Pete Boettke: I want to eat unicorn for breakfast

This morning had a great time watching Pete Boettke wander around at APEE, complaining that all the breakfast (advertised on the program as "continental breakfast", btw) foods were breads and sugar.  He wanted "protein."

If ONLY there were a system where one could go to some establishment, order exactly what one wanted, and then exchange some valuable tokens for that meal.  We could call it... markets.  And restaurants (there are at least six full service restaurants in this hotel complex...)

But I have to admit that I was with Pete.  Wouldn't it be great if there were just free food, as much as I want, and it had bacon and eggs (the Angus special) and cheese and ham and steak and.... Wouldn't that be great? 

It's so tempting to want that, and to want someone else to provide it.  The difference is that Pete was actually just  joking and having a good time.  Many people really think there "should" be free stuff for everyone. But when they/we try to provide free stuff for everyone, you get people standing in long lines for stuff like toilet paper.  Forget protein...we're talking about toilet paper.  That's not right.  Markets are the best we can do, and they are actually pretty good.

Morality and Markets

James Stoner and I had an interchange on Witherspoon's PUBLIC DISCOURSE that you might find of interest.   The "Richmond" example, in particular, is of some consequence, I think.

Stoner: http://www.thepublicdiscourse.com/2014/01/11291/

Munger: http://www.thepublicdiscourse.com/2014/01/11845/

Markets NOT Capitalism?

The Economics of Slut-Shaming

An interesting and provocative piece. Excerpt:


The economic way of thinking prompts us to consider the preferences, endowments, and trade-offs that shape our decisions in the face of our unlimited wants and limited means. Decisions about sex—in all of its pleasure, danger, and emotion—are no less subject to these constraints. Although rarely framed as such, in many ways, the euvoluntary exchange of semen and security for womb space and childcare constitutes one of humanity’s earliest, and perhaps most essential, economic spheres. 

Sex is a female resource. While both genders certainly enjoy and depend on the act, natural constraints on female sexuality create scarcity—and value. The high costs of female fertility—in terms of time, mental and physical health, and opportunities forgone—impel women to act as suppliers in the sexual market. Male sexuality, on the other hand, is ubiquitous and cheap. What’s more, men tend to place a higher value on sexual gratification than do women. Men, therefore, comprise the demand for sex. 

ATSRTWT, with thanks to SL Wilson

Markets in Everything: Spouse Broker

Florida man has sign in car window.  

"Looking for Wife.  (Phone number)"

Amazingly, women actually call the number.

But it's not for him.  He is just the middle man.

Nod to @PieFarmer, and of course to LeBron...

Markets in ....ick.

Markets in everything, f'real.  Taken from a car window by an aware reader.

How do you...you know...collect it?

Markets in the Oldest Thing

The rich shale oil formation deep below the rolling pastures here has attracted droves of young men to work the labor-intensive jobs that get the wells flowing and often generate six-figure salaries. What the oil boom has not brought, however, are enough single women...This has complicated life for women in the region as well. Many said they felt unsafe. Several said they could not even shop at the local Walmart without men following them through the store. Girls’ night out usually becomes an exercise in fending off obnoxious, overzealous suitors who often flaunt their newfound wealth...Prosecutors and the police note an increase in crimes against women, including domestic and sexual assaults...Some women have banked on the female shortage. Williston’s two strip clubs attract dancers from around the country. [NYTimes]

ATSRTWT

Nod to Kevin Lewis

Our "leaders" missed the Econ 101 Prereq

Lots of basic classes have prerequisites.  Why not public office?  As in, you can't be governor of a state unless you have taken (and PASSED) basic economics.

Anonyman sends this delightful tidbit:

Drivers in New Jersey faced 1970s-style gasoline rationing imposed by Gov. Chris Christie, while in New York, Gov. Andrew Cuomo said that the Defense Department would distribute free fuel from five mobile stations. But that effort backfired when too many people showed up.

Rationing makes sense, given that Gov. Christie has decided to prevent the price system from allocating resources.  Like all Republicans, his authoritarian and life-arranging instincts come out in times of crisis, and like all Republicans he'll make up crises if he has to, justify state control of pretty much everything.  But at least that's possible.

Governor Cuomo just has no conception of how things work, though.  Knowing that people really, really need this stuff, we'll...give it away for free!  What could possibly go wrong?  We don't NEED no stinkin' rationing.  Except that if the price is zero, the costs of non-price rationing are very high.  There is no saving, and there is no reason to believe that the people who need gas actually get it.

And Mayor Bloomberg?  Completely hopeless, a statist to the core. 

Officials said they were trying to get help where it was needed. “One of the problems is that when you have lots of different agencies, it takes a while for them to get coordinated,” Mr. Bloomberg said at his briefing, adding that he understood how high the tensions were in the Rockaways. “Somebody this morning screamed at me that they could not get coffee.”

Because they were waiting for "lots of different agencies" to "get coordinated" to provide coffee.  If only there were a system that would allow people to get the things they need without those things being provided by government.  We use that system every day during normal times, and we get lots of stuff from groceries, gas stations, and drug stores.  But when there is an emergency, we use a whole dog's breakfast of different laws to prevent the market system from helping us when we need it most.

What Money Can't Buy, Because It's Illegal to Buy

John Goodman has a nice piece on markets and on stuff we don't like, though we can't explain why.

Some people on the left have an aversion to money, as reflected a lengthy list of goods and services they don’t think should be exchanged for money. Some people on the right have an aversion to unconventional sex and recreational drugs.

You might think that these two groups of people are very different. Certainly there is a difference in the activities that they abhor. Beyond that, they have something in common: a visceral desire to outlaw activities that disgust them.

I would only note that the term “moral” is often a thinly disguised attempt to erect a cloak of ethical justification around what people really want to do: outlaw behavior they don’t like.

Nod to Angry Alex

Room Assignment Puzzle

Question: Should Duke allow side payments in room assignment process?

Answer: why not?

Real answer: Nope, they do not allow it. And they are threateing "referrals." I don't know what that means, but it frightens me.

Remy on Occupy Wall Street

UPDATE: The camera woman is crying, the guy is crying, and they are bizarrely, defending some conception of property rights. This is OURS, you can't take it. "We" can take yachts, and money, and property, from OTHER people, but not from this snotty kid.

Are markets like the honey badger?

Jerry Evensky says yes:

In my introductory economics class I explain that markets are amoral – not moral, not immoral ... amoral. In that sense they are like computers ... incredibly powerful at processing immense amounts of information in useful ways, but totally agnostic as to the use. Computers can be used to educate, to elucidate, to heal ... or to develop weapons of mass destruction. They don’t give a damn, nor do markets ... nor does homo economicus.

(that's the full quote, the "... " parts are in the original. I have enlarged the money part)

Congress CAN Do One Thing

It can suck, scare people, prevent investment, and reduce the value of existing investments. Of course, IF that were true, you could trade on that information.

And perhaps you can. Why do stocks do better when Congress is OUT of session? It could be that the risk is lower, so lower variance (though in that case options should do better when Congress is in session). A more likely explanation is that Congress sees its job as ordering people around and claiming credit for steering the economy. Iceberg! Dead ahead!

A nod to Prof. Newmark, for pointing this out. I like his "exercise for the reader."

Euvoluntary Exchange: Kidney Sales

I have been working on the idea of "euvoluntary" (ie, truly voluntary) exchange for some time.

Take five minutes, and watch this video, and read this article.

On the "for" side:
"We are allowing young people to undertake £20,000 to £30,000 of university fee payments. "We allow them to burden themselves with these debts. Why can't we allow them to do a very kind and generous thing but also meet their own needs?"

Against:
However, Robin Parker, president of NUS Scotland, said: "Although the lack of available kidneys for transplant is truly tragic given the need, it's ludicrous to suggest that selling body parts is a viable solution to alleviating student poverty.

"Young people, particularly from disadvantaged backgrounds, are already being asked to take on huge debt to afford an education. They shouldn't be expected to remove a body part as well."

Now, in both of these cases, our outrage is likely due to a sense that people should not have to sell their kidney. But then we skip to a non sequitur: People will not BE ALLOWED to sell their kidney. So, the inexplicable Ms. Parker above says people should not be expected to remove a body part as well. Well...no. But what about remove a body part INSTEAD, ma'am?

I don't know what the right policy is. But I am quite certain that the fact that I should not have to do it does not imply that I should be prevented from doing it. Non sequitur. It does not follow.

Especially since I am allowed to DONATE the kidney. If kidney donation were illegal, then outlawing a black market is at least logically consistent. But allowing donation, but not sale...WTF?

The interesting thing is that this happens a lot. If a man buys a woman a nice dinner, they go to a show, have a drink afterward, AND THE MAN PAYS FOR EVERYTHING, there is no problem if the woman goes home with him and they have sex. She can "donate" without a problem. (As the old joke goes, the woman says, "Well, that was great! Now, the rest of your evening is on me.")

But if she asks for, or the man offers, $500 for the sex, then it is illegal. So, again, we don't mind the act, it is only the sale that creates problems.

Why? We think prostitution is demeaning, a loss of human dignity. No woman should have to sell herself like that.

Okay, but does that mean she is NOT ALLOWED to sell herself?

What about surrogate motherhood? We are renting the same part of the body as a prostitute wants to rent out, but for a longer period. Why is voluntary sex, and also surrogate motherhood, legal but prostitution is not? Who would you ratherhttp://www.blogger.com/img/blank.gif be, the woman who got paid that 3k dollar to make E. Spitzer holler, or the woman who got $7 per hour to clean up the room afterward? Is it THAT obvious that the $1k/hour prostitute should be "protected," but not the chambermaid allowedwho has to hose down the walls of the love nest? (Of course, that was before DSK decided that the chambermaid could just be taken for the not-asking. If you are French, apparently you believe that "voluntary" sex means that the man wants it.)

My answer is that we have the intuition that these transactions, kidney sale or sex for sale, are not "euvoluntary." Voluntary, perhaps, but not euvoluntary. Gated version of the article here. If you want a copy, send me an email: munger at duke dot edu.

(UPDATE: The most worthy Worstall has written on the specific subject of organ sales. Worth looking at, as always. Among other things, Tim points out that in fact, in the UK, prostitution is essentially legal, though with some quirks. Surrogate motherhood, on the other hand, is for all practical purposes NOT legal as a straight up rental transaction, except for the ability to pay for expenses.)

Calculation Debate

Markets on a (Computer) Chip? New Perspectives on Economic Calculation

Mark Jablonowski, Science & Society, July 2011, Pages 400-418

Abstract: Is it possible to implement an efficient economic alternative to market capitalism using economic planning? The debate, which has blown both hot and cold over the last 80 years, has turned on the feasibility of calculating solutions to what amounts to a vast quantity of economic equations. More recently, issues of respecting the uncertainty and preserving the information content inherent in "real world" economic transactions have surfaced. The question may ultimately be decided not on how much computing power is needed to solve complex economic problems, but rather on how well new solutions are articulated. New developments in computer "chip level" computation, including the rebirth of electronic analogs and the incor-poration of the fuzzy set formalism for computing in complex systems, may impart a greater feasibility to the idea of deliberate public planning that integrates the benefits of the market process for the achievement of social objectives. These developments have implications for establishing workable alternatives to capitalism.

(Nod to Kevin Lewis)

Books a Million?

A few weeks ago a postdoc in my lab logged on to Amazon to buy the lab an extra copy of Peter Lawrence’s The Making of a Fly – a classic work in developmental biology that we – and most other Drosophila developmental biologists – consult regularly. The book, published in 1992, is out of print. But Amazon listed 17 copies for sale: 15 used from $35.54, and 2 new from $1,730,045.91 (+$3.99 shipping).

At first I thought it was a joke – a graduate student with too much time on their hands. But there were TWO new copies for sale, each be offered for well over a million dollars. And the two sellers seemed not only legit, but fairly big time (over 8,000 and 125,000 ratings in the last year respectively). The prices looked random – suggesting they were set by a computer. But how did they get so out of whack?

Amazingly, when I reloaded the page the next day, both priced had gone UP! Each was now nearly $2.8 million. And whereas previously the prices were $400,000 apart, they were now within $5,000 of each other. Now I was intrigued, and I started to follow the page incessantly. By the end of the day the higher priced copy had gone up again. This time to $3,536,675.57. And now a pattern was emerging.

ATSRTWT

(Nod to Leonard S)

Securities Trading of Concepts (STOC)

Securities Trading of Concepts (STOC)

Ely Dahan et al., Journal of Marketing Research, forthcoming

Abstract: Identifying winning new product concepts can be a challenging process that requires insight into private consumer preferences. In order to measure consumer preferences for new product concepts, we apply a securities-trading approach where new product concepts are traded as financial securities: Securities Trading of Concepts (STOC). We apply this method because market prices are well known to efficiently collect and aggregate private information regarding the economic value of goods, services, and firms, particularly when trading financial securities. Our research includes the first application of securities markets to test potential new product concepts, and is the first to compare such an approach against stated-choice, conjoint, constantsum and longitudinal revealed preference data. In our research, we place STOC in the context of existing methodologies, as well as prior research on prediction markets and experimental economics. We conduct a series of experiments in multiple product categories to test whether STOC: 1) is more cost-efficient than other methods; 2) passes validity tests; 3) measures expectations of others; and 4) reveals individual preferences, not just those of the crowd. All results are confirmed, with the notable exception that STOC, as tested, does not accurately predict actual product market shares and price sensitivity. Our results also show that traders exhibit bias based on self- preferences when trading. Ultimately, STOC offers two key advantages to traditional market research methods — cost efficiency and scalability. For new product development (NPD) teams deciding where to invest resources, this scalability may be especially important in the Web 2.0 world where customers are constantly interacting with firms and with each other in suggesting numerous product design possibilities that need to be screened.

Nod to Kevin Lewis

Excellent Sarcasm

Here at KPC, we love some timely, cutting sarcasm.

And this is a tasty slice.

Worth reading the whole thing, though it is large.

I have myself thought about price-gouging a bit. Print. / Podcast.

Competitive Markets Are the Enemy of Profits, So Wall Street Opposes Market Competition

Reputation, the SEC, and the requirements of SARBOX are extremely effective entry barriers. SARBOX doesn't apply to privately held companies, but no small company could hope to compete with the big companies.

"If Hertz sees much of its rental fleet lying idle, it will cut its prices to better compete with Avis and Enterprise. Chances are that Avis and Enterprise will respond in kind, and the result will be lower profits all around. On Wall Street, the price of various services has been fixed for decades. If Morgan Stanley issues stock in a new company, it charges the company a commission of around seven per cent. If Evercore or JPMorgan advises a corporation on making an acquisition, the standard fee is about two per cent of the purchase price. I asked TED why there is so little price competition. He concluded it was something of a mystery. 'It’s a commodity
business,' he said. 'I can do what Goldman Sachs does. You can do what I can do. Nobody has a proprietary edge. And if you do have a proprietary edge you’ll only have it for a few weeks before somebody reverse engineers it.' After thinking it over, the best explanation TED could come up with was based on a theory of relativity: investment-banking fees are small compared with the size of the over-all transaction. 'You are a client, and you are going to do a five-billion-dollar deal,' he said. 'It’s the biggest deal you’ve ever done. It’s going to determine your future, and the future of your firm. Are you really going to fight about whether a certain fee is 2.5 per cent or 3.3 per cent? No. The old cliché we rely on is this: When you need surgery, do you go to the discount surgeon or to the one you trust and
know, who charges more?'" [John Cassidy, New Yorker]

Now, you could say it would be hard for new firms to enter this market anyway. But our government makes it impossible.

(Nod to Kevin Lewis)

The Grand Game

Discuss.

I think there are some silly mistakes here. But there are also some insights. And the animation is tremendous.

However, all the actual insights are Public Choice insights. Marx was, after all, the first public choice theorist. The basic Marxist syllogism is this: 1. If government is powerful... 2. Then in a democracy that government will be dominated by business interests. 3. Therefore, get rid of private business.

The "if" part (1) and the "then" part (2) are both substantially correct, actually. But the "therefore" part is dumb. The correct "therefore" is:

Therefore, get rid of powerful government, which mostly restrains competition. Competition won't be perfect, and in fact there will be problems like those in 2008-9. But the problems will be much smaller, and of shorter duration, without the meddling of powerful and self-interested government agencies.

(Nod to Kindred, from here)