Don't Tell Kate

that three of her five full-time baristas just have had a rendezvous in a bistro and rather obscured cafe far away from Salemba.

It's labor day, for crying out loud.

Which books?

Dear Kate,

I'm off to Kelapa Gading today. The Gramedia there runs a handsome price discount. Any suggestion on books?

Thank,
Bookbuff @ Karet

Dear Bookbuff,

First, forgive me that I doubt you're a book buff. Book buffs don't ask suggestion on books. They know what they want.

But I'd tell you anyway what I just did in my latest shopping spree. I bought SuperFreakonomics (Levitt-Dubner), Nudge (Thaler-Sunstein), Animal Spirits (Akerlof-Shiller), The Return of the Great Depression (Krugman), and The White Tiger (Adiga). All but Tiger are with econophone, but Tiger is equally entertaining - it's the winner of 2008 Man Booker Prize. My usual formula in bookshopping is 4:1, four econ and one literary work.

Oh, while we're at it, why don't I share with you what I would not buy? Here goes. I don't buy books of authors who put their academic titles on the front cover. They're usually bad bad bad. I don't trust self-help books. And I don't like books with dry title.

Finally, I also judge books by their cover. And sometimes I buy books just for the sake of ridiculing them: John Perkins, Naomi Klein to name two.

Happy shopping,
Kate

Pricing the environment

Dear Kate,

I gather, you took a minor in environmental economics. I once heard that you guys like to value clean air, healthy water, sequestered carbon etc by putting a price on them. How do you do that?

TreeHugger @ Borneo


Dear TreeHugger,

There are many ways to do that. Let me take one here, called hedonic price estimation. You are Foke that governor. Suppose you want to clean the Jakarta's air. Calculating the cost is easy: sum up the prices of labor, equipments, capital, etc. But you would need an estimate of benefit. After all, you can only approve a project when its benefit outweigh the cost - especially because you're using public money from the taxpayers, you would be held accountable. Measuring the benefit of cleaner air is not straightforward, because air is not market good ie it doesn't have a price tag ready like the t-shirt you buy in Plasa Senayan.

This is where hedonics comes into rescue (I'll tell you someday why it is called 'hedonic' approach). It measures the benefit of non-market good via the price of a market good. How? Think about the time when you were about to buy your house. What were your factors of consideration? Of course you would care about its price, its structure, its location, its neighborhood. But you also care about the environment, the air right? With only price and environment vary, other things being the same, which one would you buy: House A, cheaper but with dirtier air, or House B, more expensive with cleaner air? Keep in mind, life is about choosing and tradeoffs.

That is what hedonic approach exploits. It tries to extract the environmental part in your set of consideration when you buy a house. Using an advance econometric approach, you set all variables but price and an environmental proxy unchanged. Then you can see what a change in environmental variable would impact on the house price. Then you multiply this number by the population house in the area. This is the social benefit of having clean air in Jakarta.

You want more? Ahem, hire me :)

Greeny yours,
Kate

Dear Kate: Neoliberal

Dear Kate,

I observe a suddenly-famous term: "neo-lib". What is this "neo-lib" actually about? Why do people seem hate it? Is it some kind of virus?

Best,
Al @ Berge

Dear Al,

To tell you the truth, I don't know. But I got an impression from the media that all those protesters mean by 'neoliberal' is market-friendliness, trade with other countries, and everything American or western.

In other words, neoliberal is an Aunt Sally.

Take care,
Kate

Dear Kate: Matchmaking

Dear Kate,

I'm looking for a date. I've been surfing through profiles posted in those matchmaking services in newspapers and internet. "Kontak Jodoh" in Kompas is one of my favorites. Some people sound cute, some boring. Mostly they run their ad in the following pattern: sex, age, edu, race, religion, weight and height. Then they would add some personal goodies (or so they think) like "honest, faithful, caring, responsible" along with hobbies and finally their expectation of their future date. I wonder what to make of these kinds of information. Any ideas?

Thanks,
Singleton @ Pejaten


Dear Singleton,

Information, in order to be useful, requires credibility. Credible information should at least satisfy two properties: measurable and verifiable. The first set of information you listed above seems to meet these criteria (let's assume that he or she has authentic letters certifying the age, edu, etc). The rest are questionable. You can't trust somebody just because he says he is honest. You should observe what he does. Yes, it is a rather tall order: you need to spend some time with him to know that. Hobbies might be easier to verify (if he says reading, test him with books). Finally, for 'expectation of future date', it is just his way to avoid being overwhelmed by inquiries by people he would not be interested in.

So, the most useless information set is the second one (the one you termed 'goodies'). Ignore it. Wait, let me put it this way: maybe it does have some value after all. It actually reveals the negatives you want to avoid (think about this: somebody puts 'humble' in his ad. Aha, isn't that a contradiction? You don't want this guy)

Happy hunting,
Kate

Dear Kate: Signaling alarm

Dear Kate,

I'm a rookie in car theft business. Recently I've been tempted to steal one of two cars always parked not far from my cousin's place. I'm yet to decide which car I'd steal. My tutor told me I should choose one, there's no way I could get 'em both. As I'm just a rookie, I'm nervous. The two cars are of the same class. One is Honda City and the other Toyota Vios. It seems to me they're also of 2006 made. I've also noticed that the drivers of the two cars are of early 40; they're both your average working citizens -- although I'm not sure if this is relevant.

Another thing that I have observed is that the Vios has that sticker telling you it is equipped with an alarm system, but I don't see any such sticker on the City. Again I'm still thinking about this, but something's telling me that you might be interested in this information.

I know you're an economist and have nothing to do with car burglary market. But if you were me, the rookie who needed to prove his talent to the seniors, what would you do?

Thanks,
Rookie @ Cileungsi

Dear Rookie @ Cileungsi,

I have to admit, at first I took offense by your email. But as an afterthought, hey I should probably be proud that even a criminal like you consult with me. And I came up to a conclusion that it is not my position to make a judgment on your profession.

So here you go. It seems to me that everything that is of interest to you has been listed in your email. Those similarities -- made year, class, driver's appearance -- they're not very interesting to me. But they're useful to at least imply that the two car owners fall into the same income level -- at least not very far apart one another.
The sticker thing. Now that's more interesting. We economists tend to believe what people do more than what they say. Sticker is saying. Non-sticker is non-saying, but might be a doing. In a similar income level, attitudes toward risk might not be very different. But similar also means not exactly the same. I would assume the following. One of your drivers thinks alarm is important. The other thinks making people believe it has an alarm on his car is important. The first one would install a very good alarm system and hence wouldn't need a damn sticker. The second would not have an alarm or at most have the less reliable (then cheaper) alarm -- he would need a bright sticker to signal otherwise. You tell me which one is the easier target? Yes, the one with sticker. Take the Vios.

That said, don't blame me if you get busted. I'm just trying to make sense of the information you gave me. And remember, I'm no thief. So you were wrong to ask me in the first place.

But good luck!


Kate

Dear Kate: Why don't you tell us everything we want to know?

Dear Kate,

I was chatting with Dumbfounded Psychologist @ Oz the other day, casually trying to reveal the secret behind beautiful girls, where the best place to find them, and other great mysteries of life, when we stumbled upon two curious facts about economists (it goes without saying that we like gossiping about you guys - of course, we see you guys as our evil twins):

1. Economists schmooze a lot, like celebrities (our metric is straightforward: There are more facebook profiles of economists than other academics).
2. While you can wittily explain why doughnuts are generally safe, how to divide tasks among baby sitters, and why public toilet lids are dirty, you have (almost) nothing to say about things that pertain to the recent credit and financial turmoil (except some snippets from the media/blogs posts) -- the latter of which we thought is (or should be?) their main cup of tea; where are questions such as what is money?, how do credits create money?, can we have an economy without credits?, what does economic growth really mean?, what is the relationship between production  and financial economics?, what is the fundamental source of financial instability?, are asset-price bubbles real?, why do we have (need) inflation? how does a bank run happen?, is globalization always good, how about the globalization of risks? why do we borrow, spend and save? and what is the underlying belief/morality for these three actions?

Please tell us what's going on?

Looking forward to some economic insights, as always,
Belligerent Sociologist @ NYC (also on behalf of Dumbfounded @ Oz who is happily holidaying)




Dear Belligerent Sociologist @ NYC,

The answer is easy. We don't know.

Thanks,

Kate

Dear Kate: Do you eat donut?

Dear Kate,

I'm a donut lover. Recently I found all these emails telling us not to eat donut made by some favorite donut makers. The reason is, they use preservatives and hence bad for your health. I've been an addict of one particular brand. It's a chain and very popular. Whenever I go there I have to wait in a long line before I get my donut, but trust me, the donut is worth the queue. Now these emails make me rather worried. I know you're no expert on health and all that, but what do you think?

Thanks,

Donutlover @ Jakarta



Dear Donutlover,

As you said, I don't know anything about health, nutrition, etc. My main tool is economics and here is my take. First, a big brandname with reasonable competition would be very careful so as not to disappoint its patrons. In the case of food and beverages, this includes especially issues related to health. Second, adding a material or ingredient in production means more cost. So if one producer can make a tasty donut with no or less preservative, the second would be foolish to produce equally tasty donut with or more preservative. Third, you mentioned that you always have to stand in line to get your donut. That's a good sign. It means they are more likely to come up with freshly made donuts. In other words, their donuts don't need much time between oven and your mouth. Why need (more) preservatives if that is the case? Four, from what I heard, every donut has preservative. It's a matter of how much. But then, see the preceding three points. Finally, let me tell you that everything entails risk. But avoiding risk completely means you have to stop consuming everything.

So, if I were you, I would ignore those emails. Enjoy your donut. I'll join you next time.

Best,

Kate

Dear Kate: Why blogging economists?

Dear Kate,

It just occurred to me this morning that cafesalemba is quite a productive blog, which indicates that you guys must be spending a substantial amount of time hanging around in the cafe. But then I thought about two of your most beloved econ 101 ideas: incentive and opportunity cost, and couldn't figure out how to rationally reconcile these lessons with your behaviors of -- apart from sipping coffee, of course -- writing frequent posts and promptly responding to comments. You see, economists like to say that voting, for example, is irrational because the incentive is far smaller compared to the cost of registering and casting the ballot, and that one can make better use of their time instead. Now I take this voting example to heart, and wonder how it applies to your daily cafe behaviors. Given that the benefit of post writing and comment responding in this blog is less clear than the many alternative usage of your time (benefiting readers and commenters can never be guaranteed, and gauging the impact of your blog is close to impossible), I think I have to ask this question: Why blogging?

In anticipation of some economic enlightenment,
Dumbfounded Psychologist @ Australia

PS: Please don't say that blogging is a form of expression, it's my kind of explanation.


Dear Dumbfounded Psychologist @ Australia,

I can't speak for the baristas, but I'll do for myself. Here goes. I blog when doing it gives me more pleasure than discomfort. Right now I have exams coming up and couple of papers due next week. To your view, I probably have to be preparing myself for the exams or finishing the papers now. But I don't feel like doing either of them. Instead, I am answering your question. Because for some reason, I feel happier doing that. This is another way of saying that the benefit is higher than the cost, to me. Now. The benefit can take many forms: maybe because I like you, maybe because I want to show up (and it gives me pleasure), or simply because I'm in the mood for blogging. Whatever it is, it makes me, again happier than the alternatives. The cost of it is, yes, the time I am spending not for studying (or writing paper, whichever likelier to give me better grade). But the fact that I'm posting a blog entry now tells you that I value the benefit more than the cost. When will I stop? When the additional cost match the additional benefit. That is, when the guilt from not studying (again, or writing, whichever serves as the second best to blogging now) has reached the additional satisfaction of blogging. That is, if I add one more sentence, I don't feel happy anymore. And that's about [looking at the clock]... now.

So see you next time,

Kate

Dear Kate: Which roll?

Dear Kate,

I'm a chief janitor at an office building. In my attempt to cut costs, I recently decided to change toilet paper from the average, two-ply rolls to the thinner, one-ply rolls. Of course the latter is cheaper -- it's only half the price of the previous type! But why now, as I'm balancing my book, I find the costs end up pretty much the same?

Thanks,
Jo the Janitor @ Manggarai
p/s Say hi to Dumbfounded @ Oz



Dear Jo the Janitor @ Manggarai,

Because people are used to the "average, two-ply roll". When you replace it with the thinner one, they simply take more (longer, for that matter), fold it, and wipe their a**. On average, your boys will have to supply rolls twice as frequently to the toilets. So, if you think you can save money by changing the rolls that way, think again. Here's my suggestion. Find another type, still two-ply roll, but rougher (and hence cheaper). Your toilet patrons will think twice to overuse it or they will hurt their a**.

Thanks,
Kate
p/s Dumbfounded @ Oz might not like this toilet talk.

Dear Kate: Monthly or daily?

Dear Kate,

I'm a driver. My monthly pay is Rp 650,000. On top of that I get Rp 30,000 per day, "day" being defined as 7am to 7pm. Finally for each additional hour beyond that the boss pays me Rp 5,000. Occasionally, if I work at weekend, the daily rate becomes Rp 50,000 and hourly rate Rp 7,500. Don't ask me why this sounds so complicated. Ask the boss. What I know is that on average I get paid about Rp 1.5 million. I think that's because almost everyday my boss takes off late from office -- extra hourly pay for me.

Recently my boss offered me a raise. He asked me to choose between a Rp 100,000 raise on the monthly pay and Rp 5,000 raise on the daily pay. Any advice?

Thanks,
Complicated Driver @ Ciganjur



Dear Complicated Driver,

Mathematically they are the same. Both will end up a Rp 100,000 additional per month, assuming your boss works 5 days a week and stays home or drives himself on weekends. But if your boss is a workaholic and frequently asks you to drive him on weekends, than take the second offer. In contrast, you would take the first offer if the boss travels abroad frequently. Finally, if your boss' working behavior is quite random, definitely you should take the monthly based adjustment.

Kate
p/s I think I understand why he made it that complicated. Just ask yourself: do you like to shirk or not?

Dear Kate: What's the fair job division?

Dear Kate,

I'm a working mother with two naughty boys (2 and 1 year old). We hire two babysitters to take care of them (one for each). Recently our helper took off for mudik and never came back. So I have decided to extend the tasks of the nannies to include washing and ironing the boys' clothes -- of course with a good additional monthly pay. I've heard that economists always suggest division of labor. Any advice? Thanks. Busy Mother @ Depok.

Dear Busy Mother @ Depok,

Assign Nanny A for washing and Nanny B for ironing. Then reverse that on monthly basis. If only one nanny do both washing and ironing, the other one would have no incentive to limit the number of clothes coming into the laundry basket. Suppose for example that both tasks fall to Nanny A, Boy 1's babysitter. Because Nanny A would know full well how inconvenient washing and ironing are, she would be very concious that her boy doesn't play with too much dirt. That way, the number of dirty clothes can be minimized. But that's not the case of Nanny B. Imagine this. Every time Boy 2 spits on his cloth, no matter how small, Nanny B will just take it off, throw it into the basket then get a new, clean one. Worse yet, she would have less incentive to teach Boy 2 about living clean. Now, if you give her responsibility to iron the dry clothes, she would think twice. After all, she wants less clothes to iron later in the evening. Kate.