GrimReader

Case Against Small Business?

2010-04-07T22:09:00.002-06:00

Bearing in mind what I had to say about morphology and bistable morphology, I want to delve into a series of links that end up at an Ezra Klein post:

First, Stacy Mitchell:

We've lost tens of thousands of independent businesses over the last decade and, with them, an important part of the fabric of American life. Small businesses contribute significantly to the vitality of local economies. They nurture social capital, disperse wealth and vest decision-making in local communities rather than corporate headquarters. They are the means by which generations of families have pulled themselves into the middle class.

To which Brad Plumer responds:

small businesses also tend to pay their workers less, offer fewer benefits, are much, much harder for unions to organize, and are often more dangerous places to work. They're rarely more innovative, and they aren't the really the "motor" behind job growth in America.

Brad cites this article which mainly only addresses the new net jobs claim, and that very narrowly.

Ezra Klein then chimes in:

That last bit is particularly important. Barely-surviving mom and pop shops are routinely invoked by lobbyists of massive multinationals attempting to stop progressive policies. If a business is operating at margins that don't allow for a slight increase in the minimum wage, it should be culled by the market, not left to limp on and gum up the political process.
...
Small businesses that survive are fine. Obviously, they're good businesses. But if a small business can't survive in a particular environment -- say, one with universal health care -- it may be the small business, and not the idea, that should be scrapped.
...
The point here, I thought obviously, was that the a priori fetishization of small business is a stupid position. Even worse is the magic power the words "small business" have in public debates. Small businesses should be treated like other businesses. Forget whether they're small or big, independent or corporate -- they're just businesses.

In the comments, Fred Jones then retorts that small businesses ...

[...]
Represent more than 99.7 percent of all employers.
Employ more than half of all private sector employees
Pay 44.5 percent of total U.S. private payroll.
Generate 60 to 80 percent of net new jobs annually.
Create more than 50 percent of nonfarm private gross domestic product (GDP).
Supplied 22.8 percent of the total value of federal prime contracts (about $50 billion) in FY 2001.
Produce 13 to 14 times more patents per employee than large patenting firms. These patents are twice as likely as large firm patents to be among the one percent most cited.
Are employers of 39 percent of high tech workers (such as scientists, engineers, and computer workers).
Are 53 percent home-based and 3 percent franchises.
Made up 97 percent of all identified exporters and produced 29 percent of the known export value in FY 2001.

Sources: U.S. Bureau of the Census; Advocacy-funded research by Joel Popkin and Company (Research Summary #211); Federal Procurement Data System; Advocacy-funded research by CHI Research, Inc. (Research Summary #225); Bureau of Labor Statistics, Current Population Survey; U.S. Department of Commerce, International Trade Administration. http://www.sba.gov/advo/stats/sbfaq.html

To which commenter Pepper replies:

The basic argument as I saw it - and the one I agree with - is that "Companies should be evaluated on their business practices, not their size."
I have heard many arguments against bad business practices and the least effective is any one that uses small businesses as an example. I won't shop Wal-Mart, but not because they ran the Mom-and-Pops out of town. They actually ran the competition out of town, large and small, and competition helps the economy, not these monolithic trusts.

And Ezra notes his approval:

Word to the Pepper.

But then commenter m cuts through some of the rhetoric:

"Companies should be evaluated on their business practices, not their size."
Based on postings typically found on this site that would mean that if a business:
- can not afford to pay all of it employees 2x - 3x the minimum wage (even for entry level positions) -- what is often referred to as a "living wage"
- can not afford to provide comprehensive health care to all of its employees
- expects its employees to work at least 40 hours per week and potentially some overtime because thats what is needed for the company to be successful
- is not unionized
- does not want to be burdened by more regulation
- does not want to pay more taxes
- pays its executives more than its regular staff
- would like to earn a profit

Then this company "should be culled by the market".

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To summarize, Ezra correctly points out that the Chamber of Commerce is using small businesses and their cheerleaders in the way that Bootleggers traditionally use Baptists or politicians usually use children. But Ezra and his left-wing policy wonks are using Bootlegging in defense of the Bootleggers. It's not that they are against Small Business, it's just that they are in favor of those things that characterize Big Business. Returns to Scale? Check. Market power? Check. Bureaucratic and unionized? Check? Okay, you are an acceptable small business!

For an extended review of some of the features of the Kleinian "market", you can look through what I, Kathleen, and Rick Woldenberg have written or said about the effect of the CPSIA. We believe that this law will devastate small business with little or no tangible benefit, and yet if we take Klein and his fellows at face value, those businesses are not to be lamented because this is normal market culling of inferior business models. In other words, because this is a government regulation and the intent is good, then whatever comes from it is better. The technocrats are creating a more efficient society. A'>A. And if that once meant attacking large corporations and defending small companies, but now means defending large corporations and attacking small businesses, well, so be it. A'''=B, B'''=A.

But let's take a look at the claim that small businesses

pay their workers less, offer fewer benefits, are much, much harder for unions to organize, and are often more dangerous places to work. They're rarely more innovative, and they aren't the really the "motor" behind job growth

PAY: Maybe. Wal-mart isn't exactly known for the high-paying jobs, but then again I don't know of any evidence that the jobs replaced were higher or lower paying. But it looks like these people are getting lost in the difference between pay and total compensation. Are small companies more intimate? Are you willing to accept less pay in exchange for not having to put up with a bureaucracy in the same way that we see people generally get paid more for riskier positions? Many of those small businesses have one employee: the owner. Note Kathleen's comments regarding the greater profit per employee for small businesses here: it seems perverse that "the market" is culling the more profitable business until you consider the possibility that perhaps Ezra and his wonkettes have no idea what a transaction cost is or how it might be relevant to this discussion.

BENEFITS: If we are against fetishization, why are we fetishizing certain benefits other than pay? And why only the tangible benefits? Do they not realize that these benefits largely have a dollar value and could therefore be purchased by the employee? And that perhaps it is necessary to pay people more, even if in kind, to get them to work at larger companies?

Consider the discussion specifically on the paternalist nature of health care spending in Fuchs' Who Shall Live: why should we give the poor only specific things like health care and food stamps? Why do we not simply give them cash? In many cases, the cash would be more valuable since giving them $20,000 in health care benefits will not necessarily result in them actually consuming $20,000 in health care. Fuchs notes that "In devising programs for the poor, physicians usually advocate more medical care; educators, more schooling; the construction industry, more housing; and so on." Nobody ever checks with the poor to see what they want. Finally, Fuchs notes the pecuniary effects of these directed transfers:

One result of Medicare and Medicaid, for example, was higher incomes for physicians -- surely not a goal of the Great Society. These programs also led to an increase in the price of medical care for the general public, including many low-income persons who did not qualify for Medicaid. If instead of Medicare and Medicaid, the government had transferred to the elderly and the poor an equivalent amount of cash, some of it would have been used for medical care, but much of it would have been used for other goods and services, including food, clothing, consumer durables, and the like. The income and price effects would probably have been very different from those of Medicare and medicaid and possibly more egalitarian.

UNIONS: Again, if we are against fetishization, why are we fetishizing unions? The rise of unions followed not from entrepreneurial free enterprise, but from the brand of finance capitalism and industrialization that moved the economy away from high skilled artesanal craft production (including putting out, inside contracting, and what-not) to either highly specific skills (like train engineer) or low skilled mass production. Once your skills are useful to only a small handful or even a single employer, or everyone has the skill to do something and a few large employers dominate a labor market, then bargaining power is shifted dramatically toward the employer. This is where unions traditionally come into play.

But not for Klein and his fellow wonks, who most likely have never worked in industry or been members of unions. For them, unionization is a goal in and of itself. For the rest of us, we think that jobs should be challenging and/or rewarding and pay well. Unions in the post-NLRA era rarely achieve the former; it isn't even a goal. Their sole goal is the total compensation and the union share (no need to wonder why unions prefer to have companies contribute to the union pension rather than any other investment vehicle). In an era in which Unions run their own sweatshops, perhaps unionization should not be so fetishized.

DANGER: I doubt they've ever thought seriously about this. If you first realize that some occupations are riskier than others, and that these occupations are dominated by small businesses and sole proprietorships, it might help to realize that you need to sort out whether large businesses are riskier than small businesses within the same industry.

The 10 most dangerous jobs

Occupation	Fatalities per 100,000	Unionized?	Pay	Small business
Timber cutters	117.8	No	Middle	Varies
Fishers	71.1	No	Good	Varies, but usually yes
Pilots and navigators	69.8	Some	Depends on seniority in union shops	Some: Dominated by crop dusters, air transport, military pilots
Structural metal workers	58.2	Yes	Good	Varies, but usually yes
Drivers-sales workers	37.9	Some (Teamsters)	Can be good	Some (owner/operators)
Roofers	37	Some	Middle to good	Yes
Electrical power installers	32.5	Yes	Good	Some (small contractors and big utilities)
Farm occupations	28	Some	Low	Yes
Construction laborers	27.7	Varies	Middle	Sometimes
Truck drivers	25	Yes	Can be good	owner/operators to employed drivers

Source: Bureau of Labor Statistics; survey of occupations with minimum 30 fatalities and 45,000 workers in 2002

Also, it is worth considering how a fairly large retailer like Burlington Coat Factory can still be selling children's clothing with drawstrings some 14 years after they were banned, or a toy company can have so many lead violations, or Toyota can fail to uncover serious defects. Apparently, "large" does not necessarily mean "safety conscious".

INNOVATION: Really? This is very industry-specific and probably also related to the age of the firm. Large companies frequently buy small companies as a way of capturing their innovations: think Cisco and Microsoft. Two measures are typically used for innovation: R&D spending and patents. Note that the former is largely a reflection of the size of the company in terms of resources & capitalization, so the finding that size is closely related to size is not surprising. Patents are a proxy of innovation that reflect the norms in a particular market, especially one that is mature. Trade secrets, in contrast, are not easily measured. A patent requires opening up the internal clockworks to your competitor while a secret does not. There is also a consideration of the initiation vs. the implementation. Also, process vs. product innovation.

JOB GROWTH: What is truth here, "Generate 60 to 80 percent of net new jobs annually" or not?
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I think what we have here is the complete overturning of the Progressive movement from their early 20th century origins to the direction they were taking at that time. Progressivism at that time was on an efficiency kick, and the biggest target at first was the Trust. But the Progressive movement was quickly co-opted by the Trusts themselves, as various industries attempted to use public sentiment to pressure Congress into adopting measures that benefited large business. Whether it was railroads looking to get the government to contain rate competition, meatpackers looking to contain new competition, the banking industry looking for a new lender of last resort, or the Chamber of Commerce looking to slow down competition, the original Progressive era saw the introduction of measures that were intended and sold as efforts to increase competition and efficiency. The experience during World War I with planning boards confirmed for the industrialists that government-led cooperation helped large industry, and led them to devise and support Roosevelt's attempt to implement Mussolinian corporatives under the NRA. In a generation, the Progressive movement went from being against Big Business to being its greatest ally.

At that time, FDR was lauded for having saved capitalism. The fact that he did so (if you prepend capitalism with "state-") belies the claims that he introduced Marxism. He did no such thing (well, unless you want to see the corporatives as the final stage of Marxism, but it ocurred in a much different way that Marx described it). Today, it appears that Obama and these self-described "wonks" have picked up that theme and are attempting to revive the idea. Hyperindividualism, Manchesterism, laissez faire are ideas of the past: what is needed is effiency, achieved by the imposition of government regulations. If that means that small businesses need to be swept away, then so be it. If it means accepting the output of the legislature as the starting point, then so be it. The state is the measure of all things.

Eutopia

2010-03-31T19:44:00.002-06:00

In Eutopia, where they don't have Republicans, life and politics are perfect. Open parliamentary debates involve nothing more than the free exchange of ideas about how to serve the people.

Oh, and Microsoft.

Bistable morphology

2010-02-11T22:20:00.003-07:00

The threat to a completely free anarchist society is contained within the very assumptions that make it possible. If an anarchist society is not to spin itself apart from the outward acceleration of every man acting in his own (unenlightened) self interest, it is because a large portion of them act from a communal spirit and the recognition that compromise may be necessary from time to time in order to preserve relations with your neighbors. But that very idea of communal spirit is what may lead them to realize that the establishment of one gang may help to prevent the rise of another unpopular gang or multitude of gangs (who apparently have their own sense of community). Thus, the seed of destruction is assumed to lie within the anarchists' psyche.

The threat to a completely controlled social democracy is contained within the very assumptions that make it possible. If a social democracy is not to collapse into totalitarian dictatorship, it must be because a certain portion of the community insists on maintaining tolerance of dissent and individualism and therefore on maintaining a certain amount of friction and divisiveness. But that very idea of nonconformism is what may lead to the establishment of rebellious factions and heretics and perhaps even the destruction of the group cohesiveness that was the essence of the social democracy. Thus, the seed of destruction is assumed to lie within the social democrats' psyche.

These are sketches of what may be, and not even original sketches (Madison covered the same ground in Federalist No. 10). Other possibilities are that the societies described allow themselves to go down another path of destruction: the anarchy becomes a bellum omnium contra omnes, the violent and chaotic conditions assumed of anarchy that apparently accompanied the destruction of Saga Period Iceland, while the social democracy becomes one of the many totalitarian states that have arisen in the last 100 years: fascist Italy, Nazi Germany, falangist Spain, Vichy France, and communist Russia, China, Cuba, Estonia, Georgia, Poland, Lithuania, Armenia, Ukraine, Belarusia, Azerbaijan, Albania, Viet Nam, Hungary, Yugoslavia, Czechloslavakia, Romania, and East Germany. So it is possible that the destruction of a society is not that it turns into its opposite (anarchy into social democracy, social democracy into anarchy), but that the society fails to correct its internal problems at all, following them instead to their ultimate "logical" extremes.

Morphology

2010-02-07T10:37:00.006-07:00

A favorite theme of mine is the idea that every organizational regime contains elements of its own destruction, and that no regime is free of this. Put in a loosely mathematical description, let's say that a schema is represented by A. Imperfections in A are addressed by the addition of institutions or changes in the by-laws, and this new schema is A'. These changes don't quite create perfection, or they introduce new, unintended results, so new changes are made, resulting in A''. This goes on until we have A''', A'''', A^n' or A'''...''', which is functionally equivalent to a completely different schema, B. But B is known also to be not perfect, so adjustments are made resulting in B'. You see where this is going: eventually B morphs into C, or perhaps it morphs all the way back to A.

Given organizational schema A, which is made more efficient by adjusting it to A':

efficiency(A) < efficiency(A') < efficiency(A'')
A'''->B [note that this -> is an arrow, not a "greater than"]
B'''->C
...
Z'''->A?

I believe that this is the fundamental fallacy with the technocratic state and is the analytical blind spot for policy wonks. They seem to believe that any imperfection may be corrected with precise policy adjustments. But at every step, they "discover" new problems. In the environmental movement, technocratic arrogance of this sort is known as "parachuting cats" after a real world incident.

As part of anti-malarial campaign in the northern states of the island of Borneo in the late 1950's, the World Health Organization sprayed DDT and other insecticides to kill the mosquito vector for malaria. During this campaign, DDT was sprayed in large amounts on the inside walls and ceilings of the large "long houses" that housed an entire village in these areas. As a consequence of this effort, the incidence of malaria in the region fell dramatically. However, there were two unintended consequences of this action. There was an increase in the rate of decay of the thatched roofs covering the long houses because a moth caterpillar that ingests the thatch avoided the DDT but their parasite, the larvae of a small wasp, did not. Also, the domestic cats roaming through the houses were poisoned by the DDT as a consequence of rubbing against the walls and then licking the insecticide off their fur. In some villages, the loss of cats allowed rats to enter, which raised concerns of rodent-related diseases such as typhus and the plague. To rectify this problem in one remote village, several dozen cats were collected in coastal towns and parachuted by the Royal Air Force in a special container to replace those killed by the insecticides.

Another favorite example of mine concerns a confluence of well-meaning government schemes: First, it was observed that Florida was filled with disease-carrying swamps, so they (the Army Corps of Engineers) drained the swamps and damned the rivers to create productive farmland. Then people began raising sugar cane, and as they faced stiffer competition from throughout the Carribean, they instituted price controls. But then the cane industry came to be dominated by about 5 families who controlled legislators very tightly. Meanwhile, ADM and the corn farmers achieved control over their legislative concerns and, with the development of High Fructose Corn Syrup (HFCS), they found themselves in competition with the sugar farmers. Fortunately, they found that by also supporting the sugar price controls, HFCS was both more competitively priced and more profitable. So the price controls were universally favored, leading to the continued overuse of swampland to the detriment of the ecosystem (and to Carribean farmers). As this was gradually accepted to be counterproductive, the Clinton Administration proposed changes to restore ecological balance. The solution announced by Al Gore? Clearly, to tax sugar and use the revenues to restore the Everglades. Duh, that's what you thought, too, right? No?! You thought ... what? Maybe abandon the sugar price supports, let the farms go fallow, tear down the damns (saving the annual maintenance costs), and let it all go back to nature? Or perhaps it would have been better to let farmers drain their own land in the first place? Heh, you'll never make it as a bureaucrat.

Each displacement to an equilibrium will cause at least one change in the equilibrium. At least one adjustment needs to be made to restore the equilibrium to efficiency. This is Second Best theory at its simplest. However, few analysts go beyond that and recognize that each of the secondary disturbances, the "corrections", will also create disequilibria that must be adjusted with 3rd and 4th order corrections. In their analysis, somehow, the original disturbance -- the market failure -- must be corrected, but the secondary disturbance -- regulation -- is perfect? Maybe in a one or two dimensional model, but the real world is not one or two dimensional.

So I submit that not only do "ideal" regulations create the need for higher order corrections, but real world regulations create the need for an ever expanding regulatory bureaucracy. It is self-propagating myth and self-justification for bureaucrats. It was this that I reacted to when Megan non-McArdle made the claim that bureaucrats always act to balance competing interests: that may be true in a superficial sense, it may be their rationalization and their intent, but in reality, bureaucrats act to justify their own continuing existence and employment without consciously realizing or intending that. And when one band-aid requires two more, and those each require two more, well, pretty soon bureaucracy is not just surviving, it's thriving and we're parachuting cats. The problem changes from one of individual menaces acting in a freewheeling marketplace where the potential damage is limited to one in which large menaces act in a closely regulated, highly leveraged state-capitalist machine, where the potential damage is vastly larger.

I offer this as background for what will come.

Save 'em all!

2009-12-16T05:13:00.003-07:00

I know of Bjorn Lomborg, but haven't read his books. That being said, there was nothing controversial about his interview here on NPR. Or should I say, there should be nothing controversial? Shorter Lomborg: Resources are scarce, we should use them wisely.

But then David Kestenbaum felt the need to rebut him with a rhetorical question (rhetorical in the richest sense), "What is the economic value of the world's last polar bear?" Lomborg's response was clumsy, to say the least. And then, just to make sure he was properly rebutted, Kestenbaum interviewed a very emotional but confused woman, a Ms. Tasmin Aesop. She apparently believes that resources are unlimited and we should tackle all issues at once -- which, when you think about it, means that she should have no problem with Mr. Lomborg's advocacy for spending on disease and poverty, since with unlimited resources we will also be able to spend on megafauna like polar bears.

We keep hearing that traditional reporters, unlike bloggers and Fox correspondents, are unbiased. But no rebuttal for Ms. Tasmin Aesop was forthcoming. A proper rebuttal could have been, "How many poor people should be allowed to die of disease in order to save the last polar bear?"

Comment of the day

2009-12-13T09:52:00.003-07:00

darianworden:

I think it's pretty simple: to many right-wingers, government can be used as a club, but not as a crutch.

From Kevin's healthcare post.

Random thoughts

2009-12-12T13:49:00.006-07:00

On Limbaugh who was ranting the other day about the "global warming hoax": He said that temperatures were said to be going up, but they have been declining, and that storms were said to be increasing, but they have actually been declining. Um, if both of those are true, it does not refute the assertion that storm frequency increases with rising temperature.
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On war:

I am the Commander-in-Chief of a nation in the midst of two wars. One of these wars is winding down. The other is a conflict that America did not seek; one in which we are joined by 43 other countries -- including Norway -- in an effort to defend ourselves and all nations from further attacks.
...
We must begin by acknowledging the hard truth that we will not eradicate violent conflict in our lifetimes. There will be times when nations -- acting individually or in concert -- will find the use of force not only necessary but morally justified.
...
But as a head of state sworn to protect and defend my nation, I cannot be guided by their examples alone. I face the world as it is, and cannot stand idle in the face of threats to the American people. For make no mistake: Evil does exist in the world. A nonviolent movement could not have halted Hitler's armies. Negotiations cannot convince al-Qaidas leaders to lay down their arms. To say that force is sometimes necessary is not a call to cynicism -- it is a recognition of history, the imperfections of man and the limits of reason.

While it seems like just another one of his speeches, I have to commend President Bush on the vast improvement in enunciation and cadence. Seriously, try reading that passage in his old speaking voice and see if it doesn't sound one bit different than what he has been saying for the past 8 years.
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Regarding the Tiger Woods thing: really, is there not a single "energy" drink who will step up to fill the gap left by Gatorade? Think of it: "Monster: Gives Tiger his Wood."
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According to Dan Ariely, students in an experiment who are told they are wearing fake merchandise are more likely to cheat than people who are told they are wearing the real deal. Apparently, if you are told that you are a cheat, or if you know that your peers are cheaters, you are more apt to cheat. It got me to thinking about an opinion poll I read about years ago in the WSJ. Some bar association had been tracking the number of corporate lawyers who thought that their corporations were breaking laws without being aware of it, and the percentage was tipping past 60% (a result of the increasing complexity of the regulatory environment). It got me to thinking: if you are more likely to cheat if find out that you are already cheating (whether you intended to or not), and most lawyers think their clients are accidentally cheating, what percentage of those have thrown in the towel and just stopped the pretense?

Interesting counterpoint to Ariely's research: consumers who buy fakes eventually buy the real thing. This doesn't mean that they return to morality, but it does suggest that people make different decisions in different time horizons.
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Happy Hannukah!

Bowling Alone Means Anarchy?

2009-12-05T16:21:00.001-07:00

When I try to imagine what an anarchist future would look like, it does not look like a bunch of cranky hermits sitting alone in their caves and refusing to talk to each other. Rather, it looks like a village of equals, engaging their neighbors in various projects. It looks a lot like the world that de Toqueville visited, but without the slavery and burgeoning symbiotic industrial and state hierarchy. But maybe that's just my naive take on it; frankly, I don't think it's very realistic. Judging by Robert Putnam's Bowling Alone: The Collapse and Revival of American Community, his version of anarchy lies somewhere between Hobbesian bellum omnium contra omnes and one in which everyone retreats behind computer and TV screens and refuses to interact in meatspace.

The book divides its subject, American withddrawal since roughly 1960, into four sections. The first is a cataloguing of all of the data which shows we are less involved with one another through everything from Free Masonry to cardplaying; the second is an analysis of why this has happened; the third is a discussion of the benefits of our lost communalism, and the fourth is a set of recommendations to restore the participation experienced in the 1950s. I found them decreasingly interesting as I went.

Putnam's region of interest lies roughly in the 1920-2000 period. Americans volunteered, participated, met, played, and dined with each other in increasing numbers, with a slight dip in the early 30s and a rapid expansion in the 1940s. Then, like a switch had been turned off, the trend reversed itself, giving up all of the postwar gains by the late 90s. This pattern is repeated in everything from joining fraternal organizations and attending church to joining bowling leagues to hosting neighbors at a dinner party. I find this fascinating because it gets at what I would consider to be a central problem for anarchists: how do people engage in community activities and collective action absent a central authority (be it church, state, or other). The data seems overwhelming that things do vary over time and specifically that there has been a significant decline since 1960.

There is a problem in that Putnam looks only at what was and finds less of it, rather than what is and looking for the growth in new things. Putnam notes these problems and seems hopeful (in 1999) that the social aspects of the internet will lend themselves to increasing contact, but there is still room for skepticism. In the historical record, there is another technology that held out similar hopes, but seems to have failed miserably in this regard: the telephone. When the phone first came along, there was some hope that it would allow people to keep in better touch and to meet new people, but studies show that people use the phone to strengthen existing relationships. To use Putnam's terminology, the telephone reinforces bonding social capital rather than bridging social capital.

The next section seems more problematic. While he spends many pages to exonerate the entry of women into the workplace, and more to partially convict television, he spends just over one page exonerating the state. He does this by noting that state spending barely changed in the period as a percentage of GDP. This seems disingenuous at best. I think the reason becomes more clear as he proceeds through the next two sections.

In the section describing the beneficial effects of social capital, he notes in the chapter on the wealth effects that social capital is as important in improving welfare as the free market. I would say, "duh." The idea of the lone entrepreneur struggling to establish himself is a Randian caricature. While it remains popular as a story-telling device, most credible biographies of "great men" note their partnerships and collaboration with other great men and women.

He wraps this section up with a discussion of the "dark side of social capital". In this section, he points out that we seem to have gotten more tolerant of racial and religious diversity even as we have gotten less involved in our communities. He includes a table like this:

	Low social capital	High social capital
High tolerance	Individualistic: You do your thing, and I'll do mine	Civic community (Salem without "witches")
Low tolerance	Anarchy: War of all against all	Sectarian community (in-group vs. out-group. Salem with "witches")

Note where anarchy falls. Clearly, he favors the civic community, but -- surprise! -- so do most anarchists with whom I am familiar.

Later, when describing what should be done to restore American community, Putnam tips his hand and reveals his real interest in social capital: he idolizes the Progressive period and the resulting increase in scope of state action. Curiously, it seems that his analytical skills abandon him at this point. He begins by noting the Gilded Age period preceding the Progressive Era and finds it wanting, and then locates all of the success in the Progressive period. He doesn't use "hyperindividualist" to describe the Gilded Age, but comes damn close. But if you look at the data he provides, you can see that community activity is clearly growing during the Gilded Age and peaks and perhaps even falters during the Progressive period. Why is the peak period considered to be the most successful? Why no interest in the growth that preceded it, or in the reasons that activity fell off immediately afterward? I would think the interesting research would be in looking at change and the reasons for it, not steady state operation.

Fortunately, Putnam provided the frightening part of the answer in an earlier chapter. It appears that people tend to volunteer more as a result of national crisis. Thus, WWII is cited as an influential national experience that led to the rapid rise in participation that followed. It seems likely that the expansion of the 20s followed from WWI. But why the peaks in the 1960s and the 1910s?

I propose that Putnam did not give the growth in the scope of state activity the attention it deserves. He begins

Circumstantial evidence, particularly the timing of the downturn in social connectedness, has suggested to some observers that an important cause -- perhaps even the cause -- of civic disengagement is big government and the growth of the welfare state. By "crowding out" private initiative it is argued that state intervention has subverted civil society. This is a much larger topic than I can address in detail here, but a word or two is appropriate.

On the one hand, some government policies have almost certainly had the effect of destroying social capital. For example, the so-called slum clearance policies of the 1950s and 1960s replaced physical capital but destroyed social capital, by disrupting existing community ties. It is also conceivable that certain social expenditures and tax policies may have created disincentives for civic-minded philanthropy. On the other hand, it is much harder to see which government policies might be responsible for the decline in bowling leagues, family dinners, and literary clubs.

From here, he looks at a chart of aggregate spending and, finding no significant change, declares state action to be unrelated to the problem. A word or two in rebuttal is appropriate.

First, while it may be hard to see which policies might affect bowling leagues and literary clubs, Putnam himself repeatedly asserts (presumably with the data to back it up) that there is a great deal of symbiosis between various types of social capital-building activities. Thus, if a state policy subverted, say, fraternal organizations, then activities that grow out of those bonds might tend to suffer. Bowling leagues associated with the Knights of Columbus, for example.

Second, while Putnam acknowledges David Beito's work in Mutual Aid, he doesn't seem to have absorbed the one relevant thing that he should have been most interested in from Beito's account. That is, that Mutual Aid organizations became so happy with the outcome of their efforts that they began to lobby their respective States for policies to mandate worker's insurance, and this was successful to their own detriment. After the States adopted laws to pay out unemployment insurance, there was no exclusionary reason to belong to a mutual aid society (see Manur Olson's Logic of Collective Action for explanation and expansion of this theme), so they closed their doors, and with them, presumably, a host of other activities suffered. Thereafter, the federal government began to get involved in this sort of activity (see here). At that point, the center of decision-making and power has moved far away from the community. Considering how this pattern has been repeated for education, care for the elderly, health care, and other aspects of life, is there any wonder that people are less involved with their neighbors?

Third, Putnam is disingenuous when he says he doesn't have room to address the question: he spends many more pages discussing urban sprawl. He is also disingenuous when he looks at aggregate spending rather than at the changing emphasis within the spending (from defense to social matters) and the expanding scope of what the state was getting into.

Look at that ramp-up in spending from 1940 onward, and note the changing structure from the 1960s onward. Defense stops being the dominant component sometime during the Viet Nam war.

Furthermore, laws don't only cost the state time and money, they frequently cost the citizens in the way of unfunded mandates and unintended consequences. If I have to spend more time trying to understand and comply with laws, that is time I cannot spend with my neighbors. While time loss is a theme that Putnam explores deeply with regard to other explanations, he doesn't even mention it in passing with respect to the state.

In the end, while I am sympathetic to the general program of looking at community participation and social capital, I was not happy with what I perceived to be Putnam's goal. He does not seem to think that social capital is valuable in and of itself. Rather, he seems to believe that social capital is valuable as a means to petition government for more programs. Ironically, he seems to be surprised or curiously uncurious whenever the people succeed in getting those programs, as happened after the first Progressive hey-day (after 1920) and after the expansion in the welfare state in the 1960s.

Dependence

2009-10-18T17:24:00.003-06:00

On listening to, oh, I don't remember -- Hannity? Limbaugh? Levin? -- just the other day, I heard yet another rant on the theme of "Obama is killing capitalism". The idea is that he is introducing all of these various programs, policies, and schemes with the intent of killing the "free enterprise" system and thereby force the citizens of this good country to become dependent on him and the machinery of government.

Far fetched, right? Well, not so fast. Sure, selectively handing out aid was FDR's strategy in the 1936 election, but health care dollars are simply not going to be doled out on the basis of your party affiliation the way that bridge projects can be funded only in battleground and friendly districts. And while Amity Shlaes repeatedly emphasizes the apparent harm FDR caused to the economy by repeatedly threatening the very people who he needed to restart the investing and hiring, that seemed to have been done more out of incompetence than grand design. But still, the idea that someone would scheme to actually do in the economy just as a show of power and to create dependence? No self-respecting Democrat would ever believe such a thing.

Then, after reading this interview with Michael Moore the other day, I got to thinking about how you might convince him to understand that "capitalism" in hands has become nearly meaningless because it now means everything? Can he understand the difference between a free market, merchant capitalism, industrial capitalism, finance capitalism, managerial capitalism, and state capitalism?

That last variety of capitalism is one in which the capitalists use the machinery of the state to further their own interests. I suppose his new movie shows how the titans of Wall Street threatened complete economic collapse, widespread joblessness, and panic in order to get the stimuli packages through. As a show of power, of demonstrating who depends on whom, it was brilliant. The Democratic Congress and both Presidents caved under the pressure. No self-respecting Republican would ever believe that their capitalist heroes would do such a thing.

So, who is playing whom here? The hierarchy apparently goes: Wall Street, Bush+Obama+Pelosi+Reid, then somewhere down near the bottom are We the People. But only if you believe in conspiracy theories.

And here's Kevin Carson with a different take on the same subject. Now that I look at it, he seems to have been on this topic for a while, roughly 27 August 2009 to 16 October 2009 as of this writing.

And, for a good laugh, check this Crooked Timber piece out and learn (1) that the difference between left and right wingers is that the left thinks for themselves [sic], defends constitutions, and balances budgets, and (2) that they both really, really care about and perhaps actually do think in terms of bumper stickers.

The Nobels Jump the Shark

2009-10-09T04:24:00.007-06:00

This so cheapens the value to other recipients. Protestors in Iran? Nah. Various people speaking out against regimes in Asia, Latin America? Nah. Is it April 1st? No. Is the article on The Onion? No.

Do you suppose they had to interrupt a meeting with Obama's War Cabinet and a decision on whether or not to escalate the conflict in Aghanistan to give him the news? I guess it's possible that they're trying to influence his future decision-making. This is one honor that Jimmy Carter deserved for his efforts with Israel and Egypt.

This song immediately came to mind (Living Colour, Cult of Personality).

Pushing string vs. Pulling them

2009-10-07T19:22:00.006-06:00

One wonders whether Paul Krugman, who has probably never worked outside academia (his NYT post included), has ever bothered to at least talk to someone who had.

Whenever we've gone through a slow period and had to lay people off, it always came as a shock to the victims no matter how bad the powers that be made it sound in an effort to get the least senior (it's a union shop) to get ready. They didn't have anything lined up, they weren't looking, they were unprepared to bargain for, say, references.

Whenever we have gone through an expansion phase, we always find people working surprisingly below their potential who gladly come to work for more money even if they aren't 100% qualified the first day. When expanding, you are usually just trying to keep up and so you need willing learners much more than experienced sages, thus no need for prospective employees to become unemployed and go to school to get in on the boom.

The first comment on the linked thread points this out in an amusingly sideways fashion. Another comment further on down translates it to English.

Perhaps a much simpler explanation is ...

You don't create unemployment by hiring people.
Seriously, Paul basically just asked "Why doesn’t hiring people create the same unemployment that firing does?"

James Hamilton does his normal excellent job. But still, the sterile language of these professional economists does much to cover the fact that we are talking about some serious psychological trauma going on out there.

The WaveShield is Fraud

2009-10-04T07:44:00.009-06:00

I came across this fraudulent nonsense while listening to the radio show of Dr. Eliezer Ben-Joseph (Natural Solutions Radio). Because it sounded like Mel Gibson's character in "Conspiracy Theory" interviewing himself, it would have been fun to listen to Dr. Ben-Joseph's breathless interview ("Really?! Oh, my goodness. Oh, my! That's amazing!") of Shelly Kalnitsky if I weren't shouting "What?! That's nonsense!!" the whole time. Among other things, Kalnitsky was saying,

Using a hands-free set is more dangerous than just the cell phone because the hands-free set emits RF energy. (he made this statement about both Bluetooth and wired sets)
The energy of the cell phone comes out the end of the antenna. Gosh, if that's true, I wonder how Yagi and log-periodic antennas work? I guess I must have been aiming them wrong all this time, too.
The Waveshield blocks radiation from entering your ear. There was some related speculation, mostly from "Dr." Ben-Joseph, about the deafness of people like Eric Clapton and others, and their exposure to this radiation.
You get a burst of microwave radiation out of the earpiece as you travel between towers. Oh, my goodness!
The WaveShield is made of -- get this -- the same material used to protect workers in nuclear facilities, as if ionizing radiation and speaker emanations were even remotely similar.
Cell phone usage increases by several thousand per day, and he has been getting reports of dozens of brain cancers *every week*. Hmmmmm ... that can't be coincidence.
Two Russian journalists hard boiled an egg with cell phones and you can pop popcorn with them. (hoax explained here and here)

His theory appears to stem from the idea that radiation shoots out of various orifices in the cell phone (the speaker and the end of the antenna) and into various orifices in your body. Therefore, your ear and the speaker port being the closest orifices, the radiation shoots out of one into the other. The WaveShield is a ridiculous grill that sticks onto your speaker and blocks "97%" of the hypothetical energy.

One of the more bizarre aspects of the interview was their constant insinuation that cell phone companies have blocked all research into cell phone-related health issues because the cell industry lobbies heavily. The implication is that the federal government is the source of all research, but is also easily corruptible. Simultaneously, Kalnistky was advertising his material as being "tested by the government" as if that was the acme of standards and inherently free from corruption. Good luck finding a link to those test results, or a description of this marvelous material.

As I recall, IEEE Spectrum ran a whole issue several years ago highlighting various aspects of cell safety. Finite Element Analysis (FEA) of the human skull and tissue showed that use of the phone could cause something like a 1 degree C heating in tissue near the antenna. This is not ionizing radiation, like x-rays, but simply radio frequency radiation. Could it be a problem? Sure. But let's put it in perspective.

You walk around underneath a huge yellow source of ionizing and other radiation every day. It cranks out something like 1 kW/m^2 at our orbital position, much more than the mW-level transmitter in your phone ever could, certainly much more than you are going to receive per square meter from even the closest cell tower.
Cancer incidence has been going down, not up. Brain cancer (pdf) specifically has been declining to flat over the last 20 years. Of course, maybe you don't believe government statistics? Not that I would blame you, but it would be at least a little interesting if there were anything like a positive relationship between the soaring penetration of cell phone usage and brain tumors in that time.

Two other things you might consider when contemplating whether or not to regard the product and its purveyor and its purveyor's website, Cell Phone Radiation News Bureau (CPRNews), as fraudulent:

First, Kalnitsky cited the recent work of Dr. Siegal Sadetzki of Tel Aviv University in Epidemiology magazine as finding a link between cell phones and cancer. Dr. Sadetzki is somewhat less forceful in summarizing the findings:

Dr. Siegal Sadetzki, an epidemiologist and lecturer at Tel Aviv University, has been studying the effects of cell phones on public health for 10 years. In her work, she has found some connection between cancer and heavy cell phone users, but the results are not conclusive and the "consensus is that additional research is needed," she said. [emphasis added]

If I was going to guess, heavy cell phone usage, especially by children, may be found to be a problem. As cell phones have become more ubiquitous, towers have become more common, and coding algorithms have become more efficient, the actual power necessary to transmit a conversation is falling. Using wired (non-Bluetooth) hands-free devices drastically reduces your exposure to radiation, as does using the phone for texting. But Kalnitsky is nothing like nuanced in his misuse of such things as anecdotal evidence, hearsay, urban myths, hoaxes, pseudo-science, junk science, and unfiltered bovine excrement.

Second, Kalnitsky, his company, and similar product manufacturers were told to stop making false claims about their products in a 2002 action brought by the FTC. Story here and here. Of course, it could be that the lobby-influenced government was only doing its masters' bidding, but it could also be that the product is a scam. If the purpose of the FTC is to stop such activity, why haven't they? This wouldn't be an example of government failure, would it? Should we blame it on the laissez-faire environment under Bush? Well, I suppose that the facts that they were prosecuted in 2002, but are thriving in 2009 would seem to undermine that theory, but that's no reason to drop it, is it?

The FAQ on their website is filled with similar howlers.

"In the beginning when analog phones were 800-900 MHZ of power, ... However as manufacturers raised the power of their phones up to 1800-2000MHZ" and "However as signal strength grows from a few hundred MHZ of power to beyond 800 MHZ..." MHz is a measure of frequency, not power. I believe they are doing this intentionally so that they can cite the increasing frequencies and conflate that in the mind of the reader with power.
"What is the difference between a Radio Wave and a Microwave? ... However as signal strength grows from a few hundred MHZ of power to beyond 800 MHZ, the electro-magnetic spectrum increases and these waves become microwaves." Besides being inaccurate as noted above, this is misleading: there is no qualitative difference between radio waves and microwaves. Both are electromagnetic waves that radiate through space, both are non-ionizing radiation, and the distinction between radiowave and microwave is rather arbitrary. The primary difference in the use of the two terms is that "microwave" refers to electromagnetic radiation (radiowaves) whose wavelengths are on the order of a micrometer. In other words, microwaves are radiowaves. I believe that they are trying to get the reader to think of microwave ovens. You can find the wavelength by dividing the speed of light in a vacuum (300 x10^6 m/s) by the frequency (800 MHz = 800 x 10^6 cycles/s, for example) to get the wavelength (3/8 m/cycle, or .375 m). Note that you can express any distance in terms of any unit: .375 m is 375 millimeters or 375,000 micrometers. Thus, the term "microwave" is arbitrary and generally refers to anything in the 300 - 300,000 MHz band.

And finally, Kalnitsky and others have been speculating on a link between Ted Kennedy's brain cancer and cell phone usage. The tumor was on the left side. I submit that Kennedy probably used the cell phone on his right ear: here's video of him throwing the first pitch earlier this year (fwiw, though not a fan of his political career, I do not condone the disrespect that I found accompanying many of the references to this event).

If, after reading this, you are still convinced that the WaveShield is anything but government lab-proven fraud, then I suggest that you look into sticking them onto your radiation-spewing computer monitor as they suggest on one page of their website. Shame on you, Dr. Ben-Joseph, for helping this snake-oil salesman and for betraying the trust of -- dare I say, preying upon? -- your audience.

The Blindness of Trudeau

2009-09-27T13:58:00.005-06:00

Gary Trudeau demonstrates the nuance of partisan thinking (which is to say, none) in today's Doonesbury (27 Sept 2009). Among the most eggregious of howlers was the line "The Nazis ... were the most evil force in history." Sure, if you overlook the Marxist/Leninist/Stalinist/Maoist factions that predated and outlived Hitler.

Speaking of, apparently the former communists get it.

I have studied Hitler at length. I can tell you that Obama is no Hitler. I think the point many are making when they make the comparison is the growing totalitarianism. And they would make the comparison with, say, Stalin, but on one hand I'm not sure anyone remembers him anymore (except possibly as "one of the guys who defeated Hitler") and on the other hand, the people you want to wake up to this looming problem are people who think Hitler was 100x worse than Stalin. We need to wake up the people who are opposed to the police state when it is in Republican hands, but who help defend and expand the police state when it is in their own hands. People like Gary Trudeau. But they think an all powerful state is okay in the hands of the ~~Right~~ Correct party.

Sweatshops vs. factories

2009-09-15T17:36:00.004-06:00

I just can't stop shaking my head over this problem:

People criticize factory work. It's cold, dehumanizing, back-breaking, horrible work that nobody would ever do unless they were stupid, crazy, or desperate.
People decry the loss in this country of manufacturing jobs, or sometimes more specifically union manufacturing jobs.

When those two sets of people are from opposite ends of the political spectrum, I can understand that. I don't necessarily agree with it, though. Many of the former are ignorant of first-hand experience with manufacturing jobs. They think of it as their experience in a McDonalds, times 10. Many of the latter are populists, either conservative (leave out the union reference and you have Pat Buchanan) or Progessive (include the union reference and you have Ted Kennedy).

What I don't understand is people who are in both camps at once. I guess those jobs are great as long as neither you nor your friends, relatives, or anyone else up to distant acquaintances actually have to do them. I bring this up because my wife told me that she stood listening to a woman complaining that clothing isn't made anymore in this country, it's all China, dirka-dirka-dirka, until she finally said, "Actually, I am in the apparel trade here in the US." The woman's response? One word, delivered with a sneer:

Sweatshop.

What do you say to people like this?

[UPDATE]: Funny, we must have been on the same wavelength because Kathleen recounted it in the same day's post:

It's common for people to describe production work as degrading and mind numbing but that's a value judgment. I know plenty of people who enjoy it, self included. Maybe more people would be attracted to manufacturing if it weren't so maligned.

Thank God for Camille Paglia

2009-09-09T21:02:00.003-06:00

Just as I was becoming convinced that left wing public intellectuals had all lined up behind The Party, Camille Paglia throws this one out (destined, I'm afraid, to be ignored because the Right doesn't read her and the Left doesn't tolerate dissent with The Goal so close at hand):

Though they claim to speak for the poor and dispossessed, Democrats have increasingly become the party of an upper-middle-class professional elite, top-heavy with journalists, academics and lawyers (one reason for the hypocritical absence of tort reform in the healthcare bills). Weirdly, given their worship of highly individualistic, secularized self-actualization, such professionals are as a whole amazingly credulous these days about big-government solutions to every social problem. They see no danger in expanding government authority and intrusive, wasteful bureaucracy. This is, I submit, a stunning turn away from the anti-authority and anti-establishment principles of authentic 1960s leftism.
...
But affluent middle-class Democrats now seem to be complacently servile toward authority and automatically believe everything party leaders tell them. Why? Is it because the new professional class is a glossy product of generically institutionalized learning? Independent thought and logical analysis of argument are no longer taught.

Do read it: it is target rich but not dense.

Capitalist pigs

2009-09-06T09:20:00.006-06:00

The problem with capitalism is capitalists. The problem with socialism is socialism.
-- Willy Brandt (?)
The Capitalists will sell us the rope with which we will hang them.
-- V.I. Lenin

Does that count if the capitalist doesn't consider himself to be a capitalist because he is -- by his own definition -- "working class"? Let's begin with a definition: a capitalist is someone who makes a living by renting capital, in other words, off the interest earned on money.

So here is Michael Moore admitting to being a capitalist:

But Moore is determined to get around the problem [of capitalists no longer providing him with the capital to make anti-capitalist movies] by saving up profits from all of his previous films so he can continue making documentaries in the future.
He adds, "I have been saving up my money from Sicko (2007 film) to get to this day. I will always make my own movies, now I have the money to make them."

The guy is oddly very paranoid. He thinks that his funding will dry up:

He says, "Why would these companies give money to me, a guy who is diametrically opposed to everything they stand for? One of the beautiful flaws of capitalism is they will use the rope you give them to hang themselves, if you can make a buck.

The problem with this theory is that they don't give him money to make a buck, they give him money because they have an ideological axe to grind and/or they are Bootleggers in need of a Baptist. He could consult Schumpeter on the former and Kolko on the latter.

The paranoia is not new, if you believe what is written about Moore in this piece from The Guardian:

But during the same series of dates in London, he complained about the lack of security so vehemently that the Roundhouse staff threatened to boycott the show. I got a taste of the air of paranoia surrounding Moore when, because I was without a suitable pass, a friendly PR snuck me into the main press conference alongside his entourage. Suddenly, one of his assistants turned to me and demanded to know who I was. The PR explained that I was with her.
'And who are you with?' asked the assistant.
'You,' replied the perplexed PR. 'I'm working with you.'
'I've never seen you before in my life,' announced the assistant and a security guard duly intervened to bar both of us. It was only when the PR persuaded the assistant that in fact they had been working together all day that the guard relented. On stage, Moore was asked why it was that he was flanked by three security men, who stood with their feet apart, hands clasped at their crotches, in an intimidating military stance. The director did as he always does when asked this question, and claimed that they were his fitness trainer, pilates teacher and masseur, then turned the idea that he needed protection into an elaborate joke.

I think it has become obvious to all but the True Believers that Michael Moore is a huckster, a showman who has found his shtick and is playing it like Hendrix played a Strat. He, like Ralph Nader, only cares about the content of his message to the extent that it draws more attention to his money-making ventures.

The wrong argument

2009-08-14T08:57:00.005-06:00

President Obama asks,

So why is it that people would prefer having insurance companies make those decisions, ... ?

He makes an excellent point that seems to be beyond the usual crowd found defending the status quo (aka Republicans). If you think bureaucracy is bad, why would you prefer the bureaucracy at Blue Cross Blue Shield over the federal bureaucracy? Don't give me, "free enterprise" and "competition": in this highly regulated industry, there is little of either, and that is largely by their own doing. As the President correctly points out,

Another way of putting this is right now insurance companies are rationing care. They are basically telling you what's covered and what's not. They're telling you: We'll cover this drug, but we won't cover that drug; you can have this procedure, or, you can't have that procedure.

The results are largely the same: impersonal decisions made on the basis of policy which is intended to maximize profit for the private company and self-propagation for the government (both of which come to the same thing).

Unfortunately for the President and the universal health care cheerleaders, this question cuts both ways. If bureaucracy is bad, bureaucracy is bad. Why should we favor a new one over the old one? But when you point this out about government bureaucracy and rationing, the President protests:

You will not be waiting in any lines. This is not about putting the government in charge of your health insurance. I don't believe anyone should be in charge of your health insurance decisions but you and your doctor. (Applause.) I don't think government bureaucrats should be meddling, but I also don't think insurance company bureaucrats should be meddling. That's the health care system I believe in. (Applause.)

So is he really saying that they're just going to issue checks for whatever you and your doctor want to call "healthcare"? I don't see how they're going to cut costs with a policy like that. But of course the President is either sadly confused or simply lying; if you pay attention, he will occasionally slip up and admit that you will get "help" from various decision-making bodies in the government. The full quote from the top of this post is

So why is it that people would prefer having insurance companies make those decisions, rather than medical experts and doctors figuring out what are good deals for care and providing that information to you as a consumer and your doctor so you can make the decisions? [emphasis added]

"Medical experts". This is a euphemism much like the "military advisors" sent by Kennedy and Johnson to Viet Nam.

In Who Shall Die?, Victor Fuchs asserts that the three goals of healthcare ought to be to insulate patients from costs, provide universal access, and to control total costs. He also notes that the cost of healthcare is equal to the amount of healthcare consumed times the cost of the inputs times the efficiency of those inputs. Put those two things together and it should be obvious that if we simultaneously increase the number of people covered by healthcare by 13%, remove all restrictions placed on their decisionmaking by cost-conscious bureaucrats (including rationing by ability to pay), then there is only one way that total costs (the amount of GDP spent on healthcare) cannot go up, and that is by an amazing increase in efficiency.

Unfortunately, this improvement is receiving nothing but lip service. There is some talk about eliminating the explicit profits and advertising, but this probably doesn't amount to more than 20-40% of the total. Since few are talking about eliminating private drug and health care providers, that "waste" isn't going away. However, to the extent that some people are talking about nationalizing those entities, I find it amazing that 100 years ago, anti-trust and anti-monopoly were all the rage among the Progressives of that era, but modern Progressives can't wait to set free the scale efficiency of monopoly. Where are the concerns about institutional failure that comes with monopoly? Market power, dead weight loss, rent-seeking, principal-agent, regulatory capture all evaporate in the rush to reform. I think that the inefficiency that will come with the reforms will be of the same magnitude as the "inefficiency" in the profit and advertising budgets. Coupled with the new-found freedom from interference by bureaucrats, I predict an explosion in health care costs not seen since the post-Medicare era.

Shorter me: I'm calling bullshit on this plan and the president.

For real improvements in the efficiency in health care delivery (within the limits of our current political economic system), I would suggest something along the lines of:

Concentrate on making healthcare affordable to the poor, not everyone. If the healthy don't want it (and I don't believe this effect, called "adverse selection", is very strong), don't make them waste their money. If the wealthy want to self-insure, let them. Fuchs offers a strong discussion on why we insist on creating programs for the poor instead of just giving them money and letting them decide how to spend it. I think this is a discussion worth having: I am sympathetic to a wealth transfer (again, in the current system, not what I consider an ideal system) because while I think that perhaps the poor may lack not only money but the skills to navigate complex decisions, I am not willing to endorse the implicit paternalism of programs in which the money is spent on their behalf. I think Tyler once pointed out that higher minimum wages may mean less welfare, and I am likewise sympathetic to the thought that direct cash payment means less bureaucracy and deadweight loss.
Stop pretending that employers are paying for any of our healthcare. They aren't; it comes out of our pocket. One way to help the public understand this would be to eliminate the special tax status of these kinds of benefits. Your employer does not pay for 20% of your healthcare nor do they "match" your FICA contribution: you pay 100% of both. One benefit to stopping this pretending will be to eliminate the conceptual ties between employment and insurance, a necessary step in eliminating the actual ties between those two things. You would think the Left would be all over this suggestion, since it would free workers from a source of artificial allegiance to bad employers (they would be more willing to quit a bad job if they knew they also would not lose their insurance). You would think the Right would be all over the separation because it would expose the lie that universal healthcare makes a country more competitive as a result of removing these costs from corporate overhead: it's a lie because corporations don't pay for taxes or for healthcare, workers do. All that is accomplished by shifting from private to public healthcare is to shift the payment from insurance companies to the government. Workers in countries with these programs pay significantly higher taxes. (Note that in light of my beliefs about the equality of corporate and government bureaucracy, I think that this is neither an argument for nor against universal healthcare, but simply an argument for being honest about who is paying for what)
Eliminate mandatory, state-controlled -- and AMA-controlled! -- licensing. Fuchs suggests institutional licensing, wherein firms or individuals could be licensed, and it would be up to them to supervise employees working under the terms of that license. Among other things, this would reduce the role of doctor as gatekeeper to other therapies, including drugs and physical therapy. Personally, I would like to see competing private licensing, and in theory I would accept a voluntary state licensing system. However, I suspect that the voluntary state license would quickly devolve into a mandatory license again. Let the AMA and AAPA and other groups run their own endorsement programs, let consumers be as selective about those as they would be about, for example, buying new cars. They can choose someone because their parents and friends trust them, or because they spend hours looking over Consumer Reports, or because their insurer also endorses them the same way AAA endorses motels and car repair shops.
Start scaling back IP protection on drugs. At this point, it seems safe to say that the costs of IP protection far exceed the benefits. Patent trolls have long since taken the field, and the protection is no longer (was never?) necessary. For one thing, they always had the protection of "trade secret" law, not to mention the difficulty of actually stealing all the knowledge necessary to synthesize a drug. For another, it seems that the combination of the FDA approval process and IP protection is redundant: if you can make a drug and get the FDA's approval for both the formula and the manufacturing process, that in itself is sufficient advantage for the R&D investment to pay off. It seems that we could eliminate one or the other, and of the two, the more feasible would seem to be the IP protection (the protection of profits) rather than the FDA protection (the ostensible protection of the consumers). As explained by Malcolm Gladwell, the US drug consumer has an enviable position relative to the supposedly superior universal health care countries when the IP protection runs out:

"The perception that the drug industry is profiteering at the expense of the American consumer has given pharmaceutical firms a reputation on a par with that of cigarette manufacturers.
"In fact, the complaint is only half true. The "intolerable" prices that Angell writes about are confined to the brand-name sector of the American drug marketplace. As the economists Patricia Danzon and Michael Furukawa recently pointed out in the journal Health Affairs, drugs still under patent protection are anywhere from twenty-five to forty per cent more expensive in the United States than in places like England, France, and Canada. Generic drugs are another story. Because there are so many companies in the United States that step in to make drugs once their patents expire, and because the price competition among those firms is so fierce, generic drugs here are among the cheapest in the world. And, according to Danzon and Furukawa's analysis, when prescription drugs are converted to over-the-counter status no other country even comes close to having prices as low as the United States." [emphasis added]

Stop conflating "insurance" and "healthcare". Everyone needs insurance, which is the socialization of costs of rare diseases and events. Even the "healthy" need insurance because rare events can happen to anyone. Insurance does not cost very much; it is easily provided to the poor. "Healthcare", which includes aspects of insurance, is a system by which doctors are assured payment and consumers are insulated from sudden costs. Healthcare should be a way of spreading payment over time to avoid the shock of high costs at the time of consumption. Unfortunately, health care has become a way of making people believe they are getting something for nothing. It is a truism that average healthcare costs will be exactly equal to the average cost of healthcare received, but I am constantly amazed by people who don't get the connection. When I hear people complain about the size of their healthcare plan payments, I usually suggest that they would be better off paying for doctors visits and drugs out of their own pocket and spending a little on catastrophic insurance. Add up all of your healthcare payments in your lifetime, and compare that to the total amount of goods and services for which your healthcare has paid: in my case, I have paid out about twice what I have consumed. The usual response I get is that there is no way they could afford that, between their kids' visits, their blood pressure medication, and all of the other goods and services they receive at rock-bottom out-of-pocket prices. They seem to have no conception of the relationship between their actions (and presumably, similar actions taken by everyone else in their plan) and the amazing and completely inexplicable rise in the deduction from their paycheck. "I used $10,000 in goods and services last year, for which I paid $3600 in deductions and $150 in co-pays, and my employer paid another $720, and they have the gall to raise my deductions to $4800 this year?! Those bastards! This is a rip-off!! There ought to be a law ..."

Now, if we could change the political and economic system with, say, a complete elimination of incorporation, then I might have some other ideas. Meanwhile, beware the lies, innuendo, half-truths, contradictions, nonsense coming out in favor of this healthcare plan (by both sides). Change is needed, but we needn't fall into the trap of Caplan's Fallacy.

Oprah Obama

2009-08-12T04:32:00.005-06:00

I walked into our usual lunch place yesterday and saw Obama on TV. Again. I asked if anyone thought Oprah was going to start resenting the competition, seeing as how this has become a regular activity. He ought to get a sidekick and a band, eh?

His main points seemed to be:

We're going to expand coverage. 40 million out of 300 million is about 13%, rather a lot.
Nobody is going to be denied anything. In fact, your choices are going to increase.
We're going to cut costs.

I'm not really sure he understands that those three goals are nearly incompatible. The only way out is to dramatically increase the efficiency of each dollar spent. So assuming that they assume that, they have a policy that consists of four major policy goals, each of which would be difficult by itself.

Also, Waxman and his committee are tackling global warming, they're talking about immigration reform again, I'm sure someone wants to reform the finance industry.

Forgive me if I'm skeptical about the likely outcomes.

Which way does adverse selection run?

2009-07-27T17:54:00.004-06:00

Regarding Paul, Alex, Henry, and Megan,

I have to admit I'm confused. When people talk about adverse selection from the standpoint of patient action, they say that the healthy obviously will not sign up for insurance because it's a waste of their money. When they talk about it from the standpoint of healthcare companies, they say that they obviously will try to deny the unhealthy. So, do they cancel out?

Alex Tabarrok offers this paper (Table 10) as evidence that the uninsured are generally more rather than less healthy, which may be evidence that insurance companies are less than successful at getting unhealthy people out. Meh - given such facts as your insurance is tied to your employment, I am skeptical about Krugman's (and Kenneth Arrow's) theoretical arguments, and therefore also skeptical about whether that evidence refutes it.

I at once thought about the "2nd Best Economist" flap that arose between Dani Rodrik and Alex, as did apparently Henry Farrell. Once again, someone (Dani in the earlier episode, Krugman in the latest) uses a theoretical argument about market failure to justify the simplistic formula I have posted about repeatedly. As Megan McArdle seems to note, this episode follows the same logic as Akerlof's "The Market for Lemons" theory. Krugman swallows the bullet and asserts that Arrow's paper "demonstrated -- decisively, [Krugman] and many others believe --" that there can be no market in insurance, just as there are no Used Cars, Used Car Salesmen, Used Car Lots, or Used Car sections in the classified ads.

I am looking forward to future columns in which Paul will explain how turtles naturally migrate onto fenceposts. Also, on how he expects single-payer programs to expend significantly fewer resources on uncovering fraud and unnecessary expenses while simultaneously reducing the amount of money spent on health care and increasing the number of people covered. Wow, that single payer program must be impressively efficient!

And the more I think about this, the less impressive Krugman's argument is. He begins with an explanation of insurable events (low probability, high cost), and concludes with a diatribe on the profit motive:

The big bucks are in triple coronary bypass surgery, not routine visits to the doctor's office; and very, very few people can afford to pay major medical costs out of pocket.

This tells you right away that health care can't be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care. And you can't just trust insurance companies either -- they're not in business for their health, or yours.

This man won a Nobel? Shorter Krugman:

Insurable events happen, therefore health care is not a commodity, it is something whose purchase must be negotiated by someone else who is driven to screw you because of profit motivation.

I buy car insurance pretty much like a commodity. When something happens to my car, I go to any reputable body shop, and the insurance company cuts a check. That's pretty much the opposite of what Krugman is saying in the quoted passage. But it must be my imagination.

Okay, car insurance isn't like health care. Yes, that's the point: insurance is insurance, health care is insurance plus some attempt to insulate you from the cost of non-insurable events, like regular visits to the doctor's office or visits for colds and flu and medicine to treat such minor illnesses. Either Krugman doesn't know this (not good), or he does but does not want to mention it (also not good).

Design Piracy Protection Act II - Rise of the Fashion Patent Trolls

2009-06-06T19:13:00.012-06:00

I don't have much new to say about the Senate's second attempt to enact Diane von Furstenburg's wet dream of a law, the Design Piracy ~~Prohibition~~ Protection Act. DvF, for those of you who don't know, is a big time designer who currently heads the Council of Fashion Designers of America (CFDA). CFDA includes other tiny little "independents", like Oscar de la Renta and Donna Karan.

The DPPA, whose earlier incarnation I wrote about here, is a Three Card Monte tour de force. First they show you the money card, trademark piracy. Oh, the poor designers, having their precious Designs copied by unscrupulous, probably brown-skinned, sweatshop owners who copy the garments right down to the logos and trademarks. Then, they elicit your support, since nobody is in favor of people having their ideas stolen, much less their branding. When you look under the card, though, what you find is that the Act actually establishes clothing design as intellectual property, something only enforceable by civil action.

Back up a second. As I noted here,

First of all, note that this law protects designs, not branding. [Counterfeiting as is practiced on Canal Street in NYC] is ALREADY ILLEGAL UNDER EXISTING LAW, which are not enforced.

Second, THIS LAW DOES NOT ADDRESS THOSE ISSUES. But it will put independent designers out of business. Stop and ask yourself a few questions:

1) Who is more likely to have access to the necessary patent attorneys, independents or big designers? You are going to need lawyers to do patent searches [and applications] and to enforce claims.

2) Given that anyone in the supply chain can be sued for infringement, will you be able to hire pattern makers, cutters, etc.? Only if you can prove that you already own the design.

The biggest supporter of this law is knockoff artist Diane von Furstenberg, who recently got caught knocking off a Mercy jacket design.

This law will protect the big guys, squash what little innovation there is, and wreck US apparel manufacturing.

And another thing ... This is going to lead to patent trolls, the same way patents have in every other field. A patent troll is someone who patents all possible variations on a design theme simply so that they can control market share or set themselves up to be able to threaten potential market entrants with litigation and corner them into lucrative settlements.

Yes, the high end French fashion industry has protection. Have you ever noticed how much attention French fashion shows receive? Do you know why? It's because as soon as the show is over, designers in the US are poring over photos so they can knock them off. The industry thrives on copying, but mostly by copying the high end, not the low end. This law -- and people offering their support -- is advertised as helping the little guy, but it will actually help the big guy, who will go on knocking off the designs of the little guy because they can't defend themselves.

It's f-a-s-h-i-o-n. Everyone is looking to copy what everyone else is doing so that they can lay claim to being fashionable. At present, it's all Open Source. That's about to change. We're about to shift from GNU/linux to Windows 3.11 in the fashion industry.

Branding and logos have nearly killed the industry; no need to have innovative design if you can pass off t-shirts with collars and focus grouped pseudo colors as style. All you have to do is to associate the logo (the Swoosh, the Alligator, the Polo Player, FUBU, the name: Hillfiger, Mossimo) with a certain set of lifestyle choices in the mind of the ~~mark~~ consumer. Then you can pass off whatever crap you want to them at substantial markup.

Kathleen is going to have lots more to say about this, but you can start with these:

Proposed law to destroy 90% of design businesses
Fashion copyright: the death of us all

In the first one, she implores you to "Send emails. Sign the petition." Please do. Not like that has done any good in getting the attention of Congress or the MSM with regards to CPSIA, but at least we have a chance of killing this Golem before it becomes a law; there is little to no chance afterwards.

Hattips to Boing Boing and Walter Olson (Overlawyered).
-----------------------------------------
Note: If this law passes, I intend to patent the popped collar, enforce it against infringement, but refuse to actually make use of it. Perhaps this kind of thing can be stopped.

Things I have learned

2009-04-18T08:09:00.003-06:00

This is a true story.

Once, ~~in band camp~~ I was out at a restaurant with a friend and his (now ex-) wife and she talked us into going to Hooters. Seriously. She offered to pay for the beer, how could we resist?

So we walk into Hooters and the place is packed. Everyone is in there watching TV, so I note that it is a NASCAR race. The only seats available were out on the porch. On the way there, we pass three tables together: at the middle table were seated two middle-aged couples, the table to the left featured their kids (we knew that because they were asking if they wanted more), and the table to the right was two older couples who were apparently their parents ("Dad, you want some more hot wings?"). I had a revelation: If you take your kids, and your parents, to Hooters, to watch the Pepsi Cola 500, you just might be a redneck.

(Grrr, something wrong with ftp)
(From this photo set)
Not that there's anything wrong with that.

What is the point of government science?

2009-04-01T21:18:00.005-06:00

Until this morning, I had been operating under the assumption that the ban on phthalates contained in the CPSIA was (1) scientifically justified, and (2) not supported by the earlier legislation that guided the CPSC's actions. Guess I was wrong.

It's not that I have done the research on either point. On the science, I did just enough to see that this was likely to devolve into one of those smear campaigns that one sees in Global Warming or Second Hand Smoke debates. You know: every argument degenerates into an ad hominem because the scientist in question works for a university that once accepted money from a (pick one: oil company, tobacco company, chemical company, government agency) and therefore cannot be right about anything. On the legislation, I just accepted the special interest groups' claim that this legislation was necessary. I felt I should do that because this wasn't fertile ground for argument. My approach has always been that the CPSIA does not take into account the particulars of the industries regulated, so there are predictably unintended consequences (an oxymoron or not?).

If this NPR report (Public Concern, Not Science, Prompts Plastics Ban) is any guide, it turns out that career science staff at the CPSC found problems with two types of phthalates (DEHP and DINP) and got them restricted 25 and 10 years ago. Otherwise, there simply is little ground (according to their research) for concern. If the CPSC science is good, babies simply do not keep these things in their mouthes long enough to get a large enough dose. Congress' take on it?

Sen. Dianne Feinstein (D-CA) said the ban was needed because phthalates had been "linked to serious reproductive defects."
Rep. Jan Schakowsky (D-IL) talked about "potential harm to testosterone development and the male reproductive tract."

Yes, this is the same Jan Schakowsky who threatened my wife.

I'm still not interested in the science: I'll stipulate to the dangers. But one has to wonder about the utility of government scientists when the people who insist that we must have them to provide data free of conflicts of interest also refuse to accept their conclusions. I must once again conclude that the special interest groups -- US PIRG, Public Citizen, Consumer's Union -- control Congress, this time with one-sided and dubious "science" and "facts". Perhaps it's the allure of truthiness, a quality apparently not limited to the Bush Administration or Republicans despite their well-documented war on science.

And having stipulated to the science, it appears that the CPSC already had some leverage (link, caveat emptor, but also listen to the NPR story linked above):

In the United States, the Consumer Product Safety Commission (CPSC) and the Toy Manufacturers of America (TMA) agreed upon a voluntary limit of DEHP at 3% in pacifiers and teethers in 1986. Later in 1998, the CPSC asked toy manufacturers to voluntarily withdraw vinyl teething rings and rattles containing the phthalate DINP from the market.

Nancy Nord summarizes the problem nicely in a letter to the POTUS today:

Upon joining the CPSC, the new chairman will be presented with a law that curtails the agency's ability to prioritize its regulatory activity based on an assessment of risks, the magnitude of those risks, and the actual consequences of those risks.

Not to mention a hostile Congress that refuses to listen to its constituents or to the career scientists whom we pay to advise the representatives we elect to ignore us.

Astroturf

2009-03-28T07:34:00.010-06:00

Given that we've already heard from US PIRG and Public Citizen, it should not be surprising that another Nader organization has decided to weigh in on the CPSIA debate. This time, it's a front organization for Big Law, the Trial Lawyers, called the Center for Justice and Democracy, and their pet blog, the Pop Tort.[1] They are dredging up the same arguments that David Arkush and Rachel Weintraub have already trotted out to the applause of The True Believers:

There is no problem with CPSIA, the CPSC has all the power it needs to make broad exemptions for small businesses, etc. The real problem is Nord, she needs to go. [paraphrasing]

I think we've already exploded that several times over. It flies directly in the face of Rachel Weintraub's statements before the committee during the hearings for the CPSIA (pdf) (HR 4040):

Unfortunately, the CPSC's ability to be proactive has been thwarted by a shrinking budget, a lack of aggressive leadership within the agency, and statutory provisions that create obstacles to the effective prevention of product risks.
...
Before proceeding to a detailed explanation of our recommendations, we wish to emphasize the importance we place on four particular issues -- Section 6(b), independent third-party testing of children's toys and products, the need to include whistleblower protections, and language clarifying the reach of CPSC's authority regarding the preemption of common law claims in any CPSC reform package.

Her recommendations then begin with an entire section -- headlined in boldface, "1. Strengthen CPSC A. Increase Budget" -- which has since been dropped by all of the pro-CPSIA crowd as an issue. CPSIA increased the budget authority, but Congress has not allocated the actual resources. Nevermind that the same people who passed the law still control the Congress, or that they have sent hundreds of billions to Wall Street, Detroit, and various other places.

After expressing support for a number of other measures designed to increase the size and scope of the CPSC, Weintraub then began to discuss lead in children's products. The boldfaced headline once again makes it clear that she wasn't talking about reasonable measures that take into account then actual risks: "Ban Lead from Children's Products". Nevermind whether or not the children can actually access the lead, or whether they are likely to come into contact with it, or whether they can actually absorb it (all of the things you would need to prove in applying for an exclusion, see below).

But the really interesting bit is this:

Lead has been found in products made by large manufacturers, as well as in those made by smaller companies. We support a ban on lead in all children's products, which currently does not exist.

They don't want a small company exemption. They are telling people that the CPSC can offer such an exemption, but the careful reader may observe that they never support their assertions with citation of the relevant portion of the law. Even their favored Chairman Moore has come out strongly against small companies (as noted below).

They don't want reasonableness. In her testimony, Weintraub said this:

We recommend that the language be preceded by the following statement, which is included in S. 2045:
"the prohibition contained in section 2(A) shall apply without regard to whether the lead contained in such children's product is accessible to children."

What about exemptions for inputs (cloth, dyes, components) or component testing versus final product testing? Again, Weintraub is against any compromise:

To assure that products are safe when they enter the American and global stream-of-commerce, safety must be infused into the earliest stages of the supply chain. For this reason, independent third-party testing of final products, as well as components, must be required [emphasis added]. Third-party testing entities must be independent from and have no financial relationship with the manufacturer producing the product. Testing must be conducted to identify design flaws as well as violations of existing regulations [emphasis added], such as those governing the use of lead paint. Components and final products must be tested at numerous stages of production and tests must be conducted randomly throughout the manufacturing process [emphasis added]. Products should also be certified that they meet the appropriate standards and should bear a label indicating that they are certified.

Testing for design flaws? Who will judge that, and by what standard? This is a statement that effectively places all decisions on design within the federal government as advised by Ralph Nader and his devoted followers, Rachel Weintraub (Consumer's Union et al), Ed Mierzwinski (US PIRG), David Arkush (Public Citizen) and Joanne Doroshow (Center for Justice & Democracy). Dissenters need not apply.

More recently, Weintraub reacted to reports that CPSIA is seriously flawed with what has become the party line: "Nord has to go. The law has to stay. And don't worry, they will address your concerns." Compare these new sentiments to her older comments quoted above:

"The most important issue right now is to ensure that there is strong, effective leadership at the helm of the Consumer Product Safety Commission," Weintraub said.
She emphasized that new leadership is vital in order to begin implementation and enforcement of the CPSIA -- which, among other things, mandates lead-testing for certain products intended for children--with "a common sense approach consistent with the law."
Weintraub acknowledged industry concerns about the law, particularly those having to do with the costs of testing products for compliance. However, she decried efforts to have the law revised as attempts to have it "opened, gutted and weakened."
The law as written, according to Weintraub, already addresses "almost every common sense concern," including those related to children's clothing and books. "Textiles that are 100% fabric ... and books printed after 1985 do not contain lead," and do not need to be tested.

An exemption for testing of textiles that are 100% fabric essentially means "togas". Except for togas, no final products consist of 100% fabric: diapers, sheets, and other "simple" products also contain thread and various other components such as interfacing and dye. Is she now endorsing component testing and opposing the random testing, in-process testing, and final product testing that she earlier claimed "must be required"? I doubt it. These are appeasements intended to shut down -- or shut up -- the opposition.

In a particularly nasty posting containing a variety of outright lies, and ironically entitled, "True Lies: Debunking A Major CPSIA Myth [2]", the also ironically titled CJD asserts that the CPSC already has already asserted its own power to issue the small business exemption. As evidence, they cite the "Children's Products Containing Lead; Final Rule; Procedures and Requirements for a Commission Determination or Exclusion". All such rules contain a statement regarding compliance with the Regulatory Flexibility Act (RFA) which requires agencies to consider the compliance cost on small businesses. Their interpretation of that statement in the linked document is:

Here, the agency decided the CPSIA's impact on small businesses wasn't bad at all. Why? Because of its authority to issue exemptions to small businesses from the CPSIA!

The actual statement?

The Commission's Directorate for Economic Analysis prepared a preliminary assessment of the impact of relieving certain materials or products from the testing requirements of section 102 of the CPSIA. The Commission preliminarily found that the proposed rule would not have a significant impact on a substantial number of small entities. The procedures and requirements would allow certain businesses, including small businesses, the ability to seek determinations and exclusions which would allow these entities to continue to manufacture their products without the continuing cost of testing the materials for the presence of lead. Based on the foregoing assessment, the Commission certifies that the rule issued today on procedures and requirements would not have a significant impact on a substantial number of small entities.

Is this a small business exemption? No. It says that small businesses can apply for the "determinations and exclusions" which were the subject of the ruling. In that regard, they are no better off than large manufacturers. It does not grant them a "small business exclusion", it grants them the same right to apply for exclusions as large businesses by the following method:

For products that exceed the lead content limits prescribed in section 101(a) of the CPSIA, any requests seeking an exclusion must submit documentation based on the best-available, objective, peer- reviewed, scientific evidence showing that lead in such product or material will not result in the absorption of any lead into the body, taking into account normal and reasonably foreseeable use and abuse by a child, including swallowing, mouthing, breaking, or other children's activities, and the aging of the product, nor have any other adverse impact on health or safety. This is the standard by which the Commission will review such requests for exclusions. A justification submitted by an interested party for an exclusion should provide:

A detailed description of the product or material and how it is used by a child;

Representative data on the lead content of parts of the product or materials used in the production of a product;

All relevant data or information on manufacturing processes through which lead may be introduced into the product or material;

Any other information relevant to the potential for lead content of the product or material to exceed the CPSIA lead limits that is reasonably available to the requestor;

Detailed information on the relied upon test methods for measuring lead content of products or materials including the type of equipment used or any other techniques employed and a statement as to why the data is representative of the lead content of such products or materials generally;

An assessment of the manufacturing processes which strongly supports a conclusion that they would not be a source of lead contamination of the product or material, if relevant;

Best-available, objective, peer-reviewed, scientific evidence to support a request for an exclusion that demonstrates that the normal and reasonably foreseeable use and abuse activity by a child (including swallowing, mouthing, breaking, or other children's activities) and the aging of the material or product for which exclusion is sought, will not result in the absorption of any lead into the body, nor have any other adverse impact on health or safety. This literature should support a request for exclusion that addresses how much lead is present in the product, how much lead comes out of the product, and the conditions under which that may happen and information relating to a child's interaction, if any, with the product; and

Best-available, objective, peer-reviewed, scientific evidence that is unfavorable to the request that is reasonably available to the requestor.

All I can conclude about "Joe Consumer" [henceforth known as Paid Shill for Big Law in accordance with this site's policies regarding symmetric comment policies] at Pop Tort is that if his assertions were due to an honest mistake, he can and should correct that blog posting; otherwise, I can only conclude that if these people at CJD are lawyers, they aren't very good lawyers, or they are very unethical lawyers.

The rest of the Pop Tort "debunking" is about as nutritious and wholesome as its quasi-namesake, consisting of anti-Nord smears and a few other false statements. One of those is that the Commission should have already completed issuing rulings on testing protocols, but still has not done so. Recalling even Rachel Weintraub's statements about the lack of staff and underfunding, it is worth noting that in addition to having to enforce the CPSIA and its aggressive set of required rulings, the CPSC has also been saddled with the Children's Gasoline Burn Prevention Act of 2008 and the Virginia Graeme Baker Pool and Spa Safety Act of 2008. These latter two laws are arguably much more important than CPSIA because actual children have actually died from gasonline burns and pool drain issues, while nobody has died from lead poisoning from a garment. Even so, no, the CPSC could not have issued final rulings because of the heavy schedule imposed by the CPSIA and the continuing limitations of staff and budget due to Congress, not Nord (alternatively, we could conclude that Nord, Moore, Weintraub, and others were incorrect or lying about staff and budget back in 2007 and 2008, but I doubt the Naderites would be willing to adopt that argument). Eight (8) CPSC rulings were mandated by law between 8 August 2008 and March 2009 and seven (7) more are required by August 2009, in addition to six (6) sets of Test Procedures and Accreditation requirements, and numerous rulings not specifically required, such as findings on the retroactivity of the lead ban, findings on the retroactivity of the phthalate ban, and defending the latter in court against special interest groups who advocate a hard-line interpretation of the rulings with exemptions for nobody, regardless of their public statements about the ease with which CPSC can make hardship exemptions. The final rulings on lead testing are not required until August 2009. Incidentally, several of the standards change in August 2009, so all testing done until now will be null & void unless manufacturers -- who still have not been granted any exemptions or stays from the requirements to comply with lead levels -- have been testing at the more stringent level.

To see what the CPSC really thinks of small businesses -- regardless of what the Naderite puppetmasters are saying publicly -- one need only look at the statements of Thomas Moore, the "good" commissioner, upon the announcement of the stay of enforcement. He said,

Many of the smaller businesses do have legitimate concerns about how they will comply with the new law and the cost of the new testing and certification requirements. However, their fears are being fueled to some extent by others who, through an aggressive misinformation campaign, are trying to create a groundswell of panic that will lead to the repeal of the testing and certification requirement entirely.
The goal of the testing and certification provision is a sound one: to make sure every manufacturer of a children's product, no matter their size [emphasis added], regardless of where they are located, knows the standards that apply to their products and takes the appropriate steps to ensure compliance with those standards before the products are put into the hands of consumers. The closer we get to that goal, the fewer recalls our agency will have to undertake and the fewer injuries we will see to children.

Note first that he is ambiguous on the point of whether their concerns are legitimate or fueled by misinformation. He was parroting the party line of the special interest groups at that time: "there are no problems with the law, there is only a misinformation campaign conducted by some nebulous and nefarious group out there." He is offering to note their concerns and at the same time to dismiss them; the former to make them think that he gets it, the latter to assure his handlers that he isn't swayed.

Note second that it does not offer any exemption related to business size. The rest of Moore's letter emphasizes the ways in which small business might be able to comply, but no size-based exemption is in the offing. The game continues.

This rhetoric is a classic shell game, a bait & switch. The Naderite grifters are running this game brilliantly: here they offer a chance of component testing, there they pull it away; here they offer a small business exemption, there they pull it away. In their official statements before Congress and the courts, it is all hardline, take-no-prisoners, "safety vs. profits", while in their press releases intended to appease the legitimate concerns of small businesses, they talk about exemptions and the possibility of "reasonableness". The legislation was intended to remove the reasonableness and lattitude the CPSC had in enforcing the existing statutes (including the Flammable Fabrics Act), but you wouldn't know that from their non-binding public assertions. It's the iron fist in the velvet glove.

-----------------------------

[1] The title is a reference to the practice of creating organizations which have the appearance of grass-roots organizations, but are not. Many of Nader's organizations are front-groups for the enrichment of Ralph Nader, while others (CJD) are front-groups for Trial Lawyers and other special interest groups. They are actually very small groups of people who work with each other in interlocking groups to give the appearance of being a much larger "movement". See Walter Olson's earlier work to expose the inappropriately named Center for Justice & Democracy.

[2] Incidentally, you can try to comment on the post at Pop Tort, but they won't publish it unless they can put you in a bad light. I commented, nothing. Kathleen commented, nothing. Kathleen commented on their asymmetric commenting policy (they commented on all of the CPSIA reform blogs) and that one he published. This is the same policy enforced on the US PIRG blog (which Rick Woldenberg has noted).

Insull

2009-03-24T20:52:00.001-06:00

Forrest McDonald's biography of Samuel Insull strikes me as an unreliable source of information. I can't put my finger on it exactly, but it is striking that all of Insull's enemies and competitors just happened to be either corrupt or incompetent. I suppose it's possible, but I think perhaps Mr. McDonald overlooked some of Insull's less stellar moments.

My interest in the book has to do with seeking out the origins of public utility regulation. I had once read that Insull, like AT&T's Vail, was a great advocate of natural monopoly theory and actively sought it. While McDonald mentions this a few times, he does not try to document or substantiate the claim. He notes that Insull's English upbringing left him regarding monopolies as benign, and his association with German Henry Villard left him believing in the benevolence of regulated utilities. However, it does become apparent from the narrative that the electric industry was not exactly the wild and wooly unregulated market one might suspect from reading other sources about the period.

Insull's empire was built on at least two other types of government regulation that pre-dated the Public Utility Holding Company Act (PUHCA). The first was the patent, and the second was existing public utility regulations. Insull started his career as a secretary for Thomas Edison, and eventually worked his way up to become an executive in the Edison General Electric Company (the forerunner of the modern GE). When the Morgan group forced out Henry Villard, Insull went to seek his fortune outside the electrical equipment manufacturing industry and found a little generation company.

Edison (and, to a lesser extent, others) had started into the electrical generation business by selling two different types of generators: central station and isolated power. The latter was easier to sell since the objective was to provide power for a single building; the infrastructure was either pre-existing or easily installed; and for the most part, these provided power to the new-fangled elevators. The former, however, was the route by which economies of scale could be obtained if you could only build up the distribution infrastructure and subscribership.

One could only obtain the machinery required to run a central station from about 4 companies at that time: GE, Thomson-Houston, Westinghouse, and Siemens. Each enforced a regional sales strategy, so the only way to obtain rights to buy from Westinghouse was to either be the first to make a deal with them, or to enter into partnership or to buy someone who had. So all Insull had to do was to acquire ownership of 4 of the "central" stations in Chicago and he had a lock on the whole region. So the means was institutional failure, right? Well, not really. The real issue here was patent protection: only four manufacturers existed because innovating companies like GE learned to aggressively defend their patents (from Edison's experience with the light bulb), and companies like Thomson-Houston existed for the primary purpose of buying up patents to defend (patent trolls).

At the time Insull entered the business, many cities already had a history with gas lighting companies. It didn't take long for politicians in places like Chicago to realize that they could charge them franchise fees and use the money to run their political machines. So when a new upstart -- including electrical generators -- showed up, it was relatively easy to use this machinery to keep them out, and when that proved unworkable, to aim it at the newcomers. And once the newcomers showed themselves to be reliable campaign contributors, it didn't take long for them to realize that they could employ the politicians to keep the public on a leash on one side, and competitors on the other.

By the end of the story, we learn that Insull was a generous man (who fired people for failing to say good morning) who contributed much to the war effort (in support of his native England). During WWI, he developed a powerful propaganda machinery which he put to private use after the war. At a high school reunion one time, I asked a classmate who now works for a big power company why they wasted their money on advertising since they are, after all, a legal monopoly. He said he had pointed out the same thing at a cost-cutting meeting one time, but got shot down. I think I know the answer now: the PR machinery needs to stay limber in case the public decides to bring out the torches and pitch forks and starts talking about public ownership. It is all based on Insull's war propaganda example.

Another interesting factoid: just prior to Insull's great downfall, England approached him to ask for his help in setting up their national grid. The entire national system was based on Midwest Utilities. After the collapse, for which Insull was found not guilty (not easy, given the times and the public persecution), the TVA was said to be founded on the public English example instead of the corrupt capitalist systems. Yep, they traveled across an ocean to look at a copy of the original instead of basing it on the original which itself lay in their own back yard. But propaganda isn't just for utility operators.

Gymboree

2009-03-23T20:07:00.002-06:00

Incidentally, regarding Jon Stewart's point regarding the lack of any accountability in business reporting, anyone remember this video interview with Hitha Prakhabar a couple of months ago? Remember that she said that appliques and trinkets have been tested already? Or that she said, "even though this law is gonna be passed [sic] it's not going to affect the children's clothing industry that much"? Or that the interviewer said, "you mentioned The Children's Place, Gymboree, these retailers will be fine" and Hitha confirmed, "while Gymboree and The Children's Place have probably tested their stuff already and the pieces that are on the clothes, it's not going to have a major effect."

Well, Hitha, I'm sorry dear, but it seems to have had a major effect, if, by "major effect", we mean a 40% drop in Gymboree's stock:

BANGALORE, March 4 (Reuters) - Gymboree Corp (GYMB.O) forecast a bleak first quarter as regulatory changes related to product safety significantly weigh down on the children's clothing retailer, slamming its shares down 40 percent in aftermarket trading.

...

Gymboree said regulatory changes related the Consumer Product Safety Improvement Act (CPSIA) passed by the Congress in August 2008 will impact sales and gross margins in the first half of 2009.

The Act required the Consumer Product Safety Commission (CPSC) to begin enforcement of new lead and phthalate standards for children's products on Feb. 10, 2009.

In order to comply with the new laws, the company began an initiative to remove any styles in its 800-plus stores that did not meet the new limits prior to Feb. 10, Chief Executive Matthew Mccauley said on a conference call with analysts.

The company had already pulled out products and changed production lines even before a clarification to the law was issued on Feb. 6, Mccauley said.

Separately, the company said a change in safety requirements related to levels of phthalates, a chemical used to increase flexibility in plastics, rendered about 1.7 million of its inventory obsolete.

"This...caused us to pull sleepwear for ages three and under off all of our shelves," said Mccauley.

That seems to be in the neighborhood of roughly pi radians off of the claims made by Hitha.

May I suggest a strategy for all of those would-be industry experts and assorted talking heads out there? If Fox or Forbes asks your opinion on a subject about which you are completely ignorant, you can decline to comment, or you can do some investigation. Just "going with your gut" doesn't work any better for you than it does for any of the CNBC stock jobbers.