Tourist Economics

I recently spent the weekend in a classic mid-Atlantic beach town, Ocean City, Maryland. While there, I couldn’t help but put on my economist hat, as there were some things about the town that stood out to me.

First of all, the geography of the area means the town is set up like the classical economic thought experiment of a linear market: there’s basically one long road with all the businesses, and water just a couple blocks away on either side. The entire stretch is a mix of hotels & condos, restaurants, beach accessory stores, and grocery/liquor stores, with the occasional pharmacy. There was very little geographic differentiation, i.e. restaurants weren’t mostly clustered in one area.

What was striking to me was the near total absence of popular chain restaurants. In the city itself, I didn’t see any Starbucks, Chipotle, McDonalds, Panera, etc., which seemed very strange. In any other similarly populated area you’d find quite a few; and indeed, just outside the city there were several such establishments in outlet malls. So what could explain this? I have some potential explanations:

  • Consumer preference: Tourists prefer different types of restaurants when they are on vacation; they’d rather not go to the same places they go at home. Usually, the appeal of chain restaurants is that they are the same wherever you go, so you know what to expect. Being on vacation may flip that preference sufficiently that there isn’t enough demand for many such establishments.


  • Regulation: The local government has provisions that make it difficult for large chains to get established. You see this often enough in municipalities. Several years ago, when Wal Mart was first looking to expand into DC, the city council tried to pass a law that, while not naming Wal Mart, was obviously targeted at them. The already established players in the town have a strong incentive to prevent new competition, and it’s pretty easy to get this kind of stuff passed in small towns. The fact that just outside of the city limits you find plenty of Paneras and Dunkin Donuts, etc., suggests this might be a big factor, though it could be there’s more stable demand further inland.


  • Seasonal Demand: According to Wikipedia the actual residential population of Ocean City is around 7,000 people, but during the summer months the number of people swells to the hundreds of thousands. As such, the vast majority of businesses are probably shuttered during the off season. It could be that large chains just don’t do seasonal hiring very well; often hiring in such companies is an arduous process. I know from experience with a large retail chain that it often takes weeks to onboard just a cashier. I noticed that at most restaurants the staff working were from Russia/Eastern Europe, which reminded me that I often saw that at the tourist attractions in my home state of South Dakota. So in addition to short time hiring, the fact that most labor has to be imported from abroad through visas to meet demand might be a step too far for most large chains. Another related explanation could be that large chains don’t break even unless they’re open longer than seasonally. But if anything, I’d think the opposite would be true, since smaller businesses don’t have the economies of scale to reduce costs.


  • Search Costs: Search costs are relatively high when your hotel is across the street from the primary attraction, The Beach. There’s a high opportunity cost of time; every second you’re out looking for food is a second that you’re not on the sand. This would explain why there’s a pretty even mix of types of establishments all along the main corridor. Yeah, you could go searching for the best burrito place in town, but the pizza+burger place next to the hotel is probably good enough. This could lead to a situation where already established, mediocre independent restaurants are able to survive and hold onto their turf, but doesn’t explain why a Chipotle or whoever couldn’t eventually get in on the action as well.


Any explanation has to account for the fact that there are some chain restaurants present, but they’re mostly smaller regional chains, like Ledo Pizza or Grotto Pizza. I probably lean towards the regulation and seasonal demand explanations, but would love to know if there’s a literature on this.


The Efficient Market Hypothesis and Philosophy

Looking through my old saved articles I rediscovered some saved posts from Sweet Talk Conversation, and I thought this particular one was quite clever and deserved a mention.

The author asks the question, can we apply something like the Efficient Market Hypothesis to other fields, like philosophy? Recall that in economics, the EMH has strong and weak forms, and his still hotly debated over which (if any) interpretation is correct. In the strong form, the market price of a good (typically a stock) reflects all possible information, whereas in the weak form temporary distortions are possible due to frictions.

By extension, if this concept is applied to the history of thought, you might come up with something like, for any good argument you hear, someone has already developed a good counterargument. In a strong form longstanding philosophical questions still being debated today are genuine stalemates. History has eliminated the bad responses to questions of free will, the nature of the mind and matter, the existence of God, etc., and the arguments that remain are the ‘good’ ones. The weak version might be some variation of ‘there’s a literature on everything.’

It’s a fun little read and something to think about, especially as I’m reading a couple of pieces right now on the history of ideas and whether they affect history.



The End of Reason?

To start, this week’s episode of the Weeds highlights new research on the link between lead and crime. One of the great sociological mysteries in the United States has been the crime wave that began in the 60s and lasted until the 90s, when violent crime levels collapsed. The most tantalizing theory revolved around the use lead additives in gasoline; when accounting for the time lag in human development, the use and subsequent banning of such additives suspiciously matched crime levels. There’s a more complete summary at Brookings.

While that is fascinating in its own right, I’m using it as a jumping off point to what I really want to talk about, which is the end of reason (?). It’s been rolling around in my head for awhile that most of our (Western) social and political theory has its basis in the Enlightenment, which had several phases and branches, but were all linked by a focus on the primacy of reason. The ideas of science, progress, liberty, all were developed during the Enlightenment. Our modern world is founded on the glorification of the rational individual: it is the basis for democracy, human rights, the market economy, and scientific progress. The world is a better place because of it. But sometimes I wonder if we’ve wrung all the gains possible out of the assumptions around the rational individual. Has the Enlightenment run its course?

Here’s an analogy. Suppose you are trying to propel an airplane as fast as possible. To a first approximation, you can just use Newton’s law F=ma to figure out how big an engine you’ll need. You’ll get a lot of gains out of just that. But eventually, to make incremental gains in speed, you’ll have to start accounting for a lot of complicated things, like aerodynamics. You’ll have to redesign your airplane or risk having it be torn apart by the very air in which it moves.

Our political institutions were developed by Enlightenment thinkers; our Constitution was designed by them. Ideas about rights, responsibilities, and self-determination all come from the Enlightenment. And so the assumption of reason pervades them.

But we’ve increasingly learned all the ways in which the human mind is unreasonable. Shaped by evolution, our brain has many limitations that are becoming more and more apparent. The working assumption of rational individuals has worked pretty well for the last few hundred years, but as we are propelled ever faster by technological progress, I worry that we are reaching a point where our societal airplane needs to be redesigned before it undergoes catastrophic structural failure.

Some examples of what I’m getting at:

Advertising and Media

The whole point of advertising, and the media industry in general,  is to manipulate us into paying attention to and having positive emotional responses to products. It’s obviously not an exact science, but it’s becoming increasingly sophisticated. Tim Wu’s recent book, The Attention Merchants, is all about this. What does it mean to live in a world where individual is not in control of where her attention is focused? What if advertising becomes so good at activating our autonomous responses it’s close to 100% effective? Ideas of self-control and self-determination go out the window.


Ezra Klein recently interviewed Zephyr Teachout for his podcast, and during a discussion of corruption in politics she makes the point that our legal definition of corruption is very narrow, to the point of being almost useless. Money in politics doesn’t have to be an explicit quid pro quo to have an influence. Campaign contributions from particular interest need not consciously change a politician’s mind to have an effect; they can work through deeper, more emotional connections that favorably skew the politician’s views towards the donor.

Or in politics more broadly, the sheer bandwidth of information available and the fast pace of political life makes both voters and politicians worse off, on net. As with advertising, political campaigning continues to hone in on ways to activate our more base impulses without our being aware. Robert Colvile writes in his book The Great Acceleration, “In a flashy, charismatic age, we vote for politicians who promise freshness and novelty, who run against business as usual and the shabby compromises of power. The problem is that once these politicians get into power, they prove unable to meet those promises… Our disillusionment is all the more severe for having had our hopes raised in the first place – meaning that we will be less inclined to trust any politicians at all.” Lather, rinse, repeat.

The tribal pressures described in Democracy for Realists look only to get worse in the near future, as political actors continue to up the rhetorical ante to activate identities and mobilize support. Now to be sure, elections in the past have had worse rhetoric; just look at the election of 1800. But today we are constantly awash in this kind of information.


Consider the idea of implicit bias, where our brains have uncontrollable biases towards and against different groups of people. If true to a great enough magnitude, how would we deal with favoritism/discrimination? You can’t make biological responses illegal.

And to bring the discussion back to lead poisoning, our criminal justice system is based on an idea of personal accountability. As a response to the crime wave of the latter 20th century, America embarked on a program of mass incarceration. But if crime was occurring largely because of malformed brains from environmental poisoning, can we justify such a system? Indeed, if most crimes are a result of either mental illness, underdeveloped brains, or crimes of passion, does a system of incarceration even make sense? I recently read an argument, from an economic perspective, that we should just get rid of prison entirely; the net benefit to society is negative.

In sum, I’m worried that our political and societal institutions don’t have the intellectual foundation to deal with the fact that we are creatures of biology, and are often not in conscious control of our actions. The assumption that we are creatures of reason with free will has built a fantastic world, but it may be past time to pour some new foundations.

Trump and the Paris Climate Accords

Most of the defenses for the Paris Climate Accords I’m reading fundamentally misunderstand the situation. They tend to present a laundry list of factual reasons why the decision to pull out is bad. Set aside the fact of rampant climate skepticism in the Republican Party. This decision was not made after a careful consideration of options. This decision was made because of the way it made the President feel.

Tyler Cowen often says that many things in politics are based on who should be raised and lowered in status, and Trump is the embodiment of this principle. Decisions are not based on policy outcomes, they are based on mood outcomes. In his speech announcing his decision, Trump said “The rest of the world is laughing at us.” That’s what this is about. It doesn’t matter if it’s not true. Perception is reality.


What I’ve Been Reading


Free Soil, Free Labor, Free Men: The Ideology of the Republican Party Before the Civil War by Eric Foner

This is an excellent history that examines in detail the formation of the Republican Party in the 1850s. I hope to write something longer about it, but a couple quick thoughts. It was very interesting reading this after Democracy for Realists, and keeping in my mind all the lessons from that book. One of the unanswered questions in Democracy for Realists was just how political coalitions form; Foner’s book is a history of just such an event. Another thing I found fascinating was how, despite 150 years of history, the nature of the Democratic and Republican coalitions were…not that different, at least in the North. The powerbase of Democrats was in large cities, particularly among immigrants. Those who were most supportive of Republicans were in more rural areas and tended to be business owners. For years I’ve had a mental model where the policies and makeup of the parties have undergone random drift over time. But now it seems that the coalitions have been much more enduring in some senses. Given that Democracy for Realists emphasizes the tribal aspect of party membership, this maybe isn’t so surprising.

A Colony in a Nation by Chris Hayes

This book is very good; in fact I can’t recommend it highly enough. I really enjoyed his first book, Twilight of the Elites, which came out in 2011 and has proved extremely prescient regarding the political situation in the United States. There’s reason to be skeptical of a book from a white liberal television pundit about race relations, but Hayes is very self aware; one thing I’ve always liked about him is that is tries to be very understanding and respectful of others’ views. The remarkable thing for me about this book is that it is able to speak to those who are skeptical of the Black Lives Matter movement, while also having interesting things to say to supporters as well.

Before the Storm: Barry Goldwater and the Unmaking of the American Consensus by Rick Perlstein

A very entertaining bit of narrative history about the 1964 presidential campaign. I’m struck by the parallels between the Trump and Goldwater movements. This is also a book I hope to write more on later; in the meantime, just watch this campaign ad and tell me you couldn’t have just aired it in 2016 unchanged (excepting the Vote for Johnson at the end):


The New Class Divide: Makes the point that in the industrial era, class conflict was about exploited workers; now with the growing information economy, class conflict will be about ignored workers. Can liberal democracy survive in such an environment?

Why every smart liberal should read conservative philosopher Peter Lawler: Lawler recently passed away; I wasn’t familiar with him before, but a number of people I read noted his passing and so I checked out some of his stuff, like his last essay. I like it, and plan on reading more.

The ‘Right’ to Health Care is the Wrong Question: Ramesh Ponnuru aruges that in the health care debate, liberal and conservatives are largely talking past each other; everybody agrees about the need to provide health care, and the disagreement is about the method. I think he is too forgiving of particular factions of the Republican Party; while the ‘Reformicon’ wing that Ponnuru is part of is more sensible in these matters, it really seems that there are strong elements in the party that don’t believe this. But I can accept that perhaps my partisan brain is being too uncharitable.