Tyler Cowen's Blog, page 121

The economics of reclining your airplane seat

I believe Josh Barro started this mess of a debate.

I would emphasize the endogeneity of transaction costs.  The airlines could do a lot to encourage Coasean bargaining between fliers, but they don’t.  How about handing out little cards?: “Have a friendly haggle with the person behind you.  Last year the average price for a non-reclined seat was $16.50.”  They could print up standardized contracts, like how they distribute customs forms, including contracts for trading seat assignments or distance from the bathrooms or how you shush your child, or not.  Imagine being nudged toward a deal through the in-flight internet system, so you don’t have to turn around to face the other party in the bargain.  They could take a cue from Alvin Roth and his matching algorithms or help you set up complex multi-party deals, like how the Denver Nuggets used to construct (and then dismantle) their rosters.

Nada.

The disutility of bargaining in this environment is high relative to the value at stake.  The chance of irritation or hurt feelings is non-negligible, and perhaps people on a flight are crankier anyway.  So the airlines deliberately keep the transactions costs high, as the gains from the potential bargain are low relative to the ickiness of the process.  The airlines wish to keep a lot of people away from the process altogether, if only out of fear of having to arrest people, divert flights, and so on.

That implies the more we debate this problem, the worse it becomes.  It also gives us the true Coasean answer to what is best.  Relative to current norms, who does more to make the whole question “an issue” — the seat recliner or the purchaser of the recliner-blocker?  Clearly it is the purchaser of the blocker and thus Josh Barro is broadly in the right, the norm should continue to allow people to recline their seats as that minimizes fuss, which is more important than getting the right outcome with the seat itself.

If you don’t like that, United does sell coach seats with extra space, which makes the recline of the person in front of you less bad.

Assorted links

1. Very good Krugman column on why Scottish independence is a dangerous idea.

2. History of the Darien Project.

3. “They’re manipulating all of us.”

4. Do limited health network plans in fact control costs?

5. Larry Summers on secular stagnation and the importance of the supply side.

6. Is American military spending equal to that of the rest of the world?

7. What would happen if we liberalized U.S. oil exports?

What I’ve been reading

1. Michael Ignatieff, Fire and Ashes: Success and Failure in Politics.  A genuinely interesting book about why someone with tenure at Harvard might be crazy enough to run for high public office, and then what it is like to lose somewhat ignominiously.

2. Ha-Joon Chang, Economics: The User’s Guide.  A genuinely humble and pluralistic introduction to the economic way of thinking, from a “developmentalist,” linkages are important for economic growth, anti-free trade point of view.

I disagree with both Ignatieff and Chang pretty thoroughly, but of the last few dozen books I read, these are the two which are truly philosophical, in the best sense of that word.  There is no need to list the others, except there is Umberto Eco on Peanuts, scroll down about four paragraphs to start reading.

More than Half of Workers Have New Jobs Since the End of the Recession

Many people continue to call for greater inflation to solve our current economic problems. A classic argument for why inflation can help is downward nominal wage rigidity. It is difficult to believe that nominal wage rigidity is important now, years after the end of the recession. The main reason nominal wages don’t fall is that wages are an anchor around which expectations and understandings are built and when wages are cut workers get angry and upset. But when a worker begins a new job with a new employer it’s anchors away! New job, new wage and no feelings of loss even if the wage is less than what some other person earned sometime in the past for doing something sort of similar.

Now here is an important fact: the median number of years that current wage and salary workers have been with their current employer is about four and a half. In other words, more than half of current workers have jobs that are new since the end of the recession. A majority of workers have new jobs, some workers have wages that are increasing (and thus a fortiori not downwardly rigid) and quite a few workers have flexible wages due to piece rates, commissions, bonuses and so forth. Not all of these categories perfectly overlap. Thus, the scope for nominal wage rigidity as an explanation for current problems appears to be small.

Moreover, here’s an interesting test. If nominal wage rigidity explains unemployment and if wages are more rigid at old jobs than at new jobs then we ought to see a positive correlation between unemployment rates and job tenure. Instead, we see the exact opposite, unemployment rates are lowest in the industries with the higher tenure. Of course, this is a raw correlation not a causal estimate. Nevertheless, some of the points are striking.

In the leisure and hospitality industry, for example, the median worker has been in their job only about 2.4 years–that means that well over the half of the jobs in this industry are new since the end of the recession–yet the unemployment rate in that industry is over 8%. With that kind of turnover in jobs its difficult to believe that wages have not adjusted. Or to put it differently, if one were to ask apriori which will have a greater influence on reducing nominal wage rigidity either a) turning over more than half the jobs in the industry or b) a few extra points in the inflation rate then I think most economists would, without hesitation, answer the former. Inflation is not magic.

A simple rule for making every restaurant meal better

This one is so simple it is stupid, yet you hardly ever hear it.  If anything it is mocked, but I will go on record:

Eat at 5 p.m. or 5:30.

The quality of the food coming out of the kitchen will be higher.  Only the very top restaurants (and even then not always) can maintain the same quality at say 8 p.m. on a Saturday night.  It is also the easiest time for getting a reservation.

The best time to eat at @ElephantJumps is 4:20 p.m.  They’re all just sitting around, waiting to cook for you.

Oyamel is a good example of a D.C. restaurant which can be quite iffy, but is tasty and consistent first thing in the evening.

There is a beauty to having a restaurant all to yourself.  And if you don’t like the timing, have no more than an apple for lunch.

This is also a better system for getting work done, if the nature of your workplace allows it.  Few people who do the 7:30 dinner work through to 11 p.m.  If you have  dinner 5-6:30, you are ideally suited to get back into the saddle by 7:15.

But please, I hope not too many of you follow this advice.  The funny thing is, you won’t.  You will leave the low-hanging fruit behind, you strange creatures you.

Civil forfeiture cash seizures

Under the federal Equitable Sharing Program, police have seized $2.5 billion since 2001 from people who were not charged with a crime and without a warrant being issued. Police reasoned that the money was crime-related. About $1.7 billion was sent back to law enforcement agencies for their use.

Often the cash is seized from motorists (carrying costs now exceed liquidity premium, I suppose).  There is this too:

Only a sixth of the seizures were legally challenged, in part because of the costs of legal action against the government. But in 41 percent of cases — 4,455 — where there was a challenge, the government agreed to return money. The appeals process took more than a year in 40 percent of those cases and often required owners of the cash to sign agreements not to sue police over the seizures.
Hundreds of state and local departments and drug task forces appear to rely on seized cash, despite a federal ban on the money to pay salaries or otherwise support budgets. The Post found that 298 departments and 210 task forces have seized the equivalent of 20 percent or more of their annual budgets since 2008.

There is much more here, by Michael Sallah, Robert O’Harrow Jr., and Steven Rich at The Washington Post, give them a Pulitzer.

And please note, this may seem like an Alex post but it is a Tyler post.

The chance of Scottish independence this September?

PredictWise and Betfair both say 28.4%.   Last I checked, that is.

Hat tip goes to David Rothschild.

A sentence to ponder

The average age to receive NIH research grants has gone from 38 in 1980 to 51 today.

That is Ben McNeil, via Arnold Kling.

What are you good at smelling?

It seems culture and training matter a great deal.  T.M. Luhrmann reports:

Recently, a team of anthropologists and psychologists at the Max Planck Institute for Psycholinguistics and Radboud University, both in Nijmegen, the Netherlands, set out to discover how language and culture affected sensory awareness. Under the leadership of Asifa Majid and Stephen C. Levinson, they made up a kit of systematic stimuli for the traditional five senses: for sight, color chips and geometric forms; for hearing, pitch, amplitude and rhythm variations; for smell, a set of scratch-and-sniff cards; and so forth. They took these kits to over 20 cultural groups around the world. Their results upend some of our basic assumptions.

For example, it’s fairly common, in scientific literature, to find the view that “humans are astonishingly bad at odor identification and naming,” as a recent review of 30 years of experiments concluded. When ordinary people are presented with the smell of ordinary substances (coffee, peanut butter, chocolate), they correctly identify about half of them. That’s why we think of scent as a trigger for personal memory — leading to the recall of something specific, particular, uniquely our own.

It turns out that the subjects of those 30 years of experiments were mostly English-speaking. Indeed, English speakers find it easy to identify the common color in milk and jasmine flowers (“white”) but not the common scent in, say, bat droppings and the leaf of ginger root. When the research team presented what should have been familiar scents to Americans — cinnamon, turpentine, lemon, rose and so forth — they were terrible at naming them. Americans, they wrote, said things like this when presented with the cinnamon scratch-and-sniff card: “I don’t know how to say that, sweet, yeah; I have tasted that gum like Big Red or something tastes like, what do I want to say? I can’t get the word. Jesus it’s like that gum smell like something like Big Red. Can I say that? O.K. Big Red, Big Red gum.”

When the research team visited the Jahai, rain-forest foragers on the Malay Peninsula, they found that the Jahai were succinct and more accurate with the scratch-and-sniff cards. In fact, they were about as good at naming what they smelled as what they saw. They do, in fact, have an abstract term for the shared odor in bat droppings and the leaf of ginger root. Abstract odor terms are common among people on the Malay Peninsula.

I am good at smelling curries.

Should Twitter algorithmically curate the timeline?

Zeynep Tufekci on Medium.com says no.  It seems Twitter is considering (instituting?) a method that would ignore strict reverse chronology, and if a user hasn’t accessed his or her timeline in a while, the more popular tweeters would be given some kind of priority in the queue.

She considers how the tweets about the death of Osama bin Laden spread so effectively, and from the account of a user (Keith Urbahn) who did not have many followers:

I honestly doubt that there is an algorithm in the world that can reliably surface such unexpected content, so well. An algorithm can perhaps surface guaranteed content, but it cannot surface unexpected, diverse and sometimes weird content exactly because of how algorithms work: they know what they already know. Yet, there is a vast amount of judgement and knowledge that is in the heads of Twitter users that the algorithm will inevitably flatten as it works from the data it has: past user behavior and metrics. I have witnessed Twitter network’s ability to surface unexpected content again and again, from matters small to large.

I suspect the really big news will get out very quickly under just about any reasonable algorithm.  The broader question is what kind of model we should use to consider Twitter curation.  Believe it or not, I am led to the thought of Ronald Coase.

As a reader, I seek an algorithm which weeds out some repetition.   For instance I sometimes see a Vox.com article in my feed from three different sources — it would suffice to see it once, along with a color shading indicating that some other people in my feed were tweeting the same thing.  I also would like blocks on tweets about the Super Bowl, Academy Awards, and so on.

That said, from a Coasean perspective, the tweeters may wish to impose these messages on me nonetheless.  Allowing users to create their perfect filters would in equilibrium mean that those sources send fewer other tweets through the system.  Some might leave Twitter altogether.  They are producing a service for free, and the ability to impose the bundle on me and other readers is part of what they value.  And indeed I also send self-promoting tweets (a justifiable practice provided it is not abused), and that is for me one reason to be on Twitter.  In other words, a major goal is to keep tweeters interested in supplying content, not to give every reader a perfect experience, and those two variables often conflict.

At the margin, should Twitter institute queuing rules to encourage the tweeters with many readers or the tweeters with relatively few readers?  The answer is not obvious.  The major tweeters produce more social value through their greater number of followers, but they may be reaping such high returns from being on Twitter that they don’t need added encouragement at the margin.  One approach is to prioritize well-regarded tweets, regardless of the number of followers of the tweeter.

For myself, I believe the ideal algorithm is to prioritize tweets from those who are “like” me in the sense of following similar people.  Or perhaps using similar grammatical constructions, or having tweeted similar links in the past.

Within these rules there are further opportunities for Coasean bidding for attention, using the @ function and also direct messages.

A separate issue is whether Twitter may wish to remedy the “overfishing” of the common pool of our attention which occurs when too many people tweet at peak time, and not enough people tweet at off peak times.  I suspect the demand for immediate gratification is too high for there to be gains from reshuffling the supply of tweets across time.

Overall I don’t see why company-regulated customization has to be a negative.  Tufekci put her anti-curation piece on Medium, which itself seems to have algorithms of curation, which in this case (fortunately) led me to her argument, wrong though it may be.