Rolls. Something like, "I think a Googler working hard is more deserving of a home in Si Valley than someone who happened to grow up here. Just get more education if you want it." Yeah, as if the issue is that cut and dried. Hard work and edu is all you need to be a millionaire in CA, sure. It doesn't need further comment - but you are all welcome to vent. :)


Saturday, August 8, 2015

Can money buy environmental and social harm?

Rich Californians don't think they should have to cut back on water (their golf courses, lawns, and pools need it): http://www.washingtonpost.com/national/rich-californians-youll-have-to-pry-the-hoses-from-our-cold-dead-hands/2015/06/13/fac6f998-0e39-11e5-9726-49d6fa26a8c6_story.html

And of course everyone's favorite dentist to hate allegedly paid locals $55K to get him special access to kill Cecil the lion: http://heavy.com/news/2015/07/walter-palmer-federal-international-zimbabwe-charges-charged-crimes-federal-corrupt-practices-act-laws-zimbabwe-united-states-extradition-treaty-info/

Power is corrupting, and money is a major form of power, so stuff like this has been going on for millennia. But do you think new laws are in order, or we just have to accept money as speech and tolerate that some wealthy folks can afford to commit socially harmful actions? Surely it isn't absolute, as some laws prevent people from buying other human beings, or WMDs, or using their money for coercion (the dentist may have violated the Foreign Corrupt Practices Act, even if the actual act of killing the lion off the preserve was "legal").

Some laws are already in place, as CA households that don't cut back on water sufficiently may need to pay fines/higher rates on a sliding scale (ostensibly to offset the social harm of their resource usage). But is that enough of a deterrent? Probably not considering some people's net worth - do they need to be cut off instead? They can water their lawns with Evian. That is why market pricing for water won't fully "solve" the issue for price insensitive people (it might affect businesses and farms though, which is the lion's share - no pun intended - of usage). But since water shouldn't be a luxury good like a Vuitton bag, affordability can't solely determine access.

But in the end, stricter punishments for "bad rich people behavior" are unlikely because the politicians who write the laws are rich and disproportionately represent the interests of the rich. America has ~150MM eligible voters, yet so far 400 families have accounted for 50% of the 2016 presidential campaign funding (according to Bill Maher today).

PS - environmental rant: I don't buy the BS from hunting proponents to justify killing animals - it's actually pro-environment as population control (and some species can withstand "culling" more than others). Maybe it's even pro-conservation because the $ that some hunters spend to kill a few big game are used to protect the other specimens (for future kills?). First of all, nature doesn't need us egotistical humans to control a species' population. There are natural limiting factors like food, habitat, etc. Humanity's only impacts on nature are negative, and in a huge way. Yeah we do a good thing now and then by relocating or repopulating a species under stress, but those well-intended moves can backfire too. The best we can do is have as little impact as possible, like some untouched areas of Siberia probably have the healthiest ecosystems because we don't have a footprint (apart from climate change and air pollution diffusing over). And re: the $ argument, I bet for every dollar spent on big game hunting/fishing, maybe at best 20% actually benefits the animals and the rest are just paid to various parties in the supply chain, so that claim is specious. If we love nature then we should leave it alone.

Another heartbreaking example: birds in the extreme north. Because of climate change (and humans' acceleration of it), arctic ice has receded drastically since 1980, and snows have turned to rains. Excessive rain causes fatal hypothermia for some birds, and the weather trends are too rapid/drastic for them to evolve and adapt in time. Ice gives access for birds to fish for food, and chicks are starving to death with less available ice per family (it's as if all our farms permanently lost 80% of their acreage in a generation - could we sustain our population under such conditions?). Species will naturally wax and wane (or disappear) over time, we don't have to "fix" that, but highly successful and evolved creatures like these birds and polar bears, who used to be flourishing, are now rapidly dying out because of us. If our species makes it to the 22nd-23rd Centuries, I am sure they will look back at our (in)actions and think that we were really a bunch of assholes.

All those birds wanted to do is live, and they never did us any harm (they don't even compete for resources with us, as that land is uninhabited and the fish they eat are not commercial). Yet because people want comforts and money (enabled by fossil fuel burning), benign living things have to die. And for those who don't value other species as much as humans, the same can be said of the ~3B folks who by chance were born into poverty and/or environmentally sensitive areas of the planet.

Sunday, May 31, 2015

How women's education is contributing to income inequality

Of course it's been overall good for society that women have gotten more education and income since WWII, but there are consequences. I couldn't find the Economist article, but they had a chart showing marriage preferences for 1960s America. Men were more likely to marry women of similar education status (which correlates to income), but there was a decent level of "mixed education" households - maybe due to childhood sweethearts, family-encouraged marriages, etc.

In the 21st Century, dual-income households and "assortative mating" has gotten much more common. Now men with HS education almost exclusively marry women of similar status, and same goes for college or grad-school educated men. I guess it makes sense, as the modern American youth is likely to meet his or her mate at school or on the job (or through online dating sites that try to match demos). And of course there are intellectual, geographic, and class compatibility issues that make it less likely for a highly educated person to marry a poorly educated one. But this is resulting in either very rich or very poor households, and it's less likely that a lower-income family can "pull a Cinderella" and increase their wealth/quality of life through marriage.

Of course I'm not blaming women for any of this. Apart from love, I think most of us would recognize the benefits of marrying a more educated/wealthy mate. So professionals marry professionals, and blue collar/service workers marry the same. When controlling for other factors, assortative mating caused the Gini coefficient (inequality metric where 1 = perfect inequality and 0 = no inequality) to rise from 0.34 to 0.43 (+26%) over 1960-2005 in this Pew study's data.

I'm not sure what can be done about this, or if anything should be done. But the IMF and others said that income inequality is the root cause of many structural social problems. Wealthy couples tend to live in better neighborhoods with better schools. Their kids will have health, safety, social, and intellectual advantages vs. lower-income children. They will succeed in college and career, and likely marry a similarly successful person. But all this suggests that overall social mobility is on the decline in the US, with no signs of improvement.

Surprisingly, the GOP presidential candidates have spoken a lot about inequality/pressure on the middle class/American Dream so far. But it's likely lip-service, as they still want to gut social services and cut taxes for the "job creators". Obama and other Democrats have also talked a lot about the minimum wage, workplace sexism, and the unfair playing field. I wonder how much of an issue it will be in 2016, and if we can do anything about the "Great Divide".

Thursday, April 30, 2015

The staggering social costs of gun violence in the US

This was a good interview about a Mother Jones article on the indirect costs of US gun violence: http://www.kqed.org/a/forum/R201504300930

The author's team performed an established economic analysis to estimate the total costs of gun violence - not just the direct costs of law enf., ER visit, and justice/penal system processing, but also lost productivity and diminished quality of life from long-term disability, incarceration, and death (affecting not just the victim but their family, workplace, and community). The article estimates that of the ~30K gun murders each year, on average it costs America $500K each. Add to that the ~80K cases/year of serious injuries from guns, and the total price tag is over $200B/year. That is 1/3 the value of Apple's stock, and more than US medicine spends on obesity each year. It's freaking huge.

But we're not talking about this because the NRA and others make the data so hard to access. And if people do try to study it (like the CDC and Harvard School of Public Health and Obama's recent nominee for Sgn. General), the gun lobby paints them as gun-control activists with a political agenda. Conservatives want to cut waste and spending left and right (social programs, research, etc.), but somehow the military and guns are exempt?

BTW - the study also found a correlation between states with weak gun laws and higher gun violence costs per capita (LA, WY are the worst, while HI and MA are some of the best - also with stricter gun laws). It's a no-brainer to us, but the 2nd Amendment crowd clings to the myth that more guns make you safer. They might also argue - what about the economic savings from all the crimes prevented by conscientious citizens with guns? Well there's just no data to support that claim, if it's even true (which is doubtful). You're much more likely to hurt yourself or a loved one than prevent a crime with your gun.

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This is pretty heartbreaking stuff about the effects of violence on Oakland's youth:

http://ww2.kqed.org/news/2015/04/29/violence-causes-ripple-effects-for-thousands-of-oakland-students

For a kid who turned 18 this year in Oakland, he or she lived through 111 kids getting killed in that city, not to mention the trauma that caused for everyone else. At least Alameda County is deploying more mental health resources for them now - but really this is an issue that no kid should have to deal with. Especially if they're under 10, children often can't deal with the difficult emotions generated from experiencing violence, so their ability to learn is impaired and they may lash out in negative ways.

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NPR did a story based on this article and the most persuasive outcome, to me, was that there needs to be science and data applied to this stuff.  One of the guests was talking about the idea that if you even ask for data you are anti gun.  That there is this all or nothing approach.  Why wouldn't the dates show all the loves being saved if guns are great?  Couldn't we also find that, for example, people with lots of gun training have better outcomes related to fun violence?  It seems weird to assume data can only be anti gun.

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Agreed. I guess it's like climate change and cop racism issues - if one side of the argument is confident in their position, they should have no problems whatsoever with full data transparency. When you are "trying to hide something" and suppressing info, that is a tell-tale sign that your argument has a problem. Actually if those folks really love gun rights and "freedom", then they should welcome data transparency to help improve gun use and gun culture in America (like a majority of NRA members favor better background checks, but NRA leaders don't). Or do they think that everything is OK? Don't they know that the most successful (legit) companies and gov'ts in the last 50 years are obsessed with data to help them succeed and improve?

Bottom line, the gun industry/lobby's only goal is to sell more product. Gun ownership in the US (as % of households) is on a huge decline since WWII, partly driven by urbanization, less interest in hunting, and I would like to believe social progress. But the # of guns in circulation may have gone up, so someone is buying them. There are fewer gun owners now, but they own more guns (and more deadly ones) per capita. Police departments upgrade their guns more frequently, and lord knows where their used guns go (I think there are accounts of cartels/gangs using former US police firearms).

So to accomplish their goal, the gun lobby has to oppose anything that would potentially hurt sales, and of course social costs data is a big threat. And when the costs are so obvious (even without hard data), they pull the freedom and liberty card. Sure guns are destructive, but the costs are "worth it" because we have to sacrifice to keep the communists from taking our freedoms. We have to tolerate the side-effects of guns because I need to protect my family from the bad guys. And when it's poor/black people shouldering most of the costs, it's easier to ignore - until incidents like Columbine and Sandy Hook happen, which affected affluent whites and jarred the nation.

I use data to put food on the table, so I'd like to think that I have some sense of "data ethics" and best practices. When the pro-gun side decides to actually use data in their arguments, I can honestly say that they are the worst in terms of ethics and rigor. Total intellectual dishonesty (or maybe ignorance). I have not read any NRA white papers (if there are any non-laughable ones), so I am basing my judgment mostly on the sound bites you hear in the gun debate.

Examples:
  • "Chicago has strict gun laws, but they still have plenty of gang violence and murders, so gun laws don't work!" Because we don't have borders. Thugs just have to buy a gun 30 miles away in easier places like Indiana, and then drive back to the city to shoot someone.

  • "Since the Brady Bill/Assault Weapons Ban expired, there have been fewer mass shootings, so assault weapons in the hands of 'the good guys' is an effective deterrent." Not enough sample size to assess a trend, and what defines a "mass shooting"? Public mass shootings are fortunately still pretty rare (it's much more common for someone to slaughter their family in a private residence). But Mother Jones and Harvard ran a statistical analysis to handle rare events, and they concluded that mass shootings are actually more frequent after the loosening of gun laws. Of course correlation is not causation, but it invalidates the pro-gun claim.

  • "Guns don't kill people; people kill people - address the mental health and anger issues instead." But guns kill people A LOT more effectively than a knife or bare hands. Yes there will always be a baseline level of violence and murder intent in any society, but if you restrict access to the murder tools, people won't be able to carry them out as effectively. Look at AUS/UK vs. US. Fairly similar culture, demos, etc., but we have all the guns and murders. Canada is an exception (many guns, few murders), but there will always be outliers.

Thursday, April 16, 2015

California's record drought and mandatory water cuts

This week, Gov. Brown mandated non-ag CA homes and businesses need to cut water consumption by 25%, effective immediately. I am not sure what the enforcement mechanisms are. Like the sequester, an x% across-the-board cut is lazy governance and pretty stupid too.
There are smaller households or efficient households that barely use any water - they should be rewarded and not asked to cut even more (which may be very painful on them to achieve). There are also larger, more wasteful households that probably should cut more than 25% (part of that may be tied to landscaping - and I think Brown plans to prohibit lawns as well - which some other Southwest communities have tried). Sacramento and LA consume much more water per capita than SF or Oakland. Likewise, some businesses consume more or less water per employee (or per $revenue) due to the nature of the business.

Why not implement quotas instead? Depending on the severity of the drought in your county, you are allotted x gallons/day per capita. If you remain below the quota, you get a rebate. If you exceed it, you pay a penalty with growing magnitude. Maybe some waivers and exceptions can be put in place for unusual circumstances. Frankly such a system should be in place with or without the presence of drought.
But of course the water cuts ignore the elephant in the room - CA agriculture, which accounts for 80% of state water usage (BTW the energy sector is also exempt, and they use a ton of water for power plants, drilling, etc.). CA farms don't even use drip irrigation like Israel - they just spray water indiscriminately because it's subsidized (which also causes a lot of runoff with harmful fertilizer/pesticide chemicals sickening the locals). CA economy is both high and low tech, but the mix has to evolve to favor high tech. Tech and service industries produce way more GDP per capita and per unit of resources (and often much less environmental impact) vs. farming. The only profitable farming these days (apart from cannabis) is large corporate ag. Profits are concentrated to the owners and execs, and workers are often temporary and poorly-paid with few benefits. I understand that not everyone can be a software engineer or account manager, but if we're in a crisis and we have to pick what parts of our economy/society to protect, and what parts are less critical, I don't think there are many strong arguments in favor of farming. 
Apart from wine grapes, I don't think there are many crops that have to be grown in CA these days. With global trade, we can get produce and other foodstuffs from anywhere. Already many of our fruits and veggies come from south-of-our-border, nuts from the Maghreb/Middle East (CA almonds are a noteworthy culprit), and rice comes from Asia. We might as well go all the way. Maybe there is some risk associated with a dependence on foreign imports, but there's also a lot of risk associated with giving CA farmers the lion's share of our dwindling potable water. And currently, desalinization is very expensive (maybe not quite cost-prohibitive, but close) and harmful to local sea life. Maybe farmers could pay a water tax to help fund desal?
Environmental conditions have caused human migrations and adaptations since the beginning of our history. Just because we settled and farmed the CA Central Valley in the past doesn't mean that we have to always. And it's not like we'd be losing so much - Central Valley communities lead the state in terms of unemployment, some forms of pollution, and crime, significantly contributed to the housing bust, and all their structures are in a flood plain with 100 year old levees. Maybe it's best if we stop the "making the desert bloom" experiment, and stick to the coasts? Just maintain an urban, non-resource-intensive society and economy. Like Dubai, but without the crazy construction projects. Let the Central Valley return to its natural state. Just putting it out there.

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After discussing this issue with some economists at work, there is of course the libertarian-market approach (for better or worse). Forget quotas and reduction targets - just open up water to market forces and let people decide how much it's worth to them. Of course there are a lot of practical considerations and details that need to be resolved, but "properly priced" water will eliminate the wasteful farmers (using a lot of water on low-profit crops like alfalfa), and people will only buy what they can afford to use. There should also be a water credit for low-income or at-risk persons/groups to ensure that they have fair access to a minimum living supply, no matter the market price. But like most traded products, I can see such a system vulnerable to exploitation/manipulation by certain privileged groups at the expense of the less sophisticated.

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I think the privileged groups is pretty clearly the farmers. As you note, they use 80% of California's water to produce 2% of California's economy. They pay 1/10th of the consumer rate for water. I think the attached graphic pretty well illustrates it.

Why should consumers go through radical water savings techniques when the real solution is to increase the rate farmers pay? You're pretty much squeezing water from a stone from residential users as it is to get further efficiencies. 

San Diego is spending billions to build a desalinization plant when almond farmers are spraying water like there's no tomorrow. It's a horrendous misallocation of resources. Even if we didn't fully marketize the price of water, even bringing it a little more in line with market forces would go a long way to hitting water reduction targets.
 
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For a seasoned, liberal politician, Brown has proposed and implemented some pretty questionable stuff during his recent tenure. As you said, the 25% residential-business cutback is a complex, unfair way to barely affect the problem - while ignoring the no-brainer, big-impact approach.

I was also surprised how small a % of CA GDP ag was. Anything that consumes 80% of a scarce resource and returns 2% of value should get cut. But they have political clout, so it's much easier to lean on residents/SMBs who can't as easily take collective action. Time to relocate to Oregon? :P
 
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It is interesting to note that in the us there are some things that would be unobtainable if ca stopped producing:
Artichokes 99% of us consumption, broccoli 94%, cauliflower 89%, celery 95%, garlic 95%, almonds 99%, apricots 97%, figs, grapes, kiwi, nectarines, olives, pistachios, plums, and walnuts all over 90%. 
So off shoring of our food may be possible but it will be painful for many foods.  But all those pointing at irresponsible California and its water wasting aren't putting their money where there mouth is (literally) and mostly non Californians benefit from the water subsidies.

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But you have to wonder - why aren't other states growing those crops? It's not like they can't if they really needed to, and other states have more favorable tax/labor/regulatory environments. I know CA soil and climate are pretty good, but I don't think it's such a differentiator. Maybe the economics just don't make sense for the rest of the US? And for scale - CA's ag sector was $34B in revenue in 2009 (with profits of $8.8B), vs. $21B for the runner-up Iowa - a much smaller state. So to normalize for geography, actually CA is not that grand. We just have a diversity of crops, which may not be unique to CA. Ironically if you look at the financials on pg. 24 of the doc, they don't even list water as a cost, so I have no idea what they're paying.

Say we did significantly cut back on CA ag production - we would have shortages of some of those products in stores. Prices would go up for the produce that people really wanted, but suppliers would respond by planting more of those in other states (or we would import more). Maybe they don't taste quite as good or the fruits are a bit smaller, but it would get to market in a season or two. Heck, it's not like CA grows those crops all year either - when CA farms are fallow or those crops are out of season, we get supply from greenhouses (which don't have to be in CA) or foreign farms anyway.  

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Apparently CA is not the only place where business interests are exacerbating a water crisis:

http://rt.com/news/167012-coca-cola-factory-closed-india/
 

Wednesday, May 7, 2014

Climate change defeatism

I know we've talked about climate change for years, and of course it's only getting worse. It has been more in my consciousness recently because I had some class projects on it, and it seems to be in my News Feed a lot.

From the little I know, unfortunately I think it's too fucking late. Many of the underlying mechanisms are positive feedback loops, so it makes it even harder to reverse them - even if we had the social consensus and investments. Deforestation, reduced food production, and more and more resources wasted on extreme weather/fire/sea level responses - it will likely be more crippling on humanity than the aging Baby Boomers. 

People in our situations will likely have decent lives in spite of climate change. We have the mobility and resources to avoid a lot of the pains. But billions of others are not so lucky, and many species will die out or be decimated in our lifetimes too. Species that never meant humans any harm. They just want to live and we took that from them.

So even though we may not suffer much directly, we will have to live with the shame that we presided over the biggest environmental calamity since the meteor that wiped out the dinos. Clearly, industrialized humans have been the worse thing for the planet. All because of the pursuit of wealth (or pursuit of happiness/survival). So future humans will look back at us the way we look at the Nazis or Crusaders. That is just pitiful to me.

Of course most of this is on the Boomers instead of the younger generations, but we weren't strong enough to overthrow those fucks and course correct. We want to be like them, that is the problem.

Do you have any thoughts on this stuff? Sorry for being so negative, but it's hard to feel upbeat about anything when you look at the various data. Sure, I do believe humans will find cost-effective ways to get renewable energy, protect coastal cities, grow food with a smaller environmental footprint, and conserve way better. But those things just make our lives more comfortable - they don't do much for the poor or the various species/ecosystems under threat.

PS - maybe you saw this how Gates is telling China's mega rich to help the poor. What do you think about wealth inequality in China vs. the west? Can China's social structure survive more decades of inflation, environmental degradation, construction bubble, and a growing wealth gap?

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From what I understand, major changes to the global climate are now more or less inevitable. Maybe I'm behind on the science, but I also thought that we can still mitigate the damage somewhat? 

Of course a lot of the damage due to climate change is senseless and was avoidable, but to the extent that it wasn't avoidable, I don't think we can be too hard on ourselves. The best we can do is mitigate it and teach our children to do better. Maybe I've gotten too cynical, but I never really expected humanity to do much about it. If you follow politics closely, it's basically just a series of leaders kicking the can down the road on hard decisions. 

The EU did that with the financial crisis, it's estimated that as a result of the German's need to "teach the Greeks a lesson," (in reality the problems had nothing to do with the average Greek citizen) millions of people have been out of work, had their soul crushed, and been made to feel worthless in Europe  and tens of thousands have committed suicide that otherwise wouldn't have: http://www.nytimes.com/2012/04/15/world/europe/increasingly-in-europe-suicides-by-economic-crisis.html?pagewanted=all

In the US, national single payer health care, if instituted any of the earlier junctures in which it was attempted to pass, would have saved hundreds of thousands of lives over the years, and even with Obamacare, lack of a truly comprehensive health care system will kill untold thousands more (http://www.pnhp.org/facts/a-brief-history-universal-health-care-efforts-in-the-us).

Poverty in the US was once thought to be possible to eradicate, and in fact we once came pretty close with the Great Society program. But thanks to Reagan, we do too little to actually fix the problem, and as a result hundreds of thousands go hungry, homeless, and lack adequate health care and social services on a daily basis. http://en.wikipedia.org/wiki/Poverty_in_the_United_States The estimated cost to fix this is a trivial percent of the cost of what we spent on Iraq and only a smallish sliver of our annual defense budget.

I don't bring these up to be overly pessimistic, but I guess I see these problems as much more directly impactful on society than climate change and we can't even remove vested interests from them (or only with a lot of effort, see Obamacare) to make any headway. I think climate change is one of those things where people in society feel that they can "make a difference" more than these other problems above by buying a more fuel-efficient car, recycling, etc. and of course it gets a lot of messaging on lefty blogs/news sources. And it definitely should - it is an important issue.

But at the same time I feel like there are these issues where people are suffering /now/, where society could do something, but because the people are poor or invisible, we don't do anything. And that's what really breaks my heart. 

As for China, I think the Chinese are getting more altruistic, and that's a good thing. I think that one of the ironic things about Communism was that if you wanted to survive, you, by necessity, had to look out for number one - if you cared about anyone else's survival, you might starve or really go without. That carried over after the reform era began but things are changing. A new generation is growing up that has seen the excesses of development and want to do something about it. Still, they're a ways from Western level of altruism and I think there's a lot less trust of NGOs in China than there are in the US (and rightfully so - even supposedly well run US NGOs waste a lot of their money).

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Re: China - is there a similar tension between the 1% and 99% like we see in places like the US and Brazil? Or do the poor kind of accept that the connected elites in the Party hoard all the money too? I just don't know if there is much culture of sharing in China, as you said. Especially with the rapid transition from Great Leap to #2 economy, now it's all about "me" and conspicuous consumption, etc. Luxury brands now say that China is their key market, right? Also, Beijing gives way less foreign aid relative to its GDP vs. others in the G20. I guess you could call their projects in the 3rd world "aid" - securing resources rights by giving Congo a shitty dam or railway that is shoddy and won't add much value to the host nation (plus it's all built by immigrant Chinese, so it doesn't produce much vocational training, jobs, and economic activity for the locals - hence the resentment by the locals).

Wow, I didn't know about the Greece suicide data, that is really sad. I agree that the social problems you mentioned are more easily and cheaply fixed than climate change, and could save more lives. I also agree that we really had a chance with LBJ and the Great Society to wipe out poverty and have a more fair, humane nation. All the conditions were right, but he got sidetracked with Vietnam and then stagflation-oil embargo-Iran hit us, and the GOP got to take over and dismantle some of the progress. IMO, we'll never get such an opportunity again. It's not just you; we're all more cynical with harder hearts these days I think.

But re: climate change, I would have hoped for more traction/progress, because unlike poverty/inequality issues, it's not about "why should the rich help the needy?" Climate change is both a threat and opportunity for the rich. Do they want their kids to be subjected to superstorms and droughts for perpetuity? And those extreme events wreak havoc on the stability of global markets and their investments. Lastly, climate change is a huge opportunity too (industries to either mitigate or adapt to it). It's a trillion dollar problem with huge profits to be made for the first movers - so why haven't we seen it (apart from the impressive advances in solar, and energy efficiency for some products)? 


I forget which NYT journalist said it, but his comment was along the lines of "lightbulbs aren't going to solve climate change." There is only so much a conscientious consumer can do. Sure we can get a Prius, improve our home's insulation, and change some of our behaviors, but even if millions of us had the money/time to make those changes, it would barely affect the carbon situation. The main drivers are deforestation, agribusiness, and power generation. Huge, politically connected, int'l industries where only coalitions of governments have enough power and reach to move them (if they wanted to). Sure, consumers en masse could give up beef or boycott Indonesia until their economy stops burning rainforest - but we know it won't happen because we are addicted to carbon-intensive products and services.

Bottom line, climate change could eat up 10% or more of global GDP, and reduce crops/fish yields by 20% or more. That is freaking scary. With a growing population and more consumption in Asia, something's gotta give. All the conflicts that could arise due to climate-related problems could also eat up gov't resources, attention, and lives. So overall it's a major deadweight loss for humanity, and likely irreversible at this point.

Monday, April 7, 2014

The game theory of climate change cooperation



https://dl.dropboxusercontent.com/u/100243807/GameTheoryClimateChangepaper2.docx


FYI if you suffer from insomnia :), here's a recent assignment that I did with some classmates on using game theory principles to motivate cooperation on emissions reduction. It's not my best stuff, but we just want to freaking graduate in a month. :)

Maybe you saw that the UN Intergov't Panel on Climate Change (IPCC) released its updated report, and the situation is graver than the previous worse case scenario. Good times. Part of the problem is that you need to be a meteorologist and statistician to even understand their slimmed down "summary for policymakers". The environmental moment needs to hire the strategic communication consultants that the GOP uses. Hot-button terms like takers, flip-flopper, and death panels seem to resonate better with the public compared to probabilities and scenarios.

And for heaven's sake - tell us how much it's going to COST (5-20% of future global GDP if you can believe - mostly driven by coastal city defense, mega-storm cleanup, and reduced fishing/agriculture), so that it's not just about fluffy polar bears.

https://www.youtube.com/watch?v=IjUb9Y_bvE4

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http://yearsoflivingdangerously.com/
Climate Change series on Showtime.

Monday, December 30, 2013

Measuring the Return on Investment (ROI) of College



http://www.payscale.com/college-education-value-2013

I think the study's methodology is weak and does not prove causation. For the "return" part of ROI, they look at the median pay of grads for 30 years of working, adjusted to 2013 dollars. They project out pay increases by looking at grads from 1983 to 2012 (i.e. the earlier grads are later in their careers, and forecast what recent grads will earn at the same age). But of course that is fraught with problems, because universities could change a lot in quality and student composition over 30 years. And the economy changes a lot over time, so an older person may see very different wage changes from 1990-2010 vs. a recent grad from 2010-2030 (especially for degrees that saw a lot of industry growth or contraction). Also, I am not sure if they were looking at total earnings or just base pay, because we know that some jobs may have lower base pay but make up for it with better benefits, equity, or pensions. Students who went on to graduate/professional education were excluded, but that could be a problem too since some universities have a high % of students with those career aspirations (and those jobs tend to pay higher).

Also, are we measuring the ROI of the school, or the ROI of the students? University is not the only factor determining a person's future salary. Some Stanford students would still make similar money if they attended higher or lower ranked schools because of their abilities and ambition. But that is what the study should try to answer - if Joe Smith went to Cal vs. Stanford vs. Caltech and studied the same subject and pursued the same career path, how would his pay differ? This would be expensive and maybe unfeasible, but to control for student quality variation, they should have looked at each decile of US high school students (by general aggregated admission criteria), mapped out which college they attended, and then looked at their earnings over the first 5 years after graduation (30 years is overkill, entails too much uncertainty, and recent grad wages are a good predictor of late career wages anyway). But still, variation in regional pay and career choices would still confound the results.

This info would be tough to obtain as well, but possibly a cleaner way to answer the question would be to query employers. Do their compensation departments place a premium on various schools for certain job roles? Same with grad schools - do they give bonus points to students who went to undergrad at certain places (and convert that to a $ value)? Also repaying student loans has an opportunity cost, and there is value in the networking and relationships that one obtains in college. So it would be nice if they could incorporate those factors into their model as well. What do you think?

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In this case, though, it's a little hard to separate out the reputation effects vs. the quality of education vs. network effects.

I.e. do Stanford kids earn more money because we graduate with a good education or because of the Stanford name premium or because we just happened to make friends at a school where there is a lot of smart people.

If it's because of the quality of education, then you could say Stanford is worth it. If it's because of the network effects, then maybe yes maybe no. An expensive networking program for sure, but maybe not replicable by any other experience (and thus worth it). If it's the reputation effect, then Stanford should be concerned, as companies could potentially test for real skills some day, undercutting the reputational aspect of our degree.
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I agree that those factors are heavily linked in such a data set and it's pretty hard to draw any meaningful conclusions about ROI.

Another interesting question: are Stanford students successful because they went to Stanford, or is Stanford successful because of its students? I am sure it is symbiotic, but maybe that is why the top US schools have been locked in an "arms race" to recruit star profs, improve the student experience, etc. to woo the top talent. I guess they realize that a key to their success is the general quality of their "customer base" (but the spending is also partly irrational pissing contest). Though I am pretty sure that most students accepted at Stanford would become professionally successful no matter what university they attend (a testament to the merits of the admission process), even dropping out and going Zuck style. But if Stanford and say Ole Miss (sorry for offending any alum) do a "trading places" student body swap, I think that plenty of Ole Miss students would not be able to capitalize on the Stanford experience as effectively, leading to lower outcomes. And if the avg. quality of one's peers decreases, that may have negative effects on one's performance. But on the flipside, the sudden infusion of Stanford-caliber students to Ole Miss would have profound benefits for that institution on many levels.

So I guess college students should have much more bargaining power vis-a-vis university administrators. They could form a union haha and demand lower tuition or face a walk-out. But that threat is not credible, unless all of them can join startups the next year, or the Ivy League is able to take in the thousands of striking Stanford students en masse. Plus Stanford would replace them with eager "scab" students from US public schools and Asia - probably lower quality students, but "passable" to keep the place running. Therefore, it seems that the top schools are engaged in a certain degree of price fixing and cartelization (i.e. why is the tuition at Stanford pretty similar to that of Carnegie Mellon or Columbia, despite massive geographic and programmatic cost differences?). Unlike Wall St. and Si. Valley, they refuse get in a self-destructive price war, or steal away top talent from each other with cash/other incentives. Maybe that is illegal, but if absolute student body quality is the goal (as it pertains to national rankings or other metrics that administrator bonuses are based on), then it's worth it (and their endowments can justify it). But really, just imagine how that would affect recruiting if Stanford decided to slash its tuition by 1/3? 50% of undergrads are on some sort of financial aid anyway, so it wouldn't be such a shock to their finances. Well, no one ever suggested that higher education was an efficient market. :)

Saturday, November 30, 2013

Black Friday game theory



Cont'd from previous posts...

But like it was said earlier it is the prisoner's dilemma.  If target is open starting 10pm thanksgiving day with deals and no one else is, then that pool of money is going to disproportionately go to target.  So then JCP says "we'll be open too!" and on and on.  So now everyone is open and everyone is luring people in the only way they know how.
But this is also one of those instances where people grumble about traffic while sitting in traffic.  They ARE traffic.  Complaining about black friday as americans rings hollow when more americans go for the sales than vote. 

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Thx, M. Re: the pris. dilemma... I think the comparison is not quite valid here for a couple reasons. First, some PD's can be defeated through communication and agreements. Maybe through retail trade groups or whatnot, the major players can promise that they will not open before time X. If certain companies violate, then they could be kicked out of the group and flamed by the rest. Also, not all retailers decided to play this game. Notable exceptions are Nordstrom, Costco, Radio Shack, and I think Kohl's. They know that there are just as many potential costs as there are benefits to opening early (as we have already discussed).

“There’s a PR benefit to holding out, just as there’s a PR benefit to opening early,” said Roger Beahm, a marketing professor at Wake Forest University. “We know that there is a consumer backlash to this.”

http://www.huffingtonpost.com/2013/11/13/costco-thanksgiving_n_4262774.html
Second, the PD assumes a "one turn" game with finality, and the players are "all-in" for the decision at hand (open early or not, collaborate or defect). But in reality, holiday shopping is a sequential game with multiple "turns" where players can react to each other's past actions. Holiday shopping is a relatively long war; even if you "lose" B.F. turn 1, you can win later turns, which may in fact help your overall performance. So that may change the payoffs and strategies away from a pure PD.

Some of us discussed that opening earlier for B.F. just shifts purchases ahead in time, and doesn't necessarily earn you more overall profit for the entire season. Forbes had a related comment about that:

A Black Friday spending analysis from [MasterCard] shows a whopping 70% of consumer spending happens at the first two stores a shopper visits.

http://www.forbes.com/sites/clareoconnor/2013/11/28/heres-the-real-reason-stores-are-open-for-black-friday-sales-on-thanksgiving-day/
I guess that makes sense, as shoppers get tired after a few hours of lines, crowds, and cold. Also the article says that consumers allocate 50% of their total holiday budget to B.F. (I assume they got this from exit surveys, which can be problematic, and a lot of customers don't even make a formal budget so it's hard to be sure). So if all that is true, it will incentivize retailers to keep one-upping each other on B.F. But again, thinking about this as a sequential game, during B.F. retailers are fighting for a big slice of the pie (maybe 50% of total holiday spending), but there is still another 50% after. So maybe it is more cost-effective to not "blow one's load" on the B.F. arms race, where competition is fierce, ROI could be lower, and there is more risk. Instead wait as the morons duke it out, and then go on a blitz to eat up all the post-B.F. dollars, after you rivals have depleted their resources. You know, all these lame business-is-war analogies. :)
Lastly, I agree with your point that shoppers bitch about the B.F. issues, yet they are contributing to them at the same time. Maybe many of them have unrealistic expectations that they will just stroll into an empty store at a time that suits them, and quickly get all their wish list items on sale. That is called the internet. :) Assuming that sites don't crash due to heightened traffic.

More on Black Friday



A friend just sent this: http://online.wsj.com/news/articles/SB10001424052702304281004579217863262940166

So folks are stressing and fighting over what is likely phantom discounts anyway.

After working at a discount e-commerce site, I know that some consumers care more about the "% discount", rather than the final price (or even the actual use of the product!). So they fall into the trap. It's probably better to know what max price you will pay for item X, and just pick the nicest one that qualifies. The MSRP may suggest relative quality, but that's about it. My econ prof said that $, not %, counts in the end; a cheap toy may be 80% off, but if that only means $3 more in your pocket, it's really not that impressive. And of course it depends if the full price is reasonable or artificially marked up as the article said. But the majority of consumers are not that econ-finance savvy, and probably don't consider these factors in the heat of the moment.

I just fear that as long as real wages stagnate, the wealth gap widens, and purchasing power wanes (due to higher housing, medical, education, & energy costs), people will find it harder and harder to maintain or increase their consumption (despite all the marketing messages and social pressure to do so). Robert Reich said that these trends have been around since the 1980s, but the US middle class made up for it with home equity and consumer credit (to the benefit of Wall St.). Now that loans are getting harder to come by, and of course curbing consumption is out of the question, the stakes become even higher to secure "deals". That could change the shopping psychology and make B.F. pandemonium and conflict more likely and serious going forward. It's like NFL stadium violence - is it any surprise that it is likely correlated with soaring ticket prices and overall "cost of fandom"? When you squeeze and raise the stakes on people, of course they are going to react badly when they feel like they are not getting their money's worth.

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Happy Thanksgiving dude :)

It's always kind of baffling to me seeing these kind of "is X good for society" emails, because ultimately there is no benevolent overlord responsible for arbitrating this kind of thing. It's just ... game theory, lots of individuals trying to maximize their own whatever (sometimes profit, sometimes happiness, sometimes self-satisfaction).


Black Friday is an interesting concept. My basic mental model is that initially it was just a naturally-big shopping day, and (given retailers' low margins) the first day that retailers showed a profit for the year. Then retailers started competing for shoppers, and because their main method of competition was "sales" ... here we are.

Obviously you know that sales and coupons were the old-school form of price discrimination, before the internet and quants like you figuring out how to get every dime out of the customer ;) But now it's just old-school prisoner's dilemma, with every retailer defecting and offering sales. This year they're especially screwed, because JCP is desperate to sell off the old Ron Johnson-era merch and is undercutting everyone. It's straight-up race to the bottom, where half these guys will be out of business in 3 years and the rest will be lucky to survive 10. 

They're not doing it because it's good for the country or the culture. They're doing it because, like a heroin addict that hasn't gotten a hit in a while, momma needs that holiday shopping boost, and they'll do *whatever* it takes to get it. Some trickery, some desperation, but this is what giant corporations look like when they die. Like those images of a dinosaur trapped in a tar pit, trying to get out, every struggle dragging it deeper into the black ooze.

What we're seeing is the end of retail, and this and the next few Black Fridays are going to be ground zero for that shit. Loot what you can :)

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Thx J, same to you.

Even though B.F. is not a top-down, command economy program, I still think it is valid to evaluate the consequences. If we don't do that, then how can we ever know if a change is needed? Yes, game theory can accurately describe and predict players' actions given a set of conditions, but to me that kind of abstracts the situation as if we were just "rats in a maze". B.F. is about more than transactions. I wanted to consider the human side and social costs, because it's easy to take them for granted when all we see are the cool items, big crowds, and blowout prices in the media. As you said, if these dinosaur retailers are caught in a suicide spiral race-to-the-bottom, then the poor decisions that contributed to that situation will eventually hurt millions of shareholders, employees, and society as a whole (less tax collected, more pressure on social services).

Negative industry trends aside, is B.F. the best method for buyers and sellers to achieve their seasonal goals? As recently as the 1990s, B.F. wasn't even the heaviest US shopping day (that was reserved for the Sat before Xmas, for gift procrastinators LOL). Some limits were still respected. But as you said, companies are locked in a fierce rivalry, and some "innovators" thought to exploit B.F. more. I wish customers would push back and say, "I don't care how big your sale is. The holidays are for spending time with loved ones and being good to one another, not fighting for a spot in line at 3AM just to get an Xbox. It's not right to encourage rabid consumerism and make your employees work these crazy hours either." If we collectively protest and boycott, change will come, like apartheid in SA and cigarettes in the US. Unfortunately there haven't been many big success stories of corporate boycotts recently (they defeated the labor movement, and they know how to diffuse grassroots protest too). But it's American tradition: the Boston Tea Party was a boycott of sorts by colonial merchants getting squeezed by the East India Company. So going back to B.F., unfortunately there won't be boycotts because some customers will likely "cross the picket line," lusting after deals.

I am not that familiar with the JCP case, but didn't Johnson try to make the company more upscale and resist coupons/discounts? Obviously that didn't work and they are now making a big reversal, but JCP is not a leading retailer (it's $12B annual US revenue is 16% the size of Target's). So I don't think they are driving B.F. trends, but they probably will be gone in 3 years as you said (Sears too). However, predictions of retail's demise could be exaggerated (or at least premature). In the Bay we are surrounded with innovation, disruption, and e-commerce, so that could bias our perspective, because US e-commerce is still only 6% of total retail sales in 2013 (and the biggest category is travel, because it is expensive and there isn't really a retail equivalent after the death of the travel agency). Goliath Amazon still has less revenue than Target. Shopping is still a communal, visceral experience that e-commerce and social media haven't fully supplanted yet (some fun, scientific reads on the subject if you're interested: link). Even if Amazon develops cost-effective same-day delivery, many people will still go to the big box or the mall because it offers a value proposition that online doesn't exactly match. Yes brick-and-mortar retail is inefficient with its labor, rent, and overhead, but customers still demand it.  

http://ycharts.com/indicators/ecommerce_sales_as_percent_retail_sales
http://www.statista.com/statistics/191145/travel-e-commerce-sales-in-the-united-states-since-2002/
http://trends.e-strategyblog.com/2013/04/25/american-retail-ecommerce-sales-by-product-category/10687

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I'm sure some of you saw this too, but Black Friday isn't even a good predictor of holiday sales: 

So the whole thing is kind of a waste of time from the perspective of the economy; people are going to spend what they spend over the holiday period, and black friday can only take from that pool, not get consumers to spend more.

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Thx, A. I agree, B.F. just accelerates and concentrates purchases, but then many folks will run out of cash/energy afterward and not shop much more for the rest of the season (like a hangover). If companies want to keep pouring gasoline on the fire and make B.F. more and more of a ludicrous spectacle where the worst of human nature and American "culture" is on display, then I wish gov'ts would pass laws requiring retailers to fit the bill for the extra police, paramedics, and others who have to work overtime, manage the crowds, and respond to shopping-related incidents. Maybe that would change their P&L calculus. 

Friday, November 29, 2013

Is Black Friday even worth it to our society/economy?



http://news.yahoo.com/blogs/sideshow/-walmartfights-sparks-a-trend-on-twitter-193622540.html
http://en.wikipedia.org/wiki/Black_Friday_%28shopping%29

As we know, scheduled promotions like "Cash for Clunkers" many not generate new transactions, but merely shift them to a specific date (i.e. I would have bought a TV for Uncle Bob at some point before Xmas, but I might as well go on B.F.). Sure, while you are frantically trekking through Walmart, the mob mentality and "holiday spirit" make you less responsible with the wallet, so you might be inspired to get some other items (which is incremental revenue), but it's really hard for businesses to measure if those purchases are totally due to B.F. With the "arms race" of fierce retail competition, and marketers whipping consumers into a frenzy (and now mobile broadband and social media make it even easier to learn about "great deals"), companies have to take a loss or break even on certain products just to earn some eyeballs (they likely will have to pay more for ads due to more competition). Of course they may only have 5 super-cheap TVs per store, but clearly they are pricing competitive items lower than they'd ideally want to, and likely below what the customer's normal willingness-to-pay is (sans B.F. expectations).

That is a risk too - customers are expecting great deals, so if they are sold out by the time they get to the shelves (even for folks who waited for hours in the cold), that will cause a lot of anger, and the retailer runs the risk of creating a detractor who badmouths them on social media. And that's if they're lucky - shortages may lead to riots and deaths, as we've unfortunately seen in the past. Imagine all the man-hours of extra associates, police, and other emergency responders needed to handle the B.F. madness and possible incidents. Imagine the carbon footprint of all the traffic jams and the utilities from the extra hours that stores are open (and it's getting earlier and earlier - some stores opened at 8PM ON THANKSGIVING... by 2020 Black Friday will be on Labor Day). B.F. may not drive many purely incremental sales, but it sure as heck will create many incremental traffic accidents, injuries, etc. The employees that have to deal with the insanity may get overtime pay, but they also will experience elevated stress and possibly employer resentment, which are documented to affect workplace productivity, personal relationships, and health (not to mention all the stress and panic behind the scenes where non-store employees have to rush to meet the B.F. related logistics, marketing, product launches, and other deadlines). I am pretty sure some folks at Sony and Microsoft would have liked a few more weeks to iron out the bugs associated with their new gaming consoles, but they had to get them on the shelves in time for B.F. And as far as I know, no one is getting B.F. or Xmas bonuses anymore for their extra efforts.

On the consumer side, the post-Great-Recession US shopper spends on avg. $400 during B.F. weekend (with 200M+ unique shoppers). People may not behave very rationally during B.F. (understatement of the year), so they may make inefficient and imprudent purchasing decisions that will have negative consequences on their economic viability (and that of their dependents). There are socioeconomic costs associated with frivolous spending: credit default, back taxes, late rent payments, etc. Some opportunists make money off things like that, but there will be preventable economic losses too. Also, the more we spend on shopping, the less we have to donate to charities (or even buy more medicine and healthier food). The fatigue, emotions, and sleep deprivation associated with B.F. shopping will affect shopper health, relationships, and productivity for weeks - especially during the winter time of bad weather and virus spreads. Adding all this up, I can imagine that the social costs of B.F. could easily top $1B in the US. I am not sure how much incremental profit B.F. generates (for scale, wiki says WM gets $5B from B.F., and it is ~3% of all US retail sales), but clearly it should be discounted if we want to make a fair, holistic value calculation.

Even Cyber Monday could have social costs by reducing workplace productivity and tying up bandwidth that could make pageload/latency times worse and important/emergency messages slower.

Wednesday, August 28, 2013

Accommodating disability/identity going too far?

You may be surprised to hear this from a progressive, but I am getting a bit tired of what I interpret as excessive accommodation (or less flattering... tyranny of the minority). The Constitution protects life, liberty, and the PURSUIT of happiness - not an actual guarantee of happiness (especially when that may result in less liberty for others). Life is hard much of the time for most of us (even "normal" folks); why does society have to address your specific issue at what could be great cost/unfairness to others, some of whom may be even needier by reasonable measures? Part of that stems from the greater diversity and funding for interest groups of course. But maybe part of it is also a bit of egocentrism: my problems are more important than yours. Often "fights for justice/rights/equality" have degenerated into fights for disproportional, preferential treatment (pro-Israel lobby, breast cancer funding, etc.). People rarely take the time to consider that the extra stuff they get may result in involuntary sacrifices from others.

Obviously those with special needs deserve some assistance, compassion, and reasonable laws to govern their treatment. But do we give equivalent concern for other types of needs, such as language barriers, poverty, climate-geography, family situation, non-mainstream religions, or general inability to thrive in this market economy? Many of those factors are also out of the individual's control and often no fault of their own.

First of all, if we run the #s and accessibility/sensitivity measures don't cost the nation that much, then it's a moot point. But there are a gazillion types of disabilities, and some are of course easier to accommodate for than others (and do employers and orgs have to plan for all of them?). I couldn't find summarized figures, but as a case example take North Adams, MA with a pop. of 14K. The DOJ is forcing them to pay $1M over 3-5 years for ADA compliance. I am not sure if this is representative of the overall US or not, but that is $71/resident. Disabled people are about 13% of the nation (43M ppl), but of course not all of them will need every type of ADA modification. To put it in perspective, a single person with a $50K income contributed $73 towards science/tech research in their federal tax return. So North Adams was spending as much on ADA compliance (that may nor may not help anyone) as they were on research (that ironically could reduce/mitigate disabilities). So we're robbing from the future to pay for quasi-arbitrary mandates. I am sure some of those upgrades were serious and needed, but I'm also pretty sure some weren't. 

With all our crumbling schools, bridges, power grids, etc., we have to prioritize our spending by cost/benefit. Maybe that is cold, and of course we don't want to leave critically needy people hanging, but ultimately if we spend $ smarter, America will be better off. I wonder if people even collect data regarding how many Braille signs are actually used by the blind, how many CC-hearing impaired tools are actually used by the deaf, what % of workers are self-identified as disabled, or how many ADA accessible bathrooms/parking stalls/etc. are "surplus". There's no point imposing all these costs on businesses and other orgs if they're not even helping the handicapped much.

The various versions of ADA were meant to be civil rights legislation preventing discrimination against the handicapped, which is probably good. But according to wiki sources below, the Act is so vague and inconsistent (like most legislation) that it may actually make it harder for the handicapped to get some jobs, and opened the door to an avalanche of litigation. Of course the disabilities with the best advocacy assets got more favorable attention/provisions (how does one rank disabilities anyway?).

http://en.wikipedia.org/wiki/Americans_with_Disabilities_Act_of_1990

People should have equal rights and "relatively" equal access to public services and life activities. But that doesn't mean we can all enjoy them equally. People have "disadvantages", whether mental, physical, emotional, economic, or otherwise that may significantly reduce their access to privileged or even basic stuff. We can't remedy 100% of those cases, and it would probably be highly corrupt and oppressive if we tried. Sometime it's morally right and maybe socially justified to try, but we need to give it a lot more thought before imposing sweeping mandates on a community, or the entire nation.

Some of these comments apply to identity issues too. I'm sorry, but society does not have to bend over backwards just so you can "be who you are". ALL of us put on masks every day and have to conform to some other persona just to be part of society. We don't have unlimited, absolute freedom and liberty. Reasonable accommodations are fine, but that is of course subjective and I am not sure if legislators or even judges are the best people to make the call. I wonder how much of it is real personal strife and how much is just vanity or an attention grab. I really doubt most elementary kids can be certain of their gender identity; they've barely spent any time at all as that gender. I know it is a real issue for some, but I can envision a lot of misunderstanding and problems associated with this type of law. Surely it is wrong for kids to be discriminated against based on what gender they want to associate with and what society expects them to have. But the law can't prevent every wrong from occurring, and this could cause disturbance and tension for many other students and their families. Maybe the best solution is to build a solo unisex bathroom in each school? But that isn't much different than enforcing ADA building rules I guess.

Saturday, June 22, 2013

Scientific studies suggest money makes you an a-hole

First, they conducted a simple observation of pedestrian and driver behavior at an intersection. They found that 90% of drivers do yield for pedestrians (as law and safety demands), but of those who blew through, a significantly higher % of those vehicles were classified as "luxury". Also luxury cars cut off other drivers at a higher rate. A lot of things could be potentially wrong with such a study, but the result seems logical - spending a lot on a car with attached marketing messages like: you have arrived, you are Mr. Badass, you deserve it, you're better - may motivate the driver to feel that he/she (mostly he probably) doesn't have to stop for "peasants" and is entitled to get to the destination unhindered. Or maybe their social environment is very status conscious and competitive, so driving is also an opportunity to demonstrate their perceived superiority, or they may feel the need to drive like a jerk to fit the mold of success (even if they actually want to drive more politely). Of course this doesn't apply to all luxury drivers, and there are plenty of jerks driving clunkers.

You know how politicians take candy from babies? Rich people do too, literally. Controlling for various other attributes, they had participants fill out a phony form in a private room. There was a small jar of candy on the table, which they were told was for kids for the next study later in the day, but they could have some if they wanted. Participants labeled as "rich" (maybe above some cutoff for self-identified household income, reference their PNAS paper for details) took 2X more candy than non-rich. Even though they were permitted to, typical conscientious thinking might be: I can buy my own candy later, the kids will enjoy it more, I don't want to look like a pig, etc. to motivate them to refrain. But maybe rich people are used to getting better service and favors from others (with less regard for sharing & limits), so they are conditioned to take when offered without considering others.

You have probably heard about studies that show CEOs are more likely to cheat on games (even with no rewards) by self-reporting higher scores (with no outside verification). The same applies to rich people. In a computer-simulated die toss game, the richer participants in their study were more likely to cheat and report scores that were mathematically possible, but actually impossible due to the hidden logic of the sim. The narrative seems reasonable: rich people are competitive and may lie to increase their chances of winning if they can get away with it. Their personal payoffs for winning unethically outweigh the possible consequences of getting caught, and that calculus may not apply as much to the sub-rich, where consequences dominate (jail, getting fired, etc.).

Lastly, what happens when non-rich people "feel rich" and vice versa? The researchers had people play a rigged game of Monopoly, where a randomly decided player (of various personal wealth levels) got to be Goldman Sachs (more starting $, more die rolls, got to have the car playing piece). It was about mathematically impossible to lose from that position. During the game, the Goldman player tended to exhibit more bossy, dominant behaviors. When asked how they felt about the game results, the Goldman player was more likely to take personal credit for their success rather than acknowledge their randomly-assigned advantages. We know that manifests itself in real life, as from our previous discussions, the rich may feel OK with tax evasion because they feel they already paid enough, and they deserve to keep more of it due to their cunning/superiority. Conversely in the Monopoly game, those in the position of the disadvantaged player tended to exhibit more compassionate, gracious behavior (despite their actual social class).

Extrapolating these results out to the real world, I suppose we shouldn't be surprised when the most rich and powerful among us behave badly and are caught in greed/ethics scandals. And for the rich who behave well and can still be generous to others (like Buffet), they have particularly impressive discipline and caring, especially considering the temptations, lack of accountability, and pernicious culture of their elite social class. I doubt many rich people read the PNAS journal, but the authors caught hell after their paper was published. I think it's pretty hard to be totally uncaring (sociopathic), so deep down even the biggest rich jerks probably realize they are doing wrong, but as I said their incentive structure compels them to knowingly do wrong. They don't like being reminded they are being bad, so of course they lash out or make excuses. And it's no help that our tax-legal system heavily favors the rich and is chock full of loopholes. They use it as a cop out. My business ethics prof said something like, "Legal does not guarantee ethical. If you measure your actions by the law alone, you're in trouble."

But maybe all this stems from our society's value system. Money is the literal currency and also social currency for status (which gives you access to pretty spouses, creature comforts, fame, and other perks). We don't celebrate the kindest or meekest or most generous among us. We celebrate the richest, biggest jerks who take what they want and don't care about anyone else. In fact we suck up to, idealize, and emulate them - even post Recession. I am fairly sure such phenomena would not occur in cultures where materialism, egotism, and such are not as valued, like Amazonian tribes or Tibet before China's ethnic cleansing. This comes back to the "selfish gene" argument. The animal side of us needs to be selfish and dominant to propagate our genes. But we are social beings too; if we are too sociopathic, then we will alienate ourselves, which may imperil our progeny. So kindness in a sense is a form of selfishness, but I think too much kindness is a better problem to have than too much greed.

The rich are just doing what their culture enables and compels them to do. Maybe the fault lies with the 99%. The rich are always outnumbered. Starving, abused peasants burned and hung the rich when they went too far in Europe and Cuba. We just take it in America, because our goal is not to have a more just society of "liberty, equality, fraternity", but to join the ranks of the rich one day and lord over the 99%. So that is the problem. We don't fight inequality and abuse because we are totally fine with such an unjust system, as long as we eventually get to the top. But obviously that is a pipe dream for the vast majority of us. But that is the evil genius of the system, it traps us in our own unrealistic ambitions and hopes. Maybe the "new" American Dream (where the goal is to be the man, not just middle class) is actually bondage rather than emancipation. It tells us if we commit ourselves 100% to our careers (work almost to death), comfort, fun, wealth, status, and all that can be ours. But that won't happen for everyone, even if all they do is work. And all that effort in vain actually serves to make the execs and investors (who have already made it) richer. Talk about a scam.

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I always wonder what is really being measured in these studies.  Is the car really correlated to wealth or spending?  If i CAN buy a luxury car but don't am i less likely to be an A-hole? 
And who cheats at games with no reward or really cheat at all?

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Re: luxury cars, of course not all purchasers are actually rich, and as you said, plenty of rich don't feel the need to buy them. It's maybe a self-selection phenomenon. The ones who drive them are more likely bought into the image message, and therefore may be predisposed to act like a "typical BMW driver."
Re: cheating, we've all used cheat codes in video games right? No actual reward there, but it's an easy way to progress in the game and enjoy the winning feeling. I suppose if there are no consequences (the comp won't refuse to play with you next time), why not? The people who don't cheat may feel that cheating only hurts them, so they're rather face the challenges and push themselves to master the game and win properly.

Sorry I forgot to add in the OP, by no means am I saying that armed revolt is the only way to make things better. We just have to hold bad behavior to account, and change the incentive calculus. We have to make it so costly to behave badly that even jerks will have no choice but be civilized (whether insider trading or not yielding for pedestrians). Criminal penalties may be a start, but the rich control the legal-judicial process. We could also stop idolizing rich jerks, and instead celebrate the ones who "do it right". Here's a crazy idea: why don't we idolize the folks in the Apple commercial instead of the folks that run Apple? And please let's stop emulating Kardashian, Zuck, etc. And when we see bad behavior on the streets (by rich or otherwise), we should call them out on it. Maybe they are beyond reproach, but at least others will take notice that such conduct is detrimental and won't just be blanket condoned. Racism, sexism, xenophobia, and homophobia used to be tolerated (and even encouraged) in US society. But gradually we used education and alternative role models to shame those ideas to the margins and private thoughts. We can do the same for "richism" too, but it's a bigger challenge because it's more pervasive. But we have little choice. Imagine if our society was actually 99% rich instead? What a horrible place to live!

Even worse... crazy rich Asians!!! http://www.amazon.com/Crazy-Rich-Asians-Kevin-Kwan/dp/0385536976