An article from the Fort Collins Coloradoan caught my eye, in part because it deals with a similar issue to the "avoid ghetto" GPS app: whether giving more information can make people worse off.
The article discusses efforts by Colorado lawmakers to prohibit businesses from running credit checks on prospective employees and using the results in hiring decisions. Obviously, the reason employers run these credit checks in the first place is because they think the people with better credit tend to be more responsible and thus better workers, as well as being less likely to steal from the till. The argument for banning such checks is that they can create an "unemployable class" of people because people can't improve their credit without income and can't get a job unless they have good credit, and also that it's possible to have bad credit even if you are financially responsible (say because of a layoff).
The readers' comments are predictable. Most of them say that it's just wrong for employers to "discriminate" based on credit checks, while there is a minority view that the government should not have a right to tell businesses how they can make hiring decisions. (I would like to point out the comment by Jeff Emmel, in the first category, which blames the problem on "too many people chasing too few jobs." If true, this seems to negate the idea that credit checks are the problem. If there are N people looking for a job and there are M openings, then at least N-M people will fail to get a job, regardless of what methods are used to screen applicants.)
Here is my analysis. A traditional economist would likely say something like the following:
If credit checks really provided no useful information about the quality of an employee, businesses would have no reason to use them. Any business that did use them anyway for whatever reason would face a competitive disadvantage in the marketplace because they would be screening out qualified employees, and a business that didn't use credit checks could gain an advantage by grabbing all the good employees that were rejected by others. Thus, if the practice really has no benefits, there is no need for a law against it; it will die out naturally. If it doesn't die out, that is evidence that it is in fact providing useful information.
Of course, exactly the same argument was made with race, gender, etc. discrimination laws, and look how that turned out. But this case is different. The difference with racial discrimination was that customers had a preference against minority employees so businesses reacted to that, but we needed to get minority employees into restaurants and stores so that people would learn to overcome their prejudice. In this case, customers neither know nor care about the credit histories of the employees with whom they interact. Also, credit checks are a relatively new thing in employment, so unlike the issue with race discrimination, we're not starting from a status quo where everyone discriminates so nobody has a chance to realize what they're missing out on.
One could argue that it really is true that people with poor credit tend to not be as good workers, but that there's a public benefit to giving those people jobs that outweighs any harm done to employers. This position is not unreasonable; after all, someone who is consistently poor does cost society money to maintain because they are more likely to need welfare and other social services. But it is important to realize that this argument only applies if there is a greater public benefit to giving a poor-credit person a job than giving whoever the replacement would be a job. And most importantly, if there really is a public benefit to giving particular people or classes of people jobs, a better way to do it is with subsidies and incentives targeted at that group and let businesses decide whether the incentive is worth the cost, rather than through the indirect way of banning credit checks.
However, I can also think of several counter-arguments to the above.
1. It may be true that the practice will die out eventually if it is not providing useful information, but that could take a significant amount of time. In the meantime, many people will still be affected.
2. Let's say that half the people who have poor credit really are financially irresponsible, but the other half have poor credit for reasons completely out of their control. Then it makes sense from the businesses' perspective to avoid the risk, but the innocent half is still caught in the crossfire. (However, the arguments in the last paragraph above still apply.)
3. Suppose that it is possible to "manipulate" your credit rating*. Then everyone will manipulate their rating in order to get a better chance, but of course all this manipulation is a zero-sum signaling game, so it's a waste of effort. (If everyone manipulates their rating up by X points, then everyone is still in the same order so it gives exactly the same information as before, but nobody ends up better off.)
4. As for the comparison to racial/gender discrimination laws, there's another consideration which cuts the other direction. One problem originally identified with racial/gender discrimination laws was that it's essentially impossible for a business to prevent itself from obtaining information about an applicant's or employee's race or gender. Thus, for instance, a business might want to fire an unproductive worker but might have a difficult/expensive time proving in court that the firing was not because of race/gender, so it might decide not to. In contrast, it is very easy for a business to avoid obtaining information about an employee's credit history, so this is a non-issue.
5. It may be possible that there is a public benefit to giving jobs to certain classes of people - which tend to overlap with the people who have lower credit scores - but the first-best solution of "subsidies and incentives targeted at that group" is impractical due to other constraints such as political feasibility. So banning credit checks could be a good "second-best" solution.
---
Perhaps surprisingly (but maybe not), very few of the comments in the article itself or the reader's comments directly address any of the questions above. I wonder why?
*This "manipulation" need not be anything shady or illegitimate. The only thing relevant for this analysis is that the "manipulation" has no relevant effect other than improving your credit score. Given all the advice about "how to improve your credit score" that you can find all over the place, it's very likely that this type of "manipulation" is possible.
Showing posts with label Economy. Show all posts
Showing posts with label Economy. Show all posts
Monday, March 19, 2012
Tuesday, March 6, 2012
Oil subsidies
The article "Time To Put An End to Big Oil Subsidies" by Allen Greenberg, in the Northern Colorado Business Report, draws a contrast between farmers, who have stated their willingness to forgo subsidies in a time of high deficits, and oil companies, who want to keep their subsidies. While I generally agree with Greenberg's position that oil subsidies should be reduced or eliminated, there is one sentence in there that does not make much sense: "it should be easy to recognize that subsidizing a profitable business simply makes no business sense." This does not seem correct to me. The point of subsidizing something is to increase the maount of it, so it can potentially make sense to subsidize anything you want to increase the amount of - whether it is currently profitable does not enter into it. (In particular, assuming efficient markets, in an equilibrium condition any productive activity has a net profit of exactly zero on the margin - if the marginal profit was positive, people would do more of it; if the marginal profit was negative, people would be doing less of it. Putting in a subsidy makes it more profitable, which leads people to do more of it until it's not more profitable anymore.)
Also, a policy of only subsidizing activities which are currently unprofitable could easily have perverse effects. For instance, companies might deliberately try to be less efficient so that they would be "unprofitable" and thus deserving of subsidies.
EDIT: Link to article is here.
Saturday, February 11, 2012
There's an App for That?
Recently, Apple has come under criticism for contracting with Chinese electronics manufacturer Foxconn to produce iPhones, because Foxconn allegedly provides its workers with poor working conditions. This claim is disputed: for instance, critics point to several incidents of Foxconn employees committing suicide, but the overall suicide rate among Foxconn workers is less than the national average. Many consumers are demanding that Apple stop using Foxconn as a supplier until Foxconn improves its employees' working conditions.
However, the thing I want to talk about here is slightly different - imagine if the roles were reversed. For instance, let's say that it was a large European company with an American supplier, and the European company's customers thought it was horrific that not all Americans have health insurance, so they demanded that they cut ties with all American suppliers that don't offer their employees full health insurance. What do you think our reaction would be? Probably something along the lines of "What right do those people overseas have to dictate to us what our health policy should be?" (I mean, that's a significant part of the response to the U.S. government's attempts to mandate health insurance; just imagine if it were foreigners trying to pressure us in this way.) It seems like a similar argument could be applied to the actual situation: "We in the United States have no right to dictate to the Chinese what their employment policies should look like. If the Chinese don't like their current employment laws, they can change them. True, it might be the case that their political system doesn't give employees enough power to organize and change the laws, but it's not our place to make that judgement." (Again, imagine the reaction in the U.S. if foreigners said that U.S. companies should be boycotted because the U.S. political system has problems.)
However, the thing I want to talk about here is slightly different - imagine if the roles were reversed. For instance, let's say that it was a large European company with an American supplier, and the European company's customers thought it was horrific that not all Americans have health insurance, so they demanded that they cut ties with all American suppliers that don't offer their employees full health insurance. What do you think our reaction would be? Probably something along the lines of "What right do those people overseas have to dictate to us what our health policy should be?" (I mean, that's a significant part of the response to the U.S. government's attempts to mandate health insurance; just imagine if it were foreigners trying to pressure us in this way.) It seems like a similar argument could be applied to the actual situation: "We in the United States have no right to dictate to the Chinese what their employment policies should look like. If the Chinese don't like their current employment laws, they can change them. True, it might be the case that their political system doesn't give employees enough power to organize and change the laws, but it's not our place to make that judgement." (Again, imagine the reaction in the U.S. if foreigners said that U.S. companies should be boycotted because the U.S. political system has problems.)
Sunday, October 23, 2011
Shipping Jobs Overseas?
One of the members of our local Belegarth group, John Degraffenreid, is running for Congress as an independent candidate. One of the planks of his platform (direct link won't work; click on "Platform" then "Trade") is that it is "time to hold corporations accountable for moving jobs overseas" and that American corporations should be required to pay overseas workers a "fair wage" to protect other countries from being "taken advantage of" and to eliminate the advantage of "moving jobs overseas."
Of course, most economists would say that most "moving jobs overseas" is actually a net benefit because each country can specialize in what it produces best, thus improving overall output - i.e., if a company saves money by "moving jobs overseas" and importing products rather than producing them in the U.S., that just creates jobs for the people in the U.S. that produce exports to exchange for the imports, and this analysis is not affected by whether the reduced costs are caused by the overseas workers being "taken advantage of". Of course, this argument has been discussed to death, and I don't really have anything new or interesting to say about it.
What I find more interesting is the implied moral claim that there is something blameworthy about a corporation "moving jobs overseas", such that the corporation needs to be held "accountable" for it. (Of course, I'm not picking on Degraffenreid here; lots of the public and politicians seem to have similar view, which is part of why I find this interesting.) Consider the following two cases:
A. Acme Corporation currently employs 100 American workers. It has an opportunity to expand into a new market and hire 50 more American workers, but instead decides to stay its current size.
B. Acme Corporation currently employs 100 American workers. It has an opportunity to expand into a new market and hire 50 more American workers, but instead it builds a factory in Pakistan and hires 200 Pakistani workers instead because it is cheaper.
I doubt very many people would say that in case (A) Acme Corporation did anything blameworthy, but in case (B) they would say that Acme Corporation was "shipping jobs overseas." But in either case, the change in number of American workers was exactly the same - zero. What principle could justify the difference? You can't just say that corporations have a responsibility to hire as many American workers as possible, because that would make (A) as blameworthy as (B). One possibility is to say that corporations have a responsibility NOT to hire foreign workers, but that seems hard to justify. Why is giving an American worker a job good but giving a Pakistani worker a job bad? I can understand why Americans value other Americans more than they do Pakistanis, but I don't understand why people would put a negative value on Pakistani jobs.
One possibility is that people think that Pakistani workers aren't actually being helped by the new jobs. But that doesn't make sense, because if the new jobs were really inferior to whatever they would be doing in the absence of the new jobs, then why would anyone take the new jobs? Another possibility is that people think that corporations have a responsibility to hire foreign workers AND pay them well, so that their lot would be improved by even more than before. But that doesn't explain attitudes like Degraffenreid's, since he says (probably correctly) that making American firms pay foreign workers more will induce them to hire fewer foreign workers. (Unless the idea is that it is better to help a few foreign workers a lot than to help a lot of foreign workers a little each.)
Possibly a better explanation might be to go back to the principle that "American companies have an obligation to hire as many American workers as possible", and explain the reluctance of people to assign blame in case (A) a different way. One possible explanation would be that my premise (that people don't assign blame in cases like A) is false. After all, people do sometimes consider companies blameworthy when they lay off workers, and Barack Obama did exhort companies to start investing and spending more if they had the money to do it. Another explanation might be that people think that (A) is theoretically blameworthy, it's just that "not expanding as much as you can" is much less visible than "opening up factories in foreign countries".
Here is another question: let's say that reforms designed to "bring jobs home" were implemented, and because of that, corporations pulled their investments out of Pakistan and brought them "back home" to the United States. In that situation, would Pakistanis be right to complain that the corporations are "sending jobs overseas" back to the United States? If so, then why does a corporation that operates in both the U.S. and Pakistan have greater obligations to American workers than to Pakistani workers? If not, then what is the relevant distinction?
Finally, consider the following third case:
(C) Acme Corporation currently employs 100 American workers. It sees room to expand and hire 50 more American workers. Instead, it buys more machinery to make each worker more productive, so that it doesn't need to hire any new workers.
I think most people would think there's nothing wrong with (C); or at least much less wrong with (C) than with (B). Sometimes people do lament the fact that technology puts people out of work, but certainly I have never heard any politician saying that we have to slow down progress on labor-saving technology in order to preserve jobs. But in both cases (B) and (C) you are choosing an option that allows you to hire fewer American workers in order to reduce costs. So a general principle that "it's wrong to hire fewer workers just so you can reduce costs" is not the driving force here.
A possibility is that there is some sort of (implicit) cost-benefit analysis going on. That is, people think that reducing costs is a legitimate benefit, but that it has to be balanced against the (perceived) costs of putting people out of work. With labor-saving technology, it's really obvious that the benefits are enormous: if we had never developed any labor-saving technology whatsoever, we would still be hunter-gatherers living in caves. But with international trade, the benefits are a lot less obvious, so it is easier for people to think that the costs exceed the benefits.
Of course, a lot of this is just speculation, and I don't know what the right answer is. I found an interesting web site called "Experimental Philosophy" that discusses research where they do surveys to ask people these types of questions in order to understand how people actually form judgements about these questions (like what makes someone morally responsible for something, or when it makes sense to say that someone "intended" for something to happen.) Reading that web site is part of what gave me the idea to think about this issue in this way, although I don't see any posts on that web site that discuss political/economic questions like this one. Also see here for a related discussion about "moving overseas" and moral responsibility (although I think that discusses a slightly different issue).
Of course, most economists would say that most "moving jobs overseas" is actually a net benefit because each country can specialize in what it produces best, thus improving overall output - i.e., if a company saves money by "moving jobs overseas" and importing products rather than producing them in the U.S., that just creates jobs for the people in the U.S. that produce exports to exchange for the imports, and this analysis is not affected by whether the reduced costs are caused by the overseas workers being "taken advantage of". Of course, this argument has been discussed to death, and I don't really have anything new or interesting to say about it.
What I find more interesting is the implied moral claim that there is something blameworthy about a corporation "moving jobs overseas", such that the corporation needs to be held "accountable" for it. (Of course, I'm not picking on Degraffenreid here; lots of the public and politicians seem to have similar view, which is part of why I find this interesting.) Consider the following two cases:
A. Acme Corporation currently employs 100 American workers. It has an opportunity to expand into a new market and hire 50 more American workers, but instead decides to stay its current size.
B. Acme Corporation currently employs 100 American workers. It has an opportunity to expand into a new market and hire 50 more American workers, but instead it builds a factory in Pakistan and hires 200 Pakistani workers instead because it is cheaper.
I doubt very many people would say that in case (A) Acme Corporation did anything blameworthy, but in case (B) they would say that Acme Corporation was "shipping jobs overseas." But in either case, the change in number of American workers was exactly the same - zero. What principle could justify the difference? You can't just say that corporations have a responsibility to hire as many American workers as possible, because that would make (A) as blameworthy as (B). One possibility is to say that corporations have a responsibility NOT to hire foreign workers, but that seems hard to justify. Why is giving an American worker a job good but giving a Pakistani worker a job bad? I can understand why Americans value other Americans more than they do Pakistanis, but I don't understand why people would put a negative value on Pakistani jobs.
One possibility is that people think that Pakistani workers aren't actually being helped by the new jobs. But that doesn't make sense, because if the new jobs were really inferior to whatever they would be doing in the absence of the new jobs, then why would anyone take the new jobs? Another possibility is that people think that corporations have a responsibility to hire foreign workers AND pay them well, so that their lot would be improved by even more than before. But that doesn't explain attitudes like Degraffenreid's, since he says (probably correctly) that making American firms pay foreign workers more will induce them to hire fewer foreign workers. (Unless the idea is that it is better to help a few foreign workers a lot than to help a lot of foreign workers a little each.)
Possibly a better explanation might be to go back to the principle that "American companies have an obligation to hire as many American workers as possible", and explain the reluctance of people to assign blame in case (A) a different way. One possible explanation would be that my premise (that people don't assign blame in cases like A) is false. After all, people do sometimes consider companies blameworthy when they lay off workers, and Barack Obama did exhort companies to start investing and spending more if they had the money to do it. Another explanation might be that people think that (A) is theoretically blameworthy, it's just that "not expanding as much as you can" is much less visible than "opening up factories in foreign countries".
Here is another question: let's say that reforms designed to "bring jobs home" were implemented, and because of that, corporations pulled their investments out of Pakistan and brought them "back home" to the United States. In that situation, would Pakistanis be right to complain that the corporations are "sending jobs overseas" back to the United States? If so, then why does a corporation that operates in both the U.S. and Pakistan have greater obligations to American workers than to Pakistani workers? If not, then what is the relevant distinction?
Finally, consider the following third case:
(C) Acme Corporation currently employs 100 American workers. It sees room to expand and hire 50 more American workers. Instead, it buys more machinery to make each worker more productive, so that it doesn't need to hire any new workers.
I think most people would think there's nothing wrong with (C); or at least much less wrong with (C) than with (B). Sometimes people do lament the fact that technology puts people out of work, but certainly I have never heard any politician saying that we have to slow down progress on labor-saving technology in order to preserve jobs. But in both cases (B) and (C) you are choosing an option that allows you to hire fewer American workers in order to reduce costs. So a general principle that "it's wrong to hire fewer workers just so you can reduce costs" is not the driving force here.
A possibility is that there is some sort of (implicit) cost-benefit analysis going on. That is, people think that reducing costs is a legitimate benefit, but that it has to be balanced against the (perceived) costs of putting people out of work. With labor-saving technology, it's really obvious that the benefits are enormous: if we had never developed any labor-saving technology whatsoever, we would still be hunter-gatherers living in caves. But with international trade, the benefits are a lot less obvious, so it is easier for people to think that the costs exceed the benefits.
Of course, a lot of this is just speculation, and I don't know what the right answer is. I found an interesting web site called "Experimental Philosophy" that discusses research where they do surveys to ask people these types of questions in order to understand how people actually form judgements about these questions (like what makes someone morally responsible for something, or when it makes sense to say that someone "intended" for something to happen.) Reading that web site is part of what gave me the idea to think about this issue in this way, although I don't see any posts on that web site that discuss political/economic questions like this one. Also see here for a related discussion about "moving overseas" and moral responsibility (although I think that discusses a slightly different issue).
Wednesday, September 21, 2011
Saving Green By Going Green, Followup
Today, I sent the following letter to my congressman Cory Gardner:
I am writing to urge you to vote against the TRAIN Act, which will delay implementation of key environmental protections that could save thousands of lives. While proponents of the TRAIN Act claim that they are interested in ensuring that the benefits of regulation exceed the economic costs, their actual actions clearly show that this is not what they are concerned about. First of all, the EPA already does cost-benefit analyses of its regulations. If TRAIN Act proponents believe these analyses are flawed, why wouldn't they just fix them, rather than wasting time starting all over? Second, the latest version of the TRAIN Act explicitly blocks the Cross-State Air Pollution Rule and Mercury and Air Toxics standards. If proponents were really interested in making an honest inquiry as to the costs and benefits, why would they write into the bill what conclusions they want before even doing the analysis? Finally, the pro-pollution lobby's own words prove their dishonesty. The American Coalition for Clean Coal Electricity, a key pro-polluter lobbying group, on the front page of its website (www.americaspower.org) states that proposed EPA regulations would "eliminate more than a million American jobs". However, if you click through to their own analysis you will find that is not true - they actually claim it will eliminate 1.4 million "job-years", totaled over an 8-year period, which is not the same thing. If the pro-polluter lobby can't even get basic facts straight, why should we believe anything they say?
I'm not too hopeful as to what Gardner will think about this issue, given that he is a staunch conservative and as far as I can tell from his votes, has hasn't voted on the pro-environment side on any recent bills. I don't see anything on his web site where he supports "protecting the environment." However, one of the proposals he supports, the Business Cycle Balanced Budget Amendment, says it will "force government to budget itself in a countercyclical manner", which actually makes economic sense. However, the actual proposal says that the budget limit for each year is an (inflation-adjusted) average of revenues for the past three years, and I don't think that's what "countercyclical" means.
I am writing to urge you to vote against the TRAIN Act, which will delay implementation of key environmental protections that could save thousands of lives. While proponents of the TRAIN Act claim that they are interested in ensuring that the benefits of regulation exceed the economic costs, their actual actions clearly show that this is not what they are concerned about. First of all, the EPA already does cost-benefit analyses of its regulations. If TRAIN Act proponents believe these analyses are flawed, why wouldn't they just fix them, rather than wasting time starting all over? Second, the latest version of the TRAIN Act explicitly blocks the Cross-State Air Pollution Rule and Mercury and Air Toxics standards. If proponents were really interested in making an honest inquiry as to the costs and benefits, why would they write into the bill what conclusions they want before even doing the analysis? Finally, the pro-pollution lobby's own words prove their dishonesty. The American Coalition for Clean Coal Electricity, a key pro-polluter lobbying group, on the front page of its website (www.americaspower.org) states that proposed EPA regulations would "eliminate more than a million American jobs". However, if you click through to their own analysis you will find that is not true - they actually claim it will eliminate 1.4 million "job-years", totaled over an 8-year period, which is not the same thing. If the pro-polluter lobby can't even get basic facts straight, why should we believe anything they say?
I'm not too hopeful as to what Gardner will think about this issue, given that he is a staunch conservative and as far as I can tell from his votes, has hasn't voted on the pro-environment side on any recent bills. I don't see anything on his web site where he supports "protecting the environment." However, one of the proposals he supports, the Business Cycle Balanced Budget Amendment, says it will "force government to budget itself in a countercyclical manner", which actually makes economic sense. However, the actual proposal says that the budget limit for each year is an (inflation-adjusted) average of revenues for the past three years, and I don't think that's what "countercyclical" means.
Tuesday, September 20, 2011
Saving Green by Going Green ... Or Is It?
Today, I received an email from the Environmental Defense Fund urging me to protect clean air by calling my congressman and urging him to vote against the TRAIN Act, a law that will create an independent committee do do cost-benefit analyses of new EPA regulations before implementation. Opponents of the bill argue that it is unnecessary because the EPA already does cost-benefit analyses of its regulations and the new law would just duplicate that effort and delay implementation of the regulations. On the other hand, proponents say that the EPA analyses may be biased (after all, they're not exactly a disinterested party) and that an independent analysis is necessary to make it unbiased. (Actually, the latest version of the act does a lot more than just call for cost-benefit analyses; it also explicitly blocks certain regulations, see here.)
What I was interested in is just what, in particular, proponents believed the flaws of the EPA studies were. The American Association for Clean Coal Electricity, (ACCCE), a power-company lobbying group, has a web page that discusses the issue from their point of view. They identify two perceived flaws: first, that the EPA considers only one proposed rule at a time and does not lump multiple proposed rules together in its analysis; and second, that the EPA does not consider other negative economic effects such as lost jobs. (Note that on the association's front page, they claim that the regulations the TRAIN Act will block will cost 1.4 million jobs. However, on the actual page that discusses the TRAIN Act, they say it will cost 1.4 million job-years, totalled over an 8-year period. These are very different.)
Anyway, the first criticism does not, at first, seem to make any sense. If regulation A has costs which exceed benefits, and regulation B has costs which exceed benefits, then added together, regulations A and B will collectively have costs which exceed benefits. The only way this will not be true is if either:
(a) The benefits of implementing both regulations A and B are less than the benefits of implementing A alone plus the benefits of implementing B alone.
(b) The costs of implementing both regulations A and B are greater than the costs of implementing A alone plus the costs of implementing B alone.
This, of course, raises the question of in what circumstances these can be true. For case (a), I can think of a simple example: suppose that both regulations will reduce exposure to the same pollutant, and the pollutant has a hormetic dose-response relationship. But for some reason I don't think that's the case that the ACCCE is thinking about. For case (b), I can think of a different case, that seems to be the case that the ACCCE is discussing. Suppose that both regulations reduce the production of electricity, and electricity (like most goods) has diminishing marginal value. Then just looking at each regulation individually, and estimating the cost by multiplying the current price by the amount of reduction (let's say), will understate the total costs. In the diagram below, the true cost is C+D but the "looking at each regulation individually) approach will give you something closer to C.
We can now estimate about how big this difference is. For the sake of argument, I will use the assumptions that are most favorable to the ACCCE's position. They mention that there will be a total reduction in coal power production of 30 to 100 gigawatts (GW) due to "these and other rules". 100 GW is equivalent to 876,000,000 MWh over the course of a year, or about 25 percent of the total U.S. electricity consumption 3,741,485,000 MWh per year. Of course this is not a good estimate of total electricity consumption lost because some of the capacity lost in coal gets replaced by other energy sources. If I am interpreting the chart labeled "2016 CATR+MACT impacts" of their own report correctly (it's on page 6 of the PDF, or page 5 going by the page numbers on the page), it looks like about 60 percent of capacity lost in coal gets made up in increased natural gas. So you end up with a total of about 10 percent reduced consumption. According to the review here, the short-run price elasticity of demand for electricity is about 0.2. So 10 percent reduced consumption corresponds to about a 50 percent increase in price. That means that the triangular area D is about 25 percent of the area C.
However, my understanding (at least based on what it says here) is that for most of these regulations the benefits exceed the costs by at least several times. So just a 25 percent error won't make a significant difference.
----
The comment about jobs, however, is more interesting conceptually, and I think they have it backwards. Here's how I am thinking about it. Let's say that electricity and labor are perfect complements, so a business can produce a "widget" by using one worker and one unit of electricity. Suppose that currently the business is producing X widgets, and so it is using X units of electricity, and the new regulation will increase the price by Y. Suppose you ignore the issue of jobs. Presumably that means you assume that the business will just produce the same number of widgets as before. Then the total cost is X times Y. But suppose you take jobs into account, and you take into account the fact that now the business will produce fewer widgets because the cost of producing them went up. But if they made this change, then that means the change was beneficial (compared to just absorbing the extra cost). In other words, the "reduction in jobs" is partially a benefit because it means that you are now using less of the more expensive electricity.
-------------------------------
Of course, conservatives aren't the only ones who often use faulty economic reasoning when talking about environmental issues. During the 2008 presidential campaign, Barack Obama claimed that oil companies had 68 million acres of land they were "not using" and that we needed to make them "use it or lose it." Most importantly, this claim was false: most of the 67 million acres of "non-producing land" was actively being explored and prepared, it's just that no oil was coming out of it yet. But even if it was true that oil companies were deliberately ignoring large portions of their land, why is that necessarily a problem? There are only two reasons I can think of as to why they would do that. One reason is because they think that oil will become more expensive in the future and they would rather wait and sell the oil when it's more expensive rather than extract and sell the oil now. But if that's the case, then the oil companies' actions would raise the price now (when it's cheaper) and lower the price when they get around to extracting it (when it's more expensive), thus reducing the volatility of oil prices over time. Isn't that a good thing; to save it for when it's scarcer? Another possible reason is if they are colluding to reduce supply in order to raise the price now. But that theory doesn't seem to hold water because oil is traded on a world market, and the vast majority of world oil and gas reserves are controlled by companies outside the United States, so it doesn't seem like U.S. oil companies could reduce the world supply that much just by drilling a bit less. And in any case, if the problem is that we are using too much oil, isn't it good if the oil price goes up because that means that people will have an incentive to switch to renewable sources?
What I was interested in is just what, in particular, proponents believed the flaws of the EPA studies were. The American Association for Clean Coal Electricity, (ACCCE), a power-company lobbying group, has a web page that discusses the issue from their point of view. They identify two perceived flaws: first, that the EPA considers only one proposed rule at a time and does not lump multiple proposed rules together in its analysis; and second, that the EPA does not consider other negative economic effects such as lost jobs. (Note that on the association's front page, they claim that the regulations the TRAIN Act will block will cost 1.4 million jobs. However, on the actual page that discusses the TRAIN Act, they say it will cost 1.4 million job-years, totalled over an 8-year period. These are very different.)
Anyway, the first criticism does not, at first, seem to make any sense. If regulation A has costs which exceed benefits, and regulation B has costs which exceed benefits, then added together, regulations A and B will collectively have costs which exceed benefits. The only way this will not be true is if either:
(a) The benefits of implementing both regulations A and B are less than the benefits of implementing A alone plus the benefits of implementing B alone.
(b) The costs of implementing both regulations A and B are greater than the costs of implementing A alone plus the costs of implementing B alone.
This, of course, raises the question of in what circumstances these can be true. For case (a), I can think of a simple example: suppose that both regulations will reduce exposure to the same pollutant, and the pollutant has a hormetic dose-response relationship. But for some reason I don't think that's the case that the ACCCE is thinking about. For case (b), I can think of a different case, that seems to be the case that the ACCCE is discussing. Suppose that both regulations reduce the production of electricity, and electricity (like most goods) has diminishing marginal value. Then just looking at each regulation individually, and estimating the cost by multiplying the current price by the amount of reduction (let's say), will understate the total costs. In the diagram below, the true cost is C+D but the "looking at each regulation individually) approach will give you something closer to C.
We can now estimate about how big this difference is. For the sake of argument, I will use the assumptions that are most favorable to the ACCCE's position. They mention that there will be a total reduction in coal power production of 30 to 100 gigawatts (GW) due to "these and other rules". 100 GW is equivalent to 876,000,000 MWh over the course of a year, or about 25 percent of the total U.S. electricity consumption 3,741,485,000 MWh per year. Of course this is not a good estimate of total electricity consumption lost because some of the capacity lost in coal gets replaced by other energy sources. If I am interpreting the chart labeled "2016 CATR+MACT impacts" of their own report correctly (it's on page 6 of the PDF, or page 5 going by the page numbers on the page), it looks like about 60 percent of capacity lost in coal gets made up in increased natural gas. So you end up with a total of about 10 percent reduced consumption. According to the review here, the short-run price elasticity of demand for electricity is about 0.2. So 10 percent reduced consumption corresponds to about a 50 percent increase in price. That means that the triangular area D is about 25 percent of the area C.However, my understanding (at least based on what it says here) is that for most of these regulations the benefits exceed the costs by at least several times. So just a 25 percent error won't make a significant difference.
----
The comment about jobs, however, is more interesting conceptually, and I think they have it backwards. Here's how I am thinking about it. Let's say that electricity and labor are perfect complements, so a business can produce a "widget" by using one worker and one unit of electricity. Suppose that currently the business is producing X widgets, and so it is using X units of electricity, and the new regulation will increase the price by Y. Suppose you ignore the issue of jobs. Presumably that means you assume that the business will just produce the same number of widgets as before. Then the total cost is X times Y. But suppose you take jobs into account, and you take into account the fact that now the business will produce fewer widgets because the cost of producing them went up. But if they made this change, then that means the change was beneficial (compared to just absorbing the extra cost). In other words, the "reduction in jobs" is partially a benefit because it means that you are now using less of the more expensive electricity.
-------------------------------
Of course, conservatives aren't the only ones who often use faulty economic reasoning when talking about environmental issues. During the 2008 presidential campaign, Barack Obama claimed that oil companies had 68 million acres of land they were "not using" and that we needed to make them "use it or lose it." Most importantly, this claim was false: most of the 67 million acres of "non-producing land" was actively being explored and prepared, it's just that no oil was coming out of it yet. But even if it was true that oil companies were deliberately ignoring large portions of their land, why is that necessarily a problem? There are only two reasons I can think of as to why they would do that. One reason is because they think that oil will become more expensive in the future and they would rather wait and sell the oil when it's more expensive rather than extract and sell the oil now. But if that's the case, then the oil companies' actions would raise the price now (when it's cheaper) and lower the price when they get around to extracting it (when it's more expensive), thus reducing the volatility of oil prices over time. Isn't that a good thing; to save it for when it's scarcer? Another possible reason is if they are colluding to reduce supply in order to raise the price now. But that theory doesn't seem to hold water because oil is traded on a world market, and the vast majority of world oil and gas reserves are controlled by companies outside the United States, so it doesn't seem like U.S. oil companies could reduce the world supply that much just by drilling a bit less. And in any case, if the problem is that we are using too much oil, isn't it good if the oil price goes up because that means that people will have an incentive to switch to renewable sources?
Thursday, June 16, 2011
Debit Card Swipe Fees
In the news recently there is talk about legislation to reduce the fees that retailers pay to banks for debit card transactions. The fees currently average 44 cents per transaction, and the proposal is to cap them at 12 cents per transaction. Here are my thoughts:
- Clearly, the socially optimal amount to charge for swipe fees is equal to the marginal cost. And the marginal cost is probably very small; I imagine most of the costs of running the transaction system are fixed costs that don't depend that much on number of transactions.
- Of course, that only really matters if debit card transactions are at least somewhat price-elastic; i.e. number of transactions is affected by how much they cost. If the number of transactions is unaffected by cost, then changing the fee just redistributes money; it doesn't affect overall efficiency. (Of course, people do care about how the money is distributed.) And I would imagine that the price elasticity is very low: consumers don't care about swipe fees when they use their debit card (since they don't pay them) and most retailers don't choose not to accept debit cards just because of the fees (except sometimes for small transactions).
- The discussion from both sides seems to be centered on whether it will help or hurt consumers, which is reasonable. The pro-regulation side says that businesses will pass the savings on to consumers, while the anti-regulation side says that will not necessarily occur and banks will be forced to increase other fees or reduce perks like free checking to make up for the lost revenue.
- From the retailer's perspective, the swipe fee is like a tax on the transaction, so whether it's the consumer or the producer that ends up paying it depends on the relative elasticity of supply and demand for the goods, as described here. Of course, almost none of the coverage that expresses opinions about this questions even mentions price elasticity. (You could do a similar analysis to answer the question about whether banks will increase other fees; think of the reduction in swipe fees as like a tax on the banks based on how often their customers use debit cards).
- Of course, I don't have any data on the questions above, so I don't know who is correct. But one thing I did notice is that pro-regulation advocates say it will "help small businesses" and take money away from the "big banks", while anti-regulation advocates say that it "helps giant retailers" at the expense of "small credit unions." My question is: How did the whole "big business equals bad, small business equals good" thing start? I mean, isn't the theory behind capitalism that the way businesses become bigger is by improving efficiency to lower costs and responding to the needs of their customers to increase revenue? Maybe Joe Kernen is right that we are being indoctrinated with anti-capitalist values.
- Clearly, the socially optimal amount to charge for swipe fees is equal to the marginal cost. And the marginal cost is probably very small; I imagine most of the costs of running the transaction system are fixed costs that don't depend that much on number of transactions.
- Of course, that only really matters if debit card transactions are at least somewhat price-elastic; i.e. number of transactions is affected by how much they cost. If the number of transactions is unaffected by cost, then changing the fee just redistributes money; it doesn't affect overall efficiency. (Of course, people do care about how the money is distributed.) And I would imagine that the price elasticity is very low: consumers don't care about swipe fees when they use their debit card (since they don't pay them) and most retailers don't choose not to accept debit cards just because of the fees (except sometimes for small transactions).
- The discussion from both sides seems to be centered on whether it will help or hurt consumers, which is reasonable. The pro-regulation side says that businesses will pass the savings on to consumers, while the anti-regulation side says that will not necessarily occur and banks will be forced to increase other fees or reduce perks like free checking to make up for the lost revenue.
- From the retailer's perspective, the swipe fee is like a tax on the transaction, so whether it's the consumer or the producer that ends up paying it depends on the relative elasticity of supply and demand for the goods, as described here. Of course, almost none of the coverage that expresses opinions about this questions even mentions price elasticity. (You could do a similar analysis to answer the question about whether banks will increase other fees; think of the reduction in swipe fees as like a tax on the banks based on how often their customers use debit cards).
- Of course, I don't have any data on the questions above, so I don't know who is correct. But one thing I did notice is that pro-regulation advocates say it will "help small businesses" and take money away from the "big banks", while anti-regulation advocates say that it "helps giant retailers" at the expense of "small credit unions." My question is: How did the whole "big business equals bad, small business equals good" thing start? I mean, isn't the theory behind capitalism that the way businesses become bigger is by improving efficiency to lower costs and responding to the needs of their customers to increase revenue? Maybe Joe Kernen is right that we are being indoctrinated with anti-capitalist values.
Friday, June 3, 2011
Interesting Web Sites: Economics and Statistics
Another feature of this blog that I am going to start writing more often is web sites that I think are interesting. I already mentioned Cheap Talk,a blog written by economists that applies economic and game theory analysis to topics as diverse as crime and politics, and corruption, and has lots of interesting new ideas. While browsing some of the old posts I came across an article that mentions a company that I interviewed for a job at (but did not get an offer.) There are lots of very interesting blogs written by economists; probably the most well known one is Marginal Revolution, and if you scroll down you will see links to other blogs about economics, inclusing one about statistical analysis.
Sunday, February 28, 2010
Saving Green by Going Green
A recent article in the Daily Illini reported on a proposed increase in the "student sustainability fee," a fund which will provide funding for energy-saving initiatives. As an example:
He pointed out that their recent project of replacing Krannert Center’s fluorescent lights with LED’S will pay for itself in three years and save the University roughly $70,000 per year. The committee funded half of the project with a $225,000 grant.
First of all, observe that this statement is mathematically incorrect. If half of the project cost $225,000, then the total cost of the project was $450,000, so it will take about 6.5 years to pay it back at $70,000 per year.
Second of all, observe the economic puzzle. Effectively, the project is an investment with a guaranteed annual rate of return of $70k/$450k = 15.5 percent. So as long as the market rate of interest is less than 15.5 percent, which I assume it is, the optimal strategy of the university is to borrow money to finance this project, and even after paying back the interest they will actually have more money - so they should do that even in the absence of any additional funding from a "sustainability fee."
(Here is an economics article discussing similar anomalies, mostly in the context of individual purchasing decisions like whether to buy a new refrigerator.)
He pointed out that their recent project of replacing Krannert Center’s fluorescent lights with LED’S will pay for itself in three years and save the University roughly $70,000 per year. The committee funded half of the project with a $225,000 grant.
First of all, observe that this statement is mathematically incorrect. If half of the project cost $225,000, then the total cost of the project was $450,000, so it will take about 6.5 years to pay it back at $70,000 per year.
Second of all, observe the economic puzzle. Effectively, the project is an investment with a guaranteed annual rate of return of $70k/$450k = 15.5 percent. So as long as the market rate of interest is less than 15.5 percent, which I assume it is, the optimal strategy of the university is to borrow money to finance this project, and even after paying back the interest they will actually have more money - so they should do that even in the absence of any additional funding from a "sustainability fee."
(Here is an economics article discussing similar anomalies, mostly in the context of individual purchasing decisions like whether to buy a new refrigerator.)
Wednesday, November 11, 2009
More on the strike
Here is a letter to the editor in the Daily Illini opposing the strike:
Do Not Support the Strike
Here's my analysis of this argument:
1. The claim about graduate students "colluding to gain market power" doesn't make a lot of sense. By exactly the same logic, one could claim that the university itself consists of a lot of separate employers of graduate students (namely the individual professors) that are "colluding" into one administration to negotiate. So why is that not "market power?" Why is it "collusion" from one side but not from the other?
2. The statement about "if the university paid below the market rate, students would be attracted to other universities, so they would be forced to raise it" makes sense, but that's exactly the point of the strike. The students aren't willing to work for the wage they are being given, so they're going to refuse to work for that wage. That's exactly how the market is supposed to work, isn't it?
3. The statement about "the benefits come to ... those with political clout" doesn't make sense either. The students are asking for wage and benefit increases across the board - as far as I'm aware, they're not asking for any special favors for anyone with "political clout".
Do Not Support the Strike
Here's my analysis of this argument:
1. The claim about graduate students "colluding to gain market power" doesn't make a lot of sense. By exactly the same logic, one could claim that the university itself consists of a lot of separate employers of graduate students (namely the individual professors) that are "colluding" into one administration to negotiate. So why is that not "market power?" Why is it "collusion" from one side but not from the other?
2. The statement about "if the university paid below the market rate, students would be attracted to other universities, so they would be forced to raise it" makes sense, but that's exactly the point of the strike. The students aren't willing to work for the wage they are being given, so they're going to refuse to work for that wage. That's exactly how the market is supposed to work, isn't it?
3. The statement about "the benefits come to ... those with political clout" doesn't make sense either. The students are asking for wage and benefit increases across the board - as far as I'm aware, they're not asking for any special favors for anyone with "political clout".
Wednesday, November 4, 2009
Finally: Proof that the Stimulus is Working!
Jeff Erickson said recently that he wanted to consider hiring me as an RA for next year. The interesting reason is why: he recently received a grant for $200,000, and it was money that came from a program put in place by the stimulus package, so in order to keep the money he has to show that he is creating jobs. I haven't decided yet whether to take that offer or whether to work on a different project (after all, I still have about 1.5 semesters left on my fellowship to decide).
However, maybe that's a good thing: the graduate student employees' union is considering going on strike, because they have been without a contract for over 10 weeks and they claim they are not being paid a living wage. I guess that makes me non-union "scab" labor.
Bonus Question: What is wrong with this analysis of the teaching assistant pay situation?
However, maybe that's a good thing: the graduate student employees' union is considering going on strike, because they have been without a contract for over 10 weeks and they claim they are not being paid a living wage. I guess that makes me non-union "scab" labor.
Bonus Question: What is wrong with this analysis of the teaching assistant pay situation?
Wednesday, August 26, 2009
Reflected sound of underground spirits, part 2
As it turns out, one of the people in the local Belegarth group is the owner of Edhellen Armoury, so he was able to answer the question I posed in my previous post.
The answer is that different groups have different standards for stabbing tips, so a stabbing tip that would pass inspection and thus be legal on the field at this group won't pass at all groups. So if they were to advertise on their web site, then they might end up selling stabbing tips that wouldn't pass. But when I called, they knew I was in the area because I had come to Belegarth the previous time, so they knew that their stabbing tip would be legal here.
And in case you're wondering about the title of this post, it comes from the book "The Color of Magic" by Terry Pratchett. It means "economics" ("reflected sound" = echo, "underground spirits" = gnomes, so "echo-gnomics")
The answer is that different groups have different standards for stabbing tips, so a stabbing tip that would pass inspection and thus be legal on the field at this group won't pass at all groups. So if they were to advertise on their web site, then they might end up selling stabbing tips that wouldn't pass. But when I called, they knew I was in the area because I had come to Belegarth the previous time, so they knew that their stabbing tip would be legal here.
And in case you're wondering about the title of this post, it comes from the book "The Color of Magic" by Terry Pratchett. It means "economics" ("reflected sound" = echo, "underground spirits" = gnomes, so "echo-gnomics")
Reflected sound of underground spirits
Here is an interesting puzzle.
Edhellen Armoury sells weapons for LARPs such as Belegarth and Dagorhir. They charge about $25-40 per weapon depending on size. They sell weapons primarily through the web site, but since they are based near here in Illinois, they also sell weapons through one of the local gaming stores, Dragon's Table. Most of the weapons they sell on the site are only legal to slash with, not stab with, because they do not have the required "stabbing tips." It is possible to get a stabbing tip added to the weapon for $10 extra.
A stabbing tip is simply an extra piece of foam that goes on the tip that makes the tip softer. The marginal cost of adding it is certainly far less than $10. (This is not the puzzle - lots of products have "extras" that you can get that cost far more than the cost of adding it, as a way of segmenting the market and making more money. For example the 16 GB iPhone costs $100 more than the 8 GB iPhone, even though the cost of 8 additional GB of hard drive capacity is far less than $100.)
The puzzle is the following:
The existence of the option to buy stabbing tips for extra is not listed anywhere on the site, and none of the weapons that are sold at the Dragon's Table have them. In order to find out that they exist, you have to call them, and then they tell you to buy the items as normal and put a "Special Payment" in for the stabbing tip. The question is: why do they make it so hard to find this information? There are other instances of companies making information about particular products hard to find, one notable example being the Starbucks "Short" latte, as a form of price discrimination. But unlike those other examples, Edhellen makes more money off the swords with stabbing tips, not less, so why would they want to hide it? The only thing I can think of is that the demand isn't high enough for it to be worth putting on the web site, but that's surprising, because I've seen lots of weapons at Belegarth with stabbing tips. (In any case, even if people didn't want the more expensive stabbing tip weapons it might still be worth putting them on the site, because of the "decoy effect" - seeing a more expensive option makes the other option look cheaper and more attractive by comparison.)
Edhellen Armoury sells weapons for LARPs such as Belegarth and Dagorhir. They charge about $25-40 per weapon depending on size. They sell weapons primarily through the web site, but since they are based near here in Illinois, they also sell weapons through one of the local gaming stores, Dragon's Table. Most of the weapons they sell on the site are only legal to slash with, not stab with, because they do not have the required "stabbing tips." It is possible to get a stabbing tip added to the weapon for $10 extra.
A stabbing tip is simply an extra piece of foam that goes on the tip that makes the tip softer. The marginal cost of adding it is certainly far less than $10. (This is not the puzzle - lots of products have "extras" that you can get that cost far more than the cost of adding it, as a way of segmenting the market and making more money. For example the 16 GB iPhone costs $100 more than the 8 GB iPhone, even though the cost of 8 additional GB of hard drive capacity is far less than $100.)
The puzzle is the following:
The existence of the option to buy stabbing tips for extra is not listed anywhere on the site, and none of the weapons that are sold at the Dragon's Table have them. In order to find out that they exist, you have to call them, and then they tell you to buy the items as normal and put a "Special Payment" in for the stabbing tip. The question is: why do they make it so hard to find this information? There are other instances of companies making information about particular products hard to find, one notable example being the Starbucks "Short" latte, as a form of price discrimination. But unlike those other examples, Edhellen makes more money off the swords with stabbing tips, not less, so why would they want to hide it? The only thing I can think of is that the demand isn't high enough for it to be worth putting on the web site, but that's surprising, because I've seen lots of weapons at Belegarth with stabbing tips. (In any case, even if people didn't want the more expensive stabbing tip weapons it might still be worth putting them on the site, because of the "decoy effect" - seeing a more expensive option makes the other option look cheaper and more attractive by comparison.)
Thursday, April 16, 2009
Academics: Part 4 of 5: "Chaos Theory"
My next post is about a very interesting class:
Chaos Theory with Denny Gulick
You're probably wondering what we actually learn about in "chaos theory." The math behind chaos theory has to do mostly with iterated function systems. Meaning, if you have a function f(x) and an initial value x_0, then if you form the sequence x_1 = f(x_0), x_2 = f(x_1), x_3 = f(x_2) etc. you can look at properties of this sequence - whether it converges to one value, osciallates between two or more values, goes off to infinity, etc. Even simple functions like the logistic map (f(x) = kx(1-x) for a constant k) can produce very complicated behavior.
One interesting project we are doing is reading one of a selection of articles on applications of chaos theory, and writing a 1-2 page discussion of it. The article I chose is titled "Chaos on the Trading Floor" and is about the use of chaos theory to model the stock market. I imagine this is particularly relevant given the ongoing financial crisis.
Ironically, the use of mathematical techniques to model the stock market may have actually contributed to the financial crisis. According to Paul Krugman's book "The Return of Depression Economics and the Crisis of 2008," with the development of these techniques came the rise of hedge funds, which try to take advantage of statistical patterns in the stock market by making highly leveraged bets. This means for example that a hedge fund might start with $50 million in capital, then sell short (i.e. borrow and then sell) $950 million worth of one stock so they can buy $1 billion worth of another stock. This means that if the second stock goes up by 5%, they've doubled their money. Of course if it goes the other way around, then they lose all their money - and the people who they borrowed the original $950 million worth of stock from also lose money, because they're going to have a hard time getting their stock back. This kind of "ripple effect" was part of what made the financial crisis so severe.
Chaos Theory with Denny Gulick
You're probably wondering what we actually learn about in "chaos theory." The math behind chaos theory has to do mostly with iterated function systems. Meaning, if you have a function f(x) and an initial value x_0, then if you form the sequence x_1 = f(x_0), x_2 = f(x_1), x_3 = f(x_2) etc. you can look at properties of this sequence - whether it converges to one value, osciallates between two or more values, goes off to infinity, etc. Even simple functions like the logistic map (f(x) = kx(1-x) for a constant k) can produce very complicated behavior.
One interesting project we are doing is reading one of a selection of articles on applications of chaos theory, and writing a 1-2 page discussion of it. The article I chose is titled "Chaos on the Trading Floor" and is about the use of chaos theory to model the stock market. I imagine this is particularly relevant given the ongoing financial crisis.
Ironically, the use of mathematical techniques to model the stock market may have actually contributed to the financial crisis. According to Paul Krugman's book "The Return of Depression Economics and the Crisis of 2008," with the development of these techniques came the rise of hedge funds, which try to take advantage of statistical patterns in the stock market by making highly leveraged bets. This means for example that a hedge fund might start with $50 million in capital, then sell short (i.e. borrow and then sell) $950 million worth of one stock so they can buy $1 billion worth of another stock. This means that if the second stock goes up by 5%, they've doubled their money. Of course if it goes the other way around, then they lose all their money - and the people who they borrowed the original $950 million worth of stock from also lose money, because they're going to have a hard time getting their stock back. This kind of "ripple effect" was part of what made the financial crisis so severe.
Friday, March 27, 2009
Academics: Part 2 of 5: "Answer Poverty"
Today, we did our final presentation for our Gemstone project.
Our Gemstone project was titled "ANSWER Poverty," which stands for "Assessing the Need for Services which Effectively Reduce Poverty." During our project, we interviewed recent immigrants living in Langley Park, a community just a few minutes away from Campus that has a high number of low-income immigrants. Our goal was to find out their experiences with and knowledge of financial services. The point of our project was to find ways of bringing people who currently use "fringe" financial services like check cashing, money wiring to pay bills, payday loans, etc. into the mainstream banking system, so they don't lose a large percentage of their paycheck to things like check cashing fees.
What we found in our focus groups was surprising in many ways. First of all, most of our focus group participants didn't even know what check cashing was, and only one out of several dozen total participants mentioned using it. This was surprising because Langley Park has a lot of check cashing outlets, which is why we chose it. We also found that for many members of our target population, mainstream banks could have fees such as overdraft fees and below-minimum-balance fees that exceeded even those offered by fringe financial institutions. We also expected that language barriers would be a difficulty, because many recent immigrants only speak Spanish. We found out that most of the time there was someone on the bank staff that could speak Spanish, but that a lot of bank literature was in English only so they couldn't understand it. We ended our presentation with recommendations on what banks and other financial service providers could do to offer more consumer-friendly services. At the end we got feedback from a panel of expert "discussants" we had recruited in order to give us advice for how we should revise our thesis.
There were, however, a few hitches and embarrasing moments. Twice during the presentation, we referred to "cash checking" instead of "check cashing." Also, during our rehearsal, I discovered that during the process of "cleaning up" the slides, on one of the slides I made featuring a graph showing the racial composition of counties in the United States versus the number of banks per capita, that one of my teammates had replaced the phrase "non-Hispanic white" with "non-white Hispanic." Fortuntely we caught this error before it made it into our final presentation. Also, at the beginning of our presentation we included a video showing the sights and sounds of Langley Park. One of our discussants was Bill Hanna, a professor at UMCP who also runs several community organizations that focus on Langley Park, and he politely informed us that several of the shots in our video featured locations that weren't even in Langley Park.
However, overall, the experience was exciting and we learned a lot. Also, at the presentation, they were distributing pledge forms asking people to donate money to the Gemstone Program in order to make sure future generations of students have the same opportunities we did. If you are interested in donating to the Gemstone Program you can contact Jim Wallace.
And finally, this was the last day on the job for one of our team's mentors, Jerry Grossman (although he will still be coming to our meetings to advise our team for the next few weeks as we finalize our final thesis). Starting next week he will be working at the USAID (U.S. Agency for International Development) as an "economic growth officer." I imagine he will have his work cut out for him there.
(We have two mentors. Our other mentor is Brian Beard, whose area of expertise is on poverty assessment tools in developing countries.)
By the way, Mom and Dad, they will but putting out a DVD of our presentations at some point and I will send it to you when they do so you can see it. Also if you are interested in meeting our mentors or other team members I can see if that can be arranged when you are in town for graduation.)
Our Gemstone project was titled "ANSWER Poverty," which stands for "Assessing the Need for Services which Effectively Reduce Poverty." During our project, we interviewed recent immigrants living in Langley Park, a community just a few minutes away from Campus that has a high number of low-income immigrants. Our goal was to find out their experiences with and knowledge of financial services. The point of our project was to find ways of bringing people who currently use "fringe" financial services like check cashing, money wiring to pay bills, payday loans, etc. into the mainstream banking system, so they don't lose a large percentage of their paycheck to things like check cashing fees.
What we found in our focus groups was surprising in many ways. First of all, most of our focus group participants didn't even know what check cashing was, and only one out of several dozen total participants mentioned using it. This was surprising because Langley Park has a lot of check cashing outlets, which is why we chose it. We also found that for many members of our target population, mainstream banks could have fees such as overdraft fees and below-minimum-balance fees that exceeded even those offered by fringe financial institutions. We also expected that language barriers would be a difficulty, because many recent immigrants only speak Spanish. We found out that most of the time there was someone on the bank staff that could speak Spanish, but that a lot of bank literature was in English only so they couldn't understand it. We ended our presentation with recommendations on what banks and other financial service providers could do to offer more consumer-friendly services. At the end we got feedback from a panel of expert "discussants" we had recruited in order to give us advice for how we should revise our thesis.
There were, however, a few hitches and embarrasing moments. Twice during the presentation, we referred to "cash checking" instead of "check cashing." Also, during our rehearsal, I discovered that during the process of "cleaning up" the slides, on one of the slides I made featuring a graph showing the racial composition of counties in the United States versus the number of banks per capita, that one of my teammates had replaced the phrase "non-Hispanic white" with "non-white Hispanic." Fortuntely we caught this error before it made it into our final presentation. Also, at the beginning of our presentation we included a video showing the sights and sounds of Langley Park. One of our discussants was Bill Hanna, a professor at UMCP who also runs several community organizations that focus on Langley Park, and he politely informed us that several of the shots in our video featured locations that weren't even in Langley Park.
However, overall, the experience was exciting and we learned a lot. Also, at the presentation, they were distributing pledge forms asking people to donate money to the Gemstone Program in order to make sure future generations of students have the same opportunities we did. If you are interested in donating to the Gemstone Program you can contact Jim Wallace.
And finally, this was the last day on the job for one of our team's mentors, Jerry Grossman (although he will still be coming to our meetings to advise our team for the next few weeks as we finalize our final thesis). Starting next week he will be working at the USAID (U.S. Agency for International Development) as an "economic growth officer." I imagine he will have his work cut out for him there.
(We have two mentors. Our other mentor is Brian Beard, whose area of expertise is on poverty assessment tools in developing countries.)
By the way, Mom and Dad, they will but putting out a DVD of our presentations at some point and I will send it to you when they do so you can see it. Also if you are interested in meeting our mentors or other team members I can see if that can be arranged when you are in town for graduation.)
Thursday, February 19, 2009
Textbook Economics
So, there's an interesting issue being discussed in the Diamondback.
Apparently, student activists are up in arms about the high price of textbooks and are working on trying to find ways to lower them. Some of these methods include:
- Mandating that professors allow older editions of textbooks or justify why they need the new editions.
- Post the ISBN numbers for textbooks so that students can comparison-shop online.
- Posting the book lists earlier so that people have more time to shop around.
There is only one slight problem. If students can comparison-shop, then more of them will buy their textbooks at places other than the University Book Center. And since profit from the University Book Center is used to run the Student Union and pay off the debt from its construction, if UBC profit decreases then student fees will have to go up in order to make up the money.
Apparently, student activists are up in arms about the high price of textbooks and are working on trying to find ways to lower them. Some of these methods include:
- Mandating that professors allow older editions of textbooks or justify why they need the new editions.
- Post the ISBN numbers for textbooks so that students can comparison-shop online.
- Posting the book lists earlier so that people have more time to shop around.
There is only one slight problem. If students can comparison-shop, then more of them will buy their textbooks at places other than the University Book Center. And since profit from the University Book Center is used to run the Student Union and pay off the debt from its construction, if UBC profit decreases then student fees will have to go up in order to make up the money.
Friday, December 5, 2008
What's this about a recession?
"Researchers at Harvard say that taking a power nap for an hour in the afternoon can totally refresh you. They say that by the time you wake up you'll feel so good, you'll be able to start looking for a new job."
- Jay Leno
---------------------------------------
I just learned that I have been offered a full-time job at Amazon.com as a Software Development Engineer for after I graduate. On December 11-14 I will be traveling over there in order to tour the campus, learn about what a great place Amazon is to work, and talk to different project teams to find out which ones I might want to work on.
I have also been offered an internship at the U.S. Census Bureau's Statistical Research Division to start sometime in January. There, I could quite possibly be working with some of the people responsible for the development of the "imputation" techniques that were the subject of a 2002 Supreme Court case.
- Jay Leno
---------------------------------------
I just learned that I have been offered a full-time job at Amazon.com as a Software Development Engineer for after I graduate. On December 11-14 I will be traveling over there in order to tour the campus, learn about what a great place Amazon is to work, and talk to different project teams to find out which ones I might want to work on.
I have also been offered an internship at the U.S. Census Bureau's Statistical Research Division to start sometime in January. There, I could quite possibly be working with some of the people responsible for the development of the "imputation" techniques that were the subject of a 2002 Supreme Court case.
Subscribe to:
Posts (Atom)