Category: Economics

Did they need to provide permission slips?

I think this would’ve been an interesting field trip, although I can’t imagine taking such a class:

Nicki Amouri hands her camera to a friend, throws her arm over another and smiles wide as she leans in for a shot with the monument her class came to visit.

It’s a typical field trip memento — except that Amouri is visiting a brothel. The monument is a fluffy, queen-sized bed in a Western-themed party room reserved for VIPs and big spenders.

Amouri was one of a dozen Randolph College students who took a tour last week of the Chicken Ranch, a legal bordello in the desert 60 miles outside Las Vegas. The class trip, which included seminars from the working girls, capped a course on American consumption and “the ideas that consume us.”

That’s fascinating enough, I guess. The closest I ever approached such an experience, I heard second-hand about a trip to a strip club while in Slovenia for an international business consulting class during graduate school. But college class is “wacky” doesn’t intrigue me. The entire curriculum shouldn’t be that, but throwing in a diverse experience is probably useful. Instead, this is the part that frustrates me:

“We gave them all the option to either opt out or express reservations privately. No one did,” said [American Culture Program director Julio] Rodriguez, adding that he received no objections from parents or administrators.

Is there a single segment in America that hasn’t been infantilized in deference to some supposedly higher authority? Politicians, maybe?

College “kids” – adults, almost every one – are thought to still be under the direction of their parents. Financial aid is regimented around this idea, with impossible obstacles to navigate for any student who dares to assert that she is independent and supporting herself without assistance from her parents. And don’t forget the inevitable article focusing on college students and credit card debt. They’re smart, but they shouldn’t be allowed to risk making mistakes. They’ll wake up one day, lacking experience, miraculously capable of making the “right” decision.

That last sentence is snark, of course. When society releases people to their own decisions, and when they (not) inevitably make mistakes, say with a bad mortgage, Congress will be there to rescue them from their mistakes and protect them from future mistakes.

I was teased into a dangerous fixed-rate mortgage.

The narrative is established:

Just as subprime mortgage borrowers were teased into taking out loans they later could not afford when the interest rates spiked, scores of municipalities, schools, hospitals and even museums are now facing soaring interest payments on unconventional bonds that proved too good to be true.

Ready to be unleashed on any and every victim:

The District has begun paying an extra $1.2 million every month because its interest payments have doubled, and in some cases even tripled, on $601 million of these bonds. That represents nearly one-seventh of the city’s total debt and includes $24 million for the Washington Nationals’ new stadium, the District’s treasurer said. City officials were convinced by investment banks that these types of loans would be safe and cheaper than traditional borrowing.

Naturally, deceit (i.e. “teased into”) is the only explanation. We can’t expect politicians to be diligent when subjected to the avarice of evil capitalists. They couldn’t possibly be stupid or greedy themselves.

The surge in the cost of these bonds is the primary way taxpayers are being burdened by Wall Street’s credit meltdown.

The insatiable appetite among all politicians for spending unbounded by tedious constraints like tax receipts is the primary way taxpayers are being burdened. Without debt, there would be no upwardly-fluctuating interest payments.

Opinions tell us what, exactly, about policy?

From Friday:

In the [New York Times/CBS News] poll, 81 percent of respondents said they believed “things have pretty seriously gotten off on the wrong track,” up from 69 percent a year ago and 35 percent in early 2002.

Although the public mood has been darkening since the early days of the war in Iraq, it has taken a new turn for the worse in the last few months, as the economy has seemed to slip into recession. There is now nearly a national consensus that the country faces significant problems.

So fascinating, and yet, so very likely irrelevant. Having an opinion is fine, but it’s only useful if that opinion is founded on facts. If it’s based on an idea that we’re suffering partly because the government spends more than it receives, fine. If it’s based on an idea that the mortgage situation in America is partly because some borrowers risked more than they could afford, fine. But those don’t seem to be the case.

In assessing possible responses to the mortgage crisis, Americans displayed a populist streak, favoring help for individuals but not for financial institutions. A clear majority said they did not want the government to lend a hand to banks, even if the measures would help limit the depth of a recession.

How perverse does a person’s thinking have to be to decide that the warm glow of political happiness is more important than results? I’m looking very much in the direction of people laughing today at this story.

Of course, this isn’t an endorsement of what the government’s done recently. A good bit of our trouble is at least an indirect result of government policy. Artificially low interest rates aren’t a good idea. Attempts to squash a signal of imbalance possess a distinct head-in-the-sand mentality. The mortgage interest tax deduction isn’t a good idea because it distorts behavior. Perhaps that’s favorable, but maybe not. My decision to buy a house was a natural step in where I was in my life in 2005, but the potential deduction fit with my increase in income. It did not tip the decision, but I included it in my analysis.

Finally, this:

“What I learned from economics is that the market is not always going to be a happy place,” Sandi Heller, who works at the University of Colorado and is also studying for a master’s degree in business there, said in a follow-up interview. If the government steps in to help out, said Ms. Heller, 43, it could encourage banks to take more foolish risks.

“There are a million and one better ways for the government to spend that money,” she said.

This unquestioning acceptance that the government should have our money, that the only question open is how to spend it, is irrational and damaging. There is only one better way for the government to “spend” almost every dollar it spends: return them to the people who earned them. Or, in the case of the pending Free Money, don’t take out loans in our name and tell us we’re richer. And in the future, stop spending and stop taxing. Let me decide what I deem worthy of my money. I want you to do the same.

Other than those objections, this poll is useful.

Delicate Decision: Post 2 of 4

On Monday the Los Angeles Times offered a typical analysis of infant male circumcision. There are many points to address from this story, so I’ve broken them up into multiple posts. (Posts 1, 3, and 4.)

Point two:

In the first year of life, 1 in 100 uncircumcised [sic] boys will develop a urinary tract infection. Only 1 in 1,000 circumcised boys will. “While that’s a tenfold reduction, you have to keep in mind that the risk was only 1% to begin with,” says Dr. Andrew Freedman, pediatric urologist at Cedars-Sinai Medical Center. Proper hygiene can prevent most infections.

When considering potential benefits, context matters more than an isolated statistic. For example:

The downside of letting the child make the decision later is that adult circumcision is more expensive, painful and extensive. During an infant circumcision, practitioners numb the site with local anesthesia, then attach a bell-shaped clamp to the foreskin and excise the skin over the clamp. The clamp helps prevent bleeding. In adults, the procedure involves two incisions, above and below the glans (tip of the penis), stitches and a longer recovery. The cost is about 10 times that of a newborn procedure.

Let’s ignore the rights of the individual for the moment. I don’t, but the hypothetical does, so I’ll stick with it. The cost is about 10 times that of a newborn procedure. So what? As a fact on its own, it means nothing. How likely is it that an intact male will need circumcision in his lifetime? If it’s less than 10%, and it is, then a basic cost-benefit analysis shows that we will spend less overall by circumcising only those males who medically require circumcision. The “ten times more expensive” meme is worthless upon minimal inspection.

Dr. Freedman seems to understand this:

“The HIV data is the most compelling to date that circumcision can help prevent the transmission of the virus in male-female sex,” Freedman says. “While this is important to sub-Saharan Africa, the question is how many infant boys need to be circumcised in the United States to prevent one case of HIV transmission 25 years from now? Factoring in even the rare complication that can occur with circumcision may render this study insignificant.”

No kidding. Aside from not being able to predict who (or if) circumcision will help prevent HIV, we can also not predict who will suffer a complication. I seriously doubt the few children who suffer a significant mutilation of the penis care that most circumcisions are “successful”. Nor do I suspect the few boys who die from circumcision care about the general outcome. Of course, this should matter now, even before reducing a child to his (unknown) place in the statistical herd.

But he might not get it:

If parents do opt for the procedure, Freedman advises that they do it when the baby is a newborn, have someone trained and experienced perform the procedure, and use pain control. “The older a child gets, the less benefit there is, and the greater the risk,” he says. “I would ask parents of an older child to strongly reconsider if the only reason they’re doing this is cosmetic.”

The parents of a newborn who choose circumcision for cosmetic reasons? Those are somehow okay? Again, the individual – the patient – matters. When he is healthy, every other outside opinion is meaningless to the consideration of his body.

More analysis of this article and the CDC’s obtuse approach can be found here and here at Male Circumcision and HIV.

Ignore the government mandate that created a duopoly. Scream MONOPOLY!

I haven’t posted on Monday’s long-anticipated decision from the Justice Department on the proposed Sirius-XM merger because I didn’t have much to add to the announcement. (It’s also not the final hurdle, so over-analysis, to say nothing of celebration, would be premature.) But Steven Pearlstein’s column is worth dissecting.

The latest example of a government bailout of a troubled industry has nothing to do with Bear Stearns. It is, instead, the Justice Department’s decision to give the green light to the merger of the satellite radio companies XM and Sirius.

It’s already clear that his position will be staked on rhetoric rather than principles. While it’s good to know that from the beginning, it’s bad economics. The goal of Pearlstein’s idea of competition is not to discover winners and losers other winners, but to pick the correct winners and losers. As he makes clear, that means consumers must win and businesses must lose.

For the past several years, these two companies have been competing so hard for talent, distribution channels and customers that neither has been able to turn a profit, and probably wouldn’t have for years. Consumers have been the big winners, with great programming at affordable prices.

Any cursory look at financial results demonstrates that consumers aren’t winning in a vacuum. At least with respect to Sirius, its cash flow is improving. This matters to a growing company more than bottom-line profitability. But why should we expect such an acknowledgment from a business columnist?

All that is about to change now that the Bush administration has concluded that we’ll all be better off if these heretofore fierce rivals are allowed to stop competing and concentrate instead on reducing costs, paring down their combined offerings and finally delivering profit to their shareholders.

This reveals the problem in Pearlstein’s analysis. In setting up the satellite auction that led to the creation of Sirius and XM, the government decided that exactly two competitors was the best approach. It depended on an assumption that two could compete effectively. It ruled out the possibility for a third (or fourth or fifth or …) to compete, possibly encouraging a different development of the market. It ignored the idea that human involvement might take it in a different direction than the ideal world envisioned by the sages at the FCC. And now that reality has messed with the centralized planning, the only response is to knew what it was doing, facts be damned. That’s not convincing.

More importantly, what new innovations in the business will arrive if the combined companies don’t need to waste resources on two ’80s channels, two popular country channels, or two channels carrying C-Span? I trust competition with other competing forms of entertainment to drive the outcome because I don’t pretend to know what is best.

Pearlstein disagrees, going so far as to analogize a combined Sirius-XM to a combined Coke-Pepsi. Yet, I don’t drink either, so I’m fairly certain humans don’t need them to live. Perhaps the availability of alternatives to non-necessities puts pressure on those evil, profit-maximizing corporations. Instead, Pearlstein deems it reasonable to argue that consumers should have ideal conditions for any and all requests. Anything that helps the corporation must, by definition, harm the consumer. It must be regulated, if not stopped.

He uses interesting logic to get there:

… You would particularly want … vigilance in the case of a government-sanctioned duopoly, which is how the Federal Communications Commission viewed XM and Sirius when it granted only two licenses for satellite radio.

This irrational faith in the wisdom of government planning is matched only by his absurdity in arguing that Sirius and XM might develop substitutes for each other if forced to compete.

It makes no allowance for the possibility that, if you force the two companies to compete, XM might come up with a morning host who is funnier and more outrageous than Howard Stern. Or Sirius, lacking a Major League Baseball offering, might take a chance on World Cup soccer or college lacrosse and tap into a whole new audience that nobody knew existed. The prospects for that kind of innovation will be greatly reduced after XM and Sirius merge and the combined company focuses on protecting its existing hit channels rather than creating new ones to displace them.

As if college lacrosse will compete with Major League Baseball. Pearlstein looks at the possibilities (allegedly) eliminated from a merger while ignoring the tangible benefits customers already receive. He also dismisses the notion that the possibility that customers will leave if the channel lineup bores them won’t be an incentive to innovate. He ignores that “free” radio is already following the exact path he fears satellite radio will take and ignores the innovations that satellite radio has given and can continue to give as a combined company. (Uncensored Howard Stern counts as an improvement, as does national access to sports broadcasts.) But why worry about details when this story can just be twisted into another screed concluding that the Bush Administration wants to screw the proletariat at every opportunity?

The FCC should immediately match the Department of Justice’s decision and let the merger proceed.

(Disclosure: I’m a Sirius shareholder and customer. I’ve been an XM shareholder and customer in the past. I also desperately want XM’s Major League Baseball with Sirius’ Howard Stern. Economics and free market competition are still the reasons I support the merger.)

It’s not a “deal” if I don’t get to refuse.

Harold Meyerson’s column in today’s Washington Post is propaganda. It is so obviously biased in its consideration of facts and creation of myths that any other conclusion is impossible. Any essay that begins with this:

Putting together everything we’ve learned over the past 10 days about high finance in Manhattan, one thing is clear: If Eliot Spitzer had saved all the money he apparently paid”Kristen” and her co-workers at the Emperors Club, he could have bought Bear Stearns.

… derives from a partisan ever-interested in stuffing the events of the day through to his predetermined conclusion. In Meyerson’s case, that’s always some derivative of how government must act more, control more, and protect more. His political mind is one giant Care Bear Stare at the problem du jour.

Today, he’s concerned with workers.

The key lesson Americans need to learn from today’s troubles is how to distinguish faux prosperity from the genuine article. Over the past hundred years, we’ve experienced both. In the three decades after World War II we had the real thing. Led by our manufacturing sector, productivity increased at a rapid clip and median family incomes rose at a virtually identical rate. The value of the American work product grew significantly and that value was shared with American workers.

That value that’s shared with workers is generally referred to as a salary. Unless workers have stopped receiving salaries for the work they do, this argument is sophistry. Meyerson isn’t interested in anything more than pushing anti-capitalist, anti-corporate class warfare.

In the broadest sense, the American economy over the past three decades has been powered by ever more ingenious extensions of credit to a people whose incomes were going nowhere, unless they were in the wealthiest 10 percent of the population. There were some limits, as a result of New Deal regulations, on how old-line banks could extend credit, but investment banks and other institutions not legally obliged to keep a certain amount of cash in reserve operated under no such constraints. The risk was that one day, burdened by debt and static incomes, American homeowners would have trouble making their payments and the house of cards would come tumbling down. But what were the odds of that?

His entire argument is built on the italicized statement. To work, he needs both a conspiracy by his enemy class and a lack of self-control within his comrades in arms spending. The former is a pathetic assumption not worth consideration. The latter is worth a simple demolition.

When I bought my house, I had a set income with a projected path of growth. For consistency within Meyerson’s frame, I’ll remove the assumption of growth. I also had a (declining) amount of debt consisting of my car and my education. I took on a fixed-rate mortgage for approximately half the amount a bank would’ve given me in 2005. I’ll also assume what a bank would offer me now is less than what it would’ve offered me in 2005, although it would no doubt still cover my original mortgage with a comfortable margin. My (assumed stagnant) income covered my obligations.

How is “burdened by debt and static incomes” relevant, as opposed to poor judgment and financial forecasting by consumers (and financial institutions)? Meyerson sees only the parenthetical and assumes that amounts to conspiracy. And oppression. The notion is biased.

Meyersons demands are unsurprising. I wonder if he wrote this paragraph first.

Pretty good, it turns out. And out of this debacle emerge two paramount lessons for our highest-ranking policymakers: Regulate the American financial sector, which is now turning to the government for a bailout. And commit the government to doing all in its power to generate broad-based prosperity, through laws enabling workers to bargain collectively, through a massive public commitment to projects “greening” the economy, through provision of universal health coverage and affordable college educations.

The lesson from Bear Stearns is that we need the government to give us broad-based prosperity through a massive public commitment to boilerplate progressive talking points. Yep, further buffering Americans from the costs of their financial decisions is exactly what we need, lest they learn to exercise the self-control Meyerson knows they do not possess because they’ve been conspired against by the goal of oppression executed by our financial elite.

But, if I may, a question. When the government makes a college education more affordable, should it regulate who may study finance, and which branches of finance, since its eventual practice carries the risk of unleashing more evil on workers?

If one bad capitalist indicts capitalism, one bad pundit indicts punditry.

I (obviously) haven’t read everything written on the Fed’s Bear Stearns intervention. No need. Today’s column from E.J. Dionne is the most intellectually dishonest piece possible, relying on a skewed, limited set of the facts. There’s too much to excerpt and comment on to fully highlight its idiocy, but this is close to a summation:

But in the enthusiasm for deregulation that took root in the late 1970s, flowered in the Reagan era and reached its apogee in the second Bush years, we forgot the lesson that government needs to keep a careful watch on what capitalists do. Of course, some deregulation can be salutary, and the market system is, on balance, a wondrous instrument — when it works. But the free market is just that: an instrument, not a principle.

Dionne mistakenly assumes that the American economy is a free market. It is among the freest on Earth, but it is not free. The free market is a principle. The American economy is an instrument.

It is an instrument for Wall Street tycoons who like corporate welfare. It is also an instrument for people like Dionne:

So now the bailouts [ed. note: this isn’t a “bailout”] begin, and Wall Street usefully might feel a bit of gratitude, perhaps by being willing to have the wealthy foot some of the bill or to acknowledge that while its denizens were getting rich, a lot of Americans were losing jobs and health insurance. I’m waiting.

If the “wealthy” who will be “asked” to foot some of the bill had no financial interest in (i.e. shares) or transactions with Bear Stearns, why is it her responsibility to pay more for the Fed’s actions? As a response to corporate welfare not benefiting her? And what if she already acknowledges that a lot of Americans were losing jobs and health insurance? Not that acknowledging that matters to anything; why does it matter?

Believing welfare is a dangerous policy for government is a principled stance. Believing that corporate welfare is a dangerous policy for government is a stance that serves as an ideological instrument for further regulating the American economy away from the free market.

Triumph of the Big Government Advocates

Writing about OPEC’s rise to actual cartel power, Robert Samuelson writes this sentence about one of America’s short-comings.

We have steadfastly rejected higher gasoline taxes to curb unnecessary driving and strengthen demand for fuel-efficient vehicles (better to tax ourselves than let foreigners tax us through higher prices).

First, higher prices are not a “tax”, they are the result of supply and demand. As Mr. Samuelson points out throughout his essay, world demand is growing. OPEC has control of a large segment of supply. But OPEC does not have the ability to make us pay its prices. Why didn’t he just alter the sentence and write “better to tax ourselves than let foreigners gouge us through higher prices”? It would’ve been as economically (in)correct.

More importantly, the purpose of a tax on gasoline should never be to limit “unnecessary” driving. Unnecessary to whom? If I go to the store to browse for merchandise I have no intention of buying today, is that unnecessary? If a parent drives his child around to help the child fall asleep, is that unnecessary? If a teenager drives his date around aimlessly for an extra half hour so they can talk longer, is that unnecessary?

Taxes to achieve subjective ideals is ideology, not valid public policy. The only purpose for a tax – a user fee – is to rectify the negative externalities from the taxed activity. Carbon emission is an externality. Fifteen cents more for a gallon of gasoline from higher demand is not an externality.

The price of a gallon of gasoline should be the result of market forces. Either people value driving or they value money. But each consumer is the only legitimate decision-maker on that choice.

Who buys the BMW on a Kia budget?

Thankfully there are no calls for government action, but Michelle Singletary still offers a troubling assessment on money and personal responsibility.

Just consider the advertising campaign, “Life Takes Visa.” The credit card giant has been running commercials in which people are hustling through checkout lines at fast food and retail stores. They buy what they want by merely waving or swiping their plastic Visa cards.

But when a customer pulls out cash, everything comes to a screeching halt. The cash-paying customer gets harsh looks from fellow shoppers and the cashier. Then we hear an announcer say: “Don’t let cash slow you down.”

The commercials are funny. But the subliminal message isn’t. It’s diabolical.

The subliminal message is not diabolical (i.e. of or pertaining to the devil). Visa wants customers to use their cards for everything because Visa gets a cut of that, unlike a customer’s cash transactions. Banks issue cards under the Visa brand. These banks want customers to carry a balance on their cards because it generates interest. The message of the commercial is only the first, given that Visa and the banks that issue Visa cards are separate entities.

Immediately following the diabolical conclusion, this from Stuart Vyse, author of Going Broke: Why Americans Can’t Hold On to Their Money, the subject of the article:

“Much of the difficulty stems from new retail technologies that make it easy to act without thinking,” Vyse says.

That is an entirely reasonable conclusion because it places the responsibility for thinking or not thinking on the individual using the card. It does not involve any satanic machinations on the part of large corporations to force Americans into a vicious cycle of debt.

This is similar to the common refrain on guns, that guns don’t kill people, people kill people. That’s correct but too semantically succinct. Of course guns kill people because it’s a method to do so. But Smith & Wesson doesn’t pull the trigger for the murderer.

And Visa doesn’t provide the card number to retailers when there’s no money in the bank to pay for the expenditure.

Lazy Journalism: Or, words have meanings.

I had this article open in my browser from earlier this morning. I should’ve taken a snapshot before refreshing. One error is gone, but the same error still exists. The title of the article is “Economy Slows to Near Crawl”.

The economy skidded to a near halt in the final quarter of last year, clobbered by dual slumps in housing and credit that caused people and businesses to spend and invest more sparingly.

I don’t recall having trouble buying luxury items in the last quarter of 2007. I definitely don’t recall having trouble buying necessities in the same time period. Has the economy really skidded to a near “halt”, meaning that it has skidded to a near stop?

I don’t think the new headline, replacing halt with crawl, is much better. Surely there’s a better word for the apparent lack of expansion, given that we’re not quite at breadline status. Semantically, I’d choose stagnant, but that might have some Americans who weren’t six when the ’70s ended concerned. Not that it doesn’t concern me, but I recognize it from the intellectual, not the experiential.

Or the AP could’ve taken the easy way, reporting “Economic Growth Slows to Near Halt,” or some other such evaluation of the facts.