Quotulatiousness

March 31, 2015

Megan McArdle on the “Great Truth About Cable Bundling”

Filed under: Business,Media — Tags: , — Nicholas @ 03:00

In the past (when I watched more TV than I do today), I often wished for cable services to be unbundled, so I could just access the channels showing things I wanted to watch. The bundles always seemed to be carefully constructed so that I had to select multiples to get each of the channels I liked. It seemed obvious that my cable bill would be much lower on that basis. But, I was probably wrong then, as Megan McArdle points out:

Here’s the truth: You don’t want your cable to be unbundled. You just want to pay less for it.

Seriously, guys, you like bundling. You know how I know this? You seek it out in your consumer products. You want your hotel to give you free Wi-Fi and you don’t want it to charge you by the towel. Many of you go on all-inclusive vacations and cruises. You buy mobile-phone contracts to get a “free” phone rather than pay by the minute. You are constantly — and I mean constantly — complaining that your health insurance is not more comprehensive, even though this would just mean you’d pay more for the insurance. And I won’t even get started on your agonized wails when airlines started charging you to check a bag and stopped providing a “free” plate of congealed mystery meat. You buy books and subscribe to magazines rather than pay by the article or the chapter. You love bundles. What you hate is the size of your cable bill.

Why do you like bundling? Because you don’t want to have to think about it. Oh, sure, there are people who would like to spend their days obsessively managing their minutes, reading and towels in order to save 5 percent, but the rest of us would rather not spend our time worrying about blowing the Wi-Fi budget. So we go for the all-inclusive package.

[…]

Now think about cable bundling. The Great Unbundling Fallacy is the belief that if you pay $150 now for 1,000 channels, you ought to be able to pay, say, $25 a month for the channels that you watch. Unfortunately, as with our hotel example, it doesn’t work that way.

In our example, right now you’re paying $150 a month for a large array of cable channels but only watch, say, 15 to 20 of them on a regular basis. In our simplified example, we’ll say that 100 million other subscribers are also paying $150 a month for a large array of channels, of which they each only watch 15 to 20, though not the same 15 to 20 as you. Let’s assume that revenue is distributed to channel operators roughly according to the number of eyeballs they attract, which is basically true — ESPN gets much higher fees than some crafting channel, because many people will subscribe to cable to get ESPN, while few will do so to watch a knitting program.

So what happens when you unbundle? How much do you have to pay for your channels?

That’s right: $150. You aren’t cross-subsidizing the channels you don’t watch, but all those other people aren’t cross-subsidizing all the channels they don’t watch, so you have to make up for that lost revenue. The price for each channel goes up until you’re paying about what you were before. By one estimate, average savings from unbundling would be about 35 cents a month. [PDF]

Update: Fixed link.

March 30, 2015

QotD: Political beliefs and reality

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

Political beliefs affect what one wants to be true. People are pretty good at persuading themselves that what they want to be true is true.

That works in both directions in the context of arguments about climate change. People who share my political views are suspicious of government regulation, CAGW (Catastrophic Anthropogenic Global Warming) provides an argument in favor of more government regulation and is used as such an argument at present, so we naturally want to look for arguments against CAGW.

On the other side, it’s my experience that people who think global warming is a terrible problem that must be dealt with are also, by some odd coincidence, people who think the things that need to be done to deal with it are things most of which ought to be done anyway, that the real cost is low or negative. They are likely to put that point in terms of creating a cleaner, more sustainable world. From their standpoint, CAGW provides arguments to persuade people to do things they want done, so they naturally want to look for arguments in favor of CAGW.

David D. Friedman, “Global Warming and Wishful Thinking”, Ideas, 2014-06-09.

March 17, 2015

The drones in the FAA don’t want you posting drone footage to YouTube

Filed under: Government,Technology,USA — Tags: , , , — Nicholas @ 04:00

Take it away, Tamara:

The FAA says no posting of drone footage on YouTube?

AHAHAHAHAHAHAHAHAHA!

That’s a good one, Canute. Have fun with that.

Anyone want to start a betting pool on how long before we have a drone footage on YouTube of another drone hovering along with a Guy Fawkes mask over its camera?

March 9, 2015

Net neutering … now it’s time to repent at leisure

Filed under: Bureaucracy,Business,Government,Technology,USA — Tags: , , , — Nicholas @ 04:00

Matt Walsh has a message for all those net neutrality warriors doing their fist-bumps of triumph:

Dear Net Neutrality Proponents,

You dear, sweet buffoons.

I know you’re quite impressed that the Federal Communications Commission just passed a sweeping set of regulations granting themselves control over the Internet. President Barack Obama considers this a glorious victory. Liberals and Democrats across the land are delighted. Even some corners of cyber space — the ones populated by masochists and nincompoops — are cheering loudly, excited to finally be under the jurisdiction of an enormous federal bureaucracy. Hallelujah!

Now, Gullible Americans, I realize that you think you’ve just been once again liberated from the shackles of the free market and whisked away to a fanciful land where Father Government makes sure everything is nice and fair and everyone is sharing their toys like good boys and girls. I know you are under this impression. I mean, I can’t blame you. It’s right there in the title. They call it “Net Neutrality,” for goodness sake! It’s neutral! Neutral means fair! Fair Internet! Who can quibble with a fair Internet! Only big bad corporations and their right wing minions, you think. Fox News and the Koch Brothers and Lex Luthor and other scary names.

The FCC tells us that Net Neutrality will give us a free and open Internet by granting them the power to regulate it under laws that were written 60 years before the Internet existed as a common household service. Consumers need to be protected from the possibility that Internet providers will block traffic to certain sites, or set up paid prioritization systems for consumers or web services who pay more. That’s what this is all about, you think. The FCC is looking out for the little guy again.

Good old FCC, always fighting for truth, justice, and bureaucratic control.

But, see, this is where I need you to stop and think, Gullible Americans. It’s too late now, but I need you to finally try to learn something here. The government is not the knight in shining armor you think it is — even when it’s run by Democrats.

March 4, 2015

The FCC is merely a symptom

Filed under: Government,Technology,USA — Tags: , , , — Nicholas @ 05:00

At Taxicab Depressions, Taxi Hack offers a few thoughts on current events:

If you have read my post The Pig Trap, you know of my absolute bewilderment at the current state of our country. Our government is utterly lawless, just making shit up as they go along, creating regulations and executive edicts to bypass the Congress and the Constitution, committing crimes in the furtherance of those goals, and nobody ever gets in trouble, unless he screwing someone he shouldn’t be, and nobody ever loses their job or goes before a judge, and most importantly, nobody seems to give a fuck. Everything is just fucking dandy, as long as we can binge-watch Girls and Entourage on HBO GO and Katy Perry’s next single doesn’t suck and that hot chick from Club Plush texts me next week…

I wake up every day around two or three in the afternoon, make a cup of coffee and turn on the news, just waiting for the day when it finally happens, the day that something finally snaps, and I am listening to Sheppard Smith breathlessly trying to describe shaky video of a mob of 500,000 or 800,000 pissed off taxpayers that has invaded Washington and are lining every street in D.C., armed to the teeth, and erecting scaffolding on the National Mall.

Actually, that’s not how I think it is going to go, but I promise you… what can not go on, will NOT go on.

A couple days ago, a five member panel of unelected bureaucrats called the FCC voted 3 to 2 to seize control of the internet for the Federal government, without so much as a “by your leave” to the Congress. It’s not like your Congressman or Senator did this, these were three UNELECTED political appointees, all DEMOCRATS, which I think is worthy of mention, and they just decided that they have the power to regulate what you say and what you view on the internet, without asking you what YOU think about that. They came up with a big fat Rule Book For The Internet that they would not show to the public before the vote, and now that they have deemed they have the authority to do this and voted to institute their new Rule Book For The Internet, they STILL won’t show the public their new Rule Book For The Internet.

How is that not a Joe Biden-sized Big Fucking Deal for you? THREE PEOPLE you never heard of and certainly never voted for just took over control of the internet for the government, and they are not showing the public what the new rules will be. Does that mean websites will have to get a government “license”, like radio stations? And will they have a list of bad things they can’t say, or they will be fined and maybe even LOSE their license? Nobody knows, because they will not show the public the rules they are creating.

February 25, 2015

Net Neutrality, Title II Proponents “Assume Nothing Has Changed” Since 1995: Daniel Berninger

Filed under: Bureaucracy,Business,Law,Technology,USA — Tags: , , — Nicholas @ 03:00

Published on 23 Feb 2015

“All the logic that we are seeing in the Net Neutrality debate is assuming that nothing has changed; it’s assuming that it’s 1995. What’s actually happened is that people get more and more service, year in and year out,” says Daniel Berninger, a telecom activist who was involved in the early days of internet-phone service of Vonage.

Net Neutrality proponents, including President Obama, argue that internet-service providers (ISPs) need to be regulated by the Federal Communications Commission (FCC) in order to keep the internet “free and open.”

Berninger heads up VCXC, a nonprofit that is pushing for regulatory and policy changes to speed up the transition to IP-based networks for voice and data sharing. He’s an unsparing critic of FCC Chairman Tom Wheeler’s plan to implement Net Neutrality by regulating broadband network operators under Title II or “common carrier” provisions of federal law.

Title II has historically applied to telephone companies, which were regulated as public utilities and subject to government scrutiny regarding every aspect of service, including pricing and universal service obligations. Since the mid-1990s, the internet has been classified as an “information service,” which is subject to much less regulation under Title I of the relevant federal law.

“Title II regulation has been around for 80 years,” says Berninger, “and we know exactly what it can accomplish and what it can’t accomplish … in all the things that it touched, it essentially destroyed innovation.” In 1956, he explains, as part of a consent decree involving ATT, phone service was regulated by the FCC under Title II while “information services” were essentially unregulated. “We split communications and computing and treated them entirely different — essentially as a twin experiment. Well, one twin prospered and one twin did not do very well.” Berninger argues that virtually all the problems that proponents of Title II regulation and Net Neutrality worry over — such as the blocking of specific websites and the deliberate slowing of traffic — haven’t occurred precisely because ISPs are subject to market competition and must constantly innovate to keep customers happy. FCC regulation would hamper that.

The FCC will vote on Wheeler’s proposal later this week and is widely expected to endorse it. The FCC has lost two previous attempts to assert regulatory control over the internet.

February 24, 2015

The “Little Free Libraries” and their enemies

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

In The Atlantic, Conor Friedersdorf talks about the charming origins of the Little Free Library movement … and its potential demise at the hands of greyfaces everywhere:

Three years ago, The Los Angeles Times published a feel-good story on the Little Free Library movement. The idea is simple: A book lover puts a box or shelf or crate of books in their front yard. Neighbors browse, take one, and return later with a replacement. A 76-year-old in Sherman Oaks, California, felt that his little library, roughly the size of a dollhouse, “turned strangers into friends and a sometimes-impersonal neighborhood into a community,” the reporter observed. The man knew he was onto something “when a 9-year-old boy knocked on his door one morning to say how much he liked the little library.” He went on to explain, “I met more neighbors in the first three weeks than in the previous 30 years.”

Since 2009, when a Wisconsin man built a little, free library to honor his late mother, who loved books, copycats inspired by his example have put thousands of Little Free Libraries all over the U.S. and beyond. Many are displayed on this online map. In Venice, where I live, I know of at least three Little Free Libraries, and have witnessed chance encounters where folks in the neighborhood chat about a book.

I wish that I was writing merely to extol this trend. Alas, a subset of Americans are determined to regulate every last aspect of community life. Due to selection bias, they are overrepresented among local politicians and bureaucrats. And so they have power, despite their small-mindedness, inflexibility, and lack of common sense so extreme that they’ve taken to cracking down on Little Free Libraries, of all things.

Last summer in Kansas, a 9-year-old was loving his Little Free Library until at least two residents proved that some people will complain about anything no matter how harmless and city officials pushed the boundaries of literal-mindedness:

    The Leawood City Council said it had received a couple of complaints about Spencer Collins’ Little Free Library. They dubbed it an “illegal detached structure” and told the Collins’ they would face a fine if they did not remove the Little Free Library from their yard by June 19.

Scattered stories like these have appeared in various local news outlets. The L.A. Times followed up last week with a trend story that got things just about right. “Crime, homelessness and crumbling infrastructure are still a problem in almost every part of America, but two cities have recently cracked down on one of the country’s biggest problems: small-community libraries where residents can share books,” Michael Schaub wrote. “Officials in Los Angeles and Shreveport, Louisiana, have told the owners of homemade lending libraries that they’re in violation of city codes, and asked them to remove or relocate their small book collections.”

February 20, 2015

This is why you can’t find a good washer (or dishwasher, or toilet, or…)

Filed under: Business,Environment,Government — Tags: , , — Nicholas @ 03:00

Sarah Hoyt recently bought a new washer, and realized something while being lectured about her choice by the salesperson:

Which is when I realized I was in the presence of a true believer whose mind would not be dented by facts. I let Dan lead her to the computer and make up the order, and older son has nicknamed me “She who makes washer saleswomen cry.”

So, what is the point of this? If it were just a funny story about buying a washer, I might still tell it, but it’s not.

Look, the problem is that we are being ruled (and yep, ruled, not governed) by a group of people who, like the saleswoman, think the intention is the thing.

We’ll leave aside for a moment the need or wisdom for water/electricity/etc. saving. First, in Colorado water is expensive so saving it is always a good idea. Second, that is not what their measures are achieving.

Take our first exposure to water saving toilets, twenty some years ago. We built a new bathroom and needed a toilet and the only ones for sale were “water saving.” What this meant in practical fact was that I acquired a new hobby: flushing the toilet.

The toilet worked (supposedly) with half the water, but it took four flushes to get anything, even a little bit of toilet paper, down. Do the math. I was expending twice as much water, and a lot of time and frustration. (We quickly switched to air assist. After the experience.)

In the same way, our current dishwasher complies with water and electricity saving measures. This means to achieve the same temperature, it has a thick coat of insulation ALL around. Which means it takes half the dishes at a time. Again, do the math. I have to run it for twice as long, which means no savings.

It has an additional unamusing quirk. Every time you wash, you have to select hot wash and sanitizing. Otherwise it just sloshes some water at the dishes and calls it done. We didn’t figure this out for five years which means for five years we conducted a study in epidemiology. I mean, guys, even in the village, when we were poor as Job, grandma boiled water for the final dish rinse to be as hot as possible. Otherwise you not only get not really clean dishes, you get to share the germs of everyone whose dishes go in the same water.

Then there’s the washer. The first we bought was the Neptune, years and years ago, which was so water saving it developed mold and mildew.

The current one recycles the water, so it washes better, but the rinses must happen, and the rinses, again, make it use the same water as anything else. All the low-water washers need a lot of rinses.

“But Sarah, you have a condition that makes you sensitive to detergent. Other people don’t.”

Granted. Which is why there hasn’t been an uprising with pitchforks, or at least washing mangles, yet. Because for the last five years I’ve been a slave to that washer and I’ve always been behind in the wash to the point that we ended up buying four times the clothes we needed, because the wash was bound to be backed up. When each load takes a minimum of two hours (the boys also react to detergent) and you have 14 or so loads a week (not counting cats peeing on Robert’s bed – yes, always his bed. Don’t know why) things slow to a crawl.

And the answer “Oh, you need to use less detergent.” BUT the cleaning went down in proportion to the detergent going down.

I’m not going to talk to other “eco friendly” measures or not extensively. I don’t have the personal experience to.

I do, however, know that the curly lightbulbs were a fiasco. I know that attempts to wish into existence energy by means other than fossil fuels are either failures or scams (Solyndra) and I know that the “enhanced” with “fillers” gas destroys cars, so that they have to be replaced sooner. Now, I’m not an expert, but I’d guess the manufacturing process causes more pollution than just burning regular gas.

So why do they keep passing ever more and more restrictive laws, demanding the thing we use for everyday living meet THEIR standards which as far as I can tell they pull from air?

I think it’s the arrogant certainty that if they keep whipping the dead horse it will get up and pull the load. Or in other words, they’re sure that the only reason they’re not getting what they want is that some mean person is holding it back from them, and if they demand it loud enough and now with more laws, it will eventually be given.

Think of them as the kid throwing himself to the floor in the candy isle and screaming for candy, refusing to hear his mother’s answer that she has no money. That’s about what they are: tyrannical, demanding, infantile and blind to reality.

And of course, when reality fails to comply with their dreams, they just scream louder. Or in this case, they pass laws which distort the simplest facts of daily living for the rest of us.

How long are we going to be hostage to brats who are unable to realize laws don’t cause reality to happen and words have no force to change facts of life?

How long till we get tired of being forced to do household chores inefficiently and paying for it in both time and money, without any appreciable benefit to anyone.

Eric Scheie over at Classical values, when I blogged there, had a post about there being a war on things that work.

He was right, though the intent is “creating a world where things work the way bureaucrats want them to” – which mostly means in defiance of scientific fact.

It is time to take back science, and common sense too.

And in the meantime, we can make washer saleswomen cry!

February 5, 2015

Regulating the internet … in the name of fairness

Filed under: Government,Liberty,Media,Technology,USA — Tags: , , , — Nicholas @ 04:00

At Coyote Blog, Warren Meyer is starting to think that a large number of internet fans are idiots:

So, out of the fear […] that some people will get better service than others — something that, oh by the way, has never really happened so is entirely hypothetical — you are urging on a regulatory regime originally designed for land-line phone companies, a technology that basically went unchanged for decades at a time. The phones that were in my home at my birth in 1962 were identical to the one in my dorm room when AT&T was broken up in 1982. Jesus, we are turning the Internet into a public utility — name three innovations from an American public utility in the last 40 years. Name one.

And all you free-speech advocates, do you really think the Feds won’t use this as a back-door to online censorship? We are talking about the same agency that went into a tizzy when Janet Jackson may have accidentally on purpose shown a nipple on TV. All that is good with TV today — The Sopranos, Game of Thrones, Arrested Development, etc. etc. etc. results mainly from the fact that cable is able to avoid exactly the kind of freaking regulation you want to impose on the Internet.

Here is my official notice — you have been warned, time and again. There will be no allowing future statements of “I didn’t mean that” or “I didn’t expect that” or “that’s not what I intended.” There is no saying that you only wanted this one little change, that you didn’t buy into all the other mess that is coming. You let the regulatory camel’s nose in the tent and the entire camel is coming inside. I guarantee it.

January 24, 2015

Problems besetting the British health system

Filed under: Britain,Bureaucracy,Health — Tags: , , — Nicholas @ 04:00

At Samizdata, Natalie Solent shares a post written by “ARC” discussing why the National Health Service seems to be under such pressure lately:

1) Flow-though is crucial to A&E: you must get people out the back-end of the process to maintain your rate of input to the front-end. However ever-increasing regulations mean a patient without family cannot be released until a boat-load of checks have been done. This is clogging up the back end. It may be preventing the release of a few who had better not be sent home yet (not much and not often, is the general suspicion) but it is definitely delaying hugely processing the release of all others who could be. All this admin takes time and effort — delaying release and also using up time of staff in non-health work — and costs money.

This effect needs to be understood in the context of the 15-years-older story of the destruction of many non-NHS nursing homes by galloping regulation. These homes were mostly owned and operated by senior ex-NHS nurses and provided low-grade post-operative care. The NHS relied on them as half-way houses to get patients out of NHS hospitals when they no longer needed intensive care but were not yet recovered enough to go home. These nurses did not want to spend time form-filling instead of caring for patients, and for each home there was always one of the 1000+ rules that was particularly hard for that given home to meet without vast expense or complication. So they died one by one. The ‘waiting times have increased’ story of Tony Blair’s early-2000 years — “If the NHS were a patient, she’d be on the critical list” — was caused by this and the resultant bed-blocking more than any other one cause.

The problem with waving the regulatory wand to “solve” a problem like this is that it tends to create perverse incentives so that the artificial target can be achieved — like this post from a couple of years back where the regulators dictated a maximum time a patient could be kept waiting for admission to A&E. The reaction of the people running the system was to change the definition of “admission” so that now patients’ timers don’t start running until they’re unloaded from the ambulance … so the end result is people are spending more time in the back of ambulances waiting outside the hospital until there’s an open slot. This meets the artificial target, but creates a worse situation because patients are still waiting as long (or longer), but now they’re also tying up ambulances from attending other emergency situations.

Back to ARC’s list of NHS problems:

2) The new 111 service is sending many more patients to A&E.

2.1) The service’s advice is very risk averse. The people who set up the process were afraid of the consequences of the statistical 1-in-a-million time when anything other than mega-risk-averse advice would see some consequence that would become a major news story blaming them.

2.2) Thanks to the post-1997 reforms, GPs work less hours on-call but the doctors are not just slacking off and doing nothing. The huge growth in regulation means they are in effect putting in as many hours as before, but on form-filling and admin to provide all the info the NHS and other government demand, to ensure they tick every box, etc. The out-of-hours on-call time they used to have is now swallowed by this work. So they are not in fact working less; it is the balance of what they are working on that has changed: less on healthcare, more on admin. Thus 111 must send people to A&E, not an on-call GP (and, of course, fewer on-call GPs mean more people phone 111).

From context, I assume the 111 service is a telephone health advisory service like Telehealth Ontario.

January 23, 2015

QotD: Taxicab cartels

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

Around the world, the government-charted monopolies and cartels that run the taxi business responded with protests and violence to the emergence of technology-empowered competitors such as Uber, which does not undercut traditional taxis on cost — in New York, its drivers earn about three times what a traditional cabbie makes — but is much more convenient for those who do not live or work in areas that are generally well-served by traditional taxis. As in most cities, New York law imposes price uniformity on taxis and long protected them from most competition, with the entirely predictable result that consumers are the worst-served parties in the taxi business. (It does not help matters that, unlike their London counterparts, famously steeped in “the Knowledge,” the typical New York cabbie cannot find the Brooklyn Bridge without GPS or turn-by-turn instructions from the passenger.) The lack of consumer focus has some perverse consequences here in New York: The taxi fleet schedules its shift change from 4 p.m. to 5 p.m., meaning that taxis all but vanish from the streets during the hours when they are most needed. The New York Times calls this an “apparent violation of the laws of supply and demand,” which, New York Times geniuses, is exactly what happens when you use regulation to take supply and demand effectively out of the equation. A platform that combined Uber’s on-demand service with Google-style driverless cars would probably put the traditional taxi out of business — assuming that the cartels are not able to use government to strangle innovation in its cradle.

Kevin D. Williamson, “Race On, for Driverless Cars: On the beauty of putting the consumer in the driver’s seat”, National Review, 2014-06-01.

January 19, 2015

The Cape Breton & Central Nova Scotia Railway shuts down operations

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

In the Globe and Mail, Eric Atkins tells the tale of another shortline railway shutting down operations:

The railway, which did not reapply for a $3-million yearly government subsidy, has been granted permission by a Nova Scotia regulator to abandon the 100 miles of track between Port Hawkesbury and Sydney by October.

The move leaves some factories facing soaring shipping costs and scrambling to find new ways to bring in raw materials.

Beverage container maker Trans-Atlantic used to rely on the railway for 70 or 80 railcars a year carrying plastic pellets from Quebec and South Carolina. John MacLean, vice-president of the manufacturer that employs 40 people, said the railway raised the $600-per-car rate by $5,500 in the fall, and last week notified customers each car would cost $18,000.

“They obviously don’t want to do business here,” Mr. MacLean said by phone from Sydney. “They opted not to take the subsidy but they cited a decrease in traffic as the reason they had to increase the rate.”

The loss of rail service means Trans-Atlantic has been saddled with the expense of trucking its raw material from Moncton, and has lost the flexibility and storage the rail cars offered.

“We have to be very vigilant on the way we operate. It has a huge effect on our competitiveness,” he said.

[…]

Railway executives said at December hearings they did not renew the subsidy application because the future costs of maintaining and repairing the line outweighed the scrap and market value of the steel and other materials.

The railroad’s bridges and culverts would need repairs that cost at least $30-million, while the company figures it can get $15-million to $20-million scrapping and selling the rails and other material.

“As a company we feel that’s a much better use of our assets than simply operating on a subsidy that allows us to break even for 500 carloads a year. That’s why we did not renew,” said Josée Danis, assistant vice-president of Cape Breton & Central Nova Scotia Railway.

January 7, 2015

How to create an investment monoculture

Filed under: Economics,Government,USA — Tags: , , — Nicholas @ 03:00

At Coyote Blog, Warren Meyer explains how what must have seemed to be a simple, common-sense regulation change led almost inevitably to a housing market melt-down:

… a redefinition by governments in the Basel accords of how capital levels at banks should be calculated when determining capital sufficiency. I will oversimplify here, but basically it categorized some assets as “safe” and some as “risky”. Those that were risky had their value cut in half for purposes of capital calculations, while those that were “safe” had their value counted at 100%. So if a bank invested a million dollars in safe assets, that would count as a million dollar towards its capital requirements, but would count only $500,000 towards those requirements if it were invested in risky assets. As a result, a bank that needed a billion dollars in capital would need a billion of safe assets or two billion of risky assets.

Well, this obviously created a strong incentive for banks to invest in assets deemed by the government as “safe”. Which of course was the whole point — if we are going to have taxpayer-backed deposit insurance and bank bailouts, the prices of that is getting into banks’ shorts about the risks they are taking with their investments. This is the attempted tightening of regulation to which Kling refers. Regulators were trying for tougher, not weaker standards.

[…]

Anyway, what assets did the regulators choose as “safe”? Again, we will simplify, but basically sovereign debt and mortgages (including the least risky tranches of mortgage-backed debt). So you are a bank president in this new regime. You only have enough capital to meet government requirements if you get 100% credit for your investments, so it must be invested in “safe” assets. What do you tell your investment staff? You tell them to go invest the money in the “safe” asset that has the highest return.

And for most banks, this was mortgage-backed securities. So, using the word Brad DeLong applied to deregulation, there was an “orgy” of buying of mortgage-backed securities. There was simply enormous demand. You hear stories about fraud and people cooking up all kinds of crazy mortgage products and trying to shove as many people as possible into mortgages, and here is one reason — banks needed these things. For the average investor, most of us stayed out. In the 1980’s, mortgage-backed securities were a pretty good investment for individuals looking for a bit more yield, but these changing regulations meant that banks needed these things, so the prices got bid up (and thus yields bid down) until they only made sense for the financial institutions that had to have them.

It was like suddenly passing a law saying that the only food people on government assistance could buy with their food stamps was oranges and orange derivatives (e.g. orange juice). Grocery stores would instantly be out of oranges and orange juice. People around the world would be scrambling to find ways to get more oranges to market. Fortunes would be made by clever people who could find more oranges. Fraud would likely occur as people watered down their orange derivatives or slipped in some Tang. Those of us not on government assistance would stay away from oranges and eat other things, since oranges were now incredibly expensive and would only be bought at their current prices by folks forced to do so. Eventually, things would settle down as everyone who could do so started to grow oranges. And all would be fine again, that is until there was a bad freeze and the orange crop failed.

Government regulation — completely well-intentioned — had created a mono-culture. The diversity of investment choices that might be present when every bank was making its own asset risk decisions was replaced by a regime where just a few regulators picked and chose the assets. And like any biological mono-culture, the ecosystem might be stronger for a while if those choices were good ones, but it made the whole system vulnerable to anything that might undermine mortgages. When the housing market got sick (and as Kling says government regulation had some blame there as well), the system was suddenly incredibly vulnerable because it was over-invested in this one type of asset. The US banking industry was a mono-culture through which a new disease ravaged the population.

Cory Doctorow on the dangers of legally restricting technologies

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

In Wired, Cory Doctorow explains why bad legal precedents from more than a decade ago are making us more vulnerable rather than safer:

We live in a world made of computers. Your car is a computer that drives down the freeway at 60 mph with you strapped inside. If you live or work in a modern building, computers regulate its temperature and respiration. And we’re not just putting our bodies inside computers — we’re also putting computers inside our bodies. I recently exchanged words in an airport lounge with a late arrival who wanted to use the sole electrical plug, which I had beat him to, fair and square. “I need to charge my laptop,” I said. “I need to charge my leg,” he said, rolling up his pants to show me his robotic prosthesis. I surrendered the plug.

You and I and everyone who grew up with earbuds? There’s a day in our future when we’ll have hearing aids, and chances are they won’t be retro-hipster beige transistorized analog devices: They’ll be computers in our heads.

And that’s why the current regulatory paradigm for computers, inherited from the 16-year-old stupidity that is the Digital Millennium Copyright Act, needs to change. As things stand, the law requires that computing devices be designed to sometimes disobey their owners, so that their owners won’t do something undesirable. To make this work, we also have to criminalize anything that might help owners change their computers to let the machines do that supposedly undesirable thing.

This approach to controlling digital devices was annoying back in, say, 1995, when we got the DVD player that prevented us from skipping ads or playing an out-of-region disc. But it will be intolerable and deadly dangerous when our 3-D printers, self-driving cars, smart houses, and even parts of our bodies are designed with the same restrictions. Because those restrictions would change the fundamental nature of computers. Speaking in my capacity as a dystopian science fiction writer: This scares the hell out of me.

January 5, 2015

The role of price controls in the decline of the Roman empire

Filed under: Economics,Europe,History — Tags: , , , , — Nicholas @ 06:58

The latest issue of Libertarian Enterprise included this selection from Ludwig von Mises’ Human Action on how government restrictions on prices and trade contributed to the downfall of the western empire:

Knowledge of the effects of government interference with market prices makes us comprehend the economic causes of a momentous historical event, the decline of ancient civilization.

It may be left undecided whether or not it is correct to call the economic organization of the Roman Empire capitalism. At any rate it is certain that the Roman Empire in the second century, the age of the Antonines, the “good” emperors, had reached a high stage of the social division of labor and of interregional commerce. Several metropolitan centers, a considerable number of middle-sized towns, and many small towns were the seats of a refined civilization. The inhabitants of these urban agglomerations were supplied with food and raw materials not only from the neighboring rural districts, but also from distant provinces. A part of these provisions flowed into the cities as revenue of their wealthy residents who owned landed property. But a considerable part was bought in exchange for the rural population’s purchases of the products of the city-dwellers’ processing activities. There was an extensive trade between the various regions of the vast empire. Not only in the processing industries, but also in agriculture there was a tendency toward further specialization. The various parts of the empire were no longer economically self-sufficient. They were interdependent.

What brought about the decline of the empire and the decay of its civilization was the disintegration of this economic interconnectedness, not the barbarian invasions. The alien aggressors merely took advantage of an opportunity which the internal weakness of the empire offered to them. From a military point of view the tribes which invaded the empire in the fourth and fifth centuries were not more formidable than the armies which the legions had easily defeated in earlier times. But the empire had changed. Its economic and social structure was already medieval.

The freedom that Rome granted to commerce and trade had always been restricted. With regard to the marketing of cereals and other vital necessities it was even more restricted than with regard to other commodities. It was deemed unfair and immoral to ask for grain, oil, and wine, the staples of these ages, more than the customary prices, and the municipal authorities were quick to check what they considered profiteering. Thus the evolution of an efficient wholesale trade in these commodities was prevented. The policy of the annona, which was tantamount to a nationalization or municipalization of the grain trade, aimed at filling the gaps. But its effects were rather unsatisfactory. Grain was scarce in the urban agglomerations, and the agriculturists complained about the unremunerativeness of grain growing. The interference of the authorities upset the adjustment of supply to the rising demand. The showdown came when in the political troubles of the third and fourth centuries the emperors resorted to currency debasement. With the system of maximum prices the practice of debasement completely paralyzed both the production and the marketing of the vital foodstuffs and disintegrated society’s economic organization. The more eagerness the authorities displayed in enforcing the maximum prices, the more desperate became the conditions of the urban masses dependent on the purchase of food. Commerce in grain and other necessities vanished altogether. To avoid starving, people deserted the cities, settled on the countryside, and tried to grow grain, oil, wine, and other necessities for themselves. On the other hand, the owners of the big estates restricted their excess production of cereals and began to produce in their farmhouses — the villae — the products of handicraft which they needed. For their big-scale farming, which was already seriously jeopardized because of the inefficiency of slave labor, lost its rationality completely when the opportunity to sell at remunerative prices disappeared. As the owner of the estate could no longer sell in the cities, he could no longer patronize the urban artisans either. He was forced to look for a substitute to meet his needs by employing handicraftsmen on his own account in his villa. He discontinued big-scale farming and became a landlord receiving rents from tenants or sharecroppers. These coloni were either freed slaves or urban proletarians who settled in the villages and turned to tilling the soil. A tendency toward the establishment of autarky of each landlord’s estate emerged. The economic function of the cities, of commerce, trade, and urban handicrafts, shrank. Italy and the provinces of the empire returned to a less advanced state of the social division of labor. The highly developed economic structure of ancient civilization retrograded to what is now known as the manorial organization of the Middle Ages.

The emperors were alarmed with that outcome which undermined the financial and military power of their government. But their counteraction was futile as it did not affect the root of the evil. The compulsion and coercion to which they resorted could not reverse the trend toward social disintegration which, on the contrary, was caused precisely by too much compulsion and coercion. No Roman was aware of the fact that the process was induced by the government’s interference with prices and by currency debasement. It was vain for the emperors to promulgate laws against the city-dweller who relicta civitate rus habitare maluerit [deserted the cities, preferring to live in the country]. The system of the leiturgia, the public services to be rendered by the wealthy citizens, only accelerated the retrogression of the division of labor. The laws concerning the special obligations of the shipowners, the navicularii, were no more successful in checking the decline of navigation than the laws concerning grain dealing in checking the shrinkage in the cities’ supply of agricultural products.

The marvelous civilization of antiquity perished because it did not adjust its moral code and its legal system to the requirements of the market economy. A social order is doomed if the actions which its normal functioning requires are rejected by the standards of morality, are declared illegal by the laws of the country, and are prosecuted as criminal by the courts and the police. The Roman Empire crumbled to dust because it lacked the spirit of liberalism and free enterprise. The policy of interventionism and its political corollary, the Führer principle, decomposed the mighty empire as they will by necessity always disintegrate and destroy any social entity.

From: Ludwig von Mises, Human Action: A Treatise on Economics, vol. 3 (LF ed.) [1996], Chapter 30. Online at http://oll.libertyfund.org/titles/1895#lf3843-03_head_036, the Online Library of Liberty, A collection of scholarly works about individual liberty and free markets.

Older Posts »

Powered by WordPress