8 seconds, $3,500: A lesson about incentives
8 seconds, $3,500: A lesson about incentives
“Not Pretty, Not Rich” is a newsletter about money, finance, and the economy written by me, Sam Becker. You can connect with me through my website, Twitter, LinkedIn, or send me an email at sammbecker@gmail.com. Also, if you enjoy this newsletter, I’d really appreciate it if you would share or forward it to others.
It’s Friday, December 11, 2020, and here’s the rundown (a short one this week!):
In the news
Fancy words and what they mean: “Futures”
8 seconds, $3,500: A lesson about incentives
Numbers and links
In the news
Stimulus incoming?: Congress is back at work trying to figure out some sort of stimulus deal, but it’s still a legislative logjam. Don’t count on anything getting done.
Shutdowns are back: The pandemic is as bad as it’s ever been, and as a result, states are instituting shutdowns once again. But many are not as stringent as they were earlier this year — which means they’re not as effective at controlling the spread.
The recovery stalls: November’s jobs report was released last week, and it was…disappointing. The unemployment rate is now 6.7%, but the labor force participation rate dropped, meaning that more people stopped looking for a job.
The weekly numbers aren’t looking any better, either:
Fancy words and what they mean
This week: Futures
This week, there were several stories about “water futures” becoming available for trade as a commodity. Essentially, water can now be traded by investors, just like gold or oil. The reason that water is hitting the exchanges is that it’s becoming increasingly scarce, and when something is scarce, it’s valuable.
As for the “futures” part of this — it’s short for futures contracts. It’s an agreement between two parties to buy water (in this case) at a time in the future for a price that’s agreed upon now. Futures basically give traders a way to bet on the price of a commodity (again, water, in this case) in the future.
In short, you’re hearing about water futures because there’s an expectation that water is going to become more expensive and scarcer in the near future. And now traders can use futures contracts as a way to try and make money.
8 seconds, $3,500: A lesson about incentives
Many Americans feel that being asked to wear a mask is totalitarian overreach, but in other parts of the world, breaking protocol comes with a heavy price.
This story caught my eye this week from Taiwan, where a man stepped into a hallway and was subsequently slapped with a huge fine (via CNN):
Taiwanese authorities have slapped a $3,500 fine on a man who broke quarantine regulations for just eight seconds.
The man, a migrant worker from the Philippines, was quarantining in a hotel in Kaohsiung City when he briefly stepped out of his room into the hallway, the city's Department of Health told Taiwan's official Central News Agency (CNA).
The man was caught on CCTV by hotel staff, who contacted the Department of Health, CNA reported. The department fined him 100,000 Taiwan dollars -- around $3,500.
If this were to happen in the U.S., it’s easy to imagine what the reaction would be. We’re having mass protests around relatively simple and unobtrusive public health measures, like mask mandates. Levying financial penalties against people who break quarantine protocols would likely lead to violence — and I’m not kidding.
But this does highlight the stark difference in how the U.S. is handling the pandemic compared to other countries. The federal government has, for the most part, taken a hands-off approach to the outbreak, and instead, let individual states take the lead in trying to keep it contained. Obviously, that hasn’t worked out very well, and it’s unclear why anyone thought it would — people go from state-to-state all the time, taking their germs with them.
Taiwan, on the other hand, is taking a heavy-handed approach. A man caught on camera stepping into a hallway was fined the equivalent of the price of a used car. This is roughly the same as stepping outside to take your garbage to the curb, or check the mail.
That’s unimaginable in the U.S., and yes, is kind of crazy. But Taiwan and the U.S. are two very different countries, and there isn’t a one-size-fits-all solution to the pandemic. But it’s clear that Taiwanese authorities are giving their quarantining citizens a good incentive to obey protocols. And it makes you wonder how or if financial incentives like those being used in Taiwan would quell the pandemic in the U.S.
Financial penalties would almost certainly put a dent in this chart:
Image: NBC News
And Taiwan’s strong-arm approach has, evidently, paid off. Over the summer months, Taiwan went 200 days without a locally-transmitted COVID case. And the country did so without stringent lockdowns — though it did take mask mandates and temperature checks very seriously. That, and some hefty fines for quarantine-violators.
What this shows is that financial incentives can be effective. Again, Taiwan is a much different place than the U.S., and it’s unclear how fines and penalties — even light fines, like $25 for walking into a restaurant without a mask — would go over with the American populace.
But there’s a lesson to be learned here about incentives, and if money is a motivator (or the fear of losing it) it may be something used to combat future pandemics and public health risks.
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Numbers, links, and things to think about
100 million: The number of additional COVID vaccine doses that the Trump administration was offered for purchase, but turned down, for no apparent reason. (New York Times)
17: The number of new movies that WarnerBros. will be releasing on HBO Max at the same time as they hit theaters. That includes “The Matrix 4,” “Dune,” and “Godzilla vs. Kong.” (WarnerBros.)
30 for 30: A look at the 30 best-performing stocks over the past 30 years. (Compound Capital Advisors)
84%: The percentage of California’s population that is under a stay-at-home order. (Los Angeles Times)
12,500: The approximate age of rock art found in Colombia that’s being called the “Sistine Chapel of the ancients.” (Lonely Planet)
4: The number of lions at the Barcelona Zoo that have tested positive for COVID. (Reuters)
Non-stop lying and disinformation has created some very serious problems for all of us. (BuzzFeed News)
China and Nepal announced that Mt. Everest got taller. (The Washington Post)
An “ask me anything” session with Ray Dalio that is interesting to read through. (Reddit)
Have a nice week,
Sam