Archive for October, 2010

How do tax rates influence restaurant tipping?

Here’s an interesting behavioral economics question I just thought of. In California, sales tax in restaurants is either 8.5% or 9.5% (I think it depends on the local taxes of the city you’re in). So it wasn’t until I moved to California that I heard “just double the tax” as a common formula for quickly computing a 17-19% tip. And apparently SF has one of the lowest tipping rates in the country at an average of 18.6%.

Sacramento and Seattle also are on par with SF for tipping, and sure enough, Seattle’s combined state+local sales taxes are also around 9.5%. So does “just double the tax” actually serve to relatively depress restaurant tips because most people in other states are using other methods to do the tip computation?

UPDATE: It turns out that the lowest tippers of all are in Honolulu with average tips of 18.4%. Honolulu has a complicated excise tax in the 4.5% range – could Hawaii’s tippers be “quadrupling the tax” to compute their tips? The highest tippers are in New Orleans (19.7%), followed by Detroit, Denver, St. Louis, and Ohio. Could something else like cheaper food prices be leading diners to tip more generously in these places? Or is Zagat’s data just off?

UPDATE 2: Even the low end of 18.4% seems rather high to me for an average. It makes me suspect that the sample is probably coming directly from Zagat’s well-heeled reviewer base instead of some more general survey of tippers.

There’s a flip side to Democratic leaders not making a full-court press on the economy because they failed to appreciate the connection between economic results and electoral outcomes: it’s the disturbing percentage of the party rank-and-file that resisted stimulus either because they were just plain ignorant of basic Keynesian macroeconomics, or worse, because they’re carrying water for those who were dead-set against fiscal stimulus for reasons of ideology or personal interest (deficit hawks, rich Randian whackjob businessmen, inflation-paranoid creditors, etc.). That’s why you had idiots like Mary Landrieu patting themselves on the back during the ARRA negotiations for getting the stimulus down to a “reasonable” number and so forth, and why Larry Summers realized which way the political wind was blowing and quickly tossed out Christina Romer’s idea of asking for a $1.2 trillion stimulus. The result of this reasonable, serious, moderate thinking: next week’s electoral disaster.

Ideally I’d like to see an economic litmus test for Democratic candidates – if you so much as waver on whether you believe government spending can spur job creation and solve recessions, you should be treated the same way by the party as a candidate who believes in a flat earth. That’s probably an unrealistic wish, so as a plan B I think there needs to be some serious stepping up from the academic and center-left think tank communities on this. From day one of their Congressional campaigns, candidates need to have basic saltwater Keynesian macroeconomics relentlessly drilled into them by advisors. This is one of those subjects that suffers in the lobbying/information system Congress has today. Like with carbon emissions, lots of well-funded interests have an axe to grind against effective Keynesian fiscal policies, but no one interest group has a special reason to lobby hard for them because their benefits aren’t highly concentrated among a few people. This is a system that needs to change.

The conduit

It just occurred to me that as much as much as you hear about Harvard being a direct conduit for 22-year-olds to go into investment banking, I don’t actually have all that many college friends who ended up as bankers and consultants. In fact, of the 10 guys I lived with senior year, zero ended up in these fields. The final tally went something like:

2 doctors

2 teachers

2 physics grad students (I think)

1 humanities grad student

1 software engineer

1 marketing manager for a skiing equipment company

1 rabbi

A cursory check of my Facebook friends shows a pretty similar pattern. There are a couple of scattered McKinsey-ites, but they’re dwarfed by the number of med students and grad students. All of which isn’t to say that the stats about 40% of Harvard kids going into banking and consulting are wrong. Rather, what this shows is that I know how to pick friends!