Coyote Blog

I am not really a huge baseball fan, but we generally watch the World Series, and the Astros pitching decisions in the seventh inning had me yelling at my TV again.

In a previous post, I talked about my pet peeve of the closer position.  For non-baseball fans, here is the background:  Typically, starting pitchers make it about 6 innings on average, leaving a need for other pitchers to cover the last three innings.  Most relief pitchers who cover these later innings are not as good as the starting pitchers, or else they would be starting pitchers.  The exception is that most teams have a "closer", typically their best relief pitcher who is reserved for pitching the last inning (thus the name "closer").  I asked before why the closer always pitched the 9th, rather than whichever inning of the last three that the toughest batters were expected.  The answer I came up with was this:

the explanation must lie in metrics.  If a manager loses a game in the
7th, it is just a loss.  If a manager loses a game in the 9th, the game
was "blown".  Newspapers and talk shows keep and publish stats on games
blown in the 9th, but not games lost in the 7th and 8th.  Games lost in
the 9th are in a sense portrayed as more of a management failure than
games lost in the 7th, and this is made worse by the fact that a game
lost in the 9th is somehow more psychologically devastating for fans
and media.  Managers are not dumb - recognizing that they get dinged on
their performance rating more for a game lost in the 9th than the 8th,
they have invented the closer role.  General managers take a
disproportionately large part of their salary budget for relief
pitching and dedicate it to this closer role.

You can even see this effect today, as everyone talks about Brad Lidge giving up a 1-run homer in the 9th, rather than talking about the grand slam the bull pen gave up in the 7th.

So here is what specifically drove me nuts last night:  Bottom of the 7th, the White Sox trailing 4-2, the Sox had managed to load the bases with two outs and had Paul Konerko, one of their best sluggers, up to bat.  The Astros were clearly going to switch pitchers, since the current guy had just walked two batters in a row.  The question was, who to bring in?  One announcer suggested they bring in Brad Lidge, their closer and the best guy available (short of bringing in a starting pitcher). The other announcer said, no, you can't do that, he will never make it all the way to the 9th.  You can't, he said, bring your closer in this early.

Well why the hell not?  Are you really going to face a more dangerous situation than bases loaded with Paul Konerko up to bat later in the game?  Lidge, if he is their best guy, should have been in then, and pitched the 8th, and then they could have patched guys together for the 9th.  Instead, they sent in some other guy and boom, grand slam.

Now, I will admit that Lidge's giving up the game-winning home run in the 9th taints my argument a tad, if only to make the point that Lidge may have not been as hands down superior to the rest of the bullpen as we may have thought a few innings earlier.  But that does not change the facts of the 7th inning:  The Astros were facing the most dangerous possible situation, in the heart of the Sox order, one worse than anything they were likely to face in later innings, but they chose not to put the person they thought of as their best available pitcher out of homage to this weird baseball conventional wisdom called the closer.

I hate to be the only one in the blogosphere who does not link it, and since this is the only blog my mom reads, here is George Will's take on the Harriet Miers choice.  I am not sure there is much more to say than this.  First, he dispatches the Bush "trust me" argument:

It is not important that she be confirmed because there is no evidence that she
is among the leading lights of American jurisprudence, or that she possesses
talents commensurate with the Supreme Court's tasks. The president's "argument"
for her amounts to: Trust me. There is no reason to, for several reasons.

He has neither the inclination nor the ability to make sophisticated judgments
about competing approaches to construing the Constitution. Few presidents
acquire such abilities in the course of their pre-presidential careers, and this
president particularly is not disposed to such reflections....

In addition, the president has forfeited his right to be trusted as a
custodian of the Constitution. The forfeiture occurred March 27, 2002, when, in
a private act betokening an uneasy conscience, he signed the McCain-Feingold law
expanding government regulation of the timing, quantity and content of political
speech. The day before the 2000 Iowa caucuses he was asked -- to ensure a
considered response from him, he had been told in advance that he would be asked
-- whether McCain-Feingold's core purposes are unconstitutional. He
unhesitatingly said, "I agree." Asked if he thought presidents have a duty,
pursuant to their oath to defend the Constitution, to make an independent
judgment about the constitutionality of bills and to veto those he thinks
unconstitutional, he briskly said, "I do."

Then he takes on Miers's credentials:

Furthermore, there is no reason to believe that Miers's nomination
resulted from the president's careful consultation with people capable of such
judgments. If 100 such people had been asked to list 100 individuals who have
given evidence of the reflectiveness and excellence requisite in a justice,
Miers's name probably would not have appeared in any of the 10,000 places on
those lists....

It is important that Miers not be confirmed unless, in her 61st year,
she suddenly and unexpectedly is found to have hitherto undisclosed interests
and talents pertinent to the court's role. Otherwise the sound principle of
substantial deference to a president's choice of judicial nominees will dissolve
into a rationalization for senatorial abdication of the duty to hold presidents
to some standards of seriousness that will prevent them from reducing the
Supreme Court to a private plaything useful for fulfilling whims on behalf of
friends.

Quoting Bill Paxton:  "That's it man, game over man, game over".  I understand that politicians want to reward their supporters, but that's what ambassadorships to friendly countries are for.  Not FEMA.  And certainly not the Supreme Court.

  Is it too late to nominate Billy Carter to the high court?

I will pat myself on the back and say that I called it, way back in week 4 of the preseason and again after week 1:  The Cards, as usual, suck.  The only reason that this is news is that some national sportscasters were drinking the kool-aid and had predicted that this will be a turnaround year for the Cards.  One quarter of watching the Cards get manhandled by Denver's second team in pre-season convinced me that while the Cards had some interesting skill position players, they had no Offensive or Defensive line.  And now, their top player on each line has gone down with an injury. 

This is a team that has never given a crap about its lines, as illustrated by the brilliant trade a couple of years ago of the draft rights to Terrell Suggs (despite his being a hometown ASU hero), perhaps the best young DL in the game, for two mediocre receivers.  Here is Coyote's draft rule number one:  Teams like the Cards that draft receivers in the first round several years in a row are going to suck (hear that, Detroit?)

I said previously this is maybe a 5 win team.  Did I overestimate?  It looks like the Cards have a shot at the Matt Leinert sweepstakes, otherwise known as the first draft choice.  Of course, the Cards being the Cards, they will probably pull out some last second win in the last second of the game to drop out of the first pick, like they did two years ago against the Vikings.  If they do get the first pick, they should trade the pick for linemen or more picks to draft lineman.  Here's why:

• There is no point in having a good QB and a bad O-line (see Houston Texans in their first year)
• You can get more value by trading the top 3 picks for lower picks
• Matt Leinert is going to be uniquely valuable.  Some team will see him as a once in a generation type player and will give up many goodies for him (see Mike Ditka and Ricky Williams)
• Like Eli Manning and San Diego, Leinert will probably refuse to come play in Arizona anyway

Here is a copy of the letter I sent to my representative John Shadegg as part of the PorkBusters campaign:

Representative
John Shadegg
Arizona
3^rd District

306
Cannon H. O. B.

Washington,
DC  20515

Congressman
Shadegg:

I
am a blogger who lives and runs a business in your district.  I know
that you were one of only 8 people in Congress to vote against the
recent pork-laden highway bill, something I congratulated you for on
my blog.  I now want to encourage you to continue fighting to reign
in government spending.  I am frankly flabbergasted to see the
current Republican leadership in Congress working so hard to resist
fiscal sanity, and am amazed that the Republican Party could have
drifted so far from its philosophical roots.

I
know that there are tremendous pressures on you to play the game with
everyone else in Congress, and bring home your share of pork to your
district.  Often those in your district will root for you to cut
other people's pork but not their own.  Let me say that I am totally
supportive of your cutting our 3^rd district pork first, as
a message that everyone needs to contribute to the spending cuts the
President has called for to pay for Katrina-related expenses.  You
are probably aware that many of us in the blogging world have banded
together in the "Porkbusters" effort to signal our desire to cut
pork by identifying our own local earmarks for cuts first.

Technorati tag:  porkbusters.

I enjoy many professional sports casually, attending an event or two every year, but the NFL is by far my favorite.  In the pre-season, there was a lot of hype that maybe the long-time hapless Cardinals would be decent this year.  I knew better, even from the pre-season.   Heck, my 8-year-old daughter knew better.

We went to see the last pre-season game against Denver.  In that game, the Arizona starters played for quite a while against the Denver 2nd team, and got beaten up.  Specifically, they could not run the ball and in turn their defense could not stop the run.  So it was no surprise to see them get blasted in their first regular season game against the Giants. 

The problem with the Cards is this:  They have spent the last several years drafting high-profile position players, including spending a jillion 1st round picks on receivers.  Great teams got that way because they invested in their lines - both O and D, even when such picks might be less popular with the fans on draft day.  The Cards have instead focused on drafting "names" who might help sell season tickets in the new stadium.  This neglect is very apparent today.  It doesn't matter how good your position players are if there are no holes for the backs and the QB is getting plowed to the turf on every play.  This is a 5-11 team that is fortunately playing in the NFL's worst division, so they may eek out 7 wins.  You heard it here first.

By the way, if you are an avid football fan, I recommend two sites to you.  The first is Football Outsiders, who have taken a Bill-James-like approach to football stats, rethinking metrics to provide a better insight into what teams really are good.  Make sure to check out their DVOA rankings - basically they compare every teams performance on every play against other teams in the same situation (e.g. 3rd and 8 on their own 45).  The other site is Greg Easterbrook's always entertaining Tuesday Morning Quarterback column, providing large doses of football clear thinking and haiku.

I find I link to Wikipedia a lot for explanations of terms I use that people may not be familiar with (the most recent being "badger game" in this post).  So, to return the favor of all those who have written the Wikipedia, I wrote my contribution, adding an entry on Workamping.  It required about an hours worth of time invested learning their formatting commands and best practices, but it turned out to be pretty easy.  It was kind of interesting to see the other niche areas I have knowledge about but for which there are no articles yet.  I am currently adding and editing content for model railroading.

I missed this story the first time around, but apparently a husband and wife team of lawyers has revived the old badger game, but in a more modern form:

According to a story in the San Antonio Express-News,
husband-and-wife legal partners Ted H. and Mary Schorlemer Roberts received
money in a curious sequence of events. Mary, claiming to seek "no strings"
discreet encounters, would seduce men over an Internet dating service. Ted would
then write the men (in legal documents sometimes typed by Mary) and notify them
that he planned to seek intrusive and public civil discovery to investigate
whether the affair brought forward potential causes of action that were flimsy
at best; the men would pay tens of thousands of dollars for a release and
confidentiality agreement.

Read the full Overlawyered update:  it is fascinating to see just where watchdogs set the ethical bar for lawyers (hint: its really low).  Apparently the Bar Association can't decide if they think this behavior by the Roberts is unethical.  Currently the the attorney who blew the whistle on this scam is being investigated, but the scammers themselves are not under investigation.

This is my first and probably last baseball post - read this blog if you want more baseball.

I am fascinated with the psychology of the closer position.  Some background:  The best baseball pitchers start games, and on average get through about 6 innings of 9.  The baseball manager's job is to stitch together a number of less talented pitchers to cover the 7th, 8th and 9th innings.  One would expect that the manager would flexibly match pitcher skills against the lineup he is facing.  For example, if the most dangerous batters for the opposing team are scheduled up in the 8th inning, he might send in his best relief pitcher in that inning.  One would not expect to see any particular emphasis on one inning or another:  after all, a game lost in the 7th counts the same as a game lost in the 9th.

This, however, is not how most managers operate.  Most managers have one very highly paid and more talented relief pitcher they call the "closer" that they pitch solely in the 9th inning.  Why?  Why is the 9th more important and deserving of a valuable player than the 8th?

The answer is part baseball conventional wisdom, which is as strong as in any old-line industry.  However, the other part of the explanation must lie in metrics.  If a manager loses a game in the 7th, it is just a loss.  If a manager loses a game in the 9th, the game was "blown".  Newspapers and talk shows keep and publish stats on games blown in the 9th, but not games lost in the 7th and 8th.  Games lost in the 9th are in a sense portrayed as more of a management failure than games lost in the 7th, and this is made worse by the fact that a game lost in the 9th is somehow more psychologically devastating for fans and media.  Managers are not dumb - recognizing that they get dinged on their performance rating more for a game lost in the 9th than the 8th, they have invented the closer role.  General managers take a disproportionately large part of their salary budget for relief pitching and dedicate it to this closer role.

A guy named Theo Epstein a couple of years ago, as a general manager, challenged this conventional wisdom.  He observed that more games were lost in the 7th and the 8th than the 9th, so hypothesized that relief pitching emphasis and salary dollars should be spread more evenly across the three innings.  One of his consultants was the famous Bill James, who has challenged baseball conventional wisdom with facts for years.  Epstein was roundly criticized by media and local fans alike for his "Closer by Committee" approach.  Eventually he was forgiven, when in the following year he brought his town its first world championship in 86 years.

For more on this and similar baseball topics, the book Moneyball is fabulous, and tells this story of the clash of fact-based analysis and baseball conventional wisdom, in a way that might be familiar to change agents in any number of Fortune 500 companies.

I am weeks late finding this article, but Todd Zywicki at Volokh posts what may be the definitive economic analysis of Kelo.  He talks about not only the issue of subjective value that leaves homeowners undercompensated for the taking, but about the deceitful game local governments are playing:

Second, focusing on the holdout problem in the Kelo context is to focus on
the wrong issue. The scenario here is different from when a government wants to
build a school or post office, traditional public use purposes. Schools and post
offices have to go in a particular geographic area (that's why they are being
built), and thus strategic bargaining may be plausible because it is similar to
a bilateral monopoly situation. The small group of landowners in the relevant
area can act strategically and try to extract a high price for its sale.

In Kelo, however, there is no obvious holdout power because Pfizer could put
its building in any city in America. So its not like a neighborhood school,
road, or post office. In Kelo, the holdout power is created artificially
by the city's desire to give Pfizer a sweetheart deal to bring it to town.

So ex ante, there is no viable holdout power in this situation because
there are an infinite number of close substitute sites for the building. The
building is going to be built somewhere, the only question is what city--New
London, Hartford, Bridgeport, Boston, New York, Chicago, etc. The artificial
scarcity that says the building has to be built in New London was created by the
city's other subsidies to attract Pfizer to town (the obscenely low rent,
etc.).

So if one is truly concerned about the holdout power problem, then the
correct solution is to require the city to eliminate the artificial scarcity
that "requires" the building to be built in New London rather than some other
city, the same way that a new school would have to be built in New London. If we
allow both the subsidies and the Taking for the benefit of the private party, we
are allowing the distribution tail of what city the Pfizer headquarters will be
built to wag the efficiency dog of whether the homeowner is holding out versus
having subjective value. Instead, we want to have the parties bargain ex ante
before they finally select the city--i.e., choose the city and the plot of
land at the same time--not bargain ex post after the city is selected.
Forcing an ex ante bargain when there are still many substitutes for the
proposed site would eliminate the holdout problem and allow us to determine the
extent of parties' subjective value, because the negotiations would be conducted
against the backdrop of a competitive market, rather than a bilateral monopoly.
The bilateral monopoly is thrust upon the city in the road or post office
scenario; it is freely-chosen in the Kelo situation.

Instead, the ruling in Kelo enables the worst possible economic
outcome--it permits cities to create artificial scarcity just to get a larger
piece of a stable-sized pie (getting Pfizer to New London rather than Hartford),
while then permitting cities on the back end to take land from private
landowners who may or may not be losing subjective value and being
undercompensated in the process.

And the incentive effect of Kelo is obvious--it now enables corporations to
extract both subsidies and takings as the price for locating in city A rather
than city B.

I have written about my frustrations with local governments subsidizing business relocations here and here.

Yesterday I read in Reason that apparently the new Pope has in the past shown support for the anti-Harry Potter crowd, which is gearing itself up in anticipation of the new Harry Potter book release tomorrow.  He apparently wrote:

It is good, that you enlighten people about Harry Potter, because those are
subtle seductions, which act unnoticed and by this deeply distort Christianity
in the soul, before it can grow properly.

Here is my whole take on the anti-Harry crowd:  Get a life.  From a values point of view, what is it about Harry that you wouldn't want your child to emulate?  And as for the magic stuff - OK, get ready for this - its...made up.  Yes, it is a fantasy, it is not real.  There is no danger of your child suddenly running off and casting spells.

And here is my take on the Potter books as a whole:  Awesome.  Forget that I personally have enjoyed reading every one of them.  Consider that my 11-year-old boy has been waiting for weeks, not for a computer game or movie to come out, but for a book.  Likely a loooonnnggg book.  And this weekend, no matter what the weather or what is on TV, he will be glued to a couch from dawn to dusk reading.  Do you remember being so excited about reading anything at 11, other than the new issue of Spiderman?

By the way, its your last chance to place a bet on which major character buys it in this book, though Dumbledore is the runaway favorite (the logic being that in the story archetype that Rowling seems to be following, the young hero must face the final battle without his mentor - so Dumbledore needs to go before the 7th and last book).

Update:  At noon, Boston time my son crossed over page 310.  I am not sure I read that fast.

Update #2:  OK, its about 4:00 Eastern on Saturday and he is done.  You can tell that we struggle to keep this kid in books (this week he has read Harry Potter, the DaVinci Code, and a Clive Cussler book).  I will try to get him to write a review for the blog.  I threatened that I would tie him up naked in the middle of his school's cafeteria if he gave me any spoilers, but I will say that he was very, very depressed at the end.

Arthur Cherenkoff and Glenn Reynolds seemed surprised that aging shock-rocker Alice Cooper had some sensible opinions on foreign policy issues.  Those of us who live in the Phoenix area, however, are not.  Oddly enough, Alice Cooper has become something of an elder statesman in Phoenix, keeping a fairly high profile leading various community and charity events.  Its a little odd living in a town where your most visible community leaders include Alice Cooper and Charles Barkley, especially given the area's attraction to many of the rich and famous as a retirement location, but it seems to work.

One story that comes to mind:  Alice Cooper is a regular at Suns games.  A couple of years ago, my company had some nice season tickets just a few rows up from Mr. Cooper, who had seats in the first row on an aisle.  Just about every game I attended, at least one pair of guys would come down the steps, kneel on the floor next to Alice's seat, and bow down saying "We're not worthy" ala Wayne's World and then head back up the aisle without another word.  Always made me laugh.

As I have written before, one of the favorite past-times of local and state politicians is to hand out grants, subsidies, and tax breaks for businesses to relocate to their district.  Billions and billions of dollars are given out every year to everyone from movie producers to sports teams to Wal-marts in order to "bring jobs" to the local community.

Economists have argued for years that these subsidies are a total waste (more on this below) but the Club for Growth links a great article demonstrating that they are not only a waste, they also are downright fraudulent.

Gov. George Pataki's administration gives millions of dollars every year to businesses that promise to hire more people or retain jobs. It's a promise that is often broken.

Almost half of those companies helped by New York taxpayers fell short of the job targets that are part of their deals with the state, records show.

In fact, a quarter of the businesses took taxpayers' money and loans, then cut jobs.

The article is quite detailed, but here is one example:

Take the case of Ingram Micro, a global computer-parts wholesaler with a distribution center near Buffalo.

In 1999, it accepted $675,000 in taxpayers' money and promised to add 542 workers. Instead, it cut its workforce by nearly 400.

The state demanded a penalty of $176,985, but an Ingram spokesman said it has not paid and is negotiating with the state.

Last month, Ingram Micro announced it will lay off another 120 Buffalo workers and send the work overseas.

OOPS!  One is driven to ask the obvious question - why are these subsidy programs so popular?  I can think of at least three explanations.

The first explanation is political.  These subsidy programs tend to satisfy important bases from both political parties, thereby ensuring their bipartisan support.  Democrats like the idea of spending government money to create jobs, while Republicans like tax breaks and supporting business.  This explanation is unsatisfying.

The second explanation probably hits closer to the mark, and it is the cynical-political explanation that politicians like buying votes with other people's money.  When they campaign for re-election, politicians like to have a couple of "scalps" they can wave around to show the voters that they are doing something (a consistent history of sober fiscal responsibility seems to be unappealing, I guess).  Being able to say "I brought Microsoft to the town of West Nowheresville" or better yet "I brought 1000 jobs to this community" are political favorites of both parties (Here is what New Yorkers are really paying for - the ability of George Pataki to post on his web site a press release saying "Bedding Company to Create 240 New Jobs in New Baltimore").   These are priceless campaign slogans that didn't cost the politician a dime, since they were funded by taxpayers.

The third explanation comes from economics and is the most interesting.  If you shed any notion of morality or ethics (e.g. that one has no right to give one person's money to another just to make their re-election more likely) then politicians who are approached by a company looking for a handout for business relocation faces what is called the prisoner's dilemma.  Many of you may know what that is, but for those who don't, here is a quick explanation, via the Stanford Encyclopedia of Philosophy:

Tanya and Cinque have been arrested for robbing the Hibernia Savings Bank and placed in separate isolation cells. Both care much more about their personal freedom than about the welfare of their accomplice. A clever prosecutor makes the following offer to each. "You may choose to confess or remain silent. If you confess and your accomplice remains silent I will drop all charges against you and use your testimony to ensure that your accomplice does serious time. Likewise, if your accomplice confesses while you remain silent, they will go free while you do the time. If you both confess I get two convictions, but I'll see to it that you both get early parole.  If you both remain silent, I'll have to settle for token sentences on firearms possession charges. If you wish to confess, you must leave a note with the jailer before my return tomorrow morning."

The "dilemma" faced by the prisoners here is that, whatever the other does, each is better off confessing than remaining silent. But the outcome obtained when both confess is worse for each than the outcome they would have obtained had both remained silent.

I hope you can see the parallel to subsidizing business relocations (replace prisoner with "governor" and confess with "subsidize").  In a libertarian world where politicians all just say no to subsidizing businesses, then businesses would end up reasonably evenly distributed across the country (due to labor markets, distribution requirements, etc.) and taxpayers would not be paying any subsidies.  However, because politicians fear that their community will lose if they don't play the subsidy game like everyone else (the equivalent of staying silent while your partner is ratting you out in prison) what we end up with is still having businesses reasonably evenly distributed across the country, but with massive subsidies in place.

To see this clearer, lets take the example of Major League Baseball (MLB).  We all know that cities and states have been massively subsidizing new baseball stadiums for billionaire team owners.  Lets for a minute say this never happened - that somehow, the mayors of the 50 largest cities got together in 1960 and made a no-stadium-subsidy pledge.  First, would MLB still exist?  Sure!  Teams like the Giants have proven that baseball can work financially in a private park, and baseball thrived for years with private parks.  OK, would baseball be in the same cities?  Well, without subsidies, baseball would be in the largest cities, like New York and LA and Chicago, which is exactly where they are now.  The odd city here or there might be different, e.g. Tampa Bay might never have gotten a team, but that would in retrospect have been a good thing.

The net effect in baseball is the same as it is in every other industry:  Relocation subsidies, when everyone is playing the game, do nothing to substantially affect the location of jobs and businesses, but rather just transfer taxpayer money to business owners and workers.

This subsidy game reminds me of the line at the end of the movie Wargames:

A strange game.  The only winning move is not to play.

Postscript:  As a libertarian, I have gone through phases on targeted tax breaks. There have been times in my life when I have supported tax breaks of any kind to any person for any reason, by the logic that any reduction in taxation is a good thing.  I know there are many libertarians that take this position.  Over time, I have changed my mind.  First, targeted tax breaks seldom in practice reduce the overall tax burden - they tend to be made up somewhere else.  Second, these tax breaks tend to be gross examples of the kind of government coercive technocratic meddling in commerce and individual decision-making that I despise. Almost always, they are trying to get individuals to do something they would not otherwise do, so in practice they tend to be distorting and carry all kinds of unintended consequences (as well as being philosophically repugnant).

Update 9/29/05:  We are suddenly getting a bunch of visitors from Econ.Aplia.com, which I presume is related to a university assignment or blog post somewhere.  Can someone email me in at the email in the right bar if folks are coming here from a particular site or university.  Just curious.

Update 9/30/05:  Thanks to a couple of emailers, the cat (err, bulldog?) is out of the bag and I know that Yalies are in the house.  Welcome.  I don't know if they teach free-markets any more in college, but your welcome to look around and take a walk on the libertarian dark side.  Good luck with economics, even if you did pick the wrong school.  --Coyote, Princeton '84, Harvard MBA '89

Update Again:  By the way, I discuss here the odd issue of why I and so many people misspell "dilemma" as "dilemna", as I did in this post.

Civilization IV is coming.  This is mixed news.  I am excited about the game, but the previous offerings in this series, as well as related Sid Meier games Alpha Centauri and Master of Orion, have probably been the greatest threats to my productivity, my sleep, and my marriage I have ever encountered. Hat tip to Jane Gault.

Generally, in any discussion of taxes, I focus on the foundations of
property rights, to argue that taxation is no different than
stealing.    Most of us agree that grabbing someone else's money at
gunpoint is immoral.  I do not hold to a theory of government that says
that this immoral action is suddenly moral if 51% of my neighbors
sanction it.

Anyway, I am going to leave behind the moral basis (or lack thereof)
for taxes and focus instead on five practical problems that a
well-crafted tax system should be able to avoid.

1.  Complexity and Preparation Time

I probably don't need to go into great depth on this one to convince you that taxes and tax returns are ridiculously complex.  We all know how complicated even the individual 1040 has become, so much so that using tax preparation software is nearly de riguer for most middle class taxpayers.  Last year, our federal and state income tax returns for the company were over 400 pages long.

For a small business, the tax preparation burden goes much further.  For example, the burden of payroll tax preparation, not to mention staying on top of compliance issues, is so high that no sane business person does payroll in house any more.  Quarterly state and federal unemployment and withholding tax returns must be filed, with salary detail to the last penny for every single employee.   As a result, everyone uses a service like ADP, and though this solves the workload problem, it still costs money - about $12,000 a year in our case.  That's not the tax bill, just the cost to keep up with the government paperwork. 

But with payroll taken care of, businesses still must file sales tax returns, excise tax returns, detailed property tax returns, census data requests, labor and commerce department surveys, and of course income tax returns.  Each of these typically have to be done at the state level and in many cases separately for every single county and city where we do business.  Each in and of itself is horribly time consuming - see this example for property taxes, this one for sales taxes, and this one for government surveys. 

In Kentucky, for example, we have to file quarterly state withholding tax returns, quarterly payroll withholding returns in each county we operate in, a quarterly state unemployment return, an annual property tax return in each county, and annual income tax return at the state level, an annual income tax return in each county, a monthly sales tax return, a monthly survey for the US Department of Labor about Kentucky headcount levels, an annual foreign corporation renewal, a new hire report whenever we hire a new employee, and a monthly report to the workers comp state fund

2.  Disguising the Tax Load

Quick, how much total do you pay in taxes?  Perhaps the greatest innovation of statists in the 20th century was the tax load shell game - the clever balkanization of the tax load that makes it nearly impossible for the average person to truly know how much they pay in taxes to the government.

Start with income taxes.  OK, April 15 has just passed, but even so, how many people know how much they paid in income taxes last year?  For many people, this is the single largest expense they have, but the total amount is disguised by the fact that most income taxes are taken out as direct payroll deduction.  Statists and leftists everywhere in the US should get up in the morning and give thanks for direct payroll deduction -- without it, if every American had to write a single check once a year for the sum total of their annual income taxes, there would have long since been a revolution.

OK, so you don't know how much you paid in federal, state and local income taxes.  But in addition to that, how much did you pay in social security and medicare (typically about 8% of salary)?  Property taxes (typically 1-2% of your home value)?  How about sales taxes (typically 6-9% of your purchases)?  What about vehicle licensing fees and special taxes on hotels and airfare and rent cars?  If you add all these up, the average American pays about 30% of his/her salary in taxes.  The Tax Foundation has a great chart summarizing this shell game, with relative burdens expressed as days of work each year required to pay the tax.  Note that on average, your federal income tax is only 1/3 of the total of what you are paying:

 
So those are the direct ones, but how much are you also paying in higher prices due to government import duties?  What about the 8% FICA and medicare that employers pay on your behalf - how much higher might your salary be if they did not have to pay these?  What about corporate taxes - you may not pay them directly, but they certainly get passed on to you in the form of higher prices and lower dividends.  What else? - try this list on for size.

3.  Taxes on Wealth and Savings

Most taxes are on income or sales, and so they are at least marginally calibrated with an individual's cash flows.  The exceptions to this are property taxes and inheritance taxes.  These two taxes both go after an individual's savings -- property taxes mainly on the home, the primary savings vehicle for most Americans, and inheritance taxes on everything you've saved when you die.

Lets take property taxes first.  Many people complain that modern life has become a treadmill, forcing families to work harder and harder to keep up their lifestyle.  To a large extent, I think this is a myth - people may be working harder but their effective standard of living is way, way higher than say 30 years ago.  But one of the things that definitely creates a treadmill are property taxes. 

Many people have worked hard to pay off their mortgage, thinking they could settle down into their retirement in a paid off house.  Unfortunately, they may find that their home has increased in value so much that their property taxes at retirement are actually much higher than their original payment on the house.  Take the case of a couple who bought their house in an urban area for $25,000 and find its now worth $375,000 forty years later (this is an average urban price increase over the last 40 years).  For simplicity, we will assume the effective tax rate has stayed at $1.50 per $100 for these forty years (though its more likely to have gone up).  In 1965, they paid $375 a year in taxes.  Today, they have to pay $5,625.  In other words, their property taxes today are over 22.5% a year of the original price they paid for the house.  Now, this is all fine if the couple strove to work up the corporate ladder and get promotions and grow their income proportionately.  But what if they didn't want to?  What if they just wanted to buy that house, pay it off, and live modestly selling driftwood sculptures at farmers markets, or whatever.  The answer is, because of property taxes, they can't.  Likely they will have to sell this house, give up the urban life they wanted, and either move to an urban dump they can afford the property taxes on, or they move out to the country.  Here is an example, via Reason, of this process of property taxes forcing out urban residents living small in favor of yuppies living the dream.  It is ironic that a tax initially invented for populist reasons to cut back on wealth accumulation hurts the lower income brackets and those trying to step off of the capitalist treadmill the most.  In fact, it was the poor in the Great Depression who typically lobbied for laws to put moratoriums on property tax collections.

The estate tax has many of the same origins and issues.  The biggest downside of the estate tax is that it tends to force premature sales of productive business assets to pay the tax.  Rather than leaving small businesses in the family, who have the experience and passion to make them work, they typically must be sold to third parties outside the family to pay the estate taxes.  Again, the law of unintended consequences crops up - estate taxes and the sales they force have done more to contribute to merger and acquisition activity, which in turn drives consolidation of economic assets into fewer and fewer corporations.  The tax meant to stifle wealth accumulation among individuals has in fact spurred wealth accumulation among corporations.  While used for many purposes today, LBO's, that bogeyman of the left, were invented to manage this estate tax forced sale problem.

Asymmetrical Information has a thoughtful series of posts going on estate taxes.

4.  Picking Favorites for Special Treatment

One of the defining characteristics of statist politicians of both the left and the right is that they think they are smarter and more moral than the average American, and certainly than the average American businessman.  Statists and technocrats distrust markets and assume that they can succeed in managing the economy in general and individual decision-making in particular where markets have "failed" to reach whatever end-state politicians would prefer.

Therefore politicians insist on using tax policy to reinforce (or discourage) certain behaviors or to influence certain outcomes or to frankly enrich some favored group.  Examples are all around us, but include:

• Subsidizing farmers and propping up farm commodity prices for no apparent reason than because farmers somehow have a moral halo around them that other businessmen do not.  This is not a big-small issue, since much of these subsidies go to huge conglomerates and millionaires.
• Subsidizing corporations in many industries
• Subsidizing local relocation of favored industries
• Subsidizing billionaire sports team owners  and the local lodging industry
• Subsidizing billionaire movie producers
• Taxing certain non-politically-correct products (and more)
• Subsidizing home buyers vs. home renters
• Subsidizing corporate debt vs. corporate equity

5.  Class Warfare and Punishing Success

Many of the taxes we pay - income, property, estate - have strong class warfare origins.  Heck, the income tax and the Constitutional Amendment that made it possible because Americans were told that only the richest 1% or so would ever have to pay it.  Today, tax debate is littered with class warfare arguments. 

Today, the richest 1% of Americans pay about a third of the total individual taxes, and the richest 10% pay two-thirds.  The richest 50% of Americans pay 100% of the taxes (in the other half, some pay a bit, and some get a bit back in EITC, but the net is zero).  So, a small percentage of Americans pay for the services and government
cash subsidies enjoyed by the majority.  So how do we treat these
people?  As heroes, or benefactors, or as the most productive?  No we treat them as evil parasites who are not
doing their fair share.

By the way, These shares paid by the rich actually went up after the Bush tax cuts (yes, that's not a typo).  The very fact that this statement might seem unbelievable points to how much ridiculous class warfare demagoguery permeated the last election.  By the way, these numbers are for income taxes.   The numbers for total taxes, including the regressive payroll taxes, yields slightly different numbers but the same results, as outlined in TaxProfBlog today.

The fact is that most "progressive" taxes are in fact punishing the successful and most productive.  The Left loves to wave Paris Hilton around as an example of the useless and unproductive rich who presumably should be taxed into poverty.  They want to obscure the fact that 99% of the rich got to be rich honestly, through hard work, and via the uncoerced interaction with others.  Because saying that your government rewards success with its highest tax rates and confiscates the vast majority of its operating funds from the people who would employ this money the most productively, um, doesn't sound very good.

UPDATE:  I have more here, including a rebuttal of Kevin Drum.

Frequent readers of this site may know that my day job is running a company that manages recreation sites under concession contract to a number of public landowners, including the US Forest Service.  I take a lot of pride in this job, as our company helps keep recreation facilities open that the government might not have the personnel or the skills or the money to run.  The Forest Service's budget gets cut about every year, such that tax money comes nowhere near covering the cost of managing recreation sites.

Of late, the Forest Service has begun looking to actually close some recreation facilities:

The cash-strapped
U.S. Forest Service can no longer afford to maintain many of its parks
and has started ranking recreational sites, including campgrounds and
trail heads, for possible closure.

Supporters of public lands generally hate the onset of fee-based recreation, and wish it was still possible for all public recreation facilities to be free.  This was a realistic goal back when recreation facilities were cheap to run, but today campgrounds and other such facilities can be tremendously expensive(a single large campground might cost as much as a half million a year to operate), in large part due to actions by the same people who support free use of public lands.  Some examples:

• 50 years ago, campgrounds labor was essentially free because it could be staffed with volunteers.  With current labor laws, this is no longer possible (even if people still want to volunteer), and a large campground can require hundreds of thousands of dollars of labor to maintain each year, even at minimum wage.
• 50 years ago, people in the outdoors just drank water from a stream or out of the hand pump.  Today, in certain complexes, we spend tens of thousands of dollars keeping water systems in compliance with complex state laws.
• 50 years ago, if someone tripped over a root in the forest or twisted their ankle on a rock, they accepted that as a normal risk of being out in nature.  Today, everyone calls their lawyer.  Each year, campground visitors file millions of dollars of lawsuits for accidents once thought to be normal hazards of nature.
• 50 years ago, active timber sales in the forest helped fund recreation programs.  Today, timber sales in many forests are at an all time low, due in large part to opposition by nature lovers

So, I admit I don't know the person who said this:

"They will close
those sites the public has always enjoyed but which they cannot afford
because they are not profitable," said Scott Silver of the Bend group
Wild Wilderness. "It's the complete perversion of the meaning of public
lands."

But I would bet quite a bit that he supports some or all of the laws and government regulations listed above that make running recreation facilities so much more expensive than 50 years ago.

Update: By the way, though I might disagree with Scott Silver on the necessity of use fees at developed facilities like campgrounds or boat ramps, he is dead on in certain respects:

• Politicians love to fund splashy new recreation projects, but hate to fund basic maintenance.  This means that at the same time campgrounds and facilities are closing due to lack of maintenance dollars, new facilities are being opened all the time.  This strikes me as absurd. 
• Recreation facilities on public lands are missing the boat when they attempt to emulate private operations too much.  There are plenty of KOA's next to the interstate with pools and video game rooms.  Campgrounds on public lands have typically taken a different approach and served a different niche, that of providing a more primitive experience closer to nature, and I think its a mistake when they move away from this approach.

Unfortunately, as is often the case, I will never be able to see eye-to-eye with such groups because they refuse to acknowledge that as a private company I can be anything but Darth Vader with secret plans to put up a Walmart in Yosemite or put up billboards along a nature trail.  Crusading socialists often have the funniest ideas about the profit motive.  For example, if I make most of my money at a recreation site catering to people who want a wilderness experience, why in the world would I do anything to interfere with that experience?  It does not matter what the situation or the facts or the company, the first arguments are always that private companies just want to take a natural setting and put up advertising, then build a shopping mall.

By the way, Mr. Silver sees conspiracies among the private recreation companies.  I have sat on some committees in the "evil" organizations he cites, and I will tell you with complete assurance that these groups would have trouble crafting a successful plan to buy a 6-pack of beer from the local 7-11, much less shape government policy to their ends.  But maybe I got left out of all the really cool SPECTRE-type meetings. 

In the span of one hour this morning, I got to "enjoy" both my most and least favorite business activity.

My least favorite activity is always paying taxes, but within that broad category (remember that being in 10 states and 25 counties means that I file over 50 different tax returns or one sort or another every year) my least least favorite are business property tax returns.  If you have not run a small business, you may not be aware of what a pain these are (individuals don't have to file them, and large companies have poor schleps in accounting to do it). 

First, business property tax statements usually have to be filed by county, so I have to do a zillion of them.  Second, governments require that you report every year and in great detail on essentially every asset your business owns in a state or county.  A business must report these assets, usually with a description, date purchased, original purchase price and estimate current market value.  Imagine as an individual if you had to report this information on everything in your house - furniture, computers, appliances, tools, etc.  Now imagine doing it for a business, which owns a lot more miscellaneous stuff than you have in your house.

What really irritates me is that filing some of these statements requires the person filling out the statement to take a chance.  Clearly, no one is going to list every asset, down to the last pencil and paper clip -- you are going to establish some reasonable cutoff, and group similar assets into catch-alls like "miscellaneous tools" or "office supplies".  Note however, that this is taking a chance:  In counties that require detailed asset listings, there is never any statutory language like "you can ignore items under $100 as de minimis" or "you can group similar items".  Technically, you are supposed to list them all.  Take my word for it, this is very, very tedious.

But wait, as the Ginsu knife guy would say, for our business there is more aggravation.  We do business as a concession holder on federal lands.  For example, we might run a US Forest Service campground.  By US law, states and counties may not charge the US government property taxes on these facilities.  BUT, certain of the most acquisitive states, including California and Washington, have devised taxes that get around this requirement.  These two states make me pay the federal government's property taxes for them at the facilities I operate.  This is kind of like being forced by law to pay your landlord's taxes for him.  I always find this terribly irritating, all the more so since now that I know the game, when time comes to bid on concessions in these states, I just subtract the estimated taxes from what I am willing to pay the government in rent, in effect ensuring that the US government ends up paying the tax. 

This whole enterprise left me feeling depressed, when a couple who I had called about a manager position at a new store concession of ours at Clear Lake State Park in California called me back.  It turned out this couple is incredibly entrepreneurial, has great business experience, and are very well-suited to running my operation with minimal supervision.  I was thrilled to find them, and they were in turn thrilled to find an outdoor summer job opportunity in a nice location which could be flexible enough to accommodate a person with a disability (one of the couple has Parkinsons).  There is NOTHING I enjoy more than finding great people to work for me, and finding such people is all the sweeter if I can offer them an opportunity that uniquely fits their own needs. 

If you were to make a list of 10 people in the 20th Century who had the ability to rethink whole industries, you might come up with names like Sam Walton or Herb Kelleher.  One guy you might not think of, but who should make the list, is Bill James.  James has helped to single-handedly rethink the game of baseball, one of the great bastions of not-invented-here thinking.  Here is an interview of James that is pretty interesting.  Hat Tip to Cafe Hayek, who also has some thoughts on James the economist.

James sounds a lot like Hayek, and more recent authors like Virginia Postrel, when he says things like this:

If I were in politics and presented myself as a Republican, I would be
admired by Democrats by despised by my fellow Republicans. If I
presented myself as a Democrat, I would popular with Republicans but
jeered and hooted by the Democrats.
        I believe in a universe that is too complex for any of us to
really understand. Each of us has an organized way of thinking about
the world"”a paradigm, if you will"”and we need those, of course; you
can't get through the day unless you have some organized way of
thinking about the world. But the problem is that the real world is
vastly more complicated than the image of it that we carry around in
our heads. Many things are real and important that are not explained by
our theories"”no matter who we are, no matter how intelligent we are.
        As in politics we have left and right"”neither of which explains
the world or explains how to live successfully in the world"”in baseball
we have the analytical camp and the traditional camp, or the
sabermetricians against the scouts, however you want to characterize
it. I created a good part of the analytical paradigm that the
statistical analysts advocate, and certainly I believe in that paradigm
and I advocate it within the Red Sox front office. But at the same
time, the real world is too complicated to be explained by that
paradigm.

Or this, closer to the sports world:

Honestly, major league baseball"”and all sports"”would be far better off
if they would permit teams to do more to make one park distinctive from
another"”even so far as making the bases 85 feet apart in one park and
95 in another. Standardization is an evil idea. Let's pound everybody
flat, so that nobody has any unfair advantage. Diversity enriches us,
almost without exception. Who would want to live in a world in which
all women looked the same, or all restaurants were the same, or all TV
shows used the same format?
        People forget that into the 1960s, NBA basketball courts were
not all the same size--and the NBA would be a far better game today if
they had never standardized the courts. What has happened to the NBA
is, the players have gotten too large for the court. If they hadn't
standardized the courts, they would have eventually noticed that a
larger court makes a better game"”a more open, active game. And the same
in baseball. We would have a better game, ultimately, if the teams were
more free to experiment with different options.
        The only reason baseball didn't standardize its park
dimensions, honestly, is that at the time that standardization was a
dominant idea, they just couldn't. Because of Fenway and a few other
parks, baseball couldn't standardize its field dimensions in the
1960s"”and thus dodged a mistake that they would otherwise quite
certainly have made.
         Standardization destroys the ability to adapt. Take the high
mounds of the 1960s. We "standardized" that by enforcing the rules, and
I'm in favor of enforcing the rules, but suppose that the rules allowed
some reasonable variation in the height of the pitching mound? What
would have happened then would have been that, in the mid-1990s, when
the hitting numbers began to explode, teams would have begun to push
their pitching mounds up higher in order to offset the hitting
explosion. The game would have adapted naturally to prevent the home
run hitters from entirely having their own way. Standardization leads
to rigidity, and rigidity causes things to break.

I love it.  Maybe those guys who want to use baseball as a paradigm for life had something after all.

Via Dave Berry, here is an addictive new take on the classic breakout game.

By the way, here is Dave's semi-serious take on what electronics he travels with.

In accordance with federal law, I also have an iPod. It has 15G of
memory, which is at least 14G more than I actually need, since I
realize in my old age that I really only like something like nine
songs. I have Bose noise-canceling headphones, which are wonderful on
planes. The plane could make an emergency landing in the ocean, and
those of us with Bose noise-canceling headphones wouldn't notice until
squid swam past our seats.

I pulled out my old Commodore 64 the other day and played a bunch of fine old games including Raid on Bungling Bay, Choplifter, and M.U.L.E.  All were fun, even if their graphics do not stand up to the test of time.  In particular, M.U.L.E. is a fabulous game and it amazes me nothing like it has ever been produced since.

Find this week's rankings here.  Incredibly, Buffalo ended the year at number 5, and just a hair from #4, and are on the outside looking in at the playoffs.  I think the Colts are breathing a huge sigh of relief to be facing Denver rather than the Bills in the first round - a fate which they interestingly controlled by tanking the last game of the season, despite their coaches assurances to the contrary.

For the Super Bowl, I am sticking with the Patriots in the AFC.  Its tough not to pick Pittsburgh, who were impressive with even their scrubs beating a surging Buffalo team in the last week.  However, I will go with experience. The NFC is a total mess.  No one has ever lost much money betting against the Eagles to reach the Super Bowl, but everyone else really, really sucks.  Everyone else is an 8-8 team, even the Falcons who should be 8-8 but got away with a few.  I'll go with NE and Philly in the Superbowl, with the AFC winner, whoever they are, taking the title.

By the way, the Cards finished 27th in the rankings, which is actually (pathetically enough) one of their best finishes.  However, don't get cocky.  You can see from this post that the Cardinals are still the standard for mediocrity against which all teams are compared.

Two years in a row, voters had to choose two out of three very good teams to send to the BCS championship game.  And, for the second straight year, the team left out (USC, Auburn) has looked a lot better than OU, who got blown out for the second straight year in the Championship game.  I thought the Big 12 was way overrated at the beginning of the season and I have not changed my mind.  Maybe it is some flaw in the distribution of the AP's voting ballots, with a disproportionate number going to Big 12 States.  Certainly it seemed that way when Texas slipped by Cal in the last poll of the season as a number of voters seemed to "reevaluate" their rankings to slip Texas in.

UPDATE:  Same goes double for Ashlee Simpson

Merry Christmas, and I hope everyone is having a happy version of whatever holiday they celebrate. 

Around our house, I am always the tech support guy, fixing issues ranging from computers to hitting all the right buttons on the home theater.  Because my wife has a Mac and I and my kids use a PC, just trying to keep everyone playing nice over the home network is hard enough (god, this is starting to sound like a Chaos Manner column).  Usually, this duty is spread pretty evenly through the year, but on Christmas day, our household has an influx of technology that often needs support.

Yesterday was no exception.  First, with the arrival of yet another new mini iPod, this one for my son, a new user partition had to be created on my wife's Mac.  Later in the day I was back on the Mac, helping my son when iTunes inevitable Christmas Day server overload caused him to have a few songs disappear on him during download.  In between, I was on the PC helping my daughter with Zoo Tycoon 2, given to her because Santa knows that she loved the first version. 

Finally, towards the end of the day, I was helping my son with his Star Wars Battlefront game install.  Unfortunately, the install code on the back of the CD box did not work, so with my son panicking when I told him he would have to wait 2 WHOLE DAYS for the the tech support people to come into the office, I swallowed my scruples and went to one of the pirate sites that publish registration codes for games and successfully used one of those to get the game started.  Unfortunately, those sites slam you with pirate-ware, so first I had to fire up my backup computer I use for such grossly unsafe surfing.

Whew.  I can relax now, everything is up and running.  Imagine my relief this morning when my kids wanted to play something low tech - Yahtzee.

I have written a number of times about how I hate public funding of sports stadiums for billionaires.  But, via the Arizona Republic, this is perhaps worse:

Mired in debt, the Insight Bowl is considering leaving downtown Phoenix's Bank One Ballpark unless the postseason college football game receives a public subsidy.

Great - using tax money to fund random college bowl games.  And where does the money go - most of the money does to the participant teams and their conferences which this year are Notre Dame and Oregon State.  Why does Arizona need to subsidize the State of Oregon's athletic programs.  And Notre Dame?  They have one of the largest endowments in the country.  Neither of these teams have any connection to Phoenix or Arizona.

OK, I am being purposefully naive.  The money may go directly to the teams, but the purpose of the subsidy is to get those teams' fans to come to Arizona on the week between Christmas and New Years and buy hotel rooms.  In fact, it is an indirect subsidy of the lodging industry.

Why does the lodging industry have so much power in Phoenix?  People come here anyway, because it is warm - our climate is the best advertising.  And during the week between Christmas and New Years all the hotels are probably full anyway - certainly their rates are the highest of the year, as I have found when family have come to town that week.  And don't even get me started on tax money for this.

If the lodging industry values this stuff, let them pay for it via one of their trade groups.  The city of Phoenix does not advertise my business.  In fact, it does not advertise most of the businesses in town.  Why is lodging the exception?

Maybe this is one of those things that I am the last person on the Internet to find, but here you can find a name that tune game that is customizable.  This particular one is for Led Zeppelin, but you can fill in the band or artist in the upper right, and you get a name that tune game for that artist.  Of course, you need speakers and a fast enough connection to get the streaming audio.   Thanks to Post Modern Meanderings for the heads-up.

The voting is closed and here are the results in Wizbang's "best of the rest" category.  Overall results in all those much more trivial categories, like best blog, are here.   Thanks very much to those who ran the awards - they had to deal with a lot of foolishness as various groups tried to game the voting, but their response seemed quick and fair.

Coyote Blog finished just out of the medals in fourth place, which I choose to view optimistically --  Once they announce the top three finishers, Coyote Blog is then the best of the rest of the Best of the Rest category.  Hmm, anyway, yeah for us.