Coyote Blog

I missed this article the first time around, but Arnold Kling makes a point that I have been trying to make coherently for a long time:  The biggest problem in health care is not under-insurance or efficiency or drug company profits.  The biggest problem is the insulation of the consumer from health care prices.

For health care providers, insulation is a bonanza. Because
consumers are not spending their own money, they accept doctors'
recommendations for services without questioning them and without
concern for cost. Faced with an insured patient, a health care provider
is like a restaurant catering to convention-goers with unlimited
expense accounts. The customer will gladly take the most high-end
recommendation and not worry about the price.

Consumers are
happy as well. Insulation relieves the patient of the stress of making
decisions about treatment. The patient also does not have to worry
about shopping around for the best price.

The problem with
insulation is that it is not a sustainable form of health care finance.
Individuals, employers, and government are all under stress.

Health care plans on the table basically put decision making for a) making price comparisons and b) deciding if a given procedure is worth the price -- in one of two people's hands:

• The individual being cared for or
• The government

That's it.  Its one or the other.  The current system of "nobody" is not sustainable.  To the extent that people have grief about their employer or their insurer, it is usually because the insurer is trying to make these decisions (someone has to) and the individual is resentful that the insurer is not making decisions the way the individual might like.  In this context, it is nuts that many people see the solution not as "let individuals take over this decision" but as "let the government do it."  I'm sure that will turn out well.

By the way, I have been with a high deductible policy for a while now, and the medical care shopping process is a real eye-opener.  I really highly recommend it -- not only am I managing the costs but I am learning more about the care itself.  For those of you who don't want to price compare,  Michael Cannon of Cato makes the very good point that everyone does not have to price shop - only a few people need to for all of us to get the benefit.  I never even look at the price of toilet paper, but I know it is probably a good price because there are folks out there who DO compare.

Via Hit and Run:

Federal Price Gouging Prevention Act - Makes it unlawful for any person
to sell crude oil, gasoline, natural gas, or petroleum distillates at a
price that: (1) is unconscionably excessive; or (2) indicates the
seller is taking unfair advantage unusual market conditions or the
circumstances of an emergency to increase prices unreasonably.

Well, since they establish such a bright-line legal standard like "unconscionably excessive," I guess it is OK.

A few days ago, I was astounded to find that oil prices had a here-to-for unsuspected (at least by Congress) utility - that they can actually manage demand to help match supply.  But this strange phenomenon is even more amazing, because it now appears that higher oil prices also have the ability to stimulate investments in increasing production of this scarce commodity:

The American oil patch, once left to languish during an extended
period of low oil prices, is on the rebound. Wildcatters like Mr.
Bryant are ready to pounce. With oil prices now hovering around $60 a
barrel "” three times higher than they were throughout the 1990s "” the
industry is expanding at a pace last seen decades ago.

"The oil
industry has changed dramatically in the last 20 years," Mr. Bryant
says. "Barriers to entry have dropped significantly. It doesn't matter
if you've been in the business 100 years or 100 days."

Easily
available capital and technology, once the preserve of traditional oil
companies, are reordering the business. Investors are lining up to
finance energy projects while leaps in computing power, imaging
technology and collaborative online networks now allow the smallest
entities to compete on an equal footing with the biggest players.

"There's
a lot of money out there looking for opportunities," said John
Schaeffer, the head of the oil and gas unit at GE Energy Financial
Services. "It seems like everyone wants to own an oil well now."

Advice to Nancy Pelosi and Maria Cantwell:  You may need to study this phenomenon.

Of late, Democratic lawmakers have argued that gasoline prices are set at the caprice of oil companies, and mainly serve to provide them with undeserved profits.  However, we here at Coyote Blog try to bring you breaking news at the frontiers of scientific inquiry, and, via the USA Today, we get this fascinating revelation:

The average American motorist is driving
substantially fewer miles for the first time in 26 years because of
high gas prices and demographic shifts, according to a USA TODAY
analysis of federal highway data.

The growth in miles driven has leveled off
dramatically in the past 18 months after 25 years of steady climbs
despite the addition of more than 1 million drivers to the nation's
streets and highways since 2005. Miles driven in February declined 1.9%
from February 2006 before rebounding slightly for a 0.3% year-over-year
gain in March, data from the Federal Highway Administration show.
That's in sharp contrast to the average annual growth rate of 2.7%
recorded from 1980 through 2005....

The nation has not seen such stagnant growth in
driving since 1981, when the USA staggered through an oil shortage and
a recession. Gas prices reached an all-time high of $3.223 in March
1981 when adjusted for inflation in today's dollars.

Wow!  This seems to imply that prices have a here-to-for unsuspected utility.  They might actually be useful for matching supply and demand of scarce resources.  Fascinating.  Maybe Congress can commission a study of this phenomenon.

Postscript: Leaving the snark aside, it is hilarious in this article to see an urban planning group trying to bend over backwards to say that really, price was only a minor factor -- this really had to do with demographics and the success of our urban planning and public transportation.  Of course, it's just a coincidence that this step change occurred at the same time as a gas price spike, and that the last time it happened was the last time that gas price spiked.  Note that none of the data in the article actually supports the point of view that this was anything but a direct response to price signals.

Straight from the 1970's, the US's golden era of bumbling government intervention in the economy, come the same proposals that worked oh-so-well the first time around.  Democracts blame big oil for gas prices, and propose channeling solutions from Hugo Chavez:   (via Q&O)

Congressional Democrats are taking aim at big oil companies as U.S. gasoline prices near a record average $3.05 a gallon.

Although
industry experts doubt it will have any effect, half a dozen senators
gathered in front of a Washington service station to push their own
remedies to the situation, the Washington Post said.

The latest average price for a gallon of unleaded regular gas was $3.042, according to the AAA Fuel Gauge report.

Sen.
Charles Schumer, D-N.Y., called on Congress to consider breaking up the
giant companies. Sen. Bernard Sanders, I-Vt., pushed for a windfall
profits bill.

Sen. Maria Cantwell, D-Wash., promoted her
anti-price-gouging bill, which the Senate Commerce Committee adopted
earlier this week.

Gee, since every transaction in a free market requires a willing buyer and a willing seller, wouldn't it be just as correct to blame profligate consumers for the increase?  And why is it I don't remember any of these actors in Congress rushing to clamp down on greedy sellers when home resale prices skyrocketed far more than gas prices have?  Does anyone remember Maria Cantwell imposing windfall profits taxes on home-sellers?  Or, for that matter, on sellers of Internet stocks who financed their campaigns selling stock above $80 that would soon trade only in the single digits?  And by the way, how can any party who elected Maria Cantwell to the Senate seriously call members of the other party "stupid."

Let's do a thought experiment.  Let's assume that through a series of government actions, Congress is able to return oil profits "to the people."  Oil company profits are now reduced to zero.  That should make a huge difference in gas prices, right?  Well, out of a $3.00 gas price, taxes and the retailers margin are probably 75 cents or so (46 cents tax, 10% or 30 cent retail margin).  This leaves $2.25 for the greedy oil companies.  It turns out large oil companies like Exxon make about 6% of revenues in the bad times, and 10% in the good times, like now.  So, this leaves a profit of  14-22 cents per gallon.  The "people" are saved!  Gas prices can come down by a whole 15-20 cents.  Of course, in return for saving a buck or two on fill-ups, we've nuked the whole incentive system for investment and finding new oil and improving efficiency.  Gas prices over time will rise much higher than they are now, and lines will start reappearing at gas stations, but that probably won't show up until after the next election, so why should anyone in Congress care?

I value many of the same things - open space, wilderness, wildlife - that environmental activists value.  The difference is that I do not wish to achieve my goals by force.  For years I have donated money to various environmental funds that focus on using private funds to buy land for preservation (the Nature Conservancy being the most famous of these, though it has had some problems of late).  I particularly eschewed donating to groups who used most of their funds for lobbying.  These groups are using their funds to try to buy government coercion to back whatever goals they are seeking, often including taking more money from me by force and limiting my rights to manage my own property as I see fit.  I hate that.

Which is why I am very disappointed in the recent actions of Bill Gates.  To date, Gates has dumped billions of his own money into trying to improve public schools.  I personally think that to be useless**, that the management and incentives of government monopoly schools are broken and no amount of money can fix them.  However, it was his money and God bless him for trying.

However, it appears Gates is tired of the slow progress, and is taking the great second-rater escape clause, using his money now not to fund improvement programs but to lobby the government to spend more of my money:

Eli Broad and Bill Gates, two of the most important philanthropists in
American public education, have pumped more than $2 billion into
improving schools. But now, dissatisfied with the pace of change, they
are joining forces for a $60 million foray into politics in an effort
to vault education high onto the agenda of the 2008 presidential race.

** I have written several times about the dynamics of organizations and management, but it is my belief that there comes a time when certain managements and cultures are beyond saving, and the only solution is for the market to let them fail and have their assets and people be taken in by more dynamic organizations.  I wrote about this in the most depth in the context of GM, in a post on corporate DNA and value creation:

A corporation has physical plant (like factories) and workers of
various skill levels who have productive potential.  These physical and
human assets are overlaid with what we generally shortcut as
"management" but which includes not just the actual humans currently
managing the company but the organization approach, the culture, the
management processes, its systems, the traditions, its contracts, its
unions, the intellectual property, etc. etc.  In fact, by calling all
this summed together "management", we falsely create the impression
that it can easily be changed out, by firing the overpaid bums and
getting new smarter guys.  This is not the case - Just ask Ross Perot.
You could fire the top 20 guys at GM and replace them all with the
consensus all-brilliant team and I still am not sure they could fix
it. 

All these management factors, from the managers themselves to
process to history to culture could better be called the corporate
DNA.  And DNA is very hard to change.  Walmart may be freaking
brilliant at what they do, but demand that they change tomorrow to an
upscale retailer marketing fashion products to teenage girls, and I
don't think they would ever get there.  Its just too much change in the
DNA.  Yeah, you could hire some ex Merry-go-round executives, but you
still have a culture aimed at big box low prices, a logistics system
and infrastructure aimed at doing same, absolutely no history or
knowledge of fashion, etc. etc.  I would bet you any amount of money I
could get to the GAP or the Limited faster starting from scratch than starting from
Walmart.  For example, many folks (like me) greatly prefer Target over
Walmart because Target is a slightly nicer, more relaxing place to
shop.  And even this small difference may ultimately confound Walmart.
Even this very incremental need to add some aesthetics to their
experience may overtax their DNA.

Corporate DNA acts as a value multiplier.  The best corporate DNA
has a multiplier greater than one, meaning that it increases the value
of the people and physical assets in the corporation.  When I was at a
company called Emerson Electric (an industrial conglomerate, not the
consumer electronics guys) they were famous in the business world for
having a corporate DNA that added value to certain types of industrial
companies through cost reduction and intelligent investment.  Emerson's
management, though, was always aware of the limits of their DNA, and
paid careful attention to where their DNA would have a multiplier
effect and where it would not.  Every company that has ever grown
rapidly has had a DNA that provided a multiplier greater than one...
for a while.

But things change.  Sometimes that change is slow, like a creeping
climate change, or sometimes it is rapid, like the dinosaur-killing
comet.  DNA that was robust no longer matches what the market needs, or
some other entity with better DNA comes along and out-competes you.
When this happens, when a corporation becomes senescent, when its DNA
is out of date, then its multiplier slips below one.  The corporation
is killing the value of its assets.  Smart people are made stupid by a
bad organization and systems and culture.  In the case of GM, hordes of
brilliant engineers teamed with highly-skilled production workers and
modern robotic manufacturing plants are turning out cars no one wants,
at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the
right managers and a crisis mentality, to evolve DNA over a period of
20-30 years.  One could argue that GE did this, avoiding becoming an
old-industry dinosaur.  GM has had a 30 year window (dating from the
mid-seventies oil price rise and influx of imported cars) to make a
change, and it has not been enough.  GM's DNA was programmed to make
big, ugly (IMO) cars, and that is what it has continued to do.  If its
leaders were not able or willing to change its DNA over the last 30
years, no one, no matter how brilliant, is going to do it in the next
2-3.

The current failures in the subprime mortgage market, both of borrowers and lenders, has become one of those classic Rorschach tests where people self-identify by what description they apply to the market fallout.  Views on capitalism, free interchange, and individual responsibility are all tied up in the choice between:

1. Businesses recognized an opportunity to expand the mortgage market by offering mortgages to poorer, riskier borrowers and managing the risk by securitizing these loans and reselling them in the increasingly robust institutional market for such loan packages.  While certainly in it for the profit, this move was consistent with the long-term trend in the US to wider home ownership.  It turned out, however, that almost everyone involved were working off some poor assumptions.  Borrowers over-estimated their ability to pay and counted too much on the continued upward trajectory of real estate values.  Lenders made a number of bad credit decisions, something not wholly surprising in a new market.  And institutions and other investors under-estimated the risk in these packages, particularly the systematic risk associated with falling housing prices.   The sub-prime market will likely re-emerge, but with everyone smarter the next time around.  Huge losses give lenders and institutions all the incentive they need to change their behavior in the future.
   -- OR --
2. Unscrupulous lenders created the sub-prime market as a way to make a quick buck off of naive and inexperienced borrowers.  They tricked these borrowers into taking on more debt than they could handle in order to get large up-front fees.  Institutions were not arms-length investors, but were explicitly knowledgeable and "in on" this con.  Their goal was to sell worthless bonds to unsuspecting investors.  The fact that the lenders and institutions are taking the biggest losses in the market collapse is not a sign that they are innocent, but that the market fell apart faster than they expected, so they had not had the chance to unload the securities on duped individual investors.  Without regulation, lenders and institutions will continue committing these same crimes and poor people have proven that they need outside help to make good decisions with their money.  Congress needs to step in and prevent poorer borrowers from being offered mortgages in the future, and institutional investors need to be held financially accountable when borrowers take on more debt than they can handle.

Update:  There are several comments that say "can't it be both?"  Surely there can be simultaneous examples of both in the same market, but, as an example, proponents of #2 talk as if theirs is the dominant explanation, and are proposing legislation on that basis. 

Recognize that you have to really believe #2 all the way to even consider some of the draconian measures that Congress is entertaining.  There is legislation that is being seriously considered at this moment
that will fundamentally change the entire mortgage market, not just the
sub-prime piece, for the worse.  In particular, Congress is considering making financial institutions that invest in securitized batches of mortgages liable for any illegal lending practices of the originator.  This will effectively kill the securitization process.  Many of you younger folks won't know what that means, but in effect it will send us back to the mortgage process of the 1970's, which I promise you really, really sucked.  This will make it much harder for everyone to get mortgages.  Since securitization, there are an order of magnitude more mortgage competitors, the mortgage approval and application process take about 1% of the time it used to, rates are lower, and there is much more flexibility in mortgage design. 

Apparently the next "crisis" is that America is running out of water.  This is mostly an issue in the west, where growth is high and fresh water is rarer than in the east.  Here is one example of the brewing panic:

The growing human population is creating cities where desert or scrub
land used to be. Rainfall always has been and always will be in short
supply. Only so much water can be diverted from rivers to satisfy the
water needs of these desert dwellers. The aquifers are being drained.
Soon there will be demands to divert water from large inland lakes like the Great Lakes which would put those bodies of water in peril.

Oh my god, I can see it now - fish flopping on the muddy exposed bottom of Lake Michigan.

Look, the problem is not lack of water.  The problem is lack of market sanity.  Water in the west is regulated and sold in a hodge-podge of complex arrangements and negotiations.   The whole system is too complex to describe here, but at least one general conclusion can be safely drawn about the whole system:  Water is under-priced.   

For reference, lets look at my home city.  If building cities in the desert is the new evil, then I live in that great Satan called Phoenix.  And while my electricity charges are enough to get my attention (higher efficiency AC: check; compact fluorescent bulbs: check; solar: still too expensive), my water bill seldom grabs my focus.   

And now I know why.  Check out this analysis, conducted apparently by the city of Austin but which I found on the Portland Water Bureau's web site:

Can you believe it?  We here in Phoenix, out in the middle of the largest desert on the continent, during a multi-year drought (yes you can still have a drought in the desert), while everyone laments that Lake Powell and other reservoirs are getting sucked dry, Phoenix has one of the lowest water prices of any city in the country.  Can you get over the irony of Seattle having some of the highest priced water in the country and Phoenix the lowest?

And you know what - I have not seen a single article in any of our local media that has once mentioned this fact.  Look here -- the articles blame global warming and lack of conservation and development and too many lawns and not enough low-flow faucets and talk about the need for government rationing, but never once mention PRICE.  We have the scarcest water in the country and one of the lowest prices for water.  Talk about ignoring the elephant in the room.  I should have just labeled this post "Duh!"

And these are the consumer water prices.  The situation actually gets worse when you look at agriculture.  In most of the southwest, farmers get water prices subsidized below the rates paid by ordinary consumers.  When you combine these water subsidies with massive subsidies already rich groups get for growing crops in the desert from farm programs, you get an enormous distorted incentive to grow water-hungry crops that are totally inappropriate for the desert.

So here is my five minute plan:  We may be a ways away from creating an actual market in water, but in the mean time, the quasi-governmental agencies providing it need to raise the prices (to everyone) up to a level that demand matches supply.  More conservation will occur, and marginal commercial, residential, and agricultural development will disappear.  If the price goes high enough, someone may even go out and find a new, innovative source of water for the area. 

Unfortunately, this is just too dang easy, and, from reading recent articles in the media, not even in the menu of options being considered.  Government bureaucrats are much more comfortable with rationing and limitations on development, because it gives them more power and creates a new set of winners and losers who will donate more to future political campaigns.

Update: Daniel Mitchell at Cato has similar thoughts, based on water shortages in Florida of all places:

So here we are, in the spring of 2007, with rain below
average, with a low lake level, little else in the way of reservoirs,
and a water shortage. What is the response? Well, a rational response
might be to price a scarce commodity such that people will use it only
as they need it, and not frivolously. "¦Instead, we get the response of
the local commissars. So, not allowing the market to work, and not
allowing prices to provide signals to the participants, they have
decided to run our lives for us.

"¦I live at an odd numbered address. That means that if I want to
water my lawn, I can only do it on Monday, Wednesday and Saturday
mornings, from four to eight AM. I can water my plants with a hose on
the same days, but only between five and seven PM. My neighbors across
the street, and behind my house on the next block, get Sunday, Tuesday
and Thursday.

"¦Over thirty years ago, in the first OPEC oil embargo, the
government, rather than allowing prices to rise to account for the
reduced supply, told people when they could purchase gas based on the
parity of their license plate "” even one day, odd the next. My
recollection was that this did nothing to alleviate the shortage "” the
lines remained. The problem was only solved when Nixon-era price
controls on oil were lifted, the market was allowed to work, and oil
prices eventually (and it didn't take all that long) fell to historical
lows.

"¦[H]ere's a radical concept. How about pricing the commodity to the
market? Maybe, if people had to pay more for water to water their lawn,
they'd use less of it? Yes, I know that it's hard to believe, but there
really are some people out there who buy less of something if the price
is higher.

Update #2: The more I think of it, the more this situation really ticks me off.  In their general pandering and populism, politicians are afraid to raise water prices, fearing the decision would be criticized.  So, they keep prices artificially low, knowing that this low price is causing reservoirs and aquifers to be pumped faster than their replacement rate.  Then, as the reservoirs go dry, the politicians blame us, the consumers, for being too profligate with water and call for ... wait for it ... more power for themselves, the ones whose spinelessness is the root cause of the problem, to allocate and ration water and development.

In my earlier post, I commented that one reason a number of foreign oil fields may be "peaking" is not necesarily because they are hitting their production limits, ala "peak oil theory," but because state run companies tend to be terrible at making the intelligent long-term investments that are needed to maintain oil production in aging fields.  I observed:

There are a lot of things you can do to an aging oil field,
particularly with $60 prices to justify the effort, to increase or
maintain production.  In accordance with the laws of diminishing
returns, all of them require increasing amounts of capital and
intelligent management.

Unfortunately, state owned oil companies like Pemex (whose assets,
by the way, were stolen years ago from US owners) are run terribly,
like every other state-owned company in the world.  And, when
politicians in Mexico are faced with a choice between making capital
available for long-term investment in the fields or dropping it into
yet another silly government program or transfer payment scheme, they
do the latter.  And when politicians have a choice between running an
employment meritocracy or creating a huge bureaucracy of jobs for life
for their cronies they choose the latter. 

So today, via Hit and Run, we see this exact same effect in Venezuela:

No one sees an immediate crisis at Petróleos de Venezuela. But its
windfall from high oil prices masks the devilish complexity and rising
costs of producing heavy oil. Meanwhile, the company acknowledged last
month that spending on "social development" almost doubled in 2006, to
$13.3 billion, while its spending on exploration badly trailed its
global peers. And Petróleos de Venezuela's work force has ballooned to
89,450, up 29 percent since 2001 even as production declined
...
Petróleos
de Venezuela's cash is said to be running short as Mr. Chávez uses its
revenue to cement political alliances with Bolivia, Cuba and Nicaragua.
The company has borrowed more than $11 billion since the start of the
year, a rapid debt buildup that reflects a wager by Mr. Chávez that oil
prices will remain high indefinitely.

The British government has apparently adopted something like Title IX for government pay, and just as Title IX predictably caused many mens sports to be canceled,  the results are about what you would predict (via overlawyered):

Hundreds of thousands of men working in the the public sector are facing
salary cuts of up to £15,000 a year as equal pay agreements take effect, The
Times has learnt.

Compensation claims for up to 1.5 million workers could cost the taxpayer more
than £10 billion and mean that male staff lose up to 40 per cent of their
salary.

LOL - who would have thought that the government would make everything equal by tearing down the top rather than building up the bottom?  Uh, well I did, just three posts ago.  I would love to see the list of what jobs were deemed "equivalent" by the "experts".   I wouldn't even know how to start such an analysis if someone paid me to do it, except maybe just to go find the market pay rate for each job.  But of course the market is excluded as a determinant of value by folks who write these laws, even though we use it for determining the value of, well, everything.  Even when the government tries to set values (e.g. by fixing prices), a black market always emerges trading at a more rational market price.

Prediction: the next story we see will be about "labor shortages" and the government having difficulty trying to hire certain positions.

Don Boudreaux argues that we should not retaliate vs. countries who subsidize exports to the US.

I know of no cases in which a country was impoverished, or even

measurably damaged, by its refusal to "retaliate" against alleged

instances of foreign subsidies. This fact, combined with the ease of

abusing the ability to accuse foreign rivals of being subsidized,

counsels strongly in favor of our own government turning a deaf ear to

such accusations.

I have never, ever, ever understood how the average person in the US could actually get mad that a foreign government taxes its people for the sole purpose of subsidizing lower prices in the US.  I have the same reaction to "dumping" accusations, where folks get upset that some foreign company is allegedly selling its products in the US below cost.   Instead of complaining, I think we should just say "thanks."  And maybe "cha-ching!"  Nothing like getter over on the taxpayers of China or Japan. 

I know that my short-term memory isn't very good (a result of my Y chromosome, by my wife's explanation) but I could have sworn that the big issue in the last election from the left (beyond the war of course) was the indictment that real wages were not increasing -- i.e. that the average worker's wages were growing more slowly than inflation.

Now, this hypothesis was mostly bullshit, particularly when you factored in benefits with wages, but economic facts have never stood in the way of a little populist class demagoguing.  However, now it appears that when push comes to shove, no one on the left really believed any of it.

The other day, Kevin Drum posted this:

At the Democratic debate yesterday, Tom Vilsack
proposed a slow reduction in future Social Security benefits by
switching from wage indexing to price indexing

A number of folks, most on the left, called it a really bad idea.  Drum himself didn't have a definitive opinion, but seemed to think the idea at least screwy.  Why?  Well, these folks all thought that a shift from wage to price indexing would reduce benefits, and in fact that is what Vilsack thought -- he proposed it as a way to help close the future cash flow gap in Social Security.  Am I understanding this right?  Because the only way that this switch could reduce benefits would be if wages were growing faster than prices!  Surely I must be missing something?  Do we really have a bunch of Democrats all criticizing a plan because everyone universally assumes wages increase faster than prices?  Doesn't this contradict their whole meme in the election?

So I followed a link in one of these posts to the Center for Budget and Policy Priorities (I don't know how they would describe themselves politically, but looking at their body of work on the home page, you won't confuse them with Cato).  Apparently, this re-indexing scheme was also proposed by GWB (I missed that) and this site was criticizing his plan because it would reduce benefits.  And yes, there was the key line (emphasis added):

Under current law, initial Social Security
  benefits for each generation of retirees grow in tandem with average wages in the economy.  This ensures that each generation receives Social Security benefits that reflect the living standards of its times.  Full "price indexing" would make a change in the Social Security benefit formula so that initial Social Security benefits would keep pace only with prices, rather than wages, from one generation to the next.  Because prices increase more slowly than wages, this would result in progressively larger benefit reductions over time

There you have it.  Democrats and the left criticizing a plan because they assume wages go up faster than prices, so re-indexing from wages to prices would reduce benefits.  In fact, the folks I read accept this fact as so fundamental, everyone just assumes it to be true.  Is this wildly hypocritical or what?

I have written numerous times about how most anti-trust actions are initiated for the benefit not of consumers but of industry competitors.  The incredible claim that Microsoft's giving away free applications with its OS somehow hurts consumers is just the most famous such example. 

Now we face the specter of anti-trust review of the XM-Sirius satellite radio deal.  All you need to know is that the National Association of Broadcasters, who represent the terrestrial competitors of satellite radio, are lobbying hard for the deal to be rejected.  Nearly every line of the statement is hilarious, but this one caught me:

When
the FCC authorized satellite radio, it specifically found that
the public
would be served best by two competitive nationwide systems. Now,

with  their stock prices at rock bottom and their business model in
disarray
because of profligate spending practices, they seek a government

bail-out to avoid competing in the marketplace.

First, I am sure that the NAB is deeply, deeply concerned about satellite radio serving the public well -- NOT.  Customers gained by satellite radio are customers lost by the NAB**.  In fact, if they really believed the merger would hurt the consumer experience with satellite radio, their statement would instead be "we are thrilled by this merger because it means that customers will be served poorly in the future by the new company and that means customers will defect back to us."

Second, I love the term "government bailout."  What they mean by government bailout is the prospect that the government might not block this merger.  Which, given the white-hot merger activity between NAB members over the past 5 years, means that most NAB members have received the same "bailout."

(HT: Hit and Run)

** In the TV market, terrestrial broadcasters, particularly their local affiliates, got the government to cover their butts by passing a "Must Carry" law, which basically requires that cable companies have to include all the local broadcasters in their feed.  In practice, this and similar laws have forced satellite providers to give you your network feed only through your local affiliate.  This means that instead of DirecTV being able to just give me the NBC national feed, they have to give me the NBC Phoenix affiliate.  As a result, DirecTV has whole satellites that carry forty, fifty, sixty or more identical feeds.  What a screaming waste, and it only gets worse with HDTV.  Anyway, in radio, there is no similar law, so satellite growth is more of a zero-sum loss for terrestrial competitors.  I think the NAB is just huffy they did not get their own must-carry subsidy law passed.

Kevin Drum is concerned that projected drops in Mexican oil production are a leading indicator that the "Peak Oil" theory is coming true.  I would argue that, in fact, it is a trailing indicator of what happens when you let governments run producing assets.  Drum says:

The issue here isn't that Cantarell is declining. That began a couple
of years ago and had been widely anticipated. What's news is that, just
as many peak oil theorists have been warning, when big fields start to
decline they decline faster than anyone expects. So far, Cantarell
appears to be evidence that they're right.

Actually, fields in the US do not tend to decline "all of a sudden" like that.  Why?  Because unlike about any other place in the world, oil fields in the US are owned by private companies with capital to make long-term investments that are not subject to the vagaries of political opportunism and populism.  There are a lot of things you can do to an aging oil field, particularly with $60 prices to justify the effort, to increase or maintain production.  In accordance with the laws of diminishing returns, all of them require increasing amounts of capital and intelligent management.

Unfortunately, state owned oil companies like Pemex (whose assets, by the way, were stolen years ago from US owners) are run terribly, like every other state-owned company in the world.  And, when politicians in Mexico are faced with a choice between making capital available for long-term investment in the fields or dropping it into yet another silly government program or transfer payment scheme, they do the latter.  And when politicians have a choice between running an employment meritocracy or creating a huge bureaucracy of jobs for life for their cronies they choose the latter. 

I am not arguing that US politicians are any different from their Mexican counterparts, because they are not -- they make these same stupid choices in the same stupid ways.  The only difference is that we have been smart enough, Mr. Drum's and Nancy Pelosi's heartfelt wishes notwithstanding, not to put politicians in charge of the oil fields.

By the way, I wrote on Peak Oil here.  A while back I dug into the 1870 archives of our predecesor publication, the Coyote Broadsheet, to find an article on the "Peak Whale" theory:

[April 17, 1870]  As the US Population reaches toward the astronomical
total of 40 million persons, we are reaching the limits of the number
of people this earth can support.    If one were to extrapolate current
population growth rates, this country in a hundred years could have
over 250 million people in it!  Now of course, that figure is
impossible - the farmland of this country couldn't possibly support
even half this number.  But it is interesting to consider the
environmental consequences.

Take the issue of transportation.  Currently there are over 11
million horses in this country, the feeding and care of which
constitute a significant part of our economy.  A population of 250
million would imply the need for nearly 70 million horses in this
country, and this is even before one considers the fact that "horse
intensity", or the average number of horses per family, has been
increasing steadily over the last several decades.  It is not
unreasonable, therefore, to assume that so many people might need 100
million horses to fulfill all their transportation needs.  There is
just no way this admittedly bountiful nation could support 100 million
horses.  The disposal of their manure alone would create an
environmental problem of unprecedented magnitude.

Or, take the case of illuminant.  As the population grows, the
demand for illuminant should grow at least as quickly.  However, whale
catches and therefore whale oil supply has leveled off of late, such
that many are talking about the "peak whale" phenomena, which refers to
the theory that whale oil production may have already passed its peak.
250 million people would use up the entire supply of the world's whales
four or five times over, leaving none for poorer nations of the world.

George Reisman at Mises:

When it comes to matters such as the theory of evolution and
stem-cell research, so-called liberals"”i.e., socialists who have stolen
the name that once meant an advocate of individual freedom"”ridicule
religious conservatives for their desire to replace science with the
dictates of an alleged divine power. Yet when it comes to matters of
economic theory and economic policy"”for example, minimum-wage
legislation"”these same liberals themselves invoke the dictates of an
alleged divine power. Their divine power, of course, is not the God of
traditional religion, but rather a historically much more recent deity:
namely, the great god State.

Traditional religionists believe that an omnipotent God came before
all natural law and was not bound or limited by any such law, but
rather created such natural laws as suited him, as he went along. Just
so, today's liberals believe, at least in the realm of economics, that
the State is not bound or limited by any pre-existing natural laws. In
the case in hand, the State, today's liberals believe, is free to
decree wage rates above the level that would exist without its
interference and no ill-effects, such as unemployment, will arise.

Where have I heard that before?  Oh yeah, I remember:

So here is this week's message for the Left:  Economics is a
science.  Willful ignorance or emotional rejection of the well-known
precepts of this science is at least as bad as a fundamentalist
Christian's willful ignorance of evolution science (for which the Left
so often criticizes their opposition).  In fact, economic
ignorance is much worse, since most people can come to perfectly valid
conclusions about most public policy issues with a flawed knowledge of
the origin of the species but no one can with a flawed understanding of
economics....

In fact, the more I think about it, the more economics and evolution are very similar.  Both are sciences that are trying to describe the operation of very complex, bottom-up, self-organizing systems.  And,
in both cases, there exist many people who refuse to believe such
complex and beautiful systems can really operate without top-down
control.

By the way, the author partially addresses the Card and Krueger study on New Jersey fast food that purportedly showed that employment goes up as minimum wage goes up.  Unfortunately, the author does not get into the now fairly well-known problem with this study.  For those who don't know, here it is:

Card and Krueger looked at the employment in fast food restaurants in New Jersey both before and after the minimum wage went up.  Here is the key process fact you need to know -- they did not look at every restaurant, just at some branches of national chains (e.g. McDonalds).  They did not include, say, Joe's sub shop.  The restaurants they studied shared a couple of traits in common:

• They were all far more professionally managed than the average small restaurant
• They all had higher labor productivity than the average restaurant
• They all had far more capital equipment (e.g. automation of labor) than the average restaurant

In other words, they studied the restaurants that were able to incur a wage increase with the least impact on their total costs (and eventually prices).  Follow-up studies have shown that there was probably a real reduction in total restaurant employment in New Jersey in the studied period, but the differences in productivity cited above caused the impact to disproportionately hit small ma and pa operations as opposed to large capital intensive nation chains.  In fact, during this period, the national chains experienced a gain in market share vis a vis smaller shops, as the higher minimum wage made it harder for local shops to compete with the national chains.  So, in fact, what Card and Krueger observed was not an economic miracle on the order of seeing the virgin Mary in your pancakes, but a predictable shift of market share from low capital to high capital competitors in response to higher wage rates.

This theme of regulation, including the minimum wage, advantaging larger competitors is an old one.  I discussed it a while back in the context of Wal-Mart's support for a higher minimum wage:

Apparently, though I can't dig up a link right this second, Wal-mart
is putting its support behind a higher minimum wage.  One way to look
at this is a fairly cynical ploy to get the left off its back.  After
all, if Wal-mart's starting salary is $6.50 an hour (for example) it
costs them nothing to ask for a minimum wage of $6.50.

A different, and perhaps more realistic way to look at this Wal-mart
initiative is as a bald move to get government to sit on their
competition.  After all, as its wage rates creep up, as is typical in
more established companies, they are vulnerable to competitors gaining
advantage over them by paying lower wages.  If Wal-mart gets the
government to set the minimum wage closer to the wage rates it pays, it
eliminates the possibility of this competitor strategy. 

I originally got to this post at Carls Talk because of the cool map I put in this post.  However, I was really struck by his lament that foreign companies won't sell into Norway because it is too small.  Given that Norway has a trade surplus, you would think that given all the whining in the US about trade deficits that everything would be hunky-dory in Norway and that they would be thrilled that foreign companies wouldn't sell there.  But check this out:

When seeing Norway's GDP in the context of this map, one realizes
why Norway often is one of the last countries U.S. companies consider when
expanding to Europe.

Norway might be an unattractive market when considering expansion
because the market is so small and as a result there is little domestic
competition.  This  has enabled local players to
build monopolies or duopolies with substantial  entry-barriers in many
industries.  Furthermore, the government has sheltered the domestic
market against international competition by adding a hefty import tax
and inconvenient delivery methods on goods purchased outside the
country, rendering international online merchants at a disadvantage
when competing on price and convenience.

On the flip side, if you manage to establish your business here, you
can overcharge your customers and get away with horrendous customer
service.  The average Norwegian customer is not used to good service
and competitive prices.  Online merchants are slow.  Recently it took
four weeks before I received a book shipped to me from a local
merchant.  On a recent trip I recently purchased shoes for our kids in
the U.S.  The selection was superior, and the price:  1/4th of what the
local Norwegian merchant was charging. 

Gee, you mean there is a price consumers pay for protectionism that might offset a few job gains in sugar growing and textiles?

Via Hit and Run:

As part of their 100 hours, the House plans to pass legislation that
would enable the federal government to negotiate Medicare Part D drug
prices.

My experience is that when the government "negotiates" prices via their standard procurement processes, they end up paying higher prices than a private firm might (see "$6000 hammer").  I am not a very experienced political observer who understands all the insider-speak, so maybe someone out there can tell me.  In this context, does "negotiate" actually mean "use the government's fiat power to demand that prices be set at whatever hell level they want?"

If it is the latter, then does anyone really believe that with populist political pressures, prices are going to be set anywhere near high enough to continue to justify intense drug R&D?  Already most of the world pays just above marginal cost for drugs, such that we in America pay for most all the drug R&D that occurs  (a form of charity we never get credit for).  If the US government "negotiates" US drug prices down to marginal cost, who will be funding the new life extension therapies I will be needing in about 20 years?

Update: One clarification based on the comments.  There is nothing wrong per se with American drug companies selling pharmaceuticals outside the US near marginal cost.  Profit is where you find it.  However, the issue is that US politicians tend to use these international drug prices as a benchmark, as in "US customers should get the same low price foreigners are getting."  The result is all the drug re-importation battles we have from time to time.  (By the way, its funny that politicians who support drug re-importation to reduce the US drug price differential vs. other countries never seem to apply the same solution to the entirely parallel situation of other countries having much lower labor costs than ours -- in fact in these cases they actively resist labor re-importation, which we also call immigration or outsourcing.)

A second point I want to make is that we cannot say for certain whether US customers are getting a good value or a bad value at current drug prices, though both supporters and opponents of the current health care system try to draw conclusions about the "fairness" of drug prices.  This is an odd situation to be in.  In other situations when people challenge the "fairness" of pricing, say gasoline prices, we libertarians can always retort "Well, buyers and suppliers both agreed to the transaction at X price, so X price was fair for both."   

But we can't do this with drug prices.  The reason we can't determine whether individuals are getting a good value is that, as I wrote at length in this post, our health care system is not structured in a way where individuals make cost-benefit tradeoffs for themselves.  Our employer's insurance company, via their coverage policies, or the US Government, via its rule-making and tort law, make these trade-offs for us.  Some drugs you might never pay for yourself, but you take because your insurance company pays for them.  Some drugs (e.g. Vioxx) you might dearly love to take, but the American litigation mess effectively precludes your access to it.  My suspicion is that, given the value I put on my life, prices for many US drugs are still a bargain for me, but who knows what trade-offs other people would make in a free society?  At the end of the day, we don't know what the real market price for pharmaceuticals is.  All we can say with confidence is that whatever price the government "negotiates," it will most likely be wrong.

By this definition of "not normal", I am not normal either.  I share with Tabarrok the strong sense that the New Deal (combined with shockingly stupid use of Wilson's Federal Reserve and of course rampant scorched-earth protectionism) extended rather than shortened the Great Depression. 

Imagine, increasing the power of
unions to strike and raise wages during a time of mass strikes and mass
unemployment. Imagine thinking that cartelizing whole industries
thereby raising prices and reducing output could improve the economy.
Not everything Roosevelt did was counterproductive - he did end
prohibition (although in order to raise taxes) - but plenty was and
worst of all was the uncertainty created by Roosevelt's vicious attacks
on business.

One of the things I think we have done historically is understate the true degree to which Roosevelt showed himself willing to take the country down the road to socialism, or more accurately, Mussolini-style fascism. Via David Gordon:

Roosevelt never had much
use for Hitler, but Mussolini was another matter. "'I don't mind
telling you in confidence,' FDR remarked to a White House
correspondent, 'that I am keeping in fairly close touch with that
admirable Italian gentleman'" (p. 31). Rexford Tugwell, a leading
adviser to the president, had difficulty containing his enthusiasm for
Mussolini's program to modernize Italy: "It's the cleanest "¦ most
efficiently operating piece of social machinery I've ever seen. It
makes me envious" (p. 32, quoting Tugwell).

Why did these
contemporaries sees an affinity between Roosevelt and the two leading
European dictators, while most people today view them as polar
opposites? People read history backwards: they project the fierce
antagonisms of World War II, when America battled the Axis, to an
earlier period. At the time, what impressed many observers, including
as we have seen the principal actors themselves, was a new style of
leadership common to America, Germany, and Italy.

Once more we must avoid a
common misconception. Because of the ruthless crimes of Hitler and his
Italian ally, it is mistakenly assumed that the dictators were for the
most part hated and feared by the people they ruled. Quite the
contrary, they were in those pre-war years the objects of considerable
adulation. A leader who embodied the spirit of the people had
superseded the old bureaucratic apparatus of government.

If you don't believe me, it is probably because you are not familiar with the National Recover Act (NRA) -- the famous "blue eagle".  This program was the very heart of Roosevelt's vision for the American economy, a vision of cartelized industries managed by government planners. (via Sheldon Richman of the Concise Encyclopedia of Economics):

The image of a strong
leader taking direct charge of an economy during hard times fascinated
observers abroad. Italy was one of the places that Franklin Roosevelt
looked to for ideas in 1933. Roosevelt's National Recovery Act (NRA)
attempted to cartelize the American economy just as Mussolini had
cartelized Italy's. Under the NRA Roosevelt established industry-wide
boards with the power to set and enforce prices, wages, and other terms
of employment, production, and distribution for all companies in an
industry. Through the Agricultural Adjustment Act the government
exercised similar control over farmers. Interestingly, Mussolini viewed
Roosevelt's New Deal as "boldly... interventionist in the field of
economics." Hitler's nazism also shared many features with Italian
fascism, including the syndicalist front. Nazism, too, featured
complete government control of industry, agriculture, finance, and
investment.

And further, from John Flynn's The Roosevelt Myth via Anthony Gregory:

[Mussolini] organized each trade or industrial group or professional
group into a state-supervised trade association. He called it a
corporative. These corporatives operated under state supervision and
could plan production, quality, prices, distribution, labor standards,
etc. The NRA provided that in America each industry should be organized
into a federally supervised trade association. It was not called a
corporative. It was called a Code Authority. But it was essentially the
same thing. These code authorities could regulate production,
quantities, qualities, prices, distribution methods, etc., under the
supervision of the NRA. This was fascism. The anti-trust laws forbade
such organizations. Roosevelt had denounced Hoover for not enforcing
these laws sufficiently. Now he suspended them and compelled men to
combine.

And read this to see the downright creepy Soviet-style propaganda Roosevelt used to promote the NRA.  One example:

A hundred thousand schoolchildren
clustered on Boston Common and were led in an oath administered by
Mayor James Michael Curley: "I promise as a good American citizen to do
my part for the NRA. I will buy only where the Blue Eagle flies."

The fact that the worst of the NRA was dumped by the Supreme Court, and eventually by FDR under pressure, cause us to forget what businessmen in the 1930's were seeing.  The unprecedented fall in asset prices in the early thirties would normally have started to attract capital, at least from the bottom-fishers.  But any reasonable observer at that time would have seen the US government on a path to controlling wages, prices, capacity, etc  -- not an environment conducive to investment.  In fact, under Roosevelt's NRA industry cartels, its not clear that private industrial investment was even legal without the approval of the Code Authority for that industry.

People look back fondly and give credit to the CCC and large public works programs for our recovery, but in fact these programs were necessary because FDR's New Deal, and particularly the NRA, made private investment dry up.

Postscript:  By the way, questioning the greatness of the New Deal is one of those issues that will get you labeled a wacko almost as fast as being a climate change skeptic.  Here is Janice Rogers Brown getting slammed for questioning the New Deal.

Remember all those media reports about the possible "political motivation" behind falling gas prices ahead of the election?  Supposedly oil companies were somehow manipulating gas prices ahead of the election to help Republicans win the election.  This was not a wacky Internet fringe thing -- network news anchors and newspapers like the WaPo and the NYT speculated about it, and not just on their editorial pages.

Well, you and I may remember, but apparently no major media outlet who ran this story remembers what they said.  Because I have not seen a single follow-up story after the election.  Surely, if gas and oil prices were being manipulated down before the election, they would quickly spike back up to their "natural" levels after the election.  But of course, the whole theory was insane to begin with.  To suppose that a few US oil companies, who for all their size are still small players in the world oil markets, could manipulate US commodity prices for any sustained period of time is absurd.  And even if they were successful, the cost would be astronomical (just ask the Hunt family who bankrupted themselves trying to manipulate the silver market).

So I will do the follow-up story.  It turns out that oil and gas prices were falling before the election because ... oil and gas prices are falling.  From the WSJ on Jan 9:

Oil prices dropped $1.69 to $54.40 a barrel early Tuesday as warm
weather in the Northeast continued to hurt demand for heating fuel. The
slide comes on top of last week's 7.8% pullback in crude, which briefly
took prices below $55 a barrel, their lowest level since June 2005.

From Business Week on Jan 8:

Wholesale gasoline prices have been falling for the past few weeks,
noted Jason Schenker, an economist with Wachovia Corp. He expects
retail gasoline prices to fall further; he forecasts a dime-sized
decline this week compared to last, with the per-gallon price dipping
to $2.25 from $2.35.

People often wonder why so many wild and weird conspiracy theories seem to thrive nowadays.  I am sure there are many social and psychological reasons.  But surely one reason is that the media seems incredibly willing to go front page with credulous stories of the most ridiculous conspiracy theories, and then never revisit them when they are proved absurd.  Its telling to me that it was left to Popular Mechanics, rather than the WaPo or the NYTimes, to publish to one authoritative debunking of 9/11 conspiracy silliness.

From Q and O:

CARMEL, N.Y. (AP) - It was quite a New Year's Eve at the home of
Richard Berger in Carmel - in Putnam County. Someone in the house broke
a rectal thermometer and the family called 911 around 10:30 to report
the small mercury spill.

Several dozen volunteers [the headline says 100] from the Carmel Fire Department responded to the house on Brookview Drive.

Fire Chief Darryl Johnson says mercury is a hazardous material that can cause stomach problems if inhaled.

Men wearing protective gear used wet sponges to clean up the puddle.

It was packaged and brought to the Carmel firehouse where the county health department will dispose of it today.

The Berger family was not hurt.

I remember breaking a few thermometers when I was a kid.  You took a piece of paper, creased it into a cup shape, and used the edge to pick up the little blobs without touching them.  I still seem to be alive today.  I am sure those little blobs are buried deep in some landfill now, a ticking time bomb for future generations.  And people wonder why gas prices are so high.  A country this panicky over a fraction of a gram of mercury will never let a new refinery get constructed.

One of the issues that is giving Democrats an entre to wack on oil companies is the issue of "subsidies" for deep offshore drilling.  These subsidies appear to take the form (though nothing in the world of oil field royalty payments is very simple or clear) of reduced royalty payments:

With oil prices still above $60 a barrel, do oil companies need
inducements to find and produce more oil? That's the underlying
question of today's NYT front-page article about an Interior Department report questioning the value of royalty rebates and tax breaks for gas and oil production.

The rebates are targeted at expensive and difficult exploration,
usually in deep water or that requires deep drilling. The intention is
to incentivize that exploration, allowing the United States to increase
its domestic reserves using "unconventional oil."

This is the kind of "incentivizing" that always goes wrong for the government, and turns even the best of intentions into massive rent-seeking opportunities.  My solution is similar to Cato's Tom Firey's:  Just make the royalty payment amounts and percentages subject to a bid as part of the offshore leasing process.  The government can include minimum reserve prices and such to protect itself (as they already do for offshore leases).  He suggests rolling all the value into a single up front number.  I would instead suggest a bid upfront number plus a bid royalty that is either a fixed amount per barrel, or more likely, a fixed percentage of oil revenues at some benchmark oil price.

What I am NOT sympathetic to is one party in a lease agreement trying to use its legislative party to void the terms of a previous agreement because it no longer likes the terms:

The article notes that royalties and corporate taxes deliver into
federal coffers about 40 percent of the revenue produced from oil and
gas extracted from federal property. The worldwide average government
take is about 60"“65 percent. A 40 percent federal take may have been
fair at a time when oil prices and profits were lower, the article
suggests, but the government should be getting a much higher cut from
today's prices.

Trying to just void previous deals in order to get better terms is just thuggery, and is the worst possible disincentive for long-term investment.

There is no doubt that electricity markets are a mess.  Electric utilities have been regulated for so long and in so many ways, and new capacity is so hard to add, the deregulation experiments tend to fail over short time periods for any number of reasons.  In California, what was called "deregulation" never really was such, since pricing signals were never passed on to consumers and therefore never really influenced demand.  In Texas, the areas where my company operates still struggle with deregulation, and we have seen few price or customer service benefits. 

This is not that surprising when you consider other major industries that have been so thoroughly regulated.   Railroads come to mind, for example.  Deregulation occurred thirty years ago and we are only recently starting to see a renaissance in that industry.  Pre-deregulation airline incumbents (e.g. Delta, United, American) are still struggling with open markets.

Mike Gibberson links a pair of court decisions that may set back any progress made in deregulating at least the wholesale electricity markets.  In a series of suits, the State of California is seeking a mulligan, asking the court to rule that wholesale electricity contracts it entered into in 2000-2001 should be voided because the price was too high and FERC did not have the authority to allow blanket market-based rather than cost-based electricity pricing.  And the judges seem to agree:

The panel held that prices set in those bilateral transactions pursuant
to FERC's market-based program enjoyed no presumption of legality.

I don't think there is anything more depressing to a good anarcho-capitalist like myself than seeing the government rule that a price negotiated at arms length by the free will of consenting, and in this case well-informed adults enjoys "no presumption of legality."  If not, then what does?  Is that where we are heading, to a world where no voluntary actions enjoy a presumption of legality?

By the way, one has to remember that this is not a case of an impoverished high school drop-out in East St. Louis signing a high interest rate loan he didn't understand.  This is the case of highly paid electricity executives and government electricity officials signing electricity contracts.  It is as ridiculous to argue that they were somehow duped in buying the one and only item they ever buy for resale as to argue that Frito-Lay somehow shouldn't be held responsible for the price it negotiates for potatoes.  These electricity companies knew they had obligations to supply power at retail at certain rates and failed to lock up enough supply in advance.  Whether Jeff Skilling gamed the short-term spot market is irrelevant - the utility executives were at fault for finding themselves beholden to the spot market for so great a volume of electricity, and doubly at fault for taking this power at insane rates when other lower cost options were available to them (such as cutting off customers on interruptible contracts).

I have written a number of articles about the ridiculous subsidies paid to cotton growers in Arizona.  The AZ Republic has a semi-nostalgic look at the decline of cotton farming in the Valley, mainly due to the pressure of urban growth.  I say:  Good!  How have we tolerated a situation like this so long:

This year, Arizona farmers planted 215,000 acres of cotton, a 66
percent drop from the 633,000 acres in production in 1981, said Rick
Lavis, vice president of the Arizona Cotton Growers Association.

"I wish we could grow more and the prices were better," Lavis said.

Cotton averages 55 cents per pound, up from five years ago, Lavis said. But it costs 75 cents a pound to produce, he said.

"Doesn't sound very profitable, does it?" Lavis asked. "If the trend
lines tell us anything, it probably is continuing to be a diminishing
commodity because of urbanization and price. If you're not making back
the 72 cents to 75 cents a pound that it costs to produce it, cotton
growers may say, 'Gee, I need to grow something else.' "

A variety of federal subsidies, including guaranteed payments, price
supports and below-market loan rates, keep cotton profitable for
Arizona farmers, Lavis said. When cotton prices rise, subsidies
decline, he said.

You mean at some point when prices are 20 cents under the cost of production, farmers might eventually consider planting something else?  Duh.  Farmers, generally rational sorts, would have made this decision long ago if it weren't for the enormous federal subsidies mentioned in the last paragraph that keep cotton profitable.  And this underestimates the total subsidy, since farmers in Arizona (as well as Southern California) use millions of gallons of subsidized water, ofter priced below cost, usually priced below what we other citizens pay, and always priced below what a true market clearing price would be (which explains why Lake Powell is drying up).

In this post I list information on cotton subsidies -- over $100 million in Arizona just for cotton in 2003, and 2006 appears to be a worse year.  And notice the top three subsidy recipients are all Indian Tribes with very, very profitable casino operations.  These are not struggling family farms.  Most every one of these farmers on the top subsidy list are in cities (Goodyear & Queen Creek for example) that are right at the wavefront of Phoenix expansion and so probably sit on a fortune in real estate.  I am sure they are happy to have the USDA pay them a half million dollars a year so they can cover the carrying cost of their land until they find the right developer to buy it for millions.

I didn't think much could top some of the ridiculous stuff I have read of late on the government abuse and rent-seeking front;  the milk cartel, for example, seemed hard to top.  But I think this has jumped into the lead:

In Didden v. Port Chester, the government decided to redevelop
an area of the city, and chose a developer who drew up development
plans. One of the property owners, Bart Didden, owned a piece of
property that he wanted to lease to CVS to build a pharmacy. The
developer, on the other hand, wanted to use the land for a Walgreen's
instead. So the developer told Didden that if he would pay the
developer $800,000 and give him a percentage in the CVS, that he
wouldn't condemn the property. Didden, of course, rejected this
offensive offer, and the next day, the city condemned the land to give
to the developer.

This is much worse than Kelo, and I thought that case was bad.  Didden lost his appeal, but is trying to get the Supreme Court to hear the case:

"What the developer and Village of Port Chester did is nothing short of
government-backed extortion," said Didden. "I had an agreement to
develop a pharmacy, a plan fully approved by the Village, and in the
eleventh hour I was told that I must either bring this developer in as
a 50/50 partner or pay him $800,000 to go away. If I didn't, the City
would condemn my property through eminent domain for him to put up a
pharmacy. What else can you call that but extortion? I hope the Supreme
Court sets things right."

I guess the case has a bit of utility -- it does set a market value on government pull.  In this case, the developer has priced his "in" with the local city establishment at $800,000.   

To my untrained eye, this case seems not to be covered by the Kelo logic.  In Kelo, the justices (insanely) decided that a valid public purpose for eminent domain was to replace one landowner with another who will pay more sales and property taxes.  But its hard to argue that a CVS pharmacy would pay more or less than a Walgreen's pharmacy.  In addition, Didden's supporters are hoping that the Supreme Court will finally rule on the more general issue of "exactions":

What's interesting is how this case parallels something called
"exactions," which we see in a lot of cases involving building permits:
government demands that a property owner give up some value to the
government"”a portion of the land, or sometimes outright cash"”in
exchange for a building permit. Now, this case didn't involve a
building permit, but the issue is the same: in exchange for the right
to use the property, you have to give up your property rights. That is
what the "an out and out plan of extortion."

These exactions are rampant throughout America. They're causing housing prices to soar.
And yet despite PLF's repeated requests, the Supreme Court has refused
to take one of these cases to clarify that they do violate the
Constitution. Meanwhile, we hear that the Supreme Court can't find
cases to fill up its docket! Here's hoping the Court grants cert. in
this case and declares once and for all that government can't use its
power to regulate land use as leverage to demand money from property
owners.

A lot of bad legislation has been passed to protect consumers from the "scourge" of monopoly.  The most common fear is that some company will lock up the market and then start raising prices.  This never happens in real life, because entry in most markets is far easier than most people imagine, particularly in modern America where there are so many accumulations of capital looking for a way to be spent.  In fact, the only time such price-gouging monopolies are ever sustainable is when they are backed by the coercive power of government.

The milk market, for decades one of the most egregious examples of government price-fixing for the benefit of producers over consumers, provides us with a perfect example of this phenomena:  A cartel charging too high of prices that is taken on by a maverick price-cutting outsider, who was on a path to success until the feds slapped him down.

In the summer of 2003, shoppers in Southern California began getting a break on the price of milk.

A
maverick dairyman named Hein Hettinga started bottling his own milk and
selling it for as much as 20 cents a gallon less than the competition,
exercising his right to work outside the rigid system that has
controlled U.S. milk production for almost 70 years. Soon the effects
were rippling through the state, helping to hold down retail prices at
supermarkets and warehouse stores.

That was when a coalition of giant milk companies and dairies, along
with their congressional allies, decided to crush Hettinga's
initiative. For three years, the milk lobby spent millions of dollars
on lobbying and campaign contributions and made deals with lawmakers,
including incoming Senate Majority Leader Harry M. Reid (D-Nev.).

Last
March, Congress passed a law reshaping the Western milk market and
essentially ending Hettinga's experiment -- all without a single
congressional hearing.

The most hilarious (or disgusting, depending on my mood) part is listening to the statements of other milk producers complaining about the new competition and price-cutting, something the rest of us in business face as a matter of routine, but from which the privileged few in the dairy business are shielded:

Hettinga's operation was "damaging to the marketplace," said Elvin
Hollon, director of economic analysis for Dairy Farmers of America.
"Nobody ever envisioned there would be such large handlers" outside the
pool.

"So," Hollon said, "the regulations had to change."

and this:

In an interview later, Nunes called the milk legislation a victory for
"every dairy farmer in America except those who were gaming the
system." He added, "People out there were making millions of dollars a
year off the backs of America's dairy farmers . . . that was a wrong
that was finally righted.

That last paragraph is so brazen you may not even get it ... he is referring to competitors that are charging lower prices.  They are "making millions of dollars off the backs of America's dairy farmers" the same way the Honda Civic made millions of dollars off the back of the Yugo.  Under the new law passed by the dairy industry's cronies, Hettinga can still operate like he has been, as long as he pays $400,000 each year to his competitors to make up for the fact that he is out-competing them.

I will say I probably would like this guy -- he is able to look on the bright side:

"I still think this is a great country," Hettinga said. "In Mexico, they would have just shot me."

Yeah, we're much better here.  The government only rapes rather than kills you.