Sorry for the scheduling snafu…not sure what happened...maybe a substack glitch.
In today’s dispatch:
a regressive tax we can all believe in
but if you offer a convenient, helpful service, beware the Wrath of Kahn
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Feeling lucky?
Not much happened yesterday that wasn’t more of the same, so Random Walk won’t waste your time telling you nothing new about something you already know.
This, however, was kind of fun, in the tragic and outrageous way.
Selling dreams
On the one hand, you have state lotteries making billions of dollars selling negative NPV delusions to poor people (via The Economist):
Each 10% decrease in income is associated with a 4% increase in lottery spending.
To put a finer point on it:
In the poorest 1% of zip codes that have lottery retailers, the average American adult spends around $600 a year, or nearly 5% of their income, on tickets. That compares with just $150, or 0.15%, for those in the richest 1% of zip codes . . . the poorest households spend roughly 30 times more on lotteries than richer ones, as a share of income.
Sure, that’s a bit sad, ripping off poor people with promises of a better tomorrow, but it’s just business baby, and caveat emptor!
Making an offer you can easily refuse
On the other hand, you have Federal bridge trolls doing this:
$62M in extortion payments sent from Kahn’s Protection Services to customers of Opendoor.
What did Opendoor do?
Well, it made offers on homes that sellers could, in fact, refuse (and often did), and sometimes those offers were less than what sellers could have fetched on the open market (which they discovered after they declined Opendoor’s offer, as per their choosing).
Kahn’s FTC therefore determined that Opendoor misled customers by offering to save them money, because hypothetically, had they chose to decline Opendoor’s offer—and Opendoor’s easy, tech-enabled selling process—they might have gotten a better deal on the open market instead.
I mean, getting a better offer would have required all the stress and work of selling their home the old fashioned way, instead of choosing the ease and convenience of Opendoor’s tech-enabled way—and also a little luck and timing too, because other times Opendoor’s offer really was better—but the point is it could have happened and, with the benefit of hindsight, it might have been better.
Kahn caught ‘em red handed, amiright?!
I think the lesson here is that if you’re going to rip people off with false promises, you ought to (a) really rip them off—offering a convenient service at the same time is no bueno; (b) make sure the people you’re ripping off are poor; and (c) have friends in high places.
Otherwise, beware the wrath of Kahn.
Previously, on Random Walk
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The lottery piece to me screams (without getting too political) that folks in poorer regions are not looking for marginal increases in their pay (that often politicians spout as the answer to people's economic woes). People want to have much better standards of living, that doesn't come with a tiny pay increase.
They're looking for their shot at the American Dream...which for many is more and more out of reach, with a lottery being seen as a route (however illogical) to get there.
How do the cash for homes people get away with it? I assume they are in the same business. Is it just because they are doing it the dumb low tech way?