Competition vs. Standardization

TechDirt has a good post outlining the tension between competition and standardization qua economic forces. It's relatively short and definitely worth the read.

Cotton Subsidies

The BBC has an article about US cotton subsidies in which the stupidity of government intervention in economic matters shines through pretty clearly:

"John Negroponte was defending ongonig subsidies on US cotton growers during a visit to Burkina Faso, in west Africa.

"The country is Africa's leading cotton grower, although it produces just 6% of the amount of cotton the US does.

"The region's small farmers complain that they must compete against highly mechanised, well-subsidised US rivals."

Now, just as an aside, I would like to point out that the complaint that the farmers of Burkina Faso not being able to compete against mechanized US firms is, well, stupid. Granted, they have a legitimate complain when it comes to subsidies, but with regard to mechanization (unless this wouldn't have happened without subsidies) is just dumb.

Anyway! The article continues:

"He said the US had worked to promote cotton farming in Burkina Faso by providing aid funds to finance increased production and marketing."

So, unless I'm missing something, first the government uses tax money to subsidize an industry (offense #1) then takes more tax money and sends it to the competitors of the people it subsidized with the first batch of tax money so that they can be more competitive. Brilliant! Simply Brilliant!

Income Inequality

TCS Daily has a nice little article about income inequality. While I recommend reading the whole thing (it isn't very long), here is a summary of the points made:

• Those who advocate leaving things up to markets are not necessarily believing in market forces with blind faith. Rather, while we recognize that markets fail and that government intervention is another option, we believe that government fails much more frequently than markets do.
• Income inequality is a poor measure of prosperity. That is, who cares what one's position is relative to someone else's? What really matters is how well off one is in more absolute terms.

Markets Pessimistic on Iraq

The New York Times has an article showing that the international bond market is not considering the war to be going well. The market has not responded positively to the surge, or anything else. Apparently, bond markets are one of the best predictors of a failing government.

Are Product Definitions a Proper Function of Government?

This article regarding the fact that Mars Inc. says that using a certain amount of vegetable oil in place of cocoa butter - even if such a change were allowable under the official definition of chocolate - would be a mistake made me start thinking about the fact that we have a government dictated definition of certain products.

It seems to me that the purpose of having government set definitions of certain products is so that consumers can be confident that, when they buy a chocolate bar, they are actually getting a certain product, namely, chocolate, as opposed to some soft brown stuff on which a company has slapped a label reading "chocolate." I expect that the problem, the argument would go, is that consumers would not be able to tell the difference between chocolate made with only 95% cocoa butter as opposed to 100% and, thus, would be exploited.

It seems to me, however, that having the government define certain products in terms of percentages of ingredients is trying to solve the same problem with two different solutions - after all, there are already penalties for false advertising / inaccurate labeling. If consumers are concerned about the percentage of cocoa butter in something labeled chocolate, companies using higher levels of cocoa butter would certainly want to put that prominently on their packaging. Companies not using high amounts of cocoa butter would probably just put nothing to that effect on the packaging. Thus, consumers would just have to check the packaging. Anything inaccurate in that regard would be discouraged by the aforementioned penalties for false advertising.

This setup, though, would probably be accused of placing a "burden" on consumers. The obvious response to that would be "Oh, come on." One argument in favor of it would be that it would be one less thing that government is involved in. On the other hand, this seems to be an awfully trivial matter in the grand scheme of things and, thus, is it that big of a deal (other than on principle) that government is involved?

Also, it seems to me that, if the government were to change the definition of chocolate to allow a certain percentage of vegetable oil, certain companies are going to be putting their cocoa butter content on their packaging anyway - because it will be a competitive advantage for them. Thus, it seems that, unless government definitions involve 100% purity (of whatever critical ingredient of whatever product we're talking about), then a government definition is redundant anyway. Also, in cases where there are multiple critical ingredients (and, thus, no one can have a 100% value without the exclusion of the others), e.g., certain types of wine, there is almost (if not) always a range of tastes such that defining a certain proportion of percentages would be to chose one group's taste over another's. Thus, again, it would seem that packaging would be informative in this regard in any event.

Thus, whether a certain product involves one or more critical ingredients, a government definition seems redundant because companies are going to have an incentive to include ingredient information on their packaging as a selling point anyway. Again, assuming that it is redundant and the only disadvantage to government definition is that, when the government does set the percentage of the critical ingredient to 100% (since, again, when it is something else, companies are going to put this information on the packaging anyway), consumers don't have to read the packaging, it is a valid use of government?

Reagan Sees Success Overseas

Although protectionism and tax-and-spend ideologies are ascendant in the US, Reagan's vision is alive and well abroad.

The Reagan economic philosophy of lower taxes, less regulation and free trade has never been more in vogue abroad — so much so that it has become the global economic operating system. …nations of old-Europe seem to be in a sprint to see which country can get their tax rates lowest quickest. Nicholas Vardy, the editor of “The Global Guru” economic newsletter calls the phenomenon “Europe’s Reagan Revolution.” …Austria cut its corporate tax rate to keep pace with its neighbor, Slovakia which recently adopted an 19% flat tax. Singapore is cutting taxes to compete with its 16% flat-tax rival Hong Kong. Northern Ireland wants to cut its tax rates so that it can compete with the economic gazelle of Europe, the Republic of Ireland. In 1988 Ireland was a high-unemployment stagnant economy with a 48% corporate tax rate, today that rate is 12.5% and the rest of the world is now desperate to match its economic results. Meanwhile German Finance Minister Peer Steinbrueck sold the latest tax cuts as “an investment in Germany as a business location.” …it is a testament to the Reagan economic revolution launched in 1981 that, a quarter century later, global tax rates are 25 percentage points lower on average today than in the 1970s. And those figures don’t even include this latest round of chopping under Reaganomics 2.0. The enactment of supply-side policies is helping ignite one of the strongest and longest world-wide economic expansions in history.

I can only hope that after the eight years of democratic control of government we have coming, free market ideals can again assert their hold on Reagan's homeland.

Ah, But What Does Your Free Buy You?

Massachusetts' mandatory health insurance law has made insurance available to everyone. What it haven't made available are actual doctors. The Wall Street Journal has a report on what happens to people who sign up for their first health insurance.

On the day Ms. Lewis signed up, she said she called more than two dozen primary-care doctors approved by her insurer looking for a checkup. All of them turned her away.

Her experience stands to be common among the 550,000 people whom Massachusetts hopes to rescue from the ranks of the uninsured. They will be seeking care in a state with a "critical shortage" of primary-care physicians, according to a study by the Massachusetts Medical Society released yesterday, which found that 49% of internists aren't accepting new patients. Boston's top three teaching hospitals say that 95% of their 270 doctors in general practice have halted enrollment.

For those residents who can get an appointment with their primary-care doctor, the average wait is more than seven weeks, according to the medical society, a 57% leap from last year's survey.
...
A principal reason: too little money for too much work. Median income for primary-care doctors was $162,000 in 2004, the lowest of any physician type, according to a study by the Medical Group Management Association in Englewood, Colo. Specialists earned a median of $297,000, with cardiologists and radiologists exceeding $400,000.

At the same time, the workweek for primary-care doctors has lengthened, and they are seeing more patients. The advent of managed care in the mid-1990s added to the burden as insurance companies called on primary-care doctors to serve as gatekeepers for their patients' referrals to specialty medicine.

In Massachusetts, the state-subsidized plans, collectively called Commonwealth Care, are provided by private insurance companies. Patients can choose from among six options. Residents who make between one and three times the poverty level ($48,000 for a family of three) are now eligible for coverage under the plan. Doctors are reimbursed by insurance providers -- at below-market rates comparable with Medicaid reimbursements.

I can only hope that the debacle in the Commonwealth will serve as a warning before we end up with national healthcare.

HT Don Luskin

American Thuggary

Robert Novak has a scary article at Townhall.com about how American Unions are killing free trade agreements with the last friends the US has in South America.

The shocker came June 29 as Congress cleared out of Washington for the Fourth of July holiday. Pelosi announced that Rangel and presumably Levin would be off to Peru and Panama to demand new changes in their labor laws as payment for the negotiated trade agreements. She rejected the Colombian pact out of hand.

U.S. Trade Representative Susan Schwab, a former Senate staffer, usually treats Congress with care -- but not in a July 6 letter to Pelosi: "Unilaterally requiring another sovereign country to change its domestic laws before the U.S. approves a trade agreement would be a fundamental break with U.S. laws, policy and practice. No past administration or Congress -- Democratic or Republican -- has taken such a step. Nor would the United States agree to such a procedure if demanded by another nation."

Read the whole thing here.

International Tax Rates

While many like to think of the US as a low tax nation, when it comes to corporate taxes, we have the second highest rates in the world. Around the world, even in the most strident welfare states of Europe, tax rates are falling. Germany has just cut it's rates to 30%, in comparison to our 39%. Eastern Europe is going even farther, instituting Flat Taxes at very low rates.

As the cost of doing business abroad falls and globalization continues to accelerate, any business of significant size will begin to look at the cost of their location. For example, what if Microsoft moved to Singapore? Or Albania? The difference in revenue between 39% and 20% would be very significant. Small businesses may not be able to move, but they will be more successful in low-tax environments. Since small business accounts for 50% of GDP in the US, putting them at a competitive disadvantage to international rivals can have a significant impact on our economy as a whole.

Why are US corporate tax rates so high? I would guess that there is more political incentive to cut personal taxes than business taxes, since individuals vote. The "progressive" element will also shout down anyone proposing a tax cut for corporations as pandering to big business, preventing any effort to provide relief.

Any economist will tell you that corporate taxes are just passed along to the shareholders and consumers. It makes no sense to tax corporations at all. I would advocate abolishing corporate taxes entirely, and simply taxing the profits when they are paid out, but since that will never happen we need to at least begin cutting them to competitive levels. Some free market types, like Treasury Secretary Hank Paulson are sounding the call, but as long as people fear corporations and seek to punish success, there will be little improvement.

Equal Protection

Remember that guy from Wisconsin whom the state disallowed to give discounts on gasoline? Well, he's suing the state alleging that "the law, known as the Unfair Sales Act, makes it illegal for retailers to sell gasoline without marking it up either 6 percent over what they paid or 9.18 percent over the local wholesale price - whichever is higher" is illegal because it violates his constituional right to equal protection:

"Raj Bhandari argues in the lawsuit that Wisconsin's minimum markup law violates the state constitution's equal protection clause because retailers who sell gasoline are unfairly singled out for regulation.

"'I should be allowed to give whatever discounts I want to give to the people in order to run my business,' Bhandari told reporters Tuesday on the steps of the Dane County Courthouse in Madison."

While I agree that the law is completely unnecessary and should be stricken from the books, I'm not sure how well this argument about equal protection is going to fly. I expect Cato or Reason will have a more penetrating analysis soon.

HT: Fark headline

Democrats Offer Universal Health Care. Republicans offer ...

National Review has an article pointing out that unless the Republican candidates put forward an alternative to the universal health care proposals being floated by their opponents, they will lose the issue to the left. It is a good summary of the arguments against government-run health care, although it contains nothing really groundbreaking.

On a related note, Michael Cannon at Cato-at-Liberty makes an excellent point about insurance and free markets that I dearly wish I had made myself.

GEICO is for-profit. Like Humana, GEICO takes its customers’ money and every claim paid is a loss to the company. Those incentives are the same. Yet we don’t have an auto repair crisis. In fact, GEICO boasts on the radio that it pays claims so quickly, it steals other insurers’ customers. Why the difference?

I would venture that the main difference between auto insurance and health insurance is that you are ultimately responsible for the cost of maintaining your car. Auto insurance does not cover new tires or oil changes or routine repair. It covers catastrophic incidents, and any claim you make will be made knowing it will cost you a deductible as well as higher rates. With health insurance, most people expect it to cover every health-related cost 100%. Of course the costs keep going up!

Apparently, Being Competitive Is Illegal

From Reuters:

"U.S. antitrust authorities confirmed on Tuesday they reached an accord with Microsoft Corp. requiring the company to modify its Vista operating system in response to complaints its desktop search function puts Google Inc. and other potential competitors at a disadvantage.

"The Justice Department said Microsoft would create a 'mechanism' for computer users and manufacturers to select a default program to handle desktop search."

More from the New York Times:

"Google maintained that its desktop search program, available as a free download, was slowed by an equivalent feature that is built into Vista. When the Google and Microsoft search programs run simultaneously, their indexing programs slow the operating system considerably, Google contends. As a result, Google has said that Vista violated Microsoft’s 2002 antitrust settlement, which prohibits Microsoft from designing operating systems that limit the choices of consumers."

So, let me get this straight, Microsoft is being punished for allegedly putting its competitors at a disadvantage. Well, heck, we better start suing every company in the US (as well as any company in any other capitalist country on which we can get our hands) since they, by definition, are either a) doing that or b) trying to do that. After all, trying to create and sustain a competitive advantage over one's rivals is what companies have to do to remain competitive, stay in business, and, ultimately, drive innovation and create value for all stakeholders (shareholders, employees, and customers).

On top of that, it is not just that Google is somehow put at a disadvantage - it's that, apparently, Microsoft is obligated to provide society with a software platform on which any other company can build software (that competes with its own, don't forget) that runs just as well as anything that is built-in. This is like saying that Ford is obligated to create a vehicle in which any after market peripheral device (radio, CD player, ejection seat, etc.) works perfectly even if it replicates something that a built-in component already does. Imagine if a third party parts manufacturer sued GM or Ford because their (the third party manufacturer) part (which, remember is, at least partially, redundant) doesn't work flawlessly in every car GM or Ford produces. That would be absurd - everyone would consider the part manufacturer responsible for the operation of their own product.

At this rate, Microsoft might as well be classified as a public utility that is beholden to society the way phone companies are. Just as phone companies are required to ask permission of the government before changing prices (up or down in many cases) and to allow others to lease their lines at wholesale prices so that third parties can compete with them using their own assets, Microsoft could be forced to submit everything it does to DOJ inspectors and to allow any company that wants to build software to do so at its expense. At least in the case of the phone companies, one could begin to make a case that the only reason the phone company is in such a great position is because there was basically a government sanctioned monopoly for decades. What's the excuse with Microsoft? They were too good at creating value for consumers?

Protectionism

You don't like US-style protectionism? You really wouldn't like the French-style.

Wal-Mart and Public Policy

"Wal-Mart can demonstrate its social responsibility by defending its fundamental right to exist."

Governor Privatize

Personally, I think there are plenty of worse things a governor could be nicknamed. Indiana governor Mitch Daniels has earned the nickname due in large part to his leasing of the Indiana Toll Road to a private entity for 75 years. Predictably, privatization of government assets and/or services is being demonized by many of the usual suspects. While, in general, I support such privatization efforts, I have to say that I have heard few arguments in favor of them better than those offered by Governor Privatize:

"From his printer, he pulled out a sheet of paper bearing a one-sentence quotation attributed to a Democrat, former Gov. Mario M. Cuomo of New York: 'It is not government’s obligation to provide services, but to see they’re provided.'

"'Government is the last monopoly,' Mr. Daniels said. 'So competition is the key. That’s why I’m indifferent — public or private, as long as the benefits of competition are brought to bear.'"

In A Free Market, Money Is Free To Leave

From Richard Rahn's article on TCSDaily about the international trade connections between the US and Europe:

This past year more than one trillion dollars flowed between the U.S. and the EU. The EU now accounts for 21 percent of U.S. merchandise exports and 19 percent of U.S. merchandise imports, and about 34 percent of U.S. services exports and 37 percent of U.S. services imports.

The U.S. is not only the largest recipient of foreign direct investment, but far and away the world's largest investor elsewhere. Of the more than two trillion dollars the U.S. has invested directly abroad, a little more than half ($1.1 trillion) is invested in Europe. Europeans account for 70 percent ($1.2 trillion) of the direct investment in the U.S.

It is statistics like this that highlight the stupidity of protectionist trade policy. The US and Europe need each other, and any effort to "protect" the citizens of one at the expense of the other can only hurt both sides. Both sides of the Atlantic rely on trade, and need to realize that it is impossible to keep resources and capital locked up in a free economy. No law compatible with a free society can force local investment, or prevent those with the means from fleeing the country to someplace that offers them better opportunities. Such measure unfailingly do more harm than good, raising prices and unemployment for the benefit of politically connected industries.

Already, Europeans are fleeing their countries for the lower taxes and greater economic freedoms of the US. However, this is not a one way street. While US is a more attractive option for many individuals, the same can not be said for corporations. As Rahn notes, the EU has an average maximum corporate income tax rate of 25 percent (with some members as low as 10 percent) while the US average is 40 percent. When France and Germany both have lower taxes than the US, it is obvious something has changed. As the regulatory burden in the US rises (carbon credits, Boxly, etc.) the benefits of the lower taxes abroad become more significant.

This brings us to the flip-side of my earlier statement that laws can't force capital to stay. Though laws can't force it, they can be crafted to attract investment. If we want the US to continue to be competitive in a global market place, we should cut our corporate tax rates. I would advocate cutting them to zero. Corporations cannot pay taxes, since all costs are just passed on to the investors or consumers. If we cut corporate taxes, the money will still be taxed when it flows out to investors and employees, but not when used for reinvestment within the company. As Eastern Europe continues to cut taxes, the US cannot ignore the pressure being brought to bare as a result. If US taxes remain high, or are allowed to rise, the global markets will flow away from us, toward nations that offer a more hospitable environment.

To summarize, in a free market a nation cannot demand investment and growth, it must seduce it.

Price Controls: A History Lesson

The New York Times has a great article entitled "History 101: Price controls don't work". I will include excerpts, but I would end up just copying the entire article. I highly recommend reading it.

HT: Club for Growth

More Blood Pressure Raising Goodness

Well, OK, not all of it is bad. Compliments of Fark:

• If turning traffic has a green arrow for 14 seconds after the main light turns red and cars are spaced two seconds apart, how many $100 fines can a red light camera collect from law-abiding drivers?
• Activist judge rules that police do not have the right to search your buttocks in public
• School officials consider paying teachers extra just for showing up. Wait, what?
• Dairy prices mooving up rapidly, cheesing off customers. "My blood is curdled with anger. They're milking us for every penny." - Darn markets always manipulating the prices.
• Rent-A-Clap now available to government agencies needing larger audiences for public works projects - Don't worry, it's not our government this time.
• Michigan triples deposit on beer kegs. EVERYBODY PANIC - Heehee, even markets can have unintended consequences (although, granted, the government is involved in this one too)

Your Right to Run Your Business

Reason has a great article on the case of a Great Falls, Montana man who bought a drug store and then stopped selling oral contraceptives.

Excerpt:

"Jill Baker, director of education at Planned Parenthood of Montana, says the woman who could not get birth control pills at Anderson's pharmacy was 'denied basic health care.' This is like saying that someone who tries to buy eggs at a convenience store that doesn't stock them has been 'denied basic food,' or that someone who tries to check into a motel that's full has been 'denied basic shelter.' Anderson is under no obligation to sell any particular drug, although he has to live with the consequences for his business if his choices irritate or offend his customers. Baker likens Anderson's policy to legal bans on contraception such as those faced by her great-grandmother, a German immigrant who had 13 children and died at 40. She calls the decision not to sell birth control a 'radical tactic by the anti-choice hardliners to take away a woman's right to decide if and when to bring a child into the world.' By this reasoning, an atheist bookseller's decision not to carry the Bible violates freedom of religion, and a sporting goods store's policy against selling guns violates the right to armed self-defense."

The Case Against Homework

Boing Boing has a review of The Case Against Homework, which argues that homework is counterproductive. It posits that homework wastes time and stresses kids out, and is not significantly linked to any academic benefits. While I am not completely convinced (only mostly convinced) that the free form, do-what-you-want education endorsed by the Boing Boing reviewer is the most effective way to educate children, I think this is a great example of why parents should be able to send their kids wherever they want, and let their kids be taught however they think best. While some people will argue that parental school choice will mean society can't guarantee that all of our nation's youth receive the best possible education, forcing everyone to attend centrally administered public schools merely ensure no one does.