Posts tagged ‘Wall Street Journal’

Government Contractors: Get Out of California

Apparently there is yet another executive order with far reaching consequences for government contractors, Executive Order 13673  (does it bother anyone else that we are up in the 13 thousands on these?  Did they start numbering at 1?)  Hans Bader has the details:

A July 31 executive order by President Obama will make it very costly for employers to challenge dubious allegations of wrongdoing against them, if they are government contractors (which employ a quarter of the American workforce). Executive Order 13,673 will allow trial lawyers to extort larger settlements from companies, and enable bureaucratic agencies to extract costly settlements over conduct that may have been perfectly legal. That’s the conclusion of The Wall Street Journal and prominent labor lawyer Eugene Scalia.

This “Fair Pay and Safe Workplaces” order allows government officials to cut off the contracts of contractors and subcontractors that do not “consistently adhere” to a wide array of complex labor, antidiscrimination, harassment, workplace-safety and disabilities-rights laws. Never mind that every large national business, no matter how conscientious, has at least one successful lawsuit against it under federal labor and employment laws, which is inevitable when a company has thousands of employees who can sue it in hundreds of different courts that often have differing interpretations of the law. The order also bans using perfectly legal arbitration agreements, overstepping the President’s legal authority.

I can say as someone who absolutely bends over backwards to be in compliance, it just is not possible to be totally clean.  We have won most all of the lawsuits and actions against us over the years vis a vis labor laws and related charges.  A lot of these are pro forma discrimination charges that some employees in protected groups file automatically when terminated, usually without any evidence of specific discrimination.  We have, to date, won all of these "was he a Hispanic that was terminated rather than he was terminated because he was Hispanic" suits.  We have only lost one case.  To give you an idea of how hard it can be to be 100% in compliance, let me describe it:

We had a government contract governed by the Service Contract Act, which sets out minimum wages to be paid for different types of jobs.  These wages typically are in two parts - a base wage and, if the company does not have benefits, a fringe payment in lieu of such benefits.  For example, it might say that a day laborer must be paid (I will use round numbers for simplicity) $12 an hour base wages plus $4 an hour for fringes.  So we paid the worker $16 and hour and felt ourselves in compliance.  

Then we had a Department of Labor audit.  The investigator insisted that the law required that we break these two payments into two lines on the paycheck.  So instead of having  a paycheck that said 40 hours times $16, it needed to say 40 hours times $12 and 40 hours times $4.  Thus we were found to be in violation and issued a huge fine.  I protested that the law said no such thing -- the law said I had to have a clear paper trail of what I paid people.  It did not say the labor and fringes had to be shown separately on the paycheck, nor did any DOL published regulation require this  (and of course I also pointed out that the intent of the law that someone get paid a minimum amount had been fulfilled).  

Apparently, the DOL had an internal handbook that suggested this as a correct practice, but this had never been tested in court nor embodied in a published regulation.  To impose the fine, my attorney said they had to take me to court.  I said go for it.  The DOL chose not to press the case, and we adjusted our paycheck practices to avoid the issue in the future.  I was happy to comply with this, as stupid as it was, but it was impossible to know it was an actual requirement until I got busted for violating this double-secret practice.  But there it is on my record - VIOLATION!

I will leave it to Bader's article to explore some of the implications of this order, but I want to add some unintended(?) consequences of my own:

  • 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?
  • I have a couple of smaller competitors who have sent employees into the parks we operate who then filed extensive, manufactured complaints to the government about our service, timed to make it difficult on us when we bid against them for the contract renewal.  How tempting will it be for companies to place employees in their rival who then file serial labor complaints to undermine that rival in future contract awards?
  • Companies that do government contracting as a sideline are going to be driven out of the business, reducing the choice and competition among contractors.   Earlier I discussed how 41 CFR 60-2.1  and 41 CFR 60-4.1, also the result of an Obama executive order, drove our company out of our last incidental contracting business (though we deal with the government all the time, it is generally through concession contracts where we get paid by the public, not by the government, so a lot of government contracting law does not apply to these contracts).

How Regulators Strangle Legal Businesses

Apparently the Feds are using banking regulation to strangle businesses, even legal ones, that they don't like by cutting off their access to the banking system (via Overlawyered).

Wall Street Journal reporter Robin Sidel, along with Andrew Johnson, reported on the success that the federal government is having in barring access to the banking system for a number of businesses. As we've discussed previously, "Operation Choke Point" and related arm-twisting efforts by the Feds are aimed at making life difficult for a variety of targeted businesses. Among those disfavored businesses are online lenders, payday lenders, check cashers, virtual currency dealers, gaming businesses, and marijuana-related businesses (although our beloved US Attorney General has been making noises that he simply will look the other way when it comes to enforcing federal drug laws against marijuana businesses that are operating legally under state law)....

In the article and a companion audio interview, Sidel states that the primary concern appears to be with the difficulty of complying with BSA and money laundering risk. While that's certainly true with many of the businesses, it's also true that some of the businesses have been targeted by the regulators for extra scrutiny because they're in a line of business, like payday lending, where the regulators simply don't like the business model on social policy grounds. If we see the Feds back off of weed but still keep the heat on payday lenders, then the argument that it's all about money laundering risk becomes a bit tenuous.

Challenging the Governments Arbitrary Closure of Privately-Funded Parks During the Shutdown

I have not updated this story in a while, but we continue to litigate against the Federal Government over the closure of privately-operated and privately-funded parks on public lands.  The closure is over, obviously, but it is a situation that is very likely to recur and we are attempting to fight this battle now to set a precedent.   The Wall Street Journal's law blog is running an update on the story here.

You can find all my posts from the shutdown here.

How Newspapers May Survive

Local blogger Greg Patterson writes:

The Wall Street Journal is reporting that Gannett will soon be adding USA Today to it's local papers.

With this change, the Republic and USA Today are essentially a hybrid.  As print revenue continues to slide the USA Today side will grow and the Republic side will shrink.  Eventually, your morning Republic will consist of a copy of USA Today with enhanced local coverage.

This is a change I have expected for a long time.  The wire services have always existed as an attempt by local papers to share costs in national and international news gathering, but I would have expected this next step of national consolidation some time ago.  The internet allows not just the text, but the entire layout of newspapers to be transmitted instantly across the country.

The whole situation reminds me of television broadcasting, where local affiliates exist mainly as a byproduct of past technological limitations in signal transmission.  Satellite and cable have eliminated these restrictions, but still local affiliates exist, in part because there is some demand for local content but in part because of the fact that the government protects their existence (by law, cable and satellite operators must give you the local affiliate, they cannot give you the national feed).

This is what I wrote back in 2009

I actually think the problem with newspapers like the Washington Post is the "Washington" part.  Local business models dominated for decades in fields where technology made national distribution difficult or where technology did not allow for anything but a very local economy of scale.  Newspapers, delivery of television programming, auto sales, beverage bottling and distribution, book selling, etc. were all mainly local businesses.  But you can see with this list that technology is changing everything.  TV can now be delivered via sattelite and does not require local re-distribution via line of sight broadcast towers or cable systems.  Amazon dominated book selling via the Internet.  Many of these businesses (e.g. liquor, auto dealers, TV broadcasting) would have de-localized faster if it had not been for politicians in the pocket of a few powerful companies passing laws to lock in outdated business or technological models.

Newspapers are ripe for a restructuring.  How can one support a great Science page or Book Review section or International Bureau on local circulation?  How much effort do the NY Times, Washington Post, LA Times, SF Chronicle, etc. duplicate every day?  People tell me, "that's what the wire services are for."  Bah.  The AP is 160 years old!  It is a pre-Civil War solution to this problem.  Can it really be that technology and changing markets have not facilitated a better solution?

The future is almost certainly a number of national papers (ala the WSJ and USA Today) printed locally with perhaps local offices to provide some local customization or special local section.  Paradoxically, such a massive consolidation from hundreds of local papers to a few national papers would actually increase competition.  While we might get a few less stories about cats being saved from trees in the local paper, we could well end up not with one paper selection (as we have today in most cities) but five or six different papers to choose from  (just look at Britain).  Some of these papers might choose to sell political neutrality while some might compete on political affiliation.

Do Reporters Even Look At Their Own Charts?

A Wall Street Journal article today looks at problems at Sears in their critical appliance business.  I have no problem believing that Sears is in trouble, and at various times over the past decade (full disclosure here) have held small short positions in Sears.  The author argues that the Sears appliance business has had a number of missteps, and is contributing to Sears growing losses, propositions with which I cannot argue, in part because there is no data provided to confirm or deny the connection between problems in the appliance business and Sears' profitability woes.

The other theme of the article is that recent missteps in the appliance business, particularly the 2009 switch from Whirlpool to Samsung and LG to manufacture its in-house Kenmore brand, is hurting its market share in the retail appliance business, and leading the the growth in market share at Home Depot and Loews.   But the author's own data belie this conclusion.  Here is the market share chart she includes:

MK-CF765_SEARS_G_20130822175404

 

While Sears may have lost a couple of points of market share since 2008, and 2013 does not look like a particularly good year so far, the vast majority of its market share loss occurred from 2002-2008, long before most of the recent problems profiled in the article.  In fact, its more likely that the loss coincided with Sears reorganization with Kmart a decade ago, events referred to only briefly in the article.

Look, I have no insider knowledge here, just a pet peeve that trends referenced in an article should match trends in the data.  But Sears is a tired old retailer.  Many of its peers from the same era are dying or dead.  People are shifting their shopping away from the malls where Sears is located.  Lowes and Home Depot were both juggernauts during this period.  I would have said that a story could equally well have been written that despite all the confusion in their business, they have done a pretty descent job arresting the decline in their market share over the last five years.  Of course they are likely dead in the long run.

Postscript:  Oddly, I witnessed a similar Sears private label fracas when I worked for Emerson Electric over a decade ago.  For years and years, Emerson (not the folks who make the cheap radios and TVs) manufactured many of the Sears Craftsman hand tools and power tools.  Sears got tough one year, and negotiated a better deal of some sort with someone else, and an entire division of Emerson saw its sales basically going to zero.  So Emerson bought a bunch of orange paint and plastic, went to Home Depot, and cut a deal for a private label tool line at Home Depot (Emerson separately owns the Rigid tool company, so a lot of the items were branded Rigid).  Emerson ended up in potentially better shape (I did not stay long enough to see how it turned out), partnered with a growing rather than a declining franchise.

A Partial Retraction on AIG

The story the other day that AIG was considering suing the taxpayers because the taxpayers did not give them a nice enough bailout was so vomit-inducing that I did not even look much further into it.

A couple of readers whom I trust both wrote me to say that the issues here are a bit more complex than I made them out to be.  The Wall Street Journal sounds a similar note today:

Every taxpayer and shareholder should be rooting for this case to go to trial. It addresses an important Constitutional question: When does the federal government have the authority to take over a private business? The question looms larger since the 2010 passage of the Dodd-Frank law, which gave the feds new powers to seize companies they believe pose risks to the financial system.

That vague concept of "systemic risk" was the justification for the AIG intervention in September 2008. In the midst of the financial crisis, the federal government seized the faltering insurance giant and poured taxpayer money into it. The government then used AIG as a vehicle to bail out other financial institutions.

But the government never received the approval of AIG's owners. The government first delayed a shareholder vote, then held one and lost it in 2009, and then ignored the results and allowed itself to vote as if the common shareholders had approved the deal.

In 2011 Mr. Greenberg's Starr International, a major AIG shareholder, filed a class-action suit in the U.S. Court of Federal Claims in Washington alleging a violation of its Constitutional rights. Specifically, Starr cites the Fifth Amendment, which holds that private property shall not "be taken for public use, without just compensation." The original rescue loans from the government required AIG to pay a 14.5% interest rate and were fully secured by AIG assets. So when the government also demanded control of 79.9% of AIG's equity, where was the compensation?

Greenberg is apparently arguing that he would have preferred chapter 11 and that the company and its original shareholders likely would have gotten a better deal.  Perhaps.   So I will tone down my outrage against Greenberg, I suppose.  But nothing about this makes me any happier about bailouts and corporate cronyism that are endemic in this administration.

Cargo Cult Social Engineering

Once upon a time, government officials decided it would help them keep their jobs if they could claim they had expanded the middle class.  Unfortunately, none of them really understood economics or even the historical factors that led to the emergence of the middle class in the first place.  But they did know two things:  Middle class people tended to own their own homes, and they sent their kids to college.

So in true cargo cult fashion, they decided to increase the middle class by promoting these markers of being middle class.  They threw the Federal government strongly behind promoting home ownership and college education.  A large part of this effort entailed offering easy debt financing for housing and education.  Because the whole point was to add poorer people to the middle class, their was a strong push to strip away traditional underwriting criteria for these loans (e.g. down payments, credit history, actual income to pay debt, etc.)

We know what happened in the housing market.  The government promoted home ownership with easy loans, and made these loans a favorite investment by giving them a preferential treatment in the capital requirements for banks.  And then the bubble burst, with the government taking the blame for the bubble.  Just kidding, the government blamed private lenders for their lax underwriting standards, conviniently forgetting that every President since Reagan had encouraged such laxity (they called it something else, like "giving access to the poor", but it means the same thing).

A similar bubble is just about to burst in the college loan market, and this time it will be much harder for the government to blame private lenders, since the government effectively nationalized the market several years ago and for years has been the source of at least 90% of all college loans.  In the Wall Street Journal today, it was reported that student loans are now the largest component of consumer debt, and growing

Further, a Fed report yesterday said that student loan diliquencies have jumped substantially of late

The scary part was found by Zero Hedge in the footnotes of the report, which admit that this number is understated by as much as half, meaning the true delinquency rate of student debt may be north of 20%.

The Journal article linked above explains why this is:

Nearly all student loans—93% of them last year—are made directly by the government, which asks little or nothing about borrowers' ability to repay, or about what sort of education they intend to pursue.

President Barack Obama championed easy-to-get loans during the campaign, calling higher education "an economic imperative in the 21st century." A spokesman for Education Secretary Arne Duncan said the goal is "to make student loans available to as many people as possible," and requiring minimum credit scores would block many Americans

Any of this sound familiar?  I seldom learn much from anecdotes in new stories since it is too easy to craft a stirring anecdote on either side of just about any issue.  But I was amazed at the story of the woman who was issued $184,500 in student debt to send her son to college when her entire income is a $1600 a month disability check.

Quick Observations about the NFIB

The Wall Street Journal editorial page had a piece on the "smearing" of small business.  Apparently, in the political battle over Obamacare, the NFIB has become the new target of the left.

I have not seen these attacks on the NFIB, but after the bizarre joint attacks on ALEC, I certainly believe they exist.  The WSJ summarizes these attacks this way:

According to the smear campaign against the National Federation of Independent Business, or NFIB, small businesses are thrilled with the Affordable Care Act and the trade group betrayed the 300,000 companies it represents. Among the dozens of media outlets publishing anti-NFIB op-eds disguised as reporting, Reuters recently asked in a headline, "Who truly speaks for small businesses?" The question mark was superfluous.

The chairmen of the House Progressive Caucus, Democrats Raul Grijalva and Keith Ellison, chimed in with a letter accusing the NFIB of acting against "the best interest of small business owners" and "the popular opinion of the American small business community." They suggest Karl Rove is behind the suit, as he is everything else.

As a member of the NFIB  (I joined several years ago specifically due to their work on health care) I believe the NFIB addresses issues that really concern our company better than any other group I have found.  Certainly they are far better than the Chamber of Commerce, which tends to be a group of large companies more interested in crony handouts than free competition.  Members get polled constantly to see what issues we care about and to see what positions we would like the NFIB to take.

This latter process makes the NFIB among the most virtuous of the organizations to which I have belonged.  Certainly the Sierra Club, way back when I was a member, never polled me on whether I preferred them to focus their efforts, say, on political activism or true conservation efforts.

I am exhausted by journalists and politicians on the Left who have barely even worked in a profit-making venture, much less run one, who speak with great authority on what small business owners should or should not want.  Our company is in the business of making long-term operations bids.  For the last three years, we have had to bid two numbers for our expenses, one with Obamacare and (a much lower one) without.  Never in 25 years of our history has any external factor, government-drive or not, made this much contingent difference to our bids.  So it is simply insulting to be told that it should not make any difference to me, or that its effects will be universally cost-reducing.

Further, it is really, really hard for a small business to parse the impact of Obamacare because it is #$&*#$ hard to figure out just what its provisions are.  McDonalds can afford to hire a team of experts to figure it out, and to start gaming it by using its political clout to seek special exemptions and treatment from the Obama Administration.  We cannot.  The NFIB is the only organization, public or private, in the country that has actually helped us understand the law's requirements.  For several years running, they have sent an expert, at their expense, to our industry gatherings to help educate companies on the law.

Inevitable Result of Price Controls, Health Care Edition

Well, it turns out that the laws of supply and demand do indeed apply in the health care field.  Obamacare and before it Romneycare combine government subsidies of demand with cost controls mainly consisting of price caps on suppliers.  The results are exactly what any college student could predict after even one week of microeconomics 101:  shortages.

First, from the WSJ

A new survey released yesterday by the Massachusetts Medical Society reveals that fewer than half of the state's primary care practices are accepting new patients, down from 70% in 2007, before former Governor Mitt Romney's health-care plan came online. The average wait time for a routine checkup with an internist is 48 days. It takes 43 days to secure an appointment with a gastroenterologist for chronic heartburn, up from 36 last year, and 41 days to see an OB/GYN, up from 34 last year....

Massachusetts health regulators also estimate that emergency room visits jumped 9% between 2004 and 2008, in part due to the lack of routine access to providers. The Romney-Obama theory was that if everyone is insured by the government, costs would fall by squeezing out uncompensated care. Yet emergency medicine accounts for only 2% of all national health spending.

The emergency room data is fascinating, as crowded emergency rooms supposedly overwhelmed by the uninsured was such an important image in the campaign to pass Obamacare.  More on this from Q&O:

Hospital emergency rooms, the theory goes, get overcrowded because people without health insurance have no place else to go.

But that’s not the view of the doctors who staff those emergency departments.
The real problem, according to a new survey from the American College of Emergency Physicians,isn’t caused by people who don’t have insurance — it’s caused by people who do, but still can’t find a doctor to treat them.

A full 97 percent of ER doctors who responded to the ACEP survey said they treated patients "daily" who have Medicaid (the federal-state health plan for the low-income), but who can’t find a doctors who will accept their insurance…."The results are significant," said ACEP President Sandra Schneider in prepared comments. "They confirm what we are witnessing in Massachusetts — that visits to emergency rooms are going to increase across the country, despite the advent of health care reform, and that health insurance coverage does not guarantee access to medical care."

As I have been saying for a long time, the Obama health care nuts do not have any secret, magical idea or plan for cutting health care costs.  In fact, as I have written here and here, we should expect Federalization to exacerbate the bad information and incentives that make health care more expensive.  The only idea they have, in fact, is the only one that anyone ever has in government for this kind of thing -- price controls

Over the weekend, The Washington Postpublished a Q&A-style explainer on the Independent Payment Advisory Board—the panel of federal health care technocrats charged with keeping down spending growth on Medicare.

The details are complicated, but the gist is simple: If spending on Medicare is projected to grow beyond certain yearly targets, then it’s IPAB to the rescue: The 15-member panel appointed by the president has to come up with a package of cuts that will hold Medicare’s growth in check. If Congress want to override that package, it only has two options: Vote to pass a different but equally large package of cuts or kill the package entirely with a three-fifths supermajority in the Senate.

The Post lays out the basic framework above. But what it doesn’t explain in any detail is exactly how those cuts will be achieved. And that, of course, is where the difficulty begins: Here’s how The Wall Street Journal’s editorial board explained it last month: “Since the board is not allowed by law to restrict treatments, ask seniors to pay more, or raise taxes or the retirement age, it can mean only one thing: arbitrarily paying less for the services seniors receive, via fiat pricing.” Medicare already centrally sets the prices it pays for the services of doctors and hospitals. Given the board's limitations, the most likely cuts we’ll see from IPAB, then, will be arbitrary, quality-blind reductions in these payments (though hospitals will be exempt from cuts for the first couple years).

We know what happens next: Providers stop taking on new Medicare patients, or drop out of the system entirely. In Medicaid, which pays far lower rates than Medicare (which pays somewhat lower rates than private insurance), this is already common: As one emergency physician recently told The New York Times, “Having a Medicaid card in no way assures access to care.” If IPAB cuts Medicare provider payments down to the bone, it could end up transforming Medicare into a seniors’-version of Medicaid.

Update on the Health Care Trojan Horse for Fascism

I have warned for quite a while that government health care is a Trojan horse for all kinds of intrusive micro-regulations of our decisions and behaviors.  Here's an update: (via Maggies Farm)

"As the government assumes a larger share of health care costs, it is increasingly able to use that as a justification to intrude into personal decisions or private enterprises, whether it's a matter of smoking policy, trans-fats, or salt," we wrote last month. Now the Wall Street Journal is out with an editorial praising Michelle Obama's campaign against childhood obesity, reasoning, "the reality is that U.S. obesity imposes huge costs on taxpayers. In 2006, the per capita increase in spending attributable to obesity was 36% for Medicare and 47% for Medicaid, according to a paper last year in Health Affairs. Many fat kids grow up to be fat adults, and you've got to start somewhere."

Almost any behavior or decisions, from eating to driving to sports participation, has implications on one's potential future health care costs.  So by this logic, almost anything can be regulated.  For example, I would argue that sex has a much higher health care cost impact than eating, not just in STD's but in the cost of pregnancies and pediatrics.   Or as another example, our family spent far more in health care costs on treating our kids' accidents while playing sports than in dealing with any obesity costs.  Should we be requiring kids to stay indoors playing on the computer where they will be safe from potentially expensive accidents?

Wherein It Turns Out I Am Not Loyal to the US

Unfortunately don't have the time to comment much on this absurd comment, but I am not sure it is even deserving of comment

Andy Stern, president of one of the nations biggest labor unions, said today that America is failing, and many entrepreneurs arent loyal to the U.S.

I think the country is in a mess, Stern, president of the 2.1 million-member Service Employees International Union, said at the Wall Street Journal CEO Council, a conference in Washington. I think America is failing.

Stern, the most frequent guest to the White House this year, said the U.S. economy has created a system in which the entrepreneurial class is not loyal to America. Its not wrong for the government to distribute wealth to people who need it, and labor unions can help the country do that, Stern said.

This Has To Be An Outright Lie

Frequent readers know I almost never call statements "a lie."  I try to take the position that reasonable people can disagree without either lying.  I hate all the "Lying liars and the lies they tell their lying supporters" type books.

But I simply can find no other way to explain this statement:

"There isn't anything we could do to satisfy them in this health care bill. Nothing," Senate Majority Leader Harry Reid (D-Nev.) said. "They are so anti-competitive. Why? Because they make more money than any other business in America today. . . .What a sweet deal they have."

I have written about this any number of times, but Carpe Diem also has the numbers at the link - health care insurers are well below average both in profit margin and return on capital, the two most common measures of profitability.  For the last couple of years, most large health care companies have made less than 5% return on sales.

The only other explanation is the neither the House Majority Leader, his staff, President Obama, or Nancy Pelosi and her staff (all of whom have echoed this same meme) have never once spent the 12 seconds going to Google finance or the Wall Street Journal to look the number up.

Nancy Pelosi once said:

I'm very pleased that our Chair of our Democratic Congressional Campaign Committee and member of the leadership will be talking too about the immoral profits being made by the insurance industry and how those profits have increased in the Bush years. We all believe in the profit motive; we all want to reward success.  But having that success come at the expense of America's working families "” have that success come by withholding care, when a person becomes ill, is just not right and we're going to take this issue in a new direction.

Liberal pundit Kevin Drum, who really should know enough to look it up, once said:

It means the health insurance industry is scared that we might actually do something in 2009 and they want to be seen as something other than completely obstructionist. That means only one thing: they've shown fear, and now it's time to bore in for the kill and gut them like trouts. Let's get to it.

Boycotting Whole Foods

I don't tend to shop at Whole Foods because they offer a value proposition that does not appeal to me.  Their prices are too high for products that generally don't seem noticeably better than ones I can get in other stores.  To some extent the placebo effect of having "all natural" on the package does not really work for me, though I do buy most of my fish and meat there  (and not just because I like the irony of buying only meat products from a store populated by vegans).

That said, I like having the choice in stores.  I even drop by a farmers market once in a while, though generally the hassle is not worth it for me.  The same is true in beers -- I am seldom in the mood for something as dark and rich as a Belhaven, I love the explosion of choices in beer we have seen since the dark days of the late 70's/early 80's.  Other people will make different choices.  Cool.

Which makes it all the more ironic that those who benefit from the explosion in retail choice in the free marketplace are using that choice to protest the CEO of Whole Foods for advocating similar levels of choice in health care.  Anyway, I would write more but Radley Balko did a much better job here.

You see, he shared his ideas on health care reform, thinking that you, being so famously open-minded and all, might take to a few of them, or that it at least might start a conversation. I guess he felt he'd built up some cache with you, and wanted to introduce you to some new ideas. His mistake wasn't in intentionally offending his customers. He's a businessman who has built a huge company up from the ground. I'm sure he knows you don't deliberately offend your customers. His mistake was assuming you all were open-minded enough consider these ideas without taking offense"”that you wouldn't throw a tantrum merely because he suggested some reforms that didn't fall in direct line with those endorsed by your exalted Democratic leaders in Washington. In retrospect? Yeah, it was a bad move. Turns out that many of you weren't nearly mature enough to handle it.

Its hard even to understate the how absolutely nuts self-styled "progressives" have gone over this pretty tame and sober editorial in the IBD.  Here is just one example -- this is a mainstream green blogger and not some weird comment to a Kos post.  I honestly thought this was satire at first:

I agree with CEO John Mackey that it's okay to make money by making your green business big. But Mackey crossed the line with an op-ed in the Wall Street Journal this weekend, whose very publication put him in the company of the lunatic right-wing fringe who edit the paper's opinion section.

The op-ed reads like a page from the Republican playbook, touting individual responsibility for one's health. What a load of unorganic crap!

Holy brothers-keeper Batman - He's advocating individual responsibility!!  Here, since I have not reproduced it before, are the "lunatic" ideas of Mr. Mackey:

"¢"‰Remove the legal obstacles that slow the creation of high-deductible health insurance plans and health savings accounts (HSAs).

"¢"‰Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits.

"¢"‰Repeal all state laws which prevent insurance companies from competing across state lines.

"¢"‰Repeal government mandates regarding what insurance companies must cover.

"¢"‰Enact tort reform to end the ruinous lawsuits that force doctors to pay insurance costs of hundreds of thousands of dollars per year.

"¢"‰Make costs transparent so that consumers understand what health-care treatments cost.

"¢"‰Enact Medicare reform.

"¢"‰Finally, revise tax forms to make it easier for individuals to make a voluntary, tax-deductible donation to help the millions of people who have no insurance and aren't covered by Medicare, Medicaid or the State Children's Health Insurance Program.

The tort reform area is one where Obama is particularly disingenuous. It is just amazing that anyone could write about the cost of medicine being driven by too many useless procedures without once mentioning the words malpractice or defensive medicine.  I wonder if this might explain Obama's silence on tort reform (via maggies farm)

legal

So Lawrence Summers Was Fired For Being Correct?

So, apparently Lawrence Summers was correct:

Wall Street Journal -- Girls
and boys have roughly the same average scores on state math tests, but
boys more often excelled or failed, researchers reported. The fresh
research adds to the debate about gender difference in aptitude for
mathematics, including efforts to explain the relative scarcity of
women among professors of science, math and engineering.

The
latest study, in this week's journal Science, examined scores from
seven million students who took statewide mathematics tests from grades
two through 11 in 10 states between 2005 and 2007.
The
researchers, from the University of Wisconsin and the University of
California, Berkeley, didn't find a significant overall difference
between girls' and boys' scores. But the study also found that boys'
scores were more variable than those of girls. More boys scored
extremely well -- or extremely poorly -- than girls, who were more
likely to earn scores closer to the average for all students. The study found that boys are consistently more variable than girls, in every grade and in every state studied
(see crude diagram above - showing distributions where mean
intelligence is the same, but the standard deviation of male
intelligence is greater than female intelligence).

In Minnesota, for example, 1.85% of white boys in the 11th grade hit the 99th percentile, compared with 0.9% of girls -- meaning there were more than twice as many boys among the top scorers than girls.

Of course, Summers did not get in trouble for being incorrect.  He got in trouble for saying something he was not supposed to say.  And it seems that the media are trying to avoid the same mistake, reporting what they want to believe, and not what the study actually says.

As I write in a post at Climate Skeptic, this is part and parcel of a new post-modernist science, where (as MaxedOutMamma writes) "If a
research finding could harm a class of persons, the theory is that
scientists should change the way they talk about that finding".

Businesses and Regulation

I sometimes here supporters of a certain regulation say "even big company X supports this regulation, so it must be a good idea."  But this is based on a faulty assumption, similar to that made by people who equate being pro-business in politics with being pro-free markets.  They are not the same thing.  As was said at the Cato blog:

Representatives of the business community frequently are the worst
enemies of freedom. They often seek special subsidies and handouts, and
commonly conspire with politicians to thwart competition (conveniently,
they want competition among their suppliers, just not for their own
products). Fortunately, most business organizations still tend to be -
on balance - supporters of limited government. But as the Wall Street Journal notes, some state and local chambers of commerce have become relentless enemies of good policy.

Incumbents of major industries very often shape regulation to their advantage, and to the disadvantage of consumers and smaller or new competitors.  For example, as one of the larger companies in my business, many of the regulations and restrictions I rail against in this blog actually help my business.  Licensing requirements, bonding requirements, insurance requirements, regulatory and reporting requirements, etc.  all tend to make it nearly impossible for new companies to enter the business to compete against me, and give a distinct advantage to the larger incumbent players.   I still vehemently oppose all that garbage, but I do so as a defender of capitalism and against what are probably the best interests of my company.

So when large companies like GE say that they are now on the global warming bandwagon and support government intervention in CO2 emissions and such, it is not an indicator that CO2 science is any good; it just means GE has decided that likely CO2 legislation will help its bottom line.  While GE is portrayed as someone who will get hurt by CO2 regulation but is reluctantly coming around to the science anyway, what it in fact really means is that GE has decided that global warming regulation can be shaped to its advantage, particularly if it can use its size and political muscle molding the details of that regulation.  Here is a great example, via Tom Nelson (the Instapundit of global warming skepticism)

But there is sure to be strong opposition to the bill, including from General Electric Co.

The
light bulb maker is developing a new generation of efficient
incandescent bulbs, said Kim Freeman, a GE spokeswoman in Louisville,
Ky.

By 2012, she said, GE will have an incandescent bulb that uses as little energy as the compact fluorescent bulbs sold today.

"We
would oppose any legislation that would ban a particular technology,"
she said. "Giving consumers more choices is the appropriate approach."

The
company supports the standards passed by Congress in December,
according to Freeman. That law requires bulbs to be 25 percent to 30
percent more efficient starting in 2012.

Read between the lines, and you see GE attempting to steer global warming legislation to its advantage.   The last paragraph goes a long way to explaining GE's support of the last energy bill (with substantial light bulb legislation), which GE might have been expected to oppose.  Because now we see that GE has a product sitting on the shelf ready for release that fits perfectly with the new mandate.  Assuming competitors don't have such a technology yet, the energy bill is then NOT a regulation of GE's product that they reluctantly bow to, but a mandate that allows GE to keep doing business but trashes their competition.  It is a market share acquisition law for GE.  On the other hand, GE says a total ban would be bad, because it would force CF bulbs to the forefront, where GE trails its competitors.  This is the cynical calculus of rent-seeking through regulation.  And it is all worthless, because high efficiency bulbs are one of the things that so clearly pay for themselves that consumers will make the switch for themselves without government mandates.

Pro-Business, Not Pro-Free Market

It is always worth reinforcing this distinction, Via Cato-at-Liberty:

Representatives of the business community frequently are the worst
enemies of freedom. They often seek special subsidies and handouts, and
commonly conspire with politicians to thwart competition (conveniently,
they want competition among their suppliers, just not for their own
products). Fortunately, most business organizations still tend to be -
on balance - supporters of limited government. But as the Wall Street Journal notes, some state and local chambers of commerce have become relentless enemies of good policy

Counting Coup for CO2

New numbers for US vs. European CO2 growth have been making the rounds, based on a Wall Street Journal article today.  Jonathon Adler at Volokh has the key numbers for CO2 growth rates:

U.S. E.U.
1990-1995 6.4% -2.2%
1995-2000 10.1% 2.2%
2000-2004 2.1% 4.5%

The Wall Street Journal tries to make the point that maybe the US somehow has a better approach to CO2 reduction.  Here is the reality:  Neither the US or the EU has done anything of substance to really reduce CO2 production, because at the end of the day no one can tolerate the political and economic costs associated with severe reduction using current technology.

But there is a story in these numbers.  That story goes back to the crafting of the Kyoto treaty, and  sheds an interesting light on what EU negotiators were really trying to achieve.

The Kyoto Treaty called for signatories to roll back CO2 emissions to 1990 levels.  Since Kyoto was signed in the late nineties, one was immediately led to wonder, why 1990?  Why not just freeze levels in place as they were currently?

The reason for the 1990 date was all about counting coup on the United States.  The date was selected by the European negotiators who dominated the treaty process specifically to minimize the burden on Europe and maximize the burden on the US.  Look at the numbers above.  The negotiators had the 1990-1995 numbers in hand when they crafted the treaty and had a good sense of what the 1995-2000 numbers would look like.  They knew that at that point in time, getting to 1990 levels for the EU was no work -- they were already there -- and that it would be a tremendous burden for the US.  Many holier-than-thou folks in this country have criticized the US for not signing Kyoto.  But look at what we were handed to sign - a document that at the point of signing put no burden on the EU, little burden on Japan, no burden on the developing world, and tremendous burden on the US.  We were handed a loaded gun and asked to shoot ourselves with it.  Long before Bush drew jeers for walking away from the treaty, the Senate voted 99-0 not to touch the thing until it was changed.

But shouldn't the European's get some credit for the 1990-1995 reduction?  Not really.  The reduction came from several fronts unrelated to actions to reduce CO2:

  • The European and Japanese economies were absolutely on their backs, reducing economic growth which drives CO2 growth.  I have not looked up the numbers, but the 1990s are probably the time of the biggest negative differential for the European vs. US economy in my lifetime.
  • The British were phasing out the use of carbon-heavy domestic coals for a variety of reasons unrelated to carbon dioxide production.
  • German reunification had just occurred, so tons of outdated Soviet inefficient and polluting industrial plant had just entered the EU, and was expected to be shut down and modernized for economic reasons over the 1990's.  The negotiators went out of their way to make sure they picked a date when all this mess was in their base number, making it easier to hit their target.
  • The 1990 also puts Russia in the base.  Since 1990, as the negotiators knew, the Russian economy had contracted significantly.
  • At the same time the American economy was going gangbusters, causing great envy among Europeans.

Kyoto was carefully crafted to make America look like the bad guy.  The European's goal was to craft treaty responsibilities that would require no real effort in Europe, with most of the burden carried by the US.  But times change, and the game is catching up with them.

Thanks, China!

From Don Boudreaux at Cafe Hayek:

In yesterday's Wall Street Journal, Lawrence Lindsey wrote
about the Chinese government's policy of not allowing the value of the
yuan to rise against that of the dollar:

America, however, benefits from this arrangement. The Chinese clearly
undervalue their exchange rate. This means American consumers are able
to buy goods at an artificially low price, making them winners. In
order to maintain this arrangement, the People's Bank of China must buy
excess dollars, and has accumulated nearly $1 trillion of reserves.
Since it has no domestic use for them, it turns around and lends them
back to America in our Treasury, corporate and housing loan markets.
This means that both Treasury borrowing costs and mortgage interest
rates are lower than they otherwise would be. American homeowners and
taxpayers are winners as a result.

The Chinese are holding on to a Trillion dollars in US currency, with the main effect of subsidizing lower prices and interest rates for US consumers.  What a deal!  (I took a more tongue-in-cheek approach to the same issue here)  I know most commentators instead want to focus on the threat of China suddenly dumping those dollars, disrupting US markets.  People need to understand that the cost of doing the latter is enormous for China, not only in lost value of their dollar-denominated assets but in lost exports as the value of the Yuan would spike.  To test the hypothesis of holding dollars as a strategic weapon, would you feel more secure in the US if the government held a trillion dollars of yuan?  Why?  I would in fact feel more vulnerable to China, dependent on the health of their economy.  I personally am a big believer that Chinese investments in the US are great, and will act as a stabilizing influence in the future. 

By the way, while the above refers the Chinese government holdings of US financial assets, Cafe Hayek also points to an article by John Makin of the AEI who observes that the trade deficit is a misnomer, as the US is providing services that are not counted, specifically wealth-protection services:

In summary, Makin argues that one of the reasons foreigners sell so
many goods and services to Americans and then consistently refrain from
buying an equivalent amount (in value terms) of goods and services from
Americans is that foreigners have a high demand for "wealth-storage"
services supplied by dollar-denominated assets.

The fact that global savers accommodate U.S.
consumers by keeping U.S. interest rates lower than they otherwise
would be and the dollar stronger than it otherwise would be is simply a
manifestation of America's comparative advantage at supplying wealth
storage facilities.

In
other words, there's no real imbalance.  If the services supplied by
"wealth-storage facilities" were counted in international commercial
accounts as "services," then the U.S. current-account would not be in
deficit.

I have written before about why we should not fear the trade deficit with China, and why the word "deficit" is itself a misnomer, here and here.

WSJ on Immigration

I was happy to see the Wall Street Journal come forward with an editorial favoring open immigration (this one is in their non-subscription area).  I am even happier to see that they lead with the issue of fundamental human rights, not with the weak argument of who is to pick the lettuce.

Our
own view is that a philosophy of "free markets and free people"
includes flexible labor markets. At a fundamental level, this is a
matter of freedom and human dignity. These migrants are freely
contracting for their labor, which is a basic human right. Far from
selling their labor "cheap," they are traveling to the U.S. to sell it
more dearly and improve their lives. Like millions of Americans before
them, they and certainly their children climb the economic ladder as
their skills and education increase.

We
realize that critics are not inventing the manifold problems that can
arise from illegal immigration: Trespassing, violent crime, overcrowded
hospital emergency rooms, document counterfeiting, human smuggling,
corpses in the Arizona desert, and a sense that the government has lost
control of the border. But all of these result, ultimately, from too
many immigrants chasing too few U.S. visas.

Those
migrating here to make a better life for themselves and their families
would much prefer to come legally. Give them more legal ways to enter
the country, and we are likely to reduce illegal immigration far more
effectively than any physical barrier along the Rio Grande ever could.
This is not about rewarding bad behavior. It's about bringing
immigration policy in line with economic and human reality. And the
reality is that the U.S. has a growing demand for workers, while Mexico
has both a large supply of such workers and too few jobs at home.

The WSJ argues that polls show that most conservatives are similar-minded.  I'm am not a conservative and don't speak for them, but from the flavor of my email on my pro-immigration posts and from reading various conservative blogs, I have trouble believing it.

I have a number of posts on immigration, but you should start with this one.

Shareholder Suits

Last week, Tyco's Dennis Kozlowski was found guilty of looting the shareholder's assets for his own personal gain.  Good.  Too many CEO's treat public companies as their own, rather than other peoples' companies for which they have fiduciary responsibility.  And, unlike the Dick Grasso mess I commented on earlier, this was a much clearer case of looting as opposed to just negotiating themselves a good deal.  (updateStephen Bainbridge has a different take here)

According to the Wall Street Journal, which requires a subscription:

The guilty verdicts are in for L. Dennis Kozlowski and Mark H. Swartz. For Tyco International Ltd., the company they looted, there may be more court dates to come.

Tyco was hit with dozens of shareholder lawsuits in
2002 and 2003 as the company disclosed waves of accounting problems
that sank its stock. It has restated results several times, going as
far back as 1998. A July 2003 restatement cut about a billion dollars
from pretax profit over several years.

The convictions
lend credence to the plaintiffs' allegations that Tyco was grossly
mismanaged. The suing shareholders already have a strong leg to stand
on: Tyco's string of past restatements amount to an admission that its
accounting was deeply faulty. Shareholders claim they were deceived by
accounting practices that presented rosy pictures of the performance of
the company and its acquisitions, then suffered losses following the
revelation of allegations against Mr. Kozlowski and the restatements.

I have never been able to justify most lawsuits by shareholders against companies in which they own shares.  Any successful verdict would effectively come out of the pockets of the company's owners who are.. the shareholders.  So in effect, shareholders are suing themselves, and, win or lose, they as a group end up with less than if the suit had never been started, since a good chunk of the payout goes to the lawyers.  The only way these suits make financial sense (except to the lawyers, like Bill Lerach) is if only a small subset of the shareholders participate, and then these are just vehicles for transferring money from half the shareholders to the other half, or in other words from one wronged party that does not engage in litigation to another wronged party who are aggressively litigious.  Is there really justice here?

OK, you could argue that many of these shareholders are not suing themselves, because they are past shareholders that dumped their stock at a loss.  But given these facts, these suits are even less fair.  If these suits are often made by past shareholders who held stock at the time certain wrongs were committed, they are paid by current and future shareholders, who may well have not even owned the company at the time of the abuses, and may in fact be participating in cleaning the company up.  So their argument is that because the company was run unethically when I owned it, I am going to sue the people who bought it from me and cleaned it up for my damages?  Though it never happens, the more fair approach would be for current shareholders to sue past shareholders for the mess they left.

The vast majority of these suits are dreamed up by attorneys for the benefit of attorneys.  They help shareholders not at all.

Postscript: There are a couple of circumstances where these suits are entirely justified.  The two that come to mind are:

  • Suing a particular group of shareholders who somehow got disproportionate rights in the company or disproportionately benefited financially at the expense of other common shareholders.  A good example would be suing the Rigas family at Adelphia Communications for hosing the minority shareholders.  Note, however, I am talking not about suing the company, but suing certain owners who abused minority shareholders to their benefit.
  • Suing to modify certain governance rules that are seen to be unethical or illegal.  I would hope this would be a last resort after trying a number of proxy fights and other remedies, but this can in certain circumstances be the last protection of minority shareholders abused by the majority.