An economics puzzle

I must not be the only person to have noticed the following peculiarity. Often when shopping for clothes at the end of the season, one finds that there are only a few items remaining in a particular style, and that these items are mostly in sizes XL and XXL. This is not to say that sizes S, M and L can never be found under such circumstances, but just that they tend to be noticeably under-represented. The situation is arguably a little puzzling. Why should certain sizes--in particular, the largest sizes--happen to be over-represented among the items left over at the end of the season?

The obvious though somewhat unsatisfying and answer is that there are many fewer people who take sizes XL and XXL than there are who take size M, and to a lesser extent sizes S and L, meaning that if everyone buys shirts at the same rate, there will tend to be a surplus of the largest sized items at the end of the season. The reason why this answer is unsatisfying is that it begs the question of why sellers don't simply purchase fewer of the largest sized items from their supplies, so as to ensure that their stock accurately reflects the distribution of sizes within the population. In other words, the answer requires one to accept that sellers behave irrationally by consistently purchasing more than the efficient number of the largest sized items. Indeed, the only way it could be reconciled with reasonable assumptions about the behaviour of sellers is if, due to the nature of the manufacturing process, the marginal cost of producing items is so small that it is profitable for sellers to simply purchase the same number of items in each size.

An alternative answer is that the puzzle does not really exist. Sellers do purchase the efficient number of items in each size, and there is no systematic tendency for items in the largest sizes to be left over at the end of the season. Rather, because there are fewer people who take sizes XL and XXL, there is more sampling error in the number of the largest sized items left over. On some occasions there are more of the largest sized items remaining than one's expectation, and on some occasions there are fewer of these items remaining. It is only because I am someone relatively close to the mean of the size distribution, who tends to purchase items in sizes S and M, that I notice when there is a surplus of the largest sized items left over.

Which large Western country is the most generous?

In this post, I attempt to gauge which of ten large Western countries (Australia, Canada, France, Germany, Italy, Netherlands, Spain, Sweden, UK, US) tends to be the most generous. The admittedly crude analysis is based on six metrics: public social expenditure as a share of GDP, private social expenditure as a share of GDP, foreign aid as a share of GNI, charitable giving as a share of GDP, volunteering as a share of GDP, and World Giving Index score; data from the latest available year are used in all cases except pubic social expenditure (for the sake of consistency with private social expenditure).

The table below displays the results; units, sources and years are given in the final three rows. The seventh column shows each country's rank on the mean value over the five metrics (which were standardised prior to averaging). It indicates that, overall, the most generous countries among those examined here are: the Netherlands in 1st place, the United States in 2nd place, and Sweden in 3rd place. The United Kingdom and Canada finish in 4th and 5th place, respectively.

A number of caveats are in order. First, several of the metrics are given relative to the size of a country's economy, which downplays the absolute generosity of the richest countries, notably the United States. Second, due to the nature of the averaging, public and private social expenditure are underweighted relative to the amount of money they involve, whereas foreign aid and charitable giving are overweighted relative to the amount of money they involve. This downplays the generosity of countries such as France, Italy and Germany. Third, 'generosity' is defined somewhat narrowly. No account is taken of a country's commitment to environmental goals, which downplays the generosity of the Netherlands and Germany. No account is taken of a country's military expenditures, which downplays the generosity of the United Kingdom, France, and particularly the United States. And no account is taken of a country's openness to low-skilled workers or refugees, which downplays the generosity of the United States and Sweden, respectively. Fourth, the large US figure for private social expenditure is partly attributable to the high cost of health insurance, which is predominantly provided through employers.

Krugman on Japan

I was browsing the web earlier, when I happened to come across a blog post about Japan written by Paul Krugman in February of 2013. In the post, Krugman acknowledges the important role that demography has played in Japan's apparent stagnation:

When people try to assess how Japan has done since its late-80s bubble burst, they often look at per capita GDP. But this can be deeply misleading, because of Japan's low birth rate and ageing population.

He proceeds to show that Japanese GDP per working-age person has actually been improving relative to the US since the late 1990s. As I have argued before, this is not to say that that Japan has performed spectacularly over recent years. But to quote Krugman again, "the seemingly overwhelming failure you see if you don't take demography into account just isn't clear."