Coyote Blog

Note, this is a repost and update of an article from 2018

At the behest of a group of Uber drivers, the California Supreme Court has ruled that Uber drivers are Uber employees, not independent contractors, under California law:

In a ruling with potentially sweeping consequences for the so-called gig economy, the California Supreme Court on Monday made it much more difficult for companies to classify workers as independent contractors rather than employees.

The decision could eventually require companies like Uber, many of which are based in California, to follow minimum-wage and overtime laws and to pay workers’ compensation and unemployment insurance and payroll taxes, potentially upending their business models.

I believe that this will pretty much kill Uber (though it will take some time to bleed out) for reasons discussed here.  Rather than discuss consequences for the company (everyone is finally doing this, following the general media rule I have stated before that it is OK to discuss downsides of new government regulations only after the regulations have been passed and become essentially un-reversible).

People don't always seem to have a good grasp of cause and effect.  I don't know if this is a general problem programmed into how humans think or one attributable to the sorry state of education.  My favorite example is all the people who flee California due to the high taxes, housing prices, and stifling regulation and then  -- in their new state -- immediately start voting for all the same things that caused them to flee California.

One of the aspects of being an Uber driver that supposedly attracts many people to it is the flexibility.  I summarized the advantages in an earlier post:

Here are some cool things about working for Uber:

• You can work any time you want, for as long as you want.  You can work from 2-4 in the morning if you like, and if there are no customers, that is your risk
• You can work in any location you choose.  You can park at your house and sit in your living room and take any jobs that come up, and then ignore new jobs until you get back home (I actually have a neighbor who is retired who does just this, he has driven me about 6 times now).
• The company has no productivity metrics or expectations.  As long as your driver rating is good and you follow the rules, you are fine.

This all ends with the California decision.  You drivers are all thinking you won this big victory because you are going to have the same job you loved but you will just get paid more.  This is not going to happen.  As I implied above, in the long-term this job will not exist at all, because Uber will be dead.  But in the near-term, if Uber tries to make this work **, Uber is going to excercise a LOT more control of your work.

That is because if Uber is on the hook for a minimum cost per hour for your work, then they are going to damn well make sure you are productive.  Do you enjoy sitting around near your suburban and semi-rural home at 3AM waiting to get some business?  In the future, forget it, Uber is not going to allow this sort of thing now that Uber, rather than its drivers, is carrying the risk of your being unproductive.  They are going to take a lot more control of where and when you can drive.  And if you do not get with the program, you are going to be kicked out.  It won't be three months before Uber starts tracking driver productivity and kicking out the least productive drivers.

Congratulations Uber drivers, in the quest to try to use the power of government to extract more money for yourselves from the company, you just killed your jobs as you know it.  You may have had freedom before but now you are working in Office Space like the rest of us.

This whole case just goes to support my frequent contention that the only labor model the US government will fully accept is an hourly worker working 9-5 punching a time clock.  Every new labor model that comes along eventually runs head-on into the government that tries to pound that square peg into the round hole of a time-punching factory worker.  The Obama administration even did its best to force a large number of salaried workers into punching a time clock.

More on the productivity issue here.  Other regulatory issues (CA break law, OSHA, etc) here.

** If I were the leader of Uber, I would announce today that we are exiting California.  This is an existential issue and the only way to fight it is right now on your home turf.  Any attempt to try to muddle through this is going to lead to Uber's death, and would thus be a disservice to its shareholders.   Whether this happens will be interesting.  Uber is owned by a bunch of California VC's who generally support exactly this sort of government authoritarian interventionism.  It will be interesting to see if a bunch of California progressives let $50 billion in equity go down the drain just to avoid offending the sensibilities of their fellow California progressives.

Update 8/12/20:  CA is going ahead with its decision, and still I have seen not one media article discussing how this will change the driving experience except to imply it will be "fairer" and pay more with better benefits.  At some level, all this does not really matter as Uber is walking dead anyway, not just from this decision but from COVID as well -- the whole "sharing" thing (Uber, AirBNB, etc) has lost a lot of popularity in a world where no one really wants to share someone else's space

From Engadget, on rental scooters in SF:

San Francisco is a city where companies frequently like to try out new ideas. Uber had its start here many years ago, as did success stories like Twitter and Airbnb. So it's no surprise that San Francisco happens to be one of many cities experiencing a new form of transportation: sharable electric scooters. They appeared in downtown SF seemingly out of nowhere, taking over sidewalks and pedestrian paths. But what was marketed as a low-cost, eco-friendly way to get around town soon became a public nuisance.

It all started in late March when three companies -- Bird, Spin and LimeBike -- unveiled their scooter-sharing solutions in San Francisco. All three work the same way: You unlock the scooter with an app, pay a nominal amount -- $1 to unlock and 15 cents a minute thereafter. When you're done, simply lock it with the app and it'll be ready for the next person to hop on.

Unlike docked bicycles, like the Ford GoBikes in San Francisco or New York City's Citi Bikes, you don't have to park them in designated spaces; they can be left anywhere. These scooters are then rounded up and collected every night for any necessary repairs or charging and then redistributed the next day.

In the meantime, though, they're often strewn aside carelessly, blocking the public right-of-way, thus making it especially difficult for wheelchairs and those with disabilities to move past them. Further, scooter riders are using them on the sidewalk, which is not only illegal but dangerous. I've personally had scooter riders zoom up past me, yelling "Watch out!" as they whizzed by. According to California state law, motorized scooters must be used in the bike lane or on the road. This means it's also against the law to ride them without a helmet and without a driver's license (therefore user must be 16 years or older).

So San Francisco is cracking down. Not only is the city working on legislating the scooters, but on April 16th, the city attorney sent cease-and-desist letters to all three companies to end operations until regulations are in place. The city also passed a law, demanding that all scooters have permits. Scooters found without permits will be subject to impoundment. San Francisco's Municipal Transportation Agency (SFMTA) hopes to open up the permitting process starting May 1st.

Pigouvian taxes are taxes meant to help markets and prices better account for certain externalities that wouldn't otherwise be priced in.  A good example is that to the extent one thinks that CO2 is having a deleterious effect on the environment, a carbon tax would be a pigouvian tax.  This brief note at Cato discusses some problems with Pigouvian taxes.  This note reminded me of another issue:  in real life, Pigouvian taxes are more likely to reflect biases and faulty assumptions and virtue signalling of politicians rather than real science and economics.  Here are two situations that come to mind, presented without comment:

Back in November of 2015 I wrote:

I would be stunned if the Volkswagen emissions cheating is limited to Volkswagen.  Volkswagen is not unique -- Cat and I think Cummins were busted a while back for the same thing.  US automakers don't have a lot of exposure to diesels (except for pickup trucks) but my guess is that something similar was ubiquitous.

My thinking was that the Cat, Cummins, and VW cheating incidents all demonstrated that automakers had hit a wall on diesel emissions compliance -- the regulations had gone beyond what automakers could comply with and still provide consumers with an acceptable level of performance.

Since then Fiat-Chrysler has been accused of the same behavior, and GM has been accused as well, though only in  a civil suit.

Now, most recently, Daimler is being accused of the same behavior

Daimler has been under suspicion of cheating on US emissions tests for quite a while now -- in 2016, a number of customers even sued the automaker, claiming their cars had sneaky software made to trick testers similar to Volkswagen's. Now, according to German newspaper Bild am Sonntag, US authorities investigating the Mercedes maker have discovered that its vehicles are equipped with illegal software to help them pass United States' stringent emission tests. Citing confidential documents, the publication said Daimler's employees doubted their vehicles would be able meet US standards even before Volkswagen's diesel scandal blew up. Internal testing apparently revealed that some Mercedes models emit ten times the country's nitrogen oxide limit.

Daimler reportedly developed software with several functions to be able to trick US regulators. One called "Bit 15" was designed to switch off emissions cleaning after 16 miles of driving, while another called "Slipguard" can detect if the car is being tested based on speed and acceleration. Bild am Sonntag said it found emails from Daimler engineers questioning whether those functions were legal.

To this day, I wonder how much European officials knew about all this as it was happening.  European officials really went all-in on promoting diesel years ago as an approach to combating climate change.  This has, by the way, turned out to be a great example of the danger of government picking winners, as diesel has really turned out to be one of the worst approaches for reducing emissions in transportation vehicles, both economically and environmentally.  Never-the-less, given the big commitment by European regulators in promoting diesel as a key part of their climate change plans, I wonder how much they were looking the other way through all of this -- such that their current "shock" at all this cheating might be equivalent to Reynault's shock that there was gambling going on in Rick's Cafe in Casablanca.

Via Zero Hedge:

Waymo, a unit of Alphabet, is set to launch a ride-sharing service similar to Uber, but with no human driver behind the wheel. Officials in Arizona granted Waymo a permit to operate as a transportation network company (TNC) across the state on Janurary 24, following the company’s initial application on Janurary 12, Bloomberg  reported.

The imminent release of a robotic fleet of fully autonomous Chrysler Pacifica minivans could be flooding the highways of Arizona, causing major headaches for Uber.

Since April of last year, Waymo has been experimenting with its self-driving fleet on the human guinea pigs of Phoenix, offering residents 24/7 access to the free ridesharing service. TNC status is a significant step for Waymo, because it now authorizes the company to start charging its passengers.

Waymo’s vehicles in the Phoenix area have driven more than 4 million miles on public roads. In November, the company said a portion of its cars in the Phoenix area were operating in fully autonomous mode, what’s known in industry parlance as level four autonomy.

My understanding is that Phoenix has become the world's center for testing and refining self-driving vehicles mainly by simply allowing it to happen when other municipalities threw up numerous regulatory hurdles (not just to self-driving cars but also, like Austin and Las Vegas, to ride-sharing companies).  I wish more business relocation competition among municipalities was on this basis rather than competing subsidy proposals.

I have seen driver-less Waymo vans a number of times around town, mostly around Tempe and Chandler.  They seemed to do fine once one gets over the shock of seeing the driver's seat empty.  I tried to sign up for their early rider program but apparently they are focusing on Phoenix's southeastern suburbs (e.g. Mesa, Tempe) right now.  I will try again as the program rolls out so I can publish a ride report here.  Probably I will hate it because the car will faithfully stay within the speed limit and thus drive me crazy.

Via Zero Hedge:

A pair of New York politicians has introduced legislation that would force consumer goods corporation Procter & Gamble to make their Tide Pod product less appetizing to human beings.

If passed, Senate bill S100A would require liquid detergent packets sold in the state of New York to be “designed in an opaque, uniform color that is not attractive to children and is not easily permeated by a child’s bite.”

The bill further states that each Tide Pod packet should be “enclosed in a separate, individual, non-permeable, child-resistant wrapper” and that the package they come in should have a warning label saying the product is “harmful if swallowed.”

These two legislators get their one news cycle of fame from this and 24 hours of virtue signalling how much they care, and the rest of humanity has to live with their stupidity for decades.

Even beyond the self-serving stupidity of even introducing such legislation, its specifics are even dumber, making sense only if the recent Tide pod consumption was somehow accidental, like an infant putting it in her mouth.  This regulation would have done pretty much zero to stop the recent insane social media challenge that drove a few people to eat these things.  Now when I put my little pod in the dishwasher, am I really going to have to struggle to get the thing out of some child-proof wrapper?  We can't just put every one in unopenable blister pack and be done with it?

I thought this letter from Dan Hanson to Tyler Cowen was really thought provoking:

I wonder how many of the people making predictions about the future of truck drivers have ever ridden with one to see what they do?

One of the big failings of high-level analyses of future trends is that in general they either ignore or seriously underestimate the complexity of the job at a detailed level. Lots of jobs look simple or rote from a think tank or government office, but turn out to be quite complex when you dive into the details.

For example, truck drivers don’t just drive trucks. They also secure loads, including determining what to load first and last and how to tie it all down securely. They act as agents for the trunking company. They verify that what they are picking up is what is on the manifest. They are the early warning system for vehicle maintenance. They deal with the government and others at weighing stations. When sleeping in the cab, they act as security for the load. If the vehicle breaks down, they set up road flares and contact authorities. If the vehicle doesn’t handle correctly, the driver has to stop and analyze what’s wrong – blown tire, shifting load, whatever.

In addition, many truckers are sole proprietors who own their own trucks. This means they also do all the bookwork, preventative maintenance, taxes, etc. These people have local knowledge that is not easily transferable. They know the quirks of the routes, they have relationships with customers, they learn how best to navigate through certain areas, they understand how to optimize by splitting loads or arranging for return loads at their destination, etc. They also learn which customers pay promptly, which ones provide their loads in a way that’s easy to get on the truck, which ones generally have their paperwork in order, etc. Loading docks are not all equal. Some are very ad-hoc and require serious judgement to be able to manoever large trucks around them. Never underestimate the importance of local knowledge.

I’ve been working in automation for 20 years. When you see how hard it is to simply digitize a paper process inside a single plant (often a multi-year project), you start to roll your eyes at ivory tower claims of entire industries being totally transformed by automation in a few years. One thing I’ve learned is a fundamentally Hayekian insight: When it comes to large scale activities, nothing about change is easy, and top-down change generally fails. Just figuring out the requirements for computerizing a job is a laborious process full of potential errors. Many automation projects fail because the people at the high levels who plan them simply do not understand the needs of the people who have to live with the results.

Take factory automation. This is the simplest environment to automate, because factories are local, closed environments that can be modified to make things simpler. A lot of the activities that go on in a factory are extremely well defined and repetitive. Factory robots are readily available that can be trained to do just about anything physically a person can do. And yet, many factories have not automated simply because there are little details about how they work that are hard to define and automate, or because they aren’t organized enough in terms of information flow, paperwork, processes, etc. It can take a team of engineers many man years to just figure out exactly what a factory needs to do to make itself ready to be automated. Often that requires changes to the physical plant, digitization of manual processes, Statistical analysis of variance in output to determine where the process is not being defined correctly, etc.

A lot of pundits have a sense that automation is accelerating in replacing jobs. In fact, I predict it will slow down, because we have been picking the low hanging fruit first. That has given us an unrealistic idea of how hard it is to fully automate a job.

Based on this I can still think of some labor-saving, but not labor-eliminating, automation roles in trucking.

• Convoying, allowing one driver to lead multiple additional automated trucks
• Reduction in team driving.  Currently Federal rules (e.g. for rest breaks and maximum driving times) have created incentives for teams of two drivers to move priority freight that needs to be moving constantly and not parked while the driver sleeps.  Automation might allow one person plus the automated driver to keep trucks moving continuously and safely.

One thing not mentioned by Mr. Hanson is the role of regulation.  Safe automated trucks will likely exist LONG before Federal regulatory changes will occur to allow them much use.  This is not just because there is some delay with regulators getting comfortable with the safety aspects, but because affected groups with political pull who wish to keep the status quo will use safety concerns, real or imagined, to hold up the regulatory process.

If you think I am being too pessimistic, here is a story.  The typical steam engine of the 1930's needed a driver and a fireman -- the latter's job was to make sure the furnace was correctly fueled and operating well.  When diesel locomotives came along, one benefit among many was that the fireman was no longer needed.  Seeing this on the horizon, the fireman's union was ready to dig in their heals.  They actually, boldly, took the position NOT that a diesel locomotive needed a fireman, but that it should be required to have 2 firemen!  This was partially a subject for union negotiation, but in the dysfunctional world of railroad labor regulation, it also required some regulatory changes  (as the first industry with large workforces, the government took its first shot at labor regulation in a railroad-specific manner and the result was largely dysfunctional; fortunately for the rest of industry it did a better job with labor regulation later for everyone else).  It took years to totally eliminated fireman from diesel engines.  In fact, nearly every railroad labor saving technology like this (e.g. automatic brakes rather than men on roofs turning break wheels) led to regulatory foot-dagging that allowed the new technology but resisted the reduction in personnel.

From Engadget, apparently the EU has banned retailers for adding a surcharge on credit card purchases.  Since it is an absolute fact that credit card sales cost retailers at least 3% more (due to merchant processing fees) than cash sales, I likely would have written about this story something like "EU knuckles under special interest lobbying from credit card processors and forces non-customers (ie those paying in cash) to subsidize credit card purchases."  Of course, given the consistent and predictable economic ignorance of Engadget, that is not how the story actually was written:

Thanks to new EU regulations, you won't have to put up with irritating card surcharges for much longer. Unfortunately, minimum card spends you come across in small shops and such will stick around, but from January 13th, the Payment Services Directive comes into play. This stops retailers from charging you more for, say, using a credit card than a debit card, or generally just passing the transaction fee onto the customer. It won't, however, make your Just Eat delivery any cheaper. That's because yesterday, ahead of the new EU rules being implemented, Just Eat did away with its 50p fee for paying by card, and instead created a new 50p "service charge" that applies to all orders.

What's particularly cheeky is pay-by-cash customers now also have to fish between the sofa cushions for an extra coin -- a move Just Eat calls "fairness for all" (lol) -- meaning it's making even more moolah while sticking a middle finger up to the spirit of the EU directive. Just Eat told the BBC it had previously thought about tweaking charges, while also totally confessing that "the change to legislation did play a part in prompting the review." A spokesperson also said, predictably, that it'll enable the company to keep providing its stellar services: "The 50p charge simply means that along with our restaurant partners, we can continue to deliver the best possible takeaway experience."

The law essentially forces cash customers to subsidize credit card customers.  I know what retail profits look like (think small single digits) and the lost surcharge is not coming out of profits, it is going to be covered by establishments in generally higher prices paid by everyone, including cash customers.  In my mind, this retailer is a hero, by actually making this legally-mandated cross subsidy transparent.

Here are some cool things about working for Uber:

• You can work any time you want, for as long as you want.  You can work from 2-4 in the morning if you like, and if there are no customers, that is your risk
• You can work in any location you choose.  You can park at your house and sit in your living room and take any jobs that come up, and then ignore new jobs until you get back home (I actually have a neighbor who is retired who does just this, he has driven me about 6 times now).
• The company has no productivity metrics or expectations.  As long as your driver rating is good and you follow the rules, you are fine.

All of this is going to change.  Why?  Due to lawsuits in most countries that seek to redefine Uber drivers as employees rather than contractors.  One such suit just succeeded in England:

Is Uber a taxi firm or a technology company, and are its drivers self-employed or mistreated employees? These questions are being asked of Uber the world over, and last year an employment tribunal case in the UK concluded two drivers were, in fact, entitled to minimum wage, holiday pay and other benefits. The ride-hailing service contested this potentially precedent-setting decision, as you'd expect, but today Uber lost its appeal. In other words, the appeal tribunal upheld the original ruling that drivers should be classed as workers rather than self-employed.

The appeal tribunal agreed that when a driver is logged in and waiting for a job, that's still tantamount to "working time." Working time they aren't getting paid for, of course. Interestingly, the ruling also noted that Uber basically has a monopoly on private hire via an app. Therefore, drivers are beholden to them and can't reasonably engage in other work while also being at Uber's disposal.

GMB, the union for professional drivers that's behind the original case, is calling it "a landmark victory." Naturally, the law firm representing the GMB and Uber drivers feels much the same. No points for guessing who has a slightly different opinion.

Despite Engadget's usual economic ignorance that this must be all good for drivers, in fact this is going to destroy about everything that makes Uber attractive as compared to 9-5 office jobs.  That is, if rulings like this don't kill the company entirely, as I have previously prophesied.

This is going to add a new cost for Uber, forcing them to pay money to drivers for dead time when they are not actually driving a passenger.  Let's make the reasonable assumption that Uber's first response to this is to A) stay in business and B) attempt to keep prices to customers from rising.  The only way they can do this is to minimize dead time.

Want to park at your house in an unpromising neighborhood with little business?  Forget it, Uber can't allow that in the future.  Want to work at an unproductive hour of your choosing?  Forget it.  Uber is going to have to set quotas on certain regions and hours of the day that are less productive and find a way to ban drivers from working those times.   In addition, they are likely to institute some sort of productivity metric for drivers, ie something like revenue minutes as a percent of total, and then they are going to rank all the drivers and start cutting drivers from the bottom of the list.  If Uber survives, it is going to be a very different company to work for, and is going to feel much more like a regular office job with a boss hanging around your cubicle pestering you about TPS reports.

I found this interesting from Randal O'Toole

Between 2015 and 2016, the total population of the San Francisco-Oakland urban area grew by 13,773 people, but the black population shrank by 5,839, suggesting that Bay Area land-use policies continue to push low-income people out of the region by making housing unaffordable. The Austin urban area, to its shame, saw a decline of 4,439 blacks despite a total population growth of 25,316.

A while back I wrote about the Obama Administration's near exponential expansion of EEO reporting

 It takes the current EEO-1 (the annual exercise where we strive for a post-racial society by racially categorizing all of our employees) and makes it something like 15-20 times longer.  In addition, rather than simply "count" an employee as being on staff in a certain race-gender category, we now have to report their income and hours worked.  Either I will have to hire staff just to do this stupid report, or I will again (like with Obamacare) have to pay a third party thousands of dollars a year to satisfy yet another government reporting requirement.  This is utter madness.

Get this -- the report has 3600 individual cells that must be filled in.  And this is in addition to the current EEO-1 form, which also still has to be filled out.  The draft rule assumes 6-7 hours per company per year for this reporting.  They must be joking.

Fortunately, the Trump Administration has at least temporarily suspended this requirement:

On Tuesday, the White House suspended a burdensome reporting requirement for employers that would have cost them $400 million while yielding information of questionable value. It did so in rejecting changes to the EEO-1 form made at the end of the Obama administration.

The White House Office of Management and Budget stated that the pay collection and reporting requirements “lack practical utility, are unnecessarily burdensome, and do not adequately address privacy and confidentiality issues.” It explained its reasoning in a letter to the Chair of the Equal Employment Opportunity Commission, Victoria Lipnic.

The Obama administration had claimed that rewriting the form to include 3,660 boxes for companies to check or fill out would help identify wage discrimination. But very little of the information it sought would have shed any light on potential wage discrimination.

A few weeks ago I wrote:

If you want to convince me of the need for restrictions on any substances, such as narcotics, you have to convince me of three things:

1. That incarcerating users is somehow better for them than their addiction
2. That ethically abusers of the substance are more worthy of our attention and intervention than legitimate users who benefit from the substance and whose access will likely be restricted
3. That the negative social costs of the substance's use are higher than the inevitable social costs of the criminal black market (including the freedom-reducing policing laws implemented in response) that will emerge when its use or purchase is banned

Think in particular about point #2 when reading this:

Arizona would limit all initial opioid prescriptions to five days for new patients under sweeping guidelines recommended Wednesday by Gov. Doug Ducey's administration.

The plan also would limit maximum doses for pain medication, implement steps to taper down pain medications and require pain prescriptions to be filed electronically, rather than on paper, to limit diversion of drugs.

Consider that many legitimate users will need more than the legal maximum dosage to control their pain, and thus the issue becomes whether we want to essentially torture innocent sick people by forcing them to remain in excruciating pain in exchange for (possibly) reducing the number of accidental deaths from abusers of these drugs (I say possibly because over the last 40 years the government war on drugs has had such a super stellar track record in reducing narcotic usage).

To me the answer to this tradeoff is obvious but I am willing to admit it is a tradeoff subject to debate.  But the article linked has no debate.  There is not a single mention of any downsides to the rules, or any potential harm to legitimate users.

We often talk about the direct costs of regulation, but in the long run perhaps the most worrying problem is a cost that is impossible to measure -- its effect on innovation.  From a labor regulation paper I am writing:

Labor regulations are written in consideration of existing, well established business models, and are not written for business models that might someday exist.  Often my employees ask me why labor law will not allow practices that would make a lot of sense in our business, both for employer and employee.  I tell them to imagine a worker in a Pittsburg factory, punching a timeclock from 9 to 5 Monday through Friday, working within sight of their supervisor, taking their breaks in the employee lunch room.  This is the labor model regulators and legislators had in mind when writing the bulk of labor law.  Any other labor model – seasonal work, part-time work, working out of the home, telecommuting, working away from a corporate office or one’s supervisor, the gig economy – become square pegs to be jammed in the round hole of labor law.

When someone does try to stick an innovative square peg in the round hole of existing regulation, there tend to be concerted efforts by regulators to kill the new model.  Just look at Uber and the efforts to force it out of its labor model and into a more traditional one.  Most of us see innovation as good and value-creating.  Regulators - by training, by their incentives, by the culture - see innovation as threatening.  They see innovations as viruses trying to bypass the immune systems they have spent years constructing.

Here is an example from pharmaceuticals that really struck me.  Alex Tabarrok is writing on promising anti-aging and cancer reduction drugs:

The assembled scientists and academics focused on one obstacle above all: the Food and Drug Administration. The agency does not recognize aging as a medical condition, meaning a drug cannot be approved to treat it. And even if the FDA were to acknowledge that aging is a condition worthy of targeting, there would still be the question of how to demonstrate that aging had, in fact, been slowed—a particularly difficult question considering that there are no universally agreed-on markers.

 

I was thinking about these two stories in the context of net neutrality (the theory if not the practice)

• GoFundMe shuts down campaigns for Charlottesville suspect
• GoDaddy dumps white supremacist site 'Daily Stormer'

The folks who are cheering this on seem to be the same folks who support net neutrality (Venn Diagram, Professor Perry?)  Look, if I had an Internet business, I would not want to serve or subsidize these folks.  But then again, I have always opposed net neutrality rules.  I suppose that one could argue net neutrality is narrowly about ISP's, so this stuff is not relevant, but what if Cox Communications decided the same thing?  Do they not have the same rights of association that GoDaddy and GoFundMe have?  And if every registrar and web hosting company refuse to serve a certain person or viewpoint, does net neutrality at the ISP level even matter?  This is part of the hypocrisy of companies like Google, which demand Cox act as a common carrier for its YouTube traffic (because Google does not want to foot the full cost of the amount of bandwidth they use) but act as anything but a common carrier in its core search business.

And while we are on rights of association, am I legally required to bake a cake for James Fields?

Postscript:  I wonder if people on the Left, which dominate most of the calls for net neutrality, would be demanding net neutrality if they thought most ISP's were controlled by folks on the Left?  Google and Facebook are known to be controlled by the Left, and thus no one on the Left demands neutrality of them  -- in fact the Left likely would oppose calls for neutrality at Google and Facebook as their hope is that opposing voices to theirs will be disproportionately screened out by these companies.

If you want to convince me of the need for restrictions on any substances, such as narcotics, you have to convince me of three things:

1. That incarcerating users is somehow better for them than their addiction
2. That ethically abusers of the substance are more worthy of our attention and intervention than legitimate users who benefit from the substance and whose access will likely be restricted
3. That the negative social costs of the substance's use are higher than the inevitable social costs of the criminal black market (including the freedom-reducing policing laws implemented in response) that will emerge when its use or purchase is banned

Not only have I not been convinced on any of these dimensions on any of the substances we currently call illegal drugs, I have yet to see anyone seriously even attempt to address these trade-offs or acknowledge they exist.

California is a uniquely difficult place for companies trying to actually employ people rather than robots.   Owning a business in that state, you could be forgiven that the legislation actually embarked on a program to explicitly punish companies for hiring people.  The state has spent the last ten or twenty years defining a myriad of micro offenses employees for which  may sue employers and make large recoveries -- everything from having to work through lunch to having the wrong chair and not getting to sit in that chair at the right times of day.

To illustrate this, I want to show you the insurance application I just received.  Most companies have something called employment practices liability insurance.  This insurance helps pay legal and some settlement expenses if and (nowadays) when a company is sued by an employee for things like discrimination or harassment or any of the variety of sue-your-boss offenses California has established.  In that multi-page application, after the opening section about name and address, the very first risk-related question asks this:

They specifically ask about your California employment, and no other state, in order to evaluate your risk.

The other insurance-related result of California's regulatory enviroment is that if one is in California, it is almost impossible to get an employee practices insurance deductible under $25,000.  This turns out to be just about exactly the amount of legal costs it takes to get a nuisance suit filed with no real grounding dismissed.  It essentially means that any disgruntled ex-employee, particularly one in a protected class, can point their finger at a company without any evidence whatsoever and cost that company about $25,000 in legal expenses.  Rising minimum wages is not the only reason MacDonald's is investing so much in robotics.

Many libertarians like state's rights because it creates 50 different tax and regulator regimes, and libertarians assume that people and businesses will flow to the most free states.  However, California progressives have discovered they like state's rights as well, though they are in more of the antebellum South Carolina category of desiring state's rights in order to be less free than the Federal government allows.

After a bid to launch a California secession movement failed in April, a more moderate ballot measure has been approved, and its backers now have 180 days to attain nearly 600,000 signatures in order to put it up to vote in the 2018 election.

The Yes California movement advocated full-on secession from the rest of the country, and it gained steam after Donald Trump won the presidential election in 2016. However, as the Sacramento Bee noted, that attempt failed to gather the signatures needed and further floundered after it was accused of having ties to Russia.

But as the Los Angeles Times reported this week:

“On Tuesday afternoon, Atty. Gen. Xavier Becerra’s office released an official title and summary for the initiative, now called the ‘California Autonomy From Federal Government’ initiative.”

The new measure that seeks to set up an advisory commission to inform California’s governor on ways to increase independence from the federal government. It would reportedly cost $1.25 million per year to fund “an advisory commission to assist the governor on California’s independence plus ‘unknown, potentially major, fiscal effects if California voters approved changes to the state’s relationship with the United States at a future election after the approval of this measure,’” the Los Angeles Times reported.

With Becerra’s approval, its backers can now seek the nearly 600,000 signatures required to place the measure on the 2018 ballot.

As the outlet explained:

“The initiative wouldn’t necessarily result in California exiting the country, but could allow the state to be a ‘fully functioning sovereign and autonomous nation’ within the U.S.’”

According to the Attorney General’s official document on the measure, it still appears to advocate secession as the ultimate goal — even if it doesn’t use the term outright.“Repeals provision in California Constitution stating California is an inseparable part of the United States,” the text explains, noting that the governor and California congress members would be expected “to negotiate continually greater autonomy from federal government, up to and including agreement establishing California as a fully independent country, provided voters agree to revise the California Constitution.”

Via Zero Hedge:

a group of 12 Democratic Congressman have signed a letter urging the Department of Justice and the Federal Trade Commission to conduct a more in-depth review of e-commerce giant Amazon.com Inc.'s plan to buy grocer Whole Foods Market Inc., according to Reuters.

Rumblings that Amazon is engaging in monopolistic business practices resurfaced last week when the top Democrat on the House antitrust subcommittee, David Civilline, voiced concerns about Amazon's $13.7 billion plan to buy Whole Foods Market and urged the House Judiciary Committee to hold a hearing to examine the deal's potential impact on consumers.

Making matters worse for the retailer, Reuters reported earlier this week that the FTC is investigating the company for allegedly misleading customers about its pricing discounts, citing a source close to the probe.

The letter is at least third troubling sign that lawmakers are turning against Amazon, even as President Donald Trump has promised to roll back regulations, presumably making it easier for megamergers like the AMZN-WFM tieup to proceed.

It is difficult even to communicate how much Amazon has improved my life.  I despise going to stores, and Amazon allows me the pick of the world's consumer products delivered to my home for free in 2 days.  I love it.  So of course, politicians now want to burn it down.

I say this because the anti-trust concerns over the Whole Foods merger have absolutely got to be a misdirection.  Whole Foods has a 1.7% share in groceries and Amazon a 0.8%.  Combined they would be the... 7th largest grocery retailer and barely 1/7 the size of market leader Wal-Mart, hardly an anti-trust issue.  So I can only guess that this anti-trust "concern" is merely a pretext for getting a little bit of press for attacking something that has been successful.

The actual letter is sort of hilarious, in it they say in part:

in the letter, the group of Democratic lawmakers – which includes rumored presidential hopeful Cory Booker, the junior senator from New Jersey – worried that the merger could negatively impact low-income communities. By putting other grocers out of business, the Amazon-backed WFM could worsen the problem of “food deserts,” areas where residents may have limited access to fresh groceries.  "While we do not oppose the merger at this time, we are concerned about what this merger could mean for African-American communities across the country already suffering from a lack of affordable healthy food choices from grocers," the letter said on Thursday.

Umm, the Amazon model is being freed from individual geographic locations so that everyone can be served regardless of where they live.  This strikes me as the opposite of "making food deserts worse."  It is possible that Amazon might not deliver everywhere at first, and is more likely to deliver to 90210 than to Compton in the first round of rollouts.  But either they do deliver to a poor neighborhood, and improve choices, or they don't, and thus have a null effect.  And it is really sort of hilarious worrying that new ownership of Whole Foods, of all groceries, is going to somehow devastate poor neighborhoods.

By the way, if I were an Amazon shareholder, I would be tempted to challenge Bezos on his ownership of the Washington Post.  In a free society, he is welcome to own such a business and have that paper take whatever editorial stands he wishes.  However, we do not live in a fully free society.  As shown in this story, politicians like to draw attention to themselves by using legislation and regulation to gut successful companies, particularly ones that tick them off personally.  In this case:

So far, it’s mostly Democrats who are urging the FTC to take “a closer look” at the deal. However, some suspect that Amazon founder Jeff Bezo’s ownership of the Washington Post – a media outlet that has published dozens of embarrassing stories insinuating that Trump and his compatriots colluded with Russia to help defeat Democrat Hillary Clinton – could hurt the company’s chances of successfully completing the merger, as its owner has earned the enmity of president Trump. Similar concerns have dogged CNN-owner Time Warner’s pending merger with telecoms giant AT&T.

I have been frustrated trying to explain to folks why net neutrality is anything but neutral, in fact tilting the playing to the advantage of large content providers.  I thought I would take a lesson from Don Boudreaux, who has spent a lot of time thinking about economics education.  He often works by analogy -- sometimes these analogies work for me and sometimes they don't, but they seem a good way to reach people perhaps when traditional arguments have not worked.

Let's consider two cities we will call Gotham and Metropolis.   One day a private road builder proposes the first major highway between the two cities.  The citizens cheer, but the government places one caveat on them -- the builders must be neutral to all traffic.  Every entity (individuals, corporations, public agencies) should each pay the same fixed amount each year for use of the road and everyone should get equal access to the road, no matter how much they use it.

Things start out pretty much as expected.  The company sets the access charge at $10 a year, and lots of entities pay to put their one or two vehicles on the road from time to time.  The road is a great time saver and the capacity of two lanes in each direction is more than enough for easy, fast travel.

This new road and the faster transportation it allows spawns a number of entrepreneurs who find new uses for the road.  In particular, two companies create new logistics services that cause at first dozens, then hundreds, and then thousands of their trucks to hit the road between the two cities.  Soon, more than half the vehicles on the road are from these two companies, and another 25% of the vehicles on the road are from perhaps a dozen smaller imitators.  But each of these companies, despite using orders of magnitude more of the road's capacity than any other individual, still pay the same flat $10 for access to all their vehicles.   These trucking companies continue to add new services -- such as high demand logistics (HD for short) -- that put more and more trucks on the highway. Traffic explodes.  It turns out that these trucking companies have ways to compress their loads into fewer trucks with little loss to their quality of service, but why bother?  They are not paying for the capacity they are using, so why conserve?

But the resulting congestion from these few companies' trucks is slowing everyone else down.  Congestion reigns.  Instead of blaming the trucking companies, everyone demands the road company add more capacity, which they do.  They spend huge amounts of money to accommodate the traffic from these few companies, but due to neutrality rules the costs get paid by everyone, and the annual fee goes up to $15, $20, then $25.  Finally, a few people begin to observe that their access fees have doubled and tripled all to support vehicles from just a few entities.  Proposals come forward:  Can't these trucks be limited to certain lanes to keep them out of the way of other traffic?  Can't they be limited at certain times of day?  Can't the road company charge them per vehicle, rather than a flat fee, so they pay their fair share of the expansion costs?  Can't the road company give them incentives to compress their loads into fewer trucks?  Can't the trucking companies make a contribution to the capital fund to expand the road?

But nothing happens, because of road neutrality.  The trucking companies repeatedly shout "road neutrality" and conduct a successful campaign to convince everyone else that road neutrality is really in their interest.  They try to scare individuals by saying that an end to road neutrality will cause certain drivers to be excluded just because the road company does not like them, when in fact no such proposal or issue has ever existed. Just to be sure, the trucking companies pack the regulatory boards with their cronies. 

I hope the analogy is, while not perfect, at least clear.  Google (via Youtube), Netflix, and Facebook account for over half the bandwidth used on the Internet.  They claim they are worried about ISP's filtering traffic based on political views, but no one has ever provided the smallest shred of evidence that this occurs (and it is incredibly hypocritical since Facebook and Google do exactly this within their platforms).  What they are really worried about is that someone might un-bundle your local Internet service, specifically splitting the high bandwidth using sites from the low.  An ISP might very rationally offer a much lower monthly rate to someone who accepted a plan that did not allow streaming video or which compressed streaming video to conserve bandwidth (oddly, while the Left supports net neutrality, they favor the opposite in cable TV, trying to force unbundling of sites that are cheap for cable companies to provide from those that are expensive (e.g. ESPN).  This is likely Google and Netflix's nightmare.

One way to think about this is a classic vertical supply chain fight.  Suppliers and their channel fight all the time to see who will reap the lion's share of the profits available from selling to the end consumer.  There is a certain amount to be made from selling an incremental streaming movie -- Netflix and your ISP both want a piece, Netflix for the content and the ISP for building the pipe.  In a free market, they would fight it out, and the accommodations between them would likely ebb and flow over time.  What net neutrality does is attempt to impose a resolution of this such that Google and Netflix get 100% of the revenue and the ISP is saddled with 100% of the cost to build the pipe.  Hardly "neutral".

Postscript:  Google is also worried than an ISP might hook up with, say, Netflix and offer Netflix for free to their low-bandwidth products sort of as a preferred provider.  Sort of exactly like what Google does with every one of its own services, given them preferred position in their search engine.  Hypocrites all.

Free markets are governed and regulated by consumers.  If suppliers offer something, and consumers like it and like how that particular supplier provides it more than other choices they have, the supplier will likely prosper.  If suppliers attempt to offer consumers something they don't want or need, or already have enough of from acceptable sources, the supplier will likely wither and disappear.  That is how free markets work.  Scratch a Bernie Sanders supporter and you will find someone who does not understand this basic fact of consumer sovereignty.

Regulators generally are operating from a theory that says there is some sort of failure in the market, that consumers are not able to make the right choices or are not offered the choices they really want and only the use of force by regulators can fix this failure.  In practice, regulators have no way of mandating a product or service that producers cannot economically or technically provide (see: exit from Obamacare exchanges) and so all they actually do is limit choice by pruning products or services or individual features the regulators don't think consumers should be offered.   They substitute the judgement of a handful of people for the judgement of thousands, or millions, and ignore that there is not some single Platonic ideal of a product out there, but thousands or millions of ideals based on the varied preferences of millions of people.

A reader sends me a fabulous example of this from the Socialist Republic of Cambridge, Mass.

Month after month, in public meeting after public meeting, a trendy pizza mini-chain based in Washington, D.C., hacked its way through a thicket of bureaucratic crimson tape in the hopes of opening up shop in a vacant Harvard Square storefront. But when the chain, called &pizza, arrived at the Cambridge Board of Zoning Appeal in April, the thicket turned into a jungle.

Harvard Square already has plenty of pizza, board chairman Constantine Alexander declared, and though a majority of the board signed off on &pizza’s plans, approval required a four-vote supermajority. Citing the existence of five supposedly similar pizza joints in the area, as well as concerns about traffic congestion, a potential “change in established neighborhood character,” and even the color of the restaurant’s proposed signage, Alexander and cochair Brendan Sullivan dissented.

“A pizza is a pizza is a pizza,” Alexander said at one point during the April hearing, sounding suspiciously like someone who doesn’t eat much pizza or give much thought to the eating habits of the 22,000 or so college students who live in the city.

A city ordinance dictates that any new fast-food place should be approved only if it “fulfills a need for such a service in the neighborhood or in the city.” But the notion that an unelected city board should be conducting market research using some sort of inscrutable eye test to decide precisely what kind of cuisine is appropriate for Harvard Square stretches that to the point of absurdity.

Via engadget:

The European Commission's long-running investigation into Google has finally come to an end, and it's not good news for the search giant. Commissioner Margrethe Vestager confirmed today that the company has been fined €2.42 billion ($2.72 billion) for unfairly directing users to its own products rather over those of its rivals. It's the biggest financial penalty the Commission has ever handed out, eclipsing the €1.06 billion ($1.4 billion) charge incurred by Intel back in 2014.

In a statement, Vestager said: "Google has come up with many innovative products and services that have made a difference to our lives. That's a good thing. But Google's strategy for its comparison shopping service wasn't just about attracting customers by making its product better than those of its rivals. Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors.

Via calls for "net neutrality"** in this country, Google has been arguing that ISPs must act as common carriers of its content and must ignore the fact that nearly half of all US ISP bandwidth investment is used without compensation to support the business model of just two content providers (Google and Netflix).  Google does not want ISP's to somehow favor other content providers over themselves, even though these others cost orders of magnitude less to serve than does Google's Youtube division.

Well, as I wrote before, the EU is bringing karmic justice to Google via this decision.

Hah!  I think this is a terrible decision that has nothing to do with economic sanity or even right and wrong -- it has to do with the EU's frequent historic use of anti-trust law as a way to bash foreign competition of its domestic providers, to the detriment of its consumers.  But it certainly is Karma for Google.  The EU is demanding that Google's search engine become a common carrier, showing content from shopping sites equally and without favor or preference.  The EU is demanding of Google exactly what Google is demanding of ISP's, and wouldn't you know it, I don't think they are going to like it.

** I put "net neutrality" in scare quotes because I think it is a term that means exactly the opposite of what it says.  Neutrality is what we had 2 years ago, with no regulation that favored either content providers or bandwidth providers in the typical negotiations and back-and-forth that occurs in every supply chain.  "Net neutrality" actually means tipping the scales and being non-neutral in favor of content providers over ISP's.

Google was (and is) a big supporter of Net Neutrality.  Content providers like Google (Google owns Youtube, among other large content sites) want to make sure that other content providers are not somehow given special treatment by the ISP's that provide the bandwidth for consumers to view these sites.  In particular, sites like Youtube and Netflix, which consume a HUGE percentage of the bandwidth at many ISP's, don't want to somehow pay any extra costs that might be imposed on content sites that use a lot of bandwidth.   I wrote this on net neutrality a few years ago:

Net Neutrality is one of those Orwellian words that mean exactly the opposite of what they sound like.  There is a battle that goes on in the marketplace in virtually every communication medium between content creators and content deliverers.  We can certainly see this in cable TV, as media companies and the cable companies that deliver their product occasionally have battles that break out in public.   But one could argue similar things go on even in, say, shipping, where magazine publishers push for special postal rates and Amazon negotiates special bulk UPS rates.

In fact, this fight for rents across a vertical supply chain exists in virtually every industry.  Consumers will pay so much for a finished product.  Any vertical supply chain is constantly battling over how much each step in the chain gets of the final consumer price.

What "net neutrality" actually means is that certain people, including apparently the President, want to tip the balance in this negotiation towards the content creators (no surprise given Hollywood's support for Democrats).  Netflix, for example, takes a huge amount of bandwidth that costs ISP's a lot of money to provide.  But Netflix doesn't want the ISP's to be be able to charge for this extra bandwidth Netflix uses - Netflix wants to get all the benefit of taking up the lion's share of ISP bandwidth investments without having to pay for it.  Net Neutrality is corporate welfare for content creators.

A typical ISP would see this relative usage of its bandwidth.  You can be assured everyone on this list is a huge net neutrality supporter.

Essentially, Google wanted to force ISP's to be common carriers, to be legally required to carry all traffic equally, even if certain traffic (like Google's Youtube) is about a million times more expensive to serve than other people's content.

But the point of this story is not about my issues with Net Neutrality.   The point of this story is Karma, or as we used to say it in the South, what "goes around, comes around."

The European Union’s antitrust watchdog in the coming weeks is set to hit Alphabet Inc.’s Google with a record fine for manipulating its search results to favor its own comparison-shopping service, according to people familiar with the matter.

The penalty against Google is expected to top the EU’s previous record fine levied on a company allegedly abusing its dominance: €1.06 billion (about $1.18 billion) against Intel Corp.in 2009.

The fine could reach as high as 10% of the company’s yearly revenue, which stood at $90.27 billion last year.

But more painful to Google than a sizable fine could be other consequences that come with the European Commission’s decision, including changes not only to the tech giant’s business practices with its shopping service but with other services as well. The EU’s decision could also embolden private litigants to seek compensation for damages at national courts.

The EU is likely to demand Google treat its own comparison shopping service equally with those of its competitors, such as Foundem.co.uk and Kelkoo.com Ltd., possibly requiring the search giant to make rival services more visible on its own platform than they are at present. Such companies rely on traffic to their site from search engines like Google’s.

Hah!  I think this is a terrible decision that has nothing to do with economic sanity or even right and wrong -- it has to do with the EU's frequent historic use of anti-trust law as a way to bash foreign competition of its domestic providers, to the detriment of its consumers.  But it certainly is Karma for Google.  The EU is demanding that Google's search engine become a common carrier, showing content from shopping sites equally and without favor or preference.  The EU is demanding of Google exactly what Google is demanding of ISP's, and wouldn't you know it, I don't think they are going to like it.

Back in November of 2015 I wrote:

I would be stunned if the Volkswagen emissions cheating is limited to Volkswagen.  Volkswagen is not unique -- Cat and I think Cummins were busted a while back for the same thing.  US automakers don't have a lot of exposure to diesels (except for pickup trucks) but my guess is that something similar was ubiquitous.

My thinking was that the Cat, Cummins, and VW cheating incidents all demonstrated that automakers had hit a wall on diesel emissions compliance -- the regulations had gone beyond what automakers could comply with and still provide consumers with an acceptable level of performance.

Since then Fiat-Chrysler has been accused of the same behavior, and now GM is accused as well, though only in  a civil suit.

A class-action lawsuit accuses General Motors of rigging emission-control systems on 2011–2016 Chevrolet Silverado HD and GMC Sierra HD pickups with GM’s Duramax turbo-diesel 6.6-liter V-8 engine. If the allegations are proved true, the environmental damage from these 705,000 trucks, which the lawsuit said emit two to five times the legal limit of nitrogen oxides (NOx) in typical driving conditions, could easily exceed that of Volkswagen’s emission-test-cheating TDI engines.

Of course, people can say any thing they want in a civil suit, so this needs to be proved, but I think it probably is true.

A while back a reader with some inside knowledge explained what was going on.

I have made this same point before -- immigration restrictions on who can and can't work in the US is effectively a Federal work permit requirement, one that could easily be expanded over time:

E-Verify, if implemented nationwide, would be a system of work permits. If you started a new job, you would need the federal government to verify that you are legally allowed to have that job. How long would it be before the government started making judgements about who should be allowed to work? Convicted sexual predators, even those who were, say 19, and sleeping with a consensual 16-year-old, have to register for life and are told that they can't live in certain parts of a city. Is it entirely inconceivable that some would ultimately be told that they can't work?

I can imagine far worse than that in today's society.   One must complete a certain number of hours of training and pass a series of tests to get a driver's licence.  How long before someone suggestions mandatory diversity testing and a woke-ness test before being allowed to work?

The minimum wage of a laborer who places and picks up orange cones around a Federal highway project in California is set at $43.97 an hour (and yes, the wage rules are that detailed).  This is set by the Davis-Bacon Act and the wage determination is here (wage determination CA29, LABORER TRAFFIC CONTROL/LANE CLOSURE, Traffic Control Person II, wage plus fringe).

Here is your essay question:  Given that this equates to nearly $88,000 a year, how many truly unskilled workers would you expect to be hired by Federal stimulus projects, vs. other workers with more skills who are taking jobs below their skills and experience)?