Archive for the Category Misc.

 
 

How to fix the NBA

Last night in the NBA there were three games (out of 6) where teams scored over 140 points.  Even the lowly Hawks put up 142 against OKC’s strong defense.  When regular NBA games begin to resemble the infamous 2017 All Star game, it becomes about as boring as watching someone else rack up 100,000 points playing pinball. Yawn.

The NBA needs to get rid of the three point shot, which will bring back interior defense.  Or at least move the line back a couple of feet.

I’d also like to see the NBA reduce the frequency and duration of stoppages in action.  Here are 8 suggestions for doing so, and I’m pretty sure that at least one is actually a good idea:

1.  Give officials discretion to not call 24 second violations if the defense gets the rebound and is about to start a fast break.

2. Give officials the discretion not to call a foul on a fast break when doing so would advantage the defense.  Here I’m thinking of where the defender reaches in as the player is flying by at midcourt, and fouls him but doesn’t really stop the progress toward the rim.  To avoid outright “tackles” on fast breaks, make that type of foul just as serious as the current rule for fouling from behind on a fast break.  This won’t completely stop the problem (fouls that cause turnovers would still be called), but it will lead to some additional fast breaks on “reaching” fouls.

3.  When the ball hits the top of the backboard, don’t stop play.  It will usually come down and someone can rebound it.  Ditto for “wedgies”—let players fight for the ball.

4.  Do jump balls less often.  Go back to the old rule where jump balls only occur when the tie up lasts a couple of seconds.  Don’t call jump balls on blocked shots, but also don’t call a travel if the person blocked comes back down with it.  Just keep going.

5.  No instant replay review of calls, except during stoppages like end of quarter or time outs.  It’s just a game, people.

6.  Don’t call a defensive foul when the defender is roughly straight up and the offensive player slides by on a drive, with modest contact.  I see lots of such fouls being called.  Let people play defense.

7.  Reduce the number of free throws by awarding only 2 when a three point shooter is fouled.  The penalty should fit the damage, and the damage caused to the offense by fouling a three point shooter is no worse than the damage caused by fouling someone at the rim.  The expected points lost is roughly the same.

8.  Speed up free throws.  Allow only 5 seconds to shoot, once the official hands the player the ball.

Players will get a bit more tired if the action speeds up, but then just use the bench a bit more.

Misconceptions about corporate welfare

There are many distortions in the US economy.  As a result, a decision by a corporation to move to a new area often has important spillover benefits.  Indeed this is also true of many individuals.  California would gain significant net benefits if Warren Buffett were to move here from Nebraska.  These are not good reasons, however, to oppose a national policy that discourages sweetheart deals that try to induce interstate migration.

Here’s an analogy.  The fact that Barry Bonds hit more home runs after using steroids is not a good argument against a major league ban on steroid use.  (There may be good arguments against such a ban–I’m agnostic.  But the effectiveness of steroids for individual players is not such an argument.)

Suppose that California collects $10 billion in revenue from corporate income taxes.  Also suppose that the optimal corporate tax rate is zero.  Now assume that California raises the tax rate on most corporations, in order to cut the rate on a favored few.  Revenue stays at $10 billion.  If you look at the select few beneficiaries in isolation, it might look like the subsidies make sense.  They may add net benefits to the state, even at the reduced tax rate.  But that ignores what Bastiat called “the unseen”.  The negative effect on non-favored companies.

New York may gain net benefits from attracting Amazon.  But how many firms will leave New York as a result of the higher taxes imposed on other companies, as a result of the subsidies provided to Amazon. In my view, states should compete for business and for individuals by offering an attractive economic climate for all people.

I do understand that other approaches are possible.  You could have state officials in California visit billionaires in New York, offering a 5-year income tax holidays if they moved west.  These billionaires would pay more in sales and property taxes than they’d use in public services. Meanwhile, New York officials could do the same.

Does this make sense from a national perspective?  It’s hard to see how—even if you think state income taxes are a bad idea.  For instance, this type of policy regime tends to encourage corruption.  Resources are wasted on the negotiations.  Individuals will game the system by moving around to earn tax holidays.  Companies will do the same.  Politicians are babes in the woods compared to big corporations—look how Wisconsin’s governor got taken to the cleaners by Foxconn.

Just say no.

To summarize:

1. When considering the benefits from attracting favored firms, one needs to consider the indirect effect on non-favored firms.

2. Even in the rare case where corporate sweetheart deals help a given state after accounting for the negative effect on other firms, it’s still probably in the national interest to a have a policy that discourages such deals.  As an analogy, even if monopsony power means that the optimal tariff for big countries is positive, it probably makes sense for the US and the Eurozone to sign a free trade agreement with zero tariffs.

Let’s adopt a policy of treating individuals equally, and also treating companies equally.  That policy is likely to be best in the long run, even if there are occasions where favoring a certain person or company might produce local benefits. Don’t underestimate the value of simple, clear and transparent tax regimes that treat everyone equally.

 

Saving regret

Suppose everyone were rational in their saving decisions.  Now assume that a social scientist decides to interview 10,000 people, to see if they regret how much they had saved when young.  Of this group, 8000 are old people who are still alive, 650 are in heaven, and 1350 are in hell.  The average person expresses no regret—they saved the right amount.  However, there is an interesting pattern.  On average, the 8000 living interviewees express regret for not saving more, while the 2000 who are dead express regret for saving too much when young.

This thought experiment may have some relevance to a study by Axel H. Börsch-Supan, Tabea Bucher-Koenen, Michael D. Hurd, and Susann Rohweddery, linked to by Tyler Cowen:

We define saving regret as the wish in hindsight to have saved more earlier in life. We measured saving regret and possible determinants in a survey of a probability sample of those aged 60-79. We investigate two main causes of saving regret: procrastination along with other psychological traits, and the role of shocks, both positive and negative. We find high levels of saving regret but relatively little of the variation is explained by procrastination and psychological factors. Shocks such as unemployment, health and divorce explain much more of the variation. The results have important implications for retirement saving policies.

This study excluded the dead population, and only interviewed those still living.  Further support for my “survivor bias” hypothesis comes from this finding, on page 29:

A third conclusion is that, by a number of self-assessed measures, a substantial percentage of respondents view their economic preparation to be adequate, yet they nonetheless express saving regret.

I’m unusual in having extremely strong saving regret in the other decision.  I strongly regret saving too much when young, and even when middle-aged.  (I’m now 63.)

Off topic, here’s the county where I live, and where Reagan said good Republicans go to die, in the two most recent elections:

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Wasteful interstate competition

Arms control agreements occur when there is a divergence between the interests of individual countries and the interests of countries considered as a group. It’s a way of overcoming the “prisoner’s dilemma”.   Derek Thompson discusses the concessions that Amazon was able to extract from state and local governments, and then suggests that a sort of fiscal competition disarmament is needed:

Why the hell are U.S. cities spending tens of billions of dollars to steal jobs from one another in the first place?


Every year, American cities and states spend up to $90 billion in tax breaks and cash grants to urge companies to move among states. That’s more than the federal government spends on housing, education, or infrastructure. And since cities and states can’t print money or run steep deficits, these deals take scarce resources from everything local governments would otherwise pay for, such as schools, roads, police, and prisons.

I suppose one could argue that tax breaks don’t use up real resources, but they do make the economy less efficient.  And since the location of these investments is roughly a zero sum game, this subsidy competition is wasteful from a national perspective.  If only states could come together and agree to unilaterally disarm.  Thompson suggests several promising approaches:

First, Congress could pass a national law banning this sort of corporate bribery. Mark Funkhouser, a former mayor of Kansas City, Missouri, envisions the law as the domestic version of the Foreign Corrupt Practices Act, which makes it illegal for Americans to bribe foreign officials.

It’s not entirely clear whether that would pass constitutional muster. . . .

Second, Congress could make corporate subsidies less valuable by threatening to tax state or local incentives as a special kind of income. “Congress should institute a federal tax of 100 percent” on corporate subsidies, Jack Markell, a former governor of Delaware, wrote in The New York Times.

PS.  A week ago I said:

The Dems need to adopt a “patriotism, not nationalism” theme.

French President Macron must have been reading my blog, as a few days later he suggested:

Patriotism is the exact opposite of nationalism. Nationalism is a betrayal of patriotism. By saying our interests first, who cares about the others, we erase what a nation holds dearest, what gives it life, what makes it great and what is essential: its moral values.

I like Macron.  Of course if I was French I’d hate him.  The French always hate their presidents.

Speaking of France, here’s an appropriate tweet:

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The magnificent seven

Boston, NYC, DC, Seattle, Bay Area, LA and San Diego.  What do those 7 metro areas have?  What’s their secret sauce?

Aaron Renn discusses the recent (rumored) Amazon decision to add headquarters in NYC and the DC area, and has a number of interesting observations:

Amazon chose not one but two elite coastal cities for its new headquarters.

There’s no other way to slice it: Amazon repudiated the heartland with this decision. This was probably the ideal case for a heartland choice. It was not just a small executive headquarters but a gigantic number of employees. And Amazon, having lower margins than say Google, has to be much more cost conscious. My own analysis turned on the question of whether or not Amazon would be concerned about costs. I thought they would be, but it turns out they didn’t care. No matter what subsides Amazon extracts from New York and Virginia, they certainly won’t offset the labor cost differentials in those locations.

Why not Chicago or Austin?

As one person tweeted, “A friend is the founder of a fintech company. They want to hire more college graduates to their Austin office instead of NYC. New talented recruits have multiple offers & most want to be in NYC, not Austin. Austin isn’t exactly a horrible place to live.”

At this level, cost is essentially irrelevant at present. The ability to attract A+ caliber talent is all.

That’s not to say heartland places can’t be successful in many ways. But it won’t be at the elite tiers of the economy.

The Biggest Loser

The biggest loser in this is Chicago. Chicago had the urban location, transit, a great pipeline of talent from the Big Ten, and lower costs. That’s why I picked Chicago as the favorite in my analysis. It checked every box at some level and had lower costs than the coasts to boot.

I’m too close to this to see the problem.  I grew up in the Midwest, at a time when the Midwest was quite prosperous.  I attended the University of Wisconsin and then Chicago.  The Windy City trails NYC in cultural sophistication, but it doesn’t trail the other 6 coastal stars in that regard.  Illinois has budget problems, but Texas doesn’t.  Why don’t they like us?

My wife told me I’m asking a silly question.  Of course the elite talent want to be on the coast, how could anyone think otherwise?  She has an Asian perspective, specifically Chinese.  In China, everyone wants to be in the sophisticated coastal cities, not the backward interior.  The Chinese associate the US East Coast with sophistication—Ivy League universities, etc. I’d guess the same is true of Indian immigrants.

While Asians are only 5.6% of the US population, they are 40% of the student body at elite West Coast universities.  You know, the ones that don’t discriminate on the basis of  . . . er . . . “personality”.  So maybe the Asian-American perspective does matter.

There’s plenty of work to be done by the bottom 99%, which is why the population of Dallas and Austin is growing much faster than the population of the coastal stars.  But it seems like the attraction of the coastal cities is so great that the elite talent will accept sharply lower real wages to work there.  Is it because the millennials are a post-materialistic generation?  They don’t want a 7000 sq. foot home in a Dallas suburb?  An 1800 square foot home in San Jose is plenty big for their web surfing and euro-style kitchen?  They’d rather walk to a restaurant?

Or is it some sort of environmental factor?  The West Coast is beautiful, and even the East Coast has some climate and scenery advantages over the Midwest.  Or is it cultural—once a critical mass of like-minded people form in an area, it starts snowballing? It’s obviously not crude economic factors like tax rates.

That doesn’t mean supply-side economics is wrong; the zero state income tax places are growing faster on average, just not with the top 1% talent (except Washington state.)

Are these trends important?  It’s not like the Midwest contains a bunch of dummies—they still attract the top 10% to 20% talent:

Having lived in both Chicago and New York I can tell you that the caliber of talent is as different as night and day. Chicago has a ton of solid Big Ten type recruits. They are drawing the top 10-20% type people. But Chicago is very weak in top 1-2% types, and that’s a huge handicap when you are trying to position yourself as an elite player. You can’t do it without elite talent, and Chicago doesn’t have nearly enough of it. I wouldn’t be surprised if this were the key factor for Amazon.

If Boeing didn’t have legacy investments, they’d want to be in Dallas or Chicago, not Seattle.  Elite tech firms seem different.

I encourage people to read his entire piece, and I welcome suggestions as to what I’m missing.  And then read Kevin Erdmann’s new book when it comes out in January.

PS. David Beckworth has a new podcast where he interviews me on monetary policy.  It was recorded at the University of Texas a few weeks ago.

PPS.  I feel sorry for my home state of Wisconsin.  They got conned by Foxconn into massive subsidies for a new TV flat panel manufacturing plant, and now it looks like Foxconn is backing off on its promises.  Scott Walker’s dumping the problem onto the next governor.