Last week, New Jersey became just the third state to allow online gambling, after Nevada and Delaware opened up the untapped market earlier this year. Those who are physically in New Jersey can now play all the games offered in Atlantic City without getting off the couch. Within a week, 37,277 signed up for gambling websites, putting HeathCare.Gov to shame.
In a country that worships individual freedom and the glamour of Las Vegas, the legal hurdle for online gambling seems easy to cross. However, online gambling has been a murky legal area since its conception in the late nineties. In 2006, after years of failed attempts to regulate online gambling, four Republican senators sneaked the Unlawful Internet Gambling Enforcement Act as an amendment into a totally unrelated law on maritime security, and got it passed on the last day of Congress without a debate. Quietly and swiftly, Congress made this blossoming industry illegal.
When I read Ruth Starkman’s New York Times op-ed “Confessions of an Application Reader” about her experience as an admissions reader, a scene from the sports movie “Moneyball” came to mind. In the movie, when the newly-hired Oakland Athletics General Manager Billy Beane walked into a free-agency meeting, the Athletics front office staff was evaluating baseball prospects on factors such as “you can hear his [hit] all over the ballpark,” and defended the same loud-hitting player’s poor batting average by the gut feeling that “if you give him four hundred bats, he could be better.” Billy Beane rejected this old norm in baseball scouting, and instead used quantitativemodels to scout and sign undervalued prospects. Billy Beane’s effort allowed the Athletics to build a team that rivaled the Yankees, while spending one third of what the Yankees spent on players.
Baseball scouting has come a long way since Billy Beane’s innovation. Yet, surprisingly, holistic assessment and gut feelings still prevail in college admission. Despite the objective criteria that Starkman was instructed to follow, the admissions process was confusingly subjective. In Starkman’s training sessions, she was told to look for the “bigger picture” of a candidate’s life and that candidates who “help build the class” were more valuable. At times, these criteria seemed purposefully vague to encourage subtle racial discrimination and preference for wealthier students. When she asked why an academically talented Asian student was ranked lowly, her colleague replied: “Oh, you’ll get a lot of them.” The application of such vague criteria was dictated by the discretion of experienced readers. In the “norming sessions,” experienced admissions readers guided the new readers to conform their decisions to a predetermined score. Rather than evaluating a student’s merits with a clearly defined metric, readers were conditioned to rank students based on how they thought other readers, especially more senior ones, would rank them.
Two summers ago, I landed in Lyons, France with six euros in my wallet, only enough for a meal at the local McDonald’s. I was afraid that I could not name anything on the menu besides “royale with cheese,” but instead of being greeted by a French-speaking cashier, I stood in front of a kiosk that displayed food items in photos and multiple languages. It was effortless to order what I wanted despite the language barrier, and I got my food almost immediately after paying at the same kiosk.
Last August, American fast food workers held strikes in more than 60 cities, demanding a $15/hour “living wage,” which is more than double the $7.25 federal minimum wage. The protest pits fast food workers against big corporations like McDonald’s. Having worked a minimum wage job at McDonald’s before college, I’m on the side of the workers, but I’m afraid I have to put my money on the big corporations. The fight, after all, might no longer be a zero-sum game between corporations and workers. It may be a fight between workers and machines that will ultimately replace them.
It’s an old jibe against the economics profession that no two economists will agree with one another. It’s an old jibe against the stock market that stock pickers can do no better than a monkey throwing dart at the stocks page. It was perhaps based on these convictions that the Nobel Prize Committee decided to award the prize to three financial economists who can’t agree on, you guessed it, whether the market can do better than a monkey throwing dart.
The contentious issue here is the efficient market hypothesis, a theoretical construct that it is impossible to consistently predict the direction of the market. Economists and practitioners had long suspected the randomness and unpredictability of the stock, but it was Eugene Fama, one of the laureates, who first formalized and empirically tested the idea in the 1960s. Fama first debunked the chartists, exemplified by Charles Dow of Dow Jones fame, who claimed the ability to predict future price moves based on past prices. Fama also showed that stock prices respond very quickly to new information. These facts suggest that it would be hard and expensive, if not impossible, to predict price movement based on past information.
Very few economists enjoyed decades of anonymity followed by decades of recognition. Ronald Coase is one of them. Coase’s career trajectory is a reflection of his revolutionary ideas and academic longevity. He conceived the idea behind his first magnum opus, The Nature of the Firm, at the age of 21 in 1931. In February 2013, just seven months before he passed away last month, he finished a book on capitalist China.
In The Nature of The Firm, Coase mulled over the raison d’etre of firms in an economy. In The Wealth of Nations, Adam Smith described a free-market economy where the butcher and the baker supplied dinners with no coordination but guidance from an “invisible hand.” However, even in Smith’s time, the economy was not made up of such free-acting butchers and bakers, but firms that externally competed in the free market while internally maintaining an authoritarian grip using direct command. Smith did not ask why such voluntary dictatorship exists. Karl Marx answered that it is an apparatus of evil. To answer Smith and to refute Marx, Coase argued that transaction cost, the cost of trading in the free-market, could explain why firms exist and how large they are. Although the price mechanism in the free market generally allocates resources efficiently, it is quite expensive to use. When a car company has to look for tire suppliers, for example, it has to negotiate contracts and ensure that the tires arrive timely. When the car company decides that these contracts are too costly and time-consuming, it may choose to make its own tires. Firms will grow larger as such vertical integration occurs, until the organization cost of managing multiple processes outweighs the cost of using price mechanism.