Category Archives: Regulations

Paul Krugman Was (Probably) Right!

It pains me to admit this, but Paul Krugman was probably correct about something. (Though, modern-day Krugman might disagree.)

I’d point you to this excellent NRO item:

But what if 2014’s jobs boom is mostly thanks to the expiration of a program that the Obama administration and Democrats fervently pushed to renew?

That’s the finding of a new NBER working paper from three economists — Marcus Hagedorn, Kurt Mitman, and Iourii Manovskii — who contend that the ending of federally extended unemployment benefits across the country at the end of 2013 explains much of the labor-market boom in 2014.

About 60 percent of the job creation in 2014, 1.8 million jobs, they find, can be attributed to the end of the extended-benefits program. That’s a huge amount, and suggests that long-term unemployment benefits, while there’s a good charitable case for them, could have played a big role in the ongoing lassitude of our labor market. (Indeed, an earlier working paper from a few of the same authors argued that extended benefits raised the unemployment rate during the Great Recession by three percentage points; see a summary of that paper here.)

This brings me back down memory lane, nearly five years ago, to my days as a young and brash aide to Senator Jon Kyl (R-AZ) in 2010.

Here’s what Krugman sneered in his column back then about floor remarks made by my boss regarding the large expansion of unemployment insurance:

Here’s what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending Mr. Bunning’s position (although not joining his blockade): unemployment relief “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

To Krugman fanatics and haters, it’s not news that Krugman will write one thing, and then, years later with a newspaper column, write something completely different.

So, we went to the Library of Congress and pulled out the text book he had written with his wife, called “Macroeconomics” and look what we found:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European countries.

Golly.

So, a letter to the NY Times — something they are known for not publishing if critical — was drafted. And wouldn’t you know? It got published.

Though, we never did hear back from Paul Krugman. But I hope pre-NYT Krugman is feeling somewhat vindicated.

Here’s the letter:

jk nyt unemployment

Benefits of Price Discrimination, Continued…

As a consumer, I salute Safeway for participating in the perfectly acceptable (and beneficial!) practice of price discrimination.

Thank you, Safeway.

safeway

Imagine A World Without Price Discrimination

Price discrimination is poorly understood. Some, including me, think it gets a bad rap. I actually like it. The layman’s definition is charging people different prices for the same good or service. To economics uber nerds, you might hear it described as “taking advantage of different elasticities of demand for the same goods by charging different prices relative to marginal cost.”

Love it or hate it, price discrimination happens quite frequently — more so than most expect.

The first and most important factor in why people don’t like price discrimination is the term itself. Usually, nobody likes being on the receiving end of discrimination — unless it benefits them. Economist types prefer much less harsh terms for the practice, calling it “dynamic pricing” or “price customization.” Thomas Sowell, in his book Applied Economics, makes a very important point here:

Prejudice, bias, and discrimination are too often confused with one another. Each requires careful definition before discussing substantive issues, if those discussions are not to get hopelessly bogged down in semantics.

On the web today, many many pixels were devoted to Amazon and their new “Amazon Mom” program that gives a discount to mothers. The debate was whether people should lie to Amazon to get that discount — since they weren’t “verifying” if your baby was real.

Thought leader Touré shared this pearl of wisdom with us: “If a lie is told to a corporation, it’s not really a lie.” You can play this game at home, like former DC City Council member Kwame Brown did, by lying about his income to a bank. He went to jail, and so could you. Corporations are people, my friend. Vengeful, vengeful people.

Anyways.

If Target can find out people are pregnant through data wizardry, it’s safe to assume Amazon can probably do that even better. Heck, if you’re not buying baby items, I’m sure they’ll notice pretty quickly. I have no dog in that fight, except that I am happy to support price discrimination. Though, you probably won’t go to jail for lying about a fake baby — you’ll just be as bad as people who fake pregnancies.

There is a liquor store I go to in Washington, and because I go there with some frequency, I get special pricing. You, however, pay full price. I go to this store because I liked the pricing and selection before, and even more so now. Unlike Virginia, where my outgoing governor who promised to privatize our horrible liquor delivery system but failed to do so, these stores have decent selection. And because there is competition, you can actually get good prices on booze.

My shopkeeper seems to understand the pricing mechanism quite well. Cleveland’s finest — Great Lakes Christmas Ale — goes for $25 a six pack. Given its scarcity, he knows people will be willing to pay more for that premium product. And because he does this, it stays on the shelves. There was a six pack there this evening. A few years ago, before the secret got out in Washington, my sister and I scooped up five cases of the stuff at a reasonable price. At $25 a six pack, today, our little haul would cost $200 more.

Now, before you conclude that I like discriminatory pricing because it results in me getting cheap liquor, I’ll switch to a few more important examples.

To truly understand the usefulness and benefits of price discrimination, you should try to imagine a world without it.

At Business Insider, Josh Barro observes:

“Discrimination” has negative connotations, but there’s nothing immoral about price discrimination. In fact, it can be an economically useful mechanism. If airlines had to charge the same price to every flyer, a lot of flights would become uneconomical to operate, making both the airline and the passengers worse off.

Indeed, Barro cites but one of many examples where price discrimination serves a necessary function. Without price discrimination, would there be as many flights as there are now? As many routes? Would you be able to afford them? What about $1 Megabus rides, certain types of discounts, or coupons?

Thankfully, we probably won’t have to find out because price discrimination isn’t likely to disappear from the marketplace anytime soon.

Josh Wright writes that “discrimination is likely to result in lower prices, higher output, and increased innovation.” And he would be correct. Without price discrimination, airline output would be markedly lower.

He also concludes a fantastic blog post with this:

“one lesson of the price discrimination literature that is ignored is exactly how unusual uniform and linear pricing is in the modern economy! The ability and incentive to price discriminate, which requires only the absence of perfect substitutes, is ubiquitous. It is a power held by every restaurant, landlord, corner gas station, supermarket, and small firm in the economy. Because price discrimination is profitable, we can expect firms in our modern economy to invest substantial resources not only in product differentiation, but also in finding methods to price discriminate. These provide no reason for competitive concern. Indeed, I think one could make a plausible argument (though I won’t in this post) that the absence of price discrimination is more worthy of regulators’ attention than its presence.”

FURTHER READING: A great FindLaw article on price discrimination and the law, and a CRS report on Robinson-Patman.bsig

Can Reason Save Cleveland?

Earlier today, I shared Matt Yglesias’s story on why Silicon Valley should relocate to….Cleveland.

The facebook post I shared came with this message:

Yglesias writes “It’s time for tech hubs to go where they’re welcome.” And he picks…. Cleveland? What? Off his rocker.

The post received a number of comments, including one from a thoughtful a neighbor, whose son I played hockey with. He writes:

So Jimmy, you have been away long enough that you are now a Cleveland basher as well? True, we have three months of bad weather…..but unbelievable property values, great cost of living, great culture (I would put the Cleveland Orchestra up against any from San Francisco or Washington), the largest theater district west of NYC, a great art museum, the Hall of Fame, fantastic restaurants, great music ……and, oh yeah, you can actually get to all of them within 30 minutes – not 2-3 hrs. BTW…how much would your old home on Eaton Rd cost in either SF or Washington?

I frequently, and sometimes more harshly than I should, criticize Cleveland. I’d like to clear the air and share my thoughts on the matter. I don’t hate Cleveland, I criticize because I love where I grew up and want my hometown to thrive — despite its efforts to snatch defeat from the jaws of victory.

Here’s my response to my former neighbor, an all around good guy who frequently inspires great discussions on my facebook wall:

Dr. S. — I don’t disagree with your points on Cleveland the region. I do think, and agree, that the region would be good to host a wide range of industries for the reasons you express. And, for what it’s worth, I love the bad weather.

Indeed, the house I grew up in on Eaton road would easily go for a million or two here in Washington or San Francisco, if not more. (So, three to six times the cost.) Detroit, as Yglesias notes, has even more affordable housing, but he wrote them off as a lost city, noting that if he had picked Detroit, people likely migrate to Ann Arbor. I don’t think Cleveland is lost yet, but it’s not going out of its way to improve things, in my opinion.

Solving Cleveland’s inability to attain the growth it could attain is a puzzle, one with locally imposed constraints and with ones imposed by the state. The Cleveland area has many great attributes and it also has some things it needs to work on. That goes for Ohio, as well.

While I am frequently critical of Cleveland — sometimes more harshly than I should be — it’s because I’d love for my hometown to be the next Silicon Valley, but at present, I don’t think it can be. But that doesn’t mean that it can’t. Some of that is on the city of Cleveland itself, some on the suburbs, and some on the state. Before I forget, some of it is on Cuyahoga County — now with less corruption!

One reason is because I think that municipal income taxes are a poor way to structure things, especially if individuals who live in one city but work in another have to pay taxes to both in some respect. Unlike other comparable jurisdictions in other states, potential employers would have to pay more in salary and benefits to offset the tax differential. Not exactly a welcome beacon to relocate to NE Ohio. Sure, low-income earners get an exemption, but, in the case of the Yglesias example, tech employers probably employ fewer people exempted than those subject to paying taxes in Cleveland and (insert name of other jurisdiction).

Like the electoral map, Ohio has a bunch of residential clusters and a larger swath of area with lower population density.  Yes, California has high taxes — but it doesn’t allow city income taxes the way Ohio does. I do think an examination of the state’s tax policies are in order. That could benefit Cleveland and NE Ohio greatly.

Yglesias is correct to note that, unlike Detroit or Buffalo (no offense to my Buffalo friends), Cleveland could be fertile ground for such a resurgence. But, knowing that Cleveland and nearly every other major city does what it can to sell itself to businesses (like Philadelphia is doing to California’s Sriracha maker, under fire from the city in which it does business), businesses aren’t flocking to Cleveland. I wish they would, because I’d love to move back some day and watch the Browns lose in person. Maybe some day, we’ll win big.

My other concern/criticism with his piece is, at least as it pertains to the city, is this: If Yglesias thinks that it’s time for “tech hubs to go where they’re welcome” because SF residents are complaining about private bus stops — wait until he learns about some of Cleveland’s NIMBY problems.

Cleveland’s zoning and regulatory policies, for me, leave much to be desired. In my opinion, the city of Cleveland’s problem isn’t due to one-party rule, it’s more a problem of ideology. It’s more of a “our job is to help business ‘thread the needle‘ of regulations” than it is to make the regulations and laws more conducive for businesses to want to locate there in the first place.

My TL:DR is this — If Yglesias were revealing some secret about why everyone should “flee to the Cleve” and move their business there, people would already be doing it. I wish they were, as Cleveland is a great area with a lot to offer. But they aren’t. It’s not because of a lack of publicity or PR. Other journalists, with a love for Cleveland and Ohio, have already suggested some reasons why Cleveland might want to shun PR and focus on change, but they’ve largely been ignored.

While I’d love it if Ohio and Cleveland adopted the Texas and Houston models, that is unrealistic. It won’t happen. It’s part of the culture, which is fine. Even some modest changes in that direction, though, could help Cleveland.

bsig

UPDATE: I recommend this post by Daniel McGraw on the same topic.

Buying Local and Foraging to the Extreme

foragingI have nothing against the “buy local” crowd, the foraging crowd, or the urban gardening crowd per se.  I have no problems with people liking each of the concepts. My complaints and problems with each of the groups stem from absurd and cult-like adherence to each dogma as if it were its own religion, forced on others, or taken to the extreme.

While buying local might be worse for the environment in some cases, or more expensive than mass-produced items shipped from a distance, people should be free to pursue the best course of action they see fit. Even if it means more harm to the environment and their wallet. Urban foraging, provided you’re not stealing from your neighbor — like chefs in local-food-crazed Portland are doing — is a little weird, but if that’s what you want to do, fine.

This recent story I read in Bloomberg Businessweek is an extreme example in buying local, urban gardening and foraging craze — or as I call it, going Authentically Amish (with apologies to the local furniture store.) A half hour outside of Albany, NY is Earlton. Here, there is a restaurant with a five-year waiting list.

The restaurant with the longest waiting list, five-years to be precise, is a small, nondescript, 12-table basement located in Earlton, N.Y ., named simply enough Damon Baehrel after its owner and chef. Its guests come from 48 countries and include such celebrities as Jerry Seinfeld, Martha Stewart and Barack Obama himself. However what makes Baehrel’s restaurant the most exclusive restaurant in the world is not the decor, nor the patrons, some who fly overnight from Manhattan to pay $255 for dinner (before wine and tip), nor the hype (although all the advertising is through word-of-mouth), but the food, which is all cultivated, grown, prepared, cooked and served from and on the property, and where Baehrel is literally the only employee. “I’m the chef, the waiter, the grower, the forager, the gardener, the cheesemaker, the cured-meat maker, and, as I will explain, everything comes from this 12-acre property.”

By that math, if this restaurant is open five days a week, with 12 tables and two people at each averaging $255 a head, Mr. Baehrel is raking in close to $1.5 million a year.

Bloomberg notes that it’s about half that, but still:

This hyperlocal, hyperunderground strategy is paying off. Baehrel won’t provide exact numbers but says he serves a few thousand guests each year and generates annual revenue of at least $750,000.

For foodies, visiting the so-called “Michael Jordan” of the movement has to be a big treat. There are similar restaurant concepts here in Washington.

But it is a cautionary tale of foodie-ism taken to the extreme. A five year waiting list? Must be nice if your last name is Baehrel, but to those wanting to go to a nice restaurant, pay a more modest price, and not have to wait five years, it’s good that the market offers other options.

The world would look a lot more like this if the extremist-type locovores were able to impose their whims on the rest of us, but that’s not likely to happen anytime soon. More likely, the locovores wage smaller, more winnable battles. And what start out as suggestions often become requirements later.

If you are among the Manhattan elite and can afford to pay and wait for such food, I hope it’s worth the wait. And to some, I’m sure it is. Nobody should begrudge Baehrel his success in offering something that clearly has high demand.

As for me, I’m happy to get my corn from where it’s most efficient to grow corn, beef from where it’s best to raise cattle, and my high-fructose corn syrup from the plant best able to deliver a quality product to the Coca Cola bottler near me. Or Mexican coke with that cane sugar. Delicious imports.

So long as the market isn’t unduly inhibited by regulations, locovores and free traders should both be able to enjoy the fruits of the harvest in harmony. bsig

 

New Yorkers Complain About Economics

From the ever-expanding “This Isn’t Price Gouging” Department, the New York Post reports:

Passengers are blasting the Uber car-service app for its “surge’’-pricing scheme, which kicked in during the city’s first snowstorm of the season — in one case pricing a short trip across town at a whopping $132.

But in Boston, blogger Jessica Gioglio — who bills herself as “The Savvy Bostonian” — shelled out $91 for a 3.18-mile, 16-minute trip from Beantown’s Back Bay to Central Square.

Posting a screenshot of her e-mail receipt, she called the fare “price-gouging” and said, “I’m really disappointed in u guys.”

Uber, much maligned by regulatory fiends and taxi cab sympathizers, has really upset the taxi cabal in many major U.S. cities. Namely by providing better, more convenient service for a more premium price.

Unlike taxicabs, whose drivers can usually only impose a change in prices when allowed by decree from the government (i.e. during a snowstorm, or when gas prices are unusually high), Uber can raise prices to reflect market demand. And users are clearly made aware of this before they agree to take an Uber, as seen below.

The Post continues:

The app’s practice of surge pricing is actually designed to help consumers, Uber spokeswoman Nairi Hourdajian insisted Sunday. The higher rates “get more cars on the road quickly when demand outstrips supply, helping to guarantee that New Yorkers can get a ride when and where they want,” she said.

“As soon as demand falls or supply increases sufficiently, prices return to normal.”

Uber cars and their drivers, like everything else, are a scarce resource with alternate uses. Uber is right to raise prices to incentivize more drivers to work than to accept private contracts (as many Uber drivers do in Washington), hunker down with their family, or go out and get supplies for their homes. Just like laws prohibiting so-called “price gouging” during a storm serve as a disincentive for shop owners to stay open, the rules that govern taxi cabs often result in less taxis being available.

Which, in turn, might cause Uber’s demand to surge even higher than it normally would if taxis had greater flexibility to charge market rates. bsig

The Sriracha Story … How Will It End?

The timing for Griffin Hammond’s documentary on Sriracha sauce couldn’t be better. More on that in a bit. This holiday season, I highly recommend this 33 minute documentary, which you can buy for $5 on his site. Put it on a flash drive, tape it to a Sriracha bottle, and give it to a loved one as a stocking stuffer.

My only complaint is that I wish it were longer and included the current fight over the ability of Huy Fong to sell its products.

Fans of the sauce will especially love the film, and those who can’t stand anything spicy will still find the story of it fascinating.

Hammond tells the story of one of America’s favorite hot sauces with a cult-like following from a societal perspective, from that of David Tran, the Huy Fong company’s founder, and from a historical perspective about the sauce’s origins in Thailand. Now, Sriracha isn’t my favorite hot sauce (it’s hard to pick one), but it was one I stupidly avoided at burger joints. I’m happy to admit I am wrong, because this sauce is wonderful.

Just the “how it’s all made” portion of the documentary, which is well-filmed and produced, would be enough to interest me. Hammond bills it as “The origin story of an iconic hot sauce, finally revealed.” He’s not lying.

Tran, the founder of the most known version of the Sriracha-type chili sauce (with a green cap and a rooster on it), came to the U.S. by way of Hong Kong after the fall of Saigon. As an ethnic Chinese man, he wasn’t really welcome in Vietnam after it went communist.

hf2Tran got out of Vietnam on a boat. When the British told the boat to turn back, it stayed there for a month. The British relented, and Tran made his way to America as a refugee.

In 1980, he founded his company, selling his version of the Sriracha sauce in the Chinatown neighborhood in LA to local restaurants. The company’s name?  Huy Fong — the name of the ship that saved him from communism and a society that didn’t welcome him.

He has never marketed his sauce, though fans appear eager to do so for him — including the webcomic The OatmealTran seems more interested in bringing his product to the masses.

Much success has come to David Tran and his chili sauce factory. His former factory was once a Wham-o factory that made frisbees and hula-hoops, but demand grew too much. So, in 2010, he arranged for a bigger factory — a few times the size of his old one — in nearby Irwindale. In 2012, he sold 20 million bottles of the stuff.

In the making of chili, during the fall harvest, the peppers need to be pureed and mixed with other inputs at the most ripe point, when they are red. So, for much of the ripe-times for these chilis, the Huy Fong plant excretes a delicious chili aroma. Then it’s aged and stored before it is bottled and sent out.

Irwindale’s citizens, fewer than 30 of the city’s 1,400 residents– including a city councilman’s son — complained about the chili odor. And because of this, the city sued, saying the smell of chili was a “public nuisance.” This, after Tran and Huy Fong installed filters not once, but twice in response to complaints. The South Coast Air Quality Management District visited numerous times, but didn’t cite Huy Fong for violations.

Tran won the first round, but on appeal, the city won — even though the judge said there was a “lack of credible evidence” tying health problems to the factory’s smell — on the public nuisance complaint. For now, it doesn’t matter that much until next fall, since the harvest is over. The fight, though, isn’t.

According to the LA Times, some of the closest neighbors to the plant, however, fail to see what the problem is:

Sal Hernandez, a 75-year-old former Irwindale councilman who lives on Azusa Canyon Road, just a few houses from the Huy Fong plant, said he has never noticed a smell. He said he was surprised the city went after the maker of Sriracha hot sauce so quickly and aggressively.

“It hasn’t bothered me yet. I haven’t had any effects from it, and I’m right next door to it,” Hernandez said.

A former reserve police officer who has lived in the city for more than 30 years, Hernandez said few people go before the council to complain about the smell from other factories in town – like the huge MillerCoors Brewery or a dog food manufacturer on Arrow Highway.

“Things we should go to court for we don’t, and for this thing, we’re taking [the Sriracha company] to court,” he said. “I’m surprised. They were praising this thing before they even came in. Everyone was praising it.”

Praising it, indeed. The city even went out of its way to attract those Huy Fong jobs, offering a really good loan for a small town that, when you think about it, is kind of nuts.

The LA Times reports:

Huy Fong Foods decided to locate its factory in Irwindale three years ago when the city offered a loan with “irresistible” terms: pay only interest for 10 years, with a balloon payment at the end.

Huy Fong took the loan and contributed $250,000 a year to the city of Irwindale each year as part of the deal, Tran said. The company then built a $40-million factory that at full capacity could generate about $300 million a year in sales, according to Tran’s statements.

But after complaints about the smell began last year, Tran said he began to get an “odd feeling” about the city’s behavior. In response, the company has taken out a loan with less favorable terms from East West Bank to pay off the city’s loan.

Could Irwindale be suffering from buyer’s remorse? Perhaps. The town with 1,400 people did offer to front a loan for Huy Fong similar to the interest only mortgages popular before the housing crash in exchange for jobs and commerce, which seems like a bad idea. Tran’s premonition led him to pay off the loan early, like some TARP recipients did in the wake of the financial crisis when the Treasury imposed special regulations on loan recipients.

Or is Irwindale angling for a settlement deal? Also possible.

The city could be taking action for all 20-some citizens who have a problem with the plant, though based on former councilman Hernandez’s comments, the city’s actions seem strange — like that of a spurned crazy ex-girlfriend.

One thing is for sure, taking loans from the government may save you money up front, but the special terms of the deal often appear after you’ve signed on the dotted line, as seems to be the case here.

Tran looks like he is taking this personally. He put up a big banner that reads “NO TEAR GAS MADE HERE” and hung it out in front of his factory. The sign gives the impression Tran plans to fight this in court, but the company is largely keeping quiet.

Los Angeles County, where Irwindale is located, has a higher than average unemployment rate — 9.5% as of October. Like the Dollar Shave Club commercial says, “I’m no Vanderbilt but this train makes hay” — Tran’s brought commerce to Irwindale, but do they really want this litigious NIMBY reputation? It doesn’t appear the city has put much thought to the trade offs such a lawsuit brings.

If Irwindale’s sudden and bizarre reversal weren’t enough for Huy Fong, the state of California has made matters worse.

According to a report by ABC News:

The Southern California-based maker of Sriracha has been told it can’t ship any more of its popular hot sauce to food distributors until next month because the state Department of Public Health is enforcing stricter guidelines that require a 30-day hold on the product.

Health department spokeswoman Anita Gore told The Associated Press on Wednesday that the 30-day hold is needed to “ensure an effective treatment of microorganisms present in the product.”

The move by the California Department of Health might be seen as suspicious by some, given the timing. But it appears that the regulation that went into effect wasn’t specifically targeted at Huy Fong.

LA Weekly reports that the 30-day requirement “has existed for years but that it was recently modified in a way that now applies specifically to Huy Fong’s hot sauces.” The Department of Health cited federal regulatory law as the justification for the change in their enforcement, despite the sauce being produced there for over 30 years. The regulations were changed in 2011, under the Obama administration, state that companies that deviate from the scheduled process for acidified food must “set aside that portion of the food involved for further evaluation as to any potential public health significance.”

California has stricter rules than the rest of the U.S. for guns, cars,  and apparently, hot sauce.

One wholesaler is very unhappy, telling ABC News that he’s already received 30 angry phone calls — more than the total number of complaints in Irwindale — about the problems it’s causing. Unfortunately for consumers, they don’t have a city to sue on their behalf, only David Tran, Huy Fong Foods and his legal team. The delays, the wholesaler says, could cost him $300,000 in lost business.

Other cities’ officials are trying to lure Tran and his company to relocate to their city. One such place is Philadelphia. While it’s unlikely Huy Fong — which only uses one chili supplier — would ship its chilis across the country in an expedited manner to make their product there, nearby Arizona and Nevada might be a better fit.

In the film, Tran tells us that if people no longer like his product, he’ll stop making it. His product’s popularity isn’t the problem at present — it’s California, and Californians. David Tran waited a month on a ship to escape Vietnam, so Irwindale should expect no lack of patience from him.

I doubt Tran will go full Atlas Shrugged and deny foodies, hipsters, and hot sauce fanatics his great product. But its fans should take notice to see what the NIMBY crowd and regulatory overreach is doing to one of their prize condiments. Don’t expect any hilarious criticisms of regulatory overreach by The Oatmeal.  Unless Tran wins in court, the price of Sriracha is set to rise, or the California label might be coming off the bottle.bsig

If the Neo-Luddites Got Their Way

The resurgence of luddism is something that, while seemingly innocent, is frankly quite troubling. Neo-luddites take many forms these days — from the buy local crowd, the organic obsessed, make-work Keynesians to actual, straight up luddites. (I guess make-work Keynesians are sort of the same thing…)

As I’ve previously criticized the cult-like behavior of some buy local and organic folks, I’ll issue the standard mea culpa: Buying local or eating organic foods is just peachy in my book. Go for it. Go hog wild, but please don’t proselytize your lifestyle choices with clapatrap.

Go to the farmer’s market and buy “local” food from two states away. I’ll get food from Walmart that is even more local, and because they have economies of scale, it’ll be better for the planet than the F-250 that drove 500 miles with your kale (now with a free side of sanctimonious bullet points for lecturing!).

What bothers me about the neo-luddite cultists, aside from their lecturing, is that they don’t just lecture you about your choices, they often want policies to favor their choices.

Here’s a brief hypothetical look into what America would be like if some of these yahoos got cart blanche.

Garlic. Grown pretty much everywhere but Alaska. The U.S. ranks eighth in the world in garlic production.

Agriculture policies are changed, and no longer can you get garlic from Mega-Garlic, LLC. Your garlic now has to be locally grown, organic, and machine free.

This is what that would look like:

These are women peeling garlic in North Korea.

Throughout the rest of world, we have machines that do this. They’re pretty neat actually. They reduce labor costs and increase efficiency.

Even though I think that buying local for local’s sake is dumb, I realize that most people who love buying locally or people who love organic food (as opposed to that inorganic stuff we all normally eat) don’t espouse making their lifestyle choices mandatory for the rest of us. My example, North Korea, is a pretty extreme example. However, some people do think like that.

Many others propose watered down versions of this extreme, which is still pretty bad.bsig

Could Pop-Up Hotels Solve Disaster Housing Shortages?

I read with interest a recent piece in Businessweek about an innovate company that has managed to make something akin to a hotel food truck:

This year, Snoozebox Holdings is shipping 40 to 400 stackable containers to house guests at events including Le Mans, the Edinburgh Festivals of plays and concerts, and the G8 Summit. The prebooked rooms are equipped with flat-screen TVs, Wi-Fi, and running hot water.

Who would want to stay in one of those, you might ask? The company, Snoozebox, has already found some markets for its product.

snooze

The answer is, mostly, rich people. However, like with most innovations, what starts as a toy or luxury for the rich (telephones, VCRs, televisions, internet) usually becomes pretty affordable and widespread.

Take the devastating tornado that recently ravaged Oklahoma. Or the one in Joplin, Missouri. Housing is one of the most needed commodities in the wake of natural disasters. Could Snoozebox, or its competitors save the day and provide a market-based solution to help people in need?

While the obvious answer is yes, the reality is probably not. Or at least not anytime soon.

Whenever an innovation disrupts the current natural order, vested interests often use the law and politicians in an attempt to stifle competition. Economists call the former “creative destruction” (good) and the latter “rent seeking” (bad).

Creative destruction, in the form of the Uber car service or food trucks, is really great for consumers. Their competition — well established taxi cabals and brick-and-mortar restaurants — don’t see it that way. They get politicians to enforce laws that would inhibit any competitor from setting up shop, and if the laws doesn’t exist for that purpose, those interests usually push politicians to pass them.

Let’s rewind the clock to a day after the tornado hit Oklahoma. You work at Bomblebox, a fictional competitor of Snoozebox. Oklahoma would be an ideal place to offer your services to a populace coping with disaster. Hotels are overbooked, people are cramped in the houses of friends — often far away from the site of their former home. There’s a natural market for the Bomblebox.

Could Bomblebox drive a couple of trucks over and set up shop somewhere? In this hypothetical, it’s unlikely.

Each of the fifty states has their own laws and regulations governing hotels and lodging. And it’s unlikely that a company not already licensed to do business there could get all the t’s crossed and i’s dotted before the window of opportunity closes.snoozebox-exterior-sunshine

Second, local hoteliers, their trade groups, and other interest groups would probably object. There are a ton of ways they could do this:

Would Bomblebox’s products be up to snuff with Chapter 285 — the part of Oklahoma law that regulates lodging establishments?  Is the plumbing consistent with the Oklahoma Plumbing License Act? Is the electricity system consistent with the Oklahoma Electrical Licensing Act? Does each unit “maintain at least one lighting fixture suitable for reading”? Do all the bathroom floors have “impervious floor surfaces?” Is the sewage disposal system consistent with “regulations adopted by the Oklahoma State Board of Health?” I don’t know.

Remember, these laws are for your safety. Created, supposedly, to protect you — but they also often serve to protect the current natural order from competition.

You get the point.

The time and money it would take to ensure compliance would probably guarantee that such a plan wouldn’t get past the research phase. There are a lot of questions to answer just to drive a box that people would pay $400 a night to stay in while watching a race or stay at a festival like Bonnaroo. Put another way, if people are willing to pay that much to stay in a box at a race or a festival, my guess it’s probably good enough for  to stay in after the wake of a disaster.

But that’s not how regulation and the natural order operate. Mutually agreed upon and beneficial transactions, even under extenuating circumstances, are often illegal outright. You’re not necessarily free to transact with others as you see fit. While FEMA does provide disaster assistance — think FEMA trailers —  some people probably would be willing to pay more, and could afford to get something a little nicer than a crappy camper because for their well being they want the comforts of home.

Let’s pretend for a second that Bomblebox is a Missouri company, and has plans to do business all over the southland to help people recover from disasters, and provide housing during political conventions and festivals.

Could Bomblebox then, had it complied with all the varying laws regulating hotels and motels, go into business? Again, the answer is probably not.

Ill-advised price gouging laws in each of the states would likely prohibit Bomblebox from charging the market rates necessary to make it profitable. And thus, local hoteliers and the government — which also hates competition — would likely object and prohibit the “evil” Bomblebox corporation from helping people at a time when they need it most.

What about renting (or selling) house-like version of the Bomblebox? At first glance, that might appear to be a better option.

But, again, the complex web of laws and regulations would make that difficult, and in addition to hoteliers, the competitors of the natural order (RV makers, prefabricated home makers) would likely throw in a monkey wrench to complicate things.

In my lifetime, we’ve seen creative destruction move at an amazingly fast pace. The days of radio-dispatched cabs that come because of a call from your home phone or payphone are over. We’re in the Uber era now, where my smartphone will get me a black sedan in mere minutes. Instead of having to go and wait in a long line to get a Georgetown cupcake, food fad fetishists can be satisfied by a 3 minute walk to Farragut Square where multiple food trucks offer similar (and often better) products with shorter lines and often at lower prices. Or, if you really have your heart set on Georgetown cupcake, Seamless can deliver it for you.

Generally speaking, our regulatory system and laws are outdated. Uber is discovering that first hand across the country, most recently in Los Angeles. The byzantine shackles of a outdated laws and regulations that keep cities (like my hometown of Cleveland) from returning to their former status of greatness exist all across the country in various degrees.

What keeps them there is politicians who cater to the special interests, and who see themselves as wizened sherpas of the regulatory Mt. Kilimanjaro rather than people whose job it is to make their constituents’ lives easier through good policy, not political dependency.

Going forward, the cities and states that recognize the burdensome constraints of outdated regulations and laws are the ones that will prosper. They’ll have the Ubers, the food trucks, and — when times are tough — people willing to provide innovative solutions to help them in their time of need.  Their citizens will lead happier, better lives, and bounce back from adversity faster than their friends in the cities and states whose leaders who let archaic policy and outdated thinking rule the day.

Few people argue for no regulations at all, but the people who think that deregulatory advocates believe this are often the very politicians who say “everything is fine.” Odds are, it’s not. And the joke’s on you if you believe them.

 

 

 

Bomblecast #20 — The Minimum Wage

ep20

In this podcast, we talk about the minimum wage and President Obama’s proposal to raise it $9 an hour.

Here’s Episode #20: