Football (the American, not metric, variety -- for my international readers) is deeply ingrained in the United States.  Each weekend during the fall, millions of viewers tune in to watch the televised matches between college rivals on Saturdays.  And the National Football League (NFL), which organizes the most popular men’s professional sport in the US, rules most Sundays from late August to early February, and inspires conversation and controversy (and commands a lighter viewership) during the intervening week.

The NFL has been so dominant for so long, that it may be hard to believe (or recall if you are old enough) that once professional baseball was the preeminent spectator sport in this country, with football coming in a distant second.

Steeped in its own brand of mythology, Major League Baseball’s (MLB) storied past formed the stuff of legend.  Within its history, one could find heroic and inspiring tales of triumph by figures like Babe Ruth, Lou Gehrig, Jackie Robinson, and Roberto Clemente.  One could also find tragic tales of failure as in the 1919 Black Sox scandal and Pete Rose’s fall from grace.

Baseball was so pervasively woven into the fabric of American life that its players and their personal lives often spilled out of the field and into every other facet of American life.  Joe DiMaggio, one of the famous New York Yankees from the WWII era, became even more famous for his much-discussed but brief marriage to Marilyn Monroe and was immortalized in the song lyrics of Mrs. Robinson.  Numerous war movies showed soldiers who were behind enemy lines proving their bona fides by answering some obscure baseball question that only a genuine ‘yank’ would know.  An excellent example of just how deeply ingrained baseball is, is the following clip from the TV show M.A.S.H., which aired in 1980.

Despite its unrivaled dominance for over 100 years, by 1985 (the first year viewer preferences were polled) ESPN reports that the NFL had beaten MLB 24 to 23 percent.  The same article cites that 30 years later, the gap had widened to 21 points with 35 percent of all fans citing the NFL as their favorite compared to only 14 percent who had the MLB at the top of their list.

The economics behind how “America’s Pastime” became past its prime and what MLB is trying to do to improve its standings is fascinating.  It provides glimpses into how labor disputes can disrupt product delivery to the detriment of both management and labor, how complacent businesses can squander the good will of their customer base, and the role of marketing and advertising.

The place to start our analysis is with the emergence of the modern era of collective bargaining between the players (labor) and the owners (management).  According to Sean Lahman’s A Brief History of Baseball, this era of baseball labor relations began in 1965 when the Major League Baseball Players Association (MLBPA) hired Marvin Miller.  Miller, who had been a member of the United Steelworkers union for years prior, began his tenure by collecting statistics on player salaries.  By the time he stepped down the modern era of free agency in sports labor had emerged.

Along the way Miller secured the first collective bargaining agreement (CBA) between the players and management in 1968, helped in 1974 to undermine the reserve clause that limited the ability of players to negotiate contracts with other teams, and broke up the the network of “gentleman’s agreements” that owners employed to keep a lid on player’s costs.  Miller also organized a variety of labor walkouts including a 13-day one in 1972 and a 50-day strike in 1981.

While undoubtedly beneficial for players salaries and freedom, the general public was sometimes hostile to what was seen as attempts by players to ruin the game for the fans.  As the animosity grew between labor and management, so too did the level of action each took against the other.  The escalation culminated in the 1994-95 baseball strike that cancelled the 1994 World Series and did major damage to baseball’s popularity.

Baseball managed to recover some in the latter half of the 1990s and the early 2000s with the home run drama surrounding the players such as Mark McGwire, Sammy Sosa, and Barry Bonds.  But revelations that much of the hitting success during this time was allegedly fueled by steroid use further damaged baseball’s reputation.  The owners, hungry for a quick fix to the hangover caused by the labor-management squabbles of a generation prior, looked the other way, only to have it blow up in their faces.

And so, we arrive at the current day.  The modern game is filled with contract negotiations, mandatory drug tests, and long games, typically lasting over 4.5 hours.  Matthew Corwin, in his article for Odyssey, believes this last problem to be the most serious.  Baseball’s leisurely pace of 1930 does not mesh well with the hectic pace of the 21^st century.

Baseball execs seem to agree.  The new rule changes seem to center on speeding up the game by: 1) keeping pitchers in the game to face a minimum of three batters, 2) limiting who is allowed to pitch, and 3) shortening commercial breaks during innings.

This latter change is particularly interesting in that it may be showing tell-tale signs of lasting wisdom on the part of the owner and players alike.  In the short run, limiting advertising time will limit ad revenue and profits on both sides.  But, if shorter games led to an increase in the fan base, then both sides may actually come out ahead, and that would be a real triumph of economic cooperation.

It is an encouraging sign of trust between two sides that have been all but mortal foes for decades.  As to whether this new detente will last, we are still in the early innings.

Representative Kamala Harris recently tossed her hat into the ring as a contender for the Democratic Party’s nomination for president in the 2020 election.  The one plank in her platform that has stirred the most discussion is Harris’s bid to institute a single-payer health care system for every American, called Medicare For All.

Her reasons for this, in her own words are:

In her conception of health care access, Medicare for All would eliminate all existing private insurance companies.  As the end of the clip shows, when asked about their fate, Representative Harris simply said “Let’s eliminate all of that.”

Now there are obvious political ramifications for such a single-payer proposal.  Doctors and the health systems they work with and for have powerful lobbyists.  Insurance companies also have a great deal of influence in politics given their financial holdings and their presence in every state.  And whether such a plan would be popular with a majority of voters has yet to be tested.  But let’s leave that all behind and simply ask what economic factors exist that support Harris’s assertions and what factors refute it.

One of the cornerstone ideas in economics is the law of supply and demand that dictates that the price goes down when the supply is higher than demand.  The primary way to encourage an ample supply is to allow the suppliers to reap a profit when they persuade a consumer to buy their offering.  Ideally, we would want more health care professionals to enter into the market than is strictly necessary by statistics alone.  These individuals would compete fiercely with each other, driving the price down and forcing less-competent professionals out of the marketplace, in the process making way for more-competent ones to enter.  Less expensive health care would go a long way to addressing her complaint that “[H]aving a system that makes a difference in terms of who receives what based on your income is unconscionable.”

Currently, competition in the health care arena is blunted primarily by two factors.

First, by government regulation, insurance companies only compete amongst themselves within specific states.  No buying of insurance across state lines is permitted.  For example, the ugly battle between UPMC and Highmark only takes place within western Pennsylvania with neighboring states being completely ignorant.  UPMC mostly furnishes health care through its networks of hospitals.  Highmark is the largest insurer in Pennsylvania.  While their battle is fierce, it is between payor and payee with neither having strong competition in their own sphere.  As a result, the western PA consumer gets to watch two behemoths smack each other around, wasting resources that could be better put to use.  How much better behaved would these institutions be if there were credible health care providers and insurers who could swoop in while UPMC and Highmark were distracted with their little war?

Second, since the primary mechanism by which most of us get our health care coverage is through our employment, competition is further limited to the number of choices provided by people (i.e. employers) who aren’t directly consuming the product.

Under Harris’s plan for a single-payer system, competition would be erased rather than enhanced.  With the elimination of private insurance would also go any incentive for the provider, in this case the Federal Government, to lower costs.  Without competition, the average bureaucrat would have little reason to push for a higher efficiency and almost no motivation to put patient/customer first.  For the health care practitioner, the situation could go one of two ways.  Either the government would attempt to fix prices in order to address costs, or it would subsidize the activity, thus the pervasive government regulations would likely discourage the really good people from becoming doctors and nurses while encouraging substandard ones to become part of what, for them, would be a lucrative payday.

Having the majority of Americans secure their health coverage through their workplace, a vestigial practice left over from the wage-controlled years during World War II, also blunts our ability to engage in the marketplace, and this lack of market knowledge leads to higher prices and lower quality.  By having our employer provide health care coverage as a ‘benefit, we lose sight of the cost we incur (lowered wages) and, therefore, we have less motivation to push back on the market.  As a previous blog discussed, each of us is a far savvier consumer of car repair than human repair.  Our knowledge of the mechanic market not only allows us to usually figure out when we are being scammed but also places a strong pressure on repair shops to be reputable.  Most of us develop and groom this knowledge because we directly bear the cost.  But, because we often don’t perceive the cost of employer-supplied coverage, we know far less about the business side of medicine.  As a result, we have no sense of quality or proper cost and so doctors and insurers have no pressure to provide higher quality.

Under Harris’s plan, we would become even further removed from the marketplace.  At least when we receive health care coverage through our employers we can always quit and go somewhere else with better benefits.  Once the government is the only game in town, how do we go somewhere else for benefits?

There are plenty of stories of how single payer systems drop the ball on quality.  Well-documented problems in the Veterans Administration, Britain’s National Health System, and a particularly gut-wrenching piece on Canadian care (video excerpt follows – click here for Steven Crowder’s full video) abound.

Closely associated with the quality facet is the timeliness of receiving health services.  With a profit motive driving delivery, markets are incentivized to deliver high quality in as speedy a fashion as possible.  After all, the higher the throughput, the greater the profit (and for those worried about the lowering of quality in order to increase speed refer to the discussion of market knowledge you just read).  Under a single-payer government system, no one is incentivized to do anything rapidly.  No additional profit flows for timely action.

Having just criticized a single-payer Medicare-for-all solution, the reader may be asking if I am defending our current system.  The answer, in a word, is no.  Our current system delivers excellent care but for too high a price.  To get costs in line with benefits, I would recommend four things:

1. Eliminate tax incentives for businesses to offer health care coverage as a ‘benefit’. Each person should purchase their own insurance as they do for home, car, or property.  By having ‘skin in the game, each of us would become more market-aware.
2. Eliminate barriers that prevent insurers from competing with each other nationwide as is done for home, car, and property.
3. Significantly curtail the AMA’s ability to shield a health care professional’s reputation. I don’t care if a doctor spent years in school, he needs to deliver in the here and now.  Education of the public on the shortcomings of licensing would also help here.
4. Significantly curtail tortious suits against health care professionals. Society doesn’t need to punish a doctor with punitive damages yet allow him to continue to practice.  Damage to his reputation will rid him from the market with far less human cost than the system we engage in now.

To close, I appreciate the human cost that Harris spoke passionately about and her desire to see that everybody, regardless of station, receives timely, quality health care.  I share those ideals with her – and that is why I am against Medicare For All.

I had the occasion recently to visit family and friends in Western Pennsylvania.  A brief pre-Christmas chance for reacquaintance and holiday cheer.  Since there are so many houses to visit, each spread relative far from the others, there is always some wrestling with logistics, especially where to stay.  After some deliberation, we decided to stay near the point – the narrow portion of Pittsburgh that lies at the place where the Allegheny River, coming from the north-east, joins the Monongahela River coming from the south-east, to form the Ohio River.

The location is beautiful and, because of a very late booking, also economical as the hotel needed to sell rooms, even at the rather absurdly low rate that I received.  But this post isn’t about the law of supply and demand as it applies to the hotel business.  No, it is about the moribund state of what was once one of the most vibrant locations in Pittsburgh and why.

Nearly three decades ago, while attending one of the fine institutions of higher education in Pittsburgh, I used to amuse myself by heading into the shopping districts.  A particular favorite was Kaufmann’s department store located on 5^th avenue consuming the entire block between William Penn Place and Smithfield Street.

Known for its iconic clock, its window displays, and its gourmet deli on the 9^th floor (note the plaque below the ornate support of the clock - it and others like it play an important role in what follows),

Kaufmann’s anchored one end of what was an exciting set of stores that dotted 5^th avenue and surrounding streets.  Towards the other end, closer to the point, were the two other large department stores of Gimbal’s and Horne’s.   The Warner Theater sat in roughly in the middle, next to an old Woolworth’s ‘five and dime’ that had one of the most eclectic selection of goods and a fish market to boot.  No matter the weather or, seemingly, the time of day there was always something exciting going on and a bustle of activity that one expects from a thriving metropolis.  Activity on the sides of the rivers, particularly the South Side of the Monongahela, was far more sedate.  The center of the city was the place to be.

As the decades wore on, the center lost it shine.  One by one, the great department stores went insolvent and disappeared.  The smaller shops became more run down with empty store fronts capturing greater and greater amounts of real estate.  The vibrancy was gone.

No doubt, the casual observer chalks all this up to the gradual dwindling away of the industries that once made Pittsburgh one of the great cities of the world.  And there is some truth to that.  But only some.  The bulk of the industrial upheaval actually occurred nearly forty years ago when US Steel closed down most of their activities.  Pittsburgh not only survived but managed to bounce back.  This resiliency was initially powered by its world class medical service and research and the numerous universities its sports.  These later institutions have contributed to a growth of late in data analytics and computer technology and the Steel Town has seen a resurgence in the last ten years.

Numerous new trendy locations have sprouted up designed with idea of separating the consumer from his money in various different ways.  From the thriving North Hills, to the Waterfront center that stands where the great mills once did, to the new and burgeoning hipster locales of the South Side and Lawrenceville, to the old faithful neighborhoods of Squirrel Hill and Shadyside, certain regions are active and growing.

So how to reconcile all this growth with a dead and empty downtown?  In one phrase – designated historic landmarks.  Almost everywhere one goes within the core of the downtown region, one finds a building bearing the historical landmark plaque (the total list of Designated City Landmarks and Historic Districts spans 14 pages).  And this plaque is the economic kiss of death.

To understand just why a designation as a historical landmark stifles the microeconomy associated with the object in question consider the restrictions that burden the property owner.  A brief consultation with Section 1101.05 of the Pittsburgh Municipal Code shows that a property bearing the historic landmark designation cannot have exterior alterations without approval of the Historic Review Commission, an extra layer of bureaucracy over and above the mandatory Bureau of Building Inspection.

The hidden cost of ownership of such a building is far larger than is simply totaled from property taxes and upkeep and utility costs.  There are opportunity costs that have to be figured as well.  For example, as a younger more fitness conscious workforce begins to call Pittsburgh home, the candy shops of yore should now be replaced by yoga studios and organic markets.  Simply exterior redesign, including modern signage and architectural sensibilities, should be one of the first orders of business.  But these changes may be extremely costly, if not impossible, if the building in question is a historic landmark.

Each piece of land is a scarce resource unto itself.  As market forces clamor for changes, historic landmark designations and the bureaucracy that goes along with them slap the invisible hand from reshaping the building to fit the demanded change.  As a result, business move to locations less encumbered and the landmark falls into disuse.

Pittsburgh is by no means alone in this predicament.  As the following video shows, the historic landmark designation may be spelling the end to one of New York’s most iconic bookstores.

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It is hard to fathom that the entrepreneurs of decades-gone-by would actually approve of these policies.  After all, they were the innovators who turned their backs on older style construction and whose dynamism produced what were new structures at the time.  They were willing to bury the past in favor of economic growth.  Surely, they would expect no less from us today.

In his set of lectures What is Seen and What is Unseen and Economic Sophisms, Frederick Bastiat argued for classic, liberal  economic thinking and against the ignorance that he judged so dominated French thought in the mid-1800s.

In particular, he railed against the lazy-minded thinking that evaluated any economic situation in the most simplistic way thereby dooming the individual or group that embraced such thought into a tragic failure to see what opportunity costs existed.  As a result of ignoring opportunity costs, the individual or group makes unsound decisions all the while thinking of himself or themselves wise.

Unfortunately, economic illiteracy is not confined to 19^th century France but rather is alive and well today.  Many of the columns that have appeared in this blog have dealt with the prevalence of poor economic thinking and argumentation within the US border.  Soviet Russia’s and China’s communist approaches to human economic freedom demonstrate that poor economic thinking doesn’t confine itself to the West.  Although, to be fair, certain individuals within those regimes knew full well that they were scamming the public; in fact, they counted on widespread economic idiocy to further their own selfishness.  And one need only look at the incredible misery inflicted on Venezuela by a poor understanding of economic principles (and a failure of the body politic to institute checks against government corruption) in order to grasp why Bastiat went to so much trouble constructing parables designed to educate the masses.

One such modern-day example, which comes from Peru, provides an excellent case study in the kind of surface-deep thinking and argumenation that Bastiat warned against so often in his writings.

In a recent rant, Peruvian congressman Manuel Danmert labeled Francisco Atilio Ísmodes Mezzano, Peru’s current Minister of Energy and Mines, a traitor for putting an end to a proposed natural gas pipeline in southern Peru.  It seems that the congressman primarily objects Mezzano’s proposed alternative plan to ship natural gas to Chile via tanker ship from Ica rather than have it consumed in Peru, predominantly in Lima where the bulk of the national population exists, for the benefit of Peruvians.  A summary of Danmert’s complaints and accusations can be found here (but don’t blame Google translate for the poor quality of the article; it is just as grammatically bad in Spanish as in English).

Of course, Danmert may be correct.  After all, corruption is not a new concept in governments, whether in Peru or the United States.  But for all his rhetoric Danmert doesn’t have details or specifics to back up the idea that Mezzano is selling Peru out to Chilean interests.

Charity demands that we examine the possibility that Mezzano is making a rational, honest decision in the Peruvian interest.  To this end, let’s examine some of the particulars of energy consumption in Peru.  All of the source data for the charts presented come from the BP Statistical Review of World Energy, June 2018.  The following chart shows Peru’s energy consumption by sector in millions tonnes oil equivalent (Mtoe).

In the decade spanning 2007 to 2017, natural gas consumption in Peru increased steadily from 2.2 Mtoe to a peak of 6.5 Mtoe before falling back by about 11% to 5.8 Mtoe in 2017.  During that time span, natural gas production rose even more markedly with supply being twice as abundant than demand.  In contrast, the demand for oil outstripped national production by a factor of more than 2 in 2017.  These latter two trends can be seen easily in the following energy deficit chart

that shows the percentage of oil or natural gas consumed relative to the domestic production of the same.

The data demonstrate that Peru’s overall demand for energy has increased, that the demand for oil far exceeds domestic production, and that the demand for natural gas falls far short of the domestic supply.

Danmert argues that Peru should be using its own natural gas for domestic generation of electricity but that claim isn’t supported by additional details from the BP report.  Peru’s electricity generation went from 29.9 Terawatt-hours in 2007 up to 52.5 Terawatt-hours in 2017, an increase of 1.8 times.  Over this same time period, natural gas production went from 2.6 billion cubic meters to 13 billion cubic meters, an increase of a factor of 5.  Assuming that all the electricity generation comes from natural gas consumption, there is still over a factor of 2.5 greater growth in natural gas production than there is electricity generation.  And the story becomes even less in favor of Danmert when one considers that the South American regional percentage of electricity generation from natural gas is around 17% and that the world-wide maximum is 65% in the middle east.

Put simply, Peru produces more natural gas than exists a demand for it.  Lima, the most populous city in Peru, where one out of every 3 Peruvians lives, is geographically close to the areas producing the natural gas and yet propane is the preferred method for running stoves, water heaters, and the like.  The cost to refit Lima to be able to use the surplus natural gas is probably far higher than the benefit that would result.  So, it is only natural for Peru to do what all members of an economy does, sells the surplus on the open market for money to buy goods in higher demand.

What to make of Damert’s accusations that Mezzano is a traitor?  At best, his complaints amount to the ignorant ravings of an economically illiterate politician who argues on emotional ground.  The fact that the excess natural gas is heading to Chile, a country Peru deeply hates, makes his objections take hold more easily, but even in the absence of that hot button item, his average listener may well fall into “why aren’t we using our resources to help our own” mentality that Bastiat warned against.  At worst, one may suspect that Danmert is a demagogue who appeals to the prejudices of his listeners and depends on their economic ignorance to give him the cover he needs to use his influence to benefit his cronies.  In either case, his arguments are as vapid and harmful as those that circulated in France nearly 180 years ago.

The inspiration for this month’s column came from a casual conversation about college football I had with my mom.  She remembers the heady days of the 1950s and 60s before the NCAA became a multi-billion-dollar business.  During the course of that exchange, she expressed particular hatred for the Ohio State University because they always beat her favorite teams.  When I asked her why the Buckeyes always won, she answered with one of the most interesting and telling responses:  “I guess they paid their guys more than we did.”

I reflected on that remark for some time and realized the truth in the matter.  Despite the fig leaf of respectability that the NCAA tries to hide behind by keeping money away from college football while maintaining that the players are ‘student-athletes’, each university really does pay their players.

Here I’m not talking about the various recruiting scandals that have plagued the NCAA in the past.  They are a natural outgrowth of the economics legitimately in play, and I’ll discuss them later in their proper context.  What really passes for pay is the reciprocal compensation that players receive from the university in exchange for their on-field talent and the sporting entertainment they deliver to the audience.

To illustrate this point let’s consider your average, high school all American linebacker being recruited for a spot on a college football team.  To keep the argument compact and convenient, let’s suppose that there are only two teams in the running for Jack’s talent (the name of our linebacker is Jack for subtle reasons best left unsaid).  The first team is that top tier football school Alabama University home of the Crimson Tide.  The second team is Iowa University with its Hawkeye football program, which is a tier lower than Alabama’s (even if its academics are clearly a tier above).

Consulting ESPN’s online college football revenue/expenses database and current college rankings, one sees a direct correlation between the amount of revenue each school enjoys and the quality of their football program.

It is in the economic interest of each school to secure Jack’s attendance since the better the team the greater the revenue.  The greater the revenue they each have the greater economic power they yield and college presidents and administrators love yielding power.

Given that it is a buyer’s market, how does Jack decide where to go?  It depends on Jacks’ goal, aspirations, and dreams, but it is a safe bet to assume that the typical all-American like Jack is interested in the college limelight as a showcase for his talent.  He wants to play for a team with a large national exposure; one which appears on television often; is nationally ranked in the poles; has a good chance at the national championship; and attracts the attention of NFL scouts.  In this way, Jack maximizes his chances of receiving a lucrative professional football deal at the end of his rainbow.  With this logic in hand, Jack examines the two programs and sees that Alabama is the place for him.

To the casual observer, this probably seems like a perfectly fine way of doing business.  Jack and Alabama are a good fit for each other – Alabama has a top-flight football program always looking for great talent and Jack gets all the prestige associated with being able to yell ‘Roll Tide’.

But what about Iowa?  The standard response is that they’ll be able to attract better talent once they start winning more decisively, becoming a recognized national powerhouse.  But there is an obvious catch 22, how does Iowa become a national powerhouse without being able to attract talent?

In a free market scenario, when business B has weaker human capital compared to business A, Business B can improve its market position by hiring equal or better talent by recruiting them with better pay and/or benefits.  In this scenario, Iowa could sweeten the deal for Jack, making a payout available today stand against or overshadow the possibility of a greater earnings in the distant future and serving as an insurance policy against injury.  And since Iowa has a higher margin between revenues and outlay, it has a decisive advantage compared to Alabama.

Unfortunately, the NCAA doesn’t implement a free market.  Instead, it favors some and disfavors others.  It erects facades of rectitude for public consumption and then feigns surprise and outrage when recruiting violations occur, but recruiting violations should be expected when so much is economically on the line and the desire for revenue runs so strong.

There is a direct parallel to the situation here and what happened under FDR’s wage controls during World War II.  During the war, the businesses were forbidden to raise wages but they, nonetheless, found a way to compete with each other for labor by offering a host of fringe benefits that represented real economic benefit to their employees even if it wasn’t in the form of money.  The opportunities and open doors to the NFL that Alabama provides is equivalent to the valuable but not-monetized fringe benefits.  Iowa, who can’t offer these fringe benefits precisely because of their exclusive nature, can only compete by providing hard, cold cash but they can’t because of the NCAA rules.  The only choice open to them is to provide some other type of benefit on the side.  It doesn’t appear that Iowa had but other Universities have been known to provide all sorts of ‘side benefits’, which one can learn about with the simple search string ‘college football recruiting scandals’.

These rules violations happened precisely because different organization were tried to level the playing field at all costs and because the NCAA was economically illiterate in failing to recognize that prestige is a form of capital.  Now I am not saying that one should boycott the NCAA or protest for fundamental change.  All I’m suggesting is that next time you sit down to enjoy college football, especially during the holidays, consider the pros/cons of the free market and the problems that inevitably arise when governing bodies seek to suppress it.

I’ve often wondered if recycling really makes sense.  Before exploring some of the possible answers to this question, I'd better define my terms so that there is no chance of misunderstanding.  By recycling I mean the usual gathering and separating of the various materials of modern life (e.g., paper, plastic, glass, etc.) for subsequent pickup, future processing, and reappearance in some other guise in consumer packaging or content.  Contrast this with conservation, where the original material is saved and reused locally or simply isn’t used to begin with.  Conservation always makes sense – it is always better to not waste a thing – but recycling may be another thing entirely.

Despite the conventional wisdom that immediately insists that recycling is the ‘green way to go’, there are several possible wrinkles in a recycling scenario that may sway the logic one way or another.  I’ll focus on two questions central to the decision to recycle:  1) is it better for the environment to recycle, and 2) is it economically viable to recycle.

The answer for question 1 seems obvious; any passing examination usually and unequivocally supports recycling, since it seems always better to recycle a thing rather than simply to toss it out.  But deeper considerations usually lead to far less certainty.  Take a moment to reflect on the fact that it takes energy to run a recycling program.  Most experts agree that the energy used to recycle is usually less than the energy expended in creating the product from raw resources, but the recycling process consumes fossil fuels in order to take used content and transform it into recycled product.  It is possible that the carbon footprint of a recycling process is larger than generating fresh from raw materials.  In addition, other pollutants can also result.  Paper processing, for example, creates a variety of unwanted fluids (effluents is often the name used) that have the vestiges of the dyes and inks and toner that once decorated the paper as well as the chemicals used to bleach the paper.

In The Reign of Recycling, John Tierney notes similar issues.  Tierney cites Chris Goodall’s book How to Live a Low-Carbon Life, in which Goodall calculates that the carbon footprint associated with washing plastic materials in hot water that was heated by coal-derived electricity can easily result in more atmospheric carbon than is saved in the recycling.  This undesired outcome results since recycling one ton of plastic saves just a bit more than one ton of carbon.  The mandatory washing of the plastic prior to its pickup can easily tip the scales into a negative environmental impact.  Plastic is not alone as a dubious recyclable.  It, glass, and compostable materials (food and yard waste) are the worst three materials to recycle, with compostable materials resulting in 20 tons of released carbon for every ton of material processed.  According to Tierney, the EPA estimates that more than 90 percent of greenhouse benefits come from a few materials: paper, cardboard, and metals like aluminum.  He also stresses that modern incinerators ‘…release so few pollutants that they’ve been widely accepted in the eco-conscious countries of Northern Europe and Japan for generating clean energy’ and yet are completely banned from discussion in the U.S..

In Can Recycling Be Bad for the Environment?, Amy Westevelt argues that the recycling trend lulls the consumer market into a false sense of comfort, giving ‘manufacturers of disposable items a way to essentially market overconsumption as environmentalism.’  Her point is that, while it is always a good idea to recycle waste and to conserve virgin materials by using less in packaging or content, reporting on modern recycling misdirects public sentiment to focus on rising recycling rates rather than the continued increase in consumption that has kept pace with or exceeded the levels of recycling.   She suggests that the backers of plastic recycling (American Plastics Council and the Society of the Plastics Industries, Inc.) sell recycling success as a way to distract or assuage the consumer conscience into believing that no change in behavior is warranted.

Westevelt isn’t alone in her concern about the environmental impact of this plastic bait-and-switch.  As 5 Gyres suggests in The Truth About Recycling, thinking that we’ve solved the plastic problem by recycling is not only false, it also prevents us from fully appreciating the possibility of exploring alternative materials.

Likewise, a careful consideration of question 2, based partly on the analysis of question 1, suggests economic forces that point towards creating from virgin materials rather than recycling existing products.

Michael Kanellos, in his article Profits Become Elusive In Recycling, points out that the economics of recycling are as susceptible to the laws of supply and demand as any other business.  If the commodity market stays high then there is financial incentive to dig into the ‘garbage mines’ to find value.  If it is low, then the cost of recycling fails to support the value gained from the reclaimed products.  Kanellos coins the term ‘garbitrage’ to describe the thin and fluctuating profit margins that the recycling vendor has to contend with to make recycling worth the effort.  As an example, Kanellos presents the case of Waste Management, one of the largest waste haulers and processors in the US.  In 2008, Waste Management was an enthusiastic recycler, looking to triple its processing load within a decade.  By 2012, less than halfway through their program, Waste Management was reporting an operating loss for the previous 18 months.

Investor’s Business Daily recently ran an editorial, entitled Some Inconvenient Truths About Recycling, in which they attack the ‘article of faith in the U.S. that recycling is a good thing’.  They stress that mounting evidence is showing that recycling is a waste of time and money.  The reason for this is the changing relationship between the U.S. and China, which had been the biggest importer of recyclable product.  Given the current economic climate, China is effectively closing its shores to our waste.  As a result, many of the activities associated with recycling are merely rituals that waste time and economic resources that would be more profitably spent elsewhere.

All the commentators agree that much of the collected, recyclable material now finds its way into landfills, often after a lengthy preparation, collection, and sorting processes.  Given the associated opportunity costs of these ultimately useless activities, we would all be better off by:

• focusing our recycling efforts on paper, cardboard, and aluminum,
• simply throwing the rest away,
• and investing the saved time on more important pursuits like minimizing our production and consumption of plastic.

That way we can properly conserve our time and resources and direct them to something better than following the common wisdom about recycling.

Once again California demonstrates to the rest of the country that it believes that the laws of economics don’t apply to the wonderful world of that Golden State out west.  At issue this time is the status of those individuals working within their gig economy and the protections that must be afforded to them at all costs.  Never mind the consequences that bring a little more misery and a new set of unwanted side-effects that redound to the detriment of its citizens so long as the state can ‘do the right thing’.  That unintended results and all of the collateral damage that follows could have been predicted and avoided by some sound economic reasoning never seems to enter the heads of the state’s judicial branch.

Now if you have been living under a rock, apparently like I have, then you may not actually know what the gig economy is and, as a consequence, why California’s latest juridical ruling has caused far more harm than good.  In short, the gig economy is the term used to describe those people who work as independent contractors or, as David Shadpour puts it in his article The Gig Economy: Pioneering The Future, “are workers who are not employees of the company that signs their paychecks”.

Of course, the notion that people can work as independent contractors is not a new one and the only justification for coming up with a new term (besides the celebrity and funding always desired by researchers) is the strong growth of on-demand services like Lyft and Airbnb that some economists and commentators believe represents a fundamental change in the way the economy works.

Despite the pithy labeling, no consensus exists as to how many workers actually populate the gig economy.  Larry Alton, writing for Forbes (Why The Gig Economy Is The Best And Worst Development For Workers Under 30), presents estimates that gig workers make up 34 percent of the workforce.  In contrast, Robert J. Samuelson reports much smaller numbers in his article Is the gig economy a myth? Samuelson cites a survey by Katz and Krueger that indicates that the percentage of people engaged in the gig economy rose from 10.7 percent in 2005 to 15.8 percent in 2015.  He then presents more current numbers from the Bureau of Labor Statistics that show that the percentage of the population in the gig economy had remained essentially flat over the last twenty years (9.9 percent in 1995, 10.7 percent in 2005, and 10.1 percent in 2017).

A likely explanation to this vast discrepancy is that, as Ben Casselman points out in Maybe the Gig Economy Isn’t Reshaping Work After All, the government’s statistics do not include people who do gig work as a supplement to their traditional 9-to-5 job.  He goes on to explain that while the growth in the gig economy may be flat in aggregate, certain industries have seen a marked growth (e.g. transportation) while others have fallen (e.g. construction).  In addition, he cites that the Federal Reserve recently released numbers showing that by including supplemental gig workers in with full-time ones, that nearly a third of adults engage in some form of independent contractual work.  The fact that these estimates suggest that 2/3 of the gig economy is comprised by workers engaged in supplemental employment (a ratio independently arrived at by the McKinsey Global Institute as reported in Independent work: Choice, necessity, and the gig economy).  This is an important point that will be discussed further below.

With some understanding of the statistics behind the gig economy in hand, let’s now turn to the reasons why people might engage in the gig economy.  Alton suggests that millennials, craving new experiences and shouldering student debt, turn to the gig economy to test the waters while alleviating their financial burden before deciding on a permanent employment choice.  Abha Bhattarai, in Now hiring, for a one-day job: the gig economy hits retail, puts her finger on another reason why certain sectors may be wanting independent contractors rather than permanent staff:  employers are wary of hiring full-time employees because of overtime and health-care costs.  These are only a few amongst the host of economic reasons for workers engaging in the gig economy or businesses only hiring contract workers.

Despite the clear data that indicate that a large fraction of those engaged in the gig economy do so as a ‘side hustle’, there are many commentators worried about the lack of protections afforded gig workers and who use, knowingly or unknowingly, faulty statistics and logic to bolster their case.  For example, Bhattarai rightly points out that contract workers are not covered under the National Labor Relations Act and, thus, don’t have rights to a variety of employee protections.  Unfortunately, she then goes on to criticize that most gig workers (she cites 85 percent) make less that $500 a month without acknowledging the fact that at least 2/3 of them are engaged in supplemental income or without analyzing the number of hours worked.  Likewise, Alana Semuels laments in her article The Online Gig Economy’s ‘Race to the Bottom’,  that third world workers engaged in freelance activities are forced to enter a global marketplace with ‘endless competition, low wages, and little stability’ without discussing the possibilities that their lives were filled with ‘endless poverty, low prospects, and little stability’ without the freelance work, which she begrudgingly admits may have raised wages and broadened opportunities.

This kind of fuzzy thinking (which Frederic Bastiat would be inclined to describe as ignoring the unseen costs) has clearly colored the California Supreme Court.   Or perhaps the court was reacting to statistics that ‘indicate’ that the California’s rise in poverty lies squarely at the feet of the gig economy.  Jeff Daniels seems to argue just that point in his article Nearly half of California's gig economy workers struggling with poverty, new survey says. But as Daniels own statistics show, only one in every 20 Californians struggles with poverty while being in the gig economy in contrast to the nearly 1/3 of all Californians and 47 percent of California workers that he cites as being in the same sorry state.  Thus, 42 percent of California workers struggle with poverty for reasons that have nothing to do with the gig economy.  These workers may even be able to benefit from the gig economy – or more precisely they may have benefitted.  That was before the court ruled that many gig workers should have the pay and benefits of employees (as reported by Moore and Nuzzo in Gig economy will do wonders for Florida, if we let it).

Now the situation is much darker.  Rather than providing for more economic growth and better wages this latest ruling, which adds more compliance burdens, seems to be having an adverse effect on businesses and workers alike as discussed in this very insightful video from Sacramento.

Sigh…Maybe the California Supreme Court should get a new gig.

At first read, a recent article entitled ‘Real wages are essentially back at 1974 levels, report shows’, by Daniel B. Kline of the Motley Fool, argues persuasively that wages, after accounting for inflation, have only just recently returned to the ‘purchasing power’ they had in 1974.  However, after some reflection, his argument stirs up a lot more questions in its wake – questions that suggest that the real situation is a lot more complicated and nuanced.

Central to Kline’s argument is the idea of purchasing power and the associated statistics that show its trend over time.  To define purchasing power, Kline starts his piece with the following:

Of course, Kline is right on this point.  The absolute value of wages is totally irrelevant.  The important factor is the ratio of wages to the things that they can purchase.

But how should that ratio be measured?  Each of us values different things.  Each of us purchases different items.  A statistically accurate study would analyze a cross-section of workers to determine what they could purchase as a fraction of their take-home pay.  But this approach is extremely difficult to do and, as a proxy, Kline uses data on inflation-adjusted wage growth (essential the ratio of wage growth to inflation) as reported by the Pew Research Center writer Drew DeSilver in his article ‘For most U.S. workers, real wages have barely budged in decades’.

Below, is the original graph from DeSilver’s article clearly showing two things.  The first, contrary to what the caption says, these data are no independent measure of ‘purchasing power’; they simply are the inflation-adjusted average wages.  The second is exactly what both authors conclude, that wages over the past 50 years have fluctuated between $20 and $25 per hour (in real 2018 dollars) with no discernable trend and that the current level is the highest it has been since 1978.

The reason I object to DeSilver’s characterization that

is that it is a gross simplification of what actually happens in an economy, even a simple one, let alone something as complex as a modern, multi-faceted one like we enjoy in the US.

Consider electronics.  A simple LED calculator in May of 1977 cost $40 and it could only do a few mathematical functions.  That same $40 would purchase over $165 worth of computing power today, which would easily secure a refurbished laptop or tablet with orders-of-magnitude more computing power.  The same could be said for entertainment, access to information, and durable goods and car purchases (factoring in quality and capability).   The purchasing power of a dollar for anything associated with the digital economy is the highest it has ever been.

Alternatively, the cost of higher education and health care have outpaced inflation by large amounts and so the wages of even the most highly compensated worker couldn’t match; larger and larger amounts of income need to be devoted to these two sectors.  But it isn’t correct to infer that the purchasing power in medicine is the lowest it has ever been.  The quality of medical care is so substantially greater than it was in 1978 that it is hard to determine just how better or worse off a worker is who earns the average wage.  Higher education is a different story entirely.

These types of problems plague the measure and characterization of inflation and so one must consume inflation adjustment calculations with some caution and not try to over generalize, as seems to be the case with Kline and DeSilver.

There is another objection to raised here.  DeSilver’s data shows average rather than median wages.  The distribution of wage is clearly skewed to higher values (nobody earns a negative wage but the upper wage is effectively unbounded) and, for such distributions, it is more appropriate to use the median.  It isn’t at all clear how different that measure is from the average as a function of time, although frequently-expressed concerns about rising income inequality tends to suggest that the gap is growing rather than shrinking.

DeSilver does try to provide some additional insight into the distribution by providing Pew Research Center data showing how various percentiles fared.

DeSilver cites the wages of the lowest tenth increasing at 3.0 % since 2000 (essentially at the rate of inflation – point returned to below) while the top tenth increased by 15.7%.  But again, there is no simple way to map these increases into changes in purchasing power since the analysis would have to look at the actual purchases members in each tier of the distribution.

These objections are important but the real objection to Kline’s analysis is in how time is treated.  In his anecdote, the raise in wages and rent happened at the same time.  But when looking over 50 years of data many factors enter into play that aren’t there for short-term analysis.

The first is that the type of work being performed in the US has evolved significantly in the last 50 years.  In large measure, manufacturing jobs have fled overseas and the lower skilled worker is now performing work that requires even lower skills and, perhaps, nets lower wages.  Additional factors include a rise in benefits being offered that offset set wage growth (DeSilver cites a 22.5% inflation-adjusted growth in benefits compared with the 5.3% growth in wages since 2001) and lagging educational attainment compared with other countries.

These considerations certainly play a role, but a central question not broached in either Kline’s piece or by DeSilver’s study is the speed in which an individual moves between percentiles.  Each point in the time series shown in each figure is a statistical snapshot of the economy in the year in question.  It is tempting but wrong to conclude that those who start in the lowest decile remain in the lowest decile.

Consider the following scenario.  Suppose that entry-level workers enter the economy each year and take their place for one year in the lowest tenth before moving upwards.  Suppose further, that each of them, on average, has just a basic skill set worthy of the modest wage that comes in being in this bottom decile.  Then the expectation we would have for the wage growth in this decile is simply to match inflation, nothing more.  The skill equity they earn is their greatest compensation since it enables them to ‘graduate up’ to more highly paying jobs.

This simple model, far more complex than the ‘excessively simplified example’ Kline uses to begin his piece, more than accounts for the data that DeSilver compiled.  But it is just a model.  The truth, no doubt, is for more nuanced and requires that we ask a lot more questions before forming a conclusion.

The intersection between the legal world and the economic world is often very interesting.  The usual topic of debate centering on the deregulation or prohibition of some activity that is not criminal/immoral, per se, but rather permitted or banned for hosts of different reasons.  The tension between the two sides of the argument reveals a great deal about the self-interests roiling in the economy.  Who should get to sale coffins; what kind of a license, if any, should you have to work; How should the internet be regulated?

Now add to that list: just how should we safeguard sports from the taint of gambling?

On this, particular question, the Supreme Court has recently written a decision in the case 16-476 Murphy et al v. NCAA et al, basically declaring that The Professional and Amateur Sports Protection Act (PASPA) to be unconstitutional.  PASPA outlawed states “to sponsor, operate, advertise, promote, license, or authorize by law or compact” gambling on competitive sporting events.  The Supreme Court sided with the State of New Jersey (Murphy, who is Governor) that the law violated the Constitution’s anticommandeering principle (10^th Amendment) by not outlawing sports gambling but rather proscribed the States from legalizing it.

Of course, the Federal Government couldn’t outlaw sports betting as four states already permitted such activities, the most prominent example being the State of Nevada and its glitzy mecca: Las Vegas, and so it simply outlawed any other states from opening the door.  The status quo may have persisted longer except for the rise of online sports betting.  As Richard Wolf points out in his USA TODAY piece Supreme Court strikes down ban on sports betting in victory for New Jersey,

With that much money on the line, it was no wonder that various states and municipalities wanted their hands in the boodle bag.  The key question is why did the National Collegiate Athletic Association (NCAA) (along with the big four mens professional sport leagues) bring multiple actions to block New Jersey’s desire to legalize sports betting?

The surface answer to this question is simple.  These businesses look to guard their interests in the integrity of the game, an interest that grew out of past scandals.  The most well-known example is the scandal of the Black Sox, in which members of the Chicago White Sox are accused of throwing the 1919 World Series in exchange for money from a gambling syndicate.  The most important example for the NCAA is the City College of New York point shaving scandal in 1951, in which numerous college players, across many teams, were implicated in fixing games for quick money.  Both of these scandals severely damaged public trust in organized sports, in turn damaging the marketability of the product these leagues offer.

But does this answer really hold water?  According to Supreme Court Ruling Favors Sports Betting by Adam Liptak and Kevin Draper of the NY Times

Liptak and Draper conjecture that:

suggesting something akin to professional jealousy.

I think that the real answer, at least in the case of the NCAA, lies deeper in the fact that their economic viability depends on what is essentially an indentured workforce.  The reason that college players are interested in ‘quick money’ is that they are the primary talent for a multi-billion-dollar industry but share in very little of the benefits.

Sure, they receive tuition remittance (i.e. scholarship) from the institution that they attend and won’t be burdened with student debt for an education that may be worthless (as so many degrees seem to be these days) but that’s about it.  They have to work very hard for this perk.  Often, they have to risk their health in meeting their athletics obligations.  They don’t have the amounts of free time other students have and they are subjected to substantial limitations on their free speech and their pursuit of economic success.

I am not arguing that they should be given a better deal or that the institutional agreements are unfair.  These students have decided, for a variety reasons known only to them, to engage in a contract with the colleges and universities.  And it is true that some of them strike it rich after they’ve paid their dues as college players by joining the professional leagues; but the percentages are quite low and the promise of a fat payday will only keep a small fraction of the players in line.

Rather, I am simply arguing that the amateur athletes feel a lack of equity (in the economic sense) and can be tempted easily by gambling.  The cleanest way for the NCAA to protect the integrity of the game is to drop the fig-leaf illusion of student-athletes – an idea may have made sense decades ago when intercollegiate sports was more a tradition and far less a business – and pay the students.

A bit of reflection should show that PASPA never really protected collegiate sports as intended.  Any sufficiently industrious player can figure out a way to thwart the ban on sports gambling.  Maybe Johnny the star wide-receiver can’t bet but second cousin George can and how can we prevent them from conspiring to fix a game.  The better course of action is to provide Johnny with an economic incentive to play honestly; but doing so cuts into NCAA profits.  Rather the NCAA would rather have the government bear the cost of safeguarding the integrity of the sport – an unsportsmanlike attitude if there ever was one.

Ask anyone who views motion pictures as high art what they think about movies.  Very often, you will receive an exposition on the ‘special’ nature of the medium that allows it to rise above ‘mere entertainment’ to become a vehicle of social change.  Such films present a microcosm of society; a lens by which we can collectively self-examine and learn.

If it is true the stories featured in films can be microcosms for life, then it shouldn’t be a stretch to see that the business of Hollywood can also be a microcosm for the economy; or maybe more accurately, a petri dish where various strains of economic policies incubate, infect, and metastasize.  Case in point:  the recent declaration by Benedict Cumberbatch that he won’t takes roles in productions in which women are not paid equally.

These sorts of announcements are common but what exactly is meant by ‘not paid the same as men’?  Before crafting a policy to address an economic wrong we need to define what the wrong is, how to recognize and measure before turning to a remediation and the question as to how economically viable it may be.

To start, recognize that work in Hollywood is done almost exclusively by contract, typically negotiated between a legal representative of the production and the actor’s agent.  Long gone are the days when actors were salaried to a studio and they got roles based on talent, availability, and the desire by the company to expand the expertise of its staff.  Each actor exercises his autonomy in deciding to accept a role.  Each actor tests the market demand with respect to his talent, exposure, popularity, and so on.  Each actor modifies his market supply based on interest, availability, strategic positioning, and the like.  A multitude of factors go into making the decision to sign on to a production or to let it pass by.

As result, it is incredibly complicated, if not down-right impossible, for all of these factors to be analyzed and controlled so that each actor is given exactly what he ‘deserves’.  Exactly how does one normalize actor salaries to make an equal-pay outcome?

To illustrate some of these complexities while keeping the scope manageable, let’s imagine a two-person movie with a male and a female lead.  There are several two-person films that have been made over the years (e.g. Sleuth) and one, in particular, nicely fits the bill:  the very disturbing movie Closet Land (click here for the full movie).  Closet Land features the chilling interrogation and torture of a children’s author (Victim played by Madeline Stowe) by a member of a totalitarian regime (Interrogator played by Alan Rickman) unhappy with her subversive stories.

How do we determine what metric to use to set the pay for the actors involved?  Should pay be based on how many lines are uttered, or by the total number of minutes the actor appears on-screen?  Maybe count the Twitter or Facebook subscribers for each actor, as a measure of fan-appeal, and figure that into the computation.  Don’t forget about the number of Oscar or Golden Globe nominations or awards.   If Closet Land is going to be a vehicle for social change then we want people to watch it – we want stars who will draw an audience into theaters.

The situation becomes even more muddled when we turn to even more subjective measures based on talent and emotional delivery.  Things like the character’s importance to the story or how evocative the actor portrayed a character’s death at a pivotal point in the plot somehow have to figure into the pay that the actor receives.  Who is more important to Closet Land; Victim, who, as a cruelly treated innocent, allows to identify with the terrible plight of the victims of totalitarianism, or Interrogator, whose brutish behavior drives home the horrors of life under such regimes?

Put all these messy considerations aside, for the sake of argument, and simply assume that there is an unambiguous way to determine the merited pay for a given actor based on some amalgam of all of the above.  Call this measure the actor’s worth.  Also call the pay that the actor is being offered by the production the actor’s pull.

What Mr. Cumberbatch wants to correct are those situations where the female lead’s worth is more than her pull when her male counterpart’s pull equals his worth.

Even with all these assumptions in place to strip much of the complexity and messiness away from this situation there are still a lot of nuances in an ‘inequitable’ situation that can’t be dismissed with the simple-minded “it’s because she’s a woman” response.

First, the actress may be starting out in the business so that her pull is less than her worth because nobody has had the chance to see what she can do.  Perhaps she’s been an amazing actor in stage productions on Broadway but is essentially unknown to the movie industry.  Regardless of the circumstances, information about her worth is unavailable to the market and the information cost to find out more is prohibitive.  In this case, her smaller pull reflects the market’s uncertainty.

Another scenario:  suppose that the actress is a recognized star, able to pull in more than her male counterpart, but is between contracts and willing to take a smaller deal to be in a movie that she believes can actually affect social change.

Yet another scenario: suppose the actress is a proven commodity but doesn’t quite fit what the production wants; maybe she is older than the role calls for.  She might want to negotiate her pull downwards below her worth to secure the role.

In all of these scenarios, and countless more, the economic freedom of the actress to negotiate her situation to her benefit, as judged by her and her alone, should be unfettered.  Note that in all of these scenarios there are factors under her control and others over which she can exercise little or no influence.  A naïve equal-pay-for-equal-work policy would produce barriers to entry that inflect harm on the actress.

Of course, a skeptical reader may be objecting vociferously at this point.  What Cumberbatch really meant wasn’t any of this.  Sure, it’s hard to quantify what an actor deserves, and sure an actor may want to make a deal for a variety of reasons, but what Benedict meant to address is when the male and female lead are identical in worth but the production company is full of misogynists.

Leaving aside the obvious critique against the simplistic mind that thinks that any two actors (or people) can have identical worth, suppose that the production house is misogynistic.  Is an equal-pay-for-equal work policy the best way to address the injustice?

The most intelligent approach centers on letting the free market do its job.  As is discussed in the following clip by Milton Friedman, companies that discriminate against a segment of the workforce ultimately bear a cost in the free-market and they don’t bear under equal-pay-for-equal-work policies.

So, what does one make of the statement by Benedict Cumberbatch.  Perhaps he has a clear picture that Hollywood isn’t a free market and that collusion abounds and that he hopes to right a wrong now that his star is on the rise.  Unfortunately, my own interpretation is a rather cynical one and is based on the paragraph that followed the quoted one above.  It’s a simple sentence that reads:

Yep! It doesn’t take a Sherlock to suspect that all this virtue signaling is nothing more than an attempt to secure free advertising to a fledgling business.