Coyote Blog

My company, as I have written before, gets hosed on unemployment insurance in states like California where the government does nothing to police cheating.  Many of my seasonal employees take vacations during the winter, but draw unemployment from California because the state has absolutely no interest in really checking to see if they are looking for work (which is a legal requirement of drawing unemployment).

This week I received the  most amazing ruling from California on unemployment.  If you don't understand how it works, the state taxes me a percentage of my payroll in the state as unemployment insurance premiums.  The rate is set so that the premiums I pay are about equal to the payments my ex-employees receive.  This means that the rate can adjust up and down, and also means that any incremental payouts are eventually paid by my company.  The rules are that the employee must have been terminated, not voluntary quit, and can't have been terminated for cause (i.e. theft) though in the latter case states like California give employees a huge benefit of the doubt (so huge, that I have never been able to prove "cause" to their satisfaction, and end up paying the unemployment for people who stole from me).

So I got this notice this week:

The claimant quit your employment on his/her doctor's advice.   A leave of absence was not available or would not have resolved the problem.  Available information shows that the claimant had good cause for leaving work [the claimant admits in a second document to having had a motorcycle accident on his own time]

Great.  The state has agreed to exactly the facts as we submitted them.  Victory at last!  Or not:

Your reserve account will be subject to charges.

An employee of mine has a motorcycle accident on his own time, and my company has to pay his wages while he is hurt?  Why?  Because we were the nearest people at hand to grab the money from?  Who elected me this guy's parent?

If you want to have mood lighting in your house that dims and doesn't turn everything a weird color, then go out and stock up on light bulbs today because the new energy bill just passed**.  I have already blogged plenty about the stupid stuff in this bill, but apparently Kevin Drum thinks its a good step.  I don't see how anyone of any political stripe can see this as a good bill.  Its just stupid in so many ways.  Yes, I understand as a libertarian, my energy bill would look like:

1. get out of the way

But I can for a moment place myself in a position where I would imagine being worried about CO2 and dependence on fossil fuels.  For someone who really cares about these things, here is what a rational energy plan would look like:

1. large federal carbon tax, offset by reduction in income and/or payroll taxes
2. streamlined program for licensing new nuclear reactors
3. get out of the way

** I personally have replaced most of the bulbs in my house, out of rational economic self-interest, with CF bulbs.  However, there are about 6 where CF's just won't do the job I need and about 6 more (3 above my shower and 3 outside) where current CF bulbs do not hold up to the moisture.   The desire by government to micro-manage me into using an inferior solution for these 12 locations is the same compulsion that has led to my not having a single toilet in my house that works  (the shower also sucked too until I figured out how to remove the government-mandated flow restricter from the shower head).

TJIC has a great roundup of 20th century lending regulation:

Once upon a time, when we had a free market, bankers made loans to poor people.

Then, FDR came into office, and he and the Democratic Congress
passed laws to pressure banks to stop making loans to poor people.

Then, in the 1980s, Democrats heckled banks for not making
sufficient loans to poor people, and pass laws to force them to change
their ways.

Then, in the 21st century, Democrats heckled banks for making
too many loans to poor people, and passed laws to force them to change
their ways.

I often see folks who are arguing for increased government regulation of some industry observe that "even those greedy corporations in this industry support this new regulation."  For example, if a power company takes a public position to support greenhouse gas emissions, then that is used as evidence that such regulation must really be necessary if even the to-be-regulated are in favor.  Greg Craven makes such an argument in his global warming video that I refuted the other day.

There are two very good reasons a company in such a position might publicly support even a bad regulation.  The first is basic politics and PR:  If the regulation appears inevitable and has public support, then it is sometimes better to get out ahead of it and try to curry favor with politicians and the public to manage the regulation's implementation.   We all know corporations give donations to political candidates, but look at how they give them.  Corporate donations correlate far better with "who is expected to win" rather than "who would create the most favorable regulatory environment for the corporation."  In fact, corporations are highly likely to give donations to both candidates in a closely-fought election, and a lot of their giving is after the election, to the winner of course.

The other good reason that companies support regulation in their industry is because a lot of regulation is either designed to, or effectively, helps incumbent companies against new entrants.   I have talked about this many times with the questioning of licensing.  Global warming regulation and carbon trading systems in particular give us another great example:

BBC News understands the industry will be allowed to increase emissions
as much as it wants by the European environment council. Aviation is
the fastest growing source of greenhouse gases. But Europe's
environment ministers look set to reject a plan for a strict cap on
emissions from planes. Instead, airlines will be given a set number of
permits to pollute.

Instead, airlines will be given a set number of permits to pollute.

If
they overshoot their limit they will be allowed to buy spare permits
from firms who have managed to cut emissions elsewhere - manufacturing
industry, for instance.

So, current airlines in Europe will be given carbon permits that presumable support their current business level.  However, any new entrant, or any current player wishing to take market share from another airline, must spend money on carbon credits to grab this market share, carbon credits the current established incumbents got for free.  This in effect becomes a tax on market share gains.  This European-style protection of large corporations is typical, and is why the 30 largest companies in Europe are nearly the same as they were in 1965, but are completely different in the US.

This is also why, though I don't think expensive action on CO2 is justified, I think that if we do so the approach must be a carbon tax rather than cap and trade.   But cap and trade has so much potential for political hijinx and giving special deals to the politically influential that my guess is that politicians will want cap and trade.

I was watching CNBC over lunch and saw that Alan Greenspan has criticized the President's plan for freezing the interest rates on some adjustable rate loans.  He argued, and I agree, that it is bad to mess with contracts and markets, and bad to stand in the way of a real estate bubble that needs to correct.  He said that if the government feels sorry for certain mortgage holders, it should give them cash.

I am not too excited about giving away cash to people who made bad financing decisions, particularly since I have successfully weathered a couple of tough years in my business brought about in part by rising rates on our businesses adjustable rate loans.  However, I am very much a supporter of being as open and up-front as one can be in government taxing or spending.  For example, I prefer direct payments to farmers rather than price supports.  I prefer a carbon tax to CAFE-type mandates.  In both cases, while both alternatives probably cost the economy about the same in total, the cost-benefit tradeoff is more clear in the first alternative.  Which is why, predictably, politicians usually prefer the second alternative. 

All of this pops into my head because apparently the President's reaction was that he preferred his plan to a "bailout."  Huh?  How is his plan any more or less a bailout, except that the exact costs are more hidden and who pays the costs are more obscure.  The only real difference is that Greenspan's approach is probably less likely to set bad precedents for the future or to make mortgages more expensive for the rest of us, which the President's plan almost certainly will.

We offer Wi-fi services to campers and recreators in some of the facilities we manage.  But I am shutting it all down if I am put in the position of policing how my customers use the Internet.

I really can't stand to be in New York City for very long.  The crowds, the hassles and the lines all conspire to drive me crazy.  Every second I feel like I am packed around by more people, and I find it horribly claustrophobic.

If your immediate reaction to this statement is to feel like I am attacking you or your lifestyle, you are wrong.  My purpose is not to say that those who love it here in NYC are making an incorrect choice, for they are not.  If they derive energy from the people and the density and all the amenities that density can justify, great.  It is in fact an interesting (and depressing) feature of modern discourse that my saying that I don't personally choose a certain lifestyle is found as threatening to people who do.  Why should it?  My only answer is that this zero-sum statist society of activists has created the expectation that the next step of anyone who expresses a negative preference for something will be to run to the government to get it banned.

The reason I bring my preference up at all is that the vast majority of city planners get a huge hard-on for New York.  Their goal is to turn the world into Manhattan.  They wish to maximize densities and minimize personal automobile use and, well, backyards.  In other words, a bunch of folks who have the ear of the government wish to use the coercive power of the government to turn the world into something I can't live in.  Again, I have no problem with New Yorkers having New York, but why does Scottsdale have to be New York too?

By the way, on a quasi-related topic, the Anti-Planner has an interesting observation:  Supposed gains in sustainability in high-density urban areas have more to do with making everyone poor than with the density  (emphasis added):

Many planning advocates take it for granted that sprawl and auto driving are inherently unsustainable. McShane shows
just how this attitude can go when he describes Halle Neustadt, which
some Swedish urban planners once described as "the most sustainable
city in the world."

McShane here refers to some field work
done by the Antiplanner. To make a long story short, what made Halle
Neustadt "sustainable" was poverty, and as soon its residents gained
some wealth, many of them moved out and most of the rest bought
automobiles, turning the cities many greenspaces into parking lots.

Owen then turns to climate change, which he describes as the last gasp
of smart growth. Smart growth, he notes, "has always been a policy in
search of a justification, a solution in search of a problem." Now, in
climate change, smart-growth advocates hope they have found such a
problem.

One difficulty, McShane notes, is that there is no guarantee that
smart growth is really more greenhouse-friendly than ordinary sprawl.
Depending on load factors, Diesel trains can emit more greenhouse gases
per passenger mile than autos, and concrete-and-steel high-rise condos
can emit more CO2 than wood homes.

McShane refers in particular to an Australian study
that found that "place doesn't matter," that is, low densities were not
particularly greenhouse unfriendly. Instead, income was much more
important, meaning that the high-rollers living in million-dollar
downtown condos were generating far more greenhouse gases than
moderate-income suburbanites.

Which implies that the "solution" to sustainability (whatever that is) and CO2 emissions is to promote poverty.  That may seem like a tongue-in-cheek exaggeration, but in fact the latest IPCC warning on climate relies heavily on the work of Nicholas Stern, who says the solution to global warming is to make western income levels look more like those in India (emphasis added):

Mr Stern, the former chief economist of the World Bank, sends out a
very clear message: "We need to cut down the total amount of carbon
emissions by half by 2050." At current levels, the per capita global
emissions stand at 7 tonnes, or a total of 40-45 gigatonnes. At this
rate, global temperatures could rise by 2.5-3 degrees by then. But to
reduce the per capita emissions by half in 2050, most countries would
have to be carbon neutral. For instance, the US currently has, at 20-25
tonnes, per capita emissions levels that are three times the global
average.

The European Union's emission levels stand at 10-15
tonnes per capita. China is at about 3-4 tonnes per capita and India,
at 1 tonne per capita, is the only large-sized economy that is below
the desired carbon emission levels of 2050. "India should keep it that way and insist that the rich countries pay their share of the burden in reducing emissions," says Mr Stern.

Translation: India should stay poor and the West should become that way.

Awesome!  Via TJIC:

Ten minutes after finding out I passed the Bar, I changed my
long-running position on licensure, which it turns out is awesome. Not
only does it allow me to collect above market rents"“which lawyers need
because law school is so damned expensive"“but it also keeps those who
can't afford law school or Barbri from practicing law. This is good
because poor people make bad choices anyway, and I know that because
one week in college I ate Ramen noodles for a week, and that's the week
I decided to major in music. Also your average poor person, usually
cursed with some manner of hump or undeveloped siamese twin, will not
fit into a decent suit"¦

In sum, remember when choosing a lawyer that I was the first
one to finish the New York Bar exam, and though I probably didn't get
the highest score, I got the not-highest score the fastest. So if
you've got the choice between an attorney who will show up at 7 AM
sharp, with an obviously freshly dry-cleaned suit, and me, who will be
jogging fifteen minutes behind him while pulling on a shirt and
cleaning up some stubble with an electric razor, remember: the other
guy's smarter, of course, but I'm still competent. And a lot better
rested. Plus I'm not going to judge you for running that red light and
hitting that old lady"“that's what this case is about, right? Or was
that my other client?"“because chances are I nailed two or three myself
on the way over this morning.

More on licensing

I have frequently quote this Milton Friedman quote about regulation ostensibly being about the consumer, but in reality existing to protect one set of competitors from another:

The justification offered is always the same: to protect the consumer. However, the reason
is demonstrated by observing who lobbies at the state legislature for
the imposition or strengthening of licensure. The lobbyists are
invariably representatives of the occupation in question rather than of
the customers. True enough, plumbers presumably know better than anyone
else what their customers need to be protected against. However, it is
hard to regard altruistic concern for their customers as the primary
motive behind their determined efforts to get legal power to decide who
may be a plumber.

Here is further proof, via Scott Gustafson, right here in Arizona:

Valley tattoo-parlor owners, eager to protect and burnish the reputation of their industry, are calling for state regulation of the tattoo trade. 

Shop owners have teamed up to form the Arizona Tattoo and Piercing Association, and one of the organization's first steps was to meet this week with state legislators who say they now intend to introduce legislation to regulate the tattoo industry... 

"What we heard from the tattoo industry is that they want to be more respected, and unless there is some sort of regulation, shops can exist which will give a bad name to the whole industry," Schapira said. 

He said he intends to introduce legislation to bring regulation to the tattoo industry at the upcoming session of the Legislature. 

Burton-Cahill said she considers the matter "an issue of public health."... 

"This is becoming an increasing trend with the reputable operators," said Will Humble, assistant director of the department. "The majority of the shop owners are doing things in a sanitary way but a handful is not doing everything they can. The bigger members of the industry are trying to make sure those disreputable kinds of places don't give tattooing a bad name."

Here you see it all - ostensibly aimed at the consumer, but in reality aimed at sitting on a few competitors they want out.

Pursuing what has become a familiar theme on Coyote Blog, we again revisit anti-trust, and in the process, discover why the NY Times might be better off putting its editorial inanities back behind a firewall.

Writing about Intel, the NY Times editors say:

The abuse of market power to protect a monopoly hurts consumers and
hinders innovation "” locking out smaller rivals that may have better
products with new features or lower prices. With an 80 percent to 90
percent share of the microprocessor market, Intel wields much more
power than your local supermarket. Its threat to raise prices the
moment a customer tries to buy from rival A.M.D. can lock in even the
largest computer makers "” which depend on Intel for most of their
products and can't simply swap all their processors overnight. And with
such a level of control, Intel doesn't have to exert itself to come up
with new and better products.

Which I guess is why Lotus 1-2-3 must still have a hammerlock on the spreadsheet market, Creative must still dominate in MP3 players, IBM must still own the computer market, and GM must still rule the automotive roost.  How can any sentient human being who has lived through the past 20 years doubt that, particularly in technology, market dominance is as fleeting as the next technology cycle.   In fact, AMD several years ago made a huge penetration of the market with a series of processors a year or two ahead of Intel.  Most average consumers who can't even figure out how to attach a photo to an email never noticed, but among those who understood and cared, AMD ruled the roost.

Oh, and what was Intel's crime?

They say Intel is improperly protecting its stranglehold of the
microprocessor market by offering big discounts and rebates to computer
makers who minimize the use of processors made by rival Advanced Micro
Devices, and punishing those who stray with higher prices.

Oh my god, they are offering discounts to loyal customers!  Don Boudreax gets right to the heart of it:

Monopolists raise prices; firms facing competition do not.  Intel keeps its prices
low, meaning that it behaves competitively.  Yes, Intel's pricing
practices make life more difficult for AMD and other rivals, but that's
what competition is supposed to do.

The popular myth is that anti-trust policy is about protecting consumers.  Well, it may have been at one time or another, but currently it is all about protecting competitors who have political pull.  The Europeans are shameless about this, using anti-trust as a bludgeon to hamstring US companies who are out-competing EU home-grown competitors.  Now the NY Times wants to emulate this practice, explicitly calling on the government to force Intel to raise prices to make things easier for its competitors.

Update:  By the way, is there anyone out there who thinks Dell or H-P don't get the best possible pricing from Intel, with or without AMD purchases?  The coy little personal shopping example in the opening paragraph of the editorial is probably to help the reader forget that we are talking about Intel selling to customers who are big boys too.

I am a little late on this, but Ilya Somin has a nice post on Joel Waldfogel's book on capitalism and serving niche markets. 

University of Pennsylvania business Professor Joel Waldfogel argues that markets give us too few choices because
they often fail to provide products that satisfy minority preferences.
This is the opposite of Barry Schwartz's argument that markets are bad
because they give people too many choices, which I criticized here.
In one sense, Waldfogel's point is irrefutable: due to high startup
costs or fixed costs and just to the general scarcity of resources in
the world, there are some minority preferences that the market won't
satisfy. The market is undoubtedly inferior to a hypothetical world in
which all preferences, no matter how unusual, could be satisfied at
zero cost. Not even the most hard-core of libertarian thinkers denies
this. That, however, says little about the question of whether
government could satisfy such minority preferences better, or whether
it is even a good thing to provide products whose costs are greater
than their benefits.

He makes a number of good points, including the one that first comes to my mind -- that in most cases, it is the government that tends to limit choice.

the relative lack of diversity of programming on radio stations - one
of Waldfogel's principle examples of the inability of the market to
satisfy minority interests - is actually a failure of government
regulation. As Jesse Walker documents in this book,
the FCC has for decades colluded with big broadcasters in suppressing
alternative and "microradio" broadcasters, thereby greatly reducing the
number of stations and making it very difficult to run a station that
caters primarily to the interests of a small minority. Even a
completely free broadcasting market would not satisfy all potential
listeners. But it would have a great deal more diversity than is
currently permitted by the FCC.

I called for the end of broadcast licensing here.  By the way, the author also ignores Sirius and XM, which have some incredibly niche offerings, and which happen to be in the least regulated part of broadcasting.  Why Sirius would have more niche choices than Clear Channel is explained here.

I could add many other examples onto this.  The FCC's regulation of the cell phone market creates the stupid environment we have today, arguing about locked iPhones.  In a previous post, I demonstrated how new government "a la carte pricing' regulation will lead to more homogenization and less focus on niche viewing audiences in the cable TV industry:

I can add a million examples.  Hair braiders are stepped on by the government in collusion with licensed beauticians.  Taxi companies get the government to quash low-cost or innovative shuttle transportation.  Discount casket companies are banned by government in collusion with undertakers.  Take dentistry.  Why do I need to go to an expensive dentist when 99% of my dental needs could be served by a hygienist alone?  Because the government colludes with dentists to make it so.  And don't even get me started on medicine.  My guess is a huge percentage of the conditions people come into emergency rooms with are treatable by someone without a 4 year medical degree and 6 years of internship.  Does one really need a full medical education to stitch up a kids cut knee?  Well, yes, you do today, because doctors collude with the government to make it so.  Why can't people specialize, with less than 10 years of education, on just, say, setting bones and closing cuts?  Why can't someone specialize in simple wills or divorces without a full law degree?

Every business where the government has licensing is an industry where the government is limiting consumer choice.  It is limiting the number of competitors, and it is specifying a narrow subset of ways in which a company can compete, eliminating service or product innovation.  In Colorado, my employees needs a license to take our customers fishing on a lake.  In Phoenix, you need a license to paint street numbers on a curb.  In Scottsdale you need a license to work out of your own home, a license to valet park cars, and a license to give massages.  And, of course, there are our tremendously dated liquor licensing laws.

Per Milton Friedman:

The justification offered is always the same: to protect the consumer. However, the reason
is demonstrated by observing who lobbies at the state legislature for
the imposition or strengthening of licensure. The lobbyists are
invariably representatives of the occupation in question rather than of
the customers. True enough, plumbers presumably know better than anyone
else what their customers need to be protected against. However, it is
hard to regard altruistic concern for their customers as the primary
motive behind their determined efforts to get legal power to decide who
may be a plumber.

Update:  Just for fun, I sat here and came up with 10 business ideas that would provide better service for customers, would reduce costs in notoriously high cost industries (e.g. medicine, dentistry, law) and which would make me a pile of money. which are all illegal due to licensing requirements that are set in collusion with current industry incumbents.

Virginia Postrel has a really interesting article in the Atlantic.com.  Often, home construction costs are disaggregated into the cost of land and the cost of the home.  She adds a third piece -- "the right to build" related to regulation and land use restrictions.  She cites a study that most of the cost of new homes in expensive markets like California are not building costs or even land acquisition costs, but the enormous costs involved in getting the government to let you build the house you want on your own land.

In a 2003 article, Glaeser and Gyourko calculated the two different
land values for 26 cities (using data from 1999). They found wide
disparities. In Los Angeles, an extra quarter acre cost about
$28,000"”the pure price of land. But the cost of empty land isn't the
whole story, or even most of it. A quarter- acre lot minus the cost of
the house came out to about $331,000"”nearly 12 times as much as the
extra quarter acre. The difference between the first and second prices,
around $303,000, was what L.A. home buyers paid for local land-use
controls in bureaucratic delays, density restrictions, fees, political
contributions. That's the cost of the right to build.

And that right costs much less in Dallas. There, adding an extra
quarter acre ran about $2,300"”raw land really is much cheaper"”and a
quarter acre minus the cost of construction was about $59,000. The
right to build was nearly a quarter million dollars less than in L.A.
Hence the huge difference in housing prices. Land is indeed more
expensive in superstar cities. But getting permission to build is way,
way more expensive. These cities, says Gyourko, "just control the heck
out of land use."

These differences cascade into a number of areas:

Dallas and Los Angeles represent two distinct models for successful
American cities, which both reflect and reinforce different cultural
and political attitudes. One model fosters a family-oriented,
middle-class lifestyle"”the proverbial home-centered "balanced life."
The other rewards highly productive, work-driven people with a yen for
stimulating public activities, for arts venues, world-class
universities, luxury shopping, restaurants that aren't kid-friendly.
One makes room for a wide range of incomes, offering most working
people a comfortable life. The other, over time, becomes an enclave for
the rich. Since day-to-day experience shapes people's sense of what is
typical and normal, these differences in turn lead to contrasting
perceptions of economic and social reality. It's easy to believe the
middle class is vanishing when you live in Los Angeles, much harder in
Dallas. These differences also reinforce different norms and
values"”different ideas of what it means to live a good life. Real
estate may be as important as religion in explaining the infamous gap
between red and blue states.

The Dallas model, prominent in the South and Southwest, sees a
growing population as a sign of urban health. Cities liberally permit
housing construction to accommodate new residents. The Los Angeles
model, common on the West Coast and in the Northeast Corridor,
discourages growth by limiting new housing. Instead of inviting
newcomers, this approach rewards longtime residents with big capital
gains and the political clout to block projects they don't like.

I am looking forward to reading David Harsanyi's book Nanny State.  Hit and Run has an interview with some good stuff.  I think he gets at the nature of the threat very succinctly:

The problem is each citizen has a pet issue. It may be a smoking ban.
Or the need to coerce the obese to stop stuffing their faces. And when
you add all of those up we have the nanny state. While all these
piddling intrusions can be separately viewed as non-threatening, once
you bundle them together we have a movement with the potential to
inflict tremendous damage on our basic freedoms.

At a recent meeting of the National Associate of State Treasurers
(Yawn), John Podesta, after stating hilariously that what the world
really needed was continued leadership by state treasurers on the
global warming issue, argued: 

"Climate change is a threat to the long-term value of the economy and
failure to calculate its impacts or manage or reduce its harm mean that
our assets are being over valued, and the risks we face are being under
reported."

I have a lot of interest in global warming, which is why I created a second blog Climate Skeptic to deal with these issues.  There is a lot about anthropogenic warming we do not understand.  But what is nearly a total 100% lock is that, at least for the United States, the cost to our economy of regulations to limit CO2 will be far higher than the likely net-negative effects of warming (Al Gore's 20 foot sea level rises and other anti-rational claims notwithstanding).  At its heart, isn't the risk really of damage from government regulation, rather than the climate?

Via Michael Giberson of Knowledge Problem, the NY Attorney General is concerned that certain companies are not disclosing global warming-related risks, but he is at least more honest about what those risks are:

Last Friday, New York Attorney General Andrew Cuomo sent subpoenas
to five power generating companies seeking to find out if the companies
had properly disclosed financial risks associated with proposed new
coal-fired power plants.

All five of the letters accompanying the subpoenas are available from the NYAG's website.  Here is the opening paragraph of the letter to Dominion Resources, Inc.:

We are aware that Dominion Resources, Inc., ("Dominion")
has plans to build a coal-fired electric generating unit that would
generate 585 megawatts of electricity without current plans to capture
and sequester the resulting carbon dioxide (CO2) emissions. The
increase in CO2 emissions from the operating of this unit, in
combination with Dominion's other coal-fired plants, will subject
Dominion to increased financial, regulatory, and litigation risks. We
are concerned that Dominion has not adequately disclosed these risks to
its shareholders, including the New York State Common Retirement Fund,
which is a significant holder of Dominion stock. Pursuant to the
Attorney General's investigatory authority under New York General
Business Law § 352, and New York Executive Law § 63(12), accompanying
this letter is a subpoena seeking information regarding Dominion's
analysis of its climate risks and its disclosures of such risks to
investors.

A little later, the letter gets more specific: "For example, any one
of the several new or likely regulatory initiatives for CO2 emissions
from power plants "“ including state carbon controls, EPA's regulations
under the Clean Air Act, or the enactment of federal global warming
legislation "“ would add a significant cost to carbon-intensive coal
generation, such as the new coal plant planned by Dominion." In
addition to Dominion, the NYAG's office sent subpoenas to AES, Dynegy,
Peabody, and Xcel. Here is the story from the New York Times.

The letter doesn't say so explicitly, but I'm sure the message was
clear, that in addition to new or likely legislative actions and
substantive regulatory initiatives, the companies also faced the risks
and costs associated with being harassed by swarms of officers from the
NYAG's office.

You can see what is going on here -- following in the rich tradition established by the egregious Eliot Spitzer, the NY AG is again overreaching his office's authority and attempting to set regulatory policy rather than enforce it.  But at least he is honest in portraying the main risk to be a government regulatory backlash on these companies.

Thinking about this, couldn't every company put this in their boilerplate?  I mean, for most of us, the number one risk we face all the time is that the government will either do something to us specifically or the economy in general to hurt results.  Let's just have everyone add the line "the government poses a huge risk to our business plan" and be done with it.

For those who are new to my blog, I run recreation sites like campgrounds, mostly with retired people as labor.  Retired people love these jobs, because they are looking for a nice place to live for the summer in their RV.  Often they are willing to work just for their site and utilities, though as a private entity I must pay them minimum wage as well (when they work for the government, they don't get paid).  We sometimes get into odd situations -- for example, because of a disability payment or Social Security limits, it is not unusual I have employees that ask me if I could not pay them or pay them below minimum wage, and I have to tell them no (minimum wage is absolutely required, even if the worker begs to be paid less).

This relationship works out well.  The retired persons bring conscientious and low-cost management to the campgrounds.  Our employees, who usually are living comfortably off their retirement savings or pension, get a few extra bucks and a nice place to live for the summer.  These folks may work a bit slow, but I can afford that at $6 an hour.

But what happens when a state like Maryland, because it's got its blood up against Wal-Mart, passes a $11.30 "living" wage?  A number of problems result.  First, a camping night generally consumes, on average, about an hour of labor.  At $6 an hour with 22% burden for payroll taxes and workers comp, this totals to $7.32  per night of camping in labor.  At $11.30 an hour, this totals $13.79 per night of camping.  Most of our campsites are tent camping sites and more primitive natural campgrounds (see here) and a typical price for a night of camping is $16.  This is a very low price for camping when compared to large RV parks, and makes our sites particularly popular with lower income people.  The Marlyland minimum wage would add at least $6.50 to this price, or increase prices by 41% in one swoop.  And this is before considering second order cost increases in other purchased goods and utilities due to the minimum wage increase.

The other problem is one I would have thought so obvious that it is amazing to me that no one seems to talk about it -- not everyone earning minimum wage is trying to live on it.  Certainly people new to the work force are one example, as they are often willing to trade lower initial wages for training and experience and a work record and other valuable but non-quantifiable benefits.  In my case, while I am perfectly happy to tolerate lower productivity from older, retired workers at $6 an hour (the average age of my employees is over 70), when wages are forced arbitrarily to over $11, then I have to think about changing my business model, substituting younger workers for older folks.  As any economist would predict, lower productivity workers get pushed out of the market.

For more on this topic, I discussed four case studies in my business dealing with the minimum wage.

We seem to be getting these stories in batches lately (others here and here) but leave it to the EU to trump even San Francisco in anti-consumer stupidity:

Microsoft lost its appeal of a European antitrust order Monday
that obliges the technology giant to share communications code with
rivals, sell a copy of Windows without Media Player and pay a $613
million fine - the largest ever by EU regulators.

The EU
Court of First Instance ruled against Microsoft on both parts of the
case, saying the European Commission was correct in concluding that
Microsoft was guilty of monopoly abuse in trying to use its power over
desktop computers to muscle into server software.

It also said regulators had clearly demonstrated that selling media software with Windows had damaged rivals.

"The
court observes that it is beyond dispute that in consequence of the
tying consumers are unable to acquire the Windows operating system
without simultaneously acquiring Windows Media Player," it said.

"In
that regard, the court considers that neither the fact that Microsoft
does not charge a separate price for Windows Media Player nor the fact
that consumers are not obliged to use that Media Player is irrelevant."

Yes, you are reading it correctly.  Microsoft is being penalized for giving the consumer too much value by bundling in additional features and programs for free into its OS.  And just to make sure that you understand that this has nothing to do with the consumer, but is purely a complaint of large competitors that can't keep up, they make it clear that they want the bundling stopped even if it does not change the price of the OS one penny (pfennig or whatever the Euro equivalent is).  They want the product stripped down and are deliberately trying to reduce its value to customers.

Gwynnie at Maggie's Farm has a funny comment, saying, "Microsoft is guilty of succeeding while American."

Regulation is a frequent topic on this blog, and one of the points I try to make over and over is that most supposedly pro-consumer regulation is in fact put in place to protect incumbents from competition and new entrants.   It's worth repeating this Milton Friedman quote:

The justification offered is always the same: to protect the consumer. However, the reason
is demonstrated by observing who lobbies at the state legislature for
the imposition or strengthening of licensure. The lobbyists are
invariably representatives of the occupation in question rather than of
the customers. True enough, plumbers presumably know better than anyone
else what their customers need to be protected against. However, it is
hard to regard altruistic concern for their customers as the primary
motive behind their determined efforts to get legal power to decide who
may be a plumber.

Apparently, the NY Times has discovered the phenomenon, and argues that it is accelerating under the Bush administration.  I have no evidence to refute this claim, though I note that the NY Times offers no evidence in support of it either.

Never-the-less, it certainly is a feature of most governments to try to protect politically powerful businesses against competitors, foreign and domestic.  Basically, the entire German and French economy is built on this practice, which is why the top corporations in these countries in 1960 are still the top companies today, whereas the list has completely turned over in the US.  Our economy thrives because of entrepreneurship.  New entrants replace senescent competitors, or at least keep the pressure on them so they stay sharp and focused.

This is an enormous issue in my business.  My industry is characterized by about 4-5 larger companies that operate many recreation facilities, of which we are one, and hundreds or perhaps thousands of individual operators.  Over the last five years, the US and state governments have passes a myriad of rules and regulations that are making it virtually impossible for smaller companies to compete.  I don't know if these are being suggested by any of the larger players (they certainly aren't coming from me) but these regulations are serving the purpose of strangling smaller competitors and making it nearly impossible for new entrants to compete.

From San Francisco, of course! via Market Power

Prop. G obligates the
Planning Commission to conduct a hearing for any chain store (also
known as "formula retail") proposed in neighborhood commercial
districts.

Formula retail is defined as any retail sales establishment with 11
or more stores in the United States that maintains two or more
standardized features, including decor, facade, color scheme, uniforms,
signage or a trademark.

Incredibly, freaking 58% of the voters passed this turkey.  It's hard to know where to start, but here are a few thoughts:

• Equal protection?  Anyone?  Buehler? 
• One of the most obvious punishments of success I have ever seen.  If you only have one store, you are fine.  But if you are succesful and your concept flourishes and you have many stores, then you are automatically penalized.
• One of the single most anti-consumer pieces of legislation I have ever seen.  Stores using a proven formula that has been succesful in other areas have a sort of consumer good housekeeping seal of approval.  They are by definition retail establishments where many consumers have already voted with their wallet "we like this."  So in effect, proven customer favorites are penalized vs. less proven concepts.  What an odd zoning concept when you put it that way -- we don't want anyone doing business here that has already proven themselves to be succesful with customers.  We only want you if you have no proof customers want what you are selling.

The other night I was staying in Arcadia, CA (a suburb of LA near Pasadena) on what I was told was the old Route 66.  There were a ton of restaurant choices, many of which I did not recognize, and there was a Chile's, which I grew up with in Texas.  I am positive some of those restaurants would have provided me a more satisfying meal than Chile's.  I am also sure some would have been worse.  Sometimes I am in the mood to find something new, but that night I just wanted a predictable experience.  All that stuff San Francisco is trying to penalize -- those standardized features -- bring real value to many consumers.

Increasingly MADD and the tea-totaling Nazis are after parents who allow kids to drink alcohol at home.

Research published in the Journal of Adolescent Health in 2004 found
that adolescents whose parents permitted them to attend unchaperoned
parties where drinking occurred had twice the average binge-drinking
rate. But the study also had another, more arresting conclusion:
Children whose parents introduced drinking to the children at home were
one-third as likely to binge....

In fact, the American Medical Association has actually put out press releases
lamenting the fact that most teens get their first sip of alcohol from
their parents. I'd say that's exactly who ought to be giving it to them.

While I have no intention of throwing wild parties and getting my kids' friends drunk, I do intend to introduce alcohol as well as a respect for it at the dinner table, just as my parents did.  I am a firm believer that letting you kids drink a bit in the very controlled home environment is the best possible way to take the edginess and mystery out of drinking -- after all, how cool can it be if you do it with your parents.

The government is worried that you will do harm to yourself if you self-medicate pain pills.  So what is their response?  They will throw you in jail for 25 years.  Yeah, much better to have someone rot in jail for a quarter of a century than make a bad decision that only affects himself.

For years, banks have been sued for "red-lining" poor neighborhoods, meaning they were accused of purposefully avoiding doing business in these poor areas.  National retail chains have been accused of something similar, causing poorer the oft-commented-on irony that poorer neighborhoods often have the highest retail prices.

The City of Los Angeles seems to like this practice and wants to pass new legislation aimed at further limiting retail choices in poorer neighborhoods:

"Amid worries of an obesity epidemic and its related illnesses,
including high blood pressure, diabetes and heart disease, Los Angeles
officials, among others around the country, are proposing to limit new
fast-food restaurants -- a tactic that could be called health zoning."
Zoning restrictions on fast-food outlets in towns such as Concord,
Mass. and Calistoga, Calif. are typically based on traffic or aesthetic
concerns, rather than a determination to second-guess what residents
choose to eat. The proposed L.A. restrictions would not be city-wide
but would instead be specifically targeted to the city's poorest
sections in and around South Central. Mark Vallianatos, director of
something called the Center for Food and Justice at Occidental College (more about it), says "bringing health policy and environmental policy together with land-use planning" is "the wave of the future."

Jesus, the Center for Food and Justice?  Another clear leading edge of health care as the Trojan Horse for fascism, which I have been warning against for years.

One of the arguments for banning adult legal access to drugs like marijuana (and even allergy medications) is that it helps to prevent abuse of these drugs by underage kids.  This would be nice to test in a true control group setting, but we really don't have the opportunity under current laws to do so.  But we can work by proxy.  We can compare drugs that are illicit for everyone, like marijuana, to drugs that are legal for adults but not for minors, like tobacco. 

If drug warriors are correct, teenage tobacco use should be much higher than use of other illicit drugs.  This is particularly true because the proxy is an imperfect one, since the tobacco is a far less intimidating drug to try than, say, heroin.  However, it turns out not to be the case.  The new figures our out from our friendly US Government drug warriors, and it turns out that tobacco use is barely higher among teens than illicit drug use.

For example, the study shows that past month tobacco use among kids 12-17 was 12.9% in 2006, while past month illicit drug use in the same group was 9.8% (tables G.16 and G.7).  That's lower, but certainly not decisively so.  Both of these use numbers have fallen since 2002 at about the same rate.

Even more interesting are the figures for the number of kids 12-17 who had initiated use of certain substances in the past year (table G.26).  In that year, 2.45 million had initiated cigarette use, but 2.79 million had initiated illicit drug use.  Further, when asked if certain substances carried "great risk" in trying to purchase them, 68.7% of underage cigarette smokers said yes (table G.25).   This response was 10 or more points higher than that of teenage occasional users marijuana, cocaine, or even heroin.  In short, teenagers are saying it is more difficult and/or riskier to support cigarette use than it is to support a weekly marijuana, cocaine, or heroin habit -- exactly the opposite of the drug warriors' argument for prohibition  (but consistent with the libertarian argument that bringing these drug sales above ground will make underage purchase more visible and easier to combat).

HT: Hit and Run for the link

I have a dream that my four little children will one day live in a nation
where they will not be judged by the color of their skin but by the content of
their character.

Today I am spending much of the day filling out my EEO-1 report for the government.  This report requires me to officially report the race of each of my employees.  One of the most distasteful things I have to do all year.

I drive into my local Shell station to fill up, and stick my card in the pump, but the pump refuses to dispense.  I walk into the office and ask the store manager why I can't get gasoline.  She checks my account, and says "Mr. Meyer, your Volvo fuel prescription has expired."  I say, "Oh, well its OK, I am sure I am using the right gas."  She replies, "I'm sorry, but the law requires that you have to have a valid prescription from your dealership to refill your gas.  You can't make that determination yourself, and most car dealerships have their prescriptions expire each year to make sure you bring the car in for a checkup.  Regular checkups are important to the health of your car.  You will need to pay for a service visit to your dealership before we can sell you gas."  I reply, "RRRRRRR."

OK, so if this really happened we would all scream SCAM!  While we all recognize that it may be important to get our car checked out every once in a while, most of us would see this for what it was:  A government regulation intended mainly to increase the business of my Volvo dealership's service department by forcing me to pay for regular visits.

So why don't we cry foul when the exact same situation occurs every day with glasses and contact lenses?  The parable above is nearly exactly the conversation I had the other day with the operator at 1-800-CONTACTS, except with "gas" substituted for "contacts".  I know that my contact lens prescription is a bit out of date, but I really needed them for a trip, and in terms of safety, a slightly out-of-date contact lens in my eye is much better than none (My contacts are about -6.5, which means I am pretty blind without them).  No joy, though.  I did not have time to get to the doctor, so I wore -5.0 contacts I found in a drawer just to have something.  The operator told me that doctors have the prescriptions expire each year so that I am forced to come see them.  Why with eye doctors do we consider this "for my own good" when in any other profession it would be called a scam? 

In fact, each year I know my eyes get about 0.25 worse on each lens.  I would really like to just self-medicate and order myself the next level up, but of course that is way out of bounds.  Can't trust people to figure out their own lens correction (though we do allow this for reading glasses, go figure).

I found this when I went to Pandora today (one of those applications that makes the Internet so entirely cool and worth all the spam and flame wars).  I found this message:

Hi, it's Tim from Pandora,

I'm sorry to say that
today Pandora, along with most Internet radio sites, is going off the
air in observance of a Day Of Silence. We are doing this to bring to
your attention a disastrous turn of events that threatens the existence
of Pandora and all of internet radio. We need your help.

Ignoring all rationality and responding only to the
lobbying of the RIAA, an arbitration committee in Washington DC has
drastically increased the licensing fees Internet radio sites must pay
to stream songs. Pandora's fees will triple, and are retroactive for
eighteen months! Left unchanged by Congress, every day will be like
today as internet radio sites start shutting down and the music dies.

A bill called the "Internet Radio Equality Act" has already
been introduced in both the Senate (S. 1353) and House of
Representatives (H.R. 2060) to fix the problem and save Internet
radio--and Pandora--from obliteration.

I'd like to ask you to call your Congressional
representatives today and ask them to become co-sponsors of the bill.
It will only take a few minutes and you can find your Congresspersons and their phone numbers by entering your zip code here.

Your opinion matters to your representatives - so please take just a minute to call.

Visit www.savenetradio.org to continue following the fight to Save Internet Radio.

As always, and now more than ever, thank you for your support.

 

  -Tim Westergren
  (Pandora founder)