Archive for March 2013

The Biggest Economic Story of 2013

Frequent readers will know that last year, I declared that the end of full-time employment in the American service industry (due to Obamacare) would be the biggest economic story of 2013.  The mainstream media either has not yet noticed or cannot be bothered with a story that does not put Obama in the best possible light, but the story is starting to get out none-the-less.

Expect a lot more of this.  The service industry generally does not operate 8 hours a day, 5 days a week anyway, so its labor needs do not match traditional full-time shifts.  Those of us who run service companies already have to piece together multiple employees and shifts to cover our operating hours.  In this environment, there is no reason one can't stitch together employees making 29 hours a week (that don't have to be given expensive health care policies) nearly as easily as one can stitch together 40 hours a week employees.   In fact, it can be easier -- a store that needs to cover 10AM to 9PM can cover with two 5.5 hour a day employees.   If they work 5 days a week, that is 27.5 hours a week, safely part-time.  Three people working such hours with staggered days off can cover the store's hours for 7 days.

Based on the numbers above, a store might prefer to only have <30 hour shifts, but may provide full-time 40 hours work because good employees expect it and other employers are offering it.  But if everyone in the service business stops offering full-time work, there will be no reason not to go to such a plan, and thousands of dollars per employee to do so.

Site Mostly Fixed. Sorry for the Slug of RSS Feeds

OK, the Twitter problem was fixed by shifting from gd.is (which Twitter has apparently blocked) to Goo.gl for URL shortening.  For reasons I still don't fully understand, the Bad Behavior plugin was blocking the RSS feed to Feedburner.  My guess is that this may be something to do with an interaction with Incapsula.  I like Incapsula as a service, but they are constantly shifting their servers around so the .htaccess file and the proxy server list in Bad Behavior have to be constantly changed.

Site In Complete Disarray. Sorry

I was just informed, and have confirmed, that somehow my RSS feed stopped syndicating about 2 weeks ago.  And then, on an entirely other date, the new Twitter feed stopped, but Facebook still works.

I think I have diagnosed the Twitter problem, which we will confirm with this post, that Twitter flagged and blocked the default URL shortening service my plugin uses for malware.   It is either that or Coyoteblog has been blocked.  Crossing my fingers I will see this on Twitter in about 5 seconds.

Krugman Dead Wrong on Capital Controls

I am a bit late to the game in addressing Krugman's comments several days ago when he said:

But the truth, hard as it may be for ideologues to accept, is that unrestricted movement of capital is looking more and more like a failed experiment.

This was in response to the implosion of Cyprus banks, which was exacerbated (but not necessarily caused) by the banks being a home for a lot of international hot money - deposits so large they actually dwarfed the country's GDP.

I generally rely on Bastiat's definition of the role of the economist, which I will quote from Wikipedia (being too lazy on this Friday morning to find a better source):

One of Bastiat's most important contributions to the field of economics was his admonition to the effect that good economic decisions can be made only by taking into account the "full picture." That is, economic truths should be arrived at by observing not only the immediate consequences – that is, benefits or liabilities – of an economic decision, but also by examining the long-term second and third consequences. Additionally, one must examine the decision's effect not only on a single group of people (say candlemakers) or a single industry (say candlemaking), but on all people and all industries in the society as a whole. As Bastiat famously put it, an economist must take into account both "What is Seen and What is Not Seen."

By this definition, Krugman has become the world's leading anti-economist.  Rather than reject the immediate and obvious (in favor of the larger picture and the unseen), he panders to it.  He increasingly spends his time giving intellectual justification to the political predilection for addressing symptoms rather than root causes.  He has become the patron saint of the candle-makers petition.

I am not naive to the fact that there are pools of international hot money that seem to be some of the dumbest money out there.  Over the last few years it has piled into one market or another, creating local asset bubbles as it goes.

But to suggest that international capital flows need to be greatly curtailed merely to slow down this dumb money, without even considering the costs, is tantamount to economic malpractice.

You want to know what much of the world outside of Western Europe and the US would look like without free capital flows?  It would look like Africa.  In fact, for the younger folks out there, when I grew up, countries like China and India and Taiwan and Vietnam and Thailand looked just like Africa.  They were poor and economically backwards.  Capital flows from developed nations seeking new markets and lower cost labor has changed all of that.  Over the last decade, more people have escaped grinding subsistence poverty in these nations than at any other time in history.

So we have the seen:  A million people in Cyprus face years of economic turmoil

And the unseen:  A billion people exiting poverty

By pandering to those who want to expand politicians' power based on a trivial understanding of the seen and a blindness to the unseen, Krugman has failed the most important role of an economist.

Other thoughts:  I would offer a few other random, related thoughts on Cyprus

  • Capital controls are like gun and narcotics controls:  They stop honest people and do little to deter the dishonest.  In the case of Cyprus, Krugman obviously would have wanted capital controls to avoid the enormous influx of Russian money the overwhelmed the government's effort to stabilize the banks.  But over the last several weeks, the Cyprus banks have had absolute capital controls in place - supposedly no withdrawals were allowed.  And yet when the banks reopened, it become increasingly clear that many of the Russians had gotten their money out.  Capital controls don't work as a deterrence to money that is already corrupt and being hidden.
  • No matter what anyone says, the huge capital inflows into Cyprus had nothing to do with the banking collapse.  The banks had the ability to invest the money in a range of international securities, and the money was tiny compared to the size of those security pools.  So this is not like, say, a housing market where in influx of money might cause a bubble.   The only harm caused by the size of the Russian investments is that once the bank went bad, the huge size of the problem meant that the Cyprus government did not have the resources to bail out the bank and protect depositors from losses.
  • Capital controls are as likely to make bubbles worse as they are to make them better.  Certainly a lot of international money piling into a small market can cause a bubble.  But do capital controls really create fewer bubbles?  One could easily argue that the Japanese asset bubble of the late 80's would have been worse if all the money were bottled up in the country. When the Japanese went around the world buying up American movie studios and landmark real estate, that was in some sense a safety valve reducing the inflationary pressure in Japan.
  • Capital controls are the worst sort of government expropriation.  You hear on the news that the "haircut" taken by depositors in Cyprus might be 20% or 80% or whatever.  But in my mind it does not matter.   Because once the government put strict capital controls in place, the haircut effectively became 100%, at least for honest people that don't have the criminal ability or crony connections to beat the system.  Cyprus basically produces nothing.  Since money is only useful to the extent that it can buy or invest in something, then bottling up one's money in Cyprus basically makes it worthless.
  • Capital controls are a prelude to protectionism.   First, international trade is impossible without free flow of capital.   No way Apple is going to sell ipods in Cyprus if they cannot at some point repatriate their profits.  Capital controls can also lead to export controls.  If I can't export money, I might instead buy jets, fly them out of the country, and then sell the jets.
  • Let's not forget that the core of this entire problem is a government, not a private, failure.  Banks and investors treated sovereign euro-denominated debt as a risk-free investment, and banking law (e.g. Basil II) and pension law in most countries built this assumption into law.  Cyprus banks went belly-up because the Greeks, in whom they had (unwisely) invested most of their funds, can't exercise any fiscal responsibility in their government.  If European countries could exercise fiscal responsibility in their government borrowing, 80% of the banking crisis would not exist (housing bubbles and bad mortgage securities have contributed in some countries like Spain).  There is a circle here:  Politicians like to deficit spend.  They write regulations to encourage banks to preferentially invest in this government paper.  When the government debt gets iffy, and the banks face collapse, the governments have to bail them out because otherwise there is no home for their future debt.  The bailouts get paid for with more debt, which gets crammed back into increasingly over-leveraged banks.    What a mess.
  • All of this creates an interesting business school problem for the future:  What happens when there are no longer risk-free investments?  Throughout finance one talks about risk free rates and all other risks and risk premiums and discussed in reference to this risk-free benchmark.  In regulation, much of banking capital regulation and pension regulation is based on there being a core of risk free, liquid investments.  But what if these do not exist any more?
  • I have thought a lot about a banking model where the bank accepts deposits and provides basic services but does no lending - a pure deposit bank with absolute transparency on its balance sheet and investments.  I think about a web site depositors can check every day to see exactly where depositors money is invested and its real time values.  Only listed, liquid securities with daily mark to market.   Open source investing, as it were.  In the past, deposit insurance has basically killed this business model, but I think public confidence in deposit insurance just took a big-ass hit this week.

Postscript:  I don't want to fall into a Godwin's law trap here, but I am currently reading Eichmann in Jerusalem and it is impossible for me to ignore the role strict capital controls played in Nazi Germany's trapping and liquidation of the Jews.

PS#2:  Oops, Hayek beat me by about 70 years to the postscript above

The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges. Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference. Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty. It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape—not merely for the rich but for everybody.

Obamacare-Driven Stagnation

From the file of things that are absolutely obvious to business owners, and a total shocker to the pundit and policy class:

In its latest monthly report on economic conditions across the country, the Federal Reserve points to Obamacare as one reason the unemployment rate has remained near or above 8 percent under the current administration.

That’s what Sally Pipes, president of the Pacific Research Institute, writes in an op-ed piece for Forbes magazine.

The Fed’s so-called “beige book” noted that employers across the country have “cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff,” Pipes says, adding that as more businesses learn about Obamacare, “the more they’re coming to realize that affordable care” is the last thing it will provide.

Here is my attempt to illustrate the same thing in one chart (net monthly job creation, which Kevin Drum helpfully posts each month):

click to enlarge

I will revise this chart later - this is actually public and private totals.  When you look at private only, the April 2010 peak goes away (that was temporary census hiring) and the chart has an even more stark inflection right there in March 2010 when Obamacare was passed.

 

Totally Depressing

I found this article on foreclosed homeowners vindictively trashing houses now owned by the bank to be really depressing.  An example quote:

Myra Beams, a realtor in Tamarac, Fla., said half of her foreclosed properties, regardless of the price range, have been vandalized by the former owners. "I think the former owners are angry, and for some reason, they think they're entitled to destroy properties," said Beams. "I guess they're angry at the banks for giving them the mortgage."

There is a lot more like that.  A couple of quick thoughts

  • The sense of entitlement here is stunning.  It is these homeowners, not the bank, that failed to fulfill their end of the bargain.  Who is the guilty party here, anyway?
  • These folks are lucky to live in the US -- we have the most lenient home mortgage system in the world.  Very, very few other countries in the world have no-recourse mortgages where one can walk away only with a ding on their credit record, without even a personal bankruptcy.  Almost anyplace else, they would be facing years of garnishments for whatever losses on the loan the bank had after they sold the home.
  • I always thought the critique of lower income people "trashing" housing projects in the 70s and 80s had a vaguely racial tone to them, as if this were somehow a proof of African-Americans being shiftless and irresponsible.   But here we have white middle class people actively trashing their homes.  Proving once again that being an inconsiderate jerk is truly a multi-racial, multi-ethinic behavior.

Why I Almost Never Pay Attention to Poll Results...

Obamacare Hypocrisy

Proponents of Obamacare and other aggressive government health care interventions often argue that government health insurance will be less expensive than private health insurance.  Ignoring the whole history of government provided services (which you have to do to accept this argument), it is entertaining to press them on what costs will go away.

First, they will argue "profits."  Health insurers "obviously" make a lot of profit, so doing away with that will amount to a lot of savings.  Several years ago, when Obama was actively demagoguing** the health insurance business, the profit margins of health insurers were all around 3-4% or less.  Which means in exchange for eliminating all private profit incentives towards efficiency and productivity, we get a 3% one time cost reduction.  Not very promising.

After profits, Obamacare supporters will point to administrative costs.  Their philosophy that private insurance administrative costs drive health inflation is built into Obamacare, which places a cap on non-care related costs as a percentage of premiums.  I would argue a lot of this cost is claims management and fraud detection that government programs like Medicare don't have, to their detriment, but let's leave that aside.  I think most Obamacare opponents are convinced that there are billions in marketing costs that could be eliminated.  This has always been their bete noir in pharmaceuticals, that drug companies spend too much marketing.

I have said for years that to a large extent, what outsiders call "marketing" in health insurance is actually customer service and information, in particular agents who go out to companies and help people understand and make their insurance choices.

Well, it turns out that when the shoe is on the other foot, Obamacare supporters suddenly are A-OK with massive health insurance marketing costs, even when what is being marketed is essentially a monopoly:

[California] will also spend $250 million on a two-year marketing campaign [for its health insurance exchange]. By comparison California Senator Barbara Boxer spent $28 million on her 2010 statewide reelection campaign while her challenger spent another $22 million.

The most recent installment of the $910 million in federal money was a $674 million grant. The exchange's executive director noted that was less than the $706 million he had asked for. "The feds reduced the 2014 potential payment for outreach and enrollment by about $30 million," he said. "But we think we have enough resources on hand to do the biggest outreach that I have ever seen." ...

The California Exchange officials also say they need 20,000 part time enrollers to get everybody signed up––paying them $58 for each application. Having that many people out in the market creates quality control issues particularly when these people will be handling personal information like address, birth date, and social security number. California Blue Shield, by comparison has 5,000 employees serving 3.5 million members.

New York is off to a similar start. New York has received two grants totaling $340 million again just to set up an enrollment and eligibility process.

** Don't be fooled by the demagoguery.  This is standard Obama practice.  In exchange for eating sh*t from Obama in public, private companies get all kinds of crony favors in private.  Remember, health insurers got the US government to mandate that everyone in the country buy their products, and got the Feds to establish trillions in subsidies to help people do so.  This may be the greatest crony giveaway of all time, and to cover for it, like a magician distracting your eye from the sleight of hand, Obama made it appear in public as if he were health insurers' greatest enemy, rather than their sugar daddy.

Arrogance and Coercion

Years ago I had an argument with my mother-in-law, who is a classic Massachusetts liberal  (by the way, we get along fine -- I have no tolerance for the notion that one can't be friends with someone who has a different set of politics).  The argument was very clarifying for me and centered around the notion of coercion.

I can't entirely remember what the argument was about, but I think it was over government-mandated retirement programs.  Should the government be forcing one to save, and if so, should the government do the investment of those savings (ie as they do in Social Security) even if this means substantially lower returns on investment?

The interesting part was we both used the word "arrogant."  I said it was arrogant for a few people in government to assume they could make better decisions for individuals.  She said it was arrogant for me to assume that all those individuals out there had the same training and capability that I had to be able to make good decisions for themselves.

And at the end of the day, that is essentially the two sides of the argument over government paternalism boiled down to its core.  I thought coercion was immoral, she thought letting unprepared people make sub-optimal decisions for themselves when other people know better is immoral.  As with most of my one on one arguments I have with people, I left it at that.  When I argue face to face with real people, I have long ago given up trying to change their minds and generally settle for being clear where our premises diverge.

I am reminded of all this reading Bruce McQuain's take on Sarah Conly's most recent attempt to justify coercive paternalism (the latter is not an unfair title I have saddled her with -- it's from her last book).  Reading this I had a couple of other specific thoughts

  1. I am amazed how much Conly and folks like her can write this stuff without addressing the fundamental contradiction at its core -- if we are so bad making decisions for ourselves, why do we think the same human beings suddenly become good at it when they join government?  She would argue, I guess, that there are a subset of super-humans who are able to do what most of us can't, but how in a democracy do we thinking-impaired people know to vote for one of the supermen?  Or if you throw our democracy, what system has ever existed that selected for leaders who make good decisions for the peasants vs., say, selected for people who were good generals. 
  2. Is there any difference between Conly's coercive paternalism and Kipling's white man's burden?  Other than the fact that the supermen and the mass of sub-optimizing schlubs are not differentiated by race?  It's fascinating to see Progressives who are traditionally energized by hatred of colonialism rejuvinating one of imperialism's core philosophical justifications.

Rich People Acting Like Babies

I don't pay much attention to TV and entertainment news, but I found myself kind of fascinated by this train wreck.  

I was amazed at the stakes, how many hundreds of millions of dollars were on the line, based on small changes in the perceived likability of certain talking heads.

But I was even more amazed by how juvenile, thin-skinned, and emotionally-immature people making 10 million + salaries could be.  One woman, who had a reputation as a serious journalist (at least until she took a job on a morning show) breaks down into tears and goes into a year-long depression because she lost her job -- and was effectively given a $12 million severance, a figure well north of my lifetime cumulative income.  Jeez, who in this day and age has not lost a job, likely with no more to show for it than a box of their personal items and a security escort to the door?  Reading this thing I just wanted to keep shouting "grow the f*ck up!"

On The Right Not To Be Offended

From South Bend Seven

You can't define an appropriate environment as whatever the most easily offended person wants. Jezebel thinks you can, ought and must do it that way. But I know they're wrong. You know why? Because Jezebel itself thinks it's absurd. They're totally cool with using that standard when it comes to dick jokes, but when it comes to breast feeding suddenly it's outrageous (eg onetwo). Mothers can't be expected to make decisions based on the whims of whoever is most repulsed by strangers' breasts. Well guess what? That means I shouldn't be expected to conform my behavior to whoever leasts wants to overhear terrible puns about dongles.

The Meaning of Health "Insurance"

Megan McArdle has a column I am going to excerpt at great length (sorry Ms. McArdle).  This is great article on a topic I have tried to explain many times here

After all, the insurance company has to make money.  That has to mean that the expected value of the claims they pay out is lower than the expected value of the premiums their customers pay in.  In some sense, then, the expected value of your insurance premium is negative.

But insurance does make everyone better off, because it covers very large costs that most people would have trouble paying.  Even most really good savers would have a hard time replacing the value of their house, or paying off a $250,000 judgement for an auto accident.  The expected value of those incidencts is very, very negative--more than just the value of the cash, you have to factor in the horror of being homeless or bankrupt.  When you factor in the homelessness, the bankruptcy, and so forth, the slighly negative expected financial value is more than outweighed by the positive value of being protected against personal catastrophe.  Not to mention the peace of mind one gets from not having to worry about homelessness, etc.

This is the magic of risk pooling.  But notice that it's the catastrophe which makes insurance a good deal.  You wouldn't get much value from buying "grocery insurance".  At best, you'd be paying an extra administrative fee to route your routine expenses through an insurer, rather than paying them directly.  At worst, you'll end up with bills skyrocketing as all sorts of perverse incentives appear.  After all, if the insurer is paying all your grocery claims, why not load up on filet mignon instead of ground turkey?

But insurers try very hard never to sell insurance for less than the cost of your expected claims.  If you expect to buy $10,000 worth of groceries next year, it will not charge you less than that for a "grocery policy".  And if we all drive up the costs of grocery insurance by consuming more, the insurer can do one of two things: raise everyone's "insurance premiums" to cover a filet mignon budget, or create a list of "approved groceries" that it will cover, and start hassling anyone who tries to file an excessively expensive claim.

Sound familiar?

This is why you should always have liability insurance, but should think twice about collision damage coverage.  It's why high deductibles are a good idea--for small expenses, it's better to self insure.  And it's why "catastrophic" health plans, which only cover the sort of extremely expensive events that most people would have difficulty financing, are a much better deal than the soup-to-nuts plans that most people get through their employers.  Those plans are expensive, both because they're paying for a higher percentage of your expenses, and because they drive up utilization--which means that they drive up next year's premiums even more.  Imagine what your car insurance would cost if it covered gasoline, routine maintenance, and those little air freshener trees you hang from the rearview mirror.  Then stop asking why health insurance costs so much.

But Kathleen Sebelius, the Secretary of HHS, thinks that catastrophic insurance isn't really insurance at all.

At a White House briefing Tuesday, Health and Human Services Secretary Kathleen Sebelius said some of what passes for health insurance today is so skimpy it can't be compared to the comprehensive coverage available under the law. "Some of these folks have very high catastrophic plans that don't pay for anything unless you get hit by a bus," she said. "They're really mortgage protection, not health insurance."

She said this in response to a report from the American Society of Actuaries arguing that premiums are going to rise by 32% when Obamacare kicks in, as coverage gets more generous and more sick people join the insurance market.  Sebelius' response is apparently that catastrophic insurance isn't really insurance at all--which is exactly backwards. Catastrophic coverage is "true insurance".  Coverage of routine, predictable services is not insurance at all; it's a spectacularly inefficient prepayment plan.

The last two lines are why I knew from the very beginning that the promise I would get to keep my health insurance was a lie.  Because I have true insurance, rather than a pre-payment plan for incidental health-related expenses, and the folks who wrote Obamacare think of insurance as pre-paid medical care (in fact, I believe they think of private insurance as a Trojan Horse for all-inclusive single payer government health care).

Leaders in the First Turn

Here are the standings of our bracket challenge.  I have been light on blogging because I have been on the road for 2 straight weeks, which has left me both underwater with work and a bit out of sorts.

Leaderboard after 48 games - See full standings
Bracket Rank Points
Jason Russell (Risky) 1 80
Jason Russell 1 2 77
J Clouse #2 3 77
Todd Ramsey 4 73
Steve Morgan #2 5 72
Bracket Rank Points
Clark Ramsey #2 6 72
Keith Nummer Zwei 7 71
J Clouse 8 71
Matthew Flatland #2 9 71
Jim Allen #2 10 70

Infinite Recursion and Avoiding Debate

The increasing popularity of vilifying one's intellectual opponents as evil in order to avoid debating them (after all, why bother debating people who are, well, evil) will not be a new concept to readers here.

To see how the frontiers of this tactic are being pushed, one can best look at the climate debate.  I want to link a spectacular example, but let me give some background:

About a year ago, a professor of cognitive science wrote a paper (Lewandowsky 2012) that tried to correlate being a climate skeptic with holding any number of other conspiracy theories (e.g. moon landings were faked).  You can read the whole sad story, but in essence the survey used small sample sizes of people who may not actually have been skeptics (the survey was not actually advertised at any skeptic web sites) and compounded its own problems with bad math.  In fact, the study has not actually been formally published to this day.

Anyway, a lot of folks criticized the paper.  So what did the author do?  Amend the paper to fix the errors?  Defend his methodology?  No, he wrote a second paper that used the critiques of his first paper (often selectively edited by himself) as further evidence of "conspiracist ideation."  Seriously.  The fact that critiques exist of his paper proves the paper!  And then, for double extra recursion points, when the author published the paper online, he front-loaded the first five comments with friends who accused all subsequent commenters criticizing the second paper as conspiracists who are merely proving the point of the second paper.

All of it here.  (and hilariously, this -- Lewandowsky calls totally reasonable comment by mainstream climate scientist "conspiracist".)

Seriously, this is the group calling me "anti-science"!  And no matter how much of a nutter this guy is, he got tons of mainstream ink for his initial "study."   In our post-modernist world, the media uncritically laps this stuff up as real science because the results fit their narrative.

Last Chance to Enter an NCAA Bracket

To join, go to http://www.pickhoops.com/CoyoteBlog2013 and sign up, then enter your bracket. This year, you may enter two different brackets if you wish.

It's Free!  Must be in by 12:18 EDT today.

How To Achieve A Titillating Headline

Glenn Reynolds linked this titillating headline:

NINE PERCENT OF YALE STUDENTS SURVEYED SAY THEY’VE ACCEPTED MONEY FOR SEX

Of course, when you read the article (of course I clicked through, I have no pride),  you find that:

  • The sample size is approximately 40
  • The sample was from a group of people who self-selected to attend a seminar by the owner of a sex-toy business

The "3% who participated in bestiality" is actually 1 person out of 40 who have a self-selected interest in pushing sexual boundaries.  With a little larger sample size, a bit poorer math, and a bit more work goal-seeking to a desired outcome, this might almost meet the standards of climate research.

Which is all a relief to me -- after 30+ years of being a Yale hater, I was afraid I might have to admit it was a more interesting place than I thought.

JetBlue is Awesome

If the DirecTV at every seat (no extra charge) and extra leg room (extra charge) were not enough, it turns out JetBlue has a great ticket change policy.

We had non-refundable tickets on JetBlue for today that we really wanted to move to an earlier time.  Normally, on about any airline, that would be at least a $100 per ticket fee plus the difference in fair.  The latter portion can be substantial, as the early rate we first received almost certainly is not available today.

But JetBlue has a special policy that on day of travel, you can change coach tickets for $50 each - that's it.  No matter what the fair difference is.  So I waited until 12:01 AM to call and change my flights.  Totally awesome.

8th Annual NCAA Bracket Challenge

NOTE:  We had some sort of massive fail with the WordPress scheduler where this post failed to post at the scheduled time.  For some reason, if it misses the scheduled minute it is supposed to post, it fails (it does not just post a minute late).  So this is 3 days late and we likely won't have many folks join, but its free and a nice bracket site and you are welcome to join between now and tomorrow.

Back by popular demand is the annual Coyote Blog NCAA Bracket Challenge. Last year we had nearly 140 entries. Yes, I know that many of you are bracketed out, but for those of you who are self-employed and don’t have an office pool to join or who just can’t get enough of turning in brackets, this pool is offered as my public service.

Everyone is welcome, so send the link to friends as well. There is no charge to join in and I have chosen a service with the absolutely least intrusive log-in (name, email, password only) and no spam. The only thing I ask is that, since my kids are participating, try to keep the team names and board chat fairly clean.

To join, go to http://www.pickhoops.com/CoyoteBlog2013 and sign up, then enter your bracket. This year, you may enter two different brackets if you wish.

Scoring is as follows:

Round 1 correct picks: 1 points
Round 2: 2
Round 3: 4
Round 4: 8
Round 5: 16
Round 6: 32

We have upped later round scoring to try to keep things more competitive at the end. Special March Madness scoring bonus: If you correctly pick the underdog in any round (ie, the team with the higher number seed) to win, then you receive bonus points for that correct pick equal to the difference in the two team’s seeds. So don’t be afraid to go for the long-shots! The detailed rules are at the link.

Bracket entry appears to be open. Online bracket entry closes Thursday, March 21st at 12:18PM EDT. Be sure to get your brackets in early. Anyone can play — the more the better. Each participant will be allows to submit up to two brackets.

End Sports Cronyism

Florida editorial via the Crony Chronicles

The problem with [the theory that sports subsidies help the economy] is that there is scant evidence that such economic benefits actually occur. Numerous studies done over the last 25 years have found that professional sport teams have little, if any, positive effect on a city’s economy. Usually, a new team or a new stadium location doesn’t increase the amount of consumer spending, it merely shifts it away from other, already existing sources. Entertainment dollars will be spent one way or another whether a stadium exists or not. Plus, the increase in jobs is often modest at best — nowhere near enough to offset the millions invested in the projects.

It's amazing they got the local paper to print this.  Most local papers would be defunct without a sports page.  As a result, local newspapers generally bring to bear tremendous pressure in favor of subsidies to attract and keep new professional sports teams.   Our local paper the AZ Republic tends credulously publish every crazy, stupid benefit study of sports teams on the road to promoting more local subsidies for them.

Curbing Prosecutorial Abuse in Texas

This is good news.  I hope it passes.  And the related law setting up stricter rules for eye-witness testimony may the first law named for a victim I can remember ever supporting

With more than 300 exonerations across the nation of people convicted and imprisoned for crimes they did not commit, we all have witnessed the limits of a criminal justice system flawed by human error — be that unintentional or intentional.

Nowhere more than in Texas has the weight of those imperfections been felt in cases that have tested public confidence in the criminal justice system and spurred big changes at the Legislature. That was true in the Timothy Cole case and is proving true in the Michael Morton case.

Morton’s testimony last week before the Texas Senate helped steer Senate Bill 825, prompted by his case, over a crucial hurdle. The bill aims to hold prosecutors accountable if they hide or suppress evidence from defendants. Morton’s lawyers claim prosecutors failed to turn over key evidence supporting Morton’s claim of innocence. Clearly, current laws are too lenient in punishing such practices, which not only are unethical, but illegal. The Legislature should pass the bill.

Why Europe Won't Let Banks Fail

Dan Mitchell describes three possible government responses to an impending bank failure:

  1. In a free market, it’s easy to understand what happens when a financial institution becomes insolvent. It goes into bankruptcy, wiping out shareholders. The institution is then liquidated and the recovered money is used to partially pay of depositors, bondholders, and other creditors based on the underlying contracts and laws.
  2. In a system with government-imposed deposit insurance, taxpayers are on the hook to compensate depositors when the liquidation occurs. This is what is called the “FDIC resolution” approach in the United States.
  3. And in a system of cronyism, the government gives taxpayer money directly to the banks, which protects depositors but also bails out the shareholders and bondholders and allows the institutions to continue operating.

I would argue that in fact Cyprus has gone off the board and chosen a fourth option:  In addition to bailing out shareholder and bondholders with taxpayer money, it will protect them  by giving depositors a haircut as well.

The Cyprus solution is so disturbing because, hearkening back to Obama's auto bailout, it completely upends seniority and distribution of risk on a company balance sheet.  Whereas depositors should be the most senior creditors and equity holders the least (so that equity holders take the first loss and depositors take the last), Cyprus has completely reversed this.

One reason that should never be discounted for such behavior is cronyism.  In the US auto industry, for example, Steven Rattner and President Obama engineered a screwing of secured creditors in favor of the UAW, which directly supported Obama's election. In Cyprus, I have no doubt that the large banks have deep tendrils into the ruling government.

But it is doubtful that the Cyprus banks have strong influence over, say, Germany, and that is where the bailout and its terms originate.  So why is Germany bailing out Cyprus bank owners?  Well, there are two reasons, at least.

First, they are worried about a chain reaction that might hurt Germany's banks, which most definitely do have influence over German and EU policy.  There is cronyism here, but perhaps once removed.

But even if you were to entirely remove cronyism, Germany and the EU have a second problem:  They absolutely rely on the banks to consume their new government debt and continue to finance their deficit spending.  Far more than in the US, the EU countries rely on their major banks continuing to leverage up their balance sheets to buy more government debt.  The implicit deal here is:  You banks expand your balance sheets and buy our debt, and we will shelter you and prevent external shocks from toppling you in your increasingly precarious, over-leveraged position.

Update:  Apparently, there is very little equity and bondholder debt on the balance sheets -- its depositor money or nothing.  My thoughts:  First, the equity and bondholders better be wiped out.  If not, this is a travesty.  Two, the bank management should be gone -- it is as bad or worse to bail out to protect salaried manager jobs as to protect equity holders.  And three, if depositor losses have to be taken, its insane to take insured depositor money ahead of or even in parallel with uninsured deposits.

Judge Rules National Security Letters Are Unconstitutional

This is good ... hope it withstands appeal

Ultra-secret national security letters that come with a gag order on the recipient are an unconstitutional impingement on free speech, a federal judge in California ruled in a decision released Friday.

U.S. District Judge Susan Illston ordered the government to stop issuing so-called NSLs across the board, in a stunning defeat for the Obama administration’s surveillance practices. She also ordered the government to cease enforcing the gag provision in any other cases. However, she stayed her order for 90 days to give the government a chance to appeal to the Ninth Circuit Court of Appeals.

“We are very pleased that the Court recognized the fatal constitutional shortcomings of the NSL statute,” said Matt Zimmerman, senior staff attorney for the Electronic Frontier Foundation, which filed a challenge to NSLs on behalf of an unknown telecom that received an NSL in 2011. “The government’s gags have truncated the public debate on these controversial surveillance tools. Our client looks forward to the day when it can publicly discuss its experience.”

The telecommunications company received the ultra-secret demand letter in 2011 from the FBI seeking information about a customer or customers. The company took the extraordinary and rare step of challenging the underlying authority of the National Security Letter, as well as the legitimacy of the gag order that came with it.

Both challenges are allowed under a federal law that governs NSLs, a power greatly expanded under the Patriot Act that allows the government to get detailed information on Americans’ finances and communications without oversight from a judge. The FBI has issued hundreds of thousands of NSLs over the years and has been reprimanded for abusing them — though almost none of the requests have been challenged by the recipients.

After the telecom challenged the NSL, the Justice Department took its own extraordinary measure and sued the company, arguing in court documents that the company was violating the law by challenging its authority.

Old Dog, New Tricks -- I Learn To Syndicate on Twitter

The other day I noted the impending death of Google Reader.   Having started to survey the alternatives, I feel much better about the transition.  But I did not fail to note a different implication -- that RSS has never really caught on as a syndication vehicle -- twitter and Facebook and I suppose Google circles are more popular.

Well, I am happy to to adopt technology where it makes sense.  I loath Facebook as a personal tool (seriously, is there a worse laid out web page on the planet?) but my customers love it so we have adopted it enthusiastically as a business tool, using Facebook pages to create a dialog with our customers.  Here is a good example of a great business Facebook page - people are doing our advertising for us.

In the same vein, I likely will never really be able to use Twitter like other pundits do, to fire off witty, biting remarks in 140 characters.  I have trouble keeping post titles under 140 characters.  But I am happy to use it as a syndication tool.

So, starting now (actually starting with the previous post), Coyote Blog posts will be tweeted out at twitter.com/coyoteblog and linked at facebook.com/coyoteblog.  If that is your preferred way of discovering web content over RSS or just surfing the site itself, go for it.  I am still working on Google, but that will come soon.  By the way, for other bloggers interested, I am using the free version of Netscripts: Social Networks Auto Poster plugin.

PS-  I am sure my friend Tom, who is driven to distraction by my typos and grammatical errors, would observe at this point that at least in 140 characters there is less room for me to make mistakes.

Punished for Speech

I have debated a while whether to run this personal experience, and in the end have reached a (perhaps wimpy) compromise with myself to run it but disguise the agency involved.  

As most of your know, I run a company that helps keep public parks open by privately operating them.  As part of that business, it is unsurprising that I would run a specialized blog on such public-private recreation partnerships.  Most of the blog is dedicated not to selling my company per se, since there are not many who do what we do, but advancing the concept.  In particular, I spend a lot of time responding to objections from folks who are concerned that private operators will not serve the public well or care for public lands as well as civil servants do.

One such objection is around law enforcement -- parks agencies who oppose this model argue that my company cannot possibly replace them because all their rangers are law enforcement officials and mine, a certification my private employees can't match.  So a while back I wrote an article discussing this issue.

I argued that parks were not some lawless Road Warrior-style criminal anarchy and simply did not need the level of law enforcement concentration they have.   We run nearly 175 public parks and do so just fine relying on support from the sheriff's office, as does every other recreation business.

I argued that so many rangers were law enforcement officials because they have a financial incentive to get such certification (e.g. more pay and much better pension, plus the psychic benefits of carrying a gun and a badge) and not because of any particular demand for such services.

Finally, and perhaps most importantly, I argued that providing customer service with law enforcement officials can cause problems -- after all, McDonald's does not issue citations to their customers for parking incorrectly.  To back up the last point, I linked to an article in the Frisky (of all places) and a Yelp review of a park where customers bombarded the site with one star reviews complaining about the rangers harassing them with citations and ruining their visit.

Well, one day I got a letter via email from a regional manager of the state parks agency whose park was the subject of that Yelp review I linked.  I was notified that I had 48 hours to remove that blog post or I would lose all my contracts with that state.  In particular, they did not like a) the fact that I linked to a negative Yelp review of one of their parks and b) that I impugned the incredibly noble idea that state parks are all operated by law enforcement officials.  I found out only later that there is a very extreme law enforcement culture in this agency -- that in fact you historically could not even be promoted to higher management positions without the law enforcement badge, truly making this an agency of police officers who happen to run parks.  I would normally quote the letter's text here, but it is impossible to do so and keep the agency's name confidential.

Fortunately, I was able to write the acting General Counsel of the agency that afternoon.  Rather than sending something fiery as the first salvo, I sent a coy letter observing innocently that her agency seemed to believe that my contracts with the state imposed a prior restraint on my speech and I asked her to clarify the boundaries of that prior restraint so I would know what speech I was to be allowed.  To her credit, she called me back about 6 minutes after having received the letter and told me that it was void and asking me to please, please pretend I had never received it.  So I did, and I reward her personally for her quick and intelligent response by not naming her agency in the story.

I am reminded of all this and write it in response to this story passed on by Ken at Popehat.  It is a story of free speech and petty government retribution for it.  I will let you read the article to get the details, but I will repost the original speech that earned Rick Horowitz a good dollop of government harassment.  As an aside, I realize in posting this how far from the law and order conservative I have come since my early twenties.

Your approach should be to try to live your life, as much as possible, without giving them one minute of your time. If they want to talk to you, you should ask, “Am I being detained, or arrested?” If they say “no,” then you walk away. If they tell you that you cannot leave, then you stay put, but don’t talk to them. Because they aren’t following the law when they detain you for no reason.

And if the government will not follow the law, there is no reason why anyone else should.

Let me repeat that:

If the government will not follow the law, there is no reason why anyone else should.

So this is the proposal I set forth:

To the government, you can start following the law, or none of us will.

To everyone else, if the government will not follow the law, you should stop pretending law means anything.

It’s time to step away from the wrong.

Start fighting over everything!

 

 

Incredible Level of Cronyism

I am simply amazed at this level of cronyism enjoyed by the sugar industry -- import restrictions on cheaper world sugar, price supports, and government loans that can be paid back with excess product rather than cash.

The U.S. Department of Agriculture is likely to buy sugar in the domestic market this year in order to drive prices up and prevent defaults on loans made to sugar processors, according to a USDA economist.

The USDA estimates it would need to buy 400,000 tons of sugar to boost prices to an “acceptable level,” said Barbara Fecso, an economist at the department. A purchase of 400,000 tons would amount to about 4.4% of projected U.S. sugar production in the marketing year that ends Sept. 30.

Domestic sugar prices have been trading at about 20 cents a pound, their lowest level in nearly four years, putting companies that make sugar from cane or beets at risk of defaulting on loans they received from the USDA when prices were higher.

People talk about these supposed government subsidies for oil companies, but every time I see a list of them they are dominated by things like depletion allowances, FIFO accounting, and investment tax credits, which are either standard accounting rules that apply to all industries or tax credits that apply to all manufacturers.  But Big Sugar gets real heavy-duty subsidies no one, except maybe ethanol companies and other farmers, get.