Coyote Blog

Gary Becker via Ilya Somin:

The toughest competition for basketball and football players occurs at the Division I level. These sports have both large attendances at games-sometimes, more than 100,000 persons attend college football games– and widespread television coverage.... Absent the rules enforced by the NCAA, the competition for players would stiffen, especially for the big stars...

To avoid that outcome, the NCAA sharply limits the number of athletic scholarships, and even more importantly, limits the size of the scholarships that schools can offer the best players....

It is impossible for an outsider to look at these rules without concluding that their main aim is to make the NCAA an effective cartel that severely constrains competition among schools for players. The NCAA defends these rules by claiming that their main purpose is to prevent exploitation of student-athletes, to provide a more equitable system of recruitment that enables many colleges to maintain football and basketball programs and actively search for athletes, and to insure that the athletes become students as well as athletes.

Unfortunately for the NCAA, the facts are blatantly inconsistent with these defenses....

I expressed many of the same thoughts in this article at Forbes.  In addition to making the same points as Becker, I slammed on the whole concept of the "amateur athlete" as an outdated holdover from the British aristocracy and their disdain for commerce:

University presidents with lucrative athletic programs will do about anything to distract attention from just how much money their Universities are making off of essentially unpaid labor.  Their favorite mantra is to claim they are holding up an ideal of “amateurism.”

The whole amateur ideal is just a tired holdover from the British aristocracy, the blue-blooded notion that a true “gentleman” did not actually work for a living but sponged off the locals while perfecting his golf or polo game.  These ideas permeated British universities like Oxford and Cambridge, which in turn served as the model for many US colleges.  Even the Olympics, though,  finally gave up the stupid distinction of amateur status years ago, allowing the best athletes to compete whether or not someone has ever paid them for anything.

In fact, were we to try to impose this same notion of “amateurism” in any other part of society, or even any other corner of university life, it would be considered absurd.  Do we make an amateur distinction with engineers?  Economists?  Poets?

When Brooke Shields was at Princeton, she still was able to perform in the “amateur” school shows despite the fact she had already been paid as an actress.   Engineering students are still allowed to study engineering at a university even if a private party pays them for their labor over the summer.  Students don’t get kicked out of the school glee club just because they make money at night singing in a bar.  The student council president isn’t going to be suspended by her school if she makes money over the summer at a policy think tank.

In fact, of all the activities on campus, the only one a student cannot pursue while simultaneously getting paid is athletics.  I am sure that it is just coincidence that athletics happens to be, by orders of magnitude, far more lucrative to universities than all the other student activities combined.

Via the Guardian

Efforts appear to be under way to offer Muammar Gaddafi a way of escape from Libya, with Italy saying it was trying to organise an African haven for him, and the US signalling it would not try to stop the dictator from fleeing....

A senior American official signalled that a solution in which Gaddafi flees to a country beyond the reach of the international criminal court (ICC), which is investigating war crimes charges against him, would be acceptable to Washington, pointing out that Barack Obama had repeatedly called on Gaddafi to leave.

I wanted to leave Glendale's proposed $100 million subsidy of the purchase of the Phoenix Coyotes hockey team by Matthew Hulzinger behind for a while, but I had to comment on something in the paper yesterday.

The Arizona Republic, which is an interested party given that a good part of their revenues depend on having major sports teams in town, had an amazing editorial on Tuesday.  Basically, it said that Goldwater, who has sued to bock the bond issue under Arizona's gift clause,  needed to stop being so pure in its beliefs and defense of the Constitution and that it should jump down in the political muck with everyone else.

I encourage you to read the article and imagine that it involved defense of any other Constitutional provision, say free-speech rights or civil rights.  The tone of the editorial would be unthinkable if aimed at any other defense of a Constitutional protection.  Someone always has utilitarian arguments for voiding things like free speech protections -- that is why defenders of such rights have to protect them zealously and consistently.  The ACLU doesn't get into arguments whether particular speech is right or wrong or positive or negative -- it just defends the principle.  Can't Goldwater do the same?

My thoughts on the Coyotes deal are here and her.  Rather than dealing with the editorial line by line, which spends graph after graph trying to convince readers that Darcy Olsen, head of the Goldwater Institute, is "snotty,"  here are some questions that the AZ Republic could be asking if it were not in the tank for this deal

• How smart is it for the taxpayers of Glendale to have spent $200 million plus the proposed $100 million more to keep a team valued at most at $117 million? (several other teams have sold lately for less than $100 million)  And, despite $300 million in taxpayer investments, the city has no equity in the team -- just the opposite, it has promised a sweetheart no-bid stadium management deal of an additional $100 million over 5 years on top of the $300 million.
• The Phoenix Coyotes has never made money in Arizona, and lost something like $40 million last year.  Why has no one pushed the buyer for his plan to profitability?  The $100 million Glendale taxpayers are putting up is essentially an equity investment for which it gets no equity.  If the team fails, the revenue to pay the bonds goes away.   The team needs to show a plan that makes sense before they get the money -- heck the new owners admit they will continue to lose money in the foreseeable future.     I have heard folks suggest that the Chicago Blackhawks (Hulzinger's home town team) are a potential model, given that they really turned themselves around.  But at least one former NHL executive has told me this is absurd.  The Blackhawks were a storied franchise run into the ground by horrible management.  Turning them around was like turning around the Red Sox in baseball.  Turning around the Coyotes is like turning around the Tampa Bay Rays.  The fact is that the team lost $40 million this year despite the marketing value of having been in the playoffs last year and having the second lowest payroll in the league.  The tickets are cheap and there is (at least for now) free parking and still they draw the lowest attendance in the NHL.  Part of the problem is Glendale itself, located on the ass-end of the metro area  (the stadium is 45 minutes away for me, and I live near the centerline of Phoenix).
• If taxpayers are really getting items worth $100 million in this deal (e.g. parking rights which Glendale probably already owns, a lease guarantee, etc) why can't the team buyer use this same collateral to get the financing privately?  I have seen the AZ Republic write article after article with quote after quote from Hulzinger but have not seen one reporter ask him this obvious question.  I have asked Hulzinger associates this question and have never gotten anything but vague non-answers.  A likely answer is what I explained yesterday, that Hulzinger is a smart guy and knows the team is not worth more than $100 million, but the NHL won't sell it for less than $200 million (based on a promise the Commissioner made to other owners when they took ownership of the team).  Hulzinger needed a partner who was desperate enough to make up the $100 million the NHL is trying to overcharge him -- enter the City of Glendale, who, like a losing gambler, keeps begging for more credit to double down to try to make good its previous losses.
• Glendale often cites a $500 million figure in losses if the team moves.  Has anyone questioned or shown any skepticism for this number?  My presumption is that it includes lost revenue at all the restaurants and stores around the stadium, but is that revenue really going to go away entirely, or just move to other area businesses?  If your favorite restaurant goes out of business, do you stop going out to eat or just go somewhere different?
• We hear about government subsidies to move businesses from other countries to the US, or other states to Arizona, and these tend to be of dubious value.  Does it really make sense for Glendale taxpayers to pay $400 million to move business to another part of the Phoenix metropolitan area?
• Why do parties keep insisting that Goldwater sit down and "negotiate?"  Goldwater does not have the power to change the Constitutional provision.  Do folks similarly call on the NAACP to "negotiate" over repeal of Jim Crow laws?  Call on the ACLU to negotiate over "don't ask, don't tell"?  This may be the way Chicago politics works, with community organizers holding deals ransom in return for a negotiated payoff, but I am not sure that is why Goldwater is in this fight.  The Gift Clause is a fantastic Constitutional provision that the US Constitution has, and should be defended.
• Jim Balsillie offered to buy out the team (and move it to Canada) without public help and to pay off $50 million of the existing Glendale debt as an exit fee.  Thus the city would have had $150 in debt and no team.  Now, it will be $300 million in debt and on the hook for $100 million more and may still not have a team in five years when, almost inevitably, another hubristic rich guy finds he is not magically smarter about hockey and can't make the team work in Arizona.   Has anyone compared these two deals?  Private businesses cut losses all the time -- politicians almost never do, in part because they are playing with house money (ours).

Kevin Drum reports this chart on tax progressivity, with the comment that "the US is more or less right on target."

This is wildly deceptive chartsmanship.  Just because there is apparently a trend line here does NOT mean that all of the countries on that line have equal tax progressivity.   That would only be the case if the line were at 45-degrees.  But in fact, the tax share is increasing by 10 percentage points for every 4 points in income share.   This means that, even for countries on the line, the farther right one goes (on the chart, not politically) the more progressive the tax system is, at least vis a vis the top 10%  (Drum is probably right that you would get different results for the top 1%, but I think he is wrong to say that state tax systems are wildly regressive).

Here is the corrected chart.  The further right of the red line, the more progressive, making the US system (again for the top-10% measure) the most progressive of those on the chart.

It is interesting to note that the original chart tells us one thing -- countries with wider income distributions have the most progressive tax systems.  Which is an interesting and not necessarily expected outcome.  Certainly it seems to refute much of the purpose for such systems in the first place.

Update:  I am guess these are the data points on the chart, with analysis at the always terrific Carpe Diem

Looking over the last 35 years of history, I want to make the following proposal:  the Dictator Retirement Island.

Here is how it works.  The US puts a sum of money in a Swiss account for the dictator.  The US moves dictator to a lush island complete with lavish lifestyle complete with personal performances from US pop stars (this seems to be a very popular activity for both dictators and US singers).  The US guards the dictator from vengeful rebel groups, human rights organizations, threats if extradition, etc.  In exchange the dictator gives up power and allows the US to impose an interim Constitution and supervise free elections.

It used to be that deposed kings/emperors/strong men could find a home in exile somewhere.  The promise of exile probably helped prevent scorched-Earth battles by dictators who know that loss of power will mean torture and death.  The German Kaiser lived in exile for 20 years in the Netherlands after WWI.

Advantages:

• A whole lot cheaper than military action -- the first 10 minutes of our involvement in Libya when we launched a bunch of cruise missiles cost over $100 million.
• Saves a lot of lives, both citizens and US military
• Increases frequency of positive regime changes

Disadvantages:

• To say the least, monetary rewards heaped on ruthless dictators are fairly unsatisfying
• Ticks off human rights groups.  More importantly, ticks off rebel groups in home country (even giving medical care in US to deposed Shah was a huge problem for Iranian rebels)
• Many still might not accept, even when backed into a wall.  It's the power that is compelling, not just the money and lifestyle, and most dictators are really good at denying reality

This is the kind of story I always thought typical of corporate states like France. It is sad to see this happening so frequently in the US

Recently, President Obama selected General Electric CEO Jeffrey Immelt to chair his Economic Advisory Board. GE is awash in windmills waiting to be subsidized so they can provide unreliable, expensive power.

Consequently, and soon after his appointment, Immelt announced that GE will buy 50,000 Volts in the next two years, or half the total produced. Assuming the corporation qualifies for the same tax credit, we (you and me) just shelled out $375,000,000 to a company to buy cars that no one else wants so that GM will not tank and produce even more cars that no one wants. And this guy is the chair of Obama's Economic Advisory Board?

This is the classic kind of cozy relationship between large industrial corporations and government that has been a feature of European states for years.

Via Politico, from the liberty dollar trial

Attempts to undermine the legitimate currency of this country are simplya unique form of domestic terrorism,” U.S. Attorney Tompkins said in announcing the verdict.

“While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country,” she added. “We are determined to meet these threats through infiltration, disruption and dismantling of organizations which seek to challenge the legitimacy of our democratic form of government.

My guess is that QE2 and TARP and the stimulus did a lot more to undermine the US dollar than any efforts by Bernard Von NotHaus.  I would rather accept his silver dollars than, say, the script handed out by the State of California last year when they ran out of money.

I took my blog post from earlier this week and expanded it to a full-blown column on the NCAA and its efforts to never, ever let its athletes make a dime from their skills.  An excerpt:

University presidents with lucrative athletic programs will do about anything to distract attention from just how much money their Universities are making off of essentially unpaid labor.  Their favorite mantra is to claim they are holding up an ideal of “amateurism.”

The whole amateur ideal is just a tired holdover from the British aristocracy, the blue-blooded notion that a true “gentleman” did not actually work for a living but sponged off the local gentry while perfecting his golf or polo game.  These ideas permeated British universities like Oxford and Cambridge, which in turn served as the model for many US colleges.  Even the Olympics, though,  finally gave up the stupid distinction of amateur status years ago, allowing the best athletes to compete whether or not someone has ever paid them for anything.

In fact, were we to try to impose this same notion of “amateurism” in any other part of society, or even any other corner of University life, it would be considered absurd.  Do we make an amateur distinction with engineers?  Economists?  Poets?

When Brooke Shields was at Princeton, she still was able to perform in the “amateur” school shows despite the fact she had already been paid as an actress.   Engineering students are still allowed to study engineering at a University even if a private party pays them for their labor over the summer.  Students don’t get kicked out of the school glee club just because they make money at night singing in a bar.  The student council president isn’t going to be suspended by her school if she makes money over the summer at a policy think tank.

In fact, of all the activities on campus, the only one a student cannot pursue while simultaneously getting paid is athletics.  I am sure that it is just coincidence that athletics happens to be, by orders of magnitude, far more lucrative to universities than all the other student activities combined.

Name a multi-billion dollar industry where all the competitors in the industry have formed a single cartel.  This cartel performs many functions, but one of its highest profile functions is to aggressively punish any member who pays its employees more than a cartel-enforced maximum.

Believe it or not, there is such an industry in the US... college sports.  The cartel is the NCAA, and whenever the NCAA makes the news, it usually is with an enforcement action punishing a school for allowing any of its athletes to make more than the agreed maximum salary, which is generally defined as free tuition.  As folks are learning at Ohio State, even trading your autograph for a free tattoo is not too small a transaction to attract ruthless NCAA retaliation.

This ESPN page (via Phil Miller) shows 2010 athletic revenue by school.  Take the top school on the list, the University of Texas.  In 2010 its athletic program brought in over $143 million in revenues.  It paid its workers (athletes) who helped generate this revenue $8.4 million (in the form of tuition), or 5.9% of revenues.  Its hard to decide whether this is high or low, though this percentage of labor for a service business seems low.  Looking for an analog, we can turn to the NFL, which is currently negotiating a revenue split with players.  The issue is still under negotiation, but for years players have been guaranteed over 50% of total revenues.

Even the Olympics finally gave up its stupid distinction of amateur status, allowing the best athletes to compete whether or not someone has ever paid them for anything.  This only makes sense - we don't have amateur engineers who work for free before they give up their amateur status for the professional ranks.  I can still continue to earn my degree at college in programming while being paid by outside companies to do programming.   I can still participate in the school glee club if I make money in a bar singing at nights.  I can still be student council president if I make money in the summers at a policy think tank.  Of all the activities on campus, the only one I cannot pursue if someone is willing to pay me for the same skill is athletics.

Only the NCAA holds out with this dumb amateur distinction, and the purpose is obvious -- it provides cover for what otherwise would be rightly treated as worker exploitation.  And they get away with it because most of the members of this cartel are actually state governments, who are really good at exempting themselves from the same standards the rest of us have to follow.

Via Tom Nelson, here is an article today at Grist about today's Tsunami's called "This is what climate change looks like"

So far, today's tsunami has mainly affected Japan -- there are reports of up to 300 dead in the coastal city of Sendai -- but future tsunamis could strike the U.S. and virtually any other coastal area of the world with equal or greater force, say scientists. In a little-heeded warning issued at a 2009 conference on the subject, experts outlined a range of mechanisms by which climate change could already be causing more earthquakes, tsunamis, and volcanic activity.

"When the ice is lost, the earth's crust bounces back up again and that triggers earthquakes, which trigger submarine landslides, which cause tsunamis," Bill McGuire, professor at University College London, told Reuters.

When I look at events today, I think not of "climate change" but of "development".  Compare the casualties from today in Japan and Hawaii and the US west coast to those in, say, Indonesia.  Development saves lives through better construction, better communication, better early warning systems, and better transportation networks.   If one really wants to think about today's events in the context of climate change, think about the alarmists' proposed tradeoff between small and uncertain changes in the climate vs. almost certain reduction in development through climate-change programs.

My novel BMOC is now $0.99 at Amazon.  With my second book coming out sometime soon (I hope) I thought I would experiment with online pricing models.  I sold about 30 a month at the old price, but Glen Reynolds linked an article praising the 99-cent Kindle price point.  So what the heck, let's try it.  My loss is your gain, as the ads say.

Reasons you might like the novel:

• It's a sort of combination of Harvard Business School case study and murder mystery, with some humor thrown in
• The business at the center of the novel is actually the good guy (err gal, I guess, since the protagonist is female). While sympathetic to capitalism, the book is primarily a light crime novel, not some sort of Randian morality tale.
• The villains include a media mogul, a tort lawyer, a local news anchor, and a US Senator  -- just like life!
• Several of the business models were made up on the fly when I attended boring cocktail parties and entertained myself creating whimsical businesses for myself.  Since that time, readers of the book have emailed me with news stories of recent startup companies following almost identical strategies.
• 4-stars at Amazon

Via the WSJ, discussing the US's Siberian Gulag in the Caribbean:

The Obama administration on Monday announced plans for new Guantanamo Bay military trials and for the first time laid out its legal strategy to indefinitely detain prisoners who can't be tried but are too dangerous to be freed.

President Barack Obama issued an executive order to conduct periodic reviews of the cases of the nearly 50 detainees who will be detained indefinitely.

It used to be that people who had never been convicted of any crime but that certain people in the government considered dangerous were called "free men."

My column is up at Forbes, and is the fourth in a series on Obamacare.  An excerpt:

Its amazing to me how many ways supporters of government health care can find to rationalize the bad incentives of third-party payers systems.  Take, for example, the prevelance today of numerous, costly tests that appear to be unnecessary.  Obamacare supporters would say that this is the profit motive of doctors trying to get extra income, and therefore a free market failure.   I would point the finger at other causes (e.g. defensive medicine), but the motivation does not matter.   Let’s suppose the volume of tests is truly due to doctors looking for extra revenue, like an expensive restaurant that always is pushing their desserts.  In a free economy, most of us just say no to the expensive dessert.  But the medical field is like a big prix fixe menu — the dessert is already paid for, so sure, we will got ahead and take it whether we are hungry or not.

It should be no surprise that while US consumer prices have risen 53% since 1992, health care prices have risen at nearly double that rate, by 98%.  Recognize that this is not inevitable.  This inflation is not something unique to medical care — it is something unique to how we pay for medical care.

Contrast this inflation rate for health care with price increases in cosmetic surgery, which unlike other care is typically paid out of pocket and is not covered by third party payer systems.  Over the same period, prices for cosmetic surgery rose just 21%, half the general rate of inflation and just over one fifth the overall health care rate of inflation.

This is why I call free market health care the road not traveled.  There are many ways we could have helped the poor secure basic health coverage (e.g. through vouchers) without destroying the entire industry with third-party payer systems.  Part of the problem in the public discourse is that few people alive today can even remember a free market in health care, so its impossible for some even to imagine.

Update: Coincidently, Mark Perry has a post that addresses just the issue I do in my article, that is the positive effects of high-deductible health insurance and out of pocket health expenditures on pricing transparency and reduced costs.  The high deductible health plans at GM seem to be having a positive effect on the health care market.  A shame they will probably be illegal under Obamacare.  Of course, since GM is owned by the government, it can get any special rules that it wants, unlike the rest of us.  But that his how things work in the corporate state.

You often hear people say that one of the main reasons for health care inflation is the cost of all the new technology.  But can you name any other industries that compete in free markets where technology introductions have caused inflation rates to run at double the general rate of inflation?  In fact, don't we generally associate the introduction of technology with reduced costs and increased productivity?

Compare a McDonald's kitchen today with one thirty years ago -- there is a ton of technology in there.  Does anyone think that given the price-sensitive markets McDonald's competes in, this technology was introduced to increase prices?

Or look at medical fields like cosmetic surgery or laser eye surgery.  Both these fields have seen substantial introductions of new technology, but have seen inflation rates not only below the general health care inflation rate but below the CPI, meaning they have seen declining real prices for decades.

The difference is not technology, but the pricing and incentive system.  Cosmetic surgery and laser eye surgery are exceptions in the health care field -- they are generally paid out of pocket rather than by third parties (Overall, third party payers pay about 88% of all health care bills in the US).

The problem with health care is not technology -- the problem is that people don't shop for care with their own money.

Postscript:   Thinking some more after I wrote this, I can think of one other industry where introduction of technology has coincided with price inflation well above the CPI -- education.  It is interesting, but not surprising to me, that this is the other industry, along with health care, most dominated by third party payer systems and public subsidies of consumers.

Many of you may know that my business is engaged in private management of public recreation.  We get a lot of pushback from certain sectors who believe access to government lands or services should be free -- ie already paid for by their income taxes.

I often argue that this notion of discretionary services (like parks and campgrounds) being run with high cost government labor and funded by general revenue taxes is a dead one - in fact it has been dead for at least 10 years.  Just look around at public parks organizations.  Odds are that your state is facing parks closures and is very likely not fully funding park maintenance. I wrote about this failed model here.

In the future, anything discretionary government program that can charge use fees or be privatized or both will do so.  Or else it will be provided at terrible quality with long queues and frequent closures.  Don't believe me?  Lets look at the US government budget data from last year. This chart has been making the rounds -- I have not checked the data source but I presume it is correct (as usual click for larger version)

I have some interest in the science of chartmanship.  McKinsey & Company did a great job teaching me how to make a presentation, a skill I have honed somewhat in way too many planning and strategy jobs that seemed to revolve around Powerpoint  (one of the criteria for my current job is that it did not involve Powerpoint).

This chart is a case where the author used the wrong chart type.  The pie chart is not appropriate to show a changing total (as the author does with the size of the pie).  The eye has trouble assessing volumes.  I have taken the same data and put it in a slightly different form.  I did not take time to make it pretty, but I think it works better in this format:

Now do you see my point about discretionary spending?  Last year government taxes just about covered entitlements and interest on the debt.  Had we not borrowed, there was no money left over for any discretionary spending, including all of the Defense budget!  Now, even without action, the picture will improve in 2011 as taxes go up with a rising economy and some of the unemployment spending goes down.  But this might just get us to still having a defense department.  Either large swaths of discretionary spending is going to have to be zeroed out, or some sort of entitlement restructuring is necessary.

Of course, tax increases will likely be part of the mix as well, but look at the individual income tax bar.  Even doubling it would not close the budget gap!

In my Forbes columns over the past few weeks, I have been writing about information and incentive problems with any sort of Obamacare type system.  One of the points I made last week was this:

One of the key selling points of Obamacare was that it would reduce cost, in large part through smart public-spirited people making optimized decisions from the top in Washington.  Ignoring the fact that no other agency that has promised such angels of public service has ever delivered them, we discussed in the last few weeks how this task is impossible.  But we should have known that already through our past experience with the political process.  Political decisions are made politically, not by optimizing some public good equation.    Does anyone believe that come election time, Congress won’t vote to add mandates to procedures to placate powerful groups in their base, irrespective of the future costs this would incur?

Need an example?

In 2007 breast cancer was the third leading source of cancer mortality in the US, but it was by far the largest recipient of government cancer research dollars, nearly double that spent on any other type of cancer.    In 2009, out of hundreds of medical procedures, only two procedureswere on the mandated must-carry list of all fifty states – mammography and breast reconstruction.  It is no accident that both of these are related to breast cancer.  With its links to women’s groups and potent advocacy organizations, breast cancer is a disease that has a particularly powerful political lobby.    Similarly, we should expect that, at the end of the day, pricing and coverage decisions under Obamacare will be made politically.  Not because anyone in this Administration is particularly bad or good, but because that is what always happens.

This post from Q&O is a tad old but gets at just this point with a real-life Obamacare example

The opening line in a New York Times piece caught my attention.  It is typical of how government, once it gets control of something, then begins to expand it (and make it more costly for everyone) as it sees fit.  Note the key falsehood in the sentence:

The Obama administration is examining whether the new health care law can be used to require insurance plans to offer contraceptives and other family planning services to women free of charge.

Yup, you caught it – nothing involved in such a change would be “free of charge”.   Instead others would be taxed or charged in order for women to not have to pay at the point of service.  That’s it.  Those who don’t have any need of contraception will subsidize those who do.  And the argument, of course, will be the “common good”.   The other argument will be that many women can’t afford “family planning services” or “contraception”.

But the assumption is the rest of you can afford to part with a little more of your hard earned cash in order to subsidize this effort (it is similar to other mandated care coverage you pay for but don’t need).  Oh, and while reading that sentence, make sure you understand that the administration claims it has not taken over health care in this country.

The next sentence is just as offensive:

Such a requirement could remove cost as a barrier to birth control, a longtime goal of advocates for women’s rights and experts on women’s health.

So now “women’s rights” include access to subsidies from others who have no necessity or desire to pay for those services?  What right does anyone have to the earnings of another simply because government declares that necessary?

It is another example of a profound misunderstanding of what constitutes a “right” and how it has been perverted over the years to become a claim on “free” stuff paid for by others.

Administration officials said they expected the list to include contraception and family planning because a large body of scientific evidence showed the effectiveness of those services. But the officials said they preferred to have the panel of independent experts make the initial recommendations so the public would see them as based on science, not politics.

Really?  This is all about politics.  The fact that the services may be “effective” is irrelevant to the political questions and objections raised above.  This is science being used to justify taking from some to give to others – nothing more.

If you want some enjoyable satire this Friday, this is a nice piece from Ken at Popehat, who has gone the libel tourism route by using French courts to sue a US editor for a bad review of a US book by a US author.

The article becomes all the sweeter as a recent email he received raises the possibility that this particular academic completely missed the heavy-handed irony and satire.

In one of those strange small-world things, my college roommate and I both have columns at Forbes.com.  Brink Lindsey's first installment is here.  In it, Brink expresses optimism for the prospects for continued US income growth.

Collective bargaining was adopted as a key tactic for labor out of the sense that, by banding together in labor negotiations, workers were able to offset a perceived power imbalance vis a vis employers.  But what happens if the management team on the other side of the table in labor negotiations is not actually an adversary?

We have seen in the last week that the Democratic Party is operating, right up to the US President, as a wholly owned subsidiary of the public employee's unions.  In such a case, where state governments are historically dominated by Democrats, is it any wonder that compensation packages for unions have skyrocketed?  They have been negotiating with themselves!

My new column, second in a series, is up at Forbes.  It is the second of a three-part series, and looks at incentives issues with Obamacare.  A few excerpts:

In the late 1960s, as part of the Great Society program, the US government constructed huge government housing complexes, with the goal of guaranteeing that everyone, no matter how poor, would have access to housing.  By the turn of the century, most of these complexes had succumbed to the wrecking ball  -- the era of large public housing complexes was over.

Why?  Well, there were a lot of reasons the program failed, but a big one was faulty incentives.  By getting free housing, recipients had no "skin in the game," no ownership, no financial participation in their housing.  As a result, many treated their taxpayer-funded abodes with contempt.  Why not?  They weren't paying for it.  And if the property was in good shape at the end of the lease, they didn't get any extra money.

I often compare Obamacare to the great failed public housing projects by warning folks that government health care is going to be much worse.    With the housing projects, we taxpayers paid large sums of money but only a few actually had to live in the horrible government apartments -- at least most of us were able to keep our own homes.  With Obamacare, it is going to cost us even more money, and we are all going to have to move, figuratively, into the projects.

If we are all forced to have the same, low deductible, first-dollar health plans, what incentive is one going to have to stay out of the health care system, even for something minor?

I also talk about the incentive for drug development

Look around the world today -- not one country with a government health care system pays drug reimbursement rates at a level that provides any incentive for new drug development.  In fact, almost all of the world's health care R&D is paid for by Americans.  What happens when politicians, trying to close an exploding health care spending hole in the Federal budget, do exactly what every other country in the world has done and use their power to drive drug prices down to marginal cost?

In fact, to be confident that there will continue to be health care innovation in the future at all, one has to believe that the US Government will act completely differenlty in running its government health care system than does every other government in the world, despite the fact it will have the incentives to behave identically to all of them.  Is this a bet you feel good about?

Many of you may be familiar with threatened closures of state parks in many states in the country.  Due to budget issues, state parks budgets have been slashed for years, and in many cases state parks are litterally falling apart due to deferred maintenance.  Now, faced with further budget cuts, states are in the process of closing many state parks.  Arizona has already announced a closure list, and California is expected to release a closure list this week.  States including Washington, Texas, Florida, New York, and New Jersey are all actively discussing park closures.

Far larger than any state parks agency, in fact the largest public recreation agency in world (by total number of sites) is the US Forest Service, which operates campgrounds, picnic areas, hiking trails and boat launches in nearly every nook and cranny of the country.  Yesterday, in President Obama's new budget, the President proposed drastically slashing the US Forest Service (USFS) recreation budget.  This is no surprise, as the USFS has had its recreation budget eroded for decades.

But despite these cuts, most USFS recreation sites will remain open.  There is no talk, as in the states, of wholesale closures.  There is, in most USFS recreation sites, no growing accumulation of deferred maintenance.  In fact, even if Congress and the President shut down the government (as happened under Bill Clinton and may happen this year), many USFS recreation sites, unlike nearly every other Federal facility, will remain open.

Why?  Because decades ago, the USFS was forced to find and adopt a new model for managing its recreation sites, a model that could easily keep most state parks open if states were willing to consider it.  To understand this opportunity, we first need to look at the traditional model for running public parks.

Traditional Model

The traditional model for running public parks and recreation sites has two components:

• Use of high cost government labor to run park operations.  Beyond just being high cost (in absolute wages and benefits) this labor is generally not well-matched to the task.  For example, state employees are hired for 12-month-a-year jobs, even when park visitation is highly seasonal.  In addition, college environmental science and parks management grads are employed whose interests are not well-matched to mundane tasks that dominate park operations, such as cleaning bathrooms and picking up trash.
• Providing free or very low cost access. Most state parks offer free or below-market public access fees for day use parks or campgrounds.  While it makes sense for agencies to offer free options for the public in their portfolio of parks, offering subsidized pricing at every park creates a huge need for appropriated funds (particularly given their high operating costs).  While this subsidized access seems to be a public benefit, it actually works against the public as general fund appropriations dry up and maintenance has to be deferred and parks have to be closed.

One step several states have taken is to abandon the second part of this model by charging market pricing, and even above-market pricing.  Arizona State Parks generally charges market-level pricing for park entry, but as budgets got tighter they actually doubled entry fees to as much as $20 per car to park  at certain popular parks.  California has done the same thing, increasing the price of no-hookup camping as high as $30 a night, when pricing of similar campsites in, say, the USFS in California typically run no higher than $18-$20 a night.  The reason for this is their very high cost operations model, and even these higher fees have not headed off park closures in these states.

A New Model

About 30 years ago, the USFS began experimenting with a new model for running its recreation sites.  I can't say that the USFS did this willingly, and even today there are many in the agency who long for the day when they can return to the traditional model.  In fact, necessity, in the form of Congressional legislation combined with declining appropriated funds for recreation, really forced the change.  Today, over half of USFS recreation facilities are run under this new model, and if weighted by visitation, the number surely would be over 90%.

The model includes these two key elements:

• Use of low-cost private labor for operations.  Thirty years ago the USFS began using private operators to run campgrounds and busy day use facilities under a concession arrangement, meaning the private operator collected all revenue and paid all expenses for the site, and paid the USFS a fee for the privilege of doing so.  With the stroke of a pen, sites that required appropriated money to operate suddenly were money makers for the USFS.  As a further refinement, Congress gave the USFS the authority (and the incentive) to apply the fees they earned from campground and park operators to maintenance and improvement projects in the recreation facilities themselves.
• Charging market-based use fees.  In this program, private operators charge market-based fees (which must be approved by the USFS) that fully cover their costs AND allow for a payment back to the USFS.  Recreation sites in this program no longer require public appropriations at all -- they are entirely self-sustaining.  That is why many USFS recreation sites will remain open even if the government shuts down

As both the public agency and private operators have gained knowledge about the program, this model has continued to be improved.  For example, early on the USFS merely offered the largest facilities to private managers.  However, they soon learned that if they continued to do so, they might be worse off budget-wise because they would be left with many small, expensive facilities to manage themselves.  As a result, the USFS has learned to offer private operators packages or bundles of recreation sites, that generally include all the sites in one geographic area, big and small.

It is important to understand that this is merely a lease arrangement -- this is not a stealth way to dispose of public lands into private hands.  These are highly structured arrangements that require the private operator to conform to numerous restrictions.  In particular, the private operator may not change or add facilities, services, operating hours, or fees without the agency's written permission.  No one, in other words, is out there building a McDonald's in front of Old Faithful under this arrangement (there are several other very predictable critiques of this model, which hare answered here).

One added benefit of this arrangement is that, though there are some bad private operators, in general facilities are actually run better under this model.  One reason is that maintenance and operations are fully funded, so no skimping is required.  Another reason is that since they are paid with park revenues (rather than some flat fee), private operators benefit from, and therefore have the incentive to encourage, higher visitation.  Finally, the skills and preferences and background of most private workers are better matched to the routine operating tasks required.  As a result, most privately operated public parks get good reviews for their quality.   As just one example, this independent site ranks public campgrounds in Arizona -- in this survey, three of the top five sites are run by a private concessionaire in the USFS program, while none are operated by our state parks agency.

The Future

As I mentioned earlier, there are many people both inside the USFS and in the general public that long to return the traditional model -- Agency leaders would love to have the prestige that would come from larger headcounts and budgets;  public employees unions would generally rather see parks closed than have further precedents for private management established; and certain recreation user groups would prefer that taxpaying non-users pay for their recreation.

But the bankruptcy of the traditional model is likely here to stay.  Current budget problems in state parks is not simply a product of this recession -- for example, here in Arizona, park maintenance was under-funded even in the good times.  The reality of government is that non-discretionary expenditures (e.g. health care, entitlement, pensions) are growing far faster than the economy and are going to totally consume government budgets.  Discretionary spending, particularly in the case of things like parks that can support themselves with fees, is going to continue to be crowded out.

If you are interested in this model, you can find out more at this site  (just scan down the page).  We are planning a national conference on private management of public parks as a way to keep parks open, and you can sign up for information on the conference here.  And, as usual, you are always welcome to email me at the link on this site.

Last year, there were about 3.2 trillion passenger miles driven by urban drivers in cars in the US.  My point about light rail is that we can barely afford it for just a few people, given that we spent $1.3 billion to build a rail line for just 17,000 daily round trip riders in Phoenix.  If it were truly a sustainable technology, it could be applied to all commuters.  But at a national average taxpayer subsidy per light rail passenger mile of about $2**, this means that to roll light rail out to every urban commuter would cost $6.4 trillion a year in government spending, almost half our annual GDP.  If it required the subsidy rates we have in Phoenix per passenger-mile, such a system would cost over $12 trillion  year.  In fact, the numbers would likely be even higher in reality, because light rail in most cities is almost certainly built on the highest populated corridors with the most bang for the buck (though some of the diminishing returns would be offset by network effects).

Light rail only works today because we drain resources from millions of taxpayers to benefit just a few generally middle class commuters.    This is not a model that will scale.

** This includes both service on the debt, which is payment for the original construction costs, as well as annual operating losses.  This subsidy is required essentially forever.  After 20-30 years when the original bonds are paid off, by that time systems generally have to be rebuilt in their entirety   (as folks in places like Washington DC are learning).  There are probably only 5-6 cities in this country that have the urban population densities to make rail systems come even in the ballpark of working financially, and places like Phoenix, Seattle, Houston, Portland and LA are NOT among them.

Let me offer up a definition of sustainability that I think most environmentalists and progressives would accept:

We are acting in a sustainable manner if we are achieving our goals in a way that does not hamper the ability of other people in the world, or of future generations, to achieve their goals.

Most environmentalists and progressives would call light rail lines in US cities a "sustainable" technology because of its notional impact on fuel use and CO2 output (yeah, I know, but we are not going to address those assumptions today).

Let me present one fact, from Federal Transit Administration's 2009 survey of public transit authorities, whose data is linked in various ways here.  Or you can download the summary spreadsheet here.  For all US light rail systems in total:

User fares paid per passenger-mile:           $0.18

Total cost per passenger-mile:                     $2.22

Taxpayer subsidy per passenger-mile:       $2.04

Since I live in Phoenix and the Phoenix light rail system seems to get particular praise as a "success" from light rail supporters, here are the Phoenix light rail numbers;

User fares paid per passenger-mile:          $0.07

Total cost per passenger-mile:                     $3.89

Taxpayer subsidy per passenger-mile:       $3.82

So there, folks, is your sustainable technology.  As I have written before about sustainability, "I do not think that word means what you think it means."

Nationwide, non-users of light rail pay for 92% of its costs.   In Phoenix, non-users pay for 98% of the costs.  Taking the Phoenix system as an example, resources are drained from literally millions of people so that 17,000 or so people can ride it round trip each day.   Using resources from millions of people, and building up debts that will last into the next generation, to support the transit of just a few people, seems to be the antithesis of sustainability.

If there is any common denominator among progressives, it is that they have little respect for how individuals spend their money.  So they might be unmoved by the loss of resources from so many.  So lets just look narrowly at transit, which I presume the do care about.

Before Valley Metro operated a light rail system in Phoenix, they also operated a bus transit system.  This system still requires a subsidy, but it is much lower than the light rail subsidy.  In 2009, the bus subsidy was $0.74 per passenger-mile.  This means that for the same amount of taxpayer funds, Valley Metro can provide 1.0 passenger-mile by train or 5.2 by bus ($3.82/$0.74).   I can guarantee that cities building light rail are not having their budgets quintupled.  So the result is that, as light rail gets built, total transit ridership falls in most cities as rail costs crowd out existing bus services.

Update: Most light rail articles in our local papers, which have been mindless boosters of the system, generally consist of asking riders if they like the system, who inevitably answer "yes!"  This is somehow a proof the system is great.  Well, duh.  I too am likely to be happy with a service where I only pay 2% of the costs.

Update #2:  Last year, there were about 3.2 trillion passenger miles driven by urban drivers in cars in the US.  My point about light rail is that we can barely afford it for just a few people, given that we spent $1.3 billion to build a rail line for about 17,000 daily round trip riders in Phoenix.  If it were truly a sustainable technology, it could be applied to all commuters.  But at a national average taxpayer subsidy per light rail passenger mile of about $2, this means that to roll light rail out to everyone would cost $6.4 trillion a year, almost half our annual GDP.  If it required the subsidy rates we have in Phoenix per passenger-mile, such a system would cost over $12 trillion  year.  In fact, the numbers would likely be even higher in reality, because light rail in most cities is almost certainly built on the highest populated corridors with the most bang for the buck (though some of the diminishing returns would be offset by network effects).

This chart, from a book by Branko Milanovic via Carpe Diem reinforces a point about income distribution I make all the time -  for all we talk about income distribution in this country, our poorest 20% would be middle class in many countries of the world.  While I would love to see our poor doing even better, it begs the question of whether distribution or absolute prosperity is more important.

Just to give you a feel for reading the chart, the US's lowest ventile, or bottom 5%, have income that would put them in the 68th percentile worldwide.    Our poorest 20% (the first 4 ventiles) would be upper middle class or better in Brazil, China, and India.

When comparing to European social democracies, it turns out that while the US's income distribution is wider, that is almost entirely due to the top end being higher.  The poorest 10% make about the same as the poorest 10% in Europe, and I would argue that this analysis (from a leftish think tank) actually underestimates a quality of life advantage for American poor, who come out higher even than the middle class in Europe on things like living space and appliance ownership.

Perhaps more importantly than income inequality, income mobility remains high in this country. More on income inequality concerns here.

I want to post more later when I have time on the whole notion of giving the US President an Internet kill switch (short review:  yuk!)

But I wanted to correct one bit of sloppiness in a number of posts.  Access to the Internet is not a human right.  If it were, the implication is that some groups of people would have to be coerced to provide Internet access to those who currently don't enjoy it.

The correct way to phrase the issue is "Turning off or blocking the Internet is not a government right."