Why prices in only three parts of the economy grow faster than inflation

There’s only three parts of the economy where prices have consistently outpaced inflation: education, health care (including prescription drugs) and real estate (in some areas) over long periods of time.

I often try to explain why to friends, but have not articulated it well. Arnold Kling says why succinctly:

…these are all sectors in which public policy subsidizes demand and restricts supply.

Yep.

Can bad luck be good?

Anyone who rides in the car with me eventually notices that I have bad luck in two areas: hitting red lights and driving by on-ramps as cars are merging in. Also, while jogging, I seem to hit more than my fair share of people leaving their driveways or coming from a side street.

I’ve considered this might just be confirmation bias. Maybe I noticed it after an unlucky drive and jog and now every time any of those happens it confirms that bias, while I don’t notice all the times it doesn’t happen.

But, I wondered if the extra attentiveness to those situations helped keep me safe in one particular incident this past year.

As I approach lights and on-ramps, I’ve become accustomed to taking stock of the traffic around me so I will know my options if the light turns red or cars do merge in. That means checking what’s in the passing lane, what’s behind me, to the side of me and their relative speeds.

All of the cars I’ve met on side streets and pulling out of driveways on jogs has taught me to look directly into the driver’s eyes to read their intentions.

In the one instance, I was approaching a photo-enforced stop light on a state highway where the speed limit is 55 MPH.

I’ve hit that light enough to know to watch for the warning signal light about 500 feet before the intersection. If it turns red before you pass it, the light will turn red before you get to it.

I also know that it’s easy to miss that warning light if you don’t know it’s there.

I saw it that day. But, it turned on just as I passed it, which meant two things. First, the light would turn at the last second. Second, those immediately around me may not have noticed that it changed.

As I was slowing down, I remembered that I also had just passed and got in front of a semi before going past the warning light. I remember he was driving faster than semis normally do on that stretch (telling me he wasn’t familiar with that road) and I thought that maybe he did not see warning light, was not expecting the light to change and could not stop as quickly as I could.

My thought was confirmed when I looked into my rear view mirror to see the semi approaching at a speed that I knew was going to hit me.

I also looked at the driver’s face and the look on it told me I was in trouble. I read in it, “How did this guy know the light was going to change? Shiii###!!!”

Because I’m used to assessing the the traffic around me as I approach traffic lights and on-ramps because of my ‘bad luck’, I quickly ran through three options. When I say quickly, I mean — the following thought process maybe took a second, but I was able to go through it because I knew what was around me.

I could step on the gas and run the light, but I didn’t think I could accelerate quick enough to avoid being hit. And, if I did make it, I’d probably get a ticket!

I could pull to the right, onto the shoulder and let him pass me. But, I thought there was chance he might try the same thing at the same time which would do neither of us any good.

I knew I could change to the left lane because I knew there was nobody immediately to my left and the cars behind me in that lane were slowing to stop. I also figured since there were cars next to him in that lane, he was less likely to try changing to the left lane.

I quickly swerved into the left lane and the semi blew past me less than a second later in the right lane with a very relieved look on the driver’s face (and hopefully a ticket in the mail for running the red light).

I also saw looks on other driver’s faces behind me and at the cross street that said while I was waiting for the light to turn green that confirmed that they thought I was a very lucky dude who made split-second, perhaps life-saving decision.

As I pulled away when the light turned green, the thought occurred to me that maybe my perceived bad luck with traffic lights and on-ramps wasn’t so bad, after all.

I credit having taken stock of the situation around me as I was approaching the light to helping me avoid that accident. If I didn’t have as much information as I did, I may not have made as good of a decision.

That’s also changed the way I look at bad luck. It seems crappy at the time, but I wonder — maybe the bad luck is helping me prepare for something.

UPDATE: Just as I clicked the Publish button on this post, I recalled this EconTalk podcast with Robert Frank discussing his book Success and Luck, which I just added to my list to read. In the podcast he discussed a medical emergency he had where he had several lucky things happen that resulted in him staying alive.

“Intellectual Yet Idiot”

Nassim Nicholas Taleb at his finest (an excerpt from his Skin in the Game). Here are the first few paragraphs:

What we have been seeing worldwide, from India to the UK to the US, is the rebellion against the inner circle of no-skin-in-the-game policymaking “clerks” and journalists-insiders, that class of paternalistic semi-intellectual experts with some Ivy league, Oxford-Cambridge, or similar label-driven education who are telling the rest of us 1) what to do, 2) what to eat, 3) how to speak, 4) how to think… and 5) who to vote for.

But the problem is the one-eyed following the blind: these self-described members of the “intelligentsia” can’t find a coconut in Coconut Island, meaning they aren’t intelligent enough to define intelligence hence fall into circularities — but their main skill is capacity to pass exams written by people like them. With psychology papers replicating less than 40%, dietary advice reversing after 30 years of fatphobia, macroeconomic analysis working worse than astrology, the appointment of Bernanke who was less than clueless of the risks, and pharmaceutical trials replicating at best only 1/3 of the time, people are perfectly entitled to rely on their own ancestral instinct and listen to their grandmothers (or Montaigne and such filtered classical knowledge) with a better track record than these policymaking goons.

Indeed one can see that these academico-bureaucrats who feel entitled to run our lives aren’t even rigorous, whether in medical statistics or policymaking. They can’t tell science from scientism — in fact in their image-oriented minds scientism looks more scientific than real science.

Difference in risk-taking cultures: Europe and US

From her book, The Up Side of Down: Why Failing Well is the Key to Success, Megan McArdle wrote:

Europe, in short, treats entrepreneurial risk-taking like farming: success is a result of hard work and good planning, so if you fail, it’s because you did something wrong. America, by contrast, treats it like foraging: results are highly uncertain and always driven by luck, so if you fail, it’s a healthy sign that you were trying hard. And to an extent, these expectations are self-fulfilling…

Her point is, this difference in risk-taking culture leads to more risk-taking in the U.S. and less in Europe.

The result is that in the U.S. we get more good stuff from it, albeit with more failure.

This view also shapes policy. McArdles continues:

When it comes to poor people, the positions are reversed. Europeans treat poverty, unemployment, and so forth as mostly a matter of luck. They respond by generously sharing community resources, taxing those who are working to give lavishly to those who are not. Americans are more likely to treat those people as the authors of their own fate. The primary focus is on making sure that people contribute their fair share.

Yet, it seems the U.S. has been moving more toward European values in this sense, with the detriment also being self-fulfilling.

The elephant is still in the room

The Obama administration, among others, blames Russia for hacking and releasing Democratic Party emails to influence election results.

The point missed by this narrative is that the content of the emails that may have damaged Hillary’s chances was true.

This seems to be a classic case of, “Sorry we got caught (not sorry we did it).”

Why weren’t Republican party emails released? My guess is they would have shown largely the same behavior — a party protecting its insiders.

By the time of the election, the outsider already beat the insiders so that was uninteresting and not relevant.

Cognitive Dissonance

Definition (Google): “the state of having inconsistent thoughts, beliefs, or attitudes, especially as relating to behavioral decisions and attitude change.”

A couple recent examples:

  • Those, who before the election, lambasted Trump for saying he’d “wait and see” about whether he would accept the election results and then after the election did not accept the election results.
  • Those who wish to force cake makers, among other wedding businesses, to not be able to choose who they do business with, but also seem to be okay with people refusing to be associated with the Trump’s by refusing to make dresses for the Trump ladies, declining to perform at Trump events and my latest favorite, demanding that Ivanka remove their works from her walls.

I may be looking at these issues from the wrong angle. Both seem to have people holding disagreeing ideas. It’s okay for me, but not for thee. 

Maybe they see it from a different angle: What’s good for me, at the moment.

For example, they thought it was good for them to make a mountain of a molehill when Trump said he would wait-and-see on the election results.

After the election, they thought it was good for them to oppose the election results.

What journalists could ask those who didn’t accept the election results: Do you still believe Donald Trump was wrong for saying he would have to wait-and-see about the election results? 

My favorite recent example of hypocrisy was artists demanding Ivanka remove their paintings from her walls.

My guess is that those artists didn’t mind when the Trump’s paid them.

I speculate they couldn’t resist the temptation to gain publicity  when the opportunity presented itself. Again, what’s good for them, at the time.

What journalists could ask these artists: How much did money did you make when you sold your works to the Trump’s? Why weren’t you concerned about your association with the Trump’s when you sold your works to them?

Words to live by

From Don Boudreaux’s Quotation of the Day, this is Don himself:

A good rule-of-thumb – a rule that should almost never be violated – is this one: Ignore anyone who proposes a course of action that forces others to bear costs, yet who refuses himself or herself to take a substantial personal financial stake in that course of action.  Or more generally, as Mencken observed, “The kind of man who demands that government enforce his ideas is always the kind whose ideas are idiotic.”

It’s far easier to be a ‘visionary’ with the money and lives of other people than it is to be a visionary with your own money and life.

 

‘Culture’ is not the reason for success

Warren Buffett once said:

When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
I think the same can be said if you replaced ‘management’ with ‘company culture.’
I think company culture is important, but more so to the workers, not to the performance of the business.
Ultimately, what’s important to performance of the business is whether it has products and services that customers value. Sometimes, unfortunately, companies with terrible cultures produce valuable products and sometimes, somewhat coincidentally, companies with good cultures do so, as well.
Copying a culture will not copy success. Only good products and services will.

 

Ideology of power

I highly recommend reading Garry Kasparov’s editorial in The Wall Street Journal: The U.S.S.R Fell–and the World Fell Asleep.

When the U.S.S.R. fell, it wasn’t immediately replaced with the freedoms and democracy that westerners enjoy and take for granted. As Kasparov wrote:

Elections did nothing to uproot the siloviki, the powerful network of security and military officials. The offices and titles of the ruling nomenklatura changed, but the Soviet bureaucratic caste remained as power brokers with no accountability or transparency.

The reforms in Russia enacted by a dream team of national and foreign economists were piecemeal and easily exploited by those with access to the levers of power. Instead of turning into a free market, the Russian economy became a rigged auction that created an elite of appointed billionaires and a population of resentful and confused citizens who wondered why nothing had improved for them.

What officially died in Russia when the U.S.S.R. fell wasn’t authoritarian rule, just the ideal of ‘for the greater good’ it had been wrapped in for about 70 years.

Kasasparov:

…the thugs and despots are flourishing once again. They still reject liberal democracy and the free market—not because of a competing ideology like communism, but because they understand that those things are a threat to their power.

Here he is on Putin:

A rising cash flow enabled him to negotiate a Faustian bargain with the Russian people: your freedoms in return for stability. Few envisioned how far he would go in collecting on that bargain, but that’s always the trap with empowering authoritarians. Every step Mr. Putin took without consequences encouraged him to take another, and another.

 

What’s different with education in the U.S.?

I found this article recently about what foreign exchange students think is different (and possibly wrong) with U.S. schools compared to schools in their home country.

Apparently, these three things were common answers from them:

School is harder. There’s less homework but the material is more rigorous. People take education more seriously, from selecting the content to selecting the teachers.

Sports are just a hobby. In the U.S., sports are a huge distraction from the business of school, but that’s not the case in other countries.

Kids believe there’s something in it for them. The students in other countries deeply believe that what they are doing in school affects how interesting their lives were going to be. Even if they don’t like a class, they see their education as a stepping stone to their future.

#1 makes me think of grade inflation. Grades are no longer as reliable in the U.S. in indicating whether a student has gained sufficient mastery of the material. The key reason is that we have watered down education for a number of reasons.

#2 agrees with what was mentioned in this post about the soccer culture in Germany, schools in other countries don’t have sports team, at least not to the extent as the U.S. Here’s another good article on the difference between college athletics in Europe and the U.S.

#3 is an example of cultures that value education for what it is, a means to an end. The means is a ‘stepping stone’ to help you prepare to have a better life. Education is an entitlement, but graduating is not. You have to earn it and they wouldn’t have it any other way.

In the U.S., it seems education has become more of the end, itself, for a variety of things, that it seems like we forget about the education piece of it.

For some the end is the employment of teachers. For others, school is a way to run social experiments, reduce inequality, keep kids off the streets, iron out social injustices or indoctrinate ways of thinking — and the actual education piece seems to be lost, sometimes.