Ronald Coase, 1910-2013

Eventually it will be his birthday that will be an occasion for remembrance, but right now it’s his passing that’s noteworthy: Ronald Coase, more or less the founder of the field known as “law and economics” and one of the people I have respected most, died today at the age of 102.

He’s best known for his widely-cited and widely misunderstood article on “externalities,” which are a type of inefficiency that arises from incompletely specified property rights. I don’t think it’s much of an exaggeration to say that the consensus among economists and other public-policy analysts regarding the necessity of private property for prosperity derives largely from Coase’s body of work.

For those who try to perform economic analysis, Coase left an important message: the purpose of economic theory is to help us understand the facts before us. It is not the purpose of facts to illustrate propositions in economic theory. This may seem utterly trite, unless you consider the role of inadequate theory in the design of Obamacare. Having before them a model of the healthcare sector in which adverse selection is crippling, they designed an insurance system to solve that problem. Alas, they neglected to verify the actual extent of adverse selection, which Coase would have insisted that they do as a first step. If those social engineers had bothered to do that, they may not have given us the disastrous “reforms” whose terrible consequences continue to unfold.

As a young British academic, Coase determined that the proper way to study industrial structure was to study the productive processes of actual business firms. To that end, he set off to America and did just that. His initial academic appointment in the US was at the less-than-prestigious University of Buffalo (no offensive intended to any Bulls reading this). But eventually he found his way to the University of Virginia, where his academic work on the efficient allocation of the radio spectrum laid the first paving stones on the path to the cellular world we take for granted today. He wrote his celebrated paper on externalities mostly to expand the argument he had made about the regulation of the airwaves, but it transformed his career and an entire profession. The “Coase Theorem” traveled the path from “obviously incorrect” to “obvious” in remarkably little time, and won him an appointment to the faculty of the University of Chicago Law School several decades before its luster would be sullied by the hiring of an affirmative-action mediocrity to lecture on Con Law.

The importance of Coase’s work to the lives of ordinary people around the world is rivalled only by that of Milton Friedman. I am saddened by his passing, but not as much as I am inspired by his life.

Rest in peace, Professor Coase.

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Happy Bird Day!

Bop-bop-bop. Today is the birthday of the greatest alto sax player, Charlie Parker, leader of the bebop revolution. His life was ridiculously short (1920-1955) even for the classic jazzbo lifestyle of serious drug and alcohol intake, and it’s a cliche to remark that he looks at least 50 or more in pics of him in his early 30s. Depression can take an awful toll.

But, as the saying goes, Bird lives. That’s enough.

This is one of my favorites, Ornithology, an essential part of the sound of mid-century modernism:

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Lester Young and the Birth of Cool

Lester Young, who followed Coleman Hawkins in bringing jazz to the saxophone, although in a very different style, was born on this date in 1909. He fit a full career inside his not-quite-fifty years of life, influencing not only the way jazzbos played but also the way they talked. The man called “the prez” gave Billie Holiday the nickname Lady Day, called money “bread”, and referred to longing as “having eyes“. And even if he hadn’t been a great saxman he’d be worth remembering simply as the first to use “cool” to refer to something really good.

His porkpie hat and alcohol-fueled attacks on his liver did as much to establish the ’50s image of the hipster jazzbo as much as anything except maybe Dizzy Gillespie’s beret. While the film ‘Round Midnight isn’t a biography of Lester, it does offer un hommage to his style.

Enjoy this version of Lester Leaps In, to commemorate the day when he first leapt out into the world.

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APPLY NOW! OPERATORS ARE STANDING BY!

I just learned that there’s something called Trump University, and it’s not a place where they teach you the subtleties of contract bridge. It’s a school that boasts this astonishing website. It’s that rare institution of higher learning that uses a .biz domain instead of boring old .edu. In addition, I’m pretty sure it’s the only educational institution in the US, and quite possibly the world, where EVERY SINGLE BIT OF REGULAR TEXT ON ITS WEBSITE IS IN CAPS.

Apparently the Attorney General of the State of New York believes that this august institution has engaged in deceptive practices. For example,

Attorney General Eric Schneiderman says many of the 5,000 students who paid up to $35,000 thought they would at least meet Trump but instead all they got was their picture taken in front of a life-size picture of “The Apprentice” TV star.

I know it’s hard to believe that an institution of advanced learning with an admissions process as streamlined as this:

CALL 570-345-3128 TO ARRANGE AN INTERVIEW ASK FOR JUSTIN

and with rigorous standards like these:

NOT ALL APPLICANTS WILL BE ACCEPTED FOR TRAINING

might actually deliver less than a complete educational experience, but apparently that might be the case.

I await further evidence before coming to any conclusions of that sort, however. Meanwhile, I’m reviewing a highly attractive investment offer I’ve recently received from Nigeria.

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When the Theory Doesn’t Fit the Facts, Print the Theory

A recent piece by James Surowiecki, the New Yorker reader’s guide to the perplexing world of economics, gives us an inkling of what’s worrying all the best people in the Hamptons this summer–the price of lobster. After all, it’s one of the few problems these days that can’t be traced directly to some ruinous Obama-administration policy, so it’s not only of vital importance to New Yorker readers but also something that nice people can talk about without being called racists.

According to Surowiecki, the problem–in a carapace–is this:  “There’s more lobster out there right now than anyone knows what to do with, but we’re still paying for it as if it were a rare delicacy.” He explains this conundrum by asserting that people can’t tell a good lobster from a bad one by taste, so they judge it by price. Thus, in order to assure their customers of the high quality of their lobsters, restaurateurs decline the additional profits they could make by knocking a few bucks off the price of their lobster thermidor in order to move more of the abundant crustaceans. Or so the story goes.

What’s the evidence for this claim? Pretty much nothing, other than some manipulative prose from Surowiecki:  “Even as the wholesale price of lobster has collapsed, restaurant prices for lobster tails and that hipster favorite the high-end lobster roll have stayed buoyant.” How much of a fall in price constitutes a “collapse”, you ask? James S. doesn’t say. How far can prices decline and still be declared “buoyant”? No idea. If you’re a New Yorker subscriber you already know the old saying, If you have to ask the price then you can’t afford it.

I mention this not because of my concern for the tight budgets of lobster-eating New Yorker readers, but because this fish story provides an excellent example of one of the great failings of what passes for our “intelligentsia” today: they never let crude facts get in the way of a satisfying theory.

The essential fact about lobsters as far as restaurants are concerned is that they are highly perishable. That’s why restaurateurs who boast of their aged steaks never say the same thing about their lobsters. Also, unlike chickens, lobsters aren’t produced in assembly-line fashion; there are bountiful harvests and thin ones, both determined by the vagaries of nature. If you’ve ever had a bad lobster, as I have, you know it’s a particularly unsatisfactory experience, particularly upon excretion. So what we have here is a food item that’s produced in a very small geographical area, is costly to pack for proper shipping, must be stored in salt-water tanks upon delivery, and deteriorates fairly rapidly. In short, the price paid to a lobsterman at the dock amounts to a relatively small share of the total cost of delivering a fresh-cooked lobster to a restaurant table. Therefore, restaurant’s lobster prices fluctuate much less in percentage terms than do the prices of those same creatures right off the boat. [For example, if in normal times lobsters sell for $5 a pound off the boat and a 2-pound lobster dinner costs $40 at your local swankateria, then a 50% fall in lobster prices off the boat would only reduce the cost at tableside by a 12.5  percent (5/40).] Of course, I have no idea if that’s a sufficient basis for calling lobster prices “buoyant”, because Surowiecki doesn’t bother to define price buoyancy for us. That’s an essential part of the art of telling just-so stories.

But I do have a taste for facts, as well as a working knowledge of search engines, so it took me not much time at all to find out a few things about the market for lobsters.

First, it’s pretty common for restaurants that sell a lot of lobsters not to specify a menu price at all  their lobster dinners. Instead, what their menus typically say is “market price”. This is true in Boston, and it’s true in Florida.* Most people would take that as a sign that lobster prices fluctuate frequently enough that it’s not worth printing them on menus. They might further suppose that restaurants that only sell a few lobster dinners  would rather print a single, stable price on their menus than submit their customers to the gaucherie of having the price told to them by their server. James Surowiecki is not one of those people.

Second, if my explanation is correct, we ought to see bigger retail price fluctuations at restaurants where the price of the lobster itself represents a larger fraction of the total cost of the full lobster dinner. There are lots of such places along the New England coast, and the prices  at those places are so low that they’re newsworthy.

James Surowiecki and his readers do not wish to bother with such banal facts. They far prefer a story as insubstantial as spun sugar, as long as it can be used to illustrate the fundamental irrationality of ordinary people and the impotence of the forces of supply and demand. The people who eagerly scarf up this nonsense are just another segment of the market for ignorance, which is one of the cornerstones of 21st-century liberalism.  Sadly, it’s yet another market in which supply responds quite agilely to demand.

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*Note that items made from canned lobster meat do typically have standard menu prices. Greater storability is the explanation for that.

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The Freedom to Say “I Do” and the Freedom to Say “I Won’t”

The recent decision by the New Mexico Supreme Court forcing photographer Elaine Huguenin to sell her services to Vanessa Willock wanting her to take pics of her wedding to another woman strikes me as an appalling intrusion on her liberty. The right to marry ought not include the right to force people to participate in your festivities. Whether Elaine wins or loses her appeal, the legal proceedings will cost a lot of expensive lawyer time and plenty of emotional distress.

It appears that a likely cornerstone of her case may be a claim to first-amendment protection of artistic expression. This is the sort of convoluted cleverness that delights lawyers and nauseates the rest of us, but obviously “any port in a storm” is a persuasive argument for an embattled defendant. Nevertheless, I’m not sure that anyone who’s ever been subjected to someone else’s wedding photos is going to buy into the argument that they represent artistic expression. The same doubtful artistic status applies to the providers of typical wedding-reception music. And if you’re a caterer, don’t even bother claiming first-amendment protection for your hideous cakes.

Fortunately for any provider of wedding-related services there is a simple and effective solution to the problem of being forced to offer  those services for ceremonies you disapprove of. That solution is to set a price that is high enough either to induce unwanted clients to find another provider or to induce you to put your objections aside for the extra cash. This is eminently fair to all parties. Of course, it may be viewed by some judge with limited cognitive skills as an illegal form of price discrimination. Which is a damn shame, because it would immediately solve the problem by allowing gay couples to find all the gay-friendly photographers, musicians, and caterers through the simple expedient of checking prices.

Whether or not it is legal, this solution ought to be legal because it’s far better for all concerned than the possible consequences of forcing people to provide their services in situations that offend them. After all, while the government can force Elaine Huguenin to take the pics at Vanessa Willock’s wedding, it can’t enforce the level of quality she provides. Suppose Elaine actually shows up and is so distressed by the proceedings that her usual artistic eye and steady hand abandon her. The happy couple’s photographic record of their special day might turn out to be full of unintentional photo bombs by servers, pics of people sitting amidst piles of soiled napkins and dirty champagne flutes, and slightly out-of-focus portraits of the newlyweds. Or maybe the saxophonist in the band will find the scene before him so off-putting that he simply loses his usual tone. And let’s not even consider the horror of a dropped wedding cake.

An old saying that Nana Silicon taught me when I was a tot was, “You can lead a horse to water but you can’t make him drink.” That also holds for wedding photographers, which is something Vanessa Willock really ought to think about before asking the state to compel a resistant Elaine Huguenin to photograph what I am sure will be a lovely ceremony. Because that ceremony would be far lovelier if it were recorded by someone who was there voluntarily.

Freedom is a beautiful thing all on its own, after all.

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Filed under Freedom, Simple Solutions to Difficult Problems, Social Justice