When to Rob a Bank: ...And 131 More Warped Suggestions and Well-Intended Rants
1 We Were Only Trying to Help
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The work of my University of Chicago colleague Robert Pape suggests that the strongest predictor of terrorist acts is the occupation of a group’s territory. From that perspective, having American troops in Iraq is probably not helping to reduce terrorism—although it may be serving other purposes. Ultimately, though, it strikes me that there are two possible interpretations of our current situation vis-à-vis terrorism. One view is this: the main reason we aren’t currently being decimated by terrorists is that the government’s anti-terror efforts have been successful. The alternative interpretation is that the terror risk just isn’t that high and we are greatly overspending on fighting it, or at least appearing to fight it. For most government officials, there is much more pressure to look like you are trying to stop terrorism than there is to actually stop it. The head of the TSA can’t be blamed if a plane gets shot down by a shoulder-launched missile, but he is in serious trouble if a tube of explosive toothpaste takes down a plane. Consequently, we put much more effort into the toothpaste even though it is probably a much less important threat.
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David Cay Johnston, who does an incredible job covering U.S. tax policy and other business issues for The New York Times, reports that the IRS is outsourcing the collection of back taxes to third parties, a.k.a. collection agencies. “The private debt collection program is expected to bring in $1.4 billion over 10 years,” he writes, “with the collection agencies keeping about $330 million of that, or 22 to 24 cents on the dollar.”
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The IRS admits that external collection is far more expensive than internal collection. Former commissioner Charles O. Rossotti once told Congress that if the IRS hired more agents, it “could collect more than $9 billion each year and spend only $296 million—or about three cents on the dollar—to do so,” Johnston writes.
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Let’s Just Get Rid of Tenure (Including Mine) (SDL) If there was ever a time when it made sense for economics professors to be given tenure, that time has surely passed. The same is likely true of other university disciplines, and probably even more true for high-school and elementary-school teachers. What does tenure do? It distorts people’s effort so that they face strong incentives early in their career (and presumably work very hard early on as a consequence) and very weak incentives forever after (and presumably work much less hard on average as a consequence). One could imagine some models in which this incentive structure makes sense. For instance, if one needs to learn a lot of information to become competent, but once one has the knowledge it does not fade, and effort is not very important. That model may be a good description of learning to ride a bike, but it is a terrible model of academics.
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The best-case scenario would be if all schools could coordinate on dumping tenure simultaneously. Maybe departments would give the deadwood a year or two to prove they deserved a slot before firing them. Some non-producers would leave or be fired. The rest of the tenure-age economists would start working harder. My guess is that salaries and job mobility would not change that much. Absent all schools moving together to get rid of tenure, what if one school chose to unilaterally revoke tenure? It seems to me that it might work out just fine for that school. It would have to pay the faculty a little extra to stay in a department without an insurance policy in the form of tenure. Importantly, though, the value of tenure is inversely related to how good you are. If you are way over the bar, you face almost no risk if tenure is abolished. So the really good people would require very small salary increases to compensate for no tenure, whereas the really bad, unproductive economists would need a much bigger subsidy to remain in a department with tenure gone. This works out fantastically well for the university because all the bad people end up leaving, the good people stay, and other good people from different institutions want to come to take advantage of the salary increase at the tenure-less school.
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If the U of C told me that they were going to revoke my tenure, but add $15,000 to my salary, I would be happy to take that trade. I’m sure many others would as well. By dumping one unproductive, previously tenured faculty member, the university could compensate ten others with the savings.
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One thing markets are good at is allocating people to tasks. They accomplish this through wages. As such, we should pay U.S. soldiers a fair wage to compensate them for the risks they take! A draft is essentially a large, very concentrated tax on those who are drafted. Economic theory tells us that is an extremely inefficient way to accomplish our goal.
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Another, more recent paper by Finan, Ernesto Dal Bó, and Martín Rossi finds that the quality of civil servants also improves when they are paid more, this time in Mexican cities: We find that higher wages attract more able applicants as measured by their IQ, personality, and proclivity toward public sector work—i.e., we find no evidence of adverse selection effects on motivation; higher wage offers also increased acceptance rates, implying a labor supply elasticity of around 2 and some degree of monopsony power. Distance and worse municipal characteristics strongly decrease acceptance rates but higher wages help bridge the recruitment gap in worse municipalities.
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But what if, instead of paying politicians a flat rate for their work, thereby encouraging them to exploit their office for personal gains that may go against the collective good, we incentivized them to work hard for the collective good? How would I go about doing this? By offering politicians the equivalent of stock options in the legislation they produce. If an elected or appointed official works for years on a project that yields good outcomes in public health or education or transportation, let’s write them a big check five or ten years down the road, once those outcomes have been verified. What would you rather do: pay a U.S. secretary of education the standard $200,000 salary whether or not he does anything worthwhile—or write him a check for $5 million in ten years if his efforts actually manage to raise U.S. test scores by 10 percent?
2 Limberhand the Masturbator and the Perils of Wayne
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One great thing about starting a blog after you’ve written a book is that you can continue the conversation that the book began. A book, once it’s published, is pretty much set in stone. But the blog can be updated every day, every hour. Even better: you now have an army of book readers scouring the universe for stories that confirm (or refute) what you wrote in the book.
3 Hurray for High Gas Prices!
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He made an interesting point: knowing Coke’s secret formula is probably worth almost nothing to Pepsi. Here is the logic. Let’s say that Pepsi knew Coke’s secret formula and could publish it so that anyone could make a drink that tasted just like Coke. That would be a lot like what happens to prescription drugs when they go off patent and generic drug companies come in. The impact would be that the price of real Coke would fall a lot (probably not all the way to the price of the generic Coke knockoffs). This would clearly be terrible for Coke. It would probably also be bad for Pepsi. With Coke now much cheaper, people would switch from Pepsi to Coke. Pepsi profits would likely fall. So if Pepsi had Coke’s secret formula, they wouldn’t want to give it away to everyone. What if they instead kept it to themselves and made their own drink that tasted exactly like Coke? If they could really convince people that their drink was identical to Coke, then the new Pepsi-made version of Coke and the Real Thing would be what economists call “perfect substitutes.” When two goods are essentially interchangeable in consumers’ minds, that tends to lead to fierce price competition and very low profits. Neither Coke nor the Pepsi knockoff of it would be very profitable as a consequence. With the price of Coke lower, consumers would switch away from the original Pepsi to either Coke or the new Pepsi-made Coke knockoff, which would be far less profitable than original Pepsi anyway. In the end, both Coke and Pepsi would likely be worse off if Pepsi had Coke’s secret formula and acted on it. So, maybe the executives at Pepsi were acting morally and honorably when they turned in those suspected of stealing Coke’s secrets. Or maybe they are just good economists.
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The penny floor can be found at the Standard Grill at the new Standard Hotel in New York, the one straddling the High Line. The Standard tells us that it used 250 pennies per square foot, or 480,000 pennies in all. For those of you thinking about a home renovation, that’s $2.50 per square foot in flooring materials. That stacks up pretty well against glass tile ($25), polished marble ($12), porcelain ($4), or even prefinished walnut ($5). It tells you something about the penny’s uselessness as a currency that, even though it is actual money, it is still cheaper than all these other materials to make a floor out of.
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More generally, the economist Richard Thaler coined the phrase mental accounts to describe the way in which people seem to treat different assets as non-fungible, even though in principle it seems like they should be. Although my economist friends make fun of me for it, I definitely use mental accounts myself. For me, a dollar made playing poker means much more than a dollar earned from the stock market going up. (And a dollar lost playing poker is likewise far more painful.)
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To make fruit matters more complicated, I can buy one banana (also imported) and one kiwifruit for about the same price as one apple, which may well have been grown as near as upstate New York. So I wrote to Will Masters, a food economist at Tufts University’s Friedman School of Nutrition. Most economists, as I’m sure you know, reply to such queries in verse, and Will is no exception: Damn supply and damn demand: Why cheap hogs and costly ham? Bargain wheat, expensive flour, The oldest villain’s market power. Just one seller makes us nervous, Like that U.S. Postal Service: They may offer bargain prices, But who disciplines their vices? Middlemen have long been blamed For every market that’s inflamed, Yet better explanations come From many a Hyde Park alum. Modern views from Chicago-Booth Give a nuanced view of truth, Steven Levitt and John List Made each of us a freakonomist. We let data speak its mind No matter what Friedman opined And find the price of fruit and veg To be driven by the market’s edge. Like the tail that wags the dog, Marginal thinking clears the fog: Sellers, buyers, traders too, Interact and prices ensue. A kiwi costs 33 cents Simply because no one prevents Another farm or New York store From entering and selling more. In contrast apples may be dear, For reasons that will soon be clear: Picking them’s below our station, To lower costs we need migration. Bananas have a different story, Seedless magic, breeder’s glory, Cheap to harvest and to ship, Who cares if workers get paid zip? Each crop’s method of production, Where it grows and how it’s trucked in, Satisfies some needs quite cheaply While other costs will rise more steeply. A buyer’s choices matter too, For nonsense stuff like posh shampoo, Prices are not down to earth, The more you pay the more it’s worth. Behavior is as behavior does, Maybe some things are “just because,” Much of life’s a mystery, A habit due to history. For prices, though, it’s competition Plus tariffs set by politicians, That determines whether we see Such delightfully cheap kiwi. Bravo.
5 How to Be Scared of the Wrong Thing
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In SuperFreakonomics, we identified one of the most dangerous activities any person can engage in: walking drunk. Seriously. The data show that walking one mile drunk is eight times more dangerous than driving one mile drunk. But mostly people just laughed and ignored us. When it comes to evaluating risks, people stink for all sorts of reasons—from cognitive biases to the media’s emphasis on rare events. Over the years that has generated blog fodder on subjects as diverse as the fear of strangers, running out of oil, and horseback riding.
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Not apples to apples
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So why do I compare peak oil to shark attacks? It is because shark attacks mostly stay about constant, but fear of them goes up sharply when the media decides to report on them. The same thing, I bet, will now happen with peak oil. I expect tons of copycat journalism stoking the fears of consumers about oil-induced catastrophe, even though nothing fundamental has changed in the oil outlook in the last decade.
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So which would you be more scared of: an American Muslim family you knew nothing about or the guy from your church who had just gone through a divorce? As we’ve written before, most people are terrible at risk assessment. They tend to overstate the risk of dramatic and unlikely events at the expense of more common and boring (if equally devastating) events. A given person might fear a terrorist attack and mad cow disease more than anything in the world, whereas in fact she’d be better off fearing a heart attack (and therefore taking care of herself) or salmonella (and therefore washing her cutting board thoroughly). Why do we fear the unknown more than the known? That’s a larger question than I can answer here (not that I’m capable anyway), but it probably has to do with the heuristics—the shortcut guesses—our brains use to solve problems, and the fact that these heuristics rely on the information already stored in our memories. And what gets stored away? Anomalies—the big, rare, “black swan” events that are so dramatic, so unpredictable, and perhaps world-changing, that they imprint themselves on our memories and con us into thinking of them as typical, or at least likely, whereas in fact they are extraordinarily rare. Which brings us back to Bruce Pardo and Atif Irfan. The people who didn’t seem to fear Pardo were friends and relatives. The people who did fear Irfan were strangers. Everyone got it backward. In general, we fear strangers way more than we should. Consider a few supporting pieces of evidence: 1. In the U.S., the proportion of murder victims who knew their assailants to victims killed by strangers is about 3 to 1. 2. Sixty-four percent of women who are raped know their attackers; and 61 percent of female victims of aggravated assault know their attackers. (Men, on the other hand, are more likely to be assaulted by a stranger.) 3. How about child abduction? Isn’t that the classic stranger crime? A 2007 Slate article explains that of the missing children in one recent year, “203,900 were family abductions, 58,200 were nonfamily abductions, and only 115 were ‘stereotypical kidnappings,’ defined in one study as ‘a nonfamily abduction perpetrated by a slight acquaintance or stranger in which a child is detained overnight, transported at least 50 miles, held for ransom, or abducted with the intent to keep the child permanently, or killed.’” So the next time your brain insists on fearing strangers, try to tell it to cool out a bit. It’s not that you necessarily need to insist that it fear your friends and family instead—unless, of course, you are friends with someone like Bernie Madoff. Let’s not forget that the greatest financial fraud in history was committed primarily among friends. And with friends like that, who needs strangers?
6 If You’re Not Cheating, You’re Not Trying
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“Cheating may or may not be human nature,” we wrote in the first chapter of Freakonomics, “but it is certainly a prominent feature in just about every human endeavor. Cheating is a primordial economic act: getting more for less.” That chapter was called “What Do Schoolteachers and Sumo Wrestlers Have in Common?” Over the ensuing ten years, we’ve had no trouble finding further evidence in support of this argument.
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Original problem: clickbaity titles
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Have you ever been in a conversation about, say, a particular book and been tempted to say you’ve read it even though you haven’t? I am guessing the answer is yes. But why would anyone bother to lie in such a low-stakes situation? The book lie is what you might call a lie of reputation: you are concerned with what other people think of you. Of the many reasons that people lie, I have always thought that the lie of reputation is the most interesting—as opposed to a lie to gain advantage, to avoid trouble, to get out of an obligation, etc. A new paper by César Martinelli and Susan W. Parker, called “Deception and Misreporting in a Social Program,” offers some fascinating insights into lies of reputation. It takes advantage of a remarkably rich data set from the Mexican welfare program Oportunidades. It records the household goods that people say they have when they are applying for the program and it also records the household goods that are actually found in that household once the recipient’s application has been accepted. Martinelli and Parker worked with data from more than one hundred thousand applicants, representing 10 percent of the applicants interviewed that year (2002). It turned out that a lot of people underreported certain items that they thought might exclude them from getting benefits. Below is a list of underreported items followed by the percentage of recipients who owned that item but said they didn’t: Car (83 percent) Truck (82 percent) Video recorder (80 percent) Satellite TV (74 percent) Gas boiler (73 percent) Phone (73 percent) Washing machine (53 percent) That’s not very surprising: you might expect people to lie to gain the advantage of a welfare benefit. But here’s the surprise. Below is a list of household items that were overreported—i.e., the items that applicants said they had but in fact did not (again, followed by percentages): Toilet (39 percent) Tap water (32 percent) Gas stove (29 percent) Concrete floor (25 percent) Refrigerator (12 percent) So four out of ten applicants without a toilet said they had one.
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The Martinelli-Parker paper may have broad implications for not only poverty programs but any kind of project where the data are self-reported. Think about a typical survey on drug use, sexual behavior, personal hygiene, voting preference, environmental behavior, etc. Here’s what we once wrote, for instance, in an article about the lack of hand hygiene in hospitals: In one Australian medical study, doctors self-reported their hand-washing rate at 73 percent, whereas when these same doctors were observed, their actual rate was a paltry 9 percent.
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Is Cheating Good for Sports? (SJD) That was the question I found myself asking while reading through the Times sports section in recent days. I understand that we are sort of between seasons here. The Super Bowl is over, baseball has yet to begin, the NBA is slogging through its long wintry slog, and the NHL—well, I just don’t care much about hockey, sorry.
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How would this be rewritten if the book was time aware?
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Good God: What does it say about the U.S. tax code that people like Geithner, Daschle, and Killefer haven’t properly paid their taxes? (By “people like” them, I mean people who are smart and accomplished, have been through many application and vetting processes in their careers, and above all have reason to comply with tax paying.) Here, let’s make it a quiz: a. If all three of them were intentionally cheating (and getting away with it until high-level scrutiny), then it’s much too easy to cheat on taxes. b. If all of them made honest mistakes, then the tax code simply isn’t working. c. If there’s some combination of cheating and mistakes, then it’s too easy to cheat and the tax code isn’t working. I’d vote for C. We once wrote a column about tax cheating which included this passage: The first thing to remember is that the IRS doesn’t write the tax code. The agency is quick to point its finger at the true villain: “In the United States, the Congress passes tax laws and requires taxpayers to comply,” its mission statement says. “The IRS role is to help the large majority of compliant taxpayers with the tax law, while ensuring that the minority who are unwilling to comply pay their fair share.” So the IRS is like a street cop or, more precisely, the biggest fleet of street cops in the world, who are asked to enforce laws written by a few hundred people on behalf of a few hundred million people, a great many of whom find these laws too complex, too expensive and unfair.
7 But Is It Good for the Planet?
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I very much understand the locavore instinct. To eat locally grown food or, even better, food that you’ve grown yourself, seems as if it should be 1) more delicious; 2) more nutritious; 3) cheaper; and 4) better for the environment. But is it?
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Savings on food milers could be spent on carbon offsets
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4. But growing your own food has to be good for the environment, right? Well, keeping in mind the transportation inefficiencies mentioned above, consider the “food miles” argument and a recent article in Environmental Science and Technology by Christopher L. Weber and H. Scott Matthews of Carnegie Mellon: We find that although food is transported long distances in general (1640 km delivery and 6760 km life-cycle supply chain on average) the GHG [greenhouse gas] emissions associated with food are dominated by the production phase, contributing 83% of the average U.S. household’s 8.1 t CO2e/yr footprint for food consumption. Transportation as a whole represents only 11% of life-cycle GHG emissions, and final delivery from producer to retail contributes only 4%. Different food groups exhibit a large range in GHG-intensity; on average, red meat is around 150% more GHG-intensive than chicken or fish. Thus, we suggest that dietary shift can be a more effective means of lowering an average household’s food-related climate footprint than “buying local.” Shifting less than one day per week’s worth of calories from red meat and dairy products to chicken, fish, eggs, or a vegetable-based diet achieves more GHG reduction than buying all locally sourced food.
9 When to Rob a Bank
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If the perpetrator is under eighteen, then not only will he have to do time in prison but his parents should also be required to serve at least half of the time on behalf of his crime. Everything starts and stops in the home! The greatest way to make this happen is to make it law and set up organizations that educate parents on how to stop gun violence and clearly teach [their children] the consequences that result from gun violence.
10 More Sex Please, We’re Economists
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Our personal welfare is almost always in conflict with the greater good. When something exciting happens at the ballpark, everyone stands up to see better, and therefore nobody succeeds. At parties, everyone speaks loudly to be heard over everyone else, and therefore everyone goes home with a sore throat. The one great exception is the interaction among buyers and sellers in a competitive marketplace, where—for fairly subtle reasons—the price system aligns private and public interests perfectly. That’s a miraculous exception, but it is an exception. In most other areas, there’s room to improve people’s incentives. One theme of More Sex Is Safer Sex is that some of those disconnects between private and public interests are surprising and counterintuitive. Casual sex is one of those examples. If you are a recklessly promiscuous person with a high probability of HIV infection, you pollute the partner pool every time you jump into it—and you should be discouraged, just as any polluter should be discouraged. But the flip side of that is that if you are a very cautious person with a low probability of infection—and a low propensity to pass on any infection that you do have—then you improve the quality of the partner pool every time you jump into it. That’s the opposite of pollution, and it should be encouraged for exactly the same reasons that pollution should be discouraged.
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The other thing I learned yesterday was far more interesting, with far greater implications. He told me that tooth decay in general, even among wealthy patients, is getting worse and worse, particularly for people in middle age and above. The reason? An increased reliance on medications for heart disease, high cholesterol, depression, etc. Many of these medications, Dr. Reiss explained, produce dry mouth, which is caused by a constricted salivary flow; because saliva kills bacteria in the mouth, a lack of it means increased bacteria, which leads to increased tooth decay.
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Same mechanism for vaping
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About four hours later, she enters a peaceful coma and dies at 6:30 A.M. on August 29, just twenty days after the initial MRI demonstrated the brain tumors. The purpose of this brief chronicle is not to criticize the practice of medicine. While I had several disagreements with non-physicians, the physicians who cared for my daughter, without exception, were very understanding and gave freely of their time. Each did everything possible to deal with her enormously aggressive malignancy. Rather, I have attempted to relate the experiences of a father/physician as he watches his daughter die of cancer. Her course was a testament to the limitations of medical care. In this era of molecular biology, the most valuable medication was morphine, a drug that has been available for almost two hundred years. Although painful, I am capable of describing the events of my daughter’s illness. When I try to describe my despair and grief, words fail.
12 When You’re a Jet . . .
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