Income-based pricing is a bad idea

I learned, via GS, that some Berkeley researchers have proposed [pdf] that  customers should pay for electricity based on their income.

Thus, I would pay half of what you would pay if I made half the income you did.

This is a terrible idea, IMO, but I can see how we got here, which I explain in two phases: charges related to costs (points 1-3) and charging rich people more (points 4-7):

  1. Utilities have fixed and variable costs and they recover those costs by charging customers fixed and variable prices.
  2. Utilities that are trying to green themselves and/or accomplish social goals need to make additional capital investments (transitional costs) that need to be financed by today’s customers on behalf of tomorrow’s citizens — some of which are customers but most of whom are stakeholders.
  3. In a “neutral” scenario, costs and prices are matched, i.e., fixed charges (via prices to customers) cover fixed costs. In a “conservation” scenario, variable charges are raised above variable costs and fixed charges lowered below fixed costs, to encourage people to use less electricity or water or whatever. One side effect of this scenario is that those who use more pay more. Another is financial instability (a change in use results in different changes in costs and revenues). I discuss these issues in my paper on pricing water.
  4. Payment for utility services, like payment for ice cream or gasoline or a mobile phone, are meant to reflect the seller’s costs and the buyer’s willingness to pay (demand for that good) — not their ability to pay (income available for all goods).
  5. But lots of utilities are regulated to achieve social goals that have nothing to do with normal pricing. That’s why there are sometimes “social tariffs” (=cheaper prices) for poorer people, which requires subsidies of some sort.
  6. Social tariffs doesn’t work very well in practice (see pp 131-133 of my paper), since it requires a lot of extra information, doesn’t match reality (people lie; bureaucrats mess up), and distorts behavior and choices. It’s better to help poor people by giving them money and leave prices alone. If there’s a need to bring more money into the system, then change the mix of tariffs, taxes and transfers that pay for costs, i.e., “neutral prices” to cover operating utility costs (tariffs) and transfers from the state government to cover transitional costs. Those transfers can come out of state income tax revenues that already exist, are easier to change, put the burden on people with more income, and do not distort prices/decisions.
  7. Utilities should not charge income taxes, and neither should any business or branch of government providing goods and services. Keep willingness to pay separate from ability to pay. (There’s a legitimate problem risk of a slippery slope here, i.e., setting prices for goods and services based on income, which is a total information nightmare even before considering that richer people will leave to a place with “fair” pricing.)

My one-handed conclusion is that the Berkeley researchers are excluding state income taxes because they need a local solution, but this one (a) has terrible optics, (b) won’t work very well, and (c) dodges the big question of how much extra the rich will need to pay to subsidize the poor in a sustainability transition.

NB: Criterion (c) also applies to the global fossil fuel transition, which is not going well. Only a fraction of the $trillions per year that are needed is getting paid.

Interesting stuff

  1. Read: The Great [climate chaos] Disruption Has Begun
  2. Read: Libya’s floods (and 10,000+ deaths) are the result of bad governance — and those “bad results” are going to multiply as climate chaos strains infrastructure designed before the Anthropocene.
  3. Read: Americans — mostly Rs — are abandoning the Constitution.
  4. Listen: Perfectionism (against yourself, due to social pressure or against others) is ruining our lives…
  5. Read Scream, Crash, Boom (2005), which seems a reasonable series for humanity to go through. Scream has been happening since the 1940s, Crash is now strengthening and will last for 200+ years. Boom is started in some places (lithium mining), but it’s going to be buried until Crash hits bottom (90% depopulation?). Life may be good… for the survivors.
  6. Read: American’s driving their kids to school is bad in so many ways. Related: Roads (and the cars on them) are an ecological disaster.
  7. Listen: We need to switch to metrics for safety and convenience.
  8. Read: We need more two-parent households. That means jobs for men and rights for women.
  9. Read: Separate but NOT equal: US states underfunded Black colleges (vs White colleges) by $billions.

Review: Salt Sugar Fat

This 2013 book by Pulitzer prize winning author Michael Moss got a lot of attention when it came out — and it deserves it.

(Don’t confuse it with the 2017 cookbook Salt Fat Acid Heat, which I also recommend!)

The subject is (ultra) processed food (the book’s subtitle is “how the food giants hooked us”), which are formulated with salt, sugar and fat as ingredients that make the food more attractive to consumers. These ingredients also help with baking, storage and product quality, but the main goal is more sales.

The book is long and detailed and horrifying, in the sense with which competitive food manufacturers (think Kraft, Kelloggs, Nestle, General Foods, and the rest) have fought for “mouth share” and lower costs, with each success putting more people closer to death.

Although I can hardly claim to have grown up with non-processed foods in the 1970s, I can easily say that these foods have gotten more and more dangerous for our health with each decade. (This book made me swear off “grocery-store cookies” — I was already off candy, soda and most prepared meals — as a risk to my daily well-being and long-term health.)

Perhaps none of these observations surprise you, and perhaps you also cook all of your meals, but the vast majority of Americans — as well as an increasing share of humans rich enough to “pay for convenience and taste” are not, and these people are suffering rom obesity, hypertension, diabetes, and other “rich world” diseases. Note that they are not suffering or dying from being rich — they are dying from a food-industrial complex that has — with help from the US Department of Agriculture — flooded the market with worse foods, in larger quantities, than was the case in the 1950s.

What changed?

Women’s liberation has brought great good to the world, but it was also used as an excuse to make “food” that was more convenient than healthy.

Why didn’t these busy career moms just read the label? The USDA and food manufacturers did everything they could to hide ingredients (using many names for sugar), portions (a “single serving” of 3 chips out of a bag), and implications (scientists questioning health consequences for a fee).

So this is NOT the consumers’ fault, and it is definitely a case of market failure working together with government failure.

Not-so-fun facts:

  1. Big Food invented Betty Crocker and sponsored “baking with Fritos” type contests to push their products while killing the “cooking from scratch” skills that home economics teachers used to give.
  2. Almost every product has gotten less healthy over time — sugar added to cornflakes, soda that got supersized, adding fat inside of goods (think dry croissant with the same fat) to get us to eat more, etc.
  3. Lots of unhealthy foods (hotdogs, bologna) expanded sales by repackaging (Lunchables)
  4. Some candy bars are healthier than breakfast cereals (!)
  5. The soda industry spends $700 million a year on advertising soda; Americans spend more than $90 billion a year on treating obesity.
  6. Yes, they advertised to kids — all the time — but “heavy users” are the most profitable. So the fat and unhealthy get fatter and unhealthier.
  7. Yes, there are direct parallels between these foods and cigarettes and drugs. It’s not just “cast doubt on the research strategies,” but also physical addiction (it only takes a few weeks to wean yourself off excess sugar and salt). These parallels not accidental: Phillip Morris owns General Foods and Kraft.
  8. The industry routinely switches from one substance that people are trying to avoid to another that might be just as unhealthy — or worse, e.g., loading more sugar into “low fat” cookies.
  9. Cargill is a huge food processor, selling 30 types of salt, for example. They also bought a company that puts a band on your stomach — so they are making money from making a problem, then “fixing” it.
  10. We hit a limit with sugar and salt but not with fat.
  11. Most of the experts and executives that Moss interviewed for the book do not eat the foods they have investigated or that their companies sell.
  12. Kraft cheese used to be made from cow milk; now it’s mostly chemicals and “natural cheeze flavor” 🙁
  13. The beef industry — coordinated by the USDA — spends $2 billion per year selling America on more beef. The USDA’s nutrition center spends $6.5 million per year trying to get Americans to eat healthier. That’s a 500-to-1 edge for bad choices — and I’m not even counting advertising for sugar and salt.
  14. The USDA spent $111 million on “pink slime” beef (a highly processed product taken from the parts of a cow that nobody ever ate) to be served at public school lunches. The slimy beef was 1.5 cents/pound cheaper, so the government saved $1.4 million while dumping industry slop on kids’ plates.
  15. Offering a “healthy alternative” next to the traditional product increases sales of the latter (!), since people buy a bit of the healthy, then reward themselves by doubling down on the crap.
  16. The industry has pushed — and succeeded — at getting people to eat and drink everywhere, all the time. “Don’t spoil your appetite” has turned into “see you at the morgue” (42 percent of Americans are obese).
  17. Potatoes have natural sugars that are “highlighted” by frying, which is why people over-eat potato chips.
  18. Big issue: The newest weight loss drugs do seem to reduce appetite and help with weight loss, but they cost about $10,000 per year. The food industry will surely try to make its offer more attractive, to maintain sales, which will unhelpful for the people on those drugs but catastrophic for the people who are not on them!

What should “we” do to address the slow suicide on our plates? More information does not help. Taxes on sugar, salt and fat can be useful. But the only real solution is industry-wide regulation to ban or limit substances, so that manufacturers are not tempted to add more sugar and take sales from rivals. Will Fox news (with help from sponsors) decry the “nanny state”? Yes — but a nanny who keeps you alive is better than the baby-sitter who kills you while you sleep.

I give this book FIVE STARS. Anyone interested in what they eat, misbehaving big business and government corruption should read this.

Here are all my reviews.

Interesting stuff

  1. Read: The China model is dead has been murdered by Xi, who’s prioritization of CPC control and loyalty has crushed China’s “animal spirits”
  2. Listen to Malcom Gladwell’s fascinating dive into the mythology of the “Wild West” and how that distorts US gun policy.
  3. Think: I read awhile ago that “humans and food for humans” takes up 97% of the Earth’s biomass, with the rest being “wild.” Those figures are kinda right. If you look at the data, then “humans and food for humans” compose 95% of the “land creatures” with the other 5% being wild animals and birds. But the share of “humans and food for humans” drops from 95% to 5% if you include fish, mollusks, worms, spiders, etc. But, I am not going to “relax” about human impact because (a) our 95% share of “land creatures” was much lower (say 50%) 100 years ago, when populations and meat eating and land clearance were all lower, and (b) we are impacting the worms, fish etc. in the Anthropocene, in ways that may will eliminate many species.
  4. Watch some pretty impressive boat woodworking.
  5. Watch and learn how Silicon Valley developed as a tech cluster in the years before it was even called that (after 1970).
  6. Read: Crypto-bros pivoted to AI, and now they are struggling to monetise novelty that may not be delivering value.
  7. Think: A fascinating paper on “The Ecological Origins of Economic and Political Systems” [pdf]
  8. Read: Cities fall apart when they lose their local elites, but those local elites are not always good for progress.
  9. Listen: The [American] football players’ union asked what was wrong “at work” and the answers are scaring (billionaire) owners into improving conditions!

Review: Analyzing Politics: Rationality, Behavior and Institutions

My colleague lent me this book to read as a means of understanding one of our courses: “Decision Making Processes”. (The 1997 first edition is by Shepsle and Bonchek — who was a PhD candidate — but the 2010 second edition is only by Shepsle, who is the main author.)

Since I was trying to orient my understanding(s) to the book rather than read in detail or learn new concepts, I skimmed sometimes and skipped Part IV (political institutions), so my “review” is more like a set of reactions.

I think this book is really useful as a primer on political economy, i.e., the ways in which power and wealth are re-distributed. The book does this by building on “rational man,” to look into group choice (voting), cooperation and collective action (participating), and institutions (rules that oblige, restrict or permit).

Shepsle’s definition of “politics” is broad, as it should be (p 13):

For the purposes of our discussion, I will take politics to be utterly indistinguishable from the phenomena of group life generally. It consists of individuals interacting, maneuvering, dissembling, strategizing, cooperating, and much else besides, as they pursue whatever it is they pursue in group life.

We are all embedded in many groups in which such “small-p politics” are important — just as we are embedded in many “commons” — and most of those commons are governed (top down but more importantly peer-to-peer) by these politics.

This book is very strong at characterizing situations and explaining strategies that may (not) work in them. Special interest groups, for example, may be easier to defeat if they can be isolated (or isolate themselves)  into small groups that do not join together to oppose the majority. This strategy can work with an indirect reform. A tax on carbon imports, for example, will raise opposition from foreign oil firms but not domestic oil firms. With the subsequent fall in competition, and thus higher prices, the goal (lower carbon consumption) will be met, even as domestic firms get bigger profits, which can be taxed as such.

I’ve been a fan of zero-based budgeting for decades, but I do agree that there’s a weakness if agencies get to propose entirely new budgets every year and legislators do not bother to question every line item. Inertia is more efficient in such cases of asymmetric information (and effort).

What is public interest? Who gets to identify it? This summary (p 193) is worth a read

Group decision making may depend upon individual preferences and may reflect individual preferences, but it depends upon and reflects much more besides. First, as I have mentioned throughout these chapters, individual preferences do not announce themselves. They are not transparent or self-evident. Rather, they depend upon the disposition of each individual to reveal preferences sincerely or strategically. Second, even if the disposition to report preferences honestly or not were of no consequence, the fact remains that there are many procedures by which to reveal preferences and combine them into social outcomes — procedures that produce profoundly different social outcomes.
To these considerations I must add one more: Collectivities are unlike individuals in the sense that their “preferences” rarely add up in a coherent fashion. For nearly any method of group decision making that we would find minimally acceptable on grounds of fairness, the group outcome often violates the central notion of coherence (transitivity). In important ways, the actual outcome of group choice is arbitrary. So much depends upon the frictions of institutional minutiae — the order of voting, who gets to make motions, and who gets to decide when enough motions have been made.
We might even become dubious about the idea of a public interest. A public has no identifiable interest if its preferences are either incoherent or overly idiosyncratic. [snip] We must understand, when we judge a political outcome, that it is often the result of split- second coordination by some temporary majority that exhibited coherence for a nanosecond before “morphing” into some new political entity – hardly a firm foundation on which to build a philosophy of public interest.

Small groups struggle with cooperation; large groups struggle with collective action. Where is the line between small and large? It’s defined by the Dunbar number (around 140 people), which means that cooperation can emerge when people “know each other,” but not when the group gets too big. In those cases of collective action, other incentives and institutions are required.

Political entrepreneurs can help overcome collective action problems (e.g., everyone free rides). They are needed if smaller groups want to grow in numbers and influence. One way to motivate people in these groups is to favor “experiential behavior” (a consumption activity) over “instrumental behavior” (an investment activity), since consumption (e.g., going to a political rally) provides a direct benefit that investment (e.g., what’s the chance my attendance will make a difference in the polls?) cannot. Thus, we have a social or psychological answer to the paradox of voting.

I strongly recommend this book to any one interested in (academic) social sciences as well as (reality) political dynamics. A good complement would be Buchanan and Tullock’s Calculus of Consent. FIVE STARS.

Here are all my reviews.

Interesting stuff

  1. I dearly hope that the Spanish football association stops with the chauvinism (=the male director kissing sexually assaulting a female player at the women’s World Cup awards ceremony). Listen in.
  2. Listen/read (and think) about “Covid revisionism” (Yes, it was worse than you remember.)
  3. Read: US states are preventing insurers from pricing climate risk, so they are leaving those states. Good for reality, bad for people underestimating their risks.
  4. Watch: Is your data worth anything? Maybe not, but it’s being harvested. Should we make everyone’s data public? Is there a role for privacy?
  5. Read: America Is Using Up Its Groundwater Like There’s No Tomorrow. My thoughts: (a) This is a long-running trend (50+ years), (b) it’s nice that the NYT did the work that the government failed to do (!), and (c) cut off the farmers before we lose the cities.
  6. Listen: Key Lessons From The “Chicago Boys” Chile Experiment (best discussion I’ve ever heard). Also really good is this article on the 1973 coup.
  7. Watch this for some tips on writing, especially “inspiration”
  8. Watch and chin up: “You will never do anything remarkable… except live”
  9. Read: YouTube appears to have altered its algorithm, to stop the “radical rabbit hole” issue. Now people need to stop searching for ways to “destroy their enemies”
  10. Read: Burning Man’s community is getting torn apart by the anti-billionaire techlash, sustainability protests, “unhelpful weather,” and attendees who decide to run instead of practice “radical self-reliance and inclusion.”

H/T to DL

Review: A Civil Action

I grabbed this 1995 book by Jonathan Harr because it was about a lawsuit over water pollution in Massachusetts.

It was a bit of a slog, in terms of reading, but nothing like the slog that the plantiffs’ lawyers went through to bring their case in the early 1980s.

Harr was “lucky” to get interested in the case in its early stages, which meant that he was literally the “fly on the wall” for much of the story’s development.

The case revolves around trichloroethylene (TCE) contamination of groundwater, which is — the lawyers claim — linked to a cluster of fatal cases of leukaemia.

Most of the book is about the (intentionally) drawn-out legal battle between prosecuting lawyers for the victims (working on contingency) and defence lawyers for the large corporations (billing by the hour).

And it’s painful to read about all the manoeuvres of the defence (many legal, most unethical) as they try to obfuscate, delay and deny the guilt of their clients — guilt that was proven and admitted under a subsequent EPA investigation.

“Real life” can be very messy, and Harr does an excellent job at tracking the many details and emotions of the many participants in the case.

As an economist, I see this book as a rebuttal of the ease with which we call out “externalities” and advocate for “polluter pays” policies when those polluters have plenty of money, lawyers and sympathetic legal and political systems. Justice is just not that easy, which is why it’s so often absent.

I give this book FIVE STARS for boiling down such a complex case.

Addendum (5 Sep): Just another story about a company trying to dodge responsibility for polluting groundwater  (with PFAS).

Here are all my reviews.

Interesting stuff

  1. Read: “At worst, recycling bots could give companies an opportunity to greenwash their reputation. Advances in AI could allow brands to claim their materials are theoretically recyclable, when in practice they aren’t—and when what’s really needed is more money in the system.” Me: Recycling costs money, especially when firms have no incentive to reduce their packaging or make it easier to recycle it.
  2. Think: Some species are changing their behavior (e.g., resting in shade) in response to CC-induced heat, which means they are not evolving. When they run out of shade, there will not be enough time to evolve, so they will go extinct. The same is true for humans: Turn off the A/C and we die of heat stress.
  3. Read: China’s “global” infrastructure investment bank is beholden to the CCP, not development experts. Just another example of China parroting Western institutions (and purposeful neutrality) in favor of party control.
  4. Read: So the UK is poorer than Mississippi and — what’s worse — moving the wrong direction. How the tables turn…
  5. People who say “do your own research” are the least likely to do theirs. Listen in.
  6. Read why “you’re not going to make it” as a lone prepper. Invest in your community, for the least painful road to death.
  7. Watch How The Tokyo Metro Is Deep Cleaned (every metro, tram and rail service in the world should be this good!)
  8. Psych! “Whatever society’s priorities are, whether it’s friendship or romantic love or pride in self-accomplishment, marketers will try to attach products to those feelings. The push to remind women that they can buy diamonds on their own, for themselves or for other women in their life, is just the latest strategy from an industry that has long tried to convince the public that its product is more valuable than it really is. So buy your friend a diamond if you want. But the friendship is the rare and beautiful thing, not the diamond.”
  9. Think (ecosystem collapse): “The sudden demise of Indian vultures killed thousands of people
  10. Read: All those “feedback requests” are really just data panhandling.

H/T to PB

Is your major queer friendly?

Towards the end of the last school year, a student at a borrel for our Major (Governance, economics and development) said that some students did not want to major in GED because they did not think it was queer friendly.

This statement made me step back a bit, as I’d never thought of it.

But now that I do, I have no idea where the concern is.

First, development means freedom and flourishing, which benefits the LGBTQ+ communities, as well as the poor, the young and old, and various other minorities. Governance, likewise, is about protecting rights and rule of law, not majoritarian domination by violence.

Second, majors are not queer-friendly or not. People are. So you might run into bigots in the humanities as well as in the hard sciences. Sure, some disciplines spend a lot more time on queer history or gender-ethics, but those disciplines are not always going to be “friendly” to queers, since our job is to analyze and understand — not to pander.

Third, academics can get pretty obscure in their studies and concerns, to the point where their echo-chambers (e.g., economists focussing on GDP) are not just separated from reality, but counterproductive (e.g., to sustainability). The difference between these fetishes and the real world can be extreme — in good and bad ways — so students should be wary of “understanding life” while sheltered in an academic setting.

My one-handed conclusion is that all humans can benefit from the entire range of academic disciplines. And all disciplines can benefit from a diverse set of practitioners bringing their perspectives, experiences and resources into a shared effort to understand our world and our societies. Vive la difference!*

*Just in case some people do not get the joke — Vive la difference is most typically used by self-proclaimed chivalrous men when praising women  — doffs fedora. Simone de Bouvoir had something to say about that. I am using it here as a pun but also to reclaim “difference” to humanity.

Review: The Wisdom of Our Hands

I picked up this book (subtitled “Crafting, a Life”) as a follow-on to Shop Class as Soulcraft, which I loved.

Doug Stowe is a wood-worker (shop class is about motorcycles), craftsman and teacher, and I — as an amateur wood worker — was happy to learn some lessons on wood, but also craft and life.

I made some notes while reading:

  • Your hands and brain cooperate when working (or speaking, if you’re Italian :), so lean into that fact.
  • Humility is a necessary when doing crafts — and living life. With humility, you can learn and you will want to meet strangers, to get their help.
  • If you always make “the same thing” different, then you let yourself develop and evolve. That’s true for Stowe’s wooden boxes, but also for telling stories, making bread, or riding a bike.
  • Be patient and plan ahead with solid (vs manufactured) woods.
  • Don’t compete with machined perfection; highlight wood’s imperfections.
  • Here’s an interesting article on Handmade landscapes in China.
  • “Nature deficit disorder” strikes those who stay in artificial environments.
  • Every tool takes time to learn; mastery means it’s an extension of your hand.
  • Tacit knowledge is, by definition, impossible to “pass on” — it’s only gained by first-hand experience.*
  • Materials and tools are easy to get; technique takes time and effort.
  • Craftspeople can work in two modes: certainty or risk. Risk is when you try anything new; certainty comes from repetition.
  • Attention over haste, lest you “hurry up so there’s time to fix mistakes.”
  • As you gain experience, you learn which steps can be dropped on the way to the same results. I always like the idea that lazy people are clever workers, as they are always looking for shortcuts. This method can backfire of course 🙂
  • “See one, do one, teach one.”
  • Kenntnis (German) means learning by doing (first hand).
  • People are more satisfied with rewards earned through work. Rats too.
  • Academics probably underestimate the value of learning with your hands, which means that they may not be helping students learn very well.
  • Here’s an article [pdf] that Stowe wrote for teachers
  • As products/services get more “user friendly,” they are harder to learn or understand, which can leave users helpless. (Compare a paper map to a digital guide.)
  • All of us, young and old, benefit from having unstructured “potential spaces” that let us explore and try new things/ideas.
  • Confidence (and humility) comes with success, failure and overcoming failure. Don’t try to short-circuit that process.
  • The Swedes did not have problems with depression (seasonal affective disorder) in the centuries when they worked on crafts over the winter. Industrialization took away that “time waste” and left them with nothing to  do, which led to depression.
  • “Poverty is your greatest treasure” — an easy life corrodes your sense of worth and mission. (This is not a call for throwing people on the street, but a warning that a common goal — wealth for example — may not be that valuable.
  • A new start can lead to fast results when you’ve already practiced the wrong way of doing something 🙂
  • Mistakes? No… those are design opportunities!
  • A world of cheap, anonymous stuff is not as nice as one with crafts made by people you know.

I recommend this book to teachers and craftspeople, and wanna-be-craftspeople, since we all can use a little more wisdom and we all have the hands to make that possible! FIVE STARS.

*In my recent paper on teaching water economics, I wrote: I am using “first hand” in the sense of touching or doing something directly (e.g., irrigating a field). Second-hand learning comes from watching someone irrigate a field. One learns third hand by reading a farmer’s irrigation journal. Fourth-hand learning occurs when reading a text book author’s description of how farmers irrigate.

Here are all my reviews.