Archive for May 2006

Please, I Would Like Answer

States all require that you register your corporation to do business in that state.  Most all states require that you have a registered agent in that state.  Sometimes this can be an employee, but since we are a seasonal business we have no full-time employees in many states to nominate.  This means that we have to pay an outsider a fee every year just to be this named agent.

And in my experience this person does ... NOTHING.  Zero.  Nada.  Bupkis.  But it is worse than that.  In many states like Minnesota, the secretary of state (who generally manages corporate registrations) absolutely insists that they will send no mail to your corporate headquarters, they will only send mail to your in-state registered agent.  Its like they don't have mail service or phone service that goes out of state in Minnesota.  Unfortunately, many of my agents repeatedly fail to forward this mail to me.  I just paid a $300 fine to Minnesota because I did not respond to an annual renewal notice that was sent to my local agent and never forwarded.

I have asked this question of my readers before but never gotten an answer.  My question is simple:

In this day of modern communications, what is the justification for requiring a corporation to have a registered agent in that state?

Is there any justification?  Or is this just a holdover from some past era when communication was by horse and telegraph.

Uh, Oops

Via the Consumerist:

When Greenpeace mobilized to protest nuclear energy at a recent appearance by
President Bush to promote his nuclear energy policy, they forgot to fill in all
the boiler-plate.

From the Greenpeace anti-nuclear-armageddon flier. Capitals and brackets are

    In the twenty years since the Chernobyl tragedy, the world's worst nuclear
    accident, there have been nearly [FILL IN ALARMIST AND ARMAGEDDONIST FACTOID

LOL.  By the way, I am not sure why those paranoid about global warming would refuse to reconsider nuclear power.   In that article, i pointed out that a different regulatory regimed would greatly reduce costs and actually enhance safety:

If aircraft construction was regulated like nuclear power plants,
there would be no aviation industry.  In the aircraft industry,
aircraft makers go through an extensive approval and testing process to
get a basic design (e.g. the 737-300) approved by the government as
safe.  Then, as long as they keep producing to this design, they can
keep making copies with minimal additional design scrutiny.  Instead,
the manufacturing process is carefully checked to make sure that it is
reliably producing aircraft to the design already deemed safe.  If
aircraft makers want to make a change to the aircraft, that change must
be approved with a fairly in-depth process.

Beyond the reduction in design cost for the 2nd airplane of a series
(and 3rd, etc.), this approach also yields strong regulatory benefits.
For example, if the
in a particular aircraft, then the government can issue a bulletin to
require a new approved design be retrofitted in all other aircraft of
this series.  This happens all the time in commercial aviation.

One can see how this might make nuclear power plant construction
viable again.  Urging major construction companies to come up with a
design that could be reused would greatly reduce the cost of design and
construction of plants.  There might still be several designs, since
competing companies would likely have their own designs, but this same
is true in aerospace with Boeing, Airbus and smaller jet manufacturers
Embraer and Bombardier.

And a while back I linked to a story on how the ultimate fallout from Chernobyl was not nearly as bad as was feared.  That article said in part:

Over the next four years, a massive cleanup operation
involving 240,000 workers ensued, and there were fears that many of
these workers, called "liquidators," would suffer in subsequent years.
But most emergency workers and people living in contaminated areas
"received relatively low whole radiation doses, comparable to natural
background levels," a report summary noted. "No evidence or likelihood
of decreased fertility among the affected population has been found,
nor has there been any evidence of congenital malformations."

fact, the report said, apart from radiation-induced deaths, the
"largest public health problem created by the accident" was its effect
on the mental health of residents who were traumatized by their rapid
relocation and the fear, still lingering, that they would almost
certainly contract terminal cancer. The report said that lifestyle
diseases, such as alcoholism, among affected residents posed a much
greater threat than radiation exposure.

An Absurd Demand

Today, Microsoft came under fire from a number of activists:

Activists today accused Microsoft of spending all of its time focusing on software.  "All they want to do is write code for operating systems and applications".  Activists were complaining that Microsoft does not invest any of its huge profits into alternatives to software and operating systems.  "They have not invested one dime in trying to come up with computing technologies that don't require operating systems or business applications."  Activists also accused Microsoft of not investing in any alternative computational approaches, such as abacus research or mechanical calculators.

Makes no sense, right?  Well, that's because I made it up.  But I did not make this up, which is essentially the exact same charge, just against a different target:

other major oil companies that essentially acknowledge the very real
threat of global warming and the need to transition to renewable energy
and off of a finite, non-renewable resource such as oil, ExxonMobil is
using its profits and its power to continue to keep this country
addicted to oil, as President Bush has noted," Hoover said.

ExxonMobil cares only about drilling for more oil, Hoover alleged

You hear this stuff all the time.  But why are the major oil companies responsible for investing to obsolete their own business?  Why are they obligated to invest in things like wind farms or whatever that they know nothing about?   Did we demand that railroads invest in aircraft research?  Do we require cable companies to invest in DirectTV?  For all of its size, ExxonMobil represents a tiny fraction of World GDP -- if all these alternative energy ideas are such great opportunities, let the other 99.99% of the world economy take it on.  Besides, do these guys who think that XOM is evil incarnate really want them controlling the next generation of energy production?

By the way, I thought this was hilarious:

believe that ExxonMobil -- primarily through its former president and
CEO, Lee Raymond -- has been involved in conceiving of and then
promoting the invasion and occupation of Iraq," Reed said. "When the
Iraq war was being cooked up, we think ExxonMobil was in the kitchen."

I love the "we believe" part.  I am sure that half these folks also "believe" that aliens are alive and well in Area 51 and that George Bush was behind the 9/11 attacks.  Would it be too much to ask to bring some facts to the table?  Or how about even a motive?  I could maybe come up with a motive if the US invaded Nigeria, since Exxon has assets at risk there that are threatened by rebels and general chaos, but Iraq?  Since Iraq's output was limited before the invasion, invading Iraq only served to put more oil on world markets, which would depress rather than raise prices and profits.  In fact, if there was really an evil genius oil company pulling the strings of government to maximize their own profits, UN-sanctioned Iraq would be just about the last oil producing country in the world you would want your government puppets to invade.

Today XOM has its annual shareholder meeting, and if you ever want to see a great parade of barking moonbats, buy yourself a share of XOM and attend.  Lee Raymond caught a lot of grief for his compensation package, and it did seem overly generous to me, but I am not an XOM shareholder right now so its not my concern.  I will say that having seen one of the XOM shareholder meetings and the ridiculous grief the CEO must endure for a day, my guess is that the XOM CEO would likely knock several million dollars off his comp. package if he could call in sick today.

No Surprise Here



Time to Revisit Smith vs. Maryland

Julian Sanchez revisits Smith vs. Maryland, the Supreme Court case currently used to justify letting the government take about any data they want on your life without a warrant.  Sanchez questions the logic of the case, particularly in light of sweeping technology changes since the early 70's:

Part of the problem here is that since the late '70s, we've gone a long way
toward a world in which a huge amount of our most private information is held by
third parties. A huge chunk of my e-mails from the last couple years are stored
on some server owned by Google, where ad-generating software sifts through my
private communications looking for keywords that will allow the company to
display personally-tailored advertisements for me. Now, maybe I'm naive to have
any expectation of privacy in the e-mails sitting on that server, but I do
pretty much expect that nobody at Google is actually looking through my
correspondence and passing it around to their friends. And I at least
didn't expect until recently that some government program would be
sifting through those e-mails to see whether I used the word "jihad" some
suspicious number of times in letters to people in Saudi Arabia.

I had similar concerns about Smith v. Marlyand here.  One of my arguments was:

This exact same logic [used in this case] seemingly applies to any piece of data submitted
to any private third party unless the data is specifically protected
(e.g. medical records).  Sorry, but this is wrong.  I should be able to
have commercial transactions with third parties without the expectation
that the government can take the records for its own use without any
kind of a warrant....

The implication is that by giving a company data for use in a
transaction, we are giving them an unwritten license to do whatever
they want with the data.  Do you believe you are granting this?  Is it
true that you "entertain no expectation of privacy" in such
transactions?  If you agree with this ability, then I assume you also
agree that the government should be able to see all your:

  • Credit card bills
  • Records of who you have emailed
  • Records of which Internet sites you have visited
  • Records of what searches you made in search engines

I also pointed out that since many people spend a lot of money to keep information private (e.g. anonymous surfing software), the market has demonstrated clearly that people, unlike the SCOTUS asserted,  do have an expectation of privacy with such data.

The Connection Between Paul Ehrlich and Immigration Opponents


argued that the exponential growth in population and the incremental growth in
is over," the book begins. "In the 1970s "¦ hundreds of millions of people are
going to starve to death."

It was an instant sensation, turning "overpopulation" into a hot topic and
landing Ehrlich repeatedly on "The Tonight Show." Tanton had been ahead of the
had already started work on the first Northern Michigan chapter of Planned
Parenthood. "I believed in the multiplication tables," says Tanton. "Since I was
was where I could make my contribution to the conservation movement."...



He explains that reducing immigration will force countries like Mexico to
confront their own population growth rates. "Each country," he says, "ought to
try to match its population to its resource base."

immaginary line in the Sonoran desert makes the population less
north and suddenly the world is doomed? 

Ehrlich's population bomb theory went bust -- which is that increasing
reduction of world birth rates.

not get excited about his environmental message and environmental
groups couldn't make heads or tails of his immigration message.

Crisscrossing the country, Tanton found little interest in his
complaint. ""ËœI tell you what pisses me off,'" Tanton recalls people saying.
than the immigration question."

Tanton tried to persuade FAIR to harness this "emotional power," but the
mailing we ever did for U.S. English got almost a 10 percent return," he says.
"That's unheard of." John Tanton had discovered the power of the culture

very identity was under assault. "Feelings," Tanton says in a tone reminiscent




Are People Rational About Gas Prices?

As a preface, I am not a socialist planner, so I do not presume to make other people's economic trade-offs for them.  If someone out there chooses to collect Pinto station wagons or pay $10 million to go on a Russian space launch, power to them.

That being said, I will observe that gas price concerns seem to drive people to do things that they would not normally do in other contexts.  Market Power quoted this statement from the Washington Post:

"When prices go up, you're going to see some interesting things," said Tom
"Saving money on gas is something that's just magical in this country. Rational
thought just doesn't apply to gas."

Market Power was skeptical that such irrationality exists, but I think it may be correct.  Here are a few examples:

1.  Waiting for hours:  A couple of years ago when I lived in Seattle, a local Costco put in a gas station and sold gas for 10-15 cents or so below most of the other local stations.  Every time I went there, there was a huge line -- perhaps half an hour long -- to get gas.  For a fifteen gallon fill-up saving 15 cents and waiting 30 minutes, that equates to $4.50 an hour savings for their efforts, not to mention the extra driving time (and gas!) spent getting to this one spot rather than their local station.  How many people in the line would have driven an extra 10 miles to take a job at $4.50 an hour? 

Lately, I witnessed a free gas promotion where people lined up and waited at least 3 hours for 10 gallons for free gas (people apparently had lined up starting at 4AM for the promotion that began at 8AM.  This is a bit better deal at $10 per hour, but I wonder how many people in the line would have participated in any other endeavor for $10 an hour?  Market Power points to a similar promotion in Sioux Falls, where the value of police time providing security was probably higher than the value of the gas given away.

2.  Save a dollar, pay three extra.  One of the reasons I am unconcerned with gas price gouging is that many gas stations today use gas as a loss leader, hoping to pull motorists into their store or restaurant.  In the language of gouging, what this means is that typically you are getting a great price on gas (given what the dealer's costs are) and are getting gouged on coffee and Twinkies.  Its amazing to me that people who check the Internet to find the place with 5 cents a gallon cheaper gas will then walk into the convenience store and pay whatever for Cokes and water and cigarettes and beer and coffee.  It seems crazy, but the best way to explain it is that for a number of people, a dollar saved on gas gives them far more satisfaction than say a dollar save on soft drinks.

3.  Wagering with the rental car company.  Every rental car company offers you a wager nowadays.  They give you the chance to buy the whole tank of gas in advance for something like 20 cents less than the local market rate.  Assume the local market rate is $3.20, the rental car advance rate is $3.00, and the tank is 15 gallons.  All you have to do to win this bet as the renter is to return the car with less than 1 gallon left.  If you do, you win, otherwise you lose.  Is this a bet you want to take?

But I left something out - the value of your time.  Let's say you value your marginal time at $30, and it take 15 minutes to fill up the rent car yourself.  By taking the fuel option, you save $7.50 of time.  This means to win the bet, including the value of your time, you have to turn it in with less than 3.5 gallons left, or less than 1/4 full.  The other alternative is to not stop and turn it in at the rent car place and let them fill it up at their $6.00 rate.  But even this ridiculously inflated rate for turning the car in part-full is still a better option than the pre-paid fuel as long as you don't use more than half a tank.   And I bet that the vast, vast majority of people who rent cars, particularly on business trips, don't use a half tank (a half tank at 20mpg is about 150 miles).

One of the best tests of my proposition is to see how many businesses
today act as if this gas-price-overfocus is a real phenomenon:  Car
dealerships give away free gas rather than rebates;  many many
companies are having free gas promotions;  gas stations continue to
sell gas at cost to get you in their store.  Basically, businesses
everywhere are betting that their customers will find $30 of gas more
appealing than any other $30 giveaway. 

None of the above bothers me particularly -- people are different and interesting in how they act.  That's why government planning tends to chafe everyone.  In fact, the only part of this supposed irrationality about gas prices that does bother me is the fact that so many people run to the government for price controls and gouging investigations whenever gas prices go up, and so many Congressmen of both parties see value to pandering to these instincts.  This despite the fact that gas prices are still effectively far lower as a percentage of income than they were 25 years ago.  I wish they would all go back to sipping their $8 Starbucks coffees and just deal with it.

Update:  Was on checking out an email that seemed like an urban legend (it was) and saw a sidebar listing gas wars as the #1 urban legend email of the moment.  ExxonMobil seems to be the bad-guy target-of-choice, I guess just because they are the largest.  The "idea" in the email is that if everyone would boycott ExxonMobil and shop at other gas stations, the price of gas would fall.  LOL.  As Snopes points out:

A boycott of a couple of brands of gasoline won't result in lower
overall prices. Prices at all the non-boycotted outlets would rise due
to the temporarily limited supply and increased demand, making the
original prices look cheap by comparison. The shunned outlets could
then make a killing by offering gasoline at its "normal" (i.e.,
pre-boycott) price or by selling off their output to the non-boycotted
companies, who will need the extra supply to meet demand. The only
person who really gets hurt in this proposed scheme is the service
station operator, who has almost no control over the price of gasoline.

Price Controls at Work

In many states like California, auto insurance rates have been subject to state price controls for years.  A recent debate over a bill called AB 2840 helps shed some light on the total idiocy of trying to have government set prices.

I have to give you a paragraph of background.  Warning -- the next paragraph is mind-numbingly dull.  Please don't give up.

Apparently, auto insurance rates are higher in California cities in part because claims rates (theft, accidents) are higher in the cities.  The cities, which have a lot of political power, argued that this was unfair that their rates were so much higher than rural folks paid.  State-approved insurance rates were discriminating against cities, they claimed.  I don't know if they made the argument, but they could also have argued that infrastructure costs (sales, claims service) was likely lower in cities per capita because of the concentrated customer base.  So the state insurance board proposed to raise rural rates and cut city rates to make prices to all Californians more even.  Rural folks then freaked, and their legislators have proposed AB 2840 to put things back the way they were before.

So who is right?  How the hell am I supposed to know?  How the hell is anyone supposed to know?  There is absolutely no objective way to settle this argument.  I read the attached article and my eyes just started to blur.  That is why in practice, for all the talk of studies and analysis, issues like this are settled in favor of whoever has more political clout or votes.  Price controls, besides wreaking havoc on supply and demand, always - yes always - result in a transfer of wealth from those without political power to groups that have the power.   That's why politicians love them -- its a great way to raise campaign donations, as groups bid to be on the receiving end of such largess rather than being the sacrificial lamb.  And it's why in a free and just society we use this thing called "markets" to determine prices in most other such complex situations.



Reconciling the Skilling Verdicts

I have already read several commenters who have wondered how Skilling could be convicted of fraud (in the form of obscuring Enron's true financial health) but acquitted of most charges of insider trading.  Larry Ribstein (via Professor Bainbridge) asks

"Does this mean that the jury thought he didn't know enough about what
was happening to bar him from trading, but that he did know enough to
go to jail for fraud?"

Here is how I reconcile it:  The jury decided that Skilling committed fraud, but that it was not for personal gain in his stock.  How can that be?  What other incentive might he have?  Here is my explanation, based on some personal knowledge of Skilling and the Enron business model.

Enron's business model was Skilling's brainchild.  It was nearly 100% his baby.  He invented it at McKinsey and then moved to Enron to make it reality.  The trading model Enron adopted reflected Skilling's ability to handle a lot of complexity and his facility for numbers.  The failure of Enron would be a direct personal failure of Skilling's, perhaps the first and certainly the largest of his life.  Even without holding a single share of stock, Skilling had every incentive to want Enron to survive and in fact thrive.  Enron's failure would be a repudiation of his vision, a forceful proof that maybe he was not as smart as everyone thought he was.

Like nearly every new financial trading business, Enron at first enjoyed large margins on their trading deals.  This has happened throughout history, as the first traders who discover an arbitrage opportunity make lots of money.  However, over time, competition and general knowledge of the arbitrage opportunity tends to erode margins.  Eroding margins are a problem in every business, but particularly in trading.  Here's why:

Trading businesses typically make their money by executing huge transactions at thin margins.  These transactions require a lot of capital, and since margins are narrow, trading companies need to maintain a very low cost of capital.  For a company like Enron, this means maintaining a high stock price and platinum level credit to minimize borrowing costs.

The trap Enron fell into was not a new one.  As trading margins inevitably eroded (as described above) the company had to do more and more volume to maintain profits (it takes twice the volume of transactions when margins are halved to maintain profits at an even level).  But remember, Enron needed a high and growing stock price to keep its cost of capital as low as possible.  So it needed to show ever growing profits, which means in an environment of falling margins, trading volumes had to go up almost exponentially.  But, increasing trading volumes means more capital, much of it in the form of debt.  Borrowing more increased cash demands and put pressure on ratings agencies to downgrade their debt, which would have disastrously increased borrowing costs.  At the same time, falling margins and rising debt meant falling coverage ratios.    Old line trading firms like Goldman Sachs and Soloman Brothers have mostly avoided this trap by carefully husbanding and building their capital over decades.  But Enron tried to build the trading business too fast.

So you see the tiger Enron management was riding.  Any blip in their cost of capital, whether it be a fall in stock price or a downgrading of their debt, would crash the whole company.  But falling margins and a growing need for debt nearly guaranteed that their cost of capital was going to go up.  At first, management sought new growth avenues (e.g. broadband) or windfalls (e.g. California energy crisis) to make ends meet.  Eventually, management appears to have fibbed to bond and equity markets, in the form of false statements and burying the bad stuff in SPE's, trying to keep things from crashing.  Eventually, outsiders figured out what was going on, the commercial paper market dried up, and Enron faced a liquidity crisis that brought the whole thing down rapidly.

In this context, Lay and Skilling's obfuscation of the underlying financial health of the company makes sense.  Enron had reached a point where bad news about the business would do more than just depress the stock price - it could start a chain reaction that would bring the whole company to bankruptcy.  Knowing this, Lay and Skilling apparently sought to hide the true condition of the company, to try to buy time to find some way out.  Skilling, much much smarter than Lay, at some point probably realized that the crash could not be avoided and that's why he suddenly quit.  The tragedy (self-induced, of course) for these men is that nothing was going to prevent the eventual crisis, and Lay and Skilling bought a few months delay in Enron's downfall at the cost of what will probably be their freedom for the next several decades.

So, was Skilling a robber baron intent on nothing more than enriching himself at the expense of shareholders?  Or was he a visionary entrepreneur, who just couldn't accept that his dream and creation of over a decade's work was dying?  I don't really know, even having known the man personally, but the jury's verdict seems to point as much to the latter than the former.  And if it is the latter, has there ever been a visionary who was not the last person to admit his vision was a failure?  I can't tell you how many entrepreneurs I knew in the Internet bubble who were convinced their company was going to be successful almost right up to the day of bankruptcy.  Are we really better off as a society putting all these failed visionaries in jail?

I guess I end up with mixed feelings about the legacy of the case.  I certainly am worried about the prosecutorial abuse.  And cooking the books of a public company is bad and should result in jail time. Having worked once long ago with Skilling, I know for a fact that the man is brilliant and totally detail oriented.  There was no way he could not know about the SPE shenanigans, and for that alone he should face jail time.  My concern is that the other message, beyond just accounting fraud, of this case will be that we are criminalizing CEO's being overly optimistic about their company. And that strikes me as nuts.

Update:  Tom Kirkendall, who has been all over this case, has more here.  Larry Ribstein, whose question started this post, observed:

Many people think that there was so much loss associated Enron that the
guys at the center of it must have been villains. But they weren't
villains. The jury is saying they weren't even insider traders, as if
that would have made a difference. They lost as much as anybody, and
that's what drove them to lie, if they did lie. This doesn't make them
saints, but it should make even the most hardcore antibusiness types
queasy with the denouement of this tragedy. Locking these guys up for
pretty much the rest of their adult lives for being unable to face the
fact that their dream had ended is not the way a civilized society
would deal with this case.

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Lay and Skilling Convicted

Ken Lay and Jeff Skilling were convicted on numerous counts of fraud but were acquitted on most counts of insider training.  Professor Bainbridge has some quickie analysis.

I worked for Jeff Skilling for a brief period of time at McKinsey & Co.  Jeff was easily one of the smartest men I ever met, as well as the most detail-oriented.  It was this latter quality that forced me to concede that he was probably lying to Congress back when he said "I didn't know any of this stuff was going on in my organization."  Whatever else they did, Lay and Skilling will never be forgiven by my family for sucking in a couple of our family friends who were not business people (doctors and such) onto the Enron board, perhaps as dupes who had no hope of crying foul at the complex business machinations that were taken place.  Whatever the reason, our friends will spend the rest of their lives dealing with Enron lawsuits.

My only regret in this case is that I hate seeing some pretty scary prosecution practices get rewarded.  The guilt of Lay and Skilling does not change the fact that we need to start reigning in heavy-handed prosecutors, and disavowing the Thompson memo would be a good start. Update: Tom Kirkendall has much more on prosecutorial abuse in this case and possible appeal points.

Note to Congress

Hawaii has given up on its gasoline price control experiment, even as Congress ponders similar actions at the federal level.  I criticized the Hawaiian program here.

Harvard Paradox

Asymmetrical Information comments on Greg Mankiw by observing:










Kudos to Jack Benway at Arizona Watch

I missed it when it first came out, but Jack Benway over at Arizona Watch has a nice post in defense of free immigration.  His point, as was mine here, is that the problem is the welfare state, not immigration. 

A prohibition on immigration from any source country violates the basic
principles upon which the US was founded "“ that life, liberty and property are
the inalienable rights of all people unless they sacrifice them by the forceful
denial of another person's pursuit of these same rights. These rights don't stop
at the US border. This does not mean that immigrants should not be screened and
naturalized and subject to the laws of the US. It does mean that the
artificially low quotas that place the current illegals in the position of
criminals by virtue of their presence here are morally wrong. These laws must be

And chaos will ensue. What about all the services these illegals use at the
expense of taxpayers? We can't afford this. That's correct, we can't, so stop
offering these entitlements and services "“ to everyone.

Finding this post helps me roughly double my estimate of open immigration supporters here in Arizona (from 1 to 2).

Update:  This issue is really a heated on in Arizona.  It has even divided the writers at Arizona Watch, with Bridgett disagreeing significantly from Jack.

Emergent Order and Barry Bond's Records

Warning:  This post wanders all over the place, from baseball to gasoline prices to star naming to Internet search engines and back to baseball.

Today I was listening to sports-talk radio for a while, and the topic of conversation was "Should major league baseball nullify (or asterisk) Barry Bond's home run records because he is strongly suspected to have taken steroids."  Now personally, I don't believe anyone has broken Roger Marris's single season home run record who was not taking steroids.  How much that bothers me depends on what day of the week you ask me, but my answer to the record book question never varies:  no, the MLB doesn't have to do a thing.  Here's why, though get ready for a digression.

Perhaps the toughest libertarian-capitalist concept for most people to grasp, even tougher than the idea that wealth is not zero-sum, is that of emergent or bottom-up order.  Capitalism is all about order emerging bottom-up:  Market prices emerge without any one person setting them from above;  supply matches demand without any central body coordinating production.  For many people, this process is some sort of black magic not to be trusted -- just observe Congress and their silly proposals on gasoline prices, reminding us of savages who don't understand how nature works performing elaborate rituals to make the crops grow.

In fact, this whole issue of emergent order vs. grand design is actually a point of incredible inconsistency in American politics.  Observe certain liberals, strong secularists who reject the concepts of God and intelligent design in favor of evolution and bottom-up emergent order in the natural world, but then in turn reject emergent order in human relations and economics in favor of top-down not-so-intelligent design as run by the federal government.  You have only to remember back to Katrina to see the public demand for, followed by the spectacular failure of, top down relief approaches.

The other day I had an argument with a friend about one of those commercial star registries -- you have probably heard the commercial-- pay $X and have a star named after someone you love.  My friend was appalled.  He said - "do you know that they have no authority to name those stars.  Don't people know its not official.  They just put your name in a book somewhere - but its not the official book in Switzerland (or wherever the hell he said it was)."  My reaction was -- so what?  Who had the right to call the other one "official"?  The standard star naming by scientists is accepted because it is useful.  But that doesn't mean I can't come up with my own naming system.  Let's see, I think I am going to rename the Orion constellation as "Warren".  Yes that's much better.  Now, its unlikely anyone else will find a useful reason to adopt this same convention.... The fact is that the star names we use represent a consensus that has emerged over time.  In many cases, constellations and stars had competing names (e.g. Big Bear vs. Big Dipper) that still have not been fully reconciled. 

Or here is an example that might work better for modern Internet users.  The Internet does have an official central body that sets addressing conventions.  They set up the rules by which I can lease the rights to and the 12-digit IP address that is attached to it.  This is the "official" way to address the web.

But early on, as web sites proliferated, entrepreneurs attempted to impose their own order on the Internet, sort-of the equivalent of suggesting an entirely new set of names for stars.  Yahoo and AOL both developed huge hierarchical directories, effectively imposing a nested-tree addressing system over the Internet's flat addresses.  And for a while, these approaches prospered, as users found these to be a more useful way to organize the Internet.  Then, along came search engines, like Altavista and then Google, and yet a new organizational paradigm was proposed, in effect a third different set of names for the Internet constellations.  Again, users found this keyword and link-popularity approach superior to hierarchical trees, and search engines have prospered while the old directories have languished. 

The point is, no one gave Google a license or top-down authority to reorganize the Internet.  They just did it, like thousands of others tried at the time.  Of these thousands of different approaches, no single smart man picked Google as the approach that everyone should use.  Rather, individuals tried all these different approaches, and over time a consensus emerged that Google was the most useful.

Which -- and I know you thought I forgot -- brings us back to Barry Bond's records.  Individual baseball records don't actually have any meaning to the game of baseball itself -- baseball is played for team wins and losses and ultimately for team championships.  So while individual hits and home runs may have mattered in getting to a champion, the fact that Barry Bonds hit 73 home runs in a year has no real meaning within the context of declaring a team as champion.  It has meaning only in the way that fans react to it. 

One proof of this is the fact that people focus so much on the single-season home run record.  Is this record more inherently valuable than say, the single season triple record?  Triples are actually harder to hit, so you might argue that the triple record is more interesting.  No one from official MLB offices ever declared the single season home run record to be among the most important.  But over time, a fan consensus has emerged that people are far more intrigued by the home run record, so most everyone can name Barry Bonds at 73 home runs but only a geek would know Chief Wilson at 36 triples.

I contend that Barry Bond's 73 home run record  (and his lifetime home run record, if he ever gets that) will take care of themselves without any action from the league office.  Over time, fans will decide for themselves if Bond's 73 is better than Marris's 61.  Today, for example, most discussion of pitching records excludes the period before 1915 or so, which people refer to as the "dead ball" era.  Someday, fan consensus will emerge that they are OK with steroid-driven records (as they have become comfortable with Gaylord Perry's records despite his use of the illegal spitball) or else they are not OK and batting stats from the past decade will be excluded as the "juiced player era".

Guess Who #2

As a follow-on to yesterday's guess-who quote, guess who recently said this:

So I have been forced to conclude that in all of those great free
market texts by Ludwig von Mises, Friedrich Hayek and all the others
that there is a footnote that says, by the way, none of this applies to
agriculture. Now, it may be written in high German, and that may be why
I have not been able to discern it, but there is no greater contrast in
America today than between the free enterprise rhetoric of so many
conservatives and the statist, subsidized, inflationary, protectionist,
anti-consumer agricultural policies, and this is one of them.

Club for Growth has the answer.

By the way, I agree with this statement completely. 

Guess Who?


consumers continue to enjoy these low prices and that thousands of
applicants continue to apply for those jobs.


Congress Finally Stirs Itself Over Separation of Powers

A while back, I lamented that all three branches of government seemed to be conspiring to weaken Constitutional limits and separation of powers.

The good news is that Congress has finally gotten worked up about protecting separation of powers.  The bad news is that the issue at hand is the justice department's investigation of Congressional bribery.  Unbelievable.  These guys are totally lost.  More on the Jefferson bribery chargesGlenn Reynolds comments and has a roundup.

Ed Morrissey provides a bit of Constitutional analysis, as well as this excellent point:

This can't be the same Congress that issues subpoenas for all sorts
of probes into the executive branch and the agencies it runs. Does
Congress really want to establish a precedent that neither branch has
to answer subpoenas if issued by the other, even if approved by a judge
-- which this particular subpoena was?

The FBI had a valid subpoena for the information in Jefferson's
office. He refused to provide it. The FBI had little choice but to go
in and take it, and from the description given in the Washington Post,
they took extraordinary care not to confiscate legitimate data relating
to his legislative responsibilities.

New Study on Malpractice

A new study on medical malpractice decisions by Alexander Tabarrok and Amanda Agan of George Mason University was released last week.  A lot of the study is dedicated to countering some economically-ignorant canards (e.g. the charge that the recent rise in malpractice insurance is all due to price gouging and not due to malpractice awards).

The most interesting piece is where they compare malpractice awards to results of the independent medical review board rulings.

Our test finds that the tort system and review system do not correlate. Figure Five shows that
adverse actions per doctor in the medical review board system do not correlate with the number of medical malpractice cases per doctor in the tort system, nor do they correlate with the
average award per doctor....                               

In no case is the correlation large; in some
cases, it is actually slightly negative. What these results indicate is that the two systems
we have for determining malpractice, the tort
system and the medical review system, result 
in very different determinations of malpractice.
Surely, one of them is wrong!

The conclusion is one I think many neutral parties have suspected for quite a while:  The tort system is doubly broken:  Bad outcomes that truly are the result of malpractice often do not result in an award, while numerous tort awards go to people who are not the victim of any real malpractice.  Or to put it simply, people who are owed restitution aren't getting it and people who get money often shouldn't be owed anything.

The obvious result is a gross miscarriage of justice.  However, there is a second, less talked about result:  If the tort system is random, having no correlation to real doctor error or doctor quality, then it is impossible to charge doctors with risk-adjusted premiums.  In an efficient market, the worst doctors would pay the highest premiums and would get driven out of the market, just like bad drivers must change their behavior or face lifelong high auto premiums.  However, if tort awards are not correlated with bad behavior, as the study implies, then the system creates a huge moral hazard, with bad doctors underpaying for insurance and good doctors overpaying.  The result is that at best, good doctors will be driven out of the system at least as frequently as bad doctors.  At worst, good doctors, frustrated by the lack of justice in the system, will actually be more likely to leave the system than bad doctors.

Plenty of Shame to Go Around

Last week, Milberg-Weiss and two of its partners were formally charged with bribery and fraud surround their aggressive pursuit of class-action lawsuits, often against companies with falling share prices.  Walter Olson helps describe in detail what was going on, but the short answer is that the firm, as many of us suspected for years, appears to have been generating class action suits against large companies mainly for the benefit of itself and the legal fees generated.  A few months ago, I questioned shareholder suits and their fundamental logic when I was guestblogging at Overlawyered.

So I am happy that this particular rock is finally being turned over.  However, there are substantial problems on the prosecution side of this as well.  The Justice department is using the abusive Thompson Memo guidelines to go after Milberg-Weiss.  Larry Ribstein is concerned with the firm death penalty approach being taken here that was used to bring down Arthur Anderson.

Milberg is a different story. The case seems to be based on the
alleged misconduct of a couple of partners. If the partners did what
they are accused of, they should go down. Moreover, the firm will have
earned fees under questionable circumstances and should bear civil
consequences for that. But the criminal indictment casts a shadow on
the entire firm that it will have a hard time surviving, given the need
to establish its credibility for courts and institutional investors in
the highly competitive class action industry. Moreover, unlike AA, it's
not clear the indictment reveals a continuing public policy problem,
given the post-PSLRA reliance on unbribable plaintiffs.

We (and I) may not like Milberg's business. But the class action
part of it was one enabled by legal rules. The right way to deal with
the problems of this business is to change the rules, as I've argued
for securities class actions in my Fraud on a Noisy Market.
When we criminally condemn firms like Milberg because we don't like
their business, we set a precedent for other firms in controversial
lines of work -- e.g., Drexel Burnham.

More seriously, the power to criminalize a firm puts a potent tool
in the government's hands to get the firm to cooperate in sacrificing
the rights of criminal defendants. Here the cure seems patently worse
the disease. The questions are no less in Milberg than in KPMG just
because Milberg was in an unpopular line of work.

The government tactic de jour, as outlined in the Thompson memo, is to threaten a large company with extinction, telling them they might get off the hook but only if they agree to throw a number of their employees to the wolves.  These steps include the unbelievable step of forcing companies to waive attorney client privilege, including privilege between any company-paid attorney and any employee.  Does anyone doubt that if the company who employs you was given the choice of having the government prosecute them or you, who they would choose?  In this context, Arthur Anderson should be commended for not sacrificing its employees for its own survival.  KPMG survived, because it chose to roll over on its employees.  I commented on many of the problems with the AA takedown here, and on the dangers of the Thompson Memo here and hereTom Kirkendall is all over the story.

Paul Ehrlich's Ancestors

Fortifying the Border

So we're going to build a wall and send an army to the border.

Maintaining a military to defend a group of people against outsiders who wish to use force against them is one of the core functions of government.  Even crazed libertarian anarcho-capitalists like myself concede it as a function of government.  If libertarians were to have their version of the ten commandments, the only phrase that would have to be on the stone is "Thou shalt not deal with thy neighbor through force or fraud."  The government maintains police and a military to handle the people who wish to violate this one commandment.

Throughout the years, countries have built armies and fortifications to defend against invaders who wanted to loot their lands, or steal their property, or impose their own version of racial or religious uniformity.  The US Army itself has fought for freedom, it has fought to restore democracy and individual rights, it has fought to stop genocides. 

Today, the US Army sallies forth again, to fight for and defend .... what? 

It fights to stop waves of Mexican immigrants that are dangerous because they ... want to freely exchange their labor with US Citizens?

It fights to protect Americans from ... competition for unskilled labor jobs?

It valiantly rides forth to make sure Americans never face the horror of ... interacting with someone with only broken English?

The soldiers racing to the borders are not fighting for me, because I am not in danger.  And neither is anyone around me here in Arizona -- no one from outside the border is threatening me with force or fraud (surprisingly frequent emailers sending me messages about Mexicans all being diseased criminals notwithstanding).  Its not like I live blithely ignorant of the border area in Kansas.  I life in Phoenix, and run businesses  right down on the border.  I don't feel a threat or danger.  In fact, the only danger I see is that the army may come down and drag families who are my friends out of their homes and out of the country (or into concentration camps, as one conservative writer longed for).

Immigration opponents are sometimes a little hazy about what danger they are trying to fix.  I agree there is a problem with the welfare state when it meets immigration, which I discussed here and proposed a solution for it here.  Democratic politicians still are confused on this particular problem, wanting some immigration solution but refusing to consider limiting access to the welfare state.   If the problem is infrastructure (police, prisons, schools, etc.) then it could be possible to provide national funds to border regions for this purpose, rather than for armies and walls (the Feds, after all, are handing out hundreds of billions to New Orleans).  And if the problem is too many people who don't look like us Anglo-Saxons, well, sorry  (If you don't think that this is the real issue for many anti-immigration folks, think about the recent scare headlines that soon a majority in the US may be Hispanic.  Can you imagine similar anxiety over the headline "majority of US may soon be of Canadian descent"?)

Update:  Nick Gillespie comments on the fact that Congress has given its official sanction to my speaking English.

Thank you, Middle Eastern 9/11 hijackers, for finally getting the point
through our thick skulls (forgive our slowness, but all too many of us are
descended from immigrants) that the greatest security threat to the United
States is the influx of Spanish speakers from across the border with Mexico.

Christ, it's bad enough that we have to eat foreign food, live in states
with Spanish-derived names, and answer that extra question about which
language to use at the ATM. (Thought experiment: How much is that extra
second or two of time slowing down the U.S. economy and driving down our
productivity, precisely at the moment when the Chinese are breathing down
necks like a bunch of post-industrial railroad coolies? You can be damn sure
that the Chinese government doesn't allow ATM users to pick their own

As I have written before, I have gotten more bizzaro emails on my pro-immigration stand than anything else I have written about.  Gillespie apparently has had the same experience.

Bullshit Jobs

Glenn Reynolds linked to Stanley Bing's book "100 Bullshit Jobs... and How to Get Them."  He points out that "blogger" is number 13.  However, the Amazon description hints that I may have had a second job on the list: "McKinsey Consultant."  I will leave to the outside observer whether both jobs are bullshit.  I will say that they both share in common an ability to consume a lot of hours in the day that would probably be free time without them.  They both also share an hourly pay problem, the blogging job because it pays nothing and the McKinsey job because it turned out to have a staggering number of work hours each week in the denominator.

So Why Not Cuba?

This week, the US took a step to normalize relations with Libya:

The United States restored
full diplomatic ties with Libya on Monday, rewarding the
longtime pariah nation for scrapping its weapons of mass
destruction programs and signaling incentives for Iran and
North Korea if they do the same

The logic was that Libya still is a sucky dictatorship, but it has taken some important steps forward into the light which we want to reward.  Perhaps more importantly, the administration acknowledges that increasing intercourse with the western democracies tends to have liberalizing effects in countries in this world of open communications (see: China).  Its a difficult trade-off, but I am fine with this.  Certainly we are no virgin in terms of having diplomatic relations with bad governments.

My question is:  Why doesn't this same logic apply to Cuba?  I think it is pretty clear that embargo and shunning over the past 40+ years have had as much effect as they are going to have.  Why not try engagement?  I think this particularly makes sense well before the chaos that may ensue after Castro's death.  If anything, just by reading the behavior of Cuban expats, Cubans remind be of the Chinese in terms of their entrepreneurship, and I certainly think engagement has worked better than shunning in China. 

Of course I already know the answer to my question:  Because Cuban expats make up a large voting block in the most critical presidential election swing state and no candidate wants to be soft on Castro.  But this seems to make it even more of an opportunity for a second-term president who doesn't have to contest Florida again.

Update:  Yes, I did indeed spell it "Lybia" at first.  Seems vaguely Feudian.  Excuse 1:  Blogging is a real time function.  Excuse 2:  Its just a hobby.  Excuse 3:  I was a mechanical engineer in school

Comment Changes

I have never been satisfied with the delays caused by having to approve comments, but I didn't like giving bots a free pass either.  Now that TypePad has added a Capcha step in the comment process (that is the little nonsense word you have to retype from the image) I am going to let comments go straight up, relying on technology to catch bots.  In reality, trackbacks are actually the bigger problem -- I sometimes get waves of 300-400 bot-spam trackbacks in a day, until TypePad takes steps to block that source.

Please use the comments to this post to, uh, comment on any problems you are having with the new comment process.