How does a company selling used luxury goods spot fakes? (signalling and conspicuous consumption)

A recent article in The WSJ made me think of both signalling theory and conspicuous consumption. But first, let's hear from a famous psychologist:



See RealReal’s Biggest Hurdle Will Be Keeping It Real After IPO: Seller of used Gucci dresses and Rolex watches fights fake luxury goods; 20 hours to vet a necklace. Excerpts:

"The startup sells preowned Louis Vuitton handbags, Gucci dresses and other designer items that people list on consignment."

"Key to its success is battling a booming trade in counterfeit goods and getting shoppers to trust it enough to pay $4,700 for a used Chanel jacket or $7,500 for a Rolex watch. Like other sellers of secondhand merchandise, RealReal gets almost no help from brands in identifying genuine products from copycats."

"That makes the authentication process time-consuming and filled with educated guesswork. It is also hard to scale as the company grows. It took 20 hours to measure every diamond in a Graff necklace the company vetted for sale this year, said Julie Wainwright, RealReal’s founder and chief executive, in an interview in January."

"Despite uncertainty over provenance, demand for previously owned luxury goods is on the rise, particularly among millennials who don’t attach a stigma to used products the way previous generations did. They see the secondary market as a way for fashion to be more sustainable by giving products a longer life. Designer brands have faced criticism in recent months for burning unsold goods. In September, Burberry Group PLC said it would discontinue the practice."

"Bain & Co. estimates that the U.S. luxury resale market totaled $6 billion in 2018. The overall U.S. resale market for clothing, accessories and footwear is far larger and growing fast. It is expected to reach $51 billion by 2023, up from $24 billion last year, according to GlobalData PLC, which prepared the research for a report published by online reseller ThredUP."

"RealReal employs more than 100 gemologists, watch and brand experts and art curators, who inspect items for “attributes such as appropriate brand markings, date codes, serial tags and hologram stickers,” according to documents it filed in connection with its stock offering. It also uses algorithms and data analytics and is working with the University of Arizona to develop technology to speed the inspection of gemstones, the documents say.

Graham Wetzbarger, RealReal’s chief authenticator, shared some clues his team uses to spot fakes in an October 2018 post on the company’s website. The heat stamp on an Hermès Kelly bag is located below the front strap and will be either silver or gold to match the hardware. The Balenciaga Triple S sneaker will always have four lines at the heel, according to Mr. Wetzbarger.

“All of the signature elements of the Kelly bag are copyable—that’s the whole problem with the counterfeit industry,” said Mr. Anthos, the seed investor.

Ryan Yagura, an intellectual-property lawyer, who polices websites for counterfeit goods but doesn’t work with RealReal, said: “The more expensive the item, the more money the counterfeiters spend to make it look real.”

The global trade in fake goods jumped 10% to $509 billion in 2016, the latest year for which figures are available, from $461 billion three years earlier, according to the Organization for Economic Cooperation and Development.

The brands are best-positioned to ferret out copycats. But so far they are unwilling to work with sellers of preowned goods. They worry that a booming secondary market will depress prices of first-run goods, industry executives said."

Related posts:

A fake job reference can be just a few clicks away.

Fake Economist Fools Portugal.

Slave Redemption in Sudan. (Fake slaves are sold to those who buy slaves and then give them their freedom)

Can A Product Work Just Because It's Expensive?. (fake medicine)

If It Pays To Have Friends, Can You Pay To Have Friends?. (you can hire fake boyfriends)

Study: Half of American Doctors Give Patients Placebos Without Telling Them.

Saudis grapple with fake street sweepers .

Rent a White Guy: Confessions of a fake businessman from Beijing (by Mitch Moxley in The Atlantic Monthly)

Can adding a phantom third story to their homes help families find a wife for their son?

Why do employers pay extra money to people who study a bunch of subjects in college that they don’t actually need you to know? Signaling

Mexicans buy fake cellphones to hand over in muggings
 
Conspicuous Consumption, Conspicuous Virtue, Thorstein Veblen (and Adam Smith, too!)

Does it help if hospitals post prices?

See One State’s Effort to Publicize Hospital Prices Brings Mixed Results: New Hampshire’s experience suggests what the Trump administration move may—and may not—accomplish by Melanie Evans of The WSJ. Excerpts:

"As the Trump administration moves to make confidential hospital prices public, New Hampshire’s dozen years of experience with price transparency suggests what it may—and may not—accomplish.

New Hampshire has one of the most comprehensive and oldest hospital price-transparency laws in the U.S. It posts prices charged by individual hospitals for magnetic-resonance imaging, gall bladder surgery and other services on a state website in an effort to give patients information they need to shop for more affordable options.

The disclosures have helped lower costs—though not by large amounts—and only a minority of residents are taking advantage of them, according to health-care spending experts who have studied New Hampshire’s experience.

“It’s not that clear-cut that it’s a home run,” said Ateev Mehrotra, an associate professor of health policy and medicine at Harvard University, who studies how consumers use price information and New Hampshire’s efforts."

"Price-transparency supporters say shining a light on pricing will bring competition to hospitals and thereby lower costs. Yet health policy experts and economists say it could have the opposite effect, as low-price hospitals seek to match their higher-price competitors. It also could remove an incentive for a hospital to offer select insurers a discount for fear others will want it."

"Prices for MRIs and other imaging services with publicly listed rates fell 1% to 2%"

"One obstacle to New Hampshire’s effort, health-care spending experts say, has been the challenge of finding the right price to feature on the website. Health care bills for one procedure typically include prices for numerous items, such as medical specialists, scans and lab tests.

New Hampshire officials decided to bundle prices for services provided under a single procedure"

"The state posts median prices"

"Although shoppers don’t get exact prices on the website, the median price has helped users identify hospitals, clinics and other locations that are less expensive"

[Consumers] "may lack incentives to comparison shop because they have generous insurance plans or have already met their deductibles for the year."

Are CEOs overpaid?

Below is something I submitted to the San Antonio Express-News (it was printed in the paper on June 22 https://www.mysanantonio.com/opinion/commentary/article/Are-CEOs-really-overpaid-14029195.php)

Chris Tomlinson seems to think that CEOs are overpaid because of a rigged system where CEOs sit on corporate boards that determine their pay (“Corporate boards to blame for high CEO pay,” June 17). Yet he never demonstrates that they are, in fact, overpaid.

Here is what George Mason University economics professor says on the issue in his latest book Big Business: A Love Letter to an American Anti-Hero: “CEOs are paid less than the value they bring to their companies. More concretely, CEOs capture only about 68–73 percent of the value they bring to their firms.”

University of Chicago economist Steven Kaplan has found in his research that “CEO pay is largely determined by market forces” and that “CEOs are strongly paid for performance. And boards do monitor CEOs.” This hardly seems sinister.

So, at the very least, the question is in doubt. Businesses that pay too much for any resource they need, be it labor (even the white-collar kind) or capital, will not last long in a competitive economy.

Yes, some CEOs make very large salaries. But claims that they “get paid 500 times more than the median employee” can be misleading.

University of Michigan economist Mark Perry has looked at such studies. For example, they use total compensation, including bonuses and stock options for CEO pay while cash-only pay for part-time rank-and-file workers.

That misses the fringe benefits part of compensation going to workers like health care. Also, there is a difference in hours worked, with CEOs putting in 50-60 hours a week while the average worker is assumed to work 33.7.

CEOs are more likely to be in their prime earning years, too. Workers in their 40s and 50s make more than older and younger workers.

If these issues are taken into account, Perry finds that Fortune 500 CEOs get paid 104 times what the median worker gets paid. That is still a large difference, but only about 20% of what Tomlinson says.

But again, are the CEOs overpaid? It is very easy for outsiders to see the big pay gap and simply conclude it is not fair. But the information to conclude that might not be easily available to journalists and the general public.

If CEO pay is unfair, should we cut it and give more money to workers? How much would that be?

Perry estimates that, for 2017, if we could take all the compensation for the Fortune 500 CEOs and give it to the workers, the average worker would make $66 more a year. This would have little impact on their lives, so the high CEO pay is not harming the workers.

But what if we look at the CEOs of all companies, and not just those of the Fortune 500? Things change even more dramatically.

Perry reports that the average salary for 21,550 Chief Executives in 2014 was $216,100, according to the BLS. That is only 4.4 times the salary of the average worker. That paints a very different picture than what we commonly see.

And guess what? When we look at all CEOs, not just the Fortune 500, there are occupations that get paid more. In 2015, Business Insider reported nine such occupations, all in medicine, with surgeons about 30% above CEOs.

We all want prosperity to be widely and fairly shared. But the way to do that is by teaching people skills that are in demand while having a growing economy. Maligning business and demonizing CEOs is not the way to do it.

Is the interest rate the Fed pays banks on reserves now more important than the Federal Funds Rate?

The Federal Funds Rate is set (maybe influenced is better) by the Fed. It is what banks pay each other when they borrow to meat their required reserves. But this market is smaller than it used to be. So maybe the Federal Funds Rate is not what matters any more. And maybe the sectors of the economy that are most affected by interest rates make up less of the GDP than they used to.

See Has the Federal Reserve Lost Its Mojo? The central bank has less control over market interest rates today than at any time in its history by Phil Gramm and Thomas R. Saving. Excerpt:

"When the Federal Open Market Committee’s meeting concluded last month, reporters focused on the federal-funds rate, announcing that it would be held constant at 2.25% to 2.5%. Unnoticed by even the financial media, and unmentioned in the lead section of the FOMC’s statement, was its decision to cut the interest rate the Federal Reserve pays on bank reserves—a rate that, unlike the fed-funds rate, still has a direct effect on the money supply. The Fed cut the rate paid on reserves because the market yield on one-year Treasurys had fallen below it, inducing banks to build up excess reserves. When banks expand reserve holdings, the money supply contracts—so the Fed was forced to act.

But it wasn’t enough. Because market rates have continued falling since the last FOMC meeting, even the lower rate that the Fed now pays on reserves is 0.35 percentage point higher than Friday’s yield on one-year Treasurys and 0.25 point above the yield on 10-year Treasurys. The return differential has caused banks to increase excess reserves by 5.5%, or $65 billion, over the past month. The size of these yield spreads and the buildup of excess reserves virtually guarantee that the Fed will again cut the interest paid on reserves at Tuesday’s FOMC meeting.

The rate paid on reserves receives too little attention. As a result of the unprecedented monetary easing of the Obama era, when the Fed bought or offset 45% of all federal debt issued—more than five times the amount it bought to support the World War II effort—commercial banks now hold massive excess reserves. By paying interest on reserves, the Fed effectively converted them into income-yielding assets, giving banks an incentive to hold excess reserves instead of expanding credit and the money supply. As banks became awash in liquidity, they all but stopped engaging in borrowing and lending in the overnight fed-funds market. The fed-funds market has contracted 80% since 2008, meaning the fed-funds rate has almost no direct effect on monetary policy."

Related article: Fed Stimulus Just Ain’t What It Used to Be: Federal Reserve may cut rates soon, but its efforts may have less oomph due to changes in the U.S. economy by Justin Lahart of The WSJ. Excerpt:

"A big reason is that the role of some of the most interest-rate sensitive industries in the labor force—the ones that hire like crazy in response to low rates—has been greatly diminished, argue economists at the Federal Reserve Bank of Kansas City. In 1980, construction and manufacturing accounted for about 25% of total U.S. employment. By the time the 1990-91 recession began, that had fallen to 21%, slipping to 18% before the 2001 recession and 15% ahead of the last recession. Now it is at 13%.

Another important difference between this last expansion and previous ones is that housing, after falling by so much in the downturn, had such a modest comeback. Home sales remain below their late 1990s levels, when the U.S. population was lower, and housing’s direct share of gross domestic product is now at levels which in other periods would have been associated with recession. The share of Americans who own the home they live in also has fallen.

Although lower rates might stimulate home sales a bit, a variety of forces are weighing on housing, including out-of-reach prices. This matters because housing is one of the ways that rate cuts have traditionally boosted the economy. Lower mortgage costs prompt people to buy not just a house but many other things—furniture and appliances—that go with it.

Mortgage refinancing—another avenue for lower rates to make their way into consumer spending—also might be lacking. Many homeowners already refinanced during the years coming out of the recession, locking in ultralow rates.

Then, there is the increased caution Americans seem to be taking with their finances since the financial crisis, leaving the saving rate substantially higher than before the recession. Even a decade later, memories of the severity of the downturn may still be too fresh for people to respond exuberantly to lower rates.

It could take more than just rate cuts to get the economy really going again."

What about all this plastic pollution?

I use the book The Economics of Public Issues as a supplemental book in my principles classes. It often chapters on trash, recycling and plastic bags.

The San Antonio Express-News ran an article by Chris Tomlinson called Solving plastics pollution takes more than just banning bags. Excerpts:

"More than half of all plastic by weight is used only once before going to a landfill or the ocean"

"Only 7 percent is recycled, but only once, before it goes to a landfill."

"Most marine plastic waste comes from Asia, and overwhelmingly from China, India and Thailand. More than 86 percent of the plastic found in the ocean was dumped first in either an Asian or African river and flowed to the sea."

"Plastics play an essential role in solving our other global problem: climate change. Plastics make things lighter, which means they require less energy. Plastics can seal buildings and coat windows to provide insulation and save on climate control.

Some plastic items should be banned, but most improve our lives. They need to be recycled."

"The root cause of plastic pollution is not what most people imagine. The solution is more complicated than they would prefer, and simple slogans will take us down the wrong path. Cleaning up the plastic pollution smothering the planet requires industry, consumers and government to compromise - not vilify one another."

Do We Have A Zombie Economy?

See When Dead Companies Don’t Die: The policies created to pull the world out of recession are still in place, but now they are strangling the global economy by Ruchir Sharma in The NY Times. He is author of “The Rise and Fall of Nations: Forces of Change in the Post-Crisis World” and is the chief global strategist at Morgan Stanley Investment Management.

This ties in to some recent posts I did on the recovery and Joseph Schumpeter (links below). Excerpts:

"Since the end of the recession, the economy has grown at about 2 percent a year in the United States and 3 percent worldwide — both nearly a point below the average for postwar recoveries.

What explains the longest, weakest recovery on record? I blame the unintended consequences of huge government rescue programs, which have continued since the recession ended."

"Once the crisis hit, however, governments erected barriers to protect domestic companies. Central banks aggressively printed money to restore high growth. Instead, growth came back in a sluggish new form, as easy money propped up inefficient companies and gave big companies favorable access to cheap credit, encouraging them to grow even bigger."

"Central bankers had hoped that low interest rates would spur investment, increasing productivity and boosting growth. But a recent paper from the National Bureau of Economic Research shows that low rates gave big companies an incentive and means to grow bigger. As their power grows, workers’ share of national income has been shrinking, fueling inequality — and anger.

Four airlines and three rental car companies account for more than 80 percent of the American travel markets."

"Start-ups represent a declining share of all companies in Britain, Italy, Spain, Sweden, the United States and many other industrialized economies. The United States is generating start-ups — and shutting down established companies — at the slowest rates since at least the 1970s."

"Zombies now account for 12 percent of the companies listed on stock exchanges in advanced economies and 16 percent in the United States, up from 2 percent in the 1980s. Companies are surviving in the “zombie state” for longer, depleting the productivity of healthy companies by competing with them for capital, materials and labor."

"The problem, however, is that government stimulus programs were conceived as a way to revive economies in recession, not to keep growth alive indefinitely. A world without recessions may sound like progress, but recessions can be like forest fires, purging the economy of dead brush so that new shoots can grow. Lately, the cycle of regeneration has been suspended, as governments douse the first flicker of a coming recession with buckets of easy money and new spending. Now experiments in permanent stimulus are sapping the process of creative destruction [see link below about Joseph Schumpeter] at the heart of any capitalist system and breeding oversize zombies faster than start-ups.

To assume that central banks can hold the next recession at bay indefinitely represents a dangerous complacency. Corporate debt levels continue to rise; government debts and deficits continue to rise. If there is a sudden break in confidence, the damage will be that much greater and governments may find themselves too broke to stem it."

Related posts:

What ends expansions? (or what causes recessions according to Alan Blinder and Austan Goolsbee).

The current expansion is close to a record, so what might be the potential risks of it ending?.

Joseph Schumpeter, Capitalism and Intellectuals

Are business cylcles imbedded in longer cycles called financial cycles?

Over 40 years, 70% of the population made it into the top 20% of earners for at least one year

See Earnings in the U.S.: A Game of Chutes and Ladders by Jo Craven McGinty of The WSJ. Excerpts:

"Over roughly 40 years, 70% of the population made it into the top 20% of earners for at least one year, according to researchers at Cornell University and Washington University in St. Louis. But only about 21% remained there for 10 consecutive years, and even fewer clung to the top rung for a solid decade.

“A small group of people persist at the high and low levels,” said Thomas A. Hirschl, a Cornell sociologist and one of the researchers who studied the phenomenon. “But a big crowd of people move in and out.”"

"by age 60, more than half the population occupied the top 10% for at least one year, and 11% made it to the top 1% for that length of time."

"But only 0.6% remained at the highest level for 10 consecutive years, and less than 7% remained in the top 10% for that long.

On the lower rungs of the ladder, 79% of the population experienced at least one year of economic insecurity, when, for example, the head of a household was unemployed, and half the population experienced at least one year of poverty or near poverty."

"In 2016 . . . the income cutoff for the top 1% was $480,804. The top 50% earned 88.4% of total adjusted gross income. And the bottom 50% earned 11.6%."

"Earlier studies examining PSID data, from 1967 through 1976 and from 1977 through 1986, found that around 50% of earners fell out of the top quintile, while around 45% moved up from the lowest quintile."

Related posts:

The preference for partners of the same education has significantly increased for white individuals

Is The Rich-Poor Education Gap Getting Bigger?

Mean Family Income By Quintiles

The American middle class is shrinking because more people are becoming upper middle class and rich

Some Possibly Surprising Facts About Poverty

Does the top 1 percent earn 85 percent of income? Is it 52 percent? Something Else?

Study Finds Wealth Gap in Graduation Rates

Are Farmers Markets An Example Of Perfect Competition?

Perfect competition is one of the four market structures (the others being monopoly, oligopoly and monopolistic competition). It has free entry, meaning nothing stops new firms from coming in, there are many competitors and all selling an identical product. This report from Jodi Helmer of NPR seems to show this.

See Why Are So Many Farmers Markets Failing? Because The Market Is Saturated. Excerpt:

"When the Nipomo Certified Farmers' Market started in 2005, shoppers were eager to purchase fresh fruits and vegetables, as well as pastured meats and eggs, directly from farmers in central California.

But the market was small — an average of 16 vendors set up tables every Sunday — making it harder for farmers to sell enough produce to make attending worthwhile.

"The market in Santa Maria is 7 miles in one direction [from Nipomo], and the market in Arroyo Grande is 7 miles in the other direction. Both are bigger markets, so shoppers often went to those markets instead," explains market manager and farmer Glenn Johnson.

The decision to host the market on Sundays also proved detrimental. Many of the farmers participated in six or more additional markets each week and wanted Sundays to rest, says Johnson.

In 2018, with attendance down and just five vendors signed on to sell produce, organizers of the Nipomo Certified Farmers' Market decided to shut down the event at the end of last season.

Nationwide, the number of farmers markets increased from 2,000 in 1994 to more than 8,600 in 2019, which led to a major problem: There are too few farmers to populate the market stalls and too few customers filling their canvas bags with fresh produce at each market. Reports of farmers markets closing have affected communities from Norco, Calif., to Reno, Nev., to Allouez, Wis.

Markets in big cities are hurting too. The Copley Square Farmers Market in Boston reported a 50 percent drop in attendance in 2017. In Oregon, where 62 new markets opened but 32 closed, the researchers of one multiyear study concluded, "The increasing popularity of the markets is in direct contrast with their surprisingly high failure rate."

Diane Eggert, executive director of the Farmers Market Federation of NY, received numerous reports of closings; she believes the problem is one of pure mathematics.

"There are way too many markets," she says. "The markets have started cannibalizing both customers and farmers from other markets to keep going."

Eggert also points to myriad other options that consumers have for accessing fresh foods, including community-supported agriculture and home delivery options from companies such as Amazon, Instacart or Blue Apron that might be more convenient than shopping at a Saturday morning market."

Joseph Schumpeter, Capitalism and Intellectuals

See Socialists, Knowledge of History and Agency. These are letters to the editor of The WSJ in response to an article about socialism by Joseph Epstein. The one below reminded me of a 1992 article by Robert Samuelson in Newsweek.

"Joseph Epstein’s “Socialists Don’t Know History” (op-ed, May 30) on the abysmal historical knowledge of young people brings to mind the prophesy of the keenest of economists, Joseph Schumpeter, in 1942 when he said that capitalism would destroy itself by breeding a “new class: bureaucrats, intellectuals, professors, lawyers, journalists, all of them beneficiaries and, in fact, parasitical on them and yet, all of them opposed to the ethos of wealth production, of saving and of allocating resources to economic productivity.” The 77 years since then has proven Schumpeter a major prophet.

Larry W. White
Dallas"

See also Schumpeter: The Prophet by Robert Samuelson. Excerpts:

"He is best known for his evocative phrase "creative destruction." Schumpeter saw capitalism as a system that produces material progress-rising living standards, more creature comforts-through the turmoil of new technologies and business methods. The "entrepreneur," a man of great vision and energy (in his day, there were few women in business), was the driving force of change. Sam Walton and Wal-Mart fit his theory perfectly."

"It is precisely because the "gale" (his term) of creative destruction seems so ferocious that Schumpeter has enjoyed a revival. But he had a second stunning insight that also is relevant. He argued that capitalism's vast economic success generates popular dissatisfaction with capitalism. As prosperity increases, progress is taken for granted. Capitalism's remaining shortcomings-including the disruption caused by creative destruction-become increasingly intolerable. Finally,, prosperity expands the class of intellectuals who are contemptuous of capitalism."

""[C]apitalism ... creates, educates and subsidizes a vested interest in social unrest," Schumpeter wrote. Popular discontent and intellectual hostility would, he thought, doom capitalism and lead to socialism."

"capitalist economic success, because it is incomplete and interrupted, breeds its own backlash. The sour public reaction to the present slow economic recovery only highlights a longstanding trend. The growth of Big Government-here, in Europe and in most advanced market societies-has aimed to placate popular discontent without undermining capitalism's ability to raise living standards."

"Its [his book Capitalism, Socialism and Democracy] genius is to explain why capitalism succeeds as Adam Smith imagined, even though modern economies lack Smith's perfect competition with hordes of tiny companies. In today's industries, big firms often dominate and enjoy monopoly profits. But most monopolies are temporary, Schumpeter argued. Their high profits, far from stifling competition, inspire more innovation from entrepreneurs and big companies alike. Cable TV assaults the networks; fax machines replace mail; McDonald's invents fast food.

But the drawn-out nature of this process makes capitalism hard to defend politically, Schumpeter said. The argument for it "must rest on long-run considerations." The "unemployed [worker] of today [has] to forget his personal fate and the politician of today his personal ambition." This was not likely."

Is there really a shortage of construction workers?

See Behind Deadline: Home Projects In Colorado Suffer From Worker Shortage by KAREN SCHWARTZ of the Associated Press.

A shortage means that the price is below the intersection of supply and demand and that the quantity demanded is greater than than the quantity supplied. It does not mean we simply have less of something than we used to. If price were too low, we would expect to see it rise until quantity demanded equals quantity supplied again.

This article talks about a shortage of construction workers. If there really is a shortage, we would see wages starting to rise. But that is not discussed.

Lowe’s offering employees tuition and other incentives might be the equivalent of rising wages since if a worker does not have to pay to learn to be a carpenter, that field becomes more lucrative. But again, the article does not discuss that.

Some of this is driven by retirements, which means a decrease in supply which leads to higher prices (or, in this case, wages). Excerpts from the article:

"Current estimates indicate there are about 300,000 unfilled jobs in the construction industry, and the industry is expected to need an additional 747,000 workers by 2026, according to the U.S. Bureau of Labor Statistics.

An August survey of nearly 375 members of the National Kitchen and Bath Association found that almost two-thirds of the respondents said they had difficulties hiring skilled workers in the previous year, and nearly 70% felt the problem had gotten worse since 2016.

“Labor shortages have impacted start dates and completion dates on construction and renovation projects, with NKBA members citing delays on 30% of jobs,” said Bill Darcy, chief executive officer of the trade association.

A look at 15 different trades found shortages in them all"

"The seeds of the current labor shortage were planted during the Great Recession, when a lack of construction jobs prompted many workers to leave the industry.

“Not enough of them have returned to help us close the gap,” Darcy said.

Compounding the problem is the graying of the remaining workforce, with the median age for a construction worker at 42.5 years, according to January figures from the Labor Bureau. It’s estimated that for every five workers retiring from the industry, only one is entering it"

"Players in the industry are ramping up efforts to address the impending crisis, launching incentives to try to recruit new workers, especially young people, to the trades."

"Lowe’s last year started offering employees tuition and other incentives to train for jobs such as carpentry, plumbing, and appliance repair."

U.S. Job Openings Outnumber Unemployed by Widest Gap Ever

By Sarah Chaney of The WSJ. I've done alot of posts on the relationship between inflation and unemployment. So this article shows the job market is doing well and inflation is low. The inflation rate in 2018 was 1.9%. Over the last 12 months it is 2.0%. See Consumer Price Index Data from 1913 to 2019.

Excerpts from the article:

"The number of job openings exceeded the number of unemployed Americans by the largest margin on record in April, signaling difficulty for employers to find workers in a historically tight market.

There were a seasonally adjusted 7.449 million unfilled jobs at the end of the month, barely budging from March, the Labor Department said Monday. Meanwhile, the number of Americans seeking work in April dropped to 5.824 million from 6.211 million a month earlier."

"The number of openings . . .  outnumbered the unemployed by 1.625 million in April, the largest gap on records back to 2000."

"At the same time, though, growth in job openings is stalling, pointing to a slowdown in labor-market momentum"

"There were 4.8% more job openings in April than a year earlier, pulling back from the double-digit gains in openings posted through January."

"Some of the slowdown in job growth could reflect a shrinking supply of available workers. The share of adults ages 25 to 54 in the labor force—which filters out many people who are still in school or who have retired—fell to 82.1% in May. That shows that even the 3.6% unemployment rate in April and May, a 50-year low, doesn’t appear to be attracting additional Americans off the sidelines and into the job market."

"The rate at which workers quit their jobs, a proxy for worker’s confidence in the job market, is already the highest since the recession."

"The so-called quits rate held steady at 2.3% in April for the 11th straight month"

Social media, insurance and asymmetric information

Can a Facebook Post Make Your Insurance Cost More? With insurers likely to add social media to the data they review before issuing policies, it might be wise to post pictures from the gym—but not happy hour by Ellen Byron and Leslie Scism of The WSJ.

This reminds me of what economists call "asymmetric information." This is a situation in which the seller knows more about a product than the buyer (sometimes the buyer knows more about something important like how healthy or risky they are as it relates to insurance). These markets do not operate optimally. If insurance companies don't know how healthy or risky you are, they can't be sure of how much your premiums should be. But with fitness tracking, they learn more about you. My students might recall I discussed this after we played the supply and demand game in class. A good example is the used car market. Sellers usually know alot more about the product than the buyers.

I play a game in class that touches on insurance. Click here to see the Lessons From the Supply and Demand Game.

Excerpts from the article, which explains how insurance companies are trying to get more information about you:

"Did you document your hair-raising rock-climbing trip on Instagram? Post happy-hour photos on Facebook ? Or chime in on Twitter about riding a motorcycle with no helmet? One day, such sharing could push up your life insurance premiums.

In January, New York became the first state to provide guidance for how life insurers may use algorithms to comb through social media posts—as well as data such as credit scores and home-ownership records—to size up an applicant’s risk. The guidance comes amid expectations that within years, social media may be among the data reviewed before issuing life insurance as well as policies for cars and property.

New York set a high bar, requiring insurers to prove that any social-media data used in underwriting is actuarially justified, logical for use and doesn’t unfairly discriminate against certain customers.

“We’re going through a period now where most life insurers are exploring using all types of data, not just data they get directly from the customer proactively, but other external sources of data—social media being a big one,” said Ari Libarikian, a senior partner at McKinsey & Co. in New York.

He anticipates that some day, underwriters will assess potential customers with automated reports based in part on their social media use. “It’s here to some degree and it’s coming in the next couple of years,” Mr. Libarikian said."

"The time and effort to monitor an applicant’s online presence can be costly, so few if any insurers are doing it yet in detail or at scale, says Jacques van Niekerk, chief executive of Wunderman Data, a unit of WPP Group ."

"Some insurers are using social media in handling claims. Insurers can check explanations of auto claims against Facebook testimonials about an accident. And they could challenge disability claims if posted photos from a ski trip, for example, contradict an impairment or illness."  

 Related posts:
Lose the Fat to Lower Your Insurance Rates
How Did Astronauts Of The 60s "Purchase" Life Insurance?
Should Overweight People Pay More For Health Insurance?
Should We Pay People To Adopt A Healthy Lifestyle? 
'Spy car' worries raised by new Allstate patent
Should your company or insurer reward you for meeting exercise goals?
How insurance companies are using technology to better assess how risky customers might be
The EU Says Insurers Can No Longer Discriminate On The Basis Of Gender
Some History of Insurance
Companies and governments are paying people to get healthy, and it works

Are business cylcles imbedded in longer cycles called financial cycles?

See Investors, Buy the Dips: The Economic Cycle Isn’t What It Used to Be by Jon Sindreu of The WSJ. Excerpts:

"Business cycles have historically happened at intervals of between five and eight years, so the current expansion is indeed an abnormally long one."

"these business cycles are themselves contained within longer ones, which economists call “financial cycles.”"

"Economists have long struggled to separate the two types of cycles. Back in 2003, University of Chicago professor Robert Lucas infamously said in a speech that the “central problem of depression-prevention” had been “solved for many decades.” The worst crisis since the Great Depression struck a few years after those comments.

Yet Mr. Lucas wasn’t totally off the mark. The nature of the business cycle has indeed changed since the 1980s.

Back then, trade and finance were liberalized around the world while policy makers sought to quash inflation by sidelining labor unions, which had a strong hand in pushing wages up in response to other costs—like oil prices—going up. Central banks were given more independent power to fight downturns as the public sector kept getting bigger.

In the present era, central banks go to extremes to stimulate the economy and reassure markets at the first sign of trouble. They can do so without concern because weak unions and globalized supply chains keep inflation subdued. If growth does falter, governments automatically cushion the blow through the sheer size of the public-sector wage bill as well as unemployment and social benefits."

"However, longer expansions also encourage people to take on more debt and they give financial firms time to get around regulations. As another economist, Hyman Minsky, put it: Economic stability breeds instability. The result is that business cycles have become mellower but financial cycles more violent since 1985, according to data by the Bank for International Settlements."

Related posts:

What ends expansions? (or what causes recessions according to Alan Blinder and Austan Goolsbee).

The current expansion is close to a record, so what might be the potential risks of it ending? 

Is the U.S. student loan system broken?

See The Long Road to the Student Debt Crisis: A series of well-intentioned government decisions since the 1960s has left us with today’s out-of-control higher education market by Josh Mitchell of The WSJ.

The program was set up in the 1960s and 1970s to get more people into college, with the aim of increasing productivity and incomes. At first, the federal government guaranteed the loans before eventually lending the money.

Excerpts:

"four in 10 recent college graduates are in jobs that don’t require a degree"

"At more than a third of them [colleges], less than half of the students who enroll earn a credential within eight years, according to the think tank Third Way."

"College tuition has soared 1,375% since 1978, more than four times the rate of overall inflation"

"The U.S. now spends more on higher education than any other developed country (except Luxembourg)—about $30,000 a student"

"college presidents are being handsomely rewarded for the success of their enterprises: Seventy of them, including a dozen at public colleges, earned over $1 million in 2016-17"

"Sallie Mae borrowed from the Treasury at low rates and used the money to buy student loans from banks, thus freeing up banks to make even more loans to students."

"the system gave colleges an incentive to maximize the tuition they extracted from students and the federal taxpayer by boosting fees and enrollment, which meant relaxing admissions standards.

The federal government didn’t want to put in place any academic criteria to prevent someone from getting aid."

"They didn’t consider the possibility that a large number of students would end up in debt without earning a degree or the higher wages that come with it."

"Colleges could raise money quickly by admitting academically suspect students while suffering little or no consequences if their students dropped out and defaulted on loans.

The market was suddenly flooded with cheap money, which led to a surge in the ranks of college-going students. Colleges responded to higher demand by raising prices, leading Congress to increase loan limits and grants."

"Only last month did the federal government release, for the first time, data showing the average debt burden of students leaving particular programs within a school."

"The Obama administration also heavily promoted income-based repayment programs, which set borrowers’ monthly payments at 10% of their discretionary income and then forgave a portion of their debt after 20 to 25 years of payments."

"The number of full-time workers with bachelor’s degrees has risen from 7.6 million in 1980 to 19.5 million today. The share of Americans age 25 and older with a bachelor’s degree reached 34.2% in 2017, double what it was in 1980"

"About 40% of all student debt goes to finance graduate degrees, including law and medical degrees, which typically lead to high salaries."

"In particular, the financial benefits one can expect from a college degree appear to be lower among people born in the 1980s, and they remain unequal across racial and ethnic groups"

"Companies including Google, Apple and IBM have dropped the requirement that job applicants have college degrees"

"In February, I asked [economist Alice Rivlin] what she thought about the system she helped to create 50 years ago. Her response: “We unleashed a monster.”"

Related posts:

Who Is Most Likely To Default On Their Student Loans?

Student loan delinquency is higher than for other borrowing

The Diminishing Returns of a College Degree: In the mid-1970s, far less than 1% of taxi drivers were graduates. By 2010 more than 15% were

Student-Debt Forgiveness Is a Wonderful Boon, Until the IRS Comes Calling: Education analysts, student advocates warn of impending crisis from one-time tax bills individuals may not be prepared to pay off

What Chocolate Shortage? Cocoa Prices Steady as Record Output Projected

Supply concerns made cocoa the best-performing commodity of 2018

By Kirk Maltais of The WSJ. This is what we predict in economics, that if sellers anticipate higher prices in the future, they will begin taking steps to increase supply when the higher prices are supposed to arrive. If this is a competitive market, supply will keep increasing until price falls enough so that we move back to an average rate of profit. The article indicates that this happened.

Excerpts:

"The world appears to have averted a chocolate shortage, upending the rally that made cocoa the best-performing commodity in 2018.

Last year, prices of cocoa futures soared by 28% on repeated warnings by analysts that chocolate would be in limited supply in 2020 because of a scarcity of cocoa beans.

But cocoa prices are relatively unchanged since the start of 2019. As of Tuesday, they were trading on the Intercontinental Exchange in New York at $2,360 a metric ton, down 2.3% this year.

Prices have steadied as weather in major cocoa-growing regions has been conducive to production. Supply is outpacing demand for a third year in a row, according to the latest projections from the International Cocoa Organization."

"The predictions of a cocoa shortage weren’t based on sound science, said Jeff Rasinski, director of commodities and corporate procurement at Blommer Chocolate Co."

"Higher production partly came about as corporations made changes to their cocoa supply chains.

Reacting to the reports of a looming shortage, Mondelez International Inc. began a program in 2012 that helped farmers in six cocoa-growing nations learn to grow more efficiently."