Interesting stuff

  1. China is taking more power as Trump abandons global bodies.
  2. This Belgian artist helps us re-imagine our digital privacy
  3. American crazy (QAnon) hits the Netherlands. (I’m secretly hoping that QAnon is actually Sasha Baron Cohen trolling the fuck out of idiots, but Russian agents are more likely. Sad.)
  4. Lots of Overnight Tragedies, No Overnight Miracles
  5. America’s Fatal 1618 Project (aka the new 30 Years War)
  6. White Americans can say “strange” names when it suits them. When they cannot, they merely reveal their casual racism.
  7. A Venezuelan explains the REAL value of Bitcoin
  8. The beginning of house music (“he thought the music was a little slow because he was a heroin addict, so he sped it up…)
  9. The Karen meme morphs into racist misogyny
  10. A former PR man for American health insurers blows the whistle on the industry’s conspiracy to slander Canadian healthcare
  11. Cats are far worse for birds than anything else… including wind turbines:

H/T to CD

Daylight spending more than you have

Some countries are changing their clocks this week while others will do so next week.

These changes are labeled “daylight saving” (DS) even though the number of daylight minutes stays the same. Marketing at its finest!

Indeed, there’s abundant evidence that this twice-annual ritual is useless or even harmful. As I’ve written before, it would be a triumph of global collective action to  get rid of DS and even better to move the entire planet to one time (UTC) as a means of reducing numerous problems with time zones, at a cost of losing some anachronisms (“lunch at 12 noon” as opposed to “lunch at midday”).

But let’s look into the psychology and goals of DS.

First, are you saving an hour by setting the clock forward in the Spring and then spending that hour when you set it back in the Fall, OR are you borrowing an hour in the Fall and repaying it in the Spring? In either case, there’s zero interest paid or received in this +1 – 1 = 0 or -1 + 1 = 0 calculation. So that’s why the concept is a lie.

Second (and related), you can be sure that people are happier getting an extra hour of sleep or rest when the clock is set back (as it was just now in The Netherlands) than they are losing an hour when the clock is set forward. The psychology of loss aversion (mentioned in my recent post on Marshall’s Principles of Economics) explains this while also inspiring my new, improved DS:

Daylight Savings 2.0: Advance the clocks one hour per month, every month!

DS 2.0, thanks to government genius, will constantly leave everyone better off by adding an hour of rest or leisure not just once per year (and then taking it back!) by every month of the year!

DS 2.0 is like deficit spending, i.e., governments always spending more than they collect. Citizens love extra money so why not give then extra time!

And, yes, there might be quibbles over constantly changing clocks, but we have lots of “smart” technology these days to keep the time moving. Even more important, this ritual on the first weekend of every month would cause less confusion than the current irregular schedule just as it made everyone constantly aware of how time depends on where you are in geography as well as the calendar.

Maybe you think DS 2.0 is silly but so is DS, and both are based on faulty psychology more than efficiency or convenience.*

My one-handed conclusion is more free time is better!

* If you want that, then yeah: UTC everywhere.

Marginal costs in relation to values. General principles, continued

Book 5, Chapter 9

§1. The relative contributions of various inputs to intermediate and then final goods is hard to calculate. Thus, “unbalanced” taxes on various inputs might unbalance their mix and flow. Local taxes will fall on immobile inputs if mobile inputs can flee. Taxes on capital goods will not affect the marginal price of goods until those goods must be replaced. That step will be delayed in proportion to the tax, delaying implementation of innovations.

§§2-3. The price of an input depends on how easily it can be produced as well as the price of substitute and complementary inputs. If the input is hard to replace or displace, then it will attract a “critical” (higher) price, i.e., rents. If the opposite, then its price will be supported by the prices of replacement or substitute inputs. Those prices — given their total depreciation into final goods — will reflect the cost of financing the delay between production and sale.

§4. The relative contributions of inputs will reflect a mix of their separable (“additive, in a mechanical fashion”) and commingled (“multiplicative, as if by chemical transformation”) contributions.

§5. An input of superior quality will attract lower rents when other, inferior inputs are available as substitutes. In Marshall’s time, some claimed that the existence of inferior goods increased rents to superior goods (perhaps by highlighting the gap?), whereas today we’d say their existence reduced prices (or rents) via competition. Marshall was right, there.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics away from institutional induction and towards mathematical deduction.

Interesting stuff

  1. A great PSA for “clean water in a packet”
  2. The roots of “wokefulness” in academia
  3. Some Russian academics published an article [paywall] proposing to use crypto-currencies as an “academic payment system”, much like the system Jens and I proposed 10 years ago. I hope they succeed!
  4. Why are cities so expensive? (hint: safety regulations)
  5. Three Leiden professors on the Trump-Biden debate (and US politics)
  6. From fascist to communist to green pigs
  7. What is philosophy?
  8. John Snow used maps to identify the source of the 1854 cholera outbreak
  9. Emily Oster is helping families raise their kids and parents understand Covid school risks, but she’s “not publishing enough” academic research. A good example of wrong incentives in the academic world.
  10. The best forecasts quantify potential risks without limiting “interesting” possible scenarios

Marginal costs in relation to values. General principles

Book 5, Chapter 8

§1. “And again this demand [for an input], because it is so derived, is largely dependent on the supply of other things which will work with them in making those commodities [final goods]. And again the supply of anything available for use in making any commodity is apt to be greatly influenced by the demand for that thing derived from its uses in making other commodities: and so on. These inter-relations can be and must be ignored in rapid and popular discussions on the business affairs of the world. But no study that makes any claim to thoroughness can escape from a close investigation of them. This requires many things to be borne in mind at the same time: and for that reason economics can never become a simple science” [p 334 emphasis added].

§2. The demand (=price) of inputs that can be substituted for each other (e.g., steam vs horse-power) will depend on relative efficiencies, with exceptions for laws, custom and other frictions. A horse that produces 10% of a machine’s output will attract offers equal to 10% of that machine’s price.

§3. Businessmen are always experimenting with the mix of inputs required to get a desired output. Although accounting for marginal and capital costs (and depreciation) is not easy, prices and costs will, over time, tend to reflect each input’s value added.

§4. The balance among inputs of capital, labor and materials will tend to equate, at the margin, with their marginal products (i.e., ratios of values to costs). An over-application of any input is wasteful due to decreasing marginal returns (on that input) and opportunity costs (not using other inputs).

In a long footnote, Marshall argues against those who see any given input as “essential” in that a small reduction in its use (e.g., a worker who labors one hour less) will have dramatic effects on the productivity of other inputs.  While this might be true in the short run, Marshall argues that changes here  can be balanced by (continuous) adjustments elsewhere. This appeal to continuity underpins the use of calculus (finding minima and maxima by taking derivatives of functions), which makes sense in many circumstances. I disagree with the continuity assumption when it comes to constraints (an 8 hour shift) or innovations (the shift is eliminated). I assume Marshall would have agreed but modern (=mathy) economists may have forgotten those important caveats and exceptions.

§5. The decision to add/subtract inputs is made “at the margin” in terms of weighing additional profits (or value) vs costs. That calculation takes existing levels of inputs as given, which also means that removing a unit at the margin has a far smaller effect than removing an “inframarginal” unit. In this way, we can see how it might be ok to, say, skip another hour of sanding down a chair while it might be a bad idea to skip an hour of adding legs to that chair. Order matters.

§6. The rents (or interest) returned to “free floating” capital versus “invested” capital varies with the longevity and idiosyncrasies of investments, but they tend to converge.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics away from institutional induction and towards mathematical deduction.

Interesting stuff

  1. Audrey Tang, Taiwan’s “digital minister”, is an original thinker
  2. So Moynihan was wrong about “black families”? Listen to this.
  3. San Francisco is losing its Private Investigators
  4. Margaret Atwood sees the darkness of our times — and how to resist
  5. The economics of vending machines (a lot has changed since I ran one!)
  6. How targeted (vote! stay home!) political advertising works 
  7. Thomas Friedman looks at US politics through a foreign policy lens
  8. Gaming chairs are getting better at supporting immobility, which is bad for your circulation (and probably your soul), but also part of the “retreat from reality” I predicted for a good part of society.
  9. Anne Appelbaum on the twilight of democracy (the comments to this podcast leave me worried for America; seems that lots of people are excited to trade freedom for controls on “left-wing terrorists” [sic]. Read Jacob’s Dark Age Ahead (2005) for more.
  10. An over-caffinated guy says “don’t get into watches!” (Too late 😉

Prime and total cost in relation to joint products. Cost of marketing. Insurance against risk. Cost of reproduction

Book 5, Chapter 7

Marshall, like many of his contemporaries, used long titles. 

§1. How should one price two goods that share common elements in their costs (e.g., a machine or management time) but are sold into different markets (e.g., passengers and freight on ships). Pricing from the cost side is tricky. Pricing from the demand side (“what the market will bear”) makes more sense, but it’s ultimately linked to costs, since competing firms selling similar goods and services must also cover their costs.

§2. A manufacturer will want to allocate marketing expenses among goods in proportion to their marketing “needs” but that manufacturer may cut that allocation in the most competitive markets (e.g., for loss leaders). Manufacturers who achieve economies of scale will have falling per unit costs but rising marketing costs based on trying to differentiate similar goods (e.g., cola advertising).

§3. Insuring against risk is often wise but allocating those costs can be difficult when they rise and fall with other actions. The price of fire insurance, for example, will fall if a building is built to reduce fire risks. Are those additional building costs part of construction or insurance?

§4. Marshall points out that risk aversion (the loss of bad outcomes outweighing the gains from good outcomes) is more prevalent than risk seeking behavior (p332):

It is true that an adventurous occupation, such as gold mining, has special attractions for some people: the deterrent force of risks of loss in it is less than the attractive force of changes of great gain, even when the value of the latter estimated on the actuarial principle is much less than that of the former… But in the large majority of cases the influence of risk is in the opposite direction; a railway stock that is certain to pay four per cent. will sell for a higher price than one which is equally likely to pay one or seven per cent. or any intermediate amount.

Kahnemann and Tyversky rediscovered these principles in the 1980s.

§5. In some cases, the cost of reproducing a good will be similar to its cost of production, with both closely tracking its price, but that relation weakens if production technologies or input prices have changed, and it breaks down if demand races ahead of supply (e.g., “quinine on a fever-stricken island”).

Marshall ends the chapter with the advice that non-economic readers skip the next seven chapters (!), but I won’t. Fasten your seatbelts!

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics away from institutional induction and towards mathematical deduction.

Interesting stuff

    1. When we lose weight, where does it go? (Hint: Water!)
    2. A view on what Covid will bring, from 6 months ago
    3. Who steals “famous art”? Underworld criminals looking for swag
    4. China’s civil war isn’t over (bad news for Taiwan)
    5. The Chicago Mercantile Exchange is setting up a “futures market” for water based on California water trades. I think this is a bad idea b/c (1) there’s no “commodity water” equivalent to oil (water prices reflect unique local and regulatory considerations) and (2) there’s no easy way to store or deliver water, due to its weight and low value per unit (a barrel of oil is worth $40; a barrel of [potable tap water] water is worth about $0.16; agricultural water is worth 1% of that, or less).
    6. Equality is not as useful as equity:
    7. Interesting details on how the airline industry is “melting down”
    8. Tired of experts? Lobbyists? Activists? Check out the UK’s Citizen Assembly format and how they approached climate change
    9. How a Chinese millionaire disrupted damaged BitTorrent by trying to rip off people via his crypto-scam
    10. Health care in rich countries: The US ranks very low due to high costs and chaotic results (this is even before Covid!). The NL does well 😉

H/T to AL

Joint and composite demand and supply

Book 5, Chapter 6

§1. A consumer demanding a good from a producer thereby creates derived demand for the inputs to produce that good. In most cases, inputs are not interchangeable (100% substitutes), which means they are joint (or complementary) with other inputs, with all supplied in stable proportions. Thus, the absence of one input can halt overall production, e.g., trying to make beer without hops.

§2. A missing factor (production input) will lead to increased prices for that factor if (1) the factor cannot be replaced (no substitutes), (2) consumers cannot do without that good (thus, they will pay more rather than go without), (3) the missing input plays only a small part in the price (meaning producers able to find some of that input can pay more for it without raising the product’s final price by much), and (4) other inputs can be acquired for lower prices, leaving extra space to pay for the scarcer input. In sum, a scarcer input will still be used if it’s an essential but small part of the production process.

§3. Composite demand for an input results from the summation of demands from all producers using that input for their consumer products.

§4. A joint product produces different goods for different markets (e.g., oil can be cracked into gasoline and lubricants). If the price of one product is significantly higher than that of the other, then producers will focus on it over the other. If demand for the more valuable product collapses, then the less-valuable one will be more scarce, driving up its price.

§5. Marshall uses many figures and mathematical logic to explain joint and separate contributions to supply and demand, but I find these uninteresting. It’s important to understand complements and substitutes on the supply or demand side, but I think it’s quite difficult to work out their exact (financial or mathematical) relations, even with the best data.

§6. Those who demand or supply one input might benefit from lower (or higher) demand or supply for substitutes or complements, and they will lobby for laws and regulations to favor themselves, thereby distorting broader markets.

This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics away from institutional induction and towards mathematical deduction.

Interesting stuff

  1. Why you should install Signal and ditch WhatsApp (and probably Telegram)
  2. There is something different in the United States today, and I know that you feel it; something noxious, toxic, sick, diseased, and most of all decadent. The wealthiest nation on Earth with such iniquity, where pandemic burnt—still burns—through the population while the gameshow host emperor froths his supporters into bouts of political necromancy.”
  3. Miami Will Be Underwater Soon. Its Drinking Water Could Go First
  4. The burdens of paperwork are growing heavier 
  5. Amsterdam, the beauty.
  6. A fascinating documentary about Shenzen, shanzhai (copycat innovation) and how (some) Chinese see “IP-theft” as “open sourcing” (spin?)
  7. A fire historian explains why California’s burning is mostly about people encroaching on areas that burn naturally  [paywall]
  8. Iceland’s viking culture explains why they offer coffee & cake to visitors 🙂
  9. How Are Psychedelics and Other Party Drugs Changing Psychiatry?

H/T to CD