Archive for the Category Misc.

 
 

Three cheers for the NBA draft

I know that this blog is supposed to be about economics, so let me start off by pretending to discuss economics, before getting to the interesting stuff, tonight’s NBA draft.

No, the draft is not unfair.  No, it doesn’t violate antitrust rules.  Although NBA teams compete in an athetic sense, they don’t compete in an economic sense—they cooperate.  The economic competitors to the Chicago Bulls are not the San Antonio Spurs, the competitors are the Chicago Blackhawks, Chicago area movie theaters and nightclubs, and Chicago area TV programming.  It helps to think of the NBA as a single firm, with lots of franchises, which collaborate to produce the most entertaining product possible–in a vastly larger entertainment “industry”.  I’ve never heard anyone complain that Cirque du Soleil is violating antitrust laws if they assign acrobats to one of their 19 stylish circuses.

For NBA fans, the draft is very interesting precisely because a single player can make a much bigger difference in basketball than in the other major team sports.  No quarterback or pitcher, no matter how good, could take a bunch of misfits to the championship series the way Lebron did this year.  And now that the best players come out early, there’s a lot of uncertainty as to how good they’ll end up being once they get to the NBA.

Today I’d like to point to a possible inefficiency or bias in the drafting process.  Teams picking at the top (say the first or second pick) seem to overrate the importance of big men.  Non-basketball fans might be wondering what I mean, aren’t all basketball players “big men?”  It’s relative, I’m talking mostly about centers, or very big power forwards.  I looked back over the drafts since 1965, and didn’t find a single example where a team picked a small guy at one or two over a big guy, and strongly regretted it.  In contrast, there are 9 cases of where a team picked a big guy over a small guy, and clearly regretted it.  (And there probably would have been 10 if Len Bias hadn’t died.)  I looked at picks one and two over picks two or three—obviously if you look at the entire draft you can find hidden gems, I’m looking at a choice between the top few prospects.

Even worse, the NBA is rapidly evolving in the direction of centers being unimportant.  In the recent playoffs, teams would often go without any center at the end of games, when it mattered most.  The team that won the championship was able to do this for long periods, without the big men on the other team being able to take advantage.  So this is an even stronger argument to draft small.  And yet once again, the top pick and probably the top two picks are expected to be big men.

Here are some botched draft picks, big over small:

1966:  Bill Buntin (2) over Gail Goodrich (3)

1984:  Sam Bowie (2) over Jordan (3)

1990:  Derrick Coleman (1) over Gary Payton (2)

1998:  Michael Olowokandi (1) over Mike Bibby (2)

2001:  Kwame Brown  (1) over anybody

2003:  Darko Milicic (2) over Carmelo (3) Bosh (4) and Wade (5)

2005:  Andrew Bogut (1) over Deron Williams (3) and Chris Paul (4)

2007:  Greg Oden (1) over Kevin Durant (2)

2009:   Hasheem Thabeet (2) over James Harden (3)

If you define “bigs” more generously, you have one possible error in 2011, when Evan Turner (2) went ahead of Derrick Favors (3).  Favors has finally emerged as arguably the better player.  But then what about 2013, where the semi-big Anthony Bennett (1) went ahead of Oladipo (2)?

If the Lakers take Russell over Okafor and it doesn’t pan out, it would be the first time in at least 50 years that this happened.

BTW, I vote for OKC having the best string of drafts ever, getting Durant (2) Westbrook (4) and Harden (3) in three consecutive drafts, arguably three of the top 6 players in the league right now.  (The others are obviously Lebron, Curry and AD.) Too bad OKC traded Harden.

Because I’m a Wisconsin fan you might be wondering what I think of our two prospects.  The most notable aspect of Kaminsky is how bad he was in his first couple years, and how rapidly he improved in his final two.  He started out as a guard in high school, and can do a lot of things pretty well.  Fits well in the new NBA, which emphasizes the 3 over traditional centers.  Dekker has a higher ceiling than Kaminsky but a lower floor.  It all depends whether he can consistently hit the three.  Don’t pay attention to lazy pundits who always compare people to other players of the same race; Dekker’s closest comp may be Richard Jefferson.  He’s surprisingly effective in the open floor, especially when driving to the basket.

PS.  Think drafting is easy?  Take a look at picks 11 through 16 in 2008, and then picks 21 through 26 from the same draft:

11-16:  Jerryd Bayless, Jason Thompson, Brandon Rush, Anthony Randolph, Robin Lopez, Marreese Speights

21-26:  Ryan Anderson, Courtney Lee, Kosta Koufos, Serge Ibaka, Nicolas Batum, George Hill

Which 6 would you rather have?

PPS.  I’m opposed to the current draft lottery for obvious tanking reasons.  I favor all of the non-playoff teams having an equal chance for any of the first 14 slots.  Philadelphia is a disgrace to professional sports.

PPPS.  I don’t like the 3 point shot—makes games too one dimensional.  Reminds me of the way tennis was ruined when changes in technology made it impossible to employ the wide variety of shots that McEnroe used to use.

Are the Democrats increasingly becoming just a bunch of socialists?

I don’t believe so, although the term ‘socialism’ (like capitalism) is so vague that I find it almost meaningless.

But public opinion polls suggest that Democrats are becoming more socialist.

And, by the way, Sanders’s self-identification as a “socialist” no longer marks him as extreme, at least to Democrats. Forty-three percent of Democrats say they approve of socialism, the same percentage who like capitalism. The public, to say the least, does not agree: By a margin of two to one, they preferred capitalism to socialism in a May YouGov poll.

So why don’t I think the Dems are becoming a bunch of socialists?  Because I don’t believe public opinion polls measure public opinion.  Indeed I don’t think public opinion exists in the sense that most people think it exists.  I doubt that as much as 43% of the American public even knows what terms like “socialism”, “inflation”, “NGDP growth”, “unemployment”, “quantitative easing”, and “the Fed” mean.  If the GOP insists that Obamacare is socialism, is it any surprise that Dems increasingly call themselves socialist?

Now of course many people disagree with me.  But here’s something for progressives to think about.  Suppose you hear Rush Limbaugh complaining that the Democrats are increasingly dominated by socialists.  Your first reaction might be to accuse him of McCarthyism, or red-baiting.  But would that be fair, at least is it fair if you actually believe in public opinion polls?  Would it be fair to argue that Limbaugh is a red-baiter and at the same time argue that, “polls show the public supports a higher minimum wage.”  I guarantee I could design a poll question that shows the public prefers a higher EITC to a higher minimum wage rate.  It’s all in the framing effects.

You need to take the sweet with the sour.  Either polls are believable or they aren’t. If you insist on giving credence to polls of public opinion, then you need to start calling the Dems a bunch of socialists.

PS.  Just to be clear, I believe polls on voting intentions are much more accurate, as the question of which way you will vote in an election is relatively well defined.

Hovers and Hoovers

I thought the following observation was sort of related to my recent posts on CommodityAmerica and InfoAmerica. (This from the FT):

In the past, Chicago acted as the locomotive of its hinterlands — in Mr Longworth’s words — buying the Midwest’s farm produce and other raw commodities and then converting them into products. The city was linked umbilically to its surrounding geography and vice versa. Today, it mostly hovers above its hinterlands. But in some ways it is also parasitic on them. Much like the giant sucking sound of London hoovering up the UK’s talent, Chicago takes the best and the brightest from the small towns of America and plugs them into the global economy. Chicago’s success is no longer symbiotic with its rural neighbours. In some ways it comes at their expense.

Hovers and hoovers.  I’m seeing a sci-fi movie with vast circular cities that float 1000 feet up in the air, populated by the elite and with long tubes sucking the resources from below, produced by the lower classes.  Or did H.G. Wells already write that story?

Off topic:  I’m looking for links to Fed officials saying that they were easing policy in late 2012 because of worries about the fiscal cliff.  I recall reading that sort of thing, but can’t find a link.

Digital deflation? Not an attractive idea

Commenter Morgan Warstler keeps insisting that I’m dense because I don’t see the glorious digital revolution, which is transforming our lives and dramatically raising living standards.  If only I could see that the actual price level is falling, if we took account of all the free goodies provided by the internet.  Here’s me and then Morgan’s response:

“Morgan, OK, tell me how fast real consumption is rising, to within 3 decimal points. Show your work.”

Sure!

The invisible real consumption measure is this:

How much less money will you live with today to not have to live yesterday without access to today’s things?

Whatever you attribute to “money illusion” there is a greater gravity pulling the another way.

I don’t deny Money Illusion has a short term weighted value. But I don’t need 10 years to show digital deflation.

Since 2008, measuring real consumption, the quality of American (not easy to benefit 3rd worlders) life has increased at a pace faster than ANY 7 years period pre-Internet in American history.

So here’s my work:

1. Scott Sumner finds the best 7 years in real consumption in American history pre-1994.

2. 2008-today is rising faster than that.

And that’s when he’s being relatively sober, other times he seems like a cross between Gollum and a dominatrix:

“Morgan, There’s is nothing to win because it doesn’t matter what the numbers are; these are just statistics pulled out of thin air. Only NGDP is real. And NGDP growth is slowing.”

SORRY SCOTT

Your precious is a little b*tch compared to mine.

REAL CONSUMPTION measures in Digital > Atomic is the highest moral metric.

YOUR JOB is to argue that your precious at X% best services my precious.

So why am I wasting your time with this?  Because even Martin Feldstein, the most unMorgan-like creature in the entire universe, seems to feel the same way.  This is John Cochrane responding to Feldstein:

Martin Feldstein has an interesting Op-Ed in the Wall Street Journal, “Why the U.S. Underestimates Growth.”

The basic idea is that inflation may be overstated, because it doesn’t do a good job of handling new products. As a result, real output growth may be a bit stronger than measured.  Marty runs through a lot of sensible conclusions.

He doesn’t talk about monetary policy, but that’s interesting too. So what if inflation really is (say) 3% lower than we think it is, and therefore real output growth is 3% larger than it really is?

That would mean we are a lot closer to “normal” of course.

So why am I still skeptical?

1.  From 1995 to 2004, productivity and real GDP rose at an unusually rapid rate.  The IT cheerleaders told us that this fast productivity growth was the long delayed fruits of the IT revolution.  Now we have very slow growth, and the digiterati tell us it’s also caused by the IT revolution, which is generating lots of stuff that doesn’t get picked up in the output data, because it’s free.  While I’m impressed by an explanation that’s as flexible as a circus contortionist, I’d prefer something that isn’t consistent with any possible state of the universe.  I’m no Popperian, but I like my theories to be at least a little bit falsifiable.

2.  Much of this discussion proceeds as if economists have some sort of clear concept in mind when they talk about the price level.  We are led to believe that if only we had God-like powers to know everything, we could determine the “true” rate of inflation.  Not so, economists have never even figured out what inflation is supposed to measure, in a world where product quality is constantly changing.  Is it supposed to be the extra income you’d need today to be just as happy as the average person was in 1950?  That’s one definition, but that’s not what we are doing.  And if you look at what we are actually doing, it has no theoretical justification anywhere in economic theory.

3.  Yes, I agree, fuzzy concepts can be useful.  I have no problem with someone saying Britain’s inflation was about 20% in 1980, and 1% today.  That’s a fuzzy statement, but it is sort of useful.  But for debates about digital deflation to be useful, we need a far better idea of what inflation is supposed to measure.  Do most people really feel that a constant nominal salary now means a rising standard of living?  If so, I’d expect to see a groundswell of support for cutting the minimum wage, to below $7.25 an hour.  After all, a lower nominal income would provide just as good a standard of living, since the poor can now see lots of beautiful pictures of food on the internet.  And now they can travel using Uber!  Seriously, I think the average person would find the idea of digital deflation to be absurd.  On the other hand I’ve never been stopped from believing something just because the average person finds the idea absurd.

4.  With the atomic world, there was a sort of logic connecting more stuff with higher living standards.  More food, a washing machine, a TV and telephone.  But with the digital world “more” begins to seem rather monotonous.  I used to really enjoy reading magazines.  I recall occasionally leaving a barbershop or doctor’s office and secretly wanting to finish a National Geographic article I had started on while waiting.  I only held back because I didn’t want to look “weird” to the receptionist.  Information was really enjoyable because it was so scarce.  Now there’s a sort of infinite magazine at my fingertips.  And it’s all a bit too much.  Travelling used to be about discovery, strange new worlds you’d never seen.  Now it’s  “Yup, Costa Rica looks just like it did on the internet while I was planning the trip.”  And what about the negatives, the constant annoyance of your computer freezing up, or losing a long email that you had almost finished typing, and hadn’t saved.

5.  Revealed preference?  OK, I like that argument as much as the next guy.  But who’s to say it’s not like being a heroin addict.  Just got to check one more site before I go to bed, the 10 best places to retire, and then suddenly it’s 1 am.

Again, the price level and RGDP don’t matter, only NGDP matters.  I suppose it’s interesting to ask whether our living standards are improving, if we had any sort of semi-objective way of doing so.  But as far as I can tell we don’t have one, and most economists are oblivious to the fact that we don’t have one.  That makes debates over the “true” rate of inflation quite tedious, like people who debate how good a basketball player Bill Russell would be today, without actually having even a clue as to how one would come up with a meaningful answer.

PS.  In previous posts I’ve argued that living standards are clearly much higher than in 1973, so I also don’t agree with the opposite extreme, who say real wages aren’t rising at all.

PPS.  I’ve never bought a cell phone, but instead have been using old discarded ones.  November 29 I get a free iPhone 6 plus.  I’ll let you know if it brings me great happiness.  I know Morgan will be pleased.

 

I beg of you, listen to Reason

Here’s Virginia Postrel:

Wielding subpoenas demanding information on anonymous commenters, the government is harassing a respected journalism site that dissents from its policies. The U.S. Attorney’s Office for the Southern District of New York claims these comments could constitute violent threats, even though they’re clearly hyperbolic political rhetoric.

This is happening in America — weirdly, to a site I founded, and one whose commenters often earned my public contempt.

Los Angeles legal blogger Ken White has obtained a grand jury subpoena issued to Reason.com, the online home of the libertarian magazine I edited throughout the 1990s. The subpoena seeks information about commenters who posted in response to an articleby the site’s editor Nick Gillespie about the letter that Silk Road founder Ross Ulbricht wrote to Judge Katherine B. Forrest before she sentenced him to life in prison without parole. Ulbricht was convictedof seven felony charges, included conspiracies to traffic in narcotics and launder money, and faced a minimum sentence of 20 years in prison. The letter was an appeal for leniency.

Gillespie, who declined to comment on the subpoena, aptly described the letter as “haunting.” In it, Ulbricht expressed the libertarian ideals he said animated his creation of Silk Road — the same ideals that Reason upholds. The portion Gillespie reproduced reads:

I created Silk Road because I thought the idea for the website itself had value, and that bringing Silk Road into being was the right thing to do. I believed at the time that people should have the right to buy and sell whatever they wanted so long as they weren’t hurting anyone else. However, I’ve learned since then that taking immediate actions on one’s beliefs, without taking the necessary time to really think them through, can have disastrous consequences. Silk Road turned out to be a very naive and costly idea that I deeply regret.

Silk Road was supposed to be about giving people the freedom to make their own choices, to pursue their own happiness, however they individually saw fit. What it turned into was, in part, a convenient way for people to satisfy their drug addictions. I do not and never have advocated the abuse of drugs. I learned from Silk Road that when you give people freedom, you don’t know what they’ll do with it. While I still don’t think people should be denied the right to make this decision for themselves, I never sought to create a site that would provide another avenue for people to feed their addictions. Had I been more mature, or more patient, or even more worldly then, I would have done things differently.

The letter depicts Silk Road as an attempt to bring libertarian ideals into the real world — a virtual version of the seasteading schemes for new countries, hopelessly naive, perhaps, but certainly not evil in its intentions.

Judge Forrest handed down a sentence even more draconian thanprosecutors had sought and made a point of condemning Ulbricht’s political views. “In the world you created over time, democracy didn’t exist,” she said. “Silk Road’s birth and presence asserted that its…creator was better than the laws of this country. This is deeply troubling, terribly misguided, and very dangerous.”

Whatever you think of Ulbricht or Silk Road, you can see why libertarians might be upset. A federal judge has just made the belief that it’s good for people to have “the freedom to make their own choices, to pursue their own happiness, however they individually saw fit” part of her justification for the most punitive sentence short of the death penalty. Her rationale offends libertarians on two grounds: It punishes political views and it punishes their particular political views.

In the future, selling pot will be legal in all 50 states.  Historians will look back in disbelief that 400,000 people were in prison for using and selling drugs.  They’ll read about Republican politicians who only began worrying about dirty needles when it affected their voters.  They’ll read about Democratic politicians who were more interested in inequality, gay marriage and a few hundred terrorists in Guantanamo than in 400,000 people (disproportionately African American) in prison for engaging in capitalism between consenting adults.  People like Ulbricht (and Ed Snowden) will be viewed as martyrs. Both parties (and much of the media) are so corrupt, so authoritarian, that the voters are finally rising up in one state after another.  It’s a pretty sad state of affairs when the masses have more enlightened views on criminal justice than the elites.

Update:  Some commenters thought I was implying that gay rights are not important.  On the contrary, I think they are very important.  But I think that right now the war on drugs is a far more important problem.  In 1950 I would have argued (I would hope) that gay rights were a far more pressing issue than the war on drugs.

PS.  Five more states will vote on pot legalization in 2016, including California.

PPS.  Legislators don’t want to legalize drugs because of the political clout of the prison industrial complex.  Something similar is at work in taxes. Everyone from Jeb Bush to Barack Obama has endorsed the Estonian approach to taxes, which is so simple that people don’t need to hire expensive (and incompetent) tax preparers.  But it has no chance of passing because of corrupt legislators:

Sounds wonderful — maybe it’s something the United States could benefit from?

Well, as it turns out, President Barack Obama proposed something much like this during his 2008 campaign. Obama said he would direct the IRS to “give taxpayers the option of a pre-filled tax form to verify, sign and return to the IRS or online. This will eliminate the need for Americans to hire expensive tax preparers and to gather information that the federal government already has on file.”

But a funny thing happened on the way to enactment: Crickets. PolitiFact rated it a Promise Broken.

Why? According to the Sunlight Foundation, “companies that prepare taxes are throwing millions at Congress to oppose making tax filing easier.” The foundation writes that the companies “warn that IRS-prepared returns will cost millions to develop and will result in more filing errors and missed refunds for taxpayers. Grover Norquist, president of Americans for Tax Reform … calls the system ‘a money-grab by the government’ and points out the conflict of interest that arises from a tax collector like the IRS preparing taxpayers’ returns.”

If you win the presidency, Gov. Bush, you’ll get your chance to make it happen.

Our ruling

Bush said “you can fill out your tax return in Estonia online in five minutes.” If anything, Estonian tax filers tell us, it takes even less than that. We rate Bush’s claim True.

There is almost no chance of this sort of tax reform in the near future.  The only way it could get enacted is if we had a democratic political system like Switzerland, and voters could pass a referendum simplifying taxes.

PPPS. Why do I say that tax preparers are incompetent?  I know a couple 90 year olds who had “professionals” do their taxes.  The total tax bill was $12,000, and they sent the money to the IRS.  I suggested they hire someone else, and file an amended return.  Their actual tax bill was zero.  The problem?  The first tax preparer assumed that the entire sale price of a standard diversified mutual stock fund bought in 2005 and sold in 2010 was profit.  100%.  That’s our system in a nutshell.

End of rant.