Quotulatiousness

November 14, 2015

The US government has morphed from being part of “us” to being “them”

Filed under: Bureaucracy, Government, History, Liberty, USA — Tags: , , , , — Nicholas @ 04:00

Charles Murray explains why so many Americans are feeling alienated from their own government:

I have been led to this position by what I believe to be a truth about where America stands: The federal government is no longer “us” but “them.” It is no longer an extension of the people through their elected representatives. It is no longer a republican bulwark against the arbitrary use of power. It has become an entity unto itself, separated from the American people and beyond the effective control of the political process. In this situation, the foundational principles of our nation come into play: The government does not command the blind allegiance of the citizenry. Government is instituted to protect our unalienable rights. The more destructive it becomes of those rights, the less it can call upon our allegiance.

I won’t try to lay out the whole case for concluding that our duty of allegiance has been radically diminished — that takes a few hundred pages. But let me summarize the ways in which the federal government has not simply become bigger and more intrusive since Bill Buckley founded National Review, but has also become “them,” and no longer an extension of “us.”

[…]

In 1937, Helvering v. Davis explicitly held that the federal government could spend money on the “general welfare,” establishing that the government’s powers were not limited to those enumerated in the Constitution. In 1938, Carolene Products did what the Ninth Amendment had been intended to prevent — it limited the rights of the American people to those that were explicitly mentioned in the Constitution and its amendments. Making matters worse, the Court also limited the circumstances under which it would protect even those explicitly named rights. In 1942, Wickard v. Filburn completed the reinterpretation of “commerce” so that the commerce clause became, in the words of federal judge Alex Kozinski, the “Hey, you can do anything you feel like” clause.

Momentous as these decisions were, they were arguably not as crucial to the evolution of the federal government from “us” to “them” as the decisions that led to the regulatory state. Until the 1930s, a body of jurisprudence known as the “nondelegation doctrine” had put strict limits on how much power Congress could delegate to the executive branch. The agencies of the executive branch obviously had to be given some latitude to interpret the text of legislation, but Congress was required to specify an “intelligible principle” whenever it passed a law that gave the executive branch a new task. In 1943, National Broadcasting Co. v. United States dispensed with that requirement, holding that it was okay for Congress to tell the Federal Communications Commission (FCC) to write regulations for allocating radio licenses “as public convenience, interest, or necessity requires” — an undefined, and hence unintelligible, principle. And so we now live in a world in which Congress passes laws with grandiose goals, loosely defined, and delegates responsibility for interpreting those goals exclusively to regulatory agencies that have no accountability to the citizenry and only limited accountability to the president of the United States.

The de facto legislative power delegated to regulatory agencies is only one aspect of their illegitimacy. Citizens who have not been hit with an accusation of a violation may not realize how Orwellian the regulatory state has become. If you run afoul of an agency such as the FCC and want to defend yourself, you don’t go to a regular court. You go to an administrative court run by the agency. You don’t get a jury. The case is decided by an administrative judge who is an employee of the agency. You do not need to be found guilty beyond a reasonable doubt, but rather by the loosest of all legal standards, a preponderance of the evidence. The regulatory agency is also free of many of the rules that constrain police and prosecutors in the normal legal system. For example, regulatory agencies are not required to show probable cause for getting a search warrant. A regulatory agency can inspect a property or place of business under broad conditions that it has set for itself.

There’s much more, but it amounts to this: Regulatory agencies, or the regulatory divisions within cabinet agencies, operate as self-contained entities that create de facto laws that Congress would never have passed on an up-or-down vote. They then act as both police and judge in enforcing the laws they have created. It amounts to an extra-legal state within the state.

I have focused on the regulatory state because it now looms so large in daily life as to have provoked a reaction that crosses political divides: American government isn’t supposed to work this way.

October 28, 2015

Reducing the costs of regulation

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

Henry I. Miller discusses a worthwhile regulatory change that would increase the availability of medicines in the US marketplace without reducing public safety:

The FDA would be a good place to start. Bringing a new drug to market now requires 10-15 years, and costs have skyrocketed to an average of more than $2.5 billion (including both out-of-pocket and opportunity costs) – largely because FDA requirements have increased the length and number of clinical trials per marketing application, and their complexity.

The detrimental effects of FDA delays in approving certain new drugs already available in other industrialized countries are well-documented and deserve as much attention as drugs’ high costs. An example is the three-year delay in the approval of misoprostol, a drug for the treatment of gastric bleeding, which is estimated to have cost between 8,000 and 15,000 lives per year.

[…]

A practical workaround to overcome regulators’ risk-aversion and capriciousness would be “reciprocity” of approvals with certain foreign “A-list” governments, so that an approval in one country would be reciprocated automatically by the others. That would make more drugs available sooner in all of the participating countries, increasing competition and putting downward pressure on prices.

Such an innovation would also help to alleviate another critical problem: The United States is experiencing shortages of certain critical pharmaceuticals, many of which have been essential in medical practice for decades. The majority are generic injectable medications commonly used in hospitals, including analgesics, cancer drugs, anesthetics, antipsychotics for psychiatric emergencies, and electrolytes needed for patients on IV supplementation. Hospitals are scrambling to assure adequate supplies of drugs that are in short supply, or to find substitutes for them. Reciprocal approvals would make numerous alternatives available.

As referenced yesterday, the FDA regulations also create temporary monopoly situations where only one company has the permit from the regulator to produce this or that medicine, so there’s nothing standing in the way of massive price increases if there are no close substitutes to provide price competition.

October 27, 2015

Update on that $750 pill and the regulatory system that made it inevitable

Filed under: Bureaucracy, Business, Health — Tags: , , — Nicholas @ 05:00

Tim Worstall follows up on all-world scumbag Martin Shkreli and his enabled-by-the-regulator insane price increases for a decades-old drug:

We have an interesting and important economic lesson for public policy here: markets, they work. More accurately, we don’t have to worry about someone attempting to exploit their possession of a contestable monopoly. We only have to worry, possibly take action, if someone has an uncontestable monopoly. And given that there’s very few of them that we don’t create ourselves for other reasons, this means that monopoly is just one of those things we can keep a wary eye upon but not worry over excessively.

Our example comes from Martin Shkreli. The basic background is that this entrepreneur thinks he’s found a pretty cool business model. There’s a number of pharmaceuticals out there that are well out of patent but still have small and useful markets. FDA regulations (no, we’ll not go into the details of how or why this happens) mean that it’s not as easy as one might think to produce generic versions of these out of patent drugs. So, as a business plan, buy up the rights to the permit-ed (as in, with a permit, not just those allowed, as in permitted) generics and as a result of the difficulty someone else will have in getting into the same market, some pricing power is available. You can then raise the price and start to bank your considerable profits.

This caused outrage when Shkreli announced that this was exactly what he was doing:

    Turing Pharmaceuticals, the company that last month raised the price of the decades-old drug Daraprim from $13.50 a pill to $750…

A 5,000% price rise certainly indicates that Turing thinks it has pricing power and thus that it has considerable monopoly power.

[…]

Markets, they work. As Mr. Shkreli is just finding out:

    Turing Pharmaceuticals, the company that last month raised the price of the decades-old drug Daraprim from $13.50 a pill to $750, now has a competitor.

    Imprimis Pharmaceuticals, Inc., a specialty pharmaceutical company based in San Diego, announced today that it has made an alternative to Daraprim that costs about a buck a pill — or $99 for a 100-pill supply.

This is not the same drug: it’s a slight variation, a close substitute. But it’s close enough that Turing isn’t going to be making much money from what it thought was monopoly pricing power. Because it was a contestable monopoly, not an absolute one.

October 22, 2015

QotD: The historical triumph of public health

Filed under: Bureaucracy, Government, Health, History, Quotations — Tags: , — Nicholas @ 01:00

… the great public health achievements between roughly 1850 and 1960. Doctors and public health experts were given extraordinarily broad powers by the government, and they used them to eliminate the scourges that had made cities into pestholes from time immemorial. They built gleaming sewers and water treatment plants to wipe out virulent water-borne pathogens that used to regularly claim thousands of lives. Contact-tracing and quarantine of airborne and sexually transmitted diseases turned former plagues like smallpox and syphilis into tragic but sporadic outbreaks. Changes in building codes helped beat back mass killers like tuberculosis. Poison control cut down on both accidental and deliberate deaths. The Pure Food and Drug Act, and similar ordinances in other countries, reduced foodborne illness, and also, the casual acquisition of opiate or cocaine addictions through patent medicines. Malarial swamps were drained. Environmental toxins were identified and banned. Then they went and invented antibiotics and vaccines and vaccination laws, and suddenly surgery was as safe as a long-haul flight, TB was curable, and childhood illnesses that used to kill hundreds of people every year were a quaint footnote in your 10th-grade history textbook.

Having seen public experts work these miracles through the heavy hand of the state, people understandably concluded we could use miracles in other areas. They had a metaphor, so to speak. The metaphor wasn’t very good, as is often the case, but it took a while to find out that you couldn’t solve a problem in your steel supply chain with the same system that was so good at tracing cholera outbreaks to tainted pumps.

[…]

This is an overreaction to a terrible failure, for two reasons. First, big bureaucracies fail all the time, especially in the face of novel threats. A large institution is like a battleship: hard to sink, but also hard to turn. Public health experts of earlier eras made grave mistakes, like dumping London’s untreated sewage into the Thames; public health experts of the future will too. The more important question is whether they correct themselves, as it seems to me the CDC is now doing.

The second is that this is not your grandfather’s public health system. Public health experts were, in a way, too successful; they beat back our infectious disease load to the point where most of us have never had anything more serious than Human papillomavirus or a bad case of the flu. This left them without that much to do. So they reinvented themselves as the overseers of everything that might make us unhealthy, from French Fries to work stress.

As with the steel mills, these problems are not necessarily amenable to the organizational tools used to tackle tuberculosis. The more the public and private health system are focused on these problems, the less optimized they will be for fighting the war against infectious disease. It is less surprising to find that they didn’t know how to respond to a novel infectious disease than it would have been to discover that they botched a new campaign against texting and driving.

Megan McArdle, “Will Ebola Be Good for the CDC?”, Bloomberg View, 2014-10-20.

October 9, 2015

QotD: Populism and the Nanny State

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

“Democracy,” or populism, has always delivered the Nanny State — which to my understanding is something more than a centralized bureaucracy. The Communists tried to deliver it by force, but politicians in our parliamentary free markets advance it by appealing to the lowest common denominator. The two systems — falsely contrasted “socialist” and “free market” ideologies — are animated by the same Enlightenment ideals. Both claim to speak for the mute and anonymous “little man”: to stuff him with material goods, and inflate him with rhetorical gases. Both play, directly and indirectly, on the envy in that little man, and his resentment of his betters. Both are thus effectively in opposition to the natural hierarchical ordering of society (which made and would make most politics unnecessary). Both promise, as a matter of course, what the serpent offered to Eve and Adam: the fruit that will make the little men “like gods.”

The purpose behind this is not to build the bureaucracy, as an end in itself, but bureaucracy as the means towards moral debilitation. The excellence of bureaucracy, from the diabolical point of view, is that it reliably punishes the good, and rewards bad behaviour. Its weakness remains an inability to predict that human behaviour, including sudden manifestations of the “hostile inflexibility” mentioned in my last post.

For there is in nature something besides the original sin that felled our first parents, and has been the trickster of history ever since. There is also a positive, which I’m inclined to call “human decency,” or in its most extreme and inflexible form, Love. This cuts across all diabolical intentions, and in moments of grace even faces them down. It should be said that the free market approach to moral debilitation leaves rather more scope to this human decency, though it tends to draw the line at Love. Violent tyranny leaves no scope at all, but as a consequence of plugging every vent, triggers the response of pent-up forces. At some point, the signal from a fracture spreads, and in a kind of earthquake, Berlin Walls come down. The genius of the rival consumer democracy is that it releases the pressure, one riot at a time.

But democracies, too, are fated — like every material aspiration on this earth, to die and leave no traces. When they deny the immortal dimension of man, the unchanging reality of creature and Creator, they become dry husks. The wind bloweth where it listeth, and in every direction the dry husks are scattered away. Only by God is the living implanted, and only on God’s terms will it grow. That jealous God, who will have no other gods before Him; against Whom we have, in truth, opposed our little “democratic” pie-in-the-sky.

David Warren, “Ottawa in the news”, Essays in Idleness, 2014-10-23.

October 8, 2015

“[P]harmaceutical companies … make out like bandits from the existence of the patent system”

Filed under: Bureaucracy, Business, Health, Law, USA — Tags: , , , — Nicholas @ 05:00

The current US patent system is set up to create and maintain — for a limited time — monopolies that can be exploited by pharmaceutical companies:

The Wall Street Journal has a puzzling piece complaining about how the pharmaceutical companies seem to make out like bandits from the existence of the patent system. What puzzles is that the entire point and purpose of the patent system, in an economic sense, is so that inventors of things can make out like bandits. The background problem is that of public goods, something I’ll explain in a moment. That problem leads us to thinking that a pure free market in things which are public goods isn’t going to work as well as something a little different. So, we design something a little different. And the point and purpose of our design is so that people who innovate can make vast mountains of cash out of having done so.

It’s then more than a bit odd to point out that our system enables people who innovate to make vast mountains of cash.

[…]

Which brings us to the subtlety of those pricing decisions. With drugs, pharmaceuticals, close enough the cost of manufacturing a dose is zero. All of the costs go in the original research, the clinical testing (the lion’s share) and getting it through the FDA. Profit is therefore determined, since marginal production costs are zero (they’re not, accurately, but close enough for this comparison), by gross revenue. And we want to maximise the incentive for people to innovate, that’s the very reason we’ve got this patent system in the first place, and thus we would rather like the pharma companies to be maximising revenue.

And thus, from this economic point of view, we should be quite happy with people raising their prices. Demand does fall as they do so, yes, but as long as gross revenue increases, the price rises more than compensating for the fall in unit demand, then we should be happy with the way the system is working. Gross revenue is being maximised, profits are being maximised, incentives to innovate are being maximised. That’s what we want our system to do after all.

Far from being worried about this price gouging we should be welcoming it. Because, obviously, someone making bajillions out of having innovated a drug to cure a disease increases the incentives for many other people to go and invest bajillions of their own to cure other diseases. Far from complaining about it we should be celebrating the system working.

October 1, 2015

QotD: The “epidemic” of sexual assault on campus

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

Wildly overblown claims about an epidemic of sexual assaults on American campuses are obscuring the true danger to young women, too often distracted by cellphones or iPods in public places: the ancient sex crime of abduction and murder. Despite hysterical propaganda about our “rape culture,” the majority of campus incidents being carelessly described as sexual assault are not felonious rape (involving force or drugs) but oafish hookup melodramas, arising from mixed signals and imprudence on both sides.

Colleges should stick to academics and stop their infantilizing supervision of students’ dating lives, an authoritarian intrusion that borders on violation of civil liberties. Real crimes should be reported to the police, not to haphazard and ill-trained campus grievance committees.

Too many young middle class women, raised far from the urban streets, seem to expect adult life to be an extension of their comfortable, overprotected homes. But the world remains a wilderness. The price of women’s modern freedoms is personal responsibility for vigilance and self-defense.

Camille Paglia, “The Modern Campus Cannot Comprehend Evil”, Time, 2014-09-29.

September 25, 2015

Reducing income inequality

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

Tim Worstall in Forbes:

There’s a fascinating and very long essay over in National Affairs about how we might cut income inequality. And, contrary to what any number of Democratic candidates for office will tell you, the answer isn’t to impose ever more regulation upon the economy. Rather, it’s to strip away some of the regulation that allows certain favoured income groups to make excessive incomes. Excessive here defined as greater than the economic value they add to the lives of the rest of us, something they achieve by carving out economic rents for themselves. I would, myself, go rather further than the writer, Steven Teves, and start using Mancur Olson’s analysis, that this is what democratic (note, democratic, not Democratic) politics always devolves down into, a carving up of the public sphere to favour certain interest groups. But even this milder version gives us more than just hints about what we should be doing:

    At the same time, however, we have seen an explosion in regulations that shower benefits on the very top of the income distribution. Economists call these “rents,” which we can define for simplicity’s sake as legal barriers to entry or other market distortions created by the state that create excess profits for market incumbents.

Let us take one very simple example of such rents. The earnings of those who possess taxi medallions in cities where there’s an insufficient number issued. Until very recently one such medallion, allowing one single cab to operate on the streets of NYC 24/7, had a capital value of $1 million. That led to a rent, a pure economic rent, of $40,000 a year to allow one cab river to use that medallion for 12 hours of the day. and, obviously, another $40,000 to allow another to use it for another 12 hours a day.

That is purely a rent: and one created by New York City not issuing enough medallions to cover the demand for cab services. Uber has of course exploded into this market and the success of that company, along with its many competitors, shows how pervasive the creation of such rents by limiting taxi numbers has been in cities around the world. That is an obvious and very clear creation of a rent purely through bureaucratic action.

[…]

Deregulating the economy will remove many of those rents. This will reduce income inequality. So, why aren’t those who rail against income inequality shouting for deregulation? Good question and the only proper answers become increasingly cynical. Unions exist for the purpose of creating rents for their members. So, given the union participation in the Democratic Party we’re not going to see calls for deregulation from that side. And different groups, those car dealers perhaps, the doctors, have their hooks into the Republican Party too.

My own answer is that it needs to be done in the same manner that Reagan treated the tax code. Not that I’m particularly stating that Reagan’s tax changes were quite as wondrous as some now think they were, only that it all had to be approached on a Big Bang basis. Everything had to be on the table at the same time so that while there were indeed those who would defend their little corner the over riding interest of all was that all such little corners got eradicated. With this rent creation, given that so much of it is at State level, that won’t really work. Except for one idea that I’ve floated before.

September 24, 2015

Ontario takes baby steps toward liberalizing the beer market

Filed under: Bureaucracy, Business, Cancon, Politics — Tags: , , , , — Nicholas @ 05:00

At the Toronto Beer Blog, a less-than-enthused look at the latest changes to minimally change the just-barely-beyond-prohibition-era rules for selling beer in Ontario:

This has been a noisy day in the wonderful world of beer sales in Ontario. The Liberal government released the details of the new 195 page master agreement between The Beer Store, the Province (LCBO), and the new kids on the block, grocery stores.

Much of the information is what we heard when they announced it with the budget. Some more details have come out. If you read my thoughts in April, you will remember I was not happy. I’m still not.

The good from today’s news is there are some clear definitions of what constitutes a grocery store (10 000 sq/feet dedicated to groceries, not primarily identified as a pharmacy); that the 20% craft shelf space is for both grocery stores and The Beer Store, and that there cannot be a fee to get listed (though we all know how effectively the province enforces pay-to-play in bars around the province); and that they have some novel system to divide sales licenses between both huge chains and independent grocers.

The old news about shared shipping for smaller breweries and no volume limit for a second on-site retail location are accurate, and very good news.

But here’s the thing: This is just more Ontario political craziness.

This is to “level the field”, apparently for small brewers, who nobody would suggest get a fair shake in the current system.

But what could have been an actual leveling of the playing field, turned out to be more insanity and government control and meddling. And remember, I’m saying that as a sworn lefty nutjob, who generally thinks having controls and regulations is a good thing.

Remember, these are not the ravings of a far-right-wing free-enterprise-maniac … these are the regrets of a self-described “sworn lefty nutjob”:

A level playing field would be one where anybody could apply for a license to sell beer, and do it. A brewery can pick and choose who they sell to, as a retailer can choose who they do business with. Nobody would need to guarantee a percentage of shelf space, because the market would control what products were successful and got shelf space.

This isn’t a level playing field, it’s just a bunch of new rules to try to counter how horrible we’ve allowed our playing field to get. Yes, it will be more convenient for people who shop at one of the 450 stores that have a license. But the agreement still favours The Beer Store heavily (for instance, grocers are limited in the volume they can sell. They can exceed the limit, but then have to pay a fine to the LCBO who distribute it to, you guessed it, the breweries who own The Beer Store to offset their lost sales. Seriously).

September 23, 2015

In debt to the bank? Underwater on your mortgage? You might want to check the document carefully…

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

At The Intercept, David Dayen says that there are a lot of sketchy documents that banks are hoping will stand up in court, but they might well be wrong:

A Seattle housing activist on Wednesday uploaded an explosive land-record audit that the local City Council had been sitting on, revealing its far-reaching conclusion: that all assignments of mortgages the auditors studied are void.

That makes any foreclosures in the city based on these documents illegal and unenforceable, and makes the King County recording offices where the documents are located a massive crime scene.

The problems stem from the Mortgage Electronic Registration Systems (MERS), an entity banks created so they could transfer mortgages privately, saving them billions of dollars in transfer fees to public recording offices. In Washington state, MERS’ practices were found illegal by the State Supreme Court in 2012. But MERS continued those practices with only cosmetic changes, the audit found.

That finding has national implications. Every state has its own mortgage laws, and some of the audit’s conclusions may not necessarily apply elsewhere. But it shows how MERS reacted to being caught defrauding the public by trying to sneak through foreclosures anyway. Combined with evidence in other parts of the country, like the failure to register out-of-state business trusts in Montana, it suggests that the mortgage industry has been inattentive to and dismissive of state foreclosure laws.

September 18, 2015

What is killing small US businesses? Compliance costs and regulatory overstretch

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

Okay, perhaps the headline is a bit strong, but Warren Meyer explains why even “small” businesses need to be bigger than ever in order to be able to file all the appropriate government forms, rather than concentrating on serving their customers and growing their client base:

Over the last four years or so we have spent all of this capacity on complying with government rules. No capacity has been left over to do other new things. Here are just a few of the things we have been spending time on:

  • Because no insurance company has been willing to write coverage for our employees (older people working seasonally) we were forced to try to shift scores of employees from full-time to part-time work to avoid Obamacare penalties that would have been larger than our annual profits. This took a lot of new processes and retraining and new hiring to make work. And we are still not done, because we have to get down another 30 or so full-time workers for next year.
  • The local minimum wage movement has forced us to rethink our whole labor system to deal with rising minimum wages. Also, since we must go through a time-consuming process to get the government agencies we work with to approve pricing and fee changes, we have had to spend an inordinate amount of time justifying price increases to cover these mandated increases in our labor costs. This will just accelerate in the future, as the President’s contractor minimum wage order is, in some places, forcing us to raise camping prices by an astounding 20%.
  • Several states have mandated we use e-Verify on all new employees, which is an incredibly time-consuming addition to our hiring process.
  • In fact, the proliferation of employee hiring documentation requirements has forced us through two separate iterations of a hiring document tracking and management system.
  • The California legislature can be thought of as an incredibly efficient machine for creating huge masses of compliance work. We have to have a whole system to make sure our employees don’t work over their meal breaks. We have to have detailed processes in place for hot days. We have to have exactly the right kinds of chairs for our employees. We have to put together complicated shifts to meet California’s much tougher overtime rules. Just this past year, we had to put in a system for keeping track of paid sick days earned by employees. We have two employee manuals: one for most of the country and one just for California and all its requirements (it has something like 27 flavors of mandatory leave employers must grant). The list goes on and on. So much so that in addition to all the compliance work, we also spent a lot of work shutting down every operation of ours in California, narrowing down to just 3 contracts today. There has been one time savings though — we never look at any new business opportunities in CA because we have no desire to add exposure to that state.

Does any of this add value? Well, I suppose if you are one who considers it more important that companies make absolutely sure they offer time off to stalking victims in California than focus on productivity, you are going to be very happy with what we have been working on. Otherwise….

September 17, 2015

Regulatory tangle may shut down major US railroads in December

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

A safety regulation for US common-carrier railroads is due to come into effect at the end of December, but the railroad companies are already warning that they may not be able to comply and that the only legal course of action under the current rules would be to shut down:

In a candid letter to a U.S. senator, BNSF Railway’s chief executive, Carl Ice, said September 9 that BNSF would in effect shut down most of its network rather than violate a federal law mandating that positive train control be operational by December 31. CSX Transportation has said it, too, questions whether it should violate federal laws, and other Class I carriers are likely to follow suit. This set up the real possibility of a national transportation crisis at the beginning of 2016. The public may be unaware of how closely the U.S. economy is tied to railroads, but the reality is that without railroads, this country will quickly cease to function normally. Imagine, for instance, no electricity to heat homes.

[…]

The Surface Transportation Board, which regulates railroads, in effect came to the aid of BNSF and other railroads this past week. Its chairman, Daniel Elliott, wrote to Thune to say that railroads can “lawfully suspend service for various reasons, including safety.” In other words, Elliott is saying that the common carrier obligation of railroads is not absolute. Elliott added that CSX has expressed sentiments similar to those of BNSF.

So what does this all mean? I take railroads at their word that they have diligently tried to install PTC by the deadline. Six years ago Congress thought it was giving railroads enough time to do this, and railroads did not object then to that deadline. But implementation has been a disaster. The technology being put in place is largely new. FRA was slow to issue necessary rules. Signal engineers able to put all the pieces together have been in short supply. And then for more than a year everything ground to a halt because the Federal Communications Commission would not issue permits for construction of radio towers and antennae.

Further, as Ice points out to Thune, PTC is full of bugs as railroads roll it out on their networks. Says Ice: “We are seeing the PTC system trigger unnecessary braking events in which trains are stopped with a full-service brake application. This means that significant work has to occur before the train can re-start. These kinds of delays are numerous and cumulatively consume railroad capacity.”

What railroads have sought is an extension of the deadline, something that Congress has thus far refused to act upon because the votes to permit an extension aren’t there. Now the industry is beginning to say fine, we will not disobey the law and as a result we will be able to offer only a fraction of the service our customers depend upon.

QotD: Corporate culture and management overstretch

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

Corporate culture is another limiting factor: The larger your company gets, the harder a great corporate culture is to maintain. From all accounts, WinCo has a great community of workers, and it has 15,000 of them, which sounds like a lot. But Wal-Mart has more than 1 million employees in the U.S. It might be hard to maintain that level of excitement as you get into the hundreds of thousands of employees. If you try to expand quickly to get scale, your core of loyal employees who have been with you forever shrinks relative to the newcomers who don’t yet have the same commitment to the company. This is particularly a problem in employee-owned companies; as you get more employees, you can dilute the sense of ownership, because each employee’s contribution makes such a tiny impact on the bottom line — or you may get wars between groups of employees, as we saw with United Airlines.

This is related to another key challenge: management. As organizations grow, they have to change. Anyone who has been through a startup can attest to this — when you start out, you don’t need to have many meetings; you just hash stuff out impromptu when the need arises. As the company grows, you start to need management reporting lines, and defined roles, and scheduled meetings, and other bureaucratic unpleasantness that everyone hates. But if you try to do without it, everything quickly degenerates into a chaotic mess.

Not every company is good at this transition. If one of the things that made you great as a little baby company was your informality and flexibility, you may find that growing makes your key producers unhappy and ultimately saps the creative flux that made you great at what you do.

This is also a big challenge as the company moves beyond “small” and into “large”; in fact, every time you dramatically increase the size of your business, you will find that it needs to gut-rehab its management structure. Your three great managers who made all the trains run on time can no longer oversee things at the level of detail they once did; they need to spend more of their time making sure that other people do so. Some of them aren’t good at that role, but they will be unhappy if someone else is promoted or hired over their head. You start to rely more and more on well-standardized processes rather than individual initiative, which may require some compromises on quality to maintain the price point that your customers expect. It is the difference between an exquisitely pulled shot at your local coffee shop and the massive amount Starbucks has invested in machines that make exactly the same coffee every time.

Megan McArdle, “In-N-Out Doesn’t Want to Be McDonald’s”, Bloomberg View, 2014-10-02.

August 27, 2015

Incentives matter … but in a perverse manner for public employees

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

On the Property and Environmental Research Center website, Warren Meyer explains why the US Forest Service is cutting ties with private organizations that have been running federally owned facilities for less than the Forest Service is able to do … despite the private company’s proven higher levels of service:

Private concessionaires pay all operations costs out of the entrance fees paid by the public — and without further taxpayer subsidies. In addition, the concessionaire pays the public agency a concession fee. The resulting savings to taxpayers can be quite compelling. In a recent PERC case study, I showed how a parks agency had to supplement every dollar in visitor fees with an equal amount of tax dollars to keep a park open. By privatizing the park’s operations, the need for tax revenues could be eliminated. And in fact, the park could be turned into a money maker for the agency.

While this may resonate with the public, it’s a hard sell to the agencies themselves. The National Park Service uses concessionaires to provide some visitor services, but it has not considered private operation of entire parks. Even the Forest Service — which does allow some private park management — often seems eager to go back to running the parks themselves.

[…]

No private company would behave like this. So why does the government? Over the years, I have observed three possible explanations:

1. Government employees have incentives that go beyond “public service.” For most agency managers, their pay and prestige and future job prospects are tied to the size of their agency’s headcount and budget. Privatization savings that look like a boon to taxpayers may look like a demotion to agency managers.

2. People who are skeptical of private enterprise and more confident in government-led solutions tend to self-select for government jobs. Even in the Forest Service, concessionaires frequently experience outright hostility from the agency’s rank and file. “It’s wrong to make a profit on public lands” is one common statement.

3. Government accounting is not set up to make these sorts of decisions well. Few agencies have reports that tell them whether an individual park’s revenues are covering its full operational costs. Costs can be spread over multiple budgets, making it seem as though public park operation is less expensive than it really is.

To overcome these obstacles, we’ve learned that progress generally has to start above the agency. Some sort of legislative push is necessary. And we try to find ways to pitch our solutions as a way for agencies to free up money to address other problems, such as fixing rotting infrastructure.

August 26, 2015

Organic food recalls on the rise

Filed under: Bureaucracy, Business, Food, Health, USA — Tags: — Nicholas @ 05:00

It must be a trend if even the New York Times is reporting on the increasing number of food safety recalls involving organic food:

New data collected by Stericycle, a company that handles recalls for businesses, shows a sharp jump in the number of recalls of organic food products.

Organic food products accounted for 7 percent of all food units recalled so far this year, compared with 2 percent of those recalled last year, according to data from the Food and Drug Administration and the Department of Agriculture that Stericycle uses to compile its quarterly report on recalls.

In 2012 and 2013, only 1 percent of total units of food recalled were organic.

Kevin Pollack, a vice president at Stericycle, said the growing consumer and corporate demand for organic ingredients was at least partly responsible for the increase.

“What’s striking is that since 2012, all organic recalls have been driven by bacterial contamination, like salmonella, listeria and hepatitis A, rather than a problem with a label,” Mr. Pollack said. “This is a fairly serious and really important issue because a lot of consumers just aren’t aware of it.”

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