"They will be subsidizing scroungers, lounging in cafes on the Mediterranean beaches.
Monetary union, in the end, will result in a gigantic blackmailing operation.
When we Germans demand monetray discipline, other countries will blame their financial woes on that same discipline, and by extension, on us. More they will perceive us as a kind of economic policeman.
We risk once again becoming the most hated people in Europe."
Posts tagged ‘risk’
If We Are Using Every Stimulus Tool in the Book at the Top of the Cycle, What Are We Going To Do In The Next Downturn?
The world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crises, the Bank for International Settlements has warned.
The so-called central bank of central banks launched a scatching critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies.
These low interest rates have in turn fuelled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates....
“Rather than just reflecting the current weakness, [lower rates] may in part have contributed to it by fuelling costly financial booms and busts and delaying adjustment. The result is too much debt, too little growth and too low interest rates.
"In short, low rates beget lower rates."
The BIS warned that interest rates have now been so low for so long that central banks are unequipped to fight the next crises.
I have been predicting for years that the only solution for the Greece problem is for it to exit the Euro, go through a horrible economic crisis and deal with substantial devaluation, and then hopefully move on with a cheaper currency that makes its tourist industry look better and plugs the hole between taxing and spending with inflation. It appears we are closer than ever to this actually happening. The Greeks would likely be moving forward now, like Iceland, if they had taken their medicine years ago rather than try to kick the can. Now it is just going to be worse.
I have been enamored off and on with the idea of a gold standard but Megan McArdle made some powerful points today about how the Greek situation teaches us that a gold standard doesn't necessarily impose discipline on governments.
It's easy to moralize Greece's feckless borrowing, weak tax collection and long history of default, and hey, go ahead; I won't stop you. But whatever the nation's moral failures, what we're witnessing now shows the dangers of trying to cure the problems of weak fiscal discipline with some sort of externally imposed currency regime. Greek creditors and Brussels were not the only people to joyously embrace the belief that the euro would finally force Greece to keep its financial house in order; you hear the same arguments right here at home from American gold bugs. During the ardent height of Ron Paul's popularity, I tried to explain why this doesn't work: "You don't get anything out of a gold standard that you didn't bring with you. If your government is a credible steward of the money supply, you don't need it; and if it isn't, it won't be able to stay on it long anyway."
This goes double for fiscal discipline. Moving to a fixed exchange rate protects bond-holders from one specific sort of risk: the possibility that inflation will erode the real value of your bonds. But that doesn't remove the risk. It just transforms it. Now that the government can't inflate away its debt, you instead face the risk that they are going to run out of money to pay their bills and suddenly default. That's exactly what happened to Argentina, and many other nations on various other currency regimes, from the gold standard to a currency peg. The ability to inflate the currency had gone away, but the currency regime didn't fix any of the underlying institutional problems that previous governments had solved with inflation. So bondholders protected themselves from inflation, and instead took a catastrophic haircut.
Postscript #1: I had one issue with McArdle's piece when she writes
The only people this will be good for is people who long to vacation on the Greek Islands. If Grexit actually happens, book those plane tickets now, but hold off on the hotel. It will be cheaper in six months. Then try to enjoy it as you remember that those fabulous savings are someone else's whole life evaporating.
Hey, if Grexit occurs, you have no reason to feel guilty about taking advantage of the weak currency and low prices for a Greek vacation. There is nothing the Greeks need more than for you to do exactly that. It is the single best thing you could do for the Greek people.
Postscript#2: Here is why exiting the Euro, devalutation, and inflation are the only way out for Greece at this point. Creditors allow countries to run long-term deficits and keep lending despite rising debt (see: Japan) because of a combination of a) the country can always just print the money they need; b) the country can raise taxes and take the money it needs or c) the country can keep spending flat and grow their way out from the debt.
None of these are available to Greece. They can't print money, at least without running up new debts (excess printing of Euros is automatically added to Greece's debt to the ECB). They can't raise taxes because their citizens don't pay the taxes that already exist. And they can't grow their way out because there is zero support for austerity or market-based reforms that would be necessary, and besides a huge portion of Greek deficit spending is for inherently unproductive activities. At this point Greece's only option is charity, that the other countries of the EU will forgive debt or write them new debt, either to be nice or to avoid bad precedents with other PIGS countries. But the EU seems at the end of its charity rope, and besides given zero prospects of any sort of Greek recovery, even after a major write-off of debt the EU would be in the position of still having to send Greece new money for its new debts.
We have about 20 retail locations with credit card terminals. Typically, I have always bought the terminals because leasing is such a crazy bad deal. For example, Transfirst will lease you (via their partner First Data Global Leasing, or FDGL) a Hypercom 4220 for about $32 a month on a 48-month lease. That is about $1536 in payments total. Right now you can buy the same Hypercom 4220 invthis lease for about $179.
But despite this, I actually found myself talked into leasing a few of these Hypercom 4220 terminals. I was told by Transfirst (the merchant company) that a technology transformation was coming (this was true) and that the advantage of leasing was that if the terminals become obsolete, they will be upgraded automatically (this turned out to be a lie).
Note that this was stupid, stupid, stupid on my part. I admit it. I could have still bought them and have been better off after 6 months, even if it became obsolete, than leasing. Mea culpa. My only excuse is that I had developed a lot of trust in my old processor Solveras and didn't realize how much their customer service would change for the worse when they got bought by Transfirst.
However, the really irritating part occurred when I got an email from Transfirst saying that my Hypercom 4220's would essentially be obsolete after October, 2015 because these terminals can't handle the new chip cards (technically I could still use them, but at a serious liability risk, which is not acceptable). So I called Transfirst and asked them what was going to happen on my equipment they leased me that they now have told me is obsolete. They said that I could upgrade the Hypercom's on my lease to Ingenico ICT220's for a $189 fee.
Well, it turns out that Ingenico ICT220's retail for about $160. So here was the upgrade option they offered on my lease -- I could pay more than the retail price of a new terminal in order to substitute that new terminal on my account, and having just paid for the terminal, the terminal then would become property of the leasing company and must be returned at the end of the lease, which all the while is still charging me $32 a month.
I called my sales agent, the customer support staff, the equipment transition team -- they all said the same thing. I could not believe it. The deal was so bad that even one of their competitors, whom I had started talking to, urged me to check with Transfirst more carefully because they could not believe Transfirst were offering such an awful arrangement. But they were.
So I am switching merchant companies and buying all new terminals. I will return to Transfirst all their equipment and pay off the remaining months on the lease. It is not often that a vendor of mine is so bad that I pay substantial money to get away from them, but getting away from Transfirst justified the cost.
By the way, for merchant companies reading this, please do not add yourself, based on this post, to the 3-4 calls a day I get trying to sell me credit card processing. I have a good deal for half my business with Bank of American, have always been happy with their service, and am moving my Transfirst business to them.
Postscript: One piece of advice on choosing a merchant account. When I ask for quotes on merchant services, I ask now that the bid be quoted as a spread. Basically MC/Visa have a set of rates they charge, sort of wholesale rates everyone must pay. There are zillions of rates for various types of cards (for example those rewards cards you love can pay you because they get a higher fee from merchants for the same transaction). If you just get a rate quote, you will get zillions of rates and it will be almost impossible to compare against another quote, particularly if you don't know your typical mix of card types. If you ask for a spread, e.g. 10 basis points over wholesale on all cards, you know exactly what you are getting and that there are not any bad deals buried in that rate list. It is also really easy to compare to other quotes.
The other advantage of this is that when MC/Visa change their rates (always up) your rates just go up by the amount of the rate increase. Without a spread deal, merchant processors can take advantage of MC/Visa rate changes to slip in a few more basis points for themselves. How would you ever know?
Robert Robb has an interesting piece in our paper today about the challenges in defeating even a deeply flawed Joe Arpaio in the Republican primary. In doing so, he reminds us of some (but by no means all) of Arpaio's worst characteristics, and makes a good case for why dark money in elections makes sense:
The missing element in the anti-Arpaio coalition is actually the business community.
Arpaio's war chest doesn't have to be matched. But making the case against him would require a campaign in the $2-$3 million range, beyond the reach of what an opponent is going to be able to raise.
If Arpaio is to be defeated, the business community probably has to conclude that he's enough of a damaging menace to warrant funding an independent campaign in that range. But the money isn't the only hurdle.
With Arpaio, there's a risk of criminal investigations and bogus criminal charges if you oppose him. That's part of what makes him a damaging menace. So, any such independent campaign would likely have to be by a dark-money group that didn't disclose its contributors.
It would be fascinating to watch the dark-money scolds react to a dark-money campaign to defeat Arpaio while protecting donors against his documented retaliatory proclivities.
This quote from a hotel owner in Venezuela that now asks its patrons to bring their own toilet paper caught my eye:
Camacho says she refuses to buy toilet paper from the black market on principle.
“In the black market you have to pay 110 bolivares [$0.50] for a roll of toilet paper that usually costs 17 bolivares [$ 0.08] in the supermarket,” Camacho told Fusion. “We don’t want to participate in the corruption of the black market, and I don’t have four hours a day to line up for toilet paper” at a supermarket….
I see this all the time, the notion there is somehow a "correct" price that no one is willing to charge. There is nothing real about the 17 bolivares price. It is a fiction. There are only two real prices in the market -- 110 bolivares PLUS any risk/penalty from breaking the law or 17 bolivares PLUS 4 hours of your personal time. My sense is that if the legal risk of buying on the black market is low, and you knew the average order size and the value people placed on their own time, you would find these two prices converging. But in any case, it is dumb to continue to insist that 17 bolivares is the "right" price.
I wrote the other day about how Kevin Drum was confused at why broadband stocks might be rising in the wake of news that the government would regulate broadband companies as utilities. I argued the reason was likely because investors know that such regulation blocks most innovation-based competition and tends to guarantee companies a minimum profit -- nothing to sneeze at in the Internet world where previous giants like AOL, Earthlink, and Mindspring are mostly toast.
James Taranto pointed today to an interesting Richard Eptstein quote along the same lines (though he was referring to hospitals under Obamacare):
Traditional public utility regulation applies to such services as gas, electric and water, which were supplied by natural monopolists. Left unregulated, they could charge excessive or discriminatory prices. The constitutional art of rate regulation sought to keep monopolists at competitive rates of return.
To control against the risk of confiscatory rates, the Supreme Court also required the state regulator to allow each firm to obtain a market rate of return on its invested capital, taking into account the inherent riskiness of the venture.
Climate skeptics are at risk of falling into the same exaggeration-trap as do alarmists.
I have written about the exaggeration of past warming by questionable manual adjustments to temperature records for almost a decade. So I don't need to be convinced that these adjustments 1) need to be cleaned up and 2) likely exaggerate past warming.
However, this talk of the "Greatest Scientific Fraud of All Time" is just crazy. If you are interested, I urge you read my piece from the other day for a more balanced view. Don't stop reading without checking out #4.
These recent articles are making it sound like alarmist scientists are simply adding adjustments to past temperatures for no reason. But there are many perfectly valid reasons surface temperature measurements have to be manually adjusted. It is a required part of the process. Just as the satellite data must be adjusted as well, though for different things.
So we should not be suspicious of adjustments per se. We should be concerned about them, though, for a number of reasons:
- In many parts of the world, like in the US, the manual adjustments equal or exceed the measured warming trend. That means the"signal" we are measuring comes entirely from the adjustments. That is, to put it lightly, not ideal.
- The adjustments are extremely poorly documented and impossible for any third party to replicate (one reason the satellite record may be more trustworthy is all the adjustment code for the satellites is open source).
- The adjustments may have a bias. After all, most of the people doing the adjustments expect to see a warming trend historically, and so consider lack of such a trend to be an indicator the data is wrong and in need of adjustment. This is not a conspiracy, but a normal human failing and the reason why the ability to replicate such work is important.
- The adjustments do seem to be very aggressive in identifying any effects that might have artificially created a cooling trend but lax in finding and correcting effects that might have artificially created a warming trend. First and foremost, the changing urban heat island effect in growing cities seems to be under-corrected (Again there is debate on this -- the proprietors of the model believe they have fixed this with a geographic normalizing, correcting biases from nearby thermometers. I and others believe all they are doing is mathematically smearing the error over a larger geography).
Again, I discussed all the pros and cons here. If pushed to the wall, I would say perhaps half of the past warming in the surface temperature record is due to undercorrection of warming biases or overcorrection of cooling biases.
A Unified Theory of Poor Risk Management: What Climate Change Hysteria, the Anti-GMO Movement, and the Anti-Vaccination Movement Have in Common
After debating people online for years on issues from catastrophic man-made climate change to genetically-modified crops to common chemical hazards (e.g. BPA) to vaccination, I wanted to offer a couple quick thoughts on the common mistakes I see in evaluating risks.
1. Poor Understanding of Risk, and of Studies that Evaluate Risk
First, people are really bad at thinking about incremental risk above and beyond the background risk (e.g. not looking at "what is my risk of cancer" but "what is my incremental added risk from being exposed to X"). Frequently those incremental risks are tiny and hard to pick out of the background risk at any level of confidence. They also tend to be small compared to everyday risks on which people seldom focus. You have a far higher - almost two orders of magnitude - risk in the US of drowning in your own bathtub than you have in being subject to terrorism, but which do we obsess over?
Further, there are a lot of folks who seem all-to-ready to shoot off in a panic over any one scary study in the media. And the media loves this, because it drives the meter on their earnings, so they bend over backwards to look for studies with scary results and then make them sound even scarier. "Tater-tots Increase Risk of Ebola!" But in reality, most of these scary studies never get replicated and turn out to be mistaken. Why does this happen?
The problem is that every natural process is subject to random variation. Even without changing the conditions of an experiment, there is going to be random variation in measurements. For example, one population of white mice might have 6 cancers, but the next might have 12 and the next might have zero, all from natural variation. So the challenge of most experiments is to determine whether the thing one is testing (e.g. exposure to a particular substance) is actually changing the measurements in a population, or whether that change is simply the result of random variation. That is what the 95% confidence interval (that Naomi Oreskes wants to get rid of) really means. It means there is only a 5% chance that the results measured were due to natural variation.
This is a useful test, but I hope you can see how it can fail. Something like 5% of the time that one is measuring two things that actually are uncorrelated, the test is going to give you a false positive. Let's say in a year that the world does 1000 studies to test links that don't actually exist. Just from natural variation, 5% of these studies will still seem to show a link at the 95% confidence level. We will have 50 studies that year broadcasting false links. The media will proceed to scare the crap out of you over these 50 things.
I have never seen this explained better than in this XKCD cartoon (click to enlarge):
All of this is just exacerbated when there is fraud involved, an unfortunate but not unknown occurrence when reputations and large academic grants are on the line. This is why replication of the experiment is important. Do the study a second time, and all but 2-3 of these 50 "false positive" studies will fail to replicate the original results. Do it three times, and all will likely fail to replicate. This, for example, is exactly what happened with the vaccine-autism link -- it came out in one study with a really small population and some evidence of fraud, and was never replicated.
2. The Precautionary Principle vs. the Unseen, with a Dollop of Privilege Thrown In
When pressed to the wall too hard about the size and quality of the risk assessment, most folks subject to these panics will fall back on the "precautionary principle". I am not a big fan of the precautionary principle, so I will let Wikipedia define it so I don't create a straw man:
The precautionary principle or precautionary approach to risk management states that if an action or policy has a suspected risk of causing harm to the public or to the environment, in the absence of scientific consensus that the action or policy is not harmful, the burden of proof that it is not harmful falls on those taking an action.
I will observe that as written, this principle is inherently anti-progress. The proposition requires that folks who want to introduce new innovations must prove a negative, and it is very hard to prove a negative -- how do I prove there are no invisible aliens in my closet who may come out and eat me someday, and how can I possibly get a scientific consensus to this fact? As a result, by merely expressing that one "suspects" a risk (note there is no need listed for proof or justification of this suspicion), any advance may be stopped cold. Had we followed such a principle consistently, we would still all be subsistence farmers, vassals to our feudal lord.
One other quick note before I proceed, it turns out that proponents of the precautionary principle are very selective as to where they apply the principle. They feel like it absolutely must be applied to fossil fuel burning, or BPA use, or GMO's. But precautionary principle supporters never apply it in turn to, say, major new government programs and regulations and economic interventions, despite many historically justified concerns about the risks of these programs.
But neither of these is necessarily the biggest problem with the precautionary principle. The real problem is that it focuses on only one side of the equation -- it says that risks alone justify stopping any action or policy without any reference at all to benefits of that policy or opportunity costs of its avoidance. A way of restating the precautionary principle is, "when faced with risks and benefits of a certain proposal, look only at the risks."
Since the precautionary principle really hit the mainstream with the climate change debate, I will use that as an example. Contrary to media appellations of being a "denier," most science-based climate skeptics like myself accept that man is adding to greenhouse gasses in the atmosphere and that those gasses have an incremental warming effect on the planet. What we deny is the catastrophe -- we believe we have good evidence that catastrophic forecasts from computer models are exaggerating future warming, and greatly exaggerating resulting forecast climate changes. Whenever I am fairly successful making this argument, the inevitable rejoinder is "well, the precautionary principle says that if we have even a small percentage chance that burning fossil fuels will lead to a climate disaster, then we have to limit their use immediately".
The problem with this statement is that it assumes there is no harm or risk to reducing fossil fuel use. But fossil fuel use pays enormous benefits to everyone in the world. Even if we could find near substitutes that don't create CO2 emissions (and it is every much open to debate if such substitutes currently exist), these substitutes tend to be much more expensive and much more infrastructure-intensive than are fossil fuels. The negative impact to the economy would be substantial. One could argue that one particular impact -- climate or economy -- outweighs the other, but it is outright fraud to refuse to discuss the trade-off altogether. Particularly since catastrophic climate change may only be a low-percentage risk while economic dislocation from reduction in fossil fuel use is a near certainty.
My sense is that if the United States chose to cut way back on fossil fuel use in a concerted effort, we could manage it and survive the costs. But that is because we are a uniquely rich nation. I am not sure anyone in this country understands how rich. I am not talking just about Warren Buffet. Even the poorest countries have a few rich people at the top. I am talking about everybody. Our poorest 20% would actually be among the richest quintile in many nations of the world. A worldwide effort to eliminate fossil fuel use or to substantially raise its costs or to force shifts to higher cost, less easily-used alternatives would simply devastate many developing nations, which need every erg their limited resources can get their hands on. We are at a unique moment in history when more than a billion people are in the process of emerging from poverty around the world, progress that would be stopped in its tracks by a concerted effort to limit CO2 output. Why doesn't the precautionary principle apply to actions that affect their lives?
College kids have developed a popular rejoinder they use in arguments that states "check your privilege." I thought at first it was an interesting phrase. I used it in arguments a few times about third world "sweat shops". I argued that those who wanted to close down the Nike factory paying $1 an hour in China needed to check their privilege -- they had no idea what alternatives those Chinese who took the Nike jobs were facing. Yes, you middle class Americans would never take that job, but what if your alternative was 12 hours a day in a rice paddy somewhere that barely brought in enough food for your family to subsist? Only later, I learned that "check your privilege" didn't mean what I thought it meant, and in fact in actual academic use it instead means "shut up, white guy." In a way, though, this use is consistent with how the precautionary principle is often used -- in many of my arguments, "precautionary principle" is another way of saying "stop talking about the costs and trade-offs of what I am proposing."
Perhaps the best example of the damage that can be wrought by a combination of Western middle class privilege and the precautionary principle is the case of golden rice. According to the World Health Organization between 250,000 to 500,000 children become blind every year due to vitamin A deficiency, half of whom die within a year of becoming blind. Millions of other people suffer from various debilitating conditions due to the lack of this essential nutrient. Golden Rice is a genetically modified form of rice that, unlike conventional rice, contains beta-Carotene in the rice kernel, which is converted to vitamin A in humans.
By 2002, Golden Rice was technically ready to go. Animal testing had found no health risks. Syngenta, which had figured out how to insert the Vitamin A–producing gene from carrots into rice, had handed all financial interests over to a non-profit organization, so there would be no resistance to the life-saving technology from GMO opponents who resist genetic modification because big biotech companies profit from it. Except for the regulatory approval process, Golden Rice was ready to start saving millions of lives and preventing tens of millions of cases of blindness in people around the world who suffer from Vitamin A deficiency.
Seems like a great idea. Too bad its going nowhere, due to fierce opposition on the Left (particularly from Greenpeace) to hypothetical dangers from GMO's
It’s still not in use anywhere, however, because of the opposition to GM technology. Now two agricultural economists, one from the Technical University of Munich, the other from the University of California, Berkeley, have quantified the price of that opposition, in human health, and the numbers are truly frightening.
Their study, published in the journalEnvironment and Development Economics, estimates that the delayed application of Golden Rice in India alone has cost 1,424,000 life years since 2002. That odd sounding metric – not just lives but ‘life years’ – accounts not only for those who died, but also for the blindness and other health disabilities that Vitamin A deficiency causes. The majority of those who went blind or died because they did not have access to Golden Rice were children.
Note this is exactly the sort of risk tradeoff the precautionary principle is meant to ignore. The real situation is that a vague risk of unspecified and unproven problems with GMO's (which are typically driven more by a distrust on the Left of the for-profit corporations that produce GMO's rather than any good science) should be balanced with absolute certainty of people dying and going blind. But the Greenpeace folks will just shout that because of the "precautionary principle", only the vague unproven risks should be considered and thus golden rice should be banned.
Risk and Post-Modernism
A few weeks ago, I wrote about Naomi Oreskes and the post-modern approach to science, where facts and proof take a back-seat to political narratives and the feelings and intuition of various social groups. I hadn't really thought much about this post-modernist approach in the context of risk assessment, but I was struck by this comment by David Ropeik, who blogs for Scientific American.
The whole GMO issue is really just one example of a far more profound threat to your health and mine. The perception of risk is inescapably subjective, a matter of not just the facts, but how we feel about those facts. As pioneering risk perception psychologist Paul Slovic has said, “risk is a feeling.” So societal arguments over risk issues like Golden Rice and GMOs, or guns or climate change or vaccines, are not mostly about the evidence, though we wield the facts as our weapons. They are mostly about how we feel, and our values, and which group’s values win, not what will objectively do the most people the most good. That’s a dumb and dangerous way to make public risk management decisions.
Mr. Ropeik actually disagrees with me on the risk/harm tradeoffs of climate change (he obviously thinks the harms outweigh the costs of prevention -- I will give him the benefit of the doubt that he has actually thought about both sides of the equation). Fine. I would be thrilled for once to have a discussion with someone about climate change when we are really talking about costs and benefits on both sides of the equation (action and inaction). Unfortunately that is all too rare.
Postscript: To the extent the average person remembers Bjorn Lomborg at all, they could be excused for assuming he is some crazed right-wing climate denier, given how he was treated in the media. In fact, Lomborg is very much a global warming believer. He takes funding from Right-ish organizations now, but that is only because he has been disavowed by the Left, which was his original home.
What he did was write a book in which he looked at a number of environmental problems -- both their risks and costs as well as their potential mitigation costs -- and he ranked them on bang for the buck: Where can we get the most environmental benefit and help the most people for the least investment. The book talked about what he thought were the very real dangers of climate change, but it turned out climate change was way down this ranked list in terms of benefits vs. costs of solutions.
This is a point I have made before. Why are we spending so much time, for example, harping on China to reduce CO2 when their air is poisonous? We know how to have a modern technological economy and still have air without soot. It is more uncertain if we can have a modern technological economy, yet, without CO2 production. Lomborg thought about just this sort of thing, and made the kind of policy risk-reward tradeoffs based on scientific analysis that we would hope our policy makers were pursuing. It was exactly the kind of analysis that Ropeik was advocating for above.
Lomborg must have expected that his work would be embraced by the environmental Left. After all, it was scientific, it achnowleged the existence of a number of environmental issues that needed to be solved, and it advocated for a strong government-backed effort led by smart technocrats doing rational prioritizations. But Lomborg was absolutely demonized by just about everyone in the environmental community and on the Left in general. He was universally trashed. He was called a climate denier when in fact he was no such thing -- he just pointed out that man-made climate change was way harder to solve than other equally harmful environmental issues. Didn't he get the memo that the narrative was that global warming was the #1 environmental threat? How dare he suggest a re-prioritization!
Lomborg's prioritization may well have been wrong, but no one was actually sitting down to make that case. He was simply demonized from day one for getting the "wrong" answer, defined as the answer not fitting the preferred narrative. We are a long, long way from any reasonable ability to assess and act on risks.
The Business Secretary of the UK is desperately worried that when travelling to other countries, Brits will encounter a different selection of Netflix programming from what they are used to at home. This trivial issue seems to demand a whole new regulatory and copyright regime:
Vince Cable will risk a clash with the film and music industries on Tuesday by calling for the creation of a single EU market for digital services such as Netflix.
The Business Secretary will say in a speech in Brussels that such services should offer the same content in all EU member states, for services paid for in one country to be available in the same form in all countries and for pricing offers to be replicated across the continent.
At present Netflix and Spotify, which operates a subscription streaming service for music, offers different catalogues at different prices depending on where the customer is located.
Harmonising such services across the EU would require copyright holders to change the way they license their material, which is currently carefully segmented for different geographic markets to maximise sales
Whenever Euro-regulators suggest harmonization across countries, they always assume that harmonization will lead to everyone adopting whatever the lowest current rate and broadest service offering that exists in any one country. But why? That pretty much never happens. It is at least as likely that anyone getting harmonized will get worse service at a higher price.
Arnold Kling on the recent financial crisis:
1. The facts are that one can just as easily blame the financial crash on an attempted tightening of regulation. That is, in the process of trying to rein in bank risk-taking by adopting risk-based capital regulations, regulators gave preference to highly-rated mortgage-backed securities, which in turn led to the manufacturing of such securities out of sub-prime loans.
2. The global imbalances that many of us thought were a bigger risk factor than the housing bubble did not in fact blow up the way that we thought that they would. The housing bubble blew up instead.
What he is referring to is a redefinition by governments in the Basel accords of how capital levels at banks should be calculated when determining capital sufficiency. I will oversimplify here, but basically it categorized some assets as "safe" and some as "risky". Those that were risky had their value cut in half for purposes of capital calculations, while those that were "safe" had their value counted at 100%. So if a bank invested a million dollars in safe assets, that would count as a million dollar towards its capital requirements, but would count only $500,000 towards those requirements if it were invested in risky assets. As a result, a bank that needed a billion dollars in capital would need a billion of safe assets or two billion of risky assets.
Well, this obviously created a strong incentive for banks to invest in assets deemed by the government as "safe". Which of course was the whole point -- if we are going to have taxpayer-backed deposit insurance and bank bailouts, the prices of that is getting into banks' shorts about the risks they are taking with their investments. This is the attempted tightening of regulation to which Kling refers. Regulators were trying for tougher, not weaker standards.
But any libertarian could tell you the problem that is coming here -- the regulatory effort was substituting the risk judgement of thousands or millions of people (individual bank and financial investors) for the risk judgement of a few regulators. There is no guarantee, in fact no reason to believe, the judgement of these regulators is any better than the judgement of the banks. Their incentives might be different, but there is also not any guarantee the regulators' incentives are better (the notion they are driven by the "public good" is a cozy myth that never actually occurs in reality).
Anyway, what assets did the regulators choose as "safe"? Again, we will simplify, but basically sovereign debt and mortgages (including the least risky tranches of mortgage-backed debt). So you are a bank president in this new regime. You only have enough capital to meet government requirements if you get 100% credit for your investments, so it must be invested in "safe" assets. What do you tell your investment staff? You tell them to go invest the money in the "safe" asset that has the highest return.
And for most banks, this was mortgage-backed securities. So, using the word Brad DeLong applied to deregulation, there was an "orgy" of buying of mortgage-backed securities. There was simply enormous demand. You hear stories about fraud and people cooking up all kinds of crazy mortgage products and trying to shove as many people as possible into mortgages, and here is one reason -- banks needed these things. For the average investor, most of us stayed out. In the 1980's, mortgage-backed securities were a pretty good investment for individuals looking for a bit more yield, but these changing regulations meant that banks needed these things, so the prices got bid up (and thus yields bid down) until they only made sense for the financial institutions that had to have them.
It was like suddenly passing a law saying that the only food people on government assistance could buy with their food stamps was oranges and orange derivatives (e.g. orange juice). Grocery stores would instantly be out of oranges and orange juice. People around the world would be scrambling to find ways to get more oranges to market. Fortunes would be made by clever people who could find more oranges. Fraud would likely occur as people watered down their orange derivatives or slipped in some Tang. Those of us not on government assistance would stay away from oranges and eat other things, since oranges were now incredibly expensive and would only be bought at their current prices by folks forced to do so. Eventually, things would settle down as everyone who could do so started to grow oranges. And all would be fine again, that is until there was a bad freeze and the orange crop failed.
Government regulation -- completely well-intentioned -- had created a mono-culture. The diversity of investment choices that might be present when every bank was making its own asset risk decisions was replaced by a regime where just a few regulators picked and chose the assets. And like any biological mono-culture, the ecosystem might be stronger for a while if those choices were good ones, but it made the whole system vulnerable to anything that might undermine mortgages. When the housing market got sick (and as Kling says government regulation had some blame there as well), the system was suddenly incredibly vulnerable because it was over-invested in this one type of asset. The US banking industry was a mono-culture through which a new disease ravaged the population.
Postscript: So with this experience in hand, banks moved out of mortage-backed securities and into the last "safe" asset, sovereign debt. And again, bank presidents told their folks to get the best possible yield in "safe" assets. So banks loaded up on sovereign debt, in particular increasing the demand for higher-yield debt from places like, say, Greece. Which helps to explain why the market still keeps buying up PIIGS debt when any rational person would consider these countries close to default. So these countries continue their deficit spending without any market check, because financial institutions keep buying this stuff because it is all they can buy. Which is where we are today, with a new monoculture of government debt, which government officials swear is the last "safe" asset. Stay tuned....
Postscript #2: Every failure and crisis does not have to be due to fraud and/or gross negligence. Certainly we had fraud and gross negligence, both by private and public parties. But I am reminded of a quote which I use all the time but to this day I still do not know if it is real. In the great mini-series "From the Earth to the Moon", the actor playing astronaut Frank Borman says to a Congressional investigation, vis a vis the fatal Apollo 1 fire, that it was "a failure of imagination." Engineers hadn't even considered the possibility of this kind of failure on the ground.
In the same way, for all the regulatory and private foibles associated with the 2008/9 financial crisis, there was also a failure of imagination. There were people who thought housing was a bubble. There were people who thought financial institutions were taking too much risk. There were people who thought mortgage lending standards were too lax. But with few exceptions, nobody from progressive Marxists to libertarian anarcho-capitalists, from regulators to bank risk managers, really believed there was substantial risk in the AAA tranches of mortgage securities. Hopefully we know better now but I doubt it.
Update#1: The LA Times attributes "failure of imagination" as a real quote from Borman. Good, I love that quote. When I was an engineer investigating actual failures of various sorts (in an oil refinery), the vast majority were human errors in procedure or the result of doing things unsafely that we really knew in advance to be unsafe. But the biggest fire we had when I was there was truly a failure of imagination. I won't go into it, but it resulted from a metallurgical failure that in turn resulted form a set of conditions that we never dreamed could have existed.
By the way, this is really off topic, but the current state of tort law has really killed quality safety discussion in companies of just this sort of thing. Every company should be asking itself all the time, "is this unsafe?" or "under what conditions might this be unsafe" or "what might happen if..." Unfortunately, honest discussions of possible safety issues often end up as plaintiff's evidence in trials. The attorney will say "the company KNEW it was unsafe and didn't do anything about it", often distorting what are honest and healthy internal discussions on safety that we should want occurring into evidence of evil malfeasance. So companies now show employees videos like one I remember called, I kid you not, "don't write it down."
- Tortured and detained more people than they ever admitted
- Were more brutal than they ever admitted
- Were more haphazard and incompetent than can be believed (losing suspects, outsourcing torture to a couple of outside psychologists with no interrogation experience or credentials)
- Achieved far less than they bragged from the torture, with results that now appear to approximate zero
- Lied about everything to everyone, up to and including Congress and the President
The CIA needs a forced enema of its own, though I am skeptical they will get it.
I will say that there is nothing really particularly surprising here to a libertarian. This sort of lawlessness often occurs in fairly transparent government agencies (think VA) so it should be no surprise that it occurs in an agency like this that has zero accountability (because it can yell "classified" as the drop of a hat). An agency empowered to hide stuff and keep secrets is going to hide stuff and keep secrets. I am not even sure that if we really could turn the CIA upside down that this would be the worst thing we would find.
At the risk of diluting the totally appropriate horror with which this report should be received, I will observe a couple of positives:
- Three cheers for partisanship and divided government. They get a bad rap because gridlock, but without confrontational, competitive, even polarized rivals for power, this sort of thing would never have come out. You can see pretty clearly from the minority comments that Republicans would have buried this had they controlled the Senate.
- One cheer for American exceptionalism. Yes, the hubris and arrogance that often accompanies American exceptionalism went a long way to contributing to these errors. But there are not many countries in the world that would publish this report. Forget for a minute Russia or China or Mali. Even among western democracies there are not many countries that would voluntarily call for penalty strokes on themselves. I can't imagine, for example, France ever making such an admission (and not, I think, because the DGSE's hands are particularly clean).
As of next year, my company is required to offer health care plans to our full-time employees or else pay a penalty. Unfortunately, after an extensive market search, no one will sell me such a policy -- not even the government health care exchange for small businesses.
Let's take a step back. Business owners have had the rules pounded into us over the last few years, but many of you may not be familiar with the details. The detail rules are here, as "simplified" as much as possible by the NFIB, but don't read them unless you have to or your head will explode. The simple way to think of it is that there are two penalties out there:
- The "A" penalty is for companies that do not offer any sort of health plan, no matter how crappy, to their full-time employees. The A penalty in this case is $2,000 per full-time employee, with the first 30** free (so with 60 FT employees and no health plan, the penalty is (60-30) x $2,000 = $60,000 a year.
- The "B" penalty is for companies that avoid the "A" penalty. If a health plan is offered, but is not affordable (ie the employee monthly share of premiums is higher than a government-set floor) then the company gets penalized $3,000 for every full-time employee who both goes into an exchange and gets a plan with a government-subsidized premium. There is a cap on the "B" penalty that it can be no higher than if the "A" penalty was applied to the whole company.
We have always pretty much assumed we were going to get the B penalty. For minimum wage workers, the floor contribution is something like $9o a month, so the company share over a year for a typical employee of ours would be way over $3000. Also, since over half of our full-time employees are on Medicare and another portion of them are on some sort of retirement plan from a corporation, we don't expect that many to go into the exchange anyway. So we plan to just pay the penalty.
But we had expected to avoid the A penalty by offering some sort of policy to our employees. When experts present this stuff, they act like only the dumbest of the dumb companies would ever be saddled with the A penalty. After all, the company does not even have to pay anything for the policy, they just have to offer something.
But it turns out that all the things that protect us from the B penalty make us almost un-insurable. First and foremost, insurers have a minimum participation rate they demand. They are not going to go through all the overhead costs of setting you up on their plan if no one is going to sign up. In the Government Small Business Health Care Exchange (SHOP), that minimum participation rate is around 70%. No WAY we can meet that, since over half or our employees are on Medicare and would thus not sign up for anything. The fact that the average age of our workforce is in the 60's, maybe even the 70's, just makes things worse. Obamacare gives insurers only limited ability to price for higher risk, so they lose money on older people. That means they are going to avoid like the plague signing up any group like ours that is all older people.
So, as a result, I am required by law, under harsh financial penalties, to purchase a product that is not available to me. Had President Obama required that I buy 2 pounds of rocks from Mars, the result would not have been any more unfair.
By the way, I have for a couple of years now been discussing my efforts to convert all our full-time employees to part-time. I have gotten a lot of grief for that in the comments. But do you see why now? The Administration is levying a penalty on me that I cannot avoid. That penalty is calculated as a multiple of the number of full-time workers I employ. The only way I can reduce the penalty is to reduce the number of full-time employees.
It is a sorry state of affairs to have to see my greatest business achievement of the last year was to get my number of full-time employees in a workforce of over 350 people down to just 42. This year, we will work to get it under 30. If we can do that, we will avoid all penalties entirely without having to mess with the health insurance marketplace.
** As a transition measure, the first 80 are free in 2015, which means my company will avoid penalties in 2015 no matter what but not in 2016 unless we can get our full-time employee count down further.
Postscript: One of the oddball and confusing parts of the law is that the word "full-time" has multiple meanings. This year, companies with more than 100 full time equivalents (FTE) are subject to the mandate. Because of this, at cocktail parties, I have people walk up to me all the time saying the law does/doesn't apply to me based on a factoid they heard about minimum workforce sizes. I have 350 total employees of whom 42 are full time. Some say that puts me over 100 (the 350) and some say that puts me under the 100 (the 42). It turns out that neither are relevant in determining if I am under or over 100, it is a third calculation that matters. We do have more than 100 FTE, but we have less than 80 full-time employees that triggers the penalties in 2015. Go figure.
Apparently there is a daily pill called Truvada that can help reduce (but apparently not prevent) the transmission of HIV through unprotected sex. Many public health agencies are promoting its use.
Apparently there is also at least one skeptic, a man named Michael Weinstein, who fears the pill may not be as effective as advertised, but more importantly is concerned that the pill's existence will reduce the use of condoms among at-risk men.
As I read the article (and I know zero about it on my own) the ranking in terms of effectiveness is: condoms+Truvada > condoms > Truvada > nothing.
The amazing thing to me is how broken the dialog about these issues appears to be. Truvada supporters claim that there is a consensus on Truvada and that Weinstein is alone in his criticism, and that he is as bad as a "climate-change denialist" (eek!)
Weinstein claims that many others believe as he does but have been silenced by intimidation by the Truvada supporters. Further, he argues that public officials who support Truvada are all paid off by the drug makers in one way or another.
Jeez, this all sounds so familiar to this veteran of the climate wars that it is just amazing. And the real tragedy of this broken discourse is that both sides have a totally valid argument. I have no doubt that Truvada provides incremental protection (even Weinstein's clinic proscribes it). On the other hand, it is fairly "settled science" in the safety world that an easier-to-use protection method can actually reduce total safety by undercutting a parallel protection mechanism -- the drop in seat belt use after air bags were added to cars is a classic example. Weinstein argues that Truvada use will reduce use of condoms, and thus undermine safety. Truvada supporters argue that condom use is so low already, even after 30 years of education efforts, that the drug is better. Essentially, Weinstein sees the baseline as men who use condoms and worry about them getting worse. The other side sees the baseline as men who don't use condoms and argues the drug makes things better.
It is a shame to see two groups of people who likely are motivated by good intentions devolve into name-calling and ad hominem attacks. Just read the quotes in the article - no one in the debate seems to acknowledge that the other side includes people of good will who simply disagree.
Apparently Paul Krugman has weighed in on Amazon and has concluded that it has "too much power".
I just cannot believe progressives are falling into the trap of defending major publishers against Amazon. People like Krugman who bash Amazon are effectively setting themselves up as defenders of a small oligarchy of entrenched publishers who have, until recently, done a very good job of making themselves the sole gatekeeper of who gets into print. Amazon is breaking this age-old system down, in the same way that Uber is challenging taxi cartels and Tesla is challenging traditional auto dealer networks, and giving most everyone access to the book buyer.
The system that Krugman is defending is the system of the 1%. Or 0.1%. The current publishing system benefits about 200 major authors who are in the system and whose work has traditionally been spammed by the large publishers to every bookstore and news outlet. When you walk into an airport book seller, how much diversity of books do you see on the front table? You just know that you are going to see Sue Grafton's "AA is for Aardvark" and Janet Evanovich's "Fabulous Forty-Six". The publishers have risk-return marketing incentives to push the 46th Stephanie Plum novel over trying any new author.
So while the traditional publishers flog the 0.1% of authors, Amazon has empowered 20,000 authors. Those who sell just a few thousand copies (or fewer) of books have found an outlet in Amazon that never existed for them (as disclosure, I am one of those). And writers who distribute mainly through Amazon get a far higher percentage of their book revenues than they ever would get from the traditional publishers.
So Amazon is helping the consumer (lower prices) and 99.9% of authors (better access and higher profits). It is perhaps hurting the top 0.1% and a few century-old entrenched corporations. So what doesn't Krugman like?
Nicole Kaeding of Cato has an article on the SSD system heading for bankruptcy. I can tell you from my experience that a week does not go by when someone doesn't come to me looking for work and saying something like, "I am on full disability but I am fully able to work. However, I can't take any pay because that would screw up my disability payments. Can I work for you and have you write my payroll checks to my wife?"
The easy answer to that is "no". With a backlog of 25000+ people who want a job, why am I going to help them cheat, particularly when it would be me taking the legal risk?
I once had an ex-employee who was applying for a SS disability. You may not understand that for many folks, getting a Social Security lifetime disability is like hitting the lottery. This employee knew that if asked, we would have to tell the SS investigator that she seemed fully able to do her job and never demonstrated any reduced functionality. So to pre-empt that, she and her attorney sent me a letter saying that if we in any way testified to her being able to work and prevented her from getting her disability payment, she would tie me up in court for years, suing me for sexual harassment, discrimination, and everything else she could think of.
I just don't get it -- why the obsession with streetcars? Why pay zillions of dollars to create what is essentially a bus line on rails, a bus line that costs orders of magnitude more per passenger to operate and is completely inflexible. It can never be rerouted or moved or easily shut down if changes in demand warrant. And, unlike with heavy rail on dedicated tracks, there is not even a gain in mobility since the streetcars have to wallow through traffic and intersections like everyone else.
What we see over and over again is that by consuming 10-100x more resources per passenger, rail systems starve other parts of the transit system of money and eventually lead to less, rather than more, total ridership (even in Portland, by the way).
But apparently, in DC the cannibalization of buses is even worse, as the streetcars are getting in the way and slowing buses down: (hat tip to a reader)
Three District mayors have backed plans to return streetcars to D.C. streets, following in the transit-oriented footsteps of Portland, Ore., and other cities. Officials in the nation’s capital want to build a 20-plus-mile network connecting neighborhoods from Georgetown and Takoma to Anacostia, linking richer and poorer communities, giving people an alternative to the automobile and, they argue, spurring development along the routes. Eventually they see a system stretching about 37 miles.
... The inaugural 2.2-mile line, on H Street and Benning Road NE, is viewed by some as proof that the concept will work. Others see the opposite.....
Buses are facing significant delays behind the streetcars, which are making regular practice runs meant to simulate everyday operations. “We’re having to go around them. Since H Street has narrow lanes to begin with, it’s a challenge,” Hamre said. He said he has instructed bus drivers to pass streetcars only when they are stopped.
“That reduces the risk of misjudging,” Hamre said.
But it also forces faster-moving buses to hang back and wait for the less-agile streetcars, prolonging commutes for the much larger population of bus riders.
Back in 2010, District transportation officials estimated that 1,500 people a day will ride streetcars on the H Street/Benning Road line once it opens. But the X-line Metrobuses that travel the same streets — and go farther east and west — carry more than 12,000 passengers a day.
Apparently, the line creates so much value that no one is willing to pay even a dollar to ride it, so they will not be charging for the service for now. By the way, from the "I don't think that word means what you think it means" files, note the use of the term "revenue service":
Early plans were to charge $1 or more a ride. But now “DDOT has determined that fares will not be collected at the start of revenue service,” according to a DDOT plan dated Oct. 2.
And from the "and other than that, how was the play Mrs. Lincoln" files:
District officials said the move will solve a pair of outstanding problems: They don’t have a system in place to collect fares, and ridership is projected to be underwhelming.
I have just been flabbergasted at the feminist reaction against efforts to teach women to be more difficult targets for sexual predators (e.g. communicating the dangers of binge drinking, nail polish that detects date rape drugs, etc). Nobody thinks that encouraging people to buy burglar alarms or lock their doors is somehow shifting blame for robbery to the victim. But that is exactly the argument feminists are making vis a vis sexual assault on campus. They argue that any effort to teach victims to be a tougher target is an insult to women and must be avoided.
This is just stupid. So stupid that I wonder if there is an ulterior motive. There is no way you ever are going to get rid of bad people doing bad things. Our historic messaging on things like date rape may have been confused or insufficiently pointed, but we have always been clear on, say, murder and there is still plenty of that which goes on. I almost wonder if feminists want women to continue to be victims so they can continue to be relevant and have influence. It's a sick thought but what other explanation can there be for purposely disarming victims?
So I was jogging the other night through a university (Vanderbilt) and saw all those little blue light emergency phones that are so prevalent on campus. In most cases, the ubiquity of those emergency phones is a result of the growing female population on campus and are there primarily to make women (and perhaps more importantly, their parents who write the checks) be safer feel more comfortable. Women's groups were big supporters of these investments. But why? Isn't that inconsistent? Shouldn't we consider investment in such emergency devices as wrong-headed attempts to avoid fixing the root cause, which is some inherent flaw in males?
If you say no, that it would be dumb to rip out the emergency phones, then why is it dumb to teach Freshman women some basic safety skills that may prevent them from being victims? I have taken numerous campus tours with my kids and in almost every one they point out the blue light phones and in almost every case say, "I have never heard of these being used, but they are there." I guarantee 30 minutes helping women understand how to avoid particularly risky situations would have a higher return than the phones.
I say this with some experience. I was in a business for a while that required international travel and in which there was some history of executives getting attacked or kidnapped in foreign cities. The company gave us a one-day risk-identification as well as beginner escape and evasion course. It was some of the most useful training I have ever had. And not for a single second did I think anyone was trying to blame me for street crime in foreign cities.
Paul Roberts has an editorial in the LA Times that sortof, kindof mirrors my post the other day that observed that corporate stock buybacks (and investments to reduce tax rates) were likely signs of a bad investment climate. Until he starts talking about solutions
Roberts begins in a similar manner
Here's a depressing statistic: Last year, U.S. companies spent a whopping $598 billion — not to develop new technologies, open new markets or to hire new workers but to buy up their own shares. By removing shares from circulation, companies made remaining shares pricier, thus creating the impression of a healthier business without the risks of actual business activity.
Share buybacks aren't illegal, and, to be fair, they make sense when companies truly don't have something better to reinvest their profits in. But U.S. companies do have something better: They could be reinvesting in the U.S. economy in ways that spur growth and generate jobs. The fact that they're not explains a lot about the weakness of the job market and the sliding prospects of the American middle class.
I suppose I would dispute him in his implication that there is something unseemly about buybacks. They are actually a great mechanism for economic efficiency. If companies do not have good investment prospects, we WANT them returning the cash to their shareholders, rather than doing things like the boneheaded diversification of the 1960's and 1970's (that made investment bankers so rich unwinding in the 1980's). That way, individuals can redeploy capital in more promising places. The lack of investment opportunities and return of capital to shareholders is a bad sign for investment prospects of large companies, but it is not at all a bad sign for the ethics of corporate management. I would argue this is the most ethical possible thing for corporations to do if they honestly do not feel they have a productive use for their cash.
The bigger story here is what might be called the Great Narrowing of the Corporate Mind: the growing willingness by business to pursue an agenda separate from, and even entirely at odds with, the broader goals of society. We saw this before the 2008 crash, when top U.S. banks used dodgy financial tools to score quick profits while shoving the risk onto taxpayers. We're seeing it again as U.S. companies reincorporate overseas to avoid paying U.S. taxes. This narrow mind-set is also evident in the way companies slash spending, not just on staffing but also on socially essential activities, such as long-term research or maintenance, to hit earnings targets and to keep share prices up....
It wasn't always like this. From the 1920s to the early 1970s, American business was far more in step with the larger social enterprise. Corporations were just as hungry for profits, but more of those profits were reinvested in new plants, new technologies and new, better-trained workers — "assets" whose returns benefited not only corporations but the broader society.
Yes, much of that corporate oblige was coerced: After the excesses of the Roaring '20s, regulators kept a rein on business, even as powerful unions exploited tight labor markets to win concessions. But companies also saw that investing in workers, communities and other stakeholders was key to sustainable profits. That such enlightened corporate self-interest corresponds with the long postwar period of broadly based prosperity is hardly a coincidence....
Without a more socially engaged corporate culture, the U.S. economy will continue to lose the capacity to generate long-term prosperity, compete globally or solve complicated economic challenges, such as climate change. We need to restore a broader sense of the corporation as a social citizen — no less focused on profit but far more cognizant of the fact that, in an interconnected economic world, there is no such thing as narrow self-interest.
There is so much crap here it is hard to know where to start. Since I work for a living rather than write editorials, I will just pound out some quick thoughts
- As is so typical with Leftist nostalgia for the 1950's, his view is entirely focused on large corporations. But the innovation model has changed in a lot of industries. Small companies and entrepreneurs are doing innovation, then get bought by large corporations with access to markets and capital needed to expanded (the drug industry increasingly works this way). Corporate buybacks return capital to the hands of individuals and potential entrepreneurs and funding angels.
- But the Left is working hard to kill innovation and entrepreneurship and solidify the position of large corporations. Large corporations increasingly have the scale to manage regulatory compliance that chokes smaller companies. And for areas that Mr. Roberts mentions, like climate and green energy, the government manages that whole sector as a crony enterprise, giving capital to political donors and people who can afford lobbyists and ignoring everyone else. "Socially engaged" investing is nearly always managed like this, as cronyism where the politician you held a fundraiser for is more important than your technology or business plan. *cough* Solyndra *cough*
- One enormous reason that companies are buying back their own stock is the Federal Reserve's quantitative easing program, which I would bet anything Mr. Roberts fully supports. This program concentrates capital in the hands of a few large banks and corporations, and encourages low-risk financial investments of capital over operational investments
- All those "Social engagement" folks on the Left seem to spend more time stopping investment rather than encouraging it. They fight tooth and nail the single most productive investment area in the US right now (fracking), they fight new construction in many places (e.g. most all places in California), they fight for workers in entrenched competitors against new business models like Lyft and Uber, they fight every urban Wal-Mart that attempts to get built. I would argue one large reason for the lack of operational investment is that the Left blocks and/or makes more expensive the investments corporations want to make, offering for alternatives only crap like green energy which doesn't work as an investment unless it is subsidized and you can't count on the subsidies unless you held an Obama fundraiser lately.
- If corporations make bad investments and tick off their workers and do all the things he suggests, they get run out of business. And incredibly, he even acknowledges this: "And here is the paradox. Companies are so obsessed with short-term performance that they are undermining their long-term self-interest. Employees have been demoralized by constant cutbacks. Investment in equipment upgrades, worker training and research — all essential to long-term profitability and competitiveness — is falling." So fine, the problem corrects itself over time.
- He even acknowledges that corporations that are following his preferred investment strategy exist and are prospering -- he points to Google. Google is a great example of exactly what he is missing. Search engines and Internet functionality that Google thrives on were not developed in corporate R&D departments. I don't get how he can write so fondly about Google and simultaneously write that he wishes, say, US Steel, were investing more in R&D. I would think having dinosaur corporations eschew trying to invest in these new areas, and having them return the money to their shareholders, and then having those individuals invest the money in startups like Google would be a good thing. But like many Leftists he just can't get around the 1950's model. At the end of the day, entrepreneurship is too chaotic -- the Left wants large corporations that it can easily see and control.
Government contractors would be insane to operate in California (and perhaps other regulatory hell-holes, but I am familiar with California). California has a myriad of arcane labor laws (like break laws and heat stress laws) that are difficult to comply with, combined with a legislature that shifts the laws every year to make it hard to keep up, combined with a regulatory and judicial culture that assumes businesses are guilty until proven innocent. If state labor violations or suits lead to loss of business at the national level, why the hell would a contractor ever want to have employees in California?
Bader provides the numbers:
Whether a large company is sued for discrimination or labor law violations often has more to do with its location than whether it violated the law. A recent study shows that “California has the most frequent incidences of [employment-practices] charges in the country, with a 42 percent higher chance of being sued by an employee for establishments . . . over the national average. Other states and jurisdictions where employers are at a high risk of employee suits include the District of Columbia (32% above the national average) [and] Illinois (26%).” It’s because of their location, not because California employers are more racist or anti-union than employers in other states (indeed, California employers spend more time and money on compliance mechanisms than employers elsewhere).
He goes on to discuss what I think is actually is a bigger issue than differential penalties, which is the criminalization of things in California that are perfectly legal in other places. The best example is lunch breaks. Companies don't just have to provide lunch breaks, they have an affirmative responsibility to make sure an employee takes a non-working lunch. An employee who voluntarily does some work while taking a lunch break (e.g. answers a question from a customer that might walk up to her) makes the company liable for a penalty. I kid you not. That is why California corporations have sometimes made it a firing offense to be caught doing work at lunch, because it makes the company liable under the law.
Washington’s response to the menace of school bake sales illustrates progressivism’s ratchet: The federal government subsidizes school lunches, so it must control the lunches’ contents, which validates regulation of what it calls “competitive foods,” such as vending machine snacks. Hence the need to close the bake sale loophole, through which sugary cupcakes might sneak: Foods sold at fundraising bake sales must, with some exceptions, conform to federal standards.
So if school lunch programs are a platform for so much micro-regulation, how much regulation do you think the government takeover of healthcare will justify? If government is paying most of the health care bills, then any activity that might affect your health is then logically subject to government regulation, if for no other reason than to protect against additional costs. Motorcycle helmet laws have been justified for years on this logic that helmetless riders impose additional costs on government health programs. Well, if that works for motorcycling, why shouldn't government be heavily regulating skiing? Or for that matter, why should it allow people to drive cars at all? Perhaps we should have to get government approval before every car trip to make sure it is not "frivolous" and creating future health care costs through accident risk.
Or how about that most costly-to-health-care activity of all: sex. Sex spreads expensive diseases. It can lead to expensive procedures like abortion. And of course it can lead to costly pregnancies and, worst of all, new lives that have to be maintained for another 80 years by the government health care system. If funding school lunch programs leads logically to banning cupcake sales at schools, why won't Obamacare lead logically to micro-regulation of our every activity?
One of the factors in the financial crisis of 2007-2009 that is mentioned too infrequently is the role of banking capital sufficiency standards and exactly how they were written. Folks have said that capital requirements were somehow deregulated or reduced. But in fact the intention had been to tighten them with the Basil II standards and US equivalents. The problem was not some notional deregulation, but in exactly how the regulation was written.
In effect, capital sufficiency standards declared that mortgage-backed securities and government bonds were "risk-free" in the sense that they were counted 100% of their book value in assessing capital sufficiency. Most other sorts of financial instruments and assets had to be discounted in making these calculations. This created a land rush by banks for mortgage-backed securities, since they tended to have better returns than government bonds and still counted as 100% safe.
Without the regulation, one might imagine banks to have a risk-reward tradeoff in a portfolio of more and less risky assets. But the capital standards created a new decision rule: find the highest returning assets that could still count for 100%. They also helped create what in biology we might call a mono-culture. One might expect banks to have varied investment choices and favorites, such that a problem in one class of asset would affect some but not all banks. Regulations helped create a mono-culture where all banks had essentially the same portfolio stuffed with the same one or two types of assets. When just one class of asset sank, the whole industry went into the tank,
Well, we found out that mortgage-backed securities were not in fact risk-free, and many banks and other financial institutions found they had a huge hole blown in their capital. So, not surprisingly, banks then rushed into government bonds as the last "risk-free" investment that counted 100% towards their capital sufficiency. But again the standard was flawed, since every government bond, whether from Crete or the US, were considered risk-free. So banks rushed into bonds of some of the more marginal countries, again since these paid a higher return than the bigger country bonds. And yet again we got a disaster, as Greek bonds imploded and the value of many other countries' bonds (Spain, Portugal, Italy) were questioned.
So now banking regulators may finally be coming to the conclusion that a) there is no such thing as a risk free asset and b) it is impossible to give a blanket risk grade to an entire class of assets. Regulators are pushing to discount at least some government securities in capital calculations.
This will be a most interesting discussion, and I doubt that these rules will ever pass. Why? Because the governments involved have a conflict of interest here. No government is going to quietly accept a designation that its bonds are risky while its neighbor's are healthy. In addition, many governments (Spain is a good example) absolutely rely on their country's banks as the main buyer of their bonds. Without Spanish bank buying, the Spanish government would be in a world of hurt placing its debt. There is no way it can countenance rules that might in any way shift bank asset purchases away from its government bonds.
Stop calling me and other skeptics "climate deniers". No one denies that there is a climate. It is a stupid phrase.
I am willing, even at the risk of the obvious parallel that is being drawn to the Holocaust deniers, to accept the "denier" label, but it has to be attached to a proposition I actually deny, or that can even be denied.
As help in doing so, here are a few reminders (these would also apply to many mainstream skeptics -- I am not an outlier)
- I don't deny that climate changes over time -- who could? So I am not a climate change denier
- I don't deny that the Earth has warmed over the last century (something like 0.7C). So I am not a global warming denier
- I don't deny that man's CO2 has some incremental effect on warming, and perhaps climate change (in fact, man effects climate with many more of his activities other than just CO2 -- land use, with cities on the one hand and irrigated agriculture on the other, has measurable effects on the climate). So I am not a man-made climate change or man-made global warming denier.
What I deny is the catastrophe -- the proposition that man-made global warming** will cause catastrophic climate changes whose adverse affects will outweigh both the benefits of warming as well as the costs of mitigation. I believe that warming forecasts have been substantially exaggerated (in part due to positive feedback assumptions) and that tales of current climate change trends are greatly exaggerated and based more on noting individual outlier events and not through real data on trends (see hurricanes, for example).
Though it loses some of this nuance, I would probably accept "man-made climate catastrophe denier" as a title.
** Postscript -- as a reminder, there is absolutely no science that CO2 can change the climate except through the intermediate step of warming. If you believe it is possible for CO2 to change the climate without there being warming (in the air, in the oceans, somewhere), then you have no right to call anyone else anti-science and you should go review your subject before you continue to embarrass yourself and your allies.
I often criticize others for attributing 100% of any bad trend to their personal pet peeve. To some extent I am guilty of that in my last post, where I blamed declining business formation on increasingly complex regulation and licensing. I think there are good reasons for doing so -- I have spent the last 6 months passing up on business growth opportunities because I was too consumed with catching up on regulatory compliance minutia, particularly in California. And I have watched as many of my smaller competitors who have fewer resources to dedicate to such compliance issues have left the business, telling me they could no longer keep up with all the requirements.
But there is seldom just one single cause for any trend in a complex, chaotic system (e.g. climate, but economics as well). One other reason business formation may have dropped is the crash of the housing market and specifically in the equity many have in their homes.
Home equity has historically been an important source of capital for small business formation. My first large investment in my company was funded with a loan that was secured by the equity in my home. What outsiders may not realize about small business banking nowadays is that it is nothing like how banking is taught in high school civics. In that model, the small business person goes to her local banker and presents a business plan, which the banker may fund if they think it is a good risk.
In the real world, trying to get such an unsecured loan from a bank as a small business will at best result in laughter. My company is no longer what many would call "small" -- we will do millions in revenue this year. But there is no way in the world that my banker of over 10 years will lend to my business unsecured -- they will demand some asset they can put a lien on. So we can get financing of equipment purchases (as a capital lease on the equipment) and on factored receivables and inventory. But without any of that stuff, a new business that just needs cash for startup cash flow is out of luck -- unless the owner has a personal asset, typically a house, on which the banker can place a lien.
So, without home equity, one of the two top sources of capital for small business formation disappears (the other top source is loans from friends and family, which one might also expect to dry up in a tough economy).
Postscript: Banks will make cash flow loans if guaranteed by the SBA. This is another whole can of worms, which I will not discuss today. SBA loans are expensive and difficult to get, and the SBA has a tendency to turn the money spigot on and off at random times. I have often wondered if the SBA helped to kill cash flow lending by banks. First, why make risky small unsecured loans when you can get a government guarantee? And second, with more formulaic lending criteria, SBA lending eliminated the need for loan officers who were good at evaluating business risks. I can say from personal experience that the folks who can intelligently discuss a business plan and its risks are all gone from banks now (at least in the small business market).
We just worked with an attorney to rewrite our California employee handbook. For your enjoyment, here are all the state-mandated leaves of absence we are required to provide employees (most unpaid, but some paid) and for which we must write detailed rules in our employee manual. We'd likely provide most of this stuff anyway if asked, but the administrative hassle of having this all be a point of law (backed with the threat of expensive litigation if we make even the smallest mistake) is expensive and irritating.
- Family/medical leaves (including more restrictive California Family Medical Leave Act)
- Pregnancy disability leave
- Organ donor and bone marrow donor leave
- Military leave of absence
- Military spouse’s leave of absence
- Civil air patrol leave
- Drug/alcohol rehabilitation accommodation
- Time off for adult literacy programs
- Time off for required attendance at school of suspended pupil
- Time off for attending activities at child’s school or licensed day care facility
- Time off for duty as election official
- Time off for jury and witness duties
- Time off for victim of domestic violence, sexual assault or stalking – obtaining relief for victim and children
- Time off for victim of domestic violence, sexual assault or stalking –additional time for victim’s participation
- Time off for victim of certain felonies
- Time off to attend court proceedings for certain crimes
- Time off for volunteer firefighter, reserve peace officer or emergency rescue personnel duties
- Time off for volunteer firefighter, reserve peace officer or emergency rescue personnel training
- Time off for voting
- Workers' compensation leave
PS- this is not necessarily a comprehensive list and it is published at the risk of having a California lawyer see it and say "aha! They have forgotten time off for the death of a beloved hamster. Let's sue him."