Economics of Game of Thrones

Matt Yglesias is continuing to dabble in the economics of Westeros, debating which House is the richest.  Lannisters have gold, Tyrells land, or perhaps it's Daenerys Targaryen who has dragons.  Apparently, as this week's episode showed, one dragon is worth quite a bit.  So Yglesias tries to figure out what the value of a dragon really is.

The reason it's so difficult to talk about "value" is that there are all sorts of different things value, and to different degrees.  Some people value some things more than others, which is why talking about value as absolute, rather than relative, is wrong.  "Market value" is a reflection of this.  When there is a discrepancy between different people's willingness and ability to pay, they trade with each other.  A market is just the meeting of different people, ascribing different values to different things, and trading with each other.  By looking at price at which different goods trade, we can get a rough estimate of how much people in general value various goods in terms of each other.  An apple goes for so many oranges, a dragon can be traded for so many slave warriors, etc.  Wealth is just the ability to pay the price for things.

Trying to ascertain wealth, though, is more difficult than it appears.  You can't really be sure what you're able to purchase until you try.  As he talks about the current price of something like gold isn't the price you'll get if you try to unload all your gold on the market, because the price will fall.  He also seems to get into talking about "value" in an absolute way: afterall gold really isn't that useful in and of itself, etc.  This all devolves into Karl Smith and Matt Yglesias offering different Westeros investment advice, trying to figure out what things will be worth in the future, as we all know "winter is coming".  But this is far more complicated than it has to be.

In our world, talking about value is really difficult, because different people want different things at different times.  Some people want apples, other people like oranges.  But economics in Westeros, on the other hand, is really easy, at least as it concerns the Great Houses.  There is only one thing that is truly of value to them, ever: The Iron Throne.  That's why it's called "Game of Thrones".  Lannisters, Tyrells, Targaryen's all ascribe exactly the same value to the Iron Throne: they are willing to give everything for the Iron Throne.  The only factor that determines which House will acquire it therefore is their ability.  Everything is just a means to this one end, so between the various combinations of assets controlled by the various Houses the one that's the most valuable is the one that gets it's owner on the Iron Throne, and keeps them there.

It's like as if there were three people, each with a different weapon, and you wanted to know which one was the most "valuable".  If, like here, there's one thing they all value more than anything else, and only one person can have it, there's a really simple experiment you can do to get the result.  The question "which house is the wealthiest" is just a complicated way of saying "who do you think is going to win".  I can't wait to find out either.

Whenever you play the Game of Thrones, you either win or die: there is no middle ground.

Campbell's Law And Medicine

Another example of Campbell's Law: "the more any quantitative indicator is used for decision-making, the more it will be apt to distort and corrupt the processes it was intended to describe", from Reason

As goes Medicare, so goes the private insurance industry. Insurers, starting in the late 1980s, began the practice of using the Medicare fee schedule to serve as the basis for negotiation of compensation with the doctors and hospitals on their preferred provider lists. An insurance company might offer a hospital 130 percent of Medicare’s reimbursement for a specific procedure code, for instance.

The coding system was supposed to improve the accuracy of adjudicating claims submitted by doctors and hospitals to Medicare, and later to non-Medicare insurance companies. Instead, it gave doctors and hospitals an incentive to find ways of describing procedures and services with the cluster of codes that would yield the biggest payment. Sometimes this required the assistance of consulting firms. A cottage industry of fee-maximizing advisors and seminars bloomed.

I recall more than one occasion when I discovered at such a seminar that I was “undercoding” for procedures I routinely perform; a small tweak meant a bigger check for me. That fact encouraged me to keep one eye on the codes at all times, leaving less attention for my patients. Today, most doctors in private practice employ coding specialists, a relatively new occupation, to oversee their billing departments.

Another goal of the coding system was to provide Medicare, regulatory agencies, research organizations, and insurance companies with a standardized method of collecting epidemiological data—the information medical professionals use to track ailments across different regions and populations. However, the developers of the coding system did not anticipate the unintended consequence of linking the laudable goal of epidemiologic data mining with a system of financial reward.

This coding system leads inevitably to distortions in epidemiological data. Because doctors are required to come up with a diagnostic code on each bill submitted in order to get paid, they pick the code that comes closest to describing the patient’s problem while yielding maximum remuneration. The same process plays out when it comes to submitting procedure codes on bills. As a result, the accuracy of the data collected since the advent of compensation coding is suspect.

Economics and The Vikings

There are apparently an awful lot of posts of economic analysis of "Game of Thrones", what with Karl Smith and Matt Yglesias debating inflation in Westeros.  I thought "The Vikings" deserves the same.  Unfortunately, all I can think of is that they seem to be taking a lot of gold out of England, and it all seems to be the English's fault for being so incompetent.  Or in other words, it's great to be George Soros when Albion relies on John Major for protection.  Reuters recently accidentally released a nasty obit (he's not dead) describing Soros as "piratical" and "highly succesful".  You say that like it's a bad thing. Left, a picture of the pound being knocked off its peg.

A picture of the Texas City Disaster, in 1947.  Another nitrogen fertilizer explosion, Texas City was the most devastating industrial accident in American history.  At least five hundred and sixty-seven died.  Of those killed in the initial blast were all but one of Texas City's twenty eight volunteer firefighters.  A disaster echoed now in West, Texas, where among those confirmed dead in are nine of West's volunteer firefighters and medical technicians, as well as a Dallas firefighter living in West, killed while lending his hand.

In the aftermath, the residents of Texas City came together to rebuild their city, including the Galveston crime boss, Sam Maceo, who convinced Sinatra to come to raise relief funds.  In West, a city built in large part by Czech immigrants, among those who have come to offer support is the Czech ambassador to the United States.  In the wake of tragedy, we are reminded of the ties that bind us together, often in unsuspected ways.  My heart to West.

A Story That Is The American Economy

There's an article by Walter Kirn, Lost In The Meritocracy, back from '05 and which later became a book, that pretty much sums up what's going on with higher education in this country, and what's wrong with the American economy in general.  It's that college, our engine of income mobility, isn't.

If you read the article, it makes the cause of the twelve-fold increase in the cost of college in the last thirty years apparent.  It's the same thing that's going on in Meritocracy when roommates demand five hundred unaffordable bucks for unasked for improvements.  This debate could've been avoided by jacking up the tuition and having the cost of perks paid for by the college, and that's exactly what's been happening.  Colleges have chosen to move "up-market", and away from the American people.

Despite massive increases in demand, Princeton, Harvard, Yale, the Ivy Leagues have barely increased enrollment.  Part of this is that elite colleges aren't as much in the business of educating, as in creating useful connections.  Partly those it pays to be connected to are those with the most ability to make things, and partly those who already have things.

There all sorts of debates about the values of a liberal education.  There's the idea that it increases our virtues as citizens.  I'm skeptical of the art of being an American is something that can be taught.  Even more so of the idea that isn't something held more by upper Manhattan professor than a West Virginia coal miner.


As to claims it increases a student's income compared to other Americans, I can't help wondering if that isn't what we should be trying to fix.

Changing the CPI, A Suggestion

The abstruse (and honestly rather BS) maths behind how we calculate inflation are in the news lately, considering the Administration's proposal to switch to a "chained" consumer price index, the C-CPI-U.  The reason for this is that it's supposed to be a lower calculation of inflation than our current one, the CPI-U.  A lower calculation of inflation would cause revenues to rise (tax brackets would rise less quickly) and decrease in expenditures, notably Social Security.

If I may make a suggestion, I have different method for lowering the CPI: reduce the price of things!  Take the basket of goods that consumers buy, and just go down the list asking whether or not there's anything the government is doing that increases the cost for consumers.  For example, if the government levies a tariff or enforces an import quota on something, get rid of that.  The government also has programs to deliberately raise the cost of milk, tobacco, raisins, corn, sugar, wheat, and any number of other products through production quotas or by bidding the price up with taxpayer money.  Getting rid of these schemes is just generally a good idea.  Also, we could look at government programs that result in an increase the cost of education or housing, which is a significant component of consumer expenditures.

Doing this is generally just how to make an economy work: it's what prosperity really is, the increasing ability of people to afford the things they want.  Unfortunately, while particular producers can gain a significant benefit by lobbying the government to raise prices, the benefit to consumers is so diffuse that for each individual it's barely noticeable.  The government does as it's lobbied.  And that's why the feds buy up corn and burn it, just to make sure we can't afford it.  Taken as a whole, this amounts to a major structural problem for the American economy.  But, hopefully, all this talk about the price of things might get us to talk about what's wrong with the price of things.

Of course, part of the logic of going down the CPI and cutting the price of things that make up a large part of the basket of goods used to calculate inflation is that it doesn't really matter whether the CPI is calculated correctly or not.  We just have to lower "inflation", whether accurately or inaccurately calculated, and the deficit will be reduced.  As the Bureau of Labor Statistics describes...

For example, in a given supermarket, the Bureau may choose a plastic bag of golden delicious apples, U.S. extra fancy grade, weighing 4.4 pounds to represent the Apples category.

If the statistics overestimate the effect of this, all the better.  I kind of wonder why no particularly devious President has thought up the idea of taxing all apples except fancy grade golden delicious apples in bags weighing exactly 4.4 pounds, which would be subsidized.  Maybe too blatant, but you get the idea.  We could ban sales taxes (included) and force states to rely on income taxes (not included).  This is a good example of "Campbell's Law":the more any quantitative indicator is used for decision-making, the more it will be apt to distort and corrupt the processes it was intended to describe.  

On the other hand, manipulating the actual statistics seems like a good way to raise consumer confidence, and according to many commentators that would stimulate the economy itself.  Really though, the reason I'd suggest giving attention to the price of things specifically as it makes up the CPI basket is that it averages consumers, rather than consumption, so it's weighted more towards increasing the real incomes of the less well-off.  

The President, Socialism, and the TVA

In an interesting recent development, the Administration is taking a stand against big government socialism, and is being opposed by the Republican Party.  Those darn big government reds them. As Bloomberg reports, part of the Administration's Budget is a proposal to privatize the Tenessee Valley Authority (TVA), a proposal which is being attacked by Republican representatives of the area, including Senator Lamar Alexander (R-TN).

The TVA dates back to 1933, and was one of the most ambitious of Roosevelt's New Deal programs during the great depression. The creation of the TVA marks the beginning of the era of "Gas and Water Socialism", the idea that utilities such as power are "natural monopolies", and therefore need to be owned and operated by the government. Today, it mostly operates the area's power plants, but the Authority also had various other programs for developing the Tennessee Valley, including agricultural education and library services to what was, and still remains, one of America's poorest areas.

A mile downstream from Kingston, a 25 ft wall of coal ash

Interestingly considering this is a Democratic Administration, privatizing the TVA was an idea that President Reagan put forward as well. Unfortunately for critics, the TVA is incredibly popular in the area, across liberals and conservatives. Something Reagan probably should've already known from his time working at General Electric Theater: he called it one of the problems with big government, and got himself fired.

The Tennessee Valley currently pays significantly less for energy than the rest of the country, and whether because or despite, the TVA certainly gets the credit among locals. Prices went up dramatically in the nineties, in an attempt to make it competitive, and people are probably wary of a repeat.

I think this is a real example of how much the Democratic Party has changed between Carter and Obama. Part of the reason for privatization has got to be environmental concerns, which the TVA doesn't have a great record with. In '08 it dumped a flood of liquid coal waste from its Kingston plant, after a retention wall broke due to lack of maintenance. There was also the "Snail Darter Controversy" about the Tellico Dam: to listen to greens, the TVA exists mainly to murder endangered fish.  There's a film about government removal of farmers to make room for the Authority's hydroelectric projects, Wild River.  Clearly, government industrialization of the Tennessee Valley has some pretty obvious proponents and detractors within the traditional democratic coalition, and that the President has come out in against the TVA is part of the shifting composition of the democratic party.

Poor public management is a concern here, however.  The Kingston disaster could have been a lot worse, considering it also operates three nuclear power plants. The clearest summation of what selling the TVA entails is that without public backing, projects like the expansion of the nuclear facility at Watts Bar, currently over budget and behind schedule, would be for the scrapper.  There are things that government can do, that the private sector can't, but that's usually because they aren't very good ideas.

I think the President is right here. The TVA did a lot of good work during the depression, work that's rightly remembered in the Valley. Still, it is a holdover from a different time.  To keep operating it needs reform, reform that's easier if it isn't being run by the United States Congress.  The best case for privatization is that, without it, at some point, it probably won't be able to keep operating.  It's telling that Lamar criticizes selling the thing because, after liabilities, it probably ain't worth much.  These sorts of programs can't last forever, and weren't designed to.

Here's the case for the TVA though, by the Drive-By Truckers, far more poetically said than I can manage.  If you're worried though, somehow I don't think it's going anywhere.

The Public School System Is Discriminatory

That point needs to be made more often, in the debate over charter schools.  Matt Yglesias gets at that, in an excellent post: Public Facilities Should Be For The Public

Violent Cigarette Arbitrage

This map shows cigarette taxes by state: fades from light blue Missouri, 17₵, to black, Hawaii $3.20. The feds take about another buck on top of that. New York is off the charts in red, at $4.35. The City levies an additional $1.50 tax.

There's a profit to be made here.  The price discrepancy creates an obvious opportunity for trade. Including taxes, a carton in Virginia costs $40, in New York it can be sold on the street for $100. The extent of this is difficult to estimate, but I think it would be fair to say that around half of cigarettes sold in NY are sold illegally.

Unfortunately, as NPR reports, the sector's already crowded by some very dangerous incumbents. It's big business for organized crime: ATF agents and Virginia Police broke up a smuggling ring where ecstasy, cocaine, and firearms were traded for eight million dollars in black-market cigarettes (that's about four hundred thousand cartons). And business is what these guys mean...

The rewards, and the risks, of dealing in contraband cigarettes became quite clear recently in northern Virginia, says Capt. Dennis Wilson of the Fairfax County Police Department.
 
Undercover investigators working with his department "had two cases where contacts that we were working with had asked us to murder their competition," Wilson says.

They do say the Tobacco Industry kills.  Interestingly, New York's alcohol taxes are fairly low.  That was a similarly effective government program to create jobs, although, like Prohibition, high and unequal tobacco taxes is essentially make-work.  Thankfully, this industry isn't perfect at evaluating its employees...

"We were able to fake the murder of the individuals."

Uninformed Voters Increase Moderation

The Secretary of State of Oregon has a proposal to register people to vote by default when they pick up a drivers license or state ID.  This should increase registration of younger and lower income residents, which is presumably why she's in favor of it (she's a democrat).  But I think it's also interesting what the effect of increased participation in elections by low-information or less opinionated individuals would be, which marginal voters probably are.

Which means I can go back to Iain Couzin and the behavior of swarms.  He tested precisely this, using fish.  It's generally assumed that the addition of less informed or undecided individuals would increase the influence of extreme minority views, because uninformed individuals would be more susceptible to persuasion, but this turns out not to be true.  After a certain tipping point, the addition of undecided individuals to the swarm returns control to a less determined majority away from a determined minority.  So what the Secretary of State is proposing would probably also increase moderation, and majority rule.  Whether that's a good thing or not is up to you. 

The video is interesting throughout, but you can skip to 10:30 where Couzin starts talking about this.

Everyday Prices Increasing

The AIER has an inflation index, the Everyday Price Index (EPI), which measures inflation of things that are commonly purchased: food, gas, but not durable or other goods which people buy only once in a while.  It also isn't seasonally adjusted.

Inflation indexes are in the news because the Administration has put forward a proposal to tie Social Security to an inflation index that's "chained".  The current index doesn't take into account that when the price of something rises, consumers can shift to less expensive replacements.  It's too high.

For the same reasons, I think the EPI is valuable since it represents goods that consumers can't shift purchasing to when prices come down: that prices in this particularly area are rising is a problem in that it's precisely the kind of increase in prices people have the least ability to respond to.

The AIER comes up with an argument that the Fed is printing too much money (there's too much money chasing too few goods), but that's not what I see.  According to market monetarists, an increase in the cost of goods (really fuel here) won't push inflation if the amount of money remains constant, because the price of other goods will fall.  But the EPI isn't measuring the price of those other goods. 

What the EPI does show is the weakness of our economy.  Consumers are putting off non-everyday purchases, because they don't have enough money.  That's why the price of those goods isn't going up as much as others.

Middleness and The Mass Production of America

Continuing this post, about inequality in the ability to pay, inequality in the willingness to pay is similar.

To the extent there are economies of scale, the less difference there is between consumers' tastes and preferences, the higher real income will be, because then they can be made on a larger scale.  The more difference there is in what people want, the more different things there are that have to be made if people are going to get them.  As an example, that we come in different shapes and sizes and styles is clearly inconvenient when it comes to making clothes for people.

This is particularly interesting to me as it cuts across income inequality.  Just as it's inconvenient that people come in non-standardized proportions, the same that they come in rich and poor.  But that's less true than would appear if you just looked at income inequality.

In America there's this idea of the "middle class", and it's not just about income.  Pretty much everybody describes themselves as middle class in this country, which, considering there is an awful lot of real inequality, means there's a lot of people who could describe themselves as rich or poor but choose not to.  In America, you're supposed to be middleish.

And people act like it too.  There's a real tendency to act middle class, and that includes consumption patterns.  The most common car brand of the wealthy is Ford.  This all serves America well.  That there's a stigma against conspicuous consumption isn't just good in that it is inherently anti-social, but that inconspicuous consumption inherently is.

If we assume that there is some fixed cost in the production of a product, like the development of an automobile, then the less differentiation there is in the cars that people drive the more that fixed cost can be shared across consumers.  When that cuts across income, that means that the consumption of the rich subsidizes that of the less well off.  The same the other way around.  Likewise, the poor would be less tolerable of the well-being of the rich.  Our middleness benefits everyone.

This middleness makes the case for reducing poverty as something that benefits all Americans.  If the rich and poor are going to drive the same cars, the rich can't share the cost of their ride by assuring the poor can afford it as well.  If consumption is instead segregated by class, if it was an economy where the rich would never deign to consume what the poor do, the rich have less of an interest in the well-being of the poor.  Middleness means we should benefit everyone.

It's common for people to look at America as a country of crass materialism and over-consumption.  Rather than quality, we consume in quantity.  Americans, as is often noted, don't have any taste.  But that's what I'm talking about, we all equally don't have any taste.  Discerning consumption is less social consumption.  If the rich not only don't buy completely different higher-quality products than the poor, but instead buy twice as much of everything, that's twice as good.

I'm not saying that diversity isn't valuable, in consumption as well as production.  The desire for something different is ingenuity, and that's good for society on the whole as well (maybe more on that later).  But I think it's important to note that America is a country that has turned dull, bourgeois materialism and uniformity into a common good.  It is one of the reason's for American prosperity.  And it would be a shame if that was ever lost.

This, of course, works the opposite direction if there are diseconomies of scale.  This is particularly true of things that require natural resources or land, where there is an in-elasticity of supply.  There is only so much land, if that's what you're trying to buy you're better off if others aren't.  Thankfully, in our modern economy, where GDP growth isn't just possible but the default, this is comparatively uncommon.