no third solution

Blogging about liberty, anarchy, economics and politics

Free Markets Put and End to Deep Sea Drilling

August 19th, 2010

In a free market, transnational oil companies (among others) that are destroying Nigeria, the Gulf Coast, parts of South America, and contributing to endless war in the middle east would’ve probably long ago been supplanted by something better, cleaner, safer and more efficient.

Jim Mulva, ConocoPhillips’ chief executive, says that the unlimited liability some are proposing in Congress to punish operators for further spills in the Gulf of Mexico is inappropriate… He said to analysts:

We will not develop the resources if we have that situation.

… Mulva’s intent, of course, was to argue against imposing unlimited liability for oil spills. But assuming his statement was more than bluster, his implicit admission is that the risks of oil spills are so great that in a free market, the costs of paying for spill damages would outweigh the benefits of developing the resources.

via Financial Times

Because they could not afford to obtain and refine oil-based products if they had to bear the true costs.  Their costs would rise, and they’d have to raise prices in-step.  Yes, high prices suck. No, we wouldn’t have to put up with them (and stagnation) forever, because as the adage goes, necessity is the mother of invention.

The more expensive is oil, the less costly becomes the tradeoffs for alternative energies and other methods of lighting up the lightbulbs and motoring the cars and microwaving dinners.  And the less burdensome (relatively) is that opportunity cost, the more innovation and effort flows in to those alternatives. This is what’s known as competition.  It is not a dirty word.

It’s how shit gets done.  And it’s a process of discovery in which some people are inevitably wrong.  And that makes everyone better off.

The sooner governments stop subsidizing, bailing out, and propping up these monsters, the sooner the rest of us can get on with building a better tomorrow.

My Take on the Pure Michigan Advertising Campaign

May 14th, 2010

In 2009, the State of Michigan spent approximately $12M for a national advertising campaign to promote tourism to Michigan, called Pure Michigan. Currently, the State legislature is considering reducing the funding for the program to only $5M for 2010. From a State budget perspective, this seems silly since the results of third-party research provided by Longwoods International suggest that the program was wildly successful. In sum, the findings suggest that the Pure Michigan campaign induced about two million incremental trips to Michigan, $600 million worth of revenue for Michigan businesses, and added $41M in tax revenue to the State’s coffers.

So, how can I possibly be opposed to such a program? Because it’s funded by taxes, silly (i.e., legalized theft, extortion). And I am fundamentally opposed to all taxes, except for maybe some sort of “asshole tax”. Yes, if they could find a way to levy taxes only on people who are total assholes, I could be OK with that.

Other than the very vague description given in the press release, I know nothing about the study or its method. What I do know from years of experience in the field, is that “online consumer panels” pose many serious challenges to market researchers in terms of obtaining representative sample (they skew significantly younger), avoiding ‘professional survey takers’, etc. So, take it for what it’s worth.

Distributed Costs, Concentrated Benefits

One popular argument is simply the magnitude of the problem an. Spend $12M to generate $600M in revenues. I understand the difficulties in organizing competing businesses in some sort of consortium, but seriously this should be a no-brainer. “Difficulty” in organizing is simply not a valid justification for taxing people. It’s “difficult” to make a No.2 pencil — so difficult in fact that nobody really knows how its done — but we have them anyways. It’s “difficult” to raise money to build a factory to manufacture vehicles, but people do it all the time. Lots of things are “difficult” and require imagination, ingenuity, and the sacrifice of risk. But that doesn’t justify taxing people.

At the very least, it seems like an opportunity for dominant assurance contracts or real-life community-building. Less “competition” and more “cooperation”, if you will.

And it clearly fails the popular “public goods” test.

Macro explanations for the micro boon

Although it is not clear whether the authors are suggesting that the macro-economy had a positive or negative impact on these numbers, they do qualify the research, stating:

These results should also be considered in light of the economic conditions in the United States in 2009 which had a constraining effect on travel and traveler spending

In my grossly uninformed opinion, against the backdrop of a faltering economy, 2009 was probably a down year overall for vacations in the traditional sense, as families abandoned luxurious plans in favor of the “stay-cation.” It certainly seems plausible that the “stay-cation” phenomena could skew midwest travel, as people substitute Michigan vacations for the more extravagant vacation they might take under different economic circumstances.

Marginal consumption, and small margins

The hospitality industry operates on small margins. A fortunate restaurant might increase its sales by 10% but net profits increase maybe a fraction of a 1% (or less). This isn’t the sort of revenue that enables capital-intensive investments. It’s not creating long-term growth opportunities, it’s simply moving finished goods from one place to another.

Most of this spending is marginal, and purely consumption; i.e., it doesn’t really matter whether the gas station sells 1M gallons of gas in 2009, or 1.001 million gallons of gas. It doesn’t matter if a restaurant sells one extra steak dinner or one single extra beer. That is, it requires no additional labor, brings no unemployed people in to the labor force, and generally does not measurably improve the lot of anyone already in the labor force.

Seen and unseen

Every dollar funneled into, or otherwise diverted to the tourism industry is a dollar which can’t be used on other productive endeavors. So to some extent, tax-funded promotions like this encourage the mis-allocation of productive resources (labor and capital) in favor of the hospitality industry, and at the expense of every other sector of the economy.

Conclusion

The only palatable argument for such a program is if its used to offset resident’s taxes. So, if MI plans to reduce their property taxes by the net of $29M, or if they plan on refunding $29M worth of sales taxes paid by MI residents, I guess it’s not such a bad thing. But that’s not how it operates.

Instead, it is a direct transfer of wealth, corporate subsidies, if you will. Use $12M worth of money taken from taxpayers (an extremely distributed cost) in order to fund an Advertising/Marketing campaign to support business interests which, although still distributed, are significantly more concentrated than ‘taxpayers’. Hey, it’s better than spending their own money, and coming up with their own solutions to the problems they face.

Ad spending, and private business revenues/profits is not a public good which would arguably justify some sort of redistribution, and since it’s not a public good, we have to reject the Reagan-esque, trickle-down-economics argument which is mostly bullshit anyways.

Addenda

I swear when I was walking the dog yesterday evning I had one more even better response, but I lost that train of thought and it hasn’t come back yet…

Michigan had $23B worth of tax revenue in FY2009 — in all honesty $41M is like pissing on a forest fire.

Fannie Mae: Kaput

May 10th, 2010

Adding to the $140 billion worth of federal subsidies received since 2008, Fannie Mae just asked the government for an additional $8.4 billion after losing $13.1 billion in Q1. FNM basically says, “We’re bankrupt: completely and totally insolvent, and there is exactly a 0% chance that we will ever recover.”

Because of current trends in housing and financial markets, Fannie Mae expects to continue having a net worth deficit in future periods and to need to tap more funding from the Treasury.

A ‘net worth deficit’ is newspeak for worth less than nothing.

NB: This is the ‘private’ company charged with “promoting sustainable homeownership”.

no third solution

Blogging about liberty, anarchy, economics and politics