Monthly Archives: May 2014

Lots of bad ideas

If you’re reading a book (or watching a YouTube video) and you skip around, you’re going to miss a critically important point. It’s excusable in a math textbook, but it’s your own damn fault if you’re too impatient to sit through a two minute video. This recently happened to me, and if anyone actually read this blog it would have made me look like an idiot.  But there’s a darker side: None of my friends that commented on Facebook noticed that my numbers were completely wrong. They must have done the same thing I did: watch the beginning, feel patronized (policy-related media is invariably patronizing), skip to the end to see where it’s going, then skip around the middle to fill in the details. More likely, they just didn’t watch the video at all.

It takes a substantial amount of mental energy, and sometimes a nontrivial amount of time, to thoroughly examine and weigh an idea before allowing it to settle in your head. There are simply too many ideas out there, you only have so much brainpower. Then when an idea does settle, it’s extraordinarily hard to get rid of, because now it’s carved out its own space in your head that can really only be filled with more ideas.

Worse still, it’s very easy to convince yourself that your own ideas are good. So you go around authoritatively spreading your own ideas, and if your ideas are in fact not good, you’ve instilled a portion of those bad ideas in everyone who hears them. Or your ideas are good but nobody actually waits around to hear the whole story — they just absorb whatever part seems satisfying at the time and move on, because they are constantly bombarded with ideas and don’t have time to care much about yours.

But people do repeat what they think is true. No one remembers where they hear anything, but they remember the thing. Out of its original context, an idea might as well be their own idea, so they become convinced of the idea as if it were their own. So the cycle repeats, and your bad ideas–or distorted versions of your good ideas–end up spreading. Good luck tracking them down.

The result is that there are lots and lots of bad ideas out there, and they threaten to crowd out the good ones. There’s a strange push-pull between bad ideas and good ideas in the Internet age — we are bombarded with more ideas than ever before, so maybe we’re even less likely to have the time or the willpower to sift through them all for the good ones. On the other hand, maybe that also means we have a lot more practice, so maybe we’re much more efficient at it. I don’t know.

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A glaring omission

I made three shameful mistakes in my Wal-Mart wages post:

  1. The $300 m per year number is for Ohio alone. The total figure for the whole U.S. is actually $13 bn.
  2. The actual price increase is 1.4%, not 1%.
  3. I forgot about the increased wealth of Wal-Mart employees, in the form of increased wages.

Start with number 2. The total cost to consumers is in fact $3.69 bn and not not $2.64 bn. The per-capita cost changes from $8.42 to $11.77 , and the per-household cost changes from $23 to $32. The per-household net cost (including the $300 m tax windfall) is now $29.40 rather than $20.50.

Now for number 1. $300 m just the tax windfall from one state; the actual tax windfall is $13 bn. Each household gets back $112.85 from the government, so the per-household net cost becomes -$80.85. That is, every household is better off by $80.85. So maybe the government won’t just refund a chunk of everyone’s taxes. But the arithmetic is irrefutable: $3.69 bn is a lot less than $13 bn.

Number 3. The original video (here, for reference) seems to assume that the cost of the wage increase is passed fully and directly onto consumers, yielding the 1.4% price increase. This is just a transfer. Every household is $32 poorer this year, but the average Food-Stamp-receiving Wal-Mart employee gets a raise of $4.82 an hour. So each household is on the hook for about 6.64 hours of work for one employee, out of that employee’s 2,000 hours worked throughout the year. That’s like picking a random employee on Food Stamps and buying him a week’s worth of lunch at Subway (btw the Wal-Mart in Rochester has a Subway inside it). Oh and by the way, your check for $112.85 is in the mail.

Yeah, you could re-run the analysis with income and substitution effects for demand. Unless Wal-Mart sales are the ultimate Giffen good, it’s only going to make the cost to individual households lower, and the difference will come out of Wal-Mart’s profit. I think most of the people I know would agree there’s some karmic justice in that, and if you wait for Wal-Mart to raise their wages voluntarily it means you missed your chance. Either way, on a pure cost-benefit basis this policy is a no-brainer.

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