Extreme Faith In The All-Knowing Government Bureaucrats

One of the great parlor games of economists is to identify what are claimed to be "market imperfections" and "market failures," and to propose solutions to them.  Among liberal academic economists, somehow the solutions are always the same, namely that the all-knowing government bureaucrats must intervene in the market to impose the preferable result.  Might any problems arise from giving the bureaucrats such powers to transform large markets?  Somehow that never gets discussed.  After all, the bureaucrats are all-knowing and perfect! 

An extreme example of this genre appears in a column by Official Manhattan Contrarian Worst Economics Writer Paul Krugman that appeared on October 19, titled "Amazon's Monopsony Is Not O.K."  Krugman's topic of the day is amazon.com, which according to this article has accreted way too much power to itself in the marketplace for books, and needs to be taken back down by the government.  They are just like the robber barons of old!

Does Amazon really have robber-baron-type market power? When it comes to books, definitely. Amazon overwhelmingly dominates online book sales, with a market share comparable to Standard Oil’s share of the refined oil market when it was broken up in 1911. Even if you look at total book sales, Amazon is by far the largest player. . . .  So can we trust Amazon not to abuse that power? The Hachette dispute has settled that question: no, we can’t.

And obviously, the government must intervene to impose a better result:

Standard Oil . . . had too much power, and public action to curb that power was essential.. . .  The robber baron era ended when we as a nation decided that some business tactics were out of line. And the question is whether we want to go back on that decision.

Remarkably, Krugman never says exactly what he proposes the government should do here.  Should it bring a court case to break up the monopsonist -- which is what the government did in the oil, steel and tobacco industries in the early 1900s?  The whole idea that government action in a situation like this may have adverse or unintended consequences just is not part of Krugman's world view.

And by the way, that line that "public action to curb [Standard Oil's] power was essential" is just one of those endlessly-repeated pieces of official conventional wisdom that cannot be proved or falsified, but there is every reason to think it is wrong.  Why wouldn't the competitors of Standard Oil have quickly caught up with it, as have other competitors of plenty of other corporate giants that the government has not dismantled?

To consider a couple of examples, IBM was the bugaboo of the 1960s and 70s, with its tremendous dominance of the market for what were called "main frame" computers.  The government sued to break up IBM in 1969, and began a court trial seeking that remedy in 1975.  The case was still on trial in 1982 when the new Reagan administration concluded that it was "without merit," and they then gave up and walked away from the case.  Meanwhile, the whole market for "main frames" had already begun to decline, and today it has completely disappeared.  Computers have gone from main frames to personal computers, to laptops, to smartphones, and IBM has more or less stayed away from the whole thing and become a consulting business.  IBM was number 9 on the Fortune 500 when the antitrust trial started in 1975, and has gradually slipped to number 56 by revenue in this list from 2014.  Just this week IBM backed away from an ambitious profit forecast for next year, and its stock took a big hit.  Again, what was the reason that IBM needed to be dismantled by the government?  Today, nobody even remembers.

The other corporate giant severely criticized in recent years for allegedly too much power is Wal-Mart.  It's actually still holding on to the official number 1 position in the 2014 Fortune 500, but there are many reasons to think that its glory days are behind it.  According to data collected by Credit Suisse and reported by CNBC here, Wal-Mart's market share in U.S. retailing, after rising rapidly for decades, hit a peak of 13.9% in 2009, and then began to decline.  By 2013 it was down to 11.4%.  Same store sales have been very flat for years, and there aren't a lot of new towns in the U.S. to invade.

Don Boudreaux of Cafe Hayek wrote a letter about Krugman's column to the New York Times, and posted it on his web site.  He includes a long quote from D.T. Armentano's "Antitrust Policy" (Cato Institute, 1986) addressing Krugman's contention that Standard Oil needed to be dismantled:

Here’s the noted antitrust historian D.T. Armentano: “Standard Oil’s efficiency made the company extremely successful: it kept its costs low and was able to sell more and more of its refined product, usually at a lower and lower price, in the open marketplace.  Prices for kerosene [Standard’s principal output] fell from 30 cents a gallon in 1869 to 9 cents in 1880, 7.4 cents in 1890, and 5.9 cents in 1897.  Most important, this feat was accomplished in a market open to competitors, the number and organizational size of which increased greatly after 1890.  Indeed, competitors grew so quickly in the years preceding the federal antitrust case that Standard’s market share in petroleum refining declined from roughly 85 percent in 1890 to 64 percent in 1911.  In 1911, at least 147 refining companies were competing with Standard, including such large firms as Gulf, Texaco, Union, Pure, Associated Oil and Gas, and Shell.”

Meanwhile, the government today maintains two separate antitrust bureaucracies, the FTC and another in the Justice Department, that constantly scrutinize the business organization structure of the U.S. economy for no good reason that anyone can articulate.  They know nothing about the markets they periodically disrupt, and they care nothing about the costs they impose.  Their ranks could easily be shrunk by 80% with great positive effect on the U.S. economy.

My take: sure Amazon has a little more power than I would like.  The antitrust regulators have way, way more power than I would like, and than is healthy for the economy.

The Benefits Of Falling Oil Prices

Which is better, rising energy prices or falling?  I think the answer is obvious:  falling.  If you want the people to become wealthier and to be able to do more things, then falling energy prices are great.  There are also lots of great collateral benefits to falling energy prices, first among them being putting all the worst actors on the world political scene out of business.  More about that later.  Meanwhile, the alternative of rising energy prices means impoverishment of the people.  Who could possibly want that?

The answer is that our President and all groupthinking progressives want higher energy prices.  Somehow they have convinced themselves that if they can make you drive less and use less electricity and keep your home in the winter so cold that you need to wear three sweaters indoors, they will be "saving the planet," or something like that.  Meanwhile, please don't notice while I exit this motorcade of thirty gigantic armored SUVs and get into Air Force One to jet off to Europe.

 During the 2008 campaign then-wannabe President Obama was explicit that the essence of his environmental program was to increase energy prices.  The famous quote is "under my plan of a cap and trade system electricity rates would sky rocket."  He was talking specifically about electricity there, but the EPA under Obama has been overt and relentless in doing everything it possibly can to increase carbon-based energy prices in all forms and for all uses.  For example, here is a 2012 roundup from the Heritage Foundation of various EPA rules and initiatives designed to drive coal out of the U.S. energy mix, thereby increasing the price of electricity.  In 2010 a vast interagency task force co-ordinated by the White House came out with a big study on the so-called Social Cost of Carbon, according to which all usage of carbon-based energy is somehow a negative to society, with zero positive benefit counted for anything from mobility to computers to mechanized agriculture.  And then, of course, we also have the EPA's infamous 2009 "endangerment finding," by which it determined that use of carbon-based energy was actually a "danger" to the health and safety of the American people. And on the oil and gasoline front, how about the EPA's recent rules relating to sulfur in gasoline, specifically designed to jack up the price of gasoline?

Well, so far at least the American people seem to have the upper hand over their government on this one.  The so-called "fracking" revolution of new extraction technologies continues to increase the availability of oil and gas, and recently prices have started to fall dramatically.  The price of a barrel of oil on the commodity exchanges has declined from well over $100 to about $80, and now the price of gasoline at the pump has fallen from over $4 per gallon to around $3.15.  Although plenty of pundits on the left continue to believe that this is somehow a bad thing, President Obama seems so far to be keeping quiet about it -- a smart move with an election pending.  Here is the take of economist and CNBC pundit Larry Kudlow:

[O]ne of the absolutely stupidest things I have heard in recent weeks is that the recent drop in oil prices is bad. You heard me right. Serious people on financial television are saying lower oil prices are a signal of worldwide economic collapse. Here at home that translates to recession, deflation, a profits collapse, and rising unemployment.  I've been around for a while, and I've seldom heard such gibberish.

Thank you, Larry.  Now, perhaps he should have a conversation with the idiots at the EPA.

But it's not just that falling energy prices make your hard-earned income go a little farther.  Some of the collateral consequences are nothing short of spectacular.  In particular, it seems like all the worst actors on the world political stage operate crony capitalist economies totally dependent on the oil and gas sector to fund the government.  I'm thinking particularly of Iran, Venezuela and Russia.  When oil prices are up, these guys fly high and use the revenue to throw their weight around.  When oil prices are down, they go broke and fade away.  

Here's a roundup from Reuters on the current predicament of Venezuela.  Remember when they had billions to give away to buy influence in places like Cuba, Nicaragua and Bolivia?  Well, now they are about to default on their international debt.  Or maybe not -- they deny it; but according to the Reuters article the current price of Venezuela credit default swaps implies a default likelihood of about 80%.  I'll go with the market prediction over what the Venezuelan officials are saying.  Meanwhile, you literally can't buy anything in Venezuela.

Iran and Russia?  Here's a roundup from the Guardian filled with words like "crisis" and "catastrophe."  Actually, I'm sure they'll muddle through somehow, but the fact is that the profits from the oil are exactly where these guys get the resources to fund armies to threaten their neighbors and to build nuclear bombs.  Low oil prices are a wildly cost-effective method to rein in their ambitions, far better than all the "sanctions" we can never really make stick, let alone than our threat to attack them with our own military forces.

So is it possible for our government to be as completely wrong on any aspect of public policy as it is on this one?

 

Can A Republican Win A Political Office In Manhattan?

Here in Manhattan, we have by my count 31 local elective offices (not counting judgeships) -- three citywide offices (Mayor, Comptroller, Public Advocate), 6 State Senators, 12 State Assemblymen, and 10 City Councilmen.  Every single one of those offices is currently held by a Democrat.  The Republicans did famously hold the Mayor's office for 20 years from 1994 to 2013, but the last time a Republican held any of the 28 legislative offices covering any part of Manhattan was back in 2002.  As that year began, the Republicans had one State Senator (Roy Goodman) and one Assemblyman (John Ravitz), both from the Upper East Side.  In early 2002 Goodman resigned to take a job with the new Bloomberg administration, as NYC liaison to the UN.  Ravitz ran for Goodman's Senate seat in a special election, but lost.  And then Ravitz did not run in the fall for his Assembly seat, which also then went to a Democrat.

It's not just that the Republicans don't hold any seats, but in nearly all of the districts they aren't even remotely competitive.  In my own districts for City Council, State Assembly and State Senate, in most elections the Republicans don't even put up a candidate.  This year the Republicans do seem to have put up candidates for both my State Senate and Assembly districts, but I haven't seen either of their names mentioned a single time in the press, with the election only a few weeks away.  On the other hand, in my Assembly district there is a candidate from something called the "Progressive" party challenging the long-time Democratic incumbent from the left, and he is getting a lot of mention in the local press.  It's highly likely that he'll get more votes than the Republican. 

Am I the only one who finds it odd that, here in the richest county in the country (measured by per capita income), the so-called "party of the rich" has almost vanished?  Instead, we overwhelmingly vote for the "party of government" year after year, to tax ourselves at the highest levels in the country, supposedly to address the critical issues of poverty, public education and healthcare.  And what do we have to show for it?  A poverty rate higher than that of the country as a whole, dysfunctional union-dominated public education that costs about twice the national average per student for worse results, and a Medicaid system that for an expense double the national average per beneficiary gets no better health results.  How could it even be possible that the very richest county in the country, that spends well more than any place else on "anti-poverty" efforts, actually has a poverty rate higher than the national average?  (National "poverty" rate is  15.8% for 2013 according to American Community Survey report released in September; Manhattan rate is 17.8% according to ACS 2006-10 data.)  You would think that if voters ever held their politicians accountable for anything, our all-Democrat pols would get voted out en masse immediately.  But hey, this is Manhattan.

Of the 18 state legislative races up this year on our island, probably the best shot for the Republicans to win one is the 76th Assembly district on the Upper East Side, an area overlapping the one-time turf of Goodman and Ravitz.   The Democrats have nominated a mostly experience-free cypher named Rebecca Seawright, who is running a mostly contentless stealth campaign, the most notable feature of which is her close association with the public employee unions.  The basic idea seems to be, nobody around here votes for Republicans, so I'm a shoo-in.  She was not the choice of party insiders, but rather won a four-way primary, which may well have occurred because nobody had heard of any of them and she was the only woman in the race against three men.  Her bio includes some time as a staffer to a state legislator in Texas in the 80s, followed by attending CUNY Law School in the early 90s, and a stint of all of 14-months in the Manhattan DA's office.  Since then, she claims to have been a "counselor to small business owners and entrepreneurs" -- I guess that means that she has done some part-time legal work as a solo practitioner out of her apartment.  The law practice does not appear to be substantial enough to justify having a web site, or at least, not one that I can find using Google. 

The Republicans have actually found a candidate of real substance to vie for the seat.  Named David Garland, he has an MBA from Wharton, served in the Commerce Department under George H.W. Bush, then at the World Bank, and more recently has been a consultant with Deloitte Consulting in New York and Tokyo.  He is also a serial candidate, having run (unsuccessfully, obviously) for the State Senate in 2012 and the City Council in 2013.  He got 30% of the vote in the Senate race and 33% in the City Council race, which are actually impressive numbers for a Manhattan Republican.

Needless to say, Garland has tried to get Seawright to engage in debates, and she won't have any part of it.  Her reluctance to debate appears to spring not just from the natural reluctance of the favorite to give time to the long-shot, but also from her own total ignorance of the issues.  Before the September primary, local cable station NY1 hosted a televised debate among the candidates in which Seawright participated.  Her then Democratic rival David Menegon, who was apparently on to her cluelessness, tried to get her in trouble with her union backers by asking her a question she wouldn't understand, namely, whether she would support making New York a "right to work" state.  The New York Observer reported the humorous result on August 23:

“I think [New York] should be a ‘right to work’ state and I would totally support that,” Ms. Seawright said in a response to a question from rival David Menegon.

Thinking she must not have heard the question right, the moderator, Errol Louis, sought to give her a chance to right her ship, without success:

Errol Louis, the host of the debate on NY1, pressed Ms. Seawright to explain her position.  “I think it helps the economic base of the city and I think that the unions backing me would agree,” Ms. Seawright replied.

Did I mention that Ms. Seawright's other claim to fame is backing by essentially all the unions:  teachers, police, NYSPEF, SEIU, CWA, and of course their handmaiden the WFP?  So there is no chance that she would actually support a "right to work" law if she knew what it is.  But don't worry, her union friends are not concerned that she doesn't know what a "right to work" law is.  She'll vote the way they tell her when the time comes.

As the union favorite, Ms. Seawright espouses exactly the "solutions" to our problems that the unions back:  always more money to keep failing by doing exactly the same thing more expensively.  For example, when Sybile Penhirin of DNA Info asked her in August to name the district's "biggest issue," she took the occasion to seek more money for the schools:

We need more middle school seats in the UES, additional resources to support our teachers, and we need to fight for smaller-size classes in public schools.

You wonder, does she even know that New York already spends nearly double the national average per student on K-12 education, and that school spending nearly doubled in the twelve years under Mayor Bloomberg?  If that didn't work, why will the next wad of dough do any good?

Garland?  His big issues are more charter schools and freeing the schools from lock-step union control.  And reducing the regulatory burden on small business.

Oh, and did I mention that Ms. Seawright backs the Official Manhattan Contrarian "worst possible public policy," namely "affordable housing" in Manhattan?  Of course.

Garland may actually have a shot here.  But you can't generally go wrong underestimating the Manhattan voter.  Upper East Siders:  You are the ones paying for the failing unionized public services that the Seawrights of the world protect against reform.  Do any of you understand what is going on?

 

 

 

 

   

 

 

The Paradox Of Income Inequality

The paradox of income inequality is that all the official progressive programs that supposedly will make it better actually make it worse.  And thus we have the ridiculous phenomenon that those places in the country that are the hottest hotbeds of progressivism, and that put in place the most expansive array of programs to "help" the poor and ameliorate income inequality, then end up with the very highest levels of income inequality as measured by the official government statistics.  As I have noted before, the Congressional District with the very highest "Gini Coefficient" (the sophisticated snob's official best measure of income inequality) is none other than my own district, New York 10, home of Greenwich Village, the Upper West Side, the New York Times, the most generous welfare and housing and Medicaid programs in the country, and of a stifling progressive orthodoxy that you can't cut through with a machete.  Might we be doing something wrong?

An article in yesterday's Financial Times, "The riddle of black America's rising woes under Obama," by Edward Luce, does a real service in highlighting some of the statistical data on income and wealth inequality, particularly as it relates to the disaster that Barack Obama and his policies have brought upon black America.  But Luce then proceeds to draw some seriously dumb conclusions.

First, the bad news.  Most of the time you have to do serious digging to find out how bad Obama has been for black Americans.  The mainstream media just won't report on this.  So, thank you Mr. Luce for pulling some of this together:

Since 2009, median non-white household income has dropped by almost a 10th to $33,000 a year, according to the US Federal Reserve’s survey of consumer finances. As a whole, median incomes fell by 5 per cent. But by the more telling measure of net wealth – assets minus liabilities – the numbers offer a more troubling story.

The median non-white family today has a net worth of just $18,100 – almost a fifth lower than it was when Mr Obama took office. White median wealth, on the other hand, has inched up by 1 per cent to $142,000. In 2009, white households were seven times richer than their black counterparts. That gap is now eightfold. Both in relative and absolute terms, blacks are doing worse under Mr Obama.

And then, without any intermediate steps, Mr. Luce jumps to the following conclusion:

Without Mr Obama’s efforts, African-American suffering would have been even greater. He has fought Congress to preserve food stamps and long-term unemployment insurance – both of which help blacks disproportionately.   The number of Americans without health insurance has fallen by 8m since the Affordable Care Act came into effect. . . .  By no honest reckoning can Mr Obama be blamed for the decline in black America’s fortunes.

Note first that Mr. Luce's switches back and forth between African-American "suffering" and African-American "fortunes" as measured by median income and median net worth, without alerting the reader that the two may not be the same thing.  If your chosen measures of black well-being are median income and median net worth, there can be no question but that the massive increases in food stamps and Medicaid have been the main causes of things getting worse.  Probably all or nearly all of the declines in black income and net worth can be directly attributed to the massive increases in food stamps and Medicaid under the Obama administration.

Why?  First, of course, because the provision of food stamp and Medicaid benefits is not counted in the government statistics on income and wealth.  So when the government hands out an additional $40 billion in annual food stamp spending, and an additional $50 billion of annual Medicaid spending, as it did between 2009 and 2013, that adds exactly a big goose egg to the measured incomes and net worths of the recipients.  Meanwhile, to get these handouts you must meet income and asset tests -- or, to put it another way, you must get your income and assets below certain thresholds.  Of course, the limits vary in an enormously complex patchwork among the states.  For example, here is information from the New America Foundation on asset limits relevant to food stamp eligibility.  With all kinds of loopholes and exceptions, it remains the case that in the large majority of states if you want food stamps you need to get your assets under $5000.

So can it possibly be any surprise that as food stamp recipients went from about 27 million to almost 50 million under Obama, lots of people with assets in the high four figures and low five figures were spending those assets down in order to qualify?  Let's see, I have saved $10,000 and I don't qualify for food stamps; but if I spend $5000 on a big TV, then I will qualify for an $8000 per year handout (which, however, will not count in my measured income or net worth).  And thus the food stamp explosion is a very effective way to drive the median net worth of African Americans toward zero.

 So, Mr. Luce, has African American "suffering" (your word) increased or decreased under Obama?  You say that "without Mr. Obama's efforts, African-American suffering would have been even greater."  But what has occurred is that African Americans have traded market income and net worth for increased government handouts and dependency.  Which is the path of more "suffering," and which of less?  I go with your initial take that black fortunes have "declined," even though the increase in handouts may well exceed the decrease in market incomes and net worth.  But that's because I think that being trapped in dependency on government handouts is a terrible thing for the recipients. 

Is It Possible To Make Affordable Housing In Manhattan Seem Reasonable?

In my continuing coverage of the "worst possible public policy," namely so-called "affordable housing" in Manhattan, I wrote back in June about a new project nearing completion in Harlem known as Sugar Hill Development.  Now in the Arts section of yesterday's New York Times, we find an architecture review of the exact same project by the Times's architecture critic, Michael Kimmelman.  Shall we contrast my take and his?

Here is the picture of the project that I included in my June 12 article:

My take:

Could it be more hideous?  This makes the old time "projects" that New York is famous for look positively pleasant.  If you didn't know what it was, you would probably guess it's a prison.

The Times article occupies most of the first page of the Arts section, and continues onto most of the second page.  You can guess where it's going from the headline:  "Building Hope And Nurturing Into Housing."  Here is their picture:

JPSUGARHILL-articleLarge.jpg

Definitely the same building, although in their view from the downhill side the thing looks even more likely to tip over.  Nice gas station next door!  So, Kimmelman, what do you think?

[Sugar Hill] has been conceived to serve some of the very poorest New Yorkers, who will move into anything but a run-of-the-mill building. Designed by a marquee architect, with no concessions to timid taste, the project aspires to must-see status. . . .  [I]t posits a goal for what subsidized housing might look like, how it could lift a neighborhood and mold a generation. . . .   It’s clad in shadowy gray precast, thickly grooved concrete panels spectrally embossed with abstracted roses that refer to floral decorations on historic buildings in the neighborhood. . . .  I like the building’s exterior.

Well, my betting is that something this brutal will never "lift a neighborhood and mold a generation."  And how about the part that this building has been "conceived to serve some of the very poorest New Yorkers."  Kimmelman gives no details.  Is this true?  Actually, no.  The sponsor's website lists the income restrictions for the building:

124 apartments are planned with 70% of the units set-aside for households earning very low incomes defined by the City of New York as 50% of the Area Medium Income (AMI) or below, this is less than $38,400 for a family of four. 30% of all apartments will be dedicated to those at extremely low income levels of 30% of AMI ($23,050 for a family of four) or below. 10% of the apartments will be targeted at 50-60% AMI. Community residents with no lease, doubled or tripled-up in seriously substandard conditions in the community will be accommodated as will homeless households residing in the emergency shelter system. The remaining 20% of the apartments will be extended to low income working families at 80% AMI, or less than $61,450 for a family of four.

Translated into English, only 30% of the building is going to families at or near the so-called "poverty level," and the $61,450 limit for the top 20% is actually well above the median family income in the United States according to the most recent Census data.  Then Kimmelman hits us with this ridiculous piece of deceptive information:

Broadway Housing Communities estimates that each resident in a supportive housing development like Sugar Hill costs taxpayers $12,500 a year, on average.

Did you notice that he just switched from talking about "families" to talking about "residents"?  I guess that $12,500 per "resident" would be $50,000 for a family of four.  Can somebody please explain to me how it can possibly make sense to subsidize one family of four earning more than the national median income to the tune of $50,000 per year, every year, year after year for their whole lives?  That's a gift of present value of between $1 million and $1.5 million.  But even that is a huge underestimate, because it's just talking about the on-budget cash outlay, when the whole idea of these kinds of projects is to hide the costs where they can't and won't be measured.  To get to the real cost to the taxpayers, you have to add to the cash outlay an additional amount representing the opportunity cost of the rent you forewent by renting at below-market prices.  The market rental of these apartments will be in the range of $3000 to $4000 per month, and the lucky residents will be paying at best about half that.  So the real number, as I estimated in my previous article, is about a $2 million present-value gift per family, 70+ percent of which are not "poor" as we define that term in our official data.

Well, at least they'll be "nurtured," or something like that.  Actually, maybe not.  We haven't yet considered what's on the inside of this building.  Back to Kimmelman:

The apartments seem like an afterthought: awkward, with angled walls, quirky layouts that tenants may find hard to furnish, and deep-set, weirdly placed windows of various sizes.  Sugar Hill turns out to be like an A student who crams for the big test and then forgets to bring a pencil.

But I'll still bet that nobody will ever move out.  Nobody moves out from the subsidized "affordable" housing in Manhattan.  Would you give back half of your $2 million gift before collecting it?  I wouldn't think so.

Some day, a long time from now, the residents of this building will get bought out and the place will be dynamited.  Probably, I'll be long dead.  But in the meantime can we at least stop building more of these things?