car_salesman

A couple of months ago my wife and I bought a car from our local Volkswagen dealership. We needed a new car after our second child was born, and we ultimately settled on a Jetta Sportwagen, which I highly recommend for any parents out there who need a car big enough to fit two car seats, but are desperately trying to disguise the fact that they’re no longer cool.

After we agreed to buy the car and all the paperwork was signed (mostly by me, as my wife was home with the new baby), the salesman gave me a head’s up that I’d be receiving a survey via email about my experience at the dealership. “We’d appreciate it if you could give us 9s and 10s”, he said, referring to my survey responses.

At the time I didn’t think much of this comment, and just assumed he and his colleagues would benefit from some positive feedback. But when the time came came to fill out the survey — a simple, straightforward electronic form that I can only assume most people go through in a minute or less — I grappled with my answers. Did I really think the presentation and cleanliness of the car showroom, for instance, was “truly exceptional”, which is what the survey instructions indicated that a 9 or 10 response was supposed to mean? The honest truth was that the experience at the dealership was good but nothing to call home about. I had bought a car from another VW dealership a few years earlier, and I found it hard to decide which buying experience left me more satisfied. How could I honestly say that this last one was something “exceptional”?

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Joseph-Kony-2012

An article in the Washington Post’s Monkey Cage blog chronicles the winding down of the Invisible Children (IC) organization. You’ll remember them for this video, which created a ubiquitous anti-Joseph Kony movement and sparked an international appeal to bring the brutal warlord to justice. As the article explains:

The organization, which took the world by storm with the viral Kony 2012 video, announced that most of the staff – including Jason Russell, the only remaining founder – will stop working for the organization and that a small team of four individuals will work through 2015 to continue their lobbying efforts and formally hand over their Africa-based programs by the year’s end. In other words, the organization, which has been raising awareness and action on the Lord’s Resistance Army (LRA) and its leader Joseph Kony for the past 10 years, is slowly phasing out. For now, it appears Invisible Children won’t outlive the rebel group it was formed to stop.

At the time that the Kony phenomenon was in full force, observers were conflicted as to now much good it would ultimately do. On the one hand, it raised the level of sympathy and understanding on the part of Westerners for humanitarian catastrophes in oft-ignored parts of the world. The US even sent 100 troops to Uganda during this time to help with the effort against Kony and the LRA, a commitment that arguably wouldn’t have been made without the massive public response to the Kony 2012 video.

Even during that time, however, a number of individuals expressed skepticism. As The Atlantic put it back in March of 2012:

Treating awareness as a goal in and of itself risks compassion fatigue — most people only have so much time and energy to devote to far-away causes — and ultimately squanders political momentum that could be used to push for effective solutions. Actually stopping atrocities would require sustained effort, as well as significant dedication of time and resources that the U.S. is, at the moment, ill-prepared and unwilling to allocate. It would also require a decision on whether we are willing to risk American lives in places where we have no obvious political or economic interests, and just how much money it is appropriate to spend on humanitarian crises overseas when 3 out of 10 children in our nation’s capital live at or below the poverty line. The genuine difficulty of those questions can’t be eased by sharing a YouTube video or putting up posters.

I myself don’t know how I should feel about the rise and fall of IC and the whole Joseph Kony thing. To me, the episode reminds us that even as our human race moves towards a new sense of global consciousness, awareness, and sympathy, we are still quite immature in how we express these newfound feelings. In other words, we still need to make the leap from awareness to actual sacrifice and action. Too often, our idea of social action and responsibility takes the form of easy, costless gestures of support for a particular cause, allowing us to move on with our lives under the comforting but false notion that our work is done. In that sense, I’m not sure if these types or movements are helping or hurting.

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When I was a sophomore in college my microeconomics professor talked about gift giving as an example of an economically inefficient cultural practice. The lesson of the day was on how human beings efficiently allocate their resources. When we have the freedom to choose exactly how to spend our money, economic theory tells us, then we can maximize our own personal well-being. But when given a gift, some of this freedom is removed; in efficiency terms, it would be much better just to give cash and let the recipient figure out on his or her own how to spend it.

There was one important caveat: As my professor put it, when two people exchange a gift there are some “warm fuzzies” involved, a benefit that we can’t easily quantify. It’s one thing to go out and get what you want, but it’s particularly special and heartwarming when a loved one is thoughtful enough to get it for you. On a related note, let me digress for a moment and offer some free advice to all men reading this: Don’t ever give your wife or girlfriend cash as a gift, no matter how big an econ nerd you think you are. You run the risk of injury, death, or worse.

For whatever reason, recently I’ve been hyper-sensitive to all the subtle ways that economic efficiency and basic humanity butt heads, just as is the case when it comes to gift giving. And when it comes to this subject, the example that keeps smacking me in the face is my morning commute to work.

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Homeless man and dog

Recently, I decided to try out a Greek food truck for lunch that’s down the street from the office. The line was long, but I didn’t mind. It was nice outside so I was happy just to wait patiently and surf with my phone in the meantime.

While waiting, a lady approached those of us who were in line and asked for money for something to eat. Her speech was irregular and she smelled of booze. The other people in line ignored her. As I’ve tried to do in the past in similar situations I decided to at least acknowledge her; that’s the minimum degree of respect you can show a person asking for money out on the street, I’ve always figured. She asked if I would buy her some food, and I said yes. I had a ten-dollar bill in my pocket (as usual I’d left my wallet at my desk at work), so I had enough for two sandwiches. Plus, I’ve always tended to feel more comfortable giving food, rather than money, to those asking for help.

After that point it was chaos. I asked her what she wanted to eat, and she told me she wanted a chicken platter, which was $7. I told her I didn’t have enough money for that plus my own lunch, but I could buy her a sandwich instead. She agreed, but only after some awkward back and forth that drew curious glances from the other customers (it wasn’t that she was stubborn, but rather that she didn’t seem in the right frame of mind to understand the logic).

When I got the counter, I ordered one sausage sandwich for myself and one chicken sandwich for my friend. While the staff were putting these together (assuming they were both for me, I guess), they saw the lady, who it seemed was familiar to them. “What can I get you, honey?”, one of the cooks called to her, as she was standing off to the side. I opened my mouth to speak, about to explain the situation to him, when I heard her exclaim over my shoulder, “A cheeseburger!” I shut up. I paid for both sandwiches, gave one to the lady (who thanked me), and I was on my way.

It’s experiences like this one that complicate matters for me — and, I assume, many of those reading this — when it comes to giving money, food, or whatever to the poor, and especially to beggars. There is no way to write about these things risking sounding arrogant, paternalistic, or just plain dumb. But not discussing them is a worse alternative. This blog entry is more meditation than manifesto; I have no definitive answers, only personal experiences and scattered thoughts.

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Pew Research recently came out with a fascinating study across a number of countries asking individuals about life satisfaction. The results are pretty interesting, and I’d recommend taking a look at the summary here.

20141031-134303-49383631.jpg

One of the most intriguing charts that Pew presents (see above) is a scatter plot of countries, with average rating of life satisfaction on one axis and per capita GDP on the other. Not surprisingly, there’s a positive correlation between income and satisfaction, meaning that people in wealthier countries tend to be more satisfied with their lives than people in poorer countries. But we also see that the very wealthy countries (like the United States) aren’t significantly more satisfied than the middle-of-the-pack countries, echoing previous research on this topic. In fact, the country that rates highest in terms of life satisfaction is Mexico, where per capita GDP is about $10,000 per year, roughly a fifth that of the US.

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There seems to be a debate going on within American liberalism as to whether it makes more sense to defend Islam against its detractors, or criticize it in light of all the terrible things perpetrated in its name. (I say “liberalism” only, because I think the answer within American conservatism was decided long ago.) So I thought I’d just share some personal thoughts on this.

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Income inequality is a hot topic these days here in the US, and for good reason: over the past generation or so, real gains in income for those at the bottom and middle of the spectrum have been practically nil, while those at the top (especially the very top) have risen rapidly. As a consequence, income inequality by some measures is at its highest levels since the 1920s.

cbo-inequality-after-tax-income

If income inequality has been rising for so long, why is it only recently getting so much attention? I think the main reason for the recent attention was the housing bust and financial crisis in 2008 (duh), which provided a shocking contrast between widespread home foreclosures and mass layoffs on the one hand, and generous bank bailouts on the other. But since then, we’ve had plenty of other things to keep our attention on the subject. I’m thinking the Occupy Wall Street/99% movement; the 2012 Presidential election, which forced a national dialogue on the subject; and the near-celebrity status of economist Emmanuel Saez, whose recent book has attracted huge media attention.

Within that debate, economists continue to fuss over a longstanding question: Sure, inequality is rising, but what does that mean for economic growth? Do societies in which the rich take a bigger and bigger slice find it more difficult to grow the whole pie over time?

The Washington Center for Equitable Growth has a new paper summarizing the research, both old and new, on exactly this topic. It’s a good read even if you’re not into economics, especially the overview section, which gives some nice context for this question. Among the report’s conclusions are:

Most research shows that, in the long term, inequality is negatively related to economic growth and that countries with less disparity and a larger middle class boast stronger and more stable growth. Some studies do suggest that in the short run, inequality may spur growth before hindering it over the longer term, but overall there is growing evidence that, in the long run, more equitable societies are associated with higher rates of growth.

It’s always important to differentiate between positive and normative questions in economics, and this subject is no exception. The former asks something about how the world is; the latter, how the world should be. Economists like to focus most of their time on positive issues: Does inequality constrain growth? That is an important question, and researchers and organizations which focus purely on answering it objectively and honestly are doing very important work. Nonetheless, what seems to be missing from today’s debate about inequality is a second, more normative question: If the economy continues to grow while remaining very unequal (or becoming more unequal), is that ok?

For two reasons, I’d say the answer is No (surprise!). The first reason has to do with economic theory. The second has to do with the very purpose of our lives as human beings. Read the rest of this entry »

Entourage

Am I the only one that misses Entourage? The former HBO series, which closed shop a few years ago after eight seasons, was my escape from the drudgery and boredom of responsible living. Yes, Entourage was over the top, to put it mildly, but so is pretty much everything else on TV. It was at times just plain dumb (the series finale was a hasty tying of years’ worth of plot loose ends), but the show had a lightheartedness and carefree vibe that’s been missing from television ever since.

At the heart of what made Entourage work, of course, was the character of Vincent Chase, loosely based on Mark Wahlberg’s early career (when he was still Markie Mark and doing stuff like this, which some of us refuse to forget). Vince’s is the happy-go-extremely-lucky story we all love to root for: Poor kid from a blue collar town makes it big, achieves fame and fortune, and lives life in the fast lane while never forgetting his true friends or where he came from.

At this point you may be thinking, What does this have to do with finance? I’m glad you asked. (Let’s pretend you asked.) On many occasions in Vince’s fictional life, when he is warned about the imminent possibility of losing it all — by his accountant, his agent, his manager, whoever — he utters some version of the following statement:

What’s the big deal? If I lose all my money I can always go back to Queens. I was happy before when I had nothing. If I have to go back to that, so what?

This is the part in the blog post where I remind myself that Vincent Chase is not a real person (oh yeah). But a part of Vincent Chase lives inside all of us. That’s because we all, in various ways and to varying degrees, practice what I call the “Vincent Chase theory of financial management”. That is, we are all on occasion tempted to “stretch” our money, saving a little less than we probably should towards getting that bigger house, that nicer car, that more glamorous vacation, etc. After all, when times are good and the money’s flowing, why not? We can always go back to the more modest lifestyle we were perfectly happy with before, if the twists and turns of life force us in that direction.

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dazed_and_confused

I finally got around to listening to This American Life’s radio piece about Carmen Segarra and her secret recordings while working for the Federal Reserve Bank of New York. Even if the subject of financial regulation doesn’t typically blow your socks off, I’d highly recommend listening to the podcast, which features TAL’s typically tremendous mix of information and entertainment. At the very least, read the transcript.

The episode is about something called “regulatory capture”, which is a phenomenon we see in a lot of industries, particularly finance and banking. As the piece puts it, regulatory capture is a lot like when there’s “a watchdog who licks the face of an intruder and plays catch with the intruder instead of barking at him”.

Why does this happen? We often point to the “revolving door” separating industry and regulation, where people bounce back and forth between the private sector and the regulatory agencies, dulling their incentive to be tough on the companies they’re regulating now but might work for in the future. But the piece seems to suggest there’s something more purely psychological than that at play.

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IMG_0207

A new report by the Global Commission on the Economy and Climate has gotten a lot of attention in the press recently. It finds that:

[T]he choice we face is not between “business and usual” and climate action, but between alternative pathways of growth: one that exacerbates climate risk, and another that reduces it. The evidence presented in this report suggests that the low-carbon growth path can lead to as much prosperity as the high carbon one, especially when account is taken of its multiple other benefits: from greater energy security, to cleaner air and improved health.

This is good news, as it helps bolster the intellectual argument for action and quiet the arguments of the “it’s too expensive” crowd, which claims that the adjustments necessary to avert catastrophic climate change would be too painful for the economy to be feasible. As the report finds, when you add in all the secondary benefits of a less carbon-intensive global economy — lower healthcare costs as a result of cleaner air, for instance — the total cost to the economy of acting is actually quite small, or maybe even zero.

While the report is justifiably making news and being celebrated by environmental advocates for its findings, its important to note that the economic argument for action on climate change is not new. Environmental economists have understood for a long time that while there may be some short-run costs involved in adjusting our global economy to avoid climate change, these short-run costs are small in comparison to the much more severe climate-related costs down the line if we do nothing.

In other words, the choice between good economics and good environmental policy is the ultimate false dichotomy; the two are one and the same. Read the rest of this entry »

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