Hooray Beer

Art Carden pens an interesting article about the importance of decentralized knowledge and market feedback in the production of beer. While the article focuses on making better beer, I think his observations can be applied to the economy at large. I have included Mr. Carden’s parting shot below.

A government could, undoubtedly, make beer. But the right beer with the right flavor profiles for a world of nearly infinite variety of tastes — not all of them consistent? For that, you need a market.

Please use the comment sections to share your thoughts on the article or related content.


A break from all the Economic Mishigas

With all the economic mishigas dominating news cycle, I thought it was worth sharing a couple of articles that I have recently come across on the topic.

I found myself enjoying Donald Boudreaux’s Op-Ed in the Pittsburgh Tribune-Review. His tongue-in-cheek response to a reader’s email argues that capitalism is alive and well despite the headlines. I have included an excerpt below.

In the morning, my correspondent likely drinks coffee brewed from beans grown in Colombia or Ethiopia. For lunch, he eats a chicken sandwich or a quinoa-and-beet salad. Each of these foods is made available to him only through the efforts of countless strangers — producers such as chicken farmers, beet growers, truck drivers, insurance-company actuaries — spread across the globe and connected to him by a thick web of consensual capitalist acts of commerce.

Mike Munger’s American Institute for Economic Research article makes a rational appeal for capitalism. The entire article is worth the read, but I have included the crux of his argument below.

There are three elements to the argument for capitalism, and while they connect in crucial ways they can be separately defined. Those three elements are (a) division of labor; (b) impersonal exchange based on prices; and (3) economies of scale based on knowledge.

The Cost of Tariffs

When I wrote Make Whirlpool Great Again back in December 2016, I made the request for someone to study the full cost for each job saved by enacting the tariff. In April 2019, Aaron Flaaen, Ali Hortaçsu, and Felix Tintelnot unknowingly answered my call with their recent paper, The Production, Relocation, and Price Effects of US Trade Policy: The Case of Washing Machines . Their analysis estimates that the tariff on washing machines created 1,800 new washing machine manufacturing jobs at the price of $1.47 billion dollars or $817,000/job. This $1.47B was paid by the American consumer via a 12% price increase in both washers and dryers.

Critics of the paper will correctly point out that cost analysis includes a 12% increase in dryer prices when the tariff applied only to washing machines. My rebuttal is that washers and dryers are complimentary goods since they are often sold in pairs. I would also argue that the paper’s findings further demonstrates the pervasive impact that tariffs have on prices of other goods that are not direct targets of the tariff. I wonder if somebody will be able to measure impact of tariff on prices on laundry mats or apartment rents that provide washer and dryers to tenants.

For those of you less inclined to read the paper, Mark Perry has written an op-ed about the above paper over at American Enterprise Institute where he summarizes and opines on the paper’s finding.

While I think paper is a great start, I am left with the same thoughts from my original post which I have included below.

While it will be relatively easy to compare the average price of a washing machine before and after the tariff takes effect, it will be impossible to calculate the potential impact of those additional dollars if they had been spent on higher and better uses.  I'd like to think we would all be better off if we spent the same amount of energy and resources creating new jobs and industries as we did protecting the old ones.

Please use the comment section below to share your thoughts or any other interesting articles on the subject.

Shout out to Brigtsen's

I came across this article on one of my favorite restaurants from my time in New Orleans. Their Creole cuisine is on par with the fine dining restaurants in the city but served in a cozier setting. I would compare the experience to attending a dinner party at a personal residence ( where your host also happens to be a world class chef). Brigtsen’s is a perennial top 10 New Orleans restaurant and well worth the trip uptown to Dante street. They are closed on Mondays but would recommend eating there any other day of the week. I have included their contact information below.

723 Dante St., New Orleans, LA

Dinner Tuesday - Saturday 5:30 - 10:00

Please call 504-861-7610 for reservations

Lagniappe: I recommend the bread pudding for dessert

Source: https://www.tripadvisor.com/LocationPhotoD...

Where has all the Nuance gone?

With so much of our news content being distributed in short clips and 140 character tweets, it is becoming more difficult to find nuanced information on the topic du jour. Below are few articles that I think add some gray to some current black and white headline issues.

  1. Bryan Caplan opines on the hypocrisy and hyperbole that is rampant in public policy discussions.

  2. Jeffrey A. Tucker highlights the limitations of interpreting US trade deficit data in an economy with international supply chains and large service based sector economies in his recent AIER post.

  3. Mike Munger compares capitalism and democratic socialism in both their ideal and corrupted forms as systems for coordinating production and cooperation in his recent AIER article.

Please use the comment section below to share articles that you feel offer a fuller discussion on a topic that you find interesting.

ECS on Operation Varsity Blues

I, like many of you, have already reached peak saturation in the “Operation Varsity Blues” college admissions scandal. With celebrities, and other members of the elite 1%, paying up to $1.2M to help their children gain admission to their school of choice, it has all the makings of a Hollywood movie. Personally, I am eagerly awaiting the Ben Mezrich book that will eventually come from this story. However, I came across an interesting article by Tyler Cowen that was worth a read. I have included my favorite excerpt below.

First, these bribes only mattered because college itself has become too easy, with a few exceptions. If the bribes allowed for the admission of unqualified students, then those students would find it difficult to finish their degrees…What does that say about standards at these august institutions of higher learning?…Alternatively, you might think it is rather arbitrary who is admitted to any given university, and that many of those denied admission could get through the program competently, even if classes and grading were made harder. 

Personally, I cannot fathom admission to a desired college is worth $1.2 million over State U. Also, the people who can afford to pay this ransom probably have strong personal networks that can be leveraged to help their children. I imagine that former PIMCO CEO Doug Hodge could help his child get a competitive summer internship with a simple phone call. I also imagine that Lori Loughlin, or her agent, could get her daughter an audition without a degree from the USC School of Cinematic Arts.

Please use the comments to share any other novel/interesting opinions on the story. I am hoping somebody will read the entire FBI investigation and come up with an article discussing the market based price of a degree from institutions involved in the story. So far, $1.2M for a degree from Yale seems to highest valued degree.

Economists Save Lives

I came across this interesting article in the WSJ. It discusses how Nobel Laureates Alvin Roth and Lloyd Shapley’s research on matching markets enabled Yogita Patel to participate in a paired donation to help her brother receive a kidney even though she wasn’t able to donate a kidney directly to her brother.

Lagniappe : Here is a link to Dr. Alvin Roth’s Nobel lecture w/slides.

Rent Control comes to Oregon

A recent WSJ Op-Ed opines on the impact that state-wide rent control will have on the Beaver State and its residents. While I do not question the intentions of state government, I do challenge their methods and expect this decision to make housing affordability worse over the long term. The article highlights Oregon’s “inclusionary” zoning policy enacted in 2017 led to a 64% drop in permit applications to build new apartments. It is my estimation that rent control will also have a negative impact and further suppress the ability to build more housing in Oregon. I think their efforts would be better spent streamlining the permitting process to help increase the housing supply. It will be interesting to see how these policies affect migration to Washington and Idaho.

Tyler Cowen wrote a blog post highlighting the unintended, but not unexpected, consequences of rent control back in 2016.

Mihir Zavery penned a more objective article in the New York Times on February 26, 2019. I share this article because it also includes statements from Gov. Kate Brown.

Taxing Peter to Pay for Paul

Several members of Congress, and individuals aspiring for higher offices, tout higher marginal tax rates on high income earners as an effective tool to address income inequality and fund additional government spending programs. Individuals of this persuasion often point out that marginal tax rates were around 90% during the 1950’s and 1960’s and GDP still grew between 4-5% per year. Joe Nocera’s recent Bloomberg article discusses the often omitted story of the great American past time, tax avoidance. He highlights how high earning entertainers like Frank Sinatra and Bing Crosby used loopholes in the tax code to shield large portions of their income and reduce their effective tax rate to about half of their 90% marginal rate.

My inner-cynic thinks that talk about raising marginal rates on high earners is more about scoring political points with a voting base and a means to usurp power by making/protecting tax loop holes for preferred special interest groups more valuable. If the goal was to actually increase the tax revenue collected from high earners and create a more equitable tax code, the focus would be on closing and/or capping the value of loopholes in the tax code.

I think the optimal tax code would be a single tax rate for all filers with an exemption on the first $X of income (i.e. 1-1.5x the poverty line). This would significantly lower the effective rate for low income earners and high earners’ effective rates will approach the actual tax rate. I would treat all entities as pass though entities so all income is taxed at the individual filer level. This would simplify things and eliminate the need for an additional tax rate for capital gains and dividends. The single tax rate also eliminates the ability to selectively (punitively) raise taxes on specific groups of individuals/corporations.

I am not a tax policy expert, but I agree with Joe Nocera’s parting shot below.

I’m not saying we couldn’t do with more taxes on the rich. But let’s be careful. When Bing Crosby won’t give a concert, it’s safe to say that the marginal tax rate is too high

Please use the comment section to criticize my tax plan or share any interesting articles or opinions on improving tax code.

Sebastian Junger on Econtalk

EconTalk host Russ Roberts wrote a thoughtful blog post in response to the October Pittsburgh synagogue shooting. Rather than taking the opportunity to attribute the act of violence to a de jour of hot button issues like antisemitism or gun control, he chose to offer his own hypothesis for what drives these attacks, loneliness.

Having previously read Sebastian Junger’s book, Tribe, I found myself wondering how Mr. Junger would respond to the article. I was pleasantly surprised to see that Sebastian Junger was the guest on this week’s EconTalk episode.

While I highly recommend reading both the blog post and Tribe, I think the podcast can stand alone and is worth a listen.

Please use the comments section to share your thoughts or any content that you think adds to the discussion.

My Podcast Hit List

a16z: On Marrying Entertainment and Technology Marc Andreessen interviews Meg Whitman and Jeffrey Katzenberg. While I enjoyed learning about their new mobile video platform, Quibi, I found their discussion about the economics of television shows particularly interesting. I had no idea that production costs for a major network television show could approach $100,000/minute. I now understand why historically HBO, and now Amazon and Netflix, with their subscription models always seem to produce better content than the major television networks that rely on ad sales to fund programming.

Broken Record: Nashville Revolution: Bobby Braddock, Don Schiltz, and Don Henry. Malcolm Gladwell interviews three songwriters as they share their stories, talk shop and play some of their songs they’ve written over the last 40+ years in country music. As someone who doesn’t consider themselves a creative, I always find it fascinating when I get a glimpse behind the curtain and see the process of making art.

Please use comments to share any of your favorite podcasts that you’ve recently enjoyed.

Marginal Revolution's Top Non-Fiction books of 2018 List

As an aspiring inforvore, I am always on the lookout for non-fiction book recommendations. After coming across Marginal Revolution’s Top Non-Fiction Book of 2018 List, I have added a couple more to my list. I have read and enjoyed Nassim Taleb’s Skin in the Game. Victor Stebestyen’s Lenin, the Man, the Dictator and the Master of Terror is already on my reading list.

Please use the comment section to share your thoughts on any books on the list or to make recommendations for other non-fiction books.

My thoughts on RealtyShares shutdown

The announcement that RealtyShares was shutting down only 14 months after closing a $28 million Series C round caught me by surprise. While I expect to see many failures as the real estate crowdfunding sector matures, I did not expect RealtyShares to be one of the early losers. A venture backed site (over $60 million raised) with good deal flow seemed to be on the path to long term viability.

I had an open investment on ifunding when that platform failed back in 2017 (Crowdfunding Nightmare). This experience made me acutely aware of platform risk. I think the value proposition of real estate crowdfunding is that it allows investors to make smaller investments so they can build a diverse portfolio to reduce sponsor specific risks. However, crowdfunding sites create platform risk where several investments can stop performing because of a single platform failure.

I think for the near term, matchmaker crowdfunding sites like RealCrowd that facilitate investors participating directly with sponsors, rather than buying parts of deals and then repackaging them into smaller pieces for investors, are the best way to participate in real estate crowdfunding. Investors will definitely face higher minimums (25k+) but reduce their counterparty risk by investing directly with the sponsor.

I think the killer application for RE crowdfunding would be a service that creates a distributed ledger that significantly reduces administration costs for the sponsor making it economically feasible to accept a larger number of smaller investors.

Please use the comment section to share your thoughts on your real estate crowdfunding experience. I have included some relevant articles below.

  1. Financial Samurai discusses The Sad Demise of RealtyShares

  2. The Real Estate Crowdfunding Review

  3. Ben Lane on Housingwire

Disclosure: While I am member of both platforms, I have not participated in deals on either platform. I enjoy listening to the RealCrowd Podcast.

Krugman, Krugman Everywhere

I had mixed feelings after enjoying Tyler Cowen’s podcast episode with Nobel Laureate Paul Krugman more than I expected. On one hand, I found Krugman’s insights to be very thoughtful and more nuanced than his opinions shared in his frequent New York Times Op-Ed column. From listening to him speak, it was clear he is very intelligent and still has the ability to think like an economist when he desires. I am also further disappointed that he uses his written platform for partisan pandering and increasing his popularity rather than stimulating intellectual discourse. Regardless of how you feel about Krugman, the episode is definitely thought provoking and worth a listen.

Bryan Caplan reacts to some of Paul Krugman’s comments in the above mentioned podcast in his recent article to discuss the idea that we, including Nobel Laureate Paul Krugman, hold markets to a much higher standard than we do our own government. He asserts that we criticize markets for imperfections but allow the government to operate as long as it avoids disaster.

I do not think comparing markets to government is entirely fair. Markets have the advantage of being able to make adjustments to real time information as changes are implemented, while government action requires voting, making decisions based on old information, and a significant time lag before implementation. Further changes require repeating the process all over again. Markets can behave more like an outfielder adjusting his course to chase down a fly ball while government action works more like an artilleryman where he has to wait and see where the projectile lands before being able to make adjustments for the next shot.

Please use the comments section to share links to any interesting podcasts/books you are currently consuming.

Maybe Capitalism ain't all that bad

Donald Boudreaux’s article takes advantage of the 2018 Nobel Prize winning economist William Nordhaus’s recent notoriety to highlight one of the Nobel Laureate’s older works that attempts to measure the economic impact of technological innovation. The most interesting finding from the paper is that from the period 1948-2001 producers only captured 2.2% of the economic benefits while consumers received the lion’s share of 97.8%. Professor Boudreaux asserts that capitalism, rather than the innovator’s benevolence, is responsible for the split.

I’d be willing to bet the next time you read an article that highlights Jeff Bezo’s $147 billion net worth, it will fail to mention the $6.5 trillion of consumer value created.

Lagniappe: For those who want to read more of Donald Boudreaux’s work, check out his blog Cafe Hayek.

David and Goliath walk into a bar

I recently came across Derek Thompson’s article on the economics of the craft beer industry. The fact that so many small companies can thrive despite operating in a de facto duopoly where the industry leaders produce 90% of the world’s beer is quite remarkable. By creating premium products, and charging premium prices, small companies are able to survive despite lacking the economies of scale that benefit the larger firms.

When thinking about other industries that behave similarly, chocolate and coffee come to mind. I am curious to see how small firms will carve out their own niches and compete in other sectors of the economy that are currently dominated by de fact monopolies like Amazon and Google.

Please use the comments section to share your favorite craft breweries and craft beers that I should try.

ECS on Tipping

As my mother's de facto tipping expert, I initially wanted to discuss tipping after listening to an EconTalk podcast with Anthony Gill on the topic last November but was unsure of what I had to contribute on the subject matter. However, after a lively group text about whether I tipped enough for a surprisingly cheap haircut at the VA barbershop, it was clear that we had divergent tipping practices and I felt compelled to share my thoughts.

When used optimally, tipping should be a reward for providing better than expected service. It can also be used by the customer to signal that she is willing to pay more for premium service. A couple of dollars in the tip jar while ordering at a food truck can go a long way towards making sure you get a stacked sandwich or larger than normal sack of fries. I am not sure when it became a social norm to use tipping to subsidize restaurants that underpay their staff. My preference would be to pay higher food prices and not be expected to tip for average service. Because people do not openly discuss their tipping practices, there appears to be significant variation in how individuals tip.

I have included some of my tipping practices below. Please comment to share your tipping habits or resources that have influenced your behavior.

  1. Takeout/fast casual: 10% or $1/entree
  2. Dine-In: 15% for bad service or 20% for everything else (% of total bill tax included)
  3. Haircut: $5 (haircut for me under 20 bucks)
  4. Alcohol: $1/beer or unmixed drink, 15-20% cocktail
  5. Coffee: $1 (I drink black coffee)
  6. Crowded Bar: tip upfront for anticipated number of drinks
  7. Bell Boy: $1-2/bag when I drop off my bags off
  8. Street Musicians: $1-2 if I stop to listen
  9. Extraordinary service- my discretion 

1000+ Pageviews

The Ever Curious Skeptic crossed the 1000 pageview milestone earlier this week.  I wanted to take this opportunity to thank everybody who has taken the time to read and comment on ECS. I started this blog to create a repository for content that I was previously sharing with friends via email and continue to be surprised by how many people have visited the blog. So far, we've had readers from 33 states and 12 countries visit the site. I've also had one of my articles reblogged on KevinMD

My Favorite Posts

  1. Friday Lunch at Galatoire's
  2. REK

Most Viewed Posts

  1. Irrational Medicine
  2. Friday Lunch at Galatoire's

Next, I hope to improve reader engagement and increase the number of comments in response to my posts. My ultimate goal is for the content in the comment section to be as informative as the posts themselves.  

Please comment to share your favorite posts and why or make suggestions how to encourage reader engagement.

Thanks Again,


Pension Facts of the Day

  1. Sarah Krouse discusses the $4 Trillion Pension Hole in her recent WSJ article.
  2. Ted Dabrowski & John Klingner highlight Chicago's $125,000/household pension debt

I think these articles demonstrate the magnitude  of the public pension funding gap at both the macro and household levels. Even those of us without public employee pensions will most likely be affected whether through future tax increases or decreases in public services as municipalities and states struggle to meet their pension obligations.

While I think it is easy to identify the problem, solving the issue will definitely be a challenge. Personally, I think the long term solution is to reduce future pension obligations by transitioning from a defined benefits to a defined contributions plan. I think both the employer (taxpayer) and the employee would be better off with a 401k style account with a large annual employer contribution. This will prevent politicians from making future pension promises to buy current votes and will eliminate the compounding effect of under-funding pension funds and overly optimistic investment returns currently plaguing pension funds. It will also protect the employee from future benefit cuts as states and municipalities are unable to meet current pension obligations.

While it may appear that this proposed solution will transfer investment risk from the employer to the employee, I would argue that the employee has always been on the hook for lower than expected investment returns. I'd also expect that through tools at discount broker's such as Charles Schwab, Vanguard, Wealthfront and Betterment that employees could get similar returns for lower fees than employer managed pension funds.

Please use comment sections to push back at my proposed solution and share other interesting articles that pertain to this topic.  

True Impact of "Securing the Border"

I wanted to share some interesting content I've come across in the past week. I do not have much expertise on the topic, but think these perspectives are provocative and are worth sharing. 

  1. Malcolm Gladwell's recent podcast episode suggests that US attempts to secure its borders are not having their intended effect  (Hint: works a lot more like a prison and a lot less like a castle)
  2. Bryan Caplan's recent Economist article discusses the cost of closed border policy on the World economy. (Hint: $78 Trillion)

Please use the comment sections to share your thoughts or other interesting articles on the subject.