Respect Capitalism

Given the vast discounts you can get by buying books on Amazon.com, why do people buy books at bookstores anymore?  It doesn’t quite make sense to me.  Obvious advantages of brick-and-mortar book stores are the environment, friendly service, and the ability to see books before buy.  Obvious advantage of Amazon.com is the ability to buy a book in 5 minutes from the comfort of your own home.

Now I frequent bookstores quite a bit - twice a week, sometimes more - simply because I love the environment and the ability to sit down and ready a book while drinking coffee at a spot away from home.  But rarely do I actually ever purchase a book at a book store.  Typically I’ll go to a bookstore and look through any book I’m thinking about buying, note the title, then go straight to Amazon.com and order them.  More than once I’ve actually ordered books from of Amazon.com while sitting in the cafe on my computer of Borders or Barnes & Noble.

I could see perhaps a 10% price difference being counteracted with the advantages of brick-and-mortar stores, but Amazon’s discounts are usually an effective 30-40% or more (especially after no sales tax in many states).  This is a huge price difference and in any other industry I don’t think producers offering significantly higher prices for identical products would be in business much longer.

Although I really am stumped as to why this occurs, one potential answer is simply the culture - older generations are used to stopping by their neighborhood book stores to pick up books.  With smaller bookstores, peoples’ claim to “support their local community” might also explain some of this (while even then people’s actions with their wallets tends to contradict what they say), but are you really supporting your “community” by buying books at large changes like Borders or Barnes & Noble?

Among younger generations the most plausible explanation is simply a string desire to have the product immediately.  It’s the same reason why many people buy stuff at stores like Circuit City even though the same product is available through the internet (at sites such as NewEgg) for significantly cheaper - they inherently place a high value on having the product in their hands immediately; they don’t like to wait.

Given this last point, it is truly phenomenal to me then when I hear (often) a bookstore employee telling the person that the book they are looking for is out of stock but that they can order it for pickup or shipped directly.  Doing this completely takes away the “have it now” advantage of brick-and-mortar stores, so why would anyone ever actually say yes to having Borders order a book for you at list price when you go go home and order the same book delivered right to your home through Amazon?  This truly makes no sense to me, the only explanation being some peoples’ lack of facility with computers (though navigating Amazon isn’t rocket science).

If you’re an avid book reader and buy books at Borders or Barnes & Noble, why don’t you just buy them from Amazon?

The current state of record gas prices has lead to a barrage of uninformed discussion and downright silly claims that is absolutely maddening.  Why more economists don’t step in to correct the record and straighten out the nonsense (mostly in the name of maintaining “neutrality”) is also frustrating.  Last time I checked neutrality has nothing to do with differentiating nonsense from fact.

Claims are made that the oil companies are “price gouging” and as a result oil company executives are dragged before Congress, forced to explain basic economics to the politicians too inept to have studied it to begin with.  I’m sure you’ve heard by now the claim that Exxon Mobil made “record” profits in 2007, a whopping sum of $40 billion.  Lots of financially-dull people quote this figure even though it’s utterly meaningless outside the context of revenue (except to point out that these companies are indeed large), which is a little more revealing: Exxon Mobil’s profit margin (profits as a percentage of revenue) were 10.9%.  If you’re under 35 your mutual fund probably averages more than this. Since Exxon Mobil is such an evil company that’s profiting enormously from the American consumer’s pain at the pump, it surely must be the most profitable large company right?  Of the Fortune 500 companies (which yes.. actually includes 500 companies), 138 had higher profit margins than Exxon Mobil.  The other two major oil giants, Chevron and Connoco Phillips, had profit margins around 7%.  Hardly sounds like windfall profits to me, and this even in a time of of a heightened oil futures market, where one would expect oil company profits to be larger than normal.  In fact, many other industries have significantly higher profit margins, but you never see anyone complaining about them.   So next time your family member mentions the $40 billion figure, ask them to guess what the profit margin was (if they understand what that means) and you’ll likely get absurd answers like “60%”.  Then serve them a healthy dose of reality.

The next target for the villain-seekers is the evil “speculators” on the oil futures market that “artificially” push up oil prices and need to be “controlled”.  Explaining how the oil futures market work to every day gas price complainers is an exercise in futility, but the economic theory on this is rather clear: futures markets efficiently allocate risk in commodity prices to those best able to study and analyze the market.  The effect on prices over the long term is a smoothing-out effect of what would otherwise be a more volatile market.  As we know from finance, risk/volatility inherently must carry a risk premium relative to less risky assets deriving from the principle of risk aversion.  So with lower risk comes lower prices in the long run.  However, this also means that at time of high-price speculation, the price of oil is probably higher than what it would be without speculation.  This is the fact many complain about, however the other side of the coin is that at a time of low-price speculation, the price of oil is probably lower than what it would be without speculation.  Over the long run, however, prices, theoretically speaking, are lower.  So not only are commodity futures markets not harmful, they are efficient and helpful to the economy as a whole.

Interestingly this same concept of volatility was brought to my mind as soon as I read the absurd description of a Facebook group a few months ago saying we can lower gas prices by choosing one day to NOT buy gas.  The non-reasoning implicit in the idea aside, one would actually expect this tactic to increase gas prices as a result of increased demand volatility as well as less ability to maintain an efficient, smooth daily supply of gasoline to stations.

Another area of volatility for companies in America is regulation and litigation, which in some cases is a huge risk to the operation of a business.  If the American government has almost unlimited power to slap regulations on a company’s core product, risk of revenue production increases which, all else held equal, makes that company less valuable.  This certainly applies to oil companies as well and when politicians pander to voters’ serious lack of economic understanding by “punishing” the oil companies with “windfall profits taxes” and other such gimmicks, this makes doing business and revenue production more risky for these companies.  The point here is that we don’t need the regulation to actually take place for it to harm the ability of oil companies to supply oil (yes, this does drive up prices… oil is a highly competitive market with little ability for individual companies to “control” prices, despite popular myths).  I can assure you the oil futures traders (and all financial traders… in stocks, commodities, otherwise) pay close attention to potential regulation that would affect the market in which they operate.  The mere talk of regulating oil companies could cause price changes. The mere talk of regulating industries like tabacco and other “hated” industries reduces the market value of their companies.

As such, you can do your small part to reduce gas prices by stop bitching about the oil companies and the speculators and stop allowing politicians implementing borderline insane policies to pander for your vote.  Make regulation risk for oil companies as low as possible and let them do what they do best in a competitive market - supply energy :).

Perhaps the most interesting area of economics of mine and simultaneously the area in which I have the least formal education is the labor market - specifically the IT labor market. Recently Bruce Webster made some observations about current IT labor strategies that I find to be spot-on: The Wetware Crisis: the Dead Sea Effect. In the article, Bruce describes the current IT labor retention situation much like the dead sea - eventually the true talent leaves and the “residual” is left behind, happy that they have a secure job.

Though I have no statistical evidence, based purely on my experience, I intuitively believe that variance in productivity or “output” in IT - and in software engineering in particular - is significantly higher than most other fields, enough for a standard deviation of orders of magnitudes. I find it entirely reasonable to believe that a talented software engineer can easily produce literally 20x more “output” than a lower-mediocre developer. I don’t think the labor market in IT has entirely captured or adjusted for this fact and is instead stuck representing variance in productivity that is more common in traditional jobs.

It is no wonder then that talented people are leaving large organizations in droves when they are not being properly compensated (salary, work environment, intellectual stimulation, etc.), mostly as a result of managers failing to recognize the important of talent in organizations and the huge variance in applicants’ ability. Bruce writes:

“Large companies tend to lose the really talented IT engineers and hold onto the less talented ones, when they should been actively seeking to do just the opposite. And the effect tends to be self-reinforcing: the worse an IT shop becomes, the harder it is to get really talented and effective IT engineers to join it and the harder it is to retain them if they do.”

Indeed the effect is self-reinforcing because environments not conducive to intellectual stimulation have a snowball effect.

To me the differences in hiring practices between smaller agile startups and larger more “traditional” companies are striking. A few points; but first note that I am using the term “large company” to represent not necessarily a company that is large but a “traditional” company not in-step with what I believe to be effective hiring IT strategy, certainly this would not apply to companies like Microsoft and Google which are of course “large”:

1. Large companies tend to overestimate equality - in many facets, but in particular workforce talent. This leads them to believe this variance in ability is significantly smaller than it is.
2. Large companies with IT departments feel pressured to have compensation variance in IT parallel compensation variance in other departments, even when there is no strictly economic rationale for doing so. Doing this emphasizes the continuum extremes: talented people want to leave for higher-paying opportunities and the lesser-able want to stay and hold on to their high salary (important: high relative to the work output, measured in comparison others in the department).
3. Large companies tend to over-emphasize the “work your way up” approach to salary levels, starting most entry-level applicants at roughly the same rate with yearly increases or bonuses, completely ignorant to actual work output or high differences in starting ability.
4. Large companies are less frequent to acknowledge or point out differences in ability and output at work as doing so is politically incorrect or something that is just “not talked about”.
5. Large companies are for some reason less likely to fire people for reasons of “opportunity cost” - opportunity of hiring better people. Instead people are only fired if they are actively holding an organization back. Firing someone because they are not producing work output per dollar that is on par with either another existing person or another person they could get is an entirely reasonable and economically-justified (in many cases) reason for firing someone, but this just doesn’t happen because of many management and personal reasons (”But I feel bad!”). More on this in the future!

In contrast, many smaller companies and start-ups seem have a much better ability to recognize of this fact: talented people, dollar-for-dollar often simply bring significantly more value to a company, after compensation, than average or lower-quality people. Ultimately this reflects an imbalance in the labor market which I’ll explore later, but you’ll notice that many smaller companies will pay for and try to get younger people based on their talent and experience, not on their age. For many companies there is no “typical” salary - you are paid what you are believed to be worth. These companies actively seek out talented people whereas “large companies” want their applicants to make themselves “worthy” to work there - the completely wrong approach.

Many small companies are reaping the benefits of this labor market imbalance and doing very well. Companies like Google who deliberately seek out high talent and pay their developers extremely well are sucking up talent from other companies not doing so and as a result becoming extremely successful even around a business model that many Wall Street analyzes puzzle over.

By no means do I think what I’ve just described applies to all “large companies” and I use that term very loosely. More accurately, there are companies that “get it” and companies that don’t. The great thing about the free competitive market is that the companies that get it will succeed and those that don’t won’t. In the next few decades companies are going to need to wise up or face major problems with the effectiveness and cost of their IT departments.

So for RIT students it’s that time of year again - college textbook purchasing time. Every quarter the price of textbooks rise considerably and students always find themselves buying new copies of books. Some of the prices seem outrageous and totally unjustified - two books I recently bought for accounting and finance were $180 each. Now on face value this price may or may not be “reasonable” from a cost perspective. It very well could be that the vast amount of research and work needed to produce a given book “justifies” such a high price, particularly since by its very nature book production involves very high fixed costs and low variable costs - and there’s not *that* many students to divide the fixed costs over. But this raises another question as to whether the textual opulence of modern textbooks is really necessary. I’m sure there are several studies out there analyzing the textbook market with much more sophisticated analysis than what I present here. Here are my thoughts from pure intuition:

1. Publishers are mostly placed in a monopoly position when selling textbooks because there is a natural asymmetry in “demand” for the book. Specifically, the person making the choice is not the person actually paying for the book. In a traditional part these two roles are always joined, but in the case for college textbooks the college professor choses the book while you pay.
2. As a result of (1), there is no natural incentive whatsoever for professors to choose “reasonably-priced” books, since the professor incurs no costs to himself for chosing a high-priced book; those costs are totally borne by the students. In fact, there may be a negatively aligned incentive here: it is reasonable that professors would specifically choose high-priced information-loaded book to make absolute sure that the student is loaded with information as to reduce personally liability: “Student: We never covered this in class! Professor: Well, it was in the book!”.
3. As a result of (2), a feedback loop begins to occur whereby professors demand books packed with more and more information, leading to book publishers/suppliers to oblige and create more and more textual opulence in their books. A quick look at any modern accounting book really enforces this reasoning - there is a ton of content in these books that can’t possibly ever be levered in class. Books now contain a huge array of practice problems, review notes, practice quiz questions, online websites, interactive software CDs, DVDs, etc. My own experience has found that the raw content-to-useful content ratio to be extremely high in many books. Some classes I barely touch a few pages of the book for reference, after spending hundreds of dollars.
4. Some professors teach their class in a way that a textbook is an optional “additional aide” and not particularly required for operations in the class. This places more choice in the student - not in which actual book is chosen - but rather whether the book chosen for them is worth buying at all. This is to be applauded. Regretfully, several other professors take a dramatically different approach whereby the books materials seem to replace any planning or personal organization on the professor’s part regarding class structure. I’ve seen some professors who don’t use any of their own notes or slides whatsoever, instead relying on the textbook’s templated problems and PowerPoint slides. This is great for the professor but a shitty deal for the student, which is effectively forced into buying the book so that he can answer homework problems from the end of each chapter.
5. Although I have no source to back this up, I remember reading somewhere that in some instances professors receive morally-dubious gifts or financial rewards for choosing a particularly textbook. Textbook publishers seem desperate to woo college professors into choosing their textbook, knowing a professor overseeing 100 students in the classroom represents a huge profit opportunity for the publisher.
6. Now I’ve established reasoning for why new books are so expensive. But what about used books you might say? One of the most frustrating problems is that textbook publishers are very quick to publish new editions of textbooks, with semantically meaningless differences, as a way to differentiate new books from old books and crowd out old books from the market, further increasing their monopoly power. Note that the depravity of this technique rests somewhat on the subject area in question. Computer-related books seem more apt for version updates than books on calculus - a science that in its basic form hasn’t changed in decades. I find that this is a huge problem with the current college textbook market and is probably the first area I would look towards if any regulatory pressure was enacted.
7. Some publishing companies point to relatively modest profits as salvation from attacks against the market in which the operate. However, I am skeptical of these arguments since as outlined in (3) these arguments assume a fixed book being produced. I am arguing that far less verbose and opulent books could be used and produced for a much cheaper price. In other words, professors are devoting more time and energy into the book production process than would occur in a perfectly competitive situation. Go to any Barnes & Noble and look at the math section. There are some $10 books on advanced mathematics that contain more practical information than several $180 calculus books combined.

I think it’s fairly clear that by it’s very nature the market for college textbooks represents a near-monopoly state where consumer surplus takes a back seat to producer surplus of publishing companies. Here are some potential solutions that I’ve thought about:

1. Establish more and greater access to clearing houses for used books that sidestep the bookstore’s heavily inefficient used book buyback process to make used books more readily available and the market more fluid as a result.  My friend Dan Leveille has created BookMaid.com to address this problem at RIT, and done so excellently.  One particular inherent problem with establishing sites such as these is that the service being offered inherently a network good, which in theory works more efficiently as one massive popular system than several systems spread about. Half.com may be getting there, but it is less personal than your own-campus book trading website.
2. Properly align incentives for professors to choose reasonably-priced textbooks. Once situation would be essentially to have professors pay some fixed multiple of the book price, but done so in a revenue-neutral way (give professors some money, then force them to pay for the actual books they choose). Doing something like this may align incentives against academic quality unfortunately, but I’m sure much more well-thought-out schemes are out there. Aligning incentives in this instance and in most instances is absolutely crucial for a good, well-working outcome.
3. Enact institute policy, per department, that restricts the rate at which professors may request required edition changes to books. For example, in Calculus perhaps professors, once choosing a book, may not change the required edition for 6 years. This would enable used books to better-compete with new books in the marketplace, perhaps driving down the price for new books in the process.
4. Enact institute policy requiring professors to justify major features of the textbook they choose and defend their choice in front of a strict panel. If a professor chose a book with all this additional software CD and DVD crap, he would have to justify its use to the student and justify the marginal cost is worth it. This can get a bit iffy and overhead and overly-regularly attitudes by institutions may fall into chaos. I don’t know.
5. Have the federal government step in on publishers and tighten up regulation on business practices, including but not limited to - how professors are solicited for textbook purchases.
6. A very POOR idea: price controls in the market for textbook. The federal government simply dictates maximum prices. Price controls are one of those bizarre policy instruments that always seem to get implemented in the heat of an emotional political situation without one thread of economic evidence that they work nearly as well as alternatives, if at all.

Ever notice that at the barnes & noble cafe when you leave your size ambiguous they never ask “what size would you like?”  Instead they say, “would you like a large?” Presumably they do so with the expectation that people are more likely to respond in the affirmative to a question like “would you like a large?” than actually give “large” as their answer if asked what size they would like.  There is significant evidence that how a question is asked has an extremely large impact on the statistical results of that question.  What’s more is that a large is actually a venti, not a grande as most people would expect (considering grande is what actually means large in Italian…)  This is an excellent and intelligent way for Barnes & Noble to capture more consumer surplus - I always smile when I hear this question being asked and the customer unsurely replying “uh.. yeah”. 

Most of us have experienced buying clothes but never being able to find the size we want. Particularly during clearance times, it seems that there are always excess articles in XL and XXL sizes but rarely any left in M and L. Economic reasoning tell me that this should not be so – it represents a relative misallocation of resources that could be more optimally arranged.

At its most basic level this phenomenon can be described as a relative shortage or surplus. There is a relative surplus of XL’s and a relative shortage of L, M, and S (sometimes there is a surplus of smalls though also; typically its L and M that sell out). Economists know that shortages and surpluses should generally not occur if there are no price controls in the market.

Given this situation, the producer should have an economic incentive to reduce production of XL articles of clothing and increase production of mediums and larges, since doing so will cause more transactions to occur at a higher profit level for the producer.

Because how widespread this phenomenon is, my intuition tells me that there is something else going on here. Anyone have any insights?

I’ve noticed this holiday season that Wal-Mart is taking a different approach towards attracting customers: respecting their time. Around black friday back in November, Wal-Mart was promising more open cash registers for shorter lines and quicker checkouts. Near Christmas I heard commercials advertising “gift card only” check-out lines, enticing people to purchase gift cards without all the hassle typically associated with checking out at Wal-Mart during busy times.

Shopping involves more cost than just the cash you pay at the register: it involves gasoline costs for driving to the store, wear and tear on your car (extremely small cost), but most importantly time. Time spent driving to the store as well as time spent shopping and subsequently checking out has real value, despite that fact that a disturbingly large number of people fail to explicitly recognize this fact and organize their lives with it in mind. Impatient people (like myself, frankly) get a visceral reaction to seeing a long waiting line in any situation, but there is a very real and somewhat measurable economic cost to waiting in line, since it consumes several minutes or perhaps hours of your time.

So aside from its excellent drive to cut sticker-price costs for consumers while shopping, I am pleased to see that Wal-Mart is now trying to cut time costs for consumers, representing once again that Wal-Mart really “gets it”. I sincerely hope that other companies follow Wal-Marts lead and begin to allocate resources within their company in a way that respects the value of time of their customers.

As some of you know, I am a huge fan of the venerable economist Thomas Sowell and his writings. Thomas Sowell has a gift for eloquently preaching economic fact and collapsing faulty arguments like a house of cards.

I was pleased to discover this weekend that Dr. Sowell has a new book out called “Economic Facts and Fallacies” which continues in his long writing tradition of presenting economic and social arguments which challenge widely-held beliefs to average citizens. While I find the greatests of his intellectual works “The Vision of the Annointed”, the most knowledge-packed book for everyday people regarding economic issues is by far “Basic Economics”, which recently was updated to a new edition.

Economic Facts and Fallacies contains six chapters, each dedicated towards meticulously exploring social and economic issues in an economic, super-rational manner:

Urban Facts & Fallacies – Here Sowell explores overpopulation theories of urbanization and most importantly “affordable housing” issues and price controls in the housing market.
Male-Female Facts & Fallacies – Drawing upon his vast experience researching racial and group differences, this chapter presents a critique on “unequal pay for equal work”. Sowell’s arguments are particuarly strong in here as he exposes most conclusion-jumping shallowly-analyzed statistics on this as hogwash. A more reasoned approach to the statistics indeed shows that differences in pay between men and women are quite low and even when they are are almost always described by different personal choices and home responsibilities between the sexes.
Academic Facts & Fallacies – This was probably my favorite chapters, since I feel that the subject is so rarely touched upon elsewhere. Here Sowell discusses several issues on the inefficiencies of colleges and universities. He has quite a bit to say about college professors as well – an interesting read for students!
Income Facts & Fallacies – This is the best chapter at taking widely-publicized statistics and turning the conventional dire conclusions on their head. Sowell shows that conventional analysis of income statistics contains some glaring fallacies. As close to an empirical analysis as it gets, since in here is presenting fallacies in statistic analysis rather than “fallacies” directly related to opinion-soaked issues.
Racial Facts & Fallacies – This chapter is similar in style of reasoninig to “Male-Female Facts & Fallacies” as Sowell attacks widely held beliefs. This subject is persued much more in-depth by writers such as John McWhorter, who approaches racial issues similarly to Sowell. Sowell also has several books on race and affirmative action. Unfortunately, Sowell only lightly touches on affirmative action, despite having written devastating arguments against it in other writings.
Third World Facts & Fallacies – Probably the least interesting chapter to me but still essential for debunking common myths about developmental economics and the role of “rich” and “poor” countries. Correctly focuses on corruption and “economic infrastructure” barriers as explanations to the underdevelopment of nations and exposes crackpot causes like “overpopulation”.
Although I would still recommend “Basic Economics” to anyone looking to get an overall better understanding of Economics, “Economic Facts and Fallacies” goes further in touching on social issues and common misconceptions in a devastating blow to unreasoned thinking. Pick it up today!

This will be the first in a series of articles which I preface with “The High Cost of” and the line of discussion is meant to stimulate thinking about the true costs of various things in real life. One of the most interesting concentrations in economics is cost-benefit analysis – not necessarily the formal methods of applying it, but the more abstract way of deciding which costs and benefits should be quantified.

One of the most overlooked costs in policy decisions seems to be the aggregate time loss spread across thousands or millions of citizens, even though each citizen incurs a low cost on an individual level. The tendency to not consider low-in-amount but widespread costs is a more widespread issue that many people do not properly analyze in policy decisions. Economists can point to the natural breadth asymmetry of costs and benefits in globalization/free-trade as a perfect example of this.

Road work is a great example of an action by the government that causes relatively small losses in time by citizens – but spread across a large number of citizens. The policy question that I’d like to put forth, and a question I think rarely gets properly analyzed, is what accommodations road work should provide to the public to reduce the burden of their lost time from congestion (this doesn’t even consider the statistical cost of increased accident rates as a result of the congestion, which could be a high cost in and of itself).

What bothers me about this and related issues is that people seem to be overly complacent with the status-quo without even stopping to consider that the status-quo may be grossly inefficient. A necessary trade-off for improving our roads is one thing, but an inefficient allocation of resources related to it is quite another. As an amateur economist it is in my interest to ensure scarce resources are being optimally allocated as best as possible to squeeze every ounce of efficiency out of what we have to work with.

The trade-off at stake here is this: Ultimately the government has a decision as to when to perform road work. To simplify matters, lets consider a model with only two times: day, and night. During the day the government has to pay a labor rate of w-day and at night a labor rate of w-night, where w-night > w-day, perhaps by a large amount. Whenever I start in on this issue discussing it with someone else they immediately point out “but construction works can’t work at night – you are being impractical!”. My response is that you can never categorically dismiss something like that – there is a price to everything, and there is certainly a price (a high one) on paying construction workers to work at an inconvenient time.

Clearly doing road work at night would cause significantly less congestion on the road, yet the differential in doing this is w-night minus w-day. The policy question here is whether or not the cost of lost time measured across the predicted population affected is more than or less than the wage differential between day and night time labor work.

I keep referring to “cost of time”, yet many non-economists do not even accept that this concept exists, which I find absurd. Time is, in fact, one of society’s most valuable resources. To pose this issue in a more practical manner, consider that you are faced with two decisions given that you are stuck in traffic for an estimated hour due to road work in the morning:

1. Wait in traffic for the hour and pay nothing. Get to work an hour later.

2. Pay $5 to have your car teleported around the traffic jam and back into regular traffic, saving you an hour.

That $5 is essentially the value of one our of your time at that particular moment. The marginal value of time depends a lot on the time of day and what your current situation is. The fact is that some very successful people would pay $50 to save one hour in the morning, others would barely pay $1. But the concept of time and the theoretical ability to compensate people for lost time shows that the concept exists and is very real.

I’m not a full-time economist and if I was I’d do more research into this interesting topic (well.. interesting to me!), but my intuition tells me that if a full cost-benefit analysis were conducted in the manner of reasoning that I have outlined above with such projects, significantly more road work would be done at a higher cost to the government and tax payers, but a net lower cost once the lost time value is factored in. In other words, we citizens should be less bothered by road work!

This is the kind of stuff that the government needs to be doing on a regular and rigorous basis to ensure that resources are being optimally allocated. Non-thinking or making assumptions about what is possible or reasonable without critically analyzing the situation is a disservice by the government to taxpayers.

Welcome to my new blog! To kick this off, I’ll start with an introduction and an overview of my philosophy:

My name is Ben Hughes and I’m currently a senior at Rochester Institute of Technology, finishing up a double major in Information Technology and Economics. I’m a Ruby on Rails web developer, jazz musician, tennis player, and amateur economist interested in policy issues. I am philosophically libertarian and believe that the free market works better than most non-economists assume. Capitalism, or the free market, often deserves more “respect” than most people grant it, hence the name of this blog.

Let me be clear that the opinions presented and analysis of issues discussed in this blog are based on pure armchair reasoning of issues that do not necessarily represent “hard science” with empirically provable results. I am not a Ph. D. economist and am not interested in publishing research papers backed by hard data and mathematics; I am far more interested in “thinking outside the box” and putting seemingly non-economic issues into an economic light. Some of the most interesting books I’ve ever read followed this direction.

I strongly believe in greater public understanding of economics as a thought process, or “thinking like an economist”. Economics is not business and it is not finance: it is the study of scarcity and how resources are (hopefully optimally) allocated, a fact rarely acknowledged by non-economists. I think it’s a shame that many high schools require four years of study in literature while requiring virtually no study in economics, statistics, or probability – all issues that better-enlighten the public and through democratic voting have drastic consequences on the well-being of millions of people.

Part of my drive for writing this blog arises from the seemingly widespread misconceptions of economic cause and effect that spread like wildfire throughout the popular media, but are seldom properly addressed by journalists. With all the time being dumped into research of dubious practical merit, I think economists should take a more active role in policy issues by aiding in greater understanding of the “dismal science”.