Junk fees are in the news from the 2023 State of the Union address, get picked up by Matt Yglesias, and Zvi responds in Junk Fees, Bundling and Unbundling. Matt and my former colleague propose an economic framing of "bundling versus unbundling", and Zvi identifies four win-win advantages of bundling, and four 'advantages' of unbundling (two win-wins, one (company win)-(customer lose), and one mixed win-lose).

I think Zvi is broadly right on the points he makes, but he and Matt both skip over the basic, conventional econ-101 analysis of bundling goods on prices and customer welfare. I think that, for a broader audience, it's worth covering the "naïve microeconomics" perspective as background for the customer-behavioral story (which, admittedly, is more juicy and fun). Rather than responding to the whole conversation, this post will restrict its focus to the econ-101 microeconomics story of bundling, and ignore the behavioral / political / moral dimensions that Zvi, Matt, and others are discussing.

I'm going to assume no formal economic background, and build up an explanation why a world of perfect economic agents should have sellers preferring to sell bundles of goods instead of individually-priced items.

(1) Selling sandwiches

Let's say that you're a sandwich-seller. Every day, 110 people come by your sandwich stall, look at the price you put on the menu, and buy a sandwich if they value it more than the price. (No bargaining or haggling; you don't have time for such things.)

Sandwiches cost you $1 to make, and people value sandwiches somewhere between $0 and $11, fairly uniformly:

[ed: The first-best version of this post includes interactive charts with sliders that let you explore

Jeff Kaufman discusses an interaction between price controls and emergency preparedness:

Let's say you see a potential pandemic coming, and you produce a product that could be critical. Maybe you make respirator masks, maybe you make ventilators, maybe you make PCR test reagents. You can see that if you and your competitors don't ramp up production and the pandemic happens, there will be a shortage. What do you do?

[...]

[One] option is to ramp up production now, speculatively. Start paying workers extra to work longer shifts and run your assembly lines around the clock. Train extra workers. Find what you're bottlenecked on and figure out how to get that ramped up too. If the pandemic fears were overblown you lose a lot of money, but if the pandemic happens people need what you have so much that you can charge high prices. How much to ramp up production in advance depends on how likely you think the pandemic is, and how much you'd be able to increase prices if it does happen.

Except we have laws and customs against price gouging: if the pandemic does happen, you are going to have a lot of trouble raising your prices. The laws generally do allow passing along increased costs, but the problem here is that your costs were speculative. Let's work an example. (...)

The punchline of the worked example is that if you think that there's a 50% chance of an emergency that will make your products ten times as valuable, it's still not worth it

Hannes Malmberg commented on my review of Saez and Zucman in response to a point I made about the elasticity of capital supply:

I think you are confusing demand and supply elasticities of capital.

The revenue calculations hinge on the elasticity of capital supply, i.e., how fast capital supply rise with the interest rate (how much more do people decide to save).

The Piketty spiral, in contrast, hinges on the elasticity of capital demand, i.e., how fast the interest rate fall with increasing capital (i.e., how fast firms and companies switch away from using capital when it gets more expensive).

There is nothing theoretically preventing us from having an almost horizontal capital demand curve, and an almost vertical capital supply curve. In such a world, a capital tax raises a lot of revenue, but increasing the savings propensity increase the capital stock without reducing the interest rate. (...)

I think he is basically right, and I'll partially retract section 3A of my prior post. (The rest of the post basically stands independently.)

"Partially", here, because reconciling the TToI revenue assumptions and the Piketty wealth spiral requires taking a specific stance on the slope of the capital demand curve, which should be considered a nontrivial burden that the authors don't even purport to defend. But we'll get there, hold on.

(1)

First, how did I make this mistake? Basically, by forgetting the Intro Econ that I never took, and making an implicit assumption about capital demand.

Specifically, I implicitly assumed (and didn't realize I had assumed) that the capital demand curve was downward-sloping. Why? Probably for the same reason that Bryan

Or, the coming debate on moral incidence of taxes

You're going to hear a lot about the triumph of injustice in the next 6-12 months. Or rather, you're going to hear a lot about The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay, by Emmanuel Saez and Gabriel Zucman (2019).

For one thing, the two economists have signed on as economic advisors to 2020 presidential candidate Elizabeth Warren, who has for years been putting questions of economics and notions of justice front-and-center. But more generally, economic justice is having a moment, and I prophesy that you'll hear more about it before you hear less.

So this is my first real attempt to understand exactly what kind of moment it is, in the best way I know how -- by writing. Specifically, by writing a review that unpacks TToI for non-economists. (I am an economist, but not the kind that helps p— I mean, not a macroeconomist. I have macro­economists in my blogroll; that's my primary qualification here.)

One note before we begin: I really don't want to wade into the Economics-Twitter debate about academic standards and practices that arose around the publication of TToI, when review copies were circulated to journalists before economists, and the data tables were delayed from the book release by a few weeks. I think that that discussion of Saez and Zucman's work is framed to produce heat rather than light, and I'm not particularly interested.

So we start the discussion with what we know now, setting aside the question of how we got here. Go somewhere else if you want

As always, there's a lot more stuff that I enjoyed reading this month on Reading Feed. Do check it out!

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Leah Libresco is the single person who I believe has the best practical ideas about how to be a human being in this world.

(This video -- of her speaking about her new book -- isn't embeddable, but if you click, it will open in a new tab.)

It is something of an issue for me that certain significant bits of her deeply-considered epistemic beliefs disagree with my much-less-deeply-considered epistemic beliefs. When I put it that way, it sounds like there's an obvious, easy fix, and when you dereference what it is that I'm talking about, calling it "an obvious, easy fix" sounds...odd.

This was the beginning of a much longer post, but I realized that I have absolutely zero idea where that post is going, so instead: Here, have a great video by a math nerd explaining her experience converting to Catholicism. Even if you disagree with her metaphysical propositions, I think her approach to grappling with ideas larger than yourself is an incredibly lucid and useful framing-of-things. Maybe, hopefully, someday, I'll find the clarity to write about how I feel about the metaphysics, but in the mean time, do watch the video—it's excellent.

Elsewhere, she's been on fire all over the Internet this whole week:

• First Things | How to Strengthen Catholic Community
• Unequally Yoked | How Do You Lance a Festering Resentment?
• Fare Forward | Both/And Philanthropy (and Unequally Yoked | The People I Don't Learn to Love)

And again, even the parts which are ostensibly written for Catholics are thought-provoking reads for the

(0a)

Scott Alexander, writing at Slate Star Codex, has some words:

So presidential candidate Bernie Sanders has proposed universal free college tuition.

On the one hand, I sympathize with his goals. If you can’t get any job better than 'fast food worker' without a college degree, and poor people can’t afford college degrees, that’s a pretty grim situation, and obviously unfair to the poor.

...

But, well, when we require doctors to get a college degree before they can go to medical school, we’re throwing out [$5 billion], enough to house all the homeless people in the country... Senator Sanders admits that his plan would cost $70 billion per year. That's... enough to give $2000 every year to every American in poverty.

At what point do we say "Actually, no, let's not do that, and just let people hold basic jobs even if they don't cough up a a hundred thousand dollars from somewhere to get a degree in Medieval History"?

...

If I were Sanders, I'd propose a different strategy. Make "college degree" a protected characteristic, like race and religion and sexuality. If you’re not allowed to ask a job candidate whether they’re gay, you’re not allowed to ask them whether they’re a college graduate or not. You can give them all sorts of examinations, you can ask them their high school grades and SAT scores, you can ask their work history, but if you ask them if they have a degree then that’s illegal class-based discrimination and you’re going to jail. I realize this is a blatant violation of my

0

The first was going to be about my favorite Operating Systems professor ending up in the Financial Times for her quotes at Davos on David Cameron's proposed policies banning strong encryption, but then it passed 450 words, and I spun it off into its own post.

Instead, (speaking of economics and expert opinions,) The Upshot asks how economists came to dominate the [public-policy] conversation, beating out historians, psychologists, sociologists, anthropologists, and demographers:

Two hundred years ago, the field of economics barely existed. Today, it is arguably the queen of the social sciences.

These are the conclusions I draw from a deep dive into The New York Times archives first suggested to me by a Twitter follower. While the idea of measuring influence through newspaper mentions will elicit howls of protest from tweed-clad boffins sprawled across faculty lounges around the country, the results are fascinating. And not only because they fit my preconceived biases.

Using the new Chronicle tool that catalogs the entire Times archive, I discovered that in recent years around one in 100 articles mention the term “economist,” and these typically occur in the context of introducing a proponent of the dark arts. Far fewer articles mention the terms historian or psychologist, while sociologists, anthropologists and demographers rarely rate a mention. (...)

If you haven't clicked through yet, ask yourself as a quiz: what major world event let economists pass historians? It's pretty obvious when you think.

2

Elsewhere in "economists", George Mason professor of Economics Tyler Cowen (of Marginal Revolution) is one half of MRUniversity, a site full of free open courseware covering topics in economics. Specifically, in the form of three-minute bites like this: