December 2004 Archives

New Year Deluge in the Maldives


When I went to the office on that calm Sunday morning everyone was talking about the small earthquake tremor that was felt in the capital Male� at around 6.30 am in the morning. tsunami_map.JPGThere was no acknowledgment of the earthquake by the government media yet banned opposition sites confirmed the earthquake and its links with Indonesian earthquake early in the morning. At around 9.35 am somebody shouted in horror that the sea was coming. We ran near the windows and my goodness, the sea was coming in like a torrent. The roads were flooded up to the knees and people were shouting, crying and screaming in shock. No body in living memory has seen such a thing.

Male� the Capital was spared most of the damage thanks to the Japanese built tetrapod breakwater across the island. The total number casualties is over 70 and some 40 people are missing. The number is likely to double when everything settles down.

boy_flood.JPGOne person from the Laamu atoll I met told about the horror he witnessed when tsunami came in. At around 9.30 in the morning while he was sitting near his beach front home, suddenly the sea disappeared for about half a mile. He could see the fishes gasping and struggling on the dry sea-bed. It stayed like that for about five to six minutes then the waves started coming in like a torrent. He was saved when he jumped on to a boat nearby.

Compared with other countries, Maldives is lucky that waves were not as high as that hit India and Sri Lanka. The 200 islands that are inhabited and some 80 resort islands are at their highest 3 feet above sea level.
When the shock had subsided most people were feeling angry at the way government handled the whole thing. The government established a Task Force at one of the schools (it might be more appropriately called a Confusion Force). The telecommunication system had broken down and even after 24 hours there was no contact and news from many of the islands. People asked why was there no early warning of a possible tsunami as everyone new of the massive earthquake that occurred off Sumatra. To make things worse some of relief supplies sent by the government to the islands had labels such as �complements from such and such a person� (this was the time of election campaign for the parliament). It is amazing that some senior government officials had the guts to do such a thing during a time of national disaster.

street_flood.JPGAs the Maldives economy wholly depends on tourism (in Thailand tourism is about 12% of GDP and about 9% of employment), the Maldives can be said to be relatively the worst hit of the countries affected. We would need huge assistance from foreign countries to get back on our feet. But more importantly the country needs accountable leaders and prudent management of the country�s thin public finances. We cannot afford the current levels of waste and endemic corruption.

The best way one could help is to urge your governments to assist Maldives (probably in-kind assistance will be the most helpful in the short-term). Below please find the account details set up by the government for donation:

Name of the Accounts: Ministry of Finance and Treasury - Disaster Relief Fund
Bank: Bank of Maldives PLC, Mal�, Republic of Maldives
Account numbers:
7701 - 147 900 - 002 (Foreign Currency)
7701 - 147 900 - 001 (Local Currency)
Assistance urgently required for relief operations: Water, Food (eg: Packet food), Medicine and Clothing.

Foreign Inflows in the Bond Market

Brad Stetser had an interesting post that China had started buying mortage back securities. There are some interesting comments following the post, namely one person said that this probably makes a revaluation of the currency less likely since it lengthens the duration of its portfolio.

This reminded me of a chart I saw the other day about foreign inflows into the U.S. The charts come courtesy of B of A Securities' Thomas McManus in a report titled Holiday Shopping(the PDF is behind a firewall). It would appear that that Europe with the exception of the U.K. continues to shun U.S. equity markets, however they seem to find our bond market attractive. So, the falling Dollar vs. the Euro has at least worked part of its magic. Also, anectdotally, I've been told that Europeans are very aggressive right now in the private equity markets. This wouldn't show up in foreign purchases of equities.

The pink spikes are only for October and don't constitute a trend by any means, but it'll be interesting if these numbers hold for the rest of the fourth quarter as the Dollar continued to fall. Interestingly, the U.K. had been heavily investing in the U.S. bond market for the last couple of years even though their interest rates have been higher.

So, while Asia seems to have cut back a little bit on U.S. bond purchases in October, Europe seems to have picked up the slack.

Not sure why I didn't bring this up earlier, and now I've decided to make it a whole post rather than just a tack-on to the original post below.

Take a look at, and click on a few of the swaps-a-lot merchandisers. You'll see a list of current cards available and at what price they can be purchased.

Could the difference between the value on the card and the price the card finally sells for serve as a measure of approximate loss on this kind of gift? For instance, on a Pottery Barn card, the approximately $8.50 average difference between actual card value and price it can be bought for might be a valuation for the difference between the monetary value laid out by the purchaser and the receiver's value -- a decent portion of the deadweight loss. Further, one might start to strarify this according to merchandiser type: compare a weighted average difference between stored value and buy prices (weighted according to average size of card to account for the kind of goods, like comparing Tiffany's versus Target, as well as the number of cards sold to take some measure of the volume of trade) to see where losses are greater or lesser relative to some standard such as cash. Those closer to cash's value might be the "better" gifts since they tend to exhibit relatively less loss (on this one measure) than others.

Of course, this kind of thing always raises more questions. Is this difference driven by trends, such as higher demands for electronics one year, home furnishings or jewelry the next? Does the distribution of stores impact the desireability of certain categories, as it might be easier to get to stores that are closer by? What about the effect of income levels? Rural vs. urban?

Or maybe I just need to lie down.

Is Disaster Relief A Zero Sum Game?

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Clare Short seems to be suggesting it is. The former International Development Secretary suggests that independent relief efforts by the US and its coalition (Japan, India, and Australia) detract from the work of the UN:

“I think this initiative from America to set up four countries claiming to coordinate sounds like yet another attempt to undermine the UN when it is the best system we have got and the one that needs building up,” she said.

“Only really the UN can do that job,” she told BBC Radio Four’s PM programme.

(Note: I'll forego more response to the suggestion made by Short that the US has traditionally been bad at responding to international disasters by noting one thing: Darfur.)

A fuller argument -- and it's not one that Short is making here, really -- is that there are benefits to housing the relief efforts under singular control. With a unified command structure, the relief efforts would, I think Short would agree, benefit from potentially greater information sharing and coordination of efforts as well as wasted efforts being avoided. Transaction costs of working across organizational boundaries would, in effect, be reduced through limiting the number of people calling the shots in responding to the crisis. Work done outside of this central structure incurs a loss from gaps in mismatched work or useless expenditure in duplicated efforts; the opportunity cost of this loss is the value the money/capital could have had in being put to efficient use.

Trouble is, things don't always work that way. Especially in cases such as disaster relief, flexibility and response time, and specialization of skills become important factors to consider. The sheer scope of the disaster means that a lot of issues have to be addressed, from clean water to bacteriology to housing to food distribution, electricity, communications, and many, many more. Centralization limits the number of people with authority to allocate resources, and thus limits the the amount of knowledge that can be held at any one level. Even if the role of superiors is largely managerial (that is, subject experts are still the ones making informed judgements, and look only to the leadership for yea/nay decisions or administrative assitiance), the ratio of leader/doer could be dangerously small and declining as new responsibilities occur. For instance, as the death toll climbs in multiple countries, the sheer number of people involved in the relief effort climbs. The leaders of sub-organizations find themselves competing for an ever-diminishing resource: the time and attention of superiors. A more decentralized system allows for workers to focus on their area of experise, and not have to wait in line to get the go-ahead to act. Additionally, the incentives for leaders of sub-organizations changes, perhaps subtly, towards presenting information that would raise the priority level of their subject-area in the eyes of the ultimate decision makers. This isn't to say that relief workers would be self-aggrandizing; rather, between the person working to secure safe water and the person working to prevent the outbreak of contagious disease there could be competition for the superior's time manifesting itself through the presentation of information in an attempt to make one subject appear more pressing than the other. The decision-maker then has to know enough to weigh comparative advantages of both efforts. Certainly people need water, but if you can make do with X amount, is that of lower priority than worry about the onset of disease that could kill another 50,000 people? How many will die without the water, though? And which system will better use this or that 10, 20, 100 people lined up and ready to work, right now? A decentralized system avoids some of these problems (not all of them, by any means; the question is one of scale).

Of more interest to Short, apparently, is the accrual of reputation based on the response efforts. Each new independent responder somehow de-ligitimizes the work of the others, according to what I can make of this view. Is the worry that people may respond on their own in the future, once they've seen that the US has chosen to work on its own? If the decentralized system proves as or more effective, what is the possible loss to the world by not having the UN coordinate it all? Shouldn't the concern be over what method best serves the people of South East Asia?

Giving a gift at Christmas isn't as good as giving cash, so the idea goes, since the person who receives the gift values it less than something of equal monetary value that they would have preferred more. (That is, the $100 I spend in enrolling you in the Jam-of-the-month-Club is not the same as you spending $100 on buying yourself Halo 2 and Grand Theft Auto: San Andreas. You don't value my gift at a full $100, so there is loss.) This, however, is up to debate.

One of the big stories of this Christmas is the increase in the use of gift cards. They may, retailers hope, the savior of Christmas retail (as opposed to the Savior of Christmas, who I'm sure would be sympathetic to the notion of getting some utility out of giving gifts, agreeing with Tyler Cowen's Point #1).

But this trend faces similar problems. I don't buy much from Pottery Barn, but I do love me some Room & Board. Too bad, then, that I got a gift card to the former. I could force myself to pick up a few things, I suppose, though I wouldn't like it as much as the same amount in cash that I could fork over to my preferred vendor.

Now there's a way around that. provides a venue to swap, sell, or buy gift cards. For a fee, of course -- and at $3.99 it seems like a good deal to avoid travel and transaction costs of either buying stuff you didn't really want, or travelling to the store to get the cash value back out of the card (something some stores don't allow).

Markets: now even better for non-secular exchange!

I'm taking Vinayak's suggestion that this is one of the best places to donate if you'd like to provide some help to the victims of the earthquake/tsunami.

Of course, a good deal of discussion is going on about public and private donation. For me it's akin to the debate about voting. No, the amount I can afford to send is not going to be decisive in someone's life, as much as I might wish it to be. But when you aggregate the donations, the real effect can be huge.

Take, for example, donations through Amazon's Red Cross page. As of Glenn Reynold's posting about it yesterday at 1:49 pm, the total stood at approximately $2,000,000. Right now, the total is $4,356,235.12 (at 10:50 am, EST), over 72251 donations, for an average of $60.30 for each donation. Personally, I find the mobilization of private funds amazing. My hope now is that it will get to where it's needed and do as much good as possible.

I need a favour from you.

My hometown of Madras (Chennai) in South India was hit by the Tsunami.

I'm cross-posting this rushed entry from my own blog. Please help in any way possible:

Today, I'd like to ask everyone I know of through this forum - Chris, Govind, Masa, Ngan, Florian, Philip, Adora, Jacqueline, Kerry, Ian, Kevin, Bryan, William, Daniel, Tyler... get the word out. Get people to help. This is my home town... and I want to know that I did everything I could to help get money in.

Back in undergrad, I worked for two years with one of the most incredible charities in South India - AID. They are an incredible organisation, started and run by Indian students abroad, and powered by a gold medalist genius who left it all to work for the poor. One of the biggest positives of working with AID is that your money goes into what it needs to with the path of least resistance. Normally, around 10% upwards of most charitable contributions gets lost in administrative costs. Though I don't have AID's percentages off the top right now, it is extremely low. In 2002 and 2003, nine city colleges in Madras ran a charity collection drive - in 2002 we used the funds to send it to orphanages and poor children with special needs - in 2003 we instituted an endowment that paid the salary of 4 deserving social workers for one year.

AID is now working day and night on Tsunami relief operations across Tamil Nadu.

You can read more about it by clicking on this line. Please, please contribute!

You can also find authentic news from students on the ground on the site.

Derivatives Blow Up

I haven't seen too many comments of the China Aviation derivatives fiasco around the net. In fact, I don't know how I missed it myself. It looks like last October was a classic short squeeze which coupled with uncertainty surrounding the election drove oil prices to their highs. The story is that the firm lost $550 million partially due to rising oil:

The oil-trading company said last week it ran up losses as crude-oil prices surged to a record $55.67 a barrel in October.

``Financial difficulties of the company are due to trading losses and critical cash flow problems as a result of its losses in the trading of derivatives and the requirement to place margin deposits with counter-parties as a result of the losses,'' Chen said in an affidavit filed with Singapore's High Court on Nov. 29.

China Aviation first reported the transactions to its Beijing-based parent, China Aviation Oil Holding Co., on Oct. 10, Chen said in the affidavit.

Also under investigation is the sale of a S$196 million ($120 million) stake in the company by its state-run parent in October. The sale, managed by Deutsche Bank AG, was to raise funds to cover margin calls, or demands for funding, on the company's derivative positions, Chen said in the affidavit.

Singapore has arrested the chief executive.

There are always rumors whenever there is a sharp rally in any market that somebody is on the wrong side and is about to blow up. Undoubtedly, they probably aren't the only ones who suffered steep losses.

New at the Wal-Mart Blog


I realize not much has been going on here at T&B, but at Always Low Prices we've been discussing everything from RFID to WM selling anti-WM books to the firing of high-ranking executives for alleged misconduct.

Tsunami hits the Maldives

I have not been able to check in with Paul, our Maldives correspondent. The Maldives is a popular tourist destination this time of year. From a first-hand account:

The Maldives are pretty much in a straight line north to south.

"The tsunami hit right across the face of the Maldives. Some of the atolls and islands are anything from sea level to a maximum of 4ft above water....

"When we went back to the island where the airport is, there were many troops from the security forces. There is a Pakistani warship in town and its helicopter has been used to check out some of the outlying islands.

The water in Male had receded 75% from early this morning. Things seemed to be much better. But as the water recedes it has left all the silt and sand and debris. There has been lifting of all the paving stones and tarmac, it has ruined the transport infrastructure.

There is no determination whether the election will proceed or not. We are supposed to go out to the outlying islands on Tuesday, then stay after the elections to draft our report before returning on 5 or 6 January.

Hope everything is well, Paul. Let us know what you need.

Universal Email Access


Back in 1995, instead of trying to get everybody to graduate from college, RAND was advocating universal access to email:

I have written before that I spend much time at Panera Bread, drinking coffee as I write my dissertation.

Naturally, this is leading to an extensive side research project on Panera itself. PNRA's stock price has not been a stellar performer--peaking in late 2003. Buy ratings have been mixed.

Nevertheless, expansion continues, and the company is looking for managers and assistant managers all over the country. Regions opening for franchise rights include:

� Four Boroughs, New York (excluding Manhattan)
� Santa Barbara/Ventura, California
� San Bernardino/Riverside, California
� San Francisco/Marin, California
� Phoenix, Arizona
� Austin, Texas
� San Antonio, Texas

Many other people agree that Panera is a good place to spend time and money: it has 4 1/2 stars on Epinions:

Panera started as St. Louis Bread , was bought by Au Bon Pain, which renamed St. Louis to Panera outside of the Midwest, then sold Au Bon Pain and other units, and renamed itself Panera. St. Loius' history is here. Got it?

Also, as Glenn Reynolds noted--er, twice--the SonicWall firewall really sucks, and prevents users from accessing even the most educational sites:


More importantly, Panera's internet provider forbids the sending of email to SMTP servers, for "safety" reasons. Whatever. This has led to much grumbling from me and others, to no avail.

However, if you think the free Wi-Fi at Panera is a big deal, just wait until all McDonalds joints have it...

UPDATE 1/8/05: T&B is now the #1 google search hit for "Panera Bread Sucks". See also Tintopia, failing to blog from Reston Town Center a few dozen miles away because Panera's internet connection failed:

This is the problem with �free� goods. That I�m not directly and overtly paying for the service means that Panera doesn�t expend a lot of effort to make sure that I�m satisfied with my non-purchase. On Panera�s regular public website, there appears to be no mention at all � aside from notations in the location-finder � of their wireless network service. I actually approve of this, because they don�t mention that they have air conditioning and electric lighting either, and I think the network in a place like this should be a basic utility.

UPDATE 1/11/05: Melanie Williams looks at what capitalism lets her take for granted:
Actually, I think about just how much we Americans take for granted. I mean really. Panera Bread? Plentiful coffee and overstuffed muffins in a warmly lit atmosphere? What is there to complain about? The most disturbing part of this scenario is when the automatic paper towel dispenser doesn't detect my first wave.
Also, Scott McGerick shows how Panera's employees discriminate against men:
Kat and I are eating at Panera Bread Co, located on the corner of University Ave NE and Hennepin Ave E in NE Minneapolis. A 20-/30-ish guy walks up to the sandwich/soup ordering counter. However, all of the employees for that counter were engaged in a chat session at the other end of the counter. I see that they see the guy, but none of them wants to break away...

A few minutes later, two attractive women walk up to the the vacant soup/sandwich ordering counter. Immediately, a male employee breaks from the power chat to take the order...

More DVD Price Wars

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Remember that in early October, Netflix raised its price to $22 for it's monthly service, only to have Blockbuster enter at $20. Netflix countered at $18, and blockbuster countered at $17.50. Well, they're still going at it (rr):

How low can you go?

Like a contestant in a limbo competition, Blockbuster Inc. on Wednesday lowered the price bar for the second time in two months in its war with DVD rental rivals on the Internet.

The video chain slashed the monthly fee for its online subscription service to $14.99 from $17.49, undercutting Netflix's $17.99 rate and the $15.54 charged by, the online branch of retail giant Wal-Mart Stores Inc...

Blockbuster started its online service in August; it has 500,000 subscribers, compared with Netflix's 2.5 million..

I say compare apples with apples: the WM plan for three movies at a time is $17.50--for $15.54, you get two at a time.

Also, while Blockbuster promises 30,000 titles, and Netflix claims 25,000 titles, WM has only 16,000 titles. At the relevant margins, to whom does it make a difference?

Universal College Education


Directly below, Ian goes through the pro and con arguments for government subsidized universal college education, and his post should probably be read before this one.

But let me start by exclaiming LOUDLY that if this is about getting more people to study "soft" subjects in a college, I think that it is a terrible idea.

However, if we're going to socialize college, let's do it the sure Soviet way--without the idolatry of Marx and Lenin: cram in the math, engineering, and science. In fact, even if "soft" studies in undergraduate school become an entitlement in the US, the size, scope, and impact of the program will far outstrip the oft-lauded post-secondary educational aims of the Soviets:

Should everyone get a college education? Apparently David Adesnik, Matt Yglesias and others think it's a good idea. Radly Balko eloquently dissents.

Count me in as dissenting, as well.

First, I don't think the question is well framed. Is it that the people who think this is a good idea want everyone to go to college, or is it that they believe the access to college should be universal? The first strikes me as a sort of elitist way of saying "People don't know enough about things I'd prefer they know, so here's a way to get them up to my level." I'm guessing this isn't -- entirely -- the point of their support for the idea of a universal college education.

The second option, if I read them correctly, implies creating an essentially costless entry and support mechanism (ignoring for the moment transaction costs of getting to the school), whether through massive grants to people looking to go to school, subsdizing schools so they don't charge tuition, etc. To which I would say that the cost of the education is a useful indicator in and of itself, and removing it would harm both the educational system and the people who could have afforded to get in before the cost reduction.

Fundamentally, the costs of an education over several years include not only the money to pay for tuition, but the opportunity costs of spending your time pursuing the education itself. The reason to do so is that you believe (understanding better than anyone else your potential and ability) future returns make this expenditure worthwhile. That is, the increase in income stream from spending four years and however many dollars on college is enough to make the investment make sense. A good portion of this is determined by natural ability, though we do have to consider educational attainment of the parents, economic status, health, and more. These, broadly, are the returns to education that people receive. For very smart and hardworking people, scholarships make it worthwhile even when they plan for low-income careers. Immediate costs are defrayed, so the long term income stream is still high enough, in relative terms, to make schooling "worth it" because personal returns are so high.

The returns are not, however, homogeneous. No matter what caliber of school you talk about, people at the instiution all get varying amounts out of it. The best you can say, I think, is that the people who are there are getting enough, at least, to pay them back for the cost to get in. This includes lazy kids of wealthy parents as much as it does brilliant children of impoverished parents. The lazy kid may get little out of education, but spent little to get there and foregoes little by being there, since the wealth of the parents will help ensure future worth. The brilliant child may also spend little in direct costs though for very different reasons (due to scholarships, grants, loans, etc.), and will most likely do well enough later in life to cover loans or make up for the hard work in high school and the time away from the labor force.

On the margin, then, lowering these costs lets in a student for whom the returns may not be as high and for whom other activities might be of greater value. If you don't have to cover tuition, and don't mind eating the cafeteria food, school is a relatively cheap and fun way to live. This doesn't mean it's the most productive thing for that person, however. It's not that I know what would be more productive, either, but making it easier for them to attend college by spending more federal money isn't exactly doing them some great service and the little it might or might not do is done at the cost of everyone else. Additionally, it negatively impacts the people who would have attended even when the costs are high. Increasing the cohort that graduates at a certain time with similar degrees increases the labor force for a certain category of work. A couple things happen, such as people taking jobs for which they are overqualified (as mentioned in some of the posts linked to above), or wages may drop for that pool since labor is then potentially in larger supply relative to the demand (ok, so some of both of this happens, plus some people go back to school, some people leave the labor force altogether...but I'm limiting the scope here).

Not all colleges are made equal. And so there are variations in the costs of entry and the costs to remain, including differing levels of effort, money, social connections, and more. Our system, then, already provides -- in my opinion -- a pretty good method to allow people of varying abilities (returns) to sort themselves into levels of education that they can gain the most from: tuition. There is, then, some inherent value in having varying levels of costs for entry and continuance. People are pretty good at figuring out for themselves how best to spend their time. How many of the US' most wealthy people are Ivy Leaguers with post-grad degrees? Not as many as you'd think. But to make these personal decision, the presence of some sort of measure is very useful -- a measure such as tuition costs for education. Plenty of people leave school, having decided that they're not getting as much out of the process as they could by working. But again, this is based on a comparison against some sort cost for remaining.

Plus, lets not forget the much higher costs of administration that the public would have to absorb, including the process of keeping track of all the people entering and exiting that weren't before. And, obviously, the impacts of class size on the ability of professors must be considered, along with the division of professorial attention among many more students. Certainly, the numbers of teachers would increase to meet the new demand, but to get the teachers either schools would have to be able to increase pay to attract top profs (a tough thing if suddenly the funding of higher education were driven by the government -- an institution rarely known for its ability to respond quickly and effectively to changes in demand), or they would have to lower standards to get more professors willing to accept the lower pay. Lowering teaching ability will thus affect the returns students get on education (since a good student with a bad professor is little better than a bad student with a good professor) and negatively affect whole classes of people.

It seems to me that dropping the costs to getting an education to zero may do little to help the new entrants, and would end up harming those who would go at the higher cost.

Update: Edited for readability.

More Mankiw?

Scott Beaulier, guest blooging at Common Knowledge, writes that the administration should let Gregory Mankiw have a more prominent voice:

Mankiw's argument for outsourcing and his jobs projection became the leading news story on major television networks and the source of many attacks... when economic issues were in play during the election year, finding Mankiw was like trying to find Waldo.

Even though Mankiw's disappearance might have made political sense, he could end up being right on both points...

He's the best economist in the administration and the most ardent defender of globalization in the bunch. By being close to the mark on his jobs projections, perhaps he'll be allowed to talk about outsourcing again in the future.

In any event, now that the election is out of the way and Bush is seeking to use up some of his political capital, let's hope that he brings one of the more reasonable voices in the administration back into the mix on issues of economic policy and trade.

Brad DeLong seems to like the new non-arithmetically challenged Greg Mankiw too.

Still, it seems to me Mankiw can discuss outsourcing all he wants after the President asks him to resign. The rumor is that Mankiw is leaving next year because he wants to return to Harvard. However, M. is keeping mum...

2004Q3 GDP Rises from 3.7% to 3.9% to 4.0%


Last month, I noted a ridiculous AP story trumpeting an economically insignificant increase in 2004Q3 GDP growth. It made "above the fold" on The New York Times online. Of course, the AP is at it again with an even smaller change:

The economy revved up its engine in the third quarter and advanced at an annual rate of 4 percent-- even faster than previously thought.

The new reading on gross domestic product, released Wednesday by the Commerce Department, exceeded the previous estimate of a 3.9 percent growth rate for the July-to-September quarter. It marked the best showing since the opening quarter of this year and was up from a 3.3 percent pace in the second quarter....

The new GDP figure, based on more complete data, was better than economists were forecasting. They were predicting economic growth would remain at the 3.9 percent pace estimated a month ago.

This is perhaps the purest example of a regularly scheduled press release becoming news, regardless of its importance... Full release here...

Gmail Invites


Anyone interested in an @gmail address? I've got 6 to give out, and am doing so on a 1st come/served . Leave a note in the comments section with the email address I should send the invite to, or send a note to ian ~ at ~ "this site" ~ dot ~ com.

UPDATE: They're all handed out as of 11:13 AM Dec 22, 2004. Thanks so much for playing. To those who got them, enjoy. To those who missed out, I'm sure there will be more on the way.

Minimax Strategies at Christmas

Here's PC Magazine's list of the 10 worst products of the year.

Something to keep in mind as you run through the malls looking for those last minute gifts. If you can't find the best stuff, at least you can make sure you don't pick the worst.

(Link via SynthStuff.)

NBER Working Paper: CPI Bias from Supercenters

Jerry Hausman and Ephraim Leibtag have a really neat NBER working paper, CPI Bias in Supercenters: Does the BLS know that Wal-Mart Exists? ($). Of course, the question is facetious and deceptive. Their inquiry is really about whether the sample of prices in the CPI are actually representative.

The abstract indicates that they aren't:

Hausman (2003) discusses four sources of bias in the present calculation of the CPI. A pure price index based approach of surveying prices as done by the BLS cannot succeed in solving the problems of bias. We discuss economic and econometric approaches to measuring the first order bias effects from outlet substitution bias. We demonstrate the use of scanner data that permits implementation of techniques that allow the problem to be solved. In contrast, the current BLS procedure does not treat correctly outlet substitution bias and acts as if Wal-Mart does not exist. Yet, Wal-Mart offers identical food items at an average price about 15%-25% lower than traditional supermarkets. The BLS "links out" Wal-Mart's lower prices. We find that a more appropriate approach to the analysis is to let the choice to shop at Wal-Mart be considered as a new good' to consumers when Wal-Mart enters a geographic market. This approach leads to a continuously updated expenditure weighted average price calculation. We find a significant difference between our approach and the BLS approach. Our estimates are that the BLS CPI-U food at home inflation is too high by about 0.32 to 0.42 percentage points, which leads to an upward bias in the estimated inflation rate of about 15% per year. (Emphasis added).
Some detail on this process from the meat of the paper, which I have yet to read in full:

The Thing to Say!

One Mr. Mele Kalikimaka Turner brought some Christmas cheer to a few people in Hawai'i this weekend--those willing to pay for it, that is.

HONOLULU - A shortage of Christmas trees in Hawaii has raised prices to more than $200 each, drawing complaints from cost-conscious shoppers who are eager to buy trees before the holiday.

Tree buyers camped outside a shopping center hours before dawn on Saturday to await a shipment of 130 noble firs flown in from Oregon. A crowd of more than 200 people had gathered by morning, when a salesman announced the trees would cost $165 to $200 each.

Consumers complained that was at least twice the price charged just a few days earlier. In previous weeks, trees sold for $30 to $70.

To me, $200 for a live, healthy fir tree on a tropical island 2400 miles from the US just a week before Christmas sounds like a pretty good deal. Sadly -- and really, you could have predicted it -- Mr. Kelikimaka Turner was labeled a "gouger" by some:

"I am not gouging," said Turner whose first name means "Merry Christmas" in Hawaiian. "It's a fair price for the time and energy. There's a lot involved in bringing a tree to Hawaii."

Sounds about right to me. And the best part of the story is the nicely encapsulated description of the mutual benefits of exchange:

"He thinks he's got us because he's got the trees. But we have the money, and maybe we won't pay," shouted Barbara Taylor of Honolulu.

Merry, mele kalikimaka!

Viral Marketing at its Best

You know you've tapped into something when people are willing to pay to make more of your ads.

iPod my Photo is a service for turning a photo into an iPod-ad lookalike. Now you can make your kids, pets, neighbors, plants or midnight snack part of the cultural landscape by turning them into ad-based kitsch and putting an iPod in their hands.

Nice, but can they make me sing like Bono?

Is MP3 the New "QWERTY"?

In PC Magazine, Jim Louderback argues that MP3 is a fat, clumsy old-and-busted, and all-around inferior digital music format. He insists that competing formats, like WMA, are superior because of their digital rights management, smaller files sizes, better audio quality, and smaller royalty payments:

Why hasn't MP3 been unseated? Formats, once widely adopted, are very hard to change. MP3 has become a lowest-common-denominator format: A device simply cannot be successful without supporting it. Why? Because so many users have invested so much time in creating and downloading MP3 files, and they'll resist going through gathering and encoding all over again. There's simply too much material in MP3 format floating around for us to change over, even with all the benefits of newer formats.

What's it going to take to change? I've developed a law of technology adoption, which I modestly call Louderback's Law: Unless a new technology includes breakthroughs in at least two different dimensions�without adding hardship along the way�it will not supplant and older, established one.

The newer audio formats, including Ogg Vorbis, seem to have at least two things going for them compared with MP3: smaller files and less expense. But because any change would require conversion of billions of files�a royal pain in the butt�it just won't happen.

The comment forums are very rough on Mr. Louderback--especially here and here. The latter is quite blunt, and wrote something close to what I was thinking--digital rights management is a bug--not a feature--to many consumers:
Louderback must be on drugs. Ditto everything you said. Is it obvious only to you, Uncle_Jessie, and me that DRM is THE reason that MP3's will survive long into the future? Ogg vobis [sp?] is the only format I would even consider using as a replacement and then only as long as a DRM scheme is not attached to it. Only a formst with 1) better quality, 2) higher compression and 3) NO DRM even has a prayer of replacing MP3. It is what the people want that will determine the de-facto standards, not the manufacturers, distributers, RIAA, or anyone else. All they can do is drag their feet.
In reply, Mr. Louderbeck then takes an interesting stand:
Yes, you are right that DRM is also a big deal. You and I care about it. But I think the mass of consumers are vaguely aware of what DRM is.. They just want to take their CDs, and create songs out of them, and share them with friends. Today everything is MP3... and it will stay that way, because that's what people have -- it's more installed base inertia than anything else. If a format with DRM had been the first one to take off, then that would be the defacto standard. Thankfully that didn't happen. (emphasis added)
He too believes that digital rights management is a bug... The absence of DRM means MP3 is actually a superior format...

Outdated Video Games are Popular

I had briefly seen the this product--a joystick that has the computer console inside--on QVC. The games looked really simplistic, and I cringed at the thought of all the people who purchased this toy and thought they might be getting the latest and greatest.

Now, The New York Times has a writeup of the product and the female entrepreneur, Jeri Ellsworth.

I did not know that Ms. Ellsworth had miniaturized an entire commodore 64 onto a single chip::

Sold by Mammoth Toys, based in New York, for $30, the Commodore 64 joystick has been a hot item on QVC this Christmas season, selling 70,000 units in one day when it was introduced on the shopping channel last month; since then it has been sold through QVC's Web site. Frank Landi, president of Mammoth, said he expected the joystick would be distributed next year by bigger toy and electronics retailers like Radio Shack, Best Buy, Sears and Toys "R" Us. "To me, any toy that sells 70,000 in a day on QVC is a good indication of the kind of reception we can expect," he said.

Ms. Ellworth's first venture into toy making has not yet brought her great wealth - she said she is paid on a consulting basis at a rate that is competitive for her industry - "but I'm having fun," she said, and she continues with other projects in circuit design as a consultant.

Did I mention she dropped out of high school? And get this about her relationship to her partner in a computer assembly business:
They went into business together in 1995, but soon had a falling out and split up. For a short time Ms. Ellsworth considered leaving the computer business. Instead, she opened a store near that of her former partner, then drove him out of business. Ultimately her store became a chain of five Computers Made Easy shops in small towns.
The game console costs $30 and includes these games.

India in 2005

The Economist came out with its annual crystal ball - The World in 2005. There are two articles in India that are worth a read, it's forecast and a general editorial-style outlook. Both read to similar tunes - beware of the left leaning coalition partners that support the ruling party.

Its other outlook, "The World in Figures - Countries" outlook is a very mixed bag as well, essentially concluding that the government will stay, but will end up doing very little next year. It also has a nice little blurb on an important fact that I had totally forgotten about (it was the topic of my Bachelor's thesis) - the fact that 2005 heralds drug patenting regulations under the WTO agreements. The Economist says (in reference to creating new drugs), 'Indian companies will rise to the challenge: costs are low and scientists plentiful.' My own conviction believes that for the blurb to be true, the companies still need to figure out how to contend with the brain drain. Then there is the question of R&D money, will there be enough?

My own short term outlook for the pharmaceutical industry is that it could end up being a free-for-all "dead traveler in the desert" story with drugs whose patent regimes are soon to end. Trust the Indian jackals to have the niftiest set of wings that do Darwin proud.

The Data of Truckers and Voters

As most of you know, I'm writing a doctoral dissertation on error in economic data. As motivation I wrote small "stories" exploring ideas and concepts that were useful to me. Unfortunately, most of these stories had to be deleted to leave room for the scholarly material. However, they will be reproduced here in a series entitled "Deletions from a Dissertation". Here's the first:

With persistence, it is possible to uncover data about almost every aspect of the natural and manmade worlds. Do you want to know the number of cars on the street in your town at 3AM, or the number of books in the local library, the number of trees in a local park, or the average number of man-hole covers per Manhattan city block? Some person probably knows or can calculate usefully accurate estimates of these population parameters, because he has made it his business. (Finding this person is another matter). People crunch and store data when the numbers are to be used to monitor or solve a problem they are interested in. Uncovering data for data�s sake is a worthless enterprise.

Don't remember the tune? Not a problem.

But that's nothing compared to the list of songs compiled for the MASSIVE database. That's "Math And Science Song Information, Viewable Everywhere". Right now, the emphasis is on Science (a search for "derivatives" came up empty).

There's nothing like a catchy little ditty to get some basic ideas to stick in your head when you're just starting out on a topic. Sure, everyone titters the first time they hear "Slutsky Equation." But get a decent blues ballad going, and I bet remembering that the substitution effect is always negative would be a lot more fun. And I can't be the only one that remembers what Albania borders on after seeing that episode of Cheers.

Sweetcream Economics?


Fascinating story on NPR this morning about the rise in cow-sharing arrangements in order to acquire fresh, or "raw" milk. Apparently, getting milk straight out of ol' Bessie is illegal in all but 28 states, unless you happen to own your own cow.

From what I can surmise by reading the CDC reports linked to from the above page, the potential of disease from unpasteurized milk, apparently, is enough of a concern to make sure people aren't allowed to go straight to the source. (Were I an immature person, I might make a joke about the bureaucratic desire to wean folks off the natural teat and onto that of the state. Luckily, I'm not.) The other bit of insight from reading one CDC report is that the burden of proof has somehow landed on the potential seller:

Persons who drink unpasteurized milk and milk products might believe that these products taste better, provide greater nutrition than pasteurized products, and/or decrease the risk for various medical conditions (4). However, the benefits of consuming unpasteurized milk and milk products have never been validated scientifically (5).

Questions: Given that plenty of other unpasteurized items (juice, for one) are far more readily available, not to mention the numerous things that are dangerous on ingestion food object or not, is the potential for disease large enough to warrant making the sale illegal? And, why is it incumbent on the seller to prove that there is scientific validity for health claims in order to avoid a regulatory requirement (the pasteurization)?

For those with an interest in cow-leasing, I'd suggest starting with some interesting discussions on the economics of cow herds. If you like what you see, you can move on to investigating various schedules for the acutal costs of beef cow leasing. I imagine the process is similar for milk cows.

And, until someone can get Don Boudreaux to hurry up on his policy changes, here's your FDA warning to make sure I'm in compliance.

Yukos "Hail Mary" Bankruptcy Filing

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The last ditch attempt by Yukos managers to fend off a forced Russian "auction" of its assets to Putin-controlled Gazprom seems to have worked--for now, anyway. Frankly, this is incredible and amusing in a dark sort of way:

A Western bank consortium led by Deutsche Bank has frozen a planned credit line to Gazprom following a U.S. bankruptcy court injunction against the sale of the Yukos oil company's main subsidiary, the ITAR-Tass news agency reported Friday.

Gazprom, the state-controlled gas giant, was the expected buyer of the Yuganskneftegaz unit, which produces about 60 percent of Yukos' oil, at the auction scheduled for Sunday. The credit line is thought to be worth $10 billion.

Freezing the credit line could effectively prevent Gazprom from bidding unless it found alternative financing.

Citing unidentified, high-ranking Western financial sources, ITAR-Tass said the banking group had decided to freeze the deal at least until the bankruptcy court in Houston reaches a final decision.

One of the sources quoted by ITAR-Tass said the move was necessary, ``because in case a credit line is given to Gazprom over the next 10 days, Western banks would risk falling under legal prosecution in the United States.''

Of course, since Gazprom will be the only offer actually considered by the Russian authorities, does it really matter if their financing fails? I mean, a rubber stamp is a rubber stamp. This is just a nationalization program orchestrated to fit into globalization rhetoric:
A ruling late Thursday in a federal bankruptcy court in Houston, however, raised some questions about the participation in the auction of banks that were expected to finance the deal. A federal bankruptcy judge in Houston, Letitia Z. Clark, issued a temporary restraining order intended to block the participation of lenders and Gazprom. The banks, analysts said, have extensive operations in the United States and might be concerned about ignoring the restraining order, which could put them in contempt of court.

But Judge Clark's ruling did not apply to the government of Russia, and analysts said they expected the Russian authorities would go ahead with the auction on Sunday regardless of the ruling....

Although two other largely unknown companies have submitted bids for Yukos in the auction, their presence was seen as purely an effort to make the auction seem valid. Foreign investors, including companies from China, India and other overseas energy investors, have been discouraged from participating.

Well, duh?!? I'm disappointed, but not surprised, that U.S. newspapers give the Russian government's reasoning posturing more than two sentences of serious attention.

UPDATE:The FT joins the fray:

There is yet another scenario: namely that the Russian government proceeds with Sunday's auction, to demonstrate its independence from US law - but this auction then fails because Gazprom cannot get funding to meet the official $8.6bn sale price. If that occurs, the state may then seize control of Yugansk � and subsequently sell it to Gazprom at a considerably lower price. There is no proof that this is what the government plans. That scenario might yet suit the Kremlin rather well. In the meantime - and as conspiracy theories swirl - the one thing that is clear is that the potential legal risk for Western bankers is rising by the day.
UPDATE 12/18: The drama continues with a $9.3 billion sale to an unknown company:
Virtually nothing is known about the winner, BaikalFinansGroup, which emerged as a bidder at the last minute -- after a U.S. court issued an injuction against the auction, disrupting plans for a bid from the company that had been seen as the Kremlin's favorite to snap up the unit: the state-controlled natural gas behemoth, Gazprom.

Observers, however, believe BaikalFinansGroup could be just an alternative vehicle for Gazprom, with sources of funding that are different from those initially prepared.

Stephen Dashevsky, a leading analyst for Russia's Aton brokerage, said the winner was likely affiliated to Gazprom.

ITAR-Tass news agency claimed that BaikalFinansGroup's registration address -- in the central city of Tver -- corresponded to that of one of Gazprom's structures.

Gazprom said Sunday that neither it nor Gazpromneft -- its oil component, which was officially making the firm's bid -- had any relation to the winner, the Interfax news agency reported.

UPDATE 12/20: Can you believe that people are suspicious that the sale of Yukos was just hanky-panky? But, hey, Russia is a normal country, no?
The auction on Sunday seemed reminiscent of Russian privatization deals in the early 1990's - with murky financing, questionable bidders and unknown companies representing powerful financial groups emerging to win lucrative assets. Many of Russia's current generation of new oligarchs became billionaires in those deals overnight.

"This bid by Baikal Finans Group was a smoke screen and a delay tactic," said James Fenkner, head of research at the brokerage firm Troika Dialog - possibly, he said, to allow Gazprom more time to raise funds. "Why can't there be a transparent auction run by the state? The whole thing just makes Russia look bad."

The Baikal Finans Group, which listed its address as the same as that of a cellphone store in Tver, won a controlling stake, or 76.79 percent of the shares, in Yuganskneftegas with a bid equivalent to about $9.35 billion. That was above the starting price of $8.65 billion, but still far below what is considered he fair market value of the unit, according to independent banks hired separately by Yukos and the Russian government.

It is possible that another Russian oil company with lots of cash, like Surgutneftegas, was the real bidder, but analysts said it was more likely that all this was a way to give Gazprom time to come up with new financing.

The Russian government's prosecutorial assault on Yukos and its founder, which began in summer 2003, has set foreign investors on edge and raised questions about the rule of law, property rights and President Vladimir V. Putin's commitment to economic change. And Sunday's blow to Yukos, which had already sought bankruptcy protection in Houston last week, seemed part of that pattern.

The bidding process for Yuganskneftegas was a bizarre, confused affair: reporters were invited to watch the afternoon auction at the Russian Federal Property Fund's offices, but only on big-screen television sets. The property fund did not provide any information about the bidders.

Officials of Gazpromneft and the Baikal Finans Group sat side by side at separate tables in a plain, brown and beige room. Baikal made an opening bid, and then a Gazpromneft official left the room briefly to take a phone call. He returned a few minutes later, but Gazpromneft never submitted a bid.

The Baikal Finans Group's representative again raised his paddle, winning with a bid of 260.753 billion rubles, or almost $9.35 billion. From time to time, he conferred with a colleague sitting next to him. After just 10 minutes of bidding, the Russian Federal Property Fund, which organized the sale, announced Baikal Finans Group as the winner.

"The shares have been sold," said Valery Suvorov, a deep-voiced auctioneer dressed in bowtie and tails and wielding a gavel....

If Baikal should fail to make full payment for the Yuganskneftegas assets in the 14-day period required, under Russian law the government can order a new auction or seize Yuganskneftegas in lieu of unpaid taxes.

Russia's other major oil companies - including, besides Surgutneftegas, TNK- BP and Lukoil - all denied any ties to the Baikal group, according to the Interfax news agency.

UPDATE 12/21:Russia's de-facto dictator Putin reveals some more details:
"The shareholders of that company are exclusively private individuals," Mr. Putin said in remarks televised from Germany, where he is on an official visit. "But they are individuals who have for many years engaged in the energy business."

Mr. Putin further hinted that the new owners would not have, or maintain, exclusive control over their rich new holding, as industry analysts had speculated.

"As far as I know, they intend to establish certain relationships with other Russian energy companies which may be interested in this asset," he said.

Speculation has swirled around the identity of the buyers of Yuganskneftegaz, the Yukos subsidiary, since it was purchased at a six-minute auction on Sunday by Baikal Finans Group, a company that had not been heard of until days before the sale....

In an interview in the Komsomolskaya Pravda newspaper published today, Viktor Gerashchenko, chairman of the Yukos board of directors, summarized the Yukos position bluntly: "On Sunday they sold stolen property," he said.

Asked who it had been stolen from, Mr. Gerashchenko was equally blunt "They stole it from us," he said. "And they sold the company producing 20 percent of the country's oil to God-knows-who."

UPDATE 12/22: Thomas Barnett has a nice one-phrase summary:

Nye sluchaino chto is a wonderful old Russian phrase that means, "It is not by accident that . . ..

UPDATE 12/23: Rosneft just bought Baikal, and Putin insists that the sale of Yukos was "perfectly normal". :

President Vladimir V. Putin of Russia today strongly defended the purchase by a state-controlled company of the winner of Sunday's auction for the largest subsidiary of the oil giant Yukos.

"Today, the state, using absolutely legal, market mechanisms, is ensuring its interests - I consider this perfectly normal," Mr. Putin told reporters at a news conference in Moscow, referring to the purchaseby Rosneft of the Baikal Finans Group, which had widely been thought to be a shell company.

Mr. Putin talked of how the oligarchs, or private businessmen, obtained properties at bargain basement prices soon after the breakup of the Soviet Union in 1991.

"Some market participants got multibillion state assets using different tricks, including some violations of then-existing legislation," Mr. Putin said.

By contrast, he said, the purchase by Rosneft "was done in absolute conformity with market means."

What a dishonest, pathetic man--even by the standards of politicians. The sale of Yukos was a complete sham.
With the purchase complete, Rosneft is scheduled to merge sometime next year with Gazprom, Russia's natural gas monopoly, which had widely been thought to be the government's choice to win the auction in the first place....

Rosneft did not reveal what it paid, but Yuganskneftegas had been valued at $14 billion to $22 billion.

On Sunday, Baikal paid about $9.35 billion for 76.6 percent of the shares in Yuganskneftegas.

"Owners of Baikal Finans Group offered Rosneft to buy their assets, obtained through the sale of Yuganskneftegas on Dec. 19," a Rosneft official in Moscow told the Interfax news agency. "Rosneft bought 100 percent of shares previously owned by Baikal Finans Group."

Rosneft stock is growing since it bought Baikal:
Moscow. (Interfax) - The shares of Rosneft subsidiaries have been growing rapidly at Moscow's MICEX exchange following reports that Rosneft, Russia's state oil company, bought 100% of shares in Baikal Finance Group, a company that bought 76.79% of shares in Yukos's principal production unit, Yuganskneftegaz, at a Sunday auction.

Rosneft-Purneftegaz common shares gained 13% in their value to 667 rubles from 590 rubles in 5 minutes of trading at MICEX. Its preferred shares rose in price by 9.8% to 450 from 410 rubles.

Rosneft-Sakhalinmorneftegaz common shares grew by 7.7% to 160 from 148.52 rubles, and its preferred shares by 8.6% to 115 rubles from 105.88 rubles.

Forbes has more:
Russia did not grab the company by force of arms or through eminent domain. If it was a power grab, it was done through a series of steps, each one at least putatively legitimate: enforcement of tax and fraud laws, foreclosure on tax liens, an auction of assets for which $9.4 billion bid was paid (showing at least some concern about the rulings of a U.S. bankruptcy court) and a sale of the assets to a richer entity. The scenario suggests a consideration for the rule of law (or at least a concern for appearance) that would have been surprising in Russia just two decades ago.
Also, it is completely true that the oligarchs used connections to obtain state assets at huge discounts off market prices. Putin is using his state power to do the same with market assets...

Along those lines, Lynne Kiesling makes a bold understatement:

This retrograde development sends a chill up my spine. Using the heavy hand of the state to punish someone for buying Soviet assets at the post-Soviet fire sale, and then re-nationalizing them at a discounted price and still claiming it's all market-based and open and aboveboard. I am totally not convinced.

States v. Feds on LNG


Some language from Rep. Pete Domenici (R-N.M.) on liquified natural gas (LNG) tucked into a big piece of spending regulation made it through Congress; much to the chagrin of those who don't really seem to read everything that's in them. (Not an easy task , I grant you. In this case, I imagine a few legislative staffers are getting stern talkings-to.)

The provision inserted as a part of a report -- and thus devoid of the strength of law -- gives jurisdiction to FERC for the siting of Liquified Natural Gas (LNG) terminals. This angers those who favor the state having the ultimate say over the siting of such facilities -- an argument to which I tend to be highly sympathetic. The problem is, a number of those who are looking to keep control in the hands of the state are doing so solely for the purpose of being able to stop the facilities from being built. Or, to be more precise, California and others are possibly seeking restrictive regulations that would seriously hamper the development of such facilities; this at a time when the California energy system could use the extra source of supply.

While FERC recently relaxed a bit on some regulation of LNG importation, I don't particularly like the idea of continually ceding control over to federal agencies. (Oddly, one of Domenici's arguments for doing so is that government control would help ensure that there is enough LNG to meet the rising demand. Where he gets data showing that government-controlled supply is a sure path to matching demand, I'm sure we'd all like to know.) And perhaps leaving the decision to the states could impose a small economic lesson on California (and kin). The growth of the LNG industry is proceeding apace, though I hold no belief that this is a major subsitute for petroleum; as the number of approved LNG facilities grows, those places that erect barriers so high that entry is impossible deny themselves an energy source as well as potential industry development. Though, I'm sure Texas and Louisiana would be happy to have the jobs.

Geico Sues Google; Entrepreneurs React

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Geico sues Google for having sponsored ads that do not lead to Geico when "geico" is entered as a search term. Fark picks it up (that's where I found it). Fark reader Chris May buys a Google ad so he can be the top sponsored return when geico is entered into Google. Dave Pell had the same idea.


UPDATE 12/15/04: Case dismissed--boy, that was quick:

District Judge Leonie M. Brinkema, responding to a motion by Google for summary judgement on the issue, ruled that there was not enough evidence that the policy confuses consumers. Google filed its motion after Geico rested its case....

The judge has yet to rule on another claim by Geico, that Google is liable for trademark infringement when it lets marketers buy ads that use trademarked names in the ad copy. Google executives have said they remove such ads when trademark holders complain.

New Google Tool

Busy at work, so it's back to quick hits for posts.

Google's launched another search engine to beta: Google Suggest.

As you type, it tries to guess what you might be trying to look for based on the popularity of other searches starting with similar letters. Of course, type in the wrong (or right, depending on your view) first couple of letters, and the suggestions might be an insight into the minds of other people that you wish you didn't get.

In other Google news, Harvard, Stanford, University of Michigan, and Oxford are going to scan in books to make their contents searchable on the 'net.

Scott Peterson Gets Death


I do not like the death penalty, even when applied to men like this, because I believe in minimizing the power of government.

I do not want the government to have the right (legitimate power) to kill a citizen for even heinous crimes, because of the potential for its killing the wrong person accidentally, or the intentional use against political enemies. Given my ethical predisposition, I am sympathetic to arguments that the death penalty costs more than incarceration for life.

And as it currently imposed in various states, I think the death penalty does cost more than it saves--in purely financial terms. However, the economic arguments that "the death penalty" costs more than "life in prison" usually rest on several very specious assumptions--the most important being that if the total cost of the death penalty is greater than its total benefit, then the costs of any and every execution are greater than its benefits.

But this is not necessarily so. It is most certainly not true that the cost and benefit of each and every particular execution are the same; because of protracted legal battles, some executions are more costly than the average. And because some defendants are younger and healthier than others, executing them will have greater benefits in reduced lifetime prison costs.

Hence, there may be some subset of executions with low costs and high benefits--which could be termed economically advantageous executions.

However, the policy debate is usually considered a yes-no question--you're either for execution as a rule or you're against it. But the universe of policy choices--overarching rules--is much wider than that. In addition to "yes" and "no", one could support "extremely selective execution"--a raising of the legal and economic bar exteremely high so that only the most depraved and absolutely guilty qualify for execution.

I've written about this before (but I can't remember where or when), after I had read most of the major studies linked to by anti-death penalty advocates demonstrating that total costs > total benefits. However, Google has no record of these comments, and they seem to have disappeared forever into the electronic void...

Manpower Survey

Some people were disappointed with the latest employment growth numbers only coming in at 112,000. Well today, Manpower released its survey and at the very least the start of 2005 looks better than a year ago:

U.S. employers plan to ring in the new year with strong hiring activity, according to the seasonally adjusted results of the latest Manpower Employment Outlook Survey, conducted quarterly by Manpower Inc.

"What a difference a year makes. The job picture moving into 2005 is decidedly more upbeat than it was at the start of 2004. For the past three quarters, employers' hiring intentions have been steady and strong. The current survey results tell us that they are equally prepared to hire staff as they enter the new year," said Jeffrey A. Joerres, Chairman & CEO of Manpower Inc.

Of the 16,000 U.S. employers that were surveyed, 24% anticipate an increase in hiring activity for the first quarter of 2005, while 10% expect to decrease staff levels. Fifty-nine percent of employers surveyed foresee no change in job prospects, and 7% are unsure of their hiring plans. When seasonal variations are removed from the data, the outlook for the first three months of 2005 reveals that employer confidence is expected to inch upward from last quarter and improve greatly from a year ago.

Our unemployed/underemployed readers should look at Finance, Insurance and Real Estate for the strongest opportunities.

We Shall Not Beg!


While two first-rate professors with a top-grade economics & culture blog are holding out their hats to pay for bandwidth, we at T&B have way too much pride for that.

So let me be clear on the T&B donation policy:

1. I don't want your damn money. Thanks, anyway!
2. I don't need your damn money. Thankfully!
3. I prefer that you leave a comment rather than click on an ad.
4. If you insist on sending a donation to me or a coblogger, then do so.

I blogged when it was free, and I blogged when it cost me money. But thanks to these folks, T&B is currently a positive cash-flow enterprise. No, I do not distribute dividends to cobloggers, because their posts aren't driving the revenue. If they were, I would.

Someday, this money source may disappear, but so be it. We will still have no paypal link, no amazon suggestions, no begging--just Google ads, which you don't click on.

Thank you for your patronage.

New NBER Working Papers Out

Just as an FYI, there's a new issue of NBER's Digest Online and has summaries for the latest working papers.

As always, great stuff. The ones I'll be spending my $5 on:

Effects of Taxes on Labor Income:

Second, countries with high tax rates on labor income and consumption expenditures have relatively generous tax-funded programs for social security, disability insurance, sick leave assistance, unemployment insurance, and general assistance. The benefit sides of these programs also alter labor supply incentives in ways that discourage market work activity and increase employment in the underground economy. To the extent that government spending on these programs responds to the availability of tax revenues, the full response to differences in taxing capacity must take into account the indirect effects that show up through the expenditure side of government behavior. Conceivably, the indirect expenditure effects are larger than the direct effects of taxes.

Democracy, Dictators, and Growth:

"[I]nstitutions have only a second order effect on economic performance," conclude the authors. "The first order effect comes from human and social capital, which shape both institutional and productive capacities of a society." They argue that this conclusion has important implications for economic thinking and policy. First, research on institutional economics should focus on actual rules rather than fuzzy assessments of institutional outcomes. Second, the results offer no support to the view that democracy and constraints on government are preconditions for economic development.

Interesting Technology

Tim Oren had a link to an article about some biometric technology which is being rolled out in Japan. The article doesn't mention the level of security the technology offers although I did find an article which mentions it being lower than iris scanning. Ultimately, what will drive the adoption of such technologies isn't if they are foolproof, but the benefits they bring. Fraud is here to stay no matter what technology is put into place and people will find a way around it.

Of course, technology has always had an oppressing effect on the underclass. Gone are the days when you could mug somebody and know they'll have cash on hand. There is an odd chance that the victim hasn't written their code on the card after all. Of course, this will only enhance the role education plays in crime. Earnings growth of criminals with college degrees will outstrip those of high school drop outs. Thus, the little guy will get crushed by corporate America once again and become their slaves. Corporate America, organize crime, what's the difference?

I will mention one other thing, such technology has benefits outside of security. For instance, it was damn unpleasant being locked out of my mom's house for six hours over Thanksgiving weekend when I left her house without a key. There was a keypad to get into the garage, but I forgot the code. It would be problematic to forget taking my eyes with me when leaving the house. If iris scanning becomes available for home security, I'm buying one.

Looks like there's another fight heating up for home entertainment formats: HD-DVD vs. Blu-ray.

"The problem is that we're getting into another round of format wars and until it shakes out, consumers are not likely to buy much of anything," Michael Gartenberg, research director at Jupiter Media, told TechNewsWorld.

"Enthusiasts and getting to market first don't matter," he said. "The enthusiasts are going buy no matter what. If they pick the wrong format, they'll buy again. It's the mainstream that matters."

While DVD players a getting closer to making VHS a thing of the past, I think it's going to be a while before people buy into an even newer format for DVDs even if everyone comes to an agreement and picks a single format.

My quibble with the second quoted paragraph: actually, enthusiasts can matter a great deal, depending on what they're enthusiastic about. In the VHS v. Betamax fight, some early adopters heralded the higher quality of Betamax. But there were enough early adopters who cared a bit more about price and availability than overall quality, and out went Betamax. Of course, someone else had to sort of settle on a format to put in video stores, but if my memory serves, there were plenty of places that had movies in both formats. The Betamax players were just enough more expensive that my folks got a VHS player since they couldn't really see the difference in quality (and honestly didn't care that much about it -- their switch to DVD came when they realized they soon wouldn't be able to buy their favorite movies on VHS). So, if there are enough early-adopters who decided to care about some feature of Blu-ray over HD (or vice versa), it may well tip the scales in favor of one format or another.

Here's a random question inspired by a conversation with coworkers: does a "culture" of time-sensitivity have anything to do with economic progress?

After travelling a fair number of countries in Africa for a project, a coworker returned with stories about "meetings" that were the result of endless tracking down of people in government buildings that did not ever schedule anything. Time and again, secretaries would tell them that they don't schedule meetings, and that the best way to catch the person of interest was simply to talk to them on their way somewhere, or find them in their office. Meanwhile, I recently left school, where there were a fair number of students from Latin America, South America, and Mexico. Despite being among the best students in the class, there was a disctinct difference in their concept of time. From class times to meeting times to parties (which were, again, the best thrown at the school), preset times was clearly ignored. And from one of these students I learned that, at least in some countries, it is customary to have to ask someone three times to a function/event/meeting before the invitation is considered "real." And you need to hear a positive reply all three times to believe the person will show up. Anything less, and it's not binding.

Clearly, this paints with an awfully wide brush, and I mean to cast no aspersions. But from not simply my own observations but the comments of native people, there seems to be a distinct difference in how various parts of the world consider the issue of "timing" (as opposed to the passage of time). I can't help but notice that those areas with a less strict adherence to this "timing" also seem to correspond to less developed parts of the world; Africa, in specific. Though it's another stereotype (which I am uncomfortable about, but have no data at hand), compare this to the notion of German and Swedish punctuality.

Might there be some correlation between productivity and timing/timeliness, and thus perhaps development? What might be a good way to measure something like adherence to schedules? (And, while I'm asking, am I heading down a well-trod road that I don't know about?)

Token Hoarding in St. Petersburg, Russia

Just received word from our correspondent in St. Petersburg, Russia (my mother-in-law), that on January 1st the local authorities will raise subway fares.

What's interesting about this situation is that the authorities do NOT change the tokens when raising fares; of course, that would cost too much money.

But, this is Russia, so those costs don't disappear; they're passed onto the Russian people. As expected, those who live in Piter have been fighting back--not by mass protest--but by buying up tokens at a rate so furious rate that there's now a "shortage".

This hoarding is so effective and widespread that there's now a 20-30 minute wait in line just to purchase a token.

Sorry, I couldn't find a link.

Worshiping Hayek

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Drezner pointed out this link to a tribe in Africa who worship the Great Hayek. Actually the breasts of the great Hayek.

Who would have known that Friedrich, in addition to an economic genius, was a sex symbol?

Woops, wrong Hayek. :) Looks like those tribal men have a thing for Salma.

Just a little economic humor for you.

Math Prizes

I'm bad at math. Or, at least, I'm slow at math. Well, maybe I'm not slow all the time so much as mechanical and lacking insight. Ok, to be precise, what I am is a fine example of the true mediocrity of the US public education system.So now I'm running to play catch up, and I'm liking it. Which is a too-long way of saying I find this very cool:

Why do the unsolved problems of maths matter?

To commemorate the occasion and provide a suitable launch for mathematics into a new century and a new millennium, one hundred years later, the newly-formed Clay Mathematics Institute (CMI) of Cambridge, MA, devised its own list of old nuts that have yet to be cracked and formally announced it at the Collège de France in Paris on 24 May 2000 in a lecture entitled “The Importance of Mathematics”. While to some the latter might sound like an obvious oxymoron, there are some circumstances surrounding this list of problems which indicate that this is not just mathematics for mathematics’ sake.

For one, the founder and sponsor of the CMI is not himself a mathematician, nor did he read maths at university. Landon T Clay is a Boston businessman who believes maths research is underfunded and would like to see a wider dissemination of mathematical knowledge. Then, there is also the attractive price tag of $1,000,000 attached to each of the seven problems to be won by the first person to demonstrate a correct solution. So if you thought maths couldn’t make you rich and famous, think again!

The list of problems itself has been carefully selected to include not only the most difficult ones, but also the ones whose solutions would have a relevance to areas of mathe-matics and the other sciences beyond the one in which the problem was originally for-mulated, hopefully leading to further serendipitous discoveries en route. Thus, far from being formal exercises, the seven prize problems are widely considered the most important problems in mathematics.

These sort of pull-prizes seem to work well. I've always thought it would be a more interesting way to go about science funding for not only NASA, but medical research and more. I'd always appreciate a little competition behind the ways my tax dollars get parceled out.

Link via Political Theory Daily Review.

Oil Price Movements


Via Econopundit I saw this post over at Powerline. Thought it was interesting to look at, so I figured I'd look at a few past years. I've neglected 2003 since Powerline's graph includes some of it, and because the Iraq war introduces an issue that I wanted to sort of skirt around because of time constraints on my end.

Here are the calendar year movements for prices for 2000 -- 2002, all nominal dollars. It's less that I've not got time to adjust the dollars, but more that I was only really interested in the pattern of the movements. (Note: all seasons discussed in terms of Northern Hemisphere -- not meant as a slight to any Southern friends stopping by the site.)


Hmm. That looks a little like we might expect for a seasonal movement in energy. The summer travel season increases demand, while the climb post 11/4/00 might correspond to similar concerns about heating oil supplies we've heard about on the news in relation to current price movements. Possibly a reduction in travel, and potentially the level of oil stocks helped the decrease late in the year.

Summer here is relatively flat. But again we do see that there is some price easing when moving through the late months of the year.

And again a slight increase during the summer into fall, with a reduction in price preceding/entering winter. The difference here, of course, is a marked upturn at the end of the year. Now, what is it that might have occured in late 2002 that made people anxious about oil and oil-producing regions?

The upshot: I'm not terribly convinced that oil prices have moved along with the US campaign for the presidency. Seeing significant movement after controlling for the seasonality of oil prices (that summer is a big time for travel and trasportation -- the biggest sector of oil use -- corresponds to a heated time for the election strikes me as pure conincidence) would do more to sway me towards "conspiracy!!!".

UPDATE: Cite your sources, man! So sorry...all data taken from here.

The debates over drug reimportation from Canada often leave out much of the "Canada" bit. That is, they simply assume that nothing would change on the part of our Northern Neighbor (well, "our" if you're in the US anyway) should the US government decide to get out of the way of buying pharmaceuticals there. Turns out Canada may have a few things to say about it:

Many Canadian internet pharmacies supplying Americans with cheap prescription drugs would be forced to close under proposed licensing restrictions.

The restrictions were proposed by regulators in the prairie province of Manitoba, where close to half of the roughly 150 Canadian internet and mail-order pharmacies are based.

Of course, this is simply regulation masking itself as benevolence. Since the Canadians are buying drugs from the same companies that are supplying the US, "safety concerns" are limited to preventing that great wave of people faking prescriptions because they are able and anxious to take massive amounts of heart, diabetes, and cholesterol medications once they realize they can get them for a lot less than down in the states. Or maybe Paul Martin hears a Canadian version of the great "sucking sound" and knows its possibly the US vacuuming up all the available medicines should reimportation be allowed to go forward.

Just because I'm against reimportation doesn't mean I favor more government intervention to prevent it.

Liberal Academia II

Stephen Bainbridge sums up more evidence of the lack of intellectual diversity in education today.

I too will testify that I feel I must keep my political views to myself to prevent discrimination and earn a fair grade. Funny that liberal "tolerance" is a one way street.

Will this trend reverse? Normally I might seek for ways to avoid doing business with a company that tries to oppress my political views, but I will not cut off my own nose by avoiding the completion of my academic career. Hopefully in 20 or 30 years by the time my children are starting college they will not feel they have to keep quiet in class just to earn a fair grade.

A Brief Pause in Blogging


Writing about error in economic data has been harder than I predicted, so I regret that I must halt posting at Truck & Barter for at least two weeks, while I crash on my dissertation proposal. I will still be posting to Always Low Prices daily.

As of today, my dissertation is composed over a hundred pages of partially-edited material, formatted into a single discursive screed, rather than the three-essay structure preferred by those facing publish or perish incentives.

However Ian, Bob, and the rest of the T&B contributors will continue to provide the posts you really come here to read. Except for Paul, who sends along his own apologies, as his work duties preclude him from blogging until January.

Advertisement: Come next year, I'll be a Ph.D. Economist with 5 years work experience in top-notch research organizations. More importantly, I'll be looking for employment. So spread the word; I'd love to be hired through a blogging connection...

An Oversight?

Well, the polls are up for the Weblog 2004 Awards. And what I find more disturbing than the lack of a nomination for T&B is the complete lack of a Best Econ Blog award.

Is it really such a dismal science that it doesn't even merit its own category?

Oil: Stocks vs. Capacity


The recent decline in prices for a barrel of oil seems to be good news for the stock market. No surprise there. But a lot of the commentary in such articles has gotten me thinking. A good deal of the concern is over the stock of oil products. From a WaPo story:

"Oil futures go down, stocks go up. I think that'll be a pattern for a long time, and the good news is that if we keep getting inventory reports like this, oil prices will be ready for a big correction downward," said Brian Belski, market strategist at Piper Jaffray. "Overall, this market has clearly turned to a growth mode over the past few months, and should continue to grow."
Stocks of oil and oil products are generally taken as a sign of ability to deliver products on demand when such things as heating oil are needed during the winter. When they're low, the view is that things are getting a bit thin and any unforseen uptick in demand is going to stretch the stocks too far pushing the prices way up. This has been a contributing factor to the recent per-barrel oil prices. From the EIA, here's an illustration of recent stock levels for crude oil:


Sitting at or below average for the first half of the year, then dipping back down again, has helped drive the spot price for WTI up to the levels where it became a campaign issue. So the slide back down can be read as a sign that people have a bit more confidence that our ready supply of oil (as opposed to having to wait for more to be pumped and imported) is going to suffice for the coming months. And, as much as there was a lot of talk about oil reaching new and amazing heights in price, the recent moves have prompted talk of a "correction" to get rid of the "fear premium".

Some of the fear, and thus the escalating prices, is due to political factors in the world. Nigeria had civil disturbances, there were labor strikes in the Netherlands, and Iraq is, well, Iraq. But none of that is really new. We've seen it before, and if recent finds in former Soviet Union countries are any indication, the world will continue to face an oil supply rooted in the world's most unstable regions.

Something I tend to think is under-discussed, at least in the popular media, is the issue of refining capacity. While Saudi Arabia is still the world's swing producer, with the largest amount of excess production capacity (they can turn the spigots on faster and wider than anyone else), having more crude sloshing around doesn't help much if you can't do anything with it. In cases of demand spikes or making up for disruptions in supply, the measurement for being able to smooth over the shake up isn't the amount of oil that can be pulled out of the ground, it's how much oil can be turned into usable things like gas, fuel oil, heating oil, and other distillates.

The US hasn't had a new oil refinery come on-line since 1976. Which helps explain this (data from the EIA):


Two things of note, then: 1) the US demands over 20 million barrels of oil a day, and 2) US refineries are running around 90+% of capacity for each plant. This means that, in events like the four hurricanes in the Gulf of Mexico this year (where a large portion of US refining is done) there's little ability for other plants to pick up slack while some refineries are down. And the US isn't the only one pushing its limits. This report from the IEA has one illuminating table (among others):


A number of OECD countries are running at higher capacity rates than the US, especially over the 2003 timeframe. (The US number from Sep 2004 has risen sharply again.)* Since the cost to move crude to the point of refinement is so much lower than the cost to move distillate fuels -- which is why we have refineries here that have capacity far beyond the ability of Texas to pump out oil -- widespread stress on refining capacity means delays in getting products to final distribution to consumer; delays in things like heating oil for the winter (thus the so-far mild temperatures for the winter have had calming effect). Also mentioned in the report is an interesting mismatch between those kinds of oil that are seeing an increase in demand (light/sweet) vs. those that are being pumped out of the ground (heavy/sour). The mix of refineries available to us here in the US isn't well-suited to accomidating such changes.

All this has a direct impact on the stocks of oil, since the refineries are essentially how the stocks get filled. Overtaxed refineries can't react well to interruptions, which means that even small shocks get magnified through the system.

"Oil independence", as it's usually considered, is a pipe dream so long as the US uses oil, and someone, somewhere can pump and ship oil for less than it takes to get it from Texas. But that doesn't mean the US has to be so sensitive to shocks. Having more excess refining capacity (or any at all) might be one way to help smooth things out. Too bad, then, that building new refineries is almost entirely out of the question. The return on investment for refining has actually gotten better, but the regulatory and environmental restrictions (more on the environmental issues here), including nearly 800 permits to secure and reductions of 42% of actual profitability against posited levels without environmental regulations, place it out of reach for any of the "majors". Even if large amounts of capital for investment could be obtained, companies would immediately begin fighting the traditional NIMBY problems of any large industrial facility; it's no wonder US refinery building has gone the way of the dodo**.

And so while it's not entirely certain that high oil prices have a negative impact on the world economy (definitions of "sustained" and 'high", and assumptions about behavior make analyses like this fragile), the addition of refining capacity might be, at least, a hedge against the problems that arise from being so sensitive to fluctuations that are beyond our control.

*Some might notice that I said the US uses over 20 million barrels of oil a day while this chart shows that US refining capacity hit 16.25 million barrels a day. This is how stocks move into the lower edge of the average range, as demand not only surpasses refining capacity but also restricts the amount that can be placed in stocks. Either the US continues to draw down stocks, making the market even more nervous, or the US imports refined products, a relatively expensive alternative.

**Though, unless I'm mistaken, the dodo wasn't regulated out of existence.

UPDATE: My apologies for the misspelling in the "capacity chart". It was a casualty of doing the post over lunch. And, for data about capacity, click here and open the XLS file. The US is up to running around 94% for the week of Nov. 26.

Prices of Gas and Other Liquids

While the price of gasoline has declined for four straight weeks, leading to below the fold reports, fark linked to a comparison of the prices (per gallon) of 46 other liquids along with gasoline.

This type of price comparison, while honestly conducted (except for some goods, which are priced too high), doesn't have any other economic value. At the margin, nobody ever chooses between a gallon of gasoline and a gallon of black inkjet toner and a gallon of mercury; there is no production process where these are substitutes, so the relative prices don't provide any decision-assisting information. They're still cool, though.

New Import Duties

I'm hoping this doesn't affect "all you can eat shrimp" at the Sizzler:

The Bush administration yesterday said Chinese and Vietnamese shrimp are sold at unfairly low prices in the United States, siding with U.S. fishermen as they try to fend off overseas competition.
The decision reaffirms new trade barriers on the country's most popular seafood, though the new duties meant to counter the competition are not as high as requested by the industry.
"Although U.S. shrimpers believe the [Commerce] Department understates the amount of dumping in certain instances, they reaffirm our contention that shrimp is dumped in the U.S. market," said Eddie Gordon, president of the Southern Shrimp Alliance, which represents shrimpers from North Carolina, South Carolina, Georgia, Florida, Alabama, Mississippi, Louisiana and Texas.

In all seriousness, these import duties, and all previous, are a black mark on this administration. This is why I'm hoping that for somebody like this to be appointed at Treasury.


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