Posts Tagged ‘free markets’


Turning Up the Volume on Government

   Posted by: Robert    in Law, News

Congress is about to hand Americans another case of government overreach.  It appears that the House of Representatives has just approved the cutely named CALM Act, which now makes its way to President Obama for signature.  The bill, in essence, requires the FCC to enact regulations to control the volume of commercials on television to ensure that they are not too loud.  That the government has spent time on such a venture is entirely ridiculous.

To begin with the pragmatic question first, why in the world is the government wasting time on a bill like this?  When commercials are broadcast louder than the shows that are otherwise airing, it’s safe to say that what results is a minor annoyance at best.  I’m not someone who watches TV often, but I have noticed some commercials are louder than others.  Usually, though, it’s not too bad, and the thought of reaching for the remote never even crosses my mind.  Perhaps the most awful effect coming from the volume of commercials is that it wakes up people who fell asleep during a television show.  National security has never been compromised, and nobody has ever been hurt, because a commercial was louder than the TV show during which it aired.  The problem is, in sum, a minor trifle of an annoyance.

The government’s effort to “fix” this non-problem is likely to create some actual problems to be solved.  TV stations will, of course, be required to comply with whatever regulation the FCC ultimately decides to adopt.  It is likely that networks will be required to invest in hardware and software to analyze the broadcast volume of television shows and commercials to ensure that they are properly equalized.  This hurts small broadcasters who likely have much better things to spend that money on, as well as consumers who will ultimately be responsible for picking up the tab.

In the end, it’s impossible to see this bill as anything other than another example of government intervention into the everyday lives of Americans.  This legislation, quite simply, serves no greater purpose.  It is most unfortunate (though not surprising) that it was passed without a single recorded vote in either the House or the Senate; underscoring the triviality of the bill as well as the careless disregard with which Congress is willing to enact such legislation.

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Cell Phone Radios?

   Posted by: Robert    in News

In the news recently is a story, apparently breaking on the technology blog ArsTechnica, suggesting that Congress may soon consider the question of whether or not cell phone manufacturers should be required to include FM radios in all of their devices.1  Required, as in, Congress is going to pass a law making FM radio receivers mandatory.  Even for this current Congress, where payoffs, bribery, and corruption runs rampant, this entire move is somewhat incredible.

As I understand the story right now, the FM radio mandate is part of a proposed compromise between two special interest groups lobbying hard in Washington over the relatively obscure issue of broadcast radio royalties.  Under current copyright law, radio broadcasters are only required to pay performance royalties to songwriters, not to artists or recording labels, but internet radio broadcasters are required to pay all three.  Suffice it to say, internet radio broadcasters don’t like this scheme because it places them at a competitive disadvantage, and the recording labels and artists don’t like this scheme because they don’t get paid.  Both groups have been lobbying hard in Congress to change the law to force broadcast radio to pay all three royalties; broadcast radio, of course, prefers the current system.

Congress, being Congress, is apparently considering doing what it does best:  Bailing out special interests with payoffs using our money.

In this case, the scheme involves mandating FM radios in cell phones.  Under the deal, broadcast radio would need to pick up the tab for all three royalties, up to a certain monetary cap.  In exchange, Congress will mandate that FM radio receivers be placed in portable devices including cell phones, presumably along with MP3 players and their ilk as well.  In this way, the artists and labels get their money and FM radio gets receivers in more places which should increase the number of listeners.  Everybody wins.

Everybody, that is, except for people who want to buy one of these devices.

It should go without saying that FM receivers don’t come free.  There’s circuitry involved, an antenna, and given the digital nature of most portable electronics, software to be written as well.  It’s difficult to say how much money it would cost to add FM radios to cell phones, but it’s clear from the overwhelming lack of FM-enabled phones that, whatever it costs, it’s more than people would be willing to pay.  But, with a congressional mandate, the people wouldn’t be left with a choice.  Manufacturers will pass along those costs, and consumers will still need to buy cell phones.

The good news is that this so-called compromise appears to still be pretty far away from making its way into law.  For the love of free markets, I hope it stays that way.

  1. Ars, so far, appears to be the only one with this story, with other sources around the Internet simply referring back to their article.  As someone who follows their blog, I have generally found their technology-related writing to be accurate, so I’m inclined to believe that their post reflects something that is actually happening.  Even so, the lack of other sources is worth noting. []



Apple, Porn, and Central Planning

   Posted by: Robert    in Philosophy

Back in May on the blog Public Discourse, James Stoner points out an interesting analogy between Apple and the government.  In a post primarily dealing with the porn scandal at the SEC, Mr. Stoner added the following interesting comments about Apple and the iPhone:

Coincidentally, during the week that saw the announcement of the report on pornography use at the SEC there also surfaced a comment from Steve Jobs, CEO of Apple Computers, defending his company’s ban of pornography “apps” for iPhone and other Apple products. Apologizing to a user for mistakenly rejecting an app with a controversial political cartoon, Jobs added, “However, we do believe we have a moral responsibility to keep porn off the iPhone. Folks who want porn can buy an Android phone,” (Android is the comparable product of his new competitor, Google). The Wired article relaying the comment interprets “Jobs’ opposition to porn [as] loud and clear,” but adds no reasons from Jobs for his opposition: Is his a moral objection to pornography, a purely aesthetic distaste, concern about his company’s branding, concern about its market with the parents of young teens getting their first phone, or some combination of all these? The response of many geeks was instantaneous and predictable: Don’t tell me what I can and cannot watch, that’s why I’ll never buy Apple, “The web is about openness. It’s about freedom.” For whatever reason, Jobs seems unyielding and his company vigilant. The Sports Illustrated swimsuit edition passes muster, even Playboy without nudity and a reader for the iPhone that allows downloading of the ancient Kama Sutra are allowed, but try to sneak pornographic images into an approved app and iTunes will cut you off.

He then adds:

[O]ne can commend Steve Jobs for steadfastly refusing to allow Apple to become a platform for easy access to pornography, and commend him as well for showing that this can be done through determined business leadership, without recourse to government regulation that can threaten legitimate freedom and impose its own social costs.

But can Steve Jobs really be commended for this? I suppose as one of the “geeks” offering the “predictable” response, Mr. Stoner would be unlikely to have much interest in or patience for my views on the subject of Apple and porn.  I think, however, that it is Mr. Stoner who has missed an important reason why there is little to commend about Apple’s decision to ban pornography from its most newsworthy device.  Although Steve Jobs may be able to limit access to porn, such limits are unlikely to change the hearts and minds of people who would otherwise seek to consume it.

The main flaw in Mr. Stoner’s argument is the unfortunate fact that he reads too much into the distinction between government, on the one hand, and Apple, on the other.  It is, of course, undoubtedly true that Apple is not the government.  Unlike the government, Apple cannot force you to buy its products, and it is far easier for me to buy an EVO-4G instead of an iPhone than it is for me to move from Michigan to Peru.  That said, Apple is, without a doubt, the top central planner of the iPhone environment, and within its electronic walls, Apple acts very much like a fascist government.  While Apple may not necessarily choose winners, they undoubtedly choose the losers of its domain, leaving behind the scattered remains of such notable products as Google Voice and Adobe’s Flash Player, along with many other less notable apps which they rejected from the App Store — and, thus, the iPhone — for numerous reasons, including no reason at all.  Also, like a government, Apple collects sales tax on every piece of software sold for the iPhone, and now seeks to do the same for every advertisement by pushing its iAd service.

In short, while it may be easy to avoid the iPhone environment, once inside, there is very little that can be classified as being “legitimate[ly] free[.]”

With freedom, thus, outside the question, I find it difficult to agree with Mr. Stoner that anything about Apple shutting down porn does anything good for society.  If Steve Jobs were blocking porn as a way to send a message about values, then certainly that would be something to be applauded — except that I don’t think anyone believes that to be the case.  Instead, Apple is engaging in a sort of morally void behavior which just happens to have a desired result.  It is doubtful that anyone who wants to consume porn will find themselves not wanting to consume it because Apple has forbidden the stuff from its iPhone.  People will simply need to go find it somewhere else.

When governments pass laws or companies enact policies that mandate some moralistic result, neither are usually very effective at actually transforming the morals of their citizens or customers.  There is, quite simply, no comparison between choosing to do the right thing versus being prevented from doing things wrong.  Imposing a law against pornography does not take away the desires which bring people to consume it any more than imposing a law of gravity takes away man’s desire to fly.

Rather than trying to outlaw porn, we as a society would be much farther ahead understanding the reasons which bring people to consume it and finding a more wholesome way to satisfy those needs.  If porn is being used as stress relief, we would surely be better off emphasizing other ways to reduce workplace stress either through job restructuring (to combat the cause of stress) or some other physical activity (to direct stressful energies in a more positive direction).  But most important is that people must be made to affirmatively want to do these things, not merely fall into them for lack of a viable alternative.

That said, unlike the government which I consistently believe should be reduced in both size and power, I hold no malice toward Steve Jobs or Apple.  The iPhone, iTunes, the App Store, and all such things are their business and Apple participates in the free market just the same as anybody else.  If Apple wants to banish porn, to choose winners and losers, to lay and collect taxes, or to do any of the other things that they do, then that is entirely their right.

But as I hit “Publish” using my myTouch 3G (with Google), I affirm my own right to make my own choices, and to have my own values to win or lose by the power of persuasion in the marketplace of ideas.

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Re: Can the Federal Government Really Create Jobs?

   Posted by: Robert    in News

Over on Time Magazine, Barbara Kiviat asks the question, “Can the Federal Government Really Create Jobs?”  The answer she comes to is a bit surprising, in that it’s as close as I can imagine anyone from a major news outlet other than Fox News will come to saying that Obama is on a fool’s errand with his latest push to create new jobs.  In an article which is compellingly lucid, Ms. Kiviat concludes that “there are few obvious steps for a government looking to create jobs.”  Along the way, she things which are interesting, and which are certainly worth a closer look.

If we want firms to go out and hire, why not give them an economic incentive to do so? This could be done by flat-out paying companies to hire, or by reducing their share of payroll taxes (the money that gets withheld from workers’ paychecks to pay for Social Security and Medicare). Either way, adding a new worker becomes cheaper.

A position such as this one fits extremely well with what we know of the remarkable benefits of reducing taxes on businesses.  As we have seen repeatedly throughout history, lower taxes lead to a healthier and more productive economy.  There is, however, a noteworthy difference between lowering taxes and “paying companies to hire.”

Lowering taxes provides a sustainable benefit to businesses which they can rely on and pass along to employees in the form of greater hiring, higher wages, or to consumers in the form of lower prices.  “Paying companies to hire,” however, provides no such sustainable benefit.  Giving an incentive to hiring may cause a sudden rise in hiring, but it also keeps the tax burden high (indeed, probably higher, to pay for the payments) and encourages companies to hire people for terms which are effectively temporary, only permanent enough to qualify the company for the benefit.  Companies may profit, at the expense of greater noise in the job market and few new long term jobs.

Of course, what is certain is that the Texas approach of raising unemployment taxes is nowhere close to the right answer.  For companies which are already having trouble making payroll, adding additional costs will only further push businesses past the red line and generate further layoffs.  For companies that are uncertain whether or not to hire employees, the greater tax places a definite thumb on the “no” side of the scale as the penalty for overestimating their labor needs increases.

The conundrum: demand in the U.S. is overwhelmingly consumer-driven and people need to have jobs to feel like it’s once again safe to spend money. It’s a classic chicken-or-egg problem. Direct hiring by the government could, theoretically, sidestep the impasse. The question then becomes whether such a program creates more economic benefit than it does economic inefficiency by having the government dictate job creation. Consider that one criticism of the WPA was that it prevented people from moving to jobs where they would have been more economically productive — and actually slowed down the post-Depression recovery.

Much has been made throughout the recession of this so-called “chicken-or-egg” problem being a disaster of contrary incentives resulting in a death spiral to total economic collapse.  At every step along the way, that “conundrum” has been a justification for invasive government action: The only economic rules the federal government needs to follow are the ones that it doesn’t feel like ignoring.  By spending when nobody in their right mind would spend, by hiring when nobody in their right mind would hire, the government is in a unique position to prime the economy.  Or so the argument goes.

But like all good paradoxes, there are two sides to this story.  While the stock market downturn may have been a disaster for people who recently retired or who intended to retire in the near future, it was a boon to a younger generation of investors who are just beginning their economic journey.  In the age old adage of “buy low, sell high,” what better time could there be to buy than at the bottom of a recession?  What better time could there be for hiring than when labor rates are low?

In a free market, one person’s problem is another person’s opportunity.  As prices fall and investment becomes more attractive, new investors enter and prices eventually level off.  As the private sector creates value, that value fuels future growth in the economy.  From future growth comes future jobs, and long term recovery.

The government, by contrast, cannot participate in that process.  They produce no goods and they provide few services. Every dollar the government spends paying its employees came from taxing the private sector; taxing companies which could have given that person a productive, value creating job.  The idea of government hiring to create jobs is a broken window fallacy: Instead of having an employee who makes suits, you merely have an employee.  Nobody is better off.

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Re: How Did Economists Get It So Wrong?

   Posted by: Robert    in Politics

In a New York Times op-ed, Paul Krugman offers his answer to the question of where economists erred in their treatment of the economic crisis.  (The article is lengthy and probably not all that interesting, but it does have a flow that keeps it going.)  While I may not be as educated in economics as Mr. Krugman, there were a number of points in the article that struck me as strange, lacking in context, or simply wrong.

For all the length and discussion, his basic answer to the topic question is that economists got it wrong by abandoning Keynesian economics.  Readers will find it unsurprising that his proposed solution going forward is to start thinking, again, more like Keynes.  In short, he believes that investors and economists came to rely too much on a view of financial markets which holds that they always get the right answer given the information available at the time, that “bubbles” are impossible, and that people in general can be counted on to act rationally.  Reality, he claims, is a lot more messy, and often needs to have the government involved to swim against the free market tide to bring stability to an otherwise unstable system and to head off the inherently bad problems of recession and unemployment.

The largest problem that I see with Mr. Krugman’s argument is that it ignores entirely one of the greatest destabilizing forces currently active in the market: The government itself.  Instead, Mr. Krugman appears to operate from the view that the current market is a largely untamed free market wilderness.  This position is not uncommon among liberals or other advocates of a centrally planned economy, who tend to label any market that does not behave as they desire as “free” (even such heavily regulated markets as health care) and in need of regulation.  In reality, it is hard to think of a market that hasn’t got a federal regulatory agency dedicated to it and which isn’t subject to countless regulations, not to mention the threat of lawsuit, even during “deregulation” periods.

Government meddling is certainly one factor which can, and likely does, cause “bubbles” to form in the economy.  A “bubble,” it has always appeared to me, is little more than a market response to incorrect or incomplete information which paints a rosier picture of the market than actually exists.  A bubble “bursting,” then, would simply be the market correcting itself once new information comes to light which points out investors’ exuberance.  In the late 1990s, the “tech bubble” grew from investor confusion as internet companies grew and appeared to succeed despite having no obvious business plan, strategy, revenue stream, or even product.  It burst when reality set in and people started to realize that traditional business rules applied to the web after all.  We know that the “housing bubble” was caused at least in part by the Fed driving interest rates (and, thus, mortgage rates) down and by the government pressuring lenders to make loans to people who had no financial business buying a house.  Here, too, something eventually had to give, especially once new government “mark to market”kicked in and eliminated any sense we might have had about how much anything might be worth.

Following any of the bubble bursts is a period which, as a matter of definition, we get to call a “recession.”  Whether or not this is bad would seem to mostly depend on whether or not recession values are more reflective of reality than the bubble values which preceded them.  If it is bad to live in the fantasy world of a bubble, it should be better to live in a post-bubble world where the value of things more closely reflects what the value ought to be.  Yet, Obama’s first reaction to the housing bubble collapse — of which Mr. Krugman seems to implicitly approve — was to exert government force to drive housing prices back up to their bubble levels, effectively locking in the bubble forever.

Of course, evidence so far suggests that even Obama’s Reality Distortion Field is not strong enough to pull that one off.  Despite the TARP money, the credit markets are still tight.  Despite the stimulus, unemployment continues to rise.  Despite bailing out GM and Chrysler, both companies still went bankrupt.  Despite every Keynesian action Obama has taken, he has utterly failed to produce a single long-term positive result for the economy as a whole.

So, how did economists get it wrong?  Well, Mr. Krugman certainly does have a point that it makes little sense to consider the correctness of housing prices by comparison to what other houses cost.  It also seems likely that they did put too much emphasis on the free market, neglecting to carefully analyze what effect government regulations were producing.  Whatever the conflicts within the economics community, we would seem to do ourselves no favors by pretending that central planning is any sort of economic panacea.

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Competing with Natioalized Healthcare

   Posted by: Robert    in News

In the New York Times, Reed Abelson published an article talking about President Obama’s plan for a government operated healthcare system. The article is a good one which I found to be fair both in its description of President Obama’s proposed system (at least, to the extent that it has a description) and of some of the criticisms which surround it. The bulk of the article is spent discussing how a government healthcare system could coexist with private healthcare with a particular emphasis placed on how the government could be a fair competitor in the marketplace. Although the article raises several good points, I believe it misses certain fundamental flaws in the notion that the government could compete fairly.

As both I and Mr. Abelson understand President Obama’s proposed healthcare plan, the President’s idea is essentially that the government would become a health insurance company. It is distinguished from other healthcare plans proposed by Democrats by the fact that it is not, on its face, a single-payer system. Instead, the government would enter the insurance market as a large nonprofit insurance organization in competition with private insurance. The apparent theory is that the government would be able to use its size to negotiate price reductions with healthcare providers and drug makers while simultaneously having lower overhead than private insurers because the government plan would not be a profit seeking venture. Cost savings would then be passed on to consumers in the form of lower insurance premiums.

From this point, Mr. Abelson spends most of his article presenting one major reason that the government would not be a fair competitor. The government, the argument goes, would have such a size advantage that it would be able to push prices well below anything a private insurer could accomplish. In so doing, the government would effectively out compete private insurance. To the extent that this argument is true, it is ultimately uninteresting. If the government’s competitive advantage is volume leverage, then so be it.

The real threat to fair competition comes not from the first part of the theory, but from the second. Not only would the government not need to seek profit, it would not even need to break even. This immediately gives the government an advantage that even private nonprofits do not have. The government could easily charge below cost and still remain viable by subsidizing the shortfall out of tax revenue. Indeed, a government insurance plan would almost be forced to do this if it is truly going to guarantee some form of coverage to every American, even those with $0 available to spend on premiums.

The only way to have truly fair competition is for the government to restrict its healthcare funding to premiums paid by actual participants in the plan. Of course, there is no chance of that happening, because doing so would entirely defeat the purpose. Private insurers will, therefore, be forced to compete in a market dominated by a competitor which, in the private sector, would almost certainly be found guilty of anti-competitive predatory pricing.

With no meaningful hope that the government would act in the market as a fair competitor, it strikes me as highly unlikely that private insurance would be able to compete. Perhaps private insurance would take on a role similar to what we see now with Medicare gap insurance, with private insurers picking up the slack where government insurance cuts off. For the bulk of coverage, however, the real question will not be if private insurers will be able to compete, but how long they will try before closing their doors.

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Economics and Peanut Butter

   Posted by: Robert    in News

Taking a break from the usual political travesty better known as the “stimulus” bill working its way through Congress, I spent a bit of time today reading up on peanuts.  The salmonella mess is, by every reasonable account, a decidedly unfortunate event, and it is my sincere hope that anyone still suffering the effects of the disease recover quickly, and that the families of those who have not been so lucky recieve our greatest sympathy.  Time will tell if the folks at Peanut Corporation of America (PCA) violated any laws by their (in)action, and what outcome justice will require.  For advocates of the free market, the peanut case presents an interesting study of market failure, the limits of faith in government, and a demonstration of the way in which markets effectively police themselves.

It does not take a lot of looking to find the market failure in the tragedy of PCA.  According to a Reuters article, early indications are that decision makers at PCA conspired to cover up the existence of some salmonella in their product.  The reason stated is, of course, a familiar one: Peanuts which get trucked to a landfill are less profitable than peanuts which get shipped to a distributor.  All indications show that the company was not exercising due care to ensure the safety of consumers.  Significantly, there appear to have been very few red flags raised about PCA despite the company’s history of health violations.  If there were whistleblowers at all, they were apparently ineffective, and the media only began to care after people got sick.  There was, in short, very little public information about the risks of the product.

Of course, it would have been difficult to predict the need for a significant amount of public oversight, given the role that the Federal Government was supposed to have played in protecting the integrity of the food chain.  As we now know, the FDA was largely absent from its oversight role at PCA, citing budget constraints.  There is no reason to think that the peanut industry is uniquely underfunded, which means that throughout the food industry, a sufficient level of oversight is likely to be the exception rather than the rule.  However, in the perverse world of government, the FDA — which would probably be subject to lawsuit if it were a private entity — is already using the incident as a reason to ask for greater money and authority.  All the while, consumers are asked to simply trust that the government is doing its job.

Despite the bleakness of the failures which led to the peanut disaster, the current fallout has been a shining example of how the free market responds to poor decision making and the strong likelihood of misconduct.  Once it was determined that the salmonella outbreak was caused by peanuts, it took very little time for the health hazard to become national news.  Peanut sales also dropped sharply in the wake of the discovery, with a drop so severe that PCA will certainly lose more money from market effects alone than it could ever have saved by shipping tainted peanuts.  Indeed, market losses alone, including the damage to the company’s reputation, will make it extremely difficult for PCA to remain in business.

For those who believe in the virtues of free enterprise, the challenge now is to determine and explain how the market should have acted, and identify why things did not play out that way.  Without a solid counterpoint, calls to increase the invasiveness of the FDA will succeed without meaningful opposition, further eroding the already tenuous illusion that it is the people, rather than the government, who are responsible for ensuring the highest level of quality.