EclectEcon

There's No Such Thing as a "Free" Marriage

From an article in Maclean's written by the daughter of a former student:

When 151 women gathered in Madhya Pradesh state in central India last month, they were preparing for a celebration; all were to be married in a state-run mass wedding in the city of Shahdol. ...

The mass wedding was part of a new state-wide scheme to provide free marriages to the poor. Traditionally, women in India’s tribal regions have difficulty finding spouses, since they can’t afford costly weddings and lavish dowries. The new program not only lets them tie the knot for free, it provides them with gifts worth about 6,500 rupees ($153).

But as the title of this posting says, "there's no such thing as a 'free' marriage". And that's the case for two reasons:

1. First the economics perspective: There are opportunity costs involved with using scarce resources for these weddings. The wedding ceremony may have seemed free to many of the participants, but the inputs used to put on the wedding have an alternative use which must be foregone when the weddings are "produced". This is just one of zillions of examples of opportunity costs involved with gubmnt programmes.
2. The second cost is more nefarious. When the gubmnt provides something, it usually adds its own controls, monitors, intrusions, etc. As the article states,

   ...But they weren’t expecting what came next: being shepherded into a line, and then subjected to an official “virginity test.”...

   But a “virginity test” was never part of the deal. And according to reports, the women weren’t told about the test until they arrived. “At first I refused to go through the test,” said one tribal girl who was among the Shahdol brides. “But an officer told me I would not be allowed inside the marriage hall unless the gynecologist declared me eligible.”

   Officials deny that validating virginity was the goal, instead claiming they were performing a simple pregnancy test to weed out already married women who were only there for the cash payout. “The test was a precautionary measure,” said a Shahdol district commissioner. “Last year one of the brides delivered a baby even as the marriage ceremony was on.” The test found 14 women to be pregnant, and they were prevented from taking part in the ceremony.

And of course all this gubmnt intrusion involves further opportunity costs as well.

Great Wedding Processional -- The Sequel:The Couple Gets Divorced

See more funny videos and funny pictures at CollegeHumor.

[h/t former student, Ben]

I May Actually Watch an Entire Episode of The Simpsons

It's about curling.

[h/t to Alan Adamson, co-blogger at Curling]

Reprise: Anti-trust in Two Easy Lessons

Prompted by Craig Newmark's recent posting(s) about Google, I was reminded of one my early postings when I started blogging nearly five years ago. Here it is again:

Anti-trust in 2 Easy Lessons:

1. You must compete.
2. You must not win.

The Revival of My Acting "Career"

After about a four-year hiatus from my semi-professional work on stage and screen, last fall I accepted a role in a community theatre production of My Darling Judith. Then in the winter I rejoined Mystery Unlimited in London to perform in mystery dinner theatre productions.

This weekend, my son (David Ricardo Palmer) and I will both be doing some acting for a television documentary (acting? for a documentary? if that makes little sense, read on).
From the producer:

We are a crime recreation show called Extreme Forensics, we are based in NYC though we film all over the country and our show is syndicated all over the world. We are filming in Clinton Ontario this Friday, Saturday and Sunday. ... Our episode features the Steven Truscott case. [link added]

They've cast me as a pathologist and my son as a police officer. From Wikipaedia,

Steven Murray Truscott (born January 18, 1945 in Vancouver, British Columbia) is a Canadian man who was sentenced to death in 1959, when he was a 14-year old student, for the alleged murder of classmate Lynne Harper. His death sentence was commuted to life imprisonment, and he continued to maintain his innocence until 2007, when his conviction was declared a miscarriage of justice and he was formally acquitted of the crime.

The murder occurred on the outskirts of my present hometown, Clinton, Ontario, which is why this episode of Extreme Forensics is being filmed here.

Don't Get a Financial AdvisorPart II

My earlier posting about not getting a financial advisor provoked considerable comment, much of it in e-mail rather than in the comments section of the blog. But in the comments section, there were two comments that I want to draw to your attention.

1. Rick pointed out, quite correctly, that there is more to financial advice than just investment. He's right. I'm sure there is a great deal about financial planning that is not covered in my posting. Unfortunately, I'm not sure I'd learn some of the important things in that posting from a financial advisor, which is why I wrote that advice to a friend and why I incorporated it into a blog posting. To be honest, every time I have talked with a financial planner/advisor, I've felt as if some religious cult was trying to separate me from my savings. Most of the content of that post, however, rang true with many of the readers.
2. Ironman provided several links to some of his work that has been fascinating and useful for those who want to delve into equity indices in more detail. 

In e-mail, Tim Worstall wrote,

"The Worstall Invesment Strategy. Buy beer and cigarettes. What retirement?"

which I'm sure will strike a chord with many readers.

And a close friend who works in investment banking sent this lengthy response (somewhat anonymized on his/her behalf):

I would argue that a lot would depend on how interested the person is in looking after their own finances. The easiest way to achieve diversity with low fees is to open a brokerage account, buy a bunch of ETF’s and walk away. This means that you need to do all your own portfolio management, which is relatively easy, but still takes time. If they don’t know their ETFs from their GICs from their MERs, I wouldn’t recommend this approach, because you need to rebalance, and do estate planning, retirement planning, etc.

The next step up is to go with a bank. The advice is free, but the MERs are higher on the “actively” managed funds (I use the quotation marks, because there isn’t much “activity” that you are paying extra for) [EE: but as I noted in the original posting, most banks also offer low-MER index funds and I recommend looking for those.]. However, an advisor will call every year and rebalance your portfolio for “free”. Several banks also offer discounts for bundling, or higher AUM [accounts under management]. For example, one bank provides a programme whereby if you have >$100K under management (easy to do, since you roll your mortgage into the $100K). You get your own investment advisor for “free” as part of the service. The Edward Jones, etc of the world make all their money providing packages that are essentially auto re-balances, and is the easiest, but also the most expensive.

So when do you get a financial advisor? When you have a large enough portfolio that the delta of the MER is offset by gains you can make through investment. [emphasis added. EE: I wonder if this is ever possible in the long-run, and that was a major point of my original posting.] An investment advisor can get a “sophisticated investor” (as defined by the Ontario Securities Commission, and as I recall having a >$200K annual household income, or a large amount of assets under management) into deals that others can’t participate in. These include private placements, hedge funds, fund of funds, etc. The average person does just fine with their bank's advisor, but has to deal with a lot of cross selling each year. For someone that actually spends time on their finances, a brokerage account works better. Therefore, as is usual with these things, the answer is “it depends”.

For me, I have Reuters, Bloomberg, and access to all the analysts that cover all the sectors of the major equity markets. I’d also consider myself to be reasonably financially literate. Therefore, I use a brokerage account that has a lot of ETFs, but also some equities that I like. I also look at it every day. I can also do all my tax planning and retirement planning. As you get closer to retirement, you move more from equities to fixed income, but I’m not ready for much fixed income at this stage in my life. The rates of return are also currently too low to keep my interest, and I’m waiting for the next shoe to drop on the credit markets, and would expect that much of the fixed income market has not correctly priced in this risk (looking at corporate bonds, especially).

 If I were still working in my previous occupation, I would just go with the bank, and go with fairly plain vanilla investments. I would tend to shy away from too much “diversification”, since many of the products are intrinsically diversified, so a portfolio of 10-15 funds means you’re paying the bank too much. In most cases 2-3 is more than enough, I think. Remember that there are transaction fees to deal with, too.

[EE: I wonder if this next part is somewhat tongue-in-cheek] My current long-term career plan is eventually to become one of the branch investment advisors. The hours are great. The work is pretty easy, and you get enough walk in business that the sales component is limited. You can also do exceedingly well out of the job. Of course, that is still a long way off.

I’ve met enough of the Edward Jones, Primerica type people that I know they are constantly pounding the pavement for new sales, and they are just selling a standardized product that is relatively easy to replicate. Of course, if your friend is quite wealthy, but not super financially literate, or is time constrained, there are wealth management specialists that do a good job of these things. So there you go, a few hundred words with no significant outcome at all. Maybe I should have gone into law…….

More from others in a future posting.

Queen Elizabeth II Questions the Efficient Markets Hypothesis

From the Telegraph,

[A] three-page letter, signed by London School of Economics professor Tim Besley, an external member of the Bank of England's monetary policy committee, and political historian Peter Hennessy, was sent after the Queen asked on a visit to the LSE why nobody had predicted the credit crunch, according to the Observer newspaper. ...

When she visited the LSE in November last year she asked Professor Luis Garicano, of the economics' management department, about the origins of the credit crisis, saying: "Why did nobody notice it?"

Prof Garicano told the Queen: "At every stage, someone was relying on somebody else and everyone thought they were doing the right thing." The Queen described it as "awful".

Prof Garicano said afterwards: "The Queen asked me: 'If these things were so large, how come everyone missed them?"'[emphasis added]

It sounds as if Her Majesty quite sensibly has been asking why there weren't more smart people betting against the firms that were so far out on the limb; it sounds as if She was asking how bubbles can form in a knowledge-rich efficient economy.

Cannabis and Mental Health:correlation vs. causation

I was reminded of the adage, "Correlation does not imply causation," when I read this abstract.

This paper investigates whether cannabis use leads to worse mental health. To do so, we account for common unobserved factors affecting mental health and cannabis consumption by modeling mental health jointly with the dynamics of cannabis use. Our main finding is that using cannabis increases the likelihood of mental health problems, with current use having a larger effect than past use. The estimates suggest a dose response relationship between the frequency of recent cannabis use and the probability of currently experiencing a mental health problem. [emphasis added]

Many of the serious potheads I have known have struck me as people who would have had mental health problems with or without cannabis use.

Posner's Other Blog, Wherein He Calls Krugman a Born-Again Keynesian

I don't know how Richard Posner reads and writes as much as he does. But he does so much and does it so well.

Recently, Posner began another blog in addition to his original blog that he co-authors with Gary Becker. His latest blog, sponsored by The Atlantic, is called "A Failure of Capitalism", the same as the title of his book published this past spring by Harvard Press and about the financial crisis and the 2008ff recession in the United States.

In his most recent posting, Posner criticizes Paul Krugman's unabashed support for more gubmnt intervention in the market for health care, referring to Krugman as a "born again Keynesian".  Posner's criticism is that the debate has created considerable uncertainty and that this uncertainty has caused people not only to save but to hoard liquidity, thus prolonging and deepening the recession. Let me add that this criticism applies to much of the Democrat and Obama agenda for increasing involvement of the gubmnt in the economy. Here is the conclusion from this posting:

Initially the concern was with the macroeconomic implications of adding some $100 billion a year to the federal deficit (an underestimate, in my view, because it ignores the increase in demand for medical services by tens of millions of persons who will have health insurance for the first time, which will reduce the marginal cost of medical services to them). The concern became so acute that focus shifted to measures for financing the program so that it would not add to the deficit. But when this happened, businesses and individuals alike began asking: what part of the cost of the new program will I bear? And this question injects a new and very major source of uncertainty into the economic environment. Small businessmen are worrying about the added cost to them if they are required to insure their employees, and individuals are wondering whether their cost of health insurance will rise. Most people do have health insurance and most of those who do are more or less satisfied with it; anyway better the devil you know than the devil you don't know.

Prudent businessmen and prudent individuals alike have thus been given an additional motive for hoarding cash rather than investing and consuming. No one knows how his financial situation will be affected by health reform, if it is is enacted. There is enormous and I think justified distrust of the government's ability to design and execute so ambitious a program as the Administration and the congressional leadership envisage.

One might think that this would give a born-again Keynesian macroeconomist like Paul Krugman pause. But not only does he say nothing about the effect of the debate over health reform on uncertainty and through it on the economic situation, even though he is pessimistic about the situation; he provides no analysis of the likely costs of health reform, and the incidence of those costs on particular groups in the society. He does nothing to allay the uncertainty that the debate over health reform has engendered.

My only concern about this particular blog is that it seems designed to plug his book. Not that I think his book shouldn't be plugged; in fact, I bought the book as soon as it was advertised.

Adobe Flash Vulnerability

Adobe Flash apparently has a security hole that won't be fixed for several days yet. [h/t PlaceboMan]

Adobe Flash contains a vulnerability that may allow a remote, unauthenticated attacker to execute arbitrary code on a vulnerable system. Adobe Flash Player, Reader, Acrobat, and other products that include Flash support are affected.

 Here's the U.S. gubmnt site describing problem and what to do about it.

Socialism Experiment in the Classroom

Last week Jack sent me an apocryphal story about an economics professor who tells his class they will all receive the class average grade on each exam. Predictably, as the term proceeds, the students lose the incentive to perform/learn but start bickering instead, and they all end up failing the course.

It's a good story, but it doesn't ring true. I can't imagine many professors would try this in the first place, at least not on their own; I can't imagine students would put up with it in the second place; and I can't imagine the university would tolerate it. So I snoped the story and found the above link, indicating the story is a "legend".

A better experiment?

The original story involves socialism with closed borders, a la the iron curtain or Cuba. So I began to think about how one might redesign the experiment to make the same point and yet overcome the potential objections from students and admins by "opening the borders for migration", i.e. letting the students opt in or opt out. Here is what I have come up with so far:

• Offer at least two different sections of the same course.
• Announce to everyone that  the students in all but one sectin will each receive the grades they earn on the exams. These will be referred to as the "merit" sections and will operate pretty much the way most course sections operate now.
• Announce to all sections that in one special section of the course, students will receive the average grade of the students in that section. This section will be referred to as the "average" section. [alternative name: the Wobegon section]
• Allow students to transfer freely between a merit section and the average section as often as they wish for the first half of the term (or until after, say, the first two midterms have been taken). I typically give two midterms and an final exam in my intro courses, so I would block transfers after the second midterm.
• Transfers: I need to consider using only one of several possible options on the portability of wealth and assets of the migrants (transfers):

1. Students who transfer out of the average section take the section average with them if they transfer after the first midterm exam. Students who transfer out of a merit section into the average section will take their merit mark with them, and that mark will then be used to recalculate the class average in the average section.
2. Alternatively, students who transfer out of the average section will take their personal mark, not the section average, with them when they move to a merit section. Similarly, students who transfer from a merit section to the average section will give up their own performances and take on the section average. I prefer this option.

Allowing transfers will serve two purposes. First, those who don't like the averaging procedure can transfer to or stay in a merit section where grades will be determined as they always are: on the basis of exam performances. Second, the migration itself will be very revealing and will set up numerous ancillary effects (learning experiences).

• Good students will tend to migrate out of the average section into the merit sections.
• Bad (or otherwise under-performing) students will consider migrating to or staying in the average section...... until they realize that the good students are all in the merit section and the average grade will be very low. This will likely mirror migration movements from Cuba and from behind the iron curtain.

Potential problems with this experiment:

• What if students have a timetable conflict and are unable to change sections? One way to deal with this is to admit students to one section only if they have enough schedule flexibility that they can change to another section if they wish. Another, simpler way to deal with this situation might be to offer a merit section running concurrently with the average section.
• Would the human subject ethics committees have to be involved? I would argue not, since it is more of an educational methods exercise and since no student would be required to be a part of the "average" section. [side note: a friend at another university says he hopes I do this experiment at UWO and not at his place, where he is on the ethical treatment of human subjects adjudication committee].
• Would any department have the nerve to offer an "average" section of a multi-section course? If so, I want to teach it (since I would expect most or all students to transfer out of it).
• Would there be any students left in the "average" section if there were no barriers to migration? My guess is there might be a few who were too lazy or otherwise sufficiently uninterested to change out of the section.

Here's another possible wrinkle to the experiment that might make it even more interesting. Tell the students that those in the top ten percent would get their actual grade plus 5 marks (a la the oligarchs in socialism, cf Animal Farm). The rest would get their average (not including the grades of the oligarchs in the average) AND minus enough marks to make up for the extras that the oligarchs would get?

Wouldn’t THAT be more like operational socialism? And wouldn’t that create some really nasty classroom problems!

When Was the Last Time You Sent Something in the Mail?

Ms. Eclectic mails things to her family on a regular basis, but I honestly cannot remember the last time I sent anything via the Postal Service. I pay bills on-line, I correspond on-line, and I place orders for things on-line. I think the last time I actually sent something via the post was when I sent souvenirs to my family from England last spring.

Lots of other people are like me, I guess. As a result of these technological changes, we send less mail, and we especially use fewer postal drop boxes*. Here is a set of graphs that make this point (from yesterday's WaPo):

*In our town, there is one mail drop box. It is at the post office. But we all go there nearly every day anyway to pick up our mail. We have no home mail delivery in our small town, and never have had it.

Eat Fish

From the NYTimes,

Many studies have suggested that a diet rich in fish is good for the heart. Now there is new evidence that such a diet may ward off dementia as well. One of the largest efforts to document a connection — and the first such study undertaken in the developing world — has found that older adults in Asia and Latin America were less likely to develop dementia if they regularly consumed fish.

And the more fish they ate, the lower their risk, the report found. The findings appeared in the August issue of The American Journal of Clinical Nutrition.

A Great Wedding Processional

It looks as if they had a great time, celebrating this marriage!

[h/t Ricardo]

Update: Wapo has the background story of the wedding and the couple. So where were the parents of the bride and groom? You can bet that if any of my children had wanted a wedding like this, I'd have been dancing, too! (which is probably why they opted not to have this type of wedding processional)

Difficult Canadian Trivia Quiz

Here is a link a to Canadian trivia quiz that has some fairly obscure material in it. I would expect most readers of EclectEcon to get at least 8-10 out of 20 questions correct, though, and many of you should be able to beat my score: 15 right out of 20.

Check Your Prescriptions

JB, my favourite drug dealer, sent me this warning. From the looks of things, the expected incremental benefits of checking your prescriptions would outweigh the expected incremental costs. And it might even be worth paying a bit more in time or money to avoid the really busy and rushed pharmacies.

Medication errors — wrong drug, incorrect dose or improper use — harm at least 1.5 million people every year, according to the Institute of Medicine. Confusion caused by drugs with similar names accounts for up to 25 percent of the reported errors. ...

More than 3 billion prescriptions are filled each year, and the number keeps growing. Errors can be made all along the route from prescribing to dispensing.

A doctor’s illegible writing is misread. A bad phone connection makes a called-in prescription unclear. A busy pharmacy worker grabs the wrong pills off a shelf where inventory is kept in alphabetical order. ...

Horn said that most of the errors he encounters occur where prescription volumes are high, in large chain drugstores and pharmacies at big-box stores.

“Everybody’s in a hurry. Everybody’s under a burden,” he said.

Aspirin: Chewed Gets into the Blood Stream Fastest

Recently, Jack, BenS, JB, and I have been wondering about the best way to take aspirin if a person suspects they might be having a heart attack. Jack then sent us this article that reports the results of some studies of absorption into the bloodstream. Conclusion:

To find out how aspirin works fastest, researchers in Texas asked 12 volunteers to take a standard 325-mg dose of aspirin in three different ways: by swallowing a tablet with 4 ounces of water, by chewing the tablet for 30 seconds before swallowing it, or by drinking 4 ounces of water with Alka-Seltzer. Each subject tried all three methods on an empty stomach on different days. The scientists monitored blood levels of aspirin and its active ingredient, salicylate, at frequent intervals, and they also measured thromboxane B2 (TxB2), an indicator of platelet activation that drops as platelets are inhibited.

By all three measurements, chewed aspirin worked fastest. It needed only five minutes to reduce TxB2 concentrations by 50%; the Alka-Seltzer took almost 8 minutes, and the swallowed tablet took 12 minutes. Similarly, it took 14 minutes for the chewed tablet to produce maximal platelet inhibition; it took Alka-Seltzer 16 minutes and the swallowed tablet 26 minutes... [emphasis added]

Afternoon Tea at the Queen's Hotel in Portsmouth:don't bother

Last May, two friends and I went to Portsmouth to attend a (soccer/football) match between Portsmouth and Sunderland. But we decided to go early to take afternoon tea at the Queen's Hotel, a splendid setting on the bay.

Overall the afternoon tea at the Queen’s Hotel in Portsmouth was mediocre at best and disappointing. Here is a far-too-detailed review:

When we arrived, we were told we could have our tea in the lobby/parlour (which is where most people would ordinarily take afternoon tea in such a hotel) or in either of the bars. Well, the bars had nice views out over the park and the bay, so we selected a table in one of them. The bar was empty, but soon a bartender arrived....... and had us pay in advance.... odd.

 We sat at a formica-topped table (no tablecloths or placemats) for awhile, and finally a young man showed up with a large silver platter with a teapot full of tea, three cups and saucers, and three packets of biscuits. He just schlepped the tray onto the table. Didn’t set out the cups and saucers. Didn’t put a cloth on the table. Nothing. Just set the tray down and left.

 No choice of teas, which really disappointed me. This was the first place I’ve had afternoon tea and had absolutely no choice of teas. No pouring for us. And D. was really worried that the packets of digestive biscuits were all we would get. But G. and I tentatively each ate a biscuit while D. poured the tea.

 And then we waited some more. And some more. Finally D got up to see what was going on, and just as she left the bar one way, someone else (not the original schlepper, if that’s a word) brought in the 3-tiered arrangement with sandwiches, scones, and cakes. She just plunked it down on the table with no concern for anything other than delivering it.

They provided three finger sandwiches each: smoked salmon on wheat bread (both D and G quite liked these), carved ham on white (this was actually quite good), and cucumber (sliced a bit too thick) on white. Then we started to go for the scones.

Oops no serviettes. No utensils. So we rounded someone up, and they brought them.

Oops no plates (and very little room on the table since they had left the huge silver platter on the table, too). So we rounded up someone to bring those, too. He handed them to us and let us rearrange the things on the table to try to fit everything on it. No help, and no concern.

The scones were slightly warm but were still a major disappointment. Very dry and crumbly; they seemed re-re-heated from breakfast. The jam was strawberry (I approved) but in those little individual serving sized jars and far too gelatinous; my preference would have been for no-pectin, no-gelatin strawberry jam. The cream was fabulous. It was thick and rich and its texture reminded me of mascarpone cream cheese. They provided just one raisin scone apiece, and no offer of seconds.

We had to ask them to bring another pot of tea. You get the drift.... Service was zero. .... maybe even negative?

Meanwhile some people had come into the bar and were sitting at the bar chatting. Despite the view (which was better than the no-view option of  the lobby), it might have been a mistake to sit in the bar. However, as we were leaving I noticed a “server” in the lobby regaling a customer there with stories about something – shudder. He was clearly more interested in telling them about himself than he was in providing a fine afternoon tea experience.

There were two cakes for dessert. I’m not a fan of either of the cakes they provided, so this next bit might not be fair. One was a dark raisin fruit-cake type thing. It was dry and crumbly yet heavy. G quite clearly liked it since he ate his and half of D’s. The other was cherry sponge: dry sponge cake with dried cooking cherries in it. Also not one of my favourites. No strawberry tarts, to my great disappointment. I scraped the bottom of the cream container and spread some of that on the cherry sponge and still didn’t finish the cake because the cream ran out.

 During the dessert stage, someone who appeared to be the hotel manager dropped by to see if everything was okay. I don’t know how the others felt, but I didn’t wish to make things worse by pointing out all the problems.

 We had dressed for this place – jackets and ties for G and me. But clearly we could have worn jeans and hoodies and it wouldn’t have mattered.

 Besides it was only £8.95 each, about a quarter of what the posh places charge in Mayfair. For that price, we didn’t expect greatness and we didn’t expect endless refills (we received no offers of extra sandwiches or scones), and in this case our expectations were met.

 We probably got what we paid for. Or less.

 Overall, afternoon tea at The Queen’s Hotel in Portsmouth was on a par with my afternoon tea two years ago at the Royal Crescent in Bath. That one was perhaps marginally better, but it was also double the price.

 Ms. Eclectic and I paid about the same amount for afternoon tea at The Boat House in Guelph, and it was significantly, noticeably better. Tea at The Queen's Hotel was near the bottom of the rankings for sure.

For my previous reviews of afternoon teas, please see these links:

• The Four Seasons, London, England
• The Royal Crescent Hotel, Bath
• The Pump Room, Bath
• Claridge's, London, England
• The Boathouse, Guelph, Canada
• The St. Regis Hotel, Houston, Texas

Digression: The Queen's Hotel is a grand old building with classic  curved floor-length urinals (note the apparent reliance on a single floor drain, however):

These were of the same principle but quite different style from the basic pee-against-this arrangement in the pub in Chichester, where we stopped on the way back from Portsmouth:

Pub Closings in Britain:It's not due to taxes

Today The Economist released an on-line story about pub closings in the UK. Overall the story makes pretty good sense:

Britain's pubs

Why are Britain's pubs shutting?

...[I]n recent years many Britons have changed their drinking habits, shunning the pub and preferring to imbibe at home instead. Now over 50 pubs are closing every week, almost double the rate of a year ago, says the British Beer & Pub Association, a trade group. The recession, cheap alcohol at supermakets, and a smoking ban in pubs enacted in 2007 are all to blame. The government is also taking a bigger chunk in tax: from around 8p a pint in 1980 to nearly 38p now.

Do you think maybe prices and incomes have quadrupled (roughly) in Britain in the past 30 years? If so, then the tax explanation is weak, at best. The others seem pretty reasonable, though. If you go to the original article, you can see from their graph that the trend in pub closings has been fairly steady over the past 30 years and is not necessarily a recent phenomenon. The number of pubs declined steadily during the 1980s and into the early 90s. Though the number of pubs seemed to remain fairly constant during much of the 1990s, the number began declining again around 2000.

My experience there during the past few years is consistent with the argument that cheap alcohol in the supermarkets, coupled with phenomenally improved options for home entertainment via television, satellite, and the internet, has provided major competition for the pubs.

Orwell on Chaplin

The writings of George Orwell made the news last week when, without advance warning, Amazon erased electronic versions of some of his novels from people's Kindles [see, for example, this by Phil Miller]. That incident brought to mind Orwell's comments about Charlie Chaplin [h/t to BenS]:

Speaking of Chaplin in his role of The Great Dictator, George Orwell asks “What is Chaplin’s peculiar gift?” It is his power to stand for a sort of concentrated essence of the common man, for the ineradicable belief in decency that exists in the hearts of ordinary people, at any rate in the West. We live in a period in which democracy is almost everywhere in retreat, supermen in control of three-quarters of the world, liberty explained away by sleek professors, Jew-baiting defended by pacifists. And yet everywhere, the common man sticks obstinately to the beliefs that he derives from the Christian culture.”

 --Film Review, The Great Dictator in Time & Tide, Dec 21, 1940. Reprinted in All Art is Propaganda, Critical Essays by George Orwell (Harcourt, Inc.) 2008

I would happily change "Christian culture" to "Judeo-Christian traditions", but otherwise I like the observation.

Richard Posner on The President’s Blueprint for Reforming Financial Regulation

Regular readers of EclectEcon know that I have a very high regard for Richard Posner (to the extent that I think he deserves the Nobel Prize in Economics). Here, courtesy of Arnold Kling (whose writings I enjoy more and more each day), is Posner's take on The President's Blueprint for Reforming Financial Regulation. It is lengthy but worth reading. Some of the choice sections:

The emphasis the Report places on the folly of private-sector actors—investors, consumers, credit-rating agencies, and above all bankers—ignores the possibility that most of these actors were behaving rationally given the environment of dangerously low interest rates, complacency about asset-price recognition (the bubble that the regulators ignored), and light and lax regulation—an environment created by the government....

[T]he Report is highly critical of the competence of bankers, consumers, and other private persons, but uncritical concerning the capacities of regulators. Regulators’ failure to anticipate and head off the financial crisis is noted in passing but is assumed to be easily eliminated in the future by altering the regulatory structure. Politics, as an impediment to effective regulation, is not mentioned. The Report worries about actions by private persons that can precipitate an economic crisis, but not about actions (or inaction) by regulators. Its concern with market failures is not matched by a concern with regulatory failure. If brilliant bankers screw up, why not not-so-brilliant regulators?...

If, as I believe, the financial collapse is rooted in regulatory mistakes, expanding the responsibilities of the regulatory agency that made the most serious mistakes seems a perverse response.

Don't Hire or Sign with a "Financial Advisor"

Last month, a friend wrote to my wife, saying she had a friend who wondered about signing up with a financial advisor. Ms. Eclectic passed on the request to me.

Here is my response. I'll be happy to update/alter it if you have any further suggestions.

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[Ms. Eclectic] says you have a friend who is looking for a financial advisor. My advice is “Don’t”.

Financial advisors don’t work for nothing. They tend to put their clients into things that earn them (the financial advisors) lots of money.

Things to avoid:

• ·        Anything that has “trailer fees” or “loads” or “front-ends”. These are typically mutual funds where the financial advisor gets a bunch of your money before any of the rest of it is invested or after you try to take it out.
• ·        Anything with a high MER (Management Expense Ratio). The evidence is overwhelming that managed funds, on average, do no better than index funds (stock funds that mirror the movement of some stock index) and once the MERs are taken off, they do worse on average. MERs are typically in the range of 2% - 3%. This means they take 2% or more of your money before you earn anything. Every year. So they have to out-perform the market by more than 2% to justify their existence. Most of them don’t, especially not over the long haul. Insist on things that have an MER under 2% and preferably under 1%.

Some more evidence to consider: if she is investing/saving for the long run, she should not be afraid of the stock market. Yes, it goes up and down a lot, but over the long run it generally does better than anything else (see below). Again, this is on average. And as the time comes near that she wants to take the money out (i.e. maybe even as much as ten years in advance), she should then consider moving some of it to money markets or GICs. As a personal example, for the past few years,  I have had about 40% of my pension funds in a money market mutual fund (very low risk but minisculy riskier than GICs; also low average rate of return, but again slightly better than GICs); 30% in a bond index fund; and 30% in a blend of stock market index funds. As a result, I missed a bunch of the big upswing in the stock market, but I also didn’t lose much with the downturn, either. Ms. Eclectic has her discretionary retirement savings in GICs.

So here’s my advice (and it is pretty similar to what I’m doing).

• ·        Don’t get a financial advisor.
• ·        Go to your bank (actually do this with several). They will have someone who will be happy to help you for no charge. However, they might not know a whole lot, and be on guard because they have been trained to steer you into high MER mutual funds, since that’s where the banks make their money.
• ·        Go through all the questions about investment goals yadda yadda yadda with them.
• ·        Then tell them you want to put your money in an index fund with a low MER. They should have at least one with an MER that is less than 1.5%. An index fund will move with the stock market, as I said, so don’t watch what happens to it on a week-to-week or even month-to-month basis. Just keep saving. They may have to look through their brochures for awhile to find these funds, and these funds are often at the backs of the brochures in unappetizing print style.... the banks don’t make much money on them, so they don’t push them.
• ·        Banks often have several different index funds: Canadian, Global, Green, blah blah blah. Which one to choose is often a very difficult decision. My own preference here is to diversify, if possible and depending on the minimums that the bank imposes for opening an account with one of these, and put about half in Canadian funds and about half in a Global index fund. Your friend may want to diversify even more than that.
  

There’s no charge for this service at the banks, and she can set up an automatic check-off with the bank that will put more money into these funds on a regular basis.

One other thing to consider. If she doesn’t want to do much work and doesn’t want to mess around or take much risk, or especially if she thinks she might want access to the money in a few months or so, the banks now have electronic savings accounts that compete with the ING savings accounts, paying decent interest rates. We try to flow some of our alleged savings through one of these. Alleged.

I just looked at the past 3 years’ performances of index funds at Globe Fund, and they ain’t all that great. But don’t decide just on the basis of the past three years (and keep in mind that the future will not be the same as the past).

As an example, consider the RBC Canadian Index Fund (I’m not necessarily recommending this one, but it looks slightly better than average to me; I selected it because it really illustrates what I’ve been trying to say.):

RBC Canadian Index     one month % change:  -6.59

3-month % change:    28.53

6-month % change:    13.68

One-year % change:  -27.22

Three-year % change: -1.66

Since inception annual % change: 7.70 (over 11 years)

 

Here are more details on this fund. Follow that link and look at the graph and details there. 

Also note that the MER is only .68, plus a “management fee” of .5, for a total of 1.18%, which is decent enough for a bank’s index fund. And I see that you can start an account with this fund for as little as $1000, and they let you add to it in $25 increments --- great for us small fish who can’t put away huge chunks of funds at any given time. It’s also available for Registered Retirement Savings Plan contributions.

   This is a good example of what I was trying to say: if she is investing for the long haul, index funds are probably the way to go. This fund lost money over the past year; in fact it lost so much money last year that over the past three years it lost money. But since inception 11 years ago, it has averaged 7.7% with a very low MER, and that’s not at all bad. Others may be better than this, but it gives you an idea of what might be typical with index funds.

Because of their big swings, index funds are riskier than GICs or most money market funds, but on average they tend to do better over long periods of time. But be prepared for some ups and downs, and those can be scary.

One more thing: It’s not unseemly to shop around before you decide. 

I hope this helps.

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Warning to financial advisors: Don't mess with seniors.

On Sotomayer

George Jonas nails the situation [h/t Jack]:

If appeal court judge Sonia Sotomayor is elevated to the U. S. Supreme Court, it will be because of her flaws as much as her virtues.

Judge Sotomayor will get the nod because (a) she's a Hispanic woman, (b) she believes that being a Hispanic woman makes her more qualified to judge matters than people who aren't Hispanic women and (c) she's prepared to deny under oath that she believes what she believes.

Read the whole scathing thing.

Was Abbas Really Forced out of Israel?

It depends on what you mean by "forced" [h/t to AP]. Unfortunately, the polemics of this column from the Jerusalem Post detract from the main point of the piece:

Scant attention was paid last week to Palestinian Authority President Mahmoud Abbas's revelations on Al-Palestinia TV. Abbas talked about his youth in Safed, from whence he routinely claims his family was forcibly driven out by Israeli troops in 1948. ...

Fatah's cofounder reminisced at length about his Safed origins and haphazardly let the truth slip out.

"Until the nakba" (calamity in Arabic - the loaded synonym for Israeli independence), he recounted, his family "was well-off in Safed." When Abbas was 13, "we left on foot at night to the Jordan River... Eventually we settled in Damascus... My father had money, and he spent his money methodically. After a year, when the money ran out, we began to work.

"People were motivated to run away... They feared retribution from Zionist terrorist organizations - particularly from the Safed ones. Those of us from Safed especially feared that the Jews harbored old desires to avenge what happened during the 1929 uprising. This was in the memory of our families and parents... They realized the balance of forces was shifting and therefore the whole town was abandoned on the basis of this rationale - saving our lives and our belongings."

SO HERE it is from the mouth of the PA's head honcho himself. He ... verifies that nobody expelled Safed's Arabs. Their exile was voluntary, propelled by their extreme consciousness of guilt and expectation that Jews would be ruled by the same blood-feud conventions that prevail in Arab culture. ... [T]hey anticipated that Jews would do to them precisely what the Arabs had done to Safed's Jews. ...

SUCH WAS the uprising for which Abbas's kinfolk assumed they deserved just reckoning. Ironically, Jews were alarmed by the Arab exodus, figuring it presaged a formidable onslaught by invading Arab armies (which indeed came). In many areas (Haifa, for instance) Jews begged and pleaded with local Arabs to stay. But Arabs in Safed and elsewhere - heeding their leaders' exhortations to pull out and hounded by fears arising from their own vengeful traditions (but not Jewish ones) - did what was prudent in light of their surmise that Jews would behave according to Arab codes

They feared retribution and felt forced out because of this fear? But they weren't forced out physically. Do they deserve a "right of return"? Probably not.

Whose Right of Return to Where?

One of the issues raised by Arabs in the discussions about the Middle East is "the right of return" for all Arabs who left Israel to return. Given all the Jews who had to flee Arab countries with no compensation, I wonder whether it all nets out.

Fiendish Game Theory: Swoopo Auctions

Ryan, a former student sent me this article about Swoopo Auctions. They sell things to the highest bidder and seem to be on the up-and-up. The catch is that you must pay a 60-cent "bidding fee" each time you place a bid. So even though you might end up winning an auction and paying only $500 for a computer valued at $1000, Swoopo might collect several thousand dollars in bidding fees.

Consider the MacBook Pro that Swoopo sold on Sunday for that $35.86. Swoopo lists its suggested retail price at $1,799; judging by the specs, you can actually get a similar one online from Apple (AAPL) for $1,349, but let's not quibble. Either way, it's a heck of a discount. But now look at what the bidding fee does. For each "bid" the price of the computer goes up by a penny and Swoopo collects 60 cents. To get up to $35.86, it takes, yes, an incredible 3,585 bids, for each of which Swoopo gets its fee. That means that before selling this computer, Swoopo took in $2,151 in bidding fees. Yikes.

In essence, what your 60-cent bidding fee gets you at Swoopo is a ticket to a lottery, with a chance to get a high-end item at a ridiculously low price. With each bid the auction gets extended for a few seconds to keep it going as long as someone in the world is willing to take just one more shot. This can go on for a very, very long time. The winner of the MacBook Pro auction bid more than 750 times, accumulating $469.80 in fees.

Paying only $469.80 for that computer seems like a good deal, doesn't it? But what about all the other people who bid for it, paying the bidding fees, and didn't get it? Why didn't they keep bidding? What determines when people will stop bidding?

Some of the ideas behind Swoopo have already been explored in a theoretical way by game theorists ... Other ideas behind Swoopo, like the reluctance of bidders to say goodbye to their "sunk cost," have been explored by economists such as Daniel Kahneman and Amos Tversky—and have been found to draw bidders deeper into the game. Swoopo ... plays off those insights to efficiently get people to make bad choices. It's the evil bastard child of game theory and behavioral economics.

Watch a few of the auctions for a minute or two. Notice how, at one-cent per bid, the high bid jumps a lot right near the last second or two of the bidding as people try to just beat the end of the auction but without having to bid too often. I can see why they call these things "entertainment" auctions.

Imagine the data set that must be available from these auctions! Imagine the amount of empirical research that can be done on experimental game theory!

The Most Recent "Big Mac Index" from The Economist

When originally published, the Big Mac Index, produced by The Economist, was thought of as a whimsical application of the theory of purchasing power parity (used to explain movements in exchange rates in response to varying price levels in different countries). Over time, however, it became evident that very roughly, the index has had some minor predictive power, much to the amusement and amazement of many economists.

Here is the latest, along with the dicta:

Burgernomics: The Economist’s latest Big Mac index

 

The Economist today publishes its latest Big Mac Index, a lighthearted guide to valuing currencies. When demand is scarce and jobs are being lost, no one relishes a strong currency. A country with an uncompetitive exchange rate will struggle to sell its wares abroad and will also cede its home market to foreign firms. A weak exchange rate, by contrast, encourages consumers to switch from pricey imports to cheaper home-produced goods and services.

 

So which countries has the foreign-exchange market blessed with a cheap currency, and which has it burdened with a dear one?

 

The dollar buys the most burger in Asia. A Big Mac costs 12.5 yuan in China, which is $1.83 at today’s exchange rate, around half its price in America. Other Asian currencies, such as the Malaysian ringgit and Thai bhat, look similarly undervalued. Businesses based in continental Europe have most to be cheesed off about. The Swiss franc remains one of the world’s dearest currencies. The euro is almost 30% overvalued on the burger gauge. Denmark and Sweden look even less competitive.

 

However, The Economist says: “The markets have been kindest to British exporters. A year ago the pound was overvalued by more than a quarter on the Big Mac gauge. Now it is close to its fair value against the dollar and looks cheap against the euro. That shift has upset some other EU countries that had relied on selling to spendthrift British consumers. But after years of struggling with an overvalued currency, British firms will feel they deserve a little mercy.”

 

 

About the Big Mac index

It is based on the theory of purchasing-power parity (PPP), which says that exchange rates should equalize the price of a basket of goods in each country. In place of a range of products The Economist uses just one item, a Big Mac hamburger, which is sold worldwide. The exchange rate that leaves a Big Mac costing the same in dollars everywhere is our fair-value benchmark.

Update: Because the above graphic is unclear, here is the table from their website:

The American Wind Symphony

This summer, the American Wind Symphony is traveling via barge around the Great Lakes performing in various communities. The orchestra is made up primarily of young university-level music majors.

I heard three different ensembles from the group perform last weekend: a woodwind quintet (including French horn), a brass quintet, and a brass sextet. They were absolutely fantastic! I was impressed by all the groups, but I was particularly enthralled by the brass quintet. The playing was sensitive and unforced, despite the outdoor setting. And the precision and tuning were perfect. I cannot recall any other time in my life when I have had tears of joy and amazement from listening to a live music performance, as I did then.

I had heard of the American Wind Symphony (Orchestra) before, but I had never heard them. At this point, I will gladly travel to hear the full group or any of their ensembles. They are absolutely amazing.

If you live or expect to be visiting anywhere near the Great Lakes this summer, check the concert schedule near you (They are in Manistique, Michigan this week). If The American Wind Symphony is on the schedule, make an effort to see and hear them. You won't regret it

Canada's Own Bernie Madoff?

I hope some vigilantes find this guy...

Quebec's financial watchdog said based on information it has collected, Jones is suspected of diverting between $30 million and $50 million in investments belonging to about 50 investors.

The regulator believes most of the investors who are affected are residents of Quebec but said some could be from elsewhere in Canada and the United States.

Jones's business appears to resemble a Ponzi scheme, it said.

Recent news reports tell of people who had mortgaged their homes to get money for him to invest for them. Hmmmm. That sounds a bit risky to me. And they will now likely lose their homes as well as their retirement savings.

Knee High by the 4th of July?

When I was growing up, we were taught that if the corn crop was knee-high by the Fourth of July, then the crop would turn out pretty well.

Over the past decade or so, Ms. Eclectic and I have been keeping tabs on the corn crop in our area, and pretty much every year, the corn has been noticeably taller than knee-high by the Fourth of July.

This year has been different though. There were a few fields where the corn might have been that tall, but for the most part the corn in this area was not knee-high by the Fourth of July. We have had a colder-than-usual spring and summer so far. The strawberry crop in our area is smaller than usual, and Ms. Eclectic's tomato plants have been very slow to flower. This is in sharp contrast to my dad's telling us that on hot summer nights in Missouri, he could hear the corn growing --- we haven't had any hot summer nights in our area yet (nightly lows in the range of 10 to 15C, where C stands for Canadian and F stands for Foreign).

If this colder summer persists, as is forecast, and if it is widespread, then I might recommend buying corn futures. But I expect others more knowledgeable and smarter than I have already taken the unusual weather into consideration and have driven the price of corn futures to an appropriate level, whatever that might be.

Update:  Phil Miller says the corn crop around Mankato was well over knee-high by the Fourth of July despite the cooler weather.