The poor, imperilled penny.
No one seems to like it. Ezra Klein laments on its cost per unit produced, while Steve Dubner over at Freakonomics redirects us to an amusing anti-penny rant.
And the criticisms are well received. It costs around 1.7 cents to make a penny. And the opportunity cost of using the mint for that (as opposed to, well, coinage that could actually pay for itself) makes the penny a more expensive prospect still.
But that can't be the whole story.
Assuming the anti-penny rant is correct–and the non-recouped production losses amount to $70 million/year–how much of that is offset by the penny's benefits? That is to say, the penny has to have some pluses. What are they, and how much are they worth?
Sunday, October 24, 2010
Tuesday, October 19, 2010
Is that a Skyscraper in Your Beltway...
All due apologies for the brief hiatus.
This week's idiosyn.cranomicx hat-tip goes to V. Dion Haynes, writing for the Post. His point's a simple one: height restrictions in zoning codes tend to encourage sprawl. Massively. The example he gives is the D.C. area (a region experiencing some of extremest sprawl in the States). No other American metropolis limits the height of its buildings so strictly. And as a logical consequence of that, D.C. builds outwards. Density becomes impossible, and so the dizzying diffusion of suburbia becomes the only other choice.
But Matthew Yglesias is a smarter guy than I am, so I'll let him explain the details.
My quirky contribution is simply this: let's say you have a height restriction. But add a twist: make the town like Dubuque, a modest one where demand would have never driven development skyward in the first place. Would that height restriction (on its own accord) have altered growth patterns anyway? I would argue yes. By capping height at, say, 30 stories, you change everyone's expectations. You guarantee the continued viability of commuting, for example, because there'd never be an impenetrable urban core to choke it. (Density would be capped inasmuch as 30-story buildings can only hold so many people. Retail would spread out accordingly, fearing market saturation among inner-city competitors. Etc.) And that means you'd artificially inflate property values at the periphery because you'd reduce the risk of a commuter-hostile core. You'd also have homebuyers cueing off the retail sector by using it as a predictor of future growth, making peripheral properties seem like the best investments. And at that point, you'd get a vicious cycle. The second generation of businesses would follow homebuyers, and homebuyers would follow businesses, and so on and so forth ad infinitum.
And it'd all be precipitated because of an ordinance that shouldn't have mattered anyway! Food for thought, at least.
This week's idiosyn.cranomicx hat-tip goes to V. Dion Haynes, writing for the Post. His point's a simple one: height restrictions in zoning codes tend to encourage sprawl. Massively. The example he gives is the D.C. area (a region experiencing some of extremest sprawl in the States). No other American metropolis limits the height of its buildings so strictly. And as a logical consequence of that, D.C. builds outwards. Density becomes impossible, and so the dizzying diffusion of suburbia becomes the only other choice.
But Matthew Yglesias is a smarter guy than I am, so I'll let him explain the details.
My quirky contribution is simply this: let's say you have a height restriction. But add a twist: make the town like Dubuque, a modest one where demand would have never driven development skyward in the first place. Would that height restriction (on its own accord) have altered growth patterns anyway? I would argue yes. By capping height at, say, 30 stories, you change everyone's expectations. You guarantee the continued viability of commuting, for example, because there'd never be an impenetrable urban core to choke it. (Density would be capped inasmuch as 30-story buildings can only hold so many people. Retail would spread out accordingly, fearing market saturation among inner-city competitors. Etc.) And that means you'd artificially inflate property values at the periphery because you'd reduce the risk of a commuter-hostile core. You'd also have homebuyers cueing off the retail sector by using it as a predictor of future growth, making peripheral properties seem like the best investments. And at that point, you'd get a vicious cycle. The second generation of businesses would follow homebuyers, and homebuyers would follow businesses, and so on and so forth ad infinitum.
And it'd all be precipitated because of an ordinance that shouldn't have mattered anyway! Food for thought, at least.
Monday, October 11, 2010
Debating Positive Externalities
A couple of days ago, co-blogger Steve added the following on my post about positive externalities:
That third parties may catch the crumbs that fall from the table (an imperfect, zero-sum analogy) does not make a transaction less efficient. I may derive utility from watching (for free) an amateur athletic event, in which the players derive utility from their (non-remunerative) participation. Similarly, I suspect that the majority of Wikipedia contributors derive utility from their posting activity, and are probably (more or less) aware that they could be devoting their time to any number of alternative activities.I'll start with point 2. I'm in complete agreement that Wikipedians (probably) have sufficient notice that they could differently use their time. Furthermore, I have no doubt that they feel the sacrifice. But that's only part of the equation. With positive externalities, the argument is that for any party Y (like us low-life non-contributing Wikipedia users), there's a "spillover" benefit made possible at the cost of X (diligently contributing to the Wiki project) that X isn't sufficiently enjoying. Meaning, basically, that even if X is completely cognisant of his costs, the problem is more X not realising his share of the benefits. That brings us to point 1: I would argue that it is indeed inefficient for all us do-nothings to reap an aggregate benefit over and above what utility ultimately flows back to X.
Sunday, October 10, 2010
Going from Free to Fee: Of Behaviours and Bags
As the recent nickel tax on D.C. shopping bags has taught us, consumers don't like paying for something that's free. At least, something they've come to expect for free. When the D.C. public woke up to find themselves caught between buying the once-free shopping bags or displacing them with free alternatives (struggling with un-bagged groceries, using non-disposable satchels, etc.), many opted for the latter. And it's not too surprising why: when your cognitive anchor is $0.00, any price whatsoever seems excessive.
But it is worth noting that some people still paid. Clearly, using non-disposable substitutes or fumbling around with loose items isn't entirely cross-elastic. If it were, the infinite price hike on the shopping bag (free to non-free) would have shifted demand proportionately. Bag use would have approached zero as the cross-elastic alternative picked up all that unmet demand. In other words, there must be some qualitative difference between bags-as-goods and non-bag substitutes. Because, if not, the infinite increase in price would have occasioned an infinite decrease in use.
And I think our intuitions bear that out. We don't just choose disposable, one-use shopping bags based on price cues. Bag vs. non-bag isn't a perfect, cross-elastic comparison: It's not like purchasing petrol from the Kwik stop vs. the Mobil right next door. Instead, they're "imperfect substitutes." If Mobil sold petrol at $2.64/gallon and Kwik Stop at $2.63, I would never buy Mobil. But if plastic bags cost a nickel and my other options were free, I might still decide to pay. Perhaps it's the freedom of running errands without a sack around to use. Perhaps it's the convenience of keeping my routine the same. Perhaps it's a bundle of things, but none of which the substitutes can replace. In that sense, it isn't surprising that some people pay: whatever the cost of using shopping bags, it's the purchase of something distinctive–a quality that's forfeited with substitutes.
But it is worth noting that some people still paid. Clearly, using non-disposable substitutes or fumbling around with loose items isn't entirely cross-elastic. If it were, the infinite price hike on the shopping bag (free to non-free) would have shifted demand proportionately. Bag use would have approached zero as the cross-elastic alternative picked up all that unmet demand. In other words, there must be some qualitative difference between bags-as-goods and non-bag substitutes. Because, if not, the infinite increase in price would have occasioned an infinite decrease in use.
And I think our intuitions bear that out. We don't just choose disposable, one-use shopping bags based on price cues. Bag vs. non-bag isn't a perfect, cross-elastic comparison: It's not like purchasing petrol from the Kwik stop vs. the Mobil right next door. Instead, they're "imperfect substitutes." If Mobil sold petrol at $2.64/gallon and Kwik Stop at $2.63, I would never buy Mobil. But if plastic bags cost a nickel and my other options were free, I might still decide to pay. Perhaps it's the freedom of running errands without a sack around to use. Perhaps it's the convenience of keeping my routine the same. Perhaps it's a bundle of things, but none of which the substitutes can replace. In that sense, it isn't surprising that some people pay: whatever the cost of using shopping bags, it's the purchase of something distinctive–a quality that's forfeited with substitutes.
Thursday, October 7, 2010
Speaking of Externalities...
Sometimes they aren't so bad. Wikipedia is a case in point.
Economists view externalities askance. Regardless of whether it's regarded as "positive" or "negative," it's always a market failure–and it always carries a stigma. In a nutshell, externalities occur when we feel our microeconomic contributions disproportionately to their macroeconomic effect. I cited resource depletion and litter as examples yesterday. Another great example is cheating the clock at work: lost productivity and an increased risk of bankruptcy creates huge burdens shouldered by employees. They get aggregated together to produce layoffs, benefit cuts, wage freezes, etc. But the individual cyberslackers feel almost no disincentive. That's the sort of disconnect economists hate. The cyberslackers should be "internalising" their costs–i.e., noticing the incremental loss in job security or future earnings accompanying each minute spent on Facebook. But instead that cost goes hidden.
Perhaps externalities are better understood by contrast. Consider an example that's relatively externality-free: every American citizen burning, melting, and/or shredding $10 simultaneously. The money supply would shrink. But it's not like we wouldn't notice. The minute we lit up our Hamiltons we'd feel our share.
Wednesday, October 6, 2010
When Recycling is Tough to Oppose
Eleven states have enacted container deposit legislation–or laws that pay consumers to return plastic bottles and aluminium cans. While support derives mostly from environmental groups, it's interesting to hear indifference or occasional hostility from market-oriented sources.
The libertarian critique of recycling is, by and large, a consistent one insofar as implementation goes: taxpayers shouldn't pay to manipulate market allocations in raw materials. That's undesirable, ceteris paribus, because it creates inefficiency. Furthermore, the operational segregation of recycling from ordinary waste management artificially inflates service costs. Given, not all libertarians are squarely opposed: many consider the long-term consequences of resource depletion as a negative externality requiring a fix. But even most of them oppose implementation: it's a problem that just doesn't justify the cost.
The libertarian critique of recycling is, by and large, a consistent one insofar as implementation goes: taxpayers shouldn't pay to manipulate market allocations in raw materials. That's undesirable, ceteris paribus, because it creates inefficiency. Furthermore, the operational segregation of recycling from ordinary waste management artificially inflates service costs. Given, not all libertarians are squarely opposed: many consider the long-term consequences of resource depletion as a negative externality requiring a fix. But even most of them oppose implementation: it's a problem that just doesn't justify the cost.
Tuesday, October 5, 2010
The Genius of the Kindle
Fresh off the New York Times this morning is reportage about a startling trend in e-books: they're often more costly than in print.
But the more startling thing is no one saw this coming. Let's go back to Behavioural Econ 101. Items like the Kindle market themselves as investments: you pay a premium up front, but hope to make it up in the long run. This sort of market strategy relies on consumers miscalculating relevant costs. Let's say you honestly do read voraciously. In fact, you buy an average 100 paperbacks for roughly $13 each. When you went and compared the first e-versions marketed with the new Kindle, those averaged $10 instead! Huzzah! A $300/year savings!
Well there's obviously a problem here: no one guaranteed those bargains would stick around. And now? Now you've got a Kindle and a market of overpriced ebooks.
Still, they're not so much more expensive. And the Kindle is handy-dandy, right? Plus, it's oh-so-chic to do your reading on. Voilà, you've got yourself some cognitive dissonance, and you're resolving it through post-purchase rationalisation. You never bought the Kindle for convenience. Or image. Or whatever. It was savings. But you can't let that dissonance fester.
And Kindle knows you won't.
But the more startling thing is no one saw this coming. Let's go back to Behavioural Econ 101. Items like the Kindle market themselves as investments: you pay a premium up front, but hope to make it up in the long run. This sort of market strategy relies on consumers miscalculating relevant costs. Let's say you honestly do read voraciously. In fact, you buy an average 100 paperbacks for roughly $13 each. When you went and compared the first e-versions marketed with the new Kindle, those averaged $10 instead! Huzzah! A $300/year savings!
Well there's obviously a problem here: no one guaranteed those bargains would stick around. And now? Now you've got a Kindle and a market of overpriced ebooks.
Still, they're not so much more expensive. And the Kindle is handy-dandy, right? Plus, it's oh-so-chic to do your reading on. Voilà, you've got yourself some cognitive dissonance, and you're resolving it through post-purchase rationalisation. You never bought the Kindle for convenience. Or image. Or whatever. It was savings. But you can't let that dissonance fester.
And Kindle knows you won't.
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