When to Rob a Bank: ...And 131 More Warped Suggestions and Well-Intended Rants (28 page)

THANKS AND HAVE A WONDERFUL DAY :O}

Here is a (no doubt) partial list of totally idiotic mistakes in that e-mail:

1
.     If nobody buys gas today, but everybody drives the same amount, then it just means that we either had to buy more gas in anticipation of not buying any on September 1 or that we will buy more a few days later. So even if you
believed this would take a $4.6 billion bite out of the oil companies that day, consumers would hand it right back over. If this was “No Starbucks coffee day” it might have some chance of mattering, because people buy and drink Starbucks coffee the same day, so a forgone cup of coffee today may never be consumed. But this is not true of gasoline, especially if no one is being asked to reduce gas consumption. All you will get is longer lines at the pump the day after.

2
.     A one-day total boycott of gas would not reduce oil company bottom lines by anything like $4.6 billion, even if it was accompanied by a one-day moratorium on all gasoline use. Americans consume about 9 million barrels of gas a day. There are about 42 gallons in a barrel, so that equals 378 million gallons of gas sold a day in United States, or about one gallon per person. Toss in another 10 percent for Canada. At $3 a gallon, that is about $1.2 billion in revenues. Profit as a share of revenues in this industry is probably 5 percent or less, so the bottom-line impact is a max of $60 million—or about 1/100th of the stated number. And from point (1) above, even this is a gross exaggeration of the true impact.

3
.     One day of no purchasing of gasoline would certainly not cause the oil industry to choke on their stockpiles. Gasoline inventories in the U.S. are typically about two hundred million barrels, but right now they are on the
low side—a big part of the reason why gas prices are high. Nine million extra barrels would create no problems whatsoever for stockpiles.

So everyone, please buy gas on September 1.

And if you ever have the bright idea to circulate an e-mail like this, at least tell people not to use gas, rather than not to buy gas.

This post was published in August, 2005, when the average price of regular gasoline in the U.S. was about $2.85 per gallon. As of this writing (January 2015), a gallon costs about $2.06, which gives people all the more reason to buy gas!

The crew of the
Maersk Alabama
recently survived an attack by pirates in Somalia and has
returned home
for a much-deserved rest. But with
tensions growing
between the U.S. and the ragtag confederation of Somali pirates, we thought it might be worth looking to the past for clues on how to tame the outlaw seas.

Peter Leeson is an economist
at George Mason University and author of
The Invisible Hook: The Hidden Economics of Pirates.
Leeson agreed to answer some important piratical questions for us:

        
Q.
The Invisible Hook
is more than just a clever title. How is it different from Adam Smith’s invisible hand?

        
A.
In Adam Smith, the idea is that each individual pursuing his own self-interest is led, as if by an invisible hand, to promote the interest of society. The idea of the invisible hook is that pirates, though they’re criminals, are still driven by their self-interest. So they were driven to build systems of government and social structures that allowed them to better pursue their criminal ends. They’re connected, but the big difference is that, for Adam Smith, self-interest results in cooperation that generates wealth and makes other people better off. For pirates, self-interest results in cooperation that destroys wealth by allowing pirates to plunder more effectively.

        
Q.
You write that pirates set up their own early versions of constitutional democracy, complete with separation of powers, decades before the American Revolution. Was that only possible because they were outlaws, operating entirely outside the control of any government?

        
A.
That’s right. The pirates of the eighteenth century set up quite a thoroughgoing system of democracy. The reason that the criminality is driving these structures is because they can’t rely on the state to provide
those structures for them. So pirates, more than anyone else, needed to figure out some system of law and order to make it possible for them to remain together long enough to be successful at stealing.

        
Q.
So did these participatory, democratic systems give merchant sailors an incentive to join pirate crews, because it meant they were freer among pirates than on their own ships?

        
A.
The sailors had more freedom and better pay as pirates than as merchantmen. But perhaps the most important thing was freedom from the arbitrariness of captains and the malicious abuses of power that merchant captains were known to inflict on their crews. In a pirate democracy, a crew could, and routinely did, depose their captain if he was abusing his power or was incompetent.

        
Q.
You write that pirates weren’t necessarily the bloodthirsty fiends we imagine them to have been. How does the invisible hook explain their behavior?

        
A.
The basic idea is, once we recognize pirates as economic actors—businessmen really—it becomes clear as to why they wouldn’t want to brutalize everyone they overtook. In order to encourage merchantmen to surrender, they needed to communicate the idea that,
if you surrender to us, you’ll be treated well. That’s the incentive pirates give for sailors to surrender peacefully. If they wantonly abused their prisoners, as they’re often portrayed as having done, that would have actually undermined the incentive of merchant crews to surrender, which would have caused pirates to incur greater costs. They would have had to battle it out more often, because the merchants would have expected to be tortured indiscriminately if they were captured.

                
So instead, what we often see in the historical record is pirates displaying quite remarkable feats of generosity. The other side of that, of course, is that if you resisted, they had to unleash, you know, a hellish fury on you. That’s where most of the stories of pirate atrocities come from. This is not to say that no pirate ever indulged his sadistic impulses, but I speculate that the pirate population had no higher proportion of sadists than legitimate society did. And those sadists among the pirates tended to reserve their sadistic actions for times when it would profit them.

        
Q.
So they never made anyone walk the plank?

        
A.
There was no walking the plank. There’s no historical foundation for that in seventeenth- or eighteenth-century piracy.

        
Q.
You write about piracy as a brand. It’s quite a successful one, having lasted for hundreds of years after the pirates themselves were exterminated. What was the key to that success?

        
A.
There was a very particular type of reputation that pirates wanted to cultivate. It was a delicate line to walk. They didn’t want to have a reputation for wanton brutality or complete madness. They wanted to be perceived as hair-trigger men, men on the edge, who if you pushed, if you resisted, they would snap and do something horrible to you. That way, the captives they took had an incentive to be very careful to comply with all of the pirates’ demands. At the same time, they wanted a reputation for meting out these brutal, horrible tortures to captives who didn’t comply with their demands. Stories about those horrible tortures were relayed not only by word of mouth, but by early-eighteenth-century newspapers. When a former prisoner was released, he would oftentimes go to the media and provide an account of his capture. So when colonials read these accounts in the media, that helped institutionalize the idea of pirates as these men on the edge. That worked marvelously for pirates. It was a form of advertising performed by legitimate members of society that again helped pirates reduce their costs.

        
Q.
What kinds of lessons can we draw from
The Invisible Hook
in dealing with modern pirates?

        
A.
We have to recognize that pirates are rational economic actors and that piracy is an occupational choice. If we think of them as irrational, or as pursuing other ends, we’re liable to come up with solutions to the pirate problem that are ineffective. Since we know that pirates respond to costs and benefits, we should think of solutions that alter those costs and benefits to shape the incentives for pirates and to deter them from going into a life of piracy.

Let’s say you were in the market for an iPod and wanted to find a bargain, so you searched in a local online market like Craigslist to find one. Would it matter to you whether, in the photograph of the unopened iPod, the person holding the iPod (all you can see is their hand and wrist) was black or white? What if the hand holding the iPod had a visible tattoo?

I suspect that most people would say that the skin color of the iPod holder wouldn’t matter to them. More people likely would say the tattoo might keep them from responding to the ad.

Economists have never liked to rely on what people say, however. We believe that actions speak louder than words. And actions certainly do speak loudly in some
new research
carried out by the economists Jennifer Doleac and Luke Stein. Over the course of a year, they placed hundreds of ads in local online markets, randomly altering whether the hand holding an iPod for sale was black, white, or white with a big tattoo. Here is what they found:

Black sellers do worse than white sellers on a variety of market outcome measures: they receive 13% fewer responses and 17% fewer offers. These effects are strongest in the northeast, and are similar in magnitude to those associated with the display of a wrist tattoo. Conditional on receiving at least one offer, black sellers also receive 2–4% lower offers, despite the self-selected—and presumably less biased—pool of buyers. In addition, buyers corresponding with black sellers exhibit lower trust: they are 17% less likely to include their name in e-mails, 44% less likely to accept delivery by mail, and 56% more likely to express concern about making a long-distance payment. We find evidence that black sellers suffer particularly poor outcomes in thin markets; it appears that discrimination may not “survive” in the presence of significant competition among buyers. Furthermore, black sellers do worst in the most racially isolated markets and markets with high property crime rates, suggesting a role for statistical discrimination in explaining the disparity.

So what can you conclude from this study? The clearest result is that if you want to sell something online, whether you are black or white, find someone white to put in the picture. I suppose you could say that advertisers figured this out long ago, and actually go one step further, making sure the white person is also a good-looking blond woman.

It is much harder, in this sort of setting, to figure out why buyers treat black and white sellers differently. As the authors note, there are two leading theories of discrimination: animus and statistical discrimination. By animus, economists mean that buyers don’t want to buy from a black seller even if the outcome of the transaction will be identical. That is, buyers wouldn’t like black sellers even if black sellers provided exactly the same quality as white sellers. With statistical discrimination, on the other hand, the black hand is serving as a proxy for some sort of negative: a higher likelihood of being ripped off, a product more likely to have been stolen, or maybe a seller who lives very far away so that it will be too much trouble to meet in person to do the deal.

The most impressive part of this paper by Doleac and Stein is their attempt to distinguish between these two competing explanations, animus versus statistical discrimination. How do they do it? One thing they do is to vary the quality of the advertisement. If the ad is really high quality, the authors conjecture, maybe that provides a signal that could trump the statistical discrimination motive for not buying from the black seller. It turns out that ad quality does not matter much for the racial outcomes, but possibly this is because the quality difference across the ads isn’t great enough to matter. The authors also explore the impact of living in an area with more or less concentrated markets, and also across places with high and low property crime. Black sellers do especially bad in high crime cities, which the authors interpret as evidence that it is statistical discrimination at work.

I really like this research a lot. It is an example of what economists call a “natural field experiment,” which has the best of what lab experiments have to offer (true randomization) but with the realism that comes from observing people in actual markets, and with the research subjects unaware they are being analyzed.

In
Freakonomics,
we mentioned in passing that blacks and whites in the U.S. have very different TV viewing habits.
Monday Night Football
is the only TV show that historically has been among the top ten in viewership for both blacks and whites.
Seinfeld,
one of the most popular white shows ever, was never in the top fifty for blacks.

So I was intrigued when I happened to see a recap of prime-time Nielsen ratings broken down by race.

The top ten shows for whites:

          
1
.
CSI

          
2
.
Grey’s Anatomy

          
3
.
Desperate Housewives

          
4
.
Dancing with the Stars

          
5
.
CSI: Miami