Yeah! What HE Said: Buying Stuff that Ain't Yours

As Karl says, the following should be self-evident but isn't.

 In economics, leverage is the use of debt to pretend to have more economic surplus (that is, purchasing power) than you really have. - Karl Denninger, market-ticker.org

Yeah, What HE Said: Opportunities

Most critiques of free markets can be better phrased as business plans.
- Devin Finbarr of Intellectual Detox

What Will Tomorrow Bring: Death to Paper Dinosaurs!

On Chris Matthews this morning, a bevy of career journalists held a pity party. Boo hoo, the world is coming to an end! We're headed off a cliff!

Were they talking about the economy? Politics? Healthcare? Afghanistan? No, all that was over on Meet the Press.

These highbrow muckrakers were singing the dirge of the whole "all the news that's fit to print (and most of it that isn't)" industry. RIP Rocky Mountain News. RIP Seattle Post-Intelligencer. RIP New York Sun.

The quotes were just so ridiculous to me:

"The Internet doesn't have the fact checking."
"The Internet dumbs people down because it's so targeted." "You'll never get that out-of-the-corner-of-your-eye story about haircuts in Cambodia."
"We're losing the group sensibility that creates stories."
"We'll just never have those good ole days of newsroom collaboration. Blogging is very solitary."
"Everyone loses when a newspaper shuts down."
"There's just something special about freezing your butt off going outside in the morning to get the paper in your jammies."

Puh-leaze. I won't rebut line-by-line; I have enough windmills. I would write it off as a generational gap, but sadly, even some younger journalists bemoan the change.

I feel almost silly making the following self-evident statements. The Internet is the salvation of journalism. It puts news on steroids, going wider AND deeper. It enables new levels of cost efficiency and simultaneously new levels of democratization/decentralization. It's vastly lower bars to entry increase entrepreneurial participation. The spectrum of available viewpoints is broader, and can be communicated more effectively via richer multimedia. Rather than damaging credibility, democratization actually ensures that sharp minds and good ideas gain much better (and quicker) visibility. They are self-propelled by the level of interest they generate. No need to support the massive old "launch" infrastructure.

These journalists need not worry. Democratization does not erode their credibility ... as long as they continue to earn it ... and invest some new synapses in figuring out what's going on.

This guy, certainly gets it. He's an Ivy League math/econ major who calls print media "the dead tree and typewriter industry." Yet he's the Web Editor-in-Chief for The Daily Pennsylvanian and is avidly pursuing a career in journalism. Why would such a smartypants peg his future to such a dinosaur? He's not afraid. He understands the new business model. Why does it not surprise me he's a first generation American?

He's not alone. Fellow Ivy-leaguer Jason Kilar is closer in age to the talking heads on Chris Matthews, yet he's not scared either. He's dragging print and TV into the 21st century kicking and screaming ... and making big bucks at it.

Sam Altman, a poster child for a bright future, and Inc. Magazine's #4 "coolest entrepreneur", told Charlie Rose that when he wants to know the most important thing going on right now, he checks Twitter. "It always scoops traditional media."

Even Al-Jazeera isn't complaining ... and in this case, that's a good thing.

When a Bad Reputation is Just Fine

For a couple of weeks, I've been following a debate on the importance of reputation.

In this entry on his NY Times blog, Paul Krugman argued that insurance companies don't give a rat's rear about their reputation or the satisfaction of their customers. He didn't say, but clearly was saying that he'd found yet another need for a governmental white knight. He explicitly launched snark at a series of Bryan Caplan Econlog posts which placed great importance on reputation in economic decisions. Bryan responded with this post, entertainingly including pirates and VDs in his case. At the end, he asked his audience:

What is your favorite example where reputation doesn't make voluntary
interaction work well? Is the problem demand, supply, or what?

As moths drawn to fire, many responders couldn't help but focus on the pirates and sex. Others have thought up niche examples such as the "fall forward" effect of bad bosses with good employees. They needn't. His question can be answered with common real-world examples. My contribution to the debate is as follows:

When doesn't it work? When there is:
1. A very large, fragmented population of consumers, most making infrequent purchases
2. A largely standardized product (ie: highly regulated or commoditized), leading to high inelasticity of demand to price ... causing price to be the major differentiator
3. And a highly transparent market in terms of price

Airlines, credit card companies, and banks are all great examples. Major players make little investment in customer retention, preferring instead to counter attrition with new customer acquisition, based largely on price, combined with creation of monopoly/oligopoly power (usually only local or short-lived). Any marketer in these industries will tell you that their key metric is the ratio of attrition to acquisition.

Said concretely, an airline can sell confirmed seats to someone else, strand 300 customers in a layover airport overnight, make us stand in line for hours to get re-booked, pack each of us between sumo wrestlers on a tiny aircraft, over-charge us for a bottle of water, and then wreck your luggage. All the while, their demoralized, unionized employees will make scant few attempts to pay attention to, much less accomodate us customers to retain our business. The airline knows it can lure most of us back next time by simply offering the cheapest fare for the route and time of our next trip.

Unsurprisingly, the story is much different in the international market where they have far less ability to secure those temporary monopolies and thus must compete on something other than price alone. Fly the same carrier domestically and internationally. You'll find it hard to believe it's the same company.

Gee, I wonder if therein lie the seeds of a real answer for both Paul and Bryan.

Blog Shout Out: John J. Ray, Ph.D.

This is probably as apropos a time as any for me to send a shout out to a blogger I've followed for a long time. Most curious.

You see, John's a doctor, originally from Britain where they already have socialized medicine, now way over down under in Australia where they also already have socialized medicine. And he kinda doesn't like it. And he tells us all about it as a warning to this Last Best Hope. Unlike the debate here, he presents his side in an almost painfully stoic tone, letting facts speak for themselves.

Check it out here: http://socglory.blogspot.com/

You'll run into discussions that just might make ya go "aha" like this did for me:

The reason ... is the profusion of mandatory minimum coverages state
governments require to be included in health insurance policies sold within
their states’ borders. This results in residents being forced into uniformly
high-priced, coverage-heavy “Cadillac” insurance policies as a result of state
law, not their own choice.

While there is no doubt these coverages are both useful to and desired by some consumers, all insured residents of the Ocean State are forced to pay for asthma ed and IVF insurance, even if they aren’t potential consumers of either. Rhode Islanders’ premiums are is also higher than they otherwise would be because every policy sold there is required by law to cover the cost of smoking cessation, hair prosthesis, and acupuncture – along with 65 other treatments, procedures, and conditions.

Or this one:

the drug Avastin is widely used in America to treat advanced colon cancer.
But it costs $50,000 a year -- so Canada's national-health system doesn't permit
its use. As a result, 41 percent of colon-cancer patients in Canada die each
year, as opposed to 32 percent in the United States. (Canada's average
eight-month wait for colonoscopies, another result of national-health rationing,
also contributes to the problem.)

Or this one I totally didn't expect from him:

The Post Office Factor. Americans are deeply cynical about government's ability to do anything right. Putting a man on the moon, building an interstate-highway
system, fielding history's most lethal army -- nothing has changed that. Even
Mr. Obama makes jokes about how standing in line at the post office has
convinced him he doesn't want the government running private firms.

Baseless Blames and Bangless Bucks ... oh, and Healthcare

As Jeremy Clarkson snickers weekly, "Some say ..." this blog started as a diarrhea of personal opinion, but has recently drifted down to the gallows of quote regurgitation, spiced with the occasional snarky fart directed at whatever DC's up to at the moment.

Nope.
'Nuff said. I'm glad we had this talk.
p.s. I love the bumper sticker!

"Some say ..." so many people flock to this blog, there has been a measurable drop in national productivity and employment since it's inception. Piffle. Orszag needs to find someone else to blame his "bangless bucks" predicament on.

And while I'm on the topic: Big ups to Obama on healthcare. By convincing everyone that he's really gonna do something, anything ... maybe even something a little nuts, ya never know ... he has finally scared people into a REAL conversation about what healthcare should be. Brilliant.

I agree with him: something DOES need to be done about health care. I'd even support his plan if it contained no new deficit spending, taxes, fees, surcharges, mandates, wealth redistribution or governmental committees. If he and Congress really want to be non-partisan, deficit-neutral, pro-growth, and generally pro-biotic, they should follow the recent kitch-cuisine trend and deconstruct their plan into its source components. Then, they should whip up a recipe including only those ingredients that meet the tests above.


- Acknowledge that we have problems and that the status quo is unacceptable? Check!
- Improve efficiency? Check!
- Make better use of technology? Check!
- Prevent diseases rather than treating them? Check!
- Use cheaper, generic drugs when they're just as effective as name-brands? Check!
- Allow pharmacies deliver bottles of Advil to hospital bedsides, rather than charging the patient $10 a pill? Check.
- Follow the SEC's lead and require (all but the smallest) healthcare providers to publish uniform, comparable statistics about the customer satisfaction, effectiveness, and cost? Cha-check!
- Give people the option of a low-cost, 24-hour clinic instead of the ER for garden-variety treatments? Check! In fact, authorize ERs to march their dumb untreated butts right out the door and across the street to the clinic.
- Share results of tests among healthcare providers, instead of re-running the same diagnostic multiple times? Double-check!

David Axelrod, himself, said this week there was universal agreement on 80% of their ideas. Sounds like enough for a plan to me. Let's pass it and start to get at least a little relief. Would we delay a heart bypass in the ER until everyone had agreed what to do about the patient's high cholesterol? Of course not.

That is not to suggest we should choose Band-Aid surgery over treating the insidious underlying problems. Its just a sensible triage. Nurse?

Stay tuned for my thoughts on those underlying issues in the next blog entry.

Blog Shout Out: 4-Block World

Typically, Tom McMahon uses a 2x2 matrix to explain the world to us. This time, he only needed 1x1.




http://www.4-blockworld.com/2009/05/the-big-guys-always-pushed-the-merrygoround-for-the-little-kids.html

Blog Hat Tip: Iowahawk's "Numbers in the News"

I highly recommend you point and click your way over here to Iowahawk's blog where earth-shattering news has been broken this week.

And I quote:

An international mathematics research team announced today that they had
discovered a new integer that surpasses any previously known value "by a totally
mindblowing shitload." Project director Yujin Xiao of Stanford University said
the theoretical number, dubbed a "stimulus," could lead to breakthroughs in
fields as diverse as astrophysics, quantum mechanics, and Chicago asphalt
contracting.

Blog Shout Out: Bailing out the Piano Industry

I couldn't have said it better myself, so I won't. One of my favorite bloggers, Jeffery Tucker over at the Mises Institute places our current, and beloved, federal decision-making in all it's ridiculous splendor in his recent post "The End of the US Piano Industry" I highly recommend reading it.

He even goes out on a limb enough to suggest that we must comply with ... ugh, don't say it ... [cringe, eek] ... reality.

Economics demands forward motion, a conforming to the facts on the ground and a relentless and realistic assessment of the relationship between cost and price, supply and demand. We must learn to love these forces in society because they are the only things that keep rationality alive in the way we use resources. Without them, there would be nothing but waste and chaos, and eventual starvation and death. We simply cannot live outside economic reality.

Here here, Jeff. Well done.

Mark Perry quoted the article on his (also awesome) blog. One recent comment starts "You gotta love the Austrians [Nik: the economists, not the citizens]. They make complex things look very simple..." Sadly the commenter then runs right off the rails, saying "They do this by avoiding the truly complex questions." he then goes on to rant about issues which, to be generous, I'll call tangentially related. So to Machiavelli1999 I say this: "Sometimes simple really is enough. Dumbass."

What Will Tomorrow Bring: Federalizing Federalism

Huge shout out to Eileen Norcross and Frederic Sautet. Their article "Who's Next in Line for a Bailout?" sidesteps the auto industry side-show to draw focus to the true next chapter of our little financial challenge: Local Governments.

41 states face budget shortfalls ... But the governments in the worst shape didn't get here overnight. New York, California and New Jersey--who are all petitioning the Treasury for relief--are dealing with the fallout from bad budgeting.

The main cost drivers, such as pensions and school aid, are often budgetary third rails, wrapped up in court orders and government mandates and guarded by unions. That is what makes the plea for federal assistance so appealing--it's a politically cheap way to avoid the hardest reforms.

Clearly, data mining gurus, they found stats and figures which stand alone to tell a story which could hardly be crisper. To writ:

• $900 million in local law enforcement grants in the new Reid/Pelosi stimulus plan
• Between 1997 and 2007, total state and local spending grew by more than 81% in real terms, while GDP increased by 32%.
• In 2001, the California legislature reduced the retirement age and increased benefits for public employees, producing a $26 billion unfunded liability
• The City of Vallejo let unions fatten their contracts on cascading revenues until 80% of the city's budget was dedicated to police and fire benefits
• Gov. Jon Corzine of New Jersey found $600 million in cuts this June, only to borrow $3.9 billion for school construction projects
• Gov. Arnold Schwarzenegger made $5 billion in cuts to fill in the state's $15.2 billion gap but wants to make up the rest by levying a sales-tax hike.
• Years of intergovernmental aid have created budgetary paralysis and policy dependency, calcifying spending patterns while limiting experimentation in the delivery of services
• [NJ's] school aid formula imposed on the legislature in the 1990s ... has redistributed half of income tax collections to 31 of the state's 585 school districts

Viewed from this perspective, it's clear why states are where they are ... and what they need to fix. Right on, guys!

Follow Up #3: You've Heard of the Illuminati ...

This one's just for fun ... I've said it before and I'll say it again. Goldman is a financial institution in a league of its own. Consider it the Lance Armstrong of Wall Street.

Oh, and the Federal Government sucks.

As it turns out, the majority of WSJ.com readers who bothered to opine agree with me on both points. From their Deal Journal blog a month ago:

"Deal Journal readers overwhelmingly support a Goldman Sachs takeover of the U.S."

The authors placed their tongue firmly in cheek before chasing the idea that where there's a will there's a conspiracy. They went on (in the above blog post and several others) to raise the notion of a long-standing conspiracy by Goldman to "decide what you eat for breakfast and when."

Who knew Goldman was the new Illuminati? Or are they the new Kevin Bacon?

So hard to tell these days.

Blog Shout Out: Mark J. Perry's Carpe Diem

Shout out to Mark J. Perry, a professor of economics and finance, for the following chart he posted on his great blog today.