Wednesday , March 3 2021
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Articles by [email protected] (Luke Froeb)

Is South Africa incorrigible?

12 days ago

incorrigibleThe ‘nice’ word for someone (or government) that never learns from their mistakes is “incorrigible” which is defined as a person (or government) that is not able to be corrected, improved or reformed.South Africa banned cigarettes and alcohol during the pandemic.  Predictably, The sales bans may also have had a more limited effect on consumption than was expected. Though the sale of legal, tax-paid tobacco came to a halt, there is evidence that many smokers purchased illicit, tax-evading alternatives on a large scale. A recent study by the University of Cape Town found that more than nine out of 10 smokers continued to purchase cigarettes despite the sales ban.The tobacco ban appears to have strengthened the illicit trade in cigarettes, possibly permanently. With no tobacco

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Pandemic increased inequality

15 days ago

What happened: The winter surge of COVID-19 stopped and then reversed the progress in returning to work that had been made by the lowest-income workers, the New York Fed points out in a research paper released Tuesday. (cite)

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Consequentialist critique of California Housing Policy

16 days ago

in the NY TimesThis is a crisis that reveals California’s conservatism — not the political conservatism that privatizes Medicare, but the temperamental conservatism that stands athwart change and yells “Stop!” In much of San Francisco, you can’t walk 20 feet without seeing a multicolored sign declaring that Black lives matter, kindness is everything and no human being is illegal. Those signs sit in yards zoned for single families, in communities that organize against efforts to add the new homes that would bring those values closer to reality. Poorer families — disproportionately nonwhite and immigrant — are pushed into long commutes, overcrowded housing and homelessness. Those inequalities have turned deadly during the pandemic.“If you’re living eight or 10 people to a home, it’s hard

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Ironically, advances in AI increase the value of human judgement

27 days ago

Written by three economists, Prediction Machines analyzes the potential of AI and as a fall in the cost of prediction.  The top review on Amazon reduced the book to three propositions:AI is mostly about predictionThe cost and price of prediction is falling,This will increase demand for complementary skills, like judgement and decision making.While accurate, the review does not do the book justice.  Most interesting is the taxonomy of the different kinds of uncertainty:  (known, knowns), (unknown, knowns), (known, unknowns),( unknown, unknowns).  From a review:Building on Donald Rumsfeld’s oft-repeated taxonomy of known knowns, known unknowns, and unknown unknowns, the trio of economists add another category: unknown knowns.[7] For Agrawal, Gans, and Goldfarb, known knowns represent a

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Are Stocks over-valued?

January 24, 2021

Earlier we noted that Shiller’s CAPE (cyclically adjusted P/E ratio) is the second-highest its ever been  behind only the tech bubble of 1999.  And now Goldman is telling its clients that there are other signals that the market may be over-valued, e.g., the growth of SPAC’s, and the big increase in prices of stocks with negative earnings, indicating an expectation of future growth.  Nevertheless, Goldman seems to think those expectations are right:"we expect modestly higher rates will be offset by a declining equity risk premium, leaving the S&P 500 P/E effectively unchanged and allowing strong EPS growth to drive the market towards our year-end target of 4300."CAVEAT:  If I really knew, I wouldn’t be teaching school.

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Can money buy happiness?

January 20, 2021

Contrary to what I was taught in Sunday School, self-reported happiness rises with income, but at a declining rate:each dollar (of income )starts to matter less the more a person earns. "We would expect two people earning $25,000 and $50,000, respectively, to have the same difference in well-being as two people earning $100,000 and $200,000, respectively. In other words, proportional differences in income matter the same to everyone."

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Bargaining with Macaques: the alternatives to agreement determine the terms of agreement

January 15, 2021

At the Uluwatu temple in Bali, monkeys steal high value items from tourists, and then ransom the items back for food.  Higher valued items are returned only after higher payouts.  From MarginalRevolution.com:After spending more than 273 days filming interactions between the animals and temple visitors, researchers found that the macaques would demand better rewards – such as more food – for higher-valued items [like mobile phones, wallets and prescription glasses].Bargaining between a monkey robber, tourist and a temple staff member quite often lasted several minutes. The longest wait before an item was returned was 25 minutes, including 17 minutes of negotiation. For lower-valued items, the monkeys were more likely to conclude successful bartering sessions by accepting a lesser

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Good early signal from the Biden administration: First doses first!

January 9, 2021

MarginalRevolution reports that the Biden administration will release all the available doses of COVID vaccine, essentially over ruling the bureaucrats at the FDA, to vaccinate twice as many people with a half dose!The expected benefit of a one-dose regime is millions of lives!This is a good harbinger of decision-making under the new administration,

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Are the FDA’s incentives aligned with the goals of the people?

January 6, 2021

The FDA is resisting pressure from academics to vaccinate more people with single doses:

"At this time, suggesting changes to the FDA-authorized dosing or schedules of these vaccines is premature and not rooted solidly in the available evidence," Dr. Stephen Hahn, FDA commissioner, and Dr. Peter Marks, director of the FDA’s Center for Biologics Evaluation and Research, said in a statement. "Without appropriate data supporting such changes in vaccine administration, we run a significant risk of placing public health at risk."

Apparently, these FDA bureaucrats want more information before making a decision. However, we know how to make decisions under uncertainty: minimize expected error costs or maximize expected value. The expected benefit of one-dose regime (vaccinating twice as many

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Uh, Oh, …

December 2, 2020

Amazon has made it much easier to defeat international price discrimination schemes, (like the one used by me.)
Managerial Economics (Hardcover)

by Luke M. Froeb,Brian T. McCann,Michael R. Ward,Mike Shor

United StatesUnited KingdomGermanyFranceCanadaUSDUSDGBPUSDEURUSDEURUSDCADUSDItem price$194.61$194.61£105.00$150.10€230.34$256.30€227.10$252.70C$259.95$188.33Shipping per itemFreeFree£2.99$4.27FreeFree€1.90$2.11C$1.99$1.44Sub-total$194.61$194.61£107.99$154.37€230.34$256.30€229.00$254.81C$261.94$189.77Cost per shipmentFreeFree£3.99$5.70€14.00$15.58€9.00$10.01C$7.99$5.79Total$194.61$194.61£111.98$160.08€244.34$271.88€238.00$264.83C$269.93$195.56Buy atAmazon.comBuy atAmazon.co.ukBuy atAmazon.deBuy atAmazon.frBuy atAmazon.ca

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Removing a noisy signal improves decision making: Army removes photos from promotion sheets

November 17, 2020

From The Army Times:

The Army will no longer include official photos for officer selection boards, beginning in August, to help eliminate unconscious biases in the promotion process…To their credit, the Army first ran an experiment to determine the consequence of the change and found that when the photo was removed:…there was less variance between voters’ scoring, meaning voters ranked candidates more similarly across the board. After removing the photo, voters also took less time to make decisions on each individual file, and the outcomes for minorities and women improved.A similar change, Ban the Box, a ban on employers asking about criminal background, saw some employers turn to race as a proxy for criminal background.  The difference seems to be in the value of the signal:

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I am sending the Pope a copy of my textbook

November 10, 2020

From the Pope’s Encyclical "Fratelli Tutti" ("Brothers All"):The Pope also makes no secret of his opposition to the global capitalist free market economy. He proposes instead that wealthy countries form a seamless bond with the have-not peoples of the global south. … The problem with redistribution, of course, is, as Margaret Thatcher famously said, "Soon you run out of other people’s money." After everyone has been made equally medium-poor, then where, without incentives for hard work and production, are further disbursements supposed to come from?  
Hopefully, the Pope will at least read Chapters 1 and 2 as he makes the implicit assumption that no one will respond to the perverse incentives he proposes, but I am not hopeful.  When I sent a free copy of the 3rd Edition to President

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Did Warren Buffett finally read Chapter 9?

November 10, 2020

He is applying the "indifference principle" to criticize high tax states with unfunded pensions.  From Zero Hedge:

“If I were relocating into some state that had a huge unfunded pension liability, I’m walking into liabilities. . . And those are big numbers. Really big numbers. . . They will come after corporations. They will come after individuals. . . They’re going to have to raise a lot of money.”

BOTTOM LINE:  A mobile asset, like labor, will move to where it can earn the most.  Consequently, young, wealthy, and productive people will be drawn to states like Tennessee, Texas and Florida (which have low income taxes and relatively healthy pensions).

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Nice summary of the affordable housing crisis

November 7, 2020

In the Stanford Law Review:
[the cause of the affordable housing crisis] is uncontroversial among urban economists but not broadly understood by low-income families, advocates for low-income families, housing activists, and their allies in academia, policy, and government—in short, the housing advocacy community. In the face of higher housing costs, the housing advocacy community tends to argue for a “kludgy” set of policies that can actually prevent new development and end up increasing housing prices— campaigns to impose building moratoria, for example, or downzonings, community benefits agreements and other exactions, lengthy approvals procedures that disadvantage developers relative to NIMBYs, various forms of rent control, and a focus on affordable housing to the exclusion of other

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No free lunch: insurance premiums go up in response to lower insulin co-pays

November 5, 2020

News from Colorado:A new law, signed by Gov. Jared Polis earlier this week, caps co-payments of the lifesaving medication at $100 a month for insured patients, regardless of the supply they require. Insurance companies will have to absorb the balance.  While the Colorado out-of-pocket caps will likely provide financial relief for diabetes patients, she noted "the costs will kick back to all of the insured population" whose premiums are likely to go up as a result. 
"Nothing is free," Hernandez said.The saying "there is no free lunch," refers to the the economic idea of opportunity cost.  When Colorado tries to make life better for insulin patients, they also raise the cost of offering health insurance, reducing the number of people with insurance.  HT:  Thomas B.

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The etiology of Chinese yuan

October 30, 2020

Chinese is a tonal language, and the pronunciation sounds more like yoo-en than yoo-aan. The only people who say R-M-B (renminbi) are bankers who can’t wrap their mouth around a foreign word and refuse to try.  The pronunciation sounds pretty similar to the Japanese currency, yen, because it is.  The Japanese aristocracy originally borrowed written Chinese and many of its words, including 元 (yuan, yen).  Both still use the same character for pricing. In Chinese, yuan holds the closest translation with the word dollar. If you are talking colloquially you would use the word kuai (块, pronounced kwai and translated as fragment, shard or piece). This would be similar to using buck or quid in American or British English respectively. RMB is the romanized abbreviation of the word renminbi (人民币)

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Why are house prices climbing?

October 27, 2020

Two obvious answers:  cheaper borrowing is increasing demand; or consumers want a better place to work-at-home.  The higher price increases in lower density (lower virus risk) areas suggest that it is the latter:Phoenix, Seattle and San Diego reported the highest year-over-year gains among the 19 cities (Detroit excluded from report due to virus-related reporting constraints). Chicago and New York reported the weakest YoY gains.

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Book Recommendation: The Art of Strategy

October 13, 2020

Just started reading The Art of Strategy, and am already hooked.  The first chapter alone is a great intro to how game theory can inform strategic decisions, where payoffs depend not only on what I do but what my rival does.  Really well written!

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