Friday, January 19, 2018

Queen Elsa's Economic Sanctions Against Weselton

[Possible spoiler for the movie Frozen.]

Was anyone else bothered by the end of Frozen? Queen Elsa tells the Duke of Weselton that Arendelle will no longer have any trade with Weselton. This is presented to the audience good-humoredly as a minor pathetic villain (the Duke) getting his comeuppance. But I'm thinking, Wait a minute. She just slapped economic sanctions on another nation. She probably harmed her own citizens in the process.

Did she enforce those sanctions? If carts or shiploads of goods from Weselton were already en route to Arendelle, did they get turned away? If Arendelle depends on trade with Weselton for its food supply, did Elsa allow her people to starve? If there are Arendelle merchants and craftsmen who depend on a steady supply of Weselton goods, did Elsa allow them to lose their livelihoods? What about smugglers? Let's see a follow up film, a short called Frozen Out, where a ship's crew gets hanged for running the blockade and smuggling in Weselton goods. Maybe include some footage of starving Weseltonians who lost their livelihoods because of the sanctions. Perhaps an interview with a hard-headed Arendelle nationalist who is glad to see Elsa "Sticking it to Weselton," but laments that lutefisk is so much more expensive than it used to be.

It's such a chipper, throw-away scene. "Ha ha! That Duke got what's coming to him!" Is the audience supposed to overlook Elsa's use of collective guilt?

For me this is right up there with "King Triton just happens to know a spell that makes the bottom half of a human lady" (like, did he have to practice that one a lot?) and "Belle spends the first ten minutes of the movie shitting all over her neighbors" and "When the guy is plucking feathers out of the sentient feather duster, what's actually happening to her?"

Wednesday, January 17, 2018

Arguments I Picked with Bryan Caplan

There are some libertarians who think the following:
Politics is dirty, dishonest, and downright wicked. I'll take no part in it. Picking the least-bad of two awful people feels sleazy. And I have no interest in the petty political intrigues involved in actual governing. 
There is this attempt to swear off politics. It comes in two forms: declining to vote as a citizen and declining to governing as an elected official or bureaucrat. I think prominent libertarians need to step up and get their hands dirty. Bryan Caplan expressed his distaste for voting here and his distaste for politics here. In his post about voting, he says,
I spend my time on many quixotic missions, like promoting open borders. So why not vote?
I respond:
Thank you for pointing out the inconsistency. There are a few economics bloggers who spill a lot of ink explaining why they don’t vote and giving the economic reasons for not doing so, the same ones you start your post with. I always think, “Gee, you spend an awful lot of time and energy trying to change people’s minds with clever arguments. If you were as selfish as your argument implies, you wouldn’t bother with all that. Maybe you can take your un-selfishness one step further and vote.”
 I think you should swallow your pride and vote. I know a lot of economically literate, libertarian-inclined people who don’t vote. I imagine I’m in a room with them all and I’m saying, “If we all vote, we’ll be a meaningful voting block and get more libertarian policies.” And each person says to me, “Yeah, it would be nice if we all voted. But see all these other people? I can only decide if *I* vote, I can’t stop them from shirking. Since my vote is such a small piece of the electorate, it doesn’t matter if I vote or not.” Each one responds to me with this “shirking” argument, and I keep trying to say, “No, I’m talking to all of you at once. And if we all vote at once, we’ll be a meaningful voting block.” It’s like being in a firm where we can’t get people to work because everyone realizes their own shirking won’t affect the final outcome, even though everyone recognizes they’d like the result if everyone else stopped shirking. We don’t have the tools available to a firm (like punishing, firing, or rewarding certain “workers”), but we have moral suasion. We can tell these non-voting libertarians they should vote because it’s the right thing to do. I don’t know how you think policy will tilt in the libertarian direction if you and people like you refuse to vote. As a prominent libertarian, your example might persuade a lot of people. A single vote might not make much difference, but if you persuade 100 others with similar politics to vote, that can be significant at the state, county, or city level.
 That’s the great thing about being economically literate. You can spot market failures but still decide to do the right thing anyway. Economics might teach you that it’s rational to be lazy/selfish and not vote, but it also teaches you that policy analysis and informed voting are public goods (since voting is like a common pool resource). We should try to learn the second part of that lesson a little better.
I make another comment later:
Suppose that by not voting you’re setting a bad example for your audience. A number of young, impressionable people see your talks or read your blog and are convinced by your arguments. But they are then put off by your refusal to vote. Some of them remain fully convinced of your arguments, but you persuade them not to vote. And some decide that you’re just not serious if you’re not putting forth the tiny effort required to vote, so you lose them completely. I want to ask how many such people would there need to be to convince you to vote? Is there a number? A single vote is small, but a room full of voters could sway an election, particularly at the local and state level.
 In this same vein, consider “Don’t vote but tell people you do” as an irrelevant third option, one of those tricks from behavioral economics where nobody really wants the third option but it makes the chooser flip their selection. (The other options being “vote and tell people you vote” or “don’t vote and tell people you don’t vote.”) You’d nudge policy in the libertarian direction if your “example” convinced a few hundred libertarians to vote, but I suspect your conscience would nag you. I think you’d like to have the example-setting benefits of voting along with the “trauma”-sparing benefits of not voting, but your conscience wouldn’t allow you to be that dishonest.
 If you’re an influential opinion leader, voting isn’t just about your single vote. It’s about setting an example.
Apparently this was one of my better ideas, because Caplan's co-blogger at Econlog David Henderson picked it up and made it the topic of a blog post, quoting my comment in full. Henderson had also responded to Caplan in another post.

I don't really care if Bryan Caplan votes or not, but I don't think prominent libertarians should go around telling the world that they don't vote. It's like announcing loudly to the major political parties, "Hey, go ahead and ignore this constituency. I'm probably representative of my tribe, and even if I'm not many will hear my case against voting and follow my lead." If the goal is to nudge policy in the libertarian direction, making public arguments about how much voting sucks is a pretty bad way of going about it. Another prominent libertarian blogger who I will not name chimed in at the time. I felt I had a good counter-argument, but that other blogger can be kind of a stubborn blowhard. My best case scenario was that this other blogger (not Caplan) would write another post explaining loudly why he was too good to waste his time voting, and how dare I even suggest he do so? (The Virtue of Silence is really hard.) Not wanting to bring on another public proclamation that libertarians are electorally irrelevant, I ignored him.

Caplan's other post was about disliking politics. For sure, politics is ugly. The dishonesty, the stupidity, the hypocrisy, all the anti-virtues required for effective coalition-building and policy-making are beneath him. I'm thinking, what if you get the anarchocapitalist world that you and I both want? Who is going to chair the various neighborhood associations, the community security agencies, the boards of private governance that replace public governance? Even if we get rid of all the things government currently does but shouldn't be doing, there will still be some legitimate "government" functions left for private governance to solve. Property disputes. Dealing with criminals. What is the libertarian playbook for this? What's the libertarian playbook for local government? Say, at the city or county level? Surely it's not a lame "Zero government!" stance. Some public goods problems are city-sized. The city government is the appropriate body for deciding these issues. If we started with anarchy on a city-sized population, they would eventually hit upon the idea of convening some council of representative decision-makers to solve city-wide problems. I make this comment on Caplan's post:
It’s a little bit uncomfortable to hold all these policy views without giving much thought as to how to actually govern, isn’t it? I’ve thought about this: suppose I were to get active in my small local government. What’s the libertarian playbook for that? Tear down city hall? I don’t think so. There are real collective action problems and externalities at the town or county level, so someone has to govern. The libertarian solution to government, “privatize everything,” just shifts the problem to some other city-sized entity. I’m all in favor of privatizing the things that government has no business doing, and I think this means not having large national or state-level governments (except for nation- or state-sized externality problems, possibly not even then). But at smaller levels, *someone* has to govern, be it an actual government or a private manager.
 I’m imagining a meeting of a neighborhood association trying to set the ground-rules for, say, parking a trailer on the street. And the libertarian in the group says, “Don’t worry! We don’t actually need to adjudicate this problem. Coase showed that the disputants will come to mutually agreeable terms regardless of how the problem is adjudicated.” And he doesn’t realize that he’s actually in that conversation between disputants. Politics, even the politics of a private organization, is sometimes dirty, but someone has to sit down at the table and hammer these things out. The free market doesn’t do it for us. All that said, I personally share your distaste for politics. It’s just that sometimes these argument slip into a facile “the world optimizes itself” mode when the person making that argument actually needs to do something...
There are clear-cut cases, but then there are also some borderline cases. Imagine a zoning dispute in a small town. Someone wants to build a business, but the residents say it would destroy property value and cause unsafe traffic around where children ride their bikes. Is this just pure NIMBY-ism? Or do the residents have a legitimate grievance? We could say, “Let them build their business and let the residents sue if they want,” but that’s a dodge. The local government might be the best positioned, with the most relevant local knowledge, to resolve the conflict at the lowest cost. Another one: Should the small town privatize the roads? Or should the local government see itself as a public trust set up to manage a common property? For a large enough city, privatizing might make sense. But for a small enough town, it makes more sense for city hall to actually manage the property. Which invariably leads to all the nasty political behaviors Caplan discusses above.
 I very much like the idea of moving things from public to private governance, but even if we do that it ultimately falls on *someone* to actually govern. 

I'm not one to talk. I apparently can't be bothered to attend my neighborhood association's monthly meetings. (That's partly a function of having three small and demanding children, but I'd make some sacrifices and attend if it became worth my while.) But libertarians should probably take some of these questions a little more seriously. There are a few "Tear down all power structures!" libertarians who find anything that looks like a government intolerable, but I think these libertarians are not very intellectually serious. Someone's going to have to govern. Someone's going to have to do the sucky job of adjudicating disputes between bickering neighbors. Libertarians need to give this problem more thought. (Read Governing the Commons, or anything else by Elinor Ostrom, on the question of private governance and the management of common pool resources.) Some of them may actually need to join existing governments to make any relevant progress. Maybe not me. Maybe not Caplan. But we can't all just put out our hands and say "Not me!" and then expect the world to stop trying to "govern" us. There's  no elegant way to opt out of this. You may not take an interest in politics, but politics takes an interest in you!

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It's weird to have disagreements with someone like Caplan, with whom I 99% agree with on policy. (Note there is a 1% margin of error in this estimate.) I feel like there are a few points of philosophy where I profoundly disagree with him, but no real disagreement regarding what official government policy should be. On another note, I picked up his latest book The Case Against Education and will be devouring it over the next few days and weeks. On another another note, I wish Caplan would respond to his readers in the comments. I feel like I had a good argument with respect to voting, a feeling confirmed by his co-blogger David Henderson piling on. It would have been nice to have an official, "Meh, I dismiss this out of hand" or "That's a good point, I'll think about it" or "Okay, I'll actually start voting now." Instead, crickets. I'm nit-picking here, but this is one way Caplan's excellent blogging could improve.

Tuesday, January 16, 2018

The Economics of Monopoly and Net Neutrality

Advocates of net neutrality have an inaccurate model of how monopolists behave. Scenarios are often suggested in which a media conglomerate partners with an ISP and throttles bandwidth from "anything that isn't us". I find these inconsistent with a basic economic analysis of monopoly behavior (not to mention a little paranoid). Note I'm not saying something like "Corporations aren't greedy" or "market competition solves all problems." I'm assuming for the sake of argument that corporations are greedy profit-maximizers, and I'll assume further that the ISP has a monopoly plus some kind of prospective partnership with a media company which could conceivably benefit from selective throttling.

I won't give you a full theoretical treatment of the economics of monopoly. That would require a chapter or so out of a good microeconomics book. (Do pick up Steven Landsburg's Price Theory if you're curious about this. Or David Friedman's book is free online; here is the chapter on monopoly and oligopoly.) But I'll start with a helpful illustration from an old post at TheBigQuestions.com.

Snidely Whiplash owns all the housing in an isolated region, the Yukon in this example. (Presumably Landsburg chose the Yukon to imply that it's costly, though not impossible, for the residents to move away. Thus Snidely's monopoly represents real market power.) All tenants are identical. Snidely eventually figures out how to extract all of the consumer surplus for himself. "Consumer Surplus" is the difference between what you'd be willing to pay and what you are actually charged. Say the tenants are willing to pay $10,000 max to live in the Yukon, but only have to pay $7,500. They reap a surplus of ($10,000 - $7,500 = ) $2,500, because they are paying $2,500 less than what they actually value their housing at.

If Snidely is a monopoly supplier of housing, he'll eventually capture all of that surplus. He can keep charging more until people almost move out, or he can use some kind of clever scheme to get people to reveal how much they value their housing. If he charges $10,001, everyone leaves. If he sets rent at $10,000, he captures all the surplus for himself and everyone stays. Snidely has a good thing going, assuming he can figure out this sweet spot.

Now Snidely monopolizes the grocery stores in the Yukon. Should he try to extract the consumer surplus using his grocery monopoly? The answer is a clear "No." Remember the residents are almost ready to leave, because he's already extracted all the consumer surplus from the housing market. If he tries to extract the consumer surplus from their grocery purchases, that will be the last straw and they will leave. He can get them to stay by compensating them for the surplus they've lost, but he must pay them more than he can extract with his grocery monopoly. (Do read the Landsburg post, which lays this all out very clearly.) If he manages to price-gouge at his grocery store and extract, say, $20 worth of extra payments from his customers, he'll have to turn around and pay them more than $20 to convince them to stay. 

Okay, now let's say instead of housing and groceries in the Yukon, Snidely monopolizes broadband internet. Suppose again he's serving a market of identical residents and extracting all the surplus. (We can relax these assumptions later. It's just a simplification so we can wrap our minds around the example; this argument doesn't hinge on it.) His internet customers value internet at $100/month, and that's what he charges. Any more and they'd all cancel their subscriptions. He's the internet service provider, but he's also the cable and phone company. One day he says, "I'm going to throttle Netflix so that people buy those $4.99 'watch instantly' rentals through their cable box. I'm also going to throttle Skype and Hangouts so that people will buy landline phone service or sign up for Snidecast's internet voice-and-video service." He gives his mustache a good twirling.

But wait! He was extracting the full surplus from his internet subscribers. He was charging $100 for something his customers value at exactly $100. If he throttles commonly used websites, he'll lower  the value of the internet to his subscribers (to, say, $90 or perhaps less) and they'll all quit en masse! If he throttles certain websites that his customers use, he'll have to give them a lower price. If throttling lowers the value to his users to $90, then that's the most he can charge. He'll have to be confident that he can pick up an additional $10/month by directing people to his brand name services, just to break even.

I think it's hard or impossible to make this work out for Snidely. The internet is one big bundled good. Any throttling of his competitors on the internet lowers the value of the overall bundle he's selling. This necessarily lowers what he can charge to his internet subscribers.

Suppose you relax the assumptions. Internet customers aren't identical. They all place different values on their internet service. That's fine. Monopolists can often engage in price discrimination, which means offering lower prices to customers with lower willingness-to-pay in order to attract those customers and offering higher prices to customers with higher willingness-to-pay in order to extract more surplus from them. Businesses can construct clever schemes to get people to reveal their willingness to pay. Cable companies often offer lower "new customer" rates to their subscribers, and they often extend this rate to repeat customers who are willing to call in and whine about their cable bill. Student and senior citizen discounts are other examples. Sometimes this is very subtle. I discuss other examples here. At any rate, relaxing the assumption of identical customers doesn't change anything if we suppose that Snidely can do some kind of price discrimination. Maybe there is one population willing to pay at most $50/month for internet service and another population willing to pay $100/month. The ISP can figure out who is who, through a combination of basic market research and clever "special offer" schemes. Supposing there are gentle gradations in "willingness to pay" rather than two discrete populations: some will pay $50, some $51, some $52... up to, say, $200. We can still suppose that the ISP has some clever method for price discrimination and can extract the consumer surplus for itself.

Now suppose we relax the assumption that the monopolist is already extracting the full surplus. "Okay, now there's some room to play!" Snidely rubs his hands together. Now he has some leeway to gain by throttling his competitors...or he could just simply raise the price for internet subscription. He could concoct some elaborate scheme to direct internet subscribers to his phone and movie services. Or he could just charge a few more dollars for internet service and call it a day. Too many things have to go right for the "throttle competitors" strategy to actually work. If the monopolist throttles Skype and Hangouts, maybe internet users just use the third best option or use their cell phones to make actual phone calls. If they throttle Netflix and Hulu, maybe internet users go to Youtube or watch TV (which doesn't do the cable company a whole lot of good, given the fixed monthly rate). Or maybe they break out their physical DVD movies and box sets, or rediscover Family Video and Redbox. (Hmm...there used to be a service that would mail you DVDs and you'd mail them back when you were done watching them. It had a much better selection than that movie-streaming service that everyone's using now.) Maybe they even decide to keep watching their slightly slower Netflix and slightly less reliable Skype. Throttled internet users may end up spending money to get what they were previously getting out of their internet connection, but there is no guarantee that they'll be spending those dollars on the monopolist's preferred provider. It makes a lot more sense to simply raise the price of an internet connection. "Throttle my competitor's services so they will buy mine" is an incredibly precarious strategy. It depends on too many things going right. For the strategy "Throttle Netflix so customer will rent more Comcast movies" to work, Comcast has to be the customer's second most favored option after Netflix. That may well be true for some of the ISP's customers, but fat chance it's true for most of them. Rather than foreseeing and selectively throttling all of the customer's many alternatives, the ISP would do better to just raise their monthly rates. This could entail a general rate hike or raising rates selectively by getting better at price discrimination. And to get the highest possible price, the ISP will want to maximize the value of an internet connection to its customers. That probably does not entail throttling popular websites.

The basic problem here is monopoly per se, not the implausible scenarios illustrated by neutrality advocates. If ISPs are actually monopolists, then they can extract most of the surplus from their subscribers. Granted that's a problem if you're an internet user. However, they're more likely to exert that power in the form of higher monthly rates than sinister self-serving throttling of competitors.

I want to reiterate that I don't think ISPs are monopolists in any meaningful sense. This is important because ISPs can't do all of those nasty non-neutral things if they aren't a monopoly. You can get a pretty good data plan through your smartphone. You can get the non-internet versions of things: newspapers, DVDs and books (for free) from your local library, Walmart instead of Amazon, talking to people on the phone instead of over Skype. It's slightly less convenient, but not exactly devastating. Alleged monopolies are always too narrowly defined. A "monopoly" on broadband internet competes with other kinds of physical media; if one gets too expensive people will substitute in others.

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Some unconnected thoughts on this topic below.

I think David Friedman is trying to make this same point here in a Slate Star Codex thread. Another commenter totally misses the point. Excerpts:
DF: They could give their movie firm an advantage with their ISP customers by charging high prices to their competitors, but why should they?

Anonymous commenter: Because they could easily dominate the online movie market and make way more money that way?
Ugh. Sometimes you have those "why even bother" moments. The conversation is instructive, anyway.

I have quite a lot more to say about net neutrality here, with a lot of overlap in this post you're reading now.

Recall there are historical examples of people offering an exclusive, non-neutral internet connection and the market breaking them down. ISPs eventually learn that customers want a neutral internet, and it's easier to maximize the value of the internet subscription and just charge some fixed rate for it.

The Landburg post really is brilliant. If it's unclear on an initial reading, read the comments. Someone was probably as confused as you are and asked your question. This comment by Landsburg hit the mark, at least for me:
Yes, someone with a double (vertical) monopoly has no more power to abuse the market than someone with one.

The easiest way to see this is to consider a monopolist who owns two toll booths, one at each end of a bridge. You’ve got to go through both booths to get to the other side.

This monopolist is no richer than a monopolist who owns just one toll booth on an identical bridge. Either of them will charge you (in total) what you’re willing to pay to get to the other side.
Riffing on the monopoly bridge-owner. Imagine someone who monopolizes the bridges to some island, which contains an awesome shopping center. Will they try to get people to buy Bridge Corp brand clothing and books and groceries once they're in the shopping center? Will they strategically sabotage other brands, staining their clothing, running magnets over their computers, relegating them to a dark corner of the shopping mall that never gets cleaned or checked by security? Probably not. They'll probably say, "We're good at building bridges. That's our comparative advantage. Let's maximize our revenues from the toll booth. Let Starbucks, the Gap, and the Apple store specialize in coffee, clothing, and computers." Everything they do to hamper their competitors (or the competitors of a company they hold a sinister partnership with) decreases the overall value of the shopping center, and thus reduces the toll they can collect at the bridge. ISPs are essentially monopolists on the bridge to the internet (at least in the world of net neutrality).  Lots of stores carry their own brands for sale; they usually don't make the other brands hard to find because doing so would lower the value of the overall shopping experience. They could make more revenue by selling more of the store brand product if all else were equal, but all else is not equal.

It's worth reiterating that some "non-neutral" behaviors are good for customers. Identifying and throttling the big bandwidth hogs on my network is good for me, even if it means I'm occasionally the one who gets throttled. Offering tiers of service and internet fast lanes is also good for consumers. It gives the ISPs incentive to build new infrastructure. They can reap a temporary premium for their "fast lanes" until the fast lanes become the normal-speed lanes, at which point they build another fast lane. Despite all the griping about potential throttling, internet connection speeds are increasing exponentially. Anyway, it's important to distinguish between "throttling bandwidth hogs because they're slowing down the network" and "throttling Netflix because I have a deal with Hulu." 

Sunday, January 14, 2018

We’re Number 2!

Apparently a search for "opioid epidemic debunk" on duckduckgo.com turns up a post from my blog as the second hit. By the way, that is by a wide margin my most read post. I'm rather proud of it.

A search for "climate sensitivity publication bias" turns up one of my posts in the fifth position (not counting the ad at the top). Not as well read, but I'm proud of that one, too.

Not exactly viral news, but not bad. These are narrow but important topics. It's nice to know someone researching these topics will come across something I wrote. Supposedly Duck Duck Go doesn't track anything on my computer, so it's not up-rating these posts in the search results just for me. I'm not quite sure what Google would turn up. In a Google search in an incognito window, I'm getting 4th place for "opioid epidemic debunk". For "climate sensitivity publication bias" I'm at the top...of the second page. But the fourth hit is a Ricochet post written by a friend of mine, linking to my blog. The 1st, 2nd, and 3rd hit are links to the two papers I discuss in my post.

Two cheers for small victories.

Tuesday, January 9, 2018

Markets Break Down Internet Non-Neutrality

In his book WTF, Tim O’Reilly tells the story of MSN and AOL in the early days of the internet (well, the mid- to late-90s anyway). Both were trying to be exclusive content providers, or “walled gardens.” Both failed when they realized that their customers wanted access to the broader internet. In The Fallacy of Net Neutrality, Thomas Hazlett argues that the same thing happened in the Japanese market for internet service providers.

(There is a short narrative description of the MSN/AOL walled garden episode in The Rate and Direction of Inventive Activity Revisited on Google books, page 647; you should be able to find it free online.)

This might have been a good opportunity for O’Reilly to point out the implications for the wider “net neutrality” argument, but he declined to do so. I know, I know, Microsoft and AOL weren't literally ISPs in the sense of supplying and maintaining the physical infrastructure. They weren’t natural monopolies like the cable company. But the episode shows that big players can’t simply throw their weight around and run roughshod over their customers’ preferences. These were effectively internet choke points at the time, and the major players failed to exploit their supposed market power. They tried to constrain customers to their walled gardens, but were unable to.
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If you use any of those programming books with animal drawings on the cover, Tim O’Reilly is that O’Reilly. Some of my readers can probably crane their heads to their bookshelf and see a few books published by his company. Many of his books have added tremendous value to my life. WTF was not one of them. The book has some terrible economics in it, which I may discuss in a future post.

Anti-Market Paranoia On Full Display

This recent Econtalk with Matt Stoller was interesting. I wish I could say I learned something from it, but unfortunately Stoller was far too emotional and his arguments were poor. It is sometimes interesting to see facile anti-market leftism in plain view.

Stoller thinks that Amazon is deciding what products are available for sale, rather than selling the products that people want to buy. He thinks that Google and Facebook are deciding what kind of content you should be viewing, rather than trying to predict what kind of content you'd like to view and trying to match your expectations.

First off, Google, Amazon, and Facebook are emphatically not monopolies. I have literally price-shopped on Ebay, and despite the mild hassle of using a website I'm less familiar with that doesn't have my credit card on file, I bought from Ebay because the price was lower. I've done this numerous times, even though Amazon is my default. Amazon has a monopoly on online shopping in the same sense that MSN and Bing have a monopoly on the attention of senior internet users who don't know how to change their home page.

During the interview, Stoller claims implausibly that Bing and DuckDuckGo aren't adequate substitutes for Google search, but both give perfectly serviceable results. Whenever I've compared the two, or used Bing because it was the default homepage and I was lazy or curious, I've gotten perfectly good search results. I really don't know what he has in mind.

Facebook appears to have the market cornered on social media, but of course there are substitutes. Orkut, Google plus, LiveJournal, Twitter, Instagram, blogspot. Or good old fashioned e-mail and texting, like our hardy pioneer forefathers managed to get by with. Some people I know aren't on Facebook, and several have left it. Clearly people can do without.

Russ Roberts tries to correct Stoller, pointing out that consumers have vastly more options for books and (near and dear to my heart) craft beers than they did even two decades ago. Stoller responds to the point about books by implying that most new books are low-quality books about fart jokes. He responds to the point about craft beers by saying that a lot of them are owned by big corporate conglomerates. (?!?) Rather than contend seriously with a challenge to his argument, he seemed content to play the part of the sneering elitist. If I were to repeat Stoller's argument, I would feel like I'd failed an ideological Turing test. I really don't understand his point. Amazon doesn't decide what people will buy. For the most part its search results show people what they're looking for; there is very little latitude to manipulate this in Amazon's favor. At worst, Amazon can decide not to carry a product, and the buyer will have to go elsewhere to get it. It's kind of implausible that someone who is deciding which book to dedicate 10-20 hours to reading will just say, "Meh, I'll take the top hit of this search and just bury my face in it." Even if Amazon downgrades a book in a search because (for some reason) it doesn't want people to read it, readers who want that book will find it without too much trouble. Anyway, I'm not sure what the "solution" is to Stoller's problem. Should Matt Stoller be deciding which books are on offer? Should he be the one manipulating the ordering of search results, thus directing people to more meritorious books and less meretricious ones? I don't know how to satisfy his concern without doing some version of "Government agency decides which books have merit and which don't, and uprates/downrates accordingly." Or maybe he's fine with a market-based solution to the problem. Perhaps he just wants more options in the marketplace (ahem...eBay...ahem...BarnesandNoble.com).

Stoller thinks that these "monopolies" are shaping our preferences and telling us what to buy and read. I think, at the very most, these companies are moving along our indifference curves, not trying to shape our preferences.

Listen to the podcast, and read the comments section. This was one of the longer and more enlightening comments sections I've seen on Econtalk. Many people chime in to comment on Stoller's weak arguments and correct his factually mistaken examples.

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Economists have this really neat concept of indifference curves. Suppose I'd like 2 pants and 2 shirts. But I'd be just as happy with 4 pants and 1 shirt, or 7 pants and 0 shirts. It's best to have 2 of each, but give me enough shirts and I'll give up a pair of pants. You see this kind of declining marginal value with any paring of goods. (The idea here is that each additional unit of something is worth less than the last one. So to get me to take "all pants with no shirts", you have to give me a lot of pants.) You can plot these indifference curves in 2 dimensions (or more). Maybe the points (7,0), (4,1), (2,2), (1,4), and (0,7) describe one indifference curve. If you had more resources, you'd prefer more of everything and you'd be sitting on the curve defined by points (12,0), (8,1), (5,2), (3,3), (2,5), (8,1), and (0,12). I think Amazon, Google, and Facebook at best can nudge us to a different point on an indifference curve. That's not at all frightening to me. I think Stoller is trying to tell us that these companies can reshape our indifference curves completely, or compel us to spend more thus pushing us out to a different indifference curve, or that checking beyond the first few hits on a search represents a tremendous resource constraint for typical shoppers. I find this all very silly.

Monday, January 8, 2018

Nobody Ever Gets Bad News On Time

People are always annoyed at getting bad news too late. And it's always too late. There is this outraged “Why wasn’t I told sooner?” tone. Whenever I hear this I think, “So, you want to be constantly deluged with false warnings?”

Think about the chain of events that leads to bad news being disclosed. Something bad might or might not have happened. Initially the problem is discovered by some low-level worker bee, perhaps someone not competent to judge the scope or scale of the problem. They have to disclose it to someone else, who must prioritize the issue. Some due diligence must be done to determine the extent of the problem, or whether it’s a real problem at all. Perhaps there are several rounds of this before the bad news makes its way up the chain to an important decision-maker. Someone with authority has to assemble the facts and craft the narrative: what happened, what are the implications, what are we doing to solve it, whose fault was it, etc. Disclosing too early means some part of this narrative-crafting is not done, and thus the disclosure elicits even more outrage and confusion than if you’d gathered all the answers first. 
So what does this mean? What are you doing about it? Then why even tell us?
If all potentially bad news were disclosed extremely early, we’d end up with a lot needless panic. Maybe some important items would be disclosed earlier, but then someone would have to mop up after all the wrongful disclosures, too. “No, that wasn’t actually a problem. No, that’s working fine. No, that was also a false alarm.”

How should you announce that you’ve put an unsafe product on the market? Announce right away, before the extent of the problem is known, sowing confusion and chaos? Or announce when you understand the extent of the problem, which units are damaged goods and which ones are fine and which ones you’re going to replace just to be safe even though they’re almost certainly fine?

 How do you announce layoffs at a company? Tell everyone, “Some of you won’t be here in a few months. We’re just not sure who yet.”? Or carefully, deliberately sort out who will keep their job and who will be let go, and announce it all at once? Do you give everyone updates on their layoff likelihood? “Matt, you’re at 10%... Oops, looks like you’re up to 50% today.”

I think this full-disclosure world would be needlessly stressful and costly. Prices would be high because unnecessary product recalls would be happening at the drop of a hat, and work would be stressful because you’d always have this executioner’s ax connected to a roulette wheel over your head.

Most people don’t actually want to live in that world. But people do want to preserve their right to be sanctimonious. People love having legitimate-seeming reasons (actual reasons!) to despise their enemies. And of course lawyers love having plausible rationales to sue. So I suspect “Why didn’t you tell us sooner!?” is here to stay.

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 Sometimes a delayed disclosure really is motivated by cynicism or moral cowardice or simple poor decision-making. If you were looking for it, there’s my hedge. I just think it’s hard to separate the wrongfully delayed disclosures from the prompt disclosures in real time, even though it often seems so easy in retrospect. 

"On Time"? "In Time"? Couldn't decide which sounded right. Interesting discussion of uses here.