Carpe Diem

A swamp of schlumps: Can we ditch the pajamas, shorts and flip-flops and stop dressing like slobs when we’re traveling?

1. In an episode of Curb Your Enthusiasm above, Larry David offers some fashion advice and a traveling tip to the guy sitting next to him on a plane — “Try not to wear shorts, it’s not all that attractive to look at.”

2. In this Slate article, J. Bryan Lowder encourages the masses to stop dressing like slobs when they travel:

The primary reason I make the extra effort to plan my travel outfit is because, well, no one else does. Among the cavalcade of pajama pants, tracksuits, nightgowns, painting rags, and ill-fitting sweatshirts that one encounters in the world’s terminals and stations these days, the competently dressed individual stands apart as a beacon of civilized life, an island of class amid a swamp of schlumps. By dressing myself as a decent human being who is aware that he is in public, I like to think I am performing a small act of resistance against the increasingly slobbish status quo.

Alas, the general lack of respect for travel, itself, as a worthwhile human experience, seems to be the root of this lazy dressing phenomenon. Many of us act as if we’re trying to create a private, instantaneous bridge through folded space-time between our bedrooms and our hotel rooms by flying in our pajamas; the bad news is, barring a sudden forward leap in technology, wormhole creation is impossible.

3. One consequence of dressing like slobs, is that it facilitates people behaving like slobs.

Exhibit A: See the photo below (featured before on CD) that I took at the Minneapolis-St. Paul airport a few months ago showing a woman lounging with her bare feet up on a public table, while the guy across from her is eating his food!


Carpe Diem

Markets in everything: High-tech, sensor-based trash collection saves up to 50% compared to the traditional system

Here’s a good example of both creative destruction and the invisible hand – Enevo ONe, a Finnish startup, is disrupting the waste management industry with a new, innovative sensor-based trash management system. Here’s how it works (from the company’s website):

Enevo ONe is a comprehensive logistics solution that saves time, money and the environment. It uses wireless sensors to measure and forecast the fill-level of waste containers and generates smart collection plans using the most efficient schedules and routes. The solution provides up to 50% in direct cost savings.

Until now collecting waste has been done using static routes and schedules where containers are collected every day or every week regardless if they are full or not. Enevo ONe changes all this by using smart wireless sensors to gather fill-level data from waste containers. The service then automatically generates schedules and optimized routes which take into account an extensive set of parameters (future fill-level projections, truck availability, traffic information, road restrictions etc.). New schedules and routes are planned not only looking at the current situation, but considering the future outlook as well.

Here’s a Forbes article with some background on how the company got started — the same way most successful companies get started — when Finnish entrepreneur Fredrik Kekalainen had a “eureka moment.”  And most of those “eureka moments” are perfect examples of Adam Smith’s “invisible hand” concept, because entrepreneurs only become successful and rich in the marketplace by figuring out ways to make other people better off through better products or services, cheaper products or services, or new products and services that improve the lives of others. If things work out, entrepreneurs like Fredrik Kekalainen get rich, but their personal wealth is usually only a fraction of the social benefits that they generate collectively for the rest of society. By pursuing their own self-interest (and their desire to become wealthy) entrepreneurs like Fredrik are led by an “invisible hand” to make the rest of us better off. And that’s the miracle of the marketplace that Steven Landsburg described Armchair Economist - the amazing phenomenon that individually selfish behavior leads to collectively efficient outcomes.

HT: Jon Murphy

Carpe Diem

Washing windows hanging from a rope 12 stories above the ground, I hope he’s getting paid a risk premium

windowHere’s one example of why men earn more on average than women before making any adjustments for factors like hours worked, continuous experience, marital status, age and number of children: Men far outnumber women in occupations that are very dangerous, and therefore highly-paid, like coal mining, working on oil rigs, fishing, farming, logging, roofing, construction, fire fighting, law enforcement, etc.

To illustrate, I took the picture above today of a male window-washer hanging off the 12th story of a new building across the street from AEI. He was dangling on ropes, with no obvious safety equipment other than the several ropes that looked to be about the thickness of a clothesline attached to something on the top of the building, with no buckets, trays or harnesses to support him, and nothing below him except the sidewalk 12 stories down to stop a fall. I’m pretty sure this guy makes a higher wage than the maintenance workers who might be assigned to clean the same exact windows from the inside of the building.

Of course, there’s nothing that would prevent women from becoming outside window-washers like this guy, but there might be natural gender differences in risk tolerance that would discourage most women from hanging off a rope 12 stories above the concrete sidewalk. Isn’t it realistic to assume that men naturally show greater tolerance than women for risky, physically demanding, dangerous work in extreme outdoor conditions, and women put a higher priority on office work environments that are low-risk, indoors, safe and pleasant? Higher (lower) risk = higher (lower) wages, ceteris paribus, and women on average may be perfectly willing to accept lower wages for lower risk jobs, which would contribute to the unadjusted gender wage gap.

Here’s BLS data showing that in 2012, 92% of all workplace fatalities were men, here’s data showing that 91% of all fatal motorcycle accidents in 2012 were men, and here’s data showing that 93.4% of all current federal prisoners are male, so I don’t think there’s any question that men are significantly more risk-tolerant than women. As long as there are natural gender differences in risk tolerance, we should expect those differences to explain some of the gender wage gap. I’m not sure this always happens, but empirical studies of gender wage differences should control for risk differences by occupation by accounting for the probability of work-related injuries or fatalities by occupation.

Carpe Diem

Paul Krugman on the minimum/living wage: 1998 vs. 2014

Former economist Paul Krugman now apparently supports a $15 per hour minimum wage (or a $15 per hour “living wage”), and he recently claimed a $15 minimum/living wage wouldn’t have negative employment effects. In his former life as an economist, Krugman had a much different view of the living wage, as you’ll find in this excerpt of his 1998 review of the book Living Wage: What It Is and Why We Need It (emphasis added):

The living wage movement is simply a move to raise minimum wages through local action. So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment. This theoretical prediction has, however, been hard to confirm with actual data. Indeed, much-cited studies by two well-regarded labor economists, David Card and Alan Krueger, find that where there have been more or less controlled experiments, for example when New Jersey raised minimum wages but Pennsylvania did not, the effects of the increase on employment have been negligible or even positive. Exactly what to make of this result is a source of great dispute. Card and Krueger offered some complex theoretical rationales, but most of their colleagues are unconvinced; the centrist view is probably that minimum wages “do,” in fact, reduce employment, but that the effects are small and swamped by other forces. What is remarkable, however, is how this rather iffy result has been seized upon by some liberals as a rationale for making large minimum wage increases a core component of the liberal agenda–for arguing that living wages “can play an important role in reversing the 25-year decline in wages experienced by most working people in America.” Clearly these advocates very much want to believe that the price of labor–unlike that of gasoline, or Manhattan apartments–can be set based on considerations of justice, not supply and demand, without unpleasant side effects. In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price–determined by supply and demand, the same as the price of apples or coal. And it is for that reason, rather than the practical details, that the broader political movement of which the demand for a living wage is the leading edge is ultimately doomed to failure: For the amorality of the market economy is part of its essence, and cannot be legislated away.

Carpe Diem

Realistically, wouldn’t a $15 per hour minimum wage accelerate automation in industries like fast-food?

Explaining why a $15 per hour minimum wage wouldn’t lead to job losses from greater automation and mechanization, Paul Krugman tells us that minimum wage workers are employed in “areas where — yeah, you can mechanize some but not very much actually. For the most part minimum wage workers are in ‘common sense’ industries [like fast food]. The reason you need a person is because you require the kind of flexibility that I think we’re still a few decades away from getting out of computers.”

Actually, we might be much closer to the automation of fast food that Krugman dismisses as being “decades away.” Especially if the minimum wage was raised to $15 per hour…..

Exhibit A: Self-service ordering kiosks. Consumers are embracing self-service technology now more than ever.…..

mcd1Exhibit B: The burger robot pictured below is “poised to disrupt the fast food industry.” The Momentum Machine “does everything employees can do except better — it slices toppings like tomatoes and pickles immediately before it places the slice onto your burger, giving you the freshest burger possible. It’s more consistent, more sanitary, and can produce ~360 hamburgers per hour.”


Carpe Diem

Paul Krugman claims that a $15 per hour minimum wage (equivalent to a $17,500 annual tax) won’t result in job losses

Raising the minimum wage from $7.25 per hour to $15 per hour would be equivalent to a $16,120 annual tax on every full-time unskilled or low-skilled worker ($7.75 per hour x 40 hours per week x 52 weeks). After accounting for the employer share of payroll and unemployment taxes (about 8.25%), that would increase the “annual unskilled worker tax” to $17,500 per full-time minimum wage worker.  For a company or fast-food restaurant that employs ten entry-level workers, that would be equivalent to a $175,000 annual tax on its unskilled workers.

And yet, in this Huffington Post article”Krugman Demolishes Classic Argument Against Raising Minimum Wage” (and the Business Insider video above), we learn from Paul Krugman that there’s nothing to worry about because “paying fast-food workers $15 an hour won’t cause big companies like McDonald’s to cut jobs.” Really? A $17,500 annual tax per full-time, unskilled worker will have no effect on jobs?

Carpe Diem

Tuesday morning linkage

1. Video — Washington Post blogger Radley Balko discusses the increasing militarization of America’s law enforcement. “There are many communities that now fear the police more than they fear violent criminals.” “Soldiers are trained to kill people, and when you have them in domestic law enforcement, that’s always going to create tension.” “US police have become more militaristic than the military.” Iraq and Afghanistan war veterans’ reaction to videos of US SWAT raids? “We’d be court-martialed if we did that.”  Very, very disturbing.

2. United States of SWAT: Taking advantage of U.S. Defense Department offers of free or low-cost military hardware, Texas school districts have been helping themselves to high-powered weaponry, bullet-proof vests, and armored vehicles to militarize their campus police officers.

3. America, Here’s Your Drug War: “Life In Prison For Weeds And Other Travesties Of Weed Prohibition,” by Forbes contributor Jacob Sullum.

4. Detroit is broke. How broke? So broke that firefighters get emergency alerts through pop cans, coins, door hinges, pipes and doorbells. And the firefighters make these gizmos themselves — one involving a pop can that gets tipped over by an incoming fax.

5. 3-D Printing. A Prosthetic Hand Used to Cost $40,000, Now a 3-Year Old Hawaii Boy Gets a 3-D Printed Prosthetic Hand That Cost Only $50.

6. Why Do US Stocks Keep Rising? Because the 21st century is an amazing period of entrepreneurial activity, according to First Trust Advisors. “Fracking, 3-D printing (see example above), robotics, biotech advances, the Cloud, wireless communication technologies, smartphones, tablets, and apps are just a few of the areas of massive advancement. The business world is vibrant, productive and massively efficient – and profitable.”

7. Great Moments in Government Inflexibility: A 13-year-old DC piano prodigy is treated as a truant by her local public school instead of a star student. Now instead of touring the world as a first-class representative of DC public schools’ finest, she is going as a home-schooler.

ndoil8. Chart of the Day. Thanks to shale oil, North Dakota went from being one of America’s poorest states (measured by per-capita personal income) to the nation’s second most prosperous state in 2013. Carpe oleum.

9. Economic Transformation: The Shale Energy Bonanza Lifts America’s Heartland.

10. Photos: From the Days When Thousands of Cables Crowded the Skies.

11. Minimum Wage: a) A $15 An Hour Minimum Wage Would Be a $17,500 A Year Tax On Jobs and b) There is only one way to regard a minimum wage law — it is compulsory unemployment, period.

12. Video: The Factual Feminist Christina Sommers Debunks the “Top 5 Feminist Myths of All Time.”

Carpe Diem

Thomas Friedman quotations

1. Someone smarter than I once said that pessimists are usually right and optimists are usually wrong, but all the positive change in history was done by optimists.

~NY Times, September 25, 2005, “Optimism in Tough Times

2. America is the greatest engine of innovation that has ever existed, and it can’t be duplicated anytime soon, because it is the product of a multitude of factors: extreme freedom of thought, an emphasis on independent thinking, a steady immigration of new minds, a risk-taking culture with no stigma attached to trying and failing, a noncorrupt bureaucracy, and financial markets and a venture capital system that are unrivaled at taking new ideas and turning them into global products.

~The World Is Flat: A Brief History of the Twenty-first Century (HT: Dennis Gartman in today’s The Gartman Letter)

3. Communism was a great system for making people equally poor – in fact, there was no better system in the world for that than communism. Capitalism made people unequally rich.

~The World Is Flat: A Brief History of the Twenty-first Century

Carpe Diem

More evidence that the vast majority of actively managed funds fail to outperform their S&P benchmark indexes

spThe chart above shows the percentage of actively managed US equity funds in 18 different fund categories that were outperformed by their S&P index benchmarks over the last one-three, three-year and five-year periods. It was published today in the 2014 Mid-Year S&P Indices Versus Active (SPIVA) U.S. Scorecard and was featured today by Sam Ro on Business Insider (“S&P Reveals The Brutal Truth About 18 Categories Of Mutual Funds“).

Over the last five years through June 30, 2014, the S&P benchmark indexes outperformed 85.3% of the actively managed equity funds averaged across the 18 different fund categories. In four of the fund categories (mid-cap growth, small-cap growth, small-cap core, and real estate), fewer than 10% of the active managers were able to beat their benchmark index over the 2009-2014 period.

Here are some of the highlights from the SPIVA report (my emphasis):

  • The U.S. domestic equity markets finished the 12-month period ending June 30, 2014, on a positive note. The S&P 500, S&P MidCap 400 and S&P SmallCap 600 returned 24.61%, 25.24% and 25.54%, respectively. However, the results show that over this period most active domestic equity funds failed to achieve returns above their respective benchmark. With the exception of managers of multi-cap value funds and real estate funds, the majority of managers across all other categories underperformed the benchmark. According to the data, 59.78% of large-cap managers, 57.84% of mid-cap managers and 72.79% of small-cap managers underperformed their benchmarks.
  • The past five years have been marked by the rare combination of a remarkable rebound in domestic equity markets and a low-volatility equity environment. This combination has proven to be difficult for domestic equity managers, as more than 70% of them across all capitalization and style categories failed to deliver returns higher than their respective benchmarks.
  • Similarly, the past 12 months have not been favorable for international equity managers. The majority of managers across all categories saw their returns lag behind the benchmarks. Approximately 70% of global equity funds, 75% of international equity funds, 81% of international small-cap funds and 65% of emerging market funds underperformed their benchmarks.

MP: Over periods of time longer than five years, it’s highly likely that even many fewer than 14.7% of actively managed funds could or will outperform their benchmark indexes, which means most investors will earn higher returns and pay lower expenses with index funds than by investing with active managers. As Bethany McLean wrote in Fortune Magazine back in 1999:

The truth is, much as you may wish you could know which funds will be hot, you can’t–and neither can the legions of advisers and publications that claim they can. That’s why building a portfolio around index funds isn’t really settling for average (or a little better). It’s just refusing to believe in magic.

HT: W.E. Heasley

Carpe Diem

Who-d a-thunk it? Socialist Venezuela has world’s largest oil reserves and it goes from oil powerhouse to oil importer?

venoilWorld oil prices have risen from less than $10 a barrel when Venezuelan president Hugo Chávez took office in 1999, to about $100 a barrel today. And yet despite that ten-fold price increase (“the greatest oil price bonanza in recent history”) and the world’s largest oil reserves, Chávez and his successor Nicolas Maduro have managed to destroy Venezuela’s oil industry, according to Miami Herald syndicated columnist Andres Oppenheimer. For example, oil exports from Venezuela have fallen by more than 44% from a peak of over 3 million barrels per day in 1997 to below 1.75 million barrels per day in each of the last four years (see chart above, EIA data here). And now Venezuela is about to start importing crude oil for the first time ever.

Here’s an excerpt of Oppenheimer op-ed “Venezuela: From Oil Power to Oil Importer“:

As weird as it seems, Venezuelan President Nicolás Maduro’s government plans to start importing crude oil for the first time in order to blend it with Venezuela’s own crude and keep the country’s overall production from falling further. It turns out that Venezuela’s own production of light crude oil has plummeted since the late President Hugo Chávez took office in 1999, and the country desperately needs light crude oil to blend with its Orinoco Basin extra heavy crude oils. Without such a blend, the Orinoco Basin’s extra heavy crude is too dense to be transported through pipelines to Venezuelan ports and exported abroad.

Venezuela’s oil production, which accounts for 95 percent of the country’s export earnings, should be used in world classrooms as a textbook case of what happens when a populist government starts distributing a country’s wealth in cash subsidies, without investing in maintenance and innovation. Much like what happened with Cuba’s once flourishing sugar industry, Venezuela’s Chávez-inspired populism has destroyed the goose that laid the golden eggs.

In 1999, when Chávez took office, Venezuela’s state-owned PDVSA oil company had 51,000 employees and produced 63 barrels of crude a day per employee. Fifteen years later, PDVSA has 140,000 employees, and produces 20 barrels of crude a day per employee. Venezuela’s net oil exports have plummeted from 3.1 million barrels a day in 1997 to 1.7 million barrels a day in 2013 (see chart above).

The Venezuelan government desperately needs to speed up oil exports to get cash, because the government is bankrupt. Inflation has surpassed an annual rate of 60 percent, and Venezuela will be Latin America’s country with the lowest economic growth this year.

But to speed up oil exports, Venezuela needs to blend its heavy crudes with lighter imported crudes, because Venezuela is no longer producing enough light crudes of its own. Production of light crudes has fallen because of lack of investments, abandonment of exploration of light crude areas, and the nationalization of companies that used to help produce light crudes. So, while the government has already been buying refined products to blend with its heavy crudes, it will now be forced to import light crude oil from Algeria.

MP: As I concluded in my 1995 article Why Socialism Fails, “The main difference between capitalism and socialism is this: Capitalism works.”