Archive for the ‘Regulation’ Category.

Karmic Justice: EU Does to Google What Google Did To Others With Net Neutrality

Google was (and is) a big supporter of Net Neutrality.  Content providers like Google (Google owns Youtube, among other large content sites) want to make sure that other content providers are not somehow given special treatment by the ISP's that provide the bandwidth for consumers to view these sites.  In particular, sites like Youtube and Netflix, which consume a HUGE percentage of the bandwidth at many ISP's, don't want to somehow pay any extra costs that might be imposed on content sites that use a lot of bandwidth.   I wrote this on net neutrality a few years ago:

Net Neutrality is one of those Orwellian words that mean exactly the opposite of what they sound like.  There is a battle that goes on in the marketplace in virtually every communication medium between content creators and content deliverers.  We can certainly see this in cable TV, as media companies and the cable companies that deliver their product occasionally have battles that break out in public.   But one could argue similar things go on even in, say, shipping, where magazine publishers push for special postal rates and Amazon negotiates special bulk UPS rates.

In fact, this fight for rents across a vertical supply chain exists in virtually every industry.  Consumers will pay so much for a finished product.  Any vertical supply chain is constantly battling over how much each step in the chain gets of the final consumer price.

What "net neutrality" actually means is that certain people, including apparently the President, want to tip the balance in this negotiation towards the content creators (no surprise given Hollywood's support for Democrats).  Netflix, for example, takes a huge amount of bandwidth that costs ISP's a lot of money to provide.  But Netflix doesn't want the ISP's to be be able to charge for this extra bandwidth Netflix uses - Netflix wants to get all the benefit of taking up the lion's share of ISP bandwidth investments without having to pay for it.  Net Neutrality is corporate welfare for content creators.

A typical ISP would see this relative usage of its bandwidth.  You can be assured everyone on this list is a huge net neutrality supporter.

Essentially, Google wanted to force ISP's to be common carriers, to be legally required to carry all traffic equally, even if certain traffic (like Google's Youtube) is about a million times more expensive to serve than other people's content.

But the point of this story is not about my issues with Net Neutrality.   The point of this story is Karma, or as we used to say it in the South, what "goes around, comes around."

The European Union’s antitrust watchdog in the coming weeks is set to hit Alphabet Inc.’s Google with a record fine for manipulating its search results to favor its own comparison-shopping service, according to people familiar with the matter.

The penalty against Google is expected to top the EU’s previous record fine levied on a company allegedly abusing its dominance: €1.06 billion (about $1.18 billion) against Intel Corp.in 2009.

The fine could reach as high as 10% of the company’s yearly revenue, which stood at $90.27 billion last year.

But more painful to Google than a sizable fine could be other consequences that come with the European Commission’s decision, including changes not only to the tech giant’s business practices with its shopping service but with other services as well. The EU’s decision could also embolden private litigants to seek compensation for damages at national courts.

The EU is likely to demand Google treat its own comparison shopping service equally with those of its competitors, such as Foundem.co.uk and Kelkoo.com Ltd., possibly requiring the search giant to make rival services more visible on its own platform than they are at present. Such companies rely on traffic to their site from search engines like Google’s.

Hah!  I think this is a terrible decision that has nothing to do with economic sanity or even right and wrong -- it has to do with the EU's frequent historic use of anti-trust law as a way to bash foreign competition of its domestic providers, to the detriment of its consumers.  But it certainly is Karma for Google.  The EU is demanding that Google's search engine become a common carrier, showing content from shopping sites equally and without favor or preference.  The EU is demanding of Google exactly what Google is demanding of ISP's, and wouldn't you know it, I don't think they are going to like it.

As Predicted Here 2 Years Ago, More Diesel Emissions Cheating Alleged

Back in November of 2015 I wrote:

I would be stunned if the Volkswagen emissions cheating is limited to Volkswagen.  Volkswagen is not unique -- Cat and I think Cummins were busted a while back for the same thing.  US automakers don't have a lot of exposure to diesels (except for pickup trucks) but my guess is that something similar was ubiquitous.

My thinking was that the Cat, Cummins, and VW cheating incidents all demonstrated that automakers had hit a wall on diesel emissions compliance -- the regulations had gone beyond what automakers could comply with and still provide consumers with an acceptable level of performance.

Since then Fiat-Chrysler has been accused of the same behavior, and now GM is accused as well, though only in  a civil suit.

A class-action lawsuit accuses General Motors of rigging emission-control systems on 2011–2016 Chevrolet Silverado HD and GMC Sierra HD pickups with GM’s Duramax turbo-diesel 6.6-liter V-8 engine. If the allegations are proved true, the environmental damage from these 705,000 trucks, which the lawsuit said emit two to five times the legal limit of nitrogen oxides (NOx) in typical driving conditions, could easily exceed that of Volkswagen’s emission-test-cheating TDI engines.

Of course, people can say any thing they want in a civil suit, so this needs to be proved, but I think it probably is true.

A while back a reader with some inside knowledge explained what was going on.

Immigration Law as a Precursor for Work Permits

I have made this same point before -- immigration restrictions on who can and can't work in the US is effectively a Federal work permit requirement, one that could easily be expanded over time:

E-Verify, if implemented nationwide, would be a system of work permits. If you started a new job, you would need the federal government to verify that you are legally allowed to have that job. How long would it be before the government started making judgements about who should be allowed to work? Convicted sexual predators, even those who were, say 19, and sleeping with a consensual 16-year-old, have to register for life and are told that they can't live in certain parts of a city. Is it entirely inconceivable that some would ultimately be told that they can't work?

I can imagine far worse than that in today's society.   One must complete a certain number of hours of training and pass a series of tests to get a driver's licence.  How long before someone suggestions mandatory diversity testing and a woke-ness test before being allowed to work?

Your Labor Regulation Fact of the Day

The minimum wage of a laborer who places and picks up orange cones around a Federal highway project in California is set at $43.97 an hour (and yes, the wage rules are that detailed).  This is set by the Davis-Bacon Act and the wage determination is here (wage determination CA29, LABORER TRAFFIC CONTROL/LANE CLOSURE, Traffic Control Person II, wage plus fringe).

Here is your essay question:  Given that this equates to nearly $88,000 a year, how many truly unskilled workers would you expect to be hired by Federal stimulus projects, vs. other workers with more skills who are taking jobs below their skills and experience)?

How Governments Break Markets: 1. Restrict Supply 2. Subsidize Demand 3. Declare Market Failure When Prices Soar

Restrict supply, subsidize demand, and then declare a market failure.  That is how the government has jacked prices through the ceiling in higher education, health care, and housing:

Oregon is responding to its housing affordability crisis by doing all the wrong things. The crisis is due to a shortage in supply which in turn is due to urban-growth boundaries.

So the legislature legalized inclusionary zoning ordinances and Portland passed one. Such ordinances require developers to provide a certain percent of the homes they build to low-income people at below-market rates. In response, developers are building fewer homes, exacerbating the supply problem. City officials “hope the slowdown is temporary,” but that hasn’t proven to be the case in other cities that passed inclusionary zoning ordinances.

Now the state legislature is considering a bill to provide $5 million to help first-time home buyers make down payments on homes. This will have the effect of increasing demand, which will only drive up prices even more.

Why Monopsony Power May Be Irrelevant to the Effects of A Minimum Wage Increase

Most of us who took Econ 101 would expect that an increase in the minimum wage would increase unemployment, at least among low-skilled and younger workers.  After all, demand curves slope downards so that an increase in price of labor should result in a decrease in demand for that labor.

Supporters of the minimum wage, however, argue that employers have monopsony power when hiring low-skill workers. What they mean by this is that due to a bargaining power imbalance, employers can hire workers for less than they would be willing to pay in a truly competitive market.  As the theory goes, this in turn creates an additional consumer surplus for employers, which manifests itself as higher profits.  A minimum wage increase would thus reduce this surplus but not effect employment because companies before the new minimum wage were paying less than they were willing to pay.  Thus minimum wage supporters argue that higher wages mandated by minimum wage laws will be paid out of these excess profits, and not result in higher prices or less employment.

My understanding (and I am not an economist) is that the evidence for monopsony power in hiring low-skill workers is weak or at best limited to niche circumstances.  However, I am going to argue that it does not matter. Even if companies are able to pay workers less than they might via such monopsony power, whatever gains they reap from workers ends up in consumer hands.  As a result, minimum wage increases still must result either in employment reductions or consumer price increases or more likely both.

Why Monopsony Power May Not Matter

Why? Well, we need to back up and do a bit of business theory.  Just as macroeconomics (all the way back to Adam Smith) spends a lot of time thinking about why some countries are rich and some are poor, business theory spends a lot of time trying to figure out why some firms are profitable and some are not.  One of the seminal works in this area was Michael Porter's Five Forces model, where he outlines five characteristics of markets and firms that tend to drive profitability.  We won't go into them all, but the most important for us (and likely for Porter) is the threat of new entrants -- how easy or hard is it for new firms to enter the marketplace and begin competing against an incumbent firm.  If new companies can enter into competition easily, a profitable firm will simply attract new competitors, and keep attracting them until the returns in that market are competed down.

So let's consider a company paying minimum wage to most of its employees.  At least at current minimum wage levels, minimum wage employees will likely be in low-skill positions, ones that require little beyond a high school education.  Almost by definition, firms that depend on low-skill workers to deliver their product or service have difficulty establishing barriers to competition. One can’t be doing anything particularly tricky or hard to copy relying on workers with limited skills. As soon as one firm demonstrates there is money to be made using low-skill workers in a certain way, it is far too easy to copy that model.  As a result, most businesses that hire low-skill workers will have had their margins competed down to the lowest tolerable level.  Firms that rely mainly on low-skill workers almost all have single digit profit margins (net income divided by revenues) -- for comparison, last year Microsoft had a pre-tax net income margin of over 23%.

As a result, the least likely response to increasing labor costs due to regulation is that such costs will be offset out of profits, because for most of these firms profits have already been competed down to the minimum necessary to cover capital investment and the minimum returns to keep owners invested in the business. The much more likely responses will be

  1. Raising prices to cover the increased costs. This approach may be viable competitively, as most competitors will be facing the same legislated cost pressures, but may not be acceptable to consumers
  2. Reducing employment. This may take the form of stealth price increases (e.g. reduction in service levels for the same price) or be due to a reduction in volumes caused by price increases. It may also be due to targeted technology investments, as increases in labor costs also increase the returns to capital equipment that substitutes for labor
  3. Exiting one or more businesses and laying everyone off. This may take the form of targeted exits from low-margin lines of business, or liquidation of the entire company if the business Is no longer viable with the higher labor costs.

An Example

When I discuss this with folks, they will say that the increase could still come out of profitability -- a 5% margin could be reduced to 3% say.  When I get comments like this, it makes me realize that people don't understand the basic economics of a service firm, so a concrete example should help. Imagine a service business that relies mainly on minimum wage employees in which wages and other labor related costs (payroll taxes, workers compensation, etc) constitute about 50% of the company’s revenues. Imagine another 45% of company revenues going towards covering fixed costs, leaving 5% of revenues as profit.  This is a very typical cost breakdown, and in fact is close to that of my own business.  The 5% profit margin is likely the minimum required to support capital spending and to keep the owners of the company interested in retaining their investment in this business.

Now, imagine that the required minimum wage rises from $10 to $15 (exactly the increase we are in the middle of in California).  This will, all things equal, increase our example company's total wage bill by 50%. With the higher minimum wage, the company will be paying not 50% but 75% of its revenues to wages. Fixed costs will still be 45% of revenues, so now profits have shifted from 5% of revenues to a loss of 20% of revenues. This is why I tell folks the math of absorbing the wage increase in profits is often not even close.  Even if the company were to choose to become a non-profit charity outfit and work for no profit, barely a fifth of this minimum wage increase in this case could be absorbed.  Something else has to give -- it is simply math.

The absolute best case scenario for the business is that it can raise its prices 25% without any loss in volume. With this price increase, it will return to the same, minimum acceptable profit it was making before the regulation changed (profit in this case in absolute dollars -- the actual profit margin will be lowered to 4%). But note that this is a huge price increase. It is likely that some customers will stop buying, or buy less, at the new higher prices. If we assume the company loses 1% of unit volume for every 2% price increase, we find that the company now will have to raise prices 36% to stay even both of the minimum wage increase and lost volume. Under this scenario, the company would lose 18% of its unit sales and is assumed to reduce employee hours by the same amount.  In the short term, just for the company to survive, this minimum wage increase leads to a substantial price increase and a layoff of nearly 20% of the workers.   Of course, in real life there are other choices.  For example, rather than raise prices this much, companies may execute stealth price increases by laying off workers and reducing service levels for the same price (e.g. cleaning the bathroom less frequently in a restaurant).  In the long-term, a 50% increase in wage rates will suddenly make a lot of labor-saving capital investments more viable, and companies will likely substitute capital for labor, reducing employment even further but keeping prices more stable for consumers.

As you can see, in our example we don’t need to know anything about bargaining power and the fairness of wages. Simple math tells us that the typical low-margin service business that employs low-skill workers is going to have to respond with a combination of price increases and job reductions.

How My Company Has Responded

Just to put a bit more flesh on this, I will give a real example from my own company.  My company operates public recreation facilities, mainly campgrounds, under bid contracts.  To understand our response to rising minimum wage, you need to understand some background:

  • In bidding these, we bid both the camping fee we will charge to customers as well as the rent we will pay to the government for the concession.  Given the weights the government uses in the bid process, keeping customer price low is more important than the rent we pay, so in most cases the prices we charge customers are well below the private market rate for similar campgrounds.
  • We have limited ability to further increase productivity, in part because our ability to invest in these campgrounds in limited.
  • Because we have many contracts across the country, our reputation is important and so we seldom will entertain reductions in service, such as cleaning frequency
  • Labor and labor-related costs are about 50% of revenues, and most employees are paid minimum wage.  Profit margins hover around 5% of revenues

One of the states we operate in is California.  We are in the midst of a minimum wage increase there from $8 an hour several years ago to $15 several years hence, or an increase of 87.5%.  Basically we have had two responses:

  • In places where we are under the market price, we have been able to raise prices without a lot of drop in volume.  But this means that our camping rates in some locations have risen from $18 to a future $26 a night, an enormous increase in just a few years.
  • In places where we did not think the market would bear such a rate increase, or where our contract did not allow such a rate increase, we closed our operation.  In fact, we have exited about half our business in California (while simultaneously growing it aggressively in states like Tennessee).  In all cases this has resulted in a loss of employment -- either the location was never reopened by anyone else, or else it was reopened by a competitor with different reputational concerns who staffed the location with far fewer employees.

Bureaucracy Creep

One of the irritating tasks I am required by law to perform for the government is fill in a bunch of detailed information about my business for the US Census Bureau.  This is one of a number of reports the government sends me each year to fill in.  The first thing I look at on these forms is whether they are required by law.  If they are not, they immediately go in the trash can.  In particular, I could spend 110% of my free time filling in Department of Labor surveys that seem to come for each state we operate in.  The only entertainment value I get associated with these many surveys is the calls I sometimes get from government workers asking me if I would please fill in the survey.  Generally I explain to them that 1.  My time is too valuable to waste on this stuff and 2.  There is no way in hell I am going to give them a bunch of data they will likely only use to justify new regulations that make my business life even harder.

The two reports that are required (this does not include of course the dozens of required tax forms, licensing forms, and corporate registration forms we fill out every year) are the annual Census report and the EEO-1 report.  I already discussed a while back the 15-20x increase in size and complexity of the EEO-1 report, where about 3600 new cells have been added that have to be filled in.  This year the Census Accommodations Industry Report had a huge increase in complexity -- last year's report had one cell for last years' total expenses (though the Census bureau's definition of total expenses was so arcane that it took an hour or so to calculate the number).  This year, instead of a single number for expenses there are 48 different cells to be filled in with detailed categories of expenses.  Here are just two of the many categories they demand:

d.  Purchased repairs and maintenance to machinery and equipment - Expensed repair and maintenance services to machinery, vehicles, equipment, and computer hardware. Exclude materials, parts, and supplies used for repairs and maintenance performed by this firm's employees

e.  Purchased repairs and maintenance to buildings, structures, and offices - Include repair and maintenance to integral parts of buildings (e.g., elevators, heating systems). Exclude materials, parts, and supplies used for repairs and maintenance performed by this firm's employees. Report janitorial and grounds maintenance services in line 4c

Perhaps I am a failure as a business person, but my company does not track expenses in this detail, or at least in these specific categories.   The exercise was not only absurdly time-consuming, it was impossible.  Depending on my mood, I might have just filled it all in with random guesses.   However, even though it is not supposed to be used this way, I couldn't shake the sense that someone someday might try to use it to compare against my tax returns (which are prepared quite carefully and accurately) and try to raise red flags.  So I left it all blank.  I will be interested to see how they respond.

Great Moments in Regulation

Here is what you are paying your government to spend time on:

The age-old question has finally been answered: No, Snuggies are not clothing.

Earlier this month, a federal court ruled that Snuggies, the As Seen on TV 'blanket with sleeves', should be classified as blankets, and live as a separate entity from robes or priestly vestments.

The ruling followed the Justice Department's argument that Snuggies are apparel and not blankets, so they should be 'subjected to higher duties than blankets', reports Bloomberg.

Judge Mark Barnett of the Court of International Trade said during the trial that the Customs and Border Protection was in the wrong to classify Snuggies as apparel. Barnett cited the Snuggies' use of marketing as a blanket, specifically referencing its packaging with the phrase, "The Blanket With Sleeves!".

The judge added that those who purchase Snuggies may likely be "in the types of situations one might use a blanket; for example, while seated or reclining on a couch or bed, or outside cheering a sports team."

In Barnett's opinion, the addition of sleeves 'was not enough' to have the Snuggie be considered a piece of clothing. He added the use of sleeves allowed the Snuggie "to remain in place and keep the user warm while allowing the user to engage in certain activities requiring the use of their hands."

More so, Judge Barnett rejected the idea a Snuggie may also be similar in fashion to priestly vestments or scholastic robes which also use wide sleeves and a loose fit around the body. In his ruling, the judge argued that robes open from the front, and priestly vestments and scholastic robes have no opening on either side, so the role of a Snuggie as a garment is invalid.

California: Easy to Love, Impossible to Do Business In

California is beautiful.  Many parts have great weather.  There are a lot of smart people there and some good schools.  Both my kids live there right now, though it is really expensive given the state and local governments' propensity to take many steps to limit the supply of housing.

But it is simply impossible to do business in.  Every single legislative session brings a series of new time-consuming and expensive regulatory requirements.  Despite California having some of the best recreation spots in the world, we have systematically reduced our business in California by 50%, and I have a moratorium in place on accepting new business (I won't even look at RFP's and proposals to avoid being tempted.)  I wrote about this process a number of times, including here.

This week, Hans Bader covers this ground and more in his article about businesses fleeing California to places like Texas.

It does not surprise me that service industries, particularly those that provide high-margin services to the wealthy, stay in California -- service businesses have to be close to their customers.  But it always blows me away when I see anyone manufacturing in California.  Why?  Move over the border into Nevada or Arizona or Mexico and costs go down a lot without any real increase in logistics costs.  California does not even want you there -- I am convinced they achieve most of their environmental goals merely by chasing folks over the border, exporting these issues rather than solving them.

Diesel Emissions Cheating, Regulation, and the Crony State

One of my favorite correspondents, also the proprietor of the Finem Respice blog, sent me a note today about my article the other day about cheating on diesel emissions regulations.   The note covers a lot of ground but is well worth reading to understand the crony-regulatory state.  They begin by quoting me (yes, as I repeat so often, I understand that "they" is not grammatically correct here but we don't have a gender-neutral third person pronoun and so I use "they" and "their" as substitutes, until the SJW's start making me use ze or whatever.)

"My thinking was that the Cat, Cummins, and VW cheating incidents all demonstrated that automakers had hit a wall on diesel emissions compliance -- the regulations had gone beyond what automakers could comply with and still provide consumers with an acceptable level of performance."

Exactly. More importantly, the regulators KNEW it. I was researching energy shorts and had a ton of discussions with former regulatory types in the U.S. I was stunned to discover that there was widespread acknowledgement on the regulatory side that many regulations were impossible to comply with and so "compliance trump cards" were built into the system.

For instance, in Illinois you get favorable treatment as a potential government contractor if you "comply" with all sorts of insane progressive policy strictures. "Woman or minority owned business" or "small business owner", as an example. Even a small advantage in the contracting process for (for example) the State of Illinois puts you over the edge. Competitors without (for instance) the Woman or Minority Owned Business certification would have to underbid a certified applicant by 10-15% (it's all a complex points system) to just break even. It got so bad so quickly that the regs were revised to permit a de minimis ownership (1%). Of course, several regulatory lawyers quickly made a business out of offering minority or women equity "owners" who would take 1% for a fee (just absorb how backwards it is to be paying a fee to have a 1% equity partner) with very restrictive shareholder agreements. Then it became obvious that you'd get points for the "women" and "minority" categories BOTH if you had a black woman as a proxy 1% "owner." There was one woman who was a 1% owner of 320 firms.

Some of my favorites include environmental building requirements tied to government contract approval. The LEED certification is such a joke. There are a ton of "real" categories, like motion detecting lights, solar / thermal filtering windows, CO2 neutral engineering. But if you can't get enough of that, you can also squeeze in with points for "environmental education". For instance, a display in the lobby discussing the three solar panels on the roof, or with a pretty diagram of the building's heat pump system. You can end up getting a platinum LEED certification and still have the highest energy consumption density in the city of Chicago, as it turns out.

U.S. automakers have been just as bad. There's been a fuel computer "test mode" for emissions testing in every GM car since... whenever. Also, often the makers have gotten away with "fleet standards" where the MPG / emissions criteria are spread across the "fleet." Guess how powerful / "efficient" the cars that get sent to Hertz or Avis are.

Like so many other things in the crony capitalist / crudely protectionist United States, (e.g. banking prosecutions) foreign firms will get crucified for industry-wide practices.

Gee, I wonder if state-ownership of GM has been a factor in sudden acceleration / emissions prosecutions?

BTW, I wrote about the silliness of LEED certification here, among other places, after my local Bank of America branch got LEED certified, scoring many of their points by putting EV-only spaces (without a charger) in the fron of the building.  In a different post, I made this comparison:

I am not religious but am fascinated by the comparisons at times between religion and environmentalism.  Here is the LEED process applied to religion:

  • 1 point:  Buy indulgence for $25
  • 1 point:  Say 10 Our Fathers
  • 1 point:  Light candle in church
  • 3 points:  Behave well all the time, act charitably, never lie, etc.

It takes 3 points to get to heaven.  Which path do you chose?

As Predicted By Coyote Over a Year Ago, Other Car Manufacturers Have An Emissions Cheating Problem

Back in November of 2015 I wrote:

I would be stunned if the Volkswagen emissions cheating is limited to Volkswagen.  Volkswagen is not unique -- Cat and I think Cummins were busted a while back for the same thing.  US automakers don't have a lot of exposure to diesels (except for pickup trucks) but my guess is that something similar was ubiquitous.

My thinking was that the Cat, Cummins, and VW cheating incidents all demonstrated that automakers had hit a wall on diesel emissions compliance -- the regulations had gone beyond what automakers could comply with and still provide consumers with an acceptable level of performance.

So we have this:

U.S. environmental regulators accused Fiat Chrysler Automobiles NV of using software that allowed illegal emissions in diesel-powered vehicles, the latest broadside in an unprecedented government crackdown on auto makers for alleged pollution transgressions.

The Environmental Protection Agency, days before the end of the Obama administration, delivered a violation notice to Fiat Chrysler accusing the auto maker of using illegal software that allowed 104,000 recent diesel-powered Jeep Grand Cherokee sport utilities and Ram pickup trucks to spew toxic emissions beyond legal limits. The affected vehicles have model years ranging between 2014 and 2016.

Regulatory compliance can be a royal pain in the *ss, but I comply with everything I know about and can figure out in my own business.  There just is no percentage in cheating.  Where regulation has made my business untenable, such as in certain parts of California, I have closed the affected parts of the business.

So if I see no good reason to cheat in my own business when the rents for doing so would flow directly into my own pocket, how in the hell do middle managers on a salary with little or no share in the marginal profitability gains of the company convince themselves to take these risks?

When You Come Here, Please Don't Vote for the Same Sh*t That Ruined the Place You Are Leaving

From the WSJ:

Americans are leaving the costliest metro areas for more affordable parts of the country at a faster rate than they are being replaced, according to an analysis of census data, reflecting the impact of housing costs on domestic migration patterns.

Those mostly likely to move from expensive to inexpensive metro areas were at the lower end of the income scale, under the age of 40 and without a bachelor’s degree, the analysis by home-tracker Trulia found.

Looking at census migration patterns across the U.S. from 2010 to 2014, Trulia analyzed movement between the 10 most expensive metro areas—including all of coastal California, New York City and Miami—and the next 90 priciest metro areas, based on the percentage of income needed to pay a monthly mortgage on a typical home.

I can't tell you now many people I know here in Arizona that tell horror stories about California and how they had to get out, and then, almost in the same breath, complain that the only problem with Arizona is that it does not have all the laws in place that made California unlivable in the first place.  The will say, for example, they left California for Arizona because homes here are so much more affordable, and then complain that Phoenix doesn't have tight enough zoning, or has no open space requirements, or has no affordability set-asides, or whatever.  I am amazed by how many otherwise smart people cannot make connections between policy choices and outcomes, preferring instead to judge regulatory decisions solely on their stated intentions, rather than their actual effects.

What Uber Drivers Seeking Minimum Wage Are Missing

Via Engadget:

Uber drivers have won an employment tribunal case in the UK, making them entitled to holiday pay, paid rest breaks and the National Minimum Wage. The ride-hailing company has long argued that its chauffeurs are self-employed contractors, not employees; the tribunal disagreed, however, setting a major precedent for the company and its relationship with workers. GMB, the union for professional drivers in the UK, initiated the two "test cases" in July. It's described the decision as a "monumental victory" that will impact "over 30,000 drivers" in England and Wales.

"Uber drivers and thousands of others caught in the bogus self-employment trap will now enjoy the same rights as employees," Maria Ludkin, GMB's legal director said. "This outcome will be good for passengers too. Properly rewarded drivers are the same side of the coin as drivers who are properly licensed and driving well maintained and insured vehicles."

This misses a couple of things

  1. This might well kill Uber, such that the only "victory" here is that drivers have one less employment option and choice of work style.  The latter is perhaps the most important -- why does every single job have to be punch-in-punch-out with standard benefits and holidays and work hours and work rules?  Why is there no room for a diversity of work experiences from which to choose?
  2. One of the things that many Uber drivers like about Uber is that there are no set work hours or productivity expectations.  Well, that goes out the window with these rules.  Today, if Uber pays drivers only based on what they work, they don't really care how hard they work or how many jobs they take or where they choose to cruise or even if they choose to cruise at unproductive hours, like 5AM.  Currently, if you want to drive back and forth on a country lane at 4:30AM waiting for a fare, you can go for it -- you are taking the risk.  But if the company is paying minimum wage per hour, everything changes.  Suddenly they must now demand minimum productivity expectations, which will include limits on working in unproductive locations or at unproductive hours.  The company will start to rank drivers and cut the lowest productivity / lowest activity ones.

I went into these issues in more depth here.

Your Good Intentions Mean Virtually Nothing

I am exhausted with folks, particularly on the Progressive Left, judging themselves and each other based on their intentions.  Your intentions mean virtually nothing.  I suppose it is better to have good intentions than bad, but beyond that results, particularly in the public policy arena, are what should matter.  And the results of most Progressive well-intentioned legislation are generally terrible.  For example, as I wrote earlier today, poverty in this country is mainly caused by lack of work rather than low wage hours, but Progressives preen over their good intentions in introducing higher and higher minimum wages that will only serve to reduce the work hours of low-skilled poor people.

Via Mark Perry comes this great article on Progressive good intentions in Seattle collapsing into rubble.  It does not except well, so I recommend you check it out, but I will summarize it.

Begin with a libertarian goal that should be agreeable to most Progressives -- people should be able to live the way they wish.  Add a classic Progressive goal -- we need more low income housing.  Throw in a favored Progressive lifestyle -- we want to live in high density urban settings without owning a car.

From this is born the great idea of micro-housing, or one room apartments averaging less than 150 square feet.  For young folks, they are nicer versions of the dorms they just left at college, with their own bathroom and kitchenette.

Ahh, but then throw in a number of other concerns of the Progressive Left, as administered by a city government in Seattle dominated by the Progressive Left.  We don't want these poor people exploited!  So we need to set minimum standards for the size and amenities of apartments.  We need to make sure they are safe!  So they must go through extensive design reviews.  We need to respect the community!  So existing residents are given the ability to comment or even veto projects.  We can't trust these evil corporations building these things on their own!  So all new construction is subject to planning and zoning.  But we still need to keep rents low!  So maximum rents are set at a number below what can be obtained, particularly given all these other new rules.

As a result, new micro-housing development has come to a halt.  A Progressive lifestyle achieving Progressive goals is killed by Progressive regulatory concerns and fears of exploitation.  How about those good intentions, where did they get you?

The moral of this story comes back to the very first item I listed, that people should be able to live the way they wish.  Progressives feel like they believe this, but in practice they don't.  They don't trust individuals to make decisions for themselves, because their core philosophy is dominated by the concept of exploitation of the powerless by the powerful, which in a free society means that they view individuals as idiotic, weak-willed suckers who are easily led to their own doom by the first clever corporation that comes along.

Postscript:  Here is a general lesson for on housing affordability:  If you give existing homeowners and residents the right (through the political process, through zoning, through community standards) to control how other people use their property, they are always, always, always going to oppose those other people doing anything new with that property.  If you destroy property rights in favor of some sort of quasi-communal ownership, as is in the case in San Francisco, you don't get some beautiful utopia -- you get stasis.  You don't get progressive experimentation, you get absolute conservatism (little c).  You get the world frozen in stone, except for prices that continue to rise as no new housing is built.  Which interestingly, is a theme of one of my first posts over a decade ago when I wrote that Progressives Don't Like Capitalism Because They Are Too Conservative.

Postscript #2:  So, following the logic above, one can think of building restrictions and zoning as a form of cronyism.  Classic cronyism is providing subsidies to politically favored companies and restricting the ability of new competitors to arise to compete with them, granting them an effective monopoly and the ability to jack up their prices.  So what do we do with housing?  We give massive subsidies to home-owners and restrict competition from new housing that might reduce their home value, thus granting current homeowners an effective monopoly and the ability to jack up their prices.  I challenge anyone to tell me that rising home prices in Palo Alto are not driven by the exact same government actions for favored constituents as are rising prices for Epipens.

Postscript #3:  I will ask a question using Progressive terminology -- you were worried about these young renters and their power imbalance vs. development companies and landlords.  So how much more powerful are they now with a thousand fewer rental units on the market?  Consumers have power when supply is plentiful.  Anything done to reduce supply is going to reduce consumer power.

Will Aspirin Become the Next Epipen?

Aspirin is grandfathered from all the FDA silliness, right?  That's what I thought until this:

But if the FDA gets its way, nitroglycerin will not be obtainable for pennies. The situation was stable until Pfizer went through the time and expense required to test its particular version of nitroglycerin, Nitrostat, which the FDA approved in 2000. Once the FDA did that, other versions became officially "unapproved." In 2010, the FDA sent warning letters to two companies, Glenmark and Konec, ordering them to cease marketing their versions of nitroglycerin, known as sublingual nitroglycerin tablets, leading to the New York Times headline above. The article quotes Dr. Harry M. Lever, a cardiologist at the Cleveland Clinic, who said, "If it's not approved and no one has tested it, we can't be sure that it's safe and effective." He added that if patients with angina took substandard or ineffective nitroglycerin tablets, their pain might not subside and the problem could potentially progress to a heart attack.

His statement is false. The unapproved versions have been tested in three important ways: the companies that manufacture these drugs thoroughly vet them to make sure that they are pure and offer a consistent dose of nitroglycerin; these marketed drugs have been tested in the bodies of millions of Americans in regular medical practice over many years; and many different organizations have tested nitroglycerin in countless clinical trials.

I can't think of anything about the situation in nitroglycerin that doesn't obtain for aspirin.  By this, all it would take would be for one company to have the cojones and cash to get FDA approval for their aspirin and they might be able to wield a monopoly.

Perfect Example of Blaming the Free Market for Government Interventions

Hillary Clinton, along with many politicians and most of the media, is arguing that the recent large price increase in Epipens is some sort of market failure requiring government intervention to solve.

Democratic presidential nominee Hillary Clinton jumped into the fray over rapid price increases for the EpiPen, a life-saving injection for people who are having severe allergic reactions.

Mrs. Clinton called the recent price hikes of the EpiPen “outrageous, and just the latest example of a company taking advantage of its consumers.”

In a written statement calling for Mylan to scale back EpiPen prices, Clinton added, “It’s wrong when drug companies put profits ahead of patients, raising prices without justifying the value behind them.”

Why aren't similar government interventions required to curb greed in the pricing of paint, or tacos, or toilet paper?  Because the markets are allowed to operate and competitors know that if they raise prices too high, their existing competitors will take sales from them, and new competitors may enter the market.  The reason this is not happening with Epipens is that the Federal government blocks other companies from competing with Mylan for the Epipen business with a tortuous and expensive and pointless regulatory process (perhaps given even more teeth because Mylan's CEO has a lot of political pull).  The MSNBC article fails to even mention why Mylan has no competition, and in fact essentially assumes that Epipens are a natural monopoly and should be treated as such, despite the fact that there are 3 or 4 different companies that have tried (and failed) to clear the regulatory process over the last several years with competing products.  Perhaps these other companies would have been smarter to appoint a Senator's daughter to a senior management position.

Hillary Clinton is proposing a dumb government intervention to try to fix some of the symptoms of a previous dumb government intervention.  It would be far better to work the root cause instead.

Postscript:  Credit Vox with the stupid argument of the day:  

Other countries do this for drugs and medical care – but not other products, like phones or cars – because of something fundamentally unique about medication: If consumers can’t afford the product, they could have worse odds of living. In some cases, they face quite certain odds of dying. So most governments have decided that keeping these products affordable is a good reason to introduce more government regulation.

Hmm, let me pick a slightly different example -- food.  I will substitute that into the Vox comment.   I think it would be perfectly correct to say that there is not price regulation of food in the US, and that "If consumers can’t afford [food], they could have worse odds of living. In some cases, they face quite certain odds of dying."  In fact, the best place today to face high odds of dying due to lack of food is Venezuela, where the government heavily regulates food prices in the way Vox wished to regulate drugs prices.

Stupid Regulatory Games

The US Government has various rules on insurance companies that include a notification requirement if they are not going to renew a policy.  However, apparently this requirement is for a date earlier than most insurance companies have made their annual underwriting decisions (in my case often because I have not gotten them all the information they need).  So every year, like clockwork, I get notices on all my business insurance policies that they are not going to renew, and then like clockwork they (mostly) all renew.  Insurance companies comply by sending, it appears, everyone a non-renewal notice.  That way, they can't get in trouble for not informing you in time on the off-chance it actually does not renew.  So in practice, the regulatory requirement is both expensive and worthless.

Actually, it is worse than worthless, as the two times I was non-renewed for a policy it was impossible to differentiate their actual warnings that I might have an underwriting problem from these pro forma ones.  By forcing insurance companies to cry "wolf" constantly, I missed the real dangers.

A Reliable Marker of Socialism: Politicians Accusing Private Individuals of "Hoarding"

When socialists destroy markets, shortages inevitably follow.  The current situation in Venezuela is a great example, where just about everything from food to toilet paper has disappeared off store shelves.   Rather than take a step back and say, "Wow, our policies sure have created a mess," socialists inevitably blame the shortages they created on private individuals.  Nothing says "I am a socialist" like a politician denouncing their citizens for hording.

Here is today's example from the state of New York.  New York has totally screwed up its real estate markets by making it nearly impossible to build new housing and putting rent controls on the housing that exists.  Which has inevitably led to shortages.  Which is of course blamed by politicians on individuals who are "hoarding"

State Assemblywoman Linda Rosenthal, one of the [anti Airbnb] bill's sponsors, disagrees, claiming that it targets "people or companies with multiple listings. There are so many units held by commercial operators, not individual tenants. They are bad actors who horde multiple units, driving up the cost of housing around them and across the city."

Government vs. Government, Gender War Edition

A while back I joked that the SJW's should stop the recent proposed rules to greatly expand corporate race and gender reporting (the current EEO-1 report) because the Feds only provide two categories (male and female) for gender.

As it turns out, this might actually be a real problem in New York

The NYCHRL [New York City Human Rights Law] requires employers[, landlords, and all businesses and professionals] to use an [employee’s, tenant’s, customer’s, or client’s] preferred name, pronoun and title (e.g., Ms./Mrs.) regardless of the individual’s sex assigned at birth, anatomy, gender, medical history, appearance, or the sex indicated on the individual’s identification.

Most individuals and many transgender people use female or male pronouns and titles. Some transgender and gender non-conforming people prefer to use pronouns other than he/him/his or she/her/hers, such as they/them/theirs or ze/hir. [Footnote: Ze and hir are popular gender-free pronouns preferred by some transgender and/or gender non-conforming individuals.] …

Examples of Violations

a. Intentional or repeated refusal to use an individual’s preferred name, pronoun or title. For example, repeatedly calling a transgender woman “him” or “Mr.” after she has made clear which pronouns and title she uses …

So the Feds require me to categorize an employee as a male or female but New York makes it illegal to do so if the employee does not want to be in one of those categories.   Hmmm.

 

Minimum Wage Pits Employees vs. Customers, Not Employees vs. Management

This post earlier on the customer service downsides of the new salaried overtime rules got me thinking more broadly about the impact of minimum wage type laws.  Progressives justify such laws by saying that there is a power imbalance between management and employees, and that the government needs to have minimum wage laws to make up for the fact that employees lack power.

But from my experience in the service world, it is wrong to look at the situation as a power struggle between managers and employees.  It is much more correct to look at this as a power struggle between employees and customers.  Let me explain.

Service and retail firms tend to live on razor-thin margins.  Retailers typically live on single-digit profit margins, and those of companies like Wal-Mart are as low as 2% of revenues.  Our company in the service business has a similar experience, averaging profit margins of 3-5% of revenues over the last 10 years.

This is not an accident.  Most service and retail businesses depend on simple service-delivery models using relatively low-skilled workers.  There are many low-skilled workers in the world.  If a company were to start making huge profits with a service model using such workers, it would be easy for others to copy it and hire the same types of workers and undercut them on price.  Margins tend to get competed down to the bare minimum.

No matter how much progressives would like it to be so, when California raises its minimum wage, it probably is not going to come out of company margins, at least in the near term.  Over the 10 years from about 2013 to 2022, California will have raised its minimum wage over 87% from $8 an hour to $15.  Wages and costs like workers comp premiums that are tied to wages are about half my costs.  This means an 87% labor cost increase will increase my total costs 44%.  How is that going to come out of a 4% margin?  It is not.

There are really only two things we can do, individually or in combination.  First, we can raise prices 44%, just to try to stay even.  Of course, some customers will balk and stop buying, and then we will lose business and perhaps have to close (we have already closed over half our businesses in California for just this reason).  Or second, we could cut staff in half to keep wages under control.  Of course, this means customers get served much more poorly, which also may drive customers away.  Other companies like fast food restaurants have a third option of automation, replacing people with machines -- I wish we could do this but right now we have run out of ideas for automating bathroom cleaning and landscape work.

Hopefully, you can see what is going on here.  The real tension here is between employees and customers.  When the state mandates a minimum wage in low margin service businesses (such laws are largely irrelevant to high-margin technology companies and such), compliance is paid for by the customer, either in the form of higher prices or worse service or both.

The Customer Service Downside to the New Federal Overtime Rules

I and others have written a number of times about the many downsides to new Federal rules that will force most junior salaried managers to start punching a timeclock.

I run a service business and these rules affect us substantially.  Like many retail operations, we have hourly employees who work for a local manager who is salaried and generally earns less than the new $47,476 annual cutoff.   We are not entirely sure how we are going to comply, but in the near-term compliance will likely involve a combination of hard hour limits for managers, some devolution of manager tasks to minimum wage workers, and price increases to customers.  In the long-term, we may have to consolidate manager positions.

But there is one additional change that is almost certainly going to occur -- a reduction in customer service.  To understand why that is, you need to understand the retail and services world.

In the service world, sh*t happens.  The ice machine suddenly breaks.  An important worker just does not show up.  A customer complains that no one is cleaning the bathroom.  Because of razor thin margins, service work loads are carefully scheduled.  There simply is not a lot of slack.  So when something unusual happens, it is usually the local manager who takes up the slack.  They fix the problem, somehow, even if it means they have to clean the bathroom themselves.  Not one of my managers has bathroom cleaning as part of their duties, but every single one of them likely cleans bathrooms every month, because they are covering the performance gaps left by other employees.

When managers are subject to overtime, this changes.  We only get 40 hours a week of that person's time (at least at a reasonable rate) and so every hour must count.  Every hour must suddenly be carefully husbanded and spent only on value-added tasks, like balancing the register and merchandising the shelves.  We can't waste them on the manager covering for employee shortcomings.

So who will clean the bathroom when the employee assigned to do so fails?  Who will cover the second register when an employee just does not show up for work?  Who will expedite the ice machine replacement so customers don't have to go long without ice?  I don't know.  Maybe nobody.  Or at least nobody as long as prices charged to customers aren't raised substantially.

Postscript:  If you are not in retail or a service business, you may read this and say, "well, if you hired better workers, they would be more reliable and you wouldn't have to cover for them."  I have two responses.  First, only someone who never worked retail could say that.  People are individuals and have their own needs and lives, and those sometimes conflict with getting the job done, no matter how well we screen.

Second, let me tell a story from this last weekend when I was at the graduation ceremony for Amherst College.  Amherst could reasonably be considered among the 10 most selective schools in the nation.   It is consistently ranked as the #1 or #2 small liberal arts college in the nation.  This weekend they selected an outstanding student from this outstanding bunch to make a presentation at graduation.  In it, she told a story of never, ever being able to get to a certain class, that is held at 12:30 in the afternoon, on time.  She said she was late every single time.   This is supposedly one of the elite young people in the country who would never even consider accepting a "menial" service job with my company, but never-the-less can't get to a class on time.

Why Don't Progressives Use Their Power as Hedge Fund Customers to Challenge Hedge Fund Compensation?

Kevin Drum observes that the top 25 hedge fund managers earned $13 billion in total, including one hapless dude who made $250 million despite losing money and shutting down the fund.

I will say that I have always scratched my head over asset manager compensation.  The tradition is that they get paid as a percentage of assets managed, sometimes with a percentage of the profits as well but never taking a percentage of the losses.   Perhaps this made some sense with smaller pools of money, but today with huge pools of money, the same old percentages yield ludicrous compensation results.  I certainly understand why the managers would defend this compensation scheme, but why do customers accept it?

This reminds me of real estate broker compensation.  The tradition when I grew up is that the seller paid 6%, about half of which went to the seller's broker and half to the buyer's broker.  For years that 6% was etched in stone and no one broke ranks -- the agents were pretty good at maintaining the cartel, and the government helped by putting the force of law behind broker licensing that helped keep the agent supply down.  But as home prices kept increasing, people started noticing that while 6% of $100,000 may have made some sense as reasonable compensation, 6% of $2 million was absurd, especially since a $2 million home was not even close to 20x harder to sell.   So people, initially savvy high net worth folks, and later everyone, began negotiating the 6%.  I have negotiated this number on every home I have sold since the mid-1990s.

I am not really knowledgeable about the asset management business -- in some sense I have negotiated my commission by choosing to put all my money in low-fee Vanguard funds.  How does the asset management business hold the line on fees, particularly when they are in a business where it is so easy to measure their relative performance, and presumably pay them based on this performance?

Which got me to thinking about the customers of hedge funds.  Aren't many of these customers progressive or controlled by progressives?  Hedge funds have been very successful marketing to university endowments, non-profit foundations, and public pension funds -- aren't these institutions often controlled by progressives, or at least left-liberals?  Aren't a disproportionate share of the very high net worth Hollywood and billionaire types who invest in hedge funds also progressive or liberal?  Heck, Hillary Clinton's son-in-law ran a hedge fund until recently.  So why don't these folks get together and instead of worrying about whether their portfolios are invested in Israel or Exxon or some other progressive bette noir, why don't they agree to a set of principles as to how they are going to pay for their asset management services in the future, and stick to these?  I say that progressives should get together, because they are politically passionate about this, but I can't think of any good reason why good libertarians or conservatives wouldn't happily join in to reduce their fees.

I understand that to the extent that there are black swan hedge funds that beat the market year in and year out, these folks will be hard to challenge as they can probably write their own terms.  But for the other 99% of hedge funds, why not use the power progressives already have as customers before we start talking about various government hammers.

PS-  I will put my two cents in.  I think the new Mother Jones site design is awful.

So @tylercowen, You Want to Understand the Great Stagnation? Here It Is

Certainly the government's current permission-based approach to business regulation combined with an overt hostility of government (or at least those parties that influence it) to radically new business models (see: Uber) is a big part of the great stagnation story.

But insanity like this is also a big part:

Vague but expensive-if-not-correct rules on employee seating just got vaguer and harder to figure out

Weighing in on two California laws that require employers to provide suitable seating to workers when “the nature of the work” permits it, the California Supreme Court said the phrase refers to an employee's tasks performed at a given location for which the right to a suitable seat is asserted.

In response to questions certified by the U.S. Court of Appeals for the Ninth Circuit, the state high court said April 4 that the phrase “nature of the work” doesn't require a holistic evaluation of the full range of an employee's tasks completed during a shift.

An employer's business judgment and the layout of the workplace are relevant in determining whether sitting is permitted, but courts should apply an objective analysis based on the totality of the circumstances, the California Supreme Court said.

It held that “if an employer argues there is no suitable seat available, the burden is on the employer to prove unavailability.”

As a business owner in California, I am going to have to do a ton of research to figure out just how we can comply with all this, and even then I will likely be wrong because whether one is in compliance or not is never actually clear until it is tested in court.  I had to do the same thing with California meal break law (multiple times), California heat stress law, new California harassment rules, California sick leave rules, the California minimum wage, Obamacare rules, Obamacare reporting, the new upcoming DOL rules on salaried employees, etc.

Five or ten years ago, I spent most of my free time thinking about improving and growing the business.  Now, all my mental bandwidth is consumed by regulatory compliance.  I have not added a new business operation for years, but instead have spent most of my time exiting businesses in California.  Perhaps more important is what I am doing with my managers.  My managers are not Harvard MBAs, they are front-line blue collar folks who have been promoted to manager because they have proven themselves adept at our service process.  There are only a finite number of things I can teach them and new initiatives I can give them in a year.  And instead of using this limited bandwidth to teach some of the vital productivity enhancement tools we should be adopting, I spend all my training time on compliance management issues.

Thank God We Don't Have Cable Neutrality

Time Warner Cable, the owners of the Dodgers local broadcast rights is continuing to battle with local cable channels to be added to their cable package.  Like last year, it appears that no deal will be forthcoming and the Dodgers (and perhaps more disheartening, Vin Scully in his last year) won't be on many TV sets this summer in LA.  Kevin Drum essentially says bravo to the cable companies for opposing the Dodgers bid to jack up basic cable rates in the area.

Boo hoo. They tried everything—everything, I tell you. Except, of course, for the one thing that would have worked: the right to make the Dodgers an extra-cost option, not part of basic cable. Most cable operators see no reason that every television viewer in the LA basin should have to pay 60 bucks a year more in cable fees regardless of whether or not they care about baseball.

And that's the one thing TWC won't do. Why? Because then it will become crystal clear just how few households actually care enough about the Dodgers to pay for them. And that would truly be a disaster beyond reckoning. There's a limit to the amount of sports programming that people are willing to have crammed down their throats!

I actually agree with him, and will add that it is always great to see a progressive acknowledge consumers do actually exercise accountability on businesses.

But I will observe that had we adopted cable neutrality rules** as we have for net neutrality, the cable companies would have found it impossible, or at least much more difficult, to oppose carriage by a pushy and expensive content provider.  It is this sort of intra-supply-chain tug of war that generally benefits consumers in the long run (as it has in LA, at least for Drum) that is essentially outlawed by net neutrality rules which basically declare content providers the victors by default.  As I wrote before:

Net Neutrality is one of those Orwellian words that mean exactly the opposite of what they sound like.  There is a battle that goes on in the marketplace in virtually every communication medium between content creators and content deliverers.  We can certainly see this in cable TV, as media companies and the cable companies that deliver their product occasionally have battles that break out in public.   But one could argue similar things go on even in, say, shipping, where magazine publishers push for special postal rates and Amazon negotiates special bulk UPS rates.

In fact, this fight for rents across a vertical supply chain exists in virtually every industry.  Consumers will pay so much for a finished product.  Any vertical supply chain is constantly battling over how much each step in the chain gets of the final consumer price.

What "net neutrality" actually means is that certain people, including apparently the President, want to tip the balance in this negotiation towards the content creators (no surprise given Hollywood's support for Democrats).  Netflix, for example, takes a huge amount of bandwidth that costs ISP's a lot of money to provide.  But Netflix doesn't want the ISP's to be be able to charge for this extra bandwidth Netflix uses - Netflix wants to get all the benefit of taking up the lion's share of ISP bandwidth investments without having to pay for it.  Net Neutrality is corporate welfare for content creators....

I am still pretty sure the net effect of these regulations, whether they really affect net neutrality or not, will be to disarm ISP's in favor of content providers in the typical supply chain vertical wars that occur in a free market.  At the end of the day, an ISP's last resort in negotiating with a content provider is to shut them out for a time, just as the content provider can do the same in reverse to the ISP's customers.  Banning an ISP from doing so is like banning a union from striking.

** Footnote:  OK, we sortof did have cable neutrality in one respect -- over the air broadcasters were able to obtain crony legislation that cable companies had to carry every locally broadcast channel.  So that channel 59 that you never bothered to watch now get's equal treatment with the NBC affiliate.   This was a huge boon for these stations, and the value of these often tiny stations exploded with this must-carry rule.  Essentially they were given an asset for free, ie position in a cable lineup, that other competitors had to fight for.

Al Gore, as an aside, actually became rich with exactly this game.   It is hard to fight your way into a cable lineup nowadays.  Al Gore did it with this Current TV startup based on his name and a promise of a sort of MTV for politics.  The channel went nowhere and lost a lot of money, but it now had one valuable asset -- placement in cable TV lineups.  So it sold this asset to Al Jazzera, which had struggled to get placement.

Net Neutrality: I Told Your So

From the WSJ (emphasis added):

Netflix now admits that for the past five years, all through the debate on net neutrality, it was deliberately slowing its videos watched by users on AT&T and Verizon’s wireless networks. The company did so for good reason—to protect users from overage penalties. But it never told users at a time when Netflix was claiming carriers generally were deliberately slowing its service to protect their own TV businesses—a big lie, it turned out.

All this has brought considerable and well-deserved obloquy on the head of Netflix CEOReed Hastings for his role in inviting extreme Obama utility regulation of the Internet. Others deserve blame too. Google lobbied the administration privately but was too chicken to speak up publicly against utility regulation.

But Netfix appears to have acted out of especially puerile and venal motives. Netflix at the time was trying to use political pressure to cut favorable deals to connect directly to last-mile operators like Comcast and Verizon—a penny-ante consideration worth a few million dollars at best, for which Netflix helped create a major public policy wrong-turn.

This is what I wrote about net neutrality a couple of years ago:

Net Neutrality is one of those Orwellian words that mean exactly the opposite of what they sound like.  There is a battle that goes on in the marketplace in virtually every communication medium between content creators and content deliverers.  We can certainly see this in cable TV, as media companies and the cable companies that deliver their product occasionally have battles that break out in public.   But one could argue similar things go on even in, say, shipping, where magazine publishers push for special postal rates and Amazon negotiates special bulk UPS rates.

In fact, this fight for rents across a vertical supply chain exists in virtually every industry.  Consumers will pay so much for a finished product.  Any vertical supply chain is constantly battling over how much each step in the chain gets of the final consumer price.

What "net neutrality" actually means is that certain people, including apparently the President, want to tip the balance in this negotiation towards the content creators (no surprise given Hollywood's support for Democrats).  Netflix, for example, takes a huge amount of bandwidth that costs ISP's a lot of money to provide.  But Netflix doesn't want the ISP's to be be able to charge for this extra bandwidth Netflix uses - Netflix wants to get all the benefit of taking up the lion's share of ISP bandwidth investments without having to pay for it.  Net Neutrality is corporate welfare for content creators....

I am still pretty sure the net effect of these regulations, whether they really affect net neutrality or not, will be to disarm ISP's in favor of content providers in the typical supply chain vertical wars that occur in a free market.  At the end of the day, an ISP's last resort in negotiating with a content provider is to shut them out for a time, just as the content provider can do the same in reverse to the ISP's customers.  Banning an ISP from doing so is like banning a union from striking.