Category Archives: economics

The furniture sentiment

Today’s Memorial Library find:  the magazine Advertising and Selling.  The September 1912 edition features “How Furniture Could Be Better Advertised,” by Arnold Joerns, of E.J. Thiele and Co.

Joerns complains that in 1911, the average American spend $81.22 on food, $26.02 on clothes, $19.23 on intoxicants, $9.08 on tobacco, and only $6.19 on furniture.  “Do you think furniture should be on the bottom of this list?” he asks, implicitly shaking his head.  “Wouldn’t you — dealer or manufacturer — rather see it nearer the top, — say at least ahead of tobacco and intoxicants?”

Good news for furniture lovers:  by 2012, US spending on “household furnishings and equipment” was  at $1,506 per household, almost a quarter as much as we spent on food.  (To be fair, it looks like this includes computers, lawnmowers, and many other non-furniture items.)  Meanwhile, spending on alcohol is only $438.  That’s pretty interesting:  in 1911, liquor expenditures were a quarter of food expenditures; now it’s less than a tenth.  Looks like a 1911 dollar is roughly 2012$25, so the real dollars spent on alcohol aren’t that different, but we spend a lot more now on food and on furniture.

Anyway, this piece takes a spendidly nuts turn at the end, as Joerns works up a head of steam about the moral peril of discount furniture:

I do not doubt but that fewer domestic troubles would exist if people were educated to a greater understanding of the furniture sentiment.  Our young people would find more pleasure in an evening at home — if we made that home more worth while and a source of personal pride; then, perhaps, they would cease joy-riding, card-playing, or drinking and smoking in environments unhealthful to their minds and bodies.

It would even seem reasonable to assume, that if the public mind were educated to appreciate more the sentiment in furniture and its relation to the Ideal Home, we would have fewer divorces.  Home would mean more to the boys and girls of today and the men and women of tomorrow.  Obviously, if the public is permitted to lose more and more its appreciation of home sentiment, the divorce evil will grow, year by year.

Joerns proposes that the higher sort of furniture manufacturers boost their brand by advertising it, not as furniture, but as “meuble.” This seems never to have caught on.

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It will not be an easy or a simple task

From “Automation and Unemployment:  A Management Viewpoint,” by Malcolm L. Denise, vice president for labor relations, Ford Motor Company, 1962:

As a result of these developments, together with a vast growth in capital investment, we have managed to increase our productivity, as measured by output per man-hour, at an average rate of about 2.2 percent per year in the total private economy.  To permit a similar rate of productivity increase over the next fifty or sixty years, we must have new developments as dramatic, as far-reaching, as inconceivable as the developments of the past 60 years would have seemed in 1900.  Work will not soon be obsolete because we have learned how to build computers and employ electronic controls.  Indeed, it will not be an easy or a simple task even to maintain the past rate of productive increase from our present high base.

Indeed.

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Why would anyone want to become a security analyst or portfolio manager?

In today’s Wall Street Journal, Jason Zweig frets about the popularity of index funds:

If investors keep turning their money over to machines that have no opinion about which stocks or bonds are better than others, why would anyone want to become a security analyst or portfolio manager? Who will set the prices of investments? What will stop all stocks and bonds from going up and down together? Who will have the judgment and courage to step in and buy during a crash or to sell during a mania?

First of all, it hardly seems like the entire stock market is liable to become one big Vanguard fund:  as Zweig says later in the piece, “indexing accounts for 11.5% of the total value of the U.S. stock market.”  Big institutional actors have special needs which give them reason to actively manage their funds.  And an institution like Wisconsin’s pension fund, which manages about $100b, isn’t giving away 2% of its money per year to a manager, the way you or I would.  (This document says we spent $52.5 million in external management fees in 2013; percentagewise, that’s less than I give Vanguard for my index.  Update:  I screwed this up, as a commenter points out.  Our external management fees increased by $52.5m.  They present this as a substantial percentage of the total but I can’t find the actual amount of the fee.)

But second:  am I supposed to be upset if it becomes less attractive to become a portfolio manager?  One out of six Harvard seniors goes into finance.  Is that a good use of human capital?

(By the way, here’s a startling stat from that Harvard survey:  “None of the women going into finance said they would earn $90,000 or more, compared to 29 percent of men in finance.”  Is that because men are overpaid, or because we lie about our salaries the same way we lie about sex?)

 

 

 

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Ordinary business expense

From today’s NYT:

But even if Hyundai is eventually forced to pay the full amount of the damages, the punishment could be substantially reduced through a tax loophole that permits the company to save millions of dollars by deducting any court-ordered punitive damages as an ordinary business expense. The result, critics say, is that taxpayers are in effect subsidizing corporate misconduct.

What’s terrible about this isn’t that companies are allowed to claim the fines they pay for malfeasance are an ordinary business expense.  What’s terrible is that it’s true.

Update:  I misspoke, as a commenter points out.  A “fine” — that is, a penalty you pay to the government — is not deductible.  What may be deductible are punitive damages, paid to people you injured or whose river you despoiled.  Prepare your return accordingly!

Bad lesson

From the New York Times, “Why You Should Tell Your Children How Much You Make”:

When Scott Parker wanted his six offspring to know more about the value of money, he decided to do something that many parents would consider radical: show them exactly what he earned.

One day, he stopped by his local Wells Fargo branch in Encinitas, Calif., and asked to withdraw his entire monthly salary in cash. In singles. It took 24 hours for the tellers to round up that many bills, so he returned the next day and took away the $100 stacks in a canvas bag.

His oldest son, Daniel, who was 15 at the time, remembers the moment his father walked into the house and dumped the $10,000 or so on a table. “It looked like he had robbed a bank,” he said.

Parker was trying to teach his kids a lesson about the value of money.  But the lesson I would learn from this is “If somebody, like a bank teller, works in a service job, and makes a lot less money than I do, I can make them spend a full day of their life carrying out an incredibly tedious task without thinking about whether this is a reasonable way for them to spend their time.”

 

 

 

 

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Death to the 529 / long live the 529

Obama flip-flops faster than I can blog!  Prezzo has already walked back his proposal to change the 529 college-saving tax break, but I have a post about it queued up, and by gum I’m gonna publish it.

Here’s the plan that just got shelved.  From now on, capital gains on contributions you stow in a 529 plan won’t be tax free anymore — they’ll just be tax-deferred, as with a retirement plan.  In essence, it takes away a tax break whose benefit flows predominantly to high-income families (some 529 money is held by middle-income parents, but under Obama’s plan the $500 or so they’d lose on their 529 was more than offset by an AOTC expansion.)

OK, this Congress is as likely to roll back a tax break for high earners as they are to rename Reagan National Airport after Pete Seeger, so this isn’t actually happening, but I’m just saying, that’s the plan.

People are mad, and feel like they’ve been bait-and-switched. My FB feed, populated by dutiful savers like me, is full of ire. Mark Kantrowitz, in the New York Times:

He went as far as saying that the proposal could be characterized as a broken promise. “People saved money in 529 plans because of the expectation that the favorable tax treatment would continue,” he said.

But why does the New York Times let Mark Kantrowitz say this when it’s plainly not true? I saved money in a 529 plan. And the favorable tax treatment for that money will continue. When I take it out, I won’t pay a dime on any capital gains.

For money I put in later, it’s another story. But so what? If something’s on sale today, nobody’s breaking a promise to me when it’s not on sale tomorrow. I guess it’s strictly true that the proposal “could be characterized as a broken promise.” But it would be better to say it “could be characterized as a broken promise by people who don’t mind characterizing things as different things.”

A broken promise would look more like a state government defaulting on money it owes the thousands of middle-class taxpayers whose pensions it mismanaged.

 

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1. Produce defective cars 2. ? 3. Double profit!

“Profit Doubles at G.M., as It Strives to Move Past Its Litany of Recalls”:

General Motors’ quarterly earnings report on Thursday was noteworthy mostly for what it lacked: another big financial charge for safety recalls.

After running up special charges of nearly $3 billion in the first half of the year for safety problems, G.M., the nation’s biggest automaker, avoided additional charges for recalls in the third quarter.

While G.M. did incur $700 million in costs for fixing recalled vehicles during the quarter, the company had already booked those charges in previous periods….

By accounting for the bulk of its recall costs in the first half of the year, G.M. has turned a corner — at least financially — in its struggle to move beyond the worst safety crisis in its history.

So let me make sure I understand this:  GM is still blowing trainloads of cash fixing its mistakes, but they decided to declare that the money they’re spending now was actually spent earlier in the year, so that their official profit in the first half is below the real figure, and their official profit for the third quarter is above the real figure, and then they get a sunny headline in the New York Times saying they “doubled their profit?”

My grandfather the CPA would not approve.

 

 

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August linkdump

  • The company that makes OldReader, the RSS reader I fled to after the sad demise of Google Reader, is from Madison!  OK, Middleton.  Still part of Silicon Isthmus.
  • I never new that Mark Alan Stamaty, one of my favorite cartoonists, did the cover of the first They Might Be Giants album.
  • Hey I keep saying this and now Allison Schrager has written an article about it for Bloomberg.  Tenure is a form of compensation.  If you think tenure is a bad way to pay teachers, and that compensation is best in the form of dollars, that’s fine; but if California pretends that the elimination of tenure isn’t a massive pay cut for teachers, they’re making a basic economic mistake.
  • New “hot hand” paper by Brett Green and Jeffrey Zweibel, about the hot hand for batters in baseball.  They say it’s there!  And they echo a point I make in the book (which I learned from Bob Wardrop) — some of the “no such thing as the hot hand” studies are way too low-power to detect a hot hand of any realistic size.
  • Matt Baker goes outside the circle of number theory and blogs about real numbers, axioms, and games.  Daring!  Matt also has a very cool new paper with Yao Wang about spanning trees as torsors for the sandpile group; but I want that to have its own blog entry once I’ve actually read it!
  • Lyndon Hardy wrote a fantasy series I adored as a kid, Master of the Five Magics.  I didn’t know that, as an undergrad, he was the mastermind of the Great Caltech Rose Bowl Hoax.  Now that is a life well spent.
  • Do you know how many players with at least 20 hits in a season have had more than half their hits be home runs?  Just two:  Mark McGwire in 2001 and Frank Thomas in 2005.
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Where are people buying How Not To Be Wrong?

Amazon Author Central shows you Bookscan sales for your books broken down by metropolitan statistical area.  (BookScan tracks most hardcover sales, but not e-book sales.)  This allows me to see which MSAs are buying the most and fewest copies, per capita, of How Not To Be Wrong.  Unsurprisingly, Madison has by far the highest number of copies of HNTBW per person.  But Burlington, VT is not far behind!  Then there’s a big drop, until you get down to DC, SF, Boston, and Seattle, each of which still bought more than twice as many copies per person as the median MSA.

Where do people not want the book?  Lowest sales per capita are in Miami.  They also have little use for me in Los Angeles, Atlanta, and Houston.  Note that for reasons of time I only looked at the 30 MSAs that sold the most copies of the book; going farther down that list, there are more pretty big cities where the book is unpopular, like Tampa, Charlotte, San Antonio, and Orlando.

It would be interesting to compare the sales figures, not to population, but to overall hardcover book sales.  But I couldn’t find this information broken down by city.

 

Sympathy for Scott Walker

The Milwaukee Journal-Sentinel suggests that the slow pace of job creation in Wisconsin, not recall campaign shenanigans, may be Scott Walker’s real enemy in his upcoming re-election campaign:

In each of Walker’s first three years, Wisconsin has added private-sector jobs more slowly than the nation as whole, and the gap is sizable. Wisconsin has averaged 1.3% in annual private-sector job growth since 2010; the national average has been 2.1%. Wisconsin’s ranking in private-sector job growth was 35 among the 50 states in 2011, 36 in 2012 and 37 in 2013.

Combining the first three years of Walker’s term, the state ranks behind all its closest and most comparable Midwest neighbors: Michigan (6 of 50), Indiana (15), Minnesota (20), Ohio (25), Iowa (28) and Illinois (33).

I think this is slightly unfair to Walker!  Part of the reason Michigan is doing so well in job growth since 2010 is that Michigan was hammered so very, very hard by the recession.  It had more room to grow.  Indiana’s unemployment rate was roughly similar to Wisconsin’s in the years leading up to the crash, but shot up to 10.8% as the economy bottomed out (WI never went over 9.2%.)  Now Indiana and Wisconsin are about even again.

But I do mean slightly unfair.  After all, Walker ran on a change platform, arguing that Jim Doyle’s administration had tanked the state’s economy.  In fact, Wisconsin weathered the recession much better than a lot of our neighbor states did.  (The last years Wisconsin was above the median for private-sector job growth?  2008 and 2010, both under Doyle.)   There’s some karmic fairness at play, should that fact come back to make Walker look like a weak job creator compared to his fellow governors.

 

 

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