I will definitely be making an effort to see/hear this. I expect it will be jam-packed.
Remember the massive US gubmnt lawsuit against Microsoft over a decade ago? One of the major issues in that case was that Microsoft's web browser, Internet Explorer, was included with Windows and that inclusion foreclosed the browser market to others, especially Netscape.
What a travesty that suit was. The policy makers/enforcers didn't foresee the specific potential entrants and so they myopically assumed there would be none. Hah!
Netscape is dead (much of it morphing into early versions of Firefox). And now Microsoft Internet Explorer is dying [see this]:
A commonly held belief among heavy web users is that it's only acceptable to use Internet Explorer for the purpose of downloading Firefox or Chrome.
Snarky as this sentiment may seem, for many who have purchased a computer running Windows in recent years it’s also painfully rooted in the fact that Internet Explorer can no longer keep up with its competitors.
Once a market leader with a whopping 95 per cent usage share when it peaked in 2002, Microsoft’s flagship browser has experienced a steady decline in its user base since Mozilla Firefox and Google Chrome hit the scene in 2004 and 2008, respectively.
Competition and entry limited Microsoft's market power and continues to do so. I stopped using Netscape when it didn't keep up with computer changes and the other browsers offered better options and control. And I rarely used Internet Explorer ever.
For one of my earlier posts about Microsoft and the antitrust suit, see this.
As I wrote early on when I started blogging, US anti-trust policy is so short-sighted it behaves as if it has these two rules:
Policy makers have little to no idea where the next innovation or competition might come from. As a result, when the more market-oriented economists ramble on about competition and entry but have no specific answers to the question, "But who will even consider entering against such a behemoth?", policy makers tend to overlook the extreme power of longer-run market forces, especially if the gubmnt doesn't get in the way of them.
The result? The entrants have displaced Internet Explorer and the antitrust suit against Microsoft was a monumental waste of resources for both the US taxpayers and Microsoft's stockholders.
Don Boudreaux has a very good posting at Cafe Hayek, pointing out that just because a firm can (and does) raise its prices, and just because a firm gains market share, those data are not necessarily indications that the firm has market power. His argument is that generally it is the firms that offer better quality, better service, and more of what consumers want that are able to grow and still charge more for their products.
The upshot is that observing that a firm has the ability to profitably raise the prices of its outputs is not necessarily an observation of that firm’s “power” in the output market. Likewise, observing that an employer has the ability to lower the monetary pay of its workers without having all of those workers quit is not necessarily an observation of that firm’s “power” in the labor market. Such observations are perhaps – and in a market economy are almost certainly – only evidence of complex and mutually advantageous bargains struck between firms, consumers, and workers.
If firms are able to elevate prices and still retain their customers, other firms will copy them, and even try to out-compete them. Hence, a better indication of market power is how high the barriers to entry into the market are. Industry concentration, firm size, and price-cost margins (no matter how they are measured) are much less reliable as measures of market power.
If there are high barriers to entry, a firm might well have market power and be able to raise prices and keep them high, earning a "monopoly" return. But if firms are in industries with low barriers to entry (e.g. fast food!!), it is next to impossible for them to earn persistently high profits that are not attributable to their offering something better to their customers, something the customers want and are willing to pay for.
And what is the greatest source of high barriers to entry? Gubmnt regulations. I wrote about this over 40 years ago here:
“Barriers to Entry as a Measure of a Firm's Monopoly Power,” The American Economist 18 (Spring 1974): 33-35.
The US Department of Agriculture [USDA] constantly promotes cartels, higher prices for food, and restrictions on entry into the production of many crops. Their policies tend to hurt the poor more and help rich agri-businesses.
Raisins appear to be a good example. [via RalphK]
Last week the Supreme Court announced it would revisit the important case of Horne v. USDA. The case... centers on a USDA program that forces those who traffic in raisins (“handlers,” in USDA raisin parlance) to turn over cash or a significant part of their crop—sometimes almost fifty percent—to the USDA without compensation.
In Horne, the eponymous family, which markets raisins, sued the USDA to force the agency to compensate them if the USDA forced them (along with raisin handlers around the country) to turn over cash or almost half their raisin crop to the agency in return for the purported privilege of handling raisins. ...As the Ninth Circuit puts it, the Hornes argue the USDA “works a constitutional taking by depriving raisin producers of their personal property, the diverted raisins, without just compensation."
That’s exactly what the USDA’s raisin marketing program does.
I'm sure there's more to it. But this surface appraisal of the case should be enough to raise eyebrows about what the USDA is doing, under guise of protecting consumers and entrenched interests, to maintain barriers to entry into raisin production and to keep prices high for nutritious snacks.
I set this website going a couple of days ago and have let the programme run since then. It shows the number of attempted cyber attacks (of sorts) by source of the attack, by target of the attack, etc. [via Jack]
Here is a screen shot of what I had seen after a couple of days (the data are cumulative).
The primary source of the attacks is China. North Korea doesn't even make the top ten. The primary target is the US.
When a business is failing, it often skimps on customer service and quality, and focuses mainly on short-term revenue goals. There is good reason to believe the same thing happens in failing bureaucracies, e.g. the police force of Detroit.
As the funding for pensions, salaries, health care, and other perquisites was drying up, the police force appears to have forsaken some very important criminal and safety issues and redeployed its forces on revenue-generating activities, such as traffic fines, etc.
Here is evidence consistent with this interpretation of what happened there:
Over 11,000 sexual assault kits, some dating back to the 1980's, were found abandoned in a Detroit Police storage facility back in 2009. Not long after the rape kits were discovered, Worthy pushed to start the processing with Michigan State Police.
So far, 1,600 rape kits have been processed, resulting in the identification of about 100 serial rapists and ten convicted rapists, according to Worthy.
Worthy told reporters that perpetrators have moved on from Michigan to commit similar crimes in 23 other states.
Appalling. But it is consistent with the fundamental premise of economics: People respond to incentives.
Yes, bureaucrats are people; and yes, they too respond to incentives.
The evidence that rent controls are harmful is overwhelming. They:
Imagine my shock when I read this piece at the Washington Post blog. The piece begins harmlessly enough, explaining how the "pencil" highrises (tall, narrow buildings) that are popping up all over Manhattan and Washington, DC, are emerging as a solution to increased demand for housing in major urban centres. But suddenly it concluded,
The pencil tower isn't a pretty solution to the problem of exorbitant housing costs, or an elegant one -- rent controls or a more redistributive tax code would help urban residents more directly -- but it is a straightforward way of addressing the housing shortage that is causing financial hardship for so many Americans.
Huh? Rent controls? Really?
The evidence is overwhelming that rent controls, over the long haul, lead to reduced supply of housing, in part because developers hesitate to build rentals units if they think rent controls will be slapped on them. Also, in the face of rent control, many landlords convert their units to condos.
Rent controls might be good for those who pass through the filters and screens and get a nice unit at a low rent. But they also make many people who are disadvantaged worse off by leading to a reduction in the supply of affordable housing.
Ted Frank runs the Centre for Class Action Fairness. His general target is the attorneys who make massive fees while winning pitifully trivial awards for the members of the class. And then he took on the settlements that allowed the defendants to make big donations to charity in lieu of providing awards for members of the class (while attorneys for boths sides rake in the fees and the defendants just shift their charitable giving).
Here is a recent quote about Ted from this site:
"We'll admit it: After describing him as a scourge of the class action plaintiffs bar, a class action gadfly, a crusader, and a serial settlement objector, we're running out of nifty shorthands for Theodore Frank of the Center for Class Action Fairness. Let's just say he gets really fired up by class action settlements he thinks are unfair. And he's got a knack for blowing them apart in the courts."
And at this site, Ted explains the reasoning behind his latest victory:
For years, parties have used cy pres—the practice of giving settlement money to charity instead of the class—in abusive ways. When proposed by defendants, cy pres can be used to create the illusion of relief to justify greater attorneys' fees at the expense of the class when in fact all that is happening is that the defendant is changing accounting entries on charitable donations it would have made anyway. When cy pres is used to justify attorneys' fees, it takes away the incentive of class counsel to prioritize direct recovery to the class: after all, it's much more satisfying to hold a ceremony giving away an oversized $3 million check to a local charity run by a friend than to issue a million $3 checks to ungrateful class members.
The "problem" of people reclining their seats on airplanes has given rise to this wonderful piece by Virginia Postrel.
In it, she explains the Coase Theorem, the importance of the assumptions underlying the theorem, and how to deal with situations when the assumptions are not satisfied (which is what makes both the Coase Theorem and her article so good).
A lengthy excerpt:
Airline seats offer a perfect illustration of Ronald Coase’s famous analysis in his 1960 article, “The Problem of Social Cost.” Coase’s crucial insight was that the way we tend to think about unwanted spillovers misses half the story. “The question is commonly thought of as one in which A inflicts harm on B and what has to be decided is: how should we restrain A? But this is wrong,” he wrote. “We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A. The real question that has to be decided is: should A be allowed to harm B or should B be allowed to harm A?”
The traditional sort of thinking leads people on both sides of the airline-seat debate to get self-righteous, arguing that legroom and the ability to work is more important than comfortably reclining, or vice versa. Each camp finds the other rude. Each camp wants to improve its situation by inflicting harm on the other. It’s a “problem of a reciprocal nature.”
Essentially, the recliner says, "there wouldn't be a problem if you weren't behind me or if you didn't care about my reclining." And the tray user says, "there wouldn't be a problem if you didn't recline."
But, as Josh Barro has observed, the airlines have clearly defined the property rights. Passenger A (the recliner) has the right to harm Passenger B (the unfortunate soul behind him). Citing a common simplification of Coase’s work, Barro claimed that “it doesn’t matter very much who is initially given a property right; so long as you clearly define it and transaction costs are low, people will trade the right so that it ends up in the hands of whoever values it most.” So, he argued, “If my reclining bothers you, you can pay me to stop.”
This solution, however, is highly unrealistic. It waves away the central theme running throughout Coase’s work: the problem of transaction costs. Making and enforcing contracts, Coase emphasized, isn’t free. And when it comes to airline seats, it’s a lot more costly than Barro admits.
In theory, I could have offered the guy in front of me money to sit up, but even assuming that my fractured Italian had been up to conducting the negotiations and that he wouldn’t have gotten nasty in response to my overtures, how would I have enforced the deal? It’s not a simple problem, and certainly not a cost-free one. Suggesting that as long as property rights are well-defined, you can simply make a deal misunderstands what Coase was all about. He was obsessed with transaction costs. They explain why we have institutions (including firms), not just individual bargains.
Let's face it: many, if not most, of us would find it extremely uncomfortable/bothersome/annoying/unpleasant to be bargaining with a stranger about the exchange of the right to lower or not to lower a seat on the plane. These psychological costs mean that otherwise value-maximizing transactions rarely occur. I cannot imagine offering $20 to the person in front of me if they won't recline. Nor can I imagine offering notto recline if they compensate me by $20. [or fifty dollars or whatever deal we might strike]. Negotiation and transaction costs are important, and hence the initial assignment of property rights (or legal entitlements in general) is also important.
Postrel notes that the airlines have the property rights and assigns them with the sale of tickets. She offers one solution that airlines might try, but commentors have offered others as well. Likely there is some scheme that could lead to more value for passengers (and hence for the airlines).
It is as if she read Coase, Demsetz, and Calabresi and folded them all into one nice exposition.
My own version of the Coase Theorem:
- If property rights (or more generally legal entitlements) are clearly defined and easily enforced, and
- If transaction and negotiation costs are low,
- Then resources will move to their most highly valued use regardless of the initial assignment of the legal entitlements.
The theorem itself is trivial and not much different from Adam Smith's "invisible hand". It becomes rich, however, in the consideration of its assumptions. And that is where Postrel's piece shines. It doesn't just look at Coase; it looks at the assumptions.
I'll be giving a seminar at the University of Regina on "An Options Market for Human Organs" on October 3rd. Here is the abstract:
There is a chronic shortage of human organs for transplant. This shortage is largely the result of the failure to use market pricing in the face of a phenomenal increase in demand resulting in part from an aging population but more from the dramatic medical technology improvements during the past 50 years.
The shortage can easily be seen as an excess quantity demand over the quantity supplied at zero price. The naïve, simplistic solution is to allow markets in human organs to emerge with positive prices for the organs (and the transplant procedure).
But the market solution is fraught with difficulties, including the problem of killing a donor or, more commonly, who bears the risk when the probability of death of a live donor is increased. Also the transaction, negotiation, and legal costs associated with identifying a legal heir and working out a deal with them after a potential donor is killed can be ghoulish and daunting.
This paper presents an alternative: an options market for organs. Potential donors sign an irrevocable contract, receiving an upfront payment in exchange for their organs (should someone want them for transplant). Essentially, the purchaser buys an option of first refusal when the person dies.
It is expected that many of the buyers of these options would be life insurance companies who would most likely play a leading role in organizing the market.
The seminar is scheduled for 2:30 - 4pm in CL435.
I'm looking forward to seeing my friends in the economics department while I'm there (and, of course, playing with the Roughrider Pepband for the game that evening).
Via Jason Clemens on Facebook:
Some folks have asked for references regarding my comments earlier today about the fact that hiking the minimum wage will not by and large benefit low-income households. This is the first of several FB posts with references. This first post is to an academic article that appeared in the journal Canadian Public Policy. The researchers used Stat Can data to profile households with members earning the minimum wage. The results were in line with previous reports that show the majority of minimum wage earners are young people living at home. Here's a key finding from the abstract:
"First, over 80 percent of low wage earners are not members of poor households and, second, over 75 percent of poor households do not have a member who is a low wage earner. We also present simulation results which suggest that, even without any negative employment effects, planned increases in Ontario's minimum wage will lead to virtually no reduction in the level of poverty."
From Coyote Blog, a spectacularly accurate and funny Venn diagram:
The first lesson of economics is (or ought to be), "People respond to incentives." And I would add, ".... whether we like it or not."
A few weeks ago I did a post pointing out that pundits on both the left and the right have moved further to the extremes, and away from sensible policy views. I just noticed another example today, an article claiming that if you pay people not to work, it won't significantly increase the number of people not working.Extending benefits to unemployed workers beyond the 26 weeks provided by most states has little effect on the unemployment rate and essentially no impact on labor force participation, a recent working paper released by the Federal Reserve Board found.
I guess they didn't notice that the natural rate of unemployment in Europe is at least 8%. [EE: and typically the natural unemployment rate in Canada has been higher than that in the US, in part because of our more liberal/generous unemployment compensation programmes]
Question: When was the last time you saw a liberal pundit point out that extended unemployment benefits increased the unemployment rate? Maybe when Bush was implementing the policy? Here's Brad DeLong in 2008:The rule of thumb, IIRC, is that the average duration of an unemployment spell increases by 1/4 of the increase in the duration of unemployment benefits. Thus a 13-week increase in unemployment insurance duration should increase the average unemployment spell by 3 weeks. With current mean unemployment spell duration at 17 weeks, and with roughly 2/3 of the unemployed eligible for UI, this would produce a 3/17 * 2/3 * 5.5% = 0.6% increase in the measured unemployment rate. ...
That was only a 13-week increase, not a 73-week increase, as Obama implemented. And BTW, DeLong's prediction was precisely correct.
As I said, "People respond to incentives, whether we like it or not."
One of my very favourite lines from Catch-22 is Yossarian's statement (paraphrased),
They have the right to do whatever they cannot be prevented from doing.
I was reminded of that line by this story from the CBC [via Ms Eclectic] which outlines how law-enforcement officials in the US take cash from people's cars.
Across America, law enforcement officers — from federal agents to state troopers right down to sheriffs in one-street backwaters — are operating a vast, co-ordinated scheme to grab as much of the public’s cash as they can; “hand over fist,” to use the words of one police trainer.
It usually starts on the road somewhere. An officer pulls you over for some minor infraction — changing lanes without proper signalling, following the car ahead too closely, straddling lanes. The offence is irrelevant.
Then the police officer wants to chat, asking questions about where you’re going, or where you came from, and why. He’ll peer into your car, then perhaps ask permission to search it, citing the need for vigilance against terrorist weaponry or drugs.
What he’s really looking for, though, is money.
And if you were foolish (or intimidated) enough to have consented to the search, and you’re carrying any significant amount of cash, you are now likely to lose it.
One bit of advice in the article is not to carry much cash with you, which makes sense to me.
- * - * -
Digression: about ten years ago when I was taking a minibus from London, Ontario, to the Detroit airport, a US immigration official asked "How much money are you bringing with you?"
I replied "Fourteen dollars."
He reacted with faked shock that I thought I could get by on so little cash, insinuating I might become a homeless vagrant.
I somewhat sarcastically replied that I was going to the airport, but I knew they had ATMs all over the US, and I had no wish to carry much cash with me, especially through Detroit.
I have no idea why they didn't pull me aside for being sarcastic. Whew.
Update: Raffi drew this article to my attention:
A Nebraska judge ordered cops to return $1 million to a California stripper after the cash was confiscated during a traffic stop.
Update #2: The actual quote from Catch-22 is from Chapter 39:
“Catch-22 says they have a right to do anything we can’t stop them from doing.”
Judge Richard A Posner, who is also a prolific writer/economist/philosopher/lawyer/professor, defended libertarian views and freedom in a recent 7th Circuit Court of Appeals hearing on gay marriage. From the NYTimes,
CHICAGO — Federal appeals judges bristled on Tuesday at arguments defending bans on same-sex marriage in Indiana and Wisconsin, with one Republican appointee comparing them to laws, now defunct, that once outlawed weddings between blacks and whites.
Often-blistering questions by a three-judge panel of the United States Court of Appeals for the Seventh Circuit, in Chicago, for defenders of the bans on same-sex marriage could be a signal that the laws may be in trouble — at least at this step in the legal process.
Judge Richard A. Posner, who was appointed by President Ronald Reagan in 1981, hit the backers of the ban the hardest. He balked when the Wisconsin assistant attorney general, Timothy C. Samuelson, repeatedly pointed to tradition as the underlying justification for barring gay marriage. Judge Posner said, “It was tradition to not allow blacks and whites to marry — a tradition that got swept away.” Prohibition of same-sex marriage, he said, derives from “a tradition of hate” and “savage discrimination” of gays.
Regular readers of EclectEcon know how much I admire and respect the work of Richard Posner. I was disappointed that he argued for Keynesian-type macroeconomic fiscal stimulus during the 2007-9 financial crisis, but other than that his work has always been first-rate. And because of that I constantly remind people that he deserves a Nobel Prize in economics.
Some years ago when a friend was seeking the Liberal Party nomination to run for parliament, I joined the Liberal Party so I could work for him. About a year or so ago, given my libertarian tendencies, I unsubscribed from the Liberal Party emails. But two days ago, I received the following email message, which utterly amazes me:
Some time ago, you unsubscribed from the Liberal Party of Canada's email updates.
I wanted to reach out to you, and make sure you weren't missing out on important messages you'd like to get, including:
- Updates about our team and our plan, as we build toward the 2015 election.
- Updates on some of the initiatives taken by the Liberal Party and opportunities to support them.
- Opportunities to share your ideas and your feedback with me.
Don't worry John, if you take no action, you will remain unsubscribed.
If some corporate business pulled a stunt like this, Justin Trudeau and the Liberals would be all over them for violation of my own wishes to be unsubscribed from their email list.
Further, how can we teach people that "No" means "No" if the Liberal Party and its leader don't seem to believe this.
I am offended. If there is an attorney who wishes to take Justin Trudeau and the Liberal Party to court over this issue, please get in touch with me. I'm happy to let this instance serve as basis for some sort of legal action.
For decades, I have advocated for reduced entry regulations* in the taxi/limousine industry. Over the past year or so, though, it has begun to look as if competition and innovation using smart-phone apps would do what local regulators refused to do.
But of course the industry incumbents have fought back, challenging Uber, Lyft, et al. (private car services) both legally and politically. From the Washington Post (via Sean),
"The taxi industry has donated $3,500 to state legislators for every dollar that Uber, Lyft and their smaller competitor Sidecar have given . . . This massive discrepancy in political giving may also explain why, since the start of 2014, at least 12 states and the District of Columbia have introduced new regulations aimed to limit these popular ride-sharing applications."
It's much cheaper and easier to compete for anti-competitive regulations through lobbying than for customers through efficiency and innovation.
Interestingly, 35 years ago Washington DC was considered a low regulation taxi market with few entry restrictions and with zone pricing.
*Please note I'm referring to entry regulations here. See this: Regulation by Municipal Licensing (co-authored with J. Bossons and S. Makuch). Toronto: University of Toronto Press, 1984.
I have less objection to ways of assuring vehicle and driver quality, possibly via huge liability insurance policies advertised by the umbrella firms, which would then have an incentive to vet the drivers and cars.
The Province of Quebec has high debt, low economic growth, and a gloomy economic outlook. More gubmnt spending will not turn things around, and a permanent change in the economic climate will (a) take time to create and (b) not be believed until it has persisted for some time.
A sad tale of woe. And this summary from Maclean's puts it well:
For decades Quebec businesses have been plagued with repeated bouts of separation anxiety and the constant irritant of the province’s language police. The province punishes businesses with some of the highest taxes in North America, yet it has rung up a $2.4-billion deficit and a debt load equal to half its GDP, the highest in the country. When not arbitrarily overriding the rights of shareholders to protect underperforming Quebec companies, the government has flip-flopped on its attitude toward resource development. In short, it’s an economic environment layered with uncertainty, instability and state interference.
Regime uncertainty is probably one of the worst things that can happen to an economy. If entrepreneurs have little confidence in what they can count on in the way of regulations, gubmnt policies, and economic climate, they will choose safer investments and/or business ventures in other jurisdictions.
The only hope for Quebec is to create an economic climate that will promote economic growth and then stick with that climate for a number of years. Undoing regime uncertainty cannot be done quickly or easily.
Those four words, people respond to incentives , capture the essence of much of economics.
Here is another example that my son (Adam Smith Palmer) and his friend explained to me over the weekend: Air conditioner theft.
When the price of copper sky-rocketed, it became pecuniarily rewarding for people to find old copper and recycle it.
Not all of the old copper they found was old, though. Enterprising thieves also found that they could steal air conditioners (not the window type, so much, but the big units that sit on a concrete pad outside a house) and sell the valuable copper inside the units. These thefts in Houston and the surrounding area could occur outside any home, but the most vulnerable places were in new developments where the houses weren't quite completed and not many people were living in the houses.
Air conditioning units contain a large amount of valuable copper that well-trained thieves can strip from your system within minutes to sell as scrap metal. As a homeowner, an air conditioning theft can be devastating as it leaves you uncomfortable and at a loss of your expensive investment.
And of course, since people respond to incentives, homeowners have worked out ways to deter the thefts:
Or home owners have let potential thieves know that there is a high probability they will be caught by:
Also, in Houston, the recyclers have been enlisted by law-enforcement agencies not to buy new copper tubing from air conditioners and to make sure they have a documented provenance for the copper.
As many of us in economic analysis of law like to point out, the theft itself is "just" a redistribution of wealth. The inefficiency comes when people use scarce resources to carry out the thefts and when people use scarce resources to deter the thefts.
I was born in the United States. I emigrated to Canada over 40 years ago. Nearly 15 years ago, I took out Canadian citizenship. When I did that, I was under the mistaken belief that doing so meant I was de facto giving up my US citizenship.
Apparently for tax purposes, I was wrong. The US is one of only a few (two?) countries that tax on the basis of citizenship, not on the basis of residence and not on the basis of where you earn your income. They assert that even if you take out citizenship in another country, if you were ever a US citizen, you are still a US citizen (at least for tax purposes).
This situation presented no problem for me until a few years ago. The taxes in Canada are higher than the taxes in the US, and so I never owed them anything. In fact, until two years ago, I stopped even filing a return (again believing that I no longer had to file since I am a Canadian citizen and have had no US income).
Things have changed. Margaret Wente is in the same situation (only more ridiculously so, since she left the US when she was 14):
Welcome to the nightmare of U.S. citizens abroad. There are hundreds of thousands of us in Canada, and millions more worldwide. Most of us are law-abiding people. But the U.S. government is treating us like tax cheats. It also says that any “U.S. person” (meaning anyone born in the United States, or even anyone with American parents) must keep filing U.S. tax returns, forever – or else. ...It gets worse, because now there will be no place to hide. On July 1, the loathsome FATCA (Foreign Account Tax Compliance Act) kicks in. It requires banks around the world to cough up the financial information of any client suspected of being a U.S. person. This means your RESPs, your mutual funds, your bank accounts. To its shame, Canada did not resist this extraterritorial abuse of power and privacy. The banks can’t resist, either – they’re on the hook for heavy fines if they don’t comply.
When I first heard about this stuff a couple of years ago, I thought it was a paranoid fantasy. But it was for real. When I wrote about my own dilemma about whether to comply, I was inundated with e-mails from terrified little old ladies who were afraid they’d be arrested at the border on their way to Florida. They won’t be. But the truth is bad enough. Even though the IRS has now promised not to treat them like criminals, simply complying with the law can cost thousands of dollars. On top of that, some people have been on the hook for taxes on assets that are tax-free in Canada. Plus, all the assets you hold jointly with your spouse have to be reported as if you owned them all.
These new US tax laws are an expensive pain. To cope with them, we have put all our US-taxable financial assets (including savings accounts that are tax-free in Canada as well as registered savings plans for grandchildren) in my wife's name, and I have moved all my Registered tax-free savings plans (including retirement savings) out of mutual funds (which the IRS declares to be "off-shore trusts").
It still costs me nearly $1000 a year for an accountant to prove to the IRS I don't owe them anything. As a result, I am seriously considering spending the money to renounce my US citizenship.
The only reason I bother with all this is that I have a son who lives in the US, and I would hate to be detained at the border on the way to visit him. Otherwise I would ignore the whole thing and just stay out of the US. "People respond to incentives."
And you know what? Before I emigrated, I don't think I contributed enough or long enough to collect Social Security from the Farghin Bastidges.
Taxi drivers across the world went on strike last week to protest the growth of Uber, a car-ride-share service based on smartphone apps. The result? Customers, already frustrated with problems in the taxi industry became even more upset with the licensed taxis, and many of them switched to Uber. It strikes me as unusual, to say the least, that a business providing customer service would shut itself down to protest the inroads into their business by upstart innovators.
It was as if they were saying,
We're angry about the increased competition, so we are going to force you to try using the services of our competitors just to see how much they can improve the product we have been providing under the protection of entry regulation and licensing.
Uber has been a game changer...[A]t the end of the day, the story is rather simple and similar everywhere. The number of taxiS allowed to operate has been limited over time. Black cars were forbidden to pick up passengers on the street. Now technology makes that available, but also allows for simple citizens to attempt to provide a similar service, if they want to (UberPop). In the world of GoogleMaps and GPS, you don't need to paint your car white (as in Milan) or black (as in London) to signal that you'd be happy to transport people if they're to be charged. ...
Is Uber the taxi of the future?
We don't know, but certainly the company is pretty smart in managing the protest. Instead of building bridges with taxi drivers, Uber used the strike as a marketing device, offering big discounts to clients and attracting new ones. So theWashington Post reports that "Uber's British ridership went up 850 percent yesterday thanks to black cab protests that left Londoners snarled in traffic".
Look for increased sabotage, violence, and many more legal challenges.
Addendum: Interestingly, there is no mention of Uber in the Wikipaedia entry for "Taxicabs of the United Kingdom"; at least there was no mention as of last weekend.
From time-to-time, internet correspondent MA points me toward various cartoons. He noted this one, with the subject line in his message, "Caveat Emptor".
Okay, I laughed at the situation. But then I thought, "This is exactly the intention of caveat emptor [let the buyer beware]." From now on, unless he suffers from extreme stupidity and myopia, Dagwood will ask the price before committing to buying two hot dogs. I have had many, many Dagwood-type experiences. I hope I learned from them.
But unfortunately in today's nanny-state mentality, what too many people learn from their mistakes is that politicians will listen to their whining, "There oughta be a law..." Rather than assume responsibility for their decisions and actions, people want the gubmnt to step in and not just protect them, but also make decisions for them. But the more that happens, the less we think and the less vigilant we become.
With this mentality, people will press for regulations/legislation requiring Elmo to list his prices up front so people aren't deceived (or punished for being careless!).
I just finished reading this piece by Don Boudreaux at Cafe Hayek. It is a lengthy piece that takes on Piketty, the economist who argues for more gubmnt action to reduce inequality. What struck me most was this very insightful comment:
Piketty has a peculiarly strange “then a miracle occurs” step in his analysis. He argues that one justification for powerful efforts to redistribute incomes and wealth more equally is that the rich are disproportionately likely to abuse power for their own greedy and socially destructive ends. So what to do? Answer: increase government’s power! Qu’est-ce que c’est?! [EE: this is French for WTF?] (Piketty is like too many economists: ignorant of public-choice.)
This attitude that Boudreaux identifies is far too common among the redistributionists. Essentially it says, "The gubmnt has created policies that favour cronies and promote inequality. But I know what to do about it. Put me (and/or my friends) in charge and we'll do it right." And all the while this argument does nothing to include the real world of voter influences and public-choice economics: the sad, simple fact is that the more power gubmnt and politicians have over resources, the greater the incentive for individuals to try to influence gubmnt policy, politicians, and the behaviour of bureaucrats.
This is yet another example of Kip's Law:
“Every advocate of central planning always — always — envisions himself as the central planner.”
People told me I should apply for Old-Age Security [OAS] payments when I took a buy-out from The University of Western Ontario several years ago.
I didn't think I should bother because I was earning enough that the gubmnt would claw it all back.
Was I ever wrong. No foolin'.
Here's how it works.
Suppose you earn enough that you purportedly don't qualify for OAS. Instead of not paying you, the gubmnt pretends it pays you and then withholds the entire amount for income taxes. They say they've increased my income by $X and they have also increased the amount withheld for taxes by $X as well. But my tax liability on $X of extra income is only .45X or something like that. So the gubmnt says I've already paid an extra .55X toward the taxes on the rest of my income.
No foolin'. So the gubmnt reduces my taxes considerably with this procedure.
What a bizarre scheme. It sure seems like a boondoggle to me. But it reduced my tax liability quite a bit this year.
When I lived in California or Hawaii or Michigan, I could buy wine, beer, and liquor in the grocery store, off the shelf. It is convenient and inexpensive. Now, Ontario [I mean the province in Canada, not the city in California] is taking very small baby steps in that direction.
The Ontario government is pushing ahead with a plan to put liquor kiosks in grocery stores, a bid to shake up the way alcohol is sold in the province and head off the champions of privatization ahead of a possible spring election.
It won't be much of a "shake up", believe me. Many large grocers already have kiosks that sell Canadian wine. Having additional kiosks to sell liquor is a small step. But this is nowhere near the much freer markets in other jurisdictions.
The only benefit I see from the change (and it is not really a small one despite my scorn for the plan) is that people who are happy to buy the types and brands of liquor sold at the kiosks will be saved an extra trip to an LCBO outlet. I imagine, however, that the kiosks will be expected to favour Ontario and Canadian products primarily, if not exclusively, much as the wine kiosks already do.
And those of us like Ms Eclectic and me, who like single-malt scotches, will almost surely be out of luck.
Wouldn't you think we had learned enough during prohibition? Like this person, I'm a bit of a prude regarding drug use and alcohol abuse, but also like this person I favour dismantling the so-called "war on drugs" as expeditiously as possible.
Even though I’m personally a prude on the issue of drugs, that doesn’t stop me from opposing the Drug War, both for moral and practical reasons. After all, how can any sensible and decent person want laws that produce these outrageous results?
The DEA trying to confiscate a commercial building because a tenant sold some marijuana.
The government seeking to steal a hotel because some guests sold some marijuana.
Cops raiding an organic nursery and seizing blackberry bushes.
The feds grabbing cash from innocent bystanders in legal cases.
The government arresting a grandmother for buying cold medicine.
Cops entrapping an autistic teen to boost their arrest numbers.
And don’t forget the misguided War on Drugs is also why we have costly, intrusive, and ineffectiveanti-money laundering laws, which result in other outrages, such as the government arbitrarily stealing money from small business owners.
Though not every enforcement action leads to grotesque abuse of human rights, sometimes the Drug War merely exposes the stupidity of government.
Economists have long been critical of the "War on Drugs", both on ethical grounds and on expediancy grounds. Over 40 years ago, Milton Friedman argued against the so-called war soon after it was announced. And he made his case very clearly in this 1998 piece that appeared in the NYTimes. His conclusion:
Can any policy, however high-minded, be moral if it leads to widespread corruption, imprisons so many, has so racist an effect, destroys our inner cities, wreaks havoc on misguided and vulnerable individuals and brings death and destruction to foreign countries?
Elitist interventionists are convinced they can amend the workings of the market to make lives better for at least a targetted segment of the population. They are almost always wrong. From Cafe Hayek,
... from page 268 of Armen Alchian’s profound 1976 essay “Problems of Rising Prices,” as it is reprinted in Vol. 1 of The Collected Works of Armen A. Alchian(2006) (original emphasis):
The so-called shortage of gasoline and energy in the United States [during the 1970s] was precisely and only such a political attack. It could not have been brought about more cleverly and deceitfully even if the politically ambitious had explicitly written the script. Inflate the money stock; when prices rise, impose price controls to correct the situation. These controls lead to shortages which “require” government intervention to assure appropriate use of the limited supply and to allocate it and even to control and nationalize the production of energy. The powers of political authorities are increased; the open society is suppressed.
Brilliant. And it should be a fair warning for today and the future.
There is some fairly compelling evidence that when cigarette prices go up, there is a slight decline in smoking, especially among teenagers. At the same time, though, if the price of cigarettes is raised because of an increase in the excise tax imposed on cigarettes, recorded sales of cigarettes drop off considerably. Sales decline much more than actual smoking declines. Here is what happens.
When one jurisdiction raises its excise tax on cigarettes, many people for whom arbitrage is inexpensive buy their cigarettes elsewhere --- in a neighbouring city or state. Failing that, if the price differential is sufficient to provide adequate rewards for transportation and risk, people will smuggle cigarettes from the low-tax jurisdictions to the higher-tax jurisdictions. Here is a graph of the effect, via the Tax Foundation:
To be honest, I expected the dots to fall closer to the line. The imprecision of the correlation should not, however, detract from the overall effect that "people respond to incentives." Higher excise taxes create an increased incentive for smuggling (and/or counterfeit tax stamps).
In Ontario we experience a variant of this relationship. When the provincial gubmnt raises the tax on cigarettes, more non-native smokers have an incentive to head to the reserves to buy their cigarettes, where cigarettes can often be found for sale at much lower prices because aboriginal Canadians are allowed to buy tobacco products tax free. [see this, for some details]
The result in all cases, though, is that the higher tax has less of an impact on smoking than would be indicated from legal sales, and the gubmnt policy has the effect of inducing more economic activity into black-market illegal activities.
The bigger the gubmnt budget, the greater is the incentive for various vested interests to use scarce resources for lobbying. This is doubly inefficient:
Lobbying is effective because people, including politicians, respond to incentives. But the problem is not lobbying per se. The problem is that big gubmnt, with its big budgets, creates more of an incentive for special interests to engage in lobbying. From this [via MA]:
For all intents and purposes, big government in Washington has created a niche market for insiders who learn the specialized skill of transferring money from those who earned it to those with political pull. It's the same across the Western world...
Washington is rich because government is big and the beneficiaries of this system are enjoying their status as America’s new gilded class. It’s even gotten to the point where children and other family members also put their hands in the cookie jar.
The column continues with numerous examples of how relatives of politicians are able to use their connections to enhance their own wealth.
The solution? Smaller gubmnt. That would reduce the payoffs to lobbying and hence reduce the extent of cronyism.
I don't know how they obtained the data necessary for this study, but the conclusions should not be surprising no matter how disappointing/disgusting they are. SEC employees have inside information, and apparently they use it to their advantage.
Goodbye SAC Capital. Hello SEC Capital.A new study released by Rajgopal of Emory and White of Georgia State confirms what most have long known: SEC employees are immaculate stock pickers and "that a hedge portfolio that goes long on SEC employees’ buys and short on SEC employees’ sells earns positive and economically significant abnormal returns of (i) about 4% per year for all securities in general; and (ii) about 8.5% in U.S. common stocks in particular." But those wily regulators are tricky indeed: instead of frontrunning good news and outperforming on the upside, the "abnormal returns stem not from the buys but from the sale of stock ahead of a decline in stock prices." In other words, in a market in which hedge funds have given up on shorting stock, the best outperformer is none other than the very entity that is supposed to regulate and root out illicit market activity!From the study's summary:We use a new data set obtained via a Freedom of Information Act request to investigate the trading strategies of the employees of the Securities and Exchange Commission (SEC). We find that a hedge portfolio that goes long on SEC employees’ buys and short on SEC employees’ sells earns positive and economically significant abnormal returns of (i) about 4% per year for all securities in general; and (ii) about 8.5% in U.S. common stocks in particular. The abnormal returns stem not from the buys but from the sale of stock ahead of a decline in stock prices. We find that at least some of these SEC employee trading profits are information based, as they tend to divest (i) in the run-up to SEC enforcement actions; and (ii) in the interim period between a corporate insider’s paper-based filing of the sale of restricted stock with the SEC and the appearance of the electronic record of such sale online on EDGAR. These results raise questions about potential rent seeking activities of the regulator’s employees.
No foolin'. Public-spirited gubmnt employees just getting a little for themselves while they do good.
For more details and a partial explanation, see this in WaPo.
Some years ago, when I was explaining to a class of introductory economics students that a rise in the minimum wage would reduce the quantity demanded of unskilled labour, one student said, "But my sociology prof says this is wrong. He says it will still take the same number of people to flip burgers no matter what."
I pointed out that capital-labour substitution doesn't have to take place at a fast-food emporium. Instead, the rise in the minimum wage would make quick-frozen mass-produced meals in large grocery stores more attractive, leading to less demand for fast food from places like McDonald's or Burger King, ceteris paribus.
I also pointed out that technology, even in the fast-food industry, has changed with more capital substituting for labour. Increasingly food is being prepared in an industrial setting with large amounts of capital and substantial economies of scale. In economics jargon, the production function for fast-food is not fixed-co-efficients.
Robot hamburger factory makes 360 Gourmet Burgers every hour for gourmet burgers at fast food prices - meanwhile fast food human workers demonstrate for higher wages ...
It does everything employees can do except better:
* it slices toppings like tomatoes and pickles immediately before it places the slice onto your burger, giving you the freshest burger possible.
* their next revision will offer custom meat grinds for every single customer. Want a patty with 1/3 pork and 2/3 bison ground to order? No problem.
* Also, our next revision will use gourmet cooking techniques never before used in a fast food restaurant, giving the patty the perfect char but keeping in all the juices.
* it’s more consistent, more sanitary, and can produce ~360 hamburgers per hour.
The labor savings allow a restaurant to spend approximately twice as much on high quality ingredients and the gourmet cooking techniques make the ingredients taste that much better.
They will launch the first restaurant chain that profitably sells gourmet hamburgers at fast food prices.
Their current device can pay for itself in less than one year, making equipment sales a second path for Momentum Machines.
And for more details, see this [via Jabber]