I was cold-called the other day by a television researcher wanting to pick my brain about a hypothetical scenario: a “drop the debt” for the UK consumer, in which all our debts were forgiven. She wanted to know whether this would be good for the economy. Like many stupid questions, this one was surprisingly deep.
She seemed to be under the impression that all consumer debt is simply a loan from banks, and such a campaign would transfer cash from banks to consumers, denting those fat-cat bank profits. I pointed out that banks do not print money: they borrow it from depositors or others, repackage it and lend it out. (This is why banks are often called “financial intermediaries”.) The most obvious result of this “drop the debt” idea would be the sudden collapse of the financial system, which was unlikely to be good news for most people.
But assume, somehow, that the banks could be kept alive. I argued that it would be hard to say much about the effects of the “drop the debt” campaign without identifying who had lent the money in the first place: domestic savers, foreign investors – who?
What I should have said, of course, is that the easiest way to arrange a “drop the debt” campaign would be to have a quick burst of 100,000 per cent inflation, wiping out the value of all debt and all savings. Most economists believe that as an economic shot in the arm, this strategy is not recommended.

The very excellent Vox EU is one year old this week.

A lovely mini-essay from Brandon Fuller on the Aplia Econ Blog, about the cost to dry-cleaners of tariffs aimed at protecting the strategically-vital US wire coat-hanger manufacturing industry:

Milton Magnus III, owner of one of the U.S. manufacturers that filed for the anti-dumping duties, argues that the costs to consumers are negligible—amounting to a penny or two per hanger. “If I pay $12.95 to have my suit cleaned and that hanger cost him a cent and a half more, that’s $12.96 and a half. It’s not a factor.” Magnus’s point partly explains why import-competing industries often succeed in their efforts to lobby government for the imposition of trade restrictions: the tariff offers concentrated benefits to a few domestic firms, while the costs of the tariff are spread out among millions of consumers—none of whom see a sharp increase in price. Of course, over millions of hangers, a penny or two per hanger can add up.

Advocates of trade restrictions often argue that protection will save jobs. Since we can observe price and cost increases associated with trade restrictions, we can estimate how much it costs to save each job in a protected industry. According to the NPR story, there are roughly 30,000 dry cleaners in the U.S., and on average, each pays an additional $4,000 per year due to the hanger tariff. This indicates an average annual cost of 30,000 firms x $4,000 per firm = $120 million. According to the U.S. International Trade Commission’s report, U.S. employment in wire hanger manufacturing was 564 workers in 2004 and fell to 236 workers by 2006.

Fuller shows that a lowball estimate of how much it costs to save a job in the hanger industry is over $200,000 per year - these jobs pay $30,000 per year.

Poor Ron James is getting a pounding from the tabloids for charging £1.99 a litre for petrol (that’s about $18 $14-15 a gallon, for those of you reading this in the US):

He said: ‘I am trying to stop people panic-buying.

‘People have been buying hundreds of pounds worth of fuel instead of the usual £5 or £6.

‘It slowed down after I put the price up and the result is I’ve still got fuel left.

‘It’s been chaos and it’s still chaos. I’ve never seen anything like it in 30 years of petrol retailing.’

He added: ‘We’re not being mean. I would say I’m a very nice person. The price will go back to normal as soon as we get a delivery.’

But one disgruntled driver said: ‘It’s just greedy profiteering. It’s outrageously high - it’s atrocious. It’s clearly an attempt to take advantage of the fuel shortage.’

I’m going to take a stand for Mr James here.

Here’s the problem: a minor hiccup for fuel supplies in the UK (the result of a brief strike by some tanker drivers) has led to a more severe disruption, because demand has surged. Demand has surged because people are nervous that they may not be able to fill up when they need to; but since the strike has not actually drained much fuel out of the system, the only reason that people may not be able to fill up is because demand has surged.

Here’s the solution: petrol stations should be temporarily raising the price of fuel during the strike to discourage what tends (unfairly) to be called “panic buying”. It would not take more than a few pennies; everybody would be confident that fuel was readily available, and nobody would buy unless they really needed to.

Why doesn’t that happen? Because petrol station managers are terrified of being accused of “greedy profiteering”. They’d rather play politics than do their jobs - which is to make sure they have fuel available when customers come calling. Clearly price-gouging is woefully undersupplied in this market.

Mr James seems to be the only petrol retailer in the country with the courage to stand up and do the right thing. I doubt he is making much money (who would buy £1.99/litre petrol while they had a choice?) and he is being villified. Yet thanks to Mr James, drivers in Exeter know for sure that they can always get fuel if they need it. Mr James is providing the whole city with a valuable backstop. They can sleep soundly at night, knowing Mr James will always be ready to serve them. He’s taking the blame, Exeter drivers get the benefit.

Somebody needs to reward the virtuous. Arise, Sir Ron of Exeter!

Update: Alas, cancel that knighthood. They’ve capitulated… Although in fairness, I suppose the fuel strike is over. Thanks for Josep’s comment: I got my US and UK gallons confused.

I wrote in sanguine terms about pensions here and here. Gary Becker (whom I once interviewed for Lunch with the FT) agrees:

Most young people who do not go to college are high school graduates, and they too have lower earnings and greater family responsibilities during their thirties and forties. They also would like to borrow at younger ages to raise their consumption at these ages to more appropriate levels compared to their consumption when they are older.

Studies by my colleague Erik Hurst show that consumption of Americans beyond age 65 is generally not low relative to consumption at younger ages; apparently, they save enough when younger to enable them to consume generously when retired. In earlier time, families had to save to provide for their old age consumption since social security and company pensions were non-existent.

The Economist is not so relaxed:

As a recent paper published by Britain’s Pensions Institute points out: for “financial products extending over long periods of time, many consumers are clearly not well-informed or well-educated. The retirement-savings decision needs accurate forecasts of lifetime earnings, asset returns, interest rates, tax rates, inflation and longevity; yet very few people have the skills to produce such forecasts.”
The result may be that many employees face retirement with an income well short of their expectations. An employee who pays into a DC scheme for 40 years may get only half the retirement income he could have expected under a final-salary system. When pension experts were polled by Watson Wyatt their biggest concern was that DC schemes will yield inadequate pensions for DC members. As the Pensions Institute paper says: “When the plan member eventually discovers how low his pension really is, it is by then too late to do anything about it.”

I’ve been enjoying Slate’s “Green Lantern” feed:

A 1992 study from Franklin Associates estimated that producing a year’s supply of disposables, which are composed largely of plastic, consumes roughly 6,900 megajoules of energy, vs. around 1,400 megajoules for a year’s supply of cloth diapers. Yet the study concluded that cloth ended up being 39 percent more energy-intensive overall, given the electricity needed to wash load after load of dirty diapers.

That conclusion is now woefully outdated, however, given the major advances that have occurred in washing-machine efficiency (PDF). For a washing machine made in 1985, an 11-pound load of cottons washed in warm water used up 1.68 kilowatt hours of electricity and 34 gallons of water; for a machine made two decades later, the relevant figures are just 0.95 kilowatt hours and 12 gallons.

A 2005 study (PDF) by Britain’s Environment Agency took into account some of these technological advances. In making their calculations regarding cloth diapers, the study’s authors used average energy-consumption figures for machines made in 1997. They concluded that there was “no significant difference” between the environmental impact of cloth and disposable diapers. Keeping a child clad in home-laundered cloth diapers for 2.5 years emitted 1,232 pounds of carbon dioxide equivalent, vs. 1,380 pounds for disposable diapers.

So there. Also, are Priuses actually worse for the environment than Hummers? (No: but the source of the urban myth is interesting.) And, are mechanical dishwashers bad for the planet? No they aren’t:

More than 100 Europeans were observed cleaning a dozen full place-settings by hand. The German researchers found that the average hand-washer is quite the wastrel, using 27.2 gallons of water, which requires 2.5 kWh of electricity to heat. (The most careless hand-washers were Spanish and Portuguese, while the most economical were German.) An ultra-efficient machine, by contrast, used only between 3.96 and 5.81 gallons of water, and between 1 and 2 kWh of electricity.Advantage, technology. But if you read the German study carefully, you’ll see that the best hand-washers came close to matching the machine’s performance.

The feed is here.

Earlier this year, I wrote about the sudden rediscovery of the idea that prizes might be a good alternative to grants or patents as a way of promoting innovation:

In an ideal world, prizes could replace patents. Instead of offering a patent for an innovation, the government could offer a prize. The inventor would pocket the prize but would not be allowed to exploit any monopoly power, so the innovation would be freely available to use in products for poor consumers – cheap drugs for Africa, for instance – and, importantly, in further innovations. But to explain that idea is to see its limitations. How could the government know enough about the costs and benefits – and even the very possibility – of an innovation to put a price tag on it and write the terms of reference for a prize competition? For this reason it is hard to see prizes replacing patents in most cases. But it is not impossible.

The modern heir to 18th-century prizes for canning, water turbines and finding longitude at sea is the advanced market commitment for vaccines for the poor: the goal is clear, the costs and benefits can be guessed at, and the quasi-prize nudges the patent system to one side with a prize contract that respects the patent but, in exchange for a large subsidy, radically constricts the holder’s right to exploit it.

At the time I wrote the piece, I wish I had seen this gorgeous list of historical prizes:

Napoleon Sugar Beet Prize (1810)
In 1810, facing blockade of its ports, Napoleon offered a large prizefor the best method of extracting sugar from beets. The prize was part of a large set of national incentives and mandates to stimulate the production of sugar from beets.

Art of Piercing or Boring Artesian Wells (1818)
Similar in purpose to the 1797 book on Elkington’s methods of drainage, in 1818, the Society for the Encouragement of National Industry in France offered a reward of 3,000 francs for “the best manual, or practical and elementary instructions upon the art of piercing or boring Artesian wells with the miner’s or fountaineer’s augur, from 25 metres (82 feet), to 100 metres (328 feet) depth, and deeper if possible.” The award was given by the Society in 1821 to Mr. Gamier, for an important and useful discussion of the use of Artesian wells employed for the discharge of foul and infected water.

Wisconsin Prize for Mechanical Substitute for Horses and Other Animals (1875)
In 1875, the Wisconsin legislature passed an act authorizing the payment of a $10,000 bounty to “any citizen of Wisconsin, who shall invent, and after five years continued trial and use, shall produce a machine propelled by steam or other motive agent, which shall be a cheap and practical substitute for the use of horses, and other animals on the highway and farm.” The law was amended twice in the next two years, with the final 1877 version eliminating the requirement for “five years continued trial and use,” while adding specific requirements for winning the prize. Contestants with machines that could operate in both forward and reverse were required to complete a 200-mile route at “not less than five miles per hour working time,” and to perform certain functions, such as plowing and pulling loaded wagons. Trials were conducted in 1878 and ended in controversy when one of the judges refused to grant the full prize money to a contestant many observers thought had satisfied the contest rules. Subsequently, two crews split part of the prize money.

Then there’s:

Highland and Agricultural Society of Edinburgh Reaper Prize (1826)

Apple and Pear Prize (1826)

Substitute for Guano (1852)

Napoleon III Margarine Prize (1869)

French Prize Competition in Irrigation Practice (1874)

Italian Prize Competition in Irrigation Practice (1879)

Soviet Committee for Invention Authorship Certificates (1931)

Australian Film Bounty (1933)

Soviet Rewards for Aircraft Design (1946,7)

Burkina Faso Innovation Prizes (1994)

Don’t tell me you’re not curious. Here is the source; Alex Tabarrok pointed me to it some time ago.

Ray Fisman in Slate thinks they are:

A generation later, parents are more worried than ever about making sure their kids can compete in today’s high-tech world, and the growing digital divide is a subject of great concern for educators and policymakers. Federal subsidies in the United States provide billions of dollars for computer access in schools and libraries, and billions more may soon be spent in the developing world through programs such as One Laptop per Child. But even OLPC’s $100 laptop comes loaded with more distractions than my PET ever had. So will kids use these subsidized computing resources to prepare for the demands of the 21^st-century job market? Or do computers just serve as a 21^st-century substitute for that more venerable time-waster—the television?

New research by economists Ofer Malamud and Cristian Pop-Eleches provides an answer: For many kids, computers are indeed more of a distraction than a learning opportunity. The two researchers surveyed households that applied to Euro 200, a voucher distribution program in Romania designed to help poor households defray the cost of buying a computer for their children. It turns out that kids in households lucky enough to get computer vouchers spent a lot less time watching TV—but that’s where the good news ends. “Vouchered” kids also spent less time doing homework, got lower grades, and reported lower educational aspirations than the “unvouchered” kids.

I’d back computers over television any day, but Fisman’s discussion is thoughtful; do read the whole thing. It also echoes this Dear Economist answer:

Previous researchers have struggled to establish a causal link between exam results and time spent studying. That is not a surprise. Bright students might work harder because they enjoy the work. Or failing students might cram to rescue their grades. Untangling the statistics seems impossible.

Yet the puzzle has been resolved by Todd Stinebrickner, an economist, and his father, mathematician Ralph Stinebrickner. Equipped with detailed time-use questionnaires, they looked at students who were randomly assigned a room-mate with a games console. Neither the students nor their room-mates differed in, say, initial test score, time spent boozing, or sleeping. But students whose room-mates had video games spent less time studying and more playing Final Fantasy XII. Pure chance – the assignment of a room-mate – seems to affect time spent studying, and no other important decisions. And yes, the grades did suffer.

The question and full answer can be read here.

My colleague Lucy Kellaway has without apparent effort highlighted a profound point: statistical data is only ever an indirect summary of the true state of the world.

…as The Beatles pointed out, money can’t buy you love. Or rather, money doesn’t make you tick “strongly agree” when someone comes around with a clipboard asking if you are happy at work.

Seth Godin’s email checklist:

1 Is it going to just one person? (If yes, jump to #10)
2 Since it’s going to a group, have I thought about who is on my list?
3 Are they blind copied?
4 Did every person on the list really and truly opt in? Not like sort of, but really ask for it?
5 So that means that if I didn’t send it to them, they’d complain about not getting it?
6 See #5. If they wouldn’t complain, take them off!
7 That means, for example, that sending bulk email to a list of bloggers just cause they have blogs is not okay.
…
10 Have I corresponded with this person before?
11 Really? They’ve written back? (if no, reconsider email)…

The list goes on to 36 and almost all of the advice looks good to me.

Beyond the practicality of the checklist, it raised a question in my mind. Some of Seth’s advice was routinely flouted in the early days of mass email (I’m thinking 1995-1999). For instance, many people forwarded jokes and virus warnings. These days they are rare, especially as a proportion of all the email that is sent. Other advice (such as, “don’t admonish people not to print this email”) would have been superfluous ten years ago and is now very widely ignored.
So my question is, what determines why some bad email habits die out and others thrive and multiply? Or is this just the unpredictable outcome of a mysterious process of evolution?