A Defense of Surge Pricing
I’m not defending the company Uber per se, but in my latest FEE article I walk through the logic of surge pricing. An excerpt:
The wonderful thing about our smartphone age is that the dynamic pricing isn’t merely limited to a particular night, but can vary even in half-hour intervals. For example, Uber emailed its users on the morning of December 31 warning them to expect high prices from 12:30 a.m. through 2:30 a.m. It advised people to catch a ride as soon as the ball dropped, or to plan on staying out much later. In this way, people could spread their ride demands out according to their willingness to pay: the people with flexible plans could make way for those who (say) had babysitters they needed to get home to by 1:00 a.m., or for those who really didn’t want to leave right at midnight and were willing to pay extra to leave at their preferred time.
The benefits of surge pricing don’t just apply to car rides. We see the same phenomenon whenever there is a blizzard or flood and the prices of bottled water, canned goods, and batteries shoot through the roof. Consumers in the affected region naturally cry foul, but these unusually high prices are necessary to “ration” the available quantities to the people in need. For example, at regular prices, when the news announced an oncoming blizzard, the first few families to get to the convenience store would clean out the shelves. But if prices jump to several times the usual level, people will be much choosier, leaving bottles of water and other items for the customers who show up later. Furthermore, the high prices will give an extra incentive for people in the surrounding regions to figure out how to deliver more supplies as quickly as possible.
Piketty Makes Up “Facts” and I’m the Bad Guy
I’m being cheeky in the title, but my irritation is real. Both ideological friends and foes have been chiding me for (in my paper co-authored with Phil Magness) focusing on trivial details, like Piketty getting the dates wrong for tax hikes and minimum wage increases. Big deal, Murphy! Focus on the inequality data.
But Phil and I couldn’t ignore the boneheaded mistakes. Chris Giles of the FT did exactly what my critics are suggesting, and he was in the news for a week. Then Piketty responded (quite inadequately), Piketty’s fans said, “Heh what tools, leave the data to the grownups, kids,” and now progressive bloggers smirk at you if you bring up Giles.
And that is understandable. Giles was a writer for a newspaper, whereas Piketty is an expert in this literature–a guy whom Larry Summers said should get a Nobel for the empirical work. Without taking 2 months to read up on the literature yourself, how could you possibly weigh in on this matter?
So that’s why it’s so important for Phil and me to show you just how unbelievably sloppy Piketty was when it came to things that a high school student should get right in a term paper, and then to see him dismiss them as “typos.”
So then, with that as background, when Phil and I show you that Piketty on some of his Excel cells just adds a number one year, then subtracts it away, with no apparent justification, you don’t just say, “Well, I’m sure the guy has a good reason for doing that.” No, because this is the same guy who just made up an alternate universe of the minimum wage, and then didn’t seem very fazed about it. (Note in his response to FoxNews, he used “etc” to refer to his systematic distortion of the minimum wage history.)
Anyway, frequent commentator (who is always earnest when he often criticizes me) Keshav Srinivasan just wrote the most astounding defense of Piketty yet:
By the way, concerning the FDR and Hoover stuff, I think you’re too quick to assume malice when carelessness is more likely. It’s more plausible that Piketty simply assumed that Hoover must have been the one who cut taxes because he was a Republican, rather than Piketty deliberately falsifying the history in order to make Republicans look bad. (That’s why he called them “typos”, because they were unintentional errors.) Isn’t it best to be charitable to your opponents’ motives?
!!!
We’re not talking about an appearance on the Daily Show, we’re talking about a published book, and moreover a book that is being lauded for its contribution to the historical record. I don’t know what to say at this point. I can’t believe I am being put on the defensive when Piketty is the guy who made up a bunch of “facts.”
Phil Magness on the Tom Woods Show Discussing Our Piketty Paper
Tom does a good job of pulling out the news you can use.
Here are the show notes for this episode, and here is the link to get the paper.
The neat thing about this episode is even I learned something: At the end Tom asks Phil how he got interested in this. Phil answers that from his own work, he happens to know the 19th century U.S. tax data pretty well, and he realized that Piketty’s chart in his book wasn’t right. So he started poking around and learned that Piketty just made up some numbers for the early US history, rather than going and finding the available source data.
I have a similar story. Those of you who were reading this blog back in April may remember that I was minding my own business, reading Piketty’s book, expecting him to be one of the world’s leading scholars on economic history, when I saw him totally botch what happened with income tax rates in the 1920s and 1930s (which I know well since I wrote a book on the Great Depression). That’s when I went from merely thinking he was bad theoretically, to thinking he was either really sloppy or really slippery.
I don’t know if I have sufficiently stressed this point. I wanted Piketty’s historical data to be airtight, because I think he’s totally wrong on the capital & interest theory stuff, and that’s my area of expertise. After all, the book is Capital in the 21st Century. I was excited that Piketty had made capital theory relevant again.
Well shoot, now we can’t talk about capital theory, because Piketty can’t even get his minimum wage dates right.
My Response to Piketty’s Response to My Paper With Magness
At Mises CA. An excerpt:
OK that is pretty astounding. I encourage readers who haven’t done so, to click on our paper and just read the short sections on the Hoover/FDR tax rates and the minimum wage discussion. If those were “typos,” then when Bill Clinton said he didn’t have sexual relations with Monica Lewinski, it was a “slip of the tongue.”
But here’s the real kicker. To show that his conclusions are in line with the other literature–and hence that the concerns raised by Magness and me, as well as Auerbach and Hassett, must be petty whining over trivial details–Piketty went on to tell FoxNews:
But Piketty counters that a recent study found that wealth inequality actually rose even faster than he had reported in his book.
“Everybody recognizes that the Saez-Zucman series are indeed the best series on US wealth inequality we have so far, and that they show an even bigger increase than what I report in my book,” he told FoxNews.com.
No, this is simply not true, and is yet more evidence (as if it were needed) that Piketty is a slippery fellow who under no circumstances can be trusted to honestly report facts.
Austrian Economics and Math
I respond to that blog post I had earlier brought to your attention. An excerpt:
I can’t think of a single prominent Austrian who ever said anything remotely like, “I hate math.”…So you can see why Albrecht’s whole premise seems foreign to me, and serves only to reassure outside critics that Austrians are a bunch of Know Nothing rubes.
To be sure, in Internet discussions you can often see rank-and-file fans of the Austrian School blasting the “mathturbation” of mainstream economists. But their point isn’t, “Math is stupid and a waste of time.” No, their point is that the elegance and majesty of mathematical truth is being illegitimately smuggled over to endorse the conclusions of the economic models in question, when such moves (they claim) are unwarranted. Since Albrecht doesn’t challenge that notion–and actually seems to agree with it–it really makes me wonder who his target audience is for his blog post.
Indeed, we really have no idea who Albrecht is tut-tutting in his post, since he provides not a single link to anyone guilty of the error he is chiding. I would encourage Albrecht to go find, say, three good examples of what he means, so we can be clear on whether there is really a problem in the School.
Then I quote from Mises (and link to Rothbard talking about the mathematical field of chaos theory) to show that these giants of Austrian economics were quite well versed in math.
Salvation by Works vs. Faith
One of the most amazing and/or horrifying things about Protestant Christianity is the doctrine of salvation through faith. This is very counterintuitive; hence the familiar question, “So a serial killer gets into heaven if he accepts Jesus on his deathbed?!” I completely empathize with this incredulity, because I would have recoiled in a similar fashion even when I was a young teenaged theist, let alone in my young 20s as an atheist.
(Note: I was raised Catholic, but I don’t want to refer to Catholic doctrine when I do posts like this, because by no means was I a scholar of Catholic theologians. I’m talking about my personal perspective, when I was growing up as someone raised in the Catholic Church. Looking back, I know that the idea of salvation through faith in Christ–in the way that Protestants mean–would have sounded nutty to me.)
Yet now that I understand and believe in this doctrine, it jumps out at me from both the Old and New Testaments. In the Old, even though the Israelites were under the Law, even within that framework they had all kinds of elaborate rituals in which an innocent animal would be sacrificed to blot out their sins.
(I’m pretty sure I got this idea from Matthew Henry’s (concise) commentary on Romans 10: 1-4, when he writes:
The Jews built on a false foundation, and refused to come to Christ for free salvation by faith, and numbers in every age do the same in various ways. The strictness of the law showed men their need of salvation by grace, through faith. And the ceremonies shadowed forth Christ as fulfilling the righteousness, and bearing the curse of the law. So that even under the law, all who were justified before God, obtained that blessing by faith, whereby they were made partakers of the perfect righteousness of the promised Redeemer.
)
In the New Testament, there are many examples of Jesus healing someone and tying it to the person’s faith. The best example is Matthew 9:
27 As Jesus went on from there, two blind men followed him, calling out, “Have mercy on us, Son of David!”
28 When he had gone indoors, the blind men came to him, and he asked them, “Do you believe that I am able to do this?”
“Yes, Lord,” they replied.
29 Then he touched their eyes and said, “According to your faith let it be done to you”; 30 and their sight was restored.
There is not a single episode where Jesus says to someone, “I’m going to heal you, because you’ve been a pretty good person.” No, Jesus explicitly says “No one is good–except God alone,” and elsewhere He says to the crowd listening to His sermon that they are evil. Note well, He’s not denouncing the Pharisees there–He is addressing the regular people who flocked to hear His teachings, and being clear that unlike God, they are evil.
There *is* an occasion when Jesus discusses someone’s fidelity to the Law, and it goes like this (Mt 19):
16 Just then a man came up to Jesus and asked, “Teacher, what good thing must I do to get eternal life?”
17 “Why do you ask me about what is good?” Jesus replied. “There is only One who is good. If you want to enter life, keep the commandments.”
18 “Which ones?” he inquired.
Jesus replied, “‘You shall not murder, you shall not commit adultery, you shall not steal, you shall not give false testimony, 19 honor your father and mother,’[c] and ‘love your neighbor as yourself.’[d]”
20 “All these I have kept,” the young man said. “What do I still lack?”
21 Jesus answered, “If you want to be perfect, go, sell your possessions and give to the poor, and you will have treasure in heaven. Then come, follow me.”
22 When the young man heard this, he went away sad, because he had great wealth.
23 Then Jesus said to his disciples, “Truly I tell you, it is hard for someone who is rich to enter the kingdom of heaven. 24 Again I tell you, it is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God.”
25 When the disciples heard this, they were greatly astonished and asked, “Who then can be saved?”
26 Jesus looked at them and said, “With man this is impossible, but with God all things are possible.”
27 Peter answered him, “We have left everything to follow you! What then will there be for us?”
28 Jesus said to them, “Truly I tell you, at the renewal of all things, when the Son of Man sits on his glorious throne, you who have followed me will also sit on twelve thrones, judging the twelve tribes of Israel. 29 And everyone who has left houses or brothers or sisters or father or mother or wife[e] or children or fields for my sake will receive a hundred times as much and will inherit eternal life.
Even as I’m re-reading this just now in pasting it in here, I am amazed at how much this story crystallizes the Protestant view. Yes, if you could perfectly follow the Law, not only the letter but also its spirit, then you would be blameless before God.
But that it impossible for man. That’s why, instead, to receive eternal life you must abandon worldly concerns and follow Jesus. Then even sinners–like Peter–can sit on thrones.
“But Who Would Build the Roads?”
Tom Woods and I tackle this old chestnut. Show notes here with lots of links.
Explaining the Mysterious Sachs to DeLong and Wren-Lewis
[UPDATE below.]
Jeffrey Sachs wrote a post critical of Paul Krugman, who lately has been running victory laps over the Obama recovery without acknowledging that he (Krugman) has spent the last two years warning of the horrible effects of sequestration. As you can imagine, the Keynesian bloggers were none too happy about it. Right now, I won’t tackle the big-picture issues. Instead I want to reassure two of the bloggers because they seem really mystified by a particular statement from Sachs.
Specifically, Simon Wren-Lewis wrote (and he was clearly referring to Sachs’ post): “[I]t is a sad day when anyone thinks that 2.3% growth is “brisk” when we are recovering from a deep recession and interest rates have remained at the ZLB. It is so very dangerous when these diminished expectations become internalised by the elite.”
That wasn’t original with him. He had been reading Krugman who had linked to Brad DeLong, who published the following post (and this is the whole thing, I haven’t cut any of it out):
I wouldn’t have called it a “sad day,” let alone suggested Sachs had “lost his mind,” but I can see why Wren-Lewis and DeLong are puzzled. It is odd that Sachs would put so much weight on a lackluster 2.2% (or 2.3%) GDP growth rate, calling it “brisk.”
But you know, that Sachs quotation in DeLong’s post has a bunch of ellipses in it. I wonder what would happen if we filled in the parts from Sachs’ post that DeLong edited out? Just for fun, let’s try it:
Yet, rather than a new recession, or an ongoing depression, the US unemployment rate has fallen from 8.6% in November 2011 to 5.8% in November 2014. Real economic growth in 2011 stood at 1.6%, and the IMF expects it to be 2.2% for 2014 as a whole. GDP in the third quarter of 2014 grew at a vigorous 5% annual rate, suggesting that aggregate growth for all of 2015 will be above 3%.
So much for Krugman’s predictions. Not one of his New York Times commentaries in the first half of 2013, when “austerian” deficit cutting was taking effect, forecast a major reduction in unemployment or that economic growth would recover to brisk rates.
Paints a different picture of Sachs’ mental health, doesn’t it? And Mr. Wren-Lewis, turn that frown upside down–it’s a happy day after all! Nobody was suggesting that 2.2% (or 2.3%) GDP growth was “brisk.”
UPDATE: Without there being any evidence in his comments as to whom he is responding (I don’t mean to me, I mean if someone raised this issue in the comments, that comment is not there), DeLong addresses the concerns I have raised in this post in this manner:
5% for one quarter does not imply >3% is likely for all of 2015. Certainly the bond market does not see such growth. You have moved from “growth has been brisk” to “growth will be sorta-semi-kinda-brisk”.
But, seriously, how many moles do I have to whack here? How many moles are you going to demand that I whack here? I try to edit quotes so that they are far and short and focused on the main point…
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