Freaking Out Over Freakonomics

A strange vibe is loose upon the land. Not the least of the evidence for this assertion is provided by Freakonomics. An economics book at #3 on Amazon.com, #2 on Barnes & Noble, and #4 on the New York Times list of nonfiction best sellers? Almost unheard of. There must be a reason.

You can taste a sample of the peppery, iconoclastic flavor of the book (as if the title wasn't a dead giveaway) by visiting the Freakonomics web site. I haven't read the book yet, so I can't review it. But, I'll soon be posting my comments on news coverage given to some of the authors' controversial explanations for everyday events.

Speaking of the authors, what a lead author this publishing miracle has. Steven D.Levitt of the University of Chicago won the John Bates Clark medal two years ago, an annual award given to the best young American economist. Since many winners of the Nobel prize in Economics first received the Clark medal, Levitt's abilities are unquestioned.

Lest you think that Levitt's approach to economics is something new, however, it's not. Levitt studied under Nobel-winner Gary Becker, who also blazed new trails through the tangled underbrush of economic issues 40 years ago. Becker's application of economics to explain racial discrimination broke new ground for economists. In 1996, David Friedman (an excellent economist and writer, who also happens to be the son of Nobel-winner Milton Friedman), served up a similar dish to Levitt's with the publication of Hidden Order: The Economics of Everyday Life. Unfortunately for Professor Friedman and readers everywhere, his book currently ranks at #59,549 on Amazon.com (paperback version). I don't know how many copies it sold before it went out of print, but I hope the answer is "lots and lots."

Since Americans usually don't do very well on tests of economic literacy like this one, I'm glad that economics is tickling the public's reading fancy these days. That's a hopeful sign for America. And I hope Professor Friedman revises and updates Hidden Order, that the book comes back into print, and that it rises to the top of the best-seller lists, too. No reason for a Levitt monopoly at the top. Nor even a Levitt/Friedman duopoly. Not with all the other brilliant economists out there just itching to serve up a taste of their own clever insights.

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David Versus Goliath--Goliath Wins!

Woe unto the poor college student who gets on the wrong side of Wal-Mart. Daniel Papasian can tell you about the consequences. Don't confuse his web site with this web site. Oh what a difference a hyphen in a web address can make.

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"No Animals Were Injured During the Making of This Film"

Just when I thought that animal actors were safe, news has leaked out that during a 20th Century Fox remake of the classic horse drama Flicka, a horse was accidently killed. Then comes word that a second horse was also killed on the same set. These events give a hollow ring to my post of April 23, They Shoot Horses, Don't They? Well, They Used To.

Did the film makers violate the regulations designed to ensure the safety of animal actors? An investigation may give the answer later. If laws were broken, I presume the producers will be fined. Of course, a fine would be a miniscule line in the budget for a typical movie. That economic incentive to safeguard the lives of equine actors is thus weak.

In purely economic terms the life of a movie horse isn't worth much unless the horse is a star. The owner is paid the market value for the dead animal, which typically wouldn't be much, and the horse is carted off to the glue factory. Horses with box office power are rare these days. Mr. Ed, Trigger and Champion are long gone. The hundreds of old-time wranglers, stuntmen, actors, and directors who knew their way around a horse are gone, too. Too bad the old-timers aren't around to teach today's film makers how to live up to the title of this post.

A boycott of Flicka might pressure film makers to put safety first: If animals are killed making a movie, then we won't go to that movie. Traditionally it's been up to the Humane Society and Hollywood to figure out the best way to make movie sets safe for animal actors. If Mr. Ed were still with us, I'm sure he'd weigh in with a "Willlllbbber! Those are my cousins on that movie set. Now you go out there and make sure nothing happens to them!"

Cheap at Twice the Price?

"You could buy a whole dinner for a nickel. The problem was nobody had a g--damn nickel."

I'll never forget the late Vince Olsen's remark about growing up in the Great Depression. Yes, prices were low, but people didn't have the income to buy things--even necessities like food in some cases. The economy has come a long way since the 1930s, but people still worry about whether they'll be able to afford this or that if the price of this or that keeps going up. Witness gasoline.

This story from the Christian Science Monitor helps to put prices in perspective. Gasoline around these parts sells for about $1.90 a gallon as this post is being written. Adjusting for inflation, gas was commanding $2.87 a gallon in 1980. Thus, gas is actually cheaper today than 25 years ago. Not so for many of the things we buy. In contrast to gas, the inflation-adjusted prices of houses, cars, and college tuition are much higher than a quarter of a century ago.

Inflation in home and vehicle prices usually doesn't draw much rebuke. In contrast, both the price of gas and the price of college tuition have been subjected to intense public scrutiny, and some anger. Why the difference? My guess is that long-term, steady, but relatively small annual price increases sneak by under consumers' radar screens. It's when a price shoots up in big spurts that the public takes notice. That's true even when the long-term result is the same when prices go up slow-but-steady or all-at-once. Maybe it's easier to take a little pain for a long time than a lot of pain all at once.

I've seen some evidence that the public believes the price of gas is rising because of an oil company conspiracy. Where were those conspiracy theorists when college tuition rose 158 percent in inflation-adjusted terms? Maybe it's easier to imagine overpaid big shots in oil company boardrooms conspiring to fix prices than to imagine upstanding university administrators doing the same. Of course, as a college professor I 'd like to think that the public recognizes that the value of a college education is so high these days that it would be cheap at twice the price. Silly thought? Actually, the earnings of college graduates eclipse those of high school graduates by enough to justify even higher tuition, at least at my university. Since I've never been one to inflict pain on my students, I think I'll keep that to myself and hope college administrators don't find out.

Answer Me This, Would Looking Smart Help?

By coincidence I had recently brought up in my classes the idea that good looks increase an individual's earnings relative to average looks. Now, along comes the St. Louis Fed with an article that discusses new findings that confirm that very point.

It turns out that the "plainness penalty" is 9 percent, while the "beauty premium" equals 5 percent, according to the research cited. Furthermore, there is other research showing that obesity impairs earnings, but only among white women. Then there is still more research showing a "height premium" for white men. No wonder there is so much plastic surgery these days. I'm waiting for some enterprising economist to relate earnings increases to boob jobs, tummy tucks, and face lifts. Maybe a boob job would prove to be a better investment than the stock market. Only if you're a woman, of course!

I think I see a connection here that everyone else has overlooked. Michael Jackson earned millions when he was still an attractive young black man. Now, he apparently earns a pittance compared to the good old days. Could this be due to his looks? It wasn't me who called him a grotesque white woman, but there might be plenty of people who would agree with that assessment of his appearance. In any case, I can't do anything about my looks. I've had people tell me I look smart. I wonder if that helps.

They Shoot Horses, Don't They? Well, They Used To

The idea of bringing a moral perspective to economic life is not the exclusive province of the religious. (See my previous post on Catholic economics directly below.) I read Yakima Canutt's autobiography Stunt Man last night. The book tells the story of how Yak brought intelligence and professionalism to the dangerous profession of stunt work, thus preventing many injuries and saving lives. If you grew up with the old Western movies the way I did you'll enjoy the story of Yak's life. Little did I know as a kid that it wasn't John Wayne taking that fall off a horse or the shot to the jaw from a bad guy in a black hat. Yak personally did stunts for Wayne and many other top Hollywood stars of the 1930s through the 1960s.

As I read the book my admiration for one star grew immeasureably. I've always thought Errol Flynn was one of the most underrated actors in the history of the movies. His charm and dashing good looks brought him great popularity in his day, but not much respect. His reputation as a womanizer and two-fisted drinker was the stuff of legends. However, Flynn played the key role in making right one of the most significant wrongs in motion picture history. You see, during the filming in 1940 of Virginia City, a big budget Warner Bros. western, Flynn was sickened and appalled as he witnessed the deaths of as many as a hundred stunt horses. Horses were routinely injured and killed making movies in those days. Flynn could have kept on the good side of studio boss Jack Warner by keeping his mouth shut and accepting the mistreatment of animals as just business as usual, but Flynn was a man of character, intelligence, and steely courage. Silent he was not. According to Yak, it was Flynn who raised enough hell about what he had seen that the studios were eventually forced to reach an agreement with the Humane Society. That was the end of the wholesale slaughter of horses in the movies.

Errol Flynn died in 1959 at age 50. Years of excess had taken their toll on his health and his appearance. Today, when he is remembered at all, it is as likely to be for his trial on statutory rape charges in 1942 (set up by enemies, he was found not guilty) as for his spirited portrayal of Robin Hood a few years earlier. The infamous slang expression "In like Flynn," coined by some anonymous wisecracker during the trial, lives on.

I'd like to think that when the angels came for Errol Flynn that a team of white stallions, grateful for the horses lives he'd saved, paid homage to him by pulling a celestial golden chariot to bring him home with style and dignified grace. In--heaven that is--like Flynn.

Is the Pope Catholic? Why Expect Anything Else?

Some people seem surprised and/or annoyed that the Catholic church picked a new Pope who is true to Catholic tenets of faith. I don't know what these people want in a Pope. Maybe an Austin Powers sort of fellow or a Jo Lo type . . . somebody to overturn traditional church teachings in a variety of areas, I suppose. Is Howard Stern available? :>) I wonder if those who champion this new breed of Pope have given much thought to Papal economics. If they have, they might be trying to figure out whether the Pope is a Democrat or Republican at heart. I would suspect he's an independent, but that's just a guess mind you.

Now, be aware that I am not Catholic, but what I think I know is that the Catholic church has strong beliefs about capitalism, the economy, and economics in general--beliefs that can be summed up in two words: economic justice. I haven't been able to find any specific pronouncements by Pope Benedict XVI on economics, but John Paul II weighed in on economic issues early in his reign with the Papal Encyclical "On Human Work", and followed up a decade later with Centesimus Annus. I haven't studied these documents, but my take on them is that John Paul II saw the disincentives of socialism deliver a hard blow to the economy of his native Poland, observed the prosperity of the West, and thus endorsed the free market. As a religious leader, though, he knew he had an obligation to go further, so he did. He common sensically called for participants in the free market economy to practice Biblical morality in their dealings with each other. No surprise there, at least to me.

Some Catholics would like to take the Pope's teachings and go them one better, emphasizing the redistribution of wealth--the idea of distributism. I presume that the mechanism for redistribution is to be the government. I don't know whether John Paul II agreed with distributism or not, nor whether Benedict XVI will weigh in on these issues. I hope he does, for the sake of clarification, if nothing else.

If Adam Smith were around today I wonder if he would repeat his description of the Catholic church of the Middle Ages: "the most formidable combination that ever was formed against the...liberty, reason, and happiness of mankind...." (The Wealth of Nations, bk. 5, chap. 1, pt. 3, art. 3). Judging from the crowds I saw waiting anxiously for that white puff of smoke to appear, the color of smoke that announces that a new pope has been selected, I doubt it.

"Attention Best Buy Shoppers: Legal Tender No Longer Accepted Here!"

It seems that a Best Buy store in Baltimore had a customer arrested for paying a fee with $2 bills. The circumstances? The cashier, apparently unaware that there are millions of $2 Federal Reserve Notes circulating, thought they were counterfeit. The old saying is "phony as a $3 bill." Maybe the cashier misremembered, mentally twisting it to "phony as a $2 bill," but doesn't it seem likely that counterfeiters would fake actual denominations rather than make up nonexistent ones?

The customer in this case is the victim of an extreme example of poor customer service. Do you smell a possible lawsuit? I have a feeling the customer is going to experience a bit of a windfall after his lawyer and Best Buy's lawyers confer. Mostly, it makes no sense to sue when customer service goes awry. The costs to the economy of poor customer service are made up of millions of little snippets of wasted time and unnecessary frustation. It all adds up to big money, I'm sure. I wish I knew how much.

Hmm. The next time the McDonald's drive-through gets my order wrong I think I'll explore my options. Heck, one customer did just that because the coffee was too hot, and we know the rest of her story.

Teardowns--What a Cryin' Shame!

Jimmy Stewart was great! Who can forget "It's a Wonderful Life," "Mr. Smith Goes to Washington," and the dozens more golden-age-of-Hollywood movies the man starred in. He was an authentic American hero too, decorated for service in the Army Air Corps during World War II, and serving in the reserves afterward while retiring as a Brigadier General in 1959. When Jimmy passed on in 1997, it was a sad day for fans of this modest, down-to-earth man who eschewed the glamour, glitz, and scandal so common in the film industry.

I've seen old pictures of Jimmy, his wife Gloria, and their children enjoying life in their beautiful home and lovely gardens, the very place Jimmy died. Oh, if only those walls could talk! You'd think that out of respect for the man's memory, the house would be lovingly cared for. Ha!

I, for one, would enjoy taking a drive-by tour of movie stars' homes someday. "Look, that's where Betty Davis lived, and there's Clark Gable's home, and . . ." Alas, if I ever do get a chance to take that tour, all I'll see where Jimmy's glorious home once stood is just another huge modern McMansion.

I have a lot of trouble understanding why people would buy a piece of history with the intention of tearing it down. OK, the economics is clear, cruel and heartless as it is. Building lots in older, desirable parts of Los Angeles are nonexistent, so people with more money than sense buy an old house in a great location, tear it down, and put up a new house on the same spot. OK, but why Jimmy's house? What a cryin' shame!

Wake up Hollywood! Think PRESERVATION. Have a little respect for the past, will ya? In the long run, there's going to be more than a little regret among Anglenos as more and more history is bulldozed into dust and debris. You see, there's money to be made in history. M-O-N-E-Y. Have I got your attention now, Hollywood?

The profit motive is blamed for many of society's ills. Maybe this time, if it can help save a little of the past, the profit motive just might come up smelling like a rose. Or maybe I should I the roses in Jimmy's garden.

Mission Impossible? Ethics in the Mission Statement

Can you remember the names of all the U.S. companies scandalized by ethical lapses in the last few years? Most of us are aware of Enron, Worldcom, and Tyco. There are many others. It would seem from these cases that unethical behavior and financial instability go hand in hand. Thousands of workers employed by these companies suffered, not to mention the stockholders, and to some extent, the entire economy. Could that pain have been avoided?

Captains of industry see to it that their companies carefully craft impressively worded mission statements, ostensibly to guide company actions. Seen in this light, a mission statement is like the compass the captain of a ship uses to chart a course. Either a lot of compasses have been out of whack or captains have failed to effectively utilize them.

Let's see what we can learn from Enron. Its mission statement emphasized core values of respect, integrity, communication, and excellence. But where was the followup? I fail to see how a company can expect buy-in to the mission statement by employees unless those employees create their own individual personal mission statements that are consistent with the mission of the firm. I like the core values expressed on this page. The problem is that most people aren't going to able to apply such core values to real-world scenarios without the proper training. That's the old knowing-doing gap rearing its ugly head again.

If companies aren't going to weave the mission statement into the fabric of their corporate cultures, then this mission statement generator at Dilbert.com will do nicely. But then again, I suspect that many mission statements are already treated as a joke. The Bain company came up with this nugget, which is at least honest:
Nutzworld.com, a search engine and Web browser, was so tired of corporate platitudes that it confessed its aims in Cookie Monster terms.
"Rule the World.
"Get lots of cookies.
"Eat the cookies.
"Get more cookies."

The old Cookie Monster sure is into self interest. Do you think he's ever read Adam Smith?

Earn $40,000 in a Blink? This Man Does!

I see that Malcolm Gladwell is able to earn $40,000 per speaking engagement. If you're not familiar with his name, Gladwell is the author of two recent best-selling books: The Tipping Point: How Little Things Can Make a Big Difference (2000) and Blink: The Power of Thinking Without Thinking (2005). Thought leaders from every walk of life, including your scribe, embrace Gladwell's scribblings, lapping up concepts like "tipping point" and "momentary autism" as enthusiastically as sailers lapping up suds on their first shore leave in six months. Fast Company has declared Gladwell the hottest sage on the stage in the business world these days, a "21st century Peter Drucker."

Gladwell's astronomical speaking fee is just another example of economic rent. Combine one part monopoly power (scarcity) with one part popularity (sufficient demand) and you've got someone receiving economic rent. Howard Stern (and no, I'm not going to link HIM) earns economic rent from doing his schtick on the radio, as does Peyton Manning on the football field, and Lindsay Lohan on the silver screen.

Since most of us will never have the personality of a Howard Stern, the skills of a Peyton Manning, or the appeal of a Lindsay Lohan, is there any possibility that we might earn economic rents? Well, consider Gladwell. The Tipping Point examines the factors that turn an also-ran into a winner. Blink is a look at "gut" decision making. Neither concept is particularly original. Thus, originality, at least originality of concept, is not required to receive rents. What Gladwell and others who receive large rents bring to the table is an ability to take something familiar and make it more interesting, appealing, and current than others. That's why rent seekers of the world can rejoice. There will always be room for another successful book on dieting, another money-making movie about marital discord, and another highly-rated TV situation comedy focusing on the angst of youth.

Let's see. If I start my new dieting book, The Official Vatican Guide to Low Carb Living, and shop my latest romantic screenplay, When Harry Met Barry, and pitch my situation comedy, The Waltons Meet Mr. Ed, I can see myself pulling in some mighty big economic rents in just a few short months. Well, you have to admit that ideas like these are scarce. So, I'm at least halfway to earning those rents.