July 26, 2018--Wow Factor!

My favorite economists are those who are behavioral economists. 

They take on the still widespread efficient-market theorists who contend that in markets asset prices (such as stocks and bonds and real estate) reflect and are based on all available information. That people make economic decisions--they buy this or that stock, buy this or that house--by drawing upon all the information that is openly available from billions of transactions. And thus they are behaving rationally. They want their assets to appreciate as much as possible and if the Market is free--free of misinformation and regulations--people will act after careful thought. They will pursue their best interest and thus over time will be rewarded.

In contrast, behavioral economists cite evidence that people do not make financial decisions all that rationally. Emotion, beliefs not based on evidence, play a larger role in people's choices than efficient-market theorists allow.

My favorite example is how people make decisions about which house to buy.

If they were operating in an efficient-market environment they would take into consideration such things as the asking price (does it conform to the value of nearby, comparable houses); what about taxes and the cost of a mortgage (are they affordable); are the infrastructural systems such as the roof and heating system in good shape; are the schools in the area, based on evidence, of high quality; if it will be necessary to commute what are the traffic and public transportation options; what is the local crime rate.

These are among the issues one would expect those seeking to buy a house would have at the top of their list.

One would think so except that behavioral economists cite evidence that the so-called "wow factor" is more important than anything else when people decide which house to buy. 

Though a house for most is the largest deployment of assets they will ever make, how the house "feels" when they enter it for the first time is more important in shaping which house to purchase than if the seller has priced the house fairly.

I confess, when buying real estate, to having been influenced many times by the wow factor. In each case though we did well when we moved to sell the places a few years later, it was more because of good luck than careful investing.

There was very little that was rational or efficient when we chose to buy these properties.

I was reminded of this earlier in the week after reading in the Times about how owners and workers at Banner Metals in Columbus, Ohio are reacting to Trump's tariffs on steel since they are affecting the bottom line at Banner. They are experiencing delays in the delivery of the materials they need to fulfill orders and because of the increase in the cost of steel and aluminum their bottom line and paychecks for both workers and managers are already feeling the pinch. One would thus think there would be widespread discontent, much of it focused on Donald Trump.

Quite the contrary. Part-owner Bronson Jones was quoted as saying--"I'm not looking at what's best for Banner right now. I'm looking at what's best for the national economy. The United States has been taken advantage of for too long."

Line workers are saying versions of the same thing. Acknowledging that they expect to see less in their paychecks beginning this summer. If their "sacrifice" contributes to the creation of new jobs they say they are willing to pay the price.

The rational or efficient market would predict that Banner employees would care only about their own take home money. But something else is at work here. The behavioral economy.

Also in regard to the Trump tariffs we are already seeing their dampening effect on American agriculture. Especially the multi-billion soybean sector. In politically-crucial Iowa, for example, where Trump will hold a rally in a few days, a large portion of their economy is connected to the global market in soybeans. Most of what they produce winds up in Asia, in China where we are engaged in a widening trade war.

To alleviate the effect on farmers, Trump two days ago announced that he directed the Department of Agriculture to spread $12 billion in subsidies around among soybean farmers to help alleviate their pain. And, politically, to see if he can buy their complicity.

Forgetting for the moment how this exposes Trump as anything but a free-marketeer (about how "creative destruction" is necessary to a thriving capitalist economy), farmers and politicians from red farm states are outraged by what they see to be meddling in the free market. As it turns out, what many of them are saying sounds very much like classic behavioral economics.

Take Nebraska Republican senator Ben Sasse--

This trade war is cutting the legs out of farmers and the White House "plan" is to spend $12 billion on gold crutches. This administration's tariffs aren't going to make America great again, they're just going to make it 1929 again.

Sasse, who has thus far been pretty much a down-the-line Trumpian may be sensing something. It could be that Trump's reckless economic moves are beginning to hit close to home and he's beginning to back off.

Wishful thinking? Probably.

June 7, 2017--Jack: How to Lose the Next Election

Midterm elections are more than a year-and-a-half away and though 2020 is years from now, already Democrats are doing an excellent job of arranging to lose both.

Depressing? For me, and I know for most of you, deeply so.

But there is lots of time to get our act together. But, first, there are a few things we have to stop doing.

First and foremost, we have to stop being stupid.

I know many on the left think that Donald Trump is the stupid one, but by recent evidence, compared to some prominent liberals, he is looking politically savvy and we are busy shooting ourselves in the foot. Both feet.

Jack has been eager to point this out to me.

Over coffee Monday morning, as pumped up as I've seen him in some while, he said, "Tell me what you think about this."

"Go on."

On Meet the Press on Sunday who compared Donald Trump to OJ Simpson?" Jack paused to grin at me.

I stared into the bottom of my coffee mug and said, "Go on."

"I'll give you a hint. It's a he and he ran for president and almost won." I didn't say a word.

"About Trump withdrawing from the Paris climate deal, one of your favorites said--'He says he's going to go out and find a better deal. That's like OJ Simpson saying he's going to find the real killer. Everyone knows Trump isn't going to do that because he doesn't believe in it.'"

"Is it Al Gore?"

"Close but, no, John Kerry. Hang on, there's more. Here's an easier one for you. It happened Friday night. I'm sure you'll know who it is. While interviewing Senator Ben Sasse of Nebraska, who was out humping his new book, The Vanishing American Adult, the host said he needs to visit Nebraska more. The senator then recommended he visit his state and 'work in the fields.' Again, one of your favorites, looking at Sasse quizzically, raised his hands and said--forgive my language but I'm quoting him, 'Work the fields? Senator I'm a house nigger.' There was embarrassed laughter. But that's what he said."

"I'm afraid I do know who that was."

"Tell me."

"Bill Maher," I mumbled.

"Speak up. I can barely hear you," Jack said. I chose not to but he raced on, "Then there was a late-night TV host. Can you tell me who it was? After saying he was outraged by President Trump's put downs of journalists, including a colleague, John Dickerson, at the end of a profanity-filled rant, he said, and again I'm quoting him, I'm not making this up,  'The only thing Trump's mouth is good for is being Vladimir Putin's cock holster.'

I knew who did that but declined to take Jack's bait.

"And I'm sure you know who posted this picture." He dug out his iPhone and quickly found an image of Kathy Griffin holding up an effigy of Donald Trump's severed head.

"My point is this," Jack said, sounding serious, "My point is that while the country is being torn apart by partisanship and violent disagreements about how Trump is doing as president, while this is going on, and I've confessed I have my problems with him, some problems, this is the best you can do?"

"There are plenty of other things going on," I said, "Like marches, like media coverage of his most outrageous behaviors, like Democrats in Congress opposing some of his craziest ideas like the budget and healthcare legislation. It's not all Kathy Griffin and Stephen Colbert."

"But you're missing the larger point. Though what you say is objectively true, that though these kinds of racist and snarky episodes occur only occasionally, they really turn off the very kinds of voters liberals like you want to attract back to the Democrat Party. You have no idea how alienating this kind of mocking smugness is. It only reenforces the opinion that liberals are out of touch with average people and can't be taken seriously. It's another example of how conservatives and many Independents see the Democrat Party captured by east and west coast elites."

Reluctantly, I said, "I can't say I disagree with you about that."

"And then on top of this," Jack said, "Hillary Clinton is running around the country making speeches (I assume for big bucks) about why she lost the election. Blaming everyone and everything but herself. Whining about how she ran out of money, that James Comey sabotaged her candidacy, and that her defeat is all the result of misogyny. This too isn't helping your cause."

He folded his arms across his chest, leaned back in the booth, and, feeling good about himself, simply smiled.