Quotulatiousness

July 17, 2018

Juul threat

Filed under: Health, Technology, USA — Tags: , , , , , — Nicholas @ 05:00

John Tierney on the good news/bad news in the most recent smoking statistics in the United States:

Tobacco-company stocks have plunged this year — along with cigarette sales — because of a wonderful trend: the percentage of people smoking has fallen to a historic low. For the first time, the smoking rate in America has dropped below 15 percent for adults and 8 percent for high school students. But instead of celebrating this trend, public-health activists are working hard to reverse it.

They’ve renewed their campaign against the vaping industry and singled out Juul Labs, the maker of an e-cigarette so effective at weaning smokers from their habit that Wall Street analysts are calling it an existential threat to tobacco companies. In just a few years, Juul has taken over more than half the e-cigarette market thanks to its innovative device, which uses replaceable snap-on pods containing a novel liquid called nicotine salt. Because the Juul’s aerosol vapor delivers nicotine more quickly than other vaping devices, it feels more like a tobacco cigarette, so it appeals to smokers who want nicotine’s benefits (of which there are many) without the toxins and carcinogens in tobacco smoke.

It clearly seems to be the most effective technology ever developed for getting smokers to quit, and there’s no question that it’s far safer than tobacco cigarettes. But activists are so determined to prohibit any use of nicotine that they’re calling Juul a “massive public-health disaster” and have persuaded journalists, Democratic politicians, and federal officials to combat the “Juuling epidemic” among teenagers.

The press has been scaring the public with tales of high schools filled with nicotine fiends desperately puffing on Juuls, but the latest federal survey, released last month, tells a different story. The vaping rate last year among high-school students, a little less than 12 percent, was actually four percentage points lower than in 2015, when Juul was a new product with miniscule sales. As Juul sales soared over the next two years, the number of high-school vapers declined by more than a quarter, and the number of middle-school vapers declined by more than a third — hardly the signs of an epidemic.

Measuring Inflation

Filed under: Economics — Tags: , , — Nicholas @ 02:00

Marginal Revolution University
Published on 10 Jan 2017

Inflation is common in a modern economy. Shifts in supply and demand for goods and services cause prices to change accordingly. When the average level of prices rises, that’s inflation. It means that you’ll need more money to purchase the same stuff.

Inflation in the United States can be measured using the Bureau of Labor Statistics’ Consumer Price Index (CPI) – a weighted average of the price increases. We can calculate the inflation rate by the percentage change in the CPI over a given period of time.

How much do prices actually change? Well, using FRED, we can see that, over the past thirty-three years, prices have more than doubled. That may seem like a lot. However, wages have also risen, on average, by more than prices during that time period. Inflation doesn’t necessarily mean that we’re worse off.

The inflation rate in the United States has averaged at about 2.5% per year since 1980, which is fairly low and indicative of a stable economy. Prices may be increasing, but the changes are small. Wages have time to catch up. You can be confident that the $5 in your pocket isn’t going to be worth drastically less in a year.

Let’s take a look at a different scenario — one that’s playing in Venezuela right now. As the country faces an economic crisis, inflation is skyrocketing. Rates reached 180% in 2015 and have continued to rise since. 5 bolívar in your pocket could be worth less even by the end of the day.

But Venezuela still doesn’t compare to the hyperinflation that Zimbabwe experienced in the 2000s, reaching dizzying rates of billions of a percent per month. (See MRU’s previous video for more!)

While some inflation is perfectly normal, high rates of inflation make it difficult for consumers to use a nation’s currency. If the value is changing a lot by the week, day, or even minute, people don’t want to hold onto or accept the currency for goods and services — leading to a full blown currency crisis.

Up next, we’ll take a deeper dive into what causes inflation and its consequences.

July 11, 2018

QotD: Measuring consumer surplus

Filed under: Economics, Quotations — Tags: , , , — Nicholas @ 01:00

Consumer surplus is one of those things which is really, really, difficult to measure. This paper is one of the few that’s able to give us a hard number. But what it is is, really, “how much I would have been willing to pay but didn’t have to?” Say that we’re out and you’re thirsty and I’m not very. You suggest we have a Coke. You’re really interested in this, you’d pay $2 for one, I’m, well, meh, I’d only pay $1 for one. Obviously, the Coke seller (no, not the coke one, that’s different) doesn’t know this so he charges us the same price – $1 each. I’ve gained no consumer surplus I paid a buck for something I value at a buck, you gain $1 of surplus because you would have paid $2 but only paid that buck.

In one manner the consumer surplus is a result of mass manufacturing and marketing. We’re pumping out millions of whatever it is, we’ve got to have a “market price” and some people will value it, whatever it is, at more than that. That greater valuation is that consumer surplus. Without a producer knowing what your individual demand curve is they cannot charge you the full value you ascribe to it.

Of course, they try as hard as they can to do so. This is what brands and product differentiation are all about. VW and car brands for example – there’re SUV models built on roughly the same platform in the Skoda, VW, Audi and Bentley ranges. Oh yes, they’re different cars alright. But perhaps not $300,000 different, which is the price gap between the top and bottom there. Some of this (but please note, only some of this) is because there are people who will pay a fortune to swank around in a Bentley and there are many more who will not, thinking a Skoda is just fine (I do a little work for the company and the new Skoda SUV is indeed very fine but then I would say that, wouldn’t I?). That’s product differentiation.

Another example is what used to happen in old fashioned English pubs – in the public bar and the saloon. The latter had carpets and comfy chairs, the former very definitely not. Beer was 10% more expensive if you wanted the comfy chair experience – very simple and remarkably successful product differentiation. Being able to charge different prices to different groups for much the same thing. Or as it often used to work out, different prices to the same person on different occasions. Dates were in the saloon bar….

Tim Worstall, “Freakonomics’ Steven Levitt On How Inefficient Uber Really Is”, Forbes, 2016-09-20.

June 30, 2018

Enriching the public in ways that do not show up in the GDP calculations

Filed under: Business, Economics, Media, Technology — Tags: , , , , — Nicholas @ 05:00

Tim Worstall looks at the calls to regulate the big tech firms and points out that we already get a very good deal on “free stuff” that isn’t reflected in standard economic statistics:

It won’t have escaped your attention that rather large numbers of people are calling for the regulation of the tech companies. The Amazon, Google, Facebook (Apple and Microsoft often added, just because they’re large) nexus have lots of power over markets and thus therefore – well, therefore something. My own prejudice here is that certain people just cannot look at centres of power and or money without insisting that they, the complainers, should be the ones exercising that power and determining the disposition of that money. Thus much of the drive for “democratic” regulation of the economy more generally, the self proclaimed democrats being the ones who would end up with the power. The advantage of this analysis being that it does describe reality, the same people do end up making the same arguments about different companies over time. Mere prominence brings the demand for control.

The economist on this subject is Jean Tirole. His Nobel was for exploring this very subject, tech companies and the two sided market. Google, for example, sells the search engine to us and us to the advertisers. The tech here is different, obviously, but the underlying economics is the same as that of the free newspaper.

Tirole’s a new book out and there are a number of interesting points to be had from it:

    Yes, on the whole consumers tend to get a good deal, because we use wonderful services — like Google’s search engine, Gmail, YouTube, and Waze — for free. To be certain, we are not paid for the valuable data we provide to the platforms, as for example Eric Posner and Glen Weyl remind us in their recent book Radical Markets. But on the whole, our living standards have substantially improved thanks to the digital revolution.

From which we can extract a few points. We’re richer, we really are. Substantially richer and yet in a manner that normal economic statistics entirely fail to capture. As Hal Varian has pointed out, GDP doesn’t deal well with free. Near all of those benefits of the digital revolution are coming to us for free and so aren’t recorded in that GDP. So, we’re richer yet the numbers say we’re not. In that is much of the explanation of slow economic growth these days, even of slow real wage growth. We’re just not counting what is happening to our living standards.

But we can and should go further than that. If the above is true then we’re very much less unequal than we’re recording. Stuff that’s free is, obviously enough, distributed rather more evenly among the population than extant monetary incomes. You, me and Bill Gates all have access to exactly the same amount of Facebook at the same price. We’re entirely equal in that sense. Bill’s actually poorer concerning search engines, stuck for emotional reasons with Bing as he is while we get to use Google or DuckDuckGo. Our standard measures of inequality are wrong both because of the undermeasurement of new wealth and also the extremely equitable pattern of the distribution of that new wealth.

June 21, 2018

QotD: Statistics

Filed under: Economics, Humour, Quotations — Tags: — Nicholas @ 01:00

If the devil is in the details, and if the details can be hidden from view by lumping them all into various aggregate statistics, then among the biggest fans of the uncritical use of aggregate statistics will be the devil.

Don Boudreaux, “Devilish”, Café Hayek, 2016-08-29.

May 22, 2018

A variant factor in Chinese economic statistics

Filed under: China, Economics — Tags: , , , — Nicholas @ 03:00

I’ve long been on the record as not trusting Chinese government statistics (some examples here, here here, here, here, here, here, here, here here, here, here, here, here, here, here, and here), but this is a twist I hadn’t previously noticed:

A useful and basic rule of thumb about international economic statistics. Never, but just never, believe nor pay attention to anything about the Chinese economy for the first quarter of the year. No, this isn’t because our inscrutable bretheren dissemble more or less at this time of year, it’s not because their statisticians spend January drunk or hungover (unlike our own), it’s because the Chinese New Year obeys its own little calendar.

The modern Chinese New Year begins on the first new moon between January 21st and February 20th. Earlier calendar systems were more complicated:

Chinese five phases and four seasons calendar, used during the Zhou dynasty (c. 1046 BC-256 BC).
Image by Orienomesh-w, via Wikimedia Commons.

Well, OK, so if this was a western country that really celebrated the New Year (say, Scotland) then everyone would be back at work 48 hours later. However, the Chinese New Year is also the start of the two week holiday. Sorta a mixture between American Thanksgiving (you WILL eat at your mother’s table or a close simulacrum of it) plus a Wakes Week (English industrial towns would shut every single factory so that all could get away to the beach for a week. Well, beach not so much, Skegness maybe). The combination of the two means that near every factory in the country shuts for a couple of weeks as the largest migration in history takes place. All those migrant workers heading back to Mom’s dumplings.

If this all took place at the same time each year then our economic statistics would take account of it just fine with our seasonal adjustments. Just like we do with Christmas. We know very well that hundreds of thousands get hired for temporary jobs packing and delivering just before, get laid off immediately afterwards. We don’t see that reflected in the unemployment numbers because we’re not interested. We want to see trends, not known seasonal variations. So too with output and all that – many European factories do close in that week after Christmas. We don’t measure a drop in GDP then because we know about it therefore ignore it.

So Chinese official economic statistics are even less likely to correspond to reality during the first quarter than at any other time of the year.

May 20, 2018

Vancouver is the latest jurisdiction to fall for bogus statistics originated by a 9-year-old

Filed under: Cancon, Economics, Environment, Government — Tags: , , , , — Nicholas @ 05:00

Christian Britschgi at the Reason Hit & Run blog:

Plastic straw bans — much like the waste they target — are spreading across the globe, polluting city councils and national parliaments alike with environmentalist movement’s good intentions and undegradable bogus statistics.

The latest to fall is the Canadian city of Vancouver, which this week passed a prohibition on single-use plastic straws, as well as on foam cups and containers. The new law will forbid licensed food servers from giving away these items starting June 1, 2019.

The politicians who passed the latest straw ban are pretty pleased with their planet-saving efforts.

“This is a really important step forward to demonstrate how serious we are in phasing out plastics and making sure we are working aggressively towards zero waste,” said Vancouver Mayor Gregor Robertson in reference to the city’s goal of eliminating waste and litter by 2040.

Other stakeholders were less than celebratory about the new ban.

“The stifling effect of this ban on innovation is very serious,” Joe Hruska of the Canadian Plastic Industry Association announced in a press release. “This ban will do nothing to reduce the amount of material going to landfill or solve the public bin recycling and litter issues.”

[…]

In justifying Vancouver’s straw ban, city officials relied on the same discredited figures used to push similar prohibitions in the United States. The city’s “Single-Use Item Reduction Strategy” states that Canadians collectively throw away 57 million straws a day. A footnote explains that this number is based on the 500 million straws a day Americans use, adjusted for Canada’s population. The footnote provides a link to the recycling company Eco-Cycle, which has popularized this figure.

As Reason reported in January, Eco-Cycle itself got the 500 million straws a day figure from 9-year-old Milo Cress, who surveyed three straw manufacturers to get their estimations of the size of the straw market. Market analysts put daily straw usage in the United States closer to 175 million.

Assuming the same per capita consumption north of the border, that would mean that Canadians toss about 19 million straws a day.

Environmentalists might still find that figure too high, given how much plastic is dumped into the ocean each year. Still, it is worth noting that the vast majority of plastic waste getting into the world’s waterways is not coming from rich countries with well-developed waste control systems. It comes instead from the world’s poor, coastal countries. According to a 2015 study published in the journal Science, anywhere from 4.8 million to 12.7 million tons of plastic entered the ocean in 2010. China was the largest polluter, responsible for about 28 percent of all that waste. The United States was a distant 20th, responsible for about 1 percent of plastic marine debris in 2010. Canada, according to the study’s dataset, ranks 112th, sending about .02 percent of global marine debris into the ocean.

Labor Force Participation

Filed under: Economics — Tags: , , , , — Nicholas @ 02:00

Marginal Revolution University
Published on 17 Nov 2016

The formula for the labor force participation rate is simple: labor force (unemployed + employed) / adult population, excluding people in the military or prison for both.

The total labor force participation rate has grown significantly in the United States since the 1950s. But the total growth doesn’t paint a clear picture of how the U.S. workforce has changed, particularly the makeup.

There are several big factors at play influencing the demographics of labor force participation. For starters, women have entered the labor force in greater numbers since the 1950s. At the same time, technology has altered the types of work available. Manufacturing jobs, which tended to employ lower-skilled, less-educated male workers, gave way to more service jobs requiring more skills and education.

In more recent years, the labor force participation rate, though still much higher than it was half a century ago, has been declining.

There are a number of factors influencing the decline. Many more women are working, but fewer men are employed or actively looking for a job. The United States also has an aging population with many Baby Boomers retiring from the labor force.

In an upcoming video, we’ll take a look at one of the big reasons behind why women have been able to enter and stay in the labor force during peak childbearing years: The Pill.

May 8, 2018

QotD: Pay inequality

Filed under: Britain, Bureaucracy, Business, Media, Quotations — Tags: , , , , — Nicholas @ 01:00

It probably doesn’t come as news that airline companies pay pilots more than cabin crew — but according to the dogma of the gender wage gap, we’re supposed to find this fact troubling. The British government now requires companies to report their raw gender gap — that is, the difference in the median hourly wages earned by their male and female employees. Ignoring occupational differences, seniority, employment history, hours worked, or any of the countless other factors affecting salaries, these data are misleading at best. Nevertheless, when budget airline EasyJet reported a 51 percent pay gap between its male and female employees, the company knew that its reputation perched on the edge of a PR abyss.

And that’s the whole point of the exercise: simplify statistics to shock people at the seeming injustice done to women and shame companies into action; refuse to compare similar job functions; ignore the fact that, like every other airline, EasyJet’s pilots are disproportionately male, while their cabin crews skew female; forget that almost all carriers compete for the same 4 percent of the world’s female pilots; and whatever you do, don’t mention that the EasyJet CEO, who was in charge of this bigoted organization and also its highest-paid employee until retiring earlier this year, was a woman. The company should be branded with a scarlet “51 percent” until it … does what? Cuts pilots’ pay? Hikes the salaries of female cabin crew? Hires male attendants instead of female? Goes bankrupt?

Kay S. Hymowitz, “Equal Pay Myths: Activists for wage parity ignore stubborn truths”, City Journal, 2018-04-09.

May 2, 2018

Uses and misuses of the Baltic Dry Index

Filed under: Economics — Tags: , , — Nicholas @ 03:00

At the Continental Telegraph, Tim Worstall explains why, for example, Zero Hedge‘s witterings about the changes in the Baltic Dry Index are not actually predictive of boom or bust in the global economy:

As background, the volume of such shipping – dry is referring to dry bulk cargoes, wheat, grains, cement, that is, not container stuff and not oils – is an important indicator of global growth. Trade tends to, tends to note, increase faster than growth itself. If the volume of trade falls off a cliff then we would indeed think that there’s going to be a kablooie in our global GDP figures.

The Baltic Dry is an index of the prices of shipping these cargoes. It’s thus the interaction of the supply of shipping as against the demand for it. That’s rather more than subtly different to the volume of world trade.

The basic background here is that there are reasonably long lead times to get more shipping afloat. And once it is afloat then it tends to stick around for a decade or two. Building the boat is a sunk cost (sorry) so you keep trying to use it as long as income from doing so is above marginal costs, of maintenance and fuel (and maintenance will be skipped in some circumstances) and bugger the mortgage. The supply of shipping is near entirely inelastic on an annual basis, near entirely elastic on a two decade basis.

Demand for shipping is much more elastic in that shorter term. As is usual when we’ve an inelastic supply meeting an elastic demand in a marketplace we get wild price swings. They being what causes that longer term elasticity – as with, say, oil from conventional reservoirs.

The Baltic Dry can drop because more ships are being launched, it can rise because more are scrapped. Not because – note the can here – the volume of trade has changed at all.

What has actually been happening in shipping in general is that the ship owners all looked at how trade was growing before 2008. So, they thought, aha! 5% volume growth! (Numbers here are made up but indicative of the major points) Let’s order more spanking new ships! Which then start arriving in 2010, 2011. Flooding the market with new supply. And shipping volume didn’t grow at 5%. It grew at 2% instead. (Again, these numbers are made up, reflecting memory and thus not accurate, but the relationships between them are about right) So, prices plunge.

But it’s those prices which plunge, not the volume of world trade.

April 19, 2018

The mis-measurement of the digital economy

Filed under: Economics, Technology — Tags: , , , , — Nicholas @ 05:00

In the Continental Telegraph, Tim Worstall explains why our current statistical model does not adequately reflect the online world’s contribution to our economy:

To give my favourite current example. WhatsApp is used by some billion people around the world for some to all of their telecoms needs. It turns up in economic statistics as a reduction in productivity.

That’s mad.

In more detail, WhatsApp is free to use and carries no advertising. That means there’s no sale associated with it. We measure consumption at market prices – a price of $0 means no consumption. Consumption is one of the three ways we measure GDP – each of the three should be the same as the other two but isn’t because lying about taxes.

The other two calculations are all incomes, or all production. Things that are sold at no price do not add to production given that we measure it at market prices.

Income, well, there’re 200 or so engineers at Facebook who work on it (I checked with Facebook itself). Say their salary is $250k a year each. Probably too low but we’ve got to use some number or other. $50 million then. That’s incomes added to GDP.

So, in our three methods of calculating GDP – they should all be the same but that doesn’t matter here – we’ve value of WhatsApp (more accurately, WhatsApp adds value of $x each year to the global economy) of $50 million. Or $0 or $0.

April 14, 2018

Alcohol and health – if you torture the data long enough, it will give you the answer you want

Filed under: Britain, Health, Wine — Tags: , , , — Nicholas @ 03:00

Tim Worstall isn’t convinced that a recent study summarized in The Lancet is either honest or useful:

We have a new study out, in the Lancet no less, telling us that the new, lower, limits for reasonable alcohol consumption are just right. Well, of course the report says that, right? The problem being that it’s entirely contrary to the more general experience we’ve got of booze consumption. For, yes indeedy, there’s a level of drinking which will – as always, on average – shorten life. But our experience to date is that it’s several times what is the current measure of safe consumption. This basic understanding of ours being that no booze lowers lifespan, too much lowers it, a modicum increases it. The argument being the definition of modicum of course.

Observation of large populations being that modicum is anything from some up to perhaps 40 or even 50 units a week. This isn’t what the current study shows at all […]

I’m not in any manner a medical expert but that does look odd. 5 million observation years on half a million people, looks like 10 years on average per person. They’re using this to predict lifespan at age 40? When lifespan at 40 is, these days, a further 40 to 50 years or so? OK, maybe there’s some sekkrit decoder ring for epidemiologists here but anyone want to try and explain it?

Ah:

    We focused our study on current alcohol drinkers

So the comparison doesn’t include those who don’t drink. We’re not therefore getting a baseline of no alcohol consumption to compare with. That is, by design, the study excludes the known to be higher death rates (or lower lifespans) of the temperance types. No, really:

    Third, never-drinkers might differ systematically from drinkers in ways that are difficult to measure, but which might be relevant to disease causation.

Our more general stats do indeed say that heavy drinkers (that 40 to 50 unit level perhaps) and never drinkers have about the same lifespans. Quick, gotta exclude that information, eh?

As far as we’re concerned that’s probably enough. We’ll see what Snowdon has to say about it, shall we? Because this finding is contrary to pretty much everything else we know about booze consumption. Explaining why it is will be important.

Update, 15 April: It’s no wonder that people are confused about the benefits and/or drawbacks of drinking…

March 27, 2018

Metrics are merely a tool. Like any tool they can be misused.

Filed under: Books, Business, Health, History, Science — Tags: , , — Nicholas @ 03:00

A big problem with depending on metrics is finding things to count that are actually useful measurements of whatever you’re tracking. A lot of bad management decisions can be traced to poorly chosen metrics. As a general rule, just because something can be measured doesn’t automatically mean that measurement will be useful. Tim Harford reviews a recent book on metrics:

Jerry Z Muller’s latest book is 220 pages long, not including the front matter. The average chapter is 10.18 pages long and contains 17.76 endnotes. There are four cover endorsements and the book weighs 421 grammes. These numbers tell us nothing, of course. If you want to understand the strengths and weaknesses of The Tyranny of Metrics you will need to read it — or trust the opinion of someone who has.

Professor Muller’s argument is that we keep forgetting this obvious point. Rather than rely on the informed judgment of people familiar with the situation, we gather meaningless numbers at great cost. We then use them to guide our actions, predictably causing unintended damage.

A famous example is the obsession, during the Vietnam war, with the “body count” metric embraced by US defence secretary Robert McNamara. The more of the enemy you kill, reasoned McNamara, the closer you are to winning. This was always a dubious idea, but the body count quickly became an informal metric for ranking units and handing out promotions, and was therefore often exaggerated. Counting bodies became a risky military objective in itself.

This episode symbolises the mindless, fruitless drive to count things. But it also shows us why metrics are so often used: McNamara was trying to understand and control a distant situation using the skills of a generalist, not a general. Muller shows that metrics are often used as a substitute for relevant experience, by managers with generic rather than specific expertise.

Muller does not claim that metrics are always useless, but that we expect too much from them as a tool of management. For example, if a group of doctors collect and analyse data on clinical outcomes, they are likely to learn something together. If bonuses and promotions are tied to the numbers, the exercise will teach nobody anything and may end up killing patients. Several studies have found evidence of cardiac surgeons refusing to operate on the sickest patients for fear of lowering their reported success rates.

March 8, 2018

Frictional Unemployment

Filed under: Economics — Tags: , , — Nicholas @ 04:00

Marginal Revolution University
Published on 1 Nov 2016

Finding a job can be kind of like dating. When a new graduate enters the labor market, she may have the opportunity to enter into a long-term relationship with several companies that aren’t really a good fit. Maybe the pay is too low or the future opportunities aren’t great. Before settling down with the right job, this person is still considered unemployed. Specifically, she’s experiencing frictional unemployment.

In the United States’ dynamic economy, this is a common state of short-term unemployment. Companies are often under high levels of competition and frequently evolve. They go out of business or have to lay off workers. Or maybe the worker quits to find a better position. In fact, millions of separations and new hires occur every month accompanied by short periods of unemployment.

Frictional unemployment helps allocate human capital (i.e. workers) to its highest valued use. Hopefully, workers are similarly finding themselves with more fulfilling jobs. Even when it’s caused by an event such as a firm going out of business, frictional unemployment is a normal part of a healthy, growing economy.

March 2, 2018

Defining the Unemployment Rate

Filed under: Economics, USA — Tags: , , — Nicholas @ 02:00

Marginal Revolution University
Published on 18 Oct 2016

How is unemployment defined in the United States?

If someone has a job, they’re defined as “employed.” But does that mean that everyone without a job is unemployed? Not exactly.

A minor without a job isn’t unemployed. Someone who has been incarcerated also isn’t counted. A retiree, too, does not count toward the unemployment rate.

For the official statistics, you have to meet quite a few criteria to be considered unemployed in the U.S. For instance, if you’re without a job, but have actively looked for work in the past four weeks, you are considered unemployed.

In times of recession, when people are faced with long-term unemployment and lots of discouragement, the official rate might not count some of the people that you would otherwise consider unemployed.

This video will give you a clear picture of how the unemployment rate is defined and build a foundation for further understanding this important facet of labor markets.

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