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Volkswagen tötet Babys

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(h/t to a famous campaign of the 1970s against Nestlé’s marketing of baby formula in Africa)

How many people did Volkswagen kill with their conspiracy to rig the diesel emissions tests? Kevin Drum has come up with a back-of-the envelope estimate of 12 in California. For the world, it’s much, much higher.

Step one: VW have admitted that the engine controllers may have been fitted to 11m vehicles worldwide. The Guardian has estimated the excess emissions:

A Guardian analysis found those [482,000 VW and Audi] US vehicles would have spewed between 10,392 and 41,571 tonnes of toxic gas into the air each year, if they had covered the average annual US mileage. If they had complied with EPA standards, they would have emitted just 1,039 tonnes of NOx each year in total. The company admitted the device may have been fitted to 11m of its vehicles worldwide. If that proves correct, VW’s defective vehicles could be responsible for between 237,161 and 948,691 tonnes of NOx emissions each year, 10 to 40 times the pollution standard for new models in the US.

Step two: translate that into excess deaths. Continue Reading…

Liars and cheaters

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It’s been a bad week for the reputation of big business and its captains of industry.  Trump and Fiorina, those shining examples of the species, lied their way through the debate, and Fiorina’s unremitting failure at business has started to attract appropriate attention.  Trump’s incompetence as a businessman, and his lies about that, have not been sufficiently noted, despite this two-week-old analysis.  Ehrenfreud notes that the passive-investment model doesn’t include living expenses. Fair enough: if he had put his money into an S&P index fund in 1978 and taken out walking-around money starting at $3m and ending at $16m a year, he would have $4b today.  All his wheeling and dealing, and the money he took from sucker investors and lenders through his bankruptcies, didn’t even beat Harold Pollack’s index card. Neither of them can pass the Hyman Roth test  (“Your father [Vito Corleone] always made money for his partners”).  Is this the best Republicans can put up as sound business leaders?

Mark has pretty well toasted VW, but he neglected to mention the damage this piece of schweinerei has done to the market potential of diesels, the actually (not mislabeled-as) clean of which are an important element of reducing the global warming effect of transportation.  I am not too surprised by this story, though no less outraged, because I remember the decades in which GM, DuPont and Standard Oil conspired to sicken and stupefy millions and millions of Americans because, while ethanol was a perfectly good octane enhancer, it couldn’t be patented. Making engines require tetraethyl lead to keep their valves from burning was like runaway slot machine for them.  And we got a crime wave from it, to boot.

I realize one reason I am simply beside myself about this is personal.  I am a good non-partisan (at least I was before the Republicans became crazy and hateful) teacher; whatever students say, I try to make them think twice, consider another perspective and more facts, and like that.  At Berkeley,  part of my job is to stay somewhat to the right of my students. My Introduction to Policy Analysis course is beginning an economics unit, and in the usual way, we get into market failures starting from the virtues of the market when it works properly. These incompetents and criminals have put me in an especially difficult position for class Monday.

 

Pure evil, VW edition

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I don’t suppose we’ll never know how many people died - asthmatics, for example - because Volkswagen designed its “clean diesel” vehicles - all 482,000 of them sold in the U.S. since 2009 - to burn dirty except when they were being tested. The story reads like the most paranoid anti-corporate fantasy, until you get to the line where the firm admits what it did, and then discover that Honda and Ford got caught years ago doing the same thing in a less sophisticated way. There’s even a  term of art for such tricks: they’re called “defeat devices” because they’re designed to defeat emissions testing.

In the VW case, code was written into the engine-control software to detect the pattern of pedal and steering operations characteristic of an emissions test. Then, and only then, the car’s emissions-control machinery would kick in. Once the test was over, the software noticed that, too, and returned to normal - that is to say, illegally and dangerously dirty - operations. That meant emitting about 40x the permitted -and advertised - level of nitrous oxide, which makes smog.

Now just think about the depth of corporate depravity involved. This wasn’t one rogue engineer or engineering group at work. People up and down the chain had to be party to the crime.  And note that the conspiracy held together for six years, and was finally broken not by an internal leak but by the work of outside scientists at West Virginia University. Wasn’t there a single decent human being around when this was being planned and carried out?

Some quick comments:

1. The news stories discuss fines that might be levied against VW.  When people conspire to commit a crime that harms the health of untold numbers of people,  criminal charges are appropriate. And not only against the company, but against every official in it who can be shown to have known about the conspiracy.

2. At minimum, the civil penalties and civil-lawsuit damages should be sufficient to put VW out of business. That might make managers, and boards of directors, in other firms a little bit less casual about lawbreaking.

3. Keep this case in mind when evaluating the claim oft heard from Koch-funded “criminal justice reform” advocates that it’s wrong to “criminalize” regulatory violations. Of course no one should go to jail for paperwork errors. But deceiving the regulators is a fraud on the government, even when it isn’t - as it is in this case - a physical assault on the public.

4. Can we hear some more from the Republican Presidential candidates how business is Good and government is Evil? And is there any hope that a reporter will ask them whether they think the perpetrators of this appalling crime should face prison time for it? (Again, note that VW isn’t denying what was done, and can’t possibly deny that it was done deliberately.)

Footnote  I’ve quoted C.S. Lewis on this before, but his words bear repeating:

The greatest evil is not now done in those sordid “dens of crime” that Dickens loved to paint. It is not done even in concentration camps and labor camps. In those we see its final result. But it is conceived and ordered (moved, seconded, carried, and minuted) in clean, carpeted, warmed and well-lighted offices, by quiet men with white collars and cut fingernails and smooth-shaven cheeks who do not need to raise their voices.

The most horrible thing about this case is that very few if any of the people involved will have lost any sleep over their guilt in making sick people sicker (and killing some of them) and none will lose face among their friends and neighbors. Even if some are found guilty of felonies, life won’t be nearly as bad for them as it is for someone who gets caught committing burglary. And yet no burglar’s contribution to human suffering can hold a candle to what the VW conspirators managed to inflict.

 

 

 

United Airlines,

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in trouble on a variety of fronts, has fired its president and hired a railroad guy.

Railroad guys have been freight guys for a century, indeed it was the freight guys who ruined rail passenger service in the US. And who could blame them? it’s really a pain in the neck to have the cargo expecting to be warm in the winter, fed at regular intervals, delivered on time, talked to politely…passengers are even more trouble than livestock!  We’re supposed to put an string of hopper cars full of nice docile coal on a siding for a handful of passengers? Get serious; we’ve got a railroad to run here.

What could possibly go wrong?

Cable TV: Socialism that Works?

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We’re frequently told that if cable companies would allow us to buy channels à la carte, we could save lots of money by not having to pay for all those hundreds of channels we never watch. As the following numerical example illustrates, however, channel bundling may actually enable cable companies to provide offerings that many of us like better than what we’d get under an à-la-carte system.

The key feature of the example is one that also figures prominently in other digital content markets—namely, that the costs of production are mostly fixed: Once content is in hand, the marginal cost of serving additional consumers is essentially zero. Normal intuitions about pricing often break down under these conditions, and that’s what happens here.

For simplicity, suppose there is one premium channel that everyone would like to have (call it HBO) and 100 fringe channels, none of which is valued by more than a small proportion of potential viewers. Suppose there are 120 million potential subscribers in total, that their maximum monthly willingness to pay for access to HBO and the 100 fringe channels is as summarized in this table:

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If the cable company sold HBO separately, their best bet would be to gouge the rich TV fans, selling 10 million subscriptions at a price of $70 each, for $700 million in monthly revenue. They’d also sell 120 million subscriptions to the bundle of 100 fringe channels at a price of $5 each, for another $600 million in revenue. Total monthly revenue: $1,300 million.

Now suppose they can offer a premium bundle consisting of the 100 fringe channels plus HBO. Their best bet would then be to charge $20 a month for that package, at which price they’d sell 50 million units, for monthly revenue of $1,000 million. They’d also sell another 70 million monthly subscriptions to the 100 fringe channels at $5 each, for another $350 million in revenue. So total revenue would be $1,350 million, or $50 million more than before. Yet no subscriber would end up with a package that’s worse than before, and 10 million former HBO à-la-carte subscribers would be paying $55 a month less than before for the combination of HBO and the fringe channels.

This is obviously just a hypothetical example. But it captures the basic idea that when the marginal cost of serving additional subscribers is zero, the average cost of serving each one necessarily goes down whenever sellers can price their offerings in ways that result in increased numbers of units sold.

Tech industry analyst Ben Thompson has described the current cable bundling system as “socialism that works,” offering data suggesting that the implications of my numerical example are hardly farfetched. No one should be surprised, then, if prices for channels like HBO and ESPN go up sharply if cable providers are forced to offer them as stand-alones. That wouldn’t be a good thing for the people who now get those channels as part of a cheaper cable bundle, nor would it help those subscribers who don’t care about the channels.

 

Weekend interlude: Just a closer walk with thee

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The setting and circumstances of Charleston’s atrocity remind me of the many times that I’ve visited various African-American churches. As a white non-Christian, I’ve always been embraced as a valued guest. That Dylann Roof was accorded similar hospitality, and yet apparently went on to murder the very people who graciously welcomed him adds yet another incomprehensibly depraved element to this attack.

We could all use some joyful noise to salve the wound just a little bit. Below are Mahalia Jackson and Louis Armstrong, at the Newport Jazz Festival 1970.

Everything old is new again

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Several years ago I posted this maximally snarky rant about pod coffee machines, especially Nestlé’s. Soon after, Keurig’s patent apparently ran out, K-pod prices came down a lot,  and it became possible to use them with coffee bought by the bag as Keurig (and others) sold refillable pods to make it possible.  But greed hath no season, and Keurig has done a spectacular faceplant trying to force its customers back into obedience.

How nice to see.

Flea markets

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One of the local sports round Perpignan, where we’ve just bought a house, is going to village flea-markets on Sundays. They don’t go in for car boots: trestle stalls are rented cheaply by the organising villages, so the atmosphere is pleasant, even for a reluctant shopper like me. This is Latour-bas-Elne. On a given Sunday, there are half-a-dozen such dos.

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How do flea markets by amateurs match up against the idealised markets of Walras and Arrow? Continue Reading…

The Eurozone’s Inbuilt Compassion Deficit

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The Euro is the Windows 8 of the economic policy design world: In both cases, it’s very hard to understand how putatively smart people worked so hard to create a product so ill-suited to the needs of those who were supposed to rely on it.

That’s yours truly writing at Mother Jones about another way that the designers of the Euro seemed not to understand basic principles of human psychology (not that they grappled honestly with basic economic principles either). I have written before about other psychological failures of the system, in this case I am referring to the false assumption that all Europeans have a strong shared sense of identity which would generate compassion rather than screw turning in hard economic times.

You can read the whole piece here. Far more important than my Euro-ramblings is this: For the next two months that learned knight of the blogosphere, Kevin Drum, will go through the final phase of his cancer treatment. While he is recovering, a passel of bloggers who admire him will be filling in at Mother Jones, so you can keep watching his column with an expectation of blogging activity and I hope also an occasional update on how Kevin is coming along. My best wishes to Kevin and his wife (and also of course, their cats).

Prohibition and Marijuana Potency

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At Washington Post Wonkblog, Christopher Ingraham notes that the potency of available marijuana has been increasing:

Retail outlets in Denver and elsewhere advertise strains that contain 25 percent THC or more. As legalization opponents are forever fond of saying, this isn’t your daddy’s weed.

There is extensive evidence available to support Christopher’s observation about rising marijuana potency. But I am not sure that his causal explanation for the potency increase comports with the facts. He attributes it to prohibition and believes therefore that legalization will reverse the trend:

As prohibition eases and legal markets open up, growers now have the breathing room to select for traits beyond high THC content. Demand from new users looking to experience a social high, rather than four hours of couch lock, will likely drive this. The end result may be a resurgence of milder strains of weed that are more akin to fine wines than to bathtub gin.

There are a couple analytic problems here. First, over the past 5-10 years, legalized marijuana markets (medical and recreational) have expanded dramatically and marijuana enforcement has dropped sharply, but as the data Christopher himself presents show, potency went up rather than down during that time. Second, if one looks at other legal industries that sell psychoactive drugs, they typically do anything they can to give customers as much potency as possible for every dollar they take in.

For example, the British alcohol industry has been warring with the government from at least 1751 (e.g., The Gin Act) to the present day (e.g., minimum unit pricing) over the former’s efforts to churn out cheap, high potency alcoholic beverages. Even if one restricts analysis to the “fine wine” analogy that Christopher evokes, it has to be said that over the past quarter century, the alcohol content of wine sold in the U.S. has crept up from the 8-10% range to 12-14%.

For drug producing industries, higher potency products are a good. They lower transport costs because the product has less mass and weight. Consumers like getting more bang for the buck. Finally, higher potency products are more addictive, and addicted customers are the best customers. I can’t stress strongly enough that all these advantages accrue to both legal and illegal drug sellers. There is nothing in the legalization of drug-producing industries that eliminates these financial incentives and because they can operate openly, such legal sellers actually may be better at achieving a saturation of lower cost, high-potency products in a market than are sellers constrained by prohibition.

People who enjoy the occasional low potency marijuana cigarette tend to assume that sellers have a big economic interest in catering to them. But about 90% of the weed being sold in Colorado is used by people who smoke every day or almost every day. There just isn’t as much money in the “fine wine” set of occasional marijuana users as there is in daily, physically dependent users of high-strength pot.

A legal market thus doesn’t inherently bring us low potency. Rather, it brings us a fight between regulators who generally want low potency products to dominate the market and sellers who generally want high potency products to dominate the market. Sometimes the regulators win, sometimes the industry does. When the industry wins, higher potency products are more available than they are under prohibition. When the regulators win, industries are forced against their economic interests to produce more of the lower potency products that Christopher and I agree pose less risk to consumers.