Coyote Blog

Via Zero Hedge:

President Donald Trump suggested Monday on Truth Social that companies should stop filing quarterly earnings reports and instead move to a semiannual schedule. Trump’s call to replace quarterly earnings reports with semiannual filings revives a debate that also surfaced during his first term.

I presume Trump wants to be a deregulator and free marketeer here, but he is going at it exactly wrong.  The best free market approach to capital markets is to make sure investors have information to make quality decisions about their investments.   Then, you can clear out all of the other underbrush of regulation and quasi-parental oversight of markets and leave decisions to individual responsibility.  The first, lightest touch regulation is for corporate financial transparency.  Its not the first regulation you would eliminate, its the last one you hang on to.

In addition, six month waits for corporate numbers is way too long.  It can take as much as 60 days after the reporting period is over for results to be released, so that problems that start occurring in January would not come out of the closet until August or even September.  Enron finally blew up when the chickens finally came home to roost in its third quarter 10-Q.  Were they allowed to put this off for 3 more months the damage could only have been worse.

Of course, if the government changes this rule it does not mean that exchanges such as the NYSE and NASDAQ will change their rule to match.  It is still very possible that absent a federal 10-Q requirement the exchanges would still require such reporting.

Gato Malo had a piece the other day that fit in with some of my recent thinking on AI and changes in the workforce.  Most of hispost is about how the market values and pays for labor, and I mostly skimmed it because this way of thinking about value is as natural as breathing to me**.

But it was something he wrote near the end of the article that caught my attention (the lack of caps is gato's long-time style)

over the next 5 years, doctors, lawyers, engineers, accountants, and money managers are all going to come into crosshairs and see industries and payscales demolished. there will be a fearsome rear guard fight from guild systems (the bar, medical boards, CPA association etc) but it’s doomed to fail as they are just more unions trying to keep wages too high and prevent progress and increased access. taking humans out of medicine and breaking the cost spiral is the only possible way for the west to survive the already arriving wave of unfunded entitlement, and in the end, needs must will out and fiscal reality will trump guild control.

this is actually going to be amazing for consumers, a drop in price and expansion of availability in professional services that will rival the gains of the industrial revolution. once, making a pair of shoes consumed so many skilled resources as to cost months of wages. a good shirt was so valuable that people willed them to their children. now shirts are so cheap as to constitute less than an hour of most people’s labor. but the cost of “healthcare” has not worked like this despite being a technology product. law and accounting-services remain domains priced like rare gems.

they are about to be disrupted.

many are lamenting this forthcoming employment apocalypse for the over-educated, but we really should not. it will be amazing for the consumer and just like the tractor and the plow and the combine it will allow all manner of new and better innovation increasing standards of living through productivity gains as resources free up and move to profitable application.

A couple of weeks ago, for our anniversary, my wife took me to a very nice restaurant in a 5-star resort somewhere around Newport Beach in CA.  At the table of 8 next to us were apparently several generations and branches of a single family who talked fairly loudly and included several people who mentioned Yale two or three or twenty times during the evening.  It was a small random sample from the closest thing the US has to a governing nobility, the Ivy-League-educated elite.  And much of the discussion through the evening seemed to focus on the family's fears of AI and its threats to their children's future job prospects.

I agree with Gato that AI has a huge potential to disrupt current work patterns, in the same way that the industrial revolution did.   The 19th century disruptions were severe, and many people suffered as their experience and skill set no longer matched the new economy.  But eventually everyone, from the poorest to the rich, were better off for letting the industrial revolution run its course.

But in the 19th century, the disrupted were essentially powerless.  What happens this time around, though, when the disrupted are the ruling elite themselves?  These potentially disrupted professions include lawyers and doctors who already have shown themselves very willing to organize to block innovation, squash competition, and protect their high pay. Just look at the history of the attempts by Congress to reduce Medicare reimbursements to doctors.  And that was minor compared to the potential AI disruption.  Let me give you another example of the powerful resisting a technological change that should have disrupted their businesses.

When TV first was being rolled out, the industry coalesced around a network of local broadcast stations, many of whom became affiliates of a network like NBC or CBS.  Why this model?  Mainly it was driven by technology -- the farthest a TV signal could reasonably be broadcast was about 50-75 miles.  Thus everyone by necessity got their TV through three or four TV stations in their metropolitan area, each its own small business.

Now fast forward to today.  There are multiple ways to broadcast a TV signal nationwide -- there are several satellite options and many streaming internet approaches.  So now when we watch DirecTV or Youtube TV, we just watch the national NBC or ABC feed, right?  Nope.  Federal law requires that whatever service you use MUST serve up NBC, for example, via the local affiliate.  That is why your streaming TV service harasses you when you travel, because it is worried about violating the law by showing you the Phoenix CBS affiliate when you are staying overnight in Atlanta (gasp).

This is hugely costly.  In order to be able to provide NBC among its stations, Youtube TV must gather the feeds from 235 different stations.  In the Internet streaming era this is costly but in the satellite era it was insane.  DirecTV, with its limited bandwidth, had to simultaneously broadcast 235 stations, most showing identical content, just to legally provide you with NBC.  So why this crazy, expensive, insane effort?  I am sure you have guessed -- pound for pound local TV stations are among the most powerful lobbyists in the country.  First, they have money and a massive incentive to defend their local geographic monopoly -- Car dealers and alcohol distributors are much the same, which is why every potential innovation is resisted in those markets.  But TV stations have one extra card to play -- nearly every Congressman in the House likely depends on the three or four TV stations in one major metropolitan area for a huge part of their publicity and coverage.  No politician is going to screw with that.  At the end of the day, local stations did not get disrupted, they actually became more valuable with this government-enforced distribution of their product.

This is a small example of the fight that is coming in AI.  Congressmen will couch their arguments in fear-charged terminology as if their real fear is some Terminator-like AI apocalypse.  But the real concern will be from the influential elite who are being disrupted.  What would have happed to the Industrial Revolution if the hand-loom weavers were the children of the nobility?  Would the government have allowed the revolution to proceed?   We are about to find out.

** footnote: The only thing I would add to Gato's discussion of labor and value is that I think a lot of our conversations are hamstrung by the multiple meanings of "value" and "worth".  Gato correctly makes the point that one's own self-worth and how one values his or her own labor has nothing to do with how the market pays for one's labor.  But the reverse is true too -- how the market pays for your labor should not necessarily have any bearing on how one values oneself or one's labor.    I saw a beautiful production by the ABT of the ballet Giselle last night.  Most of the ballerinas in the show don't get paid as much as a good plumber, but their labor is worthy and beautiful and -- despite the low pay -- many professional ballerinas love their (often short) life as a dancer.  Most professional athletes before perhaps 1960 were the same, doing the thing they loved and finding fulfillment in excellence even when the market did not see fit to pay them much for what they did.

Republicans are doing a victory dance in the aftermath of CBS's settling Trump's lawsuit over CBS's editing of their Kamala Harris interview.

I ran a public hospitality business with over 10 million visitors a year, so it is almost inevitable that we would get sued from time to time.  At this point I can't remember the exact numbers but we probably had 10 serious suits in 20 years, all of which were over some injury sustained in a public campground or marina we operated.  You know how many of these I honestly believe we had any liability whatsoever?  0%.  You know how many of these we (or rather the insurance company) settled?  100%.  There are many reasons a company might settle a case in which they feel they have no guilt, but two are:  1)  Lawyers and litigation are expensive -- it costs $500-$2000 just to get an attorney to pick up the phone for the first time; and 2) unlike criminal juries, who I think are pretty fair, civil juries cannot be counted on to give a fair verdict.  In particular, faced with a sympathetic injured plaintiff and a faceless company covered by an insurance policy, certain juries will give an award to the plaintiff almost no matter what the cause and effect.  If you think of it as a "bad outcomes award" rather than a "liability award," you can get closer to the thinking of some juries.  Not all juries mind you, but enough to scare companies from going to trial.

I will give you an example from years and years ago in LA County.  A little girl drowned swimming in a lake we operated and her family sued us for failure to warn of the danger.  The frustrating part was that there was no way to photograph the location of her tragic death without getting the "no swimming" sign in the frame.  Faced with this evidence, the complaint was soon amended to say the girl drowned wading in the lake, not swimming, and that the sign said nothing about wading.   This seems crazy, but our lawyers were adamant that we did not want to try this case in LA County with the sympathetic grieving parents of a little Hispanic girl.  So the insurance company settled for something like $2 million.

I would urge you to consider the CBS settlement in this context.  Because they have these same problems, plus one more.  The cost of litigation would be high, easily in the millions for this kind of case even if they win (there is no loser pays in the US).  And just as Trump often drew juries from hostile pools for some of his civil cases, one could easily imagine the MAGA mirror image in a CBS trial.

But as I said, CBS had one more problem -- Trump is their regulator via multiple agencies.  Not only does he have substantial influence at the FCC, which heavily regulates broadcast TV, but also at the SEC, FTC, and Justice Department who could easily wreck the current buyout and restructuring being undertaken by CBS's parent company.  There are billions of dollars at stake in those deals, and I am positive in this context the lawyers told CBS management to give Trump his $16 million gratuity and move on.

There is a lot that is wrong here on both sides.  CBS was absolutely abdicating its responsibility to help the country understand its candidates for President, and the hiding of Harris's unreadiness for office is of a piece with the same work CBS did in hiding Biden's deteriorating condition.  But their video editing wasn't strictly illegal and really is not much different from what 60 minutes has been doing legally for decades, though usually the editing is the other way around to create a gotcha for some corporate executive.

But given his position as regulator in chief of CBS, this private lawsuit is just wrong, wrong, wrong.  If something was illegal, fine, send in the FCC or FTC (or FEC).   But trying to extract a personal financial settlement over a charge of dubious legal merit from a company he is regulating is barely different from a protection racket or even solicitation of bribery.

update:  this has some interesting backstory.  Don't tell me it does not look like bribery.  Apparently even the participants were worried about it looking like bribery:

The bribery issues arose because Redstone is in desperate need of cash since inheriting the Paramount media empire from her late father, the media mogul Sumner Redstone and the settlement of the lawsuit is inextricably tied to the deal getting completed since Trump’s regulators must approve the merger.

Since Redstone would receive around $2 billion once the deal is done, any sizable payment could be seen as a bribe to get the Federal Communications Commission’s green light.

The (slightly more) ethical approach was to drop the suit the moment he took and hand it off as an investigation to his regulatory agencies.

The new EU regulations on device charging standards are a really bad idea.  Via engadget:

The European Parliament has voted to make USB-C the common charging standard in the EU. All mobile devices with up to 100W power delivery (including phones, tablets and earbuds) sold in the region will have to come with a USB-C charging port by the end of 2024. Laptops will need to make the switch by spring 2026. Products that come to market before these deadlines won't be affected.

Most people I talk to seem to love this.   It is a relief for folks to know that all their devices will charge from the same cord, though it is already that way in my life because I have explicitly bought all my devices to use USB-C.  Yes, I have already standardized on USB-C myself so I have no problem at this moment in time with that charging technology.  The problem is the qualifier -- this moment in time.  Any government regulation that freezes technology in place is a really bad idea.  Sure, the EU says they are open to new technologies, but this makes adopting a new technology a matter of getting permission from one of the slowest and least efficient regulatory bodies on the planet.  When mobile phone technology cycles are 6-18 months long, who is going to bother with spending 3-5 years to get EU permission on a new approach.

When I go on rants like this with people I know, they tell me to calm down -- what, after all, would need to be changed with USB-C?  My answer is: "possibly everything".

Thank God we did not try to do this 15 years ago when mobile phone and charging technology was in flux.  Oh wait, we did!  Because we came inches away from similar charging standard regulation for phones about 2009.  Here is the article in Mother Jones lauding the United Nations-designed (!!) cell phone charger:

Good news: The [United Nationals Telecommunications] Union just approved a universal charger. If enough manufacturers adopt it, the industry could make half as many chargers—thus reducing greenhouse gases from manufacturing and transporting replacement chargers by as much as 15 to 24 million tons a year.

Bonus: The universal charger will likely use half as much energy on standby as conventional chargers, solving the “wall wart” problem.

The EU was trying to do the same thing in 2009, though fortunately it was voluntary.

The articles are helpfully illustrated with pictures of the handsets they were designing for:

Yes, had international regulators had their way 16 years ago, we would be stuck with something designed for these phones where one texted hello as 4433555555666.  It does not take hindsight to understand why this was a bad idea.  I wrote at the time:

There are at least two problems with this.  The first is that consumers are all different.   A lot of cell phones (and other devices like my kindle) are standardizing on a mini-USB connection.  Should I use the UN's solution, which is likely inferior?  Why?  Most of the time I don't even travel with a charger, I plug the mini-USB into my computer to charge.  That way I only have 1 charger on the road, for my computer.  You want me to carry 2, in the name of having fewer chargers?   You might say, "well, I hadn't thought of this situation," and I would say, "that's the point - you can't, there are 6 billion of us individuals out there."

The second problem is innovation.  Who says that innovation won't demand a different type of connection in 2 years?  Do you really want your technology gated to some working group at the UN?  Go back in time and imagine the government locking in a standard on something.  We still would have 801.11a wireless only, or cars would still all have crank starts (but they would all turn the same direction!) or cars would all have the same size wheels.  If the UN had invented something 3 years ago, it would have been power only and not data.  Today, most cell phones have power connections and connectors that double as data ports.

So many things would have been wrong with these.  They were power only and not data and power as we use today.  The cable was hard-wired to the wall-wart which would be incredibly annoying today.  It would have been either an old barrel connector, or if it was a form of USB it would likely have been one of the old hated non-symmetrical kind.  I don't think there was any data capability but if there were it would have been horribly slow.

Every single EU regulator would look at that old standard and say, yes it was misguided and would have been a mistake.  But THIS time it is smart?

Like many who do business in California, I often complain about the regulatory burden (free at last!)  People will ask, "So what one regulation would you get rid of?"  The problem is that this is a really hard question to answer because in most cases it is not any one regulation in particular, but the accumulation of regulation.  When a building collapses under a snow load, it is impossible to blame any single snowflake.

Have you noticed when you buy a product, you still get an insert that looks like the old instruction manuals we used to get, but that is in fact just page after page of legal and safety warnings with the actual useful stuff moved online?  Well companies have the same thing for employees, typically called an employee handbook.   Most of this is not really useful to employees but it is critical for compliance with a myriad of government regulations.  Our company always had an employee handbook, but starting around 2005 we were forced to have two -- one for California and one for everywhere else.   Each were reviewed and updated every few years.  Then in 2012 or so we were forced to switch to annual updates of the California handbook.   And then around 2018 we had to shift to twice a year updates of the California handbook, as the California legislature was creating so many new rules every session and California courts were creating so many new precedents and interpretation of existing rules that we had to constantly work to keep up with it.

Rules for meal breaks, arbitration agreements, non-compete agreements, cell phone use, background screening, privacy notices, and a million other things kept changing.  Just to pick one example at random, the California legislature keeps adding new forms of employee leave entitlements to this list:

• Sick Leave
• New Parent Leave
• Pregnancy Disability Leave
• Family and Medical Leave
• Bereavement Leave
• Voting Leave
• Jury Duty or Subpoena Leave
• Domestic Violence Victim Leave
• Crime Victims Leave
• Leave for School Activities
• Literacy Education Leave
• Drug/Alcohol Rehab Leave
• Kin Care
• Organ Donor/Bone Marrow Donor Leave
• Military Injury Leave
• Military Spouse Leave
• Reproductive Loss Leave

The last one I think really gives you a flavor of how the California Legislature spends its time.  Here is more detail:

Under Government Code 12945.6 (SB 848), employees at a company with at least five employees are allowed to take five days of leave within three months of a:

• failed adoption,
• failed surrogacy,
• miscarriage,
• stillbirth, or
• an unsuccessful assisted reproduction.

Seriously -- someone had to get worked up enough to create and sponsor a bill and push it through the entire process and get the governor to sign it to provide mandatory work leave for someone whose artificial insemination did not yield a child on the first try.  Good God my brother-in-law probably would have built up 6 months of leave as he had to try for years to finally be successfully, so long we started calling him the sperminator from all the times he had to fill a cup.

There is nothing too small to catch the California legislature's regulatory eye.   And almost every one of these laws might individually look OK or at least strike some empathy chord.  But in sum it is just overwhelming, particularly when it will not sit still.  There is always more and more piling on.

I will tell you a California labor regulation story.   California requires every employee to get a 30-minute unpaid meal break after working a certain number of hours.  The requirement is not to give the employee an opportunity to eat undisturbed, the employer has an affirmative obligation to make sure the employee gets and TAKES their meal break.   That seems like a nice thing to do -- what kind of Scrooge would deny their folks lunch?

Our first interaction with this law happened years ago where we had a gatehouse at a lake in California that required someone in it for 8 hours.  But by California meal break rules, we had to allow them an unpaid lunch for 30 minutes in the middle of that so they only got paid 7.5 hours per day.  Several employees who had this shift on various days approached us and begged to be able to work through lunch because they needed the extra money.  We let them.  And then come October (timed to get money for Christmas) and boom we get hit with a suit (turns out they were being advised the whole time and the entire situation was a trap they explicitly set for us).  We eventually had to settle -- though we had their request in writing, a California court decided that the employee could only waive their right to a work-free meal break with a signed letter EVERY DAY.  After this the rules got tighter and tighter.  Later we got sued when an employee who was wearing a company radio got a call on the radio during their break.  Boom, another suit for not giving them an uninterrupted 30 minutes without work.  So we started requiring everyone to check their radios and cell phones in a special locker before their break.  Eventually, to avoid lawsuits, we automatically paid the 1 hour missed meal penalty to any employee who started their lunch late -- we hired an extra person in the payroll department to audit time cards looking for meal break violations.  But then a few employees were intentionally starting their lunch late in order to collect the penalty.   Eventually we got to the insane work rule -- a rule that many companies in California have -- that it is a firing offense not to take one's meal break and to start it no later than 4:49 into their shift.

And this is just one example.  We have gone through similar hoops on everything from mediation agreements to background screening.

However, I will answer the question of what one or two regulations I would get rid of it I could waive a magic wand.  I would say

1.  the private attorney general act (PAGA) because it makes all the others worse.  PAGA authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of the State of California for Labor Code violations.
2.  The other change I would make is to eliminate the California Coastal Commission.  This is the single most destructive regulatory agency I have ever encountered, made worse by its incredible mission and scope creep and the fact that it has a history of giving special treatment to those with friends on the board or some kind of political pull.

There is lots of regulation coming out of California of late attempting to prevent prices from rising in a temporary supply-demand mismatch (often called "Gouging").  I don't have time today to write something tailored to California but I will repost part of my economic lesson I use for a high school class that touches on price gouging.

We begin with the governor of Florida who has just signed an anti-price-gouging law.  We talk about how everyone hates price-gouging after a disaster.  What could be worse, right?

We then talk about a woman who spends most of her time at home, but rushes out to fill her gas tank right after the storm hits.  She has to wait in line for gas for 2 hours because everyone else has done the same as she, racing to the station, but she doesn't mind because she doesn't have anything else to do and feels better.  If asked if she would have topped off her tank if the price jumped to $6 from $3, she says no way.

Then we have an owner of a roofing company enter the fray.  His men are working 14 hours a day to put roofs on houses.  He is making a lot of money, and doing a lot of good as well.  Nothing is more important to people than fixing the roof before the next rain.  He may be the most important man in Florida at that moment.  But he can't keep up with demand, and worse, his guys are having to sit for 2 hours at a time to fill up their company trucks, when they should be repairing roofs.   He would gladly pay $10 a gallon if he could just keep his men on the job and not in gas stations.

So at this point we discuss "fairness".  It seems fair not to raise prices to "take advantage" of a disaster.  But is it fair to allocate gas away from the busiest and most productive whose time is most valuable to the people who are least productive and have the lowest value for their time?  We discuss how price caps shift rationing from price to queuing, and the people who get the product shift from those who most value it to those who assign the lowest value to their own time.

Finally, we discuss a guy in Georgia who has a tanker of gas he was going to send to a station in Atlanta.  They need the gas more in Florida, but they aren't paying more for it under the new price-gouging law, and so with his higher costs of driving all the way to Florida vs. Atlanta he is going to sell the gas in Atlanta.  If the price of gas in Florida were to rise to $6, he would send his truck of gas to Florida in a heartbeat.

This is the kind of discussion we have.   We will end up in a debate, with kids pointing out all kinds of things -- eg poor people who have a life or death need and might be shut out at $6.  We don't try to resolve things, but want them to understand there are unseen consequences to actions like price-gouging laws that must be considered along with the seen.  They may end up dismissing the unseen as less important than the seen, but it should not be ignored.

In the aftermath of the two Boeing 737MAX crashes:

For years, the FAA has allowed plane manufacturers to self-certify parts of the oversight process for new planes, called Organization Designation Authorization. This process, in which the aircraft manufacturer’s employees perform some of the safety tests and inspections with FAA oversight, reportedly saved the government body time and money.

That practice was examined at Wednesday’s Senate hearing.

Department of Transportation Inspector General Calvin Scovel III, who testified at the hearing, said the FAA will significantly change the oversight process for new aircraft by July. Speaking in vague terms, Scovel said that the changes would include new ways for the FAA to evaluate the self-certifying process.

Sen. Richard Blumenthal said that putting manufacturers in charge of their own safety audits was like putting “the fox in charge of the henhouse.” Saying he would introduce regulations to ban the practice of companies self-certifying, Blumenthal stated that “the fact is that the FAA decided to do safety on the cheap, which is neither safe nor cheap.”

A few reactions:

1. The fox in the henhouse analogy is not apt.  The fox wants to eat the chickens, whereas Boeing does not want to have airplane failures.  In fact Boeing is going to be paying out on a bunch of really big lawsuits, not only to families of the folks that died and the airlines that lost their planes but also to airlines that have had to change their flight schedules due to these issues.  Airbus sales people will use this story in their pitches until the end of time.  Regulation is not the only, or the most important, check on Boeing's behaviors.
2. That being said, aircraft regulation is a dumb hill for libertarians to die on.  This is just not that big of a deal.  Regulation and capital intensity has pretty much reduced choice in large aircraft to two companies and that will not likely change no matter what extra regulatory hoops are added.  Aircraft are a bit more expensive and spare parts are way more expensive due to our regulatory regime, but I don't think there is a public constituency for making a different trade-off.
3. Whatever the regulatory environment, it is unlikely to actually catch more failures of this sort in the future.  Regulators are notoriously bad at this sort of thing (see: US financial system).
4. I did engineering failure analysis early in my working career and my experience is that this sort of multiple stacked failure -- lack of pilot training for a bad software response based on a failed piece of instrumentation that was not reported as needing maintenance -- is hard to predict.  What will happen now in addition to some software fixes will be more mandatory training on this particular subsystem and likely a requirement that the specific piece of instrumentation involved needs to have redundancy.  At best we should hope they will also do a review of other instrumentation failures that might lead to a flight control issue and consider redundancy or software changes.  But there's always the problem of failure of imagination, the best dramatization of which is in the fabulous From the Earth to the Moon episode on Apollo 1.

In part 1, we discussed different ways of measuring income mobility and income growth for the poor, and discovered that many traditional measurement approaches are overly pessimistic -- when one focuses on actual individuals, instead of income quintiles, income for the poor has improved substantially.

Unlike some libertarians, I don't have a problem with intelligently structured income transfer and safety net programs to help the very poor. In fact, I believe that such income transfer programs can be far less distortive and economically inefficient that many other anti-poverty programs.  One of the latter I will focus on in this article is the minimum wage.

Each year, Mark Perry puts together an awesome demographic snapshot of how various income quintiles differ from each other.  Here is his latest:

I want to first call your attention to the figures at the top for mean number of earners per household and household income per earner.  Much of anti-poverty policy seems to be based on the assumption that poor people, because they lack bargaining power, get hosed on wages and other work rules.  Public policy thus tends to focus on minimum wage and overtime rules and a myriad of other workplace interventions.

But in fact, if we compare the lowest quintile with the middle quintile in the chart above, we see something very different.  What we see is the main difference is hours worked, not the relative wage rates.  Let's consider two scenarios

1. We keep the amount of work done the same, but raise the wage rates of the poorest quintile to the middle quintile.  In this case, their average income would go up by about 50% from $12,319 to $18,654  (calculated as 0.41 mean earners times middle income per earner of $45,497).
2. We keep wage rates the same but raise the amount of work done in the poorest quintile household to that of the middle quintile. In this case, their average income more than triples from $12,319 to $41,163 (calculated as 1.37 middle income earners times poor income per earner of $30,046)

So in this example, increasing the poor's wage rates to middle class levels yields $6,335 a year while increasing the poor's amount of work done to middle class levels yields $28,844 a year.  Public policy that focuses on increasing work hours for the poor has 4.5 times the effect of public policy focused on wage rates.  A corollary to this is that any public intervention on wage rates for the poor that has negative employment effects is likely to have little net effect on poverty.  

But in fact this understates the relative benefits of approach #2. Look at the education levels in the poorest quintile vs. the middle.  The poorest quintile has 2.5 times as many people without even a high school degree as in the middle.   For these folks to progress, the only way they can develop skills is on a job and they can't do this without a job.  Or said another way, another advantage of approach #2 and getting them more hours of work is that they gain more skills to overcome their starting disadvantage in education.

I wrote about this in the summer issue of Regulation magazine, in a article entitled "How Labor Regulation Harms Unskilled Labor."  I argued that while likely intended to help the very poor, most labor regulation may be harming the poor, particularly those without skills or much experience, by making it harder and harder for them to find work.  This not only impoverishes them, but makes it harder for them to progress to better jobs and higher income levels.

In my business,which staffs and operates public campgrounds, I employ about 350 people in unskilled labor positions, most at wages close to the minimum wage. I had perhaps 40 job openings last year and over 25,000 applications for those jobs. I am flooded with people begging to work and I have many people asking for our services. But I have turned away customers and cut back on operations in certain states like California. Why? Because labor regulation is making it almost impossible to run a profitable, innovative business based on unskilled labor.

Why is this important? Why can’t everyone just go to college and be a programmer at Google? Higher education has indeed been one path by which people gain skills and opportunity, but until recently it has never been the most common. Most skilled workers started as unskilled workers and gained their skills through work. But this work-based learning and advancement path is broken without that initial unskilled job. For people unwilling, unable, or unsuited to college, the loss of unskilled work removes the only route to prosperity.

...the mass of government labor regulation is making it harder and harder to create profitable business models that employ unskilled labor. For those without the interest or ability to get a college degree, the avoidance of the unskilled by employers is undermining those workers’ bridge to future success, both in this generation and the next.

Public policy could best help the poor by lowering the regulatory barriers to hiring unskilled labor and promoting economic growth that will help keep us close to full employment.

Part 1 of this series was here.

Postscript:  This update on the Seattle minimum wage study is interesting.  Note that this study is occuring near peak employment, a time when one would expect the minimum employment impact from a minimum wage increase.  However, I do think the findings are roughly consistent with the discussion above:

In their latest paper, which has not been formally peer reviewed, Mr. Vigdor and his colleagues considered how the minimum-wage increases affected three broad groups: People in low-wage jobs who worked the most during the nine months leading up to and including the quarter in which the increase took effect (more than about 600 or 700 hours, depending on the year); people who worked less during that nine-month period (fewer than 600 or 700 hours); and people who didn’t work at all and hadn’t during several previous years, but might later work. The latter were potential “new entrants” to the ranks of the employed, in the authors’ words.

The workers who worked the most ahead of the minimum-wage increase appeared to do the best. They saw a significant increase in their wages and only a small percentage decrease in their hours, leading to a healthy bump in overall pay — an average of $84 a month for the nine months that followed the 2016 minimum-wage increase.

The workers who worked less in the months before the minimum-wage increase saw almost no improvement in overall pay — $4 a month on average over the same period, although the result was not statistically significant. While their hourly wage increased, their hours fell substantially. (That doesn’t mean they were no better off, however. Earning roughly the same wage while working fewer hours is a trade most workers would accept.)

It’s the final group of workers — the potential new entrants who were not employed at the time of the first minimum-wage increase — that Mr. Vigdor and his colleagues believe fared the worst. They note that, at the time of the first increase, the growth rate in new workers in Seattle making less than $15 an hour flattened out and was lagging behind the growth rate in new workers making less than $15 outside Seattle’s county. This suggests that the minimum wage had priced some workers out of the labor market, according to the authors.

“For folks trying to get a job with no prior experience, it might have been worth hiring and training them when the going rate for them was $10 an hour,” Mr. Vigdor speculated, but perhaps not at $13 an hour.

I would add as an aside that I think the NYT is being a bit arrogant an narrowly focused on money (vs. other benefits of employment) when they added the parenthetical phrase at the end of the third paragraph.

This is from the questions and comments I am getting on my Summer 2018 Regulation cover story, "How Labor Regulation Harms Unskilled Workers."   Here is my typical answer:

I don't and I am not.  But this sort of reaction, which you can find in the comments of this and other similar articles, is typical of how public policy discussion is broken nowadays.  When I grew up, public policy discussion meant projecting the benefits of a policy and balancing them against the costs and unintended consequences.  In this context, I am merely attempting to air some of the costs of these regulations for unskilled workers that are not often discussed.  Nowadays, however, public policy is judged solely on its intentions.  If a law is intended to help workers, then it is good (whether or not it will every reasonably achieve its objectives), and anyone who opposed this law has bad intentions.  This is what you see in public policy debates all the time -- not arguments about the logic of a law itself but arguments that the opposition are bad people with bad intentions.  For example, just look in the comments of this and other posts I have linked -- because Coyote points out underappreciated costs to laws that are intended to help workers, his intentions must be to harm workers.  It is grossly illogical but characteristic of our post-modernistic age.

I will retell a story about Obamacare or the PPACA.  Most of my employees are over 60 and qualify for Medicare.  As such, no private insurer will write a policy for them -- why should they?  Well, along comes Obamacare, and it says that my business has to pay a $2000-$3000 penalty for every employee who is not offered health insurance, and Medicare does not count!  I was in a position of paying nearly a million dollars in fines (many times my annual profits) for not providing insurance coverage to my over-60 employees that was impossible to obtain -- we were facing bankruptcy and the loss of everything I own.  The only way out we had was that this penalty only applied to full-time workers, so we were forced to reduce everyone's hours to make them all part-time.  It is a real flaw in the PPACA that caused real harm to our workers.  Do I hate workers and hope they all get sick and die just because I point out this flaw with the PPACA and its unintended consequence?

As a reminder, I have the cover story in Regulation magazine's Summer 2018 issue.  You can find links to the article and the issue, as well as a growing FAQ, here.

I have written the cover story for the Summer 2018 issue of Regulation magazine, titled "How Labor Regulation Harms Unskilled Workers."  The link to the Summer 2018 issue is here and the article can be downloaded as a pdf here.  I meant to be a bit more prepared for this but it was originally slated for the Spring issue and it (rightly) got kicked to the later issue to add a more timely article on tariffs and trade.  The summer publication date sort of snuck up on me until I saw that Walter Olson linked it.

FAQ  (I will keep adding to this as I get questions)

How did a random non-academic dude get published in a magazine for policy wonks? This piece started well over  a year ago, back when my friend Brink Lindsey was still at Cato (he has since moved to the Niskanen Center).   I had told him once that I was spending so much of my personal time responding to regulatory changes affecting my company that I had little time to actually focus on improving my business.  I joked that we were approaching the regulatory singularity when regulations were added faster than I could comply with them.

Brink asked that I write something on small business and regulation.  After about 10 minutes staring at a blank document in Word, I realized that was way too broad a topic.  I decided that the one area I knew well, at least in terms of compliance costs, was labor regulation.  After some work, I eventually narrowed that to the final topic, the effect (from a business owner's perspective who had to manage compliance) of labor regulation on unskilled labor.

Once I finished, I was ready to just give up and publish the piece on my blog.  I sent it to Brink but told him I thought it was way too rough for publication.  He told me that he had seen many good published pieces that looked far worse in their early drafts, so I buckled down and cleaned it up.  My editor at Regulation took on the heroic task of getting the original monstrosity tightened down to something about half the length.  As with most good editing processes, the piece was much better with half the words gone.

The real turning point for me was advice I got from Walter Olson of Cato.  I "know" Walter purely from blogging but I love his work and had been a substitute blogger at Overlawyered in its early years.  At one point, I was really struggling with this article because I kept feeling the need to address the broader viability of the minimum wage and the academic literature that surrounds it.  But I am not an academic, and I have not done the research and I was not even familiar with the full body of literature on the subject.  Walter's advice boiled down to the age-old adage of "write what you know."  He encouraged me to focus narrowly on how a business has to respond to labor regulation, and how these responses might effect the employment and advancement prospects of unskilled workers.  As such, then, the paper evolved away from a comprehensive evaluation of minimum wages as a policy choice (a topic I have opinions about but I don't have the skills to publish on) into a (useful, I think) review of one aspect of minimum wage policy, a contribution to the discussion, so to speak.

Update:  Eek, I forgot since I started this so long ago.  I also owe a debt of gratitude to about 8 of our blog readers who own businesses and volunteered to be interviewed for this article so I could make sure I was being comprehensive.

There are many positive (or negative) aspects of labor regulation you have excluded!  Yes, as discussed above this paper is aimed narrowly at one aspect of labor regulations -- understanding how businesses that employ unskilled workers respond to these regulations and how those responses affect workers and their employment and advancement prospects

Everyone knows employer monopsony power means there are no employment or price effects to minimum wage increases.  Some studies claim to have proved this, others dispute this.  I would say that this statement has always seemed insane from my perspective as a small business owner.  It sure doesn't feel like I have a power imbalance in my favor with my workers.   I address this with a real example in the article but also address it in much more depth here.  The short answer is that for minimum wages to have no employment or price effects, a company has to have both monopsony power in the labor market AND monopoly power in its customer markets.  Without the latter, all gains from "underpaying" a worker due to monopsony power get competed away and benefit consumers (in the form of lower prices) rather than increase a company's profit.

The costs of these regulations are supposed to come out of your bloated profits.  Perhaps that is what happens at Google, where compliance costs are a tiny percentage of what their highly-compensated employees earn and where the company enjoys monopoly profits in its core businesses.  For those of us in highly-competitive businesses that employ unskilled workers, our profit margins are really thin (as explained in more depth here).  When profits are close to the minimum that supports further investment and participation in the business, then labor regulatory costs are going to get paid by consumers and workers.

Then maybe the best thing for workers is to create monopolies.  Funny enough, this idea was actually one of the centerpieces of Mussolini's corporatist economic model, a model that was copied approvingly by FDR in the centerpiece New Deal legislation the National Industrial Recovery Act (NRA).  The NRA sought to create cartels in major industries that would fix prices, wages, and working conditions, among other things.   The Supreme Court struck the legislation down, a good thing since it would have been a disaster for consumers and for innovation and probably for most workers too.  As a bit of trivia, this year's Superbowl winner the Philadelphia Eagles was named in honor of this law.  More here.

So do you think minimum wages are a good policy overall or not?  Hmm, mostly not.  For a variety of reasons, minimum wages are a very inefficient way to tackle poverty (and also here), and tend to have cronyist effects that help one class of worker at the expense of other classes (this latter should be unsurprising since many original supporters of the first federal minimum wages were explicitly hoping to disadvantage black workers competing with whites).

Why are you opposed to all these worker protections?  Or, more directly, why do you hate workers?  This is silly -- I am not and I don't.  However, this sort of critique, which you can find in the comments below, is typical of how public policy discussion is broken nowadays.  When I grew up, public policy discussion meant projecting the benefits of a policy and balancing them against the costs and unintended consequences.  In this context, I am merely attempting to air some of the costs of these regulations for unskilled workers that are not often discussed.  Nowadays, however, public policy is judged solely on its intentions.  If a law is intended to help workers (whether or not it will every reasonably achieve its objectives), then it is good, and anyone who opposed this law has bad intentions.  This is what you see in public policy debates all the time -- not arguments about the logic of a law itself but arguments that the opposition are bad people with bad intentions.  For example, just look in the comments of this and other posts I have linked -- because Coyote points out underappreciated costs to laws that are intended to help workers, his intentions must be to harm workers.  It is grossly illogical but characteristic of our post-modernistic age.

I will retell a story about Obamacare or the PPACA.  Most of my employees are over 60 and qualify for Medicare.  As such, no private insurer will write a policy for them -- why should they?  Well, along comes Obamacare, and it says that my business has to pay a $2000-$3000 penalty for every employee who is not offered health insurance, and Medicare does not count!  I was in a position of paying nearly a million dollars in fines (many times my annual profits) for not providing insurance coverage to my over-60 employees that was impossible to obtain -- we were facing bankruptcy and the loss of everything I own.  The only way out we had was that this penalty only applied to full-time workers, so we were forced to reduce everyone's hours to make them all part-time.  It is a real flaw in the PPACA that caused real harm to our workers.  Do I hate workers and hope they all get sick and die just because I point out this flaw with the PPACA and its unintended consequence?

I've heard that raising the minimum wage increases worker productivity so much that businesses are better off.    I know there is academic literature on this and I am frankly just not that familiar with it.  I can say that I have never, ever seen workers suddenly and sustainably work harder after getting a wage increase.  What I see instead is employers doing things like cutting back employee hours and demanding the same amount of work gets done.  This could result in more productivity if there was fat in the system beforehand but it also can result in things like lower service levels (e.g. the bathrooms get cleaned less frequently).   Without careful measurement, these changes could appear to an outsider to be productivity gains.  In addition, as discussed in the article, with higher minimum wages employers can substitute more skilled for less skilled workers, which can result in productivity gains but leave unskilled workers without a job.

Workers are human beings.  It is wrong to think of them as "costs" or "resources".  The most surprised I think I have ever been on my blog is when I got so much negative feedback for writing that the best thing that could happen to unskilled workers is for someone to figure out how to make a fortune hiring them.  I thought this was absolutely obvious, but the statement was criticized as being heartless and exploitative.  My workers are my friends and are sometimes like family.  I hire hundreds of people over 60 years of age, people that the rest of society casts aside as no longer useful.  They take pride in their ability to continue to be productive.   You don't have to tell me they are human beings.  Just this week I have helped modify an employee's job responsibilities to help them manage their newly diagnosed MS, found temporary coverage for a manager who needs to get to a relative's funeral, found a replacement for a manager that wants to take a sabbatical, and loaned two different employees money to help them through some tough financial times.  From a self-interested point of view, I need my employees to be happy and satisfied in their work or they will provide bad, grumpy service.  But at the end of the day I can only keep these people employed if customers are willing to pay more for the services they provide than the employees cost me.  If the cost of employing people goes up, then either customers have to pay more or I can hire fewer employees.

You probably support child labor too.   Child labor laws are an entirely reasonable zone of government regulation.  The reason this is true stems from the definition of a child -- a child is someone considered under the law to lack agency or the ability to make adult decisions due to their age.   We generally give parents, rightly, a lot of the responsibility for protecting their children from bad decisions, but I am fine with the government backstopping this with modest regulations.  In other words, I have no problem with the law treating children like children.  Instead, I have a problem with the law treating adults like children.

Aren't you just begging to get audited?  Hah!  That's what my wife says.  To me, the logical response of a regulator should be, "wow, this guy knows the law way better than most of the business folks we deal with, so he probably is not a compliance risk" -- but you never know.  Actually, we have been audited many times on many of these laws.  So much so that practically the first series of posts I did on this blog, way back in the blog pleistocene era of 2004, was 3 part series on surviving a Department of Labor audit.  Looking back on the series, everything in it (which included experience from a number of different audits) still seems valid and timely.

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

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

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

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

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

 

Here is what you are paying your government to spend time on:

The age-old question has finally been answered: No, Snuggies are not clothing.

Earlier this month, a federal court ruled that Snuggies, the As Seen on TV 'blanket with sleeves', should be classified as blankets, and live as a separate entity from robes or priestly vestments.

The ruling followed the Justice Department's argument that Snuggies are apparel and not blankets, so they should be 'subjected to higher duties than blankets', reports Bloomberg.

Judge Mark Barnett of the Court of International Trade said during the trial that the Customs and Border Protection was in the wrong to classify Snuggies as apparel. Barnett cited the Snuggies' use of marketing as a blanket, specifically referencing its packaging with the phrase, "The Blanket With Sleeves!".

The judge added that those who purchase Snuggies may likely be "in the types of situations one might use a blanket; for example, while seated or reclining on a couch or bed, or outside cheering a sports team."

In Barnett's opinion, the addition of sleeves 'was not enough' to have the Snuggie be considered a piece of clothing. He added the use of sleeves allowed the Snuggie "to remain in place and keep the user warm while allowing the user to engage in certain activities requiring the use of their hands."

More so, Judge Barnett rejected the idea a Snuggie may also be similar in fashion to priestly vestments or scholastic robes which also use wide sleeves and a loose fit around the body. In his ruling, the judge argued that robes open from the front, and priestly vestments and scholastic robes have no opening on either side, so the role of a Snuggie as a garment is invalid.

One of my favorite correspondents, also the proprietor of the Finem Respice blog, sent me a note today about my article the other day about cheating on diesel emissions regulations.   The note covers a lot of ground but is well worth reading to understand the crony-regulatory state.  They begin by quoting me (yes, as I repeat so often, I understand that "they" is not grammatically correct here but we don't have a gender-neutral third person pronoun and so I use "they" and "their" as substitutes, until the SJW's start making me use ze or whatever.)

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

Exactly. More importantly, the regulators KNEW it. I was researching energy shorts and had a ton of discussions with former regulatory types in the U.S. I was stunned to discover that there was widespread acknowledgement on the regulatory side that many regulations were impossible to comply with and so "compliance trump cards" were built into the system.

For instance, in Illinois you get favorable treatment as a potential government contractor if you "comply" with all sorts of insane progressive policy strictures. "Woman or minority owned business" or "small business owner", as an example. Even a small advantage in the contracting process for (for example) the State of Illinois puts you over the edge. Competitors without (for instance) the Woman or Minority Owned Business certification would have to underbid a certified applicant by 10-15% (it's all a complex points system) to just break even. It got so bad so quickly that the regs were revised to permit a de minimis ownership (1%). Of course, several regulatory lawyers quickly made a business out of offering minority or women equity "owners" who would take 1% for a fee (just absorb how backwards it is to be paying a fee to have a 1% equity partner) with very restrictive shareholder agreements. Then it became obvious that you'd get points for the "women" and "minority" categories BOTH if you had a black woman as a proxy 1% "owner." There was one woman who was a 1% owner of 320 firms.

Some of my favorites include environmental building requirements tied to government contract approval. The LEED certification is such a joke. There are a ton of "real" categories, like motion detecting lights, solar / thermal filtering windows, CO2 neutral engineering. But if you can't get enough of that, you can also squeeze in with points for "environmental education". For instance, a display in the lobby discussing the three solar panels on the roof, or with a pretty diagram of the building's heat pump system. You can end up getting a platinum LEED certification and still have the highest energy consumption density in the city of Chicago, as it turns out.

U.S. automakers have been just as bad. There's been a fuel computer "test mode" for emissions testing in every GM car since... whenever. Also, often the makers have gotten away with "fleet standards" where the MPG / emissions criteria are spread across the "fleet." Guess how powerful / "efficient" the cars that get sent to Hertz or Avis are.

Like so many other things in the crony capitalist / crudely protectionist United States, (e.g. banking prosecutions) foreign firms will get crucified for industry-wide practices.

Gee, I wonder if state-ownership of GM has been a factor in sudden acceleration / emissions prosecutions?

BTW, I wrote about the silliness of LEED certification here, among other places, after my local Bank of America branch got LEED certified, scoring many of their points by putting EV-only spaces (without a charger) in the fron of the building.  In a different post, I made this comparison:

I am not religious but am fascinated by the comparisons at times between religion and environmentalism.  Here is the LEED process applied to religion:

• 1 point:  Buy indulgence for $25
• 1 point:  Say 10 Our Fathers
• 1 point:  Light candle in church
• 3 points:  Behave well all the time, act charitably, never lie, etc.

It takes 3 points to get to heaven.  Which path do you chose?

I would be all for reductions in tax levels, but I don't think that current Federal tax rates are particularly a barrier to growth and prosperity.  A much bigger, and ever-growing barrier to growth is regulation.

5-10 years ago, in my small business, I spent my free time, and most of our organization's training time, on new business initiatives (e.g. growth into new businesses, new out-warding-facing technologies for customers, etc).  Over the last five years, all of my time and the organization's free bandwidth has been spent on regulatory compliance.  Obamacare alone has sucked up endless hours and hassles -- and continues to do so as we work through arcane reporting requirements.  But changing Federal and state OSHA requirements, changing minimum wage and other labor regulations, and numerous changes to state and local legislation have also consumed an inordinate amount of our time.  We spent over a year in trial and error just trying to work out how to comply with California meal break law, with each successive approach we took challenged in some court case, forcing us to start over.  For next year, we are working to figure out how to comply with the 2015 Obama mandate that all of our salaried managers now have to punch a time clock and get paid hourly.

Greg Mankiw points to a nice talk on this topic by Steven Davis.  For years I have been saying that one effect of all this regulation is to essentially increase the minimum viable size of any business, because of the fixed compliance costs.   A corollary to this rising minimum size hypothesis is that the rate of new business formation is likely dropping, since more and more capital is needed just to overcome the compliance costs before one reaches this rising minimum viable size.  The author has a nice chart on this point, which is actually pretty scary.  This is probably the best single chart I have seen to illustrate the rise of the corporate state:

Postscript:  I had thought that all the difficult years converting all of our employees from full to part time to avoid Obamacare sanctions would be the end of our compliance hassles (no company will write health insurance for us, so our only defense against the mandates and penalties is to make everyone part-time).  But the hassles have not ended.  For every employee, next year we must provide a statement that has a series of codes, by month, for that employee's health care status.  It is so complicated that knowledgeable people are still arguing about what codes we should be using.  Here is a mere taste of the rules:

  A code must be entered for each calendar month January through December, even if the employee was not a full-time employee for one or more of the calendar months. Enter the code identifying the type of health coverage actually offered by the employer (or on behalf of the employer) to the employee, if any. Do not enter a code for any other type of health coverage the employer is treated as having offered (but the employee was not actually offered coverage). For example, do not enter a code for health coverage the employer is treated as having offered (but did not actually offer) under the dependent coverage transition relief, or non-calendar year transition relief, even if the employee is included in the count of full-time employees offered minimum essential coverage for purposes of Form 1094-C, Part III, column (a). If the employee was not actually offered coverage, enter Code 1H (no offer of coverage) on line 14.  For reporting offers of coverage for 2015, an employer relying on the multiemployer arrangement interim guidance should enter code 1H on line 14 for any month for which the employer enters code 2E on line 16 (indicating that the employer was required to contribute to a multiemployer plan on behalf of the employee for that month and therefore is eligible for multiemployer interim rule relief). For a description of the multiemployer arrangement interim guidance, see Offer of health coverage in the Definitions section. For reporting for 2015, Code 1H may be entered without regard to whether the employee was eligible to enroll or enrolled in coverage under the multiemployer plan. For reporting for 2016 and future years, ALE Members relying on the multiemployer arrangement interim guidance may be required to report offers of coverage made through a multiemployer plan in a different manner.

Here are some of the codes:

• 1A. Qualifying Offer: Minimum essential coverage providing minimum value offered to full-time employee with employee contribution for self-only coverage equal to or less than 9.5% mainland single federal poverty line and at least minimum essential coverage offered to spouse and dependent(s).

  This code may be used to report for specific months for which a Qualifying Offer was made, even if the employee did not receive a Qualifying Offer for all 12 months of the calendar year. However, an employer may not use the Alternative Furnishing Method for an employee who did not receive a Qualifying Offer for all 12 calendar months (except in cases in which the employer is eligible for and reports using the Alternative Furnishing Method for 2015 Qualifying Offer Method Transition Relief as described in these instructions).

• 1B. Minimum essential coverage providing minimum value offered to employee only.
• 1C. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) (not spouse).
• 1D. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to spouse (not dependent(s)).
• 1E. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) and spouse.
• 1F. Minimum essential coverage NOT providing minimum value offered to employee; employee and spouse or dependent(s); or employee, spouse and dependents.
• 1G. Offer of coverage to employee who was not a full-time employee for any month of the calendar year (which may include one or more months in which the individual was not an employee) and who enrolled in self-insured coverage for one or more months of the calendar year.
• 1H. No offer of coverage (employee not offered any health coverage or employee offered coverage that is not minimum essential coverage, which may include one or more months in which the individual was not an employee).
• 1I. Qualifying Offer Transition Relief 2015: Employee (and spouse or dependents) received no offer of coverage; received an offer that is not a qualifying offer; or received a qualifying offer for less than 12 months.

Engadget is celebrating the fact that the Internet just got turned into Ma Bell.  Here was my response in the comments:

 This is utter madness.  Since when has "free" ever meant "tightly controlled by the government"?  Regulation like this always locks in current competitors and business models.  Hate Comcast?  You just guaranteed them their infinite existence and profitability.  They will be the Ma Bell of your generation.

New competitive models and technologies will now have to be vetted by government bureaucrats who will soon be captured by the industry itself.  It literally always happens this way.  How much innovation did you ever see in the landline phone business?  My telephone at my birth in 1962 was identical to the one in my dorm room in 1984.  Power companies?  Water companies?  Cell voice service?  What innovation have you ever seen?  What new competitors have you seen pop up to challenge the old guys?  Only in cellular data has there been any innovation, and that is to date the one place in phone communications the FCC has not regulated with this model.

I am exhausted with people justifying these heavy-handed government regulations based on the good intentions of their supporters rather than the actual facts of how these regulations always play out historically.  We will look back on this day as the beginning of the end of the wild, open Internet we loved.

I will say that folks can really be rubes.  Playing on the fear of one narrow issue that would have been easy to legislate (that broadband companies might block or limit access to certain sites), the government used this niche concern to drive through a total takeover of the Internet.  Way to go sheeple.

Update:  Some additional comments I made:

This problem of blocking web sites is almost entirely hypothetical, and to the extent it has been used at all it merely has been a negotiating tactic between big boys like Netflix and Comcast who can take care of themselves.    It could have easily been fixed with a narrow bit of rulemaking but in stead we get this major regulatory takeover.

Doesn't it bother you that this is a problem that could have been solved with a fly-swatter but instead the regulators demanded they be given a 16-inch naval gun.  Don't you worry why they need all that regulatory power to swat a fly?  Aren't you at all suspicious there is more going on here?

Greg Patterson brings us this example from the AZ legislature, but this sort of thing is ubiquitous:

Just before I got to the Legislature, there was a big move to regulate day care facilities.  Naturally, the government has a role in establishing basic health and safety standards for facilities that take care of young children, so I thought it was a good move.

Then a funny thing happened.  The Legislature established one set of standards for private day care facilities and a different (lower) set of standards for public or non-profit day care facilities.  Some Legislators dared to ask why the health and safety rules would be different depending on what type of entity owned the facility.  After all, if a rule is really in place to keep a child healthy and safe, why should a publicly owned facility be exempt or have a lower standard?

The answer, of course, is that there's no reason for publicly owned facilities to have a different regulatory regime than private facilities and that these bills were really just disguised attempts to ensure that private day cares couldn't compete with public ones

We are facing something similar in my world.  As you may know, my company operates government parks and campgrounds on a concession basis (which means we get no government money, we are paid by the user fees of visitors).  This makes sense because we can do it less expensively and usually better than the government agency.

Recently, the Obama Administration has imposed an executive order that we concessionaires on Federal lands have to pay a $10.10 minimum wage.  Since most of our costs are labor, this is causing us to have a to raise fees to customers substantially to offset the higher costs.

In response to these fee increases, the US Forest Service in California is in the process of taking back traditionally concession-run campgrounds to run themselves, in-house.  Their justification is that they can do it cheaper.   Part of this is just poor government accounting -- because many costs (risk management/insurance, capital assets, interest on investments) don't hit their budgets but show up on other parts of the government's books, what appears to be lower costs is actually just costs that are hidden.  But their main cost savings is that since the Federal government is exempt from labor law and this new executive order, the Forest Service can staff the park with volunteers.  They are allowed to pay a minimum wage of ... zero!

This is just incredibly hypocritical, to say with one statement that private companies need to pay campground workers more and with the very next action take over the campground and staff it with people making nothing.

We generally use startup activity as a proxy for positive innovation and future increases in productivity and consumer value.  But it is only a proxy - based on the theory that in a free economy new startups generally add new value or die.  Startups per se are not inherently positive, especially when all they are doing is fixing the inefficiencies and mandates imposed by government regulation

I wrote about a new study suggesting that new federal regulation doesn't inhibit the creation of new startup companies in an industry. In fact, it might actually stimulate the creation of startups. This seems counterintuitive, but a reader with some experience in the education and health care sectors—which were influenced by NCLB and Obamacare, respectively—proposes an explanation for this:

Healthcare startups have absolutely exploded post-ACA....This was pretty well anticipated by venture capital; a bunch of Sand Hill firms started putting together ad-hoc health IT teams shortly after the ACA was passed, on the basic logic that anything that changed an industry as much as the ACA did would necessarily create a lot of startup opportunities.

Drum says, well this may be good or may be bad.  Look, it HAS to be bad.  All this investment and activity is going into trying to get back to even from productivity losses imposed by the government, or is being spent addressing government mandates for new services that the market did not want or value.  This is a diversion of resources from new value-creation to fixing things, and as such is just the broken windows fallacy re-written in a new form.

The language he is using, of shaking things up, is a bit like that of chemistry.  He seems to imagine that markets can reach and get stuck in local maxima, so that government action that shakes the system out of these maxima (like annealing in a metal) is positive in that it allows the system to progress to a better state over time even if the government's action initially makes things worse.  I know of absolutely no evidence for this being true, and my strong suspicion given how many industries the government has trashed is that this is rare or non-existent.  And impossible to spot, even if it did exist.  Not to mention the fact it is a total joke to talk of health care as if it was some pristine untouched-by-government industry before Obamacare.

I have mentioned a number of times my chicken or the egg arguments with Progressives on the solution to cronyism.  Is the problem that government power exists to influence markets, and as long as it exists people will bid to control it?  Or is it possible to wield massive make-or-break government power over industry rationally, and only the rank immorality and corrupt speech of corporations stands in the way.  The former argues for a reduction in government power, the latter for more regulation of corporations and their ability to participate in the political process.

I believe this is an example in favor of the "power is inherently corrupting" argument.  No corporation lobbied for NOx rules on diesel engines.  They all fought it tooth and nail.  But once these regulations existed, engine makers are all trying to use the laws to gut their competition:

In 1991, the EPA ignored complaints from several makers of non-road engines that rivals were cheating, in order to save fuel, on emissions rules for oxides of nitrous (NOx). Then environmental groups took up the same complaint, whereupon the agency demanded face-saving consent decrees with numerous engine makers, including two Volvo affiliates.

In essence, the engine makers apologized by agreeing in 1999 to accelerate by a single year compliance with a new emissions standard scheduled to take effect in 2006.

Meanwhile, with another NOx standard looming in 2010, Navistar sued the EPA claiming rival engine-makers were seeking to meet the rule with a defective technology. In turn, Navistar’s competitors sued claiming the EPA was unfairly favoring a defective technology pursued by Navistar (these are only the barest highlights of what became a truck-makers’ legal holy war).

While all this was going on, a Navistar joint-venture partner, Caterpillar, complained that 7,262 Volvo stationary engines made in Sweden before 2006 had violated the 1999 consent decree. Now let’s credit Caterpillar with a certain paperwork ingenuity: The Volvo engines were not imported to the U.S. and were made by a Volvo affiliate that wasn’t a party to the consent decree. EPA itself happily certified the engines under its then-current NOx standard, only changing its mind four years later, prodded by a competitor with a clear interest in damaging Volvo’s business.

To complete the parody, a federal district court would later agree that the 1999 consent terms “do not clearly apply” to the engines in question, but upheld an EPA penalty anyway because Volvo otherwise might enjoy a “competitive advantage” against engines to which the consent decree applied.

As a side note, this is from the "oops, nevermind" Emily Litella School of Regulation:

Let it be said that the EPA’s NOx regulation must have done some good for the American people, though how much good is hard to know. The EPA relies on dubious extrapolations to estimate the benefits to public health. What’s more, the agency appears to have stopped publishing estimates of NOx pollution after 2005. Maybe that’s because the EPA’s focus has shifted to climate change, and its NOx regulations actually increase greenhouse emissions by increasing fuel burn.

Kevin Drum simply does not understand why Wall Street might be piling into broadband stocks despite proposed "tough new regulations."  He posits a number of hypotheses -- that Wall Street expected the rules to be worse than they turned out to be.  But this can't be it because the hundreds of pages of rules are still a secret.  He also hypothesizes there might be some nefarious secret loophole buried in the rules Wall Street knows about but we don't.

This is crazy!  How can a reasonably bright person like Drum who writes about the political economy not understand the issue of regulatory capture?  Seriously, I have always figured that the Left, which has a seemingly infinite appetite for regulation, must favor regulation because they find the benefits to out-weight the crony-ist downsides.  Is it really possible Drum is unfamiliar with the downsides altogether, or is he just being coy?

Here is what regulation, particularly utility-style regulation, tends to do -- it locks in current business models and competitors.  It makes it really hard for new entrants to challenge incumbents with innovative new business models or approaches, because regulations have been written based on the old business model and did not take the new one in account.  So a new entrant must begin business by getting regulators to allow their new model, which never happens because by this time incumbents have buildings full of lobbyists aimed at the regulatory process.  Go ask Tesla and Uber and Lyft about how easy it is to enter a heavily regulated business even with a superior new business model.

This is particularly true in the technology world.  The biggest threat to incumbency is someone with a new technology or approach to the technology.  Don't believe me?  I suggest you go to the offices of Netscape or AOL or Lycos or Borders or Circuit City or Radio Shack and interview them about the security of their multi-billion dollar businesses in the face of new online technologies.  At best, regulators put a huge speed bump in the way of competitors, costing them time and money to get their alternative business model approved.  At worst, regulators block new competitors altogether.

I will give you a thought experiment.  Let's say these exact same rules were adopted in the year 2000, when AOL and Earthlink dial-up ruled the internet access world.  Would cable and satellite and DSL have grown as quickly?  I can see the regulators now -- "hey, all the rules specify phone dial up.  There's nothing here about cable TV.  Sorry [Cox, Comcast, whoever] you are going to have to wait until we can write new rules.

The other thing that happens with utility-style regulation is that companies in the business tend to get their returns guaranteed.  Made a bad investment in a competitive market?  Well good luck getting customers to pay extra to bail you out from your bad decision when they have other options.  But what happens when your local power company wastes $10 billion on a nuclear plant that never opens -- it gets built into your rate base!

In the cast of broadband, they are locked in what business school students would see as a classic supply chain battle.  Upstream companies like Netflix supply content via downstream broadband companies.  Consumers are only willing to pay a certain amount for this content, so the upstream and downstream fight a lot over who gets what share of that consumer $.    This happens everywhere in the business world, from Cable TV to oil refining to selling TV's at Wal-Mart.  There is a real danger that broadband will lose this fight in the future -- but not now.  Regulated industries never die, they appeal to their regulators for help.

As of yesterday, Wall Street is looking at broadband companies and realizing that they are now largely immune from competition and some level of minimum returns are likely now gauranteed forever.  Consumers should hate this, but what's not to love for Wall Street?

Postscript:  Kevin Drum describes the new regulation this way:  "Basically, under Wheeler's proposal, cable companies would no longer be able to sign special deals to provide certain companies with faster service in return for higher payments."  This is a bit like describing the Patriot Act as a law to force people to take their shoes off at the airport.  Yes, it does that narrow thing, but it does a LOT else.  The proposal is hundreds of freaking pages long.  It does not take hundreds of pages to do the narrow little niche thing Drum (like most neutrality supporters) wants.

This Administration has cleverly taken this one tiny concern people have and have used it as an excuse to do a major regulatory takeover of the Internet.  This is a huge Trojan Horse. But I have already ranted about the details of that and you can read that here.

One of the factors in the financial crisis of 2007-2009 that is mentioned too infrequently is the role of banking capital sufficiency standards and exactly how they were written.   Folks have said that capital requirements were somehow deregulated or reduced.  But in fact the intention had been to tighten them with the Basil II standards and US equivalents.  The problem was not some notional deregulation, but in exactly how the regulation was written.

In effect, capital sufficiency standards declared that mortgage-backed securities and government bonds were "risk-free" in the sense that they were counted 100% of their book value in assessing capital sufficiency.  Most other sorts of financial instruments and assets had to be discounted in making these calculations.  This created a land rush by banks for mortgage-backed securities, since they tended to have better returns than government bonds and still counted as 100% safe.

Without the regulation, one might imagine  banks to have a risk-reward tradeoff in a portfolio of more and less risky assets.  But the capital standards created a new decision rule:  find the highest returning assets that could still count for 100%.  They also helped create what in biology we might call a mono-culture.  One might expect banks to have varied investment choices and favorites, such that a problem in one class of asset would affect some but not all banks.  Regulations helped create a mono-culture where all banks had essentially the same portfolio stuffed with the same one or two types of assets.  When just one class of asset sank, the whole industry went into the tank,

Well, we found out that mortgage-backed securities were not in fact risk-free, and many banks and other financial institutions found they had a huge hole blown in their capital.  So, not surprisingly, banks then rushed into government bonds as the last "risk-free" investment that counted 100% towards their capital sufficiency.  But again the standard was flawed, since every government bond, whether from Crete or the US, were considered risk-free.  So banks rushed into bonds of some of the more marginal countries, again since these paid a higher return than the bigger country bonds.  And yet again we got a disaster, as Greek bonds imploded and the value of many other countries' bonds (Spain, Portugal, Italy) were questioned.

So now banking regulators may finally be coming to the conclusion that a) there is no such thing as a risk free asset and b) it is impossible to give a blanket risk grade to an entire class of assets.  Regulators are pushing to discount at least some government securities in capital calculations.

This will be a most interesting discussion, and I doubt that these rules will ever pass.  Why?  Because the governments involved have a conflict of interest here.  No government is going to quietly accept a designation that its bonds are risky while its neighbor's are healthy.  In addition, many governments (Spain is a good example) absolutely rely on their country's banks as the main buyer of their bonds.  Without Spanish bank buying, the Spanish government would be in a world of hurt placing its debt.  There is no way it can countenance rules that might in any way shift bank asset purchases away from its government bonds.

Yesterday, I came home exhausted.  I have been working late nearly every night for weeks, at a time of year when most of my business is not even open yet (the business is seasonal).  I realized to my immense depression that I have been spending all my time on regulatory compliance.  I have not been pitching new clients or bidding on new prospects or making investments or improving our customer service processes -- though I have ideas for all of these.  I have been 100% dedicated through 14 hour days to just trying to keep up with and adapt to changing government rules.

Break rules, changing minimum wages, heat stress plans, mandatory sexual harassment training, OSHA reporting, EEO reporting, Census reporting, and most recently changing rules on salaried workers that Obama just waived his wand and imposed -- this is what has been consuming me.  I have been trying to roll out a new safety program to the field and can't do it because I keep having to train for one of these new requirements (one learns there is only a limited number of things one can simultaneously roll out to front-line staff).

At some point regulation will accrete so fast that it will be impossible to keep up.  I am going to call that the Regulation Singularity, and for businesses my size, we are fast approaching it.

Prominent libertarian think tanks often rank state business climate by their tax regimes.  I am all for low, sensibly-structured taxes.  But for most of my time, taxes are irrelevant.  We are shutting down businesses left and right in California and it has zero to do with taxes.

Many on the Left often deride the notion that government regulation really affects business behavior and reduces business activity.  But it turns out that even the Feds themselves throw up their hands and give up in the face of trying to deal with their own regulations

Government estimates suggest there may be 77,000 empty or underutilized buildings across the country. Taxpayers own them, and even vacant, they’re expensive. The Office of Management and Budget believes these buildings could be costing taxpayers $1.7 billion a year.

…But doing something with these buildings is a complicated job. It turns out that the federal government does not know what it owns.

…even when an agency knows it has a building it would like to sell, bureaucratic hurdles limit it from doing so. No federal agency can sell anything unless it’s uncontaminated, asbestos-free and environmentally safe. Those are expensive fixes.

Then the agency has to make sure another one doesn’t want it. Then state and local governments get a crack at it, then nonprofits — and finally, a 25-year-old law requires the government to see if it could be used as a homeless shelter.

Many agencies just lock the doors and say forget it.

Scratch "consumer" protection laws and you will almost always find the laws are really aimed a protecting incumbent businesses and traditional business models.  This time from France:

To the surprise of virtually everyone in France, the government has just passed a law requiring car services like Uber to wait 15 minutes before picking up passengers. The bill is designed to help regular taxi drivers, who feel threatened by recently-introduced companies like Uber, SnapCar and LeCab. Cabbies in the Gallic nation require formidable time and expense to get their permits and see the new services -- which lack such onerous requirements -- as direct competitors.

This is the interesting political ground where the Occupy Wall Street movement and the Tea Party have a lot of overlap.  That is why the Chamber of Commerce, which represents all these incumbent businesses, is working with both parties to keep the cozy corporatists in power against challenges from the Left and Right.  If you are a business owner, eschew the Chamber and join the NFIB and support the IJ.

The Feds are going to require seat belts on buses:

Beginning in November 2016, all new motorcoaches and some other large buses must be equipped by manufacturers with three-point lap-shoulder belts, the National Highway Traffic Safety Administration said.

Ahh, but there is an exemption

The rule doesn’t apply to school buses or city transit buses.

What do these two exempted categories have in common:  They mostly belong to governments (public schools or public transit agencies).  So the government comes up with an expensive new regulation, but exempts itself from it, applying it to only private operators (who own a minority of buses in the country).