A week packed with fun, market moving, data. So far this morning we have seen a minor 23.4% slip in existing home sales.
Interesting article in the Economics focus section of the Economist this week on Steven Levitt (think Freakonomics). What is the nature of selling sex? This article give you a little insight into the economics behind prostitution in the city of Chicago (I am sure Mayor Daley loves to hear all about this).
Some things that caught my thoughts:
Almost half of the city’s arrests for prostitution take place in just 0.3% of its street corners. The industry is concentrated in so few locations because prostitutes and their clients need to be able to find each other. Earnings are high compared with other jobs. Sex workers receive $25-30 per hour, roughly four times what they could expect outside prostitution. Yet this wage premium seems paltry considering the stigma and inherent risks. Sex without a condom is the norm, so the possibility of contracting a sexually transmitted infection (STI) is high. Mr Levitt reckons that sex workers can expect to be violently assaulted once a month. The risk of legal action is low. Prostitutes are more likely to have sex with a police officer than to be arrested by one.
Pricing strategies are much like any other business. Fees vary with the service provided and prostitutes maximise returns by segmenting the market. Clients are charged according to their perceived ability to pay, with white customers paying more than black ones. When negotiating prices, prostitutes will usually make an offer to black clients, but will solicit a bid from a white client. There are some anomalies. Although prices increase with the riskiness of an act, the premium charged for forgoing a condom is much smaller than found in other studies. And attractive prostitutes were unable to command higher fees.
My first thought would be: more money than $25 – $30, I would pay more due to the color of my skin. What does this say about perceived risk? No condom, risk of jail, violent assault, and roughly four times the low wage in the city. It seems like condom use and attractiveness would work up the price in a significant manner. It would be interesting to see a subsection of the data related to price negotiation strategies and prostitution.
One controversial finding is that prostitutes do better with pimps—they work fewer hours and are less likely to be arrested by the police or preyed on by gang members. The paper’s discussant at the conference, Evelyn Korn of Germany’s University of Marburg, said that her favourite result from the study was that pimps pay “efficiency wages”. In other words, pimps pay above the minimum rate required by sex workers in order to attract, retain and motivate the best staff. Mr Levitt said that a few prostitutes asked the researchers to introduce them to pimps.
Pimps as efficiency brokers? Hmm… It would be interesting to see how higher-end prostitution has used the internet to capitalize on this efficiency brokering and replaced the pimp, and, then, how this progresses downward to street-level prostitution over time. (“The internet and the down fall of the pimp.”)
“An Empirical Analysis of Street-Level Prostitution” – Steven Levitt and Sudhir Venkatesh
“Sex Work and Infection: What’s Law Enforcement Got to Do with it?” – Paul Gertler and Manisha Shah
If you decided to take the day off because the domestic markets are closed, tomorrow is going to feel like three days to you.
I was wondering how long it would take before the bottom really started to fall out on a global scale. All the talk of support points is quite a bit premature.
It will be interesting to see the futures markets and foreign markets through the night and into the morning. Place your bets!
Panic Plunge – FT
Last year this time, ‘recession’ was barely a word on the cusps of our lips. Our word was ‘slowdown’. O what a difference a year makes in the world of economic forecast. After the ever-present credit crisis, bottomless housing debacle, and a few rate cuts by the FED, we change our sights from ‘slowdown’ to ‘recession’. Friday’s employment numbers, subject to great and grand revisions and general flaw, did not help the market re-convince itself we are headed for a slowdown and not the other word. But this is old news; we have now transitioned into bail out talk and fiscal stimulus packages.
I started reading this book shortly after it came out and read it in a few days. I generally thought it was interesting, but the quick read did not let most of the second half of the book sink in very far. I decided to read back through it again. I am still working on the second half, but I wanted to post a few thoughts on the first half.
The Age of Turbulence is really two books in one. The first half is more of a historical memoir. It goes into depth about Greenspan’s personal life and FED life as a means of providing a contest. Having read Bob Woodward’s Maestro, I thought Greenspan’s own recounts were not that much more insightful. For course, the reader does get a personal perspective on the events, but this section was written in a, for lack of a better word, “political” way. By this I mean, Greenspan plays up the events and the text comes off as rather sugar coated, rosy, with a little too much arrogance. I did not feel like I got a critical view of anything new. The comments on each of the presidents he worked with was interesting, but also that a sugar coated feel to the text.
The second half of the book is where the good stuff lives. I am not sure the first half is necessary, given the other work that is out there about Greenspan’s work at the FED. A two chapter introduction and starting the book at chapter 12 would have been fine with me. Although not as marketable, I am sure. The second half of the book really starts to dive into the underlying thoughts and perspective of Greenspan’s thinking on the domestic and global economy. Regardless of what you think about globalization, capitalism, etc., Greenspan’s insight is an important one to have. Mainly due to the fact that it has been a dominant force on the global stage for almost 20 years.
I want to tease the second half of the book out further here over the next few weeks. I want this to be a brief overview, leading into a more critical conversation about the second half of the book. If you are interested in economics, political history, or capitalism, I would encourage you to pick this up. Below are some of the MANY interviews Greenspan did trying to “sell” the book.
After what I considered to be a done deal, Sunday’s voting in Venezuela shocked more than a few analyst and has sparked a great deal of dialog about the voting out come. I have been closely watching the Venezuelan referendum unfold over the last few weeks. I heard the voting would be close and pre-vote polling was close, but my internal skepticism said this was all but a done deal. On Saturday, I would have said there was a 10% chance of the referendum not going through. Boy, was I wrong. The commentary and analysis will likely go on about this for some time, because of its significance in modern socialism. I wanted to post some comments from the FT (free subscription required).
Analysts suggest that the urban poor were unenthusiastic about the constitutional proposals that would have granted the president sweeping new powers, including the ability to be re-elected indefinitely, and accelerated the introduction of “21st century socialism” into Venezuela.
“Chávez was out of step with the wishes of the poorer sectors of the population that support him,” says Edgardo Lander, a leftwing political scientist at the Central University of Venezuela. “He had interpreted his election victory in 2006 as a kind of carte blanche to do whatever he wanted, but in reality it’s not like that.”
Others suggest that economic distortions resulting from price and exchange rate controls and a sharp fall in private investment in farming and manufacturing have hit the government hard. Despite the oil bonanza, in the state-run supermarkets where the poor shop many basic foodstuffs – such as milk and sugar – are in short supply.
Steve Ellner, a political scientist at the Oriente University in Venezuela, says the government may need to pay more attention to problems such as refuse collection and crime in poor areas.
“With all their lofty ideals the Chavistas are maybe paying less attention [than they should] to these tangible and specific things.”
In addition, although Mr Chávez last year won a strong popular mandate to press ahead with reforms, his radicalism has alienated many erstwhile supporters and created new opponents.
Overlooked poor bite back at Chávez
By Richard Lapper and Benedict Mander in Caracas
Published: December 3 2007 20:39
Last night I ventured out to visit my neighborhood jazz club, the Green Mill. I was meeting some people to talk about business, etc. I got there earlier than the rest, sat at the bar, and enjoyed a PBR for $2.50. The music did not start for another hour, so there were only a few people hanging out at the bar. About thirty minutes later my group started showing up, so we grabbed a table and ordered another round of drinks. This time my PBR was $3.00. Now, a 20% increase in thirty minutes is a steep cost adjustment. So what happened? Well, music was closer to its start time, yes. Around thirty more people walked through the door, right again. But how does all that justify the cost increase? The product cost did not change. Demand may change over the course of the night, but probably not enough to hurt local supply. So what are the changing factors?
I noticed two changes over the course of the time period. First, they started accepting American Express. They do not allow you to carry a tab, so a 2.5% average merchant charge does affect cost. Since your options are cash or Amex, most people may pay with a card. The other, more dramatic, cost structure change was labor. They went from one lady, to at least four other servers/bar tenders. I suspect this justifies the greatest per unit cost increase. This practice may be more common than I realize. I have just never seen it happen so starkly before my eyes.