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

by Steven D. Levitt

  “Now, if you want to slice up the data to be provocative, have at it. As a grandfather and as secretary of an agency whose number one mission is safety, I don’t have that luxury.”

  Reading the secretary’s blog post, I am struck by just how differently he is reacting to a challenge than Arne Duncan did when I first told him about my work on teacher cheating. Duncan, now the U.S. secretary of education, was in charge of the Chicago public schools at the time. I expected Duncan to do what LaHood did: dismiss the findings, circle the wagons, etc. But Duncan surprised me. He said that all he cared about was making sure the children were learning as much as possible, and teacher cheating was getting in the way of that. He invited me into a dialogue, and we ultimately made a difference.

  If the ultimate goal in this case is really child safety, here’s what LaHood might have written on his blog:

  For a long time, we’ve been relying on car seats to keep our children safe. The existing academic literature up until recently confirmed the view that car seats are very successful in that goal. But in a series of papers in peer-reviewed journals, Steven Levitt and his co-authors have challenged that view using three different data sets collected by the Department of Transportation, as well as other data sets. I’m no data expert, and I have an agency to run, so I don’t have the luxury of analyzing the data myself. But I am a grandfather and my agency’s number one mission is safety, so I’ve asked the researchers in my agency to do the following:

  1. Take a close look at the data sets we collect here in my agency, which are the basis for Levitt’s work. Is it really the case that in these data there is little or no evidence that car seats outperform adult seat belts in protecting children ages two and up? Our benchmark for measuring the effectiveness of car seats has always been versus children who are unrestrained. Maybe we need to rethink this going forward?

  2. Demand that the physicians at the Children’s Hospital of Philadelphia, who have repeatedly found that car seats work, make their data publicly available. It is my understanding that these physicians have refused to share their data with Levitt, but in the interest of getting to the truth, other researchers should have the chance to review what they have done.

  3. Carry out a series of tests using crash-test dummies to determine whether adult seat belts do indeed pass all government crash-test requirements. In SuperFreakonomics, Levitt and Dubner report on their findings with a very small sample of tests; we need much more evidence on the data.

  4. Try to understand why, even after thirty years, the great majority of car seats are still not properly installed. After all this time, can we really blame it on the parents, or should the blame be put elsewhere?

  5. After exploring all these issues, let’s figure out the truth, and let’s use it to guide public policy.

  And if Secretary LaHood has any interest in pursuing any of these avenues, I stand at the ready to offer whatever help that I can.

  Update: Secretary LaHood never did take me up on my offer to help.

  Security Overkill, Diaper-Changing Edition

  (SJD)

  I’ve been thinking a bit lately about security overkill. This includes not just the notion of “security theater,” but the many instances in which someone places a layer of security between me and my everyday activities with no apparent benefit.

  My bank, for instance, would surely argue that its many and various anti-fraud measures are valuable. But in truth, they are a) meant to protect the bank, not me; and b) cumbersome to the point of ridiculous. It’s gotten to where I can predict which credit-card charge will trigger the bank’s idiot algorithm and freeze my account because it didn’t like the zip code where I used the card.

  And security overkill has trickled down into the civilian world. When the class parents at my kids’ school send out a parent contact list at the start of each school year, it comes via a password-protected Excel spreadsheet. Keep in mind that this list doesn’t contain Social Security numbers or bank information—just names, addresses, and phone numbers of the kids’ parents. I can imagine the day several months hence when someone actually needs to use the list and will find herself locked out by the long-forgotten password.

  The most ridiculous example of security overkill I’ve run across recently was at Thirtieth Street Station, Philadelphia’s main train terminal. I took a photo of something I saw in the men’s room:

  Stephen J. Dubner

  Yes, it’s a diaper-changing station that has been fitted with a padlock. The handwritten message at the top says “see attendant for combination.” I’m sure we could dream up some bad things that might happen on an unlocked diaper-changing tray, and I’m guessing as with most security overkill this was inspired by one anomalous event that scared the jeepers out of someone (or got that someone’s lawyers involved). But still . . .

  The Latest Terrorist Threat

  (SDL)

  The best strategy I have found for reducing the aggravation of security screening is to pretend I am a terrorist and think about where the weaknesses are in security, and how I might slip through. I think I figured out a way to get a gun or explosives into the White House during the George W. Bush administration. But I was only invited to the White House once, so I never got a chance to test my theory for real on a return visit.

  Traveling to Ireland recently, I learned of a new anti-terror method. The security personnel in Dublin demand that you remove from your carry-on bag not only your laptop but another item that I hadn’t previously known to be dangerous: your umbrella. For the life of me, I cannot think of what evil I would do with an umbrella—or more to the point, what evil I could do with an umbrella that would be prevented by having me take it out of my carry-on and put it directly on the conveyor belt. I asked the screener why umbrellas go directly on the belt, but her accent was quite thick so I couldn’t understand her answer. I think I heard the word poking in there somewhere.

  Learning about the possible dangers posed by umbrellas has dramatically reduced my utility. Now, every time I fly in the U.S., where the security treatment of umbrellas is so cavalier, I will spend the entire flight in fear that a rogue umbrella has made its way onto the plane.

  One thing is for sure: if I ever see a passenger pull an umbrella out of her carry-on bag while a flight is airborne, I will tackle her first and ask questions later!

  “Peak Oil”: Welcome to the Media’s New Version of Shark Attacks

  (SDL)

  This post was published on August 21, 2005. It would have been difficult to find anyone then willing to predict that ten years hence, technological advances in petroleum extraction would allow the U.S. to overtake Saudi Arabia as the biggest oil producer in the world. But that is exactly what happened.

  A recent New York Times Magazine cover story, by Peter Maass, is about “peak oil.” The idea behind peak oil is that the world has been on a path of increasing oil production for many years, and now we are about to peak and go into a situation where there are dwindling reserves, leading to triple-digit prices for a barrel of oil, an unparalleled worldwide depression, and as one oil-crash website puts it, “Civilization as we know it is coming to an end soon.”

  One might think that doomsday proponents would be chastened by the long history of people of their ilk being wrong: Nostradamus, Malthus, Paul Ehrlich, etc. Clearly they are not.

  What most doomsday scenarios get wrong is the fundamental idea of economics: people respond to incentives. If the price of a good goes up, people demand less of it, the companies that make it figure out how to make more of it, and everyone tries to figure out how to produce substitutes for it. Add to that the march of technological innovation (like the green revolution, birth control, etc.). The end result: markets generally figure out how to deal with problems of supply and demand.

  Which is exactly the situation with oil right now. I don’t know much about world oil reserves. I’m not even necessarily arguing with their facts about how much the output from existing oil fields is going to decl
ine, or that world demand for oil is increasing. But these changes in supply and demand are slow and gradual—a few percent each year. Markets have a way of dealing with situations like this: prices rise a little bit. That is not a catastrophe; it is a message that some things that used to be worth doing at low oil prices are no longer worth doing. Some people will switch from SUVs to hybrids, for instance. Maybe we’ll be willing to build some nuclear power plants, or it will become worth it to put solar panels on more houses.

  The New York Times article totally flubs the economics time and again. Here is one example from the article:

  The consequences of an actual shortfall of supply would be immense. If consumption begins to exceed production by even a small amount, the price of a barrel of oil could soar to triple-digit levels. This, in turn, could bring on a global recession, a result of exorbitant prices for transport fuels and for products that rely on petrochemicals—which is to say, almost every product on the market. The impact on the American way of life would be profound: cars cannot be propelled by roof-borne windmills. The suburban and exurban lifestyles, hinged to two-car families and constant trips to work, school and Wal-Mart, might become unaffordable or, if gas rationing is imposed, impossible. Carpools would be the least imposing of many inconveniences; the cost of home heating would soar—assuming, of course, that climate-controlled habitats do not become just a fond memory.

  If oil prices rise, consumers of oil will be (a little) worse off. But we are talking about needing to cut demand by a few percent a year. That doesn’t mean putting windmills on cars; it means cutting out a few low-value trips. It doesn’t mean abandoning North Dakota, it means keeping the thermostat a degree or two cooler in the winter.

  A little later, the author writes:

  The onset of triple-digit prices might seem a blessing for the Saudis—they would receive greater amounts of money for their increasingly scarce oil. But one popular misunderstanding about the Saudis—and about OPEC in general—is that high prices, no matter how high, are to their benefit.

  Although oil costing more than $60 a barrel hasn’t caused a global recession, that could still happen: it can take a while for high prices to have their ruinous impact. And the higher above $60 that prices rise, the more likely a recession will become. High oil prices are inflationary; they raise the cost of virtually everything—from gasoline to jet fuel to plastics and fertilizers—and that means people buy less and travel less, which means a drop-off in economic activity. So after a brief windfall for producers, oil prices would slide as recession sets in and once-voracious economies slow down, using less oil. Prices have collapsed before, and not so long ago: in 1998, oil fell to $10 a barrel after an untimely increase in OPEC production and a reduction in demand from Asia, which was suffering through a financial crash.

  Oops, there goes the whole peak-oil argument. When the price rises, demand falls, and oil prices slide. What happened to the “end of the world as we know it”? Now we are back to ten-dollars-a-barrel oil. Without realizing it, the author just invoked basic economics to invalidate the entire premise of the article!

  Just for good measure, he goes on to write:

  High prices can have another unfortunate effect for producers. When crude costs $10 a barrel or even $30 a barrel, alternative fuels are prohibitively expensive. For example, Canada has vast amounts of tar sands that can be rendered into heavy oil, but the cost of doing so is quite high. Yet those tar sands and other alternatives, like bioethanol, hydrogen fuel cells and liquid fuel from natural gas or coal, become economically viable as the going rate for a barrel rises past, say, $40 or more, especially if consuming governments choose to offer their own incentives or subsidies. So even if high prices don’t cause a recession, the Saudis risk losing market share to rivals into whose nonfundamentalist hands Americans would much prefer to channel their energy dollars.

  As he notes, high prices lead people to develop substitutes. Which is exactly why we don’t need to panic over peak oil in the first place.

  So why do I compare peak oil to shark attacks? It is because shark attacks mostly stay about constant, but fear of them goes up sharply when the media decides to report on them. The same thing, I bet, will now happen with peak oil. I expect tons of copycat journalism stoking the fears of consumers about oil-induced catastrophe, even though nothing fundamental has changed in the oil outlook in the last decade.

  Betting on Peak Oil

  (SDL)

  John Tierney wrote a great New York Times column in response to Peter Maass’s Times article about peak oil that I criticized. Tierney and the energy banker Matthew Simmons, who is the point man for the peak-oil team, made a $5,000 bet as to whether the price of oil in 2010 would be above or below $200 a barrel (adjusted for inflation to be in 2005 dollars).

  The bet was designed in the spirit of the famous bet between Julian Simon and Paul Ehrlich, which the economist Simon won when the five commodities that Ehrlich said would rise in price actually fell substantially.

  I am a betting man. And when I see that the NYMEX December 2011 crude oil future is priced under $60 a barrel, under $200 looks like a pretty good price to me! So I asked Simmons if he wanted any more action.

  He was kind enough to write me back. As it turns out, I wasn’t the first economist to offer him some more action. He declined to take my bet but he stuck to his guns in his belief that oil is priced way too cheaply, and that “real economic pricing will soon end almost a century of fantasy prices.”

  One thing that Simmons is definitely right about is that oil and gas are mighty cheap by volume compared to other things we consume. Imagine that a brilliant inventor came along and said he had invented a pill you could drop into a gallon of distilled water to turn it into gasoline. How much would you be willing to pay per pill? For most of the last fifty years, the answer is next to nothing, because a gallon of gas usually costs about the same as a gallon of distilled water.

  But one place where I think Simmons’s logic goes awry is that he seems to be arguing that because a gallon of gas is so valuable relative to say, a rickshaw driver, it should be as expensive as a rickshaw driver. In reasonably competitive markets, like the ones for gas and oil and presumably rickshaws, the determinant of price is how much it costs to supply the good, not how much consumers are willing to pay. That is because the supply of the good is close to perfectly elastic over some reasonable time horizon. If there were huge profits to be made at some price, firms will compete away the profit by lowering price. How much consumers like the good just determines the quantity consumed when supply is perfectly elastic. That is why water, oxygen, and sunshine—all incredibly valuable products—are virtually free to consumers: it is cheap or free to supply to them. And that is why we use a lot of gas and oil, but not many rickshaws at current prices.

  If the cost of supplying oil suddenly jumped, then prices would certainly rise, more in the short run than the long run, as people figured out how to substitute away from using gas and oil. (Rickshaws, most likely, won’t be the primary form of substitution, at least not in the U.S.) Whether we should care about “peak oil” boils down to: 1) Will the cost of supplying oil jump; 2) If it does jump, by how much; and 3) How elastic is the demand?

  John Tierney won his bet: the year-average price in 2010 for a barrel of oil was eighty dollars, or seventy-one dollars adjusted to 2005 dollars. Sadly, Matthew Simmons died in August of that year, at age sixty-seven. “The colleagues handling his affairs reviewed the numbers,” Tierney wrote, “and declared that Mr. Simmons’s $5,000 should be awarded to me.”

  Does Obesity Kill?

  (SJD)

  There is so much noise these days about obesity that it can be hard to figure out what’s important about the issue and what’s not. To try to keep track, I sometimes divide the obesity issue into three questions.

  1. Why has the U.S. obesity rate risen so much? Many, many answers to this question have been offered, most of them having to do with changes in diet and lifestyle (an
d, to some degree, the changing definition of obese). An interesting paper by the economists Shin-Yi Chou, Michael Grossman, and Henry Saffer sorts through many factors (including per capita number of restaurants, portion sizes and prices, etc.) and concludes—not surprisingly—that the spike in obesity mostly has to do with the widespread availability of very cheap, very tasty food. They also find that a widespread decline in cigarette smoking has helped drive the obesity rate. This seems sensible, as nicotine is both a stimulant (which helps burn calories) and an appetite suppressant. But Jonathan Gruber and Michael Frakes have written a paper calling into doubt whether a decrease in smoking indeed causes weight gain.

  2. How can obese people stop being obese? This, of course, is the question that sustains a multi-billion-dollar diet and exercise industry. A quick look at Amazon.com’s top fifty books reveals just how badly people want to lose weight: there’s Intuitive Eating: A Revolutionary Program That Works; The Fat Smash Diet: The Last Diet You’ll Ever Need; and Ultrametabolism: The Simple Plan for Automatic Weight Loss. All these books make me think of the argument that every story in human history, from the Bible up through the most recent Superman movie, is built from one of seven dramatic templates. (FWIW, Superman and the Bible are plainly cut from the same template: baby Superman and baby Moses are both rescued from certain death, sent off by their desperate parents in a rocket ship/wicker basket, and are then raised by an alien family but always remember the ways of their people and spend their lives fighting for justice.) This seven-template theory is even more true of diet books. They are pretty much all the same idea with some scrambled variables.

  3. How dangerous is obesity? This is, to me, the toughest question of all. The conventional wisdom holds that obesity is like a huge wave that is just starting to break across the U.S., creating an endless swamp of medical and economic problems. But there is a growing sentiment that the panic over obesity may be as big a problem as obesity itself. Among the proponents of this view is Eric Oliver, a political scientist at the University of Chicago and the author of Fat Politics: The Real Story Behind America’s Obesity Epidemic. Oliver argues that the obesity debate is rife with lies and misinformation. The book purports to show, as the jacket copy says, “how a handful of doctors, government bureaucrats, and health researchers, with financial backing from the drug and weight-loss industry, have campaigned to misclassify more than sixty million Americans as ‘overweight,’ to inflate the health risks of being fat, and to promote the idea that obesity is a killer disease. In reviewing the scientific evidence, Oliver shows there is little proof either that obesity causes so many diseases and deaths or that losing weight makes people any healthier.”