Steve Martin Gives a Lesson on Sales Taxes

Steve Martin–yes, the wild and crazy guy–has a new novel. “An Object of Beauty” tells the story of Lacey Yeager, an up-and-comer in New York’s art world in the mid-1990s. I’m 19% of the way through the novel (up to location 779 in Kindle-speak), during which Lacey has been climbing the ladder at Sotheby’s, the famous auction house.

Thus far, my favorite passage depicts how sensitive wealthy art collectors can be to taxes. Sotheby’s has sent Lacey to Washington to deliver a painting to the winning bidder in a recent auction. After getting off her train, Lacey heads over to Georgetown:

The white door of the brownstone swung open with a faint jingle-bell tinkle, and Saul Nathanson waved with full panic shouting, “Don’t come up the steps!”

So many interpretations. Was he shouting at Lacey, the painting, or the taxi driver? “Don’t step on the walkway!” Was the concrete wet? But Saul ran toward them more sheepish than commanding, and they all stayed put.

“I thought by having you bring the picture,” Paul said, panting, “that we were taking delivery of the picture in Washington. But it seems to be disputable that this might constitute taking delivery in New York.”

Lacey looked at Saul, then at the taxi driver. He pulled his cap back and scratched his head. “Oh yeah, sales tax,” he said.

“What?” said Lacey.

“My wife sells jewelry. There’s always a sales tax issue.”

Saul pointed at the driver with a silent “bingo.” “We’ve got to have it shipped to us from New York by a reputable carrier.”

Lacey muttered, “I’m reputable.”

“But unlicensed. We’ve got a questionable situation here. You’ve got to take it back. It’s a difference of almost ten thousand dollars,” said Saul.

The statement hung in the air, until the taxi driver said, “You mean that box is worth a hundred and fifty thousand dollars?”

Lacey turned to him. “Who are you, Rain Man?”

Saul was balanced on his toes. “I’m so sorry, Lacey, we tried to turn you around, but we just learned it an hour ago. Here’s something for you”–he handed her a folded hundred-dollar bill–“and don’t let the painting touch the walkway.”

“I’ll be a witness,” said the grinning taxi driver, implying there could be another tip due.

“I can’t even invite you in,” said Saul. Then he turned to the half-opened door. “Estelle! Wave hello to Lacey!”

Estelle poked her head out of an upstairs window. “Hello, Lacey. Saul’s insane!”

Or maybe he’s highly rational?

The Grinch Recast as Economic Parable

Over at, Art Carden has a brilliant retelling of Dr. Seuss’s “How the Grinch Stole Christmas” (ht: Greg Mankiw). Carden recasts the story as a parable about externalities and property rights.

He starts with the Grinch’s view that Who singing is a nuisance:

He hated the shrieks of the Who girls and boys
For fifty-three years he’d put up with it now—
He had to stop Christmas from coming, somehow.
He asked and he questioned the whole thing’s legality
Then his eyes brightened: he screamed “externality!
He reached for his textbooks; he knew what to do
He’d fight them with ideas from A.C. Pigou.

As regular readers know, Pigou argued that externalities — pollution, singing Whos, etc. — could be addressed by levying taxes that reflect the harm imposed. So maybe, the Grinch might reason, he should help himself to some Who presents and roastbeast whenever they sing.

But wait, as Ronald Coase noted years ago, it takes two to tango … and to create an externality. So the Whos have a rebuttal:

“We know that we’re noisy all through Christmas Day,
But if you don’t like it, it’s you who should pay!
“For we were here first, and homesteaded the rights
To sing, to make noise, and to hang Christmas lights
“The costs of our Christmas joy helped you to save!
They were fully reflected in the price of your cave!”

I am so using this in my class in the spring.

Quantitative Easing, Trading, and the Viral Bunnies

When Ben Bernanke and his colleagues at the Federal Reserve announced their plan for $600 billion in new quantitative easing, I am sure they expected criticism. Angela Merkel? No surprise. Hu Jintao? Ditto. Domestic inflation hawks? Ditto again.

But could the Fed have anticipated that its most vocal critics would be a pair of talking bunnies?

If your email, Facebook, and Twitter feeds are anything like mine, you know the video: two bunny-like creatures (I’ve also heard them called smurfs and dogs) discussing “the quantitative easing” of “the Ben Bernank.” It’s hilariously effective but, as Jim Hamilton helpfully points out, also quite wrong in places.

In case you’ve missed it, here’s the video:

The folks at Xtranormal have been offering the ability to make such movies for a couple of years now, but the idea appears to have gone viral in the economics and finance space in the last week. Indeed, YouTube already has a bunch of rebuttal videos to the quantitative easing one.

So far, the funniest video I have seen (ht: Jack B) features a bunny interviewing for a Wall Street trading job. I usually keep things G-rated here, but I’ll make an exception today. Be forewarned, some of the language may be NSFW — unless, of course, you are a trader:

Budget Process Reform with Judge Judy and PowerPoint

Scott Adams recommends a unique budget process reform:

There’s a TV show I’d like to see, perhaps on public television, or on the Internet. The premise is that the President of the United States sits in a room with economists and prepares his three-slide PowerPoint presentation to the voters on the topic of raising taxes versus cutting spending to balance the budget.

Now add Judge Judy, or someone with a similar skill set, to run the meeting and cut off the participants when they don’t offer brief answers to clear questions. Also include several economist/researchers who are there to verify the accuracy of any assertions made during the meeting.

During the course of the show, as Judge Judy (for example) nails down certain facts, the facts are put on the PowerPoint slide for viewers to keep track of what is settled. When enough facts are assembled for a verdict, Judge Judy and the President discuss what they have learned until the President arrives at a conclusion that is consistent with the facts. And if the data doesn’t point in a conclusive direction, the President would be free to make his decision on some sort of principle, such as fairness, or practicality. At least the decision process would be transparent.

Adams was motivated by his (quite correct) observation that Americans aren’t familiar with key budget facts:

I thought of this idea after reading the comments to my recent blog about the national debt. It’s clear that no citizen has enough information to justify an opinion on raising taxes versus cutting spending. Everyone, including me, seems to have a handful of questionable factoids and some dogma. That’s it.

I somehow doubt the President will sign up for this form of reality of TV. Which is unfortunate. Judging by this year’s uninspired lineup, primetime would benefit from some economists playing with PowerPoint.

Double Dippin’

I am more than a week behind on this, but in case you missed it, Merle Hazard has a new ditty out called “Double Dippin’.” This comes with a warning: the opening scene may make you crave ice cream:

Rising concern about a double dip makes sense given the weakness of recent macroeconomic data. On the other hand, it would be highly unusual for the United States to fall into recession with such a steep yield curve.

The Hot Tentacle

The World Cup started with vuvuzelas and ended with Paul the octopus. The world’s most famous cephalopod grabbed headlines by correctly predicting the winners of eight straight World Cup matches, including today’s victory by Spain over the Netherlands.

I’ve enjoyed Paul’s exploits, but his success got me wondering: just how many animals are out there picking World Cup winners? Could it be that, oh, 256 animals were making predictions when Paul started his run and he’s just the lucky one?

Well, after a little bit of internet snooping, I haven’t found all 256 yet, but I bet they are out there. For starters, there’s Mani the parakeet who called four quarterfinal matches correctly, but then fowled up by picking the Dutch over the Spaniards in the final.

And then there’s this article in the Christian Science Monitor, which recounts failed prognostications by a sloth, a hippo, and a monkey.

So that’s at least four. As for the other 251 failed psychics that I think are out there, my guess is that Google doesn’t know about them. And that, friends, is what’s known as survivorship bias. That bias is a big deal in financial markets. For example, the performance of existing mutual funds is much better than that of mutual funds generally because the laggards get closed and drop out of the data.

And so it is with animal psychics. The lucky ones grab headlines, while the laggards are forgotten. Which doesn’t mean that I begrudge Paul his fame. Indeed, I think his fame should spread right into finance and statistics classes when school starts in the fall.

Vuvuzelas, Afghanistan, and Fannie and Freddie

Updates on some previous posts: