June 27, 2016

The twisted incentive system for government bureaucrats

Filed under: Bureaucracy, Business, Government — Tags: — Nicholas @ 02:00

At Coyote Blog, Warren Meyer explains why bureaucrats so often make what appear to be incomprehensible decisions and then double-down on the decision despite any irrational, economically destructive, or humanitarian consequences:

I want to take an aside here on incentives. It is almost NEVER the case that an organization has no incentives or performance metrics. Yes, it is frequently the case that they may not have clear written formal metrics and evaluations and incentives. But every organization has informal, unwritten incentives. Sometimes, even when there are written evaluation procedures, these informal incentives dominate.

Within government agencies, I think these informal incentives are what matter. Here are a few of them:

  1. Don’t ever get caught having not completed some important form or process step or having done some bureaucratic function incorrectly.
  2. Don’t ever get caught not knowing something you are supposed to know in your job.
  3. Don’t ever say yes to something (a project, a permit, a program, whatever) that later generates controversy, especially if this controversy gets the attention of your boss’s boss.
  4. Don’t ever admit a mistake or weakness of any sort to someone outside the organization.
  5. Don’t ever do or support anything that would cause the agency’s or department’s budget to be cut or headcount to be reduced.

You ever wonder why government agencies say no to everything and make it impossible to do new things? Its not necessarily ideology, it’s their incentives. They get little or no credit for approving something that works out well, but the walls come crashing down on them if they approve something that generates controversy.

So consider the situation of the young twenty-something woman across the desk from me at, say, the US Forest Service. She is probably reasonably bright, but has had absolutely no relevant training from the agency, because a bureaucracy will always prefer to allocate funds so that it has 50 untrained people rather than 40 well-trained people (maintaining headcount size will generally be prioritized over how well the organization performs on its mission). So here is a young person with no training, who is probably completely out of her element because she studied forestry or environment science and desperately wanted to count wolves but now finds herself dumped into a job dealing with contracts for recreation and having to work with — for God sakes — for-profit companies like mine.

One program she has to manage is a moderately technical process for my paying my concession fees in-kind with maintenance services. She has no idea how to do this. So she takes her best guess from materials she has, but that guess is wrong. But she then sticks to that answer and proceeds to defend it like its the Alamo. I know the process backwards and forwards, have run national training sessions on it, have literally hundreds of contract-years of experience on it, but she refuses to acknowledge any suggestion I make that she may be wrong. I coined the term years ago “arrogant ignorance” for this behavior, and I see it all the time.

But on deeper reflection, while it appears to be arrogance, what else could she do given her incentives? She can’t admit she doesn’t know or wasn’t trained (see #2 and #4 above). She can’t acknowledge that I might be able to help her (#4). Having given an answer, she can’t change it (#1).

June 26, 2016

The Micklethwait Alpha

Filed under: Business, Government, Liberty — Tags: , — Nicholas @ 02:00

Published on 3 Feb 2013

Brian Micklethwait describes a hypothesis of his regarding the overall effects of state intervention as compared to market liberalisations.

This topic is discussed in greater depth here: http://libertarianhome.co.uk/2013/02/…

(Linked yesterday, but too good not to get its own posting.)

June 25, 2016

Canada’s massively counter-productive protectionist racket

Filed under: Bureaucracy, Business, Cancon — Tags: , , — Nicholas @ 02:00

At (of all places) the CBC, Neil Macdonald explains why the Canadian government maintains a ridiculously low limit on what Canadians can purchase from other countries without packages being subject to duty, tax, delay, and possible damage:

As any Canadian who’s ever naively bought anything on the American version of eBay (or, for that matter, any U.S. retail website) must by now know, Ottawa is determined to spoil your bargain.

If the purchase is a penny over $20 Cdn, a federal customs agent can intercept it, open it, delay it, add federal and provincial sales taxes, and, depending on the origin of the merchandise, perhaps pile on some duty charges — basically protectionist taxes.

By the time the government is done, the price of the package can easily rise by 50 per cent. And of course customs brokers usually have to wet their beaks, inflating the final cost of the average package by another 20, 30 or 40 per cent.

Basically, Ottawa has ensured that shipping across our border is such an expensive, paperwork-heavy pain that a lot of American merchants and eBay sellers simply don’t bother shipping to Canada.

The system actually seems designed to be burdensome and sclerotic.

Normally, you’d assume it’s all about increasing the federal government’s tax revenues … the CRA must be raking in the bucks, right? Not at all:

… by keeping that purchase threshold at $20 instead of giving Canadian shoppers a break and raising it to $80, Ottawa spends about $166 million to collect $39 million in additional taxes and duties.

Think about that: Ottawa’s customs officials spend a net $127 million of taxpayers’ money annually, basically to keep Canadians trapped inside the Canadian retail corral.

H/T to SDA for the link.

June 18, 2016

QotD: The origin of the push for a minimum wage

Filed under: Business, Economics, Politics, Quotations, USA — Tags: , , , — Nicholas @ 01:00

Few policies have origins as ugly as that of the minimum wage. “Progressive” intellectuals in the early 20th century supported the minimum wage because they believed it to be an effective policy detergent to help cleanse the gene pool of ‘undesirables.’ By pricing low-skilled, ‘undesirable’ workers out of jobs, ‘undesirables’ are less likely to successfully pro-create and to immigrate. The fact that the minimum wage, by pricing ‘undesirables’ out of work, thereby artificially raises the incomes of white workers was considered to be an added benefit of this social-engineering device.

Business owners and labor unions in higher-wage regions of the United States supported the minimum wage because it would dampen the competition they were under from businesses and workers in lower-wage regions of the United States.

The ethics of these early supporters of the minimum wage were despicable. But say this much for these racist, protectionist creeps: they understood economics better than do many people today (including some economists) who believe either that the law of demand is uniquely inoperative in the market for low-skilled workers or that the American market for low-skilled workers is monopsonized.* Each belief is as inexplicable as it is unsupportable.

* And monopsonization of the labor market is only a necessary condition for a minimum wage to not destroy employment opportunities for some workers; it is not a sufficient condition.

Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2016-06-01.

June 13, 2016

QotD: The absurdities of many occupational licenses

Filed under: Bureaucracy, Business, Quotations, USA — Tags: , , — Nicholas @ 01:00

In 2012, the Institute for Justice — a public-interest law firm advocating libertarian causes — looked at the number of occupations that require licensing. Specifically, the institute looked at occupations typically filled by lower- and middle-income workers. These are not your airline pilots, your certified public accountants and your neurosurgeons; they’re the nations interior decorators, auctioneers and florists. (Yes, you read that right: In at least one state, these occupations cannot be practiced without a license.)

Why, you might ask, is the state requiring a license to decorate an interior? Are customers at risk of death from collapsing piles of pillow shams? Must we fear that they will be blinded by the decorator’s decision to pair fuchsia chiffon drapes with a chartreuse brocade sofa? Do we worry that without the threat of losing their license to keep them on the straight and narrow, these fly-by-night operators might be tempted into purchasing furniture from unlicensed auctioneers, and sourcing their floral arrangements from black-market florists?

Well, no. Mostly, these regulations benefit folks who are already plying the trade. They get helpful state legislators to protect them from competition by instituting tough licensing requirements. Their income goes up; the consumer’s wallet suffers. And people who want to follow their dreams into the industry get shut out if they lack the time to study for the licensing exams, the capital to pay the licensing exam fees (which can run in to the hundreds of dollars), or the social capital to know how to work the system.

Megan McArdle, “You’re Gonna Need a License for That”, Bloomberg View, 2016-05-17.

May 31, 2016

QotD: The minimum wage

Filed under: Business, Economics, Quotations — Tags: , , — Nicholas @ 01:00

In truth, there is only one way to regard a minimum wage law: it is compulsory unemployment, period. The law says: it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result.

Murray Rothbard, “Outlawing Jobs: The Minimum Wage”, 1998.

May 28, 2016

QotD: “Farm-to-table” food

Filed under: Business, Environment, Quotations, USA — Tags: , , — Nicholas @ 01:00

We all love farm-to-table food, don’t we? The freshness, the warm sense of environmental sustainability, the delights of spending your money in the local economy. Of course we all love it.

Or … maybe we just think we love it. An exhaustive investigation by a Tampa Bay Times food critic reveals just how little of the food advertised as organic, locally sourced, non-GMO fare actually fits that description. The article is a slightly painful read, as restaurant after restaurant sheepishly tries to cover for their, um, “menu anomalies” by explaining that they totally used to buy some stuff from a local producer, then they forgot to change the chalkboard when they switched suppliers, and besides, the bus was late and the dog ate their homework. Some of these claims may even be true, but given the ubiquity of these “anomalies,” it’s hard to believe that there isn’t considerable calculation behind these unidirectional mistakes.

And it’s not hard to figure out why: Consumers don’t really want to buy farm-to-table food. What they want to buy is the moral satisfaction of farm-to-table food.

A consumer who is actually looking for vegetables picked no later than yesterday morning and trundled to their table at the peak of freshness probably isn’t going to be satisfied with the corn that just spent a few weeks bouncing around in the back of a truck somewhere; the products will be noticeably different in flavor. On the other hand, for a consumer who’s just looking for moral satisfaction — well, the nice thing about selling intangible qualities is that there’s no discernible difference to the consumer between being told that they’re consuming locally grown foods and actually doing so.

Megan McArdle, “Dining Out on Empty Virtue”, Bloomberg View, 2016-04-15.

May 21, 2016

“Social media needs social relevance to disguise the narcissism at the center of its appeal”

Filed under: Business, Media, Politics — Tags: , , — Nicholas @ 02:00

Daniel Greenfield explains how Facebook got into the business of “curating” your user experience:

Despite the denials, the stories about Facebook’s bias are real. But the bias isn’t there because of the company’s new technology. Facebook is biased because of its reliance on the biased old media.

Facebook’s trending topics wasn’t the automatic system that the company wanted people to think it was. Instead it hired young journalists with new media experience to “curate” its news feed. And plenty of them proved to be biased against conservative news and sources. Meanwhile someone at the top of Facebook’s dysfunctional culture wanted to play up Syria and the Black Lives Matter hate group.

Mark Zuckerberg’s fundamental mistake was recreating the biases and agendas of the old media in a service whose whole reason for existing was to allow users to create their own experience. The big difference between social and search is that social media is supposed to let you be the curator.

But, like Facebook’s trending topics, social curation was another scam. Facebook users don’t really define what they see. It’s defined for them by the company’s agendas. This includes the purely financial. It would be foolish to think that the fortunes that Buzzfeed spends on Facebook advertising don’t impact the placement of its stories by Facebook’s mysterious algorithm. And there is the more complex intersection of politics and branding in an age when business relevance means social relevance.

Twitter piggybacked on the Arab Spring to seem relevant. Facebook has used Black Lives Matter. Social media needs to be associated with political movements to seem more important than it is. Zuckerberg doesn’t want to head up a shinier version of MySpace that was originally set up to rate the attractiveness of Harvard girls. Being socially relevant is better for business. Especially when the business is vapid at its core.

Social media needs social relevance to disguise the narcissism at the center of its appeal.

May 17, 2016

Charles Stross updates a classic WW2 field guide – a dot-com sabotage manual

Filed under: Bureaucracy, Business, Humour — Tags: , , , — Nicholas @ 02:00

Many people have noted that the sabotage techniques listed in a Second World War espionage manual seem to have somehow migrated into a lot of management texts in the last few decades. Here he imagines what an updated version of the manual might look like:

In 1944, the Office of Strategic Services — the predecessor of the post-war CIA — was concerned with sabotage directed against enemies of the US military. Among their ephemera, declassified and published today by the CIA, is a fascinating document called the Simple Sabotage Field Manual (PDF). It’s not just about blowing things up; a lot of its tips are concerned with how sympathizers with the allied cause can impair enemy material production and morale […]

So it occurred to me a week or two ago to ask (on twitter) the question, “what would a modern-day version of this manual look like if it was intended to sabotage a rival dot-com or high tech startup company”? And the obvious answer is “send your best bad managers over to join in admin roles and run their hapless enemy into the ground”. But what actual policies should they impose for best effect?

  1. Obviously, engineers and software developers (who require deep focus time) need to be kept in touch with the beating heart of the enterprise. So open-plan offices are mandatory for all.
  2. Teams are better than individuals and everyone has to be aware of the valuable contributions of employees in other roles. So let’s team every programmer with a sales person — preferably working the phones at the same desk — and stack-rank them on the basis of each pair’s combined quarterly contribution to the corporate bottom line.
  3. It is the job of Human Resources to ensure that nobody rocks the boat. Anyone attempting to blow whistles or complain of harassment is a boat-rocker. You know what needs to be done.
  4. Senior managers should all be “A” Players (per Jack Welch’s vitality model — see “stack ranking” above) so we should promote managers who are energetic, inspirational, and charismatic risk-takers.
  5. The company must have a strong sense of intense focus. So we must have a clean desk policy — any personal possessions left on the desk or cubicle walls at the end of the day go in the trash. In fact, we can go a step further and institute hot desking — we will establish an average developer’s workstation requirements and provide it for everyone at every desk.

This would explain some of the management policies at a few places I’ve worked at over the years…including the software company where I first met Charlie.

May 13, 2016

QotD: The boring efficiency of North American freight railways

Filed under: Business, Economics, Quotations, Railways, USA — Tags: , , , — Nicholas @ 01:00

The US rail system, unlike nearly every other system in the world, was built (mostly) by private individuals with private capital. It is operated privately, and runs without taxpayer subsidies. And, it is by far the greatest rail system in the world. It has by far the cheapest rates in the world (1/2 of China’s, 1/8 of Germany’s). But here is the real key: it is almost all freight.

As a percentage, far more freight moves in the US by rail (vs. truck) than almost any other country in the world. Europe and Japan are not even close. Specifically, about 40% of US freight moves by rail, vs. just 10% or so in Europe and less than 5% in Japan. As a result, far more of European and Japanese freight jams up the highways in trucks than in the United States. For example, the percentage of freight that hits the roads in Japan is nearly double that of the US.

You see, passenger rail is sexy and pretty and visible. You can build grand stations and entertain visiting dignitaries on your high-speed trains. This is why statist governments have invested so much in passenger rail — not to be more efficient, but to awe their citizens and foreign observers.

But there is little efficiency improvement in moving passengers by rail vs. other modes. Most of the energy consumed goes into hauling not the passengers themselves, but the weight of increasingly plush rail cars. Trains have to be really, really full all the time to make for a net energy savings for high-speed rail vs. cars or even planes, and they seldom are full. I had a lovely trip on the high speed rail last summer between London and Paris and back through the Chunnel — especially nice because my son and I had the rail car entirely to ourselves both ways.

The real rail efficiency comes from moving freight. As compared to passenger rail, more of the total energy budget is used moving the actual freight rather than the cars themselves. Freight is far more efficient to move by rail than by road, but only the US moves a substantial amount of its freight by rail. One reason for this is that freight and high-speed passenger traffic have a variety of problems sharing the same rails, so systems that are optimized for one tend to struggle serving the other.

Freight is boring and un-sexy. Its not a government function in the US. So intellectuals tend to ignore it, even though it is the far more important, from an energy and environmental standpoint, portion of transport to put on the rails.

Warren Meyer, “The US Has The Best Rail System in the World, and Matt Yglesias Actually Pointed Out the Reason”, Coyote Blog, 2016-05-02.

May 9, 2016

Coming all-too-soon: your own data as a (paid) service

Filed under: Business, Media, Technology — Tags: , — Nicholas @ 02:00

James Pinkstone talks about the time he discovered that Apple Music had helpfully deleted over 100 Gb of his music files on his local hard drive:

What Amber explained was exactly what I’d feared: through the Apple Music subscription, which I had, Apple now deletes files from its users’ computers. When I signed up for Apple Music, iTunes evaluated my massive collection of Mp3s and WAV files, scanned Apple’s database for what it considered matches, then removed the original files from my internal hard drive. REMOVED them. Deleted. If Apple Music saw a file it didn’t recognize — which came up often, since I’m a freelance composer and have many music files that I created myself — it would then download it to Apple’s database, delete it from my hard drive, and serve it back to me when I wanted to listen, just like it would with my other music files it had deleted.

This led to four immediate problems:

1. If Apple serves me my music, that means that when I don’t have wifi access, I can’t listen to it. When I say “my music,” I don’t just mean the music that, over twenty years (since before iTunes existed), I painstakingly imported from thousands of CDs and saved to my computer’s internal hard drive. I also mean original music that I recorded and saved to my computer. Apple and wifi access now decide if I can hear it, and where, and when.

2. What Apple considers a “match” often isn’t. That rare, early version of Fountains of Wayne’s “I’ll Do The Driving,” labeled as such? Still had its same label, but was instead replaced by the later-released, more widely available version of the song. The piano demo of “Sister Jack” that I downloaded directly from Spoon’s website ten years ago? Replaced with the alternate, more common demo version of the song. What this means, then, is that Apple is engineering a future in which rare, or varying, mixes and versions of songs won’t exist unless Apple decides they do. Said alternate versions will be replaced by the most mainstream version, despite their original, at-one-time correct, titles, labels, and file contents.

3. Although I could click the little cloud icon next to each song title and “get it back” from Apple, their servers aren’t fast enough to make it an easy task. It would take around thirty hours to get my music back. And even then…

4. Should I choose to reclaim my songs via download, the files I would get back would not necessarily be the same as my original files. As a freelance composer, I save WAV files of my own compositions rather than Mp3s. WAV files have about ten times the number of samples, so they just sound better. Since Apple Music does not support WAV files, as they stole my compositions and stored them in their servers, they also converted them to Mp3s or AACs. So not only do I need to keep paying Apple Music just to access my own files, but I have to hear an inferior version of each recording instead of the one I created.

I didn’t sign up for the free Apple Music trial when it was introduced because I have a data cap on my internet connection: just a few hours of listening to my own music might well make a big dent in my internet usage for the month. That would be ridiculously wasteful. Even so, every now and again, iTunes cheerfully lets me know that this or that song from my collection can no longer be played (and has deleted it) with no chance to fix it on my part. When it’s a song I recorded from the original CD (and I still have the CD), it’s merely an inconvenience. When it’s a song I paid Apple to download, it’s much more than that. It implies that everything I’ve downloaded from Apple is actually just a rental with an indeterminate-length rental period.

It is, however, a sign of the future:

For about ten years, I’ve been warning people, “hang onto your media. One day, you won’t buy a movie. You’ll buy the right to watch a movie, and that movie will be served to you. If the companies serving the movie don’t want you to see it, or they want to change something, they will have the power to do so. They can alter history, and they can make you keep paying for things that you formerly could have bought. Information will be a utility rather than a possession. Even information that you yourself have created will require unending, recurring payments just to access.”

When giving the above warning, however, even in my most Orwellian paranoia I never could have dreamed that the content holders, like Apple, would also reach into your computer and take away what you already owned. If Taxi Driver is on Netflix, Netflix doesn’t come to your house and steal your Taxi Driver DVD. But that’s where we’re headed. When it comes to music, Apple is already there.

April 14, 2016

Why there’s very little “free trade” involved in the TPP

ESR explains why the Trans-Pacific Partnership is such a huge monstrosity of regulations, crony capitalist favours to big business, anti-consumer intellectual property rules, and other mercantilist interventions in trade:

Today there’s a great deal of angst going on in the tech community about the Trans-Pacific Partnership. Its detractors charge that a “free-trade” agreement has been hijacked by big-business interests that are using it to impose draconian intellectual-property rules on the entire world, criminalize fair use, obstruct open-source software, and rent-seek at the expense of developing countries.

These charges are, of course, entirely correct. So here’s my question: What the hell else did you expect to happen? Where were you idiots when the environmentalists and the unions were corrupting the process and the entire concept of “free trade”?

The TPP is a horrible agreement. It’s toxic. It’s a dog’s breakfast. But if you stood meekly by while the precedents were being set, or – worse – actually approved of imposing rich-world regulation on poor countries, you are partly to blame.

The thing about creating political machinery to fuck with free markets is this: you never get to be the last person to control it. No matter how worthy you think your cause is, part of the cost of your behavior is what will be done with it by the next pressure group. And the one after that. And after that.

The equilibrium is that political regulatory capability is hijacked by for the use of the pressure group with the strongest incentives to exploit it. Which generally means, in Theodore Roosevelt’s timeless phrase, “malefactors of great wealth”. The abuses in the TPP were on rails, completely foreseeable, from the first time “environmental standards” got written into a trade agreement.

That’s why it will get you nowhere to object to the specifics of the TPP unless you recognize that the entire context in which it evolved is corrupt. If you want trade agreements to stop being about regulatory carve-outs, you have to stop tolerating that corruption and get back to genuinely free trade. No exemptions, no exceptions, no sweeteners for favored constituencies, no sops to putatively noble causes.

April 13, 2016

QotD: Why do gasoline prices rise at the moment crude oil prices rise?

Filed under: Business, Economics, Quotations — Tags: — Nicholas @ 01:00

One part of the explanation is that gasoline refiners are likely now switching to the production of summer-grade mixes, which are more costly to produce than are winter grades. But even if such switching is not taking place, we nevertheless expect prices at the pump to rise the moment crude-oil prices start to rise regardless of the prices that gasoline retailers paid for the fuels that they are currently selling. Furthermore, it’s good that prices at the pump rise as soon as crude-oil prices start to rise.

The reason […] is that markets are forward looking. If crude-oil prices start to rise today, this fact means that crude oil is today more scarce, relative to anticipated demand, than it was yesterday. Given this reality, we want consumers to start immediately to economize further on their use of gasoline, and we want refiners to have adequate incentives to refine enough gasoline to satisfy consumers’ anticipated future demands. Rising prices at the pump today promote both of these desirable responses.

But there’s an even deeper point: the value of something is not what the owner of that something paid for it or what it cost the producer of that something to produce it. Instead, the value of something is what people are willing to pay for it. And there’s nothing at all unfair or economically harmful about an owner of something selling that something for more than he or she paid for it. Suppose that today you buy 10 shares of Apple, Inc., at $100 per share. Further suppose that one year from today the price of Apple stock rises to $150 a share. Would you be wrong or unethical to sell your shares next year at $150 a share (or at any price higher than $100 a share)? After all, you paid only $100 a share to get them.

Of course you would not be wrong to sell your shares at a price higher than what you paid for them. What’s true for you and your Apple shares is true for all economic goods.

Donald J. Boudreaux, “Markets Are Forward Looking (And That’s Good)”, Cafe Hayek, 2016-03-18.

April 11, 2016

Clarkson’s Car Years – How Japan Took Over The World… And Then Lost It.

Filed under: Business, Japan — Tags: , , , , — Nicholas @ 02:00

April 10, 2016

QotD: Big business

Filed under: Business, Humour, Quotations, Religion, USA — Tags: , , , — Nicholas @ 01:00

If you still believe big business is, as novelist and philosopher Ayn Rand famously described it, “America’s Persecuted Minority,” then you must be on the same amphetamines she was taking.

Conservatives have a nasty habit of being sympathetic to corporations, viewing them as a bulwark against government overreach. The reality is far different. If you’re a religious traditionalist in 21st-century America, big business hates your guts.

James E. Miller, “The Business End of Freedom”, Taki’s Magazine, 2016-03-31.

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