Why there are faux Irish pubs everywhere

Ireland, as much of the world knows it, was invented in 1991. That year, the Irish Pub Company formed with a mission to populate the world with authentic Irish bars. Whether you are in Kazakhstan or the Canary Islands, you can now hear the lilt of an Irish brogue over the sound of the Pogues as you wait for your Guinness to settle. A Gaelic road sign may hang above the wooden bar and a fiddle may be lying in a corner. As you gaze around, you might think of the Irish—O, that friendly, hard-drinking, sweater-wearing people!—and smile. Your smile has been carefully calculated.
 
In the last 15 years, Dublin-based IPCo and its competitors have fabricated and installed more than 1,800 watering holes in more than 50 countries. Guinness threw its weight (and that of its global parent Diageo) behind the movement, and an industry was built around the reproduction of "Irishness" on every continent—and even in Ireland itself. IPCo has built 40 ersatz pubs on the Emerald Isle, opening them beside the long-standing establishments on which they were based. 
 
IPCo's designers claim to have "developed ways of re-creating Irish pubs which would be successful, culturally and commercially, anywhere in the world." To wit, they offer five basic styles: The "Country Cottage," with its timber beams and stone floors, is supposed to resemble a rural house that gradually became a commercial establishment. The "Gaelic" design features rough-hewn doors and murals based on Irish folklore. You might, instead, choose the "Traditional Pub Shop," which includes a fake store (like an apothecary), or the "Brewery" style, which includes empty casks and other brewery detritus, or "Victorian Dublin," an upscale stained-glass joint. IPCo will assemble your chosen pub in Ireland. Then they'll bring the whole thing to your space and set it up. All you have to do is some basic prep, and voilà! Ireland arrives in Dubai. (IPCo has built several pubs and a mock village there.)
 

The strange true-life story of how Ireland packaged and exported a version of its culture all over the world, and how it boomeranged back to Ireland in the form of added tourism revenue. As with technology apps these days, it's all about marketing and distribution.

California's water shortage

The recent report that California has just one year's worth of water left has made the rounds. Alex Tabarrok has a good primer or overview on the situation.

California has plenty of water…just not enough to satisfy every possible use of water that people can imagine when the price is close to zero. As David Zetland points out in an excellent interview with Russ Roberts, people in San Diego county use around 150 gallons of water a day. Meanwhile in Sydney Australia, with a roughly comparable climate and standard of living, people use about half that amount. Trust me, no one in Sydney is going thirsty.
 
So how much are people in San Diego paying for their daily use of 150 gallons of water? About 78 cents. As Matt Kahn puts it:
 
Where in the Constitution does it say that the people of California have the right to pay .5 cents per gallon of water?
 
Water is such a small share of most people’s budgets that it could double in price and the effect on income would still be low. Moreover, we don’t even have to increase the price of water for residential or industrial uses. As The Economist points out:
 
Agriculture accounts for 80% of water consumption in California, for example, but only 2% of economic activity.
 
What that means is that if agriculture used 12.5% less water we could increase the amount available for every residential and industrial use by 50%–grow those lawns, fill those swimming pools, manufacture those chips!–and the cost would be minimal even if we simply shut down 12.5% of all farms.
 

Water should cost more, and a few farms should shut down. Sounds sensible.

Wage inequality

A novelist, academic and CEO might have very similar intellect and skill levels, but their income could differ by factors of thousands - and, as Will points out, academics' working conditions are deteriorating. Why the difference?

The conventional neoclassical answer is that wages equal marginal product, and that CEOs have a higher marginal product than others. This is a just-so story which glosses over a lot.

For one thing, what matters is that one's product be monetizable and appropriable. The great writer or musician creates an enormous amount of consumer surplus, but she cannot capture this for herself. Quite the opposite; as Gillian Welch sang*, she is under pressure to give away her work. Similarly, if you believe human capital theory, academics - at least the better ones - create billions of pounds of value. But they don't see much of it. By contrast, the CEO's output is more monetizable.

On marginal product and incomes. Five reasons are offered for why the CEO makes so much more, it's worth a read.

I link to this post because a lot of folks in tech have the same misconception about the money-making potential of their app or business as people have about wages, that they simply equal marginal productivity. If only life were so simple.

Maybe this is how it ends, with lots of early retirements

Today, Yahoo Sports reported that 49ers linebacker Patrick Willis is retiring at the age of 30. It was a surprise to many that the five-time All Pro and seven-time Pro Bowler would retire with seemingly more good years ahead of him.

With the severity of the physical trauma of football becoming clearer and clearer by the day, I wonder if more and more players will choose to retire earlier in their careers, after accumulating some threshold of wear and tear and/or wealth.

Economically, it makes sense. A star player can make many tens of millions of dollars in a the span of a short career, and even a regular starter can pocket millions. If you are frugal, you'll achieve a very comfortable nest egg. At that point, is each additional marginal million dollars worth perhaps several years of your life, or a remaining lifetime of debilitating pain, or worse?

The more we hear about players suffering terribly in their old age, the more the cost side of the economic equation increases. Given that data, more and more will come to see just how rational Willis' decision is.

UPDATE (16 Mar 2015): Chris Borland of the 49ers announced today that he's retiring after just one season, and a great one, because of concerns over the impact of repetitive head trauma on his health. It's happening even sooner than I anticipated.

"I just honestly want to do what's best for my health," Borland told "Outside the Lines." "From what I've researched and what I've experienced, I don't think it's worth the risk."
 
Borland becomes the most prominent NFL player to leave the game in his prime because of concerns about brain injuries. More than 70 former players have been diagnosed with progressive neurological disease following their deaths, and numerous studies have shown connections between the repetitive head trauma associated with football, brain damage and issues such as depression and memory loss.
 
"I feel largely the same, as sharp as I've ever been. For me, it's wanting to be proactive," Borland said. "I'm concerned that if you wait till you have symptoms, it's too late. ... There are a lot of unknowns. I can't claim that X will happen. I just want to live a long healthy life, and I don't want to have any neurological diseases or die younger than I would otherwise."

The on-demand economy

Karl Marx said that the world would be divided into people who owned the means of production—the idle rich—and people who worked for them. In fact it is increasingly being divided between people who have money but no time and people who have time but no money. The on-demand economy provides a way for these two groups to trade with each other.

...

The “transaction cost” of using an outsider to fix something (as opposed to keeping that function within your company) is falling. Rather than controlling fixed resources, on-demand companies are middle-men, arranging connections and overseeing quality. They don’t employ full-time lawyers and accountants with guaranteed pay and benefits. Uber drivers get paid only when they work and are responsible for their own pensions and health care. Risks borne by companies are being pushed back on to individuals—and that has consequences for everybody.

Good piece from The Economist on the implications of the on-demand economy. It's given workers more flexibility at the cost of stability, and an increasingly freelance workforce means delivery of so much of welfare (like health insurance) through employers is more and more inefficient.

The barbell in barbells

We may be seeing a pronounced barbell distribution in the profitability of gyms:

One way to see it is to look at the two gym brands commonly cited as the fastest-growing in America: CrossFit and Planet Fitness. Both are expanding like crazy. CrossFit has gone from having 13 affiliate gyms in 2005 to 10,000 today. And Planet Fitness has more than tripled in size over the past five years.

But aside from their bang-up growth rates, the two could not be more different. The former is expensive and intense, appealing to competitive individuals ready to commit thousands of dollars and many hours to working out. I go to a CrossFit gym a few blocks from my apartment. It costs $160 a month, often more than I spend on groceries. The latter is perhaps most famous for giving out free pizza — a fact it embraces and publicizes, no less. Its monthly fees are normally around what a movie ticket costs.

...

It is the middle that is growing more slowly, with some chains struggling to demonstrate their value to consumers — your Bally Total Fitness, now all but defunct, or Curves. It is the gyms with considerable but not intolerable monthly fees and decent amenities, but no sheen of luxury or promise of extraordinary results.

Or perhaps this is some variant of the smiling curve, with high end gyms offering the value add of the company of the other well-heeled folks embracing a high cost public signal of their willingness to spend on their physical fitness (itself a signal of many other things, including self-discipline, health, and matching level of vanity).

Should markets clear?

Steve Randy Waldman asked that question this year, and he raises some great points about what is a generally accepted microeconomics tenet. As a reminder, a market is said to clear where the demand and supply curves meet.

Here at interfluidity, we are not in the business of useless economics, so we will adopt a very conventional utilitarianism, which assumes that people derive the similar but steadily declining welfare from the wealth they get to allocate. Which brings us to our first result: If our single producer and our single consumer begin with equal endowments, and if the difference between consumer and producer surplus is not large, than the letting the market clear is likely to maximize welfare. But if our producer begins much wealthier than our consumer, enforcing a price ceiling may increase welfare. If it is our consumer who is wealthy, then the optimal result is a price floor. This result, a product of unassailably conventional economics, comports well with certain lay intuitions that economists sometimes ridicule. If workers are very poor, then perhaps a minimum wage (a price floor) improves welfare even of it does turn out to reduce the quantity of labor engaged. If landlords are typically wealthy, perhaps rent control (a price ceiling) is, in fact, optimal housing policy. Only in a world where the endowments of producers and those of consumers are equal is market-clearance incontrovertibly good policy. They greater the macro- inequality, the less persuasive the micro- case for letting the price mechanism do its work.

...

Let’s consider another common case about which many economists differ with views that might be characterized as “populist”. Suppose there is a limited, inelastic supply of road-lanes flowing onto the island of Manhattan. If access to roads is ungated, unpleasant evidence of shortage emerges. Thousands of people lose time in snarling, smoking, traffic jams. A frequently proposed solution to this problem is “congestion pricing”. Access to the bridges and tunnels crossing onto the island might be tolled, and the cost of the toll could be made to rise to the point where the number of vehicles willing to pay the price of entry was no more than what the lanes can fluidly accommodate. The case for price-rationing of an inelastically supplied good is very strong under two assumptions: 1) that people have diverse needs and preferences related to the individual circumstances of their lives; and 2) willingness to pay is a good measure of the relative strength of those needs and values. Under these assumptions, the virtue of congestion pricing is clear. People who most need to make the trip into Manhattan quickly, those who most value a quick journey, will pay for it. Those who don’t really need the trip or don’t mind waiting will skip the journey, or delay it until the price of the journey is cheap. When willingness to pay is a good measure of contribution to welfare, price rationing ensures that those more willing to pay travel in preference to those less willing, maximizing welfare.

Unfortunately, willingness to pay cannot be taken as a reasonable proxy for contribution to welfare if similar individuals face the choice with very different endowments. Congestion pricing is a reasonable candidate for near-optimal policy in a world where consumers are roughly equal in wealth and income. The more unequal the population of consumers, the weaker the case for price rationing. Schemes like congestion pricing become impossibly dumb in a world where a poor person might be rationed out of a life-saving trip to the hospital by a millionaire on a joy ride.

It's a very reasonable question to ask, especially in today's age, when income inequality is suspected to be as high or higher than ever. Perhaps even more so in the Bay Area, where income inequality is on par with that of developing nations.

And in such conditions, market clearing may not maximize welfare. As Matthew Yglesias notes:

When people say that a price-based scheme for rationing water is most efficient, they mean that prices will deliver the most efficient distribution of dollars and water. The idea is that how much people are willing to spend on something is a good proxy for how much they care about it, or how important it is to their well-being. Different people like different things, but you can buy all kinds of different stuff with dollars, and seeing what people choose to spend their money on tells you a lot about their preferences.

But dollars aren't a perfect proxy for well-being, because money means different things depending on how rich or poor you are. To a middle class American, $5,000 is a really big deal. To a multi-millionaire like Mitt Romney or Hillary Clinton, it's totally trivial — the value of their stock portfolios bounces up and down by that much all the time. To a person living paycheck-to-paycheck with no access to credit beyond very expensive payday loans, $5,000 could be a life-changing amount.

The technical term here is the "declining marginal utility of money." A given dollar produces less happiness in the pockets of a rich person than a poor one. That means that in a society with substantial economic inequality, an efficient distribution of dollars and water isn't going to be the same as an efficient distribution of happiness and water. This is what we're seeing in the North Carolina water case — the dollars are just a lot more important to the poor than the rich, so all the burden of adjusting to reduced water usage falls on them.

The reflexive response when it comes to many folks in tech on issues like Uber's surge pricing and net neutrality is to bow down before the power of the free market, and I count myself generally in that camp. Generally, it is an optimal scheme for efficient allocation of scarce resources.

I'm also generally sympathetic to companies pricing their products according the market. Apple charges a hell of a lot more for its phones than it costs them to manufacture them, but they've earned that surplus by producing a great product that people want. Uber charges surge pricing during certain times and enough people are willing to pay the multiple to get a ride because of the sheer convenience of the experience.

However, let's not blindly accept that it's welfare-maximizing for society without a skeptical analysis. As Waldman notes:

And there are lots of choices besides “whatever price the market bears” and allocation by waiting in line all day. Ration coupons, for example, are issued during wartime precisely because the welfare cost of letting the rich bid up prices while the poor starve are too obvious to be ignored. Under sufficiently high levels of inequality, rationing scarce goods by lottery may be superior in welfare terms to market allocation.

Effective income equality, ad-supported business models

UK households with the lowest income faced the fastest cost of living rise in the past 11 years, figures show.

The rising cost of domestic gas and electricity was one suggested reason for the trend.

Households without children and retirees also experienced faster price increases in their typical basket of goods, the Office for National Statistics (ONS) said.

The ONS analysed inflation rates for different households from 2003 to 2014.

Those who spent the most money saw the lowest level of inflation, the ONS concluded.

This could be explained, in part, by prices of package holidays and education barely rising over recent years.

Full article here. It's not just absolute but effective income inequality that is seeming to rise.

Among some sizable number of people I follow on Twitter, ad-supported products and services in tech are seen as evil. ”You get what you pay for!“ and “If you're not paying, you are the product” and variants thereof are common dismissals or denunciations of any ad-supported product.

They lament the proliferation of free apps in mobile app stores, turn their noses up at Facebook, lament the ad-free days of Twitter. Look at anyone who writes such things and a few things become clear. They're almost always fairly well-off (middle to upper middle class on up) and so spending a few extra bucks is no big deal to them. Also, they almost always generalize off of one egregious example.

Ad-supported business models have enabled many people without the financial means otherwise to access many products and services. You may not think it's that important for someone who's poor to access Instagram without paying, but that's a very privileged stance, one that ignores how many people in other countries use such services.

Many businesses can only achieve the scale necessary to be useful with a free, ad-supported business model. Facebook is just one example. Sure, it means that many companies that set off in that direction will fail—scale businesses require, well, massive scale—but a high extinction rate for those who attempt to build a scale business is to be expected.

Finally, it's hardly clear that either a pay or ad-supported business is more friendly to customers. Derek Powazek had a great post on this a few years ago.

I don't mind paying for services I love. For example, I'm strongly anti-piracy when it comes to people who can afford the things they pirate, no matter what reasons they come up with to justify their behavior.

I'm happy, though, that the things I enjoy come in a mix of pay and ad-supported models. As I've noted before, I just hope ad-supported businesses embrace the natural evolution to native ad units more and more in 2015, especially all the old media sites I enjoy but whose user experiences are being destroyed by their advertising unit selection.

I don't now how I got from an article on income inequality to a discussion of ad-supported business models, but all my New Year's Eve alcohol consumption seems to have connected some strange regions of my brain this morning.