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May 2012 posts

Mayor Bloomberg nudges New Yorkers away from the Big Gulp--and towards two Little Gulps instead

BloombergOh, Mayor Bloomberg--you make writing a book about libertarian paternalism and nudges too easy. (Thanks!) But seriously, you help show why it's important to write this book, that's it's not just some pie-in-the-sky idea that lives only in the ivory tower, but one that affects the real world.

Yesterday The New York Times reported that New York City Mayor Michael Bloomberg, through his Board of Health, is planning to limit sizes of sugary drinks like soda (other than diet), energy drinks, and sweetened coffee drinks, to 16 ounces. (One person on Twitter remarked that this is still 13 ounces more generous than the TSA.) This applies to prepackaged bottles of beverages sold in bodegas or delis (but not grocery stores or convenience stores) as well as drinks poured by an employee or customer, such as fountain soda sold at fast food restaurants, sports games, and movie theaters.

According to the article,

The mayor, who said he occasionally drank a diet soda “on a hot day,” contested the idea that the plan would limit consumers’ choices, saying the option to buy more soda would always be available.

“Your argument, I guess, could be that it’s a little less convenient to have to carry two 16-ounce drinks to your seat in the movie theater rather than one 32 ounce,” Mr. Bloomberg said in a sarcastic tone. “I don’t think you can make the case that we’re taking things away.”

No, he's not taking away people's soda or limit consumer choices--people are free to buy more, smaller drinks or take advantage of free refills--but he is hoping to affect their choices, or he wouldn't be doing this in the first place. This element of cynical manipulation lies behind all nudges, the idea that regulators can leave your options unchanged substantively but still change your behavior for the better.

This leads to another offensive aspect of nudges: to change behavior without curtailing options, they rely on the same cognitive biases and dysfunctions that its proponents use to justify their imposition. I assume that Bloomberg blames short-sightedness or lack of willpower for New Yorkers' heavy consumption of sugary drinks, but his plan will only work if people were too lazy, hurried, or absent-minded to consider other options for getting more soda. (His sarcasm about the inconvenience of buying two sodas is ironic, since that inconvenience is one thing that he's counting on to drive the success of his plan.)

What do I see coming from this? A lot of delis and bodegas working to reclassify themselves as grocery stores instead of "food service establishments" (a health department classification) and a lot more restaurants that serve fountain sodas offering free refills or "buy one cup get one free" deals. Consumers won't have to "seek out" ways to get their fix; business will be more than happy to provide them. Like most poorly crafted regulation, this ban on large sugary drinks will certainly shift some behavior, but in efforts to circumvent the ban, not to conform to it.

New Yorkers are smarter than you give them credit for, Mayor Bloomberg. Maybe it's all that sugar.

Birther Blather

Jonathan B. Wight

George Will, the conservative journalist, calls Donald Trump a "bloviating ignoramus."

Trump, anticipating a meeting with Mitt Romney, re-affirmed his belief that President Obama's birth nation was Kenya. His entire evidence for this is that a book publicist once incorrectly wrote: "Born in Kenya and raised in Indonesia." The sentence was corrected before going to press.

The grand conspiracy theory is that 50 years ago a cabal of insiders placed false birth announcements in the Honolulu Advertiser. Here is the birth announcement on Aug. 13, 1961:

The only problem with the conspiracy scenario is the utter ludicrousness of the claim. Who is this secret cabal that was planning Obama's ascendancy to the White House as a babe of mixed race fifty years ago? Do insiders really control the world? If Obama beat Hillary, and Hillary had the whole White House and Democratic Party insiders at her disposal, why didn't she use that insider power to win?

A slightly less sinister theory has Obama's white grandparents placing the newspaper announcement in anticipation of their daughter's divorce from Obama's Kenyan father. The problem with this scenario is that newspapers only printed official birth announcements issued by the Hawaiian Department of Vital Statistics.

Bart Hinkle notes:

Hiding out in a media echo chamber makes it possible to avoid encountering certain facts, such as the fact of Obama's birth announcement in Honolulu newspapers. Placing a fake announcement would have required knowing — well before the passage of the Civil Rights Act — that someday a certain foreign-born black child named Obama would beat a woman named Clinton, who had been first lady, for the Democratic presidential nomination, and that fake evidence of his citizenship would then be required.

I am reminded of Ronald Reagan's budget director, David Stockman, who blatantly made up spending and revenue projections that Reagan wanted to hear. Romney is pandering to people who are equally (and willfully) disconnected from reality. This is not a good sign for those who value truth for the sake of truth.

Financial Disclosure Coming to the AEA

Jonathan B. Wight

In a month the American Economic Association will implement its new financial disclosure requirement for authors:

Beginning July 1, 2012, all submissions to AEA journals, including revisions of previously submitted papers, must be accompanied by a Disclosure Statement. This is applicable even when the authors have no relevant interests to disclose. Authors will need to provide a separate Disclosure Statement for each coauthor at the time of submission. Submissions that do not include the statements will be considered incomplete and will not be reviewed. Please see the complete Disclosure Policy at http://www.aeaweb.org/aea_journals/AEA_Disclosure_Policy.pdf

This is a good start. Next on the agenda, in a few years, will be a code of ethics.

While economists maintain that there is no enforcement mechanism for a code, having an explicit norm sets the expectations and influences behavior.

Passing a code is one thing—but teachers and mentors will need to embrace it. A code that is ridiculed would be worse than no code at all. Hence, major figures from various schools will need to support it publicly.

Sadly, this likely won't happen until another—larger—scandal engulfs us.

Let's Be More Productive

Mark D. White

In The New York Times over the weekend, Tim Jackson contributed a piece titled "Let's Be Less Productive." In it, he decries the modern obsession with productivity gains, while recognizing the role it has played in increasing standards of living. He cites necessarily stagnant productivity in the arts, services, and craft industries, which William Baumol noted years ago, terming it the "cost disease" (because wages would have to remain competitive while productivity stayed the same), but cautions against increasing productivity throughout the economy because of other detrimental effects--specifically on jobs, if higher productivity is not accompanied by growth.

I have no problem with tempering the push for higher productivity, especially in areas in which it can hardly be expected. Productivity is a means to an end and therefore it is only valuable insofar as it actually serves that end. But I think there is an end which can benefit from higher productivity that Jackson doesn't see: a less work-centered conception of meaningful life. Instead, he sees higher productivity as a threat to full employment:

Ever-increasing productivity means that if our economies don’t continue to expand, we risk putting people out of work. If more is possible each passing year with each working hour, then either output has to increase or else there is less work to go around. Like it or not, we find ourselves hooked on growth.

On a certain level he's right; if we produce the same amount of output more efficiently, that means less resources will be required, including labor. For people who want to work, who need to work, this is of great concern, which makes this an important matter to discuss during these dire economic times.

But more generally, we should consider if work is a means to an end or an end in itself. It's the former for most everybody, of course, but the latter for only some. It's a cultural stereotype that Americans live to work while Europeans work to live, but it is based on a kernel of truth. Some people find their life's meaning primarily in work, but others find it more in other aspects of life, such as service, art, family, or love. Higher productivity may result in fewer jobs, yes, but insomuch as some people find a job a burden--and have other means to support themselves, such as a spouse or a partner--they can enjoy other aspects of life if they have other means of support, due to higher productivity.

There are other benefits to this aspect of higher productivity. It would relieve the modern necessity of the two-earner family, either allowing a two-parent family to live on one earner's income, or a single-parent family to live more comfortably on one income. And higher productivity can also--if you're so inclined--finance a stronger welfare state, to support those who want to work but can't find a job, and have no partner or other financial support. Even without growth, higher productivity enables a state to fund social welfare programs. (Just look at Sweden, where a fairly unrestrictive regulatory environment for business has led to productivty gains and growth to support their extensive welfare state.)

There is plenty of room to bemoan the single-minded focus on productivity espoused by many in business and government, and at the same time to recognize that the loss of jobs it creates (in the absence of corresponding growth) has some broader societal benefits, including lessening our reliance on our jobs and careers to give meaning to our lives and relaxing the economic burden on families. Work to live, indeed!

What’s a Class B-Corporation?

Jonathan B. Wight

When asked about their plans after graduation, many of my students say they want to work for government or non-profits. "That is soooo 20th century," I say. Instead, consider the market alternative!

The growing 21st century wave, I think, is to be part of the for-profit sector, using entrepreneurial skills to create new products and services that make society better. The for-profit sector is sustainable without requiring the benevolence of strangers or the coercion of big brother. Many companies provide meaningful work and desirable social and environmental outcomes, using the price signals within markets to guide resource allocations.

The for-profit sector just got a boost in Virginia with the creation of a new type of business designation—the Benefit Corporation. A Benefit Corp has the legal right—and the obligation—to consider a multitude of stakeholders including workers, suppliers, customers and the community.

The Benefit Corps has a mandate to make profits within the context of the community and envisioned social mission. This is far more attractive for many young people whose moral imaginations have rightly been aroused. Robert Frank has found that many students are willing to accept 30% below market wages in order to work for a company with a strong social or environmental mission.

Benefit corporation laws have been enacted in 7 states (California, Hawaii, Maryland, Virginia, New Jersey, New York, and Vermont) with others in progress. The main advantage is that if a Benefit Corp is sold, the founders are not required to sell to the highest bidder, but can instead sell to the bidder who most closely can carry out the multiple missions. Removed is the fear of minority shareholder law suits.

A related but entirely separate concept is a "Certified" B-Corp. Certification is provided by B Lab, a non-profit organization "dedicated to using the power of business to address the world's most pressing challenges." B Lab ensures that companies that market themselves as green and social are actually living up to that pledge. A recent company to be certified is Patagonia; Yvon Chouinard, the founder, stated that:

"I hope five or ten years from now we'll look back on this day and say this was the start of a revolution, because the existing paradigm isn't working anymore. This is the future."

So far B-Corp companies are a tiny fraction of the market, 532 businesses with combined revenues of $3 billion.

I can hear the cynics, moaning that all this blather about social responsibility is simply a marketing gimmick. I don't doubt that this is so for many companies who want to market themselves as green.

Adam Smith's moral sentiments model helps explain why motives to help society and the environment can be authentic, not calculated. For more on this, read my critique of Friedman's claim that only profits should matter to a firm. Briefly: Friedman's concept relies on a duty-bound manager who puts shareholder interests first. But a duty-bound person cannot turn duty on-and-off. There's the rub. Transformational leadership connects people's morals to their work in an authentic way, not to manipulate but to engage.

And that is why Benefit Corporations (and the B-Corps designation) can help companies clarify and carry out their missions within a capitalist system.

Memorial Day

Jonathan B. Wight

Our veterans have left their limbs on the battlefield. Now that they are back their unemployment rates sometimes rise much higher than the national averages, especially for the under-24 year old segment.

The Bureau of Labor Statistics reports that while veterans as a group have about the same unemployment rate as Americans overall (about 8.3 percent), Gulf War Era II veterans (since 2001) averaged nearly 50 percent higher unemployment rates—12.1 percent in 2011. Still more startling and disturbing is the data showing that male veterans under the age of 24 had unemployment rates of 29 percent in 2011!

There are many reasons for this, including the epidemic of post-traumatic stress disorders (PTSD). It's easy to underrate these emotional disorders. We were raised on a diet of John Wayne shooting up the bad guys and sleeping soundly. Clint Eastwood growls "Go ahead, make my day…" as he blows someone away.

That's all fantasy, at least for most well-adjusted people. The shock of danger, injury, and pain is real and long-lasting. There are no good treatment regimens.

Veterans2Work is one of the many non-profits and other groups attempting to re-integrate veterans into the workforce. John Reynolds, the founder of Veterans2Work, is a Viet Nam vet whose current passion is demonstrating to businesses how valuable service members can be to for-profit organizations. A key part of the story is that veterans develop virtuous habits, which carry over into their civilian jobs.

Reynolds was one of several veterans honored at the White House yesterday for his work.

Thanks to all our service members.

Smith on Top

Jonathan B. Wight

Oh the fickleness of surveys. In the early 1970s, no one was thinking of Adam Smith. Kenneth Boulding quipped, tongue-in-cheek, "[W]ho needs Adam Smith?"

The meteoric resurgence of Adam Smith's reputation began after 1975. The reasons for it are complex and worthy of elaboration, which I did in "The Rise of Adam Smith" (2002).

A recent survey of economists found that among members of twelve economic associations, the favorite pre-20th century economist was overwhelmingly Adam Smith. Smith won more than twice as many votes as the runner up, David Ricardo.

The Union of Radical Political Economists (URPE), however, gave as many votes to Karl Marx as it did to Smith. The Society for the Development of Austrian Economics (SDAE) gave an equal vote to Carl Menger.

Overall it was a romp for the Scot, winning a majority of the votes.

Smith the wordsmith satisfies diverse tastes. Jacob Viner noted that "[A]n economist must have peculiar theories indeed who cannot quote from The Wealth of Nations to support his special purposes." Smith's genius was in constructing layers of analysis that give philosophers material to ponder for decades and centuries.



Favorite Economist



Adam Smith



David Ricardo



Alfred Marshall




The Ethics of Consumer Ratings

Jonathan B. Wight

My wife and I just returned from a delightful road trip to the Shenandoah Valley of Virginia (see below). We stayed at two B&Bs that we loved.

But is that reason enough to give them high rating on Trip Advisor or others sites?

I used Trip Advisor to plan my stays and found their reviews quite helpful. Lots of nice people took the time to honestly report and make life easier for me. Should I reciprocate?

This is a Prisoner's Dilemma. If I report honestly on these lovely B&Bs others will want to go stay there. The future availability of rooms will fall and the price will rise! I'm penalized for fair reporting. In the near term I'd be better off giving them a bad report.

But in the long run lying is bad for me and others. Because of false reports, good B&Bs will go out of business. In addition, as more false reviews get posted, trust in the rating system collapses and fewer people will bother reporting. Hence, I will lose a future source of good information. Based on consequentialist ethics, I should report honestly so as to gain the cooperation of others for mutual long run benefit.

But that consequentialist calculation, while on target, doesn't really explain why people fairly recount their experiences. There's a better and more reliable reason to report honestly—my moral sentiments! I have affinity with the entrepreneurs who buck the odds to start a small business and succeed. My senses of benevolence and justice require me to leave a good report if appropriate. My sense of resentment requires me to report a bad stay, hoping the owner corrects the problems or goes under. Virtue ethics can be a more reliable market partner than consequentialist ethics alone.

Facebook, Revisited

Jonathan B. Wight

It is way too soon to call, but I can't help gloating just a bit.

A week ago, in reference to the upcoming IPO of Facebook, I noted that irrational exuberance was on the loose. I predicted that "I'll be surprised if secondary investors, and perhaps even some initial investors, don't take a bath."

The stock hit a high on Friday of $42.50 and had fallen to $32 by early this morning, a drop of about 25%. Yikes! While individuals may be irrational at times, it is reassuring to see the market rein it in.

NPR Listeners Are Brainier

Jonathan B. Wight

A recent survey by Fairleigh Dickinson University's "Public Mind" finds a notable gap between where people get their news and what they know about current events. Not surprisingly, NPR listeners scored highest on a set of four international and five domestic questions.

Fox News listeners answered correctly only one out of four international questions, and only one out of five domestic questions. People who watched no news scored higher. The questions ranged from upheaval in the Middle East to the unemployment rate in the U.S. NPR listeners got about twice as many answers correct (still not great scores).

Liberals often claim that public radio and public TV should be supported with tax funds because these stations provide positive externalities to society. This survey could support that conclusion. Of course, only correlation has been established, not causality. People who listen to NPR are likely better educated and wealthier than the average citizen.

Still, this kind of investigation is significant for what it reveals about the education of adults—and the lack of accountability in some media outlets. A related question is, do some adults even want to know the right answers? Ideology may be a more satisfactory media purchase than truth. Hence, there is no guarantee that competitive markets will generate more truth if consumers want to buy falsehoods. That may be the key concern raised by this study.

UPDATE (5/25/2012): James Fallows offers some interesting criticisms and caveats about the survey. I think the main criticism is the one mentioned above, that education and income levels are not being controlled for.