Quotulatiousness

May 12, 2022

Too many cannabis retailers? “… a scrappy band of politicians is coming together to save main street from the excesses of the free market”

Steve Lafleur points out that the temporary surplus of cannabis stores will inevitably self-correct, as most retail situations tend to do on their own without needing the “helpful” hand of government to intervene:

Lately there has been a moral panic brewing in Toronto about the number of marijuana stores in Toronto. Take this New York Times article, for example, which captures the mood with the quotes from various Torontonians. Or this BlogTO piece. And here is a link to a story about two city councilors (including my own) pushing for a moratorium on new pot shops.

At least on its face, the panic hasn’t been about the availability of cannabis products or any kind of (unsupported) claims about pot shops attracting crime. Rather, the concern is that there is simply an unsustainable number of shops that may be cannibalizing other retail opportunities. So a scrappy band of politicians is coming together to save main street from the excesses of the free market.

What could possibly go wrong?

The boom in pot shops is real. Legal marijuana retailing is a new phenomenon, and there has been a gold rush in the sector. This was first evident in financial markets during the 2018-19 weed stock boom (which went bust) as investors sought to capitalize on the rollout of legal marijuana sales in Canada. There are now nearly 2,000 pot shops in Ontario, and it’s not hard to find two on the same block. People aren’t wrong to point out that there has been a rapid buildout of marijuana retailers. Hence the push by City Council and now the Ontario Liberal Party, to restrict clustering of pot shops.

To be sure, new trends can push out old trends. And this can be frustrating. For instance, one insidious trend recently replaced two of my two favourite hole-in-the-wall restaurants: poke bowls. The trendy Hawaiian rice bowls have taken cities by storm. Businesses, understandably, want to capitalize on the trend. If people want it, businesses will sell it.

Trends can create dislocations. No one knows in advance how many poke restaurants — or pot shops — the market will bear, where they should locate, or what their operating hours should be. But through a process of trial and error, retailers and consumers will figure this out. And if it is just a flash in the pan trend, many will fail.

But that’s okay. That’s just the creative destruction of the market at work. It’s not always pretty, but it’s how we get new products and services. It’s a process. Sometimes the market rewards annoying things. But trying any effort to plan these things in a way that avoids over-saturation of short-lived trendy businesses would be rife with unintended consequences.

April 30, 2022

“The NFL Draft is not socialism. It’s capitalism on steroids”

Filed under: Business, Football, History, Sports, USA — Tags: , , , , — Nicholas @ 03:00

Peter Jacobsen refutes the claim that the NFL Draft is like socialism:

Once we recognize that teams aren’t really business competitors, and insofar as there is athletic competition it’s tempered to maximize profit, the claim that the draft is socialism rings pretty hollow.

But, as if this weren’t enough, history also debunks the claim that the draft is a socialist institution.

In 1934, Minnesota Gophers’ senior running back, Stan Kostka, led his team to an undefeated season and made himself the top prospect for professional teams. As a result, teams engaged in a bidding war which ended in Stan going to the (no longer existing) Brooklyn Dodgers.

As a result of the bidding war, Kostka became the highest paid player in the NFL (with a $5,000 contract).

The owner of the Philadelphia Eagles was so mad about losing the bidding war that he proposed the idea of the draft to the NFL the following year.

So, in other words, the NFL draft started as a way for team owners to cooperate to keep player wages below where they would be if bidding wars were allowed.

To be fair, I haven’t read everything Marx wrote. But something tells me a system where capital owners cooperate to keep employer bidding wars from occurring isn’t praised in some obscure work he and Engels published. In fact, this is about as opposite to Marx as you can get.

In the modern day, players have formed unions to combat owner cooperation, but the point remains the same. The NFL is a highly sophisticated organizational structure that allows athletic competitors to cooperate in the goal of making money.

So, insofar as Americans enjoy the exciting games created by the draft system, they don’t have socialism to thank. Instead they should thank the cooperation facilitated by self-interest channeled through the free market.

The NFL Draft is not socialism. It’s capitalism on steroids.

April 27, 2022

QotD: Competition

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

In a normal industry (e.g., restaurant ownership) competition should drive profit margins close to zero. Want to open an Indian restaurant in Mountain View? There will be another on the same street, and two more just down the way. If you automate every process that can be automated, mercilessly pursue efficiency, and work yourself and your employees to the bone – then you can just barely compete on price. You can earn enough money to live, and to not immediately give up in disgust and go into another line of business (after all, if you didn’t earn that much, your competitors would already have given up in disgust and gone into another line of business, and your task would be easier). But the average Indian restaurant is in an economic state of nature, and its life will be nasty, brutish, and short.

This was the promise of the classical economists: capitalism will optimize for consumer convenience, while keeping businesses themselves lean and hungry. And it was Marx’s warning: businesses will compete so viciously that nobody will get any money, and eventually even the capitalists themselves will long for something better. Neither the promise nor the warning has been borne out: business owners are often comfortable and sometimes rich. Why? Thiel says it’s because they have escaped competition and become at least a little monopoly-like.

Thiel hates having to describe how businesses succeed, because he thinks it’s too anti-inductive to reduce to a formula:

    Tolstoy opens Anna Karenina by observing “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.

Scott Alexander, “Book Review: Zero to One”, Slate Star Codex, 2019-01-31.

January 16, 2022

Library borrowing versus book store sales

Filed under: Books, Business, Cancon, USA — Tags: , , — Nicholas @ 05:00

I used to be a regular library user, but tapered off substantially after a few unhappy visits to the Toronto Reference Library on Yonge Street in the late ’80s (I’m now fully a believer in some of the wilder tales of disruptive and even criminal behaviour within libraries). I had my doubts about the direction most western library systems chose to concentrate on “popular” books and to get rid of “old” or infrequently borrowed books. It seemed to me that this was an attempt to set up libraries in direct competition with bookstores, and a deliberate act of neglect toward the function of libraries as repositories of valuable but less popular media. In the latest SHuSH newsletter, Kenneth Whyte details a fascinating natural experiment we’ve all be involved in over the last two years that seems to prove that library systems have been, in effect, taking money away from book sellers:

“Toronto Public Library” by Jim of JimOnLight is licensed under CC BY-NC-ND 2.0

Those of you who have been reading SHuSH for a while know that I suspect public libraries are doing harm to the publishing industry and author incomes.

Before the shooting starts, my standard qualifiers: I love libraries; they do a lot of fine work and are crucial civic institutions, running many outstanding programs and providing many necessary services, including the lending of books to children and people who genuinely can’t afford to buy them; I am always in libraries for research and to borrow and read hard-to-find books; I don’t want libraries to go away; I don’t want them harmed; I want their lending practices adjusted before they swallow what’s left of commercial publishing, book retailing, and, along with it, what’s left of author incomes.

By way of background, I’ve written at length in previous newsletters about how public libraries in the last decades of the last century abandoned their traditional role as gatekeepers of the culture, responsible for the moral, intellectual, and aesthetic growth of the public, choosing instead to pander to their patrons. They began pimping the likes of Mickey Spillane and Jacqueline Susann to goose the foot traffic and circulation stats they habitually use to demand of their political masters more funding and better buildings.

Over time, librarians have trained people who can afford to buy books for their own entertainment — the vast majority of library reading is for entertainment — to borrow them instead. Today, three out of four books read in the US and four out of five read in Canada are borrowed, not bought. That is bad for publishing, bookselling, and author incomes.

And then the Winged Hussars Wuhan Coronavirus arrived:

I believe it is self-evident that spending loads of taxpayer money to make the most popular books available at no charge at dozens of points around a city (as well as online) undermines retail sales of books, as it would if the same were done for coffee, running shoes, or Leafs’ tickets.

I have to admit, at the same time, that I’ve lacked hard evidence showing a portion of book borrowing represents lost sales. Nobody has thoroughly researched the question (it certainly isn’t in the interests of libraries to do so). The absence of a smoking gun has made it easy for library defenders to throw up their hands: maybe there’s a relationship, maybe not. People love free shit and will cheerfully strangle good faith to retain access to it.

I’ve tried to devise ways to prove conclusively that libraries are seriously undermining book sales. Maybe some huge experiment where we closed the public libraries in a large jurisdiction and studied what happened to retail book sales. But who was going to organize that? It seemed impossible until COVID-19 stepped up.

Libraries across North America and, indeed, around the world, have been closed, semi-closed, or otherwise limited in their borrowing activities throughout the two-year course of the pandemic. According to Library Journal, total circulation of library materials collapsed by 25.7% in 2020 (notwithstanding a huge spike in e-book borrowing). It looks like physical borrowing fell by roughly half. The 2021 numbers aren’t out yet but individual library reports suggest they will look a lot like 2020.

Meanwhile, over in publishing land, the champagne corks are flying. US book sales, which grew healthily in the first pandemic year 2020, grew again in 2021 and are now 19% ahead of the pre-pandemic year, 2019. All the major publishers have reported smashing sales (attributing the increase to their own genius). All categories are up, including adult fiction (31% over 2019) and adult non-fiction (10% over 2019).

Going by these numbers, it appears that a roughly 25% reduction in library borrowing leads over a two-year period to an increase of 19% in bookselling. I wouldn’t bank on those numbers, or even on the rough proportions, but I think the data demonstrates that when you make books more difficult to borrow for free, people turn more frequently to booksellers.

January 14, 2022

Industry with 1% profit margins accused of earning “record profits”

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

Joe Lancaster on Senator Elizabeth Warren’s renewed assault on the top-hatted, monocle-wearing robber barons of the grocery business:

“Piggly Wiggly” by afiler is licensed under CC BY-SA 2.0

… Warren could hardly have picked a worse industry to use as an example: Grocery stores consistently have among the lowest profit margins of any economic sector. According to data compiled this month by New York University finance professor Aswath Damodaran, the entire retail grocery industry currently averages barely more than 1 percent in net profit. In its most recent quarter, Kroger reported a profit margin of 0.75 percent, during a time in which Warren claims that the chain was “expanding profits” due to its “market dominance.”

In actuality, for much of the last year, grocery stores have seen enormous boosts in revenue, but not increased profitability, for the simple reason that everything has been costing more: not just products, but transportation, employee compensation, and all the extra logistical steps needed to adapt to shopping during a pandemic. Couple that with persistent inflation — which Warren also recently blamed on “price gouging” — and it is no wonder that things seem a bit out of balance.

Warren has had an itchy trigger finger for antitrust laws for some time. In 2019, as part of her presidential platform, she called for using the laws to forbid retailers from selling their own products. This would affect industry leaders like Amazon and Walmart, but ironically, it would have a devastating impact on grocery stores as well: Grocers increasingly rely on their own proprietary goods to stock cheaper alternatives alongside name brands. This provides not only less expensive options for consumers, but lower costs to the stores themselves. Store brands also help fill gaps created by external supply shortages.

December 22, 2021

QotD: Sibling rivalry

Filed under: Food, Humour, Quotations — Tags: , , , — Nicholas @ 01:00

It’s only natural to feel competitive with your siblings. I recall all of those Christmas mornings, as my brother and sister and I compared gifts to figure out which one of us was the least beloved. This was important information because we adjusted our levels of misbehavior to match the rewards. There’s no point in being extra good if the presents are just okay.

Mealtime was competitive too. The winner was the one who moved the greatest percentage of my father’s income through his or her digestive system. I was in my thirties before someone told me that eating is not a speed sport.

Scott Adams, Dilbert Newsletter 61.0, 2005-10-25.

November 7, 2021

Apparently we need to block the “Random Penguin & Schuster” merger to protect the 0.001%

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

In the most recent SHuSH newsletter from Kenneth Whyte, the US Department of Justice case against allowing the proposed merger of Penguin Random House and Simon & Schuster is examined in some detail:

On Tuesday, the US Justice Department (DOJ) filed suit to block Penguin Random House from purchasing its rival, Simon & Schuster, for $2.18 billion. It promises to be a fascinating case, in part because there’s so much at stake for the two firms involved, and also because of the unusual angle from which the DOJ is attacking the file.

As one of two US agencies responsible for enforcing antitrust law (the other is the Federal Trade Commission), the DOJ believes the proposed deal, struck last year, would leave Penguin Random House, already the world’s largest publisher of consumer books, “towering over its rivals”. The combined entity would have revenues more than twice its next closest competitor, and “outsized influence over who and what is published, and how much authors are paid for their work”.

Bertelsmann, owner of Penguin Random House, and Viacom, owner of Simon & Schuster, promise to fight the DOJ in court. They acknowledge that the Big Five Publishers, a grouping that also includes Hachette, HarperCollins, and Macmillan, will be a Big Four after the merger, but maintain that these firms plus new publishing entrants, such as Amazon, and an abundance of small and midsize publishers will provide sufficient competition for authors and books. “The publishing industry is, and following this transaction will remain, a vibrant and highly competitive environment,” they said in a joint statement.

So far, so ordinary corporate behaviour. Who or what do we need to protect, beyond hoping to maintain something vaguely resembling a competitive marketplace for books? A tiny sub-set of authors:

With this suit, the DOJ is taking a narrower approach. One test of whether a merger results in illegal market dominance is spelled out in the Horizontal Merger Guidelines jointly issued by the DOJ and the FTC: it asks if the combined firm would be in a position to increase its profits by imposing a price cut — a small but significant and lasting price cut — on one of its suppliers. In other words, if the new and enlarged Penguin Random House is better able than the old Penguin Random House to squeeze one supplier on one product line, the merger is illegal.

To apply this test to the deal, the DOJ needs to identify which supplier and which product line is vulnerable if the firms are allowed to merge. It has a range of options. Book publishing is a complicated marketplace, with many suppliers and product lines. Publishers sell books to retailers, and market books to consumers; they buy distribution services, printing, advertising, editorial services, and so on. The DOJ might have argued that a merged Penguin Random House-Simon & Schuster would have the muscle to make its printers or copyeditors reduce their rates. Or that it could force retailers to accept smaller cuts of sales revenue.

Instead, the DOJ put its chips on the discreet line of business in which authors supply manuscripts to publishing houses. Its complaint says that the combined firm would have the power to improve its profits by significantly and permanently lowering the advances it pays to authors for the rights to publish their books.

Advances, notes the DOJ, provide the bulk of author income at the Big Five publishing houses (few authors earn out their advances and collect further royalties). Were Penguin Random House and Simon & Schuster to combine, there would be nothing to deter it “from imposing a small, but significant, and non-transitory decrease in advances”. And if it did so, the complaint maintains, authors would have nowhere to turn. The DOJ ignores the existence of the other three members of the Big Five. It admits that the US has 3,000 small and mid-size houses but, these, according to the complaint, are economically irrelevant, mere “farm teams” for the big houses. Self-publishing, it adds, is not a serious alternative.

That may sound like the DOJ is suing to stop this merger on behalf of the writing community, a heartwarming notion, but it’s not. The lawsuit is primarily concerned with a small subset of writers: those who produce “anticipated top-selling books”. According to the complaint, there exists a small but definable market for “anticipated top-selling books”. It represents a distinct line of commerce, as required under the Clayton Act, and that is the real focus of the complaint.

The DOJ is going to war for sellers of “anticipated top-selling books”, the .001% of the publishing world.

Its lawyers foresee a time when Penguin Random House-Simon & Schuster will target John Grisham and his ilk with lower advances, and John Grisham will have no choice but to accept. So far as the DOJ is concerned, that is how this merger fails the Horizontal Merger Guidelines, and why it is illegal. The phrase “anticipated top-selling books” appears 29 times in a 26-page document.

October 5, 2021

QotD: Entrepreneurship

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

If entrepreneurs see value in the […] economic landscape, and perceive there are rich profits to be made in turning around businesses and then flogging them off, it is very good news indeed for the country’s economy. By releasing capital from uneconomic areas and focussing it on lucrative new bits, the overall pie gets bigger, jobs get created, and productivity is also increased.

In fact, one could almost create a new economic law: the amount of abuse raining down on entrepreneurs is directly proportional to the good they do. I haven’t seen much reason to doubt this law yet.

Johnathan Pearce, “Gordon Gekko goes to Germany”, Samizdata.net, 2005-05-05.

August 29, 2021

The competing English and Dutch East India companies

In his latest Age of Invention newsletter, Anton Howes considers the odd fact that although the Dutch were the last major seafaring power to extend to the East Indies, they quickly became the most powerful European traders and colonialists in the region:

By the mid-seventeenth century, although the trans-Atlantic trades were still almost entirely in the hands of the Spanish, the European trade to the Indian Ocean had come to be dominated by the Dutch — which is quite surprising, as they had arrived so late. The high-value exports of the Indian Ocean — particularly pepper — had anciently arrived via the Red Sea, the Persian Gulf, or overland, and then been bought up in Egypt or Syria by the Venetians and Genoese, who then sold them on to the rest of Europe. It was then the Portuguese who had supplanted that trade in the late fifteenth century by discovering the direct route to the Indian Ocean around the Cape of Good Hope. The Portuguese monopolised the new sea route around Africa for a century, almost totally undisturbed by other Europeans, entrenching their position by building forts — occasionally with the permission of local rulers, but often without.

The Portuguese seem to have spread the rumour in Europe that they had effectively conquered the entire region, presumably to dissuade others from even trying to break their monopoly. Even as late as the 1630s, when other nations were already regularly trading there, foreign writers took the time to mock such assertions. As the Welsh-born merchant Lewes Roberts put it, the Portuguese “brag of the conquest of the whole country, which they are in no more possibility entirely to conquer and possess, than the French were to subdue Spain when they possessed of the fort of Perpignan, or the English to be masters of France when they were only sovereigns of Calais.” Quite.

[…]

But for all their tardiness, the Dutch arrival in the Indian Ocean was dramatic. The English may have been the first to threaten the Portuguese monopoly, but in the whole of the 1590s they sent a mere two expeditions out east, and in 1600-10 sent only a further eight (seven by the newly-chartered East India Company (EIC), with a monopoly over English trade with the region, and another voyage licensed to break that monopoly in 1604 by the king, which unhelpfully spoiled the company’s relations with local rulers by turning pirate and plundering Indian and Chinese ships). What the English sent out over the course of twenty years, the Dutch exceeded in just five. Between just 1598 and 1603, after the successful return of de Houtman’s first voyage, they sent out a whopping thirteen fleets — and this despite their merchants not even pooling their efforts like the English had until the very end of that period, when in 1602 the various small and city-based Dutch companies were merged to form a single, national joint-stock monopoly, the Verenigde Oost-Indische Compagnie (VOC). The founding of the VOC accelerated the divergence. Between 1613 and 1622 the EIC sent out a paltry 82 ships compared to the VOC’s 201.

The sheer quantity of Dutch ships heading for the Indian Ocean meant that they were soon dominant amongst the European merchants there, capturing forts from the Portuguese, founding further bases of their own, and able to forcibly keep the English out — sometimes by attacking the English directly, other times by simply threatening any of their would-be trading partners. The steady stream of Dutch ships also allowed them to resupply and maintain their factors — the key infrastructure of long-distance commerce, as I explained in last week’s post for subscribers. They were able to have a presence, and project force, in a way that the English could not. By 1638, Lewes Roberts, despite often lauding England’s commercial achievements, and being an EIC official himself, had to concede that in the Indian Ocean “the English nation are the last and least”.

That English weakness was reflected in how EIC merchants had to comport themselves in the region so as to have any share in the trade at all. Despite the EIC’s later reputation for bloodthirsty rapaciousness, in the early seventeenth century they were highly reliant on good relations with the locals. Whereas the Dutch could often afford to use force and bear the repercussions, the English more or less only held on in the early days by ingratiating themselves with local rulers — often by finding common cause against the aggressive and domineering Dutch. The infrequently-supplied English factors were often heavily indebted to local merchants too, including the Indo-Portuguese — a group that they often married into, for access to social networks and support. As the historian David Veevers argues in a new overview of the early EIC (a relatively pricey academic book, but compellingly argued and juicy with detail), the English often went further than just friendliness or integration, subordinating themselves to local rulers too. Of the few early forts that the English managed to establish, for example, that at Madras in 1640 was only built because the local ruler encouraged it, treating the English there as his vassals.

May 29, 2021

QotD: Academia and capitalism

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

It is pretty well-established that the American academic community is disproportionately of the Left, and in fact tilts pretty strongly in many cases to the far Left / progressive side. People debate a lot about why this should be, but I think one contributing factor (but certainly not the only one) that I have never heard anyone discuss is the zero-sum game these academics must play in their own careers. I think that many of them incorrectly assume that all professions, and all of the economy and capitalism, is dominated by this same dog-eat-dog zero sum-game — remember, for most, academia is the only industry they have ever experienced from the inside. And once you assume that the whole economy is zero-sum, it is small step from there to overly-narrow focus on distribution of wealth and income.

One of the mistakes folks on the Left make about capitalism is to describe capitalism as mostly about competition. In fact, capitalism is mostly about cooperation, it’s a self-organizing process where people who don’t even know each other cooperate to deliver products and services, facilitated by markets and the magic of prices. Sure, competition exists but it is not the fundamental feature, but an enabler that makes sure the cooperation occurs as efficiently as possible. Capitalism in fact is about zillions of voluntary trades and transactions every day that each make both parties better off — or else both sides would not have agreed to it. Capitalism in fact is a giant positive sum game, a fact that many on the Left simply do not grasp.

Warren Meyer, “Does the Zero-Sum Nature of Academic Success Contribute to the Left-wards Bias of Academia?”, Coyote Blog, 2018-11-09.

May 18, 2021

QotD: The imaginary problem of having “too much” choice

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

In the early 20th century critics attacked product variety as being wasteful — a sign that markets were less efficient than central planning. Hence, the Chinese wore Mao suits, Americans got uniformly round automobile headlights and British authorities “rationalized” furniture designs.

A famous scene in the film Moscow on the Hudson has Robin Williams as a Soviet immigrant collapsing at the sight of an American coffee aisle, circa 1984. Imagine what would happen in Starbucks.

A free economy multiplies variety, the better to serve buyers with different tastes and different needs and to give people the chance to experience different goods at different times. Arguing that this plenitude is inefficient went out decades ago. The problem with markets, the detractors now say, is that all these choices make us unhappy.

Virginia Postrel, “I’m Pro-Choice”, Forbes, 2005-03-28.

February 11, 2021

Tom Brady’s Super Bowl success has outlasted many titans of corporate America

Filed under: Business, Economics, Football, History, USA — Tags: , , , , , — Nicholas @ 05:00

Despite the headline, this isn’t really about the NFL, Tom Brady or the S*per B*wl, it’s about a key factor in free market economies: creative destruction.

“Blockbuster store closing sale” by Consumerist Dot Com is licensed under CC BY 2.0

Consider some of the names that bought Super Bowl airtime during Brady’s first rodeo in January 2002: AOL, Blockbuster, Radio Shack, Circuit City, CompUSA, Sears, Yahoo, VoiceStream Wireless, and Gateway Computers.

The Titans of Yesterday

Notice a theme? That list features some companies we saw in Captain Marvel, the 2019 hit movie that nailed 90s nostalgia and reminded us how fast the world had changed. Like when Blockbuster Video stores were still a thing.

For those who may not recall, when Brady was winning his first Super Bowl, Blockbuster was approaching its peak. In 2004, it operated 9,094 stores and employed some 84,300 people. The company was pulling in $6 billion in revenue annually and looked invincible. Today, a single Blockbuster store remains open — in the world.

Remember RadioShack? Once upon a time, it seemed as if you could find one of their brick-and-mortar stores in every corner of the USA. Not anymore. In 2015, RadioShack filed for Chapter 11 bankruptcy, in large part because of those many store locations, which cannibalized revenues.

Sears, one of the historic giants of retail, managed to make it to 2018 before announcing its bankruptcy. Its stores continue to close so fast, it’s hard to tell how many remain in operation. (The best guess is about 60.)

It’s sometimes difficult to remember that the titans of industry aren’t always the same companies from year to year, and the sector-dominating company today might well be begging for a bailout (or demanding protection from uppity new competitors) only a few years down the way.

Some might see the collapse of Blockbuster, Sears and company as a sign of something terribly wrong with our economic system. After all, Blockbuster alone paid rent at tens of thousands of properties and employed tens of thousands of workers. Sears was the largest American retailer (by far) for decades.

Watching the companies we once shopped at flounder and fail can be surprising, jarring even. But a closer look shows this cycle is not unusual and is actually the sign of a healthy market economy, not a dysfunctional one. What may seem like pure destruction actually clears the way for economic innovation and renewal. “Creative destruction” is how the economist Joseph Schumpeter (1880-1950) characterized business failure in a free market.

As economist Mark Perry points out, companies on top have a very hard time staying on top. Perry, a scholar at the American Enterprise institute and a professor of economics at the University of Michigan’s Flint campus, compared the 1955 Fortune 500 companies to the 2019 Fortune 500. He found that just 52 were still on the list six decades later.

I spent most of my working career in the software business, and many of the companies I’ve worked for over the years aren’t in business any more (my first job out of school was with Northern Telecom … remember them?). Software is a particularly fast-cycling industry, but it’s true of the economy as a whole at a slightly more sedate pace.

December 16, 2020

QotD: Distorting the history of America’s “Gilded Age”

Filed under: Economics, Education, Government, History, USA — Tags: , , , , — Nicholas @ 01:00

We study history to learn from it. If we can discover what worked and what didn’t work, we can use this knowledge wisely to create a better future. Studying the triumph of American industry, for example, is important because it is the story of how the United States became the world’s leading economic power. The years when this happened, from 1865 to the early 1900s, saw the U.S. encourage entrepreneurs indirectly by limiting government. Slavery was abolished and so was the income tax. Federal spending was slashed and federal budgets had surpluses almost every year in the late 1800s. In other words, the federal government created more freedom and a stable marketplace in which entrepreneurs could operate.

To some extent, during the late 1800s — a period historians call the “Gilded Age” — American politicians learned from the past. They had dabbled in federal subsidies from steamships to transcontinental railroads, and those experiments dismally failed. Politicians then turned to free markets as a better strategy for economic development. The world-dominating achievements of Cornelius Vanderbilt, James J. Hill, John D. Rockefeller, and Charles Schwab validated America’s unprecedented limited government. And when politicians sometimes veered off course later with government interventions for tariffs, high income taxes, anti-trust laws, and an effort to run a steel plant to make armor for war — the results again often hindered American economic progress. Free markets worked well; government intervention usually failed.

Why is it, then, that for so many years, most historians have been teaching the opposite lesson? They have made no distinction between political entrepreneurs, who tried to succeed through federal aid, and market entrepreneurs, who avoided subsidies and sought to create better products at lower prices. Instead, most historians have preached that many, if not all, entrepreneurs were “robber barons”. They did not enrich the U.S. with their investments; instead, they bilked the public and corrupted political and economic life in America. Therefore, government intervention in the economy was needed to save the country from these greedy businessmen.

Burton W. Folsum, “How the Myth of the ‘Robber Barons’ Began — and Why It Persists”, Foundation for Economic Education, 2018-09-21.

October 29, 2020

How to fix the CBC

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

… aside from cutting off the massive subsidies from the federal government, which would be my preferred solution if “nuke it from orbit” isn’t a viable choice. Let it sink or swim as a purely private media entity — I’d be betting on the “sink”, personally because they don’t currently have to compete thanks to their funding from the feds and are not noted for their quick adaptation skills. However, Peter Menzies isn’t quite as anti-CBC as I am:

In a recent piece here at The Line, I lamented the current status of the CBC. That’s easy enough to do, but it’s fair to ask what can actually be done to fix it. These ideas don’t provide all the answers but, implemented with conviction and speed, here’s where to start. Because there are some things that can be done, and relatively quickly, to revitalize the institution: the CBC may well be hell-bent on its own destructive dualism but clarifying its role and purifying its soul are still possible by getting it out of the advertising business and turning it into a proper public media.

Right now, the CBC is neither fish nor fowl. Sometimes, as with radio, it is a popular public broadcaster. At others, with its television channels, it fancies itself a commercial broadcaster, albeit a publicly-funded and relatively unpopular one. It plows both of those personalities into its commercial online operations and supplements them with reportage of the kind traditionally associated with newspapers. Like a creature of mythology, it shape-shifts through all of these roles as best suits its needs and moods.

On top of that, its OMG obsession with Trump’s America has drawn it far away from its content mandate to ensure Canadians learn about each other wherever they live in this vast and beautiful country. While its performance indicates otherwise, CBC’s purpose is not to secure a large audience share in the GTA or, in French, in Montreal, in order to earn more revenue. Nor is CBC News Network’s mandate to compete with CNN. The Corp’s raison d’etre, as defined in legislation, is to tell Canadians each other’s stories — even if the GTA and Montreal don’t care.

The only way to purify the CBC then, is to ban it — once and for all — from collecting advertising revenue from domestic consumption of its product. As its radio operations are already advertising-free this means no more ads on its TV or websites. Done. Finished.

September 3, 2020

Fallen Flag — The Great Northern Railway

This month’s Classic Trains featured fallen flag is an American railway that definitely deserved to call itself “great”, James J. Hill’s Great Northern Railway. Hill was noteworthy as the only “Robber Baron” of that era who was scrupulous in avoiding government entanglements (including grants, loans, subsidies, and other forms of money-with-political-strings-attached), building his entire railway system using private funds and rational profit-oriented economic decision-making (the other transcontinental lines often over-built to claim higher subsidies or added money-losing branch lines to please powerful politicians). The result was that when economic hard times hit the railway business, his was the only transcontinental that never needed to declare bankruptcy.

In an earlier post, Dane Stuhlsatz summarized the GN’s engineering:

Hill’s line […] was methodically surveyed and built, on the shortest routes possible, with the least gradient possible, and using the best steel and other materials on the market at the time. Rather than political largess, Hill made his decisions based on profit and loss. But, for all the efficiency that Hill built into his line — he was able to transport across the country faster, cheaper, and with less maintenance costs than could the UP and CP — arguably the most important aspect for the viability of his business was the freedom to conduct business untethered by the strings that accompanied government subsidies.

Route map of the Great Northern Railway, circa 1920. Red lines are Great Northern trackage; dotted lines are other railroads.
Map by Elkman via Wikimedia Commons.

George Drury outlines the origins of the railway:

In 1857, the Minnesota & Pacific Railroad was chartered to build a line from Stillwater, Minnesota, on the St. Croix River, through St. Paul and St. Cloud to St. Vincent, in the northwest corner of the state. The company defaulted after completing a roadbed between St. Paul and St. Cloud, Minnesota, and its charter was taken over by the St. Paul & Pacific Railroad, which ran its first train between St. Paul and St. Anthony (now Minneapolis) in 1862.

For financial reasons the railroads were reorganized as the First Division of the St. Paul & Pacific. Both StP&P companies were soon in receivership, and Northern Pacific, with which the StP&P was allied, went bankrupt in the Panic of 1873.

Canadian-born “Robber Baron” James J. Hill (1838-1916) in 1914.

In 1878 James J. Hill and an associate, George Stephen, acquired the two St. Paul & Pacific companies and reorganized them as the St. Paul, Minneapolis & Manitoba Railway (“the Manitoba”). By 1885 the company had 1,470 miles of railroad and extended west to Devils Lake, North Dakota. In 1886 Hill organized the Montana Central Railway to build from Great Falls, Montana, through Helena to Butte, and in 1888 the line was opened, creating in conjunction with the StPM&M a railroad from St. Paul to Butte.

In 1881 Hill took over the 1856 charter of the Minneapolis & St. Cloud Railroad. He first used its franchises to build the Eastern Railway of Minnesota from Hinckley, Minnesota, to Superior, Wisconsin, and Duluth. Its charter was liberal enough that he chose it as the vehicle for his line to the Pacific. He renamed the road the Great Northern Railway; it then leased the Manitoba and assumed its operation.

[…]

Even before completion of the route from St. Paul, the Great Northern opened a line along the shore of Puget Sound between Seattle and Vancouver, British Columbia, in 1891. In the years that followed, Hill pushed a number of lines north across the international boundary into the mining area of southern British Columbia in a running battle with Canadian Pacific. In 1912 GN traded its line along the Fraser River east of Vancouver to Canadian Northern for trackage rights into Winnipeg.

Great Northern gradually withdrew from British Columbia after Hill’s death. In 1909 the Manitoba Great Northern Railway purchased most of the property of the Midland Railway of Manitoba (lines from the U.S. border to Portage la Prairie and to Morden), leaving the Midland, which was jointly controlled by GN and NP, with terminal properties in Winnipeg. The Manitoba Great Northern disposed of its rail lines in 1927. They were later abandoned.

Postcard photo of the Great Northern Railway’s “Empire Builder” streamliner between Everett and Seattle, Washington, circa 1963.
Great Northern Railway postcard via Wikimedia Commons.

The Great Northern and Northern Pacific lines agreed to a merger in 1901 (both lines were controlled by Hill) but the plan was vetoed by the Interstate Commerce Commission. A second attempt in the 1920s after Hill’s death was again turned down by the regulator unless the combined company divested ownership of the Chicago, Burlington & Quincy which was both railways’ connection from Minneapolis to Chicago. It was only on the final attempt in 1970 that the deal gained the government’s grudging approval and the Great Northern, Northern Pacific, and CB&Q merged to form the Burlington Northern.

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