Category: Economics

Competition is better than government fiat.

Lance Ulanoff, writing in PC Magazine, explains why he was wrong on who would win the Blu-ray/HD-DVD battle.

I finally figured out why I was so dead wrong about the HD DVD versus Blu-ray format war. I should have analyzed the sides—Sony and Toshiba—not as two countries going to war, but as opponents in a close-quarters boxing match. Had I done so, I would have properly assessed each of the technology’s assets and deficits.

Mr. Ulanoff was wrong in prognosticating consumer technology for a magazine. No harm, no foul. We all make judgments, whether we commit them to print or not, that turn out wrong. We’re all human.

Remember that every time a central planner comes along and tells us confidently why we should choose X (with money taken from taxpayers) and outlaw Y.

Obfuscation of the Day

New York Governor Eliot Spitzer makes an inarguably incomplete argument regarding the subprime mortgage problem:

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.

I wonder if he gave the essay its title – “Predatory Lenders’ Partner in Crime” – or the Washington Post’s editors added it.

Regardless, the only fact he has correct in his sanctimony is that what he’s selling is a tale. Its height is impressive. I can’t wait to see what he shovels when he runs for Congress or President.

If I wanted class warfare, I would’ve supported John Edwards.

Via Greg Mankiw, here’s Senator Obama on NAFTA:

… We can’t keep playing the same Washington game with the same Washington players and expect a different result – because it’s a game that ordinary Americans are losing.

It’s a game where lobbyists write check after check and Exxon turns record profits, while you pay the price at the pump, and our planet is put at risk. That’s what happens when lobbyists set the agenda, and that’s why they won’t drown out your voices anymore when I am President of the United States of America.

It’s a game where trade deals like NAFTA ship jobs overseas and force parents to compete with their teenagers to work for minimum wage at Wal-Mart. That’s what happens when the American worker doesn’t have a voice at the negotiating table, when leaders change their positions on trade with the politics of the moment, and that’s why we need a President who will listen to Main Street – not just Wall Street; a President who will stand with workers not just when it’s easy, but when it’s hard.

Kip offers an excellent rebuttal on Obama’s pandering to the Wal-Mart and Exxon non-angles, so I’ll point you there.

What struck me most in this nonsense is the last line. Apart from missing the truth that we need a President who understands that the President’s primary role in the economy is to get out of the way, Senator Obama is backwards on his spin. Telling people we’re going to erect barriers to free trade in an effort to protect domestic interests is easy. Telling people we’re going to stop listening to lobbyists while indirectly telling them we’re going to start listening to a different set of lobbyists is easy. Pitting one group of people against another group of people in order to win votes is easy.

The only hard task in American politics is telling people no. I haven’t seen a politician in my lifetime capable of doing that. Barack Obama is a politician.

The free market – which we do not have – works. There are winners and losers in the short-term as change disrupts the existing manner of operations. That is inevitable, and we can discuss a minimum safety next mechanism (public or private) necessary to squeeze through the turmoil. There will also be winners and losers in the long-term, but that hinges much less on individual skills and much more on motivation to adapt. Specific losing is not inevitable in the long-term.

Pandering to this type of class warfare, which is exactly what Sen. Obama engaged in, will lead to economic turmoil as government intervention designed on fixing perceived injustices only creates different injustice. It skews market incentives. It distorts individual tastes and preferences. It encourages inefficient economic behavior. That is not leadership. To any extent that he believes pretends otherwise, Senator Obama is not running on a platform of change.

I don’t know which post I like better.

Two excellent posts from Cato@Liberty. First, Michael Tanner provides an update on how well RomneyCare is working in Massachusetts.

Faced with rising costs that threaten to put the program $150–400 million per year over budget, the Massachusetts Connector Authority is now adopting a number of changes to RomneyCare. They include:

  1. Pressuring insurers not to increase premiums (ie. premium caps).
  2. Ordering insurers to cut reimbursements to hospitals and physicians by 3–5 percent.
  3. Reduce the choices available to consumers.

It seems that in the fight between economics and political dreams, economics wins. <sarcasm>How shocking.</sarcasm>

Second, Jim Harper discusses an issue separating Hillary Clinton and Barack Obama with implications far beyond the purported scope of what’s barely been discussed.

Senators Barack Obama (D-IL) and Hillary Clinton (D-NY) disagree quite starkly on whether illegal immigrants should be licensed — or, more accurately, on whether driver licensing and proof of immigration status should be linked.
…

The right answer here isn’t obvious, but it is important.

Many people believe that illegal immigrants shouldn’t be “rewarded” with drivers’ licenses. Fair enough: the rule of law is important. There’s also a theory that denying illegal immigrants “benefits” like driver licensing will make the country inhospitable enough that they will leave. This has not borne out, however. Denying illegal immigrants licenses has merely caused unlicensed and untrained driving, with the hit-and-run accidents and higher insurance rates that flow from that.

The major reason, though, why I agree with Senator Obama is because the linking of driver licensing and immigration status is part of the move to convert the driver’s license into a national ID card. Mission-creep at the country’s DMVs is not just causing growth in one of the least-liked bureaucracies. It’s creating the infrastructure for direct regulatory control of individuals by the federal government.

I agree with this. As a libertarian concern about unintended consequences drives some of my disdain for anything more than limited government. But as a libertarian who understands a little about history and tyrants, concern about intended consequences drives me more. Stupidity in government is bad. Evil in government is worse. Any politician who supports a national ID system is evil and must be stopped from enacting his or her plans.

What’s the 411 976?

Something doesn’t add up here:

Takahiro Fujinuma – who is 37, single and unemployed – reportedly would whisper “darling” as he tried to start a conversation and then pleaded with female operators not to hang up.

He was arrested yesterday in Tokyo on charges of obstructing the business of service operator NTT Solco, part of telecom giant Nippon Telegraph and Telephone.

He placed 2,600 calls to directory help – reached in Japan by dialling 104 – between early June and mid-November, a police spokesman said.

Single and unemployed, I get. I could’ve guessed that without the added confirmation. But how does an unemployed man afford that many calls to directory assistance? Is the Japanese system unlike directory assistance offered by American telecom companies?

Assuming the price charged by American companies earns a profit, it would make sense to answer his calls and inform him when he made any inappropriate advance that the call would terminate. The company gets his money, which should discourage excessive calling. If he verged from annoying the company by purchasing its services into lecherous harassment, charge him with that. But I can’t see how calling 200 times per night could disrupt a national business unless the service is free.

Again, I’m not condoning his apparently pervish advances. This just seems an odd conclusion to an odd situation.

Via Boing Boing.

Is there a market for contraband in communist countries?

Much is being made of the nonsensical, fact-free attack on libertarianism in this article by Benjamin Storey and Jenna Silber Storey on John McCain and virtue. Those arguments are valid, but I’m stopped by this:

The main current of opposition to McCain faults him for departures from strict free-market ideology. McCain’s decisions about tax cuts, campaign finance, and greenhouse gas caps may be prudent or imprudent, and it is important to debate their practical effects on our economy and on our nation’s well-being. Nonetheless, if conservatives succeed in marginalizing anyone who does not toe the doctrinaire line of their free market ideology, they will lose an important–indeed the most central and precious–aspect of their creed: the faith in the virtue of individuals to make a good society for themselves, rather than the faith in an ideology to make a good society for us.

Faith in the virtue of individuals to make a good society for themselves… is not free-market “ideology”? What am I missing? That’s exactly the point of free-market economics. Rather than some central decision-maker, even someone as “virtuous” as John McCain, each person working with and against¹ each other can will make a better society.

The article continues with a defense of free markets. The authors seem to get stuck on ideology, as if a commitment to free markets implies some specific outcome. Other than the commonly known fact that the iPod’s planned appearance, granted by decree to Apple, was on page 347 of Milton Freedman’s The Free-Market Ideologue’s Complete Guide to Acceptable Progress and The Organizations Granted Such Opportunities², I’m not sure how any thinking person can come to such a conclusion. Economic progress is almost by definition unexpected and devastating to the old ways. An ideologue wouldn’t accept such reckless change to his status. But then, I’m also invested heavily in buggy technology. We’re going to run out of oil someday, since the free market has no idea what to do about the situation.

Naturally, as an ideologue, I’m required to ignore the helping hand of government in trying to make us free from dependence on foreign oil. And those reports of rising food prices as an unintended consequence of government’s well-thought-out subsidies to turn America’s corn into gas? Those reports are shoveled from the stables where I’m keeping the horses that will pull my buggy.

Now I’m bored³. Prudent leadership is a euphemism for central planning. It doesn’t matter if the Dear Leader is John McCain, Hillary Clinton, Joseph Stalin, or Jesus Christ. Any will imposed on another for his own alleged benefit without his consent is not liberty. In the absence of liberty, political and/or economic mandate is not virtuous.

**********

As for the “critique” of libertarianism, aside from my suggestion that the authors invest in a dictionary of political terms, kudos are in order to Matt Welch at reason for getting to the point:

Turns out there’s a pretty important difference between wishing the government out of people’s free transactions, and assuming those transactions are wonderful (let alone wanting to force them upon the rest of society).

But I’m partial to Will Wilkinson’s pitch-perfect dismissal:

National Greatness Conservatism is like a grotesque wood-paneled den stuffed with animal heads, mounted swords, garish carpets, and a giant roaring fire. Only the most vulgar tuck in next to that fire, light a fat cigar, and think they’ve really got it all figured out.

I hate wood-paneling.

¹ The two are not mutually-exclusive or counter-productive.

² Freedman’s companion volume, How to Oppress the Proletariat, is a great read.

³ If I chose to continue, I’d remark that “greed is good” advocacy in the free market is distinctly different from the irrational belief that “greed is good” has a place among our “prudent leaders”.

Quote of the Day

On the economic “stimulus” plan, Elaine Vigneault’s husband, Ed Miller, has the very best possible denigration of this nonsense:

“So, what, we can’t have socialized medicine but we can have socialized shopping?”

I don’t agree with the idea of socialized medicine because of socialized, but “socialized shopping” is a brilliant term for a stupid idea. Kudos.

FYI, I’m going to use my rebate free money to stimulate the economy by paying the outstanding bill for my cancer removal. Productive, no?

If subset Y exists within X, not all members of X must belong to subset Y.

Via Andrew Sullivan, Harper’s Magazine has an article by Ursula K. Le Guin. It’s behind a subscription firewall, so I haven’t read it, but this excerpt posted by Mr. Sullivan is interesting:

Over the years, books kept in print may earn hundreds of thousands of dollars for their publisher and author. A few steady earners, even though the annual earnings are in what is now dismissively called “the midlist,” can keep publishers in business for years, and even allow them to take a risk or two on new authors. If I were a publisher, I’d rather own J.R.R. Tolkien than J. K. Rowling.

But capitalists count weeks, not years. To get big quick money, the publisher must risk a multimillion-dollar advance on a hot author who’s supposed to provide this week’s bestseller. These millions—often a dead loss—come out of funds that used to go to pay normal advances to reliable midlist authors and the royalties on older books that kept selling. Many midlist authors have been dropped, many reliably selling books remaindered, in order to feed Moloch. Is that any way to run a business?

Consider yesterday’s screed by Robert Samuelson and compare it to this essay. All capitalists count weeks, not years. The indictment is against capitalists, not specific capitalists with a shorter-term view. If I go into my local bookstore, will I find books by midlist authors? Will I find Tolkein and lower-selling authors? Or will I just find J.K. Rowling?

The questions are absurd. Even small bookstores carry more than just the bestsellers. Of course they focus on the bestsellers; “bestsellers” suggests profit, so most bookstores would be stupid to ignore them. But not all customers want that. Thus, they also sell midlist (and obscure) titles. For bookstores to have books by midlist (and obscure) authors to sell, publishers (i.e. capitalists) must publish those titles.

The author’s opinion that going for the hot author is a bad way to run a publishing house is subjective. The only “right” way is the one determined by the capitalist that enables her to stay in business by meeting demand. All other ranting against capitalists as a group is sophistry.

Journalism’s Enemies Within

I’ve never much cared for Robert Samuelson’s opinion pieces because he’s generally most obsessed with his opinion, regardless of fact. And he never met a problem that couldn’t be better solved by government intervention. Today’s nonsensical rant is no different, although he leaves his preference for government salvation as implied.

Amid the mayhem on world financial markets, it is becoming clear that capitalism’s most dangerous enemies are capitalists. …

Everyday Americans will conclude (rightly) that this brand of capitalism is rigged in favor of the privileged few. It will be said in their defense that these packages reflected years of service, often highly successful. So? It’s not as if these CEOs weren’t compensated in all those years. If you leave your company a shambles — with losses to be absorbed by lower-level employees, some of whom will be fired, and shareholders — do you deserve a gold-plated send-off? Still, the more serious problem transcends the high pay itself and goes to the wider consequences for the economy.

The action of a few capitalists allegedly indicts capitalism as a whole. If capitalists argued that capitalism was perfect, yes, then Samuelson might have an interesting idea. But we don’t argue that. We only argue that it’s superior to everything else we’ve tried. That includes government control. Any system run by humans will be flawed, so noting human flaws is not an effective indictment.

The rest of Samuelson’s column is as ridiculous as the opener. Consider one or two more points:

… Now there are signs of problems involving securities known as “credit default swaps.” Never mind the details. Concentrate on the possible fallout. …

Never mind the details. No truer example of imposing one’s subjective opinion as a substitute for objective evaluation exists. Of course, Samuelson engages the same basic flaw into the subprime mortgage issue.

Just why investment bankers and traders out-earn, say, doctors or computer engineers is a question I’ve never heard convincingly answered. Are they smarter? Unlikely. Do they contribute more to the economy? Questionable. True, Wall Street often performs a vital function. It channels savings into productive investments. It helps provide access to capital and credit. In 2006, U.S. companies raised nearly $4 trillion through new stocks and bonds. Many financial innovations, including mortgage-backed securities, have benefited individuals and companies.

Other than demonstrating that Wall Street adds value to society, I can’t imagine why Wall Street earns money.

But Wall Street also frequently misallocates capital and credit. …

Misallocates according to whom? The central planner, of course. And who gets to be the central planner who decides what the proper allocation is? I’m guessing Samuelson has a pretty firm belief that he’s a good judge of proper allocation.

More importantly, Samuelson only points to “failures” of the market like the tech bubble of the late ’90s and the current subprime mortgage issue. The presence of failures is enough to prove that the process is flawed. But anything involving humans will involve failure. Trial and error requires error. Samuelson ignores the continued existence and success of companies that benefited from cash influxes during the tech boom. He ignores the continued health and repayment of most subprime mortgages. Some failures exist in those categories, so the system is broken. That’s irrational.