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Overbooking 101

I’ve read a few outraged articles about United Airlines vs Dr Dao. As he often does, James Pilant questions the business ethics involved. I consider air travel an environmental tragedy, and agree that people wearing police uniforms are entirely too ready to dish out force and violence, but I have been generally aware (one of my brothers has been bumped) that overbooking was a common practice driven by A – people missing or not showing up for flights, or taking earlier flights and B – the airlines wanting to maximize profit by having a passenger in every seat.

I read somewhere that without overbooking the average flight might be only about 83% full, but I have seen many more empty seats on Greyhound. I’ve taken the bus from Altoona to Harrisburg to Baltimore dozens of times, and unless it is a holiday weekend, I see anywhere from 50 to 90% of seats going empty. Airlines, though, were hit hard by the price-gouging competition that came with the 1978 Airline Deregulation Act, and more recently by unpredictable fuel costs. So they overbook. As I am in the middle of reading James Kwak’s Economism: Bad Economics and the Rise of Inequality, I was trying to figure out why, in a deregulated and free market, overbooking isn’t perfectly balanced by some other market factor like voucher payments.

On April 11th, Cadie Thompson at Business Insider explained, The frustrating reason airlines overbook flights, but quoted Vinay Bhaskara, “Usually, they won’t overbook first class because that could tend to make your most lucrative passengers very angry.”

Four days later Thompson amplified the justifications, Here’s why overbooking flights is actually a good thing:

“By overbooking it actually does help keep the fares down because the airlines are able to maximize the amount of revenue they are able to collect and generate as much profit as they can,” said Henry Harteveldt, president and travel industry analyst for Atmosphere Research Group, told Business Insider.

“But if they didn’t overbook it’s possible they may have to charge more,” he said.

Overbooking is also beneficial to consumers because it allows the more flexibility in their travel plans, Vinay Bhaskara, Airways senior business analyst, told to Business Insider.

“Frequently, the people who benefit the most from overbooking are the last few people to buy, The ones who are not able to make plans in advance,” Bhaskara said. “Often times those seats are available at the last minute are only available because that flight can be overbooked. The airline knows some people are going to be missing the flight.”

Ultimately, though, overbooking is done because airlines want to ensure that they are making the most money on every seat. So they use historical data to help them predict how many people will likely miss a flight on a certain route. And most of the time it works.

Bureau of Transportation Statistics indicate that in 2015 about one-tenth of a percent of passengers were denied boarding (bumped), and that roughly 90% of those were voluntary, meaning that they took the vouchers offered. Journalist Bob Sullivan notes that while the voluntary numbers are declining, the involuntary bumps remain fairly constant. He blames the vouchers:

Again, that means one thing: the voucher offers aren’t nearly good enough.

Let’s speculate about why that is.  I’ve heard from many readers today about the vouchers they get from airlines in this situation, and here’s the truth: Experienced fliers are wise to the game. They are saying no more often.  Vouchers aren’t all they are cracked up to be, and they certainly aren’t the same as cash.  They expire.  Sometimes their remaining value is surrendered (a $400 voucher gets a $300 flight and $100 disappears).  Most of all, the vouchers must be used on the airline that just did the bumping. Who wants to fly an airline that just kicked them off a plane!

And, like rebates, some of them are never used, giving the airlines a secret source of revenue.

Kwak’s central theme is that the free market only operates perfectly inside your Economics 101 class:

“… Because nobody is ever forced to make a trade (in theory, at least), a transaction only occurs if it makes both parties better off. … prices naturally adjust until supply equals demand. …”

Kwak notes that in the real world, there is, “a fundamental tension between efficiency and fairness,” which sometimes leads to price gouging, and now has led to a bloodied man being dragged off a passenger jetliner, and being vilified in the press for not going quietly.

Update 20170420, a popular article at The American Conservative quotes Fox, The Daily Mail and the Independent to paint Dao as a sharpie who instigated the whole mess, hoping for a lawsuit.

Choose Your Fake Reality

What are those Kubler-Ross stages of grief again? Oh yeah, denial, anger, bargaining, depression and acceptance. I think a lot of us are still in denial, or maybe anger, but at Salon, Andrew O’Herir seems to be bargaining, as he attempts to prepare us for a Presidency in which the traditional media may well be out of the loop:

Fake news, a fake president and a fake country: Welcome to America, land of no context 

… After an election cycle driven by lies, delusions and propaganda — including lies about lies, multiple layers of fake news and meta-fake news — we are about to install a fake president, elected by way of the machineries of fake democracy.

The country that elected him is fake too, at least in the sense that the voters who supported Donald Trump largely inhabit an imaginary America, or at least want to. They think it’s an America that used to exist, one they heard about from their fathers and grandfathers and have always longed to go back to. It’s not.

Their America is an illusion that has been constructed and fed to them through the plastic umbilicus of Fox News and right-wing social media to explain the anger and disenfranchisement and economic dislocation and loss of relative privilege they feel. …

I have a quibble with selectively blaming this or that media. For all of us, our view of America has been fed to us by selective memories of older folk, by what is taught in schools, and by what is portrayed in our increasingly intrusive media. Our parents talked about the good old days – that’s nothing new. We were also taught that America is a beneficent democracy rather than an opportunistic economic empire – jingoism is not terribly new either.

And, for just one example, my generation watched endless melodramas in which a hero shooting someone actually solved more problems than he caused. That sentiment might not have been new, but we’ve progressed from clean deaths on The Rifleman to blood spurting everywhere on Call of Duty.  Just yesterday we saw some self-styled hero trying to “clean up the town” at Comet PingPong – which ironically was the subject of a fake news conspiracy asserting Clinton and Podesta were child trafficking out of that pizza place’s non-existent basement.

Trump supporters certainly imagine a fake America in which white people are the good guys and darker people can only succeed by emulating us. But Clinton supporters just as certainly imagined a fake America in which business is booming, unemployment is falling, and things would get even better for everyone if only we passed the TPP.

Policies vs Identity

OK, I thought I was done with the angry Trump voter articles, but this one at the Washington Post is pretty good. They interviewed Kathy Cramer, a poly-sci prof from the University of Wisconsin at Madison, just before the election. When the Post felt that Cramer had slipped into the voice of the mostly rural people she sought out and listened to, they used italics – blockquote messes with italics, so I’m going to add bold:

Post: I want to get into this idea of deservingness. As I was reading your book it really struck me that the people you talked to, they really have a strong sense of what they deserve, and what they think they ought to have. Where does that come from?

Cramer: Part of where that comes from is just the overarching story that we tell ourselves in the U.S. One of the key stories in our political culture has been the American Dream — the sense that if you work hard, you will get ahead.

Well, holy cow, the people I encountered seem to me to be working extremely hard. I’m with them when they’re getting their coffee before they start their workday at 5:30 a.m. I can see the fatigue in their eyes. And I think the notion that they are not getting what they deserve, it comes from them feeling like they’re struggling. They feel like they’re doing what they were told they needed to do to get ahead. And somehow it’s not enough.

Oftentimes in some of these smaller communities, people are in the occupations their parents were in, they’re farmers and loggers. They say, it used to be the case that my dad could do this job and retire at a relatively decent age, and make a decent wage. We had a pretty good quality of life, the community was thriving. Now I’m doing what he did, but my life is really much more difficult.

I’m doing what I was told I should do in order to be a good American and get ahead, but I’m not getting what I was told I would get.

There’s another interview with Cramer on her observations after the election:

Here’s the thing that was really eye-opening to me this morning. Eventually, we got around to discussing specific policies. I asked, “So what are you hoping he accomplishes in the next four years? In what ways do you think he’s actually going to make your life better?”

And they kind of looked at me. And they said, Well, probably nothing. Presidents don’t do anything for people like us. But at least he’s going to balance the books and stop spending money that we don’t have.

More Hindsight

I remember in college when B Kliban’s cartoon book Cat (“love to eat dem mousies!”) became hugely popular and all of a sudden all the stores had all sorts of other cat cartoon books, too. At first I thought they were copycats (heh) but I realized a lot of this other work had already been out there, and was just getting noticed because of Kliban. Same goes for a lot of the magical books that rode the coattails of JK Rowling.

Right now, everyone is busy trying to explain why Trump won. Half of them are trying to set the narrative by trying to blame Comey or Stein or racists, but there is also a wealth of opinion on the white working class that simply wasn’t showing up before the election proved a lot of pundits dead wrong, and out of touch. Thomas Frank is one of the main sources, but at Harvard Business Review, Joan C Williams offers What So Many People Don’t Get About the U.S. Working Class:

Understand That Working Class Means Middle Class, Not Poor

The terminology here can be confusing. When progressives talk about the working class, typically they mean the poor. But the poor, in the bottom 30% of American families, are very different from Americans who are literally in the middle: the middle 50% of families whose median income was $64,000 in 2008. That is the true “middle class,” and they call themselves either “middle class” or “working class.”

“The thing that really gets me is that Democrats try to offer policies (paid sick leave! minimum wage!) that would help the working class,” a friend just wrote me. A few days’ paid leave ain’t gonna support a family. Neither is minimum wage. WWC men aren’t interested in working at McDonald’s for $15 per hour instead of $9.50. What they want is what my father-in-law had: steady, stable, full-time jobs that deliver a solid middle-class life to the 75% of Americans who don’t have a college degree. Trump promises that. I doubt he’ll deliver, but at least he understands what they need.

Williams goes on to explain that while the working class (including most of my siblings, and most of my wife’s family) admire rich people, they resent highly-educated professionals (such as me) and particularly professional women.

If You Want to Connect with White Working-Class Voters, Place Economics at the Center

“The white working class is just so stupid. Don’t they realize Republicans just use them every four years, and then screw them?” I have heard some version of this over and over again, and it’s actually a sentiment the WWC agrees with, which is why they rejected the Republican establishment this year. But to them, the Democrats are no better.

Both parties have supported free-trade deals because of the net positive GDP gains, overlooking the blue-collar workers who lost work as jobs left for Mexico or Vietnam. These are precisely the voters in the crucial swing states of Ohio, Michigan, and Pennsylvania that Democrats have so long ignored. Excuse me. Who’s stupid?

This is of course why everyone is bringing up NAFTA and the TPP (which presently seems dead in the water). Whether any sort of protectionism could have preserved manufacturing jobs is hard to say, but both parties certainly smoothed the way for employers to send them overseas. It seems unlikely that Trump can bring back all those jobs, but I expect him to make some symbolic gestures.