September 2005 Archives

Via Slashdot I noticed the announcement that NASA and Google are teaming up.

Google is expanding rapidly and recently raised more than $4bn for new projects by selling shares in the company.

As part of the venture, Google will develop one million square feet of real estate at the Nasa Ames research centre.

Apart from the general benefits of the interaction, an article at MSNBC suggests that Google might have recruiting issues in mind:

As long as this project doesn't detract Google from its paid-search knitting, I say blast off at will! There may be another method to this celestial madness. The company has been a busy recruiter lately, adding 700 new hires this past quarter alone. Perhaps NASA Research Park will help Google lure the brainiac scientific intellects that it covets who can't be swayed by piles of cash.

With their current reputation as one of the coolest companies around to work for, 700 hires means thousands of job applicants. I'm not sure Google is having a hard time with its recruiting. Maybe it's the other way around?

Federal performance of R&D (as measured by spending -- not the best measure, granted, but a good indicator) as a share of overall spending has declined dramatically:


If more and more cutting edge work is done outside of the public sphere, could it be that the government sees this collaboration as a good way to utilize the talents of the people it's having a harder and harder time drawing?

The Next Reimportation Dilemma


MIT has been working to develop an ultra-cheap laptop that would put computers in the hands of people around the world who are currently very far away from being able to afford such a thing. CNet has some prototype images up. The images hint at the range of features, with the clever notion of a hand-crank for areas lacking in electricity, but also including tablet-like functionality.

Why do I get the feeling that, if these things are anywhere near $100 a piece, as is proposed, there will be a huge demand for them throughout the developed world? I can't be the only student who would have loved a tablet for note-taking with a power supply I can refresh right before class starts. How long after launch would you guess there would be websites offering to sell them near developing-world prices? And how soon thereafter should we expect frothy calls for legislation to either support or ban laptop reimportation?

Gaming Open Market Closes

The experiment in trading online-currencies for real-world ones is coming to a close this weekend. An email from the proprietors of the Gaming Open Market went out early this morning:

"This choice has not been made lightly. However, we feel that closing the L$ market to concentrate on other projects is in the long-term best interests of GOM."

This sounds to me a bit like the usual "split over creative differences" excuse used in filmmaking. The forums speculate, and it would seem logical given a past history of trouble with fraud, that it was just too hard for the operators to keep up with the necessary security/protection measures.

In similar news, World of Warcraft-Europe has decided to make things harder for "gold farmers". Those are the people who play the game through multiple computers for days on end to build up virtual property for the purpose of selling it for real cash. In a sad case, a chinese man was recently murdered over the theft of a virtual good.

Blizzard Entertainment, the makers of World of Warcraft, have routinely worked to confront the secondary market in virtual goods, with varying success.

Mr. President, Mind Your Own Business

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I do not appreciate the President telling me how or how much to sacrifice in response to a regional natural disaster. I will not play a game of "pretend" so that he may play "good steward" in front of the national press:

There has been a lot of political and ideological discussions surrounding Katrina. Clearly the political sector handled the disaster with great inefficiency. Yet many people, including (as usual) most of the media, seem to believe government failure somehow proves we need bigger government.

This is an odd conclusion. If the voluntarily sectors (market and civil society) fail we hardly conclude that government must shrink. To put it another way, if Katrina had been handled with great efficiency by the state the same people would conclude this was an argument for even stronger government. But now the exact opposite is also taken as meaning we need greater government. I am curious to know if there is any world development the NYT does not see as evidence for expanding the welfare state, at the expense of individuals and of the civil society.

Some goverment failures are obvious. Incorrect calculations when building protection, public services and policing breaking down when we needed them the most and mismanagement of disaster help.

What we also had to mention Alert-Inflation. There are asymmetries for politicians when it comes to warnings against potential disasters. If something happens they will be blamed for under-reaction, whereas the costs of overreaction are comparatively small (perhaps you are just seen as signaling concern for citizens).

This would lead to exaggerated warnings against storms, hurricanes and the like. But the public has rational expectations, and will learn to devaluate the warnings. The public choice version of Crying Wolf is due to the inherent ineffectiveness of the political sector. If goverment was truly welfare maximizing (rather than say vote maximizing) politicians would not exaggerate in order to save themselves again low probability disasters. Therefore the public would not learn to devaluate warnings.

Needless to say, Katrina made things worse. It is safe bet that we will have several years of costly over-reactions in front of us. If anything the problem will become worse, as the public after a while will learn to ignore the warmings even more.

And 62,000 miles to go before they sleep...

LiftPort Group has hit the 1000 foot mark on their move towards making the Space Elevator a reality.

Of course, this is just a tiny portion of the ultimate heights something like this would need to reach. But still, I'm gripped by the idea of getting in an elevator and hitting the button for "Geosynchronous Orbit". And I thought the ear-popping to the top of the Sears Tower was fun...

Camus, Snitter, Rowf...the Plague Elves?

Plague broke out this week. Originally thought to be well contained, a carrier made it out to the general population and infected someone who survived long enough to spread the disease through the wider community.

Fortunately, it was eventually contained and the plague was wiped out.

Even more fortunate, of course, is the fact that the plague was virtual. While this isn't the first virtual plague to hit massively multi-player games, it's the first time I've heard of the phenomenon getting out of control of those who monitor the games. An example of ingenuity and spontaneous disorder? That is to say, the efforts of numerous distributed individuals out-maneuvered the best planning of the experts who dilligently (intelligently?) designed the system. Waxing hyperbolic, some are making a great deal of the "world" moving beyond the intentions of the designers and calling it a true "world event."

For reactions to the breakout and the eventual attempt to control the situation, read through the forums linked to from the site I mentioned above. There's also some entertaining stuff on the official World of Warcraft forums. Sift through the numerous "in-character" posts and boastful ramblings, and you'll find a good deal of people arguing to keep the plague in the game.

If I seriously want to consider these kind of environments as potentially appropriate for testing and experiments, is this an argument against my position that people take in-game situations seriously enough that experiments might yield results with some level of verisimilitude? I'm not so certain. To be sure, these people aren't terribly worried about real life results from plague infection, but what I think they're ultimately asking for is the opportunity to act and react to ever-increasing levels of realism.

With the threat of true viral outbreaks looming large, what might be learned by watching the pattersn of behavior and interaction among the WoW gamers? The ongoing efforts of the game operators to respond to a situation that quickly ran out of their control? What if the programmers had, instead of rolling restarts of computer servers, tried modeling response teams, distributed to various locations, burdened by finite supplies and personnel?

UPDATE: Here's an article on the plague from IGN. From the end of the article:

[...] when a player's character dies, their gear suffers a 10% reduction in durability, unless they were killed by a player from the opposite faction. This reduction can be repaired, but it costs money, and a reduction to zero renders the item completely unusable until it has been fixed by certain NPCs.

Further complicating the problem is "griefing," a habit of some players in online games to harass others in a way that slows down their characters' progress. So certain individuals will not cooperate with Blizzard's attempts to quarantine certain areas of the world. This is particularly vexing for a game that makes almost every attempt to be the friendliest, most approachable MMO on the market.

There are, at least, some economic consequences to plague exposure beyond the hassle of restarting your game. Additionally, there are those who, as in any troubled situation, exhibit less-than-charitable characteristics.

(Please note that I do not, by any stretch of imagination, wish to suggest any sort of equivalence between this and something like the Katrina floods. Rather, I am fascinated by the extent to which one could model disaster and see potentially realistic results.)

Google Bets on Google

Google is putting electronic prediction markets to work in the workplace. (Noticed from my obsessive reading of the Google blog, though I also noticed it posted at MR; I'll just link there on the off-chance that you aren't reading MR daily. Silly, I know.) Particularly fascinating:

Being geeks, we naturally used information theory to measure the entropy of our probability distributions:

In this graph, we have weeks before market expiration on the X-axis, and entropy (in bits) on the Y-axis. We've included some reference entropies to help your intuition, and you can see that in addition to accurate predictions, the distributions become steadily more informative and decisive (lower entropy) over time.

Our search engine works well because it aggregates information dispersed across the web, and our internal predictive markets are based on the same principle: Googlers from across the company contribute knowledge and opinions which are aggregated into a forecast by the market. Sometimes, just feeling lucky isn't enough, and these tools can help.

Here's a quick link for background on information theory.

File Under: "Damned if you do..."

A Swedish woman has successfully sued Volvo over their refusal to hire her for a job on the assembly line. Volvo claims that people need to be of specific height due to safety concerns.

Not good enough, said the Swedish court:

The ruling said that while Volvo was not discriminating against women on purpose, in practice a quarter to a third of all women in Sweden would not qualify to work there.

The fine is incredibly small; but that's ok, since the real money comes when Volvo gets sued by assembly-line accident victims for not making sure the employees were safe enough.

One can start to see why people get so worked up over the distinction between intent and effect tests in things like Supreme Court nominees.

Looks like Google's getting ever-closer to a rumored "GoogleNet": a wifi system stretched over the country, giving free access for the price of living through directed advertising. And if you ever use Local.Google.Com, you'll get an idea of just how directed it could get. ("Click here to get directions to the biggest clothing sales going on withing 1.5 miles of you!")

Google has been busy buying up dark and underused fiber-optic backbone infrastructure, and has now rolled out its wifi system across San Francisco, complete with a free (beta) secure access program.

Related Entries:

2. Google Hacks
3. Google Axes A Blogger?
4. I, for one, welcome our new Google overlords.

Brain Damage = Better Forecasting?


HedgeFundGuy has an interesting post up about why experts don't often exhibit extraordinary skill at forecasting.

All well and good, but in an appeal to Occam's Razor, perhaps this simpler explanation is the better one?

A team of U.S. scientists has found the emotionally impaired are more willing to gamble for high stakes and that people with brain damage may make good financial decisions, the Times newspaper reported Monday.

In a study of investors' behavior 41 people with normal IQs were asked to play a simple investment game. Fifteen of the group had suffered lesions on the areas of the brain that affect emotions.

The result was those with brain damage outperformed those without.

Perhaps if people can be rational in the grips of a drug addiction -- to note the work of a newly-minted Genius* (almost unrecognizable in that picture, give the lack of what I thought to be the ever-present ballcap) -- then they can be just as rational in the face of brain damage. Indeed, it may be a common occurance:

Fellow [study] author, Baba Shiv of Stanford Graduate School of Business said many company chiefs and top lawyers may also show they share the same trait.

* I note that MR has a post on Kevin Murphy as well, with appropriate links. Tyler Cowen is right to mention the appellation "genius" is deserved even without John D. and Catherine T. say-so. Attending the University of Chicago without, at the very least, sitting in on some of his classes would be a downright shame. Even more rewarding are those days when someone in the audience takes it in their mind to challenge Dr. Murphy on a topic he or she is just learning. The resulting exchange is entertaining, though one must enjoy a bit of shadenfreude for the unfortunate student.

My Own Private Andromeda

The privatization of space research and exploration appears to be continuing apace. Here are a couple notes on recent work in areas often considered solely the domain of government.

1) Space Elevator gets the nod from the FAA.

" The LiftPort Group, the space elevator companies, announced September 9 that it has received a waiver from the Federal Aviation Administration (FAA) to use airspace to conduct preliminary tests of its high altitude robotic "lifters."

2) From Wired news, a company is looking to get a Mars community up and running in 20 years.

"All companies set goals, but newly formed 4Frontiers is eyeing some expansive horizons. The company's mission: to open a small human settlement on Mars within 20 years or so.

Sure, it may sound far-fetched. And the company's initial plans are a lot more terrestrial than ethereal, like developing a 25,000-square-foot replica of a Mars settlement here on Earth, then charging tourists admission.

But the people behind the venture are quite serious -- as serious as the $25 million they want to raise from investors."

The actual success or failure of the various projects isn't as important to me as the fact that there seems to be reasonably strong interest within private industry in making a run at space.

NOTE: This entry was edited for content by the author. I have done so in the interest of keeping well clear of conflicting interests between myself, my employer (whom this website in no way represents), and clients. This was done without reference to anyone/anything but my own judgement. If anyone has questions on the previous content, or would like a fuller clarification, feel free to write me at ian@theurlforthissite-dot-com.

Video Game Economics

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I suppose I am open for attacks that I'm just finding things that reaffirm my prior beliefs, but I am truly becoming more and more certain that online gaming worlds are just about ready for use as places to perform economic simulations that might be too expensive, too hard to randomize, or just too ethically "iffy" in the real world (randomizing people in schooling, social staus, income endowments, etc).

This weekend the WaPo ran a great article on massively multiplyer online role-playing games (MMORPGs) and the real markets for online goods that are cropping up. Included is a mention of a site I'll admit to stopping through every so often:, where you can track the progress of various game currencies against real-world measures.

And -- though I'm terribly late in linking it by internet-standards -- there's this interesting note from the BBC about Sony Online Entertainment's responses to Katrina. Apart from the laudable efforts to collect donations for people caught in the devastation, SOE is making sure that those people who play EverQuest will have their accounts, and -- possibly more importantly -- the items they own online, protected:

"Additionally, for our 13,000+ players actually in the affected areas, we will be suspending billing until such time as they are able to play again" said SOE in a statement.

"In addition, any items or structures in any of our games, which decay over time, will be preserved until the user's next login."

Spend Time in the Lunchroom

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If you haven't seen it yet, I highly recommend the back-and-forth between Arnold Kling and J. Bradford DeLong. I trust these two highly intelligent men need no assistance from the likes of me in the larger debate. That, of course, doesn't mean I'm going to refrain from commenting. Apologies for the echo-chamber nature of the thing.

But, as J. Bradford mentions his own jaw does, mine dropped at this early point in the post:

Nobody I know has any complaints about WalMart's efficiency.

This, after mentioning the size of various other "large organizations". Clearly, this man has not spent much time in lunchrooms, coffee-klatches, or near people on smoke-breaks at such firms. That could be the only explanation for his not knowing anyone that has trouble with Wal-Mart (or IBM, or Toyota) efficiency. One need not even spend a full week in a large company to get an earful about slow HR, turnaround times on expense reimbursements, bizarre choices for management promotions, IT desk ineptitude (yes, I guarantee this happens at IBM as well -- in fact, if not more complaining there simply because of the sheer number of people who would be convinced they know how best to fix whatever the problem is), and so on and so forth.

Granted, this is not quite the same as the efficiency needed for getting products to a store on time, but I would challenge anyone to find even a Wal-Mart manager that doesn't have strong suggestions on better ways to order, deliver, and sell goods (let alone human resources policy). I would say, though, that these forms of inefficiency are among the most important to consider. The DeLong post doesn't have the most critical part of the question, namely, " compared to...". Considering the federal government, I also couldn't name a single person who would suggest Wal-Mart is on the losing side of any comparison.

The difference, of course, is in the ability of companies like Wal-Mart to correct their inefficiencies. Due to control over the staff, IBM, Toyota, GM, Disney, or most any private company can work to weed out inefficiency by removing the people who either created a problem or were incapable of fixing the problem. Firing someone for underperformance in the US federal government is, I daresay, near to impossible. Crude incompetence doesn't qualify one for termination. Actual harm to others, theft, or something similar is often the bar set for termination. Entire federal buildings could be filled with the people who have their jobs simply because their management is waiting for them to retire. The process of getting them transferred, let alone fired, is too exasperating, too time consuming and filled with administrative hassle to even consider.

Note that this is not simply anecdotal results from a few outdated agencies. I'd suggest a quick re-reading of section 2, chapter 3 of Oliver Hart's Firms, Contracts, and Financial Structure for a pleasantly quick-yet-theoretically-tractable discussion of the incentives between workers and managers. The ownership of complementary assets and the resulting investment in human capital towards those specific assets helps drive efficiency, addressing directly the point DeLong makes about Wal-Mart finding it more efficient to organize as a single company of 1.5 million. (As an aside, this seems like a needlessly superficial characterization of firm structure, since the various groups within a company will face a number of similar problems -- e.g. hold-up -- as we see working across separate firms.) Point being, government employ purposefully, often radically, divorces the incentives of workers from those things that would help drive efficiency. Case in point: in one section of the US Dept. of Agriculture where an acquaintance of mine worked, the person in charge of setting wages (choosing the dictated pay level) has no contact with the people who were managing the group in which my friend worked. The group management had no say, and could only appeal to another division for increases or reprimands. Reduction and firing is unheard of. What interest would there be, then, in working efficiently when it has absolutely no impact on salary?

I agree that there ought to be serious discussions on when certain types of organization should be adopted above others. But I do find it almost alarming that DeLong could suggest, as he seems to be, that a US federal agency could operate anywhere near on par with a private firm if only the right manager was in charge. Political management is answerable to those who appointed them (and, in the case of the Bush administration, often not even then), while those below -- those that do the vast bulk of the work -- are answerable to others who suffer the same lack of aligned incentives as the entirety of the bureaucracy.

Prices at 4600

Here is a graphic of condominium prices at 4600 Duke Street, based on sales data from the City of Alexandria, VA:

What's interesting about this data is that the apartments within each class are almost identical in layout, although outside views differ, as do the age and quality of the windows, AC unit, nearness to elevators, carpet, and bathroom/kitchen updates. As a result, some of the variance in prices is due to quality; the rest is due to willingness to pay. For example, the $260K 2-bedroom blip in February was due to a completely renovated apartment being resold, but I still think my neighbor paid a bit too much.

But notice that 0,1, and 2 bedroom apartments have been relatively flat since late May, but 3 bedroom units are still escalating. Interesting...

Adding in the 2004 data yields more of the same:


Here is a related post:

1) Not Fair Market Value

Flood Insurance for All

Dickie Scruggs wants to change the terms of home insurance policies ex-post so that hurricane victims get more money.

As I see it, there are only two policy options here that ensure home and flood insurance will be available in Mississippi in the future: 1a) Require that insurance companies pay flood damages even without flood insurance, AND 1b) require that every single policy-holder pay back-dated flood insurance premia, from the time they started their current policies, OR 2) enforce the terms of the contracts as originally written.

I personally would go with 2, however I can see insurance companies going for a version of 1 that doesn't sound so harsh. Requiring that everyone have flood insurance (and/or pay for backdated coverage) is an expensive and unnecessary idea, but if one wants big insurance company payouts today, it is the only policy consistent with the long-term public interest of making flood insurance available to those who want it. Of course, it's a terribly complicated idea, but that won't stop officials from making such a drastic institutional change almost unavoidable.

Qual & Other Stuff

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On Tuesday, I take the macro qualifying exam. For those of you who didn't see this post, I was diagnosed with ADD at the begininng of this year. Without taking medication, I never would have made it this far. It was during the fall semester a year ago I was ready to leave because of my inability to perform academically. Only a fluke chance of running across an article about ADD led me to be tested. Medication is no panacea, but it has helped tremendously. Thankfully, Claremont is a fairly laid back place whereas at most places they would have kicked me out after the first year.

The odd thing about studying for the exam is that the toughest part is actually the easiest for me. Most people can manage the material covered in the Advanced Macroeconomics book by Romer, but find the dynamic programming part difficult. However, it is the former that is giving me problems as I basically ignored it for a year.

In addition, I'm starting to look for a dissertation topic. One of my classes this semester is design specifaclly to do that. If I can't come up with my own, one will be assigned to me. I figure with with my involvment with the markets over the years I can come up with something. My field is in international money and finance. The area I specifically want to look at is capital flows, equity indices, growth and the dollar. I never mentioned my training for my first trading job. It was in Amsterdam, Netherlands and consisted of roughly two sentences: buy puts, buy stock, sell calls and with my boss pointing the guilder/dollar quote, when that goes up, buy, down, sell. As simple as it was, both worked quite well. As far as research goes, I'm more interested in the latter.


One reason you should always look at your data rather than mindlessly running regressions is because some point may so far be out of place that it causes your results to be corrupted. A case in point is from the recently released Human Development Report. For people who follow these types of reports know that it is basically skewed towards welfare state governments, in other words, Scandinavian countries do quite well because of their large government spending on a variety of public welfare measures. It's still enjoyable reading through it and looking for those odd pieces of data that jump out at you. On page 258, I found a number which is so obviously out of whack that it should have raised red flags for anybody working with the data.

Did you know that only 92% of children in the U.S. go to primary school? Even worse, this number is down from 97% a decade earlier. Even accounting for 1 or 2 percent that home school, that still leaves over five percent not accounted for. If this was true, it would be a national scnadal. As a footnote says, there are discrepencies between the number of students and the number of school aged children which could account for this difference, but this strikes me as quite large and probably outside of any reasonable error measurement.

Working Poor

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Some people hace noted that the latest government report on income and poverty was recently released. It showed a slight uptick in poverty rates. However, I wanted to point out my favorite statistics from the report. This being rates for various levels of employment. If one were to listen to certain politicians, it would appear that there are a significant amount of working poor in this country. That is, there a lot of people working fulltime below the poverty level. Unfortunately for the pols, the stats don't bear this out.

Work Experience % in Poverty
All workers (16 years and older) . . 6.1
Worked full-time, year-round. . . . 2.8
Not full-time, year-round . . . . . . 12.8
Did not work at least one week . . . 21.7

So, for those working fulltime year round, the poverty rate is 2.8% while those who didn't work at all it is 21.7%. Of course, this doesn't include children as this is for individuals only above a certain age, but it strikes me that poverty is largely a jobs problem.

One additional note, for those who are socially conservative among our readers, here are the numbers for families:

Type of Family
Married couple . . . . . . . . . . . . . . . . 5.5
Female householder, no husband
present. . . . . . . . . . . . . . . . . . . . . 28.4
Male householder, no wife
present. . . . . . . . . . . . . . . . . . . . .13.5

Maybe it really just takes a complete family and not a village.

Q&A About Price Gouging


Here's a post in which I interview myself about anti-price-gouging (anti-PG) laws. It's on T&B for my amusement, and is subject to change at any time. I'm just not satisfied with how economists deal with the craven idiocy of price gouging and the mendacious idiocy of anti-price-gouging laws. Comments are appreciated.


Question: What is price gouging?

Answer: Price gouging is the raising of prices 1) far above one's costs and far above competitors prices, 2) far above what many people think is just, 3) during a human crisis. I disagree with those that state that PG is a non-concept. It is an intentionally vague and deceptive, morally abstruse, and economically harmful concept, but for those very reasons, it must be taken seriously.

Q: Aren't price gougers insipid immoral fly-by-night cretons who prey on the helpless and desperate?

A: We are all part angel, part devil; and we all try to get the most money for our own resources, much of the time. Price gougers are regular people, except that they raise their asking prices for particular resources in times of human crisis.

Q: Isn't price gouging morally wrong and economically inefficient?

A: Here's what we know: price gouging is usually economically efficient but always morally suspicious.

Q: When is PG economically inefficient?

A: When any resource is controlled by a fool or an idiot, PG can yield potentially inefficient results. How? The resource owner sets his prices so high that valuable resources are undersold. Most of the time the market is so "thick" that one idiot doesn't really matter for overall efficiency, but if enough people controlling enough resources set prices too high, then there could be too few sold. But's that's highly unlikely, since most businessmen are not dumb enough to stick it to their customers today, knowing they won't be back tomorrow. They want to maximize profits!

Q: Doesn't price gouging maximize profits?

A: Hell, no! Not in the long-run!

Q: Then why do people price gouge?

A: Because they incorrectly believe that it will maximize their long-run profits! In short, they're idiots. And some gougers (like house contractors) really are fly-by-night operators, which is itself the problem, not the gouging per se.

Q: Why are markets so slow in identifying such bad businessmen?

A: Even fools know how to price competitively in stable retail environments, especially when a major corporation provides daily price points. But a crisis calls for creativity, sensitivity, and ruthless long-run calculation. It also calls for even sharper consumer skills today and vindictive behavior tomorrow.

While a resource owner might be able to guess what price will maximize today's crisis profits, it's really hard for him to identify the price today that will maximize long-run profits. Businesses rely on consumer trust and word of mouth to sustain themselves. So any resource owner better be able to justify price increases -- and very apologetically at that. This is done through surcharges or other indications of cost increases out of their control.

Even if a gasoline station owner could get $10 a gallon for regular unleaded, the cost in terms of reputation could nullify short-term gains. Hence, most far-sighted resource owners will not price gouge consumers.

But some will gouge to absurd levels, and lower their own profits accordingly, because inefficient results punish the price gouger!

Q: Shouldn't we use state law to stop businesses from making stupid pricing choices and taking advantage of consumers? Shouldn't price gougers be punished?

A: I think price gougers should be punished. And price-gougers are punishing themselves with lower good will and lower profits tomorrow. What anti-PG laws actually do is substitute a social, market-based form of punishment with a legislated, political form of punishment. I think the market -- combined with social pressure -- is a lot more severe and effective than the preening politicos who come in and slap merchants on the wrist.

Q: Why doesn't the existence of anti-PG laws stop price gouging?

A: Beat's me. I'm tempted to say that, to the gouger, the expected costs of punishment are worth the expected benefits, but I think that many gougers are so clueless that they don't even know the legislature has made their actions a crime.

Q: Shouldn't the rules of the economic game be different in extraordinary circumstances?

A: Perhaps, but just because the economic environment changes does not mean it is at all possible or desirable to repeal economic law. The fundamental premises of social, cooperative behavior remain the same in and out of crisis. While the price system doesn't work as well in times of rapid change as in more stable times -- nothing does --, in times of extraordinary change it works especially well compared to administrative fiat, forced queuing, and rationing in terms of both allocation and impetus for further production and influx of distribution.


Q: Is this an example of price gouging?

A McMinnville, Tennessee station was the subject of the second suit after it charged $7.00 a gallon for gasoline. The posted price was $3.50, but gasoline pumps had notes on them saying "Doubled," which most consumers missed until after they had filled their tanks.

A:No, that's an example of deceipt and outright fraud. A price gouger has the temerity of openly quoting his prices; besides being an idiot, this gas station owner is a crook, a swindler, and a cheat. He's a bad, bad man. He should be fined, forced to refund all his customers, and possibly imprisoned. But he's not a real price gouger. Indeed, if he had just posted $7 a gallon on the big board, he would have been just an idiot and a price gouger, but not a crook. Either way, I hope locals will refuse to let their children play with his children.

Q: How can we clearly, simply, objectively determine when price gouging has occurred?

A: You can't. Price gouging is a matter of subjective perception, not objective measurement.

Just accept the fact that the forces that determine prices in markets are the result of individual subjective decisions working within frameworks of social and governmental regulation.

There is no such thing as a just price, or a just price range, because there is no such thing as an unjust price. There are moral obligations, but these are outside of the price system. Anti-PG is a muddle, conflating morality and markets in counterproductive ways. How? Tthese laws assume that one can use a products cost -- or previous market prices -- to determine just prices. But this is nonsense. For a clear counterexample, we find a man stranded in the desert for two days, dying of thirst. Luckily, he comes across a caravan with ample water; I would say that the caravan owner has a moral obligation to give him water. But under anti-PG law, if the caravan owner wants $300 a gallon, the price is not unjust if the caravan owner can prove this amount reflects his actual costs, or if he can demonstrate the willingness of his buyers to have already agreed to pay that much. So much for determining immorality and illegality through cost accounting.)

The difference between profiting and profiteering is entirely a matter of what some people with large political influence -- like politicians themselves who want to buy votes -- feel is "too much". Seemingly objective constraints on prices and profits do not address the underlying consumer objective: to increase supply, which will in turn decrease prices. There is simply no way for the government to lower quoted prices without adverse side effects on supply, or without turning prices into vectors of cash and noncash -- regulated and unregulated -- components. Anti-PG laws do nothing but slow down markets which use short-term prices to get back to their long-run norms.

A Gasoline Tax Rebate

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Economists agree -- with experience and theory behind them -- that reducing gasoline taxes will not lower prices in the short run. But will offering a gasoline tax rebate -- refunding all federal taxes paid for gasoline -- increase them? If so (noting that a very small percentage of people complete rebates) by how much?

I envision a national rebate center much like any crooked electronics rebate scheme, only government run. You purchase your gas, and save your receipts. Every quarter, you send in your receipts, with a total tallied on a form, and get a rebate check 6-8 weeks later. You can cash the check for free at Wal-Mart or other fine retailers.

Alternatively, the taxes can be returned to consumers on a uniform basis of car ownership as of a specific date, which eliminates the paperwork (since all the Feds have to do is consult the DMV databases of each state and territory), but this option ignores differences in gasoline consumption. To do that you could adjust for EPA fuel economy, giving gas guzzler owners a greater rebate than fuel efficient small car, diesel, and hybrid owners :-) .

This may not sound appealing, but in the calculations of Lawrence Shephard, a uniform rebate converts an overall regressive tax into a highly progressive tax/rebate schedule.

But if enacted in reality, what could possibly go wrong?


Note that I'm not advocating this policy; I'm just curious about it. In May, Nevada Democrats decided a gasoline tax rebate -- not a lowering of tax rates -- was an excellent way to return a surplus to the people. That never happened, perhaps because it became a ridiculously complicated car registration rebate scheme (which only uses the DMV database to select recpients, but does not refund them DMV fees!?), in order to avoid federal taxation.

Am I Too Hard on GM?


The folks at the GM Fastlane blog don't understand people who don't wear seatbelts:

I know it is not just me. Many of my friends in safety, law enforcement, and public health cannot understand the view that a decision to not wear a safety belt is in some sense a personal "right."
Do you ever get the feeling that you must -- MUST -- comment on something? I did, and posted a few choice paragraphs below that:
[Y]our concern for safety rings utterly false to my ears.

If you were truly concerned for safety above all else, and you honestly want to reduce deaths, then you would put a regulator on your new cars that won't let them go above, say, 75mph.

No, you might object, consumers don't want to be told how fast they can drive! Well, fancy that! Maybe consumers don't want to be told when to wear seatbelts either...

Under GM's logic, a driver has no "right" to risk his own life by not wearing a seat-belt, but he does have a "right" to risk his life -- and the lives of others -- by speeding. How's that?

So Ph.D. economists are not good with economic principles. I'm left wondering if we'd do better if asked questions that 1) are more attuned current entertainment patterns, and that 2) incorporate more laziness. For instance:

You're at home on a Friday night watching a Law & Order marathon on TV. A friend calls you up to go see Wedding Crashers at the Lowes cineplex starting in an hour; movie tickets cost $8.50, though you'd be willing to pay up to $15 for that comfortable stadium seating and a funny flick. You do have to pay for your own ticket, but your friend said that he'll pick you up and drop you off home afterwards.

Q1) What is your opportunity cost of watching Law & Order?

Q2) If you value seeing Wedding Crashers so much more than Law & Order, why were you watching Law and Order to begin with?


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