Wow -- Two Obama Administration Economists Write Paper Saying Obama Administration Policy Was Great

I followed a link the other day to this academic paper purporting to show that the bailout of GM and Chrysler was a success.  I was flabbergasted to see that the authors are Austan D. Goolsbee and Alan B. Krueger.  WTF?  These folks were part of the Obama Administration.  This is their own policy they are passing historical judgement on.  This is roughly equivalent to a economics journal seeking a paper on the success or failure of Obamacare and having Valerie Jarrett write it.  How does this kind of conflict of interest pass any kind of muster?

I only skimmed the paper.  I know these are two smart guys but it seems to include exactly the sort of facile analysis you would expect from a political hack, not two smart economists.  I can't believe these guys would have accepted many of the assumptions they make here had they not been directly involved.  Just to pick two things at random:

  • They seem to stick with the assumption that millions of jobs would have simply gone *poof* had the government not intervened.  Yes, this happened at Solyndra, but in most cases industries operate almost seamlessly in bankruptcy.  The odds are, for example, that you have flown on an airline in Chapter 11 and didn't even know it.  They make a specific argument that somehow it would be bad to have both in bankruptcy at the same time, but I can remember several times when there were multiple major airlines in bankruptcy.  In fact, if both went bankrupt at the same time, one could argue it would lessen their market share loss since a major competitor was in the same boat.  To the extent that the companies would have continued to operate under Chapter 11, which is 99.9% likely, then all the government did was insert itself into the bankruptcy process to overrule laws about who gets what in a bankruptcy to redirect spoils to their favored constituencies
  • Yes, GM and Chrysler are doing OK now, but they usually do OK at the top of a business cycle.  To my eye though, nothing fundamentally changed about how they are managed and operate.  The same structural and cultural problems that existed before exist today.  The same under-utilization of talented workers and valuable assets that existed before exists today.  No real reckoning occurred -- in fact the bailout looked to me at the time as an exercise to use taxpayer money to avoid a true housecleaning.  These companies have done OK, but what would they have done with a more thorough housecleaning?

Wow. IRS Caught in a Huge Lie

I had no problem assuming the "lost" IRS emails were incompetence rather than criminal evidence tampering.  After all, how hard is it to believe the government is incompetent?

But it may be in this case it really was fraud.  Suddenly the emails have been found, and they were apparently always there  -- despite all protestations to the contrary, no one in the IRS had even asked for them.  From the WaPo:

The Treasury Inspector General for Tax Administration testified at a House Oversight and Government Reform Committee hearing on Thursday that it tracked down nearly 33,000 emails from ex-IRS official Lois Lerner.

The records date back to 2001, which is 10 years beyond what the IRS has said it could access for investigators.

The inspector general’s office said it is working to identify any messages that the IRS has not already sent to congressional investigators, who are examining the Lerner’s involvement in the IRS targeting scandal.

The watchdog agency found the backed-up emails by consulting with IRS information-technology specialists, according to TIGTA Deputy Inspector General for Investigations Tim Camus.

They were right where you would expect them to be,” he said at the rare late-night hearing, which lasted until about 10 p.m.

IRS Commissioner John Koskinen testified before Congress last year that the backups were no help in recovering Lerner’s lost emails, in part because the IRS overwrites them every six months.

Camus said the IRS’s technology specialists told investigators that no one from the agency asked for the tapes, raising doubts about whether the agency did its due diligence in trying to locate Lerner’s emails, or possibly greater troubles.

 

The Biggest Lie in the FCC's Net Neutering* Actions

When I write about the dangers to innovation, competition, and price discovery from the FCC's decision to regulate the Internet into Ma Bell, supporters of net neutering are quick to point out that the FCC promised to only use a fraction of the power it is giving itself.

Ha!  When has this happened, ever, with the government?  If they have the power, they are going to use it.  In fact, to call the FCC as somehow careful about staying within bounds of their power is a joke anyway, since this entire regulation likely exceeds their legislative mandate.   Even if the current commissioners are honest that they will never use all this new power, how can they possibly bind future commissioners?

I am reminded of the income tax, which was sold to the country with the promise that it would only ever apply to the top few percent of earners.  In other words, they were asking for the power to tax everyone but promised only to use a fraction of that power

when initially imposed, the income tax, despite its progressive rates, appeared rather straightforward and not all that burdensome—almost benign. Of course, appearances can be deceiving.

There were, of course, warnings about the dangers of a progressive tax structure. But people supported the income tax because it was originally meant to impose only very low tax rates on only the highest incomes. Proponents argued that the 16th amendment to the U.S. Constitution would force the so-called “robber barons” to pay taxes. It was not supposed to provide a mechanism for Washington to reach into most Americans’ pockets.

...

The original income tax was obviously not meant to be paid by most citizens, nor were rates high enough to significantly undermine the spirit of enterprise. For example, under this system single taxpayers today would pay no tax on any earnings up to almost $45,000 and married couples on earnings up to almost $60,000. A one percent tax rate would be in effect on incomes up to about $300,000. The top rate of 7 percent would not take hold until earnings hit almost $7.5 million.

 

* "Net Neutrality" is an Orwellian term that bears no relationship to what is actually going on.  I will use "net neutering" going forward.

My Response to Triumphalism over Turning the Internet into a Utility

Engadget is celebrating the fact that the Internet just got turned into Ma Bell.  Here was my response in the comments:

 This is utter madness.  Since when has "free" ever meant "tightly controlled by the government"?  Regulation like this always locks in current competitors and business models.  Hate Comcast?  You just guaranteed them their infinite existence and profitability.  They will be the Ma Bell of your generation.

New competitive models and technologies will now have to be vetted by government bureaucrats who will soon be captured by the industry itself.  It literally always happens this way.  How much innovation did you ever see in the landline phone business?  My telephone at my birth in 1962 was identical to the one in my dorm room in 1984.  Power companies?  Water companies?  Cell voice service?  What innovation have you ever seen?  What new competitors have you seen pop up to challenge the old guys?  Only in cellular data has there been any innovation, and that is to date the one place in phone communications the FCC has not regulated with this model.

I am exhausted with people justifying these heavy-handed government regulations based on the good intentions of their supporters rather than the actual facts of how these regulations always play out historically.  We will look back on this day as the beginning of the end of the wild, open Internet we loved.

I will say that folks can really be rubes.  Playing on the fear of one narrow issue that would have been easy to legislate (that broadband companies might block or limit access to certain sites), the government used this niche concern to drive through a total takeover of the Internet.  Way to go sheeple.

Update:  Some additional comments I made:

This problem of blocking web sites is almost entirely hypothetical, and to the extent it has been used at all it merely has been a negotiating tactic between big boys like Netflix and Comcast who can take care of themselves.    It could have easily been fixed with a narrow bit of rulemaking but in stead we get this major regulatory takeover.

Doesn't it bother you that this is a problem that could have been solved with a fly-swatter but instead the regulators demanded they be given a 16-inch naval gun.  Don't you worry why they need all that regulatory power to swat a fly?  Aren't you at all suspicious there is more going on here?

Wherein I Come Clean to Representative Grijalva

Here is the letter I wrote today (pdf) to Representative Grijalva confessing my climate funding biases.  The image is below.  I feel so much better.

grijalva-letter2

I wrote this in support particularly of Roger Pielke, who has educated a lot of people about climate and is not even really a climate skeptic and who has been pretty upset by this scrutiny.  Call it the "I am Spartacus" strategy.

My earlier post on funding and bias is here.

On Funding and Bias in Climate

I really, really did not want to have to write yet another post on this.  99+% of all climate funding goes to alarmists rather than skeptics.   Greenpeace laments donations of funds to skeptics by Exxon of a million dollars or so and wants to drive out all such funding when Greenpeace and Tides and the US Government are giving literally billions to alarmists.  Despite this staggering imbalance, the only stories you ever see are about the dangers and bias introduced by that measly 1% skeptics get.  I guess that 1% is spent pretty well because it sure seems to have people running in circles declaring the sky is falling.

One would think that at some point the world would wake up and realize that criticizing the funding sources behind an individual does not actually rebut that individual's arguments.

Potential bias introduced by funding sources (or some other influence) are a pointer -- they are an indication there might be a problem warranting deeper examination of the evidence introduced and the methodology of collecting that evidence.  Such potential biases are not themselves evidence, and do nothing to rebut an argument.  A reasonable way to use such biases in an argument would be something like:

I want to begin by noting that Joe may have had a predisposition to his stated conclusion even before he started because of [funding source, political view, whatever].  This means we need to very carefully look at how he got to his conclusion.  And I intend to show you that he made several important errors that should undermine our acceptance of his conclusions.  They are....

Unfortunately, nowadays people like the New York Times and our own Arizona Representative Raul Grijalva seem to feel like the job is done after the first sentence.  They have decided that the best way to refute recent scientific work by a number of climate scientists is to try to show that some of their funding comes from fossil fuel companies.

Beyond the strange implicit assumption that fossil fuel funding would automatically "disprove" a research paper, there is also an assumption that oil company funding is "unclean" while government or non-profit environmental group funding is "clean".  Remember the last time you saw a news story about a climate alarmist's funding?  Yeah, neither do I.

There is no justifiable reason for this asymmetry.  Funding does not potentially introduce bias because it is sourced from for-profit or non-profit entities.  In fact, the motivation of the funding source is virtually irrelevant.  The only relevant questions related to bias are:

  1. Did the funding source demand a certain conclusion at the outset of the study as the price of the funding -- or --
  2. Is there a reasonable expectation that the source would deny future funding if the conclusions of the study don't go their way

My sense is that #1 is rare and that the real issue is #2.

But #2 is ubiquitous.  Sure, if a group of skeptical scientists suddenly started writing papers about 8 degree warming predictions, Chevron is going to be less likely to fund their future research.  But on the flip side if Michael Mann suddenly started saying that future warming will only be a modest 1-2 degrees, do you think that he would continue to get funding from Greenpeace, the Tides Foundation, the WWF, or even from an Obama-run Federal agency?  No way.   There is absolutely no less bias introduced by Chevron funding than from Greenpeace funding, because in each case there can be a reasonable fear by the researcher that future funding would be denied by that source if the "right" answer was not reached.

Postscript & Disclosure of Biases:  I have never received any outside funding for this blog or my climate work.  However, if Chevron were to send me a check for a million dollars, I would probably cash it.  I do own individual shares of ExxonMobil stock as well as shares of the Vanguard S&P500 index fund, which includes equities of a number of energy companies.  I also am a frequent purchaser of gasoline and electricity, as well as a number of other products and services whose prices are tied to energy prices (e.g. air transportation).  As a consumer, I would rather not see the prices of these products rise.  I buy a lot of food, whose price might be improved by longer growing seasons.  My camping company tends to benefit from rising gasoline prices, because rising prices causes people to stay closer to home and camp at the type of places we operate.  It is hard to predict how regional climates will change if overall global temperatures rise, but since many of my campgrounds are summer escapes at high altitude, they would probably benefit somewhat from rising temperatures.  I own a home in Arizona whose value would probably be lessened if the world warmed 2-3 degrees, because it would make winters in the northeast and midwest more bearable and thus hurt Arizona as a location for a winter second home.  Global warming may reduce the life of my dog as we are less likely to walk her when it is over 100 degrees out which makes her less healthy.  I own land in Hawaii that might be more valuable if sea level rises puts it 6-8 inches close to the ocean.  I am planning a vacation to see the tulips bloom in Holland and changes in climate could shift the blooming date and thus cause me to miss the best colors.  Fifteen years from now my daughter would like a June wedding and changes to climate might cause it to rain that day.  My daughter also owns 5 shares of Walt Disney and their earnings might be helped by global warming as nostalgia for cooler weather could greatly increase DVD sales of "Frozen".

Phoenix Wants to Double the Light Rail Tax

Our great city is proposing to double the sales tax increase dedicated to light rail and make the increase permanent.  This all so we can spend more money to shift people from busses to a mode that is more than 10x more expensive per passenger mile.

Brava, Deirdre McCloskey, For Avoiding The Primary Rhetorical Failing of Our Times

Deirdre McCloskey wrote a truly massive review, and in some senses a rebuttal, of Thomas Piketty's Capital in the Twenty-First Century

I am not really going to comment on the details of her paper -- many prominent economists have already done so.  I will say that I learned a lot from it not just about Piketty's proposition but about economic history in general.  It is an interesting read.

No, what I wanted to comment on -- in this era when rebuttals usually take the form of impugning the other person's funding, integrity, honesty, and motivations rather than their actual arguments -- is that she begins her article with this:

It has been a long time (how does “never” work for you?) since a technical treatise on economics has had such a market. An economist can only applaud. And an economic historian can only wax ecstatic. Piketty’s great splash will undoubtedly bring many young economically interested scholars to devote their lives to the study of the past.....

It is an honest and massively researched book. Nothing I shall say—and I shall say some hard things, because they are true and important—is meant to impugn Piketty’s integrity or his scientific effort. The book is the fruit of a big collaborative effort of the Paris School of Economics, which he founded, associated with some of the brightest lights in the techno-left of French economics. Hélas, I will show that Piketty is gravely mistaken in his science and in his social ethics. But so are many economists and calculators, some of them my dearest friends.

Interesting Home Sales Chart

Don't have an opinion on what this means, but it is interesting.  Via Zero Hedge

new home sales vs median home price

The Government's One Cost Advantage: It Can Exempt Itself from Regulation

Greg Patterson brings us this example from the AZ legislature, but this sort of thing is ubiquitous:

Just before I got to the Legislature, there was a big move to regulate day care facilities.  Naturally, the government has a role in establishing basic health and safety standards for facilities that take care of young children, so I thought it was a good move.

Then a funny thing happened.  The Legislature established one set of standards for private day care facilities and a different (lower) set of standards for public or non-profit day care facilities.  Some Legislators dared to ask why the health and safety rules would be different depending on what type of entity owned the facility.  After all, if a rule is really in place to keep a child healthy and safe, why should a publicly owned facility be exempt or have a lower standard?

The answer, of course, is that there's no reason for publicly owned facilities to have a different regulatory regime than private facilities and that these bills were really just disguised attempts to ensure that private day cares couldn't compete with public ones

We are facing something similar in my world.  As you may know, my company operates government parks and campgrounds on a concession basis (which means we get no government money, we are paid by the user fees of visitors).  This makes sense because we can do it less expensively and usually better than the government agency.

Recently, the Obama Administration has imposed an executive order that we concessionaires on Federal lands have to pay a $10.10 minimum wage.  Since most of our costs are labor, this is causing us to have a to raise fees to customers substantially to offset the higher costs.

In response to these fee increases, the US Forest Service in California is in the process of taking back traditionally concession-run campgrounds to run themselves, in-house.  Their justification is that they can do it cheaper.   Part of this is just poor government accounting -- because many costs (risk management/insurance, capital assets, interest on investments) don't hit their budgets but show up on other parts of the government's books, what appears to be lower costs is actually just costs that are hidden.  But their main cost savings is that since the Federal government is exempt from labor law and this new executive order, the Forest Service can staff the park with volunteers.  They are allowed to pay a minimum wage of ... zero!

This is just incredibly hypocritical, to say with one statement that private companies need to pay campground workers more and with the very next action take over the campground and staff it with people making nothing.

When Media Cheers for Corporate Welfare -- Local Film Subsidies

I am always amazed that the media will credulously run stories against "corporate welfare" for oil companies (which usually mostly includes things like LIFO accounting and investment tax credits that are not oil industry specific) but then beg and plead for us taxpayers to subsidize movie producers.

I wish I understood the reason for the proliferation of government subsidies for film production.  Is it as simple as politicians wanting to hobnob with Hollywood types?  Our local papers often go into full sales mode for sports team subsidies, but that is understandable from a bottom-line perspective -- sports are about the only thing that sells dead-tree papers any more, and so more local sports has a direct benefit on local newspapers.  Is it the same reasoning for proposed subsidies for Hollywood moguls?

Whatever the reason, our local paper made yet another pitch for throwing tax dollars at movie producers

Notwithstanding a recent flurry of Super Bowl-related documentaries and commercials that got 2015 off to a good start, Arizona appears to be falling behind in a competitive and lucrative business. The entertainment industry pays well, supports considerable indirect employment and offers the chance for cities and states to shine on a global stage.

Seriously?  I am sure setting up the craft table pays better than catering a party at my home, but it is a job that lasts 2 months and is then gone.  Ditto everything else on the production.   And I am sick of the "shines on the world stage thing."  Who cares?  And is this really even true?  The movie Chicago was filmed in Toronto -- did everyone who watched Chicago suddenly want to go to Toronto?  The TV animated series Archer gets a big subsidy from the state of Georgia.  Have they even mentioned Georgia in the series?  Given the tone of the show, would they even want to be mentioned?

When government subsidizes an industry, it is explicitly saying that resources are better and more productively invested in the subsidized industry than in other industries in which the money would have been spent in a free market.  Does the author really have evidence that the money I would have spent to improve the campgrounds we operate in Arizona is better taken from me and spent to get a Hollywood movie shot here instead?  Which investment will still be here 6 months from now?

Arizona is one of 11 states that don't offer tax incentives, primarily in the form of income-tax credits, and that's the core of the problem. There's also no state film office to help out-of-state crews obtain filming permits, locate vendors, hire temporary staff and so on.

Arizona's tax incentives expired after 2010 and the film office closed in the wake of a recession that hit the state especially hard and necessitated tough spending choices. Although bills to revive those programs have been introduced, they're not given high odds of success in the current session as the governor and lawmakers struggle to close $1.5 billion in deficits over this year and next.

"Right now, there's nobody to call, the phone isn't being answered and nobody responds to e-mails," said Mike Kucharo, a local producer and director who serves as the state-government liaison for the Arizona Production Association, an entertainment trade and networking group. "We need a film office."

Yeah for us!  While all the lemmings in other states bid up the price of a few politicians being able to get their picture with Hollywood types on a production set, we have chosen not to play.  Good for us.  Only an industry insider clown with a straight face could say that we need a taxpayer-funded film office.  Really?  Do we need a taxpayer-funded florist office to attract flower sales?

Years ago I wrote an article calling sports team subsidies a prisoners dilemma game, where the only winning move was not to play.  The NFL has 32 teams, mostly in the largest cities.  Without subsidies the NFL would have ... 32 teams, mostly in the largest cities, and taxpayers would have saved billions of dollars.  The same is true for film:

Indeed, the number and size of incentives escalated from just two states offering $2 million in combined incentives in 2003 to 40 states offering $1.2 billion just six years later, according to the Tax Foundation.

So subsidies have gone up by over a billion dollars a year, and yet roughly the same films are being made.  This is one of the best examples I can think of where politicians are using taxpayer money to increase their personal prestige.  The AZ Republic should be embarrassed they are out front actively encouraging this behavior.

Postscript:  For all of its flaws in teaching real-world relevant business topics, the Harvard Business School was very good, at least when I was attending it, at teaching business strategy.  My memory may be fuzzy here, but I am pretty sure that "40 other groups have all jumped into this activity and have ramped up their spending by a factor of 50 in just six years and all 40 competitors are really focused on winning almost irregardless of the price they pay" is not a very good pitch for investing money in a new field.

Postscript #2:  All of this is a wonton violation of the AZ state Constitution, though of course big government advocates are really good at totally ignoring Constitutional limits on government power.  Here is what our Constitution says:

Section 7. Neither the state, nor any county, city, town, municipality, or other subdivision of the state shall ever give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation, or become a subscriber to, or a shareholder in, any company or corporation, or become a joint owner with any person, company, or corporation, except as to such ownerships as may accrue to the state by operation or provision of law or as authorized by law solely for investment of the monies in the various funds of the state.

Update:  From the Manhattan Institute, film tax breaks return 30 cents for every dollar spent

Similar to most targeted tax breaks, movie production incentives routinely fail to deliver on the economic promises made by their proponents. Supporters frequently claim movie incentives create jobs and lead to net gains in tax revenue. However, data from several states find movie production incentives generate less than 30 cents for every lost dollar in tax revenue.

Providing tax breaks specifically to the film industry is an example of government working to choose winners and losers in the marketplace. States could attract almost any industry if they paid for a quarter to a third of its expenditures, but such a policy would be fiscally unsustainable. A better system would be to lower state tax rates for everyone, encouraging economic growth.

Film is a particularly poor industry to subsidize because it does not create long-term employment and other lasting economic benefits for states. Even though a well-made film might boost tourism, productions only offer short-term employment and the workers are highly specialized. Production and workers can easily move from one location to wherever better deals are offered.

Update #2:  The AZ Free Enterprise Club was on this last month

What Musicians and ExxonMobil Have in Common: Both Get "Ripped Off" By Consumers

We have all heard that artists make very little money from their songs, and get "ripped off"by record labels and other folks in the chain.  I have always had mixed reactions to this.  I have no doubt that, with zero power and a burning desire to "make it big", young acts sign uneven deals with record labels.  However, I find it hard to believe that Beyonce is getting hosed in that negotiation.

I saw this chart in TechDirt about where the money consumers spend on music goes (I think this is for a CD sale):

4788891305_c9eecd1fdd

So the performers themselves get about 9% of the retail price after everyone in the chain is paid.  That certainly seems paltry -- after all, they are the owners and creators of the music.  Everyone else is just in the service chain to make sure the music reaches the customers, all the accounting is done, the legal documents are correct, etc.

But it turns out that they may not be doing that badly.  I am a shareholder of ExxonMobil (XOM).  I own a piece of all the oil that XOM owns and controls, along with all the other shareholders.  Think of us as the band, though a really big band with lots of players.   That oil we own, like the band's music, has a ton of value.  When sold as raw crude, it goes for $40-$60 a barrel nowadays.  When sold in pieces (such as gasoline, or asphalt, or lubrication oil) it can sell for hundreds of dollars a barrel.

But out of those proceeds, we have to pay people to help us.  We have to pay managers, and lawyers.  We have to pay oilfield services companies and equipment companies and transportation companies.  We have to pay retailers.  When all those payments are made, before taxes, in 2014 we were left with just under 8% of every dollar we sell.  We own all this oil and we are not even getting as much as a musician!

And XOM shareholders do pretty well.  Owners of Wal-Mart only get about 3% of every dollar they sell.   In my company, I get about 5% of every dollar I sell.   And those evil health insurers?  Their shareholders get just over 2% of every dollar sold (all based on 2014 full-year financials).

Does that mean that Exxon shareholders are getting "ripped off" by Haliburton and Burlington Northern?  Is Wal-Mart getting ripped off by Proctor and Gamble?  Is Humana getting ripped off by GE imaging?  No?

I will reveal the ugly secret:  There is one person who is "ripping off" all of these folks, from Exxon to Rihanna to me.  That person is.... the consumer.  Yep, there are certainly many examples of people signing bad contracts in all these businesses, but the only entity systematically and consistently ripping all these folks off is us.  Because in a capitalist economy, we have the ultimate power.  We drive down the street to get the gas that is 10 cents cheaper, we now shop for our books and TVs at Wal-Mart and Amazon rather than at Borders and Best Buy, and we buy 99-cent individual songs on iTunes instead of buying a whole CD of songs we don't want for $14.99.

My Last Run

Well, that is kind of over-dramatic.  I will certainly continue to run sometimes.  I really enjoy running in cities where I travel as much as an exploration tool as for exercise.  But my knees are shot and I barely got through the half-marathon last weekend in 3 hours.  We had a great time though and Disney does a great job running these races.  And just about everyone wears costumes, which is fun.   It was worth the pain to do this event one last time with my daughter before she goes off to college.  Plus I now have another really awesome princess medal.

princess run-2

Why Opposition to Workplace Discrimination Laws Doesn't Necessarily Make You a Racist

A while back I (for a short time) chaired an effort to get a ballot initiative in Arizona to change to Constitution to allow gay marriage.  In the process, gay rights advocates approached me for support of another law to add LGBT persons to the list of protected classes that are covered by workplace discrimination laws.

I refused to help, and these folks immediately labeled me a hypocrite.  To be fair to them, they honestly thought that workplace discrimination laws did exactly what they intended to do - ban workplace discrimination of an overt sort (e.g., "what, you're gay?  Well, you can't work around here any more").  But anti-discrimination law has a lot of other unintended consequences that are all bad for even the most fair-minded business owner.

Because most of the actual stories I have been through are (and should be) confidential, I will illustrate the problem from a story out of the national news.

Debbie Wasserman Schultz is Chair of the Democratic Party.  Several years ago various party members became dissatisfied with her leadership, a pretty normal occurrence for such a position, particularly after Congressional losses in several elections.  I compare the job to that of an NFL coach, who has job security only as long as he is winning (see: Jim Harbaugh in San Francisco).

Wasserman Schultz’s position as the head of the DNC has long been a source of contention among Democrats, and Politico has previously documented the issue. In September 2014, Wasserman Schultz’s gaffes caught up to her when a string of Democrats voiced their distaste for the way the Florida congresswoman had led the party.

That report found tension between Wasserman Schultz and Obama dating back to 2011 .... At the time, Wasserman Schultz had allegedly complained to Obama about not being able to hire a donor’s daughter to work for her at the DNC.

“Obama summed up his reaction to staff afterward: ‘Really?’ ” according to a source that was present.

So maybe Obama didn’t like Wasserman Schultz’s brashness or her propensity to spout gaffe after gaffe.

So, faced with threats of losing her position based on poor job performance, her response was this:

Democratic National Committee Chairwoman Debbie Wasserman Schultz was prepared to go full force against President Obama if he tried to replace her in 2013.

Wasserman Schultz, according to Politico, was going to accuse Obama of being anti-woman and anti-Semitic — apparently to cover all the bases — if he dared consider replacing her as chairwoman.

There is absolutely no rational reason to believe President Obama wanted to fire her because she was a woman.  Seriously, Valerie Jarrett practically runs the country but Obama doesn't like Shultz because she is a woman?  I would bet that in fact she was hired for the position in large part because she was a woman.  But she was perfectly willing to use the fact that she happened to be in some protected employment classes to try to head off a merit-based firing.

For businesses, this means two things

  1. It typically takes much longer to terminate someone in a protected class, because businesses want to make sure they have an absolutely iron-clad case if the termination is later challenged.  For a service business like ours, this sometimes means tolerating dangerous behavior or really bad customer service longer (with all the risks that entails) from someone in a protected group rather than from, say, a white male.
  2. A large number of employees in protected groups will file grievances to the state, or even sue, over even the most well-documented and justified termination.  Even when employers win such cases, each one take tens of thousands of dollars in legal fees to win.  As interpreted by courts and state civil rights agencies, anti-discrimination law seems to create burden of proof on the part of employers to prove they did nothing wrong, rather than the other way around.

Gender Pay Gap a Myth

At first, the link I followed told me this story was from CBS.  I found it astonishing that a major news network would challenge a previously agreed on Obama Administration narrative, and sure enough I found that this was not actually from the people at CBS who are paid to write the news (they are too busy reprinting White House talking points) and is actually from one of their financial bloggers.

Never-the-less, it is a great post that gets at why every serious academic study tends to debunk the 77% gender pay gap myth.   All of it is good but the consistently most powerful point that I tend to use if I am only given time in an argument to make one point is this one:

Despite all of the above, unmarried women who've never had a child actually earn more than unmarried men, according to Nemko and data compiled from the Census Bureau.

Women business owners make less than half of what male business owners make, which, since they have no boss, means it's independent of discrimination. The reason for the disparity, according to a Rochester Institute of Technology study, is that money is the primary motivator for 76% of men versus only 29% of women. Women place a higher premium on shorter work weeks, proximity to home, fulfillment, autonomy, and safety, according to Nemko.

It's hard to argue with Nemko's position which, simply put, is this: When women make the same career choices as men, they earn the same amount as men.

One would think that this quote from Obama's own Department of Labor would be enough to kill this meme:

"This study leads to the unambiguous conclusion that the differences in the compensation of men and women are the result of a multitude of factors and that the raw wage gap should not be used as the basis to justify corrective action. Indeed, there may be nothing to correct. The differences in raw wages may be almost entirely the result of the individual choices being made by both male and female workers."

Worst Argument for Regulation Ever

We generally use startup activity as a proxy for positive innovation and future increases in productivity and consumer value.  But it is only a proxy - based on the theory that in a free economy new startups generally add new value or die.  Startups per se are not inherently positive, especially when all they are doing is fixing the inefficiencies and mandates imposed by government regulation

I wrote about a new study suggesting that new federal regulation doesn't inhibit the creation of new startup companies in an industry. In fact, it might actually stimulate the creation of startups. This seems counterintuitive, but a reader with some experience in the education and health care sectors—which were influenced by NCLB and Obamacare, respectively—proposes an explanation for this:

Healthcare startups have absolutely exploded post-ACA....This was pretty well anticipated by venture capital; a bunch of Sand Hill firms started putting together ad-hoc health IT teams shortly after the ACA was passed, on the basic logic that anything that changed an industry as much as the ACA did would necessarily create a lot of startup opportunities.

Drum says, well this may be good or may be bad.  Look, it HAS to be bad.  All this investment and activity is going into trying to get back to even from productivity losses imposed by the government, or is being spent addressing government mandates for new services that the market did not want or value.  This is a diversion of resources from new value-creation to fixing things, and as such is just the broken windows fallacy re-written in a new form.

The language he is using, of shaking things up, is a bit like that of chemistry.  He seems to imagine that markets can reach and get stuck in local maxima, so that government action that shakes the system out of these maxima (like annealing in a metal) is positive in that it allows the system to progress to a better state over time even if the government's action initially makes things worse.  I know of absolutely no evidence for this being true, and my strong suspicion given how many industries the government has trashed is that this is rare or non-existent.  And impossible to spot, even if it did exist.  Not to mention the fact it is a total joke to talk of health care as if it was some pristine untouched-by-government industry before Obamacare.

India: One Foot In, One Foot Out of the Modern World

I just filled out a tourist visa application for one of my kids going to India.  I found it intriguing that on the one hand:

  • If you are a student, you had to give employment information on your source of support, but the only options were spouse and father.  No option for mother's occupation
  • You had to specify a religion -- no option for "atheist" or "none" or "none of your freaking business"

On the other hand:

  • There was a gender option for "transgender".

Anyway, the Indian online visa process had the Italians beaten hands down.  Actually the Chinese beat the Italians as well.  And, everyone I know who is not American tells me the US is the worst about visas.

What Exactly Is the Conservative Theory of Free Markets?

Conservatives say they are for free markets and free enterprise, but then I read stuff like this (have have added the bold):

Lynch supports Obama’s unconstitutional amnesty, believes illegal immigrants should have the same rights to employment as American citizens, opposes voter ID laws, advocates federal intrusion in local law enforcement under the guise of civil rights, supports the government taking private property on flimsy grounds, and offers no opposition to using drones against American citizens.

I agree with some of these concerns, but the one in bold is a real head scratcher.   What theory of free markets do Conservatives hold that accepts as valid the government licensing of labor?  On what possible grounds should a government bar me from hiring, say, a Russian immigrant to do my programming?  Or crazier still, why can I hire a Mexican in my Mexico office but can't have the same person working for me in my Phoenix office?

I have a theory about the Romans that is probably shared by nobody.  The Romans were strong and powerful and vital when they were creating a variety of citizenship types to accommodate multiple peoples who entered the empire in multiple ways.  In particular I think of civitas sine suffragio or citizenship without the vote.  But this was just one of many variations.   By the first century AD  (or CE per the modern academic trend), a lot of people of a lot of cultures and races and over a wide geography called themselves Romans.

By the end of the empire, the "reforms" of Diocletian and Constatine purged all flexibility from both governance and the economy (in sum, their laws amounted to the Directive 10-289 of the ancient world).  By the time the Empire started falling apart, they had lost all ability to integrate new peoples or innovate with citizenship models.  What was eventually called the Barbarian invasions began decades earlier as the attempted barbarian migrations.   The barbarians wanted to just settle peacefully.  And Rome desperately needed them -- their system was falling apart as their farms and countryside was depopulated from a combination of government policy and demographic collapses (e.g. plagues).  Rome desperately needed new people to settle their farms and form the new backbone of the army and the barbarians desperately wanted to settle and had a lot of military skill, but they couldn't make it work.

Where's Coyote?

I am off for Disney World to run in the Princess Half-Marathon this weekend.  My knees feel like I have four flat tires and have been driving on the rims for 20 miles, but I am running this last time with my daughter.

We started running this race together a number of years ago and the first time we ran was something of a breakthrough for my daughter -- the experience dedicating herself to a goal and the confidence she gained from achieving it led to many knock-on benefits, so much so that it became the core of her college essay.

That essay began with the story of she and I making our first tutu together.  At the time, I did not even know what tulle was, but we watched a YouTube video about how to make a tutu without sewing and we eventually got it done.   She ran the whole race, as she has ever since, with a tutu and a tiara on.  (By the way, I am always amazed at the niches in the Internet that I never knew existed.  This is the video we watched to make the tutu -- it has 2.4 million views!  We basically followed this process except we used a piece of underwear elastic for the waist band rather than ribbon).  My job is to cut the tulle into strips -- we make them twice as long as she wants the skirt, and then my daughter ties them to a piece of elastic in the middle, so two strands hang down.

The challenge has increasingly become to use different colors than any past tutu.   The last one looked more like a skirt.  This one she wanted to be shorter and puffier, more like a ballet tutu.  It is hard to capture it well in a picture to get the detail but this is the result:

click to enlarge

 

Not to worry, your humble correspondent will be in costume too.  I have some great Darth Vader running gear I will be wearing.  I wore a rebel pilot outfit last time.  Disney really hit on something with these runs -- they have 8-10 different ones now.  The Princess half-marathon is still the most popular and sells out in about 45 minutes.  It was as hard to get a spot in it as it is to get Comicon tickets.  But given the popularity, there are whole web sites specializing in themed and costumed running gear.  I love capitalism.

PS -- I am still amazed she takes on all this extra weight and drag for fashion.  When I have to run this far, I am tempted to cut off the ends of my shoelaces to save weight.

PPS-- Here was the first one, at the finish line (a little worse for wear)

finish

The Un-discussed Foreign Policy Alternative

I was going to write a longer post on foreign policy vis a vis terrorism and ISIS, but I lack both the time as well as confidence in my foreign policy knowledge.

I will offer this, though:  There seem to be but two policy positions being discussed

  1. The largely Conservative position that there is a dangerous and violent authoritarian streak running through the world of Islam and that we need to saddle up the troops and go break some heads and impose order
  2. The Progressive position embodied by the Obama Administration that there is nothing abnormal going on in Islam and that what we see is random violence spurred by poverty and thus we should not intervene militarily (I consider the current AUMF proposed by Obama to be political posturing to satisfy polls rather than anything driven by true belief).

Why is there not a third alternative to be at least considered -- that there is something really broken in a lot of Islam as practiced today (just as there was a lot of sh*t broken with Christianity in, say, the 14th-16th centuries) and that Islam as practiced in many Middle Eastern countries is wildly illiberal (way more illiberal than any failings of Israel, though you wouldn't know that if you were living on a college campus).  But, that we don't need to saddle up the troops and try to change things by force.

Conservatives who can look at things like serial failures in Federal education policy and reach the conclusion that we should be skeptical about Federal initiatives on education seem unable to draw similar conclusions from serial failures in US interventions in the Islamic world.  And for its part, the Obama administration seems to be living in some weird alternate universe trying desperately to ignore the reality of the situation.

Yes, I know the first response to all folks like me who advocate for non-intervention is "Munich" and "Czechoslovakia".  So be it.  But if we sent in the military every time someone yelled "appeasement" our aircraft would be worn out from moving troops around.  And we seem to be totally able to ignore atrocities and awful rulers in Sub-Saharan Africa.

As a minimum, I would like to see a coalition of Arab states coming to us and publicly asking us for help -- not this usual Middle East BS we hear that Saudi Ariabi (or whoever) really in private wants us there but publicly they will still lambaste us.  Without this support we can win the war but we have no moral authority (as we did after WWII) in the peace.  Which is one reason so many of our interventions in the Middle East and North Africa fail.

What I Think is Going on With Greece

I want to offer a perspective on the Greek financial mess.

I am not confused about the Greek desire to get out from under their debt load - past governments have built up intolerable levels of debt which is costs a huge portion of Greek GDP to pay off.

At one time in my life I would have been confused by folks, often on the Left, who argue that the answer to Greek debt problems is ... deficit spending.  This might have seen inexplicable to me earlier in life as a wondered how the same behavior of fiscal irresponsibility that led them into debt would get them out.  But I have learned that there is no limit to the optimism Keynesians hold for the effects of government spending.  The last trillion of debt may have not done anything measurable but the next trillion is always going to be the one that turns us around.  Sort of like Cubs fans.

No, what confuses me today is the fact that other institutions and countries are still willing to buy Greek debt and even entertain some sort of debt swap where they end up with even more Greek debt.  I have heard it said by many experts that it is unrealistic to expect that lenders will get even a fraction of their principle back from these loans.  So why loan more?

The key for me in understanding this is the book "Engineering the Financial Crisis".  In that book, the authors presented the theory that the Basel capital accords, which set capital requirements for banks, had a lot to do with the last financial crisis.  Specifically, the rules allowed bank investments in two types of securities to be counted at 100% towards their capital levels.  Any other type of investment was severely discounted, so there were enormous incentives in the regulations to focus bank investments on these two types of securities.  What were they?  Sovereign debt and mortgages (and mortgage-backed securities).

In the authors' view, which I find persuasive, a lot of the last financial crisis was caused by these rules creating a huge artificial demand by banks for mortgage securities.  This created a sort of monoculture that was susceptible to small contagions spreading rapidly.  As this demand for mortgage backed securities inevitably drove down their returns, it also created a demand for higher-yielding, riskier mortgage investments that might still "count" as mortgage securities under the capital requirements.

Anyway, for the Greek crisis, we need to look at the other piece of these capital requirements that give 100% capital credit:  sovereign debt.  Now, I may have this wrong, but for Euro denominated credit, it all counts as 100% whether its German or Greek, which is a bit like saying a mortgage to Bill Gates and a mortgage to Clark Griswold's country cousins count the same, but those are the rules.

So here is the problem as I understand it:  Greek debt, because of its risk, paid higher returns than other sovereign debt but still counted the same against capital requirements.   So European banks loaded up on it.  Now that the debt is clearly bad, I am sure they would love to get paid for it.  But what they want even more is to continue to get credit for it on their balance sheets against capital requirements.  So what the banks need more than getting paid is for the debt to still exist and to (nominally) be current so that they can still count it on their balance sheets.  Otherwise, if the debt gets written off, that means banks need to run out and raise hundreds of billions in new capital to replace it.

Yes, I know this seems insane.  If everyone knows that the debt is virtually worthless, isn't it a sham to keep taking expensive steps (like issuing even more new debt) just to make sure the debt still appears on the books at 100%?  Yes, of course it is.  This is a problem with just about every system ever tried on bank capital requirements.  Such requirements make sense (even to this libertarian) in a world of deposit insurance and too big to fail, but they can and do create expensive unintended consequences.

Great Moments in Lobbying

A reader sent me this list of tax exemptions in the state of Washington.  Obviously people you never expected to have lobbyists have good lobbyists.  Mint farmers?  Click to enlarge:

click to enlarge

Why Large Corporations Often Secretly Embrace Regulation

I wrote the other day about how Kevin Drum was confused at why broadband stocks might be rising in the wake of news that the government would regulate broadband companies as utilities.  I argued the reason was likely because investors know that such regulation blocks most innovation-based competition and tends to guarantee companies a minimum profit -- nothing to sneeze at in the Internet world where previous giants like AOL, Earthlink, and Mindspring are mostly toast.

James Taranto pointed today to an interesting Richard Eptstein quote along the same lines (though he was referring to hospitals under Obamacare):

Traditional public utility regulation applies to such services as gas, electric and water, which were supplied by natural monopolists. Left unregulated, they could charge excessive or discriminatory prices. The constitutional art of rate regulation sought to keep monopolists at competitive rates of return.

To control against the risk of confiscatory rates, the Supreme Court also required the state regulator to allow each firm to obtain a market rate of return on its invested capital, taking into account the inherent riskiness of the venture.

Competition via Influencing Government

I have mentioned a number of times my chicken or the egg arguments with Progressives on the solution to cronyism.  Is the problem that government power exists to influence markets, and as long as it exists people will bid to control it?  Or is it possible to wield massive make-or-break government power over industry rationally, and only the rank immorality and corrupt speech of corporations stands in the way.  The former argues for a reduction in government power, the latter for more regulation of corporations and their ability to participate in the political process.

I believe this is an example in favor of the "power is inherently corrupting" argument.  No corporation lobbied for NOx rules on diesel engines.  They all fought it tooth and nail.  But once these regulations existed, engine makers are all trying to use the laws to gut their competition:

In 1991, the EPA ignored complaints from several makers of non-road engines that rivals were cheating, in order to save fuel, on emissions rules for oxides of nitrous (NOx). Then environmental groups took up the same complaint, whereupon the agency demanded face-saving consent decrees with numerous engine makers, including two Volvo affiliates.

In essence, the engine makers apologized by agreeing in 1999 to accelerate by a single year compliance with a new emissions standard scheduled to take effect in 2006.

Meanwhile, with another NOx standard looming in 2010, Navistar sued the EPA claiming rival engine-makers were seeking to meet the rule with a defective technology. In turn, Navistar’s competitors sued claiming the EPA was unfairly favoring a defective technology pursued by Navistar (these are only the barest highlights of what became a truck-makers’ legal holy war).

While all this was going on, a Navistar joint-venture partner, Caterpillar, complained that 7,262 Volvo stationary engines made in Sweden before 2006 had violated the 1999 consent decree. Now let’s credit Caterpillar with a certain paperwork ingenuity: The Volvo engines were not imported to the U.S. and were made by a Volvo affiliate that wasn’t a party to the consent decree. EPA itself happily certified the engines under its then-current NOx standard, only changing its mind four years later, prodded by a competitor with a clear interest in damaging Volvo’s business.

To complete the parody, a federal district court would later agree that the 1999 consent terms “do not clearly apply” to the engines in question, but upheld an EPA penalty anyway because Volvo otherwise might enjoy a “competitive advantage” against engines to which the consent decree applied.

As a side note, this is from the "oops, nevermind" Emily Litella School of Regulation:

Let it be said that the EPA’s NOx regulation must have done some good for the American people, though how much good is hard to know. The EPA relies on dubious extrapolations to estimate the benefits to public health. What’s more, the agency appears to have stopped publishing estimates of NOx pollution after 2005. Maybe that’s because the EPA’s focus has shifted to climate change, and its NOx regulations actually increase greenhouse emissions by increasing fuel burn.

This is the Problem With All Government "Fixes" for Supposed Market Failures

Bob Murphy on occupational licensing, via Cafe Hayek

It is a paradox of our age that the interventionists think the public is too stupid to consult Angie’s List before hiring a lawyer, and so they need politicians to weed out the really bad ones by requiring law licenses. Yet, who determines whether a person (often a lawyer!) is qualified to become a politician? Why, the same group of citizens who were too stupid to pick their own lawyers.