I’ve been to Utah a few times. One thing I like to do there is attend an NBA game. The Utah Jazz play home games in central Salt Lake City.
In 2011 I wanted to go see the Jazz, so during the afternoon we made our way to the poetically named Energy Solutions Arena, to see about tickets.
Inside, a uniformed woman told us tickets would be $40. But outside, a significantly more casually attired man was able to sell us tickets and was willing to negotiate on price, down to $20.
That night, as we joined the purple-clad throngs filing towards the stadium, we saw many more people pushing tickets outside for low, low prices – including some shouting “free tickets!”. Prices don’t get much lower than that.
Ticket scalping is a state issue, and it is not one the lawmakers of the mostly mormon state have sought to trouble themselves with. In the absence of any law, ticket scalping there is apparently totally legit.
Inside, it was clear why the man had been willing to negotiate our ticket prices. High in the stands where we sat, there were very few other punters. But we added our voices to the support for the Jazz (hilarity ensued as we convinced one Australian basketball ingenue that it was completely normal and in fact expected to yell Slammer Jammer! after every dunk).
So when I returned to Salt Lake City in 2015 I knew I would go back to Energy Solutions Arena to see the Jazz play, and I knew tickets should be damn cheap. I was googling to see if scalping was still happening, hoping I might get my hands on some of those free tickets I remembered so vividly.
But my googling soon led me to a whole different marketplace. Online ticket re-selling. Within moments I was on the website of SeatGeek.com, where tickets were going for an amazing range of prices. You could pay over $200 to sit behind the benches, or as little as $10 to sit high up in the stands.
This felt substantially better than transacting on the street. For one thing, I had more information about the range of prices for different games (Thursday’s game’s lowest seat price was $10, Tuesday’s game was $7) and for different parts of the arena. I also got the guarantee that the seller would refund me if there were any problems. Unlike the dodgy guy who’d sold me the tickets in 2011, I was confident I could find SeatGeek.com again if I needed.
And this, surely, was good for the game. Empty seats make for a bad experience for everyone, especially those who paid $200 to sit closer, but also the fans and the TV stations trying to give the impression that this sport is exciting.
Where we sat, the crowd was full of families with plenty of children, and groups of unaccompanied teens. In Australia, these demographics would not be found at most professional sports events, because the price is such a barrier. What does that mean for attendance at live games in 20 years time? Will kids raised with sports on TV suddenly want to pay to attend once they become rich enough?
But back to Utah on a Thursday, where the arena ended up about three-quarters full and the mascot worked hard to keep the crowd engaged as the Rockets capitulated pitifully. The focus of scalping laws is normally on those popular events where ticket prices are high. Economists bravely defend tickets going to those who can afford the highest prices.
But might scalping not be just as useful – and even more morally defensible – in games where ticket prices are low?
In Australia, scalping is not allowed, and the AFL often sees tiny crowds limp in for games in giant arenas, all the while keeping ticket prices at astronomical levels. Members and those who’ve bought season passes often let their seats lie vacant.
I wish SeatGeek would arrive in our market and allow a bit of price discrimination – and I wouldn’t be surprised if the big sports leagues actually found it was to their advantage too.
I haven’t posted for a while, because I was overseas. A good holiday should refill the tanks of any economics blogger with ideas and stories, and this trip – to the USA – was no exception.
The story I will tell today was about an economic concept I never expected to think about. Timeshare.
We were in Utah about three weeks ago, walking up Main Street in Park City, after a delicious dinner of ribs. The Main Street there is the beneficiary of generous heritage laws that preserve the low-rise, weatherboard feel of the mining town Park City once was. Now, this town mines wealthy visitors for their gold, a vein that has proved far deeper and richer than the geological deposits that are long since exhausted.
Past the galleries and fine dining establishments we sauntered until we came across a storefront featuring an ugly yeti sitting in a busted-up old armchair. The yeti was so out of place among the aura of refinement that I stopped and looked at it. It plays no further role in this story, but it serves as a sort of turning point, because the yeti explains why I was stationary long enough for a salesman with a lazy eye and a flat cap to entrance me inside his storefront.
“Want some free ski passes?” he yelled out. In this environment awash with expensiveness (we had just split a $29 plate of ribs between two at the restaurant, braving the wrath of the service staff) the prospect of saving a few dollars seemed wise. We stepped inside to learn more.
The salesman, named Gino, managed quite easily to convince us to attend a timeshare presentation two days later, with only a modest amount of stretching the truth. In return for an hour of our time listening to the amazing deal offered by the Hilton Grand Vacations Club (he eventually conceded it would be 90-120 minutes), we would be given two free tickets to the ski resort of our choice.
We had planned to ski at the swank resort of Deer Valley, and the tickets there cost $114 each. The payoff looked good. Gino promised a car would collect us from our accommodation to take us to the timeshare presentation. That was attractive because the presentation was at a resort we wanted to go to, which was a bus-ride away. Right at the end of his sales pitch, he revealed that there was a forfeitable $20 deposit that we would pay in cash now and receive back at the end of the timeshare presentation.
By this stage the decision had been made and we handed over a greenback. The whole deal was formalised on a contract on Hilton letterhead, with the time our driver would arrive, promises that we met a certain minimum income level, and our reward of free ski passes.
As we left Gino and his yeti to lure further punters, we seemed to have executed quite a coup! We were obviously never going to buy the thing. And Gino said the timeshare presentation would be replete with refreshments.
But later that night, back at our accommodation, Google put the frighteners on us.
We read of timeshare presentations that would last for four hours. Of intimidation, bullying and lies. Of being bounced from salesman to salesman each time they said no. Of people buying a timeshare just to bring the experience of the presentation to an end. Horror stories filled the Google results.
I lay awake thinking of strategies that might convince the salesman we truly didn’t want or couldn’t afford the thing. The irony of missing a day’s skiing stuck in some ridiculous presentation in order to gain a free day of skiing was abundantly clear.
When the day dawned and our big white GMC SUV came to collect us at 8:30am, as promised, I had a strategy prepared.
The driver delivered us to the Hilton property at the Canyons ski resort exactly as promised. The vibe in the foyer was weird. The sales staff were loitering around and they looked professional. These were not young people moon-lighting in the game. They were old white men who gave the impression of having sold thousands of timeshares each. As we helped ourselves to the promised refreshments (juice, coffee, pre-packaged danishes – all a bit disappointing) we overheard the oldest salesman, aged perhaps 65, lecturing a man of about 55 on the appropriate length for his hair (shorter.)
Our salesman was named Sy. He was perhaps 45, and his name-tag said he was from Las Vegas, Nevada. We went from the plush foyer to a much more mundane office area, with many small cubicles purpose built for selling timeshare. Other couples wandered round after their salespeople, as if in a daze.
Sy seemed open and honest. Early in the piece I rolled out my managment strategy – one of total honesty. I told Sy about the yeti, about Gino the salesman and his promises of free ski passes, about our excitment and then our nervousness when we read the horror stories on the internet.
Sy took this in his stride, promising to have us out of there within two hours. He wanted to know our professions, he wanted to know how much annual leave we got and he wanted to know how much we were paying for our accommodation in Park City. Our answer on this latter point visibly shocked him, because I had spent a lot of time shopping around for a good deal, and booked a place that seemed like it had been unrenovated since 1965.
Sy very much enjoyed multiplying things together on his calculator, and he showed us that if we spent that much on accommodation for two to three weeks every year for 40 years, we’d have spent tens of thousands of dollars. Lucky for him we did not mention the trip we took to China 18 months ago where we got double rooms in youth hostels at about $50 a night, because that would have ruined his sums.
The way the timeshare works is – of course – complicated. You can enjoy it in the classic sense, by simply showing up to the same location at the same time every year, but the sales pitch steers you away from that idea with the promise of points.
These points are granted every year, and appear to offer greater value when deployed staying in other properties globally (there seemed to be about 50) as detailed in a very glossy brochure.
Instead of one week in Utah, we could get three weeks in Italy, or about 20 weeks in Las Vegas in the off-season. Points could be shifted forward or back one year, but would, after two years, expire if unused. Except they wouldn’t actually expire! They’d turn into Hilton Honours points and be spendable at an even greater range of properties, as detailed in another very glossy brochure.
The right to the timeshare would exist in perpetuity, and never expire. Our grandchildren’s grandchildren could still be enjoying a week in Utah every year, Sy insisted.
I wanted to know more about the money side of things, and hear less about the points, but those figures would not be revealed until after the property tour. We set off.
It was opulent beyond belief. These were not standard hotel rooms. Sy said the development had been built as condos and then the whole thing was sold off in the GFC when the developer went under. Hilton snapped them up. He claimed they were being rented for $2000 a night in the high season, and I believed it. They were giant.
Finally, 100 minutes after our arrival, we started talking money. I’d been wondering at the buy-in cost and had no sense of whether it would be $10,000 or $200,000. It came in at the lower end of my guesses, at $43,000 for a two bedroom property (with two kitchens, so it could be split into two normal size hotel suites).
There was, of course, an annual maintenance fee of $1200, to keep the property looking Hilton quality. The maintenance fee actually seemed pretty good to me, given the places were fully furnished, stocked with cutlery and crockery, etc. There were also booking fees of $60 or so if you wanted to use the property. And if you didn’t have $43,000 now, you could pay it off with finance at a rate of 5%, plus a closeout fee of around $1000 when the mortgage was done.
But where Sy’s calculator heroics really turned me away was when he tried to account for inflation.
He asked me what I thought was a fair rate of annual inflation and applied that to the expected accommodation expenditure stream over 40 years that we had estimated before.
But did he use it as a discount rate? No. He actually tried to inflate my expenditure stream over 40 years to make it look even bigger than the present day expense of $43,000.
At that point, I understood. Timeshare is for people who don’t understand the time value of money. It preys on suckers. Also, paying upfront for holidays depends on bad reasoning about the stability of your demand for holidays over time – and also ability to pay for them. Lives change in a way that make regular holidays a distant memory.
Timeshare also depends on misunderstanding the stability of the hotel business. If Hilton goes bust, or decides to close its timeshare operations, the value of the property will sink.
Furthermore, nowhere in the entire presentation was there anything about the rate of return you could expect if you never used the property and simply rented it out. That’s a flashing red warning that the rate of return starts with a minus sign.
Sy also mentioned that if you wanted to sell the property, Hilton had first right at buying it back. This made sense given what I’d read online, which was that second-hand timeshares sold at significant discounts to the sticker price.
After this sales pitch – which felt like an endurance race – finally got to the end, I rolled out part two of my salesman management strategy.
I repeated the key parts of his presentation back to Sy so he couldn’t get the impression I didn’t understand. Then I clearly and politely made an unambiguous statement: “There is absolutely no way we want to buy this.”
Right then, Sy handed over an envelope with two free ski passes and our $20 in cash, and let us go! It had been, in the end, far easier and less stressful than I expected. I attribute that in part to clever management by us, and in part to the selection bias for horror stories on the internet that had shaped my expectations.
Two hours work, for $114 value. Plus free coffee and juices and a free ride in a car. So, is sitting through a timeshare presentation worth doing in the middle of your holiday?
That depends on how you value your time on that particular day. But one thing is clear – agreeing to endure the sales pitch is much better value than agreeing to buy the actual timeshare.
1. Tourism is super important, accounting for 10 per cent of Australia’s export earnings.
2. Tourism’s moment has come.
3. International tourism is understood to have public good aspects (e.g. brand Australia) that warrant some public spending on attracting visitors. Tourism is also a public policy issue because regulations around immigration and customs, aviation and airports can determine the cost effectiveness of a trip to Australia.
But at this crucial moment for the industry, government funding for Tourism Australia has gone from $132 million in 2012 to $129 million in 2014. That’s a fall from $21.29 per visitor to $19.64.
Sample size requirements are totally counter intuitive. I remember my statistics professor mathematically demonstrating to us the relationship between sample size and population size. Our minds were boggled.
For your personal enbogglement, I’ve charted that relationship here. It shows the sample size needed to get a 1 per cent confidence interval with a 99 per cent confidence. The salient point is the flattening out at the top.
It is intuitive that if you’re enquiring about a big population, you need a big sample. Intuitive, but wrong.
Once you’re surveying a population of more than 500,000, there’s scarcely any need to increase your sample size. Sampling more than 16,000 people out of a large population means adding very little value. This is good news. It means our society’s reliance on survey data – for everything from who should be PM to how peanut butter should taste – is efficient.
So why do we run censuses? Partly because the Census Act 1905 compels us to, every five years. Partly because we always have, and partly because the UN encourages us to.
But does the census get localised data effectively?
If you’re interested in small, remote, unusual communities that you will never otherwise survey, do you really want to ask them the same few questions that are appropriate for everyone else? Or is that a missed opportunity?
Instead of the census, we could ask small communities specific and relevant questions. In remote aboriginal communities, it might not make sense to ask people about their journey to work, but it might make more sense to ask for example about what they eat, which the census does not do.
I do not – DO NOT – support cutting the budget of the ABS to do their important day to day work. But I can see why running a census every five years might seem like a waste of resources that would be better used supporting that work.
The best reason to axe the census would be that it adds little empirical exactitude when obtaining estimates of the great homogenous mass of us, and is too blunt to ask the questions that matter of the smaller communities it covers.
Sachs – who made history by becoming a Harvard Professor at age 28 – is a heavyweight in the field of economic development, so it’s worth listening when he writes “technological progress can be immiserating.”
The paper acknowledges that such predictions have been made before, and proved wrong. There were some details in the history of Ludditism that I didn’t know, particularly the role of the state in defending novel production methods.
“Concern about the downside to new technology dates at least to Ned Ludd’s destruction of two stocking frames in 1779 near Leichester, England. Ludd, a weaver, was whipped for indolence before taking revenge on the machines. Popular myth has Ludd escaping to Sherwood Forest to organize secret raids on industrial machinery, albeit with no Maid Marian. More than three decades later – in 1812, 150 armed workers – self-named Luddites – marched on a textile mill in Huddersfield, England to smash equipment. The British army promptly killed or executed 19 of their number. Later that year the British Parliament passed The Destruction of Stocking Frames, etc. Act, authorizing death for vandalizing machines. Nonetheless, Luddite rioting continued for several years, eventuating in 70 hangings.”
The model constructed by Sachs and his co-authors has no role for hangings. It simplifies the economy into a technology sector producing “goods” and a residual sector staffed by humans, producing “services.”
The model tries to answer the question:
“Will the reduction in the cost of goods produced by more advanced robots compensate workers for the lower wages?”
The team runs the models several times and gets a range of different answers depending on assumptions. But the news is certainly not all good.
“A second prediction of our model is a decline, over time, in labor’s share of national income.”
The model has ‘retention of code’ as a central feature. They argue that over time, useful code builds up so that new code is less and less necessary, leaving less and less work for people engaged in its production.
Code is defined as “not just software but, more generally, rules and instructions for generating output from capital.”
It assumes over time code becomes more durable, driving unwanted “high tech workers” to go and work in the services space, where they drive down wages.
“The price of services peaks and then declines thanks to the return of high-tech workers to the sector. This puts downward pressure on low-tech workers’ wages and, depending on the complementarity of the two inputs in producing services, low-tech workers may also see their wages fall”
The ‘retention of code’ is a key feature of the model. When the researchers ramp up the coefficient on that, the model has gloomier and gloomier predictions.
The mechanism by which this works is because each more poorly compensated generation can add less and less to the economy’s capital stock:
“The long run in such cases is no techno-utopia. Yes, code is abundant. But capital is dear. And yes, everyone is fully employed. But no one is earning very much. Consequently, there is too little capacity to buy one of the two things, in addition to current consumption, that today’s smart machines (our model’s non-human dependent good production process) produce, namely next period’s capital stock. In short, when smart machines replace people, they eventually bite the hands of those that finance them.”
But is code different to any stock of knowledge? Humans have invented designs for thousands of perfectly functional cars, yet there’s work being done on inventing new and better ones at a fantastic rate. Computer code may accumulate, but “rules and instructions for generating output from capital” sounds like management. I don’t see managers being replaced by computers soon.
Nevertheless, the paper adds to the rich debate over what might happen in an economy where humans are not directly engaged in the tasks most important for their survival.
I’ll leave you with the working paper’s dystopian predictions:
“Will smart machines, which are rapidly replacing workers in a wide range of jobs, produce economic misery or prosperity? Our two-period, OLG model admits both outcomes. But it does firmly predict three things – a long-run decline in labor share of income (which appears underway in OECD members), techbooms followed by tech-busts, and a growing dependency of current output on past software investment.”
“Our simple model illustrates the range of things that smart machines can do for us and to us. Its central message is disturbing. Absent appropriate fiscal policy that redistributes from winners to losers, smart machines can mean long-term misery for all.”
When countries go into debt, they don’ reach for the credit card. They reach for bonds. By selling bonds, a country gets a stack of cash it can spend, and all it has to do is pay back those bonds in the future.
A lot of countries have a lot of debt, the global bond market is active. People don’t just hang onto the bonds they bought from governments. They’re traded. The price of the bit of paper goes up and down even though the amount it entitles you to stays the same.
“Treasury notes (or T-notes) mature in two to ten years, have a coupon payment every six months, and have denominations of $1,000. In the basic transaction, one buys a $1,000 T-Note for $950, collects interest of 3% per year over 10 years, which comes to $30 yearly, and at the end of the 10 years cashes it in for $1000. So, $950 over the course of 10 years becomes $1300.”
Some people find bonds to be a very good investment and they are also closely watched as markers of trouble. When it looked like Greece was going to be kicked out of the eurozone, its bond yields shot through the roof. (Bond yields are the inverse of the market price. If you pay $1000 for the bond described above, your yield is zero (assuming inflation of 3 per cent).) In 2011, everyone was selling Greek bonds and buyers were few.
Those high yields said nobody wanted to buy Greek bonds. Or Portuguese, or Italian.
Bonds work a bit like a stock. There’s always something to worry about.
When yields are up and price is down, it’s because people think that entity is going to go broke. When yields are down and prices are up, people start to worry that the price has overshot and might suffer a damaging correction.
Overall, riskier countries have lower bond prices and higher yields. For example, Japan’s bonds cost a lot, and yield just 0.4 per cent, because that nation is believed to be trustworthy and reputable.
But suddenly, the whole bond market is looking more Japanese, and that should rouse suspicion.
Bonds are a hot topic because of plunging yields in the last few years.
Does anybody really believe all the risk has gone out of these countries? Does it really make sense that Spain can borrow money at under 2 per cent? I think I’m less of a credit risk than Spain (unemployment 24 per cent) and my credit card company charges 10.99%.
What we may be looking at here is a bubble. All these bonds are in hot demand. But what happens if the bubble pops? The people that hold them lose money. That includes central banks, hedge funds, private investors, superannuation funds and banks. Any of whom could upset financial stability.
The reason this topic is hot is that a sharp object has come over the horizon that could burst the bubble. A rise in US official interest rates.
It seems likely that the US will start raising interest rates in the next few months, given their strong recent economic performance. (This is the view of the RBA Governor, at least). If outlooks for the US economy and global economy are better, a rate rise could coincide with investors deciding they’ve had enough of boring safe bonds, and getting back into stocks. That would see bonds being sold off.
The Governor of the Reserve Bank is expecting such an event, he has just revealed in testimony this morning to the House of Representative Economics Committee.
Stevens on whether we’re in a bond bubble; “It’s a very strange world in which we live…at some point one would expect this would reverse.”