Tuesday, September 28, 2010

Laws against 'texting and driving' haven't made us any safer.

We've all seen it: alarming, dangerous driving behavior perpetrated while under the influence of cell phones. In response to this threat, many locales (including my home state of Washington) enacted bans on texting-while-driving. Has the menace of distracted drivers been curbed?

According to a USA Today article, traffic accidents have actually gone up in areas where anti-phone laws were enacted. To quote the most interesting part:
"Texting bans haven't reduced crashes at all," says Adrian Lund, president of the Insurance Institute for Highway Safety, whose research arm studied the effectiveness of the laws.
Thirty states and the District of Columbia ban texting while driving; 11 of the laws were passed this year. The assertion that those efforts are futile will be a major issue at this week's annual meeting here of the Governors Highway Safety Association (GHSA).
Researchers at the Highway Loss Data Institute compared rates of collision insurance claims in four states — California, Louisiana, Minnesota and Washington — before and after they enacted texting bans. Crash rates rose in three of the states after bans were enacted.
The Highway Loss group theorizes that drivers try to evade police by lowering their phones when texting, increasing the risk by taking their eyes even further from the road and for a longer time.
The findings "call into question the way policymakers are trying to address the problem of distracted-driving crashes," Lund says, calling for a strategy that goes beyond cellphones to hit other behaviors such as eating and putting on makeup. "They're focusing on a single
manifestation of distracted driving and banning it," he says. [Emphasis added.]
This outcome is another lesson in unintended consequences. Before the law, presumably people would text briefly and when the road conditions were safer. After the law, drivers were more concerned about watching for police, decreasing their attention to the road. Of course, the hope was that regulation would eliminate the undesirable behavior, but apparently the appeal of text-messaging outweighs the risk of a traffic ticket. This isn't especially surprising; if someone is willing to elevate their risk of injury or death by texting while driving, it's unlikely that the small chance of a fine will alter their behavior much.

It appears that texting-while-driving is here with us to stay. If government really wants to reduce the danger, perhaps they should regulate the auto companies (which they now own) install built-in heads up displays on the windshield, so drivers can stay caught up with MySpace Twitter and Facebook in addition to text-messaging by voice command, while never taking their eyes off the road. Then we'll see if consumers tolerate the additional cost that safety and peace of mind entail.

Thursday, September 23, 2010

Teamster wisdom on political economy

If God allowed everybody to die in bed, the government would regulate that we'd have to sleep standing up."

-Alex (on History Channel show Ice Road Truckers, Season 2 Episode 4).


For context: Alex is driving a big-rig and hauling a 45-ton piece of mining equipment across the arctic ocean. The road he's driving on consists of nothing but frozen ice, and there's a blizzard rapidly approaching.

In addition to steady nerves and a dry sense of humor, the man has an intuition for political economy. I'll just let the quote above stand on its own. Thoughts?

Wednesday, September 15, 2010

The reason why 99.8% of all 'get rich instantly on Twitter' claims are hoaxes.

I purposely exclude 0.2% of 'make-money-off-Twitter' plans from the "hoax" category, because I'm sure some very smart person out there will go and prove my generalization wrong. Until that blue moon arrives, I'll explain why all the Tweet-gurus offering to make you big bucks for doing nothing are just yanking your chain.

Not familiar with the "instant money on Twitter" phenomenon? In my endless quest for self-publicity, I've stumbled across a lot of statuses like
"Making $500 dollars per week from home off Twitter while on autopilot. Come see how!!!!" 
or similar. Sounds appealing, but is it too good to be true? Yes, yes it is. Some economic thinking can reveal why.

1)  There are no barriers to entry on Twitter. All it takes is an e-mail address and lack of respect for grammar (just kidding) and you can start a Twitter account. Economists would describe this as an open market. Entry and exit are free, and there are are large number of Twitter users - over 75 million now - but that number could easily grow (or decline) in the future.

2)  Large amounts of cash for sitting at home is a tempting opportunity for most people. In an open market, positive profits cause new suppliers (Twitter users) to enter until the price for their product drops, and profits return to zero in the long run. Intuitively, everyone desires more pay for less work; if easy money opportunities really exist, why haven't they already been snapped up by some other Tweeter? The supply of users is so large that any actual profit opportunity would be almost instantly utilized if they're believed to be legitimate.

What does this amount to? Twitter is an open market situation, so the easy opportunities have most likely been exploited already. In the lingo, it's reached a Pareto-efficient state, where new transactions will cause one person to gain only at the expense of another. In Twitter-context, all that's left are scams that can make one rich by taking from many. In other words, a pyramid scheme (or in light of recent events, perhaps it should be re-dubbed 'the Madoff Special'). Given Twitter's booming follower base, even an extremely low response rate by potential marks might be enough to keep a scammer in business.

A pyramid scheme produces nothing tangible, so the possibility for mutual gain is zero. I haven't tried any of the get rich quick plans that various Twits have offered because, if the above logic holds, it would be a stupid waste of time and money. Basically, if someone is really making $500 a week on Twitter it's because they conned the gullible into giving it to them, and they're probably hoping you'll be their next payday advance.

Caveat: Just to avoid confusion, I'm not claiming it's bad to generate company profits off Twitter. Used properly, Twitter is a valuable tool for social marketers to network and promote a business. Such people have a useful service available and just need a medium to get the word out. In these cases, Twitter can facilitate sales that otherwise would not have occurred, which is more economically efficient -- those social media specialists contribute value and earn their money. The distinction between established firms marketing a product versus scam artists promising an easy buck shouldn't require any further explanation.

Tuesday, September 14, 2010

Bedbugs. Yet another reason to hate Rachel Carson (aside from 800 million dead of malaria).

The history of malaria is interesting, in a macabre sort of way. A hardy parasite spread by insects, the cause of malaria was unknown for most of human history. The name we know today comes from the French phrase for "bad air," reflecting the common observation that malaria cases peaked around swampy areas. Their solution in Algeria - drain the swamps - was effective, but costly.

Malaria, the organism, is extremely difficult to kill. However its crucial vector, the mosquito, is vulnerable when combated with the correct chemical tool. In 1939, Paul Mueller discovered just that: DDT. This insecticide is cheap, effective, and quite safe for humans. Some claim it causes cancer, but their evidence has since been disputed. By comparison the malaria problem is undeniable and catastrophic, with millions dying on a yearly basis. As said by Wenceslaus Kilama, the Chairman of Malaria Foundation International "this is like loading up seven Boeing 747 airliners each day, then deliberately crashing them into Mt. Kilimanjaro."The imagery is hard to overlook.

The history of bed bugs is less interesting, but in a much more annoying way. Like malaria, bed bugs have plagued humanity since the dawn of time. They cause irritation, swelling, and definitely a terrible night's sleep. We're still combating this invasive parasite as well -- a national Pest Convention is meeting to discuss the issue. Exterminators have been caught by surprise as bed bug infestations have sprung up in the last several decades across the country, and surprisingly little is known about them.

What do malaria and bed bugs have in common? They've both been increasing since DDT usage was halted thanks to Rachel Carson's book, Silent Spring. Some people claim that bed bugs' modern upsurge is just due to increased travel. I think the facts say otherwise, given the almost total eradication of bed bug cases during the heyday of DDT's popularity. That issue aside, there's no disputing the deadly impact of malaria -- a plague that can easily be prevented by regular spraying of DDT.

The public outcry prior to the DDT ban is a classic example of action taken without full understanding of the consequences. Enough has been written on this already, so I won't belabor the point. Ultimately, Rachel Carson isn't the only one to blame; fault rests with the politicians and lobbyists who listened to her before all the evidence was in. Now, the public at large is feeling the consequences from decisions made forty years ago. With bed bugs infesting the Big Apple, maybe it will get people itching for change in our national pest control priorities.

Monday, September 13, 2010

Statistical Fallacy #002: Confusing Correlation with Causation. Does a strong handshake really make you live longer?

Even highly educated and intelligent medical researchers aren't immune to statistical errors. A recent study in the British Medical Journal referenced 33 other studies on personal mobility and life expectancy, and compiled their results. According to Reuters, 
They found simple measures of physical capability like shaking hands, walking, getting up from a chair and balancing on one leg were related to life span, even after accounting for age, sex and body size. 
While the phrase "accounting for age, sex and body size" makes this process sound very objective and scientific, there are obviously a lot of other factors that can play a role in life expectancy. Personal differences, such as leading a more active lifestyle, could cause someone to have both more hand strength and also better health in general which contributes to their longevity.

While statistics saying "the death rate over the period of the studies for people with weak handshakes was 67 percent higher than for people with a firm grip" sound very dramatic, it's hard to say if that relationship is reverse-causal; in other words, having a weak grip may signal your lifespan will be short, but will improving your grip really make you live longer? Probably not, which suggests it's far more likely that a common variable - for example, sitting on the coach all day - causes both weak hands and a lower life expectancy.

Common sense says that working with a stress ball or doing forearm exercises to develop a crushing handshake probably won't substantially reduce your chance of death from heart disease, cancer, stroke, or the other leading causes of death for adult Americans. However, this is exactly the impression given by the Reuters article title "Want to live longer? Get a grip!" Heavens forbid someone took this seriously and developed gorilla-like forearms only to find out their fitness investment had been in vain.

Friday, September 10, 2010

Private funding for prison rehabilitation -- latest British innovation.

Say what you will about eccentricities in the United Kingdom's political structure, they aren't afraid to try some new things. Particularly, in the area of penal reform.The U.K. prison system is struggling with extremely high recidivism rates; according to the BBC "60% of criminals who serve short sentences reoffend within a year of leaving prison."

So what's the plan? Much like purchasing a bond, investors can put money into the rehabilitation program (currently limited to male inmates with sentences less than one year). If reoffenses among the subject group drop by a specified amount, the investors receive dividend payments.

Quoting the BBC:

"It pays by results," said [Justice Secretary Ken] Clarke. "We're going to pay what works and what works should therefore grow and what doesn't work will vanish.
"I like the innovative funding, the payment by results, the collaborative groups, and if it succeeds it will grow and if it doesn't, by that time we will be trying something else.
"But sooner or later, something has got to be done about reoffending.
Social Finance said there would be indications of whether the project was succeeding within a year but the full return would not be known until the end of the six-year investment term.
Social Finance director Emily Bolton said: "Investors benefit and the government gets some cost savings. The better the reductions in reoffending, the higher the investors' return.
"It's not taking money out of the system, in fact it's enabling us to transfer the money to more socially valuable things."
An interesting idea. America is already using private companies to help run its prisons. However, their incentive structure is reversed -- the more people in jail, the more money. One such company was compared to a "hotel that's always at 100 % occupancy. . . and booked to the end of the century." The opposite strategy - using private industry to prevent crime - hasn't been applied much, unless you count mall cops and security guards.

In spite of a comprehensive parole/probation system, American prisons have their own recidivism problem. Some telling statistics:
In 1999, a total of 244,700 probationers and 173,800 parolees were reincarcerated for new offenses.Those numbers respectively comprise 15 and 42 percent of all parolees and probationers released that year. (41)

It makes me think of George Clooney in Oceans 11, who is paroled and immediately planning his next heist -- except most criminals don't have a screenwriting crew in their corner. Obviously, the rehabilitative aspect of our prison system is lacking something.

While an obvious solution to reoffending would be to increase sentences until no one would be able to get in and out of prison in a lifetime, it's questionable how much that would advance larger social goals (like not incarcerating half our adult population; we're up to 2 million so far). As state budgets continue to tighten, perhaps financial reality will cause us to take a cue from the Brits, and make crime prevention as profitable as punishment.

Saturday, September 4, 2010

Attention Undergrads -- you're still paying for all those classes you skipped.

Graph made by Mark Kantrowitz of FinAid.org
We've reached a momentous, but little celebrated moment in financial history. Credit card debt has been surpassed by student loans (including both federal and private). Let's give a big 800 billion cheers for education!

You can see this trend in the graph to the left. Notice how in 2008, credit card debt peaked and has now declined, while student loan debt has gone up at a steadily increasing rate. The modern family unit (mom, dad, and the federal government) have been paying a larger and larger bill, and for those who can't afford it, the slack has been taken up by private lenders. Unlike credit card bills, which fluctuate with the larger economic climate, student loan debt just kept going up and up.

Education is always a good investment, right? With costs of tuition rising by 8% per year, one might expect students would soak up every valuable minute of classroom instruction. That hasn't been the case. While tuition rates have gone up steadily, student attendance has gone down. This trend has been especially strong in recent years. According to Blair Hedges, a biology teacher,

throughout the 1990s... on average, 80 percent of enrolled students came to his class. But he noticed a decline over the last five years -- so much so that he decided to take an informal tally of his students. What he found was discouraging: Forty to 50 percent of students weren't attending his classes, which mirrored what he heard from colleagues in his department and at other large universities.

Some schools have instituted punitive policies, allowing the instructor to give a failing grade to students who skip too often, but even that hasn't kept attendance numbers up.

On the surface, this shows that education is one of the most over-priced but under-valued commodities on the market. For an economist, that requires some explaining. Three economic concepts can show why students pay for a class, then don't show up to it:
  • Sunk costs. Once the tuition payment is made (or the loans taken out) it doesn't factor into decisions anymore. Whether you go or not, the bill at the end is the same.
  • Signaling. Going to college shows potential employers that you're the type of person who can do the work required to get a college degree, and who they might want to hire. They'll never know if you dozed through your freshman calculus class (at least until a bridge falls down).
  • Opportunity cost. Attending class implies a trade-off; what else can you do with an hour? Going back to bed with a headache may seem foolish in retrospect when taking the test, but at the moment appears like a much better idea.
In classes where the material can be learned better from a book, the tests aren't based off in-class material, or you already know what's being taught, skipping makes logical sense. This begs the question, however, of why it's even worth taking that class in the first place.

If you're an undergrad and the above makes you content with low attendance, I'd suggest reconsidering your field of study. Education is only useful if you can do something with it, and that'll be hard to accomplish after snoring through the coursework. While you can count on some college professors not caring whether you show up, be assured that bill collectors coming for the student loan payments will be much more tenacious.