Coyote Blog

Apparently, USAirways (the recently merged product of America West and US Air) has made a bid for buying Delta out of bankruptcy.  The bid is around $4 billion in cash and $4 billion in USAirways stock.  Which got me thinking about airline mergers in general.

Companies can be thought of as having tangible assets (trucks, airplanes, factories) and intangible assets (reputation, employees, brand names, contracts).  Most companies are worth far more than the book value of their tangible assets.  Most of Microsoft's value, for example, is in it's products, its brand, its franchise, its contracts, its people, etc., not in hardware or buildings.  As a result, most acquisitions are completed at prices far above the book value of the assets of the purchased company.  The difference is called "goodwill" by accountants and "enterprise value" by economists.

But enterprise value is a problem in airline mergers.  Most investors expect to pay and get paid a premium over asset values in a merger.  But I am not sure there should be any such premium nowadays for airlines, because I fear that the typical airline's "goodwill", or the value of their intangible assets, may be negative.

Take the example of Delta.  Unlike scrappy competitors like Southwest and JetBlue, Delta has a lot of baggage (so to speak).  First and foremost, they have terrible legacy union contracts that mean that pay all of their employees much more money than do startup airlines and they are much more constrained by work rules in improving productivity.  They have huge and building under-funded retirement and medical accounts.  They have legacy contracts that may suck, and they often have hodge-podge mixed fleets that are hard to maintain.  All of this tends to add up to a negative effect on value.

The one positive intangible companies like Delta have is their brand value, and I would argue that most of that is tied up in their frequent flier programs[** Update Below].  Without these programs, most frequent fliers have demonstrated that they would switch airlines for trivial improvements in fares.  This value in the frequent flier programs was demonstrated in the America West merger (among others), when Juniper Bank contributed $455 million (!) to the merger for the right to issue the visa card attached to the program.  Wow.

Given this problem of negative enterprise value, it is not surprising that savvy upstarts like JetBlue and Southwest before it have not grown by acquiring other companies.  Both are willing to take advantage of bankrupt competitors to grow, but they only have bought assets (like planes and gates) rather than whole enterprises, so they don't inherit legacy contract or union issues.  When the companies who are making money do things one way, and the companies who find themselves in bankruptcy court every five years do it another way, the difference probably matters.

Which brings me to the title of the post and agency costs.  It is really, really uncertain whether buying Delta is good for the USAirways shareholders.  Since buying airline equities has always been a losing proposition over the long haul, the deal only makes sense if 1)  They are getting a screaming deal, either because of Delta's bankruptcy or because they are doing the deal in just the right part of the business cycle; or 2) They can really harvest synergies, which in this case would have to include shutting down entire hubs, such as Charlotte in favor of Atlanta or Cincinnati in favor of Pittsburgh.   While I can't speak to the latter with any facts, you have a better chance betting Arizona will win the Superbowl than betting any acquisition hits its promised synergy values.

But if the value of the acquisition is unclear for shareholders, there is one group that almost certainly benefits:  USAirways management.  Management, even if shareholders don't get a great deal, will benefit in both monetary and non-monetary (e.g. status) ways from running an airline three or four times as large as the current enterprise.  This mis-match in incentives between hired management and shareholders is called agency costs, and is something every board should be more cognizant of when approving acquisitions.

**Update:  A rant on the ethics of frequent flier programs

The Democrats are in the process of making some really silly choices for their leadership positions, so the Republicans take the opportunity to grab the moral high ground by... bringing Trent Lott back into the leadership?  Huh?  Other than being perhaps a convoluted FU to John Conyers, who has been dissing Mississippi, what sense does this make?  I thought Jeff Flake made a convincing argument on 60-Minutes that the Republicans had blown their own foot off in this last election.  It seems that rather than putting down the gun, they are just raising their aim.

I don't know where I got the link from, but this is the best comment I have seen on the whole Trent Lott election, from Dean Barnett:

If
there's one message that the electorate sent the Republican Party last
week, it's that we hadn't given them enough of Trent Lott. I cannot
adequately express my delight that Senate Republicans have moved with
such expediency to right this egregious wrong.

Well, probably not.  But Seattle voters did take the great step of banning public subsidies for pro sports teams, which usually take the form of sweetheart stadium deals.  Of course, this being Seattle, the proposition's promoters were motivated less by libertarianism than by the desire to spend more government money on other things.  But since public funding of stadium's is a personal pet peeve, I will give them one cheer.

A while back I compared the escalating public subsidies of pro sports teams to a prisoner's dilemma problem:

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

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

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

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

"These very simple guidelines,
You can rely upon:
You're gouging on your
prices if
You charge more than the rest.
But it's unfair competition if

You think you can charge less!
"A second point that we would make
To
help avoid confusion...
Don't try to charge the same amount,
That would
be Collusion!
You must compete. But not too much,
For if you do you see,

Then the market would be yours -
And that's Monopoly!

That is from the Incredible Bread Machine by R.W. Grant.  And it seems to sum up the position of gasoline retailers given this story from Denver, where a grocery store chain was successfully sued for $1.4 million because it provided gasoline discounts to customers who bought over $100 of groceries.

Gasoline retailers can't win. One day, they're
accused of "gouging" us at the pump with outrageously high prices; the
next, they're accused of "predatory pricing," which means giving us a
deal so good it's illegal....

The effect of the $1.4 million jury verdict against Dillon Co.
means that two of its grocery chains, King Soopers and City Market,
will no longer give customers gas discounts based on grocery purchases.

Safeway wasn't a defendant but it got the message and likewise
suspended its discount program at 43 of its fuel centers. Discounts
sponsored by other supermarket or big-box chains are also expected to
end.

The lawsuit was based on Colorado's 69-year-old "Unfair
Practices Act," which prohibits selling a product "below cost." The law
is supposed to be enforced by the attorney general's office, but the AG
hasn't brought an action for years because of the near impossibility of
proving that gas sales are below cost when so many grocery products are
also involved.

But the law also permits private civil suits in which winning
plaintiffs are entitled to treble damages. The plaintiffs here were a
couple of independent gasoline dealers in Montrose spurred on by a
trade group representing the state's independent petroleum marketers....

The theory behind predatory pricing laws is that a large
company will sell certain products below cost in order to drive out
competitors. Once the competitors are gone, goes the hypothesis, the
big company will jack up prices to a monopoly level.

The only problem is, this never happens. New competitors always
move fast into markets where prices are unjustifiably high.
Predatory-pricing suits are generally filed by existing companies
unable or unwilling to meet competition provided by more efficient
firms. Legal restrictions on cutting prices invariably work against the
consumer.

I pointed to a similar situation a while back in Maryland.  Thanks to Overlawyered for the pointer.

It was a stunning weekend here in Phoenix.  Spent most of it at kid's sporting events, but got a chance to go to the Phoenix zoo and finally visit our new orangutan baby.  Got some great pictures with my Nikon D50, including this one that really came out great:

Don Boudreaux has a great response to the growing tide of protectionism, as espoused and defended by Harold Meyerson:

Harold
Meyerson repeats the canard that "globalization entails [a] downward
leveling" of economic well-being ("Tipping Point for Trade," November
11).

This belief is crushed by mountains of evidence.  It's
crushed also by its own illogic: if ordinary people are served by being
"protected" from globalization, then they can be made even better off
by being protected from countryization - and better off still by being
protected from townization and neighborhoodization.  Protectionist
quackery implies that we achieve maximum prosperity when no one
consumes anything produced by anyone else.

Bravo.  I wrote about my fears of a Democratic Congress rolling back Bill Clinton's free trade legacy here.

Glenn Reynolds quotes Ann Althouse as follows:

ANN ALTHOUSE IS DEPRESSED:
"It's the failure of Americans to support the war. It's the folding and
crumpling because things didn't go well enough and the way we
conspicuously displayed that to our enemies. They're going to use that
information. For how long? Forever."

Despite my initial opposition to the war in Iraq, once we were there I have always been a stay the course guy.  Partially for the reason that Althouse mentions, the damage to our credibility, and partially just because we have made a commitment to the Iraqi people and it would be dishonorable to leave them in the current mess without help.

What Althouse misses is this:  American's are not necessarily ready to give up on the war in Iraq, but they are ready to give up on the Administration's management of it.  One definition of insanity is doing the same thing over and over again and expecting different results.  This is how many folks, including myself, see our effort in Iraq.  We beat our head over and over against the same wall in the same place, expecting different results, and we don't get them.  People need to see an acknowledgment that the current approach is not working, so we are going to try X instead.

In this context, "stay the course" looks less attractive.  Because no one can seem to communicate what the extra time is going to buy us.  What will be done in three more years that was not done in the last three?  Or will we have to support the Iraqi's for decades against their own desire to tear themselves apart, so twenty years from now we can say "well, it took all our capacity and the military got nothing else done, but we finally converted one bad regime out of about fifty out there to a democracy."

I am willing to give the administration one more shot to define success in Iraq and a plan for getting there.  Right now, many Americans feel like the only two choices are "retreat now, with Iraq still a mess" and "retreat in five years, with Iraq still a mess and after a lot more casualties."  The administration is going to have to define an option 3 to get people back on board.

I was wondering this morning if I could turn public opinion against penicillin.   After all, hundreds of people die every year from taking penicillin.  If I ran a newspaper, every day I could feature another heart-rending story about a small child or a single mother with four kids dieing from a penicillin allergy.  Sure, some heartless fools who don't understand these poor people's suffering will say that penicillin is a net benefit.  But that will be easy to counter - I'd ask them to show me who was saved.  Sure, lots of people take it, but how can you prove they would have been worse off without it?  How can you prove how many people would have died without it?  I would have an easy time, because the victims of penicillin are specific and very visible, and the beneficiaries are dispersed.

I thought of this analogy while I was reading Jon Talton's column on the front page of the Arizona Republic business section celebrating the Democratic victory in Congress because we may finally be able to get rid of this awful free trade stuff.  As an aside, Talton has always been an interesting choice as the primary business columnist int he Republic, given that he doesn't really feel bound by the teachings of economics and he really does not like business.   His socialist-progressive formulations may be appropriate somewhere in the paper, but seem an odd choice for lead business columnist, sort of like finding a fundamentalist evolution denier, who still accepts Archbishop Usher's age of the earth, as lead science columnist.

I would fisk Talton's column in depth, but he doesn't really say anything except throwing together a hodge-podge of progressive rants against globalization (CEO pay, China, decimation of manufacturing -- he's got everything in there).   Like most progressives, he extrapolates flatness (not even declines, but flatness!) from 2001-2004 and declares that the world economy has changed and he has seen a major macro-economic trend (no mention of how the business cycle and recession we had in the same period might have affected things).

I will just take on one piece, where he says:

Americans were assured that new trade accords and China's membership in
the World Trade Organization would mean better living standards for
American workers. That's because China and other countries supposedly
would buy American exports.

Economists, what grade does Mr. Talton get?  F!  Because he demonstrates that he does not understand the economic argument for trade.  Because the argument does not actually require that foreign countries buy our exports for us to be better off with trade.   Comparative advantage says that even imports alone help our economy, allowing us to purchase inputs more inexpensively and refocus our domestic labor on tasks which we do comparatively better. 

The second fallacy with his statement is that export numbers grossly understate the amount of goods and services that foreigners buy from us.  Exports are only the goods they buy from us and take back to their country.  But foreigners buy many goods from us and use them in the US (say to build a factory or as an investment or financial instrument) and these foreign purchases of American goods don't show up as exports.  As long as the US is the safest and most stable country in the world, we will probably always run a trade deficit, as foreigners will continue to want to keep the goods and financial instruments they buy from us in the US where these assets are safer.  I wrote a lot more about this topic, and the recycling of dollars from China, here.

Finally, implicit in this anti-globalization view of trade is an assumption that the economy is zero-sum -- ie, there is sort of a global fixed pool of jobs, and if China gains steel market share and employment, the US net loses employment.  I have taken on this zero-sum mentality before, but it is particularly wrong-headed in this case.  Historically, the argument makes no sense.  For example, the automation of the farm sector wiped out 80 or 90% of the farm jobs in the US over the last century.  By the zero-summers logic, we should be impoverished.  Instead, these people were redeployed to manufacturing and service jobs that create far more wealth than the old 19th century farm employment.  But while people can sort of accept this historically, they can never accept this in real-time.  But the fact is that when we lose, say, a textile job to foreign competition, we not only gain because everyone pays less for textiles and thus has more money to spend on other things, but that worker gets redeployed over time to higher-value functions.  Look at the old textile belt in North Carolina - what's there now?  Electronics and Bio-tech.

The problem with trade is very like the one in the penicillin analogy -- it is all-to-easy to identify the few short term losers, who lost their job in American industries that can't compete with foreigners, but all-too-hard to find the huge dispersed benefits from lower prices and the continuing creative destruction that comes with strong competition.  This doesn't mean that individuals lives aren't disrupted, but it does mean that it's short-sighted to the point of being a Neanderthal to use these disruptions as an excuse to throttle free trade, just as it would be short-sided to ban penicillin because some people have allergic reactions.

It will be interesting to see if the Lou Dobbs populists rule the day on this issue.  If so, they it will be ironic that it is the Democrats, not the Republicans, who take the first major steps to dismantling the work of Bill Clinton  (because it sure as heck hasn't been GWB supporting free trade).

My prior posts on why you should stop worrying and learn to love the trade deficit are here and here and here and here.  I also looked at trade with China from the other side, and found it is China that should be mad about their government's trade policies and currency manipulation, not us:

It is important to note that each and every one of these
government interventions subsidizes US citizens and consumers at the
expense of Chinese citizens and consumers.  A low yuan makes Chinese
products cheap for Americans but makes imports relatively dear for
Chinese.  So-called "dumping" represents an even clearer direct subsidy
of American consumers over their Chinese counterparts.  And limiting
foreign exchange re-investments to low-yield government bonds has acted
as a direct subsidy of American taxpayers and the American government,
saddling China with extraordinarily low yields on our nearly $1
trillion in foreign exchange.   Every single step China takes to
promote exports is in effect a subsidy of American consumers by Chinese
citizens.

This policy of raping the domestic market in pursuit of exports
and trade surpluses was one that Japan followed in the seventies and
eighties.  It sacrificed its own consumers, protecting local producers
in the domestic market while subsidizing exports.  Japanese consumers
had to live with some of the highest prices in the world, so that
Americans could get some of the lowest prices on those same goods.
Japanese customers endured limited product choices and a horrendously
outdated retail sector that were all protected by government
regulation, all in the name of creating trade surpluses.  And surpluses
they did create.  Japan achieved massive trade surpluses with the US,
and built the largest accumulation of foreign exchange (mostly dollars)
in the world.  And what did this get them?  Fifteen years of recession,
from which the country is only now emerging, while the US economy
happily continued to grow and create wealth in astonishing proportions,
seemingly unaware that is was supposed to have been "defeated" by Japan.

There is nothing I think is dumber than the standard post-election plea for bipartisanship you see in newspapers after every election.  This election is no exception.  Get over it.  The Democrats won, they have been out of power for a while, and have a backlog of stuff they want to do.  I won't agree with a lot of it, which will put me in the same place I was with the Republican Congress.  I'm going to be pissed when the Democrats try to increase the minimum wage, roll back NAFTA, impose oil windfall profits taxes and raise income taxes.  Just as I was pissed when the Republicans passed McCain-Feingold, the prescription drug boondoggle, steel tariffs, and gave up on social security reform and any meaningful ethics and earmark reform.

Chris Edwards at Cato agrees:

That's nonsense. In a closely divided legislature, partisanship and
attacks on the other team are the logical course for both parties.
Because both parties know that either House or Senate could easily
switch back over in 2008, they will do their best to deny the other
side any legislative victories. The GOP's strategy now will be to show
that the Dems can't get anything done, so they block, filibuster, and
veto. They are the opposition in the House, so their job is to oppose.

The Dems will use their chairmanships and control of the House floor
to schedule partisan hearings and votes to try and make the Republicans
look bad any way that they can. The most important thing for Nancy
Pelosi will be to hold onto the majority and line up some divisive
issues to hammer on to help the party's 2008 presidential nominee. Note
that she won't be scheduling votes on tax hikes anytime soon, because
that would immediately revive the GOP and jeopardize 2008.

I do think the two parties are going to have to figure out how to get some judgeships filled, but I am not holding my breath.  My real wish is that Pelosi would pursue impeachment, not because I think it is justified but because it would tie Congress up into a magnificently entertaining gridlock.  Unfortunately, she has pledged she would not do so.

Postscript:  McCain-Feingold limits expired yesterday, so you have your free speech back.  You may criticize politicians again.

A number of years ago, when I was in marketing for the commercial aviation business at AlliedSignal (now Honeywell), I made a lot of presentations to folks that they shouldn't bet the farm on the Airbus A380 because it made no sense.  I didn't think it would ever get built.  Well, very few people in the aviation business wanted to hear this.  Most people in aerospace are airplane guys first, and business guys second.  They wanted this plane to be built and longed to be a part of it.  I left before everything was finalized, but my sense is they went off and spent tens of millions of dollars to develop products for the A380.

Well, I was right and wrong.  The plane still makes little sense, but it will get built. Maybe.  Someday.  What I underestimated in the latter question was the willingness of European governments to push the plane against the headwind of economic reality merely as a grand salve for the European ego.

What was wrong with the plane is still wrong now.  The original logic, which the company still parrots today, was that airport congestion would require larger and larger planes.  If airports are at capacity, in terms of the number of planes they could handle, the planes have to get larger, right?  Well, no.  The problem with the larger plane is that the FAA and other air transport regulators will require the larger plane to have larger spacing with trailing planes  (the larger the plane, the more they create turbulent air and very stable wingtip vortices that pose a danger to trailing planes).  In fact, regulators are going to force double or triple the spacing behind the A380 that is required of the 747.  How does the plane help congestion, then, if it holds twice the people but takes up three times the landing capacity?  Answer:  It doesn't.  The same arguments can be made where gate space is at a premium - loading and servicing times for the plane can be expected to be twice as long as a regular plane, so in effect it takes up double the gate capacity.

Glenn Reynolds links to this Popular Mechanics article covering this ground and more on the A380.

Postscript:  The alternate strategy to deal with congestion is to start to abandon the hub and spoke system and move to a point-to-point flight network using smaller planes and involving more airports.  This takes connecting traffic out of overloaded hub airports.  Its the way the market has been moving, with competitors like Southwest and JetBlue developing point-to-point networks.  Asia may be the exception to this development, and it is no accident most A380 orders are Asian airlines.

While I am patting myself on the back, I also said that the Boeing Sonic Cruiser made no sense.  The engine and body/wing technology that would make the Sonic Cruiser could either be applied to generate more speed at constant fuel consumption or to achieve current speeds at greatly reduced fuel consumption.  I predicted that 10 out of 10 airlines would prefer the latter.  And that is the way it played out, with Boeing dropping the Sonic Cruiser, the more monumental and sexy project, in favor of the unsexy but demanded-by-the-marketplace next generation fuel efficient mid-sized aircraft.

Donald Rumsfeld is resigning.  About time.  In the NFL, a head coach with his track record would have been fired a couple of seasons ago.  And I don't think any plan for Iraq going forward, no matter how enlightened, would be trusted at this point under his leadership.

Update:  Better and better, Hastert out too, at least from a leadership role.  Elections do matter.

Update 2:  It appears the Rumsfeld thing was in the works for a while.  Why didn't Bush drop him 2 months ago, a move that might have helped the Republicans in the elections?  I know everyone thinks Karl Rove is an evil genius but I just don't see it.  I don't see any brilliance in how the administration has communicated or the moves they have made.

I thought this was amazing, from an article by John Fund on the activist group ACORN.  Most of the article is about allegations of election fraud, but this caught my eye:

Founded by union organizer Wade
Rathke in 1970, Acorn boasts an annual budget of some $40 million and
operates everything from "social justice" radio stations to an
affordable-housing arm. Still run after 36 years by Mr. Rathke as
"chief organizer," it is best known for its campaigns against Wal-Mart,
and for leading initiatives in six states to raise the minimum wage....

Acorn is vulnerable to charges
it doesn't practice what it preaches. Its manual for minimum-wage
campaigns says it intends "to push for as high a wage as possible." But
it doesn't pay those wages. In 2004 Acorn won a $9.50 an hour minimum
wage in Santa Fe, N.M., for example, but pays its organizers $25,000 a
year for a required 54-hour week--$8.90 an hour. This year Acorn had
workers in Missouri sign contracts saying they would be "working up to
80 hours over seven days of work." Mr. Rathke says "We pay as much as
we can. If people can get more elsewhere, we wish them well."

In 1995 Acorn unsuccessfully sued
California to be exempt from the minimum wage, claiming that "the more
that Acorn must pay each individual outreach worker . . . the fewer
outreach workers it will be able to hire." Mr. Rathke acknowledges
higher wages can cost some jobs but that the raises for other workers
are worth it.

I am not sure this hypocrisy even requires further comment.  It is particularly hilarious that he argues that economic arguments against the minimum wage (e.g. that they reduce jobs) apply to a non-profit but not to for-profit companies.

This is also hilarious, for a group that is at the forefront of trying to unionize Wal-Mart:

One of them, Sashanti Bryant of
Detroit, Mich., was a community organizer for Acorn....Ms. Barton
alleges that when she and her co-workers asked about forming a union
they were slapped down: "We were told if you get a union, you won't
have a job." There is some history here: In 2003, the National Labor
Relations Board ordered Acorn to rehire and pay restitution to three
employees it had illegally fired for trying to organize a union.

I am glad I am not the only one who experiences anxiety over when to tip.  And from my experience, this observation by Scott Adams is dead on:

Now let me digress and add some context before I continue. Those of
you who travel a lot know that if you ask a driver about his life, you
never get a story that sounds like this: "Well, I was a drifter and a
hobo for awhile, but then I got this job driving you around. It's the
highlight of my life."

Instead you usually get something more like this: "After I won the
Nobel Prize I became a dissident in my country and had to flee. I
worked as a nuclear weapons inspector for awhile. Then I did some
software programming, which is easy because I have a doctorate degree
in math. Then I invented The Clapper and retired. Now I just do this
job to help out a friend."

Tonight, it appears that AZ voters will pass Prop 202 to raise recreation use fees in Arizona.  Oh, you say that's not what Prop 202 was for?  It was minimum wage?  That's right.  Prop 202 raises the minimum wage in AZ by 31%. 

I have written about the minimum wage many times.  For a variety of reasons, many seasonal recreation workers in AZ, and in fact in the US, are retired folks who work for minimum wage and a camp site to take care of a facility.  They love the job, and do great work, while filling seasonal jobs that younger folks trying to raise a family can't really take on.  When you take all wage related costs -- wages, payroll taxes, unemployment insurances, workers comp, liability insurance, etc. -- wages drive about 2/3 of recreation costs.  That means that a 31% increase in wages equates to a 20% increase in recreation use fees for camping, boating, day use, etc.

What, you say?  That's not what we meant!  We consumers aren't supposed to pay this extra, you business guys are!  Well, my profit margin is about 5% of revenues, which is a pathetically low number for a service business.  Basically, I do this for fun -- I could probably make a better return investing in government bonds.  So, to avoid bankruptcy, wage increases get passed right through to use fees.  And since the law requires that the minimum wage be increased every year, it means that use fees will have to go up every year (for comparison, we have been able to hold many use fees flat for 3-4 years at a time, despite fuel and other costs).

Sorry.  My employees were happy to work for $5.15 an hour.  They did not ask for a raise.  In fact, I have a waiting list of people who want jobs at $5.15.  It was the voters of Arizona who decided that my employees could no longer legally accept this amount for their labor.  And, unfortunately, it is the voters of Arizona who will have to pay for this raise my employees did not even ask for.

There are those of a libertarian bent who want to believe that the current bitch-slapping that Congressional Republicans are being handed right at this moment portends well for libertarians:  I beg to differ.  Don't get me wrong, the Republicans deserve what they get.  But this election should not be taken as a sign that the electorate is going all libertarian.  Forget exit polls and what the news says about why people are voting the way they are -- that stuff is always garbage.  Look past the people races and look to the ballot initiatives.

All over America, I don't think voters are punishing Congress for wielding too much power over their lives.  Because when the voters themselves are being offered legislative power via propositions to use the full coercive power of government to compel their neighbors to do the majority's bidding, they are jumping on the statist bandwagon gleefully.  Minimum wage hikes, smoking bans, new regulations, bans on gay marriage, restrictions on immigrants; heck, we even have ballot initiatives with micro-regulations for animal cage sizes.   They are all passing in Arizona and across the country. 

Currently 77% of Arizonans have voted to make Arizona prisons mini-Gitmo's for illegal immigrants, denying them bail for any crime.  75% want to make sure no Spanish is spoken in the statehouse.  66% want to interfere in employer/employee wage negotiations.  55% want to give bar owners no choice in whether they allow smoking in their own private establishment.

Note that there is no consistent theme of conservatism or liberalism in these issues.   The first two might be seen as "conservative" issues and the second two as "liberal" issues.  But the same 2/3 are voting for each.  This is not a victory for the left or the right, but for big government populism.  The voters are getting a taste of bending their fellow citizens to their whims via the government, and they seem to like it.

Update: I am trying not to get mad, but 75% - 3/4 of the people in this state - are voting to not allow illegal immigrants to collect punitive damage awards.  I'm sorry, I understand that people are frustrated with the immigration topic, but there are certain things that strike me as basic under any notion of equal protection, that should apply irregardless of citizenship status.  Protections we should offer to any human being that happens to be in our borders.  And the ability to seek redress for damages in court should be one of them.

In addition, 57% are currently supporting the initiative to ban probation for meth users, so that even minor meth possession charges will lead to a jail term.  This means that the hugely enlightened and highly successful policy of filling up jails with marijuana users is going to be emulated and applied to meth use.

On the positive side, so far the gay marriage amendment is not passing, and the proposition to put limits on Kelo-type eminent domain takings looks like it will pass.

There just seems to be a huge philosophical muddle behind the voting here.  The electorate votes to limit kelo-type government takings and to require compensation in zoning cases where private land values are reduced, but at the same time votes strongly to ban smoking in bars and to raise the minimum wage, both of which are effectively government actions that takes value away arbitrarily from certain private individuals and businesses.

For years I have lamented tthat the average American has no philosophy -- he or she only has a hodge-podge of inconsistent political views stitched together from his/her parents, from peer pressure of their social group, and from random encounters with the media.  Never have I felt this as strongly as I do tonight.

After years of getting grief, mostly from the left, for its eschewing of zoning and land-use ordinances that more "enlightened" places like San Francisco and Portland are so famous for, residents of Houston are reaping the benefits of their historical Laissez Faire approach:

Houston's gains are nothing like those seen in the past decade in
the Northeast and California, but that may be the secret to Houston's
success and the reason a bubble is unlikely to develop here. Land here
is abundant, and the city has some of the least-restrictive land-use
and construction rules in the nation. Those factors help supply to keep
pace with demand and keep prices within reach of a broad range of
potential buyers.

"We haven't had a bad year in the past decade," says Lorraine
Abercrombie, chairwoman of the local Realtors group and marketing
director for Greenwood King Properties.

Houston's model is in stark contrast to cities such as Boston and
San Francisco, which have strict zoning, exacting building codes and
laws governing historical preservation. Some economists, including
Edward Glaeser of Harvard University, say excessive regulation in such
cities has slowed construction to the point where demand has
outstripped supply, fueling a run-up in home prices.

In the once-sizzling markets where home prices are falling, housing
costs are double, triple or even quadruple those of Houston. The
danger, says Dr. Glaeser, is such places have priced out today's highly
skilled "knowledge workers," forcing them to live in a more affordable
locale where their contribution to the economy might not be as great.
"These are places where only the elite can live," Dr. Glaeser says.

This issue is one of those great examples of the statist game to enlarge government.  Step 1:  Progressives argue for having government restrict land use and implement tight zoning.  Step 2:  Housing prices skyrocket, enriching the elite and making it tough for ordinary workers to own housing.  Step 3:  Progressives decry that lack of affordable housing represents a 'market failure' that must be addressed with more regulation.  For example, builders in the SF Bay Area are required to sell X number of below market rate 'affordable' homes for every Y homes they sell at market rates.  Step 4:  Builders costs go up from the new regulations, further reducing supply and increasing prices.  And the cycle just repeats, as bad outcomes from government regulation are blamed on free markets, and used to justify more regulation.

Here is a trick to try -- every time you see the word "sprawl" in an article, replace it with "affordable housing."  It makes for interesting reading.

Hat tip to Tom Kirkendall, who runs a great blog in Houston.

There was some discussion at Reason's Hit and Run blog about whether it made sense for libertarians to vote.  Here is my take:  Even if you can't find any of the human beings on the ballot worth voting for, your state probably has a variety of propositions on the ballot.  Unlike a people vs. people races, where both choices can suck, propositions generally have a "right" answer.  On your ballot, someone is probably trying to raise taxes or restrict freedoms, or, if you are lucky, there is a proposition to limit government power in some way.  Whatever the case, it's worth it to vote on them.  I talked about my approach to propositions here.

Here was one eloquent response to the same idea:

Reason is an awesome blog and offers logical, well
articulated points of view. This is why I was so disappointed when I
saw so many staffers (including yourself) not voting in the upcoming
election. The idea that anyone's vote "doesn't count" is ridiculous and
slightly offensive. I will grant you that rarely, if ever, an election
of any sort is decided by a single vote, however in a country where
government is growing out of control on every level the limited
government folks need to show up, not so they can get their candidate
elected, or their issue passed or defeated, but to make their voice
heard. If even 5% voted consistently to limit government, one of the
two pro-government growth parties would have to take notice and at
least modify their platform a little to win those votes back, or risk
having a third player (heaven forbid) be considered as a potential
winner.

I am more frustrated than anyone at the intrusion of
government into nearly every aspect of our lives, and the continued
growth of said intrusion. However, I think it is critical that I show
up at the poles and vote for every limited government candidate, and
vote down every tax-spend-regulate proposition offered.

Update:  Done.  Very easy.  I know there was a lot of hoo-hah about showing ID's at the polls, but it felt pretty natural, especially since it is but one of about 20 transactions I make each week that requires an ID.  I cast votes for members of three different parties, which surely puts me in a minority.

I already described our first Hallmark moment with the new dog.  Here is a picture.  You can see that our home defense needs should now be taken care of.

Arizona has pages of ballot initiatives (or propositions) up for vote on the ballot tomorrow.  Here is my approach to voting on these initiatives:

• My default is a no vote on everything.  After all, most of these initiatives are regulations and tax increases that even the legislature, not shy about passing either, has not wanted to take on.   Having a default vote is very helpful - if I am unsure, if there is doubt, if I don't fully understand the issue, then it gets a "no".  Like "not guilty" in a criminal trial, its my default answer.
• I then look for tax cuts and regulation relief.  There tends to be little of this.  We have one ballot initiative that looks like it will help keep property taxes under control, and one that does a nice job circumscribing eminent domain takings as well as regulating "soft" takings (changes to zoning or land use that make a property less valuable without compensation).  On these I will switch my vote to "yes".
• I then look at bond issues.  A growing city like Phoenix needs facility expansions, and bond issues are a reasonable way to do so.  However, a lot of crap gets loaded in these.  Typically they will say the bond issue is "for schools" to get everyone to vote for it and then load a lot of garbage in it.  I believe California has some of this going on.  We have no bond issues up for vote in my district but we do have a proposition to increase the size limit of future bond issuances.  I am still thinking about this one, but if I can't get excited about it, it gets the default vote - "no".
• I will then consider procedural changes in government, but with a heavy bias towards "no" due to the laws of unintended consequences.  I don't understand the procedural changes being suggested in two initiatives on public land use so I will vote no on both.  I will definitely vote no on the proposal to pay people to vote with a lotter ticket.  The proposal to effectively switch Arizona to all absentee balloting with virtually no polls is intriguing, but seems fraught with possibilities for unintended consequences (or secretly intended consequences I don't understand) so I will vote no there too.

That's Dog-Day.  After 44+ years of leading a dog-free existence, my daughter has talked us into getting a family dog.  We go pick up the dog, a little white Maltese, in a few hours.  Humorous-to-everyone-but-me stories are sure to follow...

Update:  Well, that went well.  On the 60 minute drive from the breeder, the dog barfed twice, including one really nice projectile effort, pooped, peed, and had diarrhea.

Update #2: Here is a picture, proving that being cute can be a survival trait.

CBS's venerable television newsmagazine 60
Minutes on Sunday will focus on Arizona Republican Rep. Jeff
Flake's battle against "earmarks" and congressional overspending and
government waste.

CBS News veteran Morley Safer is the correspondent on the piece, which is
expected to include interviews with Flake and his uncle, state Sen. Jake
Flake, R-Snowflake, from August.

The Flake segment is scheduled to lead the program, which airs locally at 6
p.m. Sunday on KPHO-TV (Channel 5).

For a summary of the segment, which will run on Sunday, November
5th, please click on:

 

http://www.cbsnews.com/stories/2006/11/02/60minutes/main2145860.shtml

Update: A bit of the video is here in the Buried in the Fine Print section about 3-4 videos down.  Go, Jeff, go.

I was going to respond to Kevin Drum's post crowing that the Oregon minimum wage increase didn't do any harm.  But Brian Doss at Catallarchy does a fine enough job that I will outsource to him. Here is a taste:

The 5.4% unemployment rate tells us a bit more; its 1 point higher
than the national average. I'm not going to be as quick as Kevin to
infer causation from correlation here either, but it doesn't seem like
much of a positive spin to say that a rate of unemployment that's 25%
higher than the national average is good because it happened to be 7.2%
back in 2002"¦

Also, the quote seems seriously confused that there is a meaningful
distinction (in this case) between the theoretical and statistical
(what else would employment economists use in their theory?). Despite
that confusion, David Neumark (mentioned in the WSJ article) does lay out a fairly comprehensive, concrete,  statistical study of minimum wage laws and their effects here,
among other things showing that for whatever else a minimum wage does,
the effect is primarily among the teenaged to those in their early 20s,
the sign is negative, and in the long run negative if a minimum wage
prevents a teen or young adult from gaining employment and more
importantly not gaining the habits of employment.

Further evidence of the this kind is summarized by Alex Tabarrok here,
whereby he relates studies showing that 25% of the folk on the mininum
wage (nationall) are teenagers, and 50% of all minimum wage earners are
aged 25 and younger. These are people, Alex notes, that with age and
experience will likely soon earn more than minimum wage anyway, thus as
an antipoverty tool it's fairly weak....

Its a particularly bad antipoverty tool, it has non-trivial effects
on the structure of employment within and across industries, and has
possible non-trivial long term negative effects on low-skill
individuals' abilities to stay employed and to increase their own
productivity and standards of living. All of the things it purports to
want to do can be done by much more targeted, efficient, and effective
policy tools.² 

"˜Liberals' of America, please, I beg of you: save your breath for policies that actually help poor Americans, eh? And it you won't do it for me, can you do it for the children"¦?

There is much more good stuff.

Whenever I read these articles by progressives that basically boil down to "the most basic laws of supply and demand don't apply to labor, which is the most fundamental trade good in the economy," I just have to shake my head.  I am reminded of my advice to progressives:

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

I am often told, in emails that vary from friendly to downright threatening, that global warming science is not scientific consensus and my skepticism puts me on par with tobacco company lobbyists.  An upcoming paper in Theoretical and Applied Climatology looks back at a recent peer-reviewed Nature article that purported to provide more evidence for man-made global warming and found the much quoted article by Isabel Chiune in Nature to be complete crap:

What is important here is not the truth or falsity of
the assertion of Chuine et al. about Burgundy temperatures. Rather,
what is important is that a paper on what is arguably the world's most
important scientific topic (global warming) was published in the
world's most prestigious scientific journal with essentially no
checking of the work prior to publication.

Moreover "” and crucially "” this lack of checking is not the result
of some fluke failures in the publication process. Rather, it is common
for researchers to submit papers without supporting data, and it is
frequent that peer reviewers do not have the requisite mathematical or
statistical skills needed to check the work (medical sciences
excepted). In other words, the publication of the work of Chuine et al.
was due to systemic problems in the scientific publication process.

The systemic nature of the problems indicates that there might be
many other scientific papers that, like the paper of Chuine et al.,
were inappropriately published. Indeed, that is true and I could list
numerous examples. The only thing really unusual about the paper of
Chuine et al. is that the main problem with it is understandable for
people without specialist scientific training. Actually, that is why I
decided to publish about it. In many cases of incorrect research the
authors will try to hide behind an obfuscating smokescreen of
complexity and sophistry. That is not very feasible for Chuine et al.
(though the authors did try).

Finally, it is worth noting that Chuine et al. had the data; so they
must have known that their conclusions were unfounded. In other words,
there is prima facie evidence of scientific fraud. What will happen to
the researchers as a result of this? Probably nothing. That is another
systemic problem with the scientific publication process.

Oops.  By the way, accepting the hypothesis that man made CO2 is causing some warming does not require that one also accept Al-Gore-type estimates of catastrophic 6-8 degrees C warming or more in the next 50 years.  In fact, the evidence still is that man-made warming effects will be small, and predictions of massive warming are way out on a scientific limb with little proof.  I discuss these issues in my article on the skeptical middle ground on climate, as well as my earlier primer on an Inconvenient Truth.

I had meant to post pictures of my pumpkin, and just forgot.  Here are a couple of my world pumpkin, which I carved by thinning out the pumpkin where the landmasses are, but not carving all the way through, such that the skin over the land was more translucent.

(click on pictures for larger view).  I didn't have a tripod handy so my long-exposure night photography is kind of shaky.