Bottle deposits

On a recent business trip, a conversation arose with the locals  about the state’s beverage container deposit and refund policy, which is meant to encourage folks to recycle.

It’s also caused a cottage industry for people to collect containers in neighboring states that do not require deposits and transport them into the state to collect the deposit fee.

To solve this problem, the state wants drink makers to produce unique packages that will only be sold in that state.

Regulation begets regulation.  The deposit/refund scheme causes abuse, so more regulation comes along to fix the abuse.  This will likely result in more unintended consequences and more regulation and bureaucracy to fix those.  Few people question whether the whole scheme is worth it or not.

However, the locals recognized the special container fix would likely raise prices for beverages in the state as manufacturers have to separate batches of beverages made for that state and change their distribution processes to make sure only outlets in their state get those containers.  It may also result in less choice as smaller players may opt out of selling in that state.

I mentioned that my state has no such laws, yet people there seem to recycle just fine.  It made me wonder if anyone has studied whether a container deposit scheme results in any more recycling or if states and localities just adopt such schemes because they sound good.  Anybody know?

One more thing, even if the scheme produces more recycling, how would we know if it’s worth it or not?  Certainly, some folks will say we must conserve landfill space at all costs, but that’s easy to say when you don’t have to pay the costs.  I wonder if those same people would conserve landfill space if they were directly faced with the costs.

Failure

Here’s a nice article on failure on the Harvard Business Review website, called The Missing Market for Failure by Joshua Gans (thanks to Tim Harford‘s tweet).

I’m not sure a market for failure is nearly as important as simply gaining a better understanding that failure is necessary and normal and is not bad.

We live in a trial-and-error world.  We really don’t know if something will work until we try. It’s disappointing that we stigmatize failure so.

I think this goes back to Salman Khan’s insights on education in this post.   In school, we punish experimentation and failure.  I agree. That’s where the negative stigma on failure starts.  If you don’t ace a test at a specific snapshot in time, you’re deemed “slow kid” as Khan points out.

I’ve seen enough things that I thought would fail prove me wrong.  Enough so, that I try to keep an open mind and realize that what I think doesn’t matter much.  What matters is if it really works or not.

Even with the things that don’t work, I often find that the reasons for failure were reasons that nobody guessed upfront and we all learned valuable lessons in the process of trying.

We often look at successful people and assume they have a perfect record.  But that’s a rare (if non-existent) case.  What differentiates them the most from you and I is an ability to accept failure, learn from it, brush it off, laugh at it and move onto the next thing.

They don’t let it define them.  They treat failure as a feedback, plain and simple.

Washing machines are a great innovation

Thanks to Aaron McKenzie of The Idiots’ Collective for directing me to this 10 minute TED talk from Hans Rosling.

In it, Rosling uses his mix of entertaining presentation skills, easy-to-understand graphics and simplifying data analytics to tell us how washing machines opened markets for books  and why environmental activists should refrain from giving energy use advice to others.

In the comments of his post, McKenzie requests a laundry folder.  That would be nice.

I have wondered why we store our clothes across the home to be close to our beds and baths rather than close to our washers and dryers.  Or, why we don’t put our washer/dryer closer to where we store our clothes.

“The future of education”

As said by Bill Gates.  He might be right.

Thanks to Arnold Kling on EconLog for posting a link to this excellent TED video:

Here are some of my thoughts.

I’m glad to hear school teachers are trying to figure out how to use and integrate the Khan Academy videos into their programs.  I expected them to see Khan’s work as competition and try to use government to limit access to the site.

At the very least, I thought we’d hear criticism from the establishment that this guy is not a trained and credentialed educator or that he’s not an educational expert or that his videos don’t really work.  So far, I haven’t heard any of that.  It’s tough to argue with his results.

This is a black swan.

At about the 8th minute, Khan describes the traditional classroom:

…homework-lecture-homework-lecture-homework-snapshot exam.  And then whether you get a 70%, 80%, 90% or 95%, the class moves onto the next topic.

Even the 95% student, what’s that 5% that he missed?

That’s analogous to learning to ride a bicycle where I give you a lecture, give a bike to you for a couple weeks and then come back and evaluate you.  You can’t quite stop, you can’t make left turns.  You’re an 80% bicyclist.  I put a “C” stamp on your forehead and then I give you a unicycle.

You fast forward and you see smart students start to struggle because they have these Swiss cheese gaps that kept building.

That reminded me of my own experience. I was a reasonably good math student.  When I entered college I signed up to tutor algebra.  The rigor of the tutor training made me realize that I had Swiss cheese gaps in my skills, like Khan mentioned.  But, that training filled in those gaps and helped me considerably in other courses.  I remember thanking that rigorous tutor training out loud while taking a few exams in the weed-out physics courses.

Khan continues:

Our model is learn math the way you learn anything.  The way you learn to ride a bicycle. Stay on that bicycle.  Fall off that bicycle. Do it as long as necessary until you have mastery.

Next, Khan articulates amazingly well a problem I have recognized with our education model, but have struggled to explain it:

The traditional model penalizes you for experimentation and failure, but does not expect mastery [e.g. time to move onto next subject even if you only mastered 90% of the last one].

We encourage you to experiment.  We encourage you to fail.  But we do expect mastery.

That is excellent.

About 14 minutes in, Khan talks about the progress students make in his model vs. the traditional model.

When you go five days into it [learning a new subject], there are a group of kids who have raced ahead and a group of kids who are a little bit slower.

In the traditional model, you do the snapshot assessment.  You say these are the gifted kids and these are the slow kids.  You say things like maybe we should put them in different classes.

But, when you let every student work at their own pace, we see it over and over and over again, you see students who took a little bit extra time on one concept or the other, but once they get through that concept they just race ahead.

So the same kids you thought were slow six weeks ago, you now would think are gifted.

It makes you wonder if a lot of the labels that maybe many of us have benefited from were really just due to a coincidence of time.

What is fallacy?

In a conversation this evening, I mentioned that one motivation for this blog was to combat fallacy.  My counterpart said that I was the first person, besides himself, in years he has heard use that word.

That caused other conversations where I pointed out fallacies to flash through my mind.  I often receive bewildered looks when I say that word.   I assumed the looks reflected disagreement.  But, maybe they simply didn’t know what I meant and they didn’t want to ask.

I admit, before I became familiar with the term I would not have known.  I think the non-intuitive nature of the meaning of fallacy may be on par with economic rent.   Neither term is used enough in everyday language to have gained an intuitive understanding.

For example, most people intuitively know that profits can be made in capitalism.   They do not intuitively know that profits can also be made from economic rent.  Economic rent is such a blind spot, in fact, that most folks commonly mistake profits from economic rent as profits from capitalism.

They also mistake fallacy for legitimate argument.

So, what is a fallacy?

A fallacy is faulty reasoning where the conclusion doesn’t follow from the premises given.  A fallacy doesn’t necessarily say the conclusion is wrong, just that the conclusion can’t be made from the premises given.

Here’s an example of a fallacy:

It rained here today, so it will not rain tomorrow.

My premise is that it rained today.  My conclusion, based on that premise, is that it will not rain tomorrow.   But, rain today usually has no bearing on whether it will rain tomorrow.

Notice, my conclusion may be correct.  It may not rain tomorrow.  But most people will agree that the logic I used to arrive at my conclusion is not correct.

Fallacies come in many varieties.   There are common fallacies that you have probably heard of like ad hominem attacks or red herrings and many more.

Over the years, I have found the list of informal fallacies at the Nizkor Project website to be a handy and valuable resource for checking and re-checking to help me identify fallacy.

Being able to spot and identify fallacies is like the Jujitsu of discussion allowing you to make progress without having to state and defend a case of your own.  Simply pointing out incorrect reasoning turns the argument back on your discussion partner and causes them to rethink their logic.

Most important, it often focuses the discussion on the root cause of the disagreement — the faulty reasoning on which the conclusions are based.

Manage the right outputs

I believe one secret of good leadership is rewarding and punishing the right outputs, or results.  Bad leaders tend to fixate on inputs and/or the wrong results. 

For example, a business owner complained to me about one of his associates.  His gripes were personal preferences.  He didn’t like the way his associate did this or that.  He asked my opinion.  Rather than giving it based on my five minutes with the guy (which I didn’t think would be fair to anyone), I simply asked how are his numbers?  I thought it would be good to re-focus the owner on the results.  I could read it in the owner’s eyes, good question, I hadn’t thought of that.

My advice to folks who desire to be a successful leader is to grow accustomed and adept at asking and answering …and that resulted in what?

The next step is making sure you hold folks accountable to the right results.

A business professor of mine once told the class his story about bonus structures he experimented with when he owned and operated sandwich shops.

First, he wanted to grow revenue so he tied managers’ bonus to revenue growth.  That resulted in high food and staff costs as managers tried to attract business with over portioned sandwiches and always had more than enough staff on hand to handle unexpected rushes.  While customer traffic was good, profits suffered because of high costs.

Next, he tied rewards to costs to gets costs under control.  That resulted in long lines, under portioned sandwiches and customer complaints as managers tightly controlled staffing and portions to meet the cost targets.  Customer traffic slipped with service and product quality and profits suffered.

In both cases, he felt the store managers didn’t pay enough attention to the cleanliness of the store.  The owner was spent late hours scrubbing trash can lids and cleaning windows to meet his standards.

Finally, he tried a combination plan.  First, he came up with a 70 point inspection checklist that he would use to rate the cleanliness of things like the trash can lids, bathrooms, tables, floors, counters and doors.  He told his managers that he would inspect the stores any time, day or night, and to be eligible for a bonus store the store had to score 69 out of 70.

If the manager passed the inspections, then he or she would be eligible for a bonus that was based on year-over-year revenue and profit growth for the month.  Further, for each month that staff costs were less than a certain percent of sales, staff would receive a bonus making up the difference.

He was pleased with the results.  He said managing the operation became as simple as conducting the inspections.

He no longer spent late nights scrubbing trash can lids.  Managers and staff found ways to increase sales and control costs, rather than focusing on one at the expense of the other.

It took some experimentation, but he seemed to have have found the right outputs to reward.

Progressive tax rates II

I appreciate the comments to my previous post.  They all provide good reasons why progressive tax rates may not be as fair of a way to tax as it first appears.

As dave points out, it’s inefficient to pay for a mediator to administer the system because the mediator takes his cut too.  That could be the economic rent that gets wasted in setting the rates, the cost of running the IRS and all the expense taxpayers and businesses go through to file tax returns.

W.E. Heasley suggests asking why they desire a more level income distribution?  Actual results of such schemes do not have a good track record.

thebigdog suggests considering that progressive tax rates shrinks the pie for everyone, which could hurt the very people with lower income that progressive tax rate supporters are trying to help.

With further correspondence with commenter, DG Lesvic on Cafe Hayek, he pointed me to this good passage on his website EconTrashTalk.org (from a section titled The Forbidden Theory of Redistribution):

At the line between rich and poor, but one penny of income separates them.  So, when it is taken from the rich and given to the poor, their stations are reversed.  The rich become poor and the poor rich, which attracts manpower from the occupations of the one to those of the other.  To restore the manpower allocations it preferred, the market must bid the net wages of the formerly higher paid occupations back up and of the formerly lower paid back down.  But, anticipating increasing rates of redistribution, and compensating not just for the current but for the greater anticipated rates, the market must bid the net wages of the formerly higher paid to even higher levels and of the formerly lower paid to even lower levels than before, for differentials even greater than before.

Let’s remember the original two sentences supporting a progressive tax rate:

Someone who makes $10,000, pays 10% to the government only has $9,000 left.  Someone who makes $1 million pays 50% still has $500 thousand left — a lot more even though they pay a higher rate.

Here’s my feeble attempt at a response.

You assume that wage rates do not change with tax rates.  What if someone who makes $10,000 earns less because the market accounts for their lower tax rate while someone who makes $1 million earns more to compensate for their higher tax rate?

You don’t think that’s possible?

All else equal, would you prefer a job that pays $50,000 and a 20% tax rate ($40,000 after tax) or one that pays $60,000 with a 40% tax rate ($36,000 after-tax)?  My guess is that you would take the lower paying job with the lower tax rate because the after-tax income is greater.

And when you think of it, why would wages be different than any other good or service?  You may spend more on a car if you did not have to pay sales tax.  Tax rates matter.

While progressive tax rates appear to be a fair way to tax, please consider that may only be an illusion.

If it were an illusion, would you still favor a progressive tax rate?

Progressive tax rates

A few weeks ago a family member explained the simple and appealing logic of progressive tax rates — or tax rates that get progressively higher on higher incomes.

Someone who makes $10,000, pays 10% to the government only has $9,000 left.  Someone who makes $1 million pays 50% still has $500 thousand left — a lot more even though they pay a higher rate.

I’m looking for a simple and appealing argument against it.  I don’t think I’ve found it yet.  But I think some good reasons against it are in the following sources.

In St. Augustine Anticipates H.L. Mencken and Walter Williams, Don Boudreaux quotes from St. Augustine’s City of God.  The quote equates the use of force to take from folks via the state with robbery.

I explained another good reason in my post, The political power machine.  Giving government officials the power to set different tax rates for different people doesn’t do much except give those in government the power to extract economic rent.

But both of those arguments may not be necessary if F.A. Hayek is correct.  In the comment section of Don Boudreaux’s post, commenter DG Lesvic quotes from Hayek’s The Constitution of Liberty (p. 306).  Hayek claims the only argument needed against government redistribution is the economic argument that redistribution increases inequality.  All other social, political and moral arguments leaves the door open for the economic argument that it decreases inequality.

Hayek might be onto something.  Folks seeing progressive taxes as a means of decreasing income inequality may be why the simple logic that my family member articulated is so appealing.

If Hayek is correct, then we need to know how redistribution increases inequality and be able to articulate that in a way that is as intuitive and simple as the two sentences from my family member.

Does anyone have any ideas on how to do that?