Coyote Blog

Alex Tabarrok discusses the new movie about Mark Whitacre and price fixing at Archer Daniels Midland.  ADM apparently was caught holding meetings with competitors to fix prices of certain chemical commodities, specifically Lysine.

Here was ADM's mistake, and it is one they have clearly learned from:  in the modern American corporate state, there is no reason to engage in illegal private price fixing or cartel arrangements when corporations can achieve similar ends legally and openly through the government.  If ADM was concerned about difficult competition depressing pricing, they could have emulated any of these examples:

• Run to Congress to beg for strong tariff's on foreign sources of their commodity product (as do the sugar and ethanol industries)
• Run to Congress and have them institute minimum pricing or buy up excess supply (as do many agricultural producers)
• Run to Congress to seek supply restrictions (as does the taxi business)
• Run to Congress and have them restrict new competition and sources of supply through licensure (as do a variety of industries, from real estate to funeral homes to medicine)
• Run to Congress to have them pass onerous legislation that makes it difficult for new capacity to be added in the business (as does the waste disposal industry)
• Run to Congress to seek subsidies for their product in the name of some public good - it doesn't even have to be true (as does, well, ADM with ethanol)
• Run to Congress to seek regulations that favor your particular production and product technologies while hamstringing your competition (as does GE with light bulbs)
• Run to Congress and have them enforce an industry price-fixing arrangement -- its legal when Congress does it (as do the Milk producers)
• Run to the FTC to bring anti-trust actions against your competition (as did Netscape and Sun against Microsoft)  This is an interesting article on this, which says in part, "Most [antitrust] cases are not brought by public representatives, whether elected or self-appointed, but by private companies, often rivals of the defendant who are being driven out of business. Businessmen believe that competition is good if they win but bad if the other guy wins."

Of course, all of this takes a little care.  The competitive relief must be couched in something like "consumer protection" or "saving jobs" or "going green" or "fairness," but there are plenty of good examples of consumers getting the shaft in the name of consumer protection that it shouldn't be too hard to come up with something.  Developing a high profile in an early Presidential primary state like Iowa doesn't hurt either.

As I said in the title, ADM has certainly figured this out, if their approach to the ethanol business is any guide.  In ethanol, they have resorted to any number of these tactics simultaneously.

The answer is:  Just about everyone who was not in the tank for the Obama Administration predicted this (from my Princeton classmate Henry Payne):

When Congress gave away $3 billion for buyers to trade in their "clunkers" and buy new cars in August, lawmakers thrilled as buyers swamped showrooms to take advantage of the big discounts. "Cash for clunkers has captured the public's attention . . . (it) has the possibility to truly jumpstart our economy," said Rep. Candice Miller (R., Mich.). Other, more sober analysts, warned that the clunkers program was only stealing from future sales.

September sales are in, and sobriety can take a bow.

Edmunds.com reports that "September's light-vehicle sales rate will fall to 8.8 million units . . . the lowest rate in nearly 28 years, tying the worst demand on record. After the cash-for-clunkers program boosted August sales to their first year-over-year increase since October 2007, demand has plunged. In at least the last 33 years, the U.S. seasonally adjusted annual rate has only dropped as low as 8.8 million units once -- in December 1981 -- with records stretching back to January 1976."

The real popularity of the program was always due to the fact that the government was throwing money away and people rushed to pick it up.  Edwards.com estimated the Feds purchased vehicles with average blue book values of just under $1500 for $3500 to $4500.  That means that the government purchased cars that blue booked at just over a billion dollars for three billion.  I you suddenly offered to buy all of your neighbors' cars for three times what they were worth, you'd be popular too.   It was a $2 billion giveaway, and people rushed to pick the cash up like one of those money drops in the outfield of a minor league baseball game.  In doing so, the government made a trivial change in the overall fleet fuel economy, in the process overpaying for Co2 reduction by a factor of 20.

Update: The study linked above shows the government paying over $400 per ton of Co2 reduced in the Clunkers program.  The 20x factor cited was based on an estimated clearing price of a tone of Co2 in a future cap and trade system.  This is hypothetical, as currently a ton of Co2 offsets trades right now in the US at 20 cents.  At this price, the program overpaid by a factor of 2000.  To be fair, this reflects both estimated pricing as well as a discount for the likelihood of a cap and trade bill passing.

Kevin Drum links to a NY Times article that, mainly through annecdote, seems to be trying to fabricate the "next" consumer crisis, over debit card overdraft fees.  The key chart, containing about all the real non-annecdotal data in the article is below:

I wrote in the comments:

Wow, the NY Times almost fooled me with this chart. Yet again they play games with scale and timeframes to make a point that is not correct. For example, it looks like overdraft fees may have risen faster than transactions, but that is because the overdraft fee revenue chart goes back to 1992 and the transaction chart only goes back to 2000.

If we look at both from 2000, we see overdraft fees on debit cards have gone from $20 billion to $38 billion today, or about a 90% increase. At the same time, dollar amount of purchases on debit cards went from $0.3 trillion to $1.3 trillion (as well as I can read the graph) or an increase of 333%. I understand that there may be a mix shift I am missing - the overdraft numbers include charges for checks as well as NSF fees, but the article does not have the changing mix. This is another topic, but why can't reporters even at the Times include all the numbers you really need to analyze this stuff - don't they try to do these calculations? They have graphs side by side, implying one should compare trends, but they have apples (debit card transaction volume) next to oranges (all overdraft charges, including debit cards but other stuff too) on completely different time scales.

Anyway, by the article's own numbers, the overdraft fee volume has grown 3.5 times slower than transactions, meaning that overdraft fees have dropped from 6.7% to 2.9% of debit card transactions. This shift may be less dramatic if there are mix changes in the fees, but never-the-less, why isn't this good news? The world is never going to make the price of carelessness=0, if for no other reason that the moral hazard would be so large. But the high price on carelessness in this case seems to be reducing the frequency of people being careless (if the price of an overdraft has really gone up as implied anecdotally in the story, then the frequency must be way down -- sure missed that data in the article). We want to raise the price of Co2 to produce less of it - why don't we applaud when we raise the price of carelessness and we get less of it?

Most licensing efforts are nominally sold based on some public or consumer good but almost always end up being mostly about protecting politically connected incumbent businesses against new competitors.   Nowhere is this more obvious than in liquor licensing.

If you want to start a new liquor-based business (restaurant or bar) in Phoenix, it is going to cost you a hundred grand just for the license.

In fact, the sales price for existing licenses has dropped in recent years, with prices for a bar license in the Phoenix area slipping from $100,000 to $85,000 or $90,000, he said.

And these are the numbers with record-low demand.  Why does Arizona (or most other states) limit the number of licenses at all?  Why not just issue them to all comers, and let the market sort out who is successful and who is not?  Certainly we would likely see a lot more interesting restaurant startups if there was not an effective $100,000 tax on starting a restaurant imposed by the state.

State officials used to pretend the reason was to protect the community from being overrun by, er, dining choices or bars or whatever, but nowadays they don't even bother with such justifications and just give the true reason - they are protecting incumbents from competition.

Arizona hadn't awarded licenses since the late 1980s before the 2005 law passed. That was largely because holders of existing licenses didn't want to diminish their resale value.

Well, I am a holder of several existing Arizona licenses and I say -- open the floodgates!

Today's issue in Arizona:  Should our public utility be required to provide line extensions to new homes "for free" (meaning paid for by existing rate payers) or should homebuilders, developers, and home buyers have to pay the real marginal cost of their utility infrastructure.

It is another of those subsidy issues where "visible" jobs (ie jobs in new home construction) are held out as justification, while "invisible job losses (ie from higher electricity rates to existing customers) are not even mentioned.

One of the biggest sticking points in the case is whether it is fairer to charge new developments the cost of new lines or simply charge the existing 1.1 million APS customers higher monthly rates to fund free lines.

Proponents of free lines said it would only cost customers 80 cents a month for APS to reinstate free lines, but APS officials said that if growth picks up as the economy recovers, customers could be charged an average of $45 a year to fund free lines.

Why is this even a point of discussion?  A small group of people are attempting to make the majority buy them some goodies. The argument, as always, is that when the price of these goodies is spread across lots of people, its not really very much per person.  It is almost as if the rest of us are being made to feel churlish for not agreeing to fund their next housing development.

I am far, far, far from being an anti-growth guy.  But I agree with the anti-growth guys in one respect - it is perfectly reasonable for new developments to pay for the full incremental infrastructure cost of their development.

Obama is offering broadband companies billions of dollars in other peoples money.  However, with a number of high profile examples out there of the control the Administration intends to extract in exchange for the money, the companies are probably are going to turn the money down.

Good.  I wish the government would place ridiculously onerous terms on all its farm and industrial subsidies so that everyone would turn the money down.

I wasn't that familiar with the California Coastal Commission.  I have toyed around with buying some property close to the beach in California to escape Arizona summers.  But once I read this article about their abuses, I have no desire to own California land along the coast.  Because, apparently, you don't actually "own" the land, at least not the way I define it.

The CCC's authority has decidedly grown since its beginnings as a temporary outfit with jurisdiction over 1,000 yards of coastline to an established agency with five miles of nearly absolute power, overriding local decisions and slapping multi-million dollar fines on people building small houses on existing concrete pads that could only be seen from the coast by a Superman with telescopic and X-ray vision.

See, for an example, the story of Kathleen Kenny, one of the stars of Oshen's documentary, now deceased. Kenny beat back local inspectors' assaults on her for building on her own property. She even in 1997 won an unprecedented RICO suit against local government officials for harassing her, a case where she acted as her own lawyer. Despite this, she was never able to shake off the CCC from coming after her for more or less the same offense. It has levied multi-million dollar fines that still hang over the head of her living partner, Arthur Starz.

Indeed, the CCC is still on the march. Even as it's compelling Oshen to kick up his footage, a bill is now being considered in the California state legislature that will give the CCC independent power to levy $5,000-$50,000 "administrative civil penalties" (in addition to any other fines or penalties) for violations of its ukases without having to get a court involved. The agency could then use that money for...more enforcement actions. Another bill would dictate that anyone with an unresolved CCC violation order over their heads could not submit an application for any other development permit from the CCC, on that land or any contiguous land.

Until a few years ago, I did business up and down the Pacific Coast.  If I had to rank the business climates of these states, from worst to best, I would informally come up with something like:

1. (worst) Certain California counties (e.g. Ventura, San Francisco, Santa Barbara)
2. Oregon
3. Western Washington
4. Rest of California
5. Eastern Washington

So I was interested to see that Oregon may finally be getting the bad press it deserves as a difficult place to do business, though, interestingly enough, this particular article blames it on the Californians:

Some might call this California disease. This refers to a chronic inability to make hard decisions as well as a general disregard for business and economic activity....

With all the influx of Californians, it's not surprising that Oregon shows some signs of California disease. It recently increased its tax rates so that Oregon's highest-income taxpayers face marginal tax rates that match Hawaii's for the highest in the nation. Oregon's land-use planning had been extremely centralized for some time. Indeed, Oregon's land-use planning may be the most centralized in the United States. This makes it harder for communities to control their own destinies, whether they want to grow or not.

Interestingly, I actually wrote about similar effect in the context of immigration into the US.  While I am a supporter of open immigration, my greatest fear is that in the name of individual liberty, we would let in millions of new people who would someday vote against individual liberties.  It seems that may be a more substantial problem with Californian than Mexican immigration.

The good news for the rest of us is that Oregon may preferentially be attracting the slackers

Our analysis of California migrants has shown a gradual reduction in their earnings over what they were earning in the Golden State. There also are less quantifiable impacts. Portland, a city attractive to many unemployed and underemployed younger Californians, could well be becoming the "slacker" capital of the world.

Fortunately, Arizona is so politically un-correct with slacker/socialist/statist/greenie types that we don't get a lot coming here.

If you want to really confuse someone, restate the minimum wage laws this way:

It is generally illegal in the US to accept a job for less than $7.25 an hour.  The minimum wage laws are therefore a substantial constraint on individual liberties

When I say this to most folks, they get confused because laws like minimum wages are usually stated in terms of empowerment of the common man.  The theory is that individuals don't have enough bargaining power to really get what the true clearing price should be for their labor, so the government steps in to prevent evil corporations (ie "the man") from exploiting this power imbalance and paying wages that are too low.

Tell that to my 15-year-old son who is looking for a job.  Sure, he would like to earn some good cash, but the wage scale of a job is way down the list of priorities.  What he really needs is a chance to build basic work skills and knowledge of how organizations function that you and I take for granted.  Further, he would like to get some direct experience with customer contact.  And finally, he wants to demonstrate to future college choices that he can function successfully in a work environment, and that he is motivated enough to keep and hold a job.

As a result, my son would likely gladly take the right job for, say, $3 an hour.  And an employer might jump at this deal, understanding the lower wage helps compensate for the costs of dealing with an inexperienced new employee and the risk of hiring a teenaged boy with distracting amounts of hormones running through his system.  This would be a perfectly rational, consensual, everybody-wins arrangement that is absolutely illegal.  So don't tell me or my family that minimum wage laws are empowering.

The health care analog

Many very similar liberty-reducing regulations exist in the health care world, and more appear to be on the way.  One great example that is entirely similar to the minimum wage issue is minimum coverage rules.  Many states have lengthy lists of conditions that must be covered in any health insurance plan sold in that state.  From acupuncture to mental health to massages to homeopathic treatments, you can find just about every care specialty with a lobbying organization getting its services embodied in state laws as minimum requirements.

Again, supporters of such laws argue that this is empowering for consumers.  Every health care plan you can buy will have a wide array of covered services.  But, they will also all be expensive.  What if I don't want mental health coverage or acupuncture?  Why do I have to pay extra for this stuff to be covered by my policy?  I go to the doctor very, very infrequently - basically only if the condition is critical - so why is it illegal to purchase a health insurance plan that matches my health care use preferences?

Currently I pay for my own health care plan and have insurance that I consider true insurance.  It has a high deductible, and does not cover a bunch of non-critical stuff.  I have no dental coverage, and pay dental all out of pocket, as I do most routine medical expenses   I have medical insurance solely to cover catastrophic medical events that would likely be financially disastrous for me  (I do the same thing with my house and car, paying for routine maintenance with insurance reserved for catastrophes).   Fortunately, Arizona allows me to buy such a policy, though it does have minimum coverage rules that make the policy more expensive than it might be.  In other states, like Massachusetts, my health plan with a high deductible is illegal.  It would also be illegal under the current House and Senate versions of Obamacare.

Medical Insurance and Windshields

I do a lot of back road and highway driving, so windshield repair and replacement are things I deal with fairly frequently.  I've generally always just paid for these repairs out of pocket.   It is a field where if one shops around, there are a lot of good deals.  However, for a while I lived in a state that had a law that said all auto insurance must have windshield replacement coverage.

The effect on my behavior was dramatic.  When living there, I didn't even think about shopping around for a windshield repair.  I just had the dealer do it (surely the high cost supplier) when I had the car in for regular service.  I didn't care what the cost was, it was covered in my policy.  (Ironically, it turns out in retrospect that I should have shopped around -- because no one else in the sate cared about cost, all the windshield suppliers jacked up their prices and then competed by offering kickbacks in various forms to consumers, basically competing on how much of the insurance money they would share with the car owner.  Truly dysfunctional).

I have seen the exact same change in my behavior, but in reverse, in switching to a high deductible medical policy.  Until about 3 years ago, like most Americans, we never even thought about the cost of our medical care.  We weren't paying for it.  But now, as I pay most of our routine expenses, I am amazed at the difference.  When my son needed a CT scan, three phone calls gave us a huge variation in quoted prices.  It turns out, shopping works, even in medical care.

Postscript: I have always wondered why insurance companies didn't create some incentive for shopping.  If I were running such a company, I would be tempted to tell customers - "our reimbursement rate for CT scans in your area is X.  If you get it done for less than X, we will split the savings with you 50/50."  Though I suppose the danger is tht this could morph into a variation of the windshield kickback system.

Apparently after 20 months of effort, I am within spitting distance of getting one of two liquor licenses I am applying for in Ventura County, California (the other had to be completely restarted due to some paperwork mistakes).

I had to just laugh at the last remaining hurdle.  A part of the licensing process is to post a public notice at the site.  The ABC called me and said they are holding my application until they get my affidavit of posting -- this is a one page form with my signature stating on what date the facility was posted.

But here is the funny part -- the ABC representative who is calling me actually posted the site herself.  She visited the facility as part of a mandated inspection and then posted the site.  The only way I knew what date the site was posted was by asking her.  So ABC is requiring that I submit a form to tell them what day they themselves posted the site, a date I had to get from them before I could put it on the form to send back to them.

Coming soon:  The Affidavit of Elevated Body Temperature and/or Vomiting that must be submitted before obtaining a doctor's appointment.

Continuing with a long-running theme here at Coyote Blog, here is another example of government regulation being anti-competitive and having the net result of protecting the margins of powerful, established incumbents against new entrants:

During a recent meeting, the Antiplanner was extolling the virtues of Houston's land-use policies, and a home builder at the meeting said, "Of course, no one here wants our city to be like Houston," meaning no one wanted Houston's land-use regime.

Why not? I asked. "There is too much competition down there. My company can't make a profit," he said. "You have to have some barriers to entry to be able to make money."

Those who accuse free marketeers of being supporters of big business don't realize that big businesses (and often smaller businesses) don't want a free market. In this home builder's case, he wanted enough restrictions on the market to keep out some of his competitors (most likely smaller companies that can't afford to hire lawyers and planners for every project) but not enough regulation to keep his company out

Several years ago my company had to obtain a liquor license in Shasta Country, CA. At one point, the issuance of the license had to be voted on by some group (County commissioners, the planning board, something like that). I was told the reason was that if they issued too many licenses, I would not be able to make money -- really, they were looking after me.

Well, not really.  First, the government seldom has any idea even how a business works.  Perhaps the liquor was a loss leader for my business, and I didn't care to make money on it at all.  Perhaps I had a better marketing concept.

And herein we get to the real flaw -- the implication is that somehow the dangers is to the new entrant in a crowded marketplace, but in fact the reality is often the opposite.   The actual competitive danger is often to incumbents, fat and happy with the status quo and unable to react quickly (due to all kinds of reasons from sunk investment to long held biases) to shifts in customer preferences.  No matter what their stated reason, the true effect of such regulation is to protect current competitors from new entrants, new products, and new business concepts.

I can see the effects of this right here where I am sitting, out near the end of Cape Cod.  Zoning and business regulation here is enormously aggressive - its is virtually impossible to start a new retail establishment here, particularly on virgin land.  As a result, every store and restaurant here feels like it is right out of the 1950s.  You'd hardly know there has been a revolution in retail or service delivery over the past few decades, because businesses here are sheltered from new entrants.  They don't need to adopt better practices or provide better products or services, because they know they are not vulnerable (courtesy of the government) to competitive attacks from new entrants using more modern strategies.

I remember in the 1970s the sight of oil company executives getting dragged before Scoop Jackson's committee in Congress, forced to defend themselves against charges they were holding tankers offshore to drive prices up.  Hilariously, this was at the exact same time oil company executives were testifying in front of a Congress begging legislators to allow them to build the Alaska pipeline.  But demonizing oil companies simultaneously for both decreasing and increasing the supply of oil has been a tradition for decades.

Anyway, I have always found it intriguing how behavior in one industry made unsympathetic by the media can be treated so differently from identical behavior in a more media-cherished industry.  Check this out:

U.S. dairies will remove 86,710 cows from their herds to be sold to slaughterhouses as part of an industry-funded program intended to boost milk prices by curbing output.

The buyout is the third such cull in nine months, the Arlington, Virginia-based National Milk Producers Federation said today in a statement. The most recent buyout completed last month involved 101,000 cows, the most ever for the groups so- called Cooperatives Working Together program, which began in 2003.

Note further that this appears to be acceptable behavior in milk but not in oil, despite the fact that milk is heavily subsidized and the beneficiary of government price supports while oil companies simply pay a whole boatload of taxes.

It turns out there is one other such example in the news, where an industry is destroying hundreds of thousands of units of inventory, with the inevitable result of raising prices (particularly to the poor), all with the facilitation and in fact funding from the Obama Administration.  Can you guess what that is?

A while back I challenged anyone who doubted the burden of regulation to go try to get  a California liquor license.  Today, John Stossel echos the same theme in this post.

"The authority's 26-page "on-premises" application requires owners' detailed financial information, prior employment experience, proof of citizenship and floor-plan details, and it also entails fingerprinting and background investigations. It asks whether music will be played (and if so, what kind) and whether dancing is planned"¦ Such was the complexity of the application process that "I visited the office so many times, it got to the point where the guards stopped asking me for identification," Steve Chahalis said.

I can concur with this experience. In every state I have gotten licenses, I have encountered a bureaucracy that has pretty much forgotten even why it exists or what it is trying to achieve. The Department of Labor can be a pain in the butt, but it at least it has a mission (protect workers from depredations by "the man"), even if that mission is sometimes misguided. But it is impossible to even figure out what problem state liquor boards are trying to protect us from with some of the detailed questionnaires and picayune attention to detailed responses**.

Yet the Times and the bureaucrats have the nerve to blame the businesses: "Restaurant and bar owners are to blame for some of the delays" says the reporter, quoting a state bureaucrat who says: "Ninety percent of the applications are incomplete when submitted."

LOL. Let me give you one example. I had to cancel my entire application, on which I had spent over a year, resubmit a new application, and pay an additional $200 in fees all because on one form (out of scores) there was a typo that showed the address on "Lake Pire Rd" rather than "Lake Piru Rd."   So was this my fault, having a typo in thousands of words of application responses, or the fault of the state liquor board's for not just hand annotating the typo and moving on? If you told me that the main guiding principle of ABC operations was to find a way to reject and send back every single application for even the most trivial of reasons, I could not muster any evidence to disagree with you.

I always complete the applications myself, but I may finally give in on the next California application. In California, the state is full of consultants who will fly your application through the process. Anyone want to guess who these consultants are? If you guessed "retired government alcoholic beverage commission employees," you win. This is the retirement plan they have created for themselves -- make the process so onerous for individuals trying to navigate it that they are forced to use a retired ABC employee as a consultant, after which the process magically goes smoothly.
By the way, this is also another good example of how large corporations are benefited by regulation vs. smaller competitors.  TGIFridays, for example, has a whole department of people who just do liquor licenses.

**Postscript:  Part of the problem is that states are trying to protect us from Al Capone -- thus all the fingerprinting and background checks.  But that problem was solved with legalization.

I have already written how Waxman-Markey, by the way in which it allocated free carbon permits, effectively demands almost all the reduced carbon dioxide over the first decade to come from drivers  (rather than electricity consumers or utilities).  Incredibly, even coal fired power plants get what amount to a free pass, while the increasingly efficient transportation sector must bear all the burdens.

Reuters has more on this phenomenon.   The article focuses mainly on "pain to refiners" but anyone with a modicum of economic sense will know that an industry with a single digit margin is not going to bear the cost of these changes - consumers of transportation fuels will through higher prices and more uncertain availability.

Ailing U.S. oil refiners could face a crippling period of contraction under a House-approved climate change bill, making the country more dependent on imported refined products.

The so-called cap-and-trade bill narrowly passed by the House of Representatives in June would limit greenhouse gas emissions by requiring polluters to acquire permits for the carbon dioxide they spew into the atmosphere.

To soften the blow, industry would initially be granted free permits covering 85 percent of emissions. But the refining industry managed to get only 2 percent of the allowances, leaving them vulnerable to encroaching foreign companies.

The bill is "going to put them out of business," said Phil Flynn, analyst at PFGBest Research in Chicago. "I think you're going to see refiners close down, especially in this environment we're in right now."

Already, a lot of our refined products are imported from foreign refineries, and my guess is that oil companies are going to be building Asian refineries like crazy.

I had read a couple of articles positing that by destroying low value cars in the "cash for clunkers program,"  the government was hurting the poor by removing the supply of sub-$5000 used cars from the market.  But what I did not realize is that this program further requires that the engines themselves be rendered useless, so that they cannot be used for parts or rebuilt replacement engines.

The automotive death sentences are meant to ensure that gas-guzzling old models make no return to the road. As sodium silicate disables an entire generation of junkyard-bound cars, the price of used engines will likely skyrocket, predicts Michael Wilson, executive vice president of the Automotive Recyclers Association. "It's the law of supply and demand."

Good plan.  The Journal has a good article about how this sodium silicate process was selected to destroy cars.  I am left wondering if engine parts can even be recycled economically for their metal after the treatment.

Nancy Pelosi said this the other day (emphasis added)

I'm very pleased that our Chair of our Democratic Congressional Campaign Committee and member of the leadership will be talking too about the immoral profits being made by the insurance industry and how those profits have increased in the Bush years. We all believe in the profit motive; we all want to reward success.  But having that success come at the expense of America's working families "” have that success come by withholding care, when a person becomes ill, is just not right and we're going to take this issue in a new direction.

In the past, other leftish pundits have been even more direct:

It means the health insurance industry is scared that we might actually do something in 2009 and they want to be seen as something other than completely obstructionist. That means only one thing: they've shown fear, and now it's time to bore in for the kill and gut them like trouts. Let's get to it.

I don't have time to redo the analysis, but for the third quarter 2008 (the last quarter of the dreaded Bush years that increased insurance profits so much) I looked up on Google Finance the profit margins of major health care insurers, providers, and HMO's.  I am not sure who the Democrats would consider the real Satan of health insurance (ala ExxonMobil or Wal-Mart) but if I left a key company off you are welcome to suggest it in the comments.  Anyway, 3Q08 profit margins were:

Cigna: 3.50%

United Health Group: 4.56%

Aetna: 3.64%

WellCare:  4.08%

Amerigroup: 3.51%

Humana 2.56%

WellPoint: 5.49%

So, if you are a business owner (and that includes those of you who own equities, which are ownership shares), be very afraid.  Look at your company or your favorite stockholding.  If they have margins of 2.5% or more of revenues (and that includes just about every profitable company in America -- I think the industrial average is in the eights) then Nancy Pelosi and the Democrats consider your profits immorally high and they intend to gut you like a trout.

Update: OK, I had a bit of time to update numbers, so I took Cigna, which is the first on the list, and looked at their net profit margin over 4 years:

2005:  7.6%

2006:  7.0%

2007:  6.4%

2008:   1.5%

Hmm, not sure I see the profits increasing in the Bush years -- looks like they are going down to me.  I would also observe that they never in the last four years even rise to average for a large American public company.

Apparently in the future I will have two health plan choices -- my current plan or the government plan.  And the only reason I will be able to keep my current plan is that is will be grandfathered in.  A few years ago I switched plans, to get one with a better price and mix of benefits for my family.  I will never be allowed to do this again under the new health care bill:

It didn't take long to run into an "uh-oh" moment when reading the House's "health care for all Americans" bill. Right there on Page 16 is a provision making individual private medical insurance illegal.

When we first saw the paragraph Tuesday, just after the 1,018-page document was released, we thought we surely must be misreading it. So we sought help from the House Ways and Means Committee.

It turns out we were right: The provision would indeed outlaw individual private coverage. Under the Orwellian header of "Protecting The Choice To Keep Current Coverage," the "Limitation On New Enrollment" section of the bill clearly states:

"Except as provided in this paragraph, the individual health insurance issuer offering such coverage does not enroll any individual in such coverage if the first effective date of coverage is on or after the first day" of the year the legislation becomes law.

So we can all keep our coverage, just as promised "” with, of course, exceptions: Those who currently have private individual coverage won't be able to change it. Nor will those who leave a company to work for themselves be free to buy individual plans from private carriers....

Wow, even for this cynical libertarian, this is a new low of technically complying with a promise while in substance completely violating the spirit of that promise.

By the way, how long will my current insurer even be able to offer me my plan given that it cannot generate any new business  (I use Assurant, who specializes in individual policies for self-employed people like myself).

This is a great example of what I have been saying all along - regulation always helps large companies more than small.   Everything in this legislation is tailor-made to help large companies who already have health plans and pound small companies and the self-employed.  This is in part because the large companies have the lobbying muscle to get themselves a seat at the table as the bill is crafted.   But it is more than just neglect, it is an outright attack.  Large companies most fear competition from smaller, lower cost competitors.  Anything to make the life of small business more expensive and difficult helps cement the big guys market position.

Update: Here is a scary thought -- what will it do to entrepeneurship in this country when a decision to leave a large company and go into business for oneself bascially means giving up private health insurance and going on Medicare?

Update #2: For readers, as well as a place for me to find it in the future, here is a link to all 1000+ pages of the bill.  Enjoy.

My son is at the age in high school that he needs to find a job, either during the summer or after school or both.  But this is not an easy chore.  The economy certainly has a lot to do with this, but Congress has been doing its share to keep teenagers unemployed as well:

Thanks to an ill-advised law enacted with bipartisan support in 2007, the cost of providing an entry-level job to individuals with few skills or minimal experience will be going up by more than 10 percent. Those who cannot find a job paying at least $7.25 an hour will not be permitted to work. Welcome to the latest chapter of America's minimum-wage folly.

Those who press for a higher minimum wage often claim that making entry-level jobs more expensive won't reduce the number of entry-level jobs. Were the government to compel a 41 percent increase (see graph above showing the 41% increase in the minimum wage from $5.15 in 2006 to $7.25 this year) in the price of gasoline or movie tickets or steel, every rational observer would expect a drop in the demand for gasoline, movie tickets, or steel. Yet when it comes to the minimum wage, politicians and journalists somehow persuade themselves that making workers more expensive won't reduce the demand for workers.

But that's exactly what it does. Artificial price floors - mandatory minimum prices set higher than what the market will bear - generate surpluses. Minimum-wage laws are no exception. The price floor imposed by the government on the supply of low-skilled labor results in a labor surplus, which is just another way of saying higher unemployment.

The laws of supply and demand are not optional. They weren't enacted by Congress and Congress can't override them. Minimum-wage laws don't make low- and unskilled Americans more productive, more experienced, or more desirable. They merely make them more expensive - and more likely, therefore, to be unemployed.

People often think of the minimum wage as a restriction on employers -- that they cannot pay less than a certain number for a job.  But it is also equally a restriction on job seekers -- my son cannot legally offer to take a job for less than $7.25, even though he would probably gladly do so.  For teenagers, just gaining the experience of working and building basic skills (like showing up on time, following procedures, interacting with customers and fellow employees) has enormous value, such that even a nominal payment of a few dollars an hour would more than compensate him for his labor.

But I think there is another factor that increasingly limits teenage jobs that is not often discussed - liability.  I never really thought about this until I was running a business and found that my company and I may be personally liable for bone-headed decisions made by far off employees I have never met.  In our super-ligious society, does a company really want 15-year-old boys interacting with the public, no matter how much or little they are paid, when even one teenage-boy-style flip comment or sexual joke might result in a lawsuit?

Previously, I have written a number of articles on the minimum wage focused on the other end of the age scale.  My company hires folks in the seventies and eighties, a practice that is increasingly difficult to maintain with the minimum wage increasing.

I have written many times about how regulation tends to help the large and well established competitors against smaller companies and potential future market entrants.  Larger companies have the size to pay compliance costs and the political muscle to sway regulation in their direction and co-opt regulatory bodies.  The tobacco settlement, ostensibly aimed at "big tobacco" has done nothing but cement the market leadership of the top brands.  This is why you see some large companies jumping on board cap and trade or health care reform -- for example, Waxman-Markey contains rules that give a particular advantage to certain GE lighting technologies on which it holds patents.

The CPSIA is another such law, and Overlawyered has been all over the story.  Here is what a craft fabricator of handmade dolls (even say your grandma selling at a craft fair) will have to comply with:

"¦Each batch needs a unique identifying number.

However, if in the course of making the products, you have to break into a separate box of buttons that has a separate batch or lot number itself, even if the product is otherwise identical, this is a separate batch and you need a separate new label for it with its own batch number that you assign. "¦ It is conceivable [if you incorporate variations into the product] every item you produce is its own batch and each needs its own number and label. "¦

You will need to do "batch control". You need to create a separate BOM [Bill of Materials] for each batch. You can keep this electronically in a database or spreadsheet. It is my understanding you need to keep these records for three years.

Though it was originally Mattel's problem with lead from China in toys that caused the CPSIA to get passed (Congress always has to "do something" when a story makes the news) do you think it is Mattel or grandma who will be driven out of the business?  In the future, when leftish hippies wail that there are no small manufacturer crafts or locally grown food at their weekend fair, you will know why.

Much more coverage on CPSIA here.

Apparently, Washington DC politicians think that it is an economic disaster that there are ... too many competitors in the taxicab business.

The District's open, all-are-invited taxicab industry is so saturated with drivers that the entire enterprise is threatened, according to a D.C. Council member who has filed a bill to cap the number of cabs allowed on city streets.

Ward 1 Councilman Jim Graham introduced legislation Tuesday to limit the number of taxicabs in D.C. through either a medallion system, like ones used in New York City and Chicago, or a certification system.

The soaring number of taxicab operators in D.C. "” roughly 8,000, most of whom own their own cars "” is a "pressing and urgent problem," Graham said. There are more licensed drivers in D.C. per capita than any place in the world, he said, and new applicants continue to take the required class, giving them access to the driver exam administered by the D.C. Taxicab Commission. A glut of drivers could jeopardize the chances of any cabbies making an adequate living, Graham has said.

After spending an entire hour trying to get a cab in the middle of a sunny day in Paris, I have not very sympathetic.  Another example of how government licensing is almost always aimed at protecting incumbent businesses from competition, rather than helping the consumer.

The entire Pacific coast is vying to become the next rust belt.  Only the nice climate and beautiful scenery will keep anyone there.

The Labor Department reported yesterday that Oregon's unemployment rate soared to 12.4% in May, the nation's second highest after Michigan's 14.1%. What to do? If you're the geniuses in the state legislature in Salem, you naturally raise taxes.

Last week the legislature approved a $2 billion tax hike on personal income and small businesses that haven't already left the state. The highest tax rate on income above $500,000 would climb to 11% -- up from an already high 9%. Oregon will soon boast the second highest income tax rate in the nation, moving ahead of California (10.55%), and only slightly behind New York City (12.6%). Corporations will pay a 7.9% tax on gross receipts, up from 6.6%.

To be fair, Oregon does not really have a sales tax, so it is hard to compare apples and oranges on taxes.  But missing from the article is another factor in their unemployment, and the reason our company ultimately had to leave the state:  Oregon has the second highest minimum wage in the country (just behind Washington State and just ahead of California), and it is getting higher every year as it is automatically indexed to something or other that seems to be rising faster than inflation.

Banning welcome mats...

Families living in a flat block have been told to remove welcome mats from their porches because they are a health and safety risk.

They have also been told to remove pot plants because they create trip hazards and fire risks.

Residents at the block in Burslem, Stoke-on-Trent, Staffs. say the items have never caused problems.

...and implementing Castro-style block watches

In partnership with regional chapters of the charity group Crimestoppers U.K., multiple local police forces have launched a program called "Too Much Bling? Give Us a Ring." The object of the program is to encourage people who suspect that a neighbor or acquaintance is living off the proceeds of crime to anonymously provide information about that person to the police...

A key component of the "Too Much Bling?" program is its effort to tap into any resentment and anger members of the public may feel toward suspected criminals.

In a release issued by the Sussex Police Department, which used the program to help seize more than £1.5 million between April and December of last year, Detective Sergeant Mick Richards said, "Members of the public are sick and tired of seeing people with no legitimate income living a lavish lifestyle. We are working hard towards taking the cash out of crime making use of all the powers granted to us under the Proceeds of Crime Act and other legislation.

"I am very aware that in these difficult times how disheartening it is to see people 'flashing the cash' when you know that it has come from a life of crime and that they appear to be 'getting away with it,'" he said.

To all those who think that corporations are whiny b*tches when complaining about the burden of regulations, I have a challenge -- Go out and obtain an on-sale alcohol license from the state of California.  I dare you.  And no using retired ABC employees as paid consultants, that is cheating.  You have to do it yourself.

1.  I have observed before that many Nanny-state initiatives are driven by politician's own personal experience and weaknesses.  Mike Huckabee started a kids obesity program because he had trouble with his weight, and now Barack Obama regulates tobacco because he has had trouble quitting smoking:

Obama, who has spoken of his own struggle to quit smoking, praised the bill, saying it "will make history by giving the scientists and medical experts at the FDA the power to take sensible steps."

Couldn't politicians just focus on their own behavior without projecting their personal weaknesses on me?  Let's just be glad that we avoided whatever regulatory regime that would have occurred had these guys had a male enhancement issue.

2.  I know zero about smoking and cigarettes.  However, it is my understanding that while the nicotine is the addictive part, it is other components of combustion that cause the health risk.  If this is the case, then doesn't regulated reduction in nicotine content of cigarettes actually pose a health risk?  Won't folks suck on more cigarettes with reduced nicotine, trying to get back to their preferred nicotine dose, and thereby consume more rather than less cancer causing substances?

3.  There is nothing that regulators hate more than free market alternatives to themselves for solving problems.  It is clear they are going to mandate reduced tar and other components in cigarettes, but they want those mandates to come from them, not emerge on their own from the market.  Thus:

[the new FDA rules will] prohibit use of words such as "mild" or "light" that give the impression that the brand is safer

Yep -- wouldn't want private folks getting credit for exactly what the regulators intend to mandate.

4.  I have often observed that regulation tends to favor incumbent companies.   Regulations tend to raise barriers to new entrants, and it imposes costs that are more easily born by larger players in the market.  Further, incumbents often have the political muscle to influence regulation in their favor  (and in fact potential future new market entrants don't even exist today, so they certainly have no lobbying voice).  And, we see this same effect here:

Altria Group, parent company of Philip Morris USA, the nation's largest tobacco company, issued a statement Thursday supporting the legislation and saying it approved "tough but reasonable federal regulation of tobacco products" by the FDA. Rival companies have voiced opposition, saying FDA limits on new tobacco products could lock in market shares for Philip Morris, maker of Marlboro cigarettes.

No surprise there.  Despite all the fighting words about the evils of big Tobacco around the Tobacco settlement a decade or so ago, the result was big gains for the major tobacco companies.

Big tobacco was supposed to come under harsh punishment for decades of deception when it acceded to a tort settlement seven years ago. Philip Morris, R.J.Reynolds, Lorillard and Brown & Williamson agreed to pay 46 states $206 billion over 25 years. This was their punishment for burying evidence of cigarettes' health risks.

But the much-maligned tobacco giants have subtly and shrewdly turned their penance into a windfall. Using that tort settlement, the big brands have hampered tiny cut-rate rivals and raised prices with near impunity. Since the case was settled, the big four have nearly doubled wholesale cigarette prices from a national average of $1.25 a pack (not counting excise taxes) in 1998 to $2.10 now. And they have a potent partner in this scheme: state governments, which have become addicted to tort-settlement payments, now running at $6 billion a year. A key feature of the Big Tobacco-and-state-government cartel: rules that levy tort-settlement costs on upstart cigarette companies, companies that were not even in existence when the tort was being committed.

Via Maggies Farm, Dr. Melissa Clouthier:

y biggest concern with Government Run health care is that the government will run it and run you. That is, your life will be controlled from cradle to grave. You will eat a certain way"¦or else. You will do certain things"¦or else. And the government will have every motivation to force you down a path.

Ultimately, this is a civil liberties issue. Some people say that not having health care for all is shameful in such a wealthy country. Shameful is the notion of a bureaucrat deciding whether you live or die based on the metrics of a chart. That's shameful. And that would be our future. It is a future I don't want to see.

Just look at the big government, totalitarian groups that are for this mess. It should give you an idea of what you'd have to look forward to in the future.

Yep.  It is still amazing to me that the National Organization for Women, who have built 80% of their history on "Keep the government out of my body" is a huge supporter of national health care.

TJIC described the problem well:

The art of socializing everything under the sun, in four steps:

1. For no reason at all, have the taxpayers deal with situation X.
2. Declare that people who create situation X are imposing a negative externality on others.
3. Tax and spend even more on cleaning up mess X, and make it illegal to create situation X, or put high taxes on X.
4. Create winners and losers. Winners (those collecting tax dollars to clean up mess X) donate to politicians to keep the gravy flowing. Losers (those paying taxes and getting penalized) donate to politicians to lighten the yoke.

One example of application of this approach:

Old school:

1. Some people overeat and get fat. Some of these people have heart attacks. No problem.

New school:

1. Decide that taxpayers will pay for socialized health care.
2. Declare that people who overeat are enemies of the state.
3. Tax affordable, healthy-in-moderation food that does not appeal to NPR listeners.
4. Collect the campaign donations.