The Social Drug of Prohibition

Why does the average drinker consume alcohol? There are plenty of reasons, one of which is social. Alcohol, while inhibiting clarity, precision, and discretion, is a social lubricant. If you’re one of those drinking, then it’s enjoyable to be around other drinkers. Also, people build the habit of drinking *something* while socializing. We all know that prohibition resulted in bootlegging and tainted cocktails. But what were the legal alternatives? One was that you could purchase grape juice and make your own wine (that’s a story for another time). Another is to switch to another drug.

Alcohol is a depressant and arguably the most popular one in the US. It’s not a clear substitute for alcohol in terms of its direct effects on the body. However, it’s a liquid, safe, and tasty. That make is a good candidate for satisfying the physical urge to imbibe. But, importantly, it is also a social drug. People would get so hopped up on coffee and feed off of one another’s high that Charles the II of England banned coffee houses in order to prevent seditious fomentation. This brings us to an important characteristic of coffee. It’s a stimulant. You’d think that a stimulant would not be a substitute for alcohol. If anything, one might think that they are complements. Coffee helps to provide that kick in the pants after having an enjoyable night. But, the social feature makes coffee a good candidate to substitute alcohol, should the times be dire.

Illegal activity aside, people wanted an outlet for their physical and social proclivities. They wanted intoxication. Coffee provided exactly that. Conveniently, the continental US didn’t grow any of its own coffee. That means that imports and domestic consumption have a tight relationship.

Continue reading

Online Reading Onpaper

We have six weekly contributors here at EWED and I try to read every single post. I don’t always read them the same day that they are published. Being subscribed is convenient because I can let my count of unread emails accumulate as a reminder of what I’ve yet to read.

Shortly after my fourth child was born over the summer, I understandably got quite behind in my reading. I think that I had as many as twelve unread posts. I would try to catchup on the days that I stayed home with the children. After all, they don’t require constant monitoring and often go do their own thing. Then, without fail, every time that I pull out my phone to catch up on some choice econ content, the kids would get needy. They’d start whining, fighting, or otherwise suddenly start accosting me for one thing or another – even if they were fine just moments before. It’s as if my phone was the signal that I clearly had nothing to do and that I should be interacting with them. Don’t get me wrong, I like interacting with my kids. But, don’t they know that I’m a professional living in the 21st century? Don’t they know that there is a lot of good educational and intellectually stimulating content on my phone and that I am not merely zoning out and wasting my time?

No. They do not.

I began to realize that it didn’t matter what I was doing on my phone, the kids were not happy about it.

I have fond childhood memories of my dad smoking a pipe and reading the newspaper. I remember how he’d cross his legs and I remember how he’d lift me up and down with them. I less well remember my dad playing his Game Boy. That was entertaining for a while, but I remember feeling more socially disconnected from him at those times. Maybe my kids feel the same way. It doesn’t matter to them that I try to read news articles on my phone (the same content as a newspaper). They see me on a 1-player device.

So, one day I printed out about a dozen accumulated EWED blog posts as double-sided and stapled articles on real-life paper.

The kids were copacetic, going about their business. They were fed, watered, changed, and had toys and drawing accoutrement. I sat down with my stack of papers in a prominent rocking chair and started reading. You know what my kids did in response? Not a darn thing! I had found the secret. I couldn’t comment on the posts or share them digitally. But that’s a small price to pay for getting some peaceful reading time. My kids didn’t care that I wasn’t giving them attention. Reading is something they know about. They read or are read to every day. ‘Dad’s reading’ is a totally understandable and sympathetic activity. ‘Dad’s on his phone’ is not a sympathetic activity. After all, they don’t have phones.

They even had a role to play. As I’d finish reading the blog posts, I’d toss the stapled pages across the room. It was their job to throw those away in the garbage can. It became a game where there were these sheets of paper that I cared about, then examined , and then discarded… like yesterday’s news. They’d even argue some over who got to run the next consumed story across the house to the garbage can (sorry fellow bloggers).

If you’re waiting for the other shoe to drop, then I’ve got nothing for you. It turns out that this works for us. My working hypothesis is that kids often don’t want parents to give them attention in particular. Rather, they want to feel a sense of connection by being involved, or sharing experiences. Even if it’s not at the same time. Our kids want to do the things that we do. They love to mimic. My kids are almost never allowed to play games or do nearly anything on our phones. So, me being on my phone in their presence serves to create distance between us. Reading a book or some paper in their presence? That puts us on the same page.

If You Get Too Cold, I’ll Tax the Heat

Public utilities are funny things. The industry is highly capital intensive and many argue that it makes for natural monopolies. At the same time, access to electricity and water (and internet) are assumed as given in any modern building. Further, utility providers are highly, highly regulated at both the state and federal levels of government. Many utilities must ask permission prior to changing anything about their prices, capital, or even which services they offer.

Don’t get me wrong. Utility companies have a sweet deal. They are protected from competition, face relatively inelastic demand for their goods, and they have a very dependable rate of return. I just can’t help feeling like state governments are keeping hostage a large firm with immobile fixed business capital. For that matter, given what we know about the political desire for opaque taxation, I also have a suspicion that many states might tax their populations by using the utility companies as an ingenious foil. “Those utility companies are greedy, don’t you know. It’s a good thing that they are so highly regulated by the state.”  

There are two types of utility taxation. 1) Gross receipts taxes are like an income tax. From the end-user’s perspective, the tax increases with each unit consumed. 2) A utility license tax is like a fee that the utility must pay in order to operate in the state. From the user’s perspective, well… This tax may not even appear on the monthly bill. But if it does, then the tax per household falls with each additional household that the utility serves. Either way, state governments can get their share of the economic profits that protection affords. Below is map which shows the 2021 cumulative utility tax per resident in each state.

Continue reading

House Rich – House Poor

Last week I presented a graphic that illustrates the changing average price of homes by state. This week, I want to illustrate something that is more relevant to affordability. FRED provides data on both median salary and average home prices by state. That means that we can create an affordability index. Consider the equation for nominal growth where i is the percent change in median salary (s), π is the percent change in home price (p), and r is the real percent change in the amount of the average home that the median salary can purchase (h).

(1+i)=(1+π)(1+r)

Indexing the home price and salary to 1 and substituting each the percent change equation (New/Old – 1) into each percent change variable allows us to solve for the current quantity of average housing that can be afforded with the median salary relative to the base period:

h=s/p-1

If h>0, then more of the average house can be purchased by the median salary – let’s vaguely call this housing affordability. Both series are available annually since 1984 through 2021 for all 50 states and the District of Columbia. The map below illustrates affordability across states. Blue reflects less affordable housing and green reflects more affordable housing since 1984.

Continue reading

Concentrating on Housing

Housing has become more expensive. Below is a figure that illustrates the change in housing prices since 1975 by state. By far the leaders in housing price appreciation are the District of Columbia, California, and Washington. The price of housing in those states has increased about 2,000% – about double the national average. That’s an annualized rate of about 6.7% per year. That’s pretty rapid seeing as the PCE rate of inflation was 3.3% over the same period. It’s more like an investment grade return considering that the S&P has yielded about 10% over the same time period.

Continue reading

Cleaning Data and Muddying Water

I’ve praised IPUMS before. It’s great.

The census data in particular is vast and relatively comprehensive. But, it’s not all perfect.

Consider three variables:

  • Labforce, which categorizes whether someone is employed
  • Occ1950, which categorizes occupation types
  • Edscor50, which imputes a relative education score based on occupation

These all seem like appropriate variables that a labor economist might want to control for when explaining any number of phenomena. There is a problem. Edscor50, and the several measures like it, are occupation based. Specifically, the scores use details about 1950 occupations to impute educational details. There are similar indices used for earnings, income, status, socioeconomic status, and prestige.

Cool.

Continue reading

Average US Consumption: 1990 Vs 2021

On Twitter, folks have been supporting and piling on to a guy whose bottom line was that we are able to afford much less now than we could in 1990 (I won’t link to it because he’s not a public figure). The piling on has been by economist-like people and the support has been from… others?

Regardless, the claim can be analyzed in a variety of ways. I’m more intimate with the macro statistics, so here’s one of many valid stabs at addressing the claim. I’ll be using aggregates and averages from the BEA consumer spending accounts.

Continue reading

AI Can’t Cure a Flaccid Mind

Many of my classes consist of a large writing component. I’ve designed the courses so that most students write the best paper that they’ll ever write in their life. Recently, I had reason to believe that a student was using AI or a paid service to write their paper. I couldn’t find conclusive evidence that they didn’t write it, but it ended up not mattering much in the end.

Continue reading

Inflation, Information, & Logic

Most economists know that the CPI is overestimated and therefore prefer the PCE price index. However, monthly CPI data is consistently released before PCE data for a given month. One would think that they move in the same direction and be highly correlated. Indeed, in the past five years, the correlation is 0.96. Therefore, it stands to reason that the there is less new relevant information on the PCE release dates than on the CPI release dates. Yes, CPI is biased, but it still contains some information about prices and it is known well prior to the more accurate PCE numbers.

Supply and Demand react to new information. Sometimes the new information changes our expectations about the future, and other times we learn that our beliefs about goods and assets were previously not quite right. So, with new relevant information comes new prices as people update their beliefs and expectations.

Let’s get financial.

Continue reading

The Imperfection of Subgame Perfection

I’ve written previously about Pure Strategy Nash Equilibria (PSNE). They are the set of strategies that players can adopt in equilibrium – with no incentive to change their strategy. Students have an intuition that PSNE aren’t great because some outcomes that they identify depend on players making silly decisions in the past. In jargon, we can say that some PSNE depend on players choosing irrationally in a subgame while still reaching a PSNE.

See the extensive form game (below right). There are two players, each with two strategies per information set, and player two has two information sets. All PSNE will include a strategy for each information set. We can present the same game in normal form in order to make it easier to identify the PSNE (below left).

Player 1 (P1) can choose the row (B or C) and Player 2 (P2) can choose the column. Importantly, whether P1 might want to change his mind depends on P2’s strategy at the decision node in the alternative information set. Therefore, P2 must have two strategies, one per information set.

The four PSNE strategies and payoffs are underlined in the above table and they are noted in red on the below extensive form games. Again, the logic of PSNE states that no player can improve their payoff by changing only their own strategy, given the opposing player’s strategy. After all, a player can control their own strategy, but not that of their opponent. For example, note PSNE II. In the left subgame, P2 chooses M. His payoff would be unchanged if he changed his strategy, given the strategy of P1.

Continue reading