LINK: From the April issue of reason, Matt Welch addresses the ongoing topic of “liberalterianism” and how it’s doomed. The heart of his argument, which I agree with completely:

It is certainly no surprise that any party, let alone the Democrats, would want to use that fancy government once it held the awesome reins of power. Unified Republican governance this decade should disabuse even the most gullible from the notion that either of our two major parties is ever going to enact a small-government agenda, especially during a perceived crisis. But already during Obama’s first 100 days we’ve seen how quickly liberals will turn against libertarians once they’re no longer swinging at the same piñata.

Small-l libertarians will never find sufficient common ground with anyone interested in maintaining partisanship at the expense of ideas.

LINK: Also from reason Ronald Bailey discusses a free market approach to health care coverage proposed by University of Chicago economist John Cochrane.

So how does health-status insurance work? As Cochrane explains, “Market-based lifetime health insurance has two components: medical insurance and health-status insurance. Medical insurance covers your medical expenses in the current year, minus deductibles and copayments. Health-status insurance covers the risk that your medical premiums will rise.” Cochrane offers the example of a 25-year-old who will likely incur $2,000 in medical expenses in a year. His medical policy component would thus cost about $2,000 per year, plus administrative fees and profit. For purposes of illustration, Cochrane then assumes the 25-year-old has a 1 percent risk of developing a chronic medical condition that would increase his average medical expenses to $10,000 per year. In that case, he would be able to buy medical insurance for $10,000 per year—which is a big financial hit. That’s where health-status insurance comes in: It insures that you can be insured in the future.

I’m not fully convinced that this would work, but I’m not unconvinced, either. I don’t know enough. However, the idea seems to be based in personal responsibility. Life is unfair, so some of us get sick. There are costs involved. It’s unfortunate if medical costs cause financial distress. We should mitigate that, but provide individuals the options to do that for themselves. That is the right approach.

Mr. Cochrane also discusses how his plan would help separate health insurance from employer provision. That will be a feature of any responsible health care reform. (Transferring the incentive from employer to government does not qualify as that type of responsible reform.)

LINK: Harold Meyerson is an incurious propagandist:

But in the United States, conservatives have never bashed socialism because its specter was actually stalking America. Rather, they’ve wielded the cudgel against such progressive reforms as free universal education, the minimum wage or tighter financial regulations. Their signal success is to have kept the United States free from the taint of universal health care. The result: We have the world’s highest health-care costs, borne by businesses and employees that cannot afford them; nearly 50 million Americans have no coverage; infant mortality rates are higher than those in 41 nations — but at least (phew!) we don’t have socialized medicine.

Universal education is not “free”. The minimum wage costs jobs. Financial regulations overlooked obvious warnings of Bernie Madoff. “Nearly 50 million” uninsured is not true. Infant mortality is more complex than a quick comparison can demonstrate.

He also wrote this, so it’s clear that he’s interested in his narrative more than facts.

Take it from a democratic socialist: Laissez-faire American capitalism is about to be supplanted not by socialism but by a more regulated, viable capitalism. And the reason isn’t that the woods are full of secret socialists who are only now outing themselves.

We do not have laissez-faire capitalism. No amount of stating preferred explanations will make them true.

LINK: Steven Pearlstein defends President Obama’s budget in a way I don’t fully understand.

In the meantime, the federal government is one of the few entities that is still able to borrow in the current environment, and given the perceived safety of buying government bonds, the cost of that borrowing is about as low as it has ever been. From a purely cash-flow point of view, substituting 18 percent credit card debt with 3 percent Treasury bond debt is a positive development for the grandchildren.

The 18 percent credit card debt makes no sense here. Government borrowing isn’t replacing that. And my hypothetical grandchildren do not have any debt right now. Adding more, even at 3 percent, is hardly a positive development for them. The administration intends to grow the debt, not refinance it.

Refinancing costs are relevant, too. If the so-called positive development of new debt at 3 percent interest helps us, what will this new debt look like at 4, 5, or more percent when interest rates rise, as they will? Maintaining the apparently-permanent interest payments is a cost.

He continues with a bit about how infrastructure creates lasting economic value without defending it. Would the Bridge to Nowhere have justified its cost? Doesn’t matter, it seems. He reassures:

Strange as it may sound, there are times when it’s necessary to make things worse in order to make them better. Fighting a war to achieve a lasting peace. Making a patient sick to cure his cancer with radiation or chemotherapy. And, yes, taking on more debt to help get the country out of a debt-induced recession.

Unlike chemotherapy, where doctors eventually stop dosing a patient, what evidence do we have that politicians will ever believe we’ve reached the “ideal time for the government to deleverage and put its financial house in order”? The new deficit spending is permanent. The only open question once the budget passes is who will pay for it. Right now, the answer is “the rich” and the Chinese. Eventually, it will be the middle class, including all of our grandchildren.

LINK: Wanting an iPhone does not mean a consumer is entitled to an iPhone with the carrier of his choice.

The Consumers Union, the New America Foundation, and the Electronic Frontier Foundation, as well as software provider Mozilla and small wireless carriers MetroPCS (PCS) and Leap Wireless International (LEAP), are lining up in opposition not only to the Apple-AT&T partnership, but to all manner of arrangements whereby mobile phones are tethered exclusively to a single wireless service provider.

Apparently a voluntary contract between two parties means nothing if it means a consumer has to then make a choice that she doesn’t like. I want an iPhone with Sprint, but I can’t get it. My response is to decide which has more value and act accordingly, not whine to the government.

More Consumers Union nonsense here and here.

From the Archives: Sirius XM


Financially strapped Sirius XM Radio Inc. said Friday that it could file for bankruptcy as early as Tuesday if it cannot successfully negotiate with the holders of its debt.

Flash back to February 2007, where I defended the then-newly-proposed merger between Sirius and XM:

More to the case at hand, perhaps it’s better to let one of the two surrender and preserve assets for productive use than to make them fight each other until one company is toast.

Or both companies are toast, thanks to the FCC ignoring its 180 window for review and burdening the merged company with its theories on how satellite radio should operate. Look at the positive side, though. If Sirius XM fails, there won’t be a monopoly. Merger opponents will have saved the American consumer from a catastrophe!

(Disclosure: I own shares in Sirius XM. I expect the company to go into bankruptcy. I do not expect it to disappear.)

Let me root, root, root for the home team, If they don’t win it’s a … Congressional takeover?

You knew that TARP would lead to public shaming and Congressional indifference to contracts, right?

U.S. Reps. Dennis Kucinich and Ted Poe are urging the Obama administration to demand that Citigroup drop its $400 million, 20-year naming rights deal for Citi Field, the New York Mets’ new stadium scheduled to open in April, because of $45 billion the bank received in government aid.

“At Citigroup, 50,000 people will lose their jobs. Yet in the boardroom of Citigroup, spending $400 million to put a name on stadium seems like a good idea,” said Kucinich, an Ohio Democrat.

Citigroup and the New York Mets signed a contract. Now, because it’s not a populist expenditure, it’s invalid and Congress thinks it can tell the two parties that the contract is worthless. Surely demonstrating that contracts can’t be relied upon will strengthen the long-term economy.

However, notice how Rep. Kucinich refers to Citigroup spending $400 million. That is spread across 20 years. Are Reps. Kucinich and Poe suggesting that the economy will be bad for the next 20 years? Are they suggesting that the banks will be under Congressional control for the next 20 years? I know the answer to the latter, but I want to know if they’re invoking the politicians favorite power grab, the permanent crisis. That’s the safe assumption.

I also wonder if Reps. Kucinich and Poe have evidence to support their implicit assumption that naming rights do not work as a marketing tool. Being seen on television at least 81 times per year, as well as every sports highlight show after those 81 home games, are valued at less than $20 million per year? Based on what evidence?

Capitalism versus Corporatism, or “People Don’t Invalidate Systems”

By now everyone is aware of the recent salmonella outbreak tied to peanut butter. The origin of the contaminated peanut butter is now known, and it allegedly includes some sketchy corporate behavior, as outlined in the first, non-snark-filled half of this FARK headline:

Contaminated peanut butter factory found salmonella 12 times in two years of internal tests… and still kept shipping. But don’t worry, industry will police itself

The second half takes an ideological swipe without bothering with logic used by advocates of free markets. The comments at FARK swing to both sides of the pendulum, as one expects in a fight on the Internets. But the volley conveys a critical flaw in how those who desire strong regulation (often to the point of central planning) and a marketing failure among free market advocates. The basic, paraphrased gist of the debate:

  1. FDA?
  2. People died! “Free markets” mean killing is okay!
  3. “Free market” means the company – Peanut Corporation of America – will go bankrupt.
  4. No.
  5. Yes.
  6. No!
  7. Yes!
  8. NO!
  9. YES!

Multiple arguments are in play here. The idea that free market advocates support negligent or intentional behavior that harms is uninformed silliness. The free market is about consequences. Build a good product that meets a need and customers will buy. Build a bad product that fails to meet a need or that harms and customers will refuse to buy. The idea is that incentives matter.

The ideological “free markets kill” approach ignores the spectrum of incentives, either out of disinterest or dishonesty. Selling a product that kills (in a non-predictable manner) has consequences1. This scandal will most likely bankrupt the Peanut Corporation of America through lost business and civil lawsuits, as it probably should. Executives will most likely face criminal prosecution. I can’t think of a single free market advocate who would argue that such an outcome would be unjust, if the facts are as they seem.

The essential fact is that a belief in free markets and capitalism is not a belief in corporatism. Free market advocates argue against government interference because government unfairly picks winners and losers. Regulations are often bad because they skew incentives. Want to bet Peanut Corporation of America will claim as a defense that the FDA, via authority it delegated to the Georgia Department of Agriculture, reviewed its plants and found no violations sufficient to deem this anything other than an unfortunate accident? Here, regulation builds a defense that “the government said it’s okay”. The facts appear unlikely to support that, but the excuse is viable in many cases (i.e. pharmaceutical regulation).

But subsidies skew incentives, as well. Look at ethanol subsidies and the subsequent, predictable increase in the price of corn. Subsidize behavior and you get more of it.

In the current salmonella outbreak, the FDA is incapable of policing every product produced in every factory. I do not seek to minimize any deaths, but how many deadly outbreaks2 actually occur? The costs of full regulation3, both in taxes and higher food prices, would overwhelm any marginal increase in safety. Some problems will slip through the regulatory framework. The question is ultimately why they happen, to which I think the reasonable answer is a basic justification for crime: Those involved thought they could get away with it.

This belief, a willingness to gamble that horrible outcomes will not result, is not surprising, but it arises from human psychology, not free market ideas. Again, no free market advocate is going to dismiss these deaths. There should be consequences. However, while further regulation probably could have prevented these deaths, the idea that more regulation will avoid such outcomes completely rests upon the mistaken assumption that we’ll always have the right regulations and the right regulators to implement them. We never will because humans are fallible in how we write laws, choose regulators, and enforce code.

Free market advocacy is about freeing individuals to pursue businesses and products they value, whether as seller or buyer. That also means freeing individuals from the influence of government picking A over B as the winner through regulation for reasons other than merit, as politicians and bureaucrats always will. Liberty is about freedom from harm, not freedom to harm. You don’t have to buy my product, and you’ll have recourse against me that I do not desire should I harm you. It takes a cynical outlook on individuals and liberty to miss that, I fear, but free market advocates also need to do a better job of pointing out the difference in capitalism and corporatism. We favor the former exclusively.

Update (2/13/09): Peanut Corporation of America to Liquidate.

1 Selling cigarettes may have fit this mold years ago. Today, cigarettes fail this test since we know the harms. Selling cigarettes is not the free market killing consumers.

2 Obligatory vegan statement: The majority of food-borne illness outbreaks result directly from meat, dairy, and egg production.

3 From the Washington Post article:

But Jean Halloran, director of food safety for Consumers Union, said if the government was adequately protecting the food supply, the outbreak could have been minimized or even prevented, and lives could have been saved. Major reforms in inspections and regulations are past due, she said.

“The average plant is inspected once every 10 years,” Halloran said. “This one was getting inspected a couple of times a year by Georgia, but neither they nor the FDA were taking enough enforcement action.”

Halloran’s statement exists in a vacuum of preferred outcomes, with no consideration for real costs. More Consumers Union nonsense here.

Quote(s) of the Day

Thanksgiving was my last entry? Let me rectify that with two quotes from reading the Internets today. First, from Rogier van Bakel on free speech.

Denying others the rights and protections you demand for yourself is the zenith of arrogance.

That’s an excellent, condensed way of stating it. You already know another discussion where I apply that sentiment, in various ways.

Next, from David Henderson writing on a 1999 quote by Ben Bernanke on government response to economic crisis:

You don’t get output to be higher by making it lower.

The desire to Do Something is strong, particularly among politicians. Unless the crisis is “the house is on fire” urgent, everyone should suppress this desire vigorously until after arriving at a considered plan. Unlike what Congress, the President, and the President-elect are doing.

Thankful for Capitalism

It might seem ridiculous to be thankful for capitalism today. It’s supposed to be about “important” things like family, health, and so on. I am, but so is everybody. But capitalism is how we’re able to gather together in comfortable houses, with food on the table, and football on our shiny HD televisions.

Today’s reprint of an old Calvin & Hobbes comic demonstrates this. The first panel:

I’m old enough to remember VCR rentals. Today, VCRs are obsolete, DVD players are cheap enough to be disposable, and our movies take up only a portion of a compact hard drive. Our lives are more enjoyable and more convenient because men and women have ideas and make them real. In an effort to make themselves richer, they make our lives better.

Hey, it’s a new topic!

The SEC charged billionaire Mark Cuban with insider trading. He denies the charges. I despise the inevitable schadenfreude. (Read the comments at the link. We’re a nation of envious, success-hating malcontents.)

I have no idea whether or not Mr. Cuban did what the government alleges. Maybe he did, or maybe the conspiracy theories about political payback are true. The latter is too transparent to pass my skepticism, but I never underestimate government’s ability to be nakedly vindictive. If it’s the former I do not care because I think insider trading should be legal. I wrote a paper for my business school ethics class making that case. I’m an unrepentant libertarian at my core.

The gist of my support rested on the idea that, if markets are efficient, then more information is better than less information. I don’t want to pretend that markets are efficient in the short-term; they’re not. But they’re less inefficient than anything else in the short-term. In the long-term, I trust markets completely. (Your time horizon may vary.)

Nor do I wish to pretend that the information resulting from insider trading is easy to get at or evident to everyone because there’s never going to be information equality. That’s okay. Hard work to gather information – and the mind to organize and filter that information – deserves a reward.

Consider the opposite of what the government argues. If an investor is ready to pull the trigger on a stock purchase but uncovers bad news, she’ll refrain from the purchase. She’s used the information to her advantage. Is that unethical? I don’t believe it is, nor can I imagine anyone suggesting otherwise. However, the facts alleged by the government in cases like that now pending against Mr. Cuban suggest an entirely different ethical code to avoid a loss on a possession than a potential acquisition.

I’ve over-simplified in my hypothetical. There’s far more intricacy than I understand. Conceded. But the case for insider trading laws partially rests on a suspension of self-interest, of self-sacrifice for the benefit of others without regard for how self-interested behavior may benefit others. That is not rational.

I spent $34 to fill my car’s gas tank.

I have about $15 free to spend on other things now that I wouldn’t have had in August. I should be punished because I now have money that Shell should have. Wouldn’t Shell be justified in demanding a tax on that windfall gain, if we’re to believe politicians (i.e. economic illiterates)?

I assume Shell would demand the proceeds of that tax rather than the more generous gesture consistently implied by The People’s representatives, which is that the Treasury can keep the punishment for the brazen theft from consumers perpetuated by the greedy capitalist oil companies. They are greedy capitalists, after all.

Seeking help from the Benevolent Giver of Rescue

I sent a letter to my Congressman today.

Congressman Davis:

I write to you with a heart and mind burdened by disillusionment with capitalism. I’ve plodded along for years, just being a good American. I pay my bills on time. I go to work every day. I own a home. I vote. I do my part.

Recently, I decided to improve my life just a little bit, adding a simple pleasure to my leisure time. I purchased a new computer (stimulating the economy!) with a Blu-ray drive. I now have better picture quality when watching movies. God bless America and her bounty.

But, and this is a surprise to me because I expected everyone else who shares this country to have the same understanding that each person’s actions affect the common good, but they don’t. The evil CEO at Netflix is being so very greedy, it’s disgusting. As I’m sure you know, Netflix raised its monthly membership fee by $1 for users who want Blu-ray rentals. They are picking my pocket. I want Blu-ray on my membership, but it should be free. I know you agree.

I have not budgeted for an extra dollar in my membership fee. When I signed up, I said to myself, “Self, $14.99 is the limit. And you will have Blu-ray access.” Now imagine my displeasure to learn that I can’t have what I want for the price I deserve. I know you share my displeasure. How much deprivation do they think is appropriate? I say none! I need to be rescued so that I don’t have to cancel my membership. So, I ask: what will you do for me?

Direct deposit would be nice, but I’ll accept a check each month. Just think, it’ll help the post office, so I can see the logic. I’m willing to accept that little extra inconvenience for myself if it’ll benefit the greater good. The obscene $1 hike doesn’t happen until November, so there is just enough time to pass legislation in the Congress so that my $1 arrives in a timely manner.

Also, I know there are millions of other people affected by this price-gouging. Just think, if there are 1 million people who must now pay an extra dollar each month, that is $1,000,000 of windfall profits for a service that should be free. Each month. That’s $12,000,000 per year. And I bet the number is higher. That can’t stand. We need a tax on windfall DVD rental profits!

Thank you for your serious consideration. Please do not let the DVD rental market seize up. I await your reply.


I urge you to do the same on this matter of national urgency.

The only time I’ll (mockingly) use Sarah Palin’s folksy fraud.

This is old, but I still want to write about it. In the lead up to the bailout bill, executive compensation caught fire as an issue. It’s something shiny because the numbers can be large. It’s also convenient because it enables partisans to avoid the complex discussion of causes and factors that might implicate them as part of the problem. From Ezra Klein (via Andrew Sullivan.):

One quick point on the bailout negotiations: The Democrats are making a big deal over limits on executive compensation. Such limits are nice, but in the context of this crisis, utterly meaningless. If Democrats extract concessions such that CEOs can be paid a lot of money rather than an obscene sum of money, but are unable to add provisions protecting homeowners, they will have lost, and lost badly.. Limits to executive compensation are a feel-good provision with little real world relevance or impact, and while it would be nice to have them in the bill, no one should be fooled into thinking them a high-level priority, nor believing that a compromise where compensation limits feature as a key Democratic boast suggests anything other than a total collapse in the negotiations.

This is why I’m not a partisan. I can’t (correctly) dismiss a provision as little more than a quest for happy feelings and then suggest that the provision should be in the legislation anyway because I want those happy feelings. There are real principles and, more importantly, real people involved.

In Mr. Klein’s defense, that isn’t quite enough evidence to support my argument, nor am I implicating him beyond that sentiment. Rather, nonsensical rhetoric from Senator Obama on the proposals then under consideration is a perfect example. (Mr. Klein sourced this without a link, which I tracked down.)

First, the plan must include protections to ensure that taxpayer dollars are not used to further reward the bad behavior of irresponsible CEOs on Wall Street. There has been talk that some CEOs may refuse to cooperate with this plan if they have to forgo multi-million-dollar salaries. I cannot imagine a position more selfish and greedy at a time of national crisis. And I would like to speak directly to those CEOs right now: Do not make that mistake. You are stewards for workers and communities all across our country who have put their trust in you. With the enormous rewards you have reaped come responsibilities, and we expect and demand that you to live up to them. This plan cannot be a welfare program for Wall Street executives.

This is collectivist crap. Executives are stewards for the shareholders. Their responsibility is to run the business according to the goals of the owners, which is presumably to earn profit. Sometimes this goes badly. The owners should learn to write better compensation contracts for the future if they dislike their current results.

The political side is irrelevant, but Congress doesn’t think so. Where contracts exist, including for excessive subjective adjective compensation, government has a responsibility to honor the binding nature for all parties (i.e. not the politicians). Where politicians don’t like the contracts they’re buying, they should not buy the contracts. (They shouldn’t buy them, regardless. I’m sticking with the bailout line of reasoning.) Bitching that J. Dom Pérignon should suffer to make Joe Six-Pack feel better is obscene. If you need your schadenfreude, don’t bail J. Dom Pérignon out of his mess.

I’d question why we can’t agree on this, but I realize that punishing J. Dom Pérignon is more about implementing more regulation. The happy feelings are the bonus.