Tyler Cowen's Blog, page 152

Arrived in my Twitter feed

Notice of:

How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness

By Russ Roberts, now available for pre-order.

Some simple game-theoretic questions about Hamas rockets

Haaretz reports that some of the current rockets have a range of 150 km, which is longer than most of what has been fired in the past.  So here is my question: when do those rockets become sufficiently powerful and numerous that they can close down Tel Aviv Airport, which is of course the main route in and out of Israel, especially for well-off people.  If that can happen, is this not like a housing bubble game, where things can go very sour very quickly?  And in the meantime, will the Israel government attempt “lower the mean, increase the variance” strategies, if only to forestall what is to them an obviously unacceptable outcome, namely that Hamas can could close Tel Aviv airport at will?  Are we already at the point of seeing such mean-reducing strategies?  If not, how much worse will things be when we get there?

The Gaza offensive

In March 1917, the EEF [Egyptian Expeditionary Force, from Great Britain] launched offensive operations in southern Palestine.

That is from the new and noteworthy book by Kristian Coates Unrichsen, The First World War in the Middle East.  I wouldn’t say it is a fun book, but it is clear, well-written, and very good background reading on a number of today’s crises.

Those new service sector jobs: human props to sell real estate

The future is in marketing, right?:

When the Mueller family sits for dinner, the leftover broccoli and crepes are already wrapped in plastic, the kitchen is beyond spotless, and the rest of the home is so tucked-away tidy it looks like they just moved in. In a way, they have: Every inch of furnishing, every little trinket and votive candle, sits precisely as designers placed it five months ago. That would make them the most perfect suburban ideal, except for one catch: This isn’t actually their home. Bob and Dareda Mueller and their three grown sons are, instead, part of an “elite group” of middle-class nomads who have agreed to an outlandish deal. They can live cheaply in this for-sale luxury home if it looks as if they never lived here at all.

The home must remain meticulously cleaned and preserved: the temperature precisely pleasant, the mirrors crystalline clear. If a prospective buyer wants to see the home, they must quickly disappear. And when the home sells, they must be gone for good, off to the next perfect place.

That they do everything an owner would do — sleeping, making memories, learning the home’s quirks and secrets — imbues an otherwise-empty home with an unmistakable energy, say executives with Showhomes Tampa, the home-staging firm that moves them in. It also helps the homes sell faster, and for more money.

“They have to live a very different, very difficult life,” said Kim Magnuson, a sales director. Added franchise owner Linda Saavedra, “The home managers act like human props … and (with buyers) it’s like magic. It works phenomenally well.”

The full story is here, and for the pointer I thank Ted Frank.  File under Markets in Everything.

Should LeBron James hurry up and decide?

Joshua Tucker says yes:

…if LeBron waits until every other play has signed, those players will all have made their decisions not thinking they have the maximum chance of winning a championship.  Because they value both winning and making money, every one of those players will have signed for more money than they would have needed to sign had Lebron already signed with that team.  LeBron, upon joining that team, will therefore be playing with players who were more expensive than they needed to be.  This in turn means that whatever team he joins will either (a) have less money to sign LeBron or (b) have less money to sign other players besides LeBron and the free-agents they have already signed.  Either way, LeBron gets less of what he wants (defined here as money + likelihood of winning) than if the other free agents had known he was going to be on that team before he signed.

Therefore the converse should also hold: by moving sooner, LeBron should be able to get more of what he wants. By virtue of being the single best free agent available, Lebron instantly adds more to a team’s chance of winning a championship than any other player, and therefore will drive down the cost of acquiring other players to complement him as he seeks out additional championships.

But I don’t think that is right.  LeBron needed to find out if Wade and Bosh are willing to take significant pay cuts, to help Miami bring in better players.  So far it seems he is learning the answer is “no.”

More formally, you can think of this as threshold and discontinuity issues kicking in.  If LeBron signs quickly with Miami, and Wade and Bosh are selfish in pecuniary terms, Miami can’t do much of anything to become a decent contender.  That is because the salary cap makes it very difficult to bring in other good players at reasonable cost (the “luxury tax”).  No major free agents have stepped forward and shown their willingness to take a big pay cut to play with LeBron.

If that is indeed what has been learned, LeBron now can pit a few other teams against each other — Cleveland, the Lakers, maybe even Phoenix and Houston — and ask how big a financial commitment to winning they are able to make.  (Miami of course can be kept in the mix.)  It takes a while for those teams to signal their intentions, and that also requires waiting on LeBron’s part, if only to let the bids escalate.  That is the way to extract greater sacrifices from other players and also from the owners, a factor which I don’t see Tucker putting at the center of his analysis.

Of course LeBron won’t wait very long.  At some point each team has put its best plan on the table and then he will choose (for reasons similar to those outlined by Tucker), which is likely quite soon.  Still, it is privately optimal for him to start that process with some waiting and with a minimum of non-committal rhetoric, which is indeed what we are observing.

There is something about bubbles we don’t understand

According to the Central Statistics Office, residential house prices in Dublin rose 22 per cent in the year to May. The last time Irish house prices were rising so fast was between 2002 and 2005, the years immediately before the crash. This is sparking talks of a new price bubble – mostly, so far, around the dinner table.

That doesn’t have to be a new bubble, and you will note that these prices remain well below their pre-crash peaks.  Still, prices seem to be moving pretty fast in the market.  It remains my view that some regions of the U.S. did not have a real estate bubble at all, and that for these regions it is the price bust which is the anomaly, not the initial run-up.  It is an interesting question what percentage of the world that might hold for.

The FT story is here.

Assorted links

1. Claims about the brains of great traders.  Not what I would have said.

2. Data on long-term trends, visually presented.

3. Can Google hackers put a restaurant out of business?  And a simple critique of smart people (not really about Google, no slight intended).

4. Predictions for 2025, including flying cars.  And the public choice angles on smart guns, by Joseph Nocera.

5. David Warsh with various speculations on various Nobel Prizes.

6. Ryan Avent: we still don’t know what is up with productivity.

Sentences to ponder, CEO panopticon edition

As wearable health monitors become more sophisticated, some companies, rather than sending their CEO to a public hospital for a check-up twice a year, may choose to monitor them remotely. What is good enough for high-performance teams of athletes could come to be seen as essential for executives looking for an edge over rivals.

Shared data will then become tradeable insider information, as Mr Benioff pointed out. The answer to Mr Dell’s query was that Mr Benioff had had a cold and decided to skip his workout. But imagine if, instead, the interruption to his regime had signalled to his network of high-powered friends and investors that he had suffered a stroke.

That is from Andrew Hill at the FT, there is more here, interesting (but gated?) throughout.

Lost Language, Lost Liberalism

That is a new website from Daniel Klein and the Adam Smith Institute, “A review of the changes 1880-1940 to the central semantics of liberal civilization.”

Scott Sumner on why no Kansas miracle?

He reports:

The past two years Kansas reduced its state income tax rates. As a result, the top rate of income tax faced by Kansas residents (combined state and federal) rose from 41.45% in 2012 to 48.3% in 2013 and then fell a tad to 48.2% in 2014 (if they don’t itemize.) That’s a pretty tiny drop in the top marginal tax rate in 2014, and a much bigger rise in 2013.

I consider myself a moderate supply-sider, but I certainly wouldn’t expect such a tiny tax cut to significantly affect behavior. And any effects that did occur would happen very gradually, over a period of many years. For instance, firms might be slightly more likely to move to Kansas. But even after the tax cut, the top rate is almost as high as in Massachusetts, so Kansas is certainly not a tax haven like Washington or Texas, which have no state income tax.

I can’t imagine any serious economist predicting that the Kansas rate cut would boost Kansas GDP by 25% or more. Why did I pick that figure? Because the Kansas state income tax top rate fell from 6.45% in 2012 to 4.8% in 2014, which is roughly a 25% rate cut. In order for that rate cut to boost Kansas tax revenues, you’d have to see Kansas GDP rise by more than 25%. That’s obviously absurd.

There is more here.