Carpe Diem

Monday morning links

ustrade1. Chart of the Day. Total US trade activity (exports + imports) reached a new all-time high in August of $437 billion.

2. Minimum Wage, Maximum Politics. “While a 40% across-the-board increase in the minimum wage may have political appeal, any politician sincerely attempting to help those in need would recognize the negative impact of federal increases and the need for policies that increase economic growth. The failure to address these issues suggests that the administration’s motive is political, not compassionate. The president’s minimum-wage hike might cost 500,000 jobs…..but the pre-election push is mostly about safeguarding the jobs of a smaller group of people: congressional Democrats.” Andy Puzder in today’s WSJ.

3. Inconvenient Weather Fact. October 1 marked the 18th year of “no significant warming trend in surface average temperature.”

4. Unsustainable? Retired Queens College (CUNY) history professor Edgar J. McManus gets a city pension of $561,286 a year. His final salary was $116,364, that’s a ratio of almost 5:1! Fifteen other NY retired educators collect more than $200,000 a year and almost 2,000 get more than $100,000 a year, mostly at levels far above their final salaries?

5. America, Here’s Your Deadly, Immoral Drug War. A 58-year old Georgia businessman was shot and killed by a SWAT Team during an (unauthorized) no-knock drug raid that found NO drugs. David Hooks becomes America’s Drug War Casualty #34 for 2014.

6. America, Here’s Your War on Plants. Georgia police raided a man’s okra garden with a chopper, K-9 unit, and task force, thinking that it was weeds.

7. Markets in Everything. Mayo Clinic introduces workplace medical kiosks for real-time medical consultations with MDs, physician assistants and nurse practitioners. (HT: Ryan Lais)

8. Livin’ Large. What It’s like to Fly the $23,000 Singapore Airlines Suites Class.

9. Who-d a-Thunk It? States are now reconsidering wind energy? After lawmakers promised little or no regulation and generous tax breaks, some leaders in Oklahoma and other states fear their efforts succeeded too well, attracting an industry that gobbles up huge taxpayer subsidies, draws frequent complaints and uses its powerful lobby to resist any reforms.

10. Economic Milestone. “We’re witnessing the first industrial-led recovery in the US since 1961,” according to Donald Broughton, Avondale Partners senior research analyst, on CNBC.
Carpe Diem

Silicon Valley gets a stern lecture about diversity from a mostly white and mostly male NY Times editorial board

Meet the mostly white and mostly male New York Times Editorial Board (full bios here):

nytimes1
Here’s a slightly edited version of the October 4 New York Times staff editorial “Silicon Valley’s The New York Times’s Diversity Problem“:

After years of playing down the problem, technology companies like Google, Facebook and Apple The New York Times now says they’re it’s serious about improving the gender and ethnic diversity of their work forces and corporate its editorial boards. Recent data from those companies and others like them about the composition of the NY Times editorial board confirm what everyone has long known: Most of their employees contributors are white and Asian most are men. As the graphic above demonstrates, men on the NY Times editorial board outnumber women by almost 2-to-1 (12 men vs. 7 women), and blacks (5.3%) and Hispanics (5.3%) are significantly under-represented on the board relative to their shares of the US population (13% and 17% respectively for blacks and Hispanics).    

Tech Publishing companies like the New York Times should care about these numbers. Many studies show that companies publishers with gender, political and ethnic diversity on their editorial boards tend to be more creative and more profitable, because varied perspectives help them design products and services write editorials that appeal to a diverse, worldwide audience.

There are approaches that could help:

  • Top technology companies The New York Times hires a lot of graduates from elite universities like Stanford, Harvard, Yale, Brown, Chicago, Columbia, NYU and the University of California, Berkeley for its editorial board (see graphic above). Their Its recruitment efforts should include a broader array of colleges…
  • Companies The New York Times should open up the initial interviewing process for its editorial board. The National Football League, for example, has the Rooney Rule, which requires teams to interview at least one minority candidate for every head coach or general manager opening, and this rule should be implemented at the New York Times.
  • Creating a welcoming culture, which is often easier said than done, would help these companies The New York Times retain employees board members who get in the door. The under-representation of women and minorities on the current New York Times editorial board might not be creating a sufficiently “welcoming culture.” 

There is a lot that the education system and the government need to do to get more women and minorities interested in science and technology journalism. But the technology newspaper industry (including the New York Times editorial board) can start tackling its diversity problem right now.

Thanks to John Hinderaker’s article at the Powerline Blog (“Self-Knowledge at the New York Times“) for inspiring this CD post. Here’s part of John’s excellent post (emphasis added):

The Times says it is a “problem” that “Most [Silicon Valley] employees are white and Asian men.” So let’s count! Sure enough, 11 of the editorial board’s 19 members are white or Asian men. Worse, only one out of 19 is African-American. That’s a little under one-half the proportion of African-Americans in the population. How about a Rooney Rule for the New York Times?

Even more notable, of course, is the lack of philosophical diversity on the editorial board. As far as I know, it doesn’t include any conservatives, even though surveys indicate that there are close to twice the number of conservatives as liberals in the U.S. Remember the value of diversity: “varied perspectives help [companies] design products and services that appeal to a diverse, worldwide audience.” Actually, people of different skin colors may or may not have different perspectives, but people of different political philosophies certainly do. It is hard to deny that diversifying the political orientation of the editorial board would help the Times “appeal to a diverse, worldwide audience.” But I don’t suppose that is the paper’s goal: it is of liberals, by liberals, and for liberals. That is their prerogative, but it is laughable to be lectured on diversity by a monolithic group like the Times’s editorial board.

Carpe Diem

With market pricing for Stevie Wonder and 200,000 tickets for Garth Brooks in Mpls., the secondary market will suffer

I’ve written many times before about how an active, secondary market for concert tickets can only exist when: a) the artist, promoter or venue has intentionally (usually) decided to under-supply the number of concert tickets relative to fan demand, and/or b) the artist, promoter or venue has intentionally (usually) under-priced the tickets relative to the market price. Supply enough concert tickets at market prices and voilà, the secondary market for tickets selling above face value largely vanishes….. It now appears that both of those strategies might actually be happening, here are two recent examples:

1. Stevie Wonder will start his 11-city “Songs in the Key of Life” national tour with a November 6 concert at NYC’s Madison Square Garden. An analysis of ticket prices for sale on Ticketmaster for Stevie Wonder’s concerts reveals a multi-price ticket strategy that might be an attempt to reduce secondary market sales by pricing the tickets at close to market value when originally sold. For example, tickets for the November 20 concert at the Palace of Auburn Hills (near Detroit) range in price from a minimum of $84.70 ($77 + a $7.70 service fee) to a maximum of $1,265 ($1,150 + a whopping and “unconscionable” service fee of $115), with tickets for sale at about 50 different prices in that wide range. Obviously, the ticket prices are determined by proximity to the stage, and the $84.70 seats are in the back of the arena and the tickets priced around $1,000 are in the first few rows.

2. Next week, Garth Brooks will start his first national tour in 16 years with 6 concerts in 8 days in Jacksonville, FL, followed by 4 shows in 2 days in Lexington, KY, and then 10 concerts in mid-November at the Target Center in Minneapolis, including two shows per night on four of those days (6:30 and 10:30). With a seating capacity at the Target Center of almost 20,000, that would mean that there will be about 200,000 tickets available for Brooks’ 10 Minneapolis concerts. In contrast to the pricing of tickets for Stevie Wonder’s concerts at 50 different price points, Garth Brooks is charging a uniform price $70.50 for all tickets ($56.87 plus $6.13 tax, a $2.00 facility fee, and a $5.50 service charge). Seating is apparently assigned randomly, with an 8-ticket per household/organization limit and a “paperless ticketing” policy that requires identification and the credit card used to purchase the tickets for entry to the stadium.

Bottom Line: Both of these strategies could effectively reduce the secondary market for tickets selling above face value. Instead of under-pricing the tickets relative to the market, Stevie Wonder tickets are being priced closer to their true market value. And instead of under-supplying the number of tickets relative to fan demand with a single show in an arena that can accommodate only 20,000 fans, Garth Brooks is supplying 200,000 tickets over 10 days and 10 concerts in one city. That alone could have successfully reduced the secondary market – but by additionally imposing “paperless ticketing,” the secondary market will probably be even further reduced.

Carpe Diem

The ‘predatory pricing’ myth and why consumers are so ‘evangelical’ about ride-sharing – it represents the future

There’s a stubborn economic myth that has persisted for generations centuries (see update below) that goes something like this: An aggressive, predatory firm preys on its competitors by charging below-cost predatory prices in an attempt to drive all of its rivals out of business. If successful, the predatory firm then is rewarded with complete control of the market and it then proceeds to jack up prices to take advantage of its dominant monopoly position. The predatory firm wins, and the rivals and consumers lose.

There’s a good reason the predatory firm/pricing myth remains a myth – this scenario never actually happens. Here’s why — in a market economy, as soon as the predatory firm raises its prices and earns monopoly profits, what happens? The enticing and redolent “smell of profits” attracts new rival firms who enter the industry and then quickly erode the predatory firm’s monopoly profits through vigorous competition and price-cutting. Unless of course the dominant firm has some type of protection against competition and becomes a “coercive monopoly” (like the USPS), which could only happen through some government legislation, regulation or fiat and never through market forces. In fact, a much better and more realistic strategy for the dominant firm to control the market (like Amazon maybe?) would be to keep its prices so low that no rival could successfully compete against it – but that’s not part of the predatory firm/pricing myth.

In the Washington Post yesterday, columnist and “Big Taxi evangelist” Catherine Rampell wrote an op-ed (“Who will win the ridesharing war? Probably not consumers.”) that suggests she has swallowed the predatory firm/pricing myth hook, line and sinker.

Here are a few excerpts:

Medallions and other regulations capping the number of livery cars available are often derided as taxi cartel protectionism.

Well, that’s because those artificial, anti-consumer restrictions are a form of government-enforced taxi cartel protectionism and serve the interests of the government-protected taxi cartel members, not the consumer.

Uber and Lyft are engaged in a price war, which in the short run certainly looks good for consumers.

It looks good to consumers, because well…. low price are good for consumers.

But there’s also the long run to think about. For all the rhetoric about the value of competition, the goal of this price war is to neutralize the competition and become the only livery game in town. Which would mean more market power, over both drivers and consumers, probably to the detriment of both.

Sure, but what’s to stop new rivals from emerging to challenge the “only livery game in town” if Uber or another ride-sharing service could ever unrealistically achieve that monopoly status? Uber or Lyft would have no government-sanctioned protection from competition like the current taxi cartels, and would face vigorous competition from new start-ups, like the new ride-sharing service Gett, which is offering an introductory flat fare of $10 for rides anywhere in Manhattan at any time of day. Therefore the “only livery game in town” anti-consumer outcome with high prices (and poor service) is the major flaw in the predatory firm/pricing myth because it’s pure fantasy for that outcome to ever actually happen.

Finally, “Big Taxi evangelist” Rampell closes her op-ed with this paragraph, demonstrating her belief in the predatory firm/pricing myth:

In other words, for all their bellyaching about the bullies of Big Taxi, Uber and Lyft are becoming pretty big bullies themselves. Nothing about their behavior suggests the ultimate winner of the ride-sharing wars will wield its power beneficently when it controls the market and can raise consumer prices at will. Consumers will just be trading in one monopoly — loathed Big Taxi — for another, less regulated one.

Except there’s a major and very big difference: loathed Big Taxi is loathed for a reason – it has government protection against competition through taxi medallion systems, etc. – something that Uber, Lyft, Sidecar, Gett, Getaround, Zip Car, Car2Go, etc. don’t have. And that’s why “ride-sharing evangelists” (Rampell’s term) are so enthusiastic about the transportation market today – they are no longer at the mercy of Big Taxi’s high prices and poor and limited service and they now have a historically unprecedented number of transportation options including the services of the companies listed above.

This is a great time to invoke the timeless wisdom and insight of French economist Bastist, who four days before his death in 1850 wrote this in a letter to a friend: “Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.” In today’s debate about ride-sharing and transportation options, we should primarily consider the general interest of the consumer, not the special, entrenched interests of Big Taxi. And consumers have clearly and overwhelmingly expressed their preferences – they are “evangelical” about ride-sharing for a very good reason – it’s a much better, cheaper, and faster option than Big Taxi. And they’ve seen the transportation future, and it’s not Big Taxi.

Update: See this related 1992 Cato article “The Myth of Predatory Pricing” by economist Thomas J. DiLorenzo, who writes:

Predatory pricing is one of the oldest big business conspiracy theories. It was popularized in the late 19th century by journalists such as Ida Tarbell….

The predatory pricing argument is very simple. The predatory firm first lowers its price until it is below the average cost of its competitors. The competitors must then lower their prices below average cost, thereby losing money on each unit sold. If they fail to cut their prices, they will lose virtually all of their market share; if they do cut their prices, they will eventually go bankrupt. After the competition has been forced out of the market, the predatory firm raises its price, compensating itself for the money it lost while it was engaged in predatory pricing, and earns monopoly profits forever after.

The theory of predatory pricing has always seemed to have a grain of truth to it — at least to noneconomistsbut research over the past 35 years has shown that predatory pricing as a strategy for monopolizing an industry is irrational, that there has never been a single clear-cut example of a monopoly created by so-called predatory pricing, and that claims of predatory pricing are typically made by competitors who are either unwilling or unable to cut their own prices.

Predatory pricing is the Rodney Dangerfield of economic theory–it gets virtually no respect from economists. But it is still a popular legal and political theory….

Carpe Diem

Four charts from today’s BLS Employment report

jobs

1. The 12-month gain in nonfarm payroll employment through September of 2.635 million jobs is the largest 12-month increase since early 2006.

jobs1

2. September was the first month that US civilian employment (146.6 million) was above the November 2007 peak of 146.59 million and is now at a new record high.

oilgasjobs

3. Oil and gas extraction employment at 213,500 jobs in September is the highest in more than 28 years, going back to July 1986.

tempjobs

4. Temporary help services employment reached a new record high in September of 2,933,500 jobs.

Carpe Diem

The ‘MLB superstar-to-worker pay ratio’ is 500:1 vs. a ‘CEO-to-worker pay ratio’ of only 300:1 – Unconscionable?

mlbratioThe AFL-CIO (and many others including Warren Buffett, Paul Krugman and Robert Reich) think a small group of several hundred American CEOs who head some of the world’s largest companies receive excessive compensation. According to the AFL-CIO, “corporate CEOs in recent decades have been taking a greater share of the economic pie,” implying that the rest of us now get increasingly smaller pieces of the remaining and shrinking economic pie. This is a perfect demonstration of the “fixed pie fallacy,” one of the most common economic fallacies, but let’s ignore that and move on.

To make the case that CEOs are overpaid, the AFL-CIO and many others compare the annual compensation of several hundred of the highest-paid US CEOs — an unrepresentative, infinitesimally small, and statistically insignificant group of CEOs — to some measure of pay for the average worker (see recent CD post on this topic). Using wages for factory workers, the AFL-CIO’s “CEO-to-worker pay ratio” has increased from 50:1 in 1983 to 200:1 in 1993 to 300:1 in 2003 and 331:1 last year ($11.7 million CEO compensation to average factory income of $35,239). The increasing “CEO-to-worker pay ratio” is considered to be “simply unconscionable” by the AFL-CIO, and probably by most of the general public.

But would the same people who think that a 331:1 CEO-to-worker pay ratio is unconscionable think that a 500:1 “MLB superstar-to-worker pay ratio” is also unconscionable?

The chart above displays annual ratios of the median salary of the top 25 highest-paid MLB players in each year from 1988 to 2012 (data here) to the average annual pay for factory workers based on these historical hourly wages (same measure of average pay used by the AFL-CIO). In 1988, Dave Winfield was paid $1.98 million by the New York Yankees (and was the 13th highest paid MLB player) and that was about 105 times higher than the average annual factory worker income of slightly less than $19,000 in that year.

By 2012, Roy Halladay and Ryan Howard, both of the Philadelphia Phillies, were tied for the 13th highest MLB salary of $20 million, and that was 507 times the 2012 annual factory income of $39,400, and even much higher than the AFL-CIO’s ratio of 331:1 last year.

In the same way that there are only a few hundred athletes in a given year who are talented enough to make it into the elite group of world-class athletes who earn multi-million dollar salaries, there is likewise only a small group of individuals with the necessary skills and talents to lead large multi-national corporations in the S&P500. And in the same way that the top athletes can command higher salaries each year because of increased fan interest in sports like MLB (both domestically and globally) and increased competition for those top positions (domestic and international players), CEOs can command higher salaries because of increased global competition and bigger markets, and bigger companies.

Just like the highest-paid athletes deserve to make more today than their counterparts in the past, the CEOs of large corporations like Oracle, Ford, CBS, McDonald’s, GE and Walt Disney deserve to make more than their counterparts of the past. The markets today for cars, machinery, consumer products, entertainment, computers, and fast food are not only much bigger today than in the past, both domestically and globally, but those markets are much more competitive and challenging today. The CEOs who can face those challenges deserve to make a lot of money. What might be driving higher CEO compensation over time is an increasing premium for super-star managerial talent, just like there’s been an increasing premium for super-star athletic talent, acting talent and musical talent.

Unlike CEO pay, we rarely hear anybody say that the pay of athletes, musicians, movie stars, or entertainers is “simply unconscionable.” And yet many of those celebrities (Oprah, Madona, Paul McCartney, Donald Trump, Cesar Millan aka “The Dog Whisperer,” etc.) actually ARE the CEOs of their own multi-million dollar enterprises. It’s also important to remember that CEOs don’t write those checks to themselves, so we should realistically assume that it’s primarily market forces, talent, and performance that determine CEO compensation, just like we should assume that the top 25 MLB salaries in 2012 of between $17-$30 million were determined largely by market forces, performance and talent.

Bottom Line: If people aren’t upset about a “MLB superstar-to-worker pay ratio” of 500:1, then they really shouldn’t be upset about a 300:1 “CEO-to-worker pay ratio.” Likewise, if you’re not upset about the $20 million median salary of the top 25 highest paid MLB players in 2012, you really shouldn’t be upset about the $11.7 million average CEO compensation last year for a small group of the highest-paid executives.

Carpe Diem

The downward trend in sexual assaults at the University of Michigan doesn’t support frequent claims of an ‘epidemic’

umThere’s been a lot of attention paid recently to the issue of “campus sexual assaults” and some of the media including Katie Couric, the Washington Post, the Associated Press, and MSNBC, along with Sen. Barbara Boxer have all referred to it as an “epidemic.” Wouldn’t the term “epidemic” suggest that there is a widespread and growing number of campus sexual assaults? If so, the crime data from at least one major college campus — the University of Michigan at Ann Arbor — don’t support the term “epidemic” and in fact suggest exactly the opposite – a declining trend in sexual assaults.

The chart above shows the annual number of sexual assaults at the University of Michigan-Ann Arbor (UM) from their annual crimes reports, like this most recent one. UM crime reports are somewhat unique because they include sexual assaults reported to the UM Sexual Assault Prevention and Awareness Center (SAPAC) that took place: a) on-campus, b) off campus (including even out-of-state) and c) on any public property, during the current year as well as incidents that might have taken place in previous years. Students who report sexual assaults to SAPAC are encouraged, but not requited to report those incidents to the UM-Police. Therefore, the UM crime reports are pretty comprehensive by including off-campus sexual assaults (anywhere in the country) and assaults that are not reported to campus police – in contrast to some universities that only report sexual assaults that take place on campus and reported only to the campus police, as required by the Clery Act.

As the chart above shows, the number of “campus” sexual assaults at UM has been trending downward for the last decade, and in 2013 (the most recent year available) the number of sexual assaults (35) was about half the numbers in 2004 (64), 2005 (65) and 2006 (65).

I realize that this is just one campus, but it’s pretty obvious that the trend at UM can’t possibly be described as an “epidemic of sexual assaults on college campuses” that the media and politicians suggest is a nationwide crisis. Also, remember that the White House claim that “1-in-5 women are sexually assaulted while in college” was based on a survey of students at only two (undisclosed) universities and then extrapolated to the entire country, and is now the basis for the national hysteria that recently motivated passage of a historic college rape law in California.

Importantly, the downward trend in sexual assaults at UM over the last decade is consistent with the downward trend in the national incidence of rape, which has fallen by 45% over the last 20 years, from 42.8 per 100,000 people to 23.6 per 100,000 last year (see chart below).

Bottom Line: If there’s a “rape epidemic” in America, it certainly isn’t supported by the FBI national crime data, and if there’s a “college sexual assault epidemic” it’s certainly not supported by the declining trend in sexual assaults at the University of Michigan over the last decade.

raperateThis is an updated version of this CD post from June.

Carpe Diem

Wednesday night links

1. September Auto SalesVehicle sales this year of 16.34 million units on a seasonally adjusted, annual rate (SAAR) was the best September sales month since 2006, when 16.42 million units were sold.

2. Restaurant Sales. Driven by stronger same-store sales and customer traffic levels and a more optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index posted a solid gain in August.

3. More Oil = More Jobs. The three US metro areas with the lowest jobless rates in August: Bismarck, ND (2.2%), Fargo (2.4%) and Midland TX (2.8%).

4. More Oil = Lower Prices. Thanks in part to fracking, “Oil Prices Fall on Growing Supply, Lowest Price in Nearly 2 Years,” and retail gas prices are the lowest in four years for late September.

5. Quotation of the Day. From Thomas Sowell, “I must have heard the word “diversity” proclaimed in ringing tones as a great benefit to society at least a thousand times — and probably closer to a million — without even once hearing a speck of evidence provided, or even suggested as a way to test whether that is true or false.”

6. To Combat Campus Sexual Assault? The University of New Mexico is hosting a “Sex Week,” an event featuring workshops like “How to be a Gentleman AND Get Laid,” “Negotiating A Successful Threesome,” “O-Face Oral” and “BJs and Beyond,” according to this flier distributed on campus.

7. Markets in Everything. a) Want to make sure you and your partner are on the same page before you hook up? There’s an app for that – Good2Go and b) WunWun will offer on-demand delivery of anything to San Francisco users for a flat rate of $10.

8. Who-d a-Thunk It? Federal spending on contracts in the last week of the fiscal year is five times higher than the weekly average? Hey, it’s the annual “use it or lose it” season in Washington.

9. VIDEO. Michelle Fields interviewed Robert F. Kennedy Jr. at the “People’s Climate March” in NYC. The two had a testy exchange and RFK Jr. revealed his climate rage when Michelle suggested his own smartphone, car and carbon footprint makes him a green hypocrite rivaling Al “Bigfoot” Gore. Watch as RFK goes completely loony off the deep end about the Koch Brothers…