Great quote on the value of brand

APM's Marketplace has a good take on Millward Brown's annual brand survey, including this memorable soundbite:

Andrew Zolli: Someone famously said of Coca-Cola that if you burnt down every one of their factories, they'd be back in business in a quarter. If you knocked everybody on earth over the head and gave them amnesia, they'd be out of business in a quarter. And the reason for that is that their brand really exists in all of our minds.

p.s. While you're there, check out this account of how certain Silicon Valley companies help repressive regimes keep tabs on their citizens.

Why do libertarians not hate geoengineering?

It would seem to be a check list of everything that offends libertarians -- a large, expensive, centralized program that makes no use of market forces, instead working under the assumption that only the government can solve your problems.

By comparison, carbon taxes (under which I'm including cap and trade approaches) would seem to be the ideal libertarian solution to an acknowledged externality -- you let prices reflect the true costs and benefits then let market forces do the rest. Even regulation would seem more acceptable -- banning certain products and practices certainly wouldn't be a libertarian's first choice but there is at least some room left for choice and innovation in the search for substitutes.

With geoengineering, the government dictates an exact and inflexible solution and asks us to have faith that secondary effects will be anticipated and accounted for. I am not what you would generally call a libertarian, but I do have a healthy respect for market forces and worry about the unintended consequences of large government initiatives so, in this case, I support the libertarian position.

What I don't understand* is why so many libertarians (like John Tierney) and advocates of market forces (like Steven Levitt) wax rhapsodic over an idea that violates pretty much all of their stated core beliefs.

Anyone out there have any thoughts on the matter?



* 'Don't understand' might have been a bit of an overstatement. I do have a theory on this (I pretty much always have a theory), but it's the subject for another post.

Clarity Has A Well-Known Liberal Bias

Paul Krugman:

Because it is, you know, a plan to dismantle Medicare. When you transform a program that pays seniors’ medical bills into a program that gives them a voucher that almost certainly isn’t enough to buy adequate insurance, you can call the new scheme Medicare, but it isn’t the same program.

I think it is possible to have a discussion about the future of Medicare, as it is pretty clear that the current program involves some compromises. But I also think that it is really important that it be an honest discussion about what we are planning to do.

Altered Oceans

I'm working on a post about the larger context of global warming. One of my sources is this Pulitzer Prize winning series from the LA Times on the frightening changes taking place in the world's oceans. It's a few years old but it's still an extraordinary and highly relevant piece of journalism. Take a look and we'll talk later.

The Culture that is Britian

A quote from the last David Tennant Doctor Who episode:

The Doctor: You had that gun in the mansion. You could have shot The master there and then.
Wilfred: Too scared, I suppose.
The Doctor: I'd be proud. If you were my dad.
Wilfred: Don't start. You said you were told, he will knock four times and then you die. Well that's it then. The Master. That noise, in his head. The Master is going to kill you.
The Doctor: Yeah.
Wilfred: Kill him first.
The Doctor: That's how The Master started. It's not like I'm an innocent. I've taken lives. I got worse—I got clever. Manipulated people into taking their own. Sometimes I think the Time Lord lives too long. I can't. I just can't.

In the previous episode, the character Wilfred (a former soldier) is told he has never killed anyone. He takes it as a point of pride and not shame.

I think that this really is something that we (as a species) could use more of. A ideal that the use of violence is a last resort rather than the opening gambit. This moral code (admittedly from a TV show) doesn't rule out the use of violence, but it sure makes it seem sad and tragic.

I was similarly impressed with the morality in Harry Harrison's The Stainless Steel Rat (which i think competes with any science fiction series for best ever). Consider:

Cold-blooded killing is just not my thing. I've killed in self-defence, I'll not deny that, but I still maintain an exaggerated respect for life in all forms. Now that we know that the only thing on the other side of the sky is more sky, the idea of an afterlife has finally been slid into the history books alongside the rest of the quaint and forgotten religions. With heaven and hell gone we are faced with the necessity of making a heaven or hell right here. What with societies and metatechnology and allied disciplines we have come a long way and life on the civilised worlds is better than it was during the black days of superstition. But with the improving of here and now comes the stark realisation that here and now is all we have. Each of us has only this one brief experience with the bright light of consciousness in that endless dark night of eternity and must make the most of it. Doing this means we must respect the existence of everyone else and the most criminal act imaginable is the terminating of one of these conscious existences.

Once again, violence is never ruled out but always deeply tragic.

I was thinking about the way organizations find to avoid acknowledging the obvious

...and this well-traveled but still amusing piece of fax-machine satire came to mind.

Enjoy.

Indian Wisdom

The tribal wisdom of the Dakota Indians, passed on from one generation to the next, says that when you discover you are riding a dead horse, the best strategy is to dismount. However, in modern business, because of the heavy investment factors to be taken into consideration, often other strategies have to be tried with dead horses, including the following:

* Buying a stronger whip.

* Changing riders.

* Threatening the horse with termination.

* Appointing a committee to study the horse.

* Arranging to visit other sites to see how they ride dead horses.

* Lowering the standards so that dead horses can be included.

* Appointing an intervention team to reanimate the dead horse.

* Creating a training session to increase the riders load share.

* Reclassifying the dead horse as living-impaired.

* Change the form so that it reads: "This horse is not dead."

* Hire outside contractors to ride the dead horse.

* Harness several dead horses together for increased speed.

* Donate the dead horse to a recognized charity, thereby deducting its full original cost.

* Providing additional funding to increase the horse's performance.

* Do a time management study to see if the lighter riders would improve productivity.

* Purchase an after-market product to make dead horses run faster.

* Declare that a dead horse has lower overhead and therefore performs better.

* Form a quality focus group to find profitable uses for dead horses.

* Rewrite the expected performance requirements for horses.

* Promote the dead horse to a supervisory position.

Noahpinion on Public Goods

One explanation of why the narrative on taxation has become toxic in the United States:

Well, I think conservatives (and not a few liberals!) have really fallen into the rut of thinking that all government spending = redistribution. Part of this may be a simple failure to recognize that America's gravy days are over, and that arresting the rapid shrinkage of our national pie is more important than squabbling over who gets which slice.

I think that this insight is entirely correct. Without public goods, a country inherently weakens (imagine no roads, rule of law or sewage). That being said, I do think that redistribution is also an important function of taxation. High income individuals gain a lot from a fully functional society and it is not unreasonable to share the benefits with other members of the society.

California's Choice

Steve Lopez writing for the LA Times:

In 1990, Linscheid said, the Cal State budget and the state prison budget were roughly the same. Today, the state prison budget is only about 10% less than the Cal State, UC and community college budgets combined. Meanwhile, the number of inmates has shot up from 25,000 to 175,000 over the last 20 years, thanks largely to law-and-order initiatives backed by the prison guards union. The union bankrolls politicians like Gov. Jerry Brown, too, and reaps huge benefits, but they come at the expense of school funding.

UCLA Chancellor Gene Block recently wrote in The Times that of the 42 Republicans in our state Legislature, 29 are products of California's public system of higher education. They got a great bargain, but not a single one of them has supported a Brown proposal — balance the budget half with cuts and half with a temporary extension of existing tax increases — that would maintain a barely acceptable level of quality in the Cal State system and help students avoid crippling tuition hikes.

I can vouch for the bargain part. A couple of years ago I took a grad course at a UC school to get caught up on the latest developments in Bayesian networks. The course was excellent, the paperwork was reasonable, the cost was still remarkably cheap for what you got.

Of course, my isolated experience doesn't mean much but it is consistent with pretty much any system of college rankings you can find. By almost any measure, California has arguably the world's best university system (according to the ARWU rankings, four of the world's top twenty universities are in the UC system).

But California also has a sentencing system that can give you 25 to life for cheating on a driving test and a legislative system that makes it easier to amend the constitution than to pass a budget. We can certainly keep one of these three systems, we might even manage two but at least one will have to go.

If you made this an explicit choice, few Californians would choose to sacrifice our universities, but in the implicit choice we've been given, that's exactly what we've decided to do.

p.s. If you're not depressed enough, check this story from NPR.

Charlie Stross summarizes the latest report on the Fukushima Daiichi accident

From Charlie's Diary (via DeLong):

The main highlights seem to be:

* The accident wasn't the result of a single disaster, but of two, and arguably three: earthquake, tsunami, and subsequent hydrogen explosions.

* The plant survived the earthquake (which exceeded its design requirements) quite well, and the reactors scrammed correctly. However, scrammed reactors continue to need power to run their cooling systems. The earthquake tore down the cables connecting the plant to the rest of the grid, forcing them onto backup power.

* The tsunami struck 15 minutes later, and was roughly five times higher than the plant had been designed for. A review of disaster preparedness in 2002 recommended raising "the average wave height they needed to be designed to cope with to about double the height of the biggest waves in the historical record" — 5.7 metres, for the FD plant. In the event, the tsunami that struck had 15 metre waves. It washed right over the plant and wrecked the seawater intakes, electrical switchgear, backup generators, and on-site diesel storage.

* The 2002 severe accident review that increased the tsunami wave height estimates recommended installing hardened hydrogen release vents, to prevent a build-up of hydrogen in event of a similar accident. These are standard on American and other reactors, but had not been retrofitted to the FD BWRs. Were such vents fitted, the explosions would not have occurred. (The explosions compounded the difficulty of bringing the plant under control.)

* Despite all this there appears to have been no public health impact due to radiation (stress and fear are another matter), and no plant workers were exposed to more than 250 millisieverts — the raised limit for emergency nuclear responders, equal to five years' regular working exposure, but insufficient to cause a serious health risk.

So: serious accident, yes — but it's no Chernobyl. ...The main take-away seems to be that, like a plane crash, it takes more than one thing going wrong to cause an accident — in this case, two major natural disasters, each of which exceeded the plant's design spec, occurring within the space of an hour, compounded by failure to implement a safety system that is standard elsewhere. Despite which, they managed to dodge the bullet (for the most part: it's still going to take billions of dollars and several years to clean up the plant).

A lot depends on how you frame the question but if it comes down to a choice between coal and nuclear, I don't have a hard time deciding.

Why companies do the things that they do -- sports sponsorship edition

Do the people running companies act to optimize profits? Or are they trying to push up stock price? Or could they just be trying to advance their own careers, reputations and social standings? Usually these things are pretty well correlated, making it difficult to separate out the drivers -- a company introduces a successful new product, the stock price goes up and the CEO gets his or her picture on the cover of Fortune.

Sometimes, though, these interests diverge and in these cases, it's always interesting to see how things break.

Take Yum! Brands' sponsorship of the Kentucky Derby.


Sometimes it's fairly easy to justify a sponsorship in terms of a business's bottom line. You can, for example, see why Frito-Lay would want viewers to associate Tostitos with the Fiesta Bowl. Other times the case is more difficult to make, as with AT&T and the Cotton Bowl. And then for some sponsorships, there is simply no case at all.

Yum owns KFC, Taco Bell and (for the moment) a number of smaller chains. There could certainly be a case for Yum sponsoring the "KFC Kentucky Derby" or even the "KFC/Taco Bell Kentucky Derby," but not the "Yum Kentucky Derby." Yum is not the relevant brand here. No one has ever said "Honey, you've had a hard day. Instead of cooking, let's load up the kids and head out to one of the many fine restaurants in the Yum! family."

You might possibly argue that sponsoring the Derby raises the profile of the company and therefore helps the stock, but there's a simpler and more logical explanation. Yum is based in Louisville, a town where much of the social season is based around the Derby. I suspect that the sponsorship has less to do with the company's stock price and more to do with its executives' social standing.

William Goldman once observed that one reason studio executives prefer to greenlight big-budget movies over smaller projects is that major films with big name casts give the executives something to talk about at parties.

You may not hear much about this in business and econ courses, but you certainly encounter it in real life.

Occam's barbershop -- Hollywood edition

I was intrigued when I read the following blurb in Felix Salmon's Counterparties:

Did quantitative analysis and movie modelling algorithms kill Anchorman 2?

The feeling of intrigue faded quite a bit when I followed the link and read this:

I was doing a short interview with Ferrell on Friday about his new movie, the indie drama "Everything Must Go," and toward the end Anchorman came up. I was excited to talk about the movie a bit with Ferrell -- especially since rumors of an Anchorman 2 have been circulating. Ferrell deflated my hopes on that score, however, at least for the time being: "We keep trying to explain to Paramount that there’s a lot of interest in a sequel, but they don’t seem to want to listen," Ferrell told me. "I’m not kidding, to the point that I’m openly talking about it with the press. At first we tried to be deferential but now we’re like, 'Yeah they don’t get it.'" This surprised me. With an $85 million domestic gross on a $26 million budget, the first Anchorman was hardly a cult hit. (The Paramount-Anchorman 2 beef is long-festering, it turns out: Deadline wrote a bit about the situation last year, and Adam McKay tweeted that the studio, which owns the rights to the film, "basically passed.") "They say when they model it and run the numbers, it doesn't add up for a sequel," Ferrell explained, "even though we have Steve and Paul and everyone on board to make it, and even though Steve" -- who recently left the cast of The Office -- "is free to make movies now."

Let's do a really quick back-of-the-envelope run of the numbers and see what conclusion we reach.

1. Thanks to the deadline link we know that AM grossed 85mil domestically but only 5 overseas;

2. From the same source, we know that Ferrell, McKay and company are looking at a 70mil budget this time;

3. There is reason to question what side of the career parabola Ferrell is on, at least when he has to carry a movie. The last two films that were clearly Ferrell vehicles (thus excluding Megamind, the Other Guys and Step Brothers) were Land of the Lost (Budget $100 million, Gross revenue $68,777,554) and Semi-Pro (Budget $90 million, Gross revenue $43,884,904);

4. And we haven't even talked about marketing costs which have grown substantially in recent years, often exceeding production costs. The Hangover cost $35 million to make and $40 million to market. Assuming a similar push for Anchorman 2, we're talking a combined budget of around $110 million;


I have no doubt that the studio used various sophisticated models when looking at Anchorman 2. I suspect that's where they got the $40 million budget mentioned in the Deadline post. But it's worth noting that $40 million is awfully close to the number we derive from this decidedly unsophisticated formula:

Conservative Sequel Budget = Gross of first(90) - Marketing(40) - Overruns(10)

Given that (according to Wikipedia) no film starring Ferrell has ever grossed $200 million domestically, his biggest hit (Elf -- $173 million US) was back in 2003, his second biggest ( Talladega Nights) was five years ago and that no live-action film* starring Ferrell has broken $120 million domestically since then, it's not hard to see why a studio might be nervous about committing to $110 million in production and marketing.

Though people tend to talk about models in business with hushed, Oracle-of-Delphi tones, running the numbers usually gives us intuitive, common-sense answers -- often very close to our rough estimates. That's often the key to the models' greatest value -- by reminding us of the obvious, they keep us from building castles in the air using stockholders' money.



* Animated films are a bit of a special case. Megamind did good business, though not as the Incredibles, Up, Ice Age, and no one concluded from those films that Craig T. Nelson, Ed Asner, or Ray Romano could open a big-budget picture.

A conservative view on health care reform

I usually read Outside the Beltway to get smart opinions that I am also likely to disagree with. It is one of my ways to avoid being trapped in an “echo chamber” and to get a diversity of views. Today, however, I have to admit that this piece by Steven L. Taylor is very much on point:

Ultimately, all I want is some honesty in the public discourse on these issues, starting with three facts:

a. Yes, Medicare needs reforming,

b. Magical thinking about market forces is not going to work.** I have simply come to the point in thinking about all of this that I believe this assertion to be a dead end.

c. If all other OECD countries do a better job than we do in terms of cost and service, then perhaps we need to be realistic about that fact and look outside for viable models.***

By the way, I don’t pretend to have the answers to this conundrum, but I do think that the debate had to take place within logical parameters that address the actual situation at hand.

[some bridging text deleted to include the relevant footnotes. ed.]

**Understand: there was once a time when I, too, believed that markets in all things was the way to go. Empirical observation, and recognition of the reality around me, has altered my view on this. I still fundamentally believe in markets, but recognize that one size does not fit all.

***This is something else I have changed my view on over time. Indeed, I am not alone. See, for example, the following post from Reason‘s editor-in-chief, Matt Welch: Why I Prefer French Health Care (and yes, the libertarian magazine, Reason).

Now I am sympathetic to the argument that true free market health care hasn't been tried anytime recently. It has some issues that would have to be overcome. Externalities due to antibiotic overuse, for example, are not trivial to handle outside of regulation. Nor is it clear precisely how one would handle fraud in a way that would not be a legal nightmare.

But there are health care models that are both more and less functional than the current United States model. Why would we not look more closely at, for example, the German model before assuming that a massive social experiment makes sense?

Weekend Gaming -- special video edition

This is starting to hit a little close to home.






My first thought was that he shouldn't have made this a game of imperfect information.

My second thought was that I really need to get out this weekend.

An actual quick one on broadcast TV

My last post on the topic went a bit longer than I had planned so I'll keep this one brief.

From the New York Times:

The Nielsen Company, which takes TV set ownership into account when it produces ratings, will tell television networks and advertisers on Tuesday that 96.7 percent of American households now own sets, down from 98.9 percent previously.

There are two reasons for the decline, according to Nielsen. One is poverty: some low-income households no longer own TV sets, most likely because they cannot afford new digital sets and antennas.

Of course, you don't need 'new digital sets and antennas.' You need a forty dollar converter box (thirty if you shop around. Closer to twenty used). Any antenna that's UHF compatible will work (in other words, any antenna). I've used one from the 99 cents store -- worked fine.

Here are some more details:

Nielsen’s research into these newly TV-less households indicates that they generally have incomes under $20,000. “They are people at the bottom of the economic spectrum for whom, if the TV breaks, if the antenna blows off the roof, they have to think long and hard about what to do,” Ms. McDonough said. Most of these households do not have Internet access either. Many live in rural areas.*

I'm sure that some of these people can't afford a thirty dollar converter or a thrift-store TV, but there are certainly others who went without because they were misinformed about the costs. misinformed in part because reporters increasingly feel like it's their job to protect consumption rather than consumers.

* Having grown up in the Ozarks and taught in the Mississippi Delta, I can tell you from experience that rural areas face extraordinary challenges that are generally ignored if not openly mocked. For some of these people, the switch to digital really did end their access to free TV, greatly compounding problems with isolation. I'd like to respond to this with a major push to get high speed internet access to rural areas but that's a topic for another column.

A False Dichotomy

In a lot of discussions about health care systems, the Americans point to the Canadians and say "we don;t want that". Curiously, the Canadians point to the Americans and say "we certainly can't imagine that system being a good idea". But merely looking at these two (fairly extreme) examples is a fundemental failure of imagination. A lot of countries have developed health care systems and it would be remarkable if we couldn't learn a lot from them.

Consider a Libertarian's view of the French health care system:

What’s more, none of these anecdotes scratches the surface of France’s chief advantage, and the main reason socialized medicine remains a perennial temptation in this country: In France, you are covered, period. It doesn’t depend on your job, it doesn’t depend on a health maintenance organization, and it doesn’t depend on whether you filled out the paperwork right. Those who (like me) oppose ObamaCare, need to understand (also like me, unfortunately) what it’s like to be serially rejected by insurance companies even though you’re perfectly healthy. It’s an enraging, anxiety-inducing, indelible experience, one that both softens the intellectual ground for increased government intervention and produces active resentment toward anyone who argues that the U.S. has “the best health care in the world.”

The anecodates as to the efficiency of the system are pretty interesting as well. I can tell you from personal experience that the Canadians are unlikely to have the author's happy experience with universal short wait times.

So maybe we should be looking more broadly for examples?