Category: Economics

Forgive me if I can’t find my outrage.

I will not be upset by this story:

Citing the controversy surrounding the Dakota Fanning film Hounddog, the leader of the state Senate Republicans says he wants the government to review scripts before cameras start rolling in North Carolina.

I’m serious when I say I will not be upset. The headline – “Republican Scripts need reviewing” – is designed to outrage. Look at the First Amendment violation! I can buy into that. Except, I can’t.

That system, said state Sen. Phil Berger, R-Rockingham, would apply only to films seeking the state’s lucrative filmmaker incentive, which refunds as much as 15 percent of what productions spend in North Carolina from the state treasury.

“Why should North Carolina taxpayers pay for something they find objectionable?” said Berger, who is having proposed legislation drafted.

State Sen. Berger is correct. Why should North Carolina taxpayers pay for something they (might) find objectionable? I’d take him a step further, though, and ask why should North Carolina, or any taxpayer, pay for film production?

Berger pointed to South Carolina, which requires up-front applications from producers, who must attach a copy of their script.

Even so, said Jeff Monks, South Carolina’s film commissioner, the state does not assess the content of a proposed movie.

“Censorship is not part of our activity,” he said. The purpose of asking for the script is to see whether it conforms to the budget and schedule information producers are required to provide.

“We want to see if this film is doable and a good investment for the people of the state,” he said.

It’s not a legitimate government expense. Film producers will find cheap, quality locations without government help through competition. Movies are their investment. Taxpayer money spent to benefit producers is not an investment to the taxpayers. I’m sure North Carolina residents will not be sharing in the profits of Hounddog. This should be obvious.

With this story, the familiar refrain is always that he who pays gets to decide. This is true whether it’s customers buying vegan cookies instead of non-vegan cookies or a government buying film production instead of commissioning paintings. If you don’t want censorship, don’t take someone else’s money. The First Amendment protection against censorship only applies to your own dime.

(Source: Fark)

The rare positive bears the stain of the negative.

More on Major League Baseball’s decision to give its most faithful fans the shaft sell exclusive rights to the Extra Innings package to DirecTV, this time courtesy of Buster Olney’s Insider blog at ESPN (subscription required). Olney has received a multitude of e-mails since writing about this deal several days ago, most of them negative. He has seen the occasional positive spin, even if it’s flawed:

Count me among the minority of baseball fans that’s actually in favor of the DirecTV deal. No one talks about the monopolistic control Comcast has in the cable industry and, as anyone with even a passing familiarity with economics can tell you, the winner goes to the highest bid. Comcast likely gambled on the fact that MLB wouldn’t want to deprive some subset of its fans, but MLB never blinked. Now, I not only finally get the Comcast monkey off my back, but I’m also saving a lot of money every month with the same access to more channels and premium content. What’s not to like?

— Jon Phillips, Seattle, Wash.

I don’t care if some people like the deal, but at least like it for the correct reasons. From Mr. Phillips’ e-mail, every benefit he projects onto this deal is a benefit he could’ve gotten before the deal, while still enjoying Extra Innings. I contend that getting “the Comcast monkey” off his back wasn’t that important to him. The savings from DirecTV didn’t suddenly improve with this deal. I suspect they’ll dissipate, since DirecTV will now have monopoly power over Extra Innings. The access to channels with DirecTV didn’t change. DirecTV had the package every year leading up to this deal. Yet, Mr. Phillips never switched. His hatred of Comcast, however justified, is clearly irrelevant based on his own behavior. The only thing that changed is cable lost the last content it had that Mr. Phillips valued. That is what will send Mr. Phillips to DirecTV. The rest is just feel-good beliefs.

But is that enough to make this a good deal for Major League Baseball? After doing some research into adding DirecTV – I can be outraged and still cave to my addiction – to my house, there are very real costs involved to me. Also, the goodwill that baseball possesses as our national pastime and that it rebuilt after the labor shenanigans in ’94 can’t have a definitive dollar value, but it exists. That extra $30 million DirecTV reportedly offered is not “found money”. Major League Baseball may value it more, but it has a price.

Fix it where it’s broken.

I doubt I’ll watch tonight’s State of the Union speech. The posturing and applause and general pomp is unappealing. I’m content to read the speech and grab the important bits out of it. I can add some Xbox 360 into the time I’d spend watching nothing happening. That’s always a winner.

One important indication in the pre-speech buildup is this story about President Bush’s proposed approach to the alleged health care insurance crisis in America. He’s correct to address this situation because there is a flaw. And although he’s not proposing the optimal solution, what he’s suggesting beats any other idea going. (Massachusetts and California) Consider:

President Bush will propose a deep tax break for Americans who purchase their own medical insurance and would finance it with an unprecedented tax on a portion of high-priced health-care plans that workers receive from their employers, according to the White House.

The initiative, which the president briefly previewed in his radio address yesterday [Saturday], has a dual purpose: It would create a financial incentive for the estimated 46 million to 48 million Americans who lack health insurance to buy it. And it would rein in the soaring cost of health insurance by encouraging workers in high-priced plans to seek more modest coverage.

“Today, the tax code unfairly penalizes people who do not get health insurance through their job,” Bush said. “It unwisely encourages workers to choose overly expensive, gold-plated plans. The result is that insurance premiums rise and many Americans cannot afford the coverage they need.”

That grasps the true problem. People want “everything under the sun” coverage, which is not surprising because perverse tax incentives have taught Americans to expect that. Like much in our society, we’ve hidden the costs and focused solely on the benefits. This should go away. We must understand that there are consequences to our choices that can’t be wished away through government involvement or incentive.

There are details to be worked out if Congress (Democrats) agree, but I don’t know that we’ll have quick agreement since the president’s plan isn’t socialistic enough. As such, I won’t comment until there are firmer reactions. But it might be useful to look at an editorial in today’s Washington Post about President Bush’s plan.

There are weaknesses in the president’s proposal. Rather than embracing tax deductions, which are most valuable to people in high tax brackets, Mr. Bush could have made his proposal even more progressive by recommending a refundable tax credit that would be worth the same to everyone. Moreover, there’s a danger that ending the tax privilege for employer-provided insurance will cause companies to discontinue coverage, driving more buyers into the individual market, where it’s hard to buy insurance at a reasonable price, especially if you already have a medical problem. The administration promises to support state efforts to redeploy federal Medicaid dollars in ways that would make the individual insurance market work better. But success here will depend on the states, and the details are sketchy.

The problem with the current system is not that it’s regressive, although it is. The problem is that our current system of tax incentives disrupts the normal private market that individuals could participate in by pushing efforts to group plans. Groups require many different things, and most corporations offering group plans are not in the health insurance administration business, so we ended up with a few plans offering everything. This is ineffective and expensive. (I don’t need pregnancy coverage or mammograms, for example, yet I had it in my corporate-sponsored plan before I went independent.)

The solution, though, is not to make the tax incentives progressive. Punishing a new group instead of the old group is still punishment. That is not the government’s job. The market will do that reasonably well. If “the rich” want super-extra coverage, they’ll pay for it. Most people, when seeing the cost in the individual market, will demand more specific coverage. In this regard, driving more buyers into the individual market is exactly what we want. We’ll get better, cheaper solutions that way because needs and cost will remain in view. They’ll tend to balance to meet customer demands, rather than the current system of hiding everything but the coverage.

The answer is to get government out of the insurance/health business altogether, not to encourage government to create the “correct” incentives. It can’t know the perfect mix, so it will screw it up. President Bush is not there, but he’s found the map.

D.C. teaches basic economics.

I imagine New York faces a similar problem, although the scale is likely different.

People who work in the District make some of the highest wages in the United States — on average, higher than those in San Francisco and the Boston area. But every night a significant proportion of those handsomely paid workers take their earnings back to homes and stores in the suburbs.

Let’s gather our big brains and surmise the explanation. Could it be this?

That gap leaves the District with an imbalance that is growing worse, said Stephen S. Fuller, head of the George Mason University Center for Regional Analysis. “People have choices and want to buy homes with yards and good schools,” he said. “If those workers are taking out their income tax and going home to do their shopping, there isn’t much left behind for the District.”

I’ve never lived in a home with anything resembling a real yard since I moved to the D.C. area in ’98. It would be nice, but it’s not significant. More importantly, when I was younger, and it really made no difference, I lived in a high-rise apartment complex. D.C. can offer that type of accommodation without question. But that never kept me away from considering the District as a home. The obscene tax rates, however, factored significantly, as did the ineptness with which the city managed the revenue from those obscene tax rates. Why live in the District when I can live in Virginia and pay only a portion of what I’d pay in taxes as commuting costs? It’s really been a no-brainer. Incentives matter.

Coalition of the Willing and Unwilling

From yesterday’s Washington Post, this report on a new “consensus” on healthcare reform:

On the surface, it looked to be just another Washington news conference, part of the white noise of the political and policy process.

But this one was different. There, at the National Press Club, stood the president of the Business Roundtable, representing the country’s largest corporations; the president of the Service Employees International Union, the country’s most vibrant union and one of its fastest-growing; and the president of AARP, the formidable seniors lobby. They put aside their usual differences to deliver a clear, simple message to President Bush and congressional leaders of both parties:

We stand ready to give you the political cover you need for a centrist, bipartisan fix for a broken health-care system.

Or, if you refuse, we stand ready to embarrass you and run you out of office.

That’s interesting enough, if it were actually true. But I reject any claim that those three groups have the authority to speak for the nation as a whole. Only the AARP represents a sizeable portion of the nation, and that’s not enough to provide any claim to policy making. Populist rent-seeking never appeared so obvious.

In my case, I’m a small-business owner. I’m only 33. I’m not in a labor union. Who’s got my voice? Me, of course, and willingly so. But this is no one’s concern. The only outcome that matters is coming up with a solution that represents 20th century forces in the 21st century. This press conference could have just as easily occurred in 1907 as 2007.

What does that consensus look like?

It starts with universal coverage, accomplished either through a mandate on everyone to purchase basic health insurance or a mandate on all employers to offer it.

That much we already know, because we think people just aren’t motivated enough (the former proposal) or that more of what we already have will fix the problem (the latter proposal). There is no need to understand why we got here. Once we have a solution worked out, we’ll find the path backwards to where we are to tell the correct story. It’s insanity.

A few of suggestions warrant consideration, and by consideration, I mean outright dismissal.

Finally, it sets a deadline for physicians and hospitals to switch to computerized health records, along with a program to provide no-interest loans to buy the necessary hardware and software.

I’m sure that physicians and hospitals have delayed computerizing health records because no-interest loans were not available. Or it could be that the economic efficiency created by the process wasn’t supported by the cost. Or maybe it’s that physicians and hospitals are in the business of providing care instead of information technology. Only in a world where universal assumptions pass as analysis for the multitude of scenarios in which physicians provide care can an outcome that a universal solution will work. Of course, it’s a lot easier to say that when you impose a no-interest loan requirement. I’m certain “no-interest” means taxpayers will pick up the cost to subsidize this. It would be important to remember that something economically-justified would pay for itself, despite the cost of interest. It’s silly to let that get in the way, though. PEOPLE ARE DYING IN THE STREET!

Hospitals and insurers would have to agree that 85 percent of their revenue would go to providing direct care, capping profit and administrative expenses at 15 percent.

Wow. Central planning at its most crass. We know what expenses should be, as well as a fair profit. There need not be a direct tie to quality here. Fifteen percent for admin expenses and profit is enough. This will not end well.

Health insurers would have to accept the obligation to sell insurance to everyone, with only modest variation in rates for age and health status.

I guess actuaries should start looking for other work. It hasn’t proven to be useful, anyway, since risk can just be ignored. What could go wrong?

Catching up on events

I’ve been busy over the last week or so, which meant that I didn’t have enough time to give blogging enough mental energy. That’s over, so it’s time to catch up on a few interesting stories before moving to new stuff. Without further delay:

Kudos to Sen. John Sununu for challenging the unhealthy, anti-consumer partnership between content owners and the FCC known as the Broadcast Flag. (Source)

Senator John Sununu (R-NH) has just announced that his office is working on legislation that would prevent the FCC from creating specific technology mandates that have to be followed by consumer electronics manufacturers. What’s his target? The broadcast flag.

Television and movie studios have wanted a broadcast flag for years. The flag is a short analog or digital signal embedded into broadcasts that specifies what users can do with the content. It would most often be used to prevent any copying of broadcast material, but there’s an obvious problem with the plan: it requires recording devices to pay attention to the flag. Because no consumers wander the aisles at Best Buy thinking, “You know, I would definitely buy this DVD recorder, but only if it supported broadcast flag technology,” the industry has asked the federal government to step in and simply require manufacturers to respect the flag.

Exactly the right analysis. The FCC should not be restricting innovation before any potentially illegal action can even occur. The onus should be on the businesses to engineer solutions that meet their needs, not regulation. That’s dinosaur thinking and should not be reward.

Next, just ponder this photograph’s implications. It’s posted in London, so there’s no concern for the United States, except there is concern. We move closer to this mentality with every newly brushed aside civil liberty. (Source)

Next, sometimes a cheap shot is easier than analysis. From Glenn Reynolds:

A CITIZEN’S ARREST BY PAUL HACKETT: A pro-gun anti-crime Democrat — I’m surprised the party didn’t get behind him.

Just like claiming that there’s a war on crime, this requires little thinking and says more about the writer than the facts. Who honestly believes that Democrats are not “anti-crime”? Not tough enough crime, we could argue. But it’s posts like these that prove Glenn Reynolds is little more than a Republican with some libertarian leanings. That’s not surprising, but this is an unflattering proof.

Next, North Korea has a hunger problem. Anyone with a rudimentary understanding of economics understands that this has as much to do with the country’s political structure as anything. Socialism doesn’t work, and can never provide for everyone’s needs. When the failure extends to famine, this moves from oppression to murder. But the North Koreans have a solution, courtesy of a German breeder (Source):

An east German pensioner who breeds rabbits the size of dogs has been asked by North Korea to help set up a big bunny farm to alleviate food shortages in the communist country. Now journalists and rabbit gourmets from around the world are thumping at his door.

It all started when Karl Szmolinsky won a prize for breeding Germany’s largest rabbit, a friendly-looking 10.5 kilogram “German Gray Giant” called Robert, in February 2006.

Images of the chubby monster went around the world and reached the reclusive communist state of North Korea, a country of 23 million which according to the United Nations Food Programme suffers widespread food shortages and where many people “struggle to feed themselves on a diet critically deficient in protein, fats and micronutrients.”

Any reasonable analysis would point out an obvious point of why this will fail to alleviate suffering.

“I’m not increasing production and I’m not taking any more orders after this. They cost a lot to feed,” he said.

The rabbits apparently feed eight. How much food will be used to feed the rabbits until they’re ready to become that one-time meal that feeds eight? How much land that could be better used to grow crops for North Koreans will be used to grow feed for these rabbits, as well as house them while they grow? This is a central-planning solution at its ugliest.

Next, religion will continue getting a free pass for unnecessary medical procedures under a socialist health system.

The NHS should provide more faith-based care for Muslims, an expert says.

Muslims are about twice as likely to report poor health and disability than the general population, says Edinburgh University’s Professor Aziz Sheikh.

Writing in the British Medical Journal, he called for male circumcision on the NHS and more details over alcohol derived drugs.

Leaving aside the obvious questions of whether or not routine/ritual circumcision of children should be allowed, it’s an unnecessary medical procedure that drains resources. As an ethically-questionable procedure, it’s also unacceptable to force taxpayers to fund such surgeries. This is why current U.S. funding under our relatively free market system is objectionable. This call from Britain just seeks to double the mistake. It’s absurd.

Because the system isn’t bureaucratic and dysfunctional enough already, Democrats want to allow unionization by TSA employees. That won’t end well.

Sorry, folks, hospital’s closed. Moose out front shoulda told ya.

More single-payer “goodness”, this time from the U.K.

Patients are being denied basic operations, including treatments for varicose veins, wisdom teeth and bad backs, as hospitals try frantically to balance the books by the end of the financial year, The Times can reveal.

NHS trusts throughout the country are making sweeping cuts to services and delaying appointments in an attempt to address their debts before the end of March. Family doctors have been told to send fewer patients to hospital, A&E departments have been instructed to turn people away, and a wide range of routine procedures has been suspended.
…

A letter from [North Yorkshire and York Primary Care Trust] chief executive, Janet Soo-Chung, says that all non-urgent admissions must be approved by an assessment team or they will not be paid for. A&E departments in Harrogate, Scarborough, South Tees and York have been told that they will not be paid for treating patients with minor ailments who could go elsewhere.

No patients will be given a hospital appointment in less than eight weeks, and none admitted for elective surgery unless they have waited a minimum of 12 to 16 weeks. Those treated quicker will not be paid for.

The United States will be no different if we implement a single-payer system. Given the timeline progression of other single-payer systems, I’m probably at the perfect age (33) for our system to break down around the time I retire. Wonderful. I’ll pass, thanks.

Source: Socialized Medicine

Economic Thought of the Day

George Will gets it right today on the coming push to increase the federal minimum wage:

But the minimum wage should be the same everywhere: $0. Labor is a commodity; governments make messes when they decree commodities’ prices.

That’s spot on. The essay is not perfect, as Kip at A Stitch in Haste points out with a useful economics lesson, but the conclusion is the same. The correct minimum wage is $0. If the uninitiated come away with the wrong justification but the correct conclusion, we can work on the reasoning. Short-term isolated problem versus long-term widespread damage. Easy choice if those are my alternatives.

Of special note, I love this line that Kip wrote to explain Will’s loose semantics:

…sloppily knocking a foul ball down the right-wing line…

His entire post is worth reading, and shows why he should be widely read, but that phrase by itself is excellent. I wish I’d written it.

Capitalism doesn’t require stupidity

Interesting news out of Milwaukee:

If you wanted to buy condoms 30 years ago, you had to bear the embarrassment of asking a pharmacist to fetch them from beneath the counter.

Now with thieves wiping out the entire stock of prophylactics in some stores, more retailers are putting them back out of reach – and, in some cases, are even locking them up.

Nothing surprising so far, at least when looking at the simple concept that stores aren’t in the business of offering five finger discounts. Until purchased, the condoms belong to them. If they want to lock them up, fine. If they want to place them on a shrine in the middle of the store with a giant spotlight, fine. Their property, their prerogative.

Of course, the nanny statists disagree:

“We are certainly concerned about the availability of condoms in stores,” said Eric Ostermann, executive director of the Wisconsin Public Health Association.
…

“We’d hope they would not present any obstacles to getting their product in the community,” Ostermann said.

Encouraging people to keep themselves safe is wonderful, but the puritanical, irrational fear of sex and all things regarding the body is too embedded. Wouldn’t it be better to disassociate the stigma from sex in general, making it easier to buy condoms without shame? More capitalism and less puritanism.

To be fair, Mr. Ostermann is not making an anti-capitalist, public before profit statement, but an understandable lament based on our puritanical society. Yet, someone will probably suggest legislation requiring stores to provide simple access to condoms in the public interest, without regard to likelihood of theft. Before we take that silly route, stores or some other enterprising soul could follow the suggestion of the many Fark commenters in the thread where I found the story: vending machines. Simple and effective.

Instead, we get feel-good corporate gobbledygook like this:

Other stores, such as Walgreens, mostly keep condoms in a highly visible area in the store where thieves would be more concerned about employees catching them in the act of stealing. Several Walgreens that had placed condoms behind their counters have since been instructed to return them to the sales floor, said Carol Hively, corporate spokeswoman for the pharmacy chain, based in Deerfield, Ill.

“It’s our policy not to lock up condoms,” Hively said. “Shrink can vary from store to store, but in general it is in the interest of public good and safety to keep the condoms unlocked.”

It’s in the interest of those who are responsible enough to practice safe sex and pay for that protection that they have access to condoms when they attempt to purchase them. Walgreens is free to do what it wants, but what would it rather have, a thief who returns to the store multiple times because he didn’t get infected or a paying customer who returns to the store multiple times because he didn’t get infected? The potential embarrassment of the customer should be considered, as any smart business will consider its customer’s needs and wants. But meeting customer needs at a loss is crazy.

Or, in the words of a friend of mine, buying condoms shouldn’t cause embarrassment because it’s a sign that the buyer will be having sex. Customers should be proud.

Play or pay, you decide.

Some Xbox 360 owners are upset, believing that games creators are soaking them by offering game content already on the disc on the Xbox Live Marketplace. Users trade Microsoft Points for the content. (80 points = $1) Consider:

What this means, apparently, is that you aren’t actually downloading any content — you’re just getting an encrypted key file that unlocks things already on the game disc. That is, you’re being taken for a ride, buying stuff you already own. Other allleged offenders include The Godfather, Lego Star Wars, and Microsoft’s own Viva Pinata.

From what I’ve heard, the purchase is not for content, but the encryption key to unlock the content. This content is unlockable by the player through playing the game. If the player doesn’t have the time or inclination to earn the content, he can purchase the key to make it available immediately.

This is not an example from the Marketplace, but it’s what I’m playing now. In Gears of War there are three difficulty levels: Casual, Hardcore, and Insane. Insane is only available once the player completes the campaign for the first time, on either Casual or Hardcore. Essentially, if Epic Games decided to offer the key to unlock Insane without completing the campaign first, that is the issue at stake.

The content is on the disc, but the user does not have to pay to unlock it. In my Gears example, I completed the campaign on Casual to unlock Insane. (Yay, me!) That’s why I bought the game, so even if Epic offered the key for sale, I wouldn’t buy it. I choose play. Yet, if someone else is only interested in playing the game once and wants to cheat buy his way to the hardest difficulty, I’m not going to get outraged. Good for him. That’s the beauty of the free market: choice is wonderful.

My caveat is simple. If the unlockable content is not advertised with a notice that it can be cracked through playing the game, that’s a shady business practice and should be stopped. I haven’t reviewed any of the offending content – I don’t have those games – to see how it’s marketed, but I suspect that the source I provided is correct and the content is not game creators sticking content on the disc and then charging gamers for what they’ve already paid for. There is a service underlying the fee. Why should that be a problem? Pay or don’t. To each his own.