Mises Economics Blog
The Angry Economist
Civilian Gun Self-Defense
In The Pipeline
"What does that say to your
I received the above audio and image this morning. It was sent to my e-mail from a friend with a cell phone.
What's the picture of? It's tiny and hard to see. I think, with the aid of heavy zoom, that it's a picture of this morning's sunrise on the Oregon coast with a lighthouse in the foreground. So it's a very sweet "wish you were here" message. (awwww……) But I'm very uncertain about this, so I welcome your guesses.
I don't mean to pooh-pooh exciting technology, but this one doesn't seem quite ready for prime-time.
Somehow I posted a draft instead of final copy of this. Fixed a typo. I'll update this again when I talk to the sender and she tells me what the picture really is. And if I get any interesting guesses by e-mail, I'll post those too.
The picture is of a sunset at the beach from some (uncertain) evening during last week. The object in the foreground is just a wooden post. It wasn't supposed to be the center of attention, despite being in the center of the image. :) The original image was significantly higher quality and it's unknown why the one I got was so tiny.
Unwired Working Conditions
Economics teaches us that working conditions are "baked into" wages, that is, ceteris paribus, a job with less pleasant working conditions will pay higher wages to attract employees, and vice versa. For example, the average hourly wage of a refuse collector in California in 2001 was $16.04. This relatively high wage compensates for the undesirable working conditions.
Some improvements in working conditions increase the output of workers by more than the cost of the improvement, and are naturally implemented by businesses. To use a deliberately silly example, consider the provision of adequate light within a large office building. A proper level of light eases eyestrain, enables people to read faster, and prevents injuries from bumping into things in the dark — clearly both an improvement in working conditions and an increase in output a for very modest cost. It's a win-win situation and it is unsurprising that improvements of this sort are undertaken with enthusiasm.
Other kinds of improvements in working conditions have a cost higher than the benefit to the employer. While desirable to the employee, the employer has no incentive to implement them. To use another deliberately silly example, employees may desire spacious private offices. While such offices would make the employees happier, and might even increase their output, it would not cover the expense of providing the offices. The employer would not be eager to pursue this option.
However, this is negotiable. If the cost of providing a spacious private office is (say) $5000/yr, the employee could have that office in exchange for a $5000/yr salary reduction. They could, in effect, purchase the improvement in working conditions themselves. The reverse is also possible: an employee may be willing to work in a tiny cubicle if their salary is correspondingly greater. This is essentially the observation we started with — less desirable jobs (subsuming working conditions) command greater wages.
For a much longer discussion of related issues, primarily job safety, I highly recommend this article by Dr. Reisman.
This brings me to my primary topic, wireless network access.
Intel is a champion of, and profits from, the wireless revolution. Intel® Centrino™ Mobile Technology (sorry, Legal will hurt me if I don't call it that) is built into all, or virtually all, new laptops distributed to employees. Wireless access points are sprinkled throughout the buildings. The infrastructure for wireless network access is in place.
Yet many people with wireless-capable laptops do not have wireless access. The infrastructure was expensive to create and has ongoing costs such as maintenance of the VPN gateways, so Business IT is charging for access. The cost is modest, $10/month, paid for by the employee's department. But not every department is willing to pay.
Wireless access is definitely an improvement in working conditions, particularly in group settings such as conference rooms or auditoria. The fee structure for wireless access has the appearance of being a third option besides the win-win and employee-pays options described above. But this is an illusion. It is merely the win-win type at a finer granularity, because the employer is still the exclusive funder of the improved conditions. A department will pay for wireless access for its employees only when it believes the increase in their productivity at least offsets the cost of the wireless access. Many departments allow management discretion to fund wireless access for individual employees as well, but even this still fits the same pattern.
The system as implemented today creates a "market price" for wireless access and departments (or managers) decide whether it's worth buying. As a procapitalist radical, I find this market-like approach charming. Market prices summarize information about costs that is otherwise hidden and could lead to inefficiencies. For example, it may be wasteful to provide blanket wireless access for all employees in all locations of the company — but if it is offered "for free", no one would decline coverage. They would see only the benefit but not the cost.
My disagreement with the current system isn't that it's unseemly or ridiculous to have a market within the company, or that we should set a corporate example by practicing what we preach ("don't we believe our own marketing?"). My disagreement with this market is that it doesn't go far enough: It doesn't create a real market, one that would allow me as an individual employee to pay for wireless access out of my own pocket, if I were inclined to do so. The current system restricts this decision, and the cost involved, to department policy or the discretion of management. This means I only get wireless access if it is recognized as a "win-win" type of improvement in working conditions. It does not allow me to negotiate my working conditions as an individual and to pay for the improvement personally through a tiny effective reduction in salary.
Imagine the large-scale analogue of this. What if cellular telephone service were provided by the government on a state-by-state basis? Some people would be issued cell phones they would scarcely use, while others who would highly value them would be unable to get them. The counterpart of management discretion is politicians granting special favors to the well-connected (no pun intended). Aren't you glad we have a market in cell phones that is based on individual choice and willingness to pay?
In the end, I believe wireless access is a win-win improvement in working conditions — primarily due to poor maintenance of the wired infrastructure in conference rooms — and am embarrassed that my department does not recognize it. But embarrassment for my department turns to frustration with it when policy leaves me powerless to correct its mistakes. But it is the nature of politically-created outcomes to be less satisfying than economically-created outcomes.
The Pains of Separation
My love is gone. I must endure several days of separation, far from sight or touch. I must be patient for reunion, which I hope to be sweet and satisfying.
About six months ago, shortly after gold hit $400/oz, I celebrated by buying a heavy, investment-grade gold necklace — 3 toz, 24kt (93.31g, .9999 fine). I've worn it almost every day this year, until about a week ago when I noticed a crack on the clasp.
The clasp is unusual in that you must bend it to put on or take off the necklace. After half a year of wearing the necklace, I had bent the clasp hundreds of times, and it eventually wore out.
The goldsmith at the jewelry store, Gary, told me that no one makes a spring-based 24kt clasp. I didn't want to replace the 24kt clasp with something less pure, so I'm having it simply repaired. Unfortunately, he explained that it had to be repaired with gold solder (it can't simply be melted and made like-new) so there will be a small band of slightly-less-than-24kt gold at the repair site. I convinced myself this would be okay because it would mean adding gold, not removing any. :)
Because the chain is too short to slip over my head, Gary recommended that I simply wear it all the time instead of putting it on and taking it off every day. This makes sense, it won't do any harm to wear it while sleeping or in the shower, but it will take some adjustment. I'll only remove it when I specifically don't want to wear it, removing almost all the wear on the clasp.
Unfortunately they couldn't do a same-day repair, so I'll probably have to wait until next weekend before I can get it back. I came home with a repair ticket in-hand, thinking to myself, "They have my gold, and all I have is this piece of paper!" I think that qualifies me as a hard-core, incurable, unrepentant goldbug.
I've been watching the World Poker Tour on the Travel Channel for quite a while, ever since a co-worker got me curious about the game. Tonight I finally played some Texas Hold 'Em. (I hadn't even played online before.) The group was 8 people, almost all from Intel, and I had only met two of the other players previously.
I had a lot of fun, and it was lucrative too! Buy-in was $20, and my cash-out was $44.50. There was no rake from the host. I had the best gain of the evening, though one other player was not far behind me. I got three straights over the course of the evening, which was very exciting.
The only unfortunate thing about the evening is that I was unable to bluff. I suspected, correctly, that my opponents were relatively inexperienced (look who's talking…) and would be very reluctant to fold. You can't bluff if your opponent won't fold!
Andrew B., I'm not ready to face you yet, but some day…
Knowing the Cost of Things
I recently took a business trip to the Santa Clara site and flew on the corporate shuttle.
Forget any images of glamour or exclusive perks, it's a bus with wings. But at least I didn't have to worry about being strip-searched by airport security personnel whose mission in life is to deprive the world of scissors. And there's enough room to comfortably use a laptop.
The trip was arranged at the last minute and for a while I wasn't sure if I'd be flying commercial or on the shuttle. That's not a trivial decision: In my case, flying commercial meant I could be there and back on the same day, so I wouldn't need a hotel. But it also would mean the hassle of airport security and a long drive out to PDX instead of the conveniently close HIO. In any case, there were many factors to weigh.
One piece of information that I regretted not having was the approximate dollar cost of a flight on the corporate shuttle. At some point the company decided that providing a shuttle would be a cost savings, and it could be argued that the shuttle would fly anyway whether or not I was on board so the marginal cost is very low and not worth considering. (It's the same sort of reasoning that can unfortunately make people believe that movie theaters are overcharging unless they're always full — but I don't want to talk about that right now.) But from a global optimization point of view, an awareness of the average cost of using the shuttle is important.
Maybe the shuttle is overused and it would be cheaper to reduce the number of flights and ask more employees to fly commercial. Maybe it would be cheaper to add shuttle flights and have fewer people fly commercial. It's impossible for me to tell because I have no information about the average cost of flying on the shuttle. I hope, but doubt, that someone in the company is carefully monitoring travel-related expense reports and making the correct guesses about same-day vs. overnight trip flexibility, and feeding that information into the planning for the number of shuttle flights. Given the nature of the problem, I think my skepticism is justified.
It's the need for this sort of analysis that makes socialism impossible. On a small scale such as this, and where clear money costs are known for at least some of the alternatives, it's reasonable to expect the cost/benefit calculations to be of fair quality. But even here it's difficult. Think of how much simpler it would be to weigh the alternatives if the corporate shuttle operated like an airline, charging for tickets in the normal way. The cost of the shuttle, including considerations such as the relatively low marginal cost of a seat, would be summarized in the ticket price. Travelers could compare the costs of using the shuttle vs. flying commercial at a glance. Each party would be incentivized (reduce expenses! maximize profits!) to always seek the lowest-cost outcome. This is the miracle of markets that enables resources to be used most efficiently.
In the other direction, imagine several alternatives in a socialist setting. They are very difficult to compare due to the lack of prices. The true costs are invisible to the travelers and they'll undoubtedly — and quite naturally — choose on the basis of the benefits (which can be seen) without much consideration of the costs (which cannot). Resources will not be used efficiently.
A Few Movie Reviews
Okay, I'm back. I had a great day at work today and I think I'm fully recovered. So, back to blogging. :)
I've seen three movies in the past three weeks — uncharacteristically many for me — and feel like doing some movie reviews. Why? Because it's already pretty late in the evening and I don't have time for anything more substantial. At least I'm blogging, right?
This was a very interesting movie. It's food for the mind and gives you a lot to think about. If I was still in college I'm sure this would have generated an into-the-early-morning discussion with friends about what kinds of memories people might want to erase and for what reasons, and the effects it would have on things like relationships and the legal system. (What if the sole witness wanted to erase their memory of a crime?)
The idea of the movie was very interesting but the film disappointed in some ways. The two main characters were heavily flawed and didn't seem normal at all. I'm not interested in heavily flawed people. It's a movie, I want to be inspired. It was totally unclear why they were attracted to each other, and particularly why they'd fall in love twice. The movie seemed to tap into some kind of "destiny" theme that I don't think is credible.
The employees of the memory-erasing company were plainly not believable. They were amusing, but I can't suspend disbelief enough to think they'd be either so young or so willing to get drunk on the job. Too much of the plot was driven by deus ex machina, it felt forced.
However, I thought the subjective experiences of memory erasure were very well done: Signs going blank, objects in the scenery disappearing, etc. It made the point in the background, leaving the characters free to act instead of explaining what was happening.
This was a great date movie and led to a long conversation afterward but alas, I guess the movie was more interesting than I was…
Troy was mediocre at best. I'd say I was disappointed but I went into the movie with no expectations. None at all, not even low ones. I couldn't be disappointed for the same reason you can't get lost if you don't care where you're going.
Sure, there was a lot of fighting. And it was okay. But the dialogue was so uninspiring that I didn't care about any of the characters and didn't care when they died. And almost everyone died. Death, death, death, lots of killing, and I didn't care. The only two interesting characters were Agamemnon, who sadly (but fortunately for the film) was cast as comic relief, and Priam, who became genuinely interesting only when he snuck into Achilles' tent to plead for Hector's corpse.
I won't nitpick how the plot only superficially resembles Homer's. Not worth it.
Great. Funnier than the original, but almost too many pop culture references. In what is essentially a fairy tale, I appreciate a sense of timelessness, and constant cultural references detract from that.
I thought the plot was weak. It seemed out of character for Shrek to be a thief, and to be so comfortable with giving up ogrehood. But in a comedy the plot is ultimately less important, so I won't dwell on it. As comedy it's brilliant. I enjoyed the many sight gags in Far Far Away — there's something funny to see in almost every frame.
The characters were fun. The dialogue was fun. The visuals were fun. Everything about this movie was fun. Highly entertaining.
I paid full price ($8) for this one, and think it was worth it. So you see, I've snuck some economics in here after all, sorta. :)
Stuck at Eleven
I've been emotionally stressed out this week, preventing me from generating anything blogworthy. (And frankly, from feeling like blogging at all.) I'm tired. My problem is that I take everything seriously and it's difficult for me to "let things go." Even when I'm trying to relax and be frivolous, I do it with deliberate focus. I don't have a throttle — I'm either at 0 or at 11 in everything I do.
My drunken escapade really screwed me up. It's been haunting me. If I don't control myself I'll automatically start thinking about it, alternating between telling myself it was fun, or irresponsible, or that I should do it again as soon as possible, or that I should foreswear it. I wonder why I'm the only one bothered so much by it, and how something so agonizing to me can be so consequence-free for others. I worry that next time I wouldn't be so giddy — that I'd be sad or angry or lusty. And those wells are very, very deep. They've been open for brief periods this week, and they're frighteningly powerful. I'd almost forgotten I could feel that way.
Tonight I listened to Rachmaninov's Second Piano Concerto, which I used to do frequently in college. I haven't needed it often since then. If you've heard it, you may already understand why it helps me so much. If you haven't, it's because it goes through several strong and yearning moods before ending in the purest exclamation of joy I have yet found in music. It integrates in music what I've been unable to in life.
Yesterday I spent many hours cleaning up the house. Not because I'm expecting guests, but because I needed to pass the time doing something both physical and useful. My house actually did need some cleaning, but that was mostly a rationalization. I needed to keep myself busy.
I need a vacation. A vacation from being so uncomfortable in my own skin. Thank goodness tomorrow is Monday and I can go to work all day, doing things that are intellectually instead of emotionally stressful. I have a much higher tolerance for the former. For some reason I've never been effective at handling the latter.
I don't know when I'll get over this, but it will be difficult for me to blog anything but psychology in the meanwhile.
I was supposed to say this a few days ago… but hi there, I'm going to be very busy for a few days and therefore won't be blogging.
I have a lot going on right now — personal reflection, rebuilding my shattered reputation, trying to endure the teasing and double standards with a sense of grace, a business trip, weighing a career opportunity, being sad about stock option expensing, stuff like that.
On the plus side, my experience last Friday has given me enough inspiration that I'm considering writing a new short story. It would have a "mature theme", though — it wouldn't be pirates and pizzas. I've thought of some psychologically hard-hitting dialogue, but I hesitate to start writing it because it would have too many similarities to real events and I worry somebody would get the wrong idea from it.
Since I'm sure everyone's curious, the median reaction to my little adventure last Friday was amazement that anyone would document such an experience in that level of detail. Here's a short FAQ:
Slight Change of Plans
The weekend's over and you've probably noticed I haven't written about resource allocation yet. Well, Friday night I had an "extra allocation" of alcohol and lost the rest of the weekend recovering from and writing about it.
Instead of economics, enjoy reading about me behaving badly. :)
My leisure time is evaporating so I'm taking a short break from blogging.
Thursday night I'm going to visit the Intel International Science and Engineering Fair which is being held in Portland this year. Intel has been running some television commercials promoting the ISEF you may have seen. More information about the fair is available here.
Friday night I'm attending a celebratory dinner with my team from work. I did finally locate the Right Tie for the event. The ties at the last store I visited (no smart comments about always finding things in the last place you look for them) were markedly better than those available at the other stores — but I cringed a little inside when I was told they were from the Jerry Garcia collection (yes, that Jerry Garcia.)
After the dinner some of us are going to have a "team freak-out" (not my words!) so I can't predict what time I'll wake up on Saturday. We've discussed the alternatives of drinking, playing pool, drinking while playing pool, and drinking a pool, so you can see this plan isn't fully baked.
This weekend I plan to write about the difficulty of evaluating an allocation of resources, when the feedback is always that more resources are needed.
The Right Tie
I spent several hours tonight driving around in pursuit of the Right Tie.
I'm going to a work-related dinner on Friday and I plan to dress formally, thus the need for a tie. But it's so hard to find one that's just right!
I went to a Men's Wearhouse and looked through their very large selection of ties, but nothing looked quite right. I even looked through their Extra Long ties because they had different patterns, and weirdly that set the salespeople after me. The first guy told me that those are extra long ties and I should be looking at the normal ones on the tables nearby, instead. I told him that I was looking for the pattern and that if the length was wrong I really didn't care. A few minutes later another salesman came by and again informed me that I was looking at the extra long ties. I told him, more curtly, "I'm aware."
Those people don't know me very well. I really didn't care about the length. Ties that are too short are a problem — ties that are too long, aren't. I own scissors, and wouldn't hesitate to use them.
In the end I left that store (and several others) emptyhanded. I decided to leave them in wonder about why I would have any interest in a tie that was too long. I spared them the emotional shock of holding up a tie and making a little scissor motion with my fingers. I guess I'm a softie.
I'm almost ready to give up the search for the Right Tie. I have one more place to check tomorrow, because they closed before I got there tonight. If they don't have the Right Tie there, I'll probably go to the dinner wearing my pirate tie — pure black except for a skull and crossbones on the bottom.
It's appropriate for my persona, if not exactly appropriate for the event. (Would it be appropriate for any event? Yes, if I had a date wearing one of these.)
Who gets excited whenever the subject of stock option expensing comes up?
… oh, just me, eh?
Well, you should read this post from the Mises blog for another angle on the opportunity cost argument. I participated in the comments for a while and then decided to quit and start writing a post here instead.
The opportunity cost argument for expensing can be dismissed with a single hypothetical.
Opportunity costs presuppose viable alternatives. The claim is that companies suffer an opportunity cost when they grant stock options to employees because they could have sold them on the open market.
What if they couldn't?
Take two identical hypothetical companies and let's say the stockholders of one of them approved a stock plan that forbade the company from offering options on the open market. They could still grant them to employees, but the alternative is unavailable — and thus the opportunity cost vanishes. Should the accounting of these two companies be the same, or not?
In the comments of the Mises post, Michael lays out an interesting alternative to stock compensation. If a stock grant is reinterpreted as two transactions, a cash salary to the employee plus the employee's purchase of newly-issued shares for exactly the same amount of money, this would achieve the effect of expensing the stock while simultaneously not obscuring the company's net worth.
That's a perfectly sensible way to do the accounting, and I would agree with it, except for the fact that I want the accounting to reflect the reality. In fact there is only one transaction, a direct transfer of partial ownership from the existing stockholders to the employee. I am opposed to inventing two transactions — neither of which actually took place — to explain the transaction that did.
I'm perfectly comfortable with the result that a company can reduce its compensation expenses by granting stock options. I'm comfortable with it because it's the truth. The cost is borne by the stockholders, not by the company. Of course this could be abused to make the company's employees look cheaper than they "really" are, but this isn't an isolated problem. Revenue can be inflated by sham transactions, for example. Any intelligent investor will notice an option "abuse" when they look at the rate of dilution and/or stock buybacks.
The message to take away is that valuing a company is hard work. Concentrating on any one number — revenues, profits, assets — is a mistake. You must also consider the company's competitive environment and future products still in development, and many other things. Valuing a company cannot be simplified to the grade school level. Anyone who thinks it can be is wrong, and will have their expectations reset by the school of hard knocks if they don't come to their senses in time.
Disney has decided that its Miramax unit will not distribute Michael Moore's new film "Fahrenheit 9/11". In a message on his website, Moore describes this decision as censorship:
Moore does not understand censorship. But I don't mean to single him out on this, it's very widely misunderstood.
From the perspective of individual rights in general, and the right of free speech in particular, no voluntary action is censorship. Censorship is when you are forcibly prevented from expressing your views, either by government or by criminals.
It is not censorship to decline to distribute ideas you oppose. It is not censorship even to actively protest those ideas and to try to discredit them. It only becomes censorship when you use force to stifle those ideas.
The right to free speech means does not include an entitlement to have your ideas distributed at the expense of others. It does not provide for an unearned popularity. You must earn the voluntary consent of those who you would like to spread your message.
If Moore and Disney cannot reach an agreement, that is not censorship. There is no force involved. Moore is free to take his work to other distributors or even to distribute it himself. Censorship and unpopularity are not interchangeable.
More on Supporting Israel
I have no theoretical problem with making a distinction between the militants and the innocent, but I disagree on where the line is to be drawn. The "radical" elements of the Palestinian population are not a small minority. According to a poll by the Palestinian Center for Policy and Survey Research in October 2003:
The majority support terrorist attacks and believe that they help them achieve their political goals. One in five Palestinians is committed to the utter destruction of Israel and rejects peaceful coexistence.
My understanding of the region's history is also very poor. A friend loaned me a copy of The Case for Israel which includes some history, but I haven't read it yet. (Maybe I'd procrastinate less if it was about pirates or economics or something…)
I will say that a culture permeated by religion is inherently less rational than one that isn't. But this clearly cuts both ways, and it's important to look at how effectively the resulting cultures respect individual rights.
I've heard many of the "settlements" are little more than trailers or small buildings put there simply to have a tangible claim to the land. Those kinds of settlements are ridiculous and should be ignored — they scarcely exist at all. Some of the more significant settlements, where communities have been built, are indeed an extravagant defense subsidy to the people living there. I think it's important and valuable that the current Israeli plan is to unilaterally withdraw from several settlements while building the security wall. But I don't know how many of those settlements are the inhabited type vs. the trailer variety, or how many people will be moved as a result.
I believe one of the arguments in the aforementioned book is that the land that became Israel was very sparsely populated at the time. But I haven't read it yet, so I'll have to readdress this later. It's also my understanding that the land that became Israel was primarily purchased, not stolen, but that the sellers had second thoughts after the deal was inked. Again, I'll have to go read about the history.
Given my relative historical ignorance, my position on the Israeli/Palestinian issue is grounded in the current policies of the groups. And by that standard, Israel unmistakably occupies the moral high ground.
Planned followups: Discuss the historical acquisition of the land within the original borders of Israel. Discuss the theoretical basis why reparations for past injustice should decline and ultimately vanish with time. (Or: Why 1970 matters more than 1270.)
Back to Normal
Things are finally getting back to normal for me. The emergency has passed, despite keeping me up 'till 2:30 Saturday night with some (figurative) bullet-dodging. I slept the sleep of the saved and thankful.
I woke a bit tired and went bowling. I sucked, but I know who to blame.
The coolest thing on the blogosphere during my absence was Catallarchy's May Day Remembrance, a set of 14 blog entries about the utter failure of collectivism and the ocean of human blood left in its wake.
Now the Cap'n is back, and he's ready to … do something piratey! I'll sing some sea shanties to get started.
Obligatory Ghostbusters quote for my team to appreciate: "We have the tools, we have the talent!"