EC101: Links for 13th June, 2019

  1. “A September 2018 article from Eater tells us that Miguel Gonzalez delivers directly to 120 New York restaurants. As an avocado supplier, he works with farms in Mexico’s Michoacán state. To maintain consistency and minimize bruising, he monitors truck temperatures and how the boxes are stacked during their 2600 (or so) mile journey.”
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    What happens when you raise the tariff on a commodity? Who do you think will (ultimately) pay? Econ texts give you the answer – this article provides an example.
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  2. “Across the United States, a similar cocktail seems to be keeping inflation at bay: Employers are reluctant to charge more, unsure how consumers will react, and they’ve found an untapped supply of workers. It’s partly great news. More Americans are getting jobs than policymakers once thought possible, and wages and prices aren’t spinning out of control the way history would predict.”
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    Think you know macroeconomics? Short answer: you never really do. The NYT provides an example of a conundrum that is keeping the Federal Reserve up at night: full employment, low inflation. A nice problem to have, right? You’d have thought so…
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  3. “Economists have written about topics that we would now classify under the headings of “microeocnomics” or “macroeconomics” for centuries. But the terms themselves are much more recent, emerging only in the early 1940s. For background, I turn to the entry on “Microeconomics” by Hal R. Varian published in The New Palgrave: A Dictionary of Economics, dating back to the first edition in 1987.”
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    On the etymology of micro and macroeconomics.
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  4. “Belloy’s misfortune stemmed from more than bad luck. He was the victim of unscrupulous traders known simply as operators, who might sell fake elevator receipts, or move prices in their favor by spreading false news. Or they might pull off an especially cunning manipulation known as a corner, in which they would buy future wheat while simultaneously buying all physical wheat.Later, when it came time for the operator to take delivery of his future wheat, the other trader had to first go buy some. But there was none. The operator owned it all. Thus trapped, or cornered, the victim had no choice but to pay whatever price the operator demanded. Cornering was the ruin of many a trader, like our Belloy, to whom the only apparent recourse was to find the nearest saloon and shoot himself in the head.”
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    Rarely are classes in financial economics so very entertaining. A lovely history (maybe apocryphal, who knows) about the early days of the CBOT in Chicago.
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  5. “There is no simple remedy for the curse of knowledge, but let me offer a suggestion. Keep a particular person in mind as you teach. That person should be someone you know well—a parent, a spouse, or a best friend (as long as that person is not an economist). Pretend you are explaining the material to them. Are they getting it, or are they lost? If you know this person well, you may be able to more easily empathize with their learning challenges. You might prevent
    yourself from going overboard.”
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    N. Gregory Mankiw comes up with a short six point guideline about how to teach economics better. It is worth going over this list, irrespective of whether you are learning economics or teaching it. Also, taken a look at Eli5?
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Links for 4th June, 2019

  1. ““Alexa, are you recording everything you hear?” It is a question more people are asking, though Amazon’s voice assistant denies the charges. “I only record and send audio back to the Amazon cloud when you say the wake word,” she insists, before referring questioners to Amazon’s privacy policy. Apple’s voice assistant, Siri, gives a similar answer. But as smart speakers from Amazon, Apple, Google and other technology giants proliferate (global sales more than doubled last year, to 86.2m) concerns that they might be digitally snooping have become more widespread. And now that these devices are acquiring other senses beyond hearing—the latest models have cameras, and future ones may use “lidar” sensors to see shapes and detect human gestures (see article)—the scope for infringing privacy is increasing. So how worried should you be that your speaker is spying on you?”
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    The article doesn’t answer the question it frames in as direct a fashion as readers might wish, but read this to understand that there is (as with everything else in life) a benefit to this technology, as also a cost.
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  2. “Many voters may have felt that others, more wealthier than them, were also being hurt by demonetization, and hence supported the adventurist move.The results of the second round of the YouGov-Mint Millennial Survey conducted in early 2019 suggest that even today and, despite all the evidence to the contrary, many urban youths who support the ruling party consider demonetization to be a great success of the government.”
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    Can you drive in reverse in a tunnel, Professor Hirschman? Livemint does a three year review of demonetization, and it is worth reading for a variety of reasons.
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  3. “Not all New York City views are created equal.Direct Central Park views may be the most valuable amenity in Manhattan real estate, but in a market filled with soaring new developments — some of which wind up blocking the views of other buildings — even a partial glimpse of a river, park or the city skyline can also command a hefty premium.”
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    This article is proof that microeconomics can be fun. But beyond that, it is also worth going through the article to take in the photographs. New York looks gorgeous!
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  4. “What Microsoft figured out is that it made far more sense for both Microsoft and their customers to pay on a subscription basis: companies would pay a set price on a monthly or annual basis, and receive access to the latest-and-greatest software. This wasn’t a complete panacea — updating software was still a significant undertaking — but at least the incentive to avoid upgrades was removed.There were also subtle advantages from a balance sheet perspective: now companies were paying for software in a rough approximation to their usage over time — an operational expense — as opposed to a fixed-cost basis. This improved their return-on-invested-capital (ROIC) measurements, if nothing else. And, for Microsoft, revenue became much more predictable.”
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    Ben Thompson helps one understand Microsoft, SaaS, Slack, Zoom and a simple way to understand what makes new businesses potentially attractive – be sure to read through the entire article to reach the four quadrant diagram at the end. Entirely worth your time.
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  5. “When it was finally time to deploy, with no hint from the U.S. or China or Brazil or India that anyone would send out a countering air force to simply knock the planes out of the sky, the three billionaires went back to the island and sent the aerosols tumbling through the stratosphere. There was no ceremony, no champagne, no photographs. This was nothing to be celebrated.”
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    My phrase-I-learned-today: Solar Radiation Management.

Links for 15th February, 2019

  1. “This sounds boring, you might conclude. It sounds like work, and it sounds like life. Perhaps we should get used to it again, and use it to our benefit. Perhaps in an incessant, up-the-ante world, we could do with a little less excitement.”
    And also…
    “In a much-read story in The Times, “The Relentlessness of Modern Parenting,” Claire Cain Miller cited a recent study that found that regardless of class, income or race, parents believed that “children who were bored after school should be enrolled in extracurricular activities, and that parents who were busy should stop their task and draw with their children if asked.”
    An article written in praise of boredom, and I couldn’t agree more. Every now and then, it makes sense to get a little (or plenty) bored.
  2. “Back in November, Instacart changed how it paid its delivery workers, saying that it would provide them with an “earnings estimate, and a minimum $10 payment for their work. The controversy arose when it became clear that part of that $10 minimum payment was coming from tips that customers left for their Shoppers, allowing the company to pay less towards that minimum payment. Faced with lower weekly earnings, Shoppers complained, and the company said that it would keep tips separate from that minimum payment.Amazon and DoorDash have similar policies, and despite that outcry at Instacart, they have indicated that they’re sticking with them.”
    Not only a PR disaster, which it is. But also a great way to work through your understanding of elasticities of supply and demand.
  3. “More to the point, having big aircraft puts downward pressure on ticket prices. Carriers typically like to fill up at least four-fifths of their seats to maximize the revenue on each flight. The bigger the aircraft, the more discounting and promotions sales teams need to do to hit this target — one reason that the trend elsewhere in the industry has been away from the A380 and Boeing 747.”
    And if the second link above whetted your appetite about using concepts of elasticity in the world outside – then this article about large airplanes, availability of alternatives and changing partnerships will be quite useful.
  4. “The economy of favours that he describes in long, carefully researched chapters on the genesis of the Genco Pura Olive Oil company was familiar, too, because that was how much of New Delhi and north India’s business clans worked and still work, stepping in to dispense justice, protection, retribution where the government either failed or was absent.”
    There is always a rule of law in society – that may well be a definition of society. That law need not always come from government – where governments are weak, other institutions will step in to form, change and enforce the law. That’s the Godfather, and that’s why it is such a great read.
  5. “A welfare state makes sense if it means the state providing education and health care for all. Alternatively, handouts are affordable in a lower-middle income economy if you divert money from the less deserving, or if the promised benefits are not open-ended so that you don’t get a runaway bill. Without any of these, the old question begs an answer: Should you give a man fish, or teach him how to fish? Lurking hidden in the new bout of welfarism seems to be an admission that the state can’t deliver for the poor anything other than cash.”
    The earlier part of the article points out statistics that show how much India has grown over the past decade and a half. But competitive politics and botched policies mean that we’re once again in dole-out season. The more things change…

Update from Day 1, Beh Econ

Teaching undergraduates is a whole lot of fun, because generally speaking, their curiosity hasn’t been completely killed just yet. And this seems to be true with the people who have chosen to attend the behavioral economics workshop as well – they’ve (hopefully voluntarily) chosen to spend their afternoons attending a workshop over the course of every workday this week. Catch ’em young!

We kickstarted things yesterday by speaking about ways and means to think about microeconomics in a rather conventional sense. I chose to not bore them to death by talking about utility functions and all of that, firstly because it is the worst way on the planet to get people thinking about economics, and secondly because they are all economics students to begin with – the indoctrination has been done by their colleges already.

I spoke instead about the Choices, Costs, Incentives and Horizons framework, which I have spoken about earlier on the blog. Within each of these concepts, however, I added a sprinkling of behavioral economics. What, for example, are your choices when confronted with a buffet spread?

And how long before you realize, if at all, that not eating it is also a choice? Sometimes, being presented with a choice to consume blinds us to the option of not doing so – which explains why checkout counters at supermarkets tend to have chewing gum on sale.

When it comes to costs, we spoke about opportunity costs and how it is often misunderstood – the people attending the workshop are paying me the fees of the program, plus they are paying fifteen hours of their time. Fifteen hours that they could have spent doing something else.

In addition, we spoke about sunk costs. My favorite example is of how I and my wife were finally able to go out for a movie together after the birth of our daughter – and we ended up watching Happy New Year. And yet, even though the movie was tripe of exceptional quality, we chose to sit through the whole thing. Neither of us enjoyed the movie, and by the end, every second was exquisite torture, but we went through the whole experience. This after I’ve been teaching the concept of the sunk cost fallacy for over a decade.

Incentives are both fairly well understood and applied in conventional economics – but how about negative incentives? Rather than reward yourself with a nice shirt if you lose weight, how about allowing a friend of yours to post a picture of you on Facebook where the paunch is especially noticeable? Which is likelier to be more effective?

Finally, horizons: exercise today evening, or finish an episode of your favorite series on Netflix? We tend to go for short term pleasure over long term gains – and that is to our detriment in the long run. But our brain, unfortunately, is not trained to think about long term consequences.

Finally, we spoke a little bit about signaling and it’s importance to us. That’s a topic deserving of a separate blog post entirely, but I will ask you guys a question I asked everybody in class:

Imagine you are able to attend the best college in the world, and are able to handpick the people who will teach you whatever courses you want. The ideal education, structured just the way you want it. The only problem is, you won’t get a degree at the end of it. Or, you could get, right here and now, a degree of your choice from whichever college you like – but you will not be able to attend a single class. Which of these options would you pick?

The question is based, of course, on a question that Bryan Caplan asks in his excellent book: The Case Against Education. Let me know your answer, I am genuinely interested.

Finally, we spoke about Kahneman’s “fast and slow” thinking. How and why it evolved the way it did, why it may have been of help in the fast, but isn’t much use in the world we live in today.

It was an exceptionally fun session, and hopefully it will continue in a similar vein for the rest of the week.