Archive for the ‘Government’ Category.

The Aristocracy of Huckterism

I was thinking about the crazy populist nuttiness of Donald Trump and the misguided focus of Black Lives Matter and the musty socialism of Bernie Sanders.  As I drive around Europe and see ruins of castles and palaces, it occurred to me that we had almost always been saddled with an aristocracy exercising power over us.  Sometimes they won that position through violence and military action, and sometimes by birth.

But it struck me that we have a new sort of aristocracy today:  the Aristocracy of Hucksterism.  These new aristocrats are just as wealthy and powerful as the old sort, but they have found a new way to gain power -- By suckering millions of people to simply hand it to them.   And when they inevitably fail, and make things worse for everyone, they additionally manage to convince people that they root cause of the failure is that they had not been given enough power.

Keynesians Have Shot Their Only Bolt -- How Will They Spend Their Way Through The Next Crisis?

Governments have spent so much, to so little effect, to try to stimulate the current economy, I wonder where they will find the resources to spend more the next time?  Because you can be sure that despite the fact that we are likely near the top of a weak cycle, no one is paying back what was spent in the last recession or proposing to reduce central bank balance sheets.

This is a couple of years old, but tells the story pretty well:

The financial crisis that began in late 2007, with its mix of liquidity crunch, decreased tax revenues, huge economic stimulus programs, recapitalizations of banks and so on and so forth, led to a dramatic increase in the public debt for most advanced economies. Public debt as a percent of GDP in OECD countries as a whole went from hovering around 70% throughout the 1990s to almost 110% in 2012. It is now projected to grow to 112.5% of GDP by 2014, possibly rising even higher in the following years. This trend is visible not only in countries with a history of debt problems - such as Japan, Italy, Belgium and Greece - but also in countries where it was relatively low before the crisis - such as the US, UK, France, Portugal and Ireland.

So over a third of the debt that has been built up in all of history by Western nations was added in just a few years from 2007-2012.  At the same time, the central banks of these countries were adding to their balance sheets like crazy, essentially printing money in addition to this deficit spending.  In the US, the Fed's balance sheet as a percent of GDP hovered around 6% until the second half of 2008.   That had tripled to over 18% in 2012 (source).  At the same time, European central bank assets grew from about 7% to over 16% of GDP.

James Taranto has a regular feature named after a reporter named Fox Butterfield.  The feature takes statements such as "Despite Mary getting a PhD in Peruvian gender studies from Harvard, she has struggled to find a job" and argues that the "despite" should be replaced by "because".

This is certainly true of the statement that "despite record stimulus and Fed balance sheet expansion, the economy has remained sluggish".  That "despite" should be "because of".  The government continues to distort the allocation of capital and wonders why investment is sluggish and tends towards bubbles in certain assets.  Japan has stimulated for 25 years to absurd levels of debt and has gotten 25 years of sluggishness in return.

All this reminds me of a story in one of my favorite business books, "Barbarians at the Gate."  Back in the day, tobacco companies had a practice of jamming inventory into the channel just ahead of the semi-annual price increase.   They called this "loading."  The channel liked it because they got cheap product to sell at the new higher prices.  The tobacco companies liked it because it boosted quarterly revenues at the end of the quarter.  But that boost only happens once.  To show growth the next quarter, one must load even more.  Over time, they were jamming huge amounts of inventory into the channel.  I have never been a smoker, but apparently freshness is an issue with cigarettes and they can go stale.  Eventually, the company was loading so much their sales started to drop because everyone was buying stale cigarettes.

In find this a powerful metaphor for government interventions in the economy today.

Postscript:  I will give another example.  In Arizona, we are on a July-June fiscal year.  Years ago, some government yahoo had the bright idea to close a budget hole by passing a law that all businesses had to pre-pay their estimate of sales taxes due in July a month earlier in June.  For that one glorious year, politicians had 13 months of revenue to spend rather than 12.

But to set things aright the next year, they would have to live with just 11 months of revenue.  No way they were going to do that!  So they did the pull-forward thing again to get a full 12 months.  And they have done it every year since.  It has become an institution.  All this costs a ton of money to process, as the state must essentially process a 13th return each year, presumably paying overtime and temp costs to do it.  All for the benefit of one year where they got the use of one month of revenue early, we have been stuck with higher state operating costs forever.

A Textbook Government Solution

Problem: Long waits at the DMV

Solution: Triple the size of the waiting room

God forbid anyone would rethink an incredibly dysfunctional process.

It's Not A Market Failure When People Avoid a Crappy Investment

Environmentalists often claim that people systematically under-invest in energy conservation, something they call a market failure.   This is why Obama and the Left put in a much heralded provision in the stimulus package that used Federal money to subsidize home energy conservation (new windows and insulation and such).

A new study in the NBER looks at the results.  This is the abstract:

Conventional wisdom suggests that energy efficiency (EE) policies are beneficial because they induce investments that pay for themselves and lead to emissions reductions. However, this belief is primarily based on projections from engineering models. This paper reports on the results of an experimental evaluation of the nation’s largest residential EE program conducted on a sample of more than 30,000 households. The findings suggest that the upfront investment costs are about twice the actual energy savings. Further, the model-projected savings are roughly 2.5 times the actual savings. While this might be attributed to the “rebound” effect – when demand for energy end uses increases as a result of greater efficiency – the paper fails to find evidence of significantly higher indoor temperatures at weatherized homes. Even when accounting for the broader societal benefits of energy efficiency investments, the costs still substantially outweigh the benefits; the average rate of return is approximately -9.5% annually.

The only failure here is the government diverting capital from productive uses into money-losing ventures like this one.

Government Is Spending Millions to Rush To the Front of the Parade

From Shawn Regan at PERC, via Arnold Kling

Last year, riding the buzz over dying bees, the Obama administration announced the creation of a pollinator-health task force to develop a “federal strategy” to promote honeybees and other pollinators. Last month the task force unveiled its long-awaited plan, the National Strategy to Promote the Health of Honey Bees and Other Pollinators. The plan aims to reduce honeybee-colony losses to “sustainable” levels and create 7 million acres of pollinator-friendly habitat. It also calls for more than $82 million in federal funding to address pollinator health.

But here’s something you probably haven’t heard: There are more honeybee colonies in the United States today than there were when colony collapse disorder began in 2006. In fact, according to data released in March by the Department of Agriculture, U.S. honeybee-colony numbers are now at a 20-year high. And those colonies are producing plenty of honey. U.S. honey production is also at a 10-year high.

The White House downplays these extensive markets for pollination services. The task force makes no mention of the remarkable resilience of beekeepers. Instead, we’re told the government will address the crisis with an “all hands on deck” approach, by planting pollinator-friendly landscaping, expanding public education and outreach, and supporting more research on bee disease and potential environmental stressors.

I am sure the government, once they have had some bureaucrats running around filing reports and plans for a few years will soon claim credit for the improvement.  My prediction:  This agency will still be here 50 years from now.  You can never kill these things once created.  This is only slightly less irritating than politicians who claim that they "created X million jobs" when in office, but only slightly.

Update:  Another very similar example:  transfats.

The Food and Drug Administration recently moved to eliminate trans fats from the American diet, and food activists and the public-health lobby are claiming a historic victory. Yet this is a rare case of the Obama Administration regulating from behind. Markets had as much to do with the fall of trans fats as government did with their rise.

The FDA’s first restrictions on the use of partially hydrogenated oils as a major source of trans fats in processed foods—think Crisco shortening—give food makers three years to phase out the substance. Evidence began to accumulate in the early 2000s that trans fats were connected to bad cholesterol and cardiovascular diseases. Shoppers and diners concerned about health risks soon started to revolt against the fried and baked goods and the fast-food fare where they were prevalent.

Lo and behold, the food industry responded by changing their recipes and eliminating the oils from some 86% of their products. Trans fat consumption plunged by 78% over a decade, according to the FDA’s estimates, and is now well below the two grams per day that the American Heart Association says is the safe upper limit. The rare survivors of this purge are niche foods like microwave popcorn, frozen pizza and chocolate sprinkles, where trans fats are useful for improving taste and texture.

Iron Law of Bureaucracy

Last week I wrote:

One can build a very good predictive model of government agency behavior if one assumes the main purpose of the agency is to maximize its budget and staff count.  Yes, many in the organization are there because they support the agency's public mission (e.g. protecting the environment at the EPA), but I can tell you from long experience that preservation of their staff and budget will almost always come ahead of their public mission if push comes to shove.

Despite being a Jerry Pournelle fan, I had never heard his Iron Law of Bureaucracy, but it certainly fits my observations

Iron Law of Bureaucracy

In any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control and those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely.

Obama Thinks The Free Market Killed Neighborhood Diversity. In Fact, It Was the New Deal

Here is a very telling paragraph from the HUD's new proposed fair housing rule

Despite the existing obligation to AFFH, in too many communities, the Fair Housing Act has not had the impact it intended — housing choices continue to be constrained through housing discrimination, the operation of housing markets, investment choices by holders of capital, the history and geography of regions, and patterns of development and the built environment.

So, they list "discrimination" as a problem, but then look at the other four items they list as problems.  These can all be summarized as "the normal operation of free markets, property rights, and individual choice."

Oddly missing from this list of causes is what many historians consider to be the #1 cause of lack of neighborhood diversity and ghetto-ization:  The Federal Government and the New Deal.  New Deal rules essentially forced the concentration of blacks into just a few neighborhoods.   The biggest unmixing of races in New York can be seen between 1930 and 1950.   Blacks in Brooklyn went from fairly evenly mixed to concentrated in Bed-Stuy, all directly attributable to New Deal rules.   Basically, ever since then, we have just been living with the consequences.  Via NPR in an interview with Richard Rothstein

On how the New Deal's Public Works Administration led to the creation of segregated ghettos

Its policy was that public housing could be used only to house people of the same race as the neighborhood in which it was located, but, in fact, most of the public housing that was built in the early years was built in integrated neighborhoods, which they razed and then built segregated public housing in those neighborhoods. So public housing created racial segregation where none existed before. That was one of the chief policies.

On the Federal Housing Administration's overtly racist policies in the 1930s, '40s and '50s

The second policy, which was probably even more effective in segregating metropolitan areas, was the Federal Housing Administration, which financed mass production builders of subdivisions starting in the '30s and then going on to the '40s and '50s in which those mass production builders, places like Levittown [New York] for example, and Nassau County in New York and in every metropolitan area in the country, the Federal Housing Administration gave builders like Levitt concessionary loans through banks because they guaranteed loans at lower interest rates for banks that the developers could use to build these subdivisions on the condition that no homes in those subdivisions be sold to African-Americans.

Postscript:  Here is how the Ken Burns New York documentary series explained it, though the source page is no longer available:

Government policies began in the 1930s with the New Deal's Federal Mortgage and Loans Program. The government, along with banks and insurance programs, undertook a policy to lower the value of urban housing in order to create a market for the single-family residences they built outside the city.

The Home Owners' Loan Corporation, a federal government initiative established during the early years of the New Deal went into Brooklyn and mapped the population of all 66 neighborhoods in the Borough, block by block, noting on their maps the location of the residence of every black, Latino, Jewish, Italian, Irish, and Polish family they could find. Then they assigned ratings to each neighborhood based on its ethnic makeup. They distributed the demographic maps to banks and held the banks to a certain standard when loaning money for homes and rental. If the ratings went down, the value of housing property went down.

From the perspective of a white city dweller, nothing that you had done personally had altered the value of your home, and your neighborhood had not changed either. The decline in your property's value came simply because, unless the people who wanted to move to your neighborhood were black, the banks would no longer lend people the money needed to move there. And, because of this government initiative, the more black people moved into your neighborhood, the more the value of your property fell.

The Home Owners' Loan Corporation finished their work in the 1940s. In the 1930s when it started, black Brooklynites were the least physically segregated group in the borough. By 1950 they were the most segregated group; all were concentrated in the Bedford-Stuyvesant neighborhood, which became the largest black ghetto in the United States. After the Home Owners Loan Corp began working with local banks in Brooklyn, it worked with them in Manhattan, the Bronx, and Queens.

The state also got involved in redlining. (Initially, redlining literally meant the physical process of drawing on maps red lines through neighborhoods that were to be refused loans and insurance policies based on income or race. Redlining has come to mean, more generally, refusing to serve a particular neighborhood because of income or race.) State officials created their own map of Brooklyn. They too mapped out the city block by block. But this time they looked for only black and Latino individuals.

This site has some redlining maps, including one of Brooklyn, prepared by the Feds.  Remember, this is not some evil Conservative business CABAL, these are Roosevelt Democrats making these maps.  This site adds:

While the HOLC was a fairly short-lived New Deal agency, the influence of its security maps lived on in the Federal Housing Authority (FHA) and the GI Bill dispensing Veteran’s Administration (VA). Both of these government organizations, which set the standard that private lenders followed, refused to back bank mortgages that did not adhere to HOLC’s security maps. On the one hand FHA and VA backed loans were an enormous boon to those who qualified for them. Millions of Americans received mortgages that they otherwise would not have qualified for. But FHA-backed mortgages were not available to all. Racial minorities could not get loans for property improvements in their own neighborhoods—seen as credit risks—and were denied mortgages to purchase property in other areas for fear that their presence would extend the red line into a new community. Levittown, the poster-child of the new suburban America, only allowed whites to purchase homes. Thus HOLC policies and private developers increased home ownership and stability for white Americans while simultaneously creating and enforcing racial segregation.

The exclusionary structures of the postwar economy pushed African Americans and other minorities to protest. Over time the federal government attempted to rectify the racial segregation created, or at least facilitated, in part by its own policies. In 1948, the U.S. Supreme Court case Shelley v. Kraemer struck down explicitly racial neighborhood housing covenants, making it illegal to explicitly consider race when selling a house. It would be years, however, until housing acts passed in the 1960s could provide some federal muscle to complement grassroots attempts to ensure equal access.

 

Corporate Surveillance Is Not What I Fear

The Left seems to be wasting its legitimate outrage about surveillance on the wrong targets.

At a base minimum, people should be able to walk down a public street without fear that companies they’ve never heard of are tracking their every movement — and identifying them by name — using facial recognition technology,” the privacy advocates wrote in a joint statement....

People simply do not expect companies they’ve never heard of to secretly track them using this powerful technology. Despite all of this, industry associations have pushed for a world where companies can use facial recognition on you whenever they want — no matter what you say. This position is well outside the mainstream.”

Look, I am all for these folks campaigning for better privacy protections on businesses, but really, isn't this the wrong target.  Seriously, Target is tracking me in order to ... what?  Make me a targeted discount offers and rearrange their stores to better match my shopping habits?

Look, the government has guns and prisons.  They can take my money and my assets.  What the government can do to me makes the fear of being in Pepsi's marketing data base seem like a pure joke.

Every day I leave my house I have to pass this damn government surveillance cactus not a hundred yards from my home, tracking my face and license plate.

click to enlarge click to enlarge

There are at least two more of these in walking distance of my house.

I have news for you folks on the Left -- the government doesn't give a crap about your privacy, but is willing to beat on private corporations for a while (which really pose you zero harm) to divert you from the real threat, which is them.  And in the end, despite all their rhetoric, they will likely let private corporations do whatever they want as long as the government gets a backdoor into the data.

It is the latter that worries me the most.  I couldn't care less what Wal-Mart knows about my shopping habits.   But I do care that data they gather could be funneled into Uncle Sam's greedy hands.

Overwrought Language of the Day

Our Overwrought language award this week comes from Kevin Drum of Mother Jones, writing about Paul Ryan's budget plan.  Drum calls Ryan's budget a "Vision of a Dickensian Hellhole".  He quotes Jonathon Chait as saying, "Its enactment would amount to the most dramatic rollback of government since the New Deal."

All this for a budget that proposes to reduce government spending to about 19% of GDP, a level that we have not seen since the Dickensian Hellhole of ... the Bill Clinton Presidency.  During the New Deal, spending hovered around 10% of GDP.

This is the ratchet effect that big government lovers are so adept at employing.  Under President Obama (with a lot of help from George Bush and a Democratic Congress) spending has skyrocketed to an unprecedented-except-in-WWII level of over 25% of GDP.  But suddenly Drum and Chait and company want to define that level as the new baseline, below which any drop is now "Dickensian."  Which is another reason that we should never, ever create a new government spending program because once established they are impossible to eliminate, no matter how stupid and wasteful.

 

Question: Name An Activity The Government is Better At Than the Private Actors It Purports to Regulate

I am serious about this.  We saw in an earlier story that the government is trying to tighten regulations on private company cyber security practices at the same time its own network security practices have been shown to be a joke.  In finance, it can never balance a budget and uses accounting techniques that would get most companies thrown in jail.  It almost never fully funds its pensions.  Anything it does is generally done more expensively than would be the same task undertaken privately.  Its various sites are among the worst superfund environmental messes.   Almost all the current threats to water quality in rivers and oceans comes from municipal sewage plants.  The government's Philadelphia naval yard single-handedly accounts for a huge number of the worst asbestos exposure cases to date.

By what alchemy does such a failing organization suddenly become such a good regulator?

Update:  On the topic of cyber security competence or lack thereof, there is this:

In mid-May, the Federal Bureau of Investigations lost control over seized domains, including Megaupload.com, when the agency failed to renew a key domain name of its own. That domain, which hosted the name servers that redirected requests for seized sites to an FBI Web page, was purchased at auction—and then used to redirect traffic from Megaupload.com and other sites to a malicious site serving porn ads and malware. Weeks later, those sites are still in limbo because somehow, despite a law enforcement freeze on the domain name, the name servers associated with Megaupload.com and those other seized sites were changed to point at hosts associated with a domain registered in China.

Yep, that is the lead government agency tasked with investigating hacking and cyber security breaches.

Your Government At Work

Statists believe in a kind of alchemy.  They will say that individual citizens cannot be trusted with, say, selecting their own health plan.  This must be entrusted to a government official who gained such lofty powers by ... being selected by the self-same citizens that couldn't be trusted to choose a health plan.  How is it that schlubs who cannot be trusted can be elected by the mass of schlubs who cannot be trusted, placed into a monopoly with guns and no competition, and miraculously suddenly be trusted?

As you probably know, the institution that demands ever more power because of external threats to our security and constantly bashes private companies for not being careful enough with privacy had most of its employee data  stolen by a group of Chinese hackers. After the hack was made public, the government claimed the hack was discovered due to their diligent internal security efforts.  This turns out not to be the case, and the reality is pretty damn funny:

At the time, OPM said the breach was discovered as the agency “has undertaken an aggressive effort to update its cybersecurity posture, adding numerous tools and capabilities to its networks.”

But four people familiar with the investigation said the breach was actually discovered during a mid-April sales demonstration at OPM by a Virginia company called CyTech Services, which has a networks forensics platform called CyFIR. CyTech, trying to show OPM how its cybersecurity product worked, ran a diagnostics study on OPM’s network and discovered malware was embedded on the network. Investigators believe the hackers had been in the network for a year or more.

Update:  Extra points for this one:

The breach has expedited plans by the Senate to vote on cybersecurity legislation, with Majority Leader Mitch McConnell (R., Ky.) saying Tuesday a vote now could be held in the coming days.

Mr. McConnell said he planned to use an annual defense policy bill currently on the Senate floor to advance the cybersecurity measure, which is aimed at responding to a growing prevalence of data breaches at large U.S. companies.

So the government gets breached because it is using outdated software major private companies have long-ago replaced or patched, and the reaction is to...place new demands on private companies?

Obama Extends War With Eastasia Hours After Declaring He Has Never Been At War With Eastasia

Via Zero Hedge:

Just when we thought the absurdity that marks every single day of Obama's reign could not possibly be surpassed, we learned that 4 hours (3 hours and 47 minutes to be precise) after the US president vowed to sign a new law banning bulk data collection by the NSA (named, for purely grotesque reasons, the "USA Freedom Act"), the Obama administration asked the secret Fisa surveillance court to ignore a federal court that found bulk surveillance illegal and to once again grant the National Security Agency the power to collect the phone records of millions of Americans for six months.

Or, as the Guardian's Spencer Ackerman, who spotted this glaring page out of Josef Stalin's playbook, summarized it:

According to Ackerman, this latest travesty by the administration "suggests that the administration may not necessarily comply with any potential court order demanding that the collection stop."

How Did Denny Hastert Even Have $3.5 Million for Payoffs?

Like Harry Reid, Denny Hastert entered Congress as barely middle class and left it a multi-millionaire (Senators make $174,000 a year -- good money but not enough, I would think, to have $3.5 million tucked away to hand out as cash).

Here is an example:

It wasn’t long after that the Sunlight Foundation reported on just how much Hastert thought himself qualified to steer earmarks back home. The foundation found that Hastert had used a secret trust to join with others and invest in farm land near the proposed route of a new road called the Prairie Parkway. He then helped secure a $207 million earmark for the road. The land, approximately 138 acres, was bought for about $2.1 million in 2004 and later sold for almost $5 million, or a profit of 140 percent. Local land records and congressional disclosure forms never identified Hastert as the co-owner of any of the land in the trust. Hastert turned a $1.3 million investment (his portion of the land holdings) into a $1.8 million profit in less than two years.

Lack of Hotel is Not a Market Failure -- It Was a Market Success

For some reason, it appears that building hotels next to city convention centers is a honey pot for politicians.  I am not sure why, but my guess is that they spend hundreds of millions or billions on a convention center based on some visitation promises.  When those promises don't pan out, politicians blame it on the lack of a hotel, and then use public money for a hotel.  When that does not pan out, I am not sure what is next.  Probably a sports stadium.  Then light rail.  Then, ?  It just keeps going and going.

I thought we in Phoenix took some kind of prize with this:

The city-owned Sheraton Phoenix Downtown Hotel has lost so much money — more than $28.2 million total — that some city leaders say the hotel must be put in the hands of the private sector.

They also worry that the hotel, Arizona's largest with 1,000 rooms, could harm other projects in the downtown core.

When Phoenix leaders opened the Sheraton in 2008, they proclaimed it would be a cornerstone of downtown's comeback. They had one goal in mind: lure big conventions and tourism dollars. Officials argued the city needed the extra hotel beds to support its massive taxpayer-funded convention center a block away.

But apparently things are even worse in Baltimore:

The city-owned Hilton Baltimore convention center hotel lost $5.6 million last year — a worse performance than 2013 despite its close location to Camden Yards and the Orioles' playoff run.

It was the seventh consecutive year that the hotel has underperformed financially, according to an audit of financial statements presented Wednesday to the city's Board of Estimates. Under the deal's initial projections, the hotel was supposed to be making $7 million in profit by now — pumping that mone into the city's budget....

The hotel has lost more than $70 million since it opened.

I am sure that politicians in both cities called the lack of a hotel a market failure.  But now we see that it was a market success.  All the companies who chose not to build a hotel with private money obviously knew what they were doing, and only the political benefits of pandering the the public at large and a few special interests in specific made it seem like an attractive investment to city politicians.  Which is all pretty unsurprising, since hotels have pretty much been built off every exit ramp in this country, so there seems to be no private inhibition towards building hotels -- just towards building hotels in bad locations.

Nestle: Private Company Getting Blamed for Government Incompetence

The story begins with a discovery that the permit under which Nestle's Arrowhead Water has been collecting water in the San Bernardino National Forest expired in 1988.  LOL, oops.  Environmental and other Leftish sites are calling for Nestle's head and somehow blaming Nestle for this.

As a permittee with the US Forest Service (USFS) in California and across the country, I can guess with pretty high confidence exactly what happened here.  For years I was head of a trade group of recreation concessionaires (think lodges and guides and such) who do business in the USFS under permit.  Most of these were located in California.  For years, the biggest problem we have had with the USFS in California is that they are years and years behind in nearly all their permit renewals.  There are literally hundreds of expired permit in the USFS in California alone.

For reasons that probably go to bureaucratic incentives, despite the Forest Service's huge budget, they are loath to allocate resources to renewing these permits -- they want to fill their organization with biologists and archaeologists and arborists, not contracts people.  Making the situation worse, Forest Service and other Federal rules have burdened the permit renewal process with so many legal requirements that each one, even if trivial in size and impact, is absurdly time-consuming to complete.

This is not a new situation -- it has obtained for years.  Almost five years ago I met personally with the Chief of the Forest Service in DC and begged for more resources to be assigned to permit renewals, but to no avail.   I did the same in a meeting barely a month ago with the head of the USFS's Region 5 (basically California).   All of us permittees have been vociferously complaining about this for years.

When you look at these situations, then, what you will see is not some evil private business trying to get over on the public, but a business that is literally screaming in frustration, year in and year out, begging the US Forest Service to address its permit renewal.   Generally, local Forest Service staff will give the company verbal assurances that they should keep operating, so they do, continuing to pay their fees and operate within the guidelines of the old, expired contract.

I would be willing to bet a fair amount of money that this is exactly what happened to Nestle.

By the way, the usual groups seem to be piling on Nestle about bottled water from the Sacramento tap water system.  A couple of comments:

  • Environmentalists seem to obsessively hate bottled water, but ignore what a trivial, trivial percentage of total water use is bottled.
  • Critics are accusing Nestle of making obscene profits on Sacramento tap water.  But if they really think the spread between tap water and bottled water is too large, isn't the real issue that Sacramento is under-pricing its tap water?  After all, Nestle is paying what everyone else in the town is paying for water.
  • Environmentalists have a misguided fetish for local foods, often ignoring that transportation costs and energy are a tiny percentage of most food production costs  (a percentage small enough to be dwarfed by differential productivity of soils and climates).  But here, all they can possibly accomplish is to chase Nestle's bottling plant out of California and then have the water trucked back into the state.  This might be a net gain depending on the differential value of California water vs. fuel, but we can't know that because California water pricing is so screwed up.

Who's Subsidizing Whom? And Should We Oppose All New Anti-Poverty Programs as Crony Giveaways?

Well, the new meme on the Left in favor of higher minimum wages seems to be that since many minimum wage workers also receive government benefits, those benefits "subsidize" the employers paying minimum wage.  Example from Kevin Drum here.  This is utter madness.  A few responses:

  • The implication is that the choice is between a job at $8 an hour or a job at $15 an hour.  But this assumes the jobs still all exist at $15 an hour.  Clearly, many would disappear over time, either as companies automate or as consumers reduce purchases at now higher cost establishments.  If the alternative to offering a $8 an hour job is in fact offering no job at all, then minimum wage employers are reducing government benefits payouts.
  • The Left has pushed eligibility for many programs (e.g. the changes in Obamacare to Medicaid) into higher income bands of people making more than 100% of the poverty line.  How is this creeping up of transfer program eligibility somehow the fault of employers?
  • Does this mean that all right-thinking Americans should oppose any future expansions of transfer programs as crony giveaways?  And if you say no, that they should not be thought of crony giveaways in advance of their passage, why should they be considered such afterwards?
  • The whole point of many of these programs, like the EITC which is listed among the programs in Drum's post, is exactly this -- to provide transition assistance from not working to supporting oneself.  The Left's view on this is, as usual, entirely static.  What are the folks who are on benefits and working in food service doing 5-10 years from now?  Would they look back on that time as a stepping stone to something better?
  • If you require that all employers pay a salary such that none of its workers are on assistance of any sort, which is the logical conclusion of this meme, then you divide the world into two classes -- those 100% employed and those 100% on benefits, with most people in the latter having little or no prospect of moving to the former.
  • My company pays minimum wage to the vast majority of our 300+ campground workers.  But who is subsidizing whom?  Most of these folks are over 60 and on Social Security and find that they need or want more money than their Social Security can provide.  One reason for this is that Social Security is a horrible retirement savings program, essentially paying a negative interest rate on the money contributed to the system in the retiree's name.  If Social Security were a private retirement plan, its proprietors would be in jail by now.  Because Social Security is so lame, older people seek work, and come to me, happy to stay active and earn money to supplement their government checks.  So am I subsidizing the SSA's inability to provide a fair return?

Government's Systematic Indifference to Capital Maintenance

There is one thing you can almost always assume with government managed land and infrastructure -- facilities will likely have a large deferred maintenance backlog.  Two examples:

These problems are ubiquitous.  You can point to any government parks agency, and most any transit agency, and you will find the same problems.

Why?  Well, I have not studied the problem in any academic sense, but I am face-to-face with the problem every day in parks.

Let's start with the reason that is not true -- that somehow budgets can't support capital maintenance.  I know for a fact that this is not true in parks.  We operate over 100 public parks and are totally up to date with all maintenance and have no deferred maintenance backlog.  This is despite the fact that we work with only the fees paid by visitors at the gate.  Government agencies typically supplement fees at the gate with an equal amount of tax money and still don't keep up with maintenance.  So the issue may be costs or priorities, but the money is there to keep parks fixed up.  (I am willing to believe the same is not true of large transit projects, but these projects are known in advance not to be able to cover their lifecycle costs with revenues, and simply hide that fact from taxpayers until it is too late.  Thus the sales tax increase that is being requested in Phoenix to keep our new light rail running).

I think the cause lies in a couple areas related to government incentives

  1. Legislatures never want to appropriate for capital maintenance.  If the legislature somehow has, say, $100 million money it can spend on infrastructure, their incentives are to use it to build new things rather than to keep the old things in repair (e.g. to extend a rail line rather than to keep the old one fixed).
  2. If you want to understand a government agency's behavior, the best rule of thumb is to assume that they are working to maximize the headcount and the payroll budget of their agency.  I know that sounds cynical, but if you do not understand an agency's position or priorities, try applying this test:  What would the agency be doing or supporting if it were trying to maximize its payroll.  You will find this explains a lot

To understand #2, you have to understand that the pay and benefits -- and perhaps most important of all -- the prestige of an agency's leaders is set by its headcount and budgets.  Also, there are many lobbying forces that are always trying to pressure an agency, but no group is more ever-present, more ubiquitous, and more vocal than its own staff.   Also, since cutting staff is politically always the hardest thing for legislators to do, shifting more of the agency's budget to staff costs helps protect the agency against legislative budget cuts.  Non-headcount expenses are raw meat for budget cutters, and the first thing to get swept.  By the way, this is not unique to public agencies -- the same occurs in corporations.   But corporations, unlike government agencies, face the discipline of markets that places a check on this tendency.

This means that agencies are loath to pay for the outside resources (contractors and materials) that are needed for capital maintenance projects out of their regular budgets.  When given the choice of repairing a bathroom at the cost of keeping a staff person, agencies will always want to choose in favor of keeping the staff.  They assume capital maintenance can always be done later via special appropriation, but of course we saw earlier that legislators are equally unlikely to prioritize capital maintenance vs. other alternatives.

The other related problem faced is that this focus on internal staff tends to drive up pay and benefits of the agency workers.  This drives up the cost of fundamental day to day tasks (like cleaning bathrooms and mowing) and again helps to starve out longer-horizon maintenance functions.

As proof, you only have to look at the mix of agency budgets.  Many parks agencies (e.g. New Jersey state parks, which I have studied in depth) have as much as 85% of their budget go to internal staff.  My company, which does essentially the same thing (run parks) has about 32% of our budget go to staff.  State parks agencies have 50% or more of their staff in headquarters or regional offices.  In my company, 99% of the staff is in the parks.

I don't think that these incentives problems can be overcome -- they are simply too fundamental to how government works.  Which is why I spend my working hours trying to convince states to privatize the operation of their recreation facilities.

Let Them Buy Whatever They Want

I am frankly exhausted with all the stories of people buying item X with food stamps that some folks fear they really should not be buying, where X is everything from liquor to twinkies.

People are either adults or they are not.  I don't think our act of charity towards them gives us the right to be their mother.  I am all for consolidating all the zillions of existing niche government benefits programs into one single EITC or similar income-floor program.  Then people spend their money however they hell they want -- if they screw up and spend on unwise things, well that is their business.

I used to have this argument all the time with my New England liberal mother-in-law.  Interestingly, in this argument, we would both call the other arrogant.  I would say she was arrogant for assuming she knew better than other adults how they should spend their own money.  She would call me arrogant for assuming that people without my background and education could make quality decisions for themselves.

Since this is my blog, I will grab the last word here.  If we were talking about having the poor choose between a number of exchange-traded derivatives, I could concede her point.  But we are essentially talking about what to buy in a supermarket.  We force everyone through 12 years of public education.  The Left pretty much gets to determine what that education encompasses.  If adults are leaving that system and still can't be trusted with their own money, then why are we even bothering?

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.

 

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.

"Dysfunctional Congress"

This weekend I went to a one-day university and saw four different lectures (as usual, about half were good, one was OK, and one was a soft-of WTF).  In one of those lectures, a Brown professor kept talking about Congress being "dysfunctional".

It strikes me that it is time to demand that people define what they mean by this.  A lot of people, I think, would answer that they mean that Congress is dysfunctional because it has not passed X, where X is immigration reform or climate change legislation or a repeal of Obamacare or a list of many other things.  But in these cases, I am not sure it is fair to say that lack of Congressional action really represents dysfunctionality when the public itself is sharply and somewhat evenly divided on the issues themselves.

No one can best me in a competition of disdain for elected officials.  But I am always suspicious that folks using the whole dysfunctional Congress meme are really using it as a proxy for a strong desire to keep expanding government.  After all, are we really facing a shortage of laws that Congress desperately needs to address?  Is Congress somehow greedily hording laws in a time of need?

In the spirit of defining terms, I will say what I think is dysfunctional about Congress:  When it fails to fulfill its Constitutionally-mandated roles.  It is not required to pass immigration legislation, but it is required to pass a budget and give up and down votes on appointments.  Neither of these tasks have been accomplished very well over the last few years.   Again, Congress is not required to give the President what he wants (as the media seems to imply, at least when the President is a Democrat), but they are required to pass some sort of budget and take a vote in a reasonably timely manner on appointments.

Question for Keynesians: What Are You Doing To Prepare for the Next Cycle?

When I was in school learning macro 101 from Baumol and Blinder, my memory is that the theory of Keynesian stimulus and managing the economic cycle was that deficits should be run in the bottom part of the economic cycle, paid for with surpluses in the top half.   So we are now almost certainly in the top half of the cycle.  But I don't hear any Keynesians seeking to run a surplus, or even to dial back on government deficits or spending.  In fact, our Keynesian-in-chief says he is done with "mindless austerity" and wants to start spending even harder in 2015.

Its enough to make one suspicious that all the stimulus talk is just a Trojan Horse for a desire to increase the size and power of government.

But for Keynesians who really believe what they are saying, that deficit spending somehow saved us from a depression in 2009 and 2010, then I ask you -- what are you going to do next time?  It appears that when we enter the next recession in this country, that US debt as a percentage of GDP is going to be almost twice what it was entering the last recession.  Don't you worry that this limits your flexibility and ability to ramp up deficit spending in the next recession?

The situation in the US is the same as it is worldwide.  While those evil private short-term-focused private actors have used the improving economy to de-leverage back below 2007 levels, governments have increased their debt as a percentage of GDP by just over 50% since just before the last recession.

20150205_debt1

 

Since 2007, according to my old friends at McKinsey, global government debt has risen by $25 trillion since 2007.  If you really care about Keynesian stimulus in recessions, and not just "mindlessly" (I can use that term too) increase government spending, wouldn't you want to be building up some reserves for next time?

Quantitative Easing and the Left's Relationship to the Rich and to Large Corporations

The Left spends a lot of time railing against the rich and large corporations.  But in practice, they seem hell-bent on lining the pockets of exactly these groups.  Today the ECB announces a one trillion plus euro government buyback of public and private securities.

Between Japan, the US, and now Europe, the world's central banks are printing money like crazy to inflate securities values around the world -- debt securities directly by buying them but indirectly a lot of the money spills over into stocks as well.  This has been a huge windfall for people whose income mostly comes from capital gains (i.e. rich people) and institutions that have access to bond and equity markets (i.e. large corporations).  You can see the effects in the skyrocketing income inequality numbers over the last 6 years.  On the other end, as a small business person, you sure can't see any difference in my access or cost of capital.  It is still just as impossible to get a cash flow loan as it always was.

And The Highest-Paid US Government Employee is....

...Probably Nick Saban, coach of the University of Alabama football team at around $7 million a year.  But Jim Harbaugh, recently hired by the University of Michigan for a $5 million base salary, apparently has incentives that can take that up to $9 million a year.

Apologists will argue that this is all OK and shouldn't worry taxpayers at all because these guys are paid out of the college athletic budget which is generated from sports revenue rather than taxes.  Hmm.  Any state parks agency probably generates millions or tens of millions each year in user fees.  Should we be OK with the state employee who runs those agencies making $5 million because it comes out of user fees rather than taxes?  Money is fungible.  $5 million more spent on a football coach is $5 million less that can fund other University services.

(PS - in the US Today ranking of college football coach salaries, 19 of 20 are at public institutions).

Making Everyone a Criminal

From Atlas Shrugged:

Dr. Ferris smiled. . . . . ."We've waited a long time to get something on you. You honest men are such a problem and such a headache. But we knew you'd slip sooner or later - and this is just what we wanted."

[Hank Reardon:]  "You seem to be pleased about it."

"Don't I have good reason to be?"

"But, after all, I did break one of your laws."

"Well, what do you think they're for?"

Dr. Ferris did not notice the sudden look on Rearden's face, the look of a man hit by the first vision of that which he had sought to see. Dr. Ferris was past the stage of seeing; he was intent upon delivering the last blows to an animal caught in a trap.

"Did you really think that we want those laws to be observed?" said Dr. Ferris. "We want them broken. You'd better get it straight that it's not a bunch of boy scouts you're up against - then you'll know that this is not the age for beautiful gestures. We're after power and we mean it. You fellows were pikers, but we know the real trick, and you'd better get wise to it. There's no way to rule innocent men. The only power any government has is the power to crack down on criminals. Well, when there aren't enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws. Who wants a nation of law-abiding citizens? What's there in that for anyone? But just pass the kind of laws that can neither be observed nor enforced nor objectively interpreted - and you create a nation of law-breakers - and then you cash in on guilt. Now, that's the system, Mr. Rearden, that's the game, and once you understand it, you'll be much easier to deal with."

Here is the same thing, Obama Administration style

Major U.S. corporations have broadly supported President Barack Obama's healthcare reform despite concerns over several of its elements, largely because it included provisions encouraging the wellness programs.

The programs aim to control healthcare costs by reducing smoking, obesity, hypertension and other risk factors that can lead to expensive illnesses. A bipartisan provision in the 2010 healthcare reform law allows employers to reward workers who participate and penalize those who don't.

But recent lawsuits filed by the administration's Equal Employment Opportunity Commission (EEOC), challenging the programs at Honeywell International and two smaller companies, have thrown the future of that part of Obamacare into doubt.

The lawsuits infuriated some large employers so much that they are considering aligning themselves with Obama's opponents, according to people familiar with the executives' thinking.

"The fact that the EEOC sued is shocking to our members," said Maria Ghazal, vice-president and counsel at the Business Roundtable, a group of chief executives of more than 200 large U.S. corporations. "They don't understand why a plan in compliance with the ACA (Affordable Care Act) is the target of a lawsuit," she said. "This is a major issue to our members."

At the exact same moment, one branch of the Administration is encouraging an activity that another branch is working to criminalize.