In this TEDx talk, Bob Litan shows how economic insights shaped the web economy, from dating to search to travel to logistics.
In this TEDx talk, Bob Litan shows how economic insights shaped the web economy, from dating to search to travel to logistics.
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“On Sunday, a United Airlines flight was forced to divert after two passengers got into an argument over the Knee Defender, a $22 gadget that stops the person in front of the user from reclining,” report Alex Davies and Julie Zeveloff at Business Insider.
By packing people in tight spaces, air travel naturally sparks conflict over property rights. Who gets the overhead space? Or, in this case, who owns the right to recline?
Users of the Knee Defender believe they do. Deploying the gadget is thus no different from a homeowner putting up a fence to keep out unwanted intrusions.
Others think the right belongs to the potential recliner. But that doesn’t always mean conflict. As Davies and Zeveloff report:
“Gary Leff, who writes the blog View from the Wing, agrees, but told Business Insider that “some courtesy is appropriate.” To preserve his own space, he said he once gave a young girl $5 (with her mother’s permission) in exchange for not reclining her seat, an original solution.
Somewhere Ronald Coase is smiling. He identified that answer in 1960 in his famous paper, The Problem of Social Cost.
If the little girl has the property right to recline, then you can pay her not to do so. If you have the property right, you can install a Knee Defender.
But who should have the property right? Coase would say it depends–some people don’t like negotiating with other passengers. Given those “transaction costs” the right ought to be given to whichever person is most likely to want it most.
I’d bet on the “reclinee” not the recliner. Which might explain why more airlines now offer the ability to pay extra for more legroom. After all, United would rather you pay them than the little girl.
Yesterday, the Federal Reserve confirmed that it would end new purchases of Treasury bonds and mortgage-backed securities (MBS)—what’s known as quantitative easing—in October. In response, the media are heralding the end of the Fed’s stimulus:
“Fed Stimulus is Really Going to End and Nobody Cares,” says the Wall Street Journal.
“Federal Reserve Plans to End Stimulus in October,” reports the BBC.
This is utterly wrong.
What the Fed is about to do is stop increasing the amount of stimulus it provides. For the mathematically inclined, it’s the first derivative of stimulus that is going to zero, not stimulus itself. For the analogy-inclined, it’s as though the Fed had announced (in more normal times) that it would stop cutting interest rates. New stimulus is ending, not the stimulus that’s already in place.
The Federal Reserve has piled up more than $4 trillion in long-term Treasuries and MBS, thus forcing investors to move into other assets. There’s great debate about how much stimulus that provides. But whatever it is, it will persist after the Fed stops adding to its holdings.
P.S. I have just espoused what is known as the “stock” view of quantitative easing, i.e., that it’s the stock of assets owned by the Fed that matters. A competing “flow” view holds that it’s the pace of purchases that matters. If there’s any good evidence for the “flow” view, I’d love to see it. It may be that both matter. In that case, my point still stands: the Fed will still be providing stimulus through the stock effect.
P.P.S. I wrote about this last year during the tapering debate. In the lingo of that post, the Fed is moving from quantitative easing to quantitative accommodation. To actually eliminate the stimulus, the Fed would have to move on to quantitative tightening.
Blogging’s been very light of late, but I couldn’t let June 28th slip by without commemorating Tau Day.
Math aficionados often celebrate March 14 as Pi day, since Pi starts 3.14. All good fun. But as Michael Hartl argues over at the Tau Manifesto, Pi was likely a mistake. If we could rewrite math history, we’d do better to venerate tau, which equals 2 times pi, or about 6.28. So Happy Tau Day!
Hartl marshals multiple arguments in his manifesto. But the best reason is likely the simplest. The two most interesting things about a circle are its radius and its perimeter (aka circumference). If you divide the perimeter by the radius, you get tau. Nice and simple, without that pesky 2 that pops up through math and physics when pi rears its head.
Today I had the chance to testify before the House Small Business Committee on the many tax issues facing small business. Here are my opening remarks. You can find my full testimony here.
America’s tax system is needlessly complex, economically harmful, and often unfair. Despite recent revenue gains, it likely will not raise enough money to pay the government’s future bills. The time is thus ripe for wholesale tax reform. Such reform could have far-reaching effects, including on small business. To help you evaluate those effects, I’d like to make seven points about the tax issues facing small business.
1. Tax compliance places a large burden on small businesses, both in the aggregate and relative to large businesses.
The Internal Revenue Service estimates that businesses with less than $1 million in revenue bear almost two-thirds of business compliance costs. Those costs are much larger, relative to revenues or assets, for small firms than for big ones.
2. Small businesses are more likely to underpay their taxes.
Because they often deal in cash and engage in transactions that are not reported to the IRS, small businesses can understate their revenues and overstate their expenses and thus underpay their taxes. Some underpayment is inadvertent, reflecting the difficulty of complying with our complex tax code, and some is intentional. High compliance costs disadvantage responsible small businesses, while the greater opportunity to underpay taxes advantages less responsible ones.
3. The current tax code offers small businesses several advantages over larger ones.
Provisions such as Section 179 expensing, cash accounting, graduated corporate tax rates, and special capital gains taxes benefit businesses that are small in terms of investment, income, or assets.
4. Several of those advantages expired at the end of last year and thus are part of the current “tax extenders” debate.
These provisions include expanded eligibility for Section 179 expensing and larger capital gains exclusions for investments in qualifying small businesses. Allowing these provisions to expire and then retroactively resuscitating them is a terrible way to make tax policy. If Congress believes these provisions are beneficial, they should be in place well before the start of the year, so businesses can make investment and funding decisions without needless uncertainty.
5. Many small businesses also benefit from the opportunity to organize as pass-through entities such as S corporations, limited liability companies, partnerships, and sole proprietorships.
These structures all avoid the double taxation that applies to income earned by C corporations. Some large businesses adopt these forms as well, and account for a substantial fraction of pass-through economic activity. Policymakers should take care not to assume that all pass-throughs are small businesses.
6. Tax reform could recalibrate the tradeoff between structuring as a pass-through or as a C corporation.
Many policymakers and analysts have proposed revenue-neutral business reforms that would lower the corporate tax rate while reducing tax breaks. Such reforms would likely favor C corporations over pass-throughs, since all companies could lose tax benefits while only C corporations would benefit from lower corporate tax rates.
7. Tax reform could shift the relative tax burdens on small and large businesses.
Some tax reforms would reduce or eliminate tax benefits aimed at small businesses, such as graduated corporate rates. Other reforms—e.g., lengthening depreciation and amortization schedules for investments or advertising but allowing safe harbors for small amounts—would increase the relative advantage that small businesses enjoy. The net effect of tax reform will thus depend on the details and may vary among businesses of different sizes, industries, and organizational forms. It also depends on the degree to which lawmakers use reform as an opportunity to reduce compliance burdens on small businesses.
How big is the underground sex economy in the United States and how does it work? The Urban Institute is out with a big study today that offers some answers. Here’s a brief summary of the full study (see also the accompanying feature).
Our study focused on eight US cities— Atlanta, Dallas, Denver, Kansas City, Miami, Seattle, San Diego, and Washington, DC. Across cities, the 2007 underground sex economy’s worth was estimated between $39.9 and $290 million. While almost all types of commercial sex venues—massage parlors, brothels, escort services, and street- and internet-based prostitution—existed in each city, regional and demographic differences influenced their markets.
Pimps and traffickers interviewed for the study took home between $5,000 and $32,833 a week. These actors form a notoriously difficult population to reach because of the criminal nature of their work. Our study presents data from interviews with 73 individuals charged and convicted for crimes including compelling prostitution, human trafficking and engaging in a business relationship with sex workers.
Pimps claimed inaccuracy in media portrayals. Most pimps believed that the media portrayals exaggerated violence. Some even saw the term “pimp” as derogatory, despite admitting to occasional use of physical abuse for punishment. Although pimps may have underreported the use of physical violence, they did cite frequent use of psychological coercion to maintain control over their employees.
Pimps manipulate women into sex work. From discouraging “having sex for free” to feigning romantic interest, pimps used a variety of tactics to recruit and retain employees. Some even credited their entry into pimping with a natural capacity for manipulation. Rarely, however, were pimps the sole influence for an individual’s entry into the sex trade.
Women, family, and friends facilitate entry into sex work. Female sex workers sometimes solicited protection from friends and acquaintances, eventually asking them to act as pimps. Some pimps and sex workers had family members or friends who exposed them to the sex trade at a young age, normalizing their decision to participate. Their involvement in the underground commercial sex economy, then extends the network of those co-engaged in the market even further.
Unexpected parties benefit from the commercial sex economy. Pimps, brothels, and escort services often employed drivers, secretaries, nannies, and other non-sex workers to keep operations running smoothly. Hotel managers and law enforcement agents sometimes helped offenders evade prosecution in exchange for money or services. Law enforcement in one city reported that erotic Asian massage parlors would purchase the names of licensed acupuncturists to fake legitimacy. Even feuding gang members occasionally joined forces in the sex trade, prioritizing profit over turf wars. The most valuable network in the underground sex economy, however, may be the Internet.
The Internet is changing the limitations of the trade. Prostitution is decreasing on the street, but thriving online. Pimps and sex workers advertise on social media and sites like Craigslist.com and Backpage.com to attract customers and new employees, and to gauge business opportunities in other cities. An increasing online presence makes it both easier for law enforcement to track activity in the underground sex economy and for an offender to promote and provide access to the trade.
Child pornography is escalating. Explicit content of younger victims is becoming increasingly available and graphic. Online child pornography communities frequently trade content for free and reinforce behavior. Offenders often consider their participation a “victimless crime.”
The underground sex economy is perceived as low risk. Pimps, traffickers, and child pornography offenders believed that their crimes were low-risk despite some fears of prosecution. Those who got caught for child pornography generally had low technological know-how, and multiple pimp offenders expressed that “no one actually gets locked up for pimping,” despite their own incarcerations.
Policy and practice changes can help combat trafficking and prostitution.
Cross-train drug, sex, and weapons trade investigators to better understand circuits and overlaps.
Continue using federal and local partnerships to disrupt travel circuits and identify pimps.
Offer law enforcement trainings for both victim and offender interview techniques, including identifying signs of psychological manipulation.
Increase awareness among school officials and the general public about the realities of sex trafficking to deter victimization and entry.
Consistently enforce the laws for offenders to diminish low-risk perception.
Impose more fines for ad host websites.
Jonathan Schwabish has just published a wonderful guide to visualizing economic data. If you produce charts, you really ought to study it.
Here’s one example, transforming a default Excel “spaghetti” chart into something more tasty: