The Electoral College and Money

I just watched this cool short video.

The author made the point that even places in which a candidate has no chance of winning the electoral votes, there is lots of money to be had. I wonder if there is anything about the relationship of these variables. What I mean is that if people have a desired level of political participation, then a republican whose state starts to become really democratic may feel a greater urge to send money to republican candidates to make up for the fact that their VOTE is largely irrelevant.

Depending on your political persuasion, you might see this as a good or bad thing. In one sense, it means that poor republicans in California really have no way to “export” their political influence. Rich Democrats in Texas however could easily make their preferences known. On the other hand, it mean that people who want to be active in politics still can be.

In any case, the electoral college may be responsible for some of the money in politics.

It’s striking how little $ Facebook makes

Everyone thinks Facebook will grow, and I’m not a skeptic. How could I be — I don’t know anything about investing.

However, Facebook doesn’t make that much in profit compared to a whole host of other corporations. Home Depot makes 3x more than it. Also in pg. 12 of the IPO, facebook warns about the source of its revenue, and how unstable it might be. It’s just kind of funny to hear Facebook say this itself and acknowledges it.

We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertisers with Facebook, could seriously harm our business.

The substantial majority of our revenue is currently generated from third parties advertising on Facebook. In 2009, 2010, and 2011, advertising accounted for 98%, 95%, and 85%, respectively, of our revenue. As is common in the industry, our advertisers typically do not have long-term advertising commitments with us. Many of our advertisers spend only a relatively small portion of their overall advertising budget with us. In addition, advertisers may view some of our products, such as sponsored stories and ads with social context, as experimental and unproven. Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertise with us, if we do not deliver ads and other commercial content in an effective manner, or if they do not believe that their investment in advertising with us will generate a competitive return relative to other alternatives. Our advertising revenue could be adversely affected by a number of other factors, including: 

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decreases in user engagement, including time spent on Facebook;

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increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content;

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product changes or inventory management decisions we may make that reduce the size, frequency, or relative prominence of ads and other commercial content displayed on Facebook;

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our inability to improve our analytics and measurement solutions that demonstrate the value of our ads and other commercial content;

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decisions by advertisers to use our free products, such as Facebook Pages, instead of advertising on Facebook;

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loss of advertising market share to our competitors;

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adverse legal developments relating to advertising, including legislative and regulatory developments and developments in litigation;

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adverse media reports or other negative publicity involving us, our Platform developers, or other companies in our industry;

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our inability to create new products that sustain or increase the value of our ads and other commercial content

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the degree to which users opt out of social ads or otherwise limit the potential audience of commercial content;

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changes in the way online advertising is priced;

•

decreases in user engagement, including time spent on Facebook;

•

increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content;

•

product changes or inventory management decisions we may make that reduce the size, frequency, or relative prominence of ads and other commercial content displayed on Facebook;

•

our inability to improve our analytics and measurement solutions that demonstrate the value of our ads and other commercial content;

•

decisions by advertisers to use our free products, such as Facebook Pages, instead of advertising on Facebook;

•

loss of advertising market share to our competitors;

•

adverse legal developments relating to advertising, including legislative and regulatory developments and developments in litigation;

•

adverse media reports or other negative publicity involving us, our Platform developers, or other companies in our industry;

•

our inability to create new products that sustain or increase the value of our ads and other commercial content;

•

the degree to which users opt out of social ads or otherwise limit the potential audience of commercial content;

•

changes in the way online advertising is priced;

Vending Machines and Nuclear Deterrence

I was at a vending machine today getting some cookies and the thing cost 95 cents (yea, I know). So I got 5 cents back as change since I used a dollar, and then I thought, what would I do if the machine just DIDN’T give me the correct change?

The answer is I probably wouldn’t care. People don’t care about change. That much is pretty obvious, and I don’t even think this is me the relatively privileged person talking. Lots of people throw coins into the change cup at convenience stores and whatnot and I just don’t think many people would go out of there way for an extra five cents.

So if I’m running a 7/11 or something, why don’t I just say to various customers “I’m just going to take an extra 5 cents from you” and then take an extra five cents from them. The main reason, I think, why no one does that, is probably just the general decency of most people. The second reason might have something to do with the fact that you will piss a lot of people off in a hurry just flatly saying you are going to steal from them, no matter how small the amount is. People might attack the cashier, or protest the store, or just hang around, or call the cops, or whatever. All of this is facilitated by the fact that there is an actual person involved.

Think of nuclear deterrence. Its a way better deterrent for a country to program its nuclear weapons to launch when launched on. This makes deterrence assured. As long as policymakers control the weapons, there is reason to threaten, lie, second guess, and all the rest. If an algorithm controls the weapons, there is no one to bargain with.

So, automatic nuclear strikes in this case is a little like vending machines. What I mean is that what if the vending machine just DIDN’T give me my change. Would I complain, would there be anyone to go to, would there be any fuss to make or hell to raise? No, it would just be 5 cents I lost.

You’re likely thinking “yea, but you’ll be pissed at the vending machine owners and this will make you a less likely repeat customer.” Really? I highly doubt it. No one knows how to contact the owners of vending machines, and no one would go to the trouble over 5 cents. Also, its not like your anger would really hurt the business you gave out, since there is no way to know that the next vending machine you’re out is affiliated with the one that scammed you out of your money. After all, on the outside, the damn things are just BOXES with stuff in them. You wouldn’t know where to direct your anger.

And so, the conclusion of this argument is that absent the basic decency of people, it seems to be pretty smart for vending machines to be run like nuclear war computers and to just have them SCAM-BY-ALGORITHM. Once price would be displayed, but another slightly higher price would be charged. It would really never be worth it to try and recoup the individual loss, and the vending machine would make extra money on every purchase. You could even have the machine only do it every fifth time so individual repeat customers wouldn’t even necessarily adapt to the new price, thinking that it was fluke. This is another benefit of machines. One can rationally believe that not getting change back was just a mistake, whereas you could just ask the cashier for the right change if one tried it on you.

Vending machines could make at least like, 30 extra dollars a month just based on fraudulent accounting. 30!

I guess I don’t need grad school after all…

Politics isn’t all that corrupt (maybe)

I read this paper along time ago and thought it was great. I skimmed it again recently and realized that it is FANTASTIC. As a consequence, I’ve added to the section of my favorite papers, which is pretty small at the moment.

Anyway, if you read one scholarly, technical paper, I would recommend this paper. It covers so much in such a clear way and it makes several very thought provoking points. I’ll try to grab some of the highlights.

Overall, the point is that everyone should just chill out about how much money there is in politics and rhetoric to the effect of “our politicians are all corrupt, accepting money from every direction.” The implication is that power groups are manipulating our political process through cash. And they undoubtedly are to some degree. The question is: how dire is the problem? According to this article, things aren’t so bad.

First, only %60 of fortune 500 corporations even have PACS, and those that are active don’t give anywhere near the limit on PAC contributions. If companies are so rich and so eager for influence, why aren’t they giving as much as they possible can? In fact, to approach the limit in this country on PAC contributions, such spending would need to increase THREE FOLD. Also, another striking but somewhat ambiguous factoid is that in one study of 15 large corporations,  roughly 1,000 million dollars was given by these companies to charity while only 16 million was given to campaigns. Again, if corporations are making money off of these contributions (because they “buy” deregulation or subsidies or whatever) then why aren’t they spending more? Also, when 9/11 happened, according to this article, charitable giving from companies went up and political contributions went down. Why would corporations shift to a non-money making use of money from a money-making use?

This is just a subset of a further puzzle, known as Tullock’s puzzle, which suggests that if politicians’ votes have such high economic worth, they should be able to extract a lot of money from corporations. For example, in the sugar subsidy vote of 19…88 (I think) something like $182,000 bought 5 billion dollars in subsidies. A politician who can tilt the odds on a 5 billion dollar law could command a lot more contributions, but we don’t see contribution totals even approaching the amount of money that important bills can sway the bottom lines.

Of course maybe this just means that corporations have all the leverage and so can command huge benefits with a small amount of money. Hard to see how this could be just on an intuitive level since the politicians control the federal government and a 1 trillion dollar budget or whatever…seems like they’re in the driver seat. But in any case the article makes a further point that in almost all cases, most of the money in politics comes from individual donors who are giving about 100 dollars a year on average. So, politicians are not beholden to corporations for most of their revenue and what I find ESPECIALLY interesting is that in close elections, even more of a politician’s money comes from citizens.

This is the significance of the marginal dollar, by which I mean that when a campaign gets tough, you don’t turn to a corporation or an interest group to get the cash you need to win. Rather, you turn to the constituents in your district. And since individuals make the difference in close races, it seems that the money of corporations doesn’t have that much say in what a legislator does. He can likely get elected without them.

There’s even more than these arguments in this article; basically these throw the kitchen sink at the claim that corporate money runs our political system, and some of their other points are really interesting.

There interpretation of the data is different. They suggest that rather than treating corporate giving as an investment designed to spur a quid pro quo with legislators, its better to think of giving from all groups as a consumption good. This is a radical and fascinating point, because the idea is that people spend money on politics not to change it, but because, like charity, it makes them feel good. People want to participate in politics and giving money is one way they can.

Now, this article is a dose of optimism for those like me who are concerned about our country’s political system, and this article deserves to be taken very seriously (these guys surveyed 40 articles and did some regression of their own. This stuff is no joke). But at the same time, something tells me that its not all roses and candy (what’s the actual saying? Not all ____ and _____). Rather, there are probably some ways that money is circulating in deleterious ways in our political system, but at least the article refutes the a crude “interest groups run everything” position. And that’s as it should be. Our legislators are at the center of many forces, and one of the big forces is just plain old ordinary citizens. We should never forget that.

attitudes toward money

Money is fungible. If you have x dollars in your checking account and y in stocks and z under your pillow, that’s how much money you have altogether. You may have money tied up in a car or a home as well (which are less liquid). These things all together determine your assets.

However, it is possible, and I think in some sense useful, to psychologically partition one’s thinking about money. The way I do this is to think of money solely in terms of my checking account. Basically, if there’s no money in my checking account, I assume I have none (even though I could easily sell my stocks to get more or take my money from savings). This is one sense irrational. As I said before, money is money….is money.

But what this bizarre behavior does for me is motivate me to work harder and spend less. If I think that the money in my savings account is somehow off limits, then there is a strong psychological barrier in place against spending more than my income. In this way, my bank account continually goes up, albeit slowly. Now of course, in an emergency, I would not hesitate to spend my savings (pretend that I need to a pay a bill or have my internet turned off. I would obviously transfer the needed to money to keep the internet, which I use all the time). The point is just that this would be a case in which need breaks through the psychological dam I’ve put in place.

The bigger point is that psychological attitudes toward money are just as important as the strict amount that exists on paper.

long term returns to humanitarianism

When we invest our money for personal gain, we often think of the return that the money will earn in a given period of time and the riskiness of that return. All sorts of things go into this calculation. However, how should we think about returns to investments when deciding to make a charitable contribution.

Take this example. I’m thinking about either giving 150 dollars to AMREF, which, they tell me, can “rehabilitate” a village well, or investing this money in the stock market and then using the proceeds of this investment to create many wells in the future. What should I do?

When facing the tradeoff between future and present charity, I think it’s important to remember that the marginal benefit to charity is likely to hugely to outstrip the returns to financial investment. What I mean is that a well built now, when there are few wells, will be more helpful to people then multiple wells will be in 20 years, when there are more wells. In other words, a well built right now might save 100 people, but a well built in 20 years (when Africa has more capital and infrastructure) might only save 10 people. Thus, unless I expect my 150 dollars to reap a massive return (10x growth), it makes more sense to give the money away now.

Put simply, my suspicion is that basic infrastructure improvements generate a ton of utility per dollar spent, but that subsequent infrastructure improvements don’t generate near the amount of utility per dollar. Thus today, humanitarian “consumption” makes more sense than humanitarian “investment.” Another way to put it is that the present holds many once in a lifetime opportunities for humanitarian bargain-hunters.

why I like not being rich

I used to live off my parents’ dollar. They were generous people and so when I went to the grocery store, I could just grab what I wanted and leave. The cost was unimportant.

Since living on my own though, I have to scrutinize the prices of things, and I get a significant amount of psychological satisfaction when I can look at an item and start carrying on about it’s price. “Three-ninety-fucking-nine, what do they think I’m made of, money?” I say to myself when passing by the gourmet bread section. Maybe I want some onions, “Holy shit, two FORTY-FIVE.” This is some kind of righteous indignation that subliminally vindicates me for being thrifty and having easily satisfiable desires in general.

All this is very fun. However, let me be clear. I didn’t say I would like being poor. I’m not trying to say that secretly being poor is more fun than being rich, but that being in the middle — not rich — might be more fun than being rich, at least for me.

education and income

Many studies confirm that people with more education make more money (see here for example). But I think these studies understate the economic value of education. I’m not talking about the externalities that might come about as a result of having an educated populace (an argument which is advanced to support the public subsidization of education), but about direct benefits to educated people (this whole post assumes that education increases income, rather than just being an indicator of people who are already talented and thus just want to go to school).

You see, I think people who are more edcuated noly only make more money, but are more efficient about how they spend it. In other words, they make more money and control their costs better.

Simple example. My dad knows about tax laws that can save him money on the house he just bought. Now of course, this might be taken to only show that being a lawyer saves money, but my suspicion is that more education helps people make better choices about what to spend on (I should by a more expensive car that will last rather than a cheaper one that will break). I also suspect education might reduce some of people’s more costly habits. Public health initiatives for example might be thought to reduce smoking, and now those people don’t have to pay for smoking all the time, which is expensive. More educated people might also in some cases pay less for insurance (honor students in high school sometimes get a small premium adjustment downward).

So yes, more educated people make more, but I think it’s also plausible that they spend less, thus leading to even higher level of welfare than one would predict just by looking at income.

Texas does not waste money. A lot of other states do.

It’s no secret that I love the Pew research center. All of its projects are really interesting, and their 2008 report on state governance does not disappoint.

The report looks at various aspects of state governance and also includes a small section about each state and its individual problems. There are tons of small comments that I find really interesting.

One of the areas that the report looks at is the way that state governments create and distribute information. Here’s a quote from this section.

Maryland is far from alone in paying a price for the inability to share data digitally. Some state employees in Rhode Island are still operating with typewriters—electric, of course, but still a far cry from the ability to share information in a database. New Hampshire has such weak data-sharing systems that it doesn’t know how much it spends each month—kind of like an average Joe who’s lost his checkbook. At the opposite end of the spectrum, there’s Wyoming. Its transportation department has linked geographic information systems to financial systems and now knows with exact specificity how money is being spent, down to the cost of the salt used between each mile marker on the state’s snowy roads.

Also, this report makes me feel good, because it confirms what I’ve been telling people for months now: Massachusetts has an awful transportation system.

The report gives the state a D+ for its infrastructure.

This past January, after 16 years of construction, and unimaginably large budget overruns, Massachusetts officially completed the Big Dig, the mega-project that rerouted Boston’s main urban highway into a 3.5-mile tunnel under the city. Total cost: $15 billion. A sigh of relief is not in order. The state is going to have to come up with an additional $15 billion to $19 billion over the next two decades for maintenance on existing transportation assets. Massachusetts believes that a proposed consolidation of its hodgepodge transportation management into a single MassTrans agency will trim down that tab. But for the moment, the huge bill stands. Non-transportation infrastructure is hardly in better shape. State buildings received a complete assessment in 2001. “We documented over $1.2 billion in needs,” says Hope Davis, the director of Facilities Maintenance, “but we didn’t get a lot of money subsequently to repair those needs.” That number has since grown by an estimated $1 billion, but the state can’t know for sure because it does not perform annual condition assessments.

Also, another thing I read about, which relates to my recent posts about the prison system, is that Mass. has had trouble with its correctional system

The beleaguered Corrections Department has recently seen an epidemic of inmate suicides brought on by mismanaged mental health treatment and lack of prisoner programs. Massachusetts leaders are optimistic that the new corrections commissioner, Harold Clarke, who has been a
national champion of reentry and early-release programs, as well as performance measurement in prisons, will be able to implement accountability.

How’s Texas doing you ask? Doing great, thanks, and putting its money to efficient use. Here’s one anecdote.

As last year’s budget deliberations began, Texas was looking at a 17,000-bed shortage of prison space over the next five years. To deal with that problem, the Department of Criminal Justice submitted a $520 million proposal for three new prisons, as well as modest support for drug treatment in order to cut down on recidivism. But the legislature, bolstered by a report from the Sunset Advisory Commission—a legislative entity that assesses the effectiveness and efficiency of Texas’ agencies— crafted an alternative plan to invest more funds in programs with a track record of reducing recidivism. This biennium, those efforts are getting $240 million. Current projections for prison population show zero growth over the next five years.

The infrastructure for Texas is looking good too and bureaucrats have been taking good care of our myriad roadways.

Of course, Texas puts innocent people to death and Mass has state funded healthcare…so of course there is still a need for a reprioritization in the friendly state…

The bottom line though is that Mass wastes a bunch of its money and Texas does not.