All posts by Editor

Passports and Coyotes

An easy question to ask: if you are coming over the US southern border, why pay large amounts to a coyote (person who professionally smuggles people) to get you into the US at great personal risk, when you could obtain a home-country passport and come straight over the border legally with no personal risk at low cost?  If you are interested in staying long-term, you will still be violating the law after a certain point (and presumably would need to obtain false ID all the same), but the relative risk of the initial journey is significantly reduced.

The only possible explanations are:

1) Most other nations’ procedural and cost burdens to obtaining home-country passports are comparable to what the coyotes charge.

2) The US has established additional barriers to entering the country using legitimate documentation from other nations (e.g., visas that are costly in time, money, etc.).


The Right and Recovery, from the AEI

The American Enterprise Institute hosts a blog called “AEI Ideas“.  Today, James Pethokoukis released a piece, “What the right keeps missing about the recovery“.  In it, he suggests that the economic performance of the US has not been as negative as conservatives and Republicans suggest in public debate.  He advises the center-right to avoid “too much negativity and pessimism” and eschew “easy answers” without sufficient justification.

A comment from the Editor has been posted in response.

Calculating “Appropriate” CEO Pay

CEO pay, and whether it is excessive, is a recurring motif in discussions of whether the economic lot of average people in the US is improving or not.  One’s beliefs on CEO pay usually relate to whether one believes income or wealth inequality is, in itself, a problem and whether one views manual labor as being intrinsically worth more or less than intellectual (managerial) labor.

The ice cream company Ben and Jerry’s was noted in the 1990s for having tried to tackle income inequality by limiting the CEO’s pay to a fixed multiple of the lowest-paid worker’s pay.  The ratio was initially 5:1 then became 7:1 and eventually 17:1, in order to attract and retain applicants for the top job.

The numbers seem somewhat arbitrary, though a rationale for these particular values may exist.  As an alternative way to think about the calculation, consider two key questions:

  • How much does a line worker’s mistake cost the company vs. a mistake by the CEO?
  • How much does a line worker’s good idea benefit the company vs. a good idea by the CEO?

In other words, if an assembly line worker accidentally shuts down a line, or damages a part, or even breaks a machine, the error may affect only his job (he gets fired) or a relatively limited number of produced units.  Only a really egregious error or malicious action — for example, poisoning a particular lot of a food — could actually destroy the entire company.  So, the price of a bad decision by a line worker is limited, mostly to his own job.

Consider the CEO, using the same criteria.  A bad investment or a series of strategic blunders could cost the company its existence, including the jobs of everyone there.  Moreover, the cost of firing the CEO is much more significant: big decisions must be placed on-hold, the board’s time will be consumed by the executive search, and the culture of the company could be radically changed by the successor, assuming the company survives.  In short, the downside risk of a CEO blunder is significantly larger than that of the line worker.

The same logic applies to upside risk – the line worker’s good idea will likely be fairly limited in effect, while the CEO’s good idea (or successful implementation of someone else’s good idea) could have unlimited upside.  This is one reason, as an aside, to implement paid suggestion boxes or other ways to compensate line workers for their good ideas, in order to increase the upside for good thinking and initiative.

Calculating the relative impacts is still somewhat difficult.  But a rough number could be found simply by the number of employees involved: according to 2012 data from web searches, Ben and Jerry’s Ice Cream employs 446 people.  If the CEO could end up destroying the company, but a line worker couldn’t, that makes the appropriate CEO pay for Ben and Jerry’s 446 times the line worker’s, which makes the “right” number (using 2000 pay numbers, at least) $13,244,416, plus 13 years of inflation, not including stock options and other benefits.

Enjoy the Chunky Monkey…

Double-take on Inmate Statistics

The Aug. 29, 2013 US edition of the Wall Street Journal contains a sobering story, “Crime Persists as a Grim Challenge for Blacks“.    The article as a whole contains troubling, heartening, and certainly illuminating statistics from a variety of sources  about the social achievements and problems of different populations in America.

The graphic accompanying the article demands more thought, however.  The image shows the number of inmates (local, state, and federal) per 100,000 people, grouped into men and women, and by race categorized as “Black”, “White”, and “Hispanic”.  Statistics are shown for both 1960 and 2010.  The data originated with the Pew Center, from Census and Bureau of Justice data.    The values for men are:

  • Black, 1960: 1,313
  • Black, 2010: 4,347
  • White, 1960: 262
  • White, 2010: 678
  • Hispanic, 1960: 601
  • Hispanic, 2010: 1,775

The absolute numbers are appalling and should be causing people to ask questions, if not march in the streets.  However, just glancing at the figures, a relationship seems to show up: inmates per 100,000 for each group have roughly tripled between 1960 and 2010. In other words, on average, there are three times as many people in each group who end up in the jail/prison system today as there were fifty years ago.  There are some race-based disparities in the rates, but the rate of increase is still about three.


The first answer that came to mind, probably exposing priors, is “the War on Drugs”, which supposedly began in the early 1970s.  What other explanations account for this data?  Better policing?  More crimes on the books?   Or have Americans simply become three times more likely to become criminals?

Just Do Something

During a 2010 episode of EconTalk, author Nassim Taleb and host Russ Roberts talked about an observable bias toward action rather than inaction in the face of crisis, even if the available data is incomplete or inappropriate (from the transcript: “always better to do something rather than do nothing.  We have had that bias for acts of commission, not acts of omission.  Very hard for people to say we don’t know what works so we’ll just do nothing.”).  Taleb made a specific reference to ancient medicine, where “doing something” was more likely to cause harm than healing.

Behavioral economists and psychologists likely have the specific answer, but a philosophical source suggests this may be both Western and relatively recent.  In a 2008 Philosophy Bites interview discussing Machiavelli, Quentin Skinner notes that one of Machiavelli’s later letters states and The Prince advises action above all – “it is always better to have acted, and regret it, than not to have acted, and regret it.”  The virtuoso is one who exercises virtue, a manly quality, and the leader must always demonstrate manliness.

Is this bias toward action universal, like status quo bias?  Or is it a late Western introduction from Machiavelli (or Italian culture)?