Runs In Transit

Category: Economics

The Uncomfortableness of Sitting in a Cafe

I don’t like going to places in public. To be fair, I don’t like going to places that sell things. The incentives are screwy. Take a cafe for example. You might go to a cafe for the coffee and the atmosphere. But you can’t just sit and enjoy the atmosphere, at least not without being repugnant to the owner. A cafe is a business, and your occupation of space costs them money. To be a good patron, a rule of thumb is to buy something every hour, but this may not even reflect your true costs. When a cafe is busy, the value of a seat can be well over $20 an hour. Enjoying a cafe with this in mind is impossible for some, and the only ones who can must be ignorant to some degree (think people who work all day in a cafe. On a side, it’s got to be one of the most distracting places to work).  Occupying a seat creates externalities for everyone around them. For those who dislike feeling like a burden, places like libraries and parks are much more enjoyable places to relax, but there never seems to be enough of them.

A private solution is to charge per time spent at a cafe. Now, point of purchase technology allows your phone and cards to pay passively. Think a location sensor that monitors how long you spend in a location, or a timer that clocks you in. When you leave, the payment occurs and reflects your exact usage. This would remove the need to be conscious of buying items and charge customers appropriately, allowing people who value the cafe more to be able to utilize it during busy hours. From the business’s perspective, there is no need to ask loitering patrons to ever leave, which has got to be the most uncomfortable thing to do, and profits may increase as capacity is utilized efficiently with prices adjusting due to demand. For consumers, the prices of drinks and food may decrease because these items don’t reflect the cost of overhead, finding a cafe is easier, and grabbing a coffee to go becomes much cheaper.

I would love to see this and other pay-what-you-use methods in real life, ranging from traffic congestion to trash usage. Socially, these might be be viewed as unacceptable, but I think it’s too early to call them unfeasible until they’re applied on a large scale. If the benefits of people paying for the externalities they cause are significant and noticeable, then we may all find it an improvement to live in a world where our activities are paid for directly. PariCafe_428x269_to_468x312.jpg

The Value-Added of Going to Penn State… is Negative?

The Economist just released its first ever college rankings. Unlike most rankings, they use one criteria: value added, the earnings of graduates minus what they’re expected to earn anyway.

One of the most discussed topic in economics is whether education improves earnings. On the surface, it’s obvious: in 2010, men with a high school diploma earned a median income of $32,800. With a bachelor’s degree, their median income was $49,800. The problem is it’s impossible to determine whether or not those people would have made just as much anyway. A third variable, ability, is likely causing both but is impossible to determine. To estimate this, the Economist regresses SAT scores, race breakdown, college size, etc., to predict the expected income of students and compares it to what they actually make.

The top school? Washington and Lee University with a value added of $22,377. Surprisingly, my alma mater, Penn State, ranked a paltry 1045 with a value added of $-3,024.

Is this measure flawed? Of course. It’s impossible to quantify the value of going to a college in one number because there are a multitude of factors that contribute to school quality. A few reasons Penn State ranks so low:

  1. The rankings only use data from students who applied for federal aid. This skews the rankings towards schools with a high percentage of less well off students. Tuition to Penn State is $31,346 and federal aid is given sparingly, meaning lots of well off parents who fund their students tuition are left out of the data.
  2. Penn State is combined with all their branch campuses. There are 25 total campuses that serve 100,000 students, including World Campus, an online campus. Most branches operate as a feeder into the flagship campus University Park. Because the quality differs so much between campuses, combining them all biases the estimates downwards.
  3. The rankings aggregate across subjects and degrees. Penn State is a research university with lots of grad students. Looking at the income of the average student in ten years isn’t accurate because many of these students will stay in school and have income trajectories that peak much later in their lives (think doctors and professors).

There are plenty other reasons the rankings aren’t accurate. For one, peer effects, including networking, aren’t taken into account. Penn State has 645,000 alumni spread around the world, and the benefit of being in a network that large are huge and last an entire career.

I’m not saying there’s no value in these rankings. I think looking at education through a different lens is needed. As tuition skyrockets and a higher degree becomes necessary to compete, these questions need to be asked. Maybe the value-added of going to a school is the most important factor in school choice. As for my alma mater, you may not add as much monetary value as many schools, but it’s definitely far from negative. psu_2010-17-1

One-Child? No Problem

This week, China announced it is ending the controversial One-Child policy and replacing it with a Two-Child policy. Almost four decades since its inception in 1979, it’s been long overdue. Apart from being a social travesty, China’s fertility rate is now 1.66 which is lower than even that of the US’s. A growing population is necessary to sustain economic growth, and this change is likely too late to save a slowing Chinese economy. What’s more interesting are the social effects of this policy change.

I am a product of China’s One-Child Policy. When my parents had me in 1993, they were ecstatic I was a boy, their one chance at passing down the family name and their ticket to a prosperous retirement. It’s crazy to think they had only one shot to do it right. Their future was immaculately placed in the life of one baby along with all their hopes and ambitions. And this was probably how they planned it to be-have one child and invest everything into raising it.

The consequences of this situation are not trivial. Having less children increases the resources that child gets. In the US, we’re used to viewing children as a consumption good that brings us happiness. Naturally, we want their lives to be of high quality and having children for the sake of quantity is an afterthought. In China, the culture has always been to have a lot of children who would one day support you. This has changed markedly in the last few decades due to rapid economic development, but also partly because of this policy.

The One-Child policy made China society more educated. My parents invested a lot of money into making sure I got a great education, along with experiences, material goods, and emotional support. It costs 414,000 RMB ($67,410) to raise a child to 18 years old in China, which is 43% of the average household income in China. It’s not certain they could have raised two children at the same time without sacrificing the quality of one or both children’s lives.

In some ways, I have the One-Child policy to thank for the life I lived. On the other hand, I could have had a sibling who would have added great value to my life. Seven years later, my family moved to the US and had my sister. They certainly wanted more than one child and were ecstatic at having a boy and a girl. What would have our family been like without the policy? I can ponder, but the fact is that 400 million children were not born as a result of this policy, and it’s very possible one of them could have been my brother or sister.

It’s not worth delving into the what-ifs of life, but it is interesting to look at the now. What shape will Chinese society take following this change? How long will it be before China starts encouraging having more children? Will Chinese culture shift westward? Time will tell, but one things for sure, whatever social changes take hold in China will have a drastic impact on the world, and we should watch closely.

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Rock on kid. The future is still bright.

Apartment Hunting in Toronto

Find an apartment is difficult. Especially if you’re moving to a big city, and especially if that city’s name is Toronto.

Toronto’s in a housing boom. The average price of a home just surpassed 1 million and is not relenting. Like the US in the 2000’s, Canada had a housing bubble, but unlike the U.S., it didn’t pop in 2008. Rather, it just dipped its toes in recession.

canada housing bubble 2015

So what’s a grad student to do? Look for basements and efficiencies, stock up on ramen and PBJs, and save some USD to bring over (the one nice thing about moving is a strong dollar). See you soon T-Dot.

The West is the Best: The Cultural Cost of Globalization

Going to Europe from the US is an almost nonexistent distinction. Besides seeing people drink outside, bathrooms that cost money, and different symbols for currency, there is no culture shock. The West is the West, and its culture has been the dominating influence of the world for decades. If you want to experience a different culture, you have to get a lot further than Eastern Europe, which looks a lot more like Western Europe every day.

The trend is clear. As globalization, capitalism, and industrialization spread and allow us to have more goods, live longer lives, and spend more leisure time, all measures of a higher standard of living, we undoubtedly have to sacrifice the things that distinguish us from each other. As English becomes the universal language of the internet and business, lesser used languages are sacrificed. Customs, traditions, and our senses of identity, slowly die as we pave way for a uniform world.

The effects of homogenization are undeniable. They can be seen in the people holding iPhones, wearing H&M clothes, and going to the gym. Even if these things make us happier, are they goals worth obtaining? At what point do we have a collective responsibility to slow economic growth in order to preserve the past. Should we spend time and energy learning languages that help us understand past cultures, or is that the responsibility of historians, anthropologists, and archaeologists alone?

It’s possible that no one has the correct answer, but these are questions that we should ask and discuss every day, because at some point, it might be too late.

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The Job Market for College Grads

The US economy is at an interesting cross-roads. The effects of the 2008 recession were massive and lingered much longer than the duration of the financial crisis. Unemployment reached a peak of 10% in 2009, but today it is 5.6% and dropping rapidly. I’m no macro-economist, but I do have a good understanding of what this means for the job market.

You see, many people might think that with hard work and determination, we have full control of our lives and careers. That’s simply not true. College students who graduated between 2008 and 2014 entered the job market to an ultra-competitive job market marked by scarcity. Companies who were ravaged by the recession were hesitant to hire employees that weren’t essential. Older workers who were preparing for retirement saw their pensions shrink and decided to keep working at their positions. Middle aged workers with secure jobs were suddenly laid off and had to find jobs much lower-paying jobs. For college graduates who didn’t go to elite schools, this meant little to no chance of finding an entry-level job with good career prospects – they simply weren’t competitive.

On the other hand, if you graduated in the mid 2000’s, you entered the job market when the US economy was growing at an unprecedented rate. The unemployment rate was as low as it could get realistically (around 4%) and companies were desperate for smart young professionals whether they had experience or not. Employees were in high demand, and wages were high. If you couldn’t get a job in 2004-2007, then you were either an English major from a low tier school or hopelessly incompetent. This was a dream period, and those that found jobs then were set up for great careers.

But unfortunately, if your parents had you a few years later, then you would face economic turmoil. Your resume paled in comparison to desperate workers with a decade of relevant experience. Service jobs became a temporary necessity and graduate school seemed like a good option. Suddenly, your whole mental structure of life: go to school, get a job, and start a family, was cut prematurely. This can be daunting, even shattering. But today, you’re in luck. The unemployment rate is going back to 2004 levels and the US economy is on pace to have its strongest decade of growth since the turn of the century. If you tried to enter the workforce during this period, hopefully the recession didn’t hit you too hard and you didn’t have to settle for a job at Cubicle Co. filing paperwork. Even if you did, this is a great opportunity to turn things around. But how, you might ask?

Well… like most things, it depends, both on your goals and abilities, but here’s an anecdote that may help. You want to do something you’re passionate about, right? That way you have the motivation to pour everything you have into your work and become the best in your field. Now do it. The thing is, technology is so prevalent that you have no excuse to do something about your passions. The camera on your smartphone is amazing. If you love film, make a movie with it. Do you enjoy boxing? Make youtube videos analyzing boxing matches. The alternative is selling yourself on the job market with nothing but a resume. An employer doesn’t see your potential, and you won’t get your worth-you won’t even get freedom. I believe the economy is moving toward increased specialization on the level of the individual. Produce what your dream job entails and keep doing it. If you really love it, you will get good, people will come to you, and you will be discovered. Companies will offer you money to do the exact same thing for them, and you will get your true value.

Of course, this is an anecdote and does not apply universally, but the fundamental idea stands true. The economy is on the upswing and the supply of jobs is increasing. You won’t have companies fighting over you, at least not any time soon. But don’t wait for the “perfect time”, now is the perfect time. If you like economics, like me, go ahead and learn the shit out of it and produce something out of it. Make videos, write articles, record podcasts-everything you need is at your fingertips. And if you’re not motivated to do that, then you might not deserve to get your dream job.

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Ah, what a beautiful trend-line.

The Life of a Delivery Driver

Two months ago, I got a job as a delivery driver and have been working 10-20 hours a week. It’s been interesting. As someone with a college degree, I’m certainly overqualified, but nevertheless, it’s a good job to pay for consumption, gets me off the computer, and gives me time to ruminate. Here are some insights:

I work for a top 5 tech based delivery startup. They specialize in small markets such as college towns and use GPS and mobile applications to streamline their deliveries. They are desperately trying to be like Uber and Airbnb in that they try to be “share” economies. In their contracts they call their drivers “partners” and stress that drivers don’t work for them but are independent (drivers definitely do work for them, they just want to avoid liabilities and performing extra administration). All in all, they are a startup with medium potential (they generated a few million in venture capital). Although the business has low profit margins, there are many markets out there and they have room for growth. However, I don’t think the company will reach a large level because there is stiff competition from bigger companies, the nature of deliveries means there is a low profit limit, and the founders aren’t as innovative as Uber and Airbnb and are simply following the footsteps of successful companies.

I am a driver in the companies biggest market. I perform deliveries for a dozen restaurants from Mcdonald’s to Chili’s. I receive my orders through text on my phone and update my delivery status to the company through an app. When I don’t have an order I can chill out and do whatever. Every delivery I make a flat rate of $3 and keep 80% of the tip, unless it’s cash-then I keep it all. Minimum wage is $12 if I don’t make more than that. I also pay for my own gas.

Overall, I drive a fuel efficient car, enjoy being alone and listening to music, and can be at home when I’m on call and do my own thing. As a local, I also know the area well so I can do my job efficiently and quickly. I can also practice freestyling to rap instrumentals. The downsides? I’m responsible for my damages, and one accident can wipe out a month of wages. This is compounded by inexperienced young drivers, drunk students, and poorly designed infrastructure. Also, in the presence of a delivery fee, students don’t pay tip all too well and I’m stiffed at least once every shift. Lastly, because deliveries average 30-40 minutes each, I’m not really making all too much more than $12, if at all.

Can’t complain though, I could be making $7.50 an hour. Side note-I wish I was a teenager in Seattle where the minimum wage is $15; I’d have a nice savings account before college.

Want to make my life easier? Tip in cash and write your address accurately, or I might turn on you like De Niro. (And yes, I was inspired to try this job by watching Taxi Driver)

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Why Tipping Sucks

I ‘m not a fan of tipping. I’d go as far as to say I think it should be banned.

I know waiters are paid below minimum wage – my current job depends on tips, and I know tips at least somewhat incentivize waiters to provide better service. Because of the first reason, I tip above average whenever I eat out.

But I’d prefer not to have to do that. Tipping is uncomfortable, inefficient, even discriminatory.

When I eat at a restaurant, I prefer to be left alone with my food and sometimes my company. I don’t care for over-politeness or servers asking me if I want to try something or “can I get you anything else?”. To many, these are considered “good service”, but for the introverted and frugal, it’s uncomfortable. Americans tend to be more polite, friendly, and outgoing than other nationalities, and this kind of service generally receives better tips. To me, good service can lack all of these qualities. Good service can consist of being prompt and respectful. Sometimes I feel like I am pandered to solely for a better tip. It’s uncomfortable, and I couldn’t afford to tip more even if I appreciated it.

I imagine many waiters find it uncomfortable and would prefer a smoother, more predictable source of income rather than the volatile paychecks tips create.

In China, and probably many developing countries, service is vastly different. Besides the time when you order, no one will stop by to assist you. You don’t even have a waiter or waitress. If you need something, you yell, “fuyuan!” and someone promptly comes. It’s fast, efficient, and once you get past the urge to be polite, it’s more comfortable.

Freakonomics did a podcast on tipping (link above). It talked about how tips depend on a variety of factors, many of them discriminatory. For example, blondes are tipped better, women are tipped better, and minorities are tipped less. Basically, if you’re not an attractive white woman, you’re out of luck.

Not only that, tipping has a strong correlation with corruption, and who’s not against corruption? (sit down N. Korea)

Unfortunately, tipping is so ingrained in our culture that it probably won’t change in my lifetime. Luckily, it doesn’t bother me that much, but if it did, I have some options. I could move to a country where tipping is offensive because good service is expected and bosses pay livable wages to their workers (Japan). I could move to a country where tips are left for exceptional service and are typically the change used to round up to the next $5 bill (France).

This post is a passive way of saying I want to move out of the US.

The Winner’s Curse and How to Avoid It

Have you ever bought something and instantly regretted it? They call this buyer’s remorse, and I get it every time I purchase an Xbox Live membership (online multiplayer should be free!). When the winner of an auction feels buyer’s remorse, it is called the winner’s curse. This phenomenon occurs in auctions where bidders view the good with common value but have incomplete information about the market value of the good. In these auctions, the winner tends to overpay because their winning bid either exceeds the goods anticipated value or its actual value. Examples include IPOs and oil field auctions, where it is impossible to know the true value of the good until after it is bought.

How does the winner’s curse apply to me? I’m currently trying to buy a nice pair boots. And I don’t mean a pair of Timberlands or a pair of Clark’s Desert boots,I’m talking a well-crafted pair of leather boots that are made to last, a la Dayton, Alden, Wolverine, etc. Unforunately, these boots typically run in the $300-700 range, way over the budget of a recent college grad working part time. Hence, I’m willing to buy a pair of pre-owned boots, which I think look pretty vintage. This brings me to ebay. For the past three days I’ve been watching a pair of Wolverine 1000 Mile boots. The auction ends tonight, and I want them. The style fits my tastes and my willingness to pay is high relative to my budget. So what’s the problem? I don’t want to suffer the winner’s curse.

Last year, a classmate in my thesis class wrote his paper on the winner’s curse. He found that the chances of the winner’s curse occurring is increasing with the number of bidders in the auction and the inexperience of a bidder in auctions. Unfortunately, there are over a dozen bidders and three times as many people watching, and my experience on ebay consists of winning a gamecube game in middle school. Basically, I’m at a competitive disadvantage, and even if I win the auction, my chances of experiencing the winner’s curse are high. But fear not, I have the power of game theory and a decade of competitive gaming strategy under my belt.

First off, it is safe to assume the two principles of the winner’s curse. This is likely a common value auction. All bidders probably value these boots the same-why else would be watching this specific pair? There is also imperfect information. None of us can know the true market value of the boots because 1) we cannot examine the boots physically, 2) the description cannot be perfectly accurate and 3) the boots are discontinued so there is no way to compare it’s price.  Thus, it is difficult to accurately measure it’s market value. If I assume that the average bid is accurate, meaning half of the bidders underbid and the other half overbid, then the auction winner is very likely to overpay. This is bad news for me. Not only is my budget likely lower than my competitors, I am also no expert when it comes to boots. Combined with my high willingness to pay, I am likely to be an overbidder.

So what’s my best strategy? Ignore estimating the market value and go for the snipe. The boots are discontinued and are not listed anywhere else, meaning the market value is largely irrelevant, especially because I place a high value on them. When the auction is nearing complete, I will stalk the price. If it is below my willingness to pay, I will bid and test the waters. If I am immediately outbid from an automatic bid, I will increase my bid until I know the maximum bid of the leading bidder. If I get this far and I am still willing to pay for these boots, I will try to snipe the boots with a last second bid. If not, which seems likely, I will have to sleep in remorse, but at least I won’t suffer from the winner’s curse.

These are the boots. Pretty fancy huh?

Edit: When I tried to make a bid I realized I was signed out and couldn’t place a bid in time. I didn’t get the boots. Fail.