Friday, July 02, 2004

Sauce for the Gander

"Guys Gone Wild" is now a reality. Call me crazy, but I'm betting it won't sell as well as "Girls Gone Wild." Interestingly, the marketers admit that they expect sales to come from two main sources: women buying them as gag gifts for friends, and gay men.


Thursday, July 01, 2004

In Defense of the Wal-Mart Model

At Crooked Timber, Daniel Davies explains why Wal-Mart’s much-vaunted contributions to economic productivity might not be so great after all. I agree with Davies’s fundamental points, which I understand to be (a) that productivity is notoriously different to measure, and (b) that the productivity gains attributed to Wal-Mart have probably been exaggerated. But if the Wal-Mart boosters sometimes overstate their case in its favor, I think Davies overstates the case against. Even his own examples show how Wal-Mart has created value. Let’s take them one at a time:

1. Lower value added retailing = higher productivity! … The issue being that, if the boutiques on King’s Road were to get rid of the dolly assistants, free coffee and assorted perks and bijouterie, and move to a model where they piled the Prada high in fluorescent-lit barns, then they would presumably be able to shift more units at a lower price, at the expense of taking all the joy out of shopping for the Sex-in-the-City crowd. As Brad[1] pointed out in a critical comment on the Kay article, the national statistical agencies try their damndest to make sure that the productivity statistics don’t pick up a decrease in the value-added component of retailing as an increase in productivity, but it’s an intrinsically difficult task.
Granted, it’s a much less pleasant experience to shop at Wal-Mart than to shop in a boutique. If you want an accurate measure of the value added by switching to the warehouse model, you must remember to subtract out the value associated with the forgone ambience. That said, we should notice that lots of people still have the option of shopping at boutiques and choose to shop at Wal-Mart instead. That’s pretty strong evidence of value added for those people, since they could choose to patronize the boutiques if they didn’t perceive a net gain from shopping at Wal-Mart. Simply put, there are some people who are unwilling to pay for the additional amenities of the smaller stores; before Wal-Mart came along, they had to pay for them anyway.
2. Outsourcing distribution costs - to you! … I would contend that there is one particular, systematic mistake [identified by behavioral finance] that people make which is probably of macroeconomics. And it’s a hole in popular psychology which WalMart drives through in a coach-and-four.

That particular psychological quirk is the tendency of people in industrial societies to: a) put an irrationally low valuation on their leisure time, and b) believe that they have more spare time than they actually do. … In any case, as John pointed out a while ago, if you’re spending your “leisure” time driving to an out-of-town megastore, then it’s not leisure in any meaningful sense. If you end up doing more of this than you would, in a fully informed and reflective state, want to, then WalMart has successfully outsourced a proportion of its cost base to you, and the national income statistics and the McKinsey Global Institute will happily collaborate in helping you to fool yourself.
Again, there’s a large grain of truth here. There is a cost, in both time and inconvenience, involved in going to a big-box store on the outskirts of town. That cost ought to be taken into account in assessing Wal-Mart’s value added. But once again, the revealed preferences of actual consumers argue strongly in favor of the notion that, on net, lots of people still prefer the big-box store. Many of Wal-Mart’s customers have lower incomes, and that makes perfect sense: people who earn less per hour have a lower opportunity cost of their time, so they will naturally substitute time expenditures for money expenditures when they can.

Davies resists the revealed preference argument on grounds of behavioral psychology: people’s choices are sometimes afflicted by persistent biases that are inconsistent with pure rational choice. As a result, it is possible that their choices don’t reflect their true preferences. Now, it’s certainly true that people are subject to these biases in certain types of situation, but attributing such biases willy-nilly to any old situation, as Davies does here, is precisely the danger of people taking the behavioral results too seriously. What seems like a bias will sometimes turn out to be a (quasi) rational means of correcting other cognitive biases or dealing with a facet of the situation not apprehended by the observer.

So what countervailing biases might be involved here? One of the most common biases is placing too much value on the present relative to the future. A person with this bias might buy something at the expensive-but-local store, instead of sacrificing a little time now to save money for the future. I do this all the time, when I buy food at the corner market instead of driving an extra 5 minutes to the grocery store. Which bias is dominant in the Wal-Mart situation? Focusing on the undervaluation-of-leisure bias leads to Davies’s implied conclusion: people shop at Wal-Mart too much. Focusing exclusively on the overvaluation-of-the-present bias leads to the conclusion that people don’t shop at Wal-Mart enough. I, for one, would defer to the judgment of the people who have the greatest incentive to correct their biases and get the outcome right: the consumers. Choices may not reveal preferences perfectly, but they’re the best sign we’ve got.

Davies makes a third point, but this post is already way too long, so I’ll respond to that point in a later post.


Wednesday, June 30, 2004

Terrorist Jokes

I’ve heard very few terrorist jokes since 9/11. I don’t mean that comics and humorists are unwilling to joke about the terrorism; the national funny-bone moratorium ended a couple of months after 9/11, and there’s been plenty of good humor about terrorism since. What I mean is that I’ve heard very few terrorist joke jokes, in the sense of funny stories with punchlines that get passed around mostly by word of mouth, like blonde jokes or lawyer jokes.

But I did hear some terrorist jokes in the late 1970s, during the first wave of Islamic terrorism. I can only remember two of them now. Both of them involved “Aggie terrorists” – you see, I grew up in Texas, and Aggies (Texas A&M students) are the butt of all jokes in Texas. In other parts of the country, it was probably Pollacks, morons, or some other group. What was the first group you heard it took five of to screw in a lightbulb, one to hold the bulb and four to turn the ladder? For me, it was Aggies.

Anyway, here they are. I’m replacing Aggies with morons to achieve more universal appeal:

Q: Did you hear about the moron terrorist who tried to blow up a bus?
A: He burned his lips on the exhaust pipe.

Q: Did you hear about the moron hijacker?
A: Yeah, he tried to hijack a train to Cuba.
Ah, the good old days, when hijackers actually wanted to go somewhere instead of destroy something. It’s almost quaint.


Fetal Voters, Redux

This post by Amy and these two by Eugene caused me to go back and read more carefully the article that claimed legal abortion may have cost Democrats elections by shrinking their numbers. I commented on the article here, after skimming it and finding the argument superficially plausible. (In my defense, I did say that I hadn’t checked the numerical analysis carefully!) It turns out, on closer inspection, that there are a number of flaws.

First, a lot of the figures about who has had abortions come from survey data, which is notoriously unreliable on questions about personal and potentially embarrassing matters.

Second, the question asked (“As far as you know, has anyone close to you had an abortion?”) doesn’t capture the relevant information even if answered truthfully. In order for the answers to tell us anything about how many Democrats and Republicans are having abortions, we’d have to know people’s propensity to feel “close” to someone of the opposite party.

Third, although it’s certainly true that people tend to “inherit” their political views from their parents, it’s not a 100% correlation. But the author implicitly treats all unborn children of Democrats as guaranteed Democrats, and all unborn children of Republicans as guaranteed Republicans. Taking into account the fact some children do not adopt their parents’ politics would shrink the size of the claimed effect (though not eliminate it).

Fourth, although the author claims to have taken the relatively low voting rates of 18-24 year olds into account, I don’t think he has. Working backward from his numbers, I figure he must have assumed a 47% voting rate for that age group, whereas the actual number (according to this site) is only about 42%. Again, that would tend to shrink the size of the effect (though not eliminate it). The author might respond, however, that it only delays the effect, since eventually the “missing voters” would reach the age ranges with higher voter turnout.

I still think the author’s argument has prima facie plausibility, because the crucial premises (that Democrats have abortions at higher frequency than do Republicans, and that children have a tendency to adopt their parents’ politics) are believable and, if true, lead in fairly straightforward fashion to the conclusion that legal abortion should reduce the number of future Democrats more than the number of future Republicans. But it would take much better statistical analysis to prove that conclusion with any degree of certainty.

Also, I stand by the final point made in my previous post: the phenomenon, if real, does not indict Democrats any more than Republicans. If Democrats diminish their electoral chances by supporting abortion, it follows that Republicans diminish their electoral chances by opposing it.

UPDATE: Alex Tabarrok points out that various factors may offset the alleged reduction in births due to abortion. First, the availability of abortion may just change the timing of births. Second, the abortion option probably increases the frequency of sex and decreases the use of birth control. Both factors would, again, tend to shrink the size of the "missing voter" effect. Alex suggests that, in theory, the effect could even go in the opposite direction.


Tuesday, June 29, 2004

Sex Discrimination

Justice Breyer’s dissent in the COPA case cites, once again, the famous Miller test for whether expression is “obscene” and thus unprotected by the Constitution. Material is considered obscene if:

”(a) … ‘the average person, applying contemporary community standards’ would find that the work, taken as a whole, appeals to the prurient interest…;
(b) … the work depicts or describes, in a patently offensive way, sexual conduct specifically defined by the applicable state law; and
(c) … the work, taken as a whole, lacks serious literary, artistic, political, or scientific value.” Miller v. California, 413 U.S. 15, 24 (1973)
Isn’t it high time the Court finally dumped the Miller test altogether, instead of quibbling over the boundaries of its application? In her concurring opinion, Justice O’Connor nicely knocks down, or at least bends, prongs (a) and (b). She draws attention to the tyranny of applying local community standards to a global medium, and to the inevitable ambiguity of the term “offensive.” But what I’d most like to see ditched is (c), the notion that protected speech should have “literary, artistic, political, or scientific value” – as though literature, art, politics, and science were the only valuable aspects of human life. Why not sexual value? Is not sex one of the most significant, and most sought after, components of the good life, at least for a huge chunk of humanity? “Religious value” is also missing from the list; but fortunately, religion gets separate First Amendment billing, while sex does not.


Turnabout Is Fair Play

David Sedaris cracks me up (registration required):

At the close of his reading to promote his latest book, the bestselling “Dress Your Family in Corduroy and Denim,” [David Sedaris] informed the sold-out crowd of 1,800 at UCLA’s Royce Hall that he would offer priority signing – for smokers.

A pack of cigarettes would usher the bearer to the front of the line, which, if it was anything like it’s been around the country, could be at least a four-to-five-hour wait. “You nonsmokers are going to live longer than us anyway,” he explained.

A wave of dubious chuckles rose from the crowd. The laughter gathered steam as Sedaris, installed behind an imposing podium, continued to lay down the rules: “And for those of you smokers who will think about giving your packs to the nonsmokers, I think you should ask yourself: ‘Would he let me smoke in his home?’ The answer is no.”


Monday, June 28, 2004

Brazen Plug for Firefly Movie

Firefly fans, you're in luck: Serenity: The Official Movie Website is now operational.

Full disclosure: The link there is a referral link, through another website, that will earn me points that I can use to get cool Firefly stuff. If you wish to deny me that, you can click through directly here. On the other hand, if you want to help me out, click on these links as well: and (Ask me for an invitation to join the Browncoats -- that'll get me points, too.)

Seriously, Firefly was an amazing TV show that Fox treated shabbily and then canceled before it had a chance. Go buy or rent the DVD of the first (and only) season.


Fetal Voters

First it turns out that legal abortion fights crime by reducing the number of future criminals.

Then it turns out that legal abortion reduces abortion (no, that’s not a typo) by reducing the number of future aborters.

And now it may turn out that legal abortion changes electoral outcomes by reducing the number of future Democrats.

This last is an article by a conservative (originally published in the American Spectator), so naturally the spin is that the Democrats are wrong on the abortion issue and paying for it at the ballot box. I don’t think the Democrats are wrong on abortion, but I think the numerical analysis makes a lot of sense (though I haven’t checked it carefully). If it seems like Democrats are making a strategic error by supporting abortion, notice that the very same argument shows a mirror-image error in Republican strategy. If the Republicans ever succeeded in banning abortion, they would be contributing to the ranks of the Democratic party.

UPDATE: Read my more careful analysis and partial recantation here.


Oil Dependency

Regarding my post on the Volokh Conspiracy about oil dependency, a reader emailed me the following question:

I was confused by the following excerpt from your guest blog at

"Suppose that our goal is to deprive Saudi Arabia and other terrorist-breeding states of oil profits. The proposed policy would decrease the total profits of the oil industry (because of the lower price), but Middle Eastern countries would sell a larger share of it. Put simply, the Middle East would get a larger slice of a smaller pie, with an ambiguous overall effect on profits (at least based on theory alone - better information could possibly allow a more precise prediction). Remember that the next time someone tells you that driving an SUV helps fund the terrorists."

Ok, so I'm almost certainly wrong here given that you are an economist and I haven't taken an economics course in four years, but this doesn't make sense to me. I'm confused by your claim that the effects of decreased demand on Middle Eastern profits would be "ambiguous." If the price were to fall, wouldn't each individual producer be willing to produce less at that given price? Consequently wouldn't every individual producer in the Middle East be producing less at a lower price? Wouldn't this imply lower profits?
A good point, and I can see how my reader was confused. I believe I overstated my case. My essential point was this: that if the price of oil fell, the Middle Eastern producers would be responsible for a larger share of the remaining production, and they would get a larger share of the remaining profits. In that sense, we would be more “beholden” to them than we were before. That doesn’t mean, however, that their profits would actually be larger than before. It just means that the Middle Eastern producers’ profits would fall by less than would the profits of other oil producers.

The reader continues:
The first answer that pops into my mind is that your reasoning has something to do with the increased market power OPEC might have. I'm still a little confused about how this could work to increase profits given a lower oil price.
I was indeed thinking about the increased market power of OPEC. As other producers left the market, OPEC members would have a larger share of the market and thus a greater ability to affect prices. Now, if OPEC held prices too high, then the competing producers would re-enter the market, which means there would still be a natural limit to OPEC’s power. But it could take a long time for alternative producers to reemerge, and in the meantime OPEC could reap short-term profits. Also, knowing that OPEC could let the price drop back down to bankruptcy levels (for the higher-cost producers) as soon as enough of them returned to the market would be a disincentive for them to do so. Higher-cost producers are unlikely to incur the start-up costs unless they think high prices are likely to persist.

Thus, OPEC’s ability to manipulate prices would increase if demand fell, but that would not necessarily translate into reliably higher profits.