Open Market

Net Neutrality = Dirt

Net neutrality got weeded out from the Senate telecom bill in an 11-11 tie vote, but don’t expect this one to go away. Even if the final bill goes through without it, I have no doubt that neutrality proponents will continue to fight on this one. Sen. Olympia Snowe, who co-introduced the failed amendment, had this to say about the Senate’s failure to agree to it:

“It means for the first time, we are going to have a two-tiered Internet, where the haves who are able to afford to pay the price for their Web sites" will have fast connections while start-up businesses "will be relegated to what has been described as the Internet dirt road."

The dirt roads of the internet, eh? Well, that certainly sounds dusty and backwoods and un-futuristic. But I’m not sure her analogy works as well as she thinks it does, bland poetic imagery not withstanding. 

Snowe is complaining that a net that allows ISPs to establish priority channels would create multiple tiers of service, and that’s certainly true. But what she fails to grasp is that right now, the current internet is all dirt roads, and Net neutrality would keep it that way. 

Much as may find it neat and nifty, the current internet is not even close to its fully developed state. It’s incomplete, slow, and inefficient. ISPs want to add bigger, faster lanes for those that want or need to take advantage of faster delivery lines. If all we have are dirt roads, does building highways—faster, more direct routes—hurt anyone who continues to use the old roads? Nope; if anything, it might help them indirectly by providing faster service to people or corporations they do business with. Sen. Snowe and her fellow neutrality proponents would have everyone bumping around on the back roads of the Net forever.

--Peter Suderman

Good Health is Good Business, thanks to DDT

The New York Times reports today on a welcome piece of good news in the fight against malaria. In Mozambique, private industry is taking on the fight—with the government’s cooperation—and getting results. Says the country’s deputy health minister: “This is the first time in Mozambique we have used the private sector. The results have been terribly good.”

The international mining company Billiton saw enormous absentee rates at its new aluminum smelter in Mozambique. In two years, one in three employees fell ill—for a total of 6,600 cases—and 13 employees died. However, today, reports, the Times:

“Wielding a combination of new medicines, better bed nets, old-fashioned pesticides and computer analysis to clean up the most afflicted areas, the smelter and its partners in business and government have turned malaria in one of its former hot spots into a manageable threat.”

The pesticide spraying includes DDT, “which remains controversial,” yet Mozambican officials “were swayed by the World Health Organization’s approval of DDT’s limited use for malaria control and by South Africa’s resumption of its use in 2000 after a four-year break, during which malaria resurged.” Mention that next time you hear somebody praise Rachel Carson’s Silent Spring. (Free subscription required for Times link.)

--Ivan Osorio

Nothing So Unsure as Government Insurance

Moral hazard is one of the most harmful effects of government intervention in the economy—and few government programs create and perpetuate moral hazard like subsidized flood insurance. Yet government can only shield individuals from risk for so long, as many Florida homeowners are now finding out.

As The New York Times reports today, many homeowners in hurricane-exposed areas are seeing their insurance rates go up drastically. This is definitely a problem, especially for people whose claims are going unpaid. But if the state is to become involved, it should refrain from going beyond emergency relief. Subsidizing insurance in a permanent fashion would only encourage people to move to areas exposed to hurricanes, floods, and other disasters, essentially encouraging people to build in harm’s way.

Motivating people to move to less disaster-prone areas is a sign of the market working: Forcing consumers to internalize risks helps reduce overly risky behavior.

Many Florida residents are turning to the Citizens’ Property Insurance Corporation, the state’s insurer of last resort. But, notes the Times, “the higher rates are forcing Florida residents to confront the real costs of living in a hurricane-prone region, and many say life in the tropics may not be worth the price.”

It doesn’t seem worth it to George Myers of St. Petersburg. Having seen his insurance premium shoot up from $500 to $1,350, with further increases to come, he decided to move to Virginia. “The worst thing to happen there is I get cold,” he told the Times. “I don’t see it changing or getting any better here.” (Note: The author of this post is himself a Floridian now living in Virginia.) (Free subscription required for Times link.)

-- Ivan Osorio

Deborah Ortiz Knows Child Abuse

Regarding a bill banning smoking in a car with a child under age 6 that passed in the California Senate Health Committee yesterday, committee chair Deborah Ortiz said, “There’s no excuse in today’s society for any mother of any age, or any level of education, to do something which I consider akin to child abuse.” Apparently only Deborah Ortiz’s opinions matter when it comes to what should and should not be considered child abuse. Feed your kids split pea soup? Not if Deborah Ortiz considers it akin to child abuse, you won’t!

According to the Contra Costa Times, smokers can be fined under the bill even if the car is parked and on private property. Clearly California is just a cigarette’s flick away from suggesting banning smoking in private homes: If they can tell you what you can and cannot do in the driveway, is there really much left in terms of precedent to stop them from stepping gingerly up to the front porch and peering in the windows? 

I’m not suggesting that people should smoke around kids, and I usually go to pretty substantial lengths myself not to. But there are a lot of ways to screw up your kids; regulating them all away because they don’t comport with Deborah Ortiz’s—or anyone else’s—views on good parenting should be a very very scary proposition for a people who pride themselves on their freedom. (Insert joke: If we aren’t free to screw up our kids in the way we see fit, then the terrorists have won.)

For more on the trend towards trading privacy for do-goodism and the very dangerous places it could lead, Dr. Michael Siegel has a characteristically thorough and illuminating post here. Also, I’ll be talking about this on Heartland with John Kasich, Saturday night at about 8pm on FoxNews.

--Brooke Oberwetter

Doing More

Over at Tapped, Ezra Klein, who is not always entirely unreasonable about Wal-Mart (at least not in the way that Barbara Ehrenreich is), continues the discussion about Wal-Mart’s role in the economy and beyond. His post contains a peculiar line, but one that is indicative of the sort of half way reasoned incoherence championed by the left:

But the progressive critique isn't that [Wal-Mart CEO Lee] Scott could do better to help his shareholders or expand his profits, but that his incentives are all off, that there's more to being a good business than simply being a successful one.

We’ve done a lot of work on corporate social responsibility here at CEI, and I’d encourage you to take a look at some of it (start here, then go here and here). But the basic idea—that business’ primary goal should be to do something other than maximize its profit—is selfish nonsense masquerading as moral righteousness.

Here’s what Klein is saying: Wal-Mart should do more. So, okay, how about a quick trip down the do more road, where Wal-Mart raises everyone’s pay and gives them more expensive health coverage. Wal-Mart’s going to have to pay for this somehow, and with the size of its workforce, that’s going to be expensive.

One option would be to raise prices. But who would that affect the most? The lower class who rely on Wal-Mart’s low prices to make their monthly budgets. And not only that, it’s probable that without the low price model, Wal-Mart’s sales would plummet—putting many of its employees out of work.

Klein’s response would surely be, well, Wal-Mart can take it out of their profits. Maybe, although with Wal-Mart’s extremely thin margins and massive workforce, cutting into executive compensation and profits wouldn’t allow them to do much of what Klein calls “much more.” But let’s just say that somehow, Wal-Mart was able to provide enough more out of those profits to placate Klein. What’s really going on there is that Wal-Mart, as a business, is getting the exact same productivity at a much higher rate. In other words—Klein wants Wal-Mart to pay more for something that hasn’t increased in value. Now, prices on some things go up slowly with time, but for the most part, few of us would suddenly start paying significantly more for something that doesn’t give us any added value. Yet that’s what Klein wants from Wal-Mart.

On the other hand, if Wal-Mart didn’t do as Klein thinks they should, they’d end up doing far more for America than under his system. Those profits can be used to expand the business, hire more workers, improve the lifestyles of the workers who are there and who, by working harder and becoming more valuable, earn pay raises and more benefits.

The problem with the anti-Wal-Mart crowd is that it wants something for nothing, higher rates for the same value. It may sound like a nice idea, but in the long run, it hurts exactly the people that Klein ostensibly wants to help.

--Peter Suderman

Electric Cars, Electric Dreams

Excellent TCSDaily article (TCS Daily article on electric cars by Ralph Kinney Bennett) today on electric cars and the people who love them. I admit I’ve scarcely given thought to electric cars. Or flying cars. But even I had heard about the little matter of battery limitations, which leaves me wondering why electric cars, or the thought of them, stir up such yearning and resentment in some folks.

--Christine Hall

Wal-NotSoSmart

Having spent my formative years in a small town in northern Florida just a few miles from the very first Super Wal-Mart, I’ve spent my share of time traipsing through its aisles. As a college student, I practically lived at the place. So it’s not just that I find the crusade against Wal-Mart absurd from an economic point of view, it’s that I’ve experienced, first-hand, the reasons why Wal-Mart works.

Anyway, Slate is currently hosting a discussion about the retail giant that’s illustrative of the anti-Wal-Mart left’s absolute disregard for all economic reality when Wal-Mart is concerned. On one side is Jason Furman, a self-described progressive who labels Wal-Mart a “Progressive Success Story” (no kidding!), and believes that the cost savings to lower-income people more than make up for any alleged income disparity in Wal-Mart employees (a disparity about which he isn’t sure is even really all that problematic). On the other side is Barbara Ehrenreich, an anti-Wal-Mart crusader who worked at Wal-Mart for a few weeks as part of a bit of anti-corporate journalism and now has joined the leagues of haters.  It’s amusing to see how willfully and flagrantly she ignores the logic of what he says:
 

JASON FURMAN:

I live near a Best Buy, the Wal-Mart of electronics stores. Directly across the street is Stereo Exchange, a boutique outfit with high-end equipment that is consistently rated the best stereo store in New York. Best Buy has a great selection and it's pretty cheap, but don't expect the salespeople to know the difference between a plasma TV and an LCD TV—if you manage to attract their attention in the first place. Stereo Exchange has several fawning and knowledgeable staff members, typically serving the one or two customers in the store at any given moment.

I assume that Stereo Exchange pays its staff a lot more than Best Buy does. But this doesn't make Best Buy a bad company or prove that it exploits its workers. No one would say that Wal-Mart exploits its workers because they're paid less than doctors. Nor would anyone say that Wal-Mart is a terrific company because it pays its employees a lot more than McDonalds does.

Now imagine that Best Buys across the country were replaced by Stereo Exchanges. We would have more "good jobs" and fewer "bad jobs." The average wage in the electronics retail sector would go up. But where would all the former Best Buy workers go? Most of them wouldn't work at Stereo Exchange. Maybe some would take a pay cut and work at McDonalds. Maybe others would get lucky and find this was just the prod they needed to find a better job. It's hardly obvious this would be an improvement.

I also confess to not knowing how to figure out what Wal-Mart "ought" to pay or can "afford" to pay. Wal-Mart employees are paid more than about one-third of American workers. Does that make Wal-Mart a nicer, better company than the lower-wage employers? Does it make Goldman Sachs—with its average compensation in the hundreds of thousands of dollars—a friendlier, more moral company than Wal-Mart? And if our concern is low wages, why don't we focus on the roughly 40 million jobs that pay even less?

And Ehrenreich's response?  She just claims "bafflement" and proceeds to blather on.

BARBARA EHRENREICH:

Hi, Jason:
I'm a little baffled by your Best Buy/Stereo Exchange example. If Stereo Exchange took over from Best Buy, there'd be a lot more better-paying jobs in the retail electronics business. Why wouldn't the former Best Buy workers take a lot of these new and better jobs? They're not all as clueless as you seem to think.

So, somehow Ehrenreich thinks that if Wal-Mart were to be replaced on a one-for-one basis with smallish luxury stores paying higher wages, all or most of the Wal-Mart employees would somehow be able to just jump right over into higher paying jobs.  Must be nice to live in that wonderful fantasy world where massive wage increases to a million-plus person workforce don't have any effect on how many people can be employed, or what product costs are (and therefore how much product can be sold), or any of that icky economic tradeoff stuff. 

--Peter Suderman

It’s About Quality

It sounds quite reasonable that information that is published by the various agencies of the federal government should “meet basic standards of quality, including objectivity, utility, and integrity”. But Scientific American doesn’t seem to think so.

In an article this week, Scientific American laments the possibility that the federal Data Quality Act “could tie up government reports indefinitely, long before their data could lead to any government action.” It is the 2001 Data Quality Act (pdf) which lays out a set of guidelines for ensuring ‘quality control’ of published information by the various federal agencies of the United States.

But I don’t think Scientific American needs to worry: The Data Quality Act has certainly not prevented the expansion of the regulatory state (see Wayne Crews’ Ten Thousand Commandments for an assessment of the cost of the regulatory state).

Interestingly, CEI has had some experience with the Data Quality Act. In 2003, CEI had launched a lawsuit (pdf) against George W. Bush (as Chairman of the National Science and Technology Council) arguing that the National Assessment on Climate Change violated the legal requirements of the Data Quality Act.

In the end, CEI withdrew its lawsuit and the National Assessment on Climate Change put a cute disclaimer on its homepage:

“The National Assessment Overview and Foundation Reports were produced by the National Assessment Synthesis Team, an advisory committee chartered under the Federal Advisory Committee Act, and were not subjected to OSTP's Information Quality Act Guidelines.” (emphasis added)

--Isaac Post

“If You Want ‘em to Join You, Beat ‘em ‘til They Can’t Take No More”

There may be a new twist to the old cliché of “If you can’t beat ‘em join ‘em,” that goes like, “If you want ‘em to join you, beat ‘em long and hard enough that they not only give up, but come to love you”—especially if you’ve got the power of the state behind you. That’s a lesson that Nicaragua’s authoritarian Marxist former president Daniel Ortega seems to have taken to heart, with good results (for him at least). Ortega, who is running for Nicaragua’s presidency this year has as his running mate the man whose house he forcibly seized, and in which he now lives. As The Miami Herald reports:

“Former Nicaraguan President Daniel Ortega’s house—a six-bedroom estate with a formal salon, vast dining room and a couple of cottages out back—has long represented the ill-gotten goods of the Sandinista era.

“Ortega snatched it after his Sandinista guerrillas gained power in a 1979 revolution, and he reportedly paid just $2,000 for it when he left office in 1990, when experts estimated the two-block compound was worth a half-million bucks.

But now…

“In an ‘only in Nicaragua’ political move, Jaime Morales, the original owner of the house and a man who fought a losing legal battle to get it back for a decade, has become Ortega's vice presidential running mate in the November election.

“‘I never had hate in my heart,’ Morales, 69, said by phone from Managua. ‘I am sensible. I am not obsessed. I'm not going to spend the rest of my life shouting, ‘Give me that house back!’”

Bizarre? Absolutely, but it's worse than that: To give up a claim to property that was stolen from you is to legitimize the theft—no matter how long ago it took place. (Thanks to Claudia Osorio for the tip.)

--Ivan Osorio

The Wall Street Journal Weighs in on the PBGC

The Wall Street Journal weighs in on the Pension Benefit Guaranty Corporation’s (PBGC) growing liabilities and dysfunctional structure, following Delta Airlines’ cancellation of its pilots’ pension plan—and its input could not be more welcome. Notes the Journal in an editorial:

“Since 2002, far too many airline, steel, auto and other companies have dumped their pension plans on the PBGC, the quasi-government agency that ‘insures’ private pension plans. That body has gone from a $10 billion surplus in 2000 to more than a $23 billion deficit last year, and it is the financier of last resort for a private defined-benefit pension system that is underfunded to the tune of $450 billion.

This is what happens when Congress socializes what ought to be private labor contracts. The theory behind the PBGC was that it would collect enough premiums from companies to cover future liabilities. But as always in Washington, unions and powerful industries have worked the political system to prevent premiums from reflecting real market and business risks. The result is today’s underfunding and a looming taxpayer bailout.”

This bailout would come in the form of a “reform” currently in Congress. Both the Senate and House versions of this bill would require underfunded companies to cover their liabilities within seven years. “But the most troubled companies are getting a pass,” note the Journal’s editors.

“This giveaway would provide the airlines 20 years to amortize their underfunding—in addition to the seven years everyone else is getting. Airlines would also be able to dodge a requirement that companies use an index of corporate bonds to discount their pension liabilities. Airlines would get to choose their own discount rate, and historically they've used 8.5% or 9%.”

We’ve noted the PBGC’s serious shortcomings before—and again recently on this blog —so here’s hoping this editorial is the beginning of a long overdue outcry against this taxpayer-soaking boondoggle. (Paid subscription required for Journal link.)

-- Ivan Osorio