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Elliott Morss has spent most of his career teaching and working as an economic consultant to developing countries on issues of trade, finance, and environmental preservation. Dr. Morss received a B.A. from Williams College in 1960 and a Ph.D. in political economy from The Johns Hopkins... More
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  • Gun Restrictions: Lessons From Efforts To Curb Smoking, Drinking, Drugs, And Sex

    Gun Restrictions: Lessons from Efforts to Curb

    Smoking, Drinking, Drugs, and Sex

    © Elliott R. Morss, Ph.D.

    December 2012

    Introduction

    With the Newtown tragedy fresh on our minds, there is renewed interest in restricting guns. Such interest usually lasts a few days after each rampage, but maybe it will be different this time. And if it is, we need to determine the best way to restrict guns. You might think this a simple matter: just pass a law banning assault weapons. It is not that simple.

    Over the last four years, I have written on efforts to ban/restrict drinking, prostitution, and drugs (the three leading entertainment activities globally). I have also looked at what has been done to curb dangerous addictions (drinking, smoking, drugs and overeating). As we consider possible bans/restrictions on guns, there are important lessons to be learned from these restriction efforts.

    Prohibition

    The US engaged in a very interesting experiment between 1920 and 1933: it banned the manufacture, transportation and sale of alcohol. What was learned?

    • Alcohol consumption did not end, despite significant efforts by Federal, state and local governments;
    • Making the production and sale of alcohol illegal simply meant the market was served by criminals;
    • Violence increased as different gangs fought over market control;
    • Alcohol prices increased significantly;
    • The quality of the alcohol products varied, creating greater health risks.

    Drugs

    I just completed an article on US drug policies. The US bans the possession, production and sale of many drugs. Have the bans worked? No. Recognizing that no country has come even close to doing as much as the US has to reduce illicit drug use, the US rankings on prevalence of use (among countries with populations of 1 million and up) are Cannabis - 4th, opium - 1st, Amphetamines - 5th, Cocaine - 5th, and Ecstasy - 11th.

    I concluded the US "drug war" is worse than Prohibition because it has created a criminal element resulting in nearly 100,000 homicides per year. The US has by far the highest incarceration rate of any country in the world (730 prisoners per 100,000 citizens). And 25% of the prisoners are non-violent drug offenders.

    Since 1996, the US government has spent more than $150 billion to cut off illicit drug supplies. Last year, the government spent more than $15 billion to reduce supplies, with 36% of that going to "domestic law enforcement" and 16% to "domestic interdiction". More than $2 billion was spent internationally.

    Despite these efforts, I estimate US illegal drug sales at $400 billion annually.

    In short, the drug bans are not working.

    Smoking

    What has been done in the US with cigarettes is interesting. Smoking is a well-documented real killer - more than 400,000 die annually in the US from smoking. Nevertheless, smoking is legal. But what has been done to curb smoking is working: the adult smoking rate has fallen from over 40% in 1965 to under 20% today.

    So what is being done to curb smoking? While cigarettes can by bought, their sale to minors is restricted. They are taxed heavily (taxes levied per pack are the equivalent to a 71% rate, and campaigns about their dangers are continually run.

    Prostitution

    Nevada is the only state where prostitution is legal Does that mean the bans in the other 49 states are working? No. The bans are not serious, just politically correct.

    Overeating

    Overeating is a dangerous addiction. The only restriction I know of is Mayor Bloomberg's limitation on the size of soft drinks in NYC.

    Conclusions

    What are the lessons from this review for new gun restrictions? In the US, if there is a market for a product, it will be served. Bans don't work. Banning any type of gun will result in the market being served by criminals. Approximately 10 million guns are sold legally in the US every year1 - a big business.

    But maybe the market for guns is different than the market for addictive products discussed above. I don't know. When I hear people say they need their guns so they can take back the country from a bad government, I worry.

    My recommendation: don't ban any guns (assault weapons, whatever). Instead, levy a Federal 100% sales tax on "bad guns", and use the proceeds to do a better job on background checks. Will this remedy the problem? No. But it is a reasonable place to start. Bans are expensive and most are unenforceable.

    1 http://www.huffingtonpost.com/josh-horwitz/the-truth-about-gun-sales_b_1193498.html

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Dec 18 11:53 AM | Link | Comment!
  • The Declining Significance Of Wine Tastings

    The Declining Significance of Wine Tastings

    © Elliott R. Morss, Ph.D.

    November 2012

    Introduction

    The Judgment of Paris in 1976, chronicled in George Taber s book, was the first in a series of widely reported blind tastings. Below, I summarize the findings from those tastings (and my own - less widely reported). I also report on what research is telling us. I conclude with some thoughts whether there is anything to learn from future wine tastings.

    Judgments of Paris et al

    The 1976 tastings in Paris made headlines worldwide. For the first time, US wines (more specifically Californian wines) did as well or better that French wines. And all the judges were French.

    Richard Quandt summarized the findings:

    "Four French wines were matched against six California reds in one tasting and four French Chardonnays were matched against six American ones in the second tasting. …on

    the whole the French reds beat the American wines, even though the single best wine

    was American." There was no significant difference between the French and US Chardonnays because "while four of the five best wines were American, the two worst wines were also American, one of those by an overwhelming margin."

    Taber drew a broader conclusion from the tasting:

    "The Paris Tasting shattered two foundations of conventional wisdom in the world of wine. First, it demonstrated that outstanding wine can be made in many places beyond the hallowed terroir of France. Second, the Paris Tasting showed that winemakers did not need a long heritage of passing the wisdom of the ages down from one generation to the next to master the techniques for producing great wine."

    Several other widely publicized tastings comparing French and Californian wines were carried out over the next decade:

    • 1978 (San Francisco),
    • 1986 (French Culinary Wine Institute), and
    • 1986 (Wine Spectator).

    The results in each of them were the same as in 1976: American wines "held their own" against the French.

    And while these tastings were being held, as Taber suggested above, good wines from all over the world started to appear in Western markets.1 I argue below that this development is key to why tastings have lost their significance.

    Research2

    Goldstein et al analyzed data from 6,000 blind tastings - a lot of blind tastings! I quote from their findings: "Individuals who are unaware of the price do not derive more enjoyment from more expensive wine. …we find that the correlation between price and overall rating is small and negative, suggesting that individuals on average enjoy more expensive wines slightly less…."

    Lecocq and Visser analyzed data from three data sets totaling 1,387 observations on French Bordeaux's and Burgundies. They report similar findings: "When non-experts blind-taste cheap and expensive wines they typically tend to prefer the cheaper ones."

    The Judgment of Princeton

    What can we conclude from the above? No definitive conclusions on French versus Californian wines, and no evidence that more expensive wines taste any better than less expensive wines. So let's fast forward to the June wine tasting in Princeton sponsored by The American Association of Wine Economists. I quote from my article on what happened at the "Judgment of Princeton":

    "As was done in Paris 36 years ago, the tasting included French and American wines. As previously, the American wines did quite well. But in Princeton, it was a bit different. Instead of wines from California, wines from New Jersey were pitted against some of France's finest. The New Jersey wines performance? For whites, the average New Jersey ranking was better than the average French ranking. And for reds, New Jersey wines ranked 3rd and 5th.

    Judges' Rankings

    The judges' Chardonnay rankings are presented below. Most striking to me is how often one judge ranked a wine best (or tied for best) while another ranked it worst or tied for worst. It happened for 5 of the 10 wines tasted! The Clos des Mouches was ranked 1st or tied for 1st by 4 judges. But one judge ranked it worst. Two tasters gave the Ventimiglia a tie for worst while one judge gave it a tie for the best ranking.

    Table 1. - Tasters' Rankings of Princeton Chardonnays

    Wine/Taster

    JC

    TC

    JF

    OG

    RH

    LM

    DM

    JR

    FS

    Ave.

     

    Clos des Mouches Drouhin 2009

    1.5

    1.5

    7.5

    10.0

    2.5

    1.0

    7.5

    1.0

    1.0

    3.7

    French

    Puligny Montrachet Domaine Leflaive 2009

    3.0

    4.5

    5.0

    9.0

    4.0

    3.0

    7.5

    6.0

    10.0

    5.8

    Ave.

    Bâtard Montrachet Marc-Antonin Blain 2009

    6.0

    4.5

    1.0

    7.5

    7.0

    3.0

    7.5

    9.5

    7.0

    5.9

    5.5

    Meursault-Charmes Jean Latour-Labille 2008

    7.0

    4.5

    2.5

    6.0

    9.5

    10.0

    7.5

    4.5

    9.0

    6.7

     

    Unionville Pheasant Hill Single Vineyard 2010

    4.5

    4.5

    2.5

    1.5

    5.0

    8.5

    2.5

    4.5

    4.5

    4.2

     

    Heritage Chardonnay 2010

    8.0

    1.5

    5.0

    7.5

    1.0

    7.0

    10.0

    3.0

    2.5

    5.1

     

    Silver Decoy "Black Feather" 2010

    10.0

    7.0

    9.5

    1.5

    2.5

    5.5

    2.5

    2.0

    7.0

    5.3

    NJ

    Bellview Chardonnay 2010

    4.5

    9.0

    9.5

    3.5

    7.0

    3.0

    5.0

    7.0

    4.5

    5.9

    Ave.

    Amalthea Chardonnay 2008

    9.0

    9.0

    7.5

    3.5

    7.0

    5.5

    2.5

    8.0

    2.5

    6.1

    4.8

    Ventimiglia Chardonnay 2010

    1.5

    9.0

    5.0

    5.0

    9.5

    8.5

    2.5

    9.5

    7.0

    6.4

     

    Copyright (c) 1995-2012 Richard E. Quandt, V. 1.65

    Richard Quandt again analyzed the Princeton results. He concluded:

    "…the rank order of the wines was mostly insignificant. That is, if the wine judges repeated the tasting, the results would most likely be different. From a statistically viewpoint, most wines were undistinguishable. Only the best white and the lowest ranked red were significantly different from the other wines."

    Quandt is saying that given the tremendous differences in the judges' rankings, the only thing you could be pretty sure of was that the Clos des Mouches Drouhin was better than the other whites. That means that for the others, the judges scores were so different you could not conclude with any degree of certainty that one was any better than another.

    The Judgment of Lenox

    Last week, The Lenox Wine Club had its first tasting. The wines were selected to be similar enough to make comparisons meaningful. We also wanted enough price difference to see if it matters. The focus was on heavy whites - four Chardonnays and one Aligoté from Washington - were tasted.

    Four of the whites were inexpensive. But we also included the winner at Princeton. The wines and our costs are presented below in Table 2. The Box Set is a 3 liter box. It cost $17.87. That means its equivalent price for a normal 750 ML bottle would only $4.47 - very inexpensive.

    Table 2. - Wines/Prices for The Judgment of Lenox

    Wine

    Price/750ML

    Box Set 3 L Chardonnay

    $4.47

    Yellowtail Reserve Chardonnay

    $9.97

    Raymond "R Series" Chardonnay

    $10.66

    Shooting Star Aligote (Washington State) 2010

    $12.00

    Joseph Drouhin, Clos des Mouches, Beaune, 1er Cru, 2009

    $84.63

    Tasters were asked to rate the wines on a scale of 5 with the best wine rated 5 and ties given the average of the ratings involved.

    The tasting results are given in Table 3. It turns out that the overall winner was the boxed wine! Well okay, the statisticians in our group might say that its final score is not significantly different from either the Yellowtail or the Shooting Star. However, it is notable that the Box got more top votes (5) than any other. Yellowtail came in 2nd with no top rated votes. In contrast, Aligoté received 3 top-rated votes. Aligoté is similar to the Box in that it also got a lot of top votes (4). The Drouhin wine, the winner at Princeton, got only 2 top votes. 3 tasters gave it the worst rating. Most tasters did not like the Raymond wine - 5 rated it worst.

    Table 3. - Tasters' Scores for Lenox "Heavy Whites"

    Wine/Taster

    A

    B

    C

    D

    E

    F

    G

    H

    I

    J

    K

    L

    Average

    Box Set

    5.0

    5.0

    3.0

    3.0

    3.5

    1.0

    5.0

    2.0

    5.0

    5.0

    1.0

    3.0

    3.46

    Yellowtail Reserve

    2.5

    3.0

    4.0

    4.0

    3.5

    5.0

    2.5

    5.0

    4.0

    2.5

    3.0

    1.0

    3.33

    Shooting Star

    2.5

    1.0

    5.0

    5.0

    5.0

    4.0

    2.5

    3.5

    2.5

    2.5

    2.0

    4.0

    3.29

    Clos des Mouches

    4.0

    2.0

    1.0

    1.0

    2.0

    2.0

    4.0

    1.0

    2.5

    4.0

    5.0

    5.0

    2.79

    Raymond

    1.0

    4.0

    2.0

    2.0

    1.0

    3.0

    1.0

    3.5

    1.0

    1.0

    4.0

    2.0

    2.13

    Extremes

    Table 4 gives the best and worst rankings/scores for the wines tasted at Princeton and Lenox. Ties for best and worst have been included in the count. These extremes do a pretty good job at predicting best and worst wines. It is notable that while the Clos des Mouches got 5 top ranks at Princeton, its scores at Lenox were mediocre.

    Table 4. - Counts of Best and Worst Rankings/Scores

    for Princeton and Lenox White Wines

    Princeton

    Best Rank

    Worst Rank

    Clos des Mouches

    5

    1

    Puligny Montrachet

    0

    1

    Bâtard Montrachet

    1

    1

    Meursault-Charmes

    0

    1

    Unionville Pheasant Hill

    1

    0

    Heritage

    2

    1

    Silver Decoy

    1

    2

    Bellview

    0

    1

    Amalthea

    0

    0

    Ventimiglia

    1

    2

    Lenox

    Best Score

    Worst Score

    Box Set

    5

    2

    Yellowtail Reserve

    1

    1

    Shooting Star

    3

    1

    Clos des Mouches

    2

    3

    Raymond

    0

    5

    Tasters

    Another interesting statistic measures how well the ranks/scores of individual tasters compare with the average of all tasters. A high positive number indicates a taster is close to the overall average (1.000 would indicate a perfect correlation). Low or negative numbers indicate the opposite. Data on this question is presented in Table 5. The patterns are quite similar. Both had "rogues". In the Lenox case, taster 11 got a -.727 correlation because he scored the Box Set worst and because his favorites were the Clos des Mouches and the Raymond.

    Table 5. - Correlation Between the Ranks/Scores of

    Each Person with the Overall Rank/Score

    Princeton

     

    Taster

    Correlation

    1

    0.730

    2

    0.532

    3

    0.275

    4

    0.204

    5

    0.050

    6

    -0.177

    7

    -0.330

    8

    -0.373

    9

    -0.432

    Lenox

     

    Taster

    Correlation

    9

    0.875

    5

    0.860

    2

    0.660

    7

    0.660

    10

    0.660

    3

    0.615

    4

    0.615

    8

    0.057

    12

    0.056

    6

    0.028

    1

    -0.084

    11

    -0.727

    At Paris and Princeton, tasters were chosen for their wine expertise - people who wrote about wine or owned liquor stores or restaurants. In the Lenox case, the judges were also experts - people who had been drinking wine for 30+ years. And that raises an interesting question: why should "experts" (wine writers, wine shop owners, restaurant owners, sommeliers, and raters) be the arbiters? Most certainly, they have well-developed preferences/biases. Any reason to think their preferences/biases should be favored over other wine drinkers?

    Studies on the consistency in wine judging do not instill much confidence. Neal Hulkower is a mathematician, a wine lover and an expert on how to award medals at wine tastings. At Princeton, he told me a good approach to selecting judges was to have candidates taste six glasses of wine, with 3 of the 6 glasses holding the same wine. A candidate should be rejected if s/he found differences between the 3 glasses with the same wine.

    Conclusions

    The results of wine tastings now follow a very similar pattern - maybe one or two wines better or worse than the others, but the rest are indistinguishable as reflected in the large differences in tasters' scores. There are several possible reasons for these patterns.

    First, when I was growing up, we really did have good and bad wines. In the latter category, we had Mateus Rose, Lancer's Sparkling Rose, and Chianti in the straw bottle. For special occasions, we had the Bordeaux and Burgundies of France. Today, there are good wines from all over. And maybe all we are left with are individual preferences as measured in by the individual correlations presented in Table 5.

    Second, it might be that the tasters are just overwhelmed. At Paris and Princeton, the tasters were asked to judge 10 white and 10 red wines. At Princeton, it was done at a single sitting. Al Lenox, there were only 5 wines. But I sensed the tasters would have been more comfortable with their judgments if there had only been 4 wines.

    Does this mean we will never learn anything definitive again from wine tastings? No. And that is what makes them interesting. I offer an example. For a number of years, the Boston Globe has asked 4 judges to taste 50 sub-$12 wines. In 2009, all 4 tasters chose the 2009 Saint-Peyre Coteaux du Languedoc Picpoul de Pinet. All 4! You just never know!

    1 For more on the evolution of the global wine industry, see - The Global Wine Industry Where Is It Going?

    2 For more on the importance of taste in wine selection, see - The Taste of Wine Does It Matter?

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 14 9:55 AM | Link | Comment!
  • Obama: More Foolish Appointments And Gridlock, Or What?

    Obama: More Foolish Appointments and Gridlock, or What?

    © Elliott R. Morss, Ph.D.

    Introduction

    Early last night, I told a few friends that I had already come up with two possible titles for my next article: the one above or if Romney had won: "What Romney Has to Do to Be a Great President". Below, I offer thoughts on the next few years.

    Gridlock

    One of the first things Obama did was to pass a stimulus bill. He deferred to Nancy Pelosi on what it contained. And she, along with other left-win g Democrats, larded it up with all sorts of their favorite initiatives. The result was spending bill that had very little immediate stimulus impact (probably the best stimulus feature was the money that passed directly though to lower level governments that allowed them to hold on to workers.

    As I reported back in 2009 in reviewing the "stimulus" package:

    • Consider the number of Federal departments/agencies involved. You can't tell me the best way to get stimulus money out in a hurry was to give it to give it out via 28 different government bureaucracies.
    • Second, so now in October, nine months after enactment, only $288 billion of the $787 billion, or 37% of the funds, are even available.
    • It is somewhat impressive that 40% of the funds available have been "paid out". A major contributor to this high percentage is transfers made to lower level governments to save jobs.

    Okay, a bad start. Did it contribute to Republicans deciding to try to block all initiatives? Probably. Back at the time the stimulus bill passed, Democrats and Republicans agreed a stimulus bill was needed, but after Pelosi made it "Christmas time" for Liberal causes, the Republicans vowed to fight everything the Democrats proposed.

    Will things be much different in this second term? One could see gridlock continuing since the Democrats continue to control the Senate and the Republicans control the House. But the dynamics are different:

    • Obama is running for his place in history and not re-election;
    • Pelosi will probably not continue as Speaker of the House, and
    • There is growing pressure from the public for Washington to agree on a sensible, long-term plan to reduce the deficit.

    Bad Personnel Choices

    When Obama was elected, there were two key challenges, both economic:

    • Stabilize the banking sector and make sure such a collapse never happened again, and
    • Get people back to work.

    So what does Obama do? He hires Tim Geithner and Larry Summers as his economic brain trust.

    Geithner cheated on his taxes, got caught, and paid fines. That in itself should have disqualified him for the Treasury Secretary position. Geithner was in charge at the Federal Reserve Bank of New York at the time of the AIG bailout (under the Bush presidency). You might remember that AIG staff thought they could get banks to agree to settle for 60 cents on the dollar. Geithner said no, pay the banks in full. As I have reported, that decision cost the American taxpayers $37 billion. Yet somehow, Geithner's track record was not enough to deter Obama from appointing him. A bonehead decision!

    Larry Summers was an academic followed by senior positions in the Clinton administration. After a short stint as the President of Harvard University, Summers started working in the financial industry. Glenn Greenwald reports that before being appointed, Summers:

    "…collected roughly $5.2 million in compensation from hedge fund D.E. Shaw …and was paid more than $2.7 million in speaking fees by several troubled Wall Street firms and other organizations. . . .Financial institutions including JP Morgan Chase, Citigroup, Goldman Sachs, Lehman Brothers and Merrill Lynch paid Summers for speaking appearances in 2008. Fees ranged from $45,000 for a Nov. 12 Merrill Lynch appearance to $135,000 for a one-day visit to Goldman Sachs."

    In short both Geithner and Summers came to the Obama administration from the financial community. The two operated as a team. They made sure that Christina Romer, the now-resigned head of the Council of Economic Advisers, had little influence with Obama. Jeff Spross reported that her resignation was: "driven largely by frustration over her lack of voice in Obama's economic team, and her inability to get input past the firewall of Larry Summers and Tim Geithner". And then there is the case of Sheila Blair, the ex-chief of the Federal Deposit Insurance Corporation (FDIC). Blair wanted the Administration to be much tougher on the big banks. Once again, the Geithner/Summers team made sure she had little influence.

    I am at a loss over why Obama made these two appointments. There are plenty of good economists without ties to the financial community. Things would be very different if Obama relied on James Galbraith, Paul Krugman, Robert Reich, Laura Tyson, Paul Volcker and/or the many other professionals that were not part of the financial industry.

    But Does Any of This Matter? The US Democracy Is Broken

    The US Presidential candidates spent $2 billion on campaigns. Undisclosed groups with special interests spent much more. And as I have recently reported, it makes little difference who is President and who controls Congress when it comes to bank safety, the Middle East policy, gun laws, "war" policies, health, education, and energy policies. These are all controlled by special interest groups, and these groups intend to maintain their power.

    Conclusions

    The above is quite grim, so let me conclude on several positive notes.

    Obama was able to get Congress to approve a bill that will fundamentally change the US health care system. This was an amazing feat. The bill has many sections that don't kick in until 2014. It is good that Obama will be on the scene to work for its complete enactment and to oppose the special interest groups (hospitals, doctors, et al) that are already objecting to some of its provisions.

    The Supreme Court: Obama will probably have a chance to make several appointments that will fundamentally change the direction of the Supreme Court. Very important. And in light of the Court's propensity to limit women's rights, why would any woman have voted Republican? I don't get it.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 07 11:44 AM | Link | Comment!
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