Category: Economics

Something happens to a man when he puts on a necktie.

From Chris Pirillo:

When Starbucks introduced for-pay Wi-Fi in 2002, it seemed like a great deal. But five years later, the model appears old and stale and ready for a complete overhaul.

According to my friend Mike Elgan at ComputerWorld.com, Starbucks will begin providing their customers with free Wi-Fi within the next year. This is an excellent development. I believe we shouldn’t have to pay for wireless access points, and I bet you don’t, either.

Who pays for the router (infrastructure) and ongoing connection (overhead)?

Delving into relevant specifics, how many people go into Starbucks looking for coffee, a sofa, and a wireless connection? How many people go in to Starbucks looking for a cup of coffee and a fast exit? Given that the cost of the initial investment and ongoing internet connection is not free¹, why should the latter subsidize the former?

If you want a service, pay for it. If you can find someone willing to provide it with the cost included in the primary product of the business, offer that establishment your business. But do not expect another group to pay for something it doesn’t value because you find the fringe benefit so neat-o that you refuse to pay for it.

For fun, change the subject from WiFi in coffee shops to any illegitimate product/service offered by the government, at full taxpayer expense, for a niche group of taxpayers (or non-taxpayers).

Title reference here.

¹ These will be minor on a per customer basis, and I’ll generously assume each Starbucks franchise would not reach its bandwidth capacity. That does not change the analysis. Also, include security to prevent customers from unintentionally (or intentionally) exposing Starbucks to civil and criminal liability.

I move closer to hoarding my savings in cash.

Hillary Clinton is unfit to be president:

“I like the idea of giving every baby born in America a $5,000 account that will grow over time, so that when that young person turns 18 if they have finished high school they will be able to access it to go to college or maybe they will be able to make that downpayment on their first home,” she said.

I recently purchased a new car. I like the idea of getting that car for free. I suspect the dealership will even hand over the keys to me and call it free, as long as I set up a separate transaction where I relinquish a specific number of dollars – strangely matching the value of the car – to the dealership’s possession.

Interestingly, that sounds much like the tax charade that would occur for every child “given” $5,000 from their own future earnings.

It’s possible that funding could come from the earnings of another person currently working (parents?) or who will work in the future. Regardless, I’m sure the “trust fund” aspect will remain an IOU rather than asset-based, with the present tax dollars used for some other socialist adventure. And I discount the possibility that funding would come from the child’s parents, since that would imply a measure of fiscal responsibility wrapped inside this socialism. Since that would also discourage poor people from having children if they have to fund an extra $5,000 up front, there’s no way Sen. Clinton would suggest such a thing. She’ll cave once that possibility arises and claim it’s society’s job to support all children, especially those of the poor, with the poor to be defined loosely later.

More thoughts at A Stitch in Haste, no third solution, and Catallarchy.

Who dreams of being Rich Uncle Pennybags?

The National Association of Broadcasters issued a press release yesterday, quoting NAB Executive Vice President Dennis Wharton:

“XM and Sirius have spent upwards of $20 million trying to bamboozle the Beltway into believing that a monopoly is good for consumers. Yet when you cut through all the distortions displayed by XM and Sirius, you are left with one undisputable fact: Never in history has a monopoly served consumers better than competition.”

The NAB conveniently leaves out any facts to corroborate this bold statement. I’m not interested in challenging it directly, because the basic gist is fine if unrevealing. Competition is good. I believe that. I just wish the NAB believed it.

The existence of press releases and lobbying demonstrate that the NAB knows that it competes with satellite radio. If it didn’t, it wouldn’t spend millions to defeat this merger. It is not acting solely in the best interest of consumers. Incentives matter, and here the incentive is to reduce the strength of all providers of competing technology.

I rarely listen to terrestrial broadcast radio anymore. There is a sameness that is pre-packaged and unimaginative. It’s simply not interesting. I’d rather listen to the artists I enjoy and discover new artists through friends, blogs, and iTunes. Even the limited broadcast offerings I enjoy are available as podcasts, which demonstrates that terrestrial broadcasters agree with the Sirius-XM view of the radio industry’s competition model.

Satellite radio didn’t turn me away from NAB’s clients. Sirius and XM existed when I went looking for an alternative. To be fair, I don’t listen to the music channels on Sirius that often. The repetition of a limited playlist exists there, as well. Maybe it’ll cost Sirius my subscription in the future. Maybe they’ll change. But for now, it has Howard Stern, which is what I want.

The NAB’s press release includes a list of groups and lawmakers opposing the proposed merger, which is its only support for the validity of its position. It takes a little more than that, unfortunately. Instead of putting out pointless press releases calling for competition with a list of politicians, it could actually query those politicians and ask why they abhor the Constitution’s First Amendment, as just one action in the interest of consumers. Or does the NAB not actually care about consumers as much as it cares about remaining partnered with politicians to limit its need to compete?

$8,965,000,000,000

Who needs to act responsibly when that can be pushed off to another generation day?

Treasury Secretary Henry Paulson told Congress on Wednesday that the federal government will hit the current debt ceiling on Oct. 1.

He urged quick action to increase the limit, saying it was essential to protect the “full faith and credit” of the country, especially at a time of financial market turmoil.

Wouldn’t the “full faith and credit” of the country be better protected by not spending more money than we have?

This request isn’t unusual, since it happens every year or so when the Treasury has to follow the law at the same time our elected representatives are spending recklessly the fruits of redistribution. Remember this from March 2006:

“I know that you share the president’s and my commitment to maintaining the full faith and credit of the U.S. government,” [then-Treasury Secretary John] Snow said in his letter to leaders in the House and Senate.

Our script is stuck on stupid, apparently.

To put this in perspective, the debt ceiling was $5.95 trillion when President Bush took office. The Senate Finance Committee recently approved a new debt ceiling of $9.82 trillion. Just shy of $6 trillion in debt in more than 200 years. Just over $3 trillion more in under 7 years, with a new request for the ability to accrue another $900 billion. Heckuva job.

The Wacky World of Politicized Economics

Michael Kinsley analyzes the federal student loan program and forgets that more than two scenarios are possible.

Here’s how the program works: Banks and other private companies lend money to students. The federal government pays part or all of the interest — currently 7 or 8 percent. The government also guarantees the loans.

What is wrong with this picture? Well, the government itself borrows the odd nickel to finance the national debt. This borrowing, obviously, is also guaranteed by the government. For that reason, it carries an interest rate of only 3 or 4 percent. If the government can borrow money at 3 or 4 percent, why should it pay 7 or 8 percent for the privilege of guaranteeing loans to someone else? Wouldn’t it make more sense for the government to lend the money itself?

The third possibility is that the government could remove itself from student loans entirely, which is the only legitimate position for it to take. Let the market develop solutions, including appropriate insurance mechanisms to pool the risk of adults without a credit history borrowing money for an activity that can’t be securitized. Let’s find out that it can’t or won’t be provided by the private market before we decide it must be provided by the government.

But there’s a bigger flaw here. If the government begins taking on more and more borrowing responsibility, it will not be able to continue at its rates. At some point that guarantee becomes worthless. Or more likely, people realize that the guarantee isn’t as guaranteed as it’s been sold.

Think about the IOU issued for social security. Carry the logic further, as Mr. Kinsley wishes us to do here, into trusting the government to provide all sorts of services. At what point do we reach the threshold where there aren’t enough people in private industry to create sufficient new wealth for the government to redirect this wealth into “guaranteed” services, via taxes? At some point, money becomes worthless and life becomes nationalized. That attractive 3 or 4 percent interest rate will mean nothing.

I won’t pretend to know what that threshold is. I think we’re closer than we collectively believe. I’d suggest that people like Mr. Kinsley think we’re further away, but I fear that’s giving them too much credit. I don’t think they believe a threshold exists, much less where we are in relation to it. That’s dangerous.

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Mr. Kinsley demonstrates his contempt for individual preferences in his conclusion:

… the “one-size-fits-all direct loan program.” This would be no bad thing, but it doesn’t seem to have been the case. I’m not sure what “one size fits all” means here, but if it refers to the interest rate that students and their families have to pay, it’s true that there is only one rate in the government program, compared with many in the private one — all of them higher, but maybe there are people for whom the variety is worth it.

Who doesn’t want a free lunch, right? But let me make an effort.

The variety is worth it for me, since I am not in the process of taking out student loans, nor do I expect to do so in the future. A variety of interest rates, even if they’re higher, would be preferable. That way he who engages in the risk takes on the cost of the risk. Why should I help pay for every college student’s default risk through my taxes, which is how that interest subsidy is funded now, and would be funded under Mr. Kinsley’s plan?

As a matter of disclosure, I have an existing student loan from my college years that was and is subject to government guarantees. I would not have used the system as it was/is, if I’d had a choice. As I think I’ve written, a significant portion of my undergraduate debt was in my mother’s name. That’s just as irrational. The entire student loan situation in the United States relies on the faulty notion that college students are irresponsible children. Worse, we’ve added lending institutions and the American taxpayer to this assumption. Mr. Kinsley’s idea would deepen this idiocy.

Economics hurts women. Let’s hurt it back.

The United States is in great company:

Why is there deep bias against mothers? It turns out our country lacks basic supports for families. Out of 173 countries, only four have no paid leave for new mothers — Papua New Guinea, Swaziland, Liberia and the U.S.A.

The essay contains many other out-of-context abuses of economics, but this one is sufficient. But first, this:

We know how to fix this problem.

Of course we do. The nanny statists always do.

The U.S. does not have mandatory paid leave, legislated by Congress. And yet, how many new mothers go completely without pay immediately following childbirth? Every time I’ve encountered a co-worker who will be taking maternity leave, she and her family have planned during the pregnancy for the coming lack of income by saving vacation days. They have nine months, after all. This needs to be considered without nonsense like this:

It turns out that having a child is the top cause of a “poverty spell” for families, a time when income dips below what’s needed for basic living expenses like food and rent.

The burden is on the parents, not the state, to properly plan a family’s finances in the event of a child. If a child will cause a “poverty spell”, do not have a child. Couples may procreate but they may not expect society to pay for that choice.

Most frustrating is that the author almost understands the truth.

The good news is businesses that are adapting to the human need for flexibility are thriving.

Still, we must lament that the United States sits with Papua New Guinea, Swaziland, and Liberia in not mandating paid maternity leave.

So let’s assume the U.S. mandates paid maternity leave. Who will fund the new state expense? Since it’s a burden deriving from businesses, the tax burden will be placed on them. They will simply pass this expense to employees in the form of lower wages. Where there is an existing wage gap, it’s logical to assume that the cost for an extra benefit to women, all else equal, will be passed to women. We’re essentially down to shifting financial planning for children from parents to the state.

This might bypass women past child-bearing age, though how that will be determined opens a can of worms. But it will inevitably ignore the women who choose not to have children. Even though they do not need to financially plan for children, they will be financially planning for other people’s children, through the state. But I’m sure this is one extra law from Congress away from being rectified.

And what about paid paternity leave?

Via FARK

Karl Marx is available on iTunes.

Of course:

Lawyers suing [Apple] said the new devices bolster their antitrust case accusing Apple of trying to monopolize the markets for digital music players and online music sales.

“The inability of the new line to play competing formats is part of the case,” said Gregory Weston, an attorney with one of the nation’s premier class-action firms, Coughlin Stoia Geller Rudman & Robbins of San Diego. “That is evidence that the company is acting like a monopolist and not competitive.”

Just ignore that there are competing formats, that they continue to exist, and that companies continue to release new products capable of playing those formats. None of that proves anything about competition and consumer choice. The iPod is really popular and Apple has a lot of money!

In court documents, Apple said demanding that the company work with competitors “may facilitate the supreme evil of antitrust: collusion.”

“Forcing Apple to deal with rivals may lessen the incentive for Apple or rivals to innovate and invest in economically beneficial facilities,” Apple wrote in court briefs. “It would require antitrust courts to act as central planners, identifying the proper price, quantity and other terms of dealing — a role for which they are ill-suited.”

Ill-suited? Absolutely. But central planning is exactly what anti-capitalists want, especially if they can steal money in the process of getting to centrally-planned, where they can steal more money for the “good” of consumers.

The [class-action status seeking antitrust] suit alleges Apple customers were economically harmed because, once they bought an iPod and purchased music at iTunes, they were locked forever into buying iPods.

Perhaps they should ask each individual iPod customer if he or she has been economically harmed. I don’t. I valued the iPod and all its alleged limitations more than the $400 I paid for it. The same was true of the second iPod I bought. It was going to be true of the third iPod I intended to buy, the iPod Touch, but I don’t like the limited size of both hard drive choices. I will be keeping my $400 and Apple will be keeping its iPod. Behold competition.

Did I mention that the iPod’s success is largely due to its superior design and user interface? Central planners have never concerned themselves with quality, of course. Quantity matters exclusively. Apple has sold the most mp3 players (to lemmings, apparently), so they’re monopolists. Ridiculous.

I’m worth mass redistribution. Or maybe it’s just my vote.

I’m a few days late on this, thanks to being wrapped up in fantasy football, but John Edwards cares about me.

Democratic presidential hopeful John Edwards said on Sunday that his universal health care proposal would require that Americans go to the doctor for preventive care.

“It requires that everybody be covered. It requires that everybody get preventive care,” he told a crowd sitting in lawn chairs in front of the Cedar County Courthouse. “If you are going to be in the system, you can’t choose not to go to the doctor for 20 years. You have to go in and be checked and make sure that you are OK.”
…

“The whole idea is a continuum of care, basically from birth to death,” he said.

If I’m going to be in the system… How quaint. Do I have a choice? If and when I choose not to be part of the system, do I get to keep that part of my taxes devoted to covering me, as well as the portion that is my charitable “gift” to everyone else in this scheme?

Obviously he wouldn’t emphasize the womb-to-tomb feature bug if the answer to any of my questions was yes. Also obvious is the basic fact that, being unable to understand that government is the problem in health care, his proposal relies on reducing everyone to a lower level rather than working on (effective) ways to enable the unintentionally uninsured minority to mitigate their financial risk. Note, of course, that Edwards – and every other health care nanny currently running for president – misses this true issue in his quest for womb-to-tomb government services. That won’t earn my vote.

More thoughts at A Stitch in Haste and Cato @ Liberty

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I wouldn’t expect anyone else to have mentioned it, but a side issue from Edwards’ proposal involves routine infant male circumcision. As I’ve written, a liberal, progressive argument for universal health care and/or coverage is that the government will cease paying for unnecessary male circumcision. This will not stop.

Governments already fund unnecessary circumcisions today, when resources are limited. There is no significant push among politicians to redirect those funds into medically necessary expenditures (or taxpayer pockets). They do not care about the necessity of any particular intervention, or even health care in general. Universal health care is simply a means to create a new, dependent constituent group. If that constituency wants infant male circumcision, politicians will cover it. (I’d make an argument that bureaucrats will make the decisions, but doctors make the same mistake in an effort to please their constituents constituents’ parents.)

Politicians believe there is always another group to demonize and tax to fund whatever gift needs to be made to voters for their votes. I am unwilling to hope that any government run by these fools will miraculously reverse its stupidity. Such short-sighted adherence to self-interest is inherent in government whenever it’s controlled by those interested in the exercise of power. Neither rights nor logic plays any part.

Now add the context of a politician like Edwards who wants to mandate that you and I will undergo preventive care. Is it really a long leap to assume that such a stupid person could read the splashy headlines about male circumcision and HIV and ignore the context of voluntary and adult, as well as the truth that condoms remain far more effective at reducing the risk of HIV? Almost everyone in our culture has ignored these last three points in the two years since the first preliminary results were announced, so the answer is a clear “no”.

Politicians will continue to make the erroneous, incomplete argument that the cost-benefit analysis of infant male circumcision is a one-sided consideration, with benefits the only deciding factor. They rarely even recognize potential before the word benefit. If there’s a potential benefit to chase, they will assume that means one less disease to pay for out of the collective in the future. That is incomplete and morally defective, since it ignores the risks, the complications, and the rights interest of the child in making this subjective, medically unnecessary decision. That politicians, parents, and doctors make this error every day proves the fallacy of trusting in the economics of universal health care to rectify an ethical failing.

Should government miraculously reverse itself and stop funding infant circumcision, I still argue that this is largely irrelevant. Many parents will just pay for it themselves. I’ve read too many blog entries of parents fretting over the hundreds of dollars it will cost, yet, considering genital cutting either an “investment” in their son or a “necessary” expenditure so that the boy will be normal common, they proceed anyway, out of their own pockets. To be fair, there will be a long-term reduction, as fence-sitters will decide unnecessary surgery isn’t worth the money, but there will still be many boys facing the knife who should be protected. I’m not okay with that.

Anyway, who will make the argument that politicians embrace the individual rights of their children and refrain from removing healthy body parts from their own sons? I’ll theorize that at least one candidate running for president with a universal health care platform has ignored the violation of his¹ son’s rights and circumcised the boy, to say nothing of the members of the theoretical decision-making apparatus should a universal health care scheme be implemented.

¹ This ignores Sen. Clinton because I assume she did not have her daughter’s genitals cut. However, she should be included in any consideration of politicians and bureaucrats willing to perpetuate the violation of the genitals of male children.

Providing me something I want exploits me.

The FTC decided that no “price-gouging” occurred last year when the price of gasoline rose to $3-per-gallon. That’s the right answer, since “price-gouging” is a nonsensical concept rooted in politics rather than economics. But one member of the 5-member commission voted that “price-gouging” occurred.

The one dissenting commissioner, Jon Leibowitz, suggested that the commission had started with an answer and then found a way to justify it. He said the FTC had found “some plausible justifications for the unexpected and dramatic price spikes that bedeviled consumers in the Spring and Summer of 2006.”

“The question you ask, determines the answer you get: whatever theoretical justifications exist don’t exclude the real world threat that there was profiteering at the expense of consumers,” Leibowitz wrote.

Commissioner Leibowitz should be fired immediately for incompetence. Name one business that doesn’t profiteer at the expense of consumers and I’ll name a business that has or will soon fail.

Commissioner Leibowitz seems to believe that there is a correct level of profit that must not be exceeded. Why? If customers don’t like the price, with its assumed profit built in, they may refrain from buying the product. If a sufficient number of customers value their money more than the product (a gallon of gasoline), the price will fall to encourage more sales. Absent that quorum of uninterested customers, their subjective preferences were overruled by other subjective preferences.

Until I live in your house, I’m not responsible for your mortgage.

I, like you, am going to be at least indirectly hit by the current “liquidity crisis” mortgage bubble, even though I had enough sense to contract for a fixed-rate mortgage when I bought my house. (The wisdom of buying when I did, on the other hand…) That’s just the cumulative reality of living in a capitalist system. Some people will make stupid, avoidable mistakes, but the overall economy can absorb it and survive. Scott Adams talked about this wonderful reality of capitalism today:

This story made me think about one of the great wonders of capitalism: It is driven by morons who are circling the drain, and yet. . . it works!

Exactly.

I’d planned to write up this short-sighted essay that calls for a bail-out of homeowners.

The ultimate solution must not emanate from the Fed but from the White House. Fiscal, not monetary, policy should be the preferred remedy. In the early 1990s the government absorbed the bad debts of the failing savings and loan industry. Why is it possible to rescue corrupt S&L buccaneers yet 2 million homeowners must be thrown to the wolves today? If we can bail out Chrysler, why can’t we support American homeowners?

That’s nonsense, of course. Kip beat me to it and said everything necessary. Particularly, this:

…(Again, and this is important: The spike in foreclosures is not Mr. & Mrs. Bluecollar being kicked out of their single-family home; it’s Mrs. & Mr. Infomercial failing to flip their 20 “no money down” speculative properties. That’s one investor, twenty foreclosures, zero homelessness.)

If there are anecdotal cases of institutions engaging in false advertising, deceptive accounting, manipulating the legally incompetent, then fine — pursue them with the full force of the law. But the mere fact that many otherwise competent people, including financial professionals, happened to make very bad decisions is no claim check on the Fed, Congress, or taxpayers’ wallets.

Issuing that claim check would indeed induce an eventual moral hazard, even though “there’s never been a problem in terms of national housing price [sic] bubbles until recently”. If we assume that this price mortgage bubble is a one-off and won’t happen again, the pattern still exists for bailing individuals out of their mistakes. In the essay, we’re supposed to understand that such rescues work, thanks to the examples of Chrysler and the S&L mess. (The author doesn’t mention deposit insurance. Quite disappointing.) Yet, the presence of that pattern doesn’t constitute an incentive to behave badly? Really?

The government should not bail out people who made bad choices just because they made bad choices. Leave individuals and businesses to experience the consequences (and successes) of their actions when the consequences are merit-based. (Luck, in this context, is merit-based.) That’s the only way to build discipline in financial transactions. Intervention only negates the need to develop those skills.