Category Archives: Economics

Regulatory Capture and NP-Completeness

Economics, Politics, Software Development

A common conversation in our household:

S: “So, why do you think happens?”
Me: “Regulatory Capture.”
S: “Oh. Right. :(”

I like to sort this with my general wont to cut Gordian knots*, but perhaps it is also useful because it allows you to reduce the problem under discussion to a well-known problem, which is known to be insoluble in very specific ways.

Perhaps we will find that the solution to the P=?NP problem is the same as the problem of regulatory capture**. I think it’s more likely that P=?NP will be solved first.

*Or to be a troll.

**Regulatory capture I think was first described for me in ‘Yes, Prime Minister’, as the inevitable co-option of the body which regulates an industry by the industry which it regulates. This is generally because they talk to each other the most, combined with the huge financial incentives.

Just In Time Branding

Economics, Idle Speculation, Internet Culture

Many years ago, I was having a conversation with a person involved with a union in a large organization, and talking about amount/value of work vs. pay. They were explaining that when you’re young, you’re underpaid, during the middle of your career, you’re paid about correctly, and later in your career, you’re overpaid.

Putting aside the fact that this seems very unfair (speaking as a ‘younger person’), and that this feels like a large arbitrage opportunity (as corporate downsizers discovered in the ’80s), this got me thinking about brands.

Brands are an interesting thing. At their most fundamental, they are an attempt to trade consumer resources for a reduction in risk*. However, brands have a startup cost. Early on, before they are established, they have to work really hard to convince people to trust them, then they can last a long time with higher pricing and higher quality (or at least a very specific level of quality). Sometimes they are purchased, and go into decline**.

I had originally wanted to make this post about how humans seem to have a common intellectual fallacy about established brands, and how opinion tends to lag fact, but the title feels more interesting to me.

Are Yelp and all the other review sites just really all about Just In Time branding? Are brands getting stronger or weaker?

*Perhaps humans naturally understand derivatives trading?

**I was going to use Fruitopia as an example here of a brand purchased and then run into the ground, but it seems it was Coca-Cola all along: https://en.wikipedia.org/wiki/Fruitopia

Hey, Dipshit!

Economics, Idle Speculation, Thoughts on Thoughts

“Hey Dipshit, if you ever plan to own anything of actual value in your life…”

So, I’m biking along Adelaide, and a black reasonably expensive* car drives into my lane and stops in front of me. Because I’m paying attention, I have time to stop, but I still have some momentum when I reach him, and put my foot on his car/kick it in frustration. He rolls down his window, I explain that he cut me off, and I bike off.

Not sure what happens next, but I’m guessing he got out, checked his car, and made a decision about what to do next.

Two blocks later, he drives up to me, rolls down his window, and says the phrase above: “Hey Dipshit**, if you ever plan to own anything of actual value in your life…”

Now, at this point, I have a few options. Do I:

1) Escalate? Get into an argument with this person about bike vs. car privilege, or perhaps about working (probably) in finance (and where their money actually comes from, or perhaps even their cis white male privilege?

2) Try to reconcile, and maybe get them to acknowledge a point of view outside themselves?

I ended up choosing option 2), saying “sorry, I over reacted”. He seemed to accept this. In exchange, I asked him to acknowledge that he understand that he drove into my lane and stopped in front of me. He may or may not have internalized this.

So, as you can tell, I ended up thinking about this a lot (as you can tell by this blog post). There are the standard questions of whether you can actually change someone’s mind… Whether, even if I had the time required to talk to him to help him unpack all of the things underlying his statement, whether he would actually change or not…

“Dipshit” is an interesting word to use. Dipshit also sounds like a word that people would use a generation ago: https://books.google.com/ngrams/graph?content=dipshit&year_start=1900&year_end=2000&corpus=15&smoothing=3&share=&direct_url=t1%3B%2Cdipshit%3B%2Cc0
or something you’d see in Glengarry Glen Ross. It just felt odd coming out of the mouth of a Beemer-driving 20-something. Like he was aping people in power (perhaps parents) without really understanding what they did to get them there.

So, I ride a bike by choice, and I happen to wear a t-shirt to a tech job downtown, also by choice. But put me in the financial district, and I look like I have no status there (which really, I don’t). “Dipshit” is a word you use to talk about someone obviously beneath you, which suggests an underlying current of classism that would probably take a divorce and years of therapy to cure.

Anyways, food for thought. I think I took the correct path (after the initial incident), but I wonder how you help people unpack things, or deal with the fact that you know that a person would be helped by doing so, but you can’t do anything about it.

*Maybe a BMW, or an Audi, or something equivalent

**Not necessarily an exact quote, but within a couple of words

Marginal Tax Rates II

Analysis, Economics

So, after my last post on marginal tax rates, there were a few questions about what it was/why it was important/etc…

So, we can start with Wikipedia, but basically, the marginal tax rate is how much tax you pay on your last dollar of income. Or conversely, how much of your last dollar of income you keep. It is a measure of how incentivized the population is to do ‘just a little’ more work. In most modern societies, the tax structure is set up (at least in theory*) such that the more money you make, the higher the marginal tax rate, to try to even out the wealth distribution a little.

The previous post showed the following graph:

Marginal Tax Rates, Ontario, 2011
Marginal Tax Rates, Ontario, 2011

Which shows some of my inability to make a pretty graph with Excel, but more importantly shows that the marginal tax rate is highest for those making the least amount of money. This disincentivizes work (at least, not under-the-table work) among those on welfare. Most people who are interested in a rational economic and social policy think that this is insane. Not only are you discouraging those most desperate from working for a living, you’re also reducing the tax base at the same time.

Basically, if you’re on welfare, and get a part time job, you will lose more than half of your income to clawback and taxes.

You also create a large barrier to workforce entry, and encourage people to stay on welfare, rather than gradually bringing themselves out (this is also hard on those who can only work part time for family or other reasons).

There are a number of reasons why this might have been implemented like this, inertia combined with evolution, for one, but probably including a healthy dollop of Puritan “if you don’t succeed, you’re not trying hard enough”.

So, what should we do about this? I will leave most of that to the comments, but my assumption is that the goal is to have as large a portion of the population as possible productively employed (you can define this however you want), to the best of their abilities. There are a lot of things you can do with tax structure to accomplish this, but let’s start with the marginal tax rate.

*Capital gains taxes will likely be a later blog post here

Marginal Tax Rates

Analysis, Economics

People talk a lot* about marginal tax rates**. You often hear that the income tax rate is going down from 16% to 15.5%, or that the highest marginal tax rate is now 29%. What we don’t talk about is the full structure of the tax system, and what the marginal tax rate is overall as you go up (or down) in income***.

Marginal Tax Rates, Ontario, 2011
Marginal Tax Rates, Ontario, 2011

Looking at the above graph, you may notice a few things. One is that the highest tax rates are paid by those with the least income (this is largely due to the 50% clawback of all income for those on welfare). The marginal tax rates for those earning less than $15k are never reached by anyone earning more than $15k. Many consider this a very strong disincentive to work (or at least a strong disincentive to report income).

There are a few oddities in the graph:
Around $15k, the spike is caused by the loss of the welfare prescription drug benefit
Between $43k and $49k, the tax rate decreases by about 7%, because Employment Insurance and Canada Pension Plan contributions max out
The spikes at $20-25k, $36-38k, $48k, $72k, $201k are caused by the strange way that the Ontario Government implemented the Ontario Health Premium

It might be interesting to overlay this graph with a graph of what percentage of the population is in each category, and what percentage of each of those groups vote.

-Nayrb

Some calculations:

Welfare: $224 basic needs, $368 shelter allowance
Welfare: $592/month = 7104 + 848/yr = 7952/yr
(includes ** Includes 2010 Ontario Energy and Property Tax Credit and 2010-11OntarioSales Tax Credit.)

*Well, probably not that much.
**Marginal tax rates in this instance are defined as the amount of tax paid per thousand dollars of income (marginal tax rate at $10k income would be: (Tax paid @$10k-Tax paid @ $9k)/$1000 )
***This post assumes Toronto, Ontario residents, 2011 tax rates, single adult

References:
http://www.socialassistancereview.ca/income-assistance-and-other-benefits
http://www.mcss.gov.on.ca/en/mcss/programs/social/directives/directives/ODSPDirectives/income_support/6_1_ODSP_ISDirectives.aspx
http://www.rev.gov.on.ca/en/taxcredits/CalculatorQuestions.asp
www.caledoninst.org/Publications/PDF/488ENG.pdf
http://www.e-laws.gov.on.ca/html/regs/english/elaws_regs_980134_e.htm#BK59
http://www.cra-arc.gc.ca/E/pub/tg/rc4210/rc4210-e.html#P137_11147
http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html