Merry Christmas again!

Regrettably the Washington Post chose to wait until after Christmas to publish this, so this post is not quite on time. Nevertheless, in the vein of the post of Christmas past I present you with Amazon.com‘s patented method (as yet unimplemented) for ameliorating the deadweight loss of Christmas, to theirs and the receiver’s benefit, and in some sense to the giver’s benefit as well:

Amazon patents procedure to let recipients avoid undesirable gifts

Apparently returned purchases are a major cost for retailers, especially otherwise largely-automated ones like Amazon.com. So avoiding shipping bad gifts, only to then have to process them again when returned, and possibly resell them at a loss, is a good way for Amazon.com to cut costs. (And though the article doesn’t mention it, presumably this system would act as an incentive for shoppers to shop exclusively at Amazon.com rather than elsewhere — even better from Amazon.com’s point of view.) Strangely (or perhaps not so strangely in today’s newspaper world, alas) the article doesn’t link to the patent itself, but it’s not particularly hard to find. I doubt many patents these days include “mildred” in their text. 🙂

I express no position on the wisdom of permitting Amazon.com to patent this. But the idea itself is a good one.


Dear Automobile magazine

I suppose I should appreciate inexplicably being entered in your subscriber database since the May 2010 issue.

I suppose I should appreciate being sent glossy pages full of pictures of beautiful new cars. I do enjoy slick cars, after all (although to be honest, I’d take a classic car any day over something new). (Still, I much prefer to see the physical versions over mere pictures.)

But that doesn’t change the fact that I am perhaps the least likely person to ever succumb to the temptations posed most directly by the cars in your pages, or the accessories of all sorts advertised amongst them. I am a complete losing proposition for you: I don’t pay for your magazine, and I won’t pay your advertisers for it, either.

Maybe you think, because I’m in the 18-24 male demographic, the products in your pages will entice me. I think you will find few people so anomalous as me in that population. I don’t own a car (I bike), I rarely need a car (and on those occasions, borrowing or renting is significantly cheaper), and I don’t plan to own a car in the foreseeable future. And, for as long as I live in the Bay Area, that’s very unlikely to change.

I do appreciate your willingness to send me something for nothing. My office appreciates this, too. (Or at least it appreciates it no less than I do.)

But a friendly suggestion: if you really want to give someone a free subscription to your magazine, give it to someone who might actually read it.

(And in the unlikely event that someone decided to give me a subscription [presumably despite knowing just how little I care about cars] and I somehow missed the new-gift-subscription notice, I’m really sorry, but this magazine just isn’t for me: it’s complete deadweight loss. How about in the future we go do something fun together, mutually agreed upon, instead?)


Haircuts for job hunters?

I can think of no stronger an argument to the average person for sweeping United States tax simplification and reform than this video (a variation of which I saw while watching the Sugar Bowl on New Year’s Day — a game which, to be honest, was almost sickeningly boring after the first half):

Is a haircut a job-hunting expense?

Do you know the answer to the question the video poses under the current tax system? Answering the question is left as an exercise for the reader; it’d take me more effort to find out the answer than I’m willing to make. Good luck reading IRS documentation to figure out the answer! (Food for thought: which segments of society are most likely to know or learn about, and take advantage of, this deduction, particularly given that it requires itemizing deductions, among other restrictions? What classes of society benefit most and least?)

It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood.

James Madison, The Federalist No. 62

Instead, consider the answer under the far simpler Hall-Rabushka flat tax, occupying a single postcard-sized form (plus one for your company if you’re self-employed): the question is meaningless. Whether you get the haircut for personal pleasure or for job-search reputability, it wouldn’t affect your income tax in the slightest. More generally, an individual’s income taxes under the flat tax don’t depend at all on how he spends his money. (See Section 202, referencing Section 201 and Section 101; the law’s text, also linked from the above page, fits in seven nearly pocket-sized pages, so it’s easy to navigate it and only slightly less easy to understand its requirements. Analysis and understanding of its rationales is more difficult but is well within the grasp of an intelligent taxpayer with a numerical bent.)

In the meantime, Congress, please keep preserving the existing tax system and even making it more convoluted, complex, and distortionary — taxpayers love you for it!


Merry Christmas!

As an expression of the festive holiday spirit, while being mindful of the current economy, I direct you to a timeless economics paper on The Deadweight Loss of Christmas by Joel Waldfogel.

Put simply, when it comes to gift-giving, the only person who knows precisely the value of a potential gift is its receiver. If the receiver values the gift at less than the value the giver expended to acquire it, we have deadweight loss: economic inefficiency present when allocation of goods is not Pareto optimal (that is, some other allocation would leave both parties better off). Had the giver instead given that same value in a more fungible form (the epitome of which is generally reached in cash), the receiver could have acquired the value present in the intended gift and the value present in the excess, thus maximizing his utility from the gift value. Where does that lost value in the excess go, if the inefficient gift is given? It is lost; neither giver nor receiver is fully satisfied. The giver overallocated his resources toward satisfying the receiver (or, if you prefer, allocated them in a way which did not maximize received value); the receiver’s utility was not maximized.

So, in the future (perhaps not this Christmas, but in future ones, or for birthdays, or for other times when you might ordinarily give presents), do your friends’ utility curves and your pocketbook a favor: give the gift of cash, the gift that will give them exactly what they want. (And, if you still think you know what your friends want better than they do, simply suggest the ways you think they would best maximize their utility while spending it. Another idea: give early to maximize net present value of the money, also allowing them to take advantage of fleeting sales that may no longer be available after Christmas or some other occasion.) You will increase the market efficiency of a baroque, inefficient ritual, and you will improve the economy in the most efficient manner while doing so.

Update: One comment directs me to today’s Dilbert strip, which expresses the above rather more pithily (particularly noting that gift-giving inefficiency is likely heightened for workplace gifts where deep knowledge of the other person’s desires is potentially less common). 😀