• airport-traffic-jet-takeoff

    Why It Takes So Long to Board an Airplane

    Mar 3 • Behavioral Economics, Businesses, Innovation, Labor, Lifestyle, Thinking Economically • 15 Views

    The airline seat you choose can make a difference.

    Productivity and airline seating

    But it all depends on how the airline boards everyone.

    Boarding Strategies

    Curious about which strategy was fastest, Mythbusters recreated the boarding experience. Using 173 volunteers, real flight attendants and a simulated airport waiting area and airplane interior, they timed different possibilities.

    As can see in their video (below), the back to front method that American Airlines, JetBlue, Spirit, Air Canada, Frontier and Virgin America all use is the slowest. With back to front, the aisle clogs because people in the middle seats are always getting up for the person near the window. Meanwhile, waiting and looking for overhead bin space means we stay in the aisle longer.

    From slowest to fastest, the next best alternatives are random line-up with assigned seats, then outside-in with all window seats going first and then finally, entirely random order and no assigned seats. Used by Southwest, entirely random works because any slowdown creates the incentive for people to quickly take the most accessible seat. And yet, the Southwest method is one of the least liked.

    Although it is close to half the back-to-front time, outside-inside (aka WILMA–window/middle/aisle) is only used by United.

    Plane productivity boarding times

     

    And, according to Boeing, between 1968 and 1998, the “flow rate” slowed from 20 passengers a minute to 9.

    Our Bottom Line: Airline Productivity

    We might think that faster turnaround time means more for the airlines’ bottom line. Not necessarily. Yes, faster boarding saves money. But perhaps those priority boarding fees are one reason that it takes so long to board.

    Boeing had this turnaround task chart that was interesting:

    Airline turnaround productivity

    From: Boeing Aero Magazine

     

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  • Tax evasion in the shadow economy is a fiscal policy problem.

    How Tax Evasion Relates to Porsches

    Mar 2 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Government, Households, Labor, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 51 Views

    To look more closely at tax evasion in Greece, we can first ask where.

    In the following map, the darker browns indicate the places where tax evasion is more prevalent. I am not sure whether it’s causation or correlation but the dark brown region in the red circle reputedly has the largest per capita Porsche Cayenne population among all OECD (Organization for Economic Cooperation and Development) countries.

    Fiscal Policy and Greek tax evasion

    From: Artavanis, Morse and Tsoutsoura

     

    Where are we going? To a tax evasion primer of what, why, who and how much.

    What Do We Mean By Tax Evasion?

    First, we should start with the bigger picture. A part of the shadow economy detailed below, tax evasion is an offshoot of legal activities.

    Fiscal policy and a definition of the shadow economy

    From: F. Schneider (2012)

     

    Causes of Tax Evasion

    Thinking specifically about Greece, we can ask why.

    While the title of this table specifies the shadow economy, you can see that tax evasion relates to almost all that is listed:

    Fiscal policy and causes of shadow economy

    From: F. Schneider (2012)

     

    Who?

    According to a University of Chicago Booth School paper, Greek lawyers, doctors, engineers, private tutors, financial services workers, and accountants were most likely to engage in tax evasion. The authors hypothesize that the main reason is the lack of a paper trail and a parliamentary solidarity with those professions.

    However, 1.92 is the number to remember. Typical tax evaders’ income was 1.92 times what they reported.

    In addition, you can see below that Greece has an unusually high percentage of self-employed workers. Indicating that wage earners were least able to evade taxes, the research suggests that the self-employed have more of an opportunity.

    Fiscal POlicy, self-employed and shadow economy

    From: F. Schneider (2012)

     

    Our Bottom Line: Fiscal Policy

    Making official production and monetary statistics inaccurate and luring workers away from the official economy, the shadow economy distorts fiscal policy. In Greece, reflecting €28 billion in unreported income, tax evasion is estimated to have equaled 31 percent of their 2009 deficit.

     

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  • Perhaps the most successful contemporary investor, Warren Buffett shared investing advice in his shareholder letter.

    What We Can Learn From Warren Buffett

    Mar 1 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Economic Humor, Economic Thinkers, Financial Markets, International Trade and Finance, Labor, Money and Monetary Policy, Thinking Economically • 64 Views

    By 1966 Warren Buffett had partially purchased a textile manufacturer called Berkshire Hathaway that was losing money. Describing the investment in a letter to his partners, Buffett said, “It is well to have a diet consisting of oatmeal as well as cream puffs.”

    In that letter, Buffett also warns investors that “those who believe 1965 results {a 47.2 percent gain} can be achieved with any frequency are probably attending weekly meetings of the Halley’s Comet Observers Club. We are going to have loss years and are going to have years inferior to the Dow—no doubt about it. But I continue to believe we can achieve average performance superior to the Dow in the future.”

    Here is the letterhead and beginning of his January 1966 14 page letter:

    Warren Buffett's early investing.

     

     

    And this is the beginning of the 2015 letter:

    Warren Buffett 2015 investing

    Wisdom From Warren Buffett

    Since the beginning, Buffett has included nuggets of insight in his letters. Here are several from this year:

    Talking about how current management can retard innovation, he said…

    “If horses had controlled investment decisions, there would have been no auto industry.”

    Exiting one investment too slowly, he says we should know that…

    “You see a cockroach in your kitchen; as the days go by, you meet his relatives.”

    He summarized the folly of short term market predictions…

    “Market forecasters will fill your ear but will never fill your wallet.”

    And explains why Wall Street seldom recommends buy and hold…

    “Don’t ask the barber whether you need a haircut.”

    He told why he likes how you get money in the insurance business…

    “Simply put, insurance is the sale of promises.”

    And he quotes Yogi Berra…

    “Every Napoleon meets his Watergate.”

    And investment guru Ben Graham…

    “In the short-term the market is a voting machine; in the long-run it acts as as a weighing machine.”

    And IBM’s Tom Watson, Sr. to show what a CEO should know ….

    “I’m no genius, but I’m smart in spots and I stay around those spots.”

    And finally, he cites the ABCs of businesses decay…

    “Arrogance, Bureaucracy and Complacency”

    Our Bottom Line: Investing Advice

    In his 2013 Shareholders Letter, Warren Buffett gave some “when I die” investing advice. Referring to his wife, but really to all of us, he said the trustee overseeing her money should, “Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors—whether pension funds, institutions or individuals—who employ high-fee managers.”

    Mr. Buffett’s wisdom is all about avoiding probability neglect. Seeing the S&P or Dow skid downward, typical investors respond emotionally and sell. They ignore the probability—a statistical reality—that markets in the long run have provided consistent returns. By compelling the Trustee to remain in the index fund, he is precluding the possibility of probability neglect when the market plunges.

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  • The econlife.com Weekly Roundup

    Weekly Roundup: From Good Voices to Bad Marriages

    Feb 28 • Behavioral Economics, Developing Economies, Economic History, Economic Thinkers, Education, Entertainment, Gender Issues, Government, Health Care, Labor, Lifestyle, Macroeconomic Measurement, Regulation, Thinking Economically • 49 Views

    Our Posts Roundup

    Everyday economics and taxes at the Oscars Sunday 2.22.15

    No free lunch from Oscar…more

    everyday economics and the driver license renewal process shows the tradeoffs of public goods and services. Monday 2.23.15

    Questions about a DMV…more

    Everyday economics and the positive externalities of childhood vaccination have an economic impact. Tuesday 2.24.15

    Why vaccines mean more than health…more

    Everyday economics, success and voice pitch Wednesday 2.25.15

    How a voice relates to success…more

    Everyday economics and marriage trafeoffs Thursday 2.26.15

    Why fewer women want to marry…more

     

    Everyday Economics and Nobel medals at auctions

    Friday 2.27.15

    What a Nobel medal price means…more

     

    Ideas Roundup

      • subsidies
      • taxes
      • fiscal policy
      • public goods
      • tradeoffs
      • queues
      • human capital
      • economic growth
      • positive externalities
      • ROI
      • gender pay gap
      • consumption complementarities
      • production complementarities
      • GDP
      • national income accounting
      • price system
      • developing economies
      • TANSTAAFL

     

     

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  • The sale price of a Nobel prize medal conveys information.

    How To Price a Nobel Prize

    Feb 27 • Businesses, Demand, Supply, and Markets, Economic Growth, Economic History, Economic Thinkers, Government, Innovation, Macroeconomic Measurement, Thinking Economically • 77 Views

    Last night, Simon Kuznets’s 1971 Nobel Prize medal was sold at auction for $321,540.

    I wonder what the price tells us.

    Nobel Medals

    The Nobel Economics prize is slightly different from the other Nobel awards because it was first given in 1969 through an endowed gift from the Sveriges Riksbank. Made of 23-carat gold that is worth $8700 or so, this is the medal:

    The price system gives information during an auction.

    From: Nate D. Sanders Auctions

     

    The history of Nobel medallion sales is sparse. Examples include a $4.76 million sale at a Christie’s 2014 auction of James Watson’s Nobel medal for his DNA research and William Randal Cremer’s Nobel medal for the 1903 Peace Prize sold in 1985 at Sotheby’s for $16,750.

    What Kuznets Figured Out

    Simon Kuznets gave us the GDP.

    Concerned that the country could not precisely answer “How are we doing?”, he created the statistical approach for calculating annual U.S. production and economic growth. The decade was the 1930s and his task was deciding which goods and services would count. Concluding that the GDP, then called national income accounting, had to measure the wealth of the country, he said to add together the prices of all goods and services that were legally produced during one year. Work done at home that had no price would not count. Neither would sales of illegal goods and services like prostitution and marijuana.

    Handy during World War II, national income accounting illustrated our productive capacity. Once we knew what we we had, we could determine the land, labor and capital available for war production. The steel we had been using for cars told us how many airplanes we could make. Cotton shirt production provided the information we needed for making uniforms. People have said that Kuznets’s national income models were as important as the guns that won the war.

    Our Bottom Line: Price System

    We take prices for granted.

    As consumers, prices tell us about quality and affordability. Two dollar gas conveys an incentive that encourages us to buy it. Without market generated prices, whether calculating the GDP or buying groceries, we would miss the messages they send to us.

    For a Nobel Prize medal, the price says something about the recipient. What is the message when a James Watson medal gets so much more than the Simon Kuznets medallion?

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