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Freakonomics Blog

Coming Up: The Sapphire iPhone?

Kevin Bullis of the MIT Technology Review looks at manufactured sapphire, which is currently used for armor on military vehicles and may be coming soon to an iPhone screen near you:

Sapphire is harder than any other natural material except diamond; by some measures, it’s three times stronger than Gorilla Glass, and it is also about three times more scratch resistant. That’s why Apple uses it now to protect the camera on its iPhone 5. [Eric] Virey says that all major mobile-phone makers are considering using sapphire to replace glass. “I’m convinced that some will start testing the water and release some high-end smartphones using sapphire in 2013,” he says.

(HT: The Big Picture)


Why Carried Interest Shouldn't Be Taxed as Capital Gains

Yes, the cruelest month has begun, marked at its dead center by tax day. We have a Freakonomics Radio segment tonight on Marketplace about some tax-collecting ideas. Here, from John Steele Gordon in today’s Wall Street Journal, is a compelling attack on the practice of treating carried interest as capital gains. Would love to hear in the comments from some private-equity and hedge-fund folks why/how Steele isn’t right:

To defend the favored treatment of carried interest, private-equity and hedge-fund owners argue that their share of the customers’ gains is analogous to “founders stock,” which is granted to the founders of a company when it goes public, even though they may not have personally invested money in the venture.

This analogy is bogus when the companies in which a fund is invested are not actively managed. A founder has a bright idea. He works hard to convince others of its worth so that they will invest in it. He works hard to get the company off the ground, investing his time and his sweat equity in the business (not to mention the forgone income from the 9-to-5 job he could have had instead). He is risking a lot: a substantial portion of his working life, his reputation, his potential current income, etc.


From the Obesity In-Box

Our recent podcast on obesity has generated a lot of e-mail. (FWIW, one of the very first podcasts we ever did was also about obesity.) Here’s one interesting angle, from a listener named Mark Gruen:

I just listened to your podcast on 100 ways to fight obesity and while I think there were many quality ideas presented, too many neglected the bodybuilder or strength athlete. I am a lightweight strongman competitor and sometimes eat 10,000 calories in a span of 3-4 hours after training for 5+ hours. These meals are generally high in sugar to support the lost muscle glycogen from my day’s training. I am concerned that once you begin classifying foods as “good” or “bad” you burden people who you did not intend to. The government also does such a poor job with their diet recommendations; I wouldn’t trust them with anything regarding food and diet.

I do love the idea of teaching families and children at school about being malnourished. Unfortunately, I see this as just another way for junk food to add in some vitamins and tell you that you can meet your daily intake just eating their products. Ultimately, people need to wake the hell up and realize that they need to do their own research (not just read a magazine) and determine the right diet for their family.


Economics in a Fortune Cookie

A Chinese fortune cookie typically offers homely advice or bland predictions with your dessert.  But a recent one offered a good economics lesson:  “The cost of something is what you give up to get it.”  Nice to see the idea of opportunity cost enshrined between baked bits of dough.  I wonder, though, what one does give up at a Chinese restaurant?  (HT to TW)


Is It Unethical to Not Hire Smokers?

That is the question asked in a New England Journal of Medicine column by Harald Schmidt, Kristin Voigt, and Ezekiel J. Emanuel:

Finding employment is becoming increasingly difficult for smokers. Twenty-nine U.S. states have passed legislation prohibiting employers from refusing to hire job candidates because they smoke, but 21 states have no such restrictions. Many health care organizations, such as the Cleveland Clinic and Baylor Health Care System, and some large non–health care employers, including Scotts Miracle-Gro, Union Pacific Railroad, and Alaska Airlines, now have a policy of not hiring smokers — a practice opposed by 65% of Americans, according to a 2012 poll by Harris International.


Could Accelerated Learning Mean Big Bucks?

Reuven Brenner of The American explores the economic benefits of shortening college to three years:

Assume that after graduation the average salary would be just $20,000 and remain there. With 4 million students finishing one year earlier, this would add $80 billion to the national income during that year. Or at an average annual income of $40,000, it would add $160 billion. Assume now that the additional $80 billion in national income would be compounding at 7 percent over the next 40 years. This would then amount to an additional $1.2 trillion of wealth – for just one generation of 4 million students joining the labor force a year earlier at a $20,000 salary. At $40,000, this would amount to $2.4 trillion by the fortieth year – again, for just one generation of 4 million people joining the labor force a year earlier. The added wealth depends on how rosy one makes the assumptions about salaries or compounding rates. Add 10, 20, or 30 generations, each starting to work a year earlier, and the numbers run into the tens of trillions of dollars.

The indirect impacts may be as significant. One or two years of additional, compounding earnings could do a lot to shore up entitlement programs, with a more positive impact than requiring people 65 and older to stay in the labor force much longer: the magic of resulting compounding would start earlier.

(HT: The Dish)


How Gerrymandering Works

Writing for Bloomberg, Chris Christoff and Greg Giroux explore the math behind gerrymandering in Michigan with some fascinating examples and graphics.  The 14th congressional district, for example, looks pretty weird from high up:

Michigan’s 14th congressional district looks like a jagged letter ’S’ lying on its side.

From Detroit, one of the nation’s most Democratic cities, it meanders to the west, north and east, scooping up the black-majority cities of Southfield and Pontiac while bending sharply to avoid Bloomfield Hills, the affluent suburb where 2012 Republican presidential nominee Mitt Romney was raised.

(HT: The Big Picture)


Should No-Shows Be Shamed on Twitter?

Restaurants that take reservations risk misallocating resources if a customer doesn’t show up. So is there a good way to place an appropriate cost on no-shows? Philly.com reports on one restaurant owner’s tactic and its drawbacks:

The owner of L.A. restaurant Red  Medicine went to social media to Tweet the full names of no-shows Saturday.

Eater L.A. has an interview with Red Medicine owner Noah Ellis, who said he tweeted the names out of frustration.

“Either restaurants are forced to overbook and make the guests (that actually showed up) wait, or they do what we do, turn away guests for some prime-time slots because they’re booked, and then have empty tables,” he said.

Weighing in on the matter was Consumerist, which posits that the tactic may backfire, as some patrons may balk at making a reservation there, even if they intend to keep it.


The Gini Coefficient

A recent issue of the Handelsblatt (the German Wall Street Journal equivalent) had a neat graphic comparison of the U.S. to 5 other major countries: France, Germany, Italy, Spain and the U.K., along the criteria of the Gini coefficients on pre-tax/transfer incomes, post-tax/transfer incomes, and household wealth. Our pre-Gini on incomes is slightly below that in Italy, a bit higher than in the other four countries.  The big difference is that our post-Gini is much higher than in all the other countries—0.38 compared to a range of 0.29 to 0.34.  We do much less redistribution through transfers and have flatter taxes.

It is thus not surprising that we win the Champions League of Gini wealth inequality:  Ours is 0.85, with a range of 0.65 to 0.78 in the other five countries. The tiny tax increase on the top 1 percent of households that took so much political energy last year will do almost nothing to strip us of our championship status.


Who Suffers in Bad Weather?

The weather — its effects on the environment, behavior, sports, and society — has long been of interest to Freakonomics.  Now a new working paper from Warren Anderson, Noel D. Johnson, and Mark Koyama explores the effects of cold growing seasons on discrimination against Jewish communities between 1100 and 1800:

What factors caused the persecution of minorities in medieval and early modern Europe? We build a model that predicts that minority communities were more likely to be expropriated in the wake of negative income shocks. We then use panel data consisting of 785 city-level expulsions of Jews from 933 European cities between 1100 and 1800 to test the implications of the model. We use the variation in city-level temperature to test whether expulsions were associated with colder growing seasons. We find that a one standard deviation decrease in average growing season temperature in the fifteenth and sixteenth centuries was associated with a one to two percentage point increase in the likelihood that a Jewish community would be expelled. Drawing on our model and on additional historical evidence we argue that the rise of state capacity was one reason why this relationship between negative income shocks and expulsions weakened after 1600.


Terminal Illness: What Are the Best and Worst Airports?

 The end of semester crunch is in full swing here at Clemson, leaving me little time to write a new post at the moment. So I figured I’d let you do my work for me. Readers, weigh in: what is your favorite and least favorite airport, and why? I’ll collate and post the results soon.


The 1907 Bavarian Beer War

Touring Bamberg, northern Bavaria, our tour leader mentions the local 1907 Beer War.  The town’s three brewers announced that they were joining to raise suggested retail prices from 10 to 12 pfennigs and charge retailers commensurately more. The pub owners felt the public would be angry and refused to buy from the cartel.  After one dry day they instead began “importing” beer from nearby towns. The public’s thirst was slaked — still at 10 pfennigs a glass.  After a week of no beer sales, the local brewers caved in and cut their asking price to 10 pfennigs a glass.   Moral of the story: even with just three players, it’s hard to maintain a cartel if there are ready substitutes for the product. (HT to MP)


Clear Thinking From a Magician

&#8220It’s extremely difficult for me to tell you the secret of anything,” says Bill Kalush, 47 years old, founder of the center. “Real secrets are psychological and deep. To take a simple secret and perform it in a way that looks like magic is extremely difficult.” He offers as an analogy: “This is a scalpel. See how sharp it is? That’s how to do surgery.”

Great observation, from an interesting Wall Street Journal article by Demetria Gallegos about the Conjuring Arts Research Center, a magic library for magicians only.


A Brave New World for Copyright and the First Sale Doctrine

Arbitrage is defined as taking advantage of price differences between two markets. A few years ago Supap Kirtsaeng, a math major at Cornell, found that his textbooks could be purchased more cheaply in his native Thailand than in Ithaca, so he asked friends to buy the books there and ship them to him. He started selling them on eBay and soon cleared almost $40,000. Eventually a major textbook publisher, John Wiley & Sons, got wind of Kirtsaeng’s business and filed a copyright lawsuit.

That the suit involved copyright may seem odd, since Kirtsaeng wasn’t copying anything. He was just re-selling items that he’d already paid for — a time-honored way to make money in almost any economy.

But because the items were books, some special rules applied. The textbooks were foreign editions (i.e., printed abroad), and Wiley had inserted the following language into the title pages: “This book is authorized for sale in Europe, Asia, Africa, and the Middle East only and may be not exported out of these territories. Ex­portation from or importation of this book to another region without the Publisher’s authorization is illegal and is a violation of the Publisher’s rights.” Wiley argued that by importing the books Kirtsaeng was violating the copyright owner’s exclusive right under the U.S. Copyright Act to authorize distribution. 


How About a Free Market for College Athletes?

In 2010, CBS and Turner Broadcasting agreed to pay $10.8 billion to broadcast the NCAA men’s basketball tournament from 2011 to 2024.  As a result of this contract, fans of this tournament can watch these games on four different networks.   And perhaps more importantly (for those of us who work during the day), we can see these games on our computers in our offices.

Certainly all these games make us fans very happy.  And all that money has to make coaches, athletic directors, and other university administrators happy.  But what about the people we are actually watching?  

The people on the court are referred to as student-athletes.  And according to the NCAA rules, these athletes are supposed to be amateurs.  In other words, other than a scholarship, these athletes are not supposed to be paid.


How Money Is March Madness? (Ep. 119)

Our latest Freakonomics Radio on Marketplace podcast is called “How Money Is March Madness?”  (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.)

The gist: the annual NCAA basketball tournament grabs a lot of eyeballs, but turning them into dollars hasn’t always been easy — even when the “talent” is playing for free.

Last year, March Madness reportedly earned its highest TV ratings in 18 years. This year’s Super Bowl, meanwhile, was the third most-watched broadcast in TV history (behind two earlier Super Bowls), despite (or because of?) an electrical blackout. Interestingly — to me, at least — these two premier TV sporting events are sold very differently: the Super Bowl rotates annually among one of three networks while the NCAA is in the midst of a 14-year contract with CBS and Turner Sports. How does that difference affect ad revenue?


"The Most Bountiful Food in Human History?"

A reader named Ralph Thomas observes the following:

It has been my gut-level (sorry, pun) feeling for a while now that the McDonald’s McDouble, at 390 Calories, 23g (half a daily serving) of protein, 7% of daily fiber, 20% of daily calcium and iron, etc., is the cheapest, most nutritious, and bountiful food that has ever existed in human history.

Who would like to argue against him? And if you attack on the “nutritious” dimension (I suspect you will), be very specific.

FWIW, here, from the McDonald’s website nutrition page, is a complete list of ingredients:


Jeff Bezos Retrieves Apollo Rocket Engines From Ocean Floor

Fascinating story, told straight-ahead here by Reuters, and by Bezos himself here, with great photos and some commentary. From the Reuters article:

A recovery team funded by Amazon founder Jeff Bezos has plucked two rocket engines from the floor of the Atlantic Ocean that were used to send astronauts to the moon more than 40 years ago.

And from PCMag.com:

Located several hundred miles off the east coast of the United States (see this cool GeoHack map identifying the location of S-IC wreckage from the Apollo missions), the engines remain the property of NASA. Bezos said when he announced the salvage mission last March that if one engine was recovered, the space agency would likely want it displayed at the Smithsonian but that he’d asked NASA to allow a subsequent recovery by his privately funded team to be housed at the Museum of Flight in Seattle, Wash., where Amazon is headquartered.


An Aptly Named Men's Room

In a few weeks we’ll be putting out a Freakonomics Radio episode about baby names. To hold you over until then, here’s an article about a naming-rights story that is amusing and has the added benefit of appearing to be true: a men’s room named after law professor Bill Falik. Yes, that would appear to be an aptonym.

(HT: Michael Jones)


Now Hiring

I have two exciting (at least what I consider exciting) job openings at Innovations for Poverty Action, both helping to design and test applications of behavioral economics to savings. Please help get the word out (note, they require some specialized expertise and experience, ideally someone with consumer banking experience).

Post #1: Manager or Director of our US Household Finance Initiative (USHFI). This initiative uses ideas from behavioral economics to test ideas to improve consumer finance policies and products in the United States. The position will require managing a number of projects, but here’s one example: Both debt and savings are all about small deposits and large withdrawals. But order matters. And habits matter. Banks help us form habits to pay down debt (they’ll hunt us down if we don’t). When someone is paying down expensive (higher than they can reasonably expect to earn on any investment) debt, they shouldn’t simultaneously accumulate savings. But how can we shift someone quickly (ideally automatically) into savings right when the debt is fully paid off? The plan is to have a seamless transition moment, so that the payments continue but now go to savings rather than paying down debt. (More info here).


Does Economics Have an Egalitarian Core?

Tyler Cowen, who appears in these parts pretty regularly, writes in a Times column about the egalitarian core of the economics profession:

Economic analysis is itself value-free, but in practice it encourages a cosmopolitan interest in natural equality. Many economic models, of course, assume that all individuals are motivated by rational self-interest or some variant thereof; even the so-called behavioral theories tweak only the fringes of a basically common, rational understanding of people. The crucial implication is this: If you treat all individuals as fundamentally the same in your theoretical constructs, it would be odd to insist that the law should suddenly start treating them differently.

Cowen concludes by exploring a modern-day application of this putatively egalitarian core:

A distressingly large portion of the debate in many countries analyzes the effects of higher immigration on domestic citizens alone and seeks to restrict immigration to protect a national culture or existing economic interests. The obvious but too-often-underemphasized reality is that immigration is a significant gain for most people who move to a new country.


Parents and Their Preschoolers

A working paper (abstract; PDF) from economists Michael Baker and Kevin Milligan advances another possible explanation for the lagging academic performance of boys — preschool boys, at least.  Here’s the abstract:

We study differences in the time parents spend with boys and girls at preschool ages in Canada, the UK and the US. We refine previous evidence that fathers commit more time to boys, showing this greater commitment emerges with age and is not present for very young children. We next examine differences in specific parental teaching activities such as reading and the use of number and letters. We find the parents commit more of this time to girls, starting at ages as young as 9 months. We explore possible explanations of this greater commitment to girls including explicit parental preference and boy-girl differences in costs of these time inputs. Finally, we offer evidence that these differences in time inputs are important: in each country the boy-girl difference in inputs can account for a non-trivial proportion of the boy-girl difference in preschool reading and math scores.

The authors’ results also indicate that the time differences are not due to parents’ gender preferences, but may be related to the opportunity cost of the mother’s time.  “Given that time spent reading with children (primarily boys) increases after the introduction of a new child care subsidy, the parental time inputs we study may not be easily substituted by non-parental care,” they write. “Instead, this finding is consistent with a story in which boys are less rewarding to teach, and parents are more willing to persevere with boys once they are not responsible for their care throughout the day.”


Stiglitz on the Singapore Miracle

Joseph Stiglitz writes an economic valentine to Singapore that is full of interesting facts and conclusions. In a nutshell: for the past few decades, Singapore has pursued a strong economy that is also concerned with equality from top to bottom. The piece is interesting throughout, especially for anyone whose mind still summons the words “chewing gum” as soon as the word Singapore appears. The piece is hard to excerpt — you should read the whole thing — because there are so many discrete points. But here are a few samples:

Singapore has had the distinction of having prioritized social and economic equity while achieving very high rates of growth over the past 30 years — an example par excellence that inequality is not just a matter of social justice but of economic performance. Societies with fewer economic disparities perform better — not just for those at the bottom or the middle, but over all.

And:

The government mandated that individuals save into a “provident fund” — 36 percent of the wages of young workers — to be used to pay for adequate health care, housing and retirement benefits. It provided universal education, sent some of its best students abroad, and did what it could to make sure they returned. (Some of my brightest students came from Singapore.)


A Big Heap of Shining Wit

I love spoonerisms. What’s a spoonerism, you say? It’s a phrase in which letters or syllables are swapped to make a new, punny meaning. The best spoonerism I’ve ever heard, by a long shot, is courtesy of Anu Garg, the editor of Wordsmith.org:

Rev. William Archibald Spooner, the father of spoonerism, not only gave the English language a new word, an eponym, but also an artful device for repartee. The story goes that a member of parliament cut off another calling him a shining wit, and then apologized for making a spoonerism.

In this CNBC interview with Warren Buffett, the interviewer makes a nice (if inadvertent) spoonerism, when she tries to say that “average retail investors feeling that they can’t get a fair shake” in the stock market because the game is weighted toward special interests. But instead of “fair shake,” she says “share fake.” Which pretty perfectly summarizes what those retails investors are afraid of getting.

Do you have any good spoonerisms for us?


Shifting Gun Sales in Texas

A Texas legislator has proposed exempting handguns from the 6.25 percent state sales tax on March 2, Texas Independence Day.  He claims this will create jobs.

It is likely that this brilliant idea will increase total gun sales, as reducing the net price of guns will increase the quantity demanded.  But it would also shift gun sales away from most other days in the year.  I would bet that employers of gun shops would in the long run cut employment and rely on overtime and temporary workers around March 2.  It’s not clear that retail jobs would be created.  Jobs in gun manufacturing would increase as production increases, but that wouldn’t help Texas very much, since most guns sold in Texas aren’t produced here.  Of course, one also wonders whether more guns in Texas will add to our safety!