Archive for August 2006

That Light May Be a Train

At least one homebuilder is predicting doom and gloom:

"It would be difficult to characterize the position of
home builders as other than in a hard landing," says Robert Toll, chief
executive of luxury home builder Toll Brothers Inc., which reported yesterday that net income fell 19% in the third quarter ended July 31. (See related article.)

In his 40 years as a home builder, Mr. Toll says, he
has never seen a slump unfold like the current one. "I've never seen a
downturn in housing without a downturn in employment or... some
macroeconomic nasty condition that took housing down along with other
elements of the economy," he says. "This time, you've got low
unemployment, you've got job creation, you've got a stable stock market
and relatively low interest rates."...

In much of the country, property markets began cooling
rapidly in the second half of last year. Home builders were still
turning out houses at a rapid clip, and the surge of new and previously
occupied homes on the market convinced buyers there was no need to
hurry. Over the past year, the number of previously occupied homes
listed for sale nationwide has risen nearly 40%. In some metropolitan
areas, including Orlando and Phoenix, the supply has quadrupled.

I never got that excited about the run-up in the price of my home, so I won't worry too much if it falls again.   For the average homeowner, the paper-price run-up of housing prices doesn't really have much meaning unless they are considering moving soon to a lower-home-price area or they are going to retire and downsize.  My house supposedly doubled in value in the last four years.  We went out shopping for a home in the area, and you know what?  All the other prices doubled too.  I could trade my current house for about the same house I could trade it for four years ago.  The only really beneficial effect was that the increase in home equity made for useful collateral in a business loan I took out.

Of course, the home speculators may take a bath - there are several latecomers to the speculation / spec home business in my neighborhood who are holding houses that won't sell for the huge prices they are asking.  I posted that this was coming over a year ago, using a model for contrarian investing I learned at the Harvard Business School:  Do the opposite of what doctors and dentists are doing.

Another Crazy Patent Decision

Apple just lost $100 million to a Creative Labs suit over iPod menus.  Stephan Kinsella isolates exactly what the unbelievable breakthrough it was that Apple will now have to pay for.  Here it is.  Be amazed at the genius involved, all you small-minded folks who would never have been smart enough to think of this for yourselves:

A method of selecting at least one track from a plurality of tracks
stored in a computer-readable medium of a portable media player
configured to present sequentially a first, second, and third display
screen on the display of the media player, the plurality of tracks
accessed according to a hierarchy, the hierarchy having a plurality of
categories, subcategories, and items respectively in a first, second,
and third level of the hierarchy, the method comprising:

  • selecting a category in the first display screen of the portable media player;
  • displaying the subcategories belonging to the selected category in a listing presented in the second display screen;
  • selecting a subcategory in the second display screen;
  • displaying the items belonging to the selected subcategory in a listing presented in the third display screen; and
  • accessing at least one track based on a selection made in one of the display screens.

Oh my god, like, my head is going to explode this is so revolutionary and complicated.  Someone just invented the hierarchical menu.  Jeez, how have we done without this all these years?  </sarcasm>

More Zero Sum Economics (Sigh)

I have tried many times to combat the absurdity of zero-sum economic thinking.  Unfortunately, Democrats seem to be testing income-inequality messages as their lead horse to ride in the upcoming elections, so we are going to hear a lot more of it.  It bothers me even more when smart liberals like Kevin Drum buy into the zero sum thinking.  To his credit, he doesn't totally buy into this mess from Paul Krugman:

The concern [is] that, through mechanisms we're not entirely sure of, the very richest are siphoning off the economic growth before it flows through the middle and lower classes. The worry is about the distribution of growth, but the suspicion is that the distribution is being warped by the sheer level of inequality.

But then he goes onto say nearly the same thing:

I'm not sure this gets the mechanism quite right, though.  There are two basic ways that unequal growth can happen:

  1. The rich suck up vast amounts of income growth, and this leaves very little money for the middle class. Thus, wages for the middle class are stagnant or, at best, rising slowly.

  2. Middle class wages are kept stagnant, and this frees up vast amounts of money from economic growth. The money has to go somewhere, and it goes to the rich.

Now, obviously, it doesn't have to be one or the other. It could be both. But I suspect there's a lot more analytic power in #2 than in #1.

And finally, this stupendously ridiculous statement:

After all, the income from economic growth has to go somewhere, and if it's not going to the middle class it's going to end up going to the rich. Where else can it go?

What's bizarre about all of these statements is it treats wealth, and in this case specifically income growth, like a phenomena that is independent of individuals and their actions.  They treat income growth like it is a natural spring bubbling up from the ground, and a few piggy people have staked out places by the well and take all the water before the rest of us can get any.

Wealth and income growth comes from individual action.  Most rich people are getting more rich because they are intelligently investing and taking risks with their capital, applying the output of their mind to create new wealth.  There is no (none, zero, 0) economic correlation that says that if the rich get really rich, then there is less left over for the poor. 

Here is his solution:

Now, there's certainly no reason to reduce marginal tax rates on the hyper rich in an effort to make inequality even worse than it otherwise would be. But as unjustified as this is, tax cuts aren't the main issue. Median wages are. Focus government policy like a laser on improving the wages of the middle class, and reductions in income inequality will follow.

And how the hell does he suggest the government do that?  Seriously.  Can anyone tell me one single thing the government can do to improve middle class wages that does not involve tax policy?  Well, we can back into his solution from this paragraph where he lists things the government can do that are bad for the middle class:

Appoint members to the Federal Reserve who are obsessed with inflation and act to cool down the economy at the least sign that average hourly wages are rising. Make it harder to form unions in new industries, thus reducing the bargaining power of the working class. Support free trade agreements that put downward wage pressure on low-income workers. Support tax and deregulation policies that make middle class jobs less secure.

So presumably, his solution to increasing middle class wages is: 1) allow inflation to run at a higher rate 2) encourage unionization  3) adopt protectionist measures for uncompetitive industries and stifle free trade  4) increase regulation on businesses and reverse deregulation in industries (presumably like airlines and telecoms).

I'm no Julian Simon, but if we could structure a bet as to whether these policies would help real middle class wages, I would sure take the opposite side from Mr. Drum.

Here is my theory for what is going on, if you even accept that middle class income stagnation is real and not a symptom of our difficulty measuring the benefit of improving products and technologies.  I think much like technological advances from time to time in the past have caused restructurings in the labor market for blue collar workers, we are going through the same thing, really for the first time, with white collar middle class workers.  Technology and globalization offer all sorts of opportunities for companies, and the result is a real restructuring of how many types of white collar workers are used.  Until this restructuring is complete, wages may stagnate, since any wage pressure will just lead to companies implementing changes from their backlog of streamlining opportunities.

At some point we will work through this, and wages will rise again.  If anything, I think the government does damage by slowing this process down.  Note that nearly every one of Drum's suggestions would slow or stop this restructuring.  This is one of the ironies of progressives -- despite their name, what they don't like about capitalism is the change.   They want safety and predictability from the inherently unpredictable.  So protectionism slows global outsourcing, and also reduces the pressure for cost improvement.  Regulation tends to lock in current practices and make changes harder.  Ditto strong unions.

One of the reasons I like some of what Bill Clinton did was that in the early 90's, he faced tremendous pressure to take many of these same steps, trying to halt the economic restructuring that was occurring due to competition from Asia.  He didn't have the government step in, though, and he supported free trade, and the country thrived.  His fellow Democrats (including his wife) should learn from that.

update:  A real economist (unlike me and probably Paul Krugman) discusses inequality and unionization

update #2:  More real economists, this time the awsome guys at Cafe Hayek, pile on.

Google Feed Reader

I am playing around with the new Google feed reader, and it has its good and bad points, but its not bad and the price is right (free).  The coolest part is being able to star your favorite posts and have them show up in a box on your own blog -- you can see it on this site a ways down on the right.  I still can't get the colors and font right, but it is still a beta.

The Ocho!

I wasn't too impressed with the movie Dodgeball, but I did enjoy the
niche sports spoofs associated with the mythical ESPN "the Ocho."
Today at lunch, I saw a crowd gathered around the TV, and went to see
what they were watching.  On ESPN - the main one, not the deuce - was the world sport stacking championships.
Basically, this is a timed race to stack drinking cups in fixed
patterns (pyramids and such).  I could not believe this was on TV.  It
was far more outrageous than any of the sports they came up with on the
Ocho.  Also, the kids doing it were fast -- a couple were such total
blurs with the cups I thought the tape was sped up.  There is no way
you can adequately picture this without seeing it - Click on one of the videos in the lower-center of this page.  The kid in the Comcast video on the right is pretty good too.  Oh, and get your gear here.

Leaving Poverty in China

Michael strong has a great article in TCS Daily about Chinese citizens pulling themselves out of poverty:

Between 1990 and 2002 more than 174 million people escaped poverty in China,
about 1.2 million per month.

In part he credits America's newest great Satan, Wal-mart:

With an estimated $23 billion in Chinese exports in 2005 (out of a total of $713
billion in manufacturing exports),[2] Wal-Mart might well be single-handedly responsible for
bringing about 38,000 people out of poverty in China each month, about 460,000
per year.

There are estimates that 70 percent of Wal-Mart's products are made in
China.[3] One writer vividly
suggests that "One way to think of Wal-Mart is as a vast pipeline that gives
non-U.S. companies direct access to the American market." [4] Even without considering the $263 billion in
consumer savings that Wal-Mart provides for low-income Americans, or the
millions lifted out of poverty by Wal-Mart in other developing nations, it is
unlikely that there is any single organization on the planet that alleviates
poverty so effectively for so many people.[5] Moreover, insofar as China's rapid manufacturing growth
has been associated with a decline in its status as a global arms dealer,
Wal-Mart has also done more than its share in contributing to global peace.[6]

It is almost certain that abusive practices exist in some of Wal-mart's Chinese suppliers -- in particular, slavery and compelled work must end and be opposed by all of us.  But wages that are "too low" is not one of these abuses.  In fact, wages at these suppliers, that comfortable middle class Americans decry as too low from the safety of their Pottery Barn couch, are actually a victory for Chinese workers.  Strong provides the context that is always missing from attacks on Chinese wages:

If we care about alleviating global poverty we need to take this fact
seriously. Without Wal-Mart, about half a million of these people each year
would be stuck in rural poverty that is, for most of them, far worse than
sweatshop labor.

And he provides some context as well for the futility of charitable aid:

Other than economic growth, there is no way to double the salaries of a 100
million people (and growing). After the 2004 Asian Tsunami, more than one-third
of Americans gave more than $400 million in charitable aid, an extraordinary
outburst of giving by any standard. And yet there are more than 630 million
rural Chinese remaining, many of whom are living on less than a dollar per day.
While each would welcome a charitable dollar if we could get it to them, that
charitable dollar, representing one good day's worth of income, would not do
them nearly as much good as would a job in the city paying twice as much day in,
day out. Charity cannot take place on an adequate scale to solve global

I made similar points in my post several years ago on why progressives hate capitalism:

Progressives do not like American factories appearing in third world
countries, paying locals wages progressives feel are too low, and
disrupting agrarian economies with which progressives were more
comfortable.  But these changes are all the sum of actions by
individuals, so it is illustrative to think about what is going on in
these countries at the individual level. 

One morning, a rice farmer in southeast Asia might faces a choice.
He can continue a life of brutal, back-breaking labor from dawn to dusk
for what is essentially subsistence earnings.  He can continue to see a
large number of his children die young from malnutrition and disease.
He can continue a lifestyle so static, so devoid of opportunity for
advancement, that it is nearly identical to the life led by his
ancestors in the same spot a thousand years ago.

Or, he can go to the local Nike factory, work long hours (but
certainly no longer than he worked in the field) for low pay (but
certainly more than he was making subsistence farming) and take a shot
at changing his life.  And you know what, many men (and women) in his
position choose the Nike factory.  And progressives hate this.  They
distrust this choice.  They distrust the change.  And, at its heart,
that is what the opposition to globalization is all about - a deep seated conservatism
that distrusts the decision-making of individuals and fears change,
change that ironically might finally pull people out of untold
generations of utter poverty.

Pre-Season College Football Rankings are the Most Important

Yes, that's what I said.  The pre-season college football rankings are absolutely the most important poll of the year, at least if you think your school has a chance to be #1 at the end of the year.  That can't be right, you say -- surely a poll taken before anyone has played a game is the least important. Here is my reasoning:

In theory, voters in the college football polls each week come up with their current ranking of teams, which in theory could be very different from how they ranked things the previous week.  In practice, however, voters start with their rankings of the previous week and then make adjustments up and down for individual teams based on that week's game results.  The result is as I described in the comment thread of this post at the Sports Economist:

In effect, the college football rankings are a bit like a tennis ladder. Each
week, losers drop down 3-8 spots and all the winners and no-plays move up to
fill in the vacated spots. Sometimes a team will leapfrog another, but that is
rare and it is extremely rare to leapfrog more than 1 or 2 spots. In this sense, the
initial football poll is the most critical, since only those in the top 10-15
have any chance of moving up the ladder to #1.

In effect, the pre-season poll is the baseline off which all future polls start.  I haven't done the research, but you could probably refine my statement in last sentence above to a set of rules such as:

  • A three-loss team can never win the championship
  • A two-loss team can win but only if they start in the top 5 of the pre-season poll
  • A one-loss team can win but only if they start in the top 15
  • An undefeated team can win even if they were left out of the initial top 25, but only if they play in a major conference.  A minor conference team, even undefeated, will not ever end up #1 unless they started the season in the top 25.

Again, the numbers in these rules may not be exactly right, but I think they are directionally correct.  This is what I call my theory of College Football Calvinism (the religion, not the cartoon character) since one's ultimate fate is in large part pre-ordained by the polls even before the season is born.  So, if your alma mater has any shot at the title, you should hope your AD is out there in the summer lobbying the writers like hell to up their pre-season poll standings. Every spot you gain in the pre-season poll is one you don't have to win on the playing field.

Unintended Consequences at Work

A reader emailed me this article about the Endangered Species Act at work:

The sharp chirps of the endangered red-cockaded woodpeckers and the
whine of chain saws sound discordantly in this coastal community of old
pine forests....

The woodpecker's status as an endangered species requires special
measures to try to prevent its extinction and restore its population,
wildlife officials say. That's the law. Wildlife officials gave the
town maps pinpointing woodpecker nests. No building or tree cutting is
allowed within 200 feet of a nest tree without a federal permit. Some
restrictions on development also apply to 75-acre circles around each
nest site to provide foraging area for the birds....

Since word got around this spring that owners could
face problems selling land or building houses where the birds lived,
people have been rushing to clear undeveloped lots of pine trees and
yanking the woodpecker welcome mat.

More than anywhere else in
North Carolina, Boiling Spring Lakes is a place where the coastal
development boom and the federal Endangered Species Act have collided.

are just afraid a bird might fly in and make a nest and their property
is worth nothing," said Joan Kinney, mayor of Boiling Spring Lakes in
Brunswick County. "It is causing a tremendous amount of clear-cutting."...

Bonner Stiller, a state lawmaker from Brunswick County, has owned a
pair of lots as an investment here for more than 20 years. He cleared
them recently. Stiller said he was sorry to lose the trees but wanted
to protect his investment.

"You had to get in line to get
somebody with a chain saw," Stiller said. "I have not a single pine
tree left. Folks around here are terrified of the prospect of losing
their property. That causes people to get out there and find out what
they can do to protect themselves."

In the past, I have divided environmental law into two categories:  emissions law, which is not only consistent with but a must for the maintenance of a strong property rights regime; and land use law, which tends to be an affront to property rights.  You can read more on this distinction here.  This situation is a great example of why land use environmental law is such a problem.

Take a step back.  Consider that some (but by no means all) people in this country value the continued existence of the red-cockaded woodpecker.  There are several ways they might pursue this goal, which I will put in order of decreasing attractiveness:

  • They can get together, voluntarily pool their money, and seek to purchase land that might be habitat for the woodpecker and voluntarily set aside what is now their land from development.  This is the best solution, and the only one that operates without resorting to the use of force against individuals.  Oranizations like the Nature Conservancy and other land trusts work this way.
  • They can get the government to tax everybody in the country a few extra cents, flow these cents together into big dollars, and have the government buy the land (or seize it via eminent domain) and set it aside as open space or parkland.  This takes money by government force from people who don't value the woodpecker's survival, but at least it spreads the cost wide and thin.
  • They can get the government to declare that the twenty-five or thirty people who have these birds on their land can no longer do anything, from development to tree-cutting, on their land.  This option is the worst, because it lands the entire cost of the woodpecker's survival on just a few individuals, and it costs these individuals inordinately high amounts of money in the form of reduced property values  (if you can't do anything to a piece of raw land, the resale value effectively drops to zero).  I personally hold a piece of raw land for future development of a vacation or retirement home.  A substantial portion of my net worth is in this land.  If it were to be suddenly made worthless, much of my life's savings would be gone.

As an interesting note, I have ranked these options in descending order with an eye to fairness and individual rights.  However, if we instead rank these options from the perspective of the average Congressman and his/her political calculations, we actually get the reverse order!  The first option of private action is the worst from your average Congressman's point of view, because then there is nothing they can take credit for in their next election campaign.  The second option is better, but would involve a tax or deficit increase he might conceivably be dinged for.  The third is the best for our average politically-calculating Congress critter, since it results in an outcome he can take credit for with important interest groups, and the costs are almost totally hidden, and born by just a few people who don't have many votes and may not even be in his district.  Not surprisingly, this is the approach Congress has taken, via the Endangered Species Act.

There is some hope that this problem may eventually get worked out the right way, at least in Boiling Springs Lake:

The Nature Conservancy hopes to help. Since 1999, it has acquired about
6,500 acres that form a horseshoe around the center of town. The land,
much of which is wetlands, has two groups of woodpeckers. Woodpeckers
typically nest in clusters of 3 or more birds with one breeding pair
and helpers. In time, the land could support six or eight clusters as
the conservancy adds more land for a nature preserve.

Are Fossil Fuels really Fossil?

I just finished reading the Deep Hot Biosphere by Thomas Gold.  I thought it was a really interesting read, though be forewarned that this book is treated like the moral equivalent of 9/11 conspiracies by much of the petroleum engineering profession.  Mr. Gold's hypothesis is that our oil and natural gas is not a result of dinosaurs and ferns getting mashed under the earth into oil  He posits that methane is naturally occurring in the earth in huge quantities, and the oil and gas we are exploiting are actually this naturally occurring methane either coming up as-is or converted through chemical and biologic processes underground into heavier oils.  We now know that many of the planets in our solar system have large amounts of naturally occurring methane - why not the Earth?

I found his hypotheses very well reasoned and compelling.  I had a few questions I would have like to ask of him, but he died in 2004.

Double Secret Probation

Why even bother to filibuster when you can put legislation on secret hold.  While this story is highly ironic, I suppose the Senator involved has to at least be credited with consistency in his/her opposition to transparency for putting a "secret hold" on a bill to increase the public's visibility of the earmark process:

Yet most Senators clearly have no desire to shine a light on their
spending practices, and at least one -- perhaps more -- has placed a
"secret" hold on the legislation. Normally the architects of these
holds are exposed within a few legislative days, but with Congress on
recess the masked spender has so far evaded capture and public scrutiny.

Porkbusters, a grassroots outfit that fights government waste, found
this untransparent move to stymie government transparency a bit rich,
and last week launched a campaign to unveil the blocker's identity. It
has asked its members to call on their Senators to disavow the hold,
and the responses are trickling in. The group, which is tracking the
results on its Web site (, still has the pictures
of 91 Senators under its "Suspect" list. The nine Senators who have
denied placing the hold are now listed as "In the Clear"; they are
Senator Coburn, Barack Obama, Mary Landrieu, David Vitter, John McCain,
Ron Wyden, Richard Shelby, Jim Inhofe and Jeff Sessions.

If Congress insists on spending like there's no tomorrow, at least
the Members could let the voters see what they're spending it on by
passing Senator Coburn's reform. Will the real secret Senator please
stand up?

Oops, I Missed Myself In Print

One of the modern world's newest guilty pleasures is Googling yourself.  One of the unsung virtues of blogging is that it tends to help you dominate the Google rankings for, uh, yourself.  Anyway, I Googled myself tonight (Everybody does it.  Really.) and found that I missed a mention entirely in Business Week online, in this article about "blooks", the cutesie name for making a book out of blog content.  My logic for doing so is in the last section.  I will save you the click:

Another benefit of publishing blooks on paper? Archiving. Warren Meyer,
of Paradise Valley, Ariz., first printed out the two volumes -- 400
pages each -- of his blog entries last November as a Christmas gift for
his dad, who is 83.

"He refuses to do anything online," says Meyer, who has been blogging for more than two years. Meyer
has also kept a copy of his blook, based on, discussing
environmental problems, for himself: "Everything I've ever written is
online," he says. "I wanted to archive my writing, and I don't trust
that electronic media is a good archiving tool, because standards and
technology change so much." While few people now use floppy disks,
paper is here to stay.

I have tried to explain this to younger folks without much success.  But for those of you who have used computers for a while, where are your old Compuserve emails?  How about those old files from your Apple II?  Does your current computer have a 5-1/4" floppy drive?  Beware keeping data only in digital form.  It may still be there in 20 years, but will you be able to read it?

Update: Forgot the link.  Added it.

JonBenet Case Not Over

I'm not really into all that crime drama and true crime stuff.  I have not watched a singled episode of either CSI:Whatever or America's Most Wanted.  I don't even know what the whole Scott Peterson thing was about.  But from 1996 to 1999, I lived in Boulder, Colorado.  And for much of that time, the murder of JonBenet Ramsey dominated the news.  You may think you got tired of hearing about it, but in Boulder we lived in it like a fish lives in water.  There was no escaping it.  One could become an expert on the case just by osmosis.  The local paper seemed to have a whole section dedicated to the case.  The US could have invaded a small nation in Asia and I would have missed it in those years.

That being said, I can't believe this guy they arrested in Thailand did it.  Or at least did it alone.  There is just too much evidence in the case that if the murderer was not one of the parents, it at least had to be someone very close to the family.   I won't bore you with specifics:  If you don't know it all by heart, you certainly don't want to hear it from me.  But someone will somehow have to explain all the ransom note stuff.  Someone who knew JonBenet would have an incentive to fake up the ransom note as a way to create a motive for the killing that diverted police attention away from people close to the child (who are always the police's first suspects).  But why would a mysterious third party feel such a need, and how did the ransom demand exactly match the amount of Mr. Ramsey's recent bonus check?  And if the Ramseys are entirely innocent, they have a lot of explaining to do about why they did absolutely everything they could to impede the investigation into the daughter's death.   Already his story is breaking down.  I guess the guy could conceivably be involved but in that case expect the story to be bizarre.

Update: In searching for news on this case, I found this insightful analysis of her murder based on astrology:

This opposition squares another opposition: the
opposition between the Sun and the Moon. The Sun often represents the
father in a birthchart
and the Moon the mother, and here it appears that the father was the
more nurturing parent and the mother was more dominant. Jonbenet's Moon
conjuncts the Midheaven, or cusp of the tenth house of career and
public life, showing Patsy Ramsey (Moon) was instrumental in Jonbenet's
young stage life (having herself been a beauty queen). The Sun, or the
father, is conjunct the cusp of the fourth house of the home and
Jonbenet may have been close to her father, but the square of both Mars
and Pluto to both the father and mother archetypes (Sun and Moon) shows
that there was very little safety in the relationship with either
parent. Pluto in particular, when in challenging aspect to the Sun (the
essential Spirit) and the Moon (emotional security and safety), can be
deeply frightening and there is a sense that the parents, and life
itself, are dangerous.

LOL, this is only a short taste of a much longer analysis.

Anatomy of an Earmark

I was fooling around with a great web page run by the Sunlight Foundation linking earmarks from a recent Health and Human Services bill to Google maps.  Here are some of the earmarks in the Phoenix area:

  1. $ 400,000 -- Midwestern University for a rural postgraduate educational program at Sierra Vista Regional Medical Center
  2. $ 150,000 -- St. Joseph's Hospital for facilities and equipment for its mobile maternity outreach program
  3. $ 750,000 -- Translational Genomics Research Institute for facilities and equipment
  4. $ 250,000 --  Arizona State University Institute of Civil Rights, for dropout prevention and other education projects
  5. $ 125,000 --  Mesa Community College for nursing recertification curriculum
  6. $ 175,000 --  Mesa Community College for the Enfermeras En Escalera program
  7. $ 200,000 -- Marc Center for job training for adults with disabilities
  8. $ 500,000 -- Scottsdale Healthcare for an electronic medical records system
  9. $ 100,000 -- Arizona Dental Foundation to provide dental services to low-income residents of Arizona

Note that this is just from one narrowly focused bill and for one single metropolitan area.  For this one post, I will not be a libertarian and wonder why the government is spending money on some of this crap.  Instead, for one post, I will be a good little technocrat and assume that the government should be doing all these things and criticize the process.

If I were a technocrat, I would argue that Congress already funds an ENORMOUS beauracracy to route federal money to theoretically the most productive spots.  I mean, that's the whole technocratic argument for all this government spending, isn't it?  That the government run by experts in the field can top-down allocate resources better than some bottom up market process?

Ideally, in any budgeting process, you look at your goals for a pool of money - say to cure breast cancer or to provide worker retraining, and you rank projects and allocations against this goal.  I believe this to be an impossible task for a variety of reasons, some of which are described here.  But even if you buy into this theory of technocratic fascism, you STILL have to be appalled by these earmarks.  Because each and every one are an override of any kind of prioritization and thoughtfullness that might exist in the budgeting process.

Take #9.  So the government has a goal of providing dental services to low-income people.  Fine.  Then shouldn't it take its dental services budget and allocate it on the best cost per patient served basis?  Does the Arizona Dental Foundation fit into this picture?  I bet no one in Congress knows.  In fact, I bet it DOESN'T fit this efficient allocation of funds criteria, because otherwise someone in Congress wouldn't have overrrided the funding process to push $100,000 their way in an earmark.  And even if this is a non-profit, shouldn't this kind of thing be bid on -- say ask for proposals of who can do the most with $100,000?

Some of these others are pretty obscure, and say something in and of themselves about the reach of the federal government these days.  But take #3.  Is the Translational Genomics Research Institute the best place to spend 3/4 million to get the most bang for our health research dollars?  No one probably knows, but what I can tell you is that it is the darling of our local political establishment (just read its history, all about political namedropping, new facilities, and whoring for taxpayer funds without mention of any actual research).  It has political figures such as our current governor on the board, so you might be able to guess how they got their earmark.

Or look at #8.  Scottsdale Healthcare is a private company, though a not-for-profit.  It is a large provider of private, paid medical services in our area.  It, out of all of its competitors in town, both non-profits and for-profits, was chosen by Congress to get its medical records system upgraded by the US taxpayers, why?

Worst Music Video of All Time

Thank God for YouTube.  Now, the worst music video of all time is available again online.

Congressman Shadegg, What are you Doing?

My Congressman, John Shadegg, is a generally reliable opponent of taxes and expansions of government.  So why is he sponsoring this garbage:

The House last week overwhelmingly approved and sent to the Senate
bipartisan legislation by Congressmen Brad Sherman and John Shadegg to
fund joint research by Americans and Israelis into alternative energy

"Cutting-edge research by top scientists from the United States and
Israel could reduce our reliance on foreign oil by promoting more
efficient uses of traditional energy sources and by developing energy
alternatives," Sherman said.

The Shadegg-Sherman legislation would establish in the Department of
Energy an International Energy Advisory Board to advise the secretary
on the $20-million-a-year grant program authorized by the bill. The
United States-Israel Energy Cooperation Act would encourage cooperation
on research, development, and commercialization of alternative energy,
improved energy efficiency and renewable energy sources.

Why, why, why?  I understand, but don't accept, the political pressure to increase alternative energy spending (though see here on its effectiveness) but why are we creating yet another program and grant bureaucracy?  And why should the funds not be spent on the most promising research out of the entire superset of possible projects but be narrowly focused on only investing in a portfolio of projects presumably combining US and Israeli citizens?

In Case You Thought Anti-Trust Was About Consumers, Part 2

In this post I said:

I could spend all day discussing the follies of anti-trust law.  But
one of the memes that still seems to hang on is that anti-trust was
designed as a form of consumer protection, with the government
protecting consumers from the monopoly power of consolidated

I am not enough of a business historian to comment on whether
anti-trust has ever been used for consumer protection, but it is clear
that it is not any more.  That has been one very expensive lesson we
can all learn from the Microsoft anti-trust cases, both in the US and

Here is further proof.  NicSand, who used to have 2/3 of the retail channel for sandpaper locked up with exclusive deals, is complaining that 3M has usurped them and has taken their market share.   NicSand enjoyed monopoly margins for years, finally faced long-overdue price competition from 3M, and lost a lot of the business.  So they sued for anti-trust.

Between 1997 and 2000, 3M entered into contracts to supply automotive sandpaper
to Advanced Auto, Autozone, CSK and KMart and did so at prices ranging from 10%
to 30% over NicSand's costs. But nothing about this sequence of events suggests
an antitrust violation. As to the market share that 3M garnered over these
years, "it takes one to know one" is hardly an accredited hallmark of antitrust
liability"”particularly when NicSand's apparent solution to this problem is not
to encourage the entry of other suppliers to this lopsided market but to
preserve its 67% market share. As to 3M's discounting, NicSand of course has no
right"”under the antitrust laws no less"”to preserve 40"“50% margins on a product
that (so far as the allegations are concerned) does not take any ingenuity to
make. One can fairly doubt the size of NicSand's and 3M's R&D departments
for automotive sandpaper.

Unable to argue that 3M's discounting amounted to anything but legitimate (and
apparently long-overdue) competition, NicSand focuses on the fact that 3M
entered into exclusive contracts with the four large retailers that switched
from NicSand to 3M. Yet according to NicSand's amended complaint, the retailers
made exclusivity one of the preconditions for doing business with a new
supplier. The complaint says that the large retailers (1) choose to carry just
one brand of automotive sandpaper for sale to consumers, (2) re-negotiate these
one-brand contracts just once a year, (3) require a new supplier to purchase the
retailer's existing supply of automotive sandpaper, (4) require a new supplier
to provide racks and other display equipment, (5) require a new supplier to
produce a full line of automotive sandpaper and (6) require a new supplier to
provide a discount on the retailer's first order. NicSand of course complied
with these requirements in obtaining the supply business it held in 1997, and 3M
complied with them in winning some of that business away. If retailers have made
supplier exclusivity a barrier to entry, one cannot bring an antitrust claim
against another supplier for complying with that precondition. Put another way,
NicSand did not sue 3M insisting that it had a right to share shelf space; it
sued 3M because it wanted that shelf space all to itself"”just as it had it in
1997. This is precisely the kind of all-for-one-and-all-for-one competitor claim
that the antitrust laws do not protect.

Anti-trust is not about the consumer.  It is about one company trying to use the government to sit on its competitors.

Update: Oh, and in case you thought liscencing of professionals was about consumers rather than protecting incumbent competitors, example number 439,126:

If you've spent as much time on farms as I have, you may imagine that
floating horse teeth has something to do with a backup of equine urine. It
actually refers to the time-honored practice of filing horses' teeth to prevent
them from getting uncomfortably long. At the behest of veterinarians (who
else?), the state of Minnesota is trying to limit
the service to veterinarians, and the Institute for Justice (who else?) is challenging
the protectionist regulations in state court.

Should you balk at going to veterinary school just so you can file horse
teeth for a living (a technique veterinary schools don't even teach), Minnesota
will give you a pass if you 1) have more than 10 years of experience or 2) pass
an exam given by the Dallas-based International Association of Equine Dentistry.
"To qualify to take the IAED's test," I.J. notes, "you must float the teeth of
250 horses under the supervision of an existing IAED member. Not only are there
no IAED members in Minnesota, it is illegal to float without a license. So, to
abide by the law in Minnesota, you must break it."

And the Winning Low Emissions Technology is...

The one the government did not support, plan for, or subsidize.

It increasingly looks like hybrids, particularly newer plug-in hybrids, will be the high MPG, low-emission technology winner in the foreseeable future.  The US and California governments, among others, have subsidized (and at times mandated) pure electric vehicles, hydrogen vehicles, natural gas powered vehicles, and fuel cell powered vehicles.  While some governments have come along with ex-post-facto promotions of hybrids (e.g. ability to use the carpool lane), hybrids have been developed and won in the market entirely without government help and in places like California, effectively in the face of government opposition (because they were stuck on zero emission vehicles, low-emission vehicles were opposed)

Plug in hybrids have many of the advantages of electric vehicles without the range problems.  They use standard gasoline so they avoid the new fuel distribution issues of natural gas and hydrogen.  And fuel cell technology may be great one day but is not there yet.  I was reminded of all this by this article by Stephen Bainbridge on why the EV-1 failed.

Update:  This reminds me of the 19th century transcontinental railroads - UP, SP, NP, GN etc.  Only one of these transcontinentals did not get any federal land grants or government financing -- the Great Northern of James J. Hill -- and not coincidently the GN was the only one not to go bankrupt in the close of the century.

Find the Deep Pockets

In my new novel, one of the elements of humor is added by a fictional law firm that has no sense of right and wrong but a very finely tuned sense for who has deep pockets.  Early readers of the book have accused me of exaggerating reality.  In fact, all the humorous cases in the book are based on real analogs.  Just check out this one via Overlawyered:

Katoria Lee refused a carjacker's command to surrender her car-keys in 2001, so
he shot her in the back. This, a Georgia state court jury decided, was the fault
of Wal-Mart, who owned the parking lot where the shooting occurred. Eric Deown
Riggins, 22, was caught within minutes, and is serving a 15-year sentence in
state prison for the crime.

Katrina was Government Revealed

It frustrates me some when the government's Katrina response is cited as an example of government failure.  This implies that the government should perform better, but just didn't in this particular case because of some process or personnel problem.  But the government's Katrina response was not the government failing, but the government doing exactly what it always does.  Governments of all types are hard-wired to produce the mess we saw.  And it was a mess, as Ralph Reiland summarizes a recent NY Times article:

  • An estimated 1,100 prison inmates across the Gulf Coast collected in excess
    of $10 million in rental assistance and disaster-relief money. Crime pays! FEMA,
    in addition, distributed millions of tax dollars to people who used names and
    Social Security numbers belonging to state and federal prisoners.
  • A hotel owner in Sugar Land, Texas, has been charged with submitting
    $232,000 in invoices for evacuees who allegedly never stayed at his hotel,
    billing FEMA for purportedly empty rooms or rooms occupied by paying guests or
    hotel employees.
  • An Illinois woman who was living in Illinois at the time of the storm sought
    relief benefits by claiming she had watched her two daughters drown in the flood
    waters of New Orleans. The children never existed.
  • A Department of Labor employee in Louisiana, appropriately named Wayne
    Lawless, has been charged with handing out nearly 100 falsified disaster
    unemployment benefit cards in exchange for kickbacks of up to $300 per card.
  • In New Orleans, two FEMA officials have pleaded guilty to pocketing $20,000
    in bribes in exchange for inflating the count on the number of meals a
    contractor was serving to relief workers.
  • With the $2,000 debit cards distributed by FEMA for disaster relief, an
    estimated 5,000 people have double dipped, receiving both the $2,000 plastic
    card and a second $2,000 by check or electronically.
  • Two men, one a representative of the Army Corps of Engineers, have pleaded
    guilty to taking kickbacks in exchange for approving payments for removal of
    nonexistent loads of hurricane debris. In contrast, with loads of debris that
    were not nonexistent, a councilman in St. Tammany Parish, Louisiana, has been
    charged with attempting to extort $100,000 from a debris-removal contractor.
  • One creative scam artist is charged with collecting 26 federal disaster
    relief checks totaling $139,000 by using 13 Social Security numbers and fake
    claims of damage at bogus addresses. Others collected and pocketed hurricane
    relief donations by posing as Red Cross workers.
    All told, what the above
    represents is "one of the most extraordinary displays of scams, schemes and
    stupefying bureaucratic bungles in modern history," reports the Times, "costing
    taxpayers up to $2 billion."

Note that this isn't a unique failure - this story can be written about any government handout program.  And this wasn't a case of FEMA moving too fast without restraints when everyone around it was signaling caution - in fact just the opposite.  Everyone on the sidelines at the time was criticizing FEMA for being too slow in handing out money willy-nilly.

One of the problems never discussed very often is that increasingly, the government has insisted on an exclusive monopoly position for itself in providing disaster assistance.  In effect, past disaster assistance was provided by people you never see or hear about, private people taking private action.  In Katrina, the government worked hard to shut most of these people out.  So, in this sense, Katrina was probably a worse response than in other disasters because the bottom-up, thousands-of-people-helping-out response was not allowed.  FEMA, under pressure from both sides of the aisle, increasingly take the Al Haig "I'm in charge here" approach, much to everyone's detriment. 
Unfortunately, most analyses of Katrina are saying the government did not do enough.  I think it did too much.

The Franchise Trap

Yet another company is falling into what I call the franchise trap, as Krispy Kreme's woes continue, including closure of its Arizona stores.  Just about 5 years ago, I remember when they first showed up here in Phoenix - there were long lines and police directing traffic around the stores.  Now, they're dead.  And the corporate parent is struggling.

If memory serves, Boston Chicken (now Boston Market) and Jiffy Lube both had their corporate parents go into bankruptcy at the back end of their wild growth phases.  This is what I mean by the franchise trap:  Franchises generally start out as a single location that does well.  Wanting to grow quickly, and lacking the capital to build their own stores, they adopt a franchise model for growth.  Soon, wild growth may ensue if their concept is good, and they discover that selling franchises is more profitable than selling whatever they sold in the store.  Once the growth phase ends, though, they often hit an iceberg.  Inevitably, they find that many of their franchisees either can't cut the mustard or chose poor locations and go bankrupt.  In addition, they must make the transition back from growing by selling franchises to growing by incrementally improving the core business.  Many can't make this transition back, corporate bankruptcy ensues, and someone who is an operator rather than a franchise promoter comes in and cleans up the house.

Tragedy of the Commons

I have been a Tiger-lover for years, going back even before my days at Princeton.  Over the years, I have given to various tiger defense funds, generally with a feeling of hopelessness.  The total dollars someone can gain from stripping a tiger of all of its lucrative parts is almost drug-money high, due to the popularity of tiger bits in various Asian "medicines."

This proposal from Barun Mitra, as quoted by Cafe Hayek, is the first one I have seen that might have a chance.  He proposes to allow ownership and commercial farming of tigers, to give incentives to breed and preserve the species.  This is a classic tragedy of the commons problem, where current lack of clear ownership of the valuable assets (here, tigers) lead to harvesting without heed to the long-term value of the asset.

At present there is no incentive for forest dwellers to protect tigers, and
so poachers, traffickers and unscrupulous traders prevail. The temptation of
high profits, in turn, attracts organized crime; this is what happens when
government regulations subvert the law of supply and demand.

But tiger-breeding facilities will ensure a supply of wildlife at an
affordable price, and so eliminate the incentive for poachers and, consequently,
the danger for those tigers left in the wild. With selective breeding and the
development of reintroduction techniques, it might be possible to return the
tiger to some of its remaining natural habitats. And by recognizing the rights
of the local villagers to earn legitimate revenue from wildlife sources, the
tiger could stage a comeback.

I've met a lot of World Wildlife Federation folks in my life, and can say that few of them trust capitalism and many hate it.  My gut feel is that these guys would rather see Tigers die off than end up as commercial herd-beasts, so I am pretty sure this proposal will never, unfortunately, get adopted.

Welfare for Everyone

Congrats to Santa Barbara for breaking new ground in government paternalism:

The City Council here had already created a class of affordable housing
several years ago for people making up to 200% of the median income.
Last week, they agreed to tailor the Los Portales project for people
making up to 240%, or nearly $160,000. (To keep these affordable condos
affordable, buyers would be subject to price controls on resale that
would restrict any price increase to about 2% a year.)

Wow, government housing projects for people who make $160,000!  I loved this quote:

"it's hard to get sympathy for people making $160,000 a year if you're
down in Texas or something," said Bill Watkins, head of the UC Santa
Barbara Economic Forecast Project.

No shit.  So, why the project? 

But this is Santa Barbara, a built-out city hemmed in by the Santa Ynez
Mountains to the north, the Pacific Ocean to the south and politics in
every possible direction. And this is believed to be Santa Barbara's
last vacant lot big enough to hold a housing development.

So this is just the fault of geography and the bad old supply and demand system, right?  Well, it turns out the government had just a little to do with it too:

The city is zoned for 40,005 housing units. About 38,000 have been
built, and the only housing construction these days is in-fill: a few
units here, a few there. Unlike other land-poor cities, Santa Barbara
has been loath to tear down large swaths of outdated structures and
rebuild, said Paul Shigley, editor of the California Planning &
Development Report.

"They think they've got paradise," Shigley said. "They don't want it to change."

The tallest building here is the eight-story Granada Theatre, built in
1924. It could never be replicated today, in part because the City
Charter strictly limits buildings to 60 feet, about four stories. And
even four stories is a hard sell.

Oh, so the lack of new lots is an artificial government zoning limit, AND the government limits the height of new building to just a few stories AND the government won't allow tear down and gentrification of old neighborhoods.

By the way, housing projects like this in expensive areas are really just massive corporate welfare subsidies of local businesses.  If workers really need their housing subsidized to live there, and the government does nothing, one of two things happen:  Either busineses go somewhere else cheaper, or else they have to pay their employees more to live in the area.  By subsidizing this housing, the local government is in effect subsidizing local businesses by letting them pay lower wages.  In particular, this is typically a subsidy of tourist businesses (hotels and restaurants) which have a hugely disporportionate influence on local governments and who typically are tied to the local area and can't leave.  The town of Vail, for example, has subsized similar housing under presure from the ski resorts.

Hat tip: Hit and Run

Distracted by My Novel

Blogging has been light, as I have been working on the publication of my new novel called "BMOC".  We're a number of weeks from getting it through Ingram and onto Amazon, etc. but it is available today at my Lulu storefront.  If you order the printed version from Lulu, be careful!  The Lulu UPS shipping options are really overpriced.  Only the regular US mail delivery is a very good deal.  For those of you who have the version with the old purple cover, this is an updated version.


Once it gets some broader distribution, I'll be running a special event on this site.  Details later.

Update: Web site for BMOC book by Warren Meyer

Identity Theft

My wife and I signed up for Lifelock this week.  Lifelock is a company that puts rolling 90-day fraud alerts on your credit files at the major credit companies.  In practice, this means that the credit agency must call you and get your verbal permission to issue a credit report or check to any third party.  They also claim to stop most pre-approved credit offers.  Their approach to identity theft is the best one that I have heard about yet.   I will see how it works in practice.  Anyone with experiences with this or similar companies are encouraged to post comments.

By the way, I saw a week or so ago that there is a bill in Congress that touches on this practice in some way, but now I can't find the link.

Postscript:  I had trouble with their web sign-up using Firefox.  It went smoothly when I switched to IE.

Vioxx Update

Ted Frank has this update on Vioxx litigation, and it couldn't possibly be more depressing:

Take, for example, the last
case Merck lost, that of Leonel Garza in south Texas. Mr. Garza, who
was said by plaintiffs to have taken Vioxx for three weeks, was a
71-year-old overweight smoker, with high cholesterol, decades of heart
disease, and a history of a heart attack and a quadruple bypass, yet a
jury awarded his survivors $7 million in "compensatory" damages, and
punitive damages to boot

He goes on to recount the very reasonable suspicion that Garza may not have even taken Vioxx at all, as he never had a prescription and his doctor has denied that he passed Garza a series of free samples in little brown bottles.

So out of eleven cases that
have gone to trial or almost gone to trial, there is a reasonable
suspicion that plaintiffs faked Vioxx usage in as many as five of them.
How many more of the tens of thousands of pending plaintiffs have
similar flaws?

He concludes with this excellent point:

Perhaps appellate courts
will get around to correcting these travesties, but the plaintiffs' bar
is counting on enough bad verdicts to slip through the cracks to make
these cases profitable.

The equation of expected returns is certainly helped by the fact
that no one is even suggesting that presenting this sort of
questionable evidence is unethical, much less illegal. Drug safety is
important, but so are the health costs from vaccines and drugs not
marketed because of liability risks. If the judicial system cannot
police itself adequately, the question then becomes why we want to
entrust national drug safety policy to an elected judge and a handful
of randomly selected jurors in Starr County, Texas?

Props to Merck for fighting each and every case so far and resisting the mass tort pressure to start offering settlements to anyone who asks for one.