In one of these countries live members of what Temin calls the “FTE sector” (named for finance, technology, and electronics, the industries which largely support its growth). These are the 20 percent of Americans who enjoy college educations, have good jobs, and sleep soundly knowing that they have not only enough money to meet life’s challenges, but also social networks to bolster their success. They grow up with parents who read books to them, tutors to help with homework, and plenty of stimulating things to do and places to go. They travel in planes and drive new cars. The citizens of this country see economic growth all around them and exciting possibilities for the future. They make plans, influence policies, and count themselves as lucky to be Americans.
The FTE citizens rarely visit the country where the other 80 percent of Americans live: the low-wage sector. Here, the world of possibility is shrinking, often dramatically. People are burdened with debt and anxious about their insecure jobs if they have a job at all. Many of them are getting sicker and dying younger than they used to. They get around by crumbling public transport and cars they have trouble paying for. Family life is uncertain here; people often don’t partner for the long-term even when they have children. If they go to college, they finance it by going heavily into debt. They are not thinking about the future; they are focused on surviving the present. The world in which they reside is very different from the one they were taught to believe in. While members of the first country act, these people are acted upon.
This whole piece on the book by Lynn Parramore is worth a read. Another small tidbit:
In the Lewis model of a dual economy, much of the low-wage sector has little influence over public policy. Check. The high-income sector will keep wages down in the other sector to provide cheap labor for its businesses. Check. Social control is used to keep the low-wage sector from challenging the policies favored by the high-income sector. Check. Mass incarceration. Check. The primary goal of the richest members of the high-income sector is to lower taxes. Check. Social and economic mobility is low. Check.
In 1993, Robert Putnam, who later went on to write Bowling Alone (which inspired Meetup), wrote a piece for The American Prospect called The Prosperous Community: Social Capital and Public Life about social capital and its contribution to political and economic well-being of a society. Much has changed since then, but Putnam’s piece is solidly relevant to the political situation in America today.
How does social capital undergird good government and economic progress? First, networks of civic engagement foster sturdy norms of generalized reciprocity: I’ll do this for you now, in the expectation that down the road you or someone else will return the favor. “Social capital is akin to what Tom Wolfe called the ‘favor bank’ in his novel, The Bonfire of the Vanities,” notes economist Robert Frank. A society that relies on generalized reciprocity is more efficient than a distrustful society, for the same reason that money is more efficient than barter. Trust lubricates social life.
Networks of civic engagement also facilitate coordination and communication and amplify information about the trustworthiness of other individuals. Students of prisoners’ dilemmas and related games report that cooperation is most easily sustained through repeat play. When economic and political dealing is embedded in dense networks of social interaction, incentives for opportunism and malfeasance are reduced. This is why the diamond trade, with its extreme possibilities for fraud, is concentrated within close-knit ethnic enclaves. Dense social ties facilitate gossip and other valuable ways of cultivating reputation—an essential foundation for trust in a complex society.
This quote by 18th-century Scottish philosopher David Hume that leads off the piece succinctly sums up the challenges involved and the potential consequences in not addressing them properly:
Your corn is ripe today; mine will be so tomorrow. ‘Tis profitable for us both, that I should labour with you today, and that you should aid me tomorrow. I have no kindness for you, and know you have as little for me. I will not, therefore, take any pains upon your account; and should I labour with you upon my own account, in expectation of a return, I know I should be disappointed, and that I should in vain depend upon your gratitude. Here then I leave you to labour alone; You treat me in the same manner. The seasons change; and both of us lose our harvests for want of mutual confidence and security.
How much money does an airline make on a typical flight in the various classes of service? On some flights, revenue from first & business class seats can be up to 5 times that of economy seats. This video explores the economics of airline classes and looks at how we got to the present moment, where the people and companies buying business class and first class tickets are subsidizing those of us who fly economy.
According to a report by Oxfam, the world’s 8 richest men are as wealthy as the poorest half of the world’s population. That’s 8 men with the same combined wealth of 3.6 billion people.
As decision makers and many of the super-rich gather for this week’s World Economic Forum (WEF) annual meeting in Davos, the charity’s report suggests the wealth gap is wider than ever, with new data for China and India indicating that the poorest half of the world owns less than previously estimated.
Oxfam, which described the gap as “obscene,” said if the new data had been available before, it would have shown that in 2016 nine people owned the same as the 3.6 billion who make up the poorest half of humanity, rather than 62 estimated at the time.
The gap between the super-rich and poor is widening: in 2010, it would have taken 43 of the richest people to equal the bottom 50%. The eight men in question are Bill Gates, Amancio Ortega, Warren Buffett, Carlos Slim, Jeff Bezos, Mark Zuckerberg, Larry Ellison, and Michael Bloomberg.
Five of the men on this list — Gates, Buffett, Ellison, Bloomberg, and Zuckerberg (all Americans) — have signed the Giving Pledge, a public promise to give away the majority of their fortunes while still alive (or upon their deaths). They are essentially agreeing with Oxfam that their wealth should be redistributed. When five men who control, say, as much wealth as 25-30% of the world’s poorest are saying, by their actions, that the wealth inequality gap needs to be narrowed, shouldn’t the government take that as a sign that something needs to be done about it?
If you look at the numbers that the statistic is based on, from Forbes and Credit Suisse, you’ll see that the equality here is that the eight richest people in the world have a combined net worth of roughly $426 billion, or 0.16% of all the world’s wealth.
Is it really true that the bottom 50% of the world’s population accounts for only 0.16% of the wealth on the planet? Well, not really. The bottom 50% comprises five different deciles. Of those deciles, the fourth has 0.17% of the world’s wealth, and the fifth has 0.32%. Those are both very small numbers — but they’re both bigger than 0.16%.
So something funny is going on here — and that something funny is debt. When Oxfam looks at net worth, it adds up your assets, and then subtracts your liabilities. And when your liabilities are bigger than your assets, that means you have negative net worth. According to Oxfam’s methodology, the bottom 10% of the world’s population has a net worth of one trillion negative dollars — an almost inconceivably large sum.
The inequality is there, and growing, but Oxfam’s formulation is misleading without the proper context. (thx, everyone)
French company Parrot has had a rough year and missed its sales expectations. That’s why the company will lay off 290 employees who were working on drones. In total, Parrot currently has 840 employees on the drone team and more than a thousand employees in total.
While the company isn’t just selling drones, it represents a good chunk of the business. But it looks like other companies, such as DJI, are doing better in this market. Parrot expected to report $105.9 million in sales for 2016. It reported $90 million instead (€85 million vs. €100 million expected).
Even though the company is still selling quite a few drones, Parrot says that it doesn’t generate healthy margins. So here’s the new plan: focusing on commercial drones.
Well, this explains my holiday shopping difficulties with Parrot. Ollie asked for a drone for Christmas and after doing some research, I decided on the Parrot Swing. Amazon was out of stock, so I decided to buy directly from Parrot. They had stock and the site said they’d ship in plenty of time for Xmas. So I ordered one. The next day, I get a call from Parrot saying I need to “verify my order”. So, I call them back, give them some info about my order and where it’s being shipped and the very nice woman on the phone tells me that I’m all set and they’re shipping it out.
Two days go by, no shipping confirmation email in sight. I get another voicemail: you need to call us to verify your order. I call back, give them the same info and tell them, oh by the way I’ve already done this once. Profuse apologies were offered, that was a mistake, and the very nice woman on the phone tells me she’s going to tell the shipping people to send out my order “right away”. It will still arrive in time for Xmas. The next day I get an email from Parrot:
Hello! We have refunded your order No. XXXXX-XXXXX placed 12/15/2016. We are sorry that your order did not meet your expectations and hope that you will visit us again.
Obviously, I am done with them at this point but still need that drone. Amazon is still out of stock, but Walmart has them. I order one, it arrives two days later (with free shipping), and on Christmas morning, after some reflection, Ollie says it was the best present Santa has ever gotten him.
I did quite a bit of holiday shopping this year…went a bit nuts making up for some not-so-great efforts the past two years. The kids and I shopped for Toys for Tots (twice), I bought gifts for them from me and from Santa, I bought non-holiday stuff like clothes for myself,1 and I shopped virtually for the gift guide. I shopped every which way: small, locally, at big box stores, and online at 4-5 different retailers. My main takeaway from that experience? Amazon is miles and miles and miles ahead of everyone else. It is not even close.
Sure, Walmart had the drone in stock, but when I’d tried shopping with them earlier in the month, the product page threw a 404 error. I switched to Safari and was able to put the item into my cart, but then a form in the ordering flow wouldn’t work, so I had to get that item elsewhere. (When I did finally create an account while ordering the drone, Walmart thought my name was “Ashley”?!)
Target’s site was so slow that it was nearly unusable (like 30-40 seconds for a product page to start loading). But I persevered because they had an item I really wanted that no one else had in stock. I got an email two days before Xmas saying they were out of stock and couldn’t ship until Jan 4 at the earliest, but that if I still wanted the item, I would have to log in to my account to verify the new shipping date. I didn’t want the item later, so I did nothing. Guess what arrived on my doorstep last week?
My troubles with Parrot I shared above. The local toy stores are expensive (Lego sets are $5-10 more than if you buy online) and ran out of popular items 2-3 weeks before Xmas. Very few online stores outside Amazon, Walmart, etc. had clear holiday shipping policies, so relying on them more than a week or two out was risky. Zappos was great (Amazon owns them) and Patagonia was pretty good, although their shipping estimates aren’t that great and returns aren’t free.
And Amazon? The site is always fast, I have never seen a 404’d product page, the URLs for their products haven’t changed in almost 20 years,1 each product page was clearly marked with holiday shipping information, they showed the number of items in stock if they were running low, shipping was free (b/c I’m a Prime member), returns are often free, and the items arrived on time as promised. More than 20 years after the invention of online retailing, how is it that Amazon seems to be the only one that’s figured all this out? How come massive companies like Walmart and Target, whose very businesses are under immense pressure from Amazon, can’t get this stuff right despite having spent hundreds of millions on it? I’m not a financial analyst, but unless something changes drastically, Amazon is just going to continue to eat more and more of the US retail pie and at this point, with all these advantages they’ve accrued and their razor-sharp focus on low pricing, it’s difficult to see how anyone is going to compete.1
After freezing my ass off wearing improper clothing the last few years (because, to be clear, I am an idiot), I made myself a promise this year that I was not going to be cold this winter. So in November and December, I spent a bunch of energy outfitting myself with the proper gear: sweaters, thermal layers, coats, mittens, boots, etc. I am both warm and happy now.↩
I linked to the Office Space DVD on kottke.org in 1999 and the link still works. What’s the percentage of URLs from 1999 that still work? 5%? 2%? 0.1%?↩
Just for fun, let’s take a quick stab. Stripe and Shopify are arguably better than Amazon in some ways and when the one-click patent expires this year, those payment flows will get even easier. And anyone can use them to sell anything. So the problem becomes stocking and shipping. Who’s going to build/provide the third-party fulfillment infrastructure so that shipping and returns are cheap and reliable…like Amazon’s fulfillment warehouses but for anyone to use? UPS? FedEx? The USPS? (Hahaha.) Uber? Can that company offer a Prime-like or Costco-like shipping membership? What is the rationale for everyone involved (the retailers, the payment company, the online store service, the fulfillment company) to keep prices as relentlessly low as Amazon does? There are a lot of different reasons why a collection of interchangeable third-party services could succeed against a fully integrated solution, but price does not seem like one of them…there’s just too much margin lost because of the friction between services.
(And we haven’t even talked about AWS here. It’s profitable by itself but is also turning out to be a massive competitive advantage. The likes of Walmart and Target can’t use it even if it would be better than their home-grown infrastructure because that’s like the Trojans paying the Greeks to invade. AWS also potentially insulates Amazon against competitors like Shopify and Stripe. Imagine if Amazon got serious about integrating AWS with their payment and fulfillment systems…a low-cost, bulletproof, integrated system that almost anyone could use to sell almost anything would put an enormous amount of pressure on every other retail experience, particularly if they continue to ramp up their real-world retail offerings.)↩
Bill Gates is leading a more than $1 billion fund focused on fighting climate change by investing in clean energy innovation.
The Microsoft co-founder and his all-star line-up of fellow investors plan to announce tomorrow the Breakthrough Energy Ventures fund, which will begin making investments next year. The BEV fund, which has a 20-year duration, aims to invest in the commercialization of new technologies that reduce greenhouse-gas emissions in areas including electricity generation and storage, transportation, industrial processes, agriculture, and energy-system efficiency.
The company’s tagline is “Investing in a Carbonless Future” and their investment criteria are:
CLIMATE IMPACT. We will invest in technologies that have the potential to reduce greenhouse gas emissions by at least half a gigaton.
OTHER INVESTMENTS. We will invest in companies with real potential to attract capital from sources outside of BEV and the broader Breakthrough Energy Coalition.
SCIENTIFIC POSSIBILITY. We will invest in technologies with an existing scientific proof of concept that can be meaningfully advanced.
FILLING THE GAPS. We will invest in companies that need the unique attributes of BEV capital, including patience, judgment by scientific milestones, flexible investment capabilities, and a significant global network.
Jeff Bezos, Mike Bloomberg, Richard Branson, Reid Hoffman, and Jack Ma are also participating in the fund.
The report, released Monday, said the new total was twice the amount measured 15 months ago — a remarkable rise for a movement that began on American college campuses in 2011. Since then, divestment has expanded to the business world and institutional world, and includes large pension funds, insurers, financial institutions and religious organizations. It has also spread around the world, with 688 institutions and nearly 60,000 individuals in 76 countries divesting themselves of shares in at least some kinds of oil, gas and coal companies, according to the report.
“It’s a stunning number,” said Ellen Dorsey, the executive director of the Wallace Global Fund, which has promoted fossil fuel divestment and clean energy investment as part of its philanthropy.
Like it or not, economics has to be a significant driver for combatting climate change. Driving public opinion against fossil fuel companies, falling prices for solar and battery energy, and clean energy investment funds: it all helps support the decisions made by the world’s forward-thinking leaders. And maybe, just maybe, if you can get the world’s leaders, the public, and the economy all pointed in the right direction, we’ve got a chance.
For most of the past decade, consumption of meat in the United States remained flat or declined.
For environmental, health, and animal welfare advocates, this was great news. Surely it meant that efforts to raise awareness about the disturbing impacts of meat production were inspiring people to cut back on hamburgers and bacon. As Paul Shapiro, vice president of Farm Animal Protection for the Humane Society of the United States, wrote in 2012, “The pressure is being felt all over, and for the first time in decades, our overconsumption of meat is beginning to get reined in.”
Not only was last year noteworthy for the near 5% increase in per capita consumption, but also due to the fact that the growth was achieved without the help of beef, consumption of which was flat. We expect US protein production growth of 2.5% per annum through 2018 — down from 3% in 2015 — with beef being the largest contributor relative to pork and poultry.
What drove the decline in the first place? Price. It always comes back to supply and demand.
Ranchers and farmers trimmed their herds because of the recession, historically high feed costs, and drought in the Great Plains. Meanwhile, domestic disease outbreaks like porcine epidemic diarrhea virus, or PEDv, meant that tens of thousands of hogs never made it to market. So Americans cut back on meat.
But by 2015, many of these issues driving higher prices were resolved. The retail price of beef has dropped by 22 percent, pork by 7 percent, and chicken by 5 percent. So Americans are eating more meat again.
“Consumers are responding to falling prices. That’s a big part of the story,” says Sawyer. The chicken industry, in particular, has also gotten more efficient and more capable of raising chickens fast.
In the latest issue of The Economist, President Obama wrote a letter about the “four crucial areas of unfinished business in economic policy” that his successor will have to deal with.
Wherever I go these days, at home or abroad, people ask me the same question: what is happening in the American political system? How has a country that has benefited-perhaps more than any other-from immigration, trade and technological innovation suddenly developed a strain of anti-immigrant, anti-innovation protectionism? Why have some on the far left and even more on the far right embraced a crude populism that promises a return to a past that is not possible to restore — and that, for most Americans, never existed at all?
It’s true that a certain anxiety over the forces of globalisation, immigration, technology, even change itself, has taken hold in America. It’s not new, nor is it dissimilar to a discontent spreading throughout the world, often manifested in scepticism towards international institutions, trade agreements and immigration. It can be seen in Britain’s recent vote to leave the European Union and the rise of populist parties around the world.
Much of this discontent is driven by fears that are not fundamentally economic. The anti-immigrant, anti-Mexican, anti-Muslim and anti-refugee sentiment expressed by some Americans today echoes nativist lurches of the past — the Alien and Sedition Acts of 1798, the Know-Nothings of the mid-1800s, the anti-Asian sentiment in the late 19th and early 20th centuries, and any number of eras in which Americans were told they could restore past glory if they just got some group or idea that was threatening America under control. We overcame those fears and we will again.
Look at Obama, busting out the Know-Nothings like it ain’t nothing.
3. Individual property rights, with option trading. Now we’re moving toward a more centrally planned economy. The menu is individually consulted, and then the two parties state their preferences. If these preferences are strong, then matters proceed much as in the above strategy. However, if indecision is expressed, the trading is opened: “If you get the clam chowder, I’ll get the mushroom crostini, and we can split.” Option trading is usually, but not always, confined to the appetizer course. Any offer can be refused, and a substitute offered — “What if I got the clam chowder, and you got the ham timbales?” — or both parties may reluctantly conclude that no trade is possible, and revert to their original choices.
Well done, Team Restaurant! You are now beginning to realize the magnificent benefits of trade. Coordination and cooperation have permitted you to agree on choices that jointly improve utility.
However, I must tell you that you are still probably not at the highest valued use of your food dollar. You are almost certainly investing most of your effort in appetizers or shared desserts, which are the minority of your spending, time and consumption. If you want not merely to improve your utility, but to maximize it, then you are going to have to invest more effort in coordination.
Her conclusion is spot on; it’s the best way to dine out.
In a recent episode of his EconTalk podcast, host Russ Roberts talks with Michael Munger about a paper Munger co-authored about how white Southern attitudes toward slavery shifted from around 1815 to 1835. The episode is interesting throughout,1 but I want to highlight this attitude shift Munger writes about in the paper, something I was previously unaware of.
Sifting through documents from the era between the American Revolution and the Civil War, Munger and his co-author Jeffrey Grynaviski found that Southern whites believed, in the first decade or two of the 19th century, that owning slaves was evil but necessary. There was this system in place and it was bad but we’re gonna go with it because, whaddya gonna do? But in a period of about 20 years, due to a variety of factors, mostly economic, the justification for slavery shifted primarily to a racist one: that black people were inferior and needed to be cared for by whites. Southern whites came to believe, like really believe, that they were doing their slaves a favor by enslaving them and that the slaves were better off than they would be in Africa.
The way we defined it in this paper was that racism became a substitute justification for slavery. And the reason was, the original justification for slavery, which was the Roman one of wasn’t good enough. And so Southerners cast about and found basically an alternative, which was the Greek justification for slavery. And let me just say very briefly what those two are. The one justification for slavery, and it was pretty common in Rome, was that if you lost a battle and were captured, then you might either be killed or kept as a slave. And there is a mutually beneficial exchange, if you will, in the sense that you’ve already lost. So, me saying, ‘I tell you what: I won’t kill you if you will agree to act as my slave for the rest of your life. And I may free you; I may not; but that’s up to me.’ And you say, ‘Killed/be a slave: I’m going to go with the slave thing.’ But, it meant that some slaves were very excellent. And in Roman society some slaves occupied very high positions, positions of respect. It’s just that they made this promise. It was an economic institution. And that was the way that slavery had existed in Africa: if you lost a battle, then you would be captured by the other side. It was almost like indentured servitude: you could work it off.
Well, that didn’t work in the American South because they wanted to maintain slaves, to be able to identify slaves and to have a justification that would allow them to enslave the children — which the old Roman justification would never have allowed. You are not going to be a slave if you are born to a slave, because you didn’t lose in battle: you would have been free.
So, the Southerners needed a different way, so they were looking for the Aristotelian notion of slavery, which is that slaves are people who are either morally inferior or lack the judgment to make independent choices. They are like children or like horses. That means that you actually have a positive-good justification for enslaving them: if I have a thoroughbred horse or a fancy dog, it would be cruel of me to set it loose to let it run around, because it’s not capable of taking care of itself. I have obligations to take care of it. My ownership actually gives me obligations. And what’s interesting and what this paper is about is how Southerners worked that out between about 1815 and 1835, and started to understand the implications for how they had to change the economic institutions of slavery to match this new ideology that they were creating.
Yet another example of how powerful economic self-interest is in shifting moral beliefs.
Although it was uncomfortable at times listening to two privileged pro-market white guys talking about slavery, particularly in the moments where they discuss matters from the slaves’ perspectives. But in fairness, they do a good job in admitting their privilege and the awareness that their economic beliefs may not square with things like human rights and justice forms the basis of a fascinating conversation.↩
Vox recently took a look at every single job that Homer has ever had on The Simpsons in an attempt to see where his average salary falls on the economic spectrum in America.
Over the show’s 596-episode run, Homer has had at least 191 jobs. They’ve ranged from executive positions to service jobs, and have dotted the entire economic spectrum, from ultra-rich to the poverty line.
In the list below, we’ve compiled the real-life salaries for 100 of these jobs. Seasonal jobs (like “mall Santa”), and jobs that were virtually impossible to find salary data for (“beer smuggler”) were excluded, as were any repeats (he was an Army private twice, for instance). His full-time gig as a safety inspector is highlighted in yellow, for reference.
He gets a lot of flack, but Homer is actually the most interesting person in America by a wide margin, even though he’s not well compensated for it.
In the most recent video from Marginal Revolution University, Tyler Cowen explains how the role of financial intermediaries contributed to the financial crisis of 2008. He highlights homeowners and banks taking on too much leverage, poorly planned incentive systems, securitization of mortgages, and banks making loans that are over-reliant on investor confidence.
By 2008, the economy was in a very fragile state, with both homeowners and banks taking on greater leverage, many ending up “underwater.” Why did managers at financial institutions take on greater and greater risk? We’ll discuss a couple of key reasons, including the role of excess confidence and incentives.
In addition to homeowners’ leverage and bank leverage, a third factor played a major role in tipping the scale toward crisis: securitization. Mortgage securities during this time were very hard to value, riskier than advertised, and filled to the brim with high risk loans. Cowen discusses several reasons this happened, including downright fraud, failure of credit rating agencies, and overconfidence in the American housing market.
Finally, a fourth factor joins homeowners’ leverage, bank leverage, and securitization to inch the economy closer to the edge: the shadow banking system. On the whole, the shadow banking system is made up of investment banks and various other complex financial intermediaries, highly dependent on short term loans.
When housing prices started to fall in 2007, it was the final nudge that pushed the economy over the cliff. There was a run on the shadow banking system. Financial intermediaries came crashing down. We faced a credit crunch, and many businesses stopped growing. Layoffs ensued, increasing unemployment.
Since Alexis de Tocqueville, restlessness has been accepted as a signature American trait. Our willingness to move, take risks, and adapt to change have produced a dynamic economy and a tradition of innovation from Ben Franklin to Steve Jobs.
The problem, according to legendary blogger, economist and bestselling author Tyler Cowen, is that Americans today have broken from this tradition — we’re working harder than ever to avoid change. We’re moving residences less, marrying people more like ourselves and choosing our music and our mates based on algorithms that wall us off from anything that might be too new or too different. Match.com matches us in love. Spotify and Pandora match us in music. Facebook matches us to just about everything else.
Of course, this “matching culture” brings tremendous positives: music we like, partners who make us happy, neighbors who want the same things. We’re more comfortable. But, according to Cowen, there are significant collateral downsides attending this comfort, among them heightened inequality and segregation and decreased incentives to innovate and create.
Cowen is also releasing another book called Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals.
In that work, I outline a true and objectively valid case for a free and prosperous society, and consider the importance of economic growth for political philosophy, how and why the political spectrum should be reconfigured, how we should think about existential risk, what is right and wrong in Parfit and Nozick and Singer and effective altruism, how to get around the Arrow Impossibility Theorem, to what extent individual rights can be absolute, how much to discount the future, when redistribution is justified, whether we must be agnostic about the distant future, and most of all why we need to “think big.”
It is only available by emailing him that you’ve pre-ordered The Complacent Class. Oh, and a reminder about how I (try to) read books.
By collecting troves of data on how users play their games, developers have mastered the science of applied addiction. And with the rise of “freemium” games that rely on micro-transactions, they have good reason to deploy the tools of behavioral psychology to inspire purchases.
To maximize the efficacy of a coercive monetization model, you must use a premium currency, ideally with the ability to purchase said currency in-app. Making the consumer exit the game to make a purchase gives the target’s brain more time to figure out what you are up to, lowering your chances of a sale. If you can set up your game to allow “one button conversion”, such as in many iOS games, then obviously this is ideal. The same effect is seen in real world retail stores where people buying goods with cash tend to spend less than those buying with credit cards, due to the layering effect.
Purchasing in-app premium currency also allows the use of discounting, such that premium currency can be sold for less per unit if it is purchased in bulk. Thus a user that is capable of doing basic math (handled in a different part of the brain that develops earlier) can feel the urge to “save money” by buying more. The younger the consumer, the more effective this technique is, assuming they are able to do the math. Thus you want to make the numbers on the purchase options very simple, and you can also put banners on bigger purchases telling the user how much more they will “save” on big purchases to assist very young or otherwise math-impaired customers.
Having the user see their amount of premium currency in the interface is also much less anxiety generating, compared to seeing a real money balance. If real money was used (no successful game developer does this) then the consumer would see their money going down as they play and become apprehensive. This gives the consumer more opportunities to think and will reduce revenues.
On the topic of in-app purchases, Griffiths says, “The introduction of in-game virtual goods and accessories (that people pay real money for) was a psychological masterstroke.”
“It becomes more akin to gambling, as social gamers know that they are spending money as they play with little or no financial return,” he continues. “The one question I am constantly asked is why people pay real money for virtual items in games like FarmVille. As someone who has studied slot machine players for over 25 years, the similarities are striking.”
Griffiths argues that the real difference between pure gambling games and some free-to-play games is the fact that gambling games allow you to win your money back, adding an extra dimension that can potentially drive revenues even further.
Candy Crush Saga was actually designed by an economist to demonstrate how people don’t understand the concept of sunk cost.
Update: In 2009, Chris Anderson wrote a book called Free: The Future of a Radical Price in which he argued that freemium was going to be an important business model.
The online economy offers challenges to traditional businesses as well as incredible opportunities. Chris Anderson makes the compelling case that in many instances businesses can succeed best by giving away more than they charge for. Known as “Freemium,” this combination of free and paid is emerging as one of the most powerful digital business models. In Free, Chris Anderson explores this radical idea for the new global economy and demonstrates how it can be harnessed for the benefit of consumers and businesses alike. In the twenty-first century, Free is more than just a promotional gimmick: It’s a business strategy that is essential to a company’s successful future.
Forty years ago, Israeli psychologists Daniel Kahneman and Amos Tversky wrote a series of breathtakingly original studies undoing our assumptions about the decision-making process. Their papers showed the ways in which the human mind erred, systematically, when forced to make judgments about uncertain situations. Their work created the field of behavioral economics, revolutionized Big Data studies, advanced evidence-based medicine, led to a new approach to government regulation, and made much of Michael Lewis’s own work possible. Kahneman and Tversky are more responsible than anybody for the powerful trend to mistrust human intuition and defer to algorithms.
Worries over the slowing Chinese economy spilled out into the streets of Hebei province last weekend as two construction firms battled with bulldozers while competing for the same business. That is some end-times shit right there.
If you’re poor, you might want to consider moving to a place where your life expectancy will be reasonably high. In many parts of America, there is only a minor gap between the life expectancies of the wealthy and the poor.
But in some other parts of the country, adults with the lowest incomes die on average as young as people in much poorer nations like Rwanda, and their life spans are getting shorter.
If you’re forced into playing Monopoly by friends, you can employ this simple strategy to ensure they will never ever ask you to play again.
With a second monopoly completed, your next task is to improve those properties to three houses each, then all of your properties to four houses each. Six properties with three houses will give you more than half of the houses in the game, and four houses each will give you 75% of the total supply. This will make it nearly impossible for your opponents to improve their own property in a meaningful way. Keep the rulebook nearby once the supply gets low, as you will undoubtedly be questioned on it. At this point, you will be asked repeatedly to build some friggin’ hotels already so that other people can build houses. Don’t.
At this point, you more or less have the game sewn up. If losing a normal game of monopoly is frustrating, losing to this strategy is excruciating, as a losing opponent essentially has no path to victory, even with lucky rolls. Your goal is to play conservatively, lock up more resources, and let the other players lose by attrition. If you want to see these people again, I recommend not gloating, but simply state that you’re playing to win, and that it wasn’t your idea to play Monopoly in the first place.
It is difficult to read this without thinking about income inequality in the real world.
In fact, most American slaves were not kidnapped on another continent. Though over 12.7 million Africans were forced onto ships to the Western hemisphere, estimates only have 400,000-500,000 landing in present-day America. How then to account for the four million black slaves who were tilling fields in 1860? “The South,” the Sublettes write, “did not only produce tobacco, rice, sugar, and cotton as commodities for sale; it produced people.” Slavers called slave-breeding “natural increase,” but there was nothing natural about producing slaves; it took scientific management. Thomas Jefferson bragged to George Washington that the birth of black children was increasing Virginia’s capital stock by four percent annually.
Here is how the American slave-breeding industry worked, according to the Sublettes: Some states (most importantly Virginia) produced slaves as their main domestic crop. The price of slaves was anchored by industry in other states that consumed slaves in the production of rice and sugar, and constant territorial expansion. As long as the slave power continued to grow, breeders could literally bank on future demand and increasing prices. That made slaves not just a commodity, but the closest thing to money that white breeders had. It’s hard to quantify just how valuable people were as commodities, but the Sublettes try to convey it: By a conservative estimate, in 1860 the total value of American slaves was $4 billion, far more than the gold and silver then circulating nationally ($228.3 million, “most of it in the North,” the authors add), total currency ($435.4 million), and even the value of the South’s total farmland ($1.92 billion). Slaves were, to slavers, worth more than everything else they could imagine combined.
Virginia slaveowners won a major victory when Thomas Jefferson’s 1808 prohibition of the African slave trade protected the domestic slave markets for slave-breeding.
I haven’t read the book, but I imagine they touched on the fact that by growing slave populations, southern states were literally manufacturing more political representation due to the Three-Fifths clause in the US Constitution. They bred more slaves to help politically safeguard the practice of slavery.
In the 1830s, powerful Southern slaveowners wanted to import capital into their states so they could buy more slaves. They came up with a new, two-part idea: mortgaging slaves; and then turning the mortgages into bonds that could be marketed all over the world.
First, American planters organized new banks, usually in new states like Mississippi and Louisiana. Drawing up lists of slaves for collateral, the planters then mortgaged them to the banks they had created, enabling themselves to buy additional slaves to expand cotton production. To provide capital for those loans, the banks sold bonds to investors from around the globe — London, New York, Amsterdam, Paris. The bond buyers, many of whom lived in countries where slavery was illegal, didn’t own individual slaves — just bonds backed by their value. Planters’ mortgage payments paid the interest and the principle on these bond payments. Enslaved human beings had been, in modern financial lingo, “securitized.”
Slave-backed securities. My stomach is turning again. (via @daveg)
2. President James Polk speculated in slaves, based on inside information he obtained from being President and shaping policy toward slaves and slave importation.
3. In the South there were slave “breeding farms,” where the number of women and children far outnumbered the number of men.
As historian Edward Baptist reveals in The Half Has Never Been Told, slavery and its expansion were central to the evolution and modernization of our nation in the 18th and 19th centuries, catapulting the US into a modern, industrial and capitalist economy. In the span of a single lifetime, the South grew from a narrow coastal strip of worn-out tobacco plantations to a sub-continental cotton empire. By 1861 it had five times as many slaves as it had during the Revolution, and was producing two billion pounds of cotton a year. It was through slavery and slavery alone that the United States achieved a virtual monopoly on the production of cotton, the key raw material of the Industrial Revolution, and was transformed into a global power rivaled only by England.
The London Underground recently conducted an experiment on one of the escalators leading out of the busy Holborn station. Instead of letting people walk up the left side of the escalator, they asked them to stand on both sides.
The theory, if counterintuitive, is also pretty compelling. Think about it. It’s all very well keeping one side of the escalator clear for people in a rush, but in stations with long, steep walkways, only a small proportion are likely to be willing to climb. In lots of places, with short escalators or minimal congestion, this doesn’t much matter. But a 2002 study of escalator capacity on the Underground found that on machines such as those at Holborn, with a vertical height of 24 metres, only 40% would even contemplate it. By encouraging their preference, TfL effectively halves the capacity of the escalator in question, and creates significantly more crowding below, slowing everyone down. When you allow for the typical demands for a halo of personal space that persist in even the most disinhibited of commuters — a phenomenon described by crowd control guru Dr John J Fruin as “the human ellipse”, which means that they are largely unwilling to stand with someone directly adjacent to them or on the first step in front or behind — the theoretical capacity of the escalator halves again. Surely it was worth trying to haul back a bit of that wasted space.
Leaving aside “the human ellipse” for now,1 how did the theory work in the real life trial? The stand-only escalator moved more than 25% more people than usual:
But the preliminary evidence is clear: however much some people were annoyed, Lau’s hunch was right. It worked. Through their own observations and the data they gathered, Harrison and her team found strong evidence to back their case. An escalator that carried 12,745 customers between 8.30 and 9.30am in a normal week, for example, carried 16,220 when it was designated standing only. That didn’t match Stoneman’s theoretical numbers: it exceeded them.
But not everyone liked being asked to stand for the common good:
“This is a charter for the lame and lazy!” said one. “I know how to use a bloody escalator!” said another. The pilot was “terrible”, “loopy,” “crap”, “ridiculous”, and a “very bad idea”; in a one-hour session, 18 people called it “stupid”. A customer who was asked to stand still replied by giving the member of staff in question the finger. One man, determined to stride to the top come what may, pushed a child to one side. “Can’t you let us walk if we want to?” asked another. “This isn’t Russia!”
There’s a lesson in income inequality here somewhere…2
Update: The NY Times wades into the not walking on escalators debate: Why You Shouldn’t Walk on Escalators. Standing on the escalator, meet American self-interest.
It would be hard to persuade people that “everybody wins” if they all merely stood on the escalator, Curtis W. Reisinger, a psychologist at Zucker Hillside Hospital in Glen Oaks, N.Y., said.
“Overall I am not too optimistic that people’s sense of altruism can override their sense of urgency and immediacy in a major metro area where the demands for speed and expediency are high,” he wrote in an email.
Sam Schwartz, New York City’s former traffic commissioner and a fellow in transportation at Hunter College, said people’s competitive nature tends to trump logic and science.
“In the U.S., self-interest dominates our behavior on the road, on escalators and anywhere there is a capacity problem,” he wrote in an email. “I don’t believe Americans, any longer (if they ever did), have a rational button.”
Ok, explicitly: the people standing are poor, the people walking are rich, and speed is income. When the walkers redistribute some of their speed to the whole group, on average everyone gets to where they’re going faster. But the walkers are unwilling to give up walking because they believe their own individual speed will prevail. “This isn’t Russia!” indeed.↩
A new study from scientists and economists at Stanford and Berkeley has taken a stab at determining how climate change will affect the world’s economic activity. As part of their study, they look at which countries might benefit from climate change and which might lose out. As you might expect, countries in the Northern Hemisphere with cooler climates stand to benefit while the rest of the world will not. Here are some of the projected big winners (the Nordic countries) and losers (the Middle East):
Mongolia +1413%
Finland +516%
Iceland +513%
Russia +419%
Estonia +259%
Saudi Arabia -96%
Kuwait -96%
Oman -94%
United Arab Emirates -94%
Iraq -93%
Canada (+247%) is another one of the potential big winners while the US (-36%) stands to lose out…along with all of Africa, South America, India, and China. This quote by one of the study’s lead authors, really grabbed me by the throat:
What climate change is doing is basically devaluing all the real estate south of the United States and making the whole planet less productive. Climate change is essentially a massive transfer of value from the hot parts of the world to the cooler parts of the world. This is like taking from the poor and giving to the rich.
Among other many things, anthropogenic climate change is an issue of discrimination.1 Rich, predominantly white countries caused the problem and can do the most to limit the damage, but climate change will disproportionately affect poor countries, poor people (even in rich countries), women, and people of color. The rich need to do something about it so that the poor will not suffer. The problem is, the world’s wealthy have a long history of not being incentivized to help anyone but themselves. I hope this will turn out differently…or, as sometimes happens, the desires of the wealthy and the needs of the poor dovetail into action of joint benefit.
In fact, with no offense to those who rightly rail against causes of discrimination around the world, I would go so far to say that this is by far the largest and most important discriminatory issue the world faces today. Climate change will permanently remake the entire world and its economy, and the poor, women, and people of color stand to lose huge.↩
Big news out of Manhattan: Dining out is about to get turned on its head. Union Square Hospitality Group, the force behind some of New York’s most important restaurants, will announce today that starting in November, it will roll out an across-the-board elimination of tips at every one of its thirteen full-service venues, hand in hand with an across-the-board increase in prices.
Why are they doing this? In part because cooks get the shaft at restaurants:
Under the current gratuity system, not everyone at a restaurant is getting a fair shake. Waiters at full-service New York restaurants can expect a full 20 percent tip on most checks, for a yearly income of $40,000 or more on average — some of the city’s top servers easily clear $100,000 annually. But the problem isn’t what waiters make, it’s what cooks make. A mid-level line cook, even in a high-end kitchen, doesn’t have generous patrons padding her paycheck, and as such is, on average, unlikely to make much more than $35,000 a year.
Four years into a twenty-year study of the mental conditions of kids living in rural North Carolina, a quarter of the participants experienced a dramatic increase in annual income. The researchers used this opportunity to find out how that increase in wealth affected the wellbeing of the kids. What they learned is that even a little money goes a long way.
Not only did the extra income appear to lower the instance of behavioral and emotional disorders among the children, but, perhaps even more important, it also boosted two key personality traits that tend to go hand in hand with long-term positive life outcomes.
The first is conscientiousness. People who lack it tend to lie, break rules and have trouble paying attention. The second is agreeableness, which leads to a comfort around people and aptness for teamwork. And both are strongly correlated with various forms of later life success and happiness.
Making a sandwich completely from scratch took this guy six months and cost $1500. He grew his own vegetables, made his own butter & cheese, made sea salt from salt water, and harvested wheat for bread flour. And that’s with a few shortcuts…he didn’t raise the cow & chicken from a calf & chick or the bees from a starter hive.
Economist William Easterly and some of his colleagues built a site that focuses on the economic development of a single block in NYC, Greene Street between Houston and Prince. In the past 175 years, use of the block has gone from wealthy residential to sex work to garment manufacturing to artist galleries to luxury retail.
133 Greene Street, for example, has been part of the large Bayard farm, a grand residential home, a brothel, a garment factory, part of a slum, an art gallery, and is today the home of luxury co-op residences and a Dior Homme store.
Many of these shifts took only a decade and could have been very difficult to anticipate.
The site was built to accompany an academic paper on economic development.
By 1870, the Greene Street Block contained 14 brothels, the highest concentration of any block in the City. Just as surprising was the sudden end of prostitution on the block. Brothels still abounded in 1880, but during the next decade entrepreneurs demolished and rebuilt almost the entire block as castiron factories and warehouses, and what was left of the red-light district moved up town.
The site is a little confusing to navigate, but is worth checking out in detail. For instance, check out how quickly the garment manufacturing industry shifted from downtown to the present-day Garment District.
We find substantial evidence of time inconsistency. Namely, more that half of the participants who receive their check straight away instead of waiting two weeks for a reasonably larger amount, subsequently take more than two weeks to cash it.
This reminded me of a passage I read recently in Oliver Burkeman’s The Antidote1 about the pitfalls of positive visualization.
Yet there are problems with this outlook, aside from just feeling disappointed when things don’t turn out well. These are particularly acute in the case of positive visualisation. Over the last few years, the German-born psychologist Gabriele Oettingen and her colleagues have constructed a series of experiments designed to unearth the truth about ‘positive fantasies about the future’. The results are striking: spending time and energy thinking about how well things could go, it has emerged, actually reduces most people’s motivation to achieve them. Experimental subjects who were encouraged to think about how they were going to have a particularly high-achieving week at work, for example, ended up achieving less than those who were invited to reflect on the coming week, but given no further guidelines on how to do so.
In one ingenious experiment, Oettingen had some of the participants rendered mildly dehydrated. They were then taken through an exercise that involved visualising drinking a refreshing, icy glass of water, while others took part in a different exercise. The dehydrated water-visualisers — contrary to the self-help doctrine of motivation through visualisation — experienced a significant reduction in their energy levels, as measured by blood pressure. Far from becoming more motivated to hydrate themselves, their bodies relaxed, as if their thirst were already quenched. In experiment after experiment, people responded to positive visualisation by relaxing. They seemed, subconsciously, to have confused visualising success with having already achieved it.
In a similar way, it may be that the people who received their checks right away but didn’t cash them “relaxed” as though they had actually spent the money, not just gotten the check. (via mr)
This book was endlessly fascinating to me, like reading the user’s manual on how my brain works for the first time. Like, wait, I don’t have to be anxious about not setting goals? And it can actually make me happier? Sign me up!↩
The Waffle House Index is an informal metric used by FEMA administrator Craig Fugate to evaluate how bad a storm is. Basically, whether the Waffle House in town is open or serving a limited menu can tell you something about how bad the storm was and how much recovery assistance is necessary.
If you get there and the Waffle House is closed? That’s really bad. That’s where you go to work.
Socrates once wrote, “He is richest who is content with the least.” Even the great Greek philosopher would be feeling a little too rich today in Greece where citizens, greeted by news that the nation’s banks would be closed for the week, lined up at ATMs and employed the Socratic method with the repetition of the question: “Where the hell’s my money?” And if you’ve taken a look at your stock portfolio, there’s a decent chance you’ve asked your broker the same question. Here’s an overview of the Greek economic crisis from NYT Upshot, and the latest updates from BBC.
He simply wants to stress to you, and perhaps even himself, that he occupies the high ground. In doing so, he happens to increase the likelihood that he will wind up in the back of an ambulance.
About the time Katrina struck, New Orleans was the jail capital of America, incarcerating people at four times the national average. Since that time, the city has reduced its local inmate population by 67%. What was the trick? First, they stopped treating jailing like a business. And second, they built a smaller jail. No really. That was a key factor. And get this; during the period New Orleans stopped jailing so many people, there has been an overall reduction in crime. Smaller jails. Less crime. Jazz hands.
[This item is syndicated from Nextdraft, but I had to add a little something about induced demand. Like building bigger roads resulting in more traffic (not less), building bigger jails means you want to fill them with criminals. Kudos to New Orleans for building a smaller jail and finding ways to adjust to the reduced supply of jail cells. -jkottke]
Perhaps the most piercing lesson from effective altruism is that one can make an astonishing difference in the world with a pinch of logic and dash of math.
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