Coyote Blog

Hey, why make expensive investments when the government will just give you access to your competitor's infrastructure?

Federal Communications Commission has decided to mandate data roaming by a 3-2 vote. Simply put, major carriers like AT&T and Verizon will be required to let you check your email and perform VoIP calls over their federally-licensed airwaves even if you're actually paying a regional carrier for your cellular coverage instead -- just as they've been required to do for voice and messaging since 2007. As you can imagine, Big Red and Ma Bell aren't exactly jumping for joy at the news, with both threatening to slow expansion into niche markets if they'll be forced to share their infrastructure. The victorious members of the FCC claim that this doesn't constitute common carriage because the big boys still get to negotiate "commercially reasonable" rates. Considering that two dissenting commissioners say that it is, indeed, common carriage, though, and thus beyond the powers granted to the FCC, we imagine we haven't heard the last of this debate.

By the way,  the commercially reasonable rate piece is so much BS.  I can say from experience that there is no such thing as a true price negotiation when one party is forced to make a deal.  In one of my great moments in not reading the fine print, I signed a commercial lease with the National Park Service in which the fine print demanded that I buy the personal property used in that operation from the former tenant.

Well, you can imagine what happened.  The contract said I had to buy it at a reasonable market price, but at the end of the day, if they guy insisted on selling me a pile of useless junk for $100,000, my negotiation options were limited because I could not just walk away.  Just to really hammer the lesson home to me about being careful in such deals in the future, the former tenant really went the extra mile in taking advantage of the provision.  He stripped out every good asset from the operation and shipped in every non-working piece of junk equipment he could find in his other operations -- after all, I seem to have given him an open-ended "put".  Only his, shall we say, excessive creativity in the latter eventually saved me, as trying to sell property from other operations (there was even some old couches from someone's house sitting in the boat repair shed) was considered by the NPS to be a violation of the rules and they eventually released me from the requirement.

I am with Megan McArdle in confirming that the non-pay portions of the typical public employee compensation package is at least as important, and as potentially expensive, as the money itself.  In particular, two aspects of many public employee compensation packages would be intolerable in my service business:

• Inability to fire anyone in any reasonable amount of time
• Work rules and job classifications

From time to time I hire seemingly qualified people who are awful with customers.  They yell at customers, or are surly and impatient with them, or ruin their camping stay with nit-picky nagging on minor campground rules issues.  In my company, these people quickly become non-employees.  In the public sector they become... 30 year DMV veterans.  Only in a world of government monopoly services can bad performance or low productivity be tolerated, mainly because the customer has no other option.  In my world, the customer has near-infinite other options.  And don't even get me started on liability -- when liability laws have been restructured so that I am nearly infinitely liable for the actions of my least responsible employee, I have to be ruthless about culling bad performance.

The same is true of work rules.  Forget productivity for a moment.  Just in terms of customer service, every one of my employees has to be able to solve customer problems.  I can't automatically assume customers will approach the firewood-seller employee for firewood.  All my employees need to be able to sell firewood, or empty a trash can when it needs emptying, or clean a bathroom if the regular cleaner is sick, or whatever.

For those who really believe state workers in Wisconsin are underpaid, I would ask this question:  Which of you business people out there would hire the average Wisconsin state worker for their current salary, benefits package, lifetime employment, work rules, grievance process, etc?  If they are so underpaid, I would assume they would get snapped up, right?  Sure.

Bonus advice to young people:  Think long and hard before you take that government job right out of college.  It may offer lifetime employment, but the flip side is that you may need it.  Here is what I mean:

When people leave college, they generally don't have a very good idea how to work in an organization, how to work under authority, how to manage people, how to achieve goals in the context of an organization's goals, etc.   You may think you understand these things from group projects at school or internships, but you don't.  I certainly didn't.

The public and private sector have organizations that work very differently, with different kinds of goals and performance expectations.  Decision-making processes are also very different, as are criteria for individual success within the organization.  Attitudes about risk, an in particular the adherence to process vs. getting results, are entirely different.

I am trying hard to be as non-judgmental in these comparisons as I can for this particular post.  I know good people in government service, and have hired a few good people out of government.  But the culture and incentives they work within are foreign to those of us who work in the private world, and many of the things we might ascribe to bad people in government are really due to those bad incentives.

It is a fact you should understand that many private employers consider a prospective employee to have been "ruined" by years of government work, particularly in their formative years.  This is simply a fact you will need to deal with (it could well be the reverse is true of government hiring, but I have no experience with it).  That is why, for the question I asked above about hiring Wisconsin government workers, the answer for many employers would be "no" irregardless of pay.

Apparently Google is getting accused of skewing its search results to favor its own products.   To which I say, so freaking what?   When did Google suddenly become a common carrier?  The implication is that by their very success (evidenced by a high market share) they have imposed on themselves more onerous rules than others operate under.  When I stay in the Marriott, and I ask the concierge about local dining options, don't I expect him or her to list the hotel's restaurant options first?

I suppose consumers might have a mild beef if Google is misrepresenting its service, but for gods sakes its free -- if you are suspicious of the results, there are like a zillion competitors.

This complaint is basically coming from businesses.  I know from past experience that seeing one's page rank drop with one of the regular Google algorithm tweaks is frustrating, but companies that through good SEO have climbed to the top of the search rankings are not owed anything, and in particular they are not owed that search ranking that they got for free.  In fact, these are businesses that are basically free riders on Google whining about Google's actions.  If they want to complain Google is not abiding by its terms of service on its paid listings, fine.  That is potentially a legitimate complaint.  But can't we agree that, as a foundation principle, government consumer protection action is never required for a free service somehow falling short of expectations?

A decade ago, I was an executive at an Internet startup named Mercata.  Mercata was one of a couple of entrants in a field we had named "group buying."   In practice, this meant there were limited time sales where the price of a product would fall based on the number of people who agreed to buy.   Obviously the volumes were not large enough to get economies of scale of any sort, so they main advantage of the approach was viral marketing -- once you had agreed to buy, you had an incentive to get others to join in as more buyers would reduce your price.

The company eventually folded.  The company was very professionally run for an Internet startup of the day, but it had a lot of overhead for its volume, and, as eBay would learn, a lot of people wanted to buy immediately rather than wait for some sort of auction to play out.

But it turns out that one of our biggest failures was timing.  Recently, a company called Groupon has taken advantage of social networking that did not exist 10 years ago and has been quite succesful building a business using a very similar model to Mercata's.  It appears that Google has just bought Groupon for $2.5 billion.  Sigh.

This is not, however, even my largest financial missed opportunity.  I still have in my desk a 1984 job offer from Microsoft, which I eschewed at the time because it paid less than my other offers and tried to compensate me in these crazy pieces of paper called "options."  I once calculated the current value of the options just in the offer letter (ie not including any future grants over time) and their value was well north of any conceivable net worth I might reach currently.

If it is one thing I have learned after reading "green" sites like this one, most greens don't seem very thoughtful about parsing green claims.  So this fairly outrageous ploy by hotels will probably work:

Guests checking into the Westin Kierland Resort and Spa or Sheraton Phoenix Downtown Hotel can do more than order breakfast or request privacy by hanging a card outside their door.

They can also decline daily housekeeping service.

The hotels are among a small but growing group who have taken their in-room "green" initiatives up a notch, adding the option of no cleaning on top of existing options to reuse towels and forego fresh sheets.

What a great idea!  Redefine green as "not doing the basic job you are paying me to do."   This is amazing chutzpah, and at some level I tip my hat to them.  Spot a market inefficiency -- in this case the incredible gullibility of the greens -- and exploit it.

I had a dinner conversation last night with my Massachusetts mother-in-law.  She is pretty interesting to talk to because she is a pretty good bellwether for Democratic talking points on most issues.  She was opposed to the recent Supreme Court speech decision removing limits on third party advertising near an election  (I think she misunderstood the scope of that decision but that is not surprising given the shoddy reporting on it, up to and including Obama getting it wrong in his State of the Union).   She advocated strict campaign spending restrictions (both in terms of amount of money and length of the campaign season) combined with term limits.

We could have gone a lot of places with the discussion, but we ended up (before we terminated the conversation in the name of civility) discussing whether restrictions on money were equivalent to restrictions on speech.  She of course said they were not, and said under strict monetary controls I still had freedom of speech - weren't we still talking in the car?

It is hard to reach common ground when one person is arguing from a strict rights-based point of view while the other is arguing from a utilitarian point-of-view.   Essentially she knows in her heart that she is restricting speech, but wishes to do so to reach a better outcome.  I made a couple of utilitarian arguments, including:

• I pointed out that when the stakes of government are so high, money and influence never goes away.  Just as in any economy, when you ban money, a barter economy arises.  So if we ban large campaign spending, then the quid pro quo becomes grass roots efforts and voter mobilization.  Groups like the UAW become more powerful (we are seeing that already).  They are trading their member's votes for influence.  Connected companies like GE are doing the same thing, trading their support for legislation that is generally hostile to commerce for specific clauses in said legislation that exempts GE and/or makes the laws even more punishing on their competition.  The problem with all this activity is it is hard to see and totally unaccountable -- at least with advertisements we see people out in the open with their agendas.
• I observed that it was smart to add term limits to her plan, as otherwise her recommendations would be the great incumbent protection act.  But by limiting money, immediate advantage is given to people who already have name recognition and celebrity.  Think we have too many actors and athletes running for office?   Well be prepared for a flood with stricter campaign finance restrictions

However, I tend to shy away form utilitarian arguments.  The best arguments I have against the notion that money can be restricted without restricting speech are:

• Her comment that I still had freedom of speech (ie I am talking freely in the car) with strict campaign cash restrictions ignores the actual wording of the First Amendment, which reads "Congress shall make no law ... abridging the freedom of speech."  Her test, which is "Am I still able to speak in some forum even if I can't in others" is not a valid test for conformance to the First Amendment.  Otherwise, speech could be restricted at will as long as there was some narrow safe harbor where one could express his opinion.    The better test is whether the proposed law, ie a restriction on how much and when a person can spend money advertising his or her opinions, abridges or reduces freedom of speech.  And I think it is hard to deny that everyone has less freedom, in the form of fewer options and reduced scope, after such legislation.
• One interesting test is to broaden the question -- Does restricting spending on something (in this case speech) constitute a restriction on one's underlying right to the activity (e.g. speaking freely).  I was tempted to ask her (she is a strong and vocal abortion rights supporter) whether she would therefore consider the right to abortion to be untouched by Congress if a law were passed to limit each person's spending on abortion to $5 a year.   Abortion would still be entirely legal  -- all government would be doing is putting on some spending restrictions.   Obviously one's scope and options to get an abortion would be limited -- only those who happened to have a doctor in the family could perhaps get an abortion -- just as under her speech plan only those who had a large newspaper in the family could speak fully and freely before an election.

The AZ Republic has an editorial today saying that privatization is not the answer for the Arizona State Parks budget woes.   On the plus side, they did actually call me for my opinion yesterday before they published it.  On the down side, they ignored everything I said.  Here is my response:

I run one of the larger private parks management companies in the country, which is based right here in Phoenix. Like many Arizona residents, I am a frequent visitor to our state parks and am sympathetic to their current budget pain. Further, I am not one to offer up privatization as a panacea for all the park's woes -- the state parks organization fulfills a variety of public missions that cannot be undertaken well privately. But I think you missed a couple of important considerations in your editorial today counseling against privatization options.

First, from my experience with public recreation agencies around the country, these budget pressures on parks organizations never really end. Recreation is almost always a key pawn in budget fights, and even if Arizona State Parks funding is restored this year, we likely will be fighting the same battles in a few years. Private concession management of parks has the advantage of taking parks off the budget, so they no longer can fall victim to budget fights. For example, in the famous 1995 federal government shutdown, private concession run facilities in the US Forest Service were the only federal recreation options that remained open through the whole budget battle.

Second, while small low-visitation parks, on a standalone basis, may not represent a very good business opportunity, there are a variety of ways to handle privatization of smaller parks. We run approximately 175 public parks and campgrounds across the country, and well fewer than half of these stand on their own as private business opportunities. But many public agencies have learned to package smaller, low-visitation parks with higher-visitation parks into multi-park packages that both provide operators a business opportunity as well as meet the public's goal of keeping all of its parks open. Further, states like California have found many creative ways to keep historic sites open using private management. These solutions, at places like Columbia State Park, not only keep historic buildings open to the public but also create events and services that bring history alive and make it more interesting, particularly to children.

I know that private management is often sloughed off with statements like, "they would just build a McDonald's or put in a bunch of billboards." But thousands of parks nationally are managed privately, and this never happens. In part, this is because business people should get some credit for intelligence, and they understand what attracts people to outdoor parks in the first place and don't want to mess with the ambiance. In addition, we often have 100+ page operating agreements in place that carefully set out the quality of our services and the approvals we must obtain to make any changes to the facilities.

Further, it is sometimes suggested that private companies would just jack up the price. Well, Arizona State Parks is proposing to raise the Slide Rock entrance fee to $20. In contrast, we run nearby picnic and day use areas at places like Grasshopper Point and we rapacious capitalists only charge $8.

I am not advocating that Arizona State Parks turn off the lights and throw the keys to a private company; but I do think that private concession management could offer a piece of the long-term solution to keeping state parks open, both now and in future budget battles.

Just what we need, the government choosing winners and losers in media like they do earmark recipients.  Since government ownership of GM was politicized in Congress before the ink on the court agreements was dry, I wonder how fast Congress will find a way to use a government media bailout to punish the critical and reward sycophants.

A top Democratic lawmaker predicted on Wednesday that the government will be involved in shaping the future for struggling U.S. media organizations.House Energy and Commerce Committee Chairman Henry Waxman, saying quality journalism was essential to U.S. democracy, said eventually government would have to help resolve the problems caused by a failing business model.

Waxman, other U.S. lawmakers and regulators are looking into various options to help a newspaper industry hurt by the shift in advertising revenues to online platforms.

Waxman continues:

"Eventually government is going to have to be responsible to help and resolve these issues,"

Why?  You mean like when the US government stepped up in the 19th century to bail out pamphleteers and failing broadsheet publishers when the market moved to new media?  Or when it moved to bail out network television under assault from new cable channels?  Remember that?  Neither do I.

Next steps:

At the Federal Communications Commission, officials are embarking on a quadrennial review of the state of U.S. media. The study, which is mandated by Congress, seeks to determine whether current rules should be changed to allow for a more vibrant media industry serving a diverse audience.

We have that.  Its called the Internet.  It emerged entirely free of government action (save some funding of some original infrastructure).  Go away.

A Cafe Hayek Reader asks:

Imagine we had entirely private health insurance market "“ no Medicare or Medicaid.  If I live to be sixty-five, I will probably have a personal and/or family history that indicates a strong probability of developing an expensive chronic condition. I would wager that is true of almost all sixty-five year olds.

So here is my question: which insurer in their right mind would take on my risk?

I suspect none. Once philanthropy and savings were exhausted, I would surely risk a painful life and preventable death.

Do I want this? Does anyone? Isn't "socialized" medicine for older people an unpleasant moral necessity for our wealthy society? Please note I am deeply suspicious of most arguments cast in moral terms in discussions of politics and economics. I ask these questions guardedly.

I answer in the comments:

Imagine we had entirely private life insurance market "“ no government options at all. If I live to be sixty-five, I will probably have a pretty high probability of dieing in the next 15 years or so. I would wager that is true of almost all sixty-five year olds.

So why would anyone insure me?

Because the life insurance market has developed a very reasonable solution to this -- you negotiate a term life rate for X number of years. Your rate might be Y a year for 10 years, or 1.5Y a year for 20 years, or 2Y a year for 30 years. The longer the rate guarantee, the higher the rate. You are explicitly paying higher rates than you might have in younger, less risky years to make sure you get a coverage guarantee at an affordable rate in later, risky years.

Of course, if you play the grasshopper and never buy insurance until you are 65, your price is going to be awful. But I don't think it is a reasonable role for government to do all kinds of individual-liberty-defying and costly things just because you did not take responsibility for your old age earlier in life. However, saying that, I of course know that this is EXACTLY what the government does with Social Security.

I have a high deductible individual insurance plan from Assurant who specializes in insuring individuals, and they have been evolving to a pricing model sort of similar to the term life model I listed above, though they are not quite there yet.

To the folks that say this is no solace for folks already 65, that is an implementation transition issue, not an argument against the market's ability to deal with this. Certainly a lot of folks have paid Medicare taxes for years and are counting on it. Some kind of phase out, possibly where the government redirects Medicare funds to make up the difference in policy prices for having not started locking in earlier, is possible. But the question was not an implementation question - it was a question of whether the market inherently fails for 65-year olds, and I think the answer is that it does not. We have a perfectly serviceable analog in life insurance to prove it

I call this the "failure of imagination" argument against free markets.  Some sector of the economy (such as education) has been dominated by government for so long that folks can't imagine a private model.  For example, when I argue for private grade school education, I can't tell you how often people say "private schools are all really expensive, no one could afford them."  Private schools are expensive because in the current government model, the only market niche for private schools is for families that can afford to pay the government for education they don't use and then pay a second time for a private school.

One of the burning reasons we apparently need a government takeover of health care is that it is "expensive," or more precisely, we spend a lot of money on it.

So what?  In everything else I can think of, rising per capita spending and higher spending in the US than elsewhere is a sign of wealth and prosperity, not a "problem."  We spend a lot of money on a lot of sometimes trivial sh*t, and no one blinks.  We spend more money because we have more beyond what we need to keep ourselves alive.  Or we spend more money because technology provides us new options and frontiers.  But when we spend a lot of money on our health and well-being and longevity, its a problem requiring massive government intervention?

Announced today:

President Barack Obama on Wednesday imposed $500,000 caps on senior executive pay for the most distressed financial institutions receiving federal bailout money, saying Americans are upset with "executives being rewarded for failure."...

The pay cap would apply to all institutions that have negotiated agreements with the Treasury Department for "exceptional assistance." Those would include AIG, Bank of America and Citi.

Firms that want to pay executives above the $500,000 threshold would have to use stock that could not be sold or liquidated until they pay back the government funds.

I don't get too worked up about this one way or another.  Once the government is a part owner of these companies, it is perfectly reasonable to expect them to dabble with things like compensation policy, and no surprise that focus of such dabbling would fall on whatever particular hobby horses the party in power seem to obsess about.  Which is reason #4097 why government shouldn't be bailing these guys out.

In terms of executive compensation, options have fallen a bit out of favor as executives have sought more of a guaranteed payday, and changing accounting rules and more scrutiny have made that harder to do with options.  The concern is,  of course, stock prices can fall or even go to zero and that part of the compensation package would be worth zero.  Executives are generally happy to take risks but only with other people's money (people who take risks with their own money are called entrepreneurs).

But in this case, most of these companies' stock is at what is likely to be the bottom, and each has the commitment of the government now not to let them go bankrupt, so the danger of stock values going to zero is, well, about zero.   Would you take warrants in a company priced at the market trough and with the US government guaranteeing the floor beneath you?   I can't think of a better time to get equity or option-based compensation, and so expect to see a lot of it in order to circumvent the $500,000 limit.  And a lot of big paydays 5-7 years hence.

I am having a blast at the Change.gov transition site for Obama, now that I have satisfied myself it is not a fake.  Those who doubt that Obama has super-human powers should read this, from the Obama site:

The Obama-Biden plan provides affordable, accessible health care for all Americans, builds on the existing health care system, and uses existing providers, doctors and plans to implement the plan. Under the Obama-Biden plan, patients will be able to make health care decisions with their doctors, instead of being blocked by insurance company bureaucrats.

Under the plan, if you like your current health insurance, nothing changes, except your costs will go down by as much as $2,500 per year.

If you don't have health insurance, you will have a choice of new, affordable health insurance options.

Wow - so now you can go out purchase any care you want - any tests, any procedures, whatever - and no one is going to tell you no.  Everything is paid for.  You have a blank check to go spend.  And, by granting you an infinite supply of care, your cost is going to go down.  Obama is really superman, because no one else in history has figured out how to invert the supply curve or make 2x cost less than x.

You see, it's all about insurers' margins.  If we can just cut down on those fat margins, everyone can have full health care and a pony for less money.  You doctors who are worried about health care, you will have it better too:

Prevent insurers from overcharging doctors for their malpractice insurance and invest in proven strategies to reduce preventable medical errors.

All these years you thought malpractice insurance costs were high because of huge malpractice court settlements that usually bore little relationship to true malpractice, well, you were wrong.  Its because of the insurers and their margins.  We don't have to reform malpractice tort law (which is just as well since tort lawyers were so generous with donations to our campaign), we just have to get insurers to stop overcharging doctors.

To give you an idea of the absolutely huge amount of savings that can be extracted by just pounding on the insurers to give more coverage for less money, let's take a look at those outsized margins they are making.  These are net profit margins reported by Google Finance for 3Q2008 of the largest health care providers and insurers:

Cigna: 3.50%
United Health Group: 4.56%
Aetna: 3.64%
WellCare:  4.08%
Amerigroup: 3.51%
Humana 2.56%
WellPoint: 5.49%

Freaking robber barons!  Look at those outsized margins.  No wonder we have a health care crisis.  By cutting these guys margins in half, Obama expects to reduce the price of health care by 1-2%, which should be more than enough to pay for large increases in services and 30-50% price cuts.

Update: Oh, its magic.  That explains it.

Update #2: OK, the page has come down, as have most all the pages that had any kind of policy detail or promises in them.  I wish I had screen shots, but I can say everything above was cut and pasted directly form the web site.  Could I make that stuff up?  Too bad, there probably were another 10 blog posts in there somewhere.

Hostess Twinkies are becoming the latest product remade and repackaged into 100-calorie snack packs

No word on how small they will be.  This had to be one of the great marketing blinding glimpses of the obvious:

Hostess launched its 100 calorie cupcakes in 2007, but held off on making a version of the Twinkie because the product was a favorite overall, not just among those looking for low-cal options

Get out of town.  Who would have thought that Twinkies were not a favorite for those looking for low-cal options.

Paul Kedrosky reports:

The Federal Reserve Board on Tuesday announced the creation of the
Commercial Paper Funding Facility (CPFF), a facility that will
complement the Federal Reserve's existing credit facilities to help
provide liquidity to term funding markets. The CPFF will provide a
liquidity backstop to U.S. issuers of commercial paper through a
special purpose vehicle (SPV) that will purchase three-month unsecured
and asset-backed commercial paper directly from eligible issuers.

Kedrosky has a lot of interesting coverage of the current financial crisis.  He observes:

As Buffett has said, everyone in the world is trying to deleverage at
once -- which is unworkable -- leaving the U.S. as the only institution
in the world that can lever up at all -- and levering up it is. I just
wish it was more obvious to me how you exit the other side of programs
like this. Would we not be better off to quickly recapitalize and
backstop some banks?

I share his concerns, but I actually kind of like the idea of bringing liquidity to main street business directly, rather than indirectly by bailing out failing financial institutions.  The problem of unwinding the program is a big one.  Right now, I get the sense that the financial markets are operating almost entirely on expectations of government action -  will the Feds buy back mortgages, will the Feds keep the overnight borrowing window wide open, will the feds gaurantee commercial paper, how much commercial paper will they buy.  This latter actually seem the least bad of a lot of other options.  At least the Feds are buying good assets from good companies.

Due to the very nature of political pressures as well as poor accounting, a lot of government services are provided to the public below their true cost or market clearing price  (there are exceptions, like intra-city mail, but in these cases the government must pass laws to prevent private competition in order to maintain its market share).  When the government provides these below-cost or below-market-price services, it tends to crowd out private options.  So I am wondering why Kevin Drum is so surprised:

I guess rescuing them was the right thing to do. I'm still a little
taken aback by the apparent fact that American banks are now almost
flatly unwilling to make mortgage loans unless they're backed by Fannie
or Freddie, but that seems to be the case whether it takes me aback or
not. So rescue them we must. I suppose my next question is whether it's
worth thinking about how to restructure the American home mortgage
industry so that it can operate efficiently even in the absence of
massive levels of government backup. Or is Fannie/Freddie style backup
just the way the world works these days and there's no point fussing
over it?

As evidenced by the current bailout (and their huge accretion in market share over the last several years), Fannie and Freddie were under-pricing the service they were providing.  So of course, all things equal, bankers will demand the Fannie/Freddie backing because that will be a more profitable product and will be less work for the banker.  This seems like a "duh" kind of thing.  Like the "mystery" of why in Massachussetts, while everyone is obligated to sign up for health insurance, only the ones who were eligeable for free coverage did so.

I have written before of a similar phenomenon in business loans, where loans with SBA backing have crowded out everything else out there, such that a small business really can't find a lender who will make small business loans except with SBA backing.  Bankers are people too, and they can get lazy.  They have come to rely on these government programs, but certainly the lending function would still exist in a robust form if these programs did not exist.  Bankers would have to find other risk-mitigation tools, or else the loans would be more expensive, reflecting that the banks could not get rid of all the risk and had to price that into the loan.

By the way, don't you love the technocratic hubris of "thinking about how to restructure the American home mortgage
industry so that it can operate efficiently even in the absence of
massive levels of government backup."  Why do I, or Drum, or anyone outside of banking have to think about this at all?  I don't personally know the best private alternative to government mortgage gaurantees.  So what?  The financial field has been rife with innovation over the last several decades.  Just remove the government backup and let the the banks figure it out.  And let them go bankrupt when they figure wrong.

Postscript: As an ironic aside, the bank that holds my SBA loans was closed by the FDIC last week, my guess is due to a bad mortgage book in the Las Vegas area.  This doesn't have a lot of impact on me except that as I have paid down my loans, they became wildly overcollateralized, and I was in the process of trying to renegotiate some of my collateral out of the deal.  That will have to be put on hold, I guess.

Update:  More on government crowding out private options, in an entirely different industry:

Basic
dental care in Britain is free to those under 16 or over 60, the
unemployed, students, military veterans and some low-income families.
For others, government dentists offer lower prices than private
practitioners.

However,
the government does not cover cosmetic dentistry, and a recent
reorganization of the way dentists work has prompted many to leave the
public sector. Katherine Murphy, a spokeswoman for The Patients
Association, an advocacy group, said it was proving increasingly
difficult for Britons to get anything beyond basic dental care from
Britain's National Health Service.

Update #2: More on Fannie and Freddie, again via Rick Perry:

The
Fannie Mae-Freddie Mac crisis may have been the most avoidable
financial crisis in history. Economists have long complained that the
risks posed by the government-sponsored enterprises were large relative
to any social benefits.

We
now realize that the overall policy of promoting home ownership was
carried to excess. Even taking as given the goal of expanding home
ownership, the public policy case for subsidizing mortgage finance was
weak. The case for using the GSEs as a vehicle to subsidize mortgage
finance was weaker still. The GSE structure serves to privatize profits and socialize losses.
And even if one thought that home ownership was worth encouraging,
mortgage debt was worth subsidizing, and the GSE structure was viable,
allowing the GSEs to assume a dominant role in mortgage finance was a
mistake. The larger they grew, the more precarious our financial
markets became.

I think there are a lot of us who scratch our heads over foreign aid.  While open to helping starving kids, its not always clear how to do so without simultaneously reinforcing and strengthening despotic regimes and dysfunctional cultures that caused the problems in the first place.  At least not without sending in the US military along with a trillion dollars or so for a decade or more.

This question could lead to a fairly interesting discourse, but in reality it does not.  Expressing the above quandary merely gets one labeled as unfeeling and insensitive.  One of the problems with having a reasonable debate is that the people and groups in the West who most support aid also are philosophical supporters of many of the failed leftish regimes that caused the aid to be needed in the first place, or else they are strong advocates for cultural relativism that feel that it is wrong to criticize any non-western culture for any reason.

While he does not offer any answers to this question, it is nice to see Kevin Myers at least try to raise these complexities, especially at a time when Barack Obama is trying to make all these questions seem easy:

I am not innocent in all this. The people of Ireland remained in
ignorance of the reality of Africa because of cowardly journalists like
me. When I went to Ethiopia just over 20 years ago, I saw many things I
never reported -- such as the menacing effect of gangs of young men
with Kalashnikovs everywhere, while women did all the work. In the very
middle of starvation and death, men spent their time drinking the local
hooch in the boonabate shebeens. Alongside the boonabates were
shanty-brothels, to which drinkers would casually repair, to briefly
relieve themselves in the scarred orifice of some wretched prostitute
(whom God preserve and protect). I saw all this and did not report it,
nor the anger of the Irish aid workers at the sexual incontinence and
fecklessness of Ethiopian men. Why? Because I wanted to write
much-acclaimed, tear-jerkingly purple prose about wide-eyed,
fly-infested children -- not cold, unpopular and even "racist"
accusations about African male culpability.

Am I able to rebut good and honourable people like John O'Shea,
who are now warning us that once again, we must feed the starving
Ethiopian children? No, of course I'm not. But I am lost in awe at the
dreadful options open to us. This is the greatest moral quandary facing
the world. We cannot allow the starving children of Ethiopia to die.

Yet
the wide-eyed children of 1984-86, who were saved by western medicines
and foodstuffs, helped begin the greatest population explosion in human
history, which will bring Ethiopia's population to 170 million by 2050.
By that time, Nigeria's population will be 340 million, (up from just 19 million in 1930). The same is true over much of Africa.

Thus
we are heading towards a demographic holocaust, with a potential
premature loss of life far exceeding that of all the wars of the 20th
Century. This terrible truth cannot be ignored.

But back in
Ireland, there are sanctimonious ginger-groups, which yearn to prevent
discussion, and even to imprison those of us who try, however
imperfectly, to expose the truth about Africa. And of that saccharine,
sickly shower, more tomorrow.

via Maggies Farm.

By the way, does it seem odd to anyone else that we in America get accused of having "unsustainable" lifestyles and we are urged to return to simpler, less technological, less energy-intensive lives like those in Africa?  I would have argued that "sustainable" means to be able to support your own people with their own effort.  By this definition, the US is the most sustainable country in the world.  Our prospective efforts not only sustain us so well that even our poorest 20% live better than the upper middle class in African nations, but we also help sustain the rest of the world.  We create so much wealth that we are able to consistently import more than we export, creating jobs around the world.  And we send more aid to other countries than most of the rest of the world combined.

If I had to name the one single biggest problem in US healthcare, it would be this:

"Twenty years ago, when I was in training, nobody really dealt with
economics," says Stephen Hufford, an oncologist in San Francisco. The
prevailing thinking, he says, was: "Cost should never be an issue in
someone's care."

In a survey of 167 cancer doctors reported last year in the Journal of
Clinical Oncology, 42% said they regularly raised the issue of costs
when discussing treatment options with patients.

Which means that even today, 58% of oncologists did not raise cost or price issues with various treatment options, despite practicing in perhaps the most costly of medical fields.  What planet are we living on, here?  Can you imagine a survey in which 58% of car dealers refused to raise the issue of cost in a new car sale?   Or 58% of real estate brokers saying they never mentioned the prices of houses when discussing them with clients? 

This represents a process failure in the health care system on two levels.  First, not having any single person in the decision-making process making cost-benefit trade-offs is a recipe for disaster.   Insured customers will consume as much as they can when price is off the table.  Many folks in the health care debate recognize this.

But there is a second problem.  Even when there is a single entity making these trade-offs, it is almost never the patient.  Most "reformers" on both the left and the right want to place this decision-making authority in government bureaucrats, in insurance companies, in Congress, in doctors -- any place but in the individual patient herself.   This particular article discusses the role of doctors in this process:

Many health-policy experts say it's high time for American doctors to
start considering costs when assessing treatment options. In 2007, the
cost of cancer care alone reached an estimated $89 billion in the U.S.,
up from $72 billion in 2004, according to the American Cancer Society
using data from the National Institutes of Health....

The study, conducted
by Deborah Schrag, an oncologist at the Dana Farber Cancer Institute in
Boston, found that 23% of oncologists said costs influence their
treatment decisions, and 16% said they omit discussion of very
expensive treatments when they know the cost will place great strain on
patients' resources.

This misses the mark.  Doctors should be ready to inform patients of their options, but at the end of the day we need a system where the patient is making these tradeoffs.  Note the absolute, nearly criminal arrogance of doctors who don't suggest the best treatment regime because the cost might stress out the patients.  How does the doctor know what financial resources the person might be able to bring to bear?

Postscript:  In an adjoining article, the WSJ has an article on the wacky way the French government makes these cost-benefit trade offs in health care:

Since 1860, when Napoleon III appropriated this
ancient Roman spa at the foot of the Alps for his empire, the National
Baths of Aix-les-Bains have been a symbol of France's cushy health-care
system.

On a recent morning, Jacqueline Surmont and her
husband, Guy, a 77-year-old retired construction worker, headed for
their daily mud wrap. The spa's rheumatism cures, thermal baths and
13-minute deep-tissue massage all are covered by France's national
health-insurance system. Transportation and lodging are, too....

"For many people, it's like a free holiday," says Ms. Surmont, who says
all her mud wraps and massages were properly prescribed by a doctor to
soothe her ailing back. "Some patients go shopping in the afternoon.
They're hardly in pain."

Wonderful.  This kind of BS is virtually inevitable in state-run systems.  I think one can already imagine a US health care system where taxpayers foot the fill for groovy treatments loved by the dippy left, from acupuncture to aromatherapy to homeopathy, while cancer patients are denied drugs and people have to wait months or years for elective surgery.

By the way, we get this in the "goes without saying" file from a state-run spa employee facing cutbacks:

"Of course we went on strike," said Martine Claret, a 52-year-old
physiotherapist who has worked at the spa since 1979 and doubles as a
union representative.

I have now tried out Windows Vista with its first service pack and I am still not clear what Vista adds over XP, except upgrade costs, an interface system that requires retraining employees and a lot of extra computer overhead, and compatibility problems.  XP is stable and great for us. 

As you may know, most XP OEM sales come to an end on June 30.  Dell has already announced they will still sell XP units under the downgrade options in the Vista license.  Good for them.  In fact, it looks like Dell expects that customers will be willing to pay additional money ($20-$50) for the older operating system.  LOL.

Anyway, this month I bought an additional 5 Windows XP OEM licenses from NewEgg.com to put on the shelf to cover future computer builds out past June 30 (I build many of the computers for myself and the company).

By the way, if you want a gauge on how Vista is doing, check out the right bar pn this page at Amazon.com.  On the top 10 bestsellers (on June 18, 2008), XP occupies slots 2,4,6,7,9 while Vista is in slots 3,8 & 10.  Note that is over 18 months after Vista was introduced to replace XP.

The likely Republican presidential nominee is well to the left of the last Democratic president on economic issues.  And George McGovern sounds Laissez Faire:

Under the guise of protecting us from ourselves, the
right and the left are becoming ever more aggressive in regulating
behavior. Much paternalist scrutiny has recently centered on personal
economics...

Since leaving office I've written about public
policy from a new perspective: outside looking in. I've come to realize
that protecting freedom of choice in our everyday lives is essential to
maintaining a healthy civil society.

Why do we think we are
helping adult consumers by taking away their options? We don't take
away cars because we don't like some people speeding. We allow state
lotteries despite knowing some people are betting their grocery money.
Everyone is exposed to economic risks of some kind. But we don't
operate mindlessly in trying to smooth out every theoretical wrinkle in
life.

The nature of freedom of choice is that some people will
misuse their responsibility and hurt themselves in the process. We
should do our best to educate them, but without diminishing choice for
everyone else.

Really, its that George McGovern.

And David Mamet questions the power of government:

And I began to question my hatred for "the Corporations" - the
hatred of which, I found, was but the flip side of my hunger for those
goods and services they provide and without which we could not live.

And I began to question my distrust of the "Bad, Bad Military"
of my youth, which, I saw, was then and is now made up of those men and
women who actually risk their lives to protect the rest of us from a
very hostile world"¦

But if the government is not to intervene, how will we, mere human beings, work it all out?

I wondered and read, and it occurred to me that I knew the
answer, and here it is: We just seem to. How do I know? From
experience"¦

Strand unacquainted bus travelers in the middle of the night,
and what do you get? A lot of bad drama, and a shake-and-bake Mayflower
Compact. Each, instantly, adds what he or she can to the solution. Why?
Each wants, and in fact needs, to contribute - to throw into the pot
what gifts each has in order to achieve the overall goal, as well as
status in the new-formed community. And so they work it out.

And so I, like many of the liberal congregation, began, teeth
grinding, to attempt to do so. And in doing so, I recognized that I
held those two views of America (politics, government, corporations,
the military). One was of a state where everything was magically wrong
and must be immediately corrected at any cost; and the other - the
world in which I actually functioned day to day - was made up of
people, most of whom were reasonably trying to maximize their comfort
by getting along with each other (in the workplace, the marketplace,
the jury room, on the freeway, even at the school-board meeting).

And I realized that the time had come for me to avow my
participation in that America in which I chose to live, and that that
country was not a schoolroom teaching values, but a marketplace"¦

The Seattle Supersonics have finally admitted what rational folks have known for a long time:  Billion dollar municipal stadiums are just taxpayer subsidies for already-rich players and owners, and do nothing for local economic development. Here is what the Sonics ownership stated in court papers (part of a case where they are trying to break their lease in Seattle):

"The financial issue is simple, and the city's analysts agree,
there will be no net economic loss if the Sonics leave Seattle.
Entertainment dollars not spent on the Sonics will be spent on
Seattle's many other sports and entertainment options. Seattleites will
not reduce their entertainment budget simply because the Sonics leave,"
the Sonics said in the court brief.

...Rodney Fort, a
professor of sports management at the University of Michigan, who has
criticized the economic-impact claims made by pro-sports teams, called
the Sonics' latest argument "the best chuckle" he's had in a long time.

Municipal stadium funding and team relocation blackmail as a prisoners dilemma game here.

My son learned of one additional downside this year to subsidizing an expensive stadium for the hapless Cardinals.  He is a huge Cowboys fan, and there was to be a really good matchup in regular season this year that would be televised nationally (I can't remember which game, maybe the Packers regular season game).  We did not get to see the game, because the local network was obligated to show the Cardinals game instead.  If you have no team, you always get the best game on TV.

Dear Customer Service Departments:

In my recent call to your service center, I was forced to navigate a nearly interminable set of menu options (which I listened to carefully since I had been assured that they had recently changed).  After I navigated these options, your automated system then gathered data from me.  It asked me to give my name, then my telephone number, and finally my account number, which I did.

Here is the reason for my letter, and my advice to you:  Once you have collected all my information via an automated system, it is just going to piss me off when your human operator picks up the line and proceeds to ask me for this same information again.  I know this seems to be the current industry standard, as practiced by every company from Citibank to Domino's Pizza, but I can assure you it is incredibly annoying and, perhaps worse for you, introduces me to your organization with the initial impression that you do not know what you are doing.  So, either find a way to put the information you have gathered up on the customer service agent's screen, or don't have an automated system gather it.

Thank you.

PS-  By the way, if you really, really want to start our conversation off on the wrong foot, then you should  make it nearly impossible for me to find a menu option that gets me to a real person.  You can get double extra credit for disabling "0" as an immediate route to the operator.  Oh, and make sure all menus are preceded with long-winded customer service notices that have nothing to do with my problem.

Update

The NY Times outdid itself last week with a truly awful article on dentistry.  They started with just one fact:

Previously unreleased figures from the Centers for Disease Control and Prevention
show that in 2003 and 2004, the most recent years with data available,
27 percent of children and 29 percent of adults had cavities going
untreated. The level of untreated decay was the highest since the late
1980s and significantly higher than that found in a survey from 1999 to
2002.

They then apply the patented NY Times class-based story-generation model to assume a cause for this rise that is not supported by the study itself:

But many poor and lower-middle-class families do not receive adequate
care, in part because most dentists want customers who can pay cash or
have private insurance, and they do not accept Medicaid
patients. As a result, publicly supported dental clinics have
months-long waiting lists even for people who need major surgery for
decayed teeth. At the pediatric clinic managed by the state-supported University of Florida dental school, for example, low-income children must wait six months for surgery.

So is the rise in untreated dental problems concentrated in the poor?  Well, they don't say, and there is not data for that in the study, but that does not prevent the NY Times from just assuming it to be so.  In fact, the article itself contradicts this premise, by noting that the problem is not limited to the poor:

The lack of dental care is not restricted to the poor and their
children, the data shows. Experts on oral health say about 100 million
Americans "” including many adults who work and have incomes well above
the poverty line "” are without access to care.

By the way, how did they figure a 100 million don't have "access"?  I don't know, but the figure is suspiciously close to this one:

With dentists' fees rising far faster than inflation and more than 100 million people lacking dental insurance...

Anyone want to bet that the NY Times just made its usual logical fallacy of equating lack of insurance with lack of access?  And by the way, dental insurance is a HORRIBLE investment.  I have priced it many times myself and for a normal family, it is much cheaper to just pay the dental bills, particularly since there are not that many things in your mouth that can go wrong that will be bankrupting.  Trying to push everyone to dental insurance is a terrible idea.  Every time there is a dental procedure in our family, it turns out there are several options for fixing it at different prices.  We actually have the incentive to ask for these alternatives and make trade offs.  What do you think would happen if we had insurnace?

In fact, I can think of a LOT of reasons why people don't go to the dentist as often as they should.  One reason is that no one like the dentist.  Another is people's busy schedules.  And certainly rising costs are a factor -- As I mentioned before, our family makes very different decisions about treatment options than we used to with a fat corporate dental plan.  Which is as it should be. 

By the way, note the screaming socialism here:

The dental profession's critics "” who include public health experts,
some physicians and even some dental school professors "” say that too
many dentists are focused more on money than medicine.

"Most
dentists consider themselves to be in the business of dentistry rather
than the practice of dentistry," said Dr. David A. Nash, a professor of
pediatric dentistry at the University of Kentucky. "I'm a cynic about my profession, but the data are there. It's embarrassing."

I wonder.  Does Dr. Nash accept a salary for being a professor?  Then I guess he is focused more on the business of education than the practice of educating.

Oh, and by the way, how is socialism in dentistry working out?

In a survey of 5,000 people in the UK, six percent claimed that
they had done DIY dentistry, including yanking their own teeth and
fixing cracked crowns with glue. Apparently they resorted to such self
treatment because they couldn't get in to see a National Health Service
dentist "¦

One respondent in Lancashire, northern England, claimed to
have extracted 14 of their own teeth with a pair of pliers. In
Liverpool, one of those collecting data for the survey interviewed
three people who had pulled out their own teeth in one morning.

"I took most of my teeth out in the shed with pliers. I have one to go," another respondent wrote.

For years I had some kind of corporate health plan.  When I started my own business, I bought a Blue Cross plan that roughly mirrored the corporate health plan I used to have -- very low deductible, lots of coverage.  And it had very high premiums. 

So I finally got serious and went out and did something 99% of Americans never do or never have to do:  I went out and really researched my health care options.  And what I found was that to raise our family's deductible from $500 a year to $2000 a year would save me over $3000 a year in premiums.  In fact, if I switched plans, I would get just as high of a maximum payout and I would get a better gaurantee on future pricing and a commitment never to drop my coverage from a large, well-rated insurance company.

There's an old joke about an economist and another fellow walking down the street.  There was a $10 bill laying on the ground, but the economist just walked right past it.  The other fellow said "what are you doing, you just passed up $10."  And the economist replied "It can't be a real $10 bill, because in an efficient market someone would have already picked it up."

That was my reaction to my health care options.  I asked my broker, "you mean that if I increase my deductible $1500 I can save $3000 a year?  Even in a worst case year I am better off, and in a healthy year I am MUCH better off."  He replied "Yep."  I asked, "But why doesn't everyone do this?"  He just shrugged.  As my Harvard investment management professor used to say, as he wrote up a market situation on the chalkboard to begin each class, either this is an opportunity, of there is something we don't understand.  As I have gained more experience with my new health plan, I have become convinced it is the former.

McQ over at Q&O has a great post on insurance vs. insulation.  I won't quote it all, but it is well worth your read.  Towards the end, he quotes John Stoessel on my particular conundrum:

But people are so conditioned to expect others to pay their medical
bills that they hate high deductibles: They feel ripped off if they
must pay a thousand dollars before the insurance company starts paying.

But high deductibles may be the key to lowering costs and putting you in charge of your health care.

I am absolutely convinced that the best possible step for US health care is to expose more users to the market and price-value trade offs, while providing high-deductible insurance that shelters people from bankrupting unusual events.  More here, here, and here.

From Kevin Drum:

Marc Cooper spends 20 hours in the hospital and tells his story here.  Price of stay without insurance: $116, 749.  Price with insurance: $4,730.  Only in America, folks.

He's not very clear if this was an emergency situation -- like, did he have a heart attack and get rushed to the hospital in an ambulance -- or an important but non-emergency situation.  I will assume the latter by the tone of Marc Cooper's detailed post.

If so, then my first comment is, indeed only in America would he have gotten this procedure without waiting twelve weeks or without traveling to, say, America to get it done more expeditiously,

Second, I wonder:  Did he ask for a price estimate in advance? Did he ask, as most of
us do with all of our large purchases, for a written estimate or
quotation? Did he get such estimates from two or three competitors? Did
he shop around?

Of course not! Because in a system where someone else is paying the
bills, we have no incentive to shop around. So providers have no
incentive to compete on price or to worry about productivity and cost
control.

Sure, this looks like a rip-off.  But if you went in to buy a car, concerned only with the quality of the
car, and never asked the price and then got a bill for $100,000 a few
weeks later, would you be surprised?  Would anyone give you sympathy if you complained you paid $100,000 for the car but admitted you never asked what the price was?

So this is a dead-obvious outcome from the health care system we
have, where no one has the incentive to shop. By the way, I have a high-deductible policy which causes me to
shop around, because costs come out of my own pocket. I ask questions
like, is that extra CT scan really necessary?

It's incredible to me that given this situation, the solution for
this blog's author and most of his readers is not "we should find a way
to have individuals experience both the cost and benefits of care,
because only they can make these tradeoffs for themselves and shop
around for better options" but is instead "lets just turn it over to
the government, since they do such a good job with Iraq and the mail
and our schools."

Finally, I would point out that the author is making some wild assumptions about an insurance statement he probably does not understand (I say that with confidence since no one understands health insurance statements).  His assumption that the walk-in poor would have had to pay $100,000 for the procedure or would have been left to die are demonstrably untrue, since there is just not that much evidence that either outcome is occuring with any regularity.  That is why health care socialization supporters always talk about the number of people uninsured, which is almost irrelevant, instead of the number of people who don't get care, which is a much much smaller, almost vanishingly small number.

For those interested in my A Skeptical Layman's Guide to Anthropogenic Global Warming, I greatly encourage you to download it for free.  However, I do know that some folks have written about a print version.  I have a print version of my global warming book available now at LuLu.com.  It is $16.98 -- that is my cost -- and I warn you that LuLu's shipping options are not very cheap.  I will try to find a less expensive print option, but no one beats LuLu for getting a book set up quickly and easily for print-to-order.

By the way, for those who have sent me emails with comments or errata, thanks for the help! In particular, my BBC/Channel 4 mixup is fixed.

Update:  The HTML version of this global warming paper is here