Imagine That!

Some interesting news from Michigan:

Michigan workers are not going to suffer. They have simply been given the freedom to join or not join a union, to pay or not pay dues. And while wages in right-to-work states such as Virginia, Tennessee, Texas and Florida are slightly below those of other states, employment in right-to-work states is higher. [Emphasis added.]

So, states with higher price floors for labor have higher unemployment rates while states with lower price floors for labor have lower unemployment.  I wonder if there is any sort of explanation for why this might be the case.  Is there possibly a rule about this sort of economic phenomena?   I wonder…

“Cheap Labor”

Turns out it’s neither cheap nor labor:

“In 2010, 36 percent of immigrant-headed households used at least one major welfare program (primarily food assistance and Medicaid) compared to 23 percent of native households,” summarizes the document which was published by the Center for Immigration Studies and examines a wide variety of topics relating to immigration. Click HERE to read the full report.

The document breaks down the immigrant families by country of origin and gives specific types of welfare and percentages of the families that used it in 2010. An average fewer than 23 percent of native households use some type of “welfare” which is specifically defined in the study. 36 percent of households headed by immigrants use some type of welfare. Families headed by immigrants from specific countries or areas of the world range from just over 6 percent for those immigrants from Great Britain to more than 57 percent of those from Mexico using some type of welfare. [Emphasis added.]

From now on, I’m going to call bullshit on people who tell me how hard-working and thrifty Mexicans are.  If that’s the case, why are 57% of Mexican immigrants receiving money from the federal government of the United States?  Why are the taxes of American citizens being used to pay for people from shithole third world countries?

Also, I’m going to call bullshit on dumbass economists who insist that what we need is more cheap labor from Mexico.  Hint:  labor isn’t actually cheap if it’s federally subsidized.  The savings of cheap Mexican labor are apparently illusory.  What cheap labor really amounts to is federal subsidy scam.

What we’re seeing now is nothing more than a government that is forcing its citizens to pay for their cultural, economic, and social suicide.

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It’s Not The Worst Plan In The World

The Seattle Times:

If President Obama wants to avoid an economic calamity next year, he could always show up at a news conference bearing two shiny platinum coins, each worth … $1 trillion.

That sounds wacky, but some economists and legal scholars have suggested that the “platinum coin option” is one way to defuse a crisis if Congress cannot or will not lift the debt ceiling soon. In theory.

The U.S. government is facing a real problem. The Treasury Department will hit its $16.4 trillion borrowing limit by February at the latest. Unless Congress reaches an agreement to lift the debt ceiling, the government will no longer be able to borrow enough money to pay all its bills.

Last year, Republicans in Congress resisted raising the debt ceiling until the last minute — and then only in exchange for spending cuts. Panic ensued.

What happens if there is another showdown this year?

Enter the platinum coins. Under current law, the Treasury is technically allowed to mint as many coins made of platinum as it wants and can assign them whatever value it pleases.

Under this scenario, the U.S. Mint would make a pair of trillion-dollar platinum coins. The president orders the coins to be deposited at the Federal Reserve. The Fed moves this money into Treasury’s accounts. And just like that, Treasury suddenly has an extra $2 trillion to pay off its obligations for the next two years — without needing to issue new debt. The ceiling is no longer an issue.

Obviously, the only downside to this plan is the inflation, but it’s not like the government is serious about that, seeing as how the dollar has lost over 95% of its value in the last 99 years.  I suppose it would be technically better to use the trillion dollar coins to buy back US debt and retire it, thereby monetizing the debt-inflation that has already occurred.  However, in the grand scheme of things, it doesn’t really matter.  What matters is that we extend and pretend for another year until Krugman and the Neo-Keynesians finally Figure Out How To Solve The Economy For Good This Time (We Really Really Mean It)™.

Tax Stupidity

There are a lot of people calling for raising taxes. Tom Coburn (a Republican, it should be noted) is in favor of increasing tax revenue by raising nominal rates on the wealthy. Daniel Berger thinks it’s unfair that the rich (himself excepted, of course) don’t pay their fair share. These two stories, then, reveal the two main arguments for increase tax rates on the wealthy: increasing revenue and making society fairer. Unfortunately, these two arguments have nothing to do with reality.

It’s surprising that anyone seriously thinks that raising relatively high tax rates to an even higher level will automatically lead to higher revenues. Britain tried this last year by raising the top income rate on millionaire earners to 50% and saw a £7 billion decrease in tax revenue. California attempted to create the highest state income tax in the nation and saw its revenue fall as well. Furthermore, federal tax revenues actually increased after the Bush tax cuts. Clearly, the argument that increasing revenue is as simple as raising tax rates is demonstrably false.*

What’s interesting, though, is that a progressive tax system doesn’t actually alleviate unfairness (aka inequality). California and New York, for example, have two of the most progressive tax codes, relative to other states. They also have a surprising amount of income inequality, relative to other states. Of course, correlation is not causation. But the absence of correlation should certainly indicate the absence of causality (since the theory is that progressive tax rates reduce income inequality, the complete absence of this theory in practice should lead to the conclusion that this theory is complete and utter bunk).

Why it is the case that progressive tax rates don’t lead to greater income equality is difficult to discern. Perhaps it is the case that, in response to increased taxes, the moderately wealthy leave while the uber-wealthy stay. Perhaps there is a connection between progressive tax rates and expansive regulation, with said regulation tending to benefit the wealthy. Perhaps the progressive tax system is a mirage of nominally tax rates coupled with lots and lots of loopholes. Perhaps God hates progressive and loves nothing more than a good joke at their expense. Perhaps the elite exploit progressive naiveté for gain. Whatever the case may be, it appears that it’s time to refrain from arguing that progressive tax rates make things fair.

At any rate, it should be clear that the two main reasons for increasing nominal tax rates are nothing more than crap. Raising rates doesn’t increase revenue, nor does it make things more fair. Now, let’s stop pretending that it does.

* Of course, this doesn’t mean that decreasing tax rates necessarily leads to a revenue increase. The Laffer curve suggests that there is a revenue-optimal tax rate between 0% and 100%. Where this specific point is for federal revenue is unknown, but history suggests that revenue will not generally exceed 20% of GDP, and that optimal tax rates generally tend to be below 50%. My personal opinion is that, assuming a highly simplified tax code (one or two collection points and few to zero loopholes), the optimal tax rate will be in the low to mid twenty percent range.

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It’s A Wonderful Theory

Scott Sumner:

It makes no difference who gets the extra money from the Fed, because the recipient is no wealthier than before (money is swapped for bonds) and hence they have no incentive to spend any more.  Rather the impact occurs in the AGGREGATE.  Total holdings of the base now exceed total base demand at the current price level, and hence aggregate nominal spending rises (if the injection is permanent.) [Emphasis added.]

So, Sumner is essentially asserting that the people who sell bonds to the government for cash are essentially kind-hearted souls who are doing the economy a big ol’ favor by spending a ton of time and energy in an unprofitable activity to help plain ol’ average Americans avoid a liquidity trap.  And who are these blessed, selfless individuals?  Why, these oh-so-helpful people who are engaging in unprofitable activities for the sake of all Americans are none other than bankers!
It is truly amazing how some economists can get so wrapped up in their abstract theories that they cling to the point of absurdity.  Seriously, Sumner’s model is essentially predicated on an implicit assumption that those who engage in trading bonds for cash from The Fed only do so out of the goodness of their hearts.  It ignores the actual motivations of the economic actors involved, and somehow ignores that most people engage in what they determine to be profitable activities (in whatever way they subjectively value profit).  And if Sumner’s theory is predicated on the assumption that bankers do not, when messing around with hundreds of billions of dollars, seek to make a profit, then his theory is probably not all that realistic.
It makes considerably more sense to assume that bankers will swap out their bonds for cash from the central bank because doing so is quite profitable.  The central bank will take the hit because, like all good political agencies, it is corrupt and inefficient, and exists to channel wealth from the middle and lower class into the hands of the wealthy.  Of course, Sumner can’t admit this because committing heresy against the church of the central bank and its high priest Ben Bernanke would miraculously cause Sumner’s head to explode.  And so, he assumes that bankers (again, bankers) engage in economically unprofitable activity because…bankers are nice people, I guess.
And so, you can see that Sumner’s assertion is probably false because there is quite a mismatch between incentives and behaviors.  At least it’s a wonderful theory.

Fire This Clown

Paul Krugman demonstrates his irrelevance yet again:

What was Mr. Rubio’s complaint about science teaching? That it might undermine children’s faith in what their parents told them to believe. And right there you have the modern G.O.P.’s attitude, not just toward biology, but toward everything: If evidence seems to contradict faith, suppress the evidence.

No, Rubio apparently believes that parents—not the state—should determine what their children are to be taught. Now, the logical way to go about this is to homeschool your kids. However, I can’t think of a single good reason why state-run schools in a democracy educate citizens’ children according to the desires of the citizens.

Anyhow, Rubio’s complaint is not that science contradicts children’s faith; his complaint was that public education was teaching things contrary to the desires of the parents. Since parents are citizens in a representative democracy and also pay taxes, it is right for the government that claims to represent the parents to obey the wishes of the parents when educating their children. To put it in terms that hopefully even a statist clown like Krugman can understand, Rubio apparently believes that children belong to their parents and not the state.

The most obvious example other than evolution is man-made climate change. As the evidence for a warming planet becomes ever stronger — and ever scarier — the G.O.P. has buried deeper into denial, into assertions that the whole thing is a hoax concocted by a vast conspiracy of scientists. And this denial has been accompanied by frantic efforts to silence and punish anyone reporting the inconvenient facts.

How soon we forget East Anglia. Now, when even the head scientists at the East Anglia Institute itself admit that the data is faked, fraudulent, and highly massaged manipulated, then perhaps we can conclude that the data is not trustworthy. And since a goodly amount of working papers and policies are actually predicated on data released by the East Anglia Institute, then it is quite fair for most, if not all people to be somewhat skeptical or even highly skeptical of the case for man-made climate change.

Furthermore, since there has been little research on how the sun—you know, that big ball of fire in the sky that only heats the entire world every day—impact long-term global temperatures, then perhaps all of us would be justified in being a little more skeptical of anthropogenic global warming.

We are, after all, living in an era when science plays a crucial economic role. How are we going to search effectively for natural resources if schools trying to teach modern geology must give equal time to claims that the world is only 6.000 years old? How are we going to stay competitive in biotechnology if biology classes avoid any material that might offend creationists?

I don’t know, division of labor?

Both my parents are public school teachers. You know what they don’t teach to fourth-graders in public school? How to search effectively for natural resources. Know why? Because that subject is not something that most fourth-graders are able to grasp.

I attended public school for my last two years of high school. Know how many biotech classes my school offered? Zero. Know why? Most high school kids don’t have the intellectual chops for biotech. For crying out loud, most college kids don’t either. Come to think of it, a good number of adults probably can’t wrap their heads around it.

Now, maybe Krugman should retake Econ 101 and read up on the division of labor. This is a fairly well-established concept, having been around since at least 1776 (in Smith’s The Wealth of Nations), that states that production can become more efficient when labor is divided up into various roles and sectors. Not everyone is going to take a job searching for natural resources, nor is everyone going to take a job in biotech. Those who do go into those industries will likely require some training beyond mere public school. Thus, it makes little sense to complain how creationism will take away from future biotechnicians’ budding careers, since most kids won’t need those classes, and those that do won’t need them until college.

Frankly, Krugman has turned into a caricature of his former self. I don’t know what happened to him, but his critical thinking skills—not much to brag about in the first place—have just gone down the toilet. Does he have Alzheimer’s or something? If so, I think it’s pretty safe to say that his mind is about gone, so maybe the New York Times might to go ahead and let him go already.

The Pot Calling the Kettle Grey

Universal is suing a porn company:

The copyright owner of the mega-selling book, Fifty Shades of Grey, and Universal Studios, which owns movie rights, aren’t happy with a porn film titled Fifty Shades of Grey: A XXX Adaptation.

In the new lawsuit, Fifty Shades Ltd. and Universal point to that quote as proof of the defendants’ intentions to usurp copyright and trademark and confuse the source of origin.

“By lifting exact dialogue, characters, events, story and style from the Fifty Shades trilogy, Smash Pictures ensured that the first XXX adaptation was, in fact, as close as possible to the original works,” says the lawsuit, filed in federal court in California.

My guess is that Universal is upset that Smash beat them to the punch on this one, so to speak. I mean, I had assumed that whatever Universal produced was going to basically be porn, and this lawsuit confirms it.

More to the point, it is quite hilarious to see Universal complain about how Smash is defrauding them by shamelessly ripping off a book that is itself a rip-off of Twilight. How hypocritical is it for Universal to complain that Smash is violating copyright law for doing to Universal what E.L. James did to Stephanie Meyer. I guess this just goes to show how stupid IP is, and how it is obviously nothing more than a legal front for major entertainment businesses to act monopolistically.

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A Theory of Regulation

This story caught my eye:

Now another revolution on wheels is on the horizon: the driverless car. Nobody is sure when it will arrive. Google, which is testing a fleet of autonomous cars, thinks in maybe a decade, others reckon longer. A report from KPMG and the Centre for Automotive Research in Michigan concludes that it will come “sooner than you think”. And, when it does, the self-driving car, like the ordinary kind, could bring profound change.
Just imagine. It could, for a start, save the motor industry from stagnation. Carmakers are fretting at signs that smartphone-obsessed teenagers these days do not rush to get a driving licence and buy their first car, as their parents did. Their fear is that the long love affair with the car is fading. But once they are spared the trouble and expense of taking lessons and passing a test, young adults might rediscover the joys of the open road. Another worry for the motor industry is that car use seems to be peaking in the most congested cities. Yet automated cars would drive nose-to-tail, increasing the capacity of existing roads; and since they would be able to drop off their passengers and drive away, the lack of parking spaces in town might not matter so much.

I’ve written before about how government regulation causes the traffic problem instead of solving it (see here).  In one post, I even noted how the current solution to fixing the problem yields results similar to a laissez-faire approach.  One thing that’s important to note from that prior post is how unfettered humans have already attained a solution that the many are still striving towards.  This makes for an interesting question:  if the goal is more efficient traffic, why not simply give people freedom by eliminating traffic laws?
This may not be the right question, though, since it’s based on the assumption that result is more important than process.  To put it another way, by asking the above question, I’m implicitly assuming that reducing traffic is more important than having a problem to solve.
This then brings me to me theory of regulation.  People want to feel like they’ve accomplished something important, which generally means overcoming a difficult hurdle.  Some things are inherently easy, so the only way to make accomplishments seem more important is to add a handicap. An example of this can be seen way back when cake mixes were first introduced.  At first, the only thing you needed to do to bake a cake from a box was simply add water.  Sales never took off, so the marketing team for early cake mixes decided to add more steps, like adding eggs and oil.  Once cake mixes became more difficult to prepare, sales took off because consumers viewed making cakes from a mix to be difficult enough to be meaningful.  Before the recipe change, cake mixes were viewed as too easy, and therefore insulting, as if the recipient didn’t merit much effort.
In my theory, regulation exists as a handicap to make life more difficult, and therefore more meaningful.  After all, how meaningful can life be when there is no problem to solve?  Regulation provides meaning to life by making life more difficult.  You can’t solve the traffic problem if traffic doesn’t even exist.
Of course, the driverless-car solution will be difficult—if not impossible—to implement because of the sheer amount of technical data that is necessary, not to mention the sheer scale of implementation.  To centralize the process of driving everyone around, you will need tons of data, a network on which this data can be shared, and a minimum of automotive troubles.  Furthermore, you will need people to act according to a fairly rigid schedule, since driverless cars necessarily live by arbitrary rules (like speed limits).  This system will be less-spontaneous and more rigid, and will likely malfunction on a regular basis because humans are still very much a part of the system.
Nonetheless, the driverless car is a remarkably difficult solution that should engage a large number of otherwise bored people for a rather significant amount of time, without much hope of actually attaining a practical solution.  If you view traffic as the problem, trying to build a driverless car is not the solution.  If you view intelligent people being bored as the problem, trying to build a driverless car is the solution.
What’s pernicious about this whole system is that it concerns itself with the emotional state of technocrats.  These are the sort of people who constantly dwell on solving problems, and get bored if there are no problems to solve.  These are the sort of people who will invent problems out of whole cloth, or define features as bugs, or, worse yet, actually go about creating problems in order to have a problem to solve.  It doesn’t actually matter if they solve the problem; it matters that they have something to solve.
To this end, regulation is helpful in creating problems to solve because it gums up the works of functioning societies. Most people are capable of acting in their own best interest as well as cooperating with other people.  While human relationships and motives can be quite messy at times, they tend to work generally well, especially among those who make a point of functioning as adults.  This naturally leads to a rather boring society, as most people don’t look for perpetual problems to complain about.  If you need to get from point A to point B, you take the easiest path and negotiate clearly with others who share the road with you.  And if a given path is not efficient, take another one.  Technocrats see this as boring, because there is no recurring problem to solve, and so they first invent a problem (someone’s going to fast), then invent more problems, until they’ve created real problems, which they happily set about solving.
As can be guessed, this is a pretty dysfunctional way of going about things, since it necessarily imposes wasteful costs on society.  On the plus side, though, society is able to afford it—for the time being—so social wastefulness is, to be optimistic, a sign of great social wealth.  Still, it is sickening that there are some who are so bored that the only way to alleviate their boredom is to waste social resources.
Anyhow, that’s my theory of regulation.  There’s a good chance it’s nothing more than intellectual onanism, so feel free to take it apart in the comments.

The Music Industry is Dying

A California district court has ruled that it’s definitely still not okay to steal from people in the music industry, even if they’re just lowly music publishers. Judge George H. Wu served and its owner, MySpace co-founder Brad Greenspan, with a $6.6 million default judgment on Tuesday for posting the lyrics to 528 songs, including TLC’s “Waterfalls,” without permission on multiple websites owned by the company. This should come as a surprise to music consumers because who knew that posting lyrics online was illegal? Certainly not the hundreds of sites that do it regularly.

Ross Charap, a lawyer representing the publishers, told Ars Technica on Thursday that the suit was filed in order to persuade more sites to adhere to licensing requirements. And although the plaintiffs—Peermusic, Bug Music, and Warner Chappell Music—originally hoped to “persuade” potential violators by winning $100,000 per song from Greenspan, the judge reduced the punishment to $12,500 to avoid disproportionate damages. [Source.]

Healthy industries don’t generally spend a lot of time suing those who provide non-competitive complementary services to their customer base, yet this is exactly what we find the music industry doing.  Posting lyrics online does not generally dissuade potential customers from buying music (if I had to guess, I would bet that reading lyrics is generally a post-consumption event that generally enhances the listening experience).  In fact, lyrics aren’t even substitute goods.  Thus, the only reason to sue lyric providers is to get money from them directly; it is not to prevent the cannibalization of sales.
As such, this act is befitting an industry in desperation, and surely forebodes its demise.  Between the internet, the general growth of technology, and the ever-decreasing costs and ever-decreasing barriers to producing quality music, it would seem that the megalithic corporate-based music industry is not long for this world.  To which I say good riddance.

Does Piracy Harm Sales?

That’s the question asked by Michael Smith.  He doesn’t do a very good job answering:

My colleague, Rahul Telang, and I recently finished a paper reviewing the academic research on the impact of piracy on sales. Our review finds that, when viewed as a whole, the academic literature strongly suggests that piracy harms media sales: the vast majority of academic papers — particularly those published in peer-reviewed academic journals — find evidence of harm from piracy. This conclusion is consistent with reviews of the academic literature by Stan Liebowitz in 2006 and by Felix Oberholzer-Gee and Koleman Strumpf in 2009, but includes more recent studies — and we believe these recent papers make the case of harm from piracy even stronger than what the literature suggested just a few years ago. [Emphasis added.]

Since the main complaint about music piracy is that it harms the artists, three quick questions come immediately to mind.  First, why is the concern about media sales relevant when most artists don’t find media sales to be all that profitable?  Second, what effect does piracy have on ticket and merchandise sales?  Third, what effect do official YouTube music video releases have on media sales?
The first question is important because it highlights the fact those who are most concerned about piracy are usually either useful idiots or corporate shills.  Since I hate corporations (they are a fundamental market distortion), and since most music corporations are busy ripping off the artists they claim to be acting in the best interest of, I see no reason to defend them or their interests.  Incidentally, that means that media sales aren’t really that big of a deal since most artists make a pittance from music sales.
The second question is important in light of the fact that there are more active music artists than ever before.  If piracy makes music so unprofitable, why do more and more people release music?  Answer:  either profitability is so easy to achieve that the effect of piracy is negligible, or piracy doesn’t have a net negative effect on profitability.  Or, to ask it another way:  are artists relying other methods of getting revenue?  My bet is that the price points are different now, which renders concerns about piracy obsolete.
The third question is important because it offers a control for the studies.  Watching officially released music videos on YouTube or other legitimate video hosting sites is the most obvious alternative to piracy because by watching music videos online, one avoids purchasing music while still being able to consume it.  Thus, if sanctioned YouTube videos are shown to cannibalize media sales, then we can conclude one of two things:  either record labels are run by complete and total morons (a distinct possibility) or even the record labels understand that digital media is simply a form of advertising for the more lucrative aspects of the music industry, like tickets an merchandise.
Really, when you think about it, anti-piracy laws only exist to ensure that record label owners have another way to rip people off.