Posts tagged ‘capitalism’

What is the Essence of a Two By Four?

Decades ago, common carpentry practice (later set in stone by written regulations) specified that certain applications needed a 2 inch by 4 inch board.   The reason this board was chosen was not due to its size per se (in most cases, for cost and space issues, I am sure folks would love to have gotten away with something smaller).  This size board was chosen for a specific application by its load-carrying ability.   For example, two inch by four inch boards spaced every 16 inches apart created acceptably strong framing for a wall.

Anyway, after many years of making lumber, the timber and lumber industry found ways to make the 2 inch by 4 inch board much stronger.  Well, not always stronger, but more uniform in strength such that the weakest board in a batch was much closer to the average than before.  But for standards, this has about the same effect -- 2 inch by 4 inch boards could be considered to be much stronger since the expected value had to be set at the minimum that might be encountered.

So now, all the standard applications are over-designed.  We can get away with a smaller, cheaper board than a 2x4.  Or, for those of you less focused on capitalism and more focused on environmentalism, we can use fewer trees to build the same house.  But how do we switch an entire industry that is steeped from birth as to what a 2x4 should be used for?  How do we rewrite a myriad of regulations that all call for a 2x4?

Well, in the lumber industry, they redefined the 2x4 to actually be something like 1.5 x 3.5 actual inches, a board which under new production processes has the same predicted strength as the old 2" by 4" boards.  In effect, they decided that the essence of a 2x4 was not its dimensions, but its load-carrying ability.  Almost any engineer can understand this immediately.  This means we still frame walls with 2x4's spaced every 16 inches, but the lumber is smaller and less expensive than it was before.  Standards and training don't have to change.  Architects maybe had to adjust a bit because their wall widths changed slightly, but a 3.5 inch board width actually is a nice number because with sheets of 3/4 inch drywall on both sides it makes for a nice round number 6" thick wall.

All of this is background to this absurd story, that some moronic trial lawyer is using this history to try to commit legal blackmail against a couple large home store chains (via Overlawyered):

Two home improvements stores are accused of deceiving the buyers of four-by-four boards, the big brother to the ubiquitous two-by-four.

The alleged deception: Menards and Home Depot (HD) market and sell the hefty lumber as four-by-fours without specifying that the boards actually measure 3½ inches by 3½ inches.

The lawsuits against the retailers would-be class actions, filed within five days of each other in federal court for the Northern District of Illinois. Attorneys from the same Chicago law firm represent the plaintiffs in both cases. Each suit seeks more than $5 million.

“Defendant has received significant profits from its false marketing and sale of its dimensional lumber products,” the action against Menards contends.

“Defendant’s representations as to the dimension of these products were false and misleading,” the suit against Home Depot alleges.

The retailers say the allegations are bogus. It is common knowledge and longstanding industry practice, they say, that names such as two-by-four or four-by-four do not describe the width and thickness of those pieces of lumber.


Arnold Kling on the Evolving State of US Politics

I loved Kling's book on the three languages of politics.  While I find this a bit depressing, I mostly agree

I think that I would have preferred that the elite stay “on top” as long as they acquired a higher regard for markets and lower regard for technocratic policies. What has been transpired is closer to the opposite. There was a seemingly successful revolt against the elite (although the elite is fighting back pretty hard), and meanwhile the elite has doubled down on its contempt for markets and its faith in technocracy.

I am disturbed about the news from college campuses. A view that capitalism is better than socialism, which I think belongs in the mainstream, seems to be on the fringe. Meanwhile, the intense, deranged focus on race and gender, which I think belongs on the fringe, seems to be mainstream.

The media environment is awful. Outrage is what sells. Moderation has fallen by the wayside.


RIP Michael Novak

This is probably not someone readers would expect me to honor, but way back when I was 19 my first college internship was working for Michael Novak at AEI.  Mr. Novak was a friend of my dad's, and I always secretly wonder if my dad saw that I was migrating away from traditional Conservatism and thought some time with Mr. Novak would head this off.

I ended up going in a different direction from Mr. Novak, but I had an enjoyable summer working with him.  I spent most of my time in the Georgetown University library researching papal encyclicals and commentary on them.  For someone who grew up around much more fundamentalist religions in the South, the more overt intellectualism of Catholic writing was fascinating.  I learned a lot, and Mr. Novak was as kind and generous as someone could possibly be.  He did a lot to defend capitalism in a world where it was increasingly questioned, and even if I have very different epistemology than he, I thank him for his work.

If The US Won't Defend Market Capitalism, No One Will

Yesterday at an event called One Day University, I saw a talk by William Burke-White of Penn and formerly of the Obama state department (I think he was one of many consultants, but I can never figure out seniority from people's biographies - his is here).

Mr. Burke-White was discussing the liberal world order created by the US after WWII and recent decline / threats to this world order and American power.  He discussed five trends or forces driving changes, and you probably can predicts many of them.  He discussed the rise of new world powers (e.g. China), the rise of powerful NGO's (e.g. ISIS) and the expansion of the Internet (which can destabilize traditional powers).  All fine, I have no particular comment on that stuff.  He also discussed climate change, with a picture of Manhattan underwater, and though I am tempted, I won't even respond to that.

What caught my attention was his fifth point -- about income inequality.  He showed a slide with the meme that 8 people (Warren Buffet et al) had more wealth than something like half the world's population put together.   His conclusion was that the liberal world order had failed because so much wealth had been concentrated in a few hands.

Well, if American power and influence is declining in the world and Mr. Burke-White is an example of the thinking of the Obama administration over the last 8 years, I now have a better understanding of why.   Sure there are really rich people.   There were probably 8 really rich guys in 1400 (though they would have all been Kings and Emperors rather than private business people).  The really different, world-changing event over the last 50 years has been the emergence from poverty of over a billion people, as facilitated by market capitalism.  Never before in all of the history of the planet have so many people been pulled out of poverty in such a short time.  Never before has such a large percentage of the globe moved beyond pure subsistence farming.  If the leaders of this country find it impossible to communicate this simple good news, then of course the post-WWII liberal world order is going to struggle.

Look, I understand that baby boomers (a group of which I am barely a member) have a hard time figuring out how to cope with this country's many past missteps.  Yes, we have been ham-handed (and that is generous) in exercising our power and we have often failed to live up to our stated values.  But helping to unleash a wave of market capitalism on the world is among our true successes.   And this is the US's one true source of power, this wave of prosperity we have helped to birth.  Other supposed sources of our power -- a big military and atomic bombs -- are horrifying.  Market capitalism is our one source of strength that is genuinely positive.  If we are staffing the state department with people who don't get this, then no wonder we are losing influence in the world.

Capitalism vs. Socialism

This is a good video about various voting mechanisms for handling voting between more than 2 choices.

VotingParadoxes from Paul stepahin on Vimeo.  Via Alex Tabarrok

The video is about voting, but to make things simple it discusses voting among people for a single ice cream flavor they all have to share.   I don't think this video was meant to have any broader application beyond just highlighting basic paradoxes and strategies well-known in voting theory.   To me, though, this video highlights the strong advantages of capitalism over socialism in at least three ways

  1. Forcing one-size-fits-all socialist and authoritarian solutions sucks vs. allowing individuals to make choices based on their personal preferences regardless of other preferences in the group.  While the video discusses a variety of voting approaches for forcing everyone into a single choice, all of these result in a lot of folks who don't get their first preference.  Obamacare is a great example, where product features have been standardized, essentially through a voting process (though indirectly) and huge numbers of people are unhappy.
  2. The video fails to discuss one shortcoming of simple yes/no voting, and that is degree of preference.  In the real world, we both may prefer vanilla over chocolate, but your preference might be pretty close whereas I might be so allergic to chocolate that eating it will kill me.  Socialist and authoritarian approaches don't have a solution for this, but market capitalism does, as prices signal not only our preference but our degree of preference as well.  The real market for ice cream is a preference expression process orders of magnitude more sophisticated than voting.
  3. It is almost impossible for even an autocrat who legitimately wants to maximize well-being to do so, because the mass of individual preferences are impossible to encompass in any one mind.  Towards the end of the video, it became harder and harder for a person to synthesize a best approach from the preference data, and this was just for 10 people.  Imagine 300 million preferences.

Bernie Sanders and The Panama Papers

As much as Bernie would like to blame the money laundering and money-hiding in the Panama papers on capitalism, in fact the vast majority of clients in those papers appear to be from socialist and strongly interventionist, populist governments.

Socialist countries tend still have winners and losers just like capitalist countries.  However, those winners and losers are not determined by success in making products and services in the marketplace, but in success in reaching a leadership position in the government or cozying up to those in government.  Soviet government elite had special privileges and special stores not accessible by ordinary Russians.  The Castro brothers and Hugo Chavez's daughter are among the richest people in the western hemisphere.

However, these wealthy leaders now have two problems.  First, they likely spend most of their time spouting egalitarian claptrap, so that they would like to hide their wealth in order to mask the obvious consistency problem.  Perhaps more importantly, their socialist policies have likely destroyed the country's economy -- there is, for example, no place any sane person would want to invest a billion dollars in Venezuela.  They need to get their money out of the country but because everyone else in a socialist country is also trying to get their money out, the self-same leader has likely instituted capital controls.  So the leader needs to put his or her money in a different country where it can actually be invested productively, and in doing so must evade their own capital controls.

On Immigration, Conservatives Sound Just Like Socialists

The other day John Hinderaker of Powerline wrote:

If someone proposes that next year we should import 10,000 unskilled immigrants from Pakistan, the first question we should ask is: why do we need them? But that is the one question that no one ever seems to pose.

This is a terrible question and to my eye shows just how close Conservatives come to accepting many of the assumptions of Socialism.

Socialists seldom think in terms of individuals, but instead talk about the economy as some great big machine that they get to run.  We all remember Bernie Sanders saying

“You don’t necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country”

When Hinderaker is asking if we need more immigrants, or Sanders is asking if we need more deoderant choices, they are both working from an assumption that some authoritarian gets to sit at the top and make these choices for us.

The question "do we need immigrants" is actually senseless. Who is "we"? Who gets to make decisions for "we"? Only a socialist thinks this way. In a free society, the questions that matter are "Do I want to hire this immigrant?" or, as an immigrant, "do I want to take the chance of moving to an unfamiliar country to try to better my life." If I wish to hire someone from another country and they wish to move here and take the job, what the hell does it matter if John Hinderaker thinks this person is "needed"? I have decided I need a certain immigrant for my business, and the immigrant has decided that moving here is a good tradeoff for him.  In capitalism, that should be a done deal.

Could the immigrant or I be wrong about my employment offer being a good idea? Sure.  But authoritarian government second-guessing of individual decisions is supposed to be a progressive-socialist game, and here is a prominent Conservative doing exactly the same thing.  If Bernie Sanders wanted to require me to get government permission to produce a new flavor of deodorant, Hinderaker would be outraged.  But never-the-less he similarly wants me to get government permission (actually he wants to deny me government permission) to hire the employee I want to hire.

All this "Amercan jobs for Americans" thing may sound nice, and get head nods at the local Rotary, but what it actually means is that individual business people like myself have to be limited to hiring from a government-approved list.  Doesn't sound much like the free markets and small government Conservatives claim to want.

Hinderaker quotes approvingly from David Frum

However one assesses [the Farook family] chain and its consequences, it seems clear that the large majority of legal immigrants choose to come—or, more exactly, are chosen by their relatives—for their own reasons. They are not selected by the United States to advance some national interest. Illegal immigrants are of course entirely self-selected, as are asylum seekers. …

Donald Trump’s noisy complaints that immigration is out of control are literally true. Nobody is making conscious decisions about who is wanted and who is not, about how much immigration to accept and what kind to prioritize—not even for the portion of U.S. migration conducted according to law, much less for the larger portion that is not.

Doing things for one's own reasons.  Self-Selection.  Lack of government control.  Lack of government decisions about who or what is wanted.  Lack of national priorities.  These all sound like ... capitalism and a free society.   Replace the word immigration with any other term and Conservatives would blast these two sentences and Bernie Sanders and Barack Obama would vigorously nod.  I could write a $15 minimum wage screed using almost these identical words from Frum.    Here, let me try:

However one assesses [the John Smith] $8 wage and its consequences, it seems clear that the large majority of employers set wages for their own reasons. These wages are not set by the United States to advance some national interest. The wage rates are entirely self-selected by employers and employees.

Bernie Sanders's noisy complaints that wage rates and income inequality are out of control are literally true. Nobody in government is making conscious decisions about who is hired and for how much, about how much income to accept and what kind to prioritize.

Postscript:  Yes, I know that Conservatives are all worked up because 1 in a 1,000 or so of our immigrants might be murderers.  You know what, one in a thousand Americans born every day will likely grow up to be murderers, but we don't ban sex.  We accept the consequences that we get a few bad apples along with a lot of awesome productive people.

I would also ask Conservatives this -- why don't you think the Left's desire to ban gun ownership to head off mass shootings is fair?  I would suggest one reason is that it is unfair to ban legal gun ownership for 1,000 good people because one will use their gun to commit a murder.  If you agree with this statement, explain why your argument against immigration is different from the Left's call to ban gun ownership.

A Few Thoughts on Branding After Travelling in Europe

In Europe, we stayed several times in rental apartments we found through the invaluable VRBO website.  One advantage of these apartments is that we can cook breakfast, avoiding the high-priced breakfasts at many hotels.

So I found myself shopping for orange juice in Austria, with a number of choices at hand, but none recognizable to me.  Skeptics of capitalism often point to branding and brand-based advertising as particular wastes of resources.  But I would have loved to see an orange juice brand I recognized.  Brands are essentially a guarantee of  predictability -- whether I like the taste or not, I know what a Big Mac will taste like in Omaha or Beijing.  Brands are an enormous aid to shopping and making choices, and in this manner create real value for us as consumers.  I missed recognizable brands when I was in Europe.

PS-  Coca-Cola and Pepsi are obviously the exceptions to this predictability game.  Diet Coke, called Coke Light in Europe, tastes entirely different in Europe than it does in the US -- in fact it tastes more like what Diet Pepsi tastes like in the US.  Which is ironic, and fitting I guess, because Diet Pepsi in Europe tastes a lot like American Diet Coke.

Memo to Vox: You Know How This Prosperity Was Achieved? We Let it Happen.

Vox shares what is perhaps the greatest achievement in human history, the continuing disappearance of absolute poverty:



Readers of this blog will likely  have seen this before (though it may well be new to Vox readers).  Here is the amazing thing about the Vox article:  It never once mentions capitalism, trade, economic freedom, or any synonym.  Here is a sampling of the tone of the accompanying article:

There's still much work to be done: 14.4 percent of the world amounts to 1 billion people who still need to be lifted out of extreme poverty. And making sure everyone's making at least $1.25 a day isn't the end of the fight either. The world's median income is still only $3 to $4 a day. By comparison, the poverty line in the US for a family of four is $16.61 per person per day. Once under-$1.25-a-day poverty is eradicated, the world needs to set about eradicating under-$15-a-day poverty, which will be a substantially harder task.

Vox is treating this like it is the result of some top-down effort, using the same language one might use to describe the eradication of Yellow Fever in Panama.  As if this resulted (and as if future progress depended on) some all-hands-on-deck technocratic government program.

No one "set about" eradicating poverty.  It happened because governments, at least to some extent, got out of the way and didn't stop it.  China is a great example.  Mao "set about" trying to eliminate poverty using many of the approaches likely favored by the Vox staff, and killed a few tens of millions of people in the process.

Here is my theory of the world's accelerating wealth formation that I have written on a number of times before.  This chart largely results from:

  • There was a philosophical and intellectual change where questioning established beliefs and social patterns wentfrom being heresy and unthinkable to being acceptable, and even in vogue. In other words, men, at first just the elite but soon everyone, were urged to use their mind rather than just relying on established beliefs and appeals to authority.
  • There were social and political changes that greatly increased the number of people capable of entrepreneurship. Before this time, the vast vast majority of people were locked into social positions that allowed them no flexibility to act on a good idea, even if they had one. By starting to create a large and free middle class, first in the Netherlands and England and then in the US, more people had the ability to use their mind to create new wealth. Whereas before, perhaps 1% or
    less of any population really had the freedom to truly act on their ideas, after 1700 many more people began to have this freedom.

So today's wealth, and everything that goes with it (from shorter work hours to longer life spans) is the result of more people using their minds more freely.

I Have This Argument All The Time With The US Forest Service

I operate recreation areas in the US Forest Service and from time to time get criticized that my profit adds cost to the management of the facilities, and that the government would clearly be better off with a non-profit running the parks since they don't take a profit.  What they miss is that non-profits historically do a terrible job at what I do.  They begin in a burst of enthusiasm but then taper off into disorder.    Think about any non-profit you have ever been a part of.  Could they consistently run a 24/7/365 service operation to high standards?

Don Boudreaux has a great quote today that touches on this very issue

from page 114 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:

While capitalism has a visible cost – profit – that does not exist under socialism, socialism has an invisible cost – inefficiency – that gets weeded out by losses and bankruptcy under capitalism.  The fact that most goods are more widely affordable in a capitalist economy implies that profit is less costly than inefficiency.  Put differently, profit is a price paid for efficiency.

It is also the "price" paid for innovation.

Capitalism Finally Dismantling Indian Feudalism

This is a great story:

Karl Marx was wrong about many things but right about one thing: the revolutionary way capitalism attacks and destroys feudalism. As I explain in a new study,  in India, the rise of capitalism since the economic reforms of 1991 has also attacked and eroded casteism, a social hierarchy that placed four castes on top with a fifth caste—dalits—like dirt beneath the feet of others. Dalits, once called untouchables, were traditionally denied any livelihood save virtual serfdom to landowners and the filthiest, most disease-ridden tasks, such as cleaning toilets and handling dead humans and animals. Remarkably, the opening up of the Indian economy has enabled dalits to break out of their traditional low occupations and start businesses. The Dalit Indian Chamber of Commerce and Industry (DICCI) now boasts over 3,000 millionaire members. This revolution is still in its early stages, but is now unstoppable.

Me Then, Hillary Now: Progressives Are Too Conservative to Accept Capitalism

Coyote, in Forbes, December 2010 (excerpts):

My contention is that what drives most progressives, at a very fundamental level, is a deep conservatism.  Of course, most “progressives” would freak if they were called conservative, but what I mean by conservative in this context is not donate-to-Jesse-Helms capital-C Conservative but fearful of change and uncomfortable with uncertainty conservative.

Because capitalism is based so completely on individual decision-making, because its operation is inherently chaotic, and because its rewards can’t possibly be divided equally and still be “rewards”, progressives are hugely uncomfortable with it.  Ironically, though progressives want to posture at being “dynamic”, it turns out that capitalism is in fact too dynamic for them.  Industries rise and fall, jobs are won and lost, recessions give way to booms.  Progressives want comfort and certainty.  They want to lock things down the way they are. They want to know that such and such job will be there tomorrow and next decade, and will always pay at least X amount.  Which is why, in the end, progressives are all statists, because only a government with totalitarian powers can bring the order and certainty and control of individual decision-making that they crave..

Progressive elements in this country have always tried to freeze commerce, to lock this country’s economy down in its then-current patterns.  Progressives in the late 19th century were terrified the American economy was shifting from agriculture to industry.  They wanted to stop this, to cement in place patterns where 80-90% of Americans worked on farms.  I, for one, am glad they failed, since for all of the soft glow we have in this country around our notion of the family farmer, farming was and can still be a brutal, dawn to dusk endeavor that never really rewards the work people put into it....

I am sure, if asked, most  progressives would profess to desire iPod’s and cures for cancer.  But they want these without the incentives that drive men to invent them, and the disruption to current markets and competitors and employees that their introduction entails.  They want to end poverty without wealth creation, they want jobs without employers, they want cars without unemployment for buggy whip makers.

Hillary Clinton in July, 2015:  via Instapundit

In her first major economic policy address of the 2016 campaign, Democratic presidential frontrunner Hillary Clinton raised questions about the effect that companies like Uber and Airbnb are having on American workers. . . .

Later in the speech, Clinton vowed to “crack down on bosses who exploit employees by misclassifying them as contractors” — a possible reference to something like the recent California Labor Commission decision that threatens to undermine Uber’s business model.

To be sure, Clinton does not want to destroy the sharing economy. She acknowledged that “these trends are real” and “none is going away.” But she may believe that, with the right application of political muscle, the new economy can be forced to conform with the antiquated blue social model — that is, the midcentury vision of steady, regulated, unionized employment with generous benefits.

As we have argued again and again, this notion is unrealistic. Like it or not, this 1950s model of economic organization is breaking down, and has been for several decades, thanks to globalization, demographic changes, technological innovation, and other trends that simply cannot be reversed. Measures like the California decision are futile and counterproductive. We should treat the emergence of a more entrepreneurial, dynamic landscape as an opportunity to be engaged with productively, not a danger to be henpecked by regulations better suited to the last century.

Brink Lindsey Proposes a Growth Plan with Appeal Across The Political Spectrum

It turns out that small government libertarians like myself and large-government progressives actually have something in common -- we both fear accumulations of unaccountable power.  We just find such power in different places.  Progressives fear the accumulation of power in large corporations and moneyed individuals.  Libertarians fear government power.

I won't try to take Caplan's ideological Turing test today, but will just speak from my own perspective.  I wonder how Progressives can ignore that government has guns and prisons while corporations just have the ability to sell you something or hire you (though perhaps not on the terms you prefer).  When pressed to explain why the Left is more comfortable with government power, their explanations (to my taste) depend too much on assumptions that competent versions of "their guy" pull the levers of power, and that power itself and the vagaries of government incentives will not corrupt this guy.

On the other hand, progressives ask me all the time, "how can you trust corporations so much" and then list off a justifiably long list of examples of them acting poorly.  This, I think, is where the real difference comes in, and where the confusion often comes int he public discourse.  I will answer that I don't trust anyone, government or corporations.  What I trust are the incentives and the accountability enforced in a market where a) consumers can take their money elsewhere if they get bad products or services; b) employees can take their labor elsewhere if they are treated poorly; and c) entrepreneurs can make a fortune identifying shortcomings in incumbent businesses and offering consumers and/or employees a better deal.

Unfortunately, when a person or organization finds itself very successful in this game, there is a natural tendency to want to protect their winning position.  But nothing in the market can stop a challenge from a better product or service, so successful entities tend to turn to the government (which has a monopoly on guns and prisons and asset seizures and the like) for protection against upstart challengers.  If successful, these restrictions tend to hobble growth and innovation -- imagine if IBM had successfully used government influence to halt the PC revolution or if AT&T had blocked the growth of cell phones.

This dynamic is at the heart of Brink Lindsey's new white paper at Cato (pdf).   As has been his wont in several past works, Lindsey is looking for proposals that bridge the gap between Left and Right.  So, rather than stake out the 98th salvo in an area where there seems to be a hopeless ideological divide (e.g. minimum wage or low-skill immigration), he focuses on four areas one could imagine building a broad coalition.  Lindsey focuses on attempts by successful incumbents to use government to cement their position and calls them "regressive regulation" because they tend to benefit the already-successful at the expense of everyone else.

In the following sections, I examine four major examples of regressive regulation: (a) excessive monopoly privileges granted under copyright and patent law; (b) protection of incumbent service providers under occupational licensing; (c) restrictions on high-skilled immigration; and (d) artificial scarcity created by land-use regulation. In all four examples, current government policy works to create explicit barriers to entry. In the first two cases, the restriction is on entry into a product market: businesses are not allowed to sell products that are deemed to infringe on a copyright or patent, and individuals are not allowed to sell their services without a license. In the other two cases, actual physical entry into a geographic area is being limited: on the one hand, immigration into the country; on the other, the development and purchase or rental of real estate.

One can immediately see how this might appeal across ideologies.  Libertarians and market Conservatives will like the reduction in regulation and government scope.  Progressives should like the elimination of government actions that primarily help the wealthy and powerful.**

I said "cross ideologies" above rather than bi-partisan because things get messy when actual politics intrude.  All of these protected constituencies wield a lot of political influence across both parties -- that is why the regressive regulation exists in the first place.  And they all have finally honed stories about how these restrictions that prevent new competition and business models are really there to protect the little people (just watch the battles between Uber and the taxi cartels and you will see what I mean).

Never-the-less, this strikes me as a pretty good list.  For whatever barriers there may be, it is a hell of a lot easier to picture a bipartisan agreement on any of these issues than on, say, low-skill immigration.  I haven't finished reading to the end -- I have to get on now with my day job -- so I have yet to see if there are any concrete proposals that look promising.


**The ideological problem here, of course, is that libertarians think that these restrictions are the primary way in which the wealthy unfairly benefit while most Progressives would (I suppose) see it as a side issue given that they believe that even the free-est of market capitalism is inherently unfair.

We Still Haven't Figured Out How to Measure Prosperity

The previous chart on beer availability reminds me of an issue I have been thinking about for a while -- that we do no know how to measure prosperity.

GDP growth and unemployment reduction are terrible measures.  Just to give one example, these measures looked fabulous in WWII.  But the average person living in the US had access to almost nothing -- they couldn't buy anything under rationing, they couldn't travel for leisure, etc.   GDP looked great because we were building stuff and then blowing it up, the economic equivilent of digging a hole and filling it in (but worse, because people were dying).  And unemployment looked great because we had drafted everyone and sent them off to get shot.

But median income and net worth numbers fail to measure prosperity as well.  The reason was described in this post here way back in 2007.

The home on the left was owned by Mark Hopkins, railroad millionaire and one of the most powerful men of his age in California.  Hopkins had a mansion with zillions of rooms and servants to cook and clean for him, but he never saw a movie, never listened to music except when it was live, never crossed the country in less than a week.  And while he could afford numerous servants around the house, Hopkins (like his business associates) tended to work 6 and 7 day weeks of 70 hours or more, in part due to the total lack of business productivity tools (telephone, computer, air travel, etc.) we take for granted.  Hopkins likely never read after dark by any light other than a flame.

If Mark Hopkins or any of his family contracted cancer, TB, polio, heart disease, or even appendicitis, they would probably die.  All the rage today is to moan about people's access to health care, but Hopkins had less access to health care than the poorest resident of East St. Louis.  Hopkins died at 64, an old man in an era where the average life span was in the early forties.  He saw at least one of his children die young, as most others of his age did.  In fact, Stanford University owes its founding to the early death (at 15) of the son of Leland Stanford, Hopkin's business partner and neighbor.  The richest men of his age had more than a ten times greater chance of seeing at least one of their kids die young than the poorest person in the US does today.

How do we take into account that even if a person has the same income as someone in 1952, they are effectively wealthier in many ways due to access to medical procedures, travel, entertainment, electronic devices, etc?

Somehow we need to measure consumer capability -- not just how much raw money one has but what can one do with the money?  What is the horizon of possibilities?  Deirdre McCloskey tends to eschew the term capitalism in favor of "market-tested innovation."  I think that is a pretty powerful description of our system.  But if it is, we really are only measuring the impact of productivity and cost-reduction innovations.  How do we measure the wealth impact of consumer-empowerment innovations like iPhones?  Essentially, we don't.  Which, by the way, may be one reason our current crappy metrics say we have growing income inequality.  With our current metrics, Steve Jobs' increase in wealth is noted in the metrics, but the metrics don't show the rest of us getting any wealthier by the fact that we can now have iPhones (or the myriad of competitors the iPhone spawned).  The consumer surplus from iPhones undoubtedly dwarfs the money Jobs made, but it doesn't show up in any wealth calculations.

A few years ago I told a youth group that there were still many things left to discover in the mundane world -- by this I meant the everyday world we encounter and not just at the limits of the universe or at the scale of quarks.  The example I gave at the time is that there is a lot of room for better techniques to tease out causality in complex systems -- e.g. how much did the stimulus really affect the economy or how much does CO2 really affect temperatures.  I would add this question of measuring prosperity as a second item in this category.

Where's Coyote?

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

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

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

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

click to enlarge


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

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

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


Naomi Oreskes and Post-Modern Science

Post-modernism is many things and its exact meaning is subject to argument, but I think most would agree that it explicitly rejects things like formalism and realism in favor of socially constructed narratives.  In that sense, what I mean by "post-modern science" is not necessarily a rejection of scientific evidence, but a prioritization where support for the favored narrative is more important than the details of scientific evidence.  We have seen this for quite a while in climate science, where alarmists, when they talk among themselves, discuss how it is more important for them to support the narrative (catastrophic global warming and, tied with this, an increasing strain of anti-capitalism ala Naomi Klein) than to be true to the facts all the time.  As a result, many climate scientists would argue (and have) that accurately expressing the uncertainties in their analysis or documenting counter-veiling evidence is wrong, because it dilutes the narrative.

I think this is the context in which Naomi Oreskes' recent NY Times article should be read.  It is telling she uses the issue of secondhand tobacco smoke as an example, because that is one of the best examples I can think of when we let the narrative and our preferred social policy (e.g. banning smoking) to trump the actual scientific evidence.  The work used to justify second hand smoke bans is some of the worst science I can think of, and this is what she is holding up as the example she wants to emulate in climate.  I have had arguments on second hand smoke where I point out the weakness and in some cases the absurdity of the evidence.  When cornered, defenders of bans will say, "well, its something we should do anyway."  That is post-modern science -- narrative over rigid adherence to facts.

I have written before on post-modern science here and here.

If you want post-modern science in a nutshell, think of the term "fake but accurate".  It is one of the most post-modern phrases I can imagine.  It means that certain data, or an analysis, or experiment was somehow wrong or corrupted or failed typical standards of scientific rigor, but was none-the-less "accurate".  How can that be?  Because accuracy is not defined as logical conformance to observations.  It has been redefined as "consistent with the narrative."  She actually argues that our standard of evidence should be reduced for things we already "know".  But know do we "know" it if we have not checked the evidence?  Because for Oreskes, and probably for an unfortunately large portion of modern academia, we "know" things because they are part of the narrative constructed by these self-same academic elites.

What Happens When You Abandon Prices As A Supply-Demand Matching Tool? California Tries Totalitarianism

Mostly, we use prices to match supply and demand. When supplies of some item are short, rising prices provide incentives for conservation and substitution, as well as the creation of creative new sources of supply.

When we abandon prices, often out of some sort of political opportunism, chaos usually results.

California, for example, has never had the political will to allow water prices to rise when water is short. They cite all kinds of awful things that would happen to people if water prices were higher, but then proceed instead with all sorts of authoritarian rationing initiatives that strike me as far worse than any downsides of higher prices.

In this particular drought, California has taken a page from Nazi Germany block watches to try to ration water

So, faced with apparent indifference to stern warnings from state leaders and media alarms, cities across California have encouraged residents to tattle on their neighbors for wasting water — and the residents have responded in droves. Sacramento, for instance, has received more than 6,000 reports of water waste this year, up twentyfold from last year...

Some drought-conscious Californians have turned not only to tattling, but also to an age-old strategy to persuade friends and neighbors to cut back: shaming. On Twitter, radio shows and elsewhere, Californians are indulging in such sports as shower-shaming (trying to embarrass a neighbor or relative who takes a leisurely wash), car-wash-shaming and lawn-shaming.

“Is washing the sidewalk with water a good idea in a drought @sfgov?” Sahand Mirzahossein, a 32-year-old management consultant, posted on Twitter, along with a picture of a San Francisco city employee cleaning the sidewalk with a hose. (He said he hoped a city official would respond to his post, but he never heard back.)

Drought-shaming may sound like a petty, vindictive strategy, and officials at water agencies all denied wanting to shame anyone, preferring to call it “education” or “competition.” But there are signs that pitting residents against one another can pay dividends.

All this to get, in the best case, a 10% savings. How much would water prices have to rise to cut demand 10% and avoid all this creepy Orwellian crap?

One of the features of Nazi and communist block watch systems was that certain people would instrumentalize the system to use it to pay back old grudges. The same thing is apparently happening in California

In Santa Cruz, dozens of complaints have come from just a few residents, who seem to be trying to use the city’s tight water restrictions to indulge old grudges.

“You get people who hate their neighbors and chronically report them in hopes they’ll be thrown in prison for wasting water,” said Eileen Cross, Santa Cruz’s water conservation manager. People claim water-waste innocence, she said, and ask: “Was that my neighbor? She’s been after me ever since I got that dog.”

Ms. Franzi said that in her Sacramento neighborhood, people were now looking askance at one another, wondering who reported them for wasting water.

“There’s a lot of suspiciousness,” Ms. Franzi said. “It’s a little uncomfortable at this point.” She pointed out that she and her husband have proudly replaced their green lawn with drought-resistant plants, and even cut back showers to once every few days.

Update:  Seriously, for those that are unclear -- this is the alternative to capitalism.  This is the Progressive alternative to markets.  Sure, bad things happen in a free society with free markets, but how can anyone believe that this is a better alternative?

Bizarre Payback Analysis Being Used for Alternate Energy

Check out this payback analysis that is being trumpeted for wind power:

US researchers have carried out an environmental lifecycle assessment of 2-megawatt wind turbines mooted for a large wind farm in the US Pacific Northwest. Writing in the International Journal of Sustainable Manufacturing, they conclude that in terms of cumulative energy payback, or the time to produce the amount of energy required of production and installation, a wind turbine with a working life of 20 years will offer a net benefit within five to eight months of being brought online.

So of all the scarce resources that go into producing wind power, if you look at only one of these (energy), then the project pays itself back in less than a year.  This is stupid.  Yes, I understand that there are some "green" energy sources (*cough* corn ethanol *cough*) that cannot even produce more energy than they consume, so I suppose this finding is a step forward from that.  But what about all the other scarce resources used in producing wind power-- steel, labor, engineering talent, concrete, etc?  This is roughly like justifying the purchase of an 18-wheeler truck by saying it will pay off all the vanadium used in its production in less than a year.

Environmentalists seem to all feel that capitalism is the enemy of sustainability, but in fact capitalism is the greatest system to promote sustainability that has ever been devised.  Every single resource has a price that reflects its relative scarcity as compared to demand.  Scarcer resources have higher prices that automatically promote conservation and seeking of substitutes.  So an analysis of an investment's ability to return its cost is in effect a sustainability analysis.  What environmentalists don't like is that wind does not cover the cost of its resources, in other words it does not produce enough power to justify the scarce resources it uses.  Screwing around with that to only look at some of the resources is just dishonest.

The one reasonable argument is that the price of fuels does not adequately reflect the externalities of Co2 production.  I don't think these are high but obviously there are those who disagree.  The right way to do this analysis is to say that wind power provides a return only if electricity prices are X (X likely being well above current market rates) which in turn reflects a Co2 cost of Y $/ton.  My gut feel is that it would take a Y -- a cost per ton of CO2 -- way higher than any of the figures that are typically bandied about even by environmentalists to make wind work.

Postscript:  I did not critique the analysis of energy payback per se, but if I were to dig into it, I would want to look at two common fallacies with many wind analyses.  1) They typically miss the cost of standby power needed to cover wind's unpredictability, which has a substantial energy cost.  In Germany, during their big wind push, they had to have 80-90% of wind power backed up with hot fossil fuel backup.  2)  They typically look at nameplate capacity and not real capacities in the field.  In fact, real capacities should further be discounted for when wind power produces electricity that the grid cannot take (ie when there is negative pricing in the wholesale market, which actually occurs).

This Is Why Freaking Republicans Drive Me Crazy

From the WSJ

A little-noticed provision in a bill passed by the House this month calls for relying more on U.S.-flagged ships to deliver food aid to foreign countries—a change backed by labor groups and criticized by the White House.

The measure, tucked into a Coast Guard and maritime bill, would increase the proportion of food aid transported abroad on private ships flying the U.S. flag, which are required to employ primarily American mariners.

The Obama administration opposes boosting the requirement to 75% of food aid, in tons, from the current 50%, saying it would raise shipping costs by about $75 million a year—siphoning off funds that otherwise could be used to send food aid overseas.

Jeez, when President Obama of all people has to lecture you that protectionism and kowtowing to labor groups is costly, you have gone off the rails.   The Jones Act is one of the stupidest pieces of interventionist legislation on the books and the House should be working on its repeal to sort out the oil transport mess.  Instead, here are the Republicans in the House doubling down on it.  With so-called friends of capitalism doing this garbage, who needs enemies?  At least Progressives trash the economy without pretending that they are pro free market.

By the way, here is a bit from the Cato article on the Jones Act and oil and gas prices

First, the Jones Act - a 94-year-old law that requires all domestic seaborne trade to be shipped on U.S.-crewed, -owned, flagged and manufactured vessels – prevents cost-effective intrastate shipping of crude oil or refined products.  According to Bloomberg, there are only 13 ships that can legally move oil between U.S. ports, and these ships are “booked solid.”  As a result, abundant oil supplies in the Gulf Coast region cannot be shipped to other U.S. states with spare refinery capacity.  And, even when such vessels are available, the Jones Act makes intrastate crude shipping artificially expensive.  According to a 2012 report by the Financial Times, shipping U.S. crude from Texas to Philadelphia cost more than three times as much as shipping the same product on a foreign-flagged vessel to a Canadian refinery, even though the latter route is longer.

It doesn’t take an energy economist to see how the Jones Act’s byzantine protectionism leads to higher prices at the pump for American drivers.  According to one recent estimate, revoking the Jones Act would reduce U.S. gasoline prices by as much as 15 cents per gallon “by increasing the supply of ships able to shuttle the fuel between U.S. ports.”

Some of these costs could potentially be mitigated if it weren’t for the second U.S. trade policy inflating gas prices: restrictions on crude oil exports.  As I wrote for Cato last year, current U.S. law – implemented in the 1970s during a bygone era of energy scarcity and dependence – effectively bans the exportation of U.S. crude oil to any country other than Canada.  Because U.S. and Canadian refinery capacity is finite, America’s newfound energy abundance has led to a glut of domestic oil and caused domestic crude oil prices (West Texas Intermediate and Louisiana Light Sweet) to drop well below their global (Brent) counterpart.  One might think that this price divergence would mean lower U.S. gas prices, but such thinking fails to understand that U.S. gasoline exports may be freely exported, and that gasoline prices are set on global markets based on Brent crude prices.  As a result, several recent analyses – including ones byCitigroup [$], Resources for the Future and the American Petroleum Institute - have found that liberalization of U.S. crude oil exports would lower, not raise, gas prices by as much as 7 cents per gallon.

It is Time to End Favored Tax Treatment of Capital Gains

My new column is up at, and asks why we fetishize capital gains over regular income

Let's consider two investors.  Investor A buys a piece of land and builds a campground on it, intending to run the campground for decades.  Investor A gets her return on investment from the profits each year running the campground, profits that are taxed as regular income  (Full disclosure:  In my business life, I am essentially investor A).

On the other hand, Investor B buys the same piece of land and builds the same campground on it, but in about a year Investor B sells the newly developed facility, making a profit on the sale over his original investment.  Investor B likely will pay taxes on this gain at reduced capital gains tax rates.

But why?  When Investor B sold the property, the price he got was probably something like the present value of the expected cash flows from operating the campground.   Both Investor A and B created essentially the same value., but Investor B took the value as a single lump sum rather than as a stream of income over time.  Why is Investor B's approach preferred in the tax code?  Or, stated another way, why does the tax code favor asset flipping over long-term operations?

Progressives Lamenting the Effects of Progressive Policies

Kevin Drum writes

Via Harrison Jacobs, here's a recent study showing the trend in income segregation in American neighborhoods. Forty years ago, 65 percent of us lived in middle-income neighborhoods. Today, that number is only 42 percent. The rest of us live either in rich neighborhoods or in poor neighborhoods.

This is yet another sign of the collapse of the American middle class, and it's a bad omen for the American political system. We increasingly lack a shared culture or shared experiences, and that makes democracy a tough act to pull off. The well-off have less and less interaction with the poor outside of the market economy, and less and less empathy for how they live their lives. For too many of us, the "general welfare" these days is just an academic abstraction, not a lived experience.

He does not give a reason, and apparently following the links, neither does the study author.  But my guess is that they might well attribute it to 1. effects of racism, 2.  growth of the suburbs, 3. laissez faire capitalism.

I don't think racism can be the driver of this change, given that racism and fear of other cultures is demonstrably better in the last 30 years than at most times in history  (read bout 19th century New York if you are not sure).  The suburbs have been a phenomenon for 100 years or more, and capitalism has been less laissez faire over the last 30 years than at any time in our history.

I actually believe a lot of this income sorting is a direct result of two progressive policies.  I have no data, of course, so I will label these as hypotheses, but I would offer two drivers

  • Strict enforcement of the public school monopoly.  People want good schools for their kids.  Some are wealthy enough to escape to private schools.  But the only way for those who stay in the public school system to get to the best schools is to physically move into their districts.  Over time, home prices in the best districts rise, which gives those schools more money to be even better (since most are property tax funded), and makes them even more attractive.  But as home prices rise, only the most wealthy can afford them.  This is dead easy to model.  Even in a starting state where there are only tiny inhomegeneities between the quality of individual schools, one ends up with a neighborhood sorting by income over time.  Ex post facto attempts to fix this by changing the public school funding model and sending state money to the poorest schools can't reverse it, because at least half of school quality is driven not by money by by the expectations and skills of the parents and children in it.  Thus East St. Louis can have some of the highest per pupil spending in the state but have terrible schools.  A school choice system would not likely end sorting by school, but it would eliminate a huge incentive to sort by neighborhood.
  • Strict zoning.  There has always been a desire among certain people to exclude selected groups from their neighborhoods.  This desire has not changed, or if anything I would argue it has declined somewhat.  What has changed is the increased power that exists to exclude.  Zoning laws give the rich and well-connected the political vehicle to exclude the rabble from their neighborhoods in a way that never would have been possible in a free market.  I live just next to the town of Paradise Valley, which has very strict zoning that is absolutely clearly aimed at keeping everyone but the well-off out.  They will not approve construction of new rental units.  The minimum lot sizes are huge, way beyond the reach of many.

Capitalism is an Un-System

Markets and commerce are not created top-down, they are emergent behavior:

...“no one” made markets. No one put out rules for when a market should or should not exist, much like the footprints in the snow following a fresh storm, these markets emerge from the self-interested actions of millions of buyers and sellers each responding to hundreds upon hundreds of incentives every day. Indeed, no one ever sat down and said, “you know, we have this major problem here – there are simply not enough things out there for all of the people who want them, so, let’s have this thing called capitalism and see how it works.” It simply didn’t go down that way, and discussing “markets” in the anthropomorphic way that is often done, particularly in these lines of inquiry, really takes us away from appreciating that market activity is an emergent process. Yes, it does operate in a richer institutional and intellectual framework and yes the “rules” of the game do alter when ends up being for sale or not, but simply condemning “markets” as allowing “everything” to be sold quite misses the point.

After Criticizing Capitalism For Using Advertising to Trick Consumers into Bad Deals, Progressives Try to Use the Same Tactic for Obamacare

From our favorite politically-blinkered economist who used to be smart:

Chait stresses the youth aspect:

Fortunately for Obama, this field of battle favors his side. To pass the law, he needed to win over skeptical senators. To defend it in court, he needed conservative jurists. But identifying and persuading young people is a battle Obama does not expect to lose to Republicans, and in place of the federal outreach funds, the administration is deploying a campaignlike array of weapons: microtargeting, including door-to-door outreach, and all forms of media. (A few weeks ago, Katy Perry tweeted out a link informing her 42 million followers that health care was available beginning October 1.)

Yep, when it comes to reaching hipsters, or young people in general — I know, Katy Perry — Dems have big advantages; all that coastal cultural elite hatred suddenly turns into a big disadvantage for the right.

A couple of thoughts:

  • Katy Perry is part of the cultural elite?  We have sure dumbed down that concept.
  • As to Ms. Perry, whose music is actually a guilty pleasure of mine, health care has been available to your twitter followers all their lives, not just beginning October 1.  A better way to put this is that, as of October 1 you will be forced to buy some amount of health care whether you want it or not.  
  • The whole campaign aimed at young people is simply obscene.  I understand that folks like Ms. Perry honestly believe that young people are getting a better deal, and that she is doing them a service.  Fine, millionaires can be low information voters too.  But people in the Administration have a much more cynical purpose, which explains the magnitude of the campaign described by Chait:  For Obamacare to work and not be a fiscal disaster, it depends on young people overpaying for health insurance.  The Administration knows that young people are overpaying -- the whole system depends on it -- and yet they are telling them it is in their interest to sign up.   A private company that did this would be in jail.
  • I think this whole campaign is going to fail due to a basic fallacy of Progressive thinking.  Progressives are convinced that consumers are helpless dupes of advertising.  They in fact criticized health care advertising expenses in the private world for years for this reason, making this whole campaign incredibly ironic.  Obama and company are convinced that with enough advertising, average consumers will buy anything, even if it is a bad deal, because they are convinced that this is how consumer capitalism works (it got him elected, didn't it?)  I think they are going to be disappointed.

Blast from the Past

I have not reread this little classic article from 9 years ago, until a customer in California found it and complained that it was outrageous that the state would actually allow such a person as its author to operate anything in a state park.  So I suppose it is worth relinking, if just for that reason.  Most of it holds up pretty well, though I regret the jab implying that progressives supported suicide bombers.  Here is an example:

Beyond just the concept of individual decision-making, progressives are hugely uncomfortable with capitalism.  Ironically, though progressives want to posture as being "dynamic", the fact is that capitalism is in fact too dynamic for them.  Industries rise and fall, jobs are won and lost, recessions give way to booms.  Progressives want comfort and certainty.  They want to lock things down the way they are. They want to know that such and such job will be there tomorrow and next decade, and will always pay at least X amount.  That is why, in the end, progressives are all statists, because, to paraphrase Hayek, only a government with totalitarian powers can bring the order and certainty and control of individual decision-making that they crave.

Progressive elements in this country have always tried to freeze commerce, to lock this country's economy down in its then-current patterns.  Progressives in the late 19th century were terrified the American economy was shifting from agriculture to industry.  They wanted to stop this, to cement in place patterns where 80-90% of Americans worked on farms.  I, for one, am glad they failed, since for all of the soft glow we have in this country around our description of the family farmer, farming was and can still be a brutal, dawn to dusk endeavor that never really rewards the work people put into it.

This story of progressives trying to stop history has continued to repeat itself through the generations.  In the seventies and eighties, progressives tried to maintain the traditional dominance of heavy industry like steel and automotive, and to prevent the shift of these industries overseas in favor of more service-oriented industries.  Just like the passing of agriculture to industry a century ago inflamed progressives, so too does the current passing of heavy industry to services....

Take prescription drugs in the US - isn't it pretty clear that the progressive position is that they would be willing to pretty much gut incentives for any future drug innovations in trade for having a system in place that guaranteed everyone minimum access to what exists today?  Or take the welfare state in Continental Europe -- isn't it clear that a generation of workers/voters chose certainty over growth and improvement?  That workers 30 years ago voted themselves jobs for life, but at the cost of tremendous unemployment amongst the succeeding generations?

Tesla Actually Strikes a Blow Against the Corporate State

Tesla Motors and Elon Musk, the folks who seem to perennially have their hands out for special government favors and taxpayer money, may have actually struck a small blow against the corporate state:

Tesla Motors Inc. says it’s won another round in its fight with established car dealers who want to stop the company from selling its electric luxury cars directly to consumers.

Tesla CEO Elon Musk says, via Twitter, that a New York judge has tossed out a suit brought by New York auto dealers who challenged Tesla’s direct sales model as a violation of the state’s franchise laws.

Mr. Musk spent Wednesday in Texas making the case for a legislative proposal to change the law to allow direct sales of electric vehicles by U.S.-based manufacturers.  Texas car dealers have opposed the measure, saying it would open the door for other car makers to sell electric cars direct to customers –  which could undermine the value of their franchises.

Government protections of middle men in the auto business (states generally do the same in the liquor business) are a classic example of crony capitalism.  Car dealers tend to have a lot of sway with politicians, not to mention with local media for who they are generally the largest advertisers, so they are able to engineer special privileges for themselves.  Congrats to Tesla for taking this on.