Food Regulations

A close relative works with a major national food brand/manufacturer.  He was just telling me about how US government regulations prohibit food manufacturers from using specific strengths and types of flavors.  Food companies are prohibited from using strong peppermint, straight natural vanilla, and certain almond flavors.  But not for the reasons you might think. 

See, these prohibitions are in place not for consumers (who want the flavors), but for manufacturing.  The flashpoint of the flavorings are too low - they burn at too low of a temperature.  As a result, manufacturers that wish to meet consumer desires are forced to import the food from other countries.  I don't mind imports (another topic), but when companies would prefer to make something here, but import because they are not allowed to make here, that just hurts everybody. 

Some safety standards make sense.  If workers regularly are injured and maimed, maybe something needs to be done.  How many Canadian workers are dying in food factory fires?  Because that is where we are importing food from made with the prohibited flavors.  If the standards were necessary, a country without the standards would expect to see people being injured and killed. 

Inflation and the CPI

Just a quick note springing from a discussion with elder relatives over Christmas.

CPI includes.... average basket of consumer goods, established and tracked by....

There is a valid instrument called "Core Inflation", this is essentially the CPI stripped of food and energy costs.  There are valid reasons for doing this, namely that energy and food prices may be wildly influenced by factors other than MS/inflation, and if you are looking for inflation, you don't want to be distracted by irrelevant factors.

However, lately "core inflation" has been used as if that is actually the price increase faced by the common Joe.  Not so.  See, not only does the average Joe buy food and energy (gasoline, electricity, propane, etc...), so Core Inflation doesn't show the whole picture, but also the CPI itself assumes you buy average goods.  So if you buy the average amount of a new house, the average amount of vacation, the average amount of a new car, the fact that prices in those three areas have continued to be remarkably low will hold down the average increase of prices you face.  But, if you do not buy a house, do not buy a new car, and have to reduce or eliminate your vacation, you only get to enjoy the increasing prices of food, energy, clothing, entertainment, etc....

So, in summary, the CPI is pretty good at measuring inflation (a topic for a different day), but not especially good at revealing "sticker shock" faced by the the consumer that doesn't buy certain large, key, goods in a particular year.  "Core Inflation" is a real tool, and very valid, but absolutely misleading and even harmful when looking at whether prices faced day-to-day by the average Joe.

How would I change this?  I would have a third way of looking at the CPI.  In addition to having the whole CPI and Core Inflation, we should also be able to split the CPI into three parts (looking at price change across the entire CPI, or each individually) of Essential Goods (food, energy, clothing, entertainment), Luxury Goods (furs, vacations, jewelry), and Durable Goods (investment goods, housing, transportation).

Merger Prevention

One function of anti-trust law in this country is to prevent the merger of companies when the DOJ feels that such a merger would create an "uncompetitive" environment. 

They decide and define an uncompetitive environment by using the HHI - an index that essentially sums the squared market share of each competitor in a particular market.  Mergers that increase the HHI beyond an acceptable limit or too quickly are deemed anti-competitive and blocked. 

And here lies the problem.  The DOJ gets to define the scope of the market and which companies are viewed as participants. 

I have done absolutely zero research on the topic, but I heard today that AT&T dropped its bid to merge with T-Mobile in light of opposition to the merger by the DOJ.  Now, this may or may not be a problem in this case, but mergers can be useful tools for companies to pool research resources, reduce costs so as to avoid bankruptcy, and allow companies to expand their market penetration without incurring the full expenses.

How might mergers be bad?  Generally, mergers are seen as bad if you do not trust the market to control the size and dominance of an unprotected monopolistic company.  Even if market power increases, competition, and potential competition, still exist to keep the company efficient and focused on serving customers.  Where do problems come in?  If the company is in some way subsidized/protected/funded by the government, that is when you have to worry about how big it gets.  But why fix that worry by limiting all mergers?  Why not just remove the government protection of the few?  

Fear of Government

64% of Americans believe that big government is the biggest threat to this country in the future.  
Yaaaaay Government.

Economic History

Really interesting article on economic history. 

Regulations

From many sources it seems that federal regulations have increased substantially faster under the current administration than under previous administrations.  Businesses are saying that cost of compliance has increased substantially.  The Federal Registrar has exploded in size.  Federal agencies are issuing more and bigger rulings than ever before, interfering with ever-increasing portions of the economy. 

Despite the above, the White House denies it all.  They desperately want the current lack of business hiring and growth to be "not their fault". 

The Wall Street Journal does a very good job looking at what the record has actually been. 

In short:  The reality is that the current administration has more average "economically significant" rules per year than either of the previous two administrations.  The WH has been shopping numbers that only look at a portion of the regulations issued, only those going through the WH, not those from the various agencies. 

Conservatives and Poverty

It is a fairly popular meme among statists that conservatives are heartless and hate poor people, and that the conservative "solutions" to ending poverty will actually create more harm.  Here's the interesting thing. To a certain extent, they're right.  Many conservatives are in favor of poverty policies that would not in fact solve poverty because most conservatives basically want to continue government solutions for poverty, just perhaps with more restrictions on who gets money, how much they get, or how Christian the organization is that gives the money. 

THAT WILL NOT WORK.  At least, not any better than any of the governmental poverty reduction policies that have flat-lined previously falling poverty rates and ruined the family structure in the demographics that typically have higher poverty. 

But, most conservatives really aren't.  At least not to an economist.  That still doesn't explain the flood of lies, misrepresentations, and distortions in this article.  Which deserves a full fisking on its own.

So. Many. Things. Wrong.

Robert Reich and Paul Krugman have been parading around with their schtick of half-truths and distortions again.  The particular one this time is that increasing tax rates to pre-Bush-tax-cut levels and increasing federal government spending will boost the economy.  Oh, and extending unemployment benefits yet again (despite the fact that over and over again people have shown that extending benefits increases the average length of time a particular person remains unemployed).  This is the basic tone of the article:

Krugman starts from the premise that, “The top 0.1 percent of taxpayers — roughly speaking, people with annual incomes over $2 million — had a combined income of more than a trillion dollars.” Without ever so much as a nod toward evidence or logical rigor, he jumps to the conclusion: “That’s a lot of money, and it wouldn’t be hard to devise taxes that would raise a significant amount of revenue from those super-high-income individuals.”

 ...“Put more money into the pockets of average Americans [by] extending unemployment benefits. Don’t stop there. Create a WPA to get the long-term unemployed back to work. And a Civilian Conservation Corp to create jobs for young people. Hire teachers for classrooms now overcrowded, and pay them enough to attract people who are talented as well as dedicated. Rebuild our pot-holed highways. Create a world-class infrastructure. Pay for this by hiking taxes on millionaires.”

 But wait, let's think about this. 

Federal income tax data from 2010 reveals that if the government had confiscated all the remaining income ($1.293 trillion) of the top one percent on top of their 2010 tax payments, it still would not have been enough to eliminate the deficit ($1.294 trillion). And, how much of those people’s income would exist to be confiscated in year two?

 See - there is this thing called the Laffer Curve.  And it makes logical sense.  And has been shown in history time and time again.  It is simply the reality that people change their behavior in response to a change in taxes.  The Laffer Curve is the spectrum of possible revenues for a taxing entity, ranging from zero revenue at a zero tax rate to a theoretical maximum revenue at some unknown tax rate.  But it doesn't stop there.  The curve continues, decreasing from the theoretical maximum to reach zero revenue again, at a 100% tax rate.  Basically just the idea that yes, as tax rates increase, the government claims a larger share of your productivity, but..., how productive will you be if the government claims ALL of your productivity?  Even the strongest advocates for statism acknowledge this by supporting sin taxes.  It is foolish to assume that if taxes are increased the most productive, innovative, individuals will continue to be jut as productive. 

Oh, and there is that whole pesky truth about Keynesian policies not exactly working out over the past four years. 

Cost per "Stimulus Job"

I, like many economists, have a hard time believing that the stimulus really did much good.  The staunchest defenders of the stimulus would seem to be found within the administration itself.  Yet, back in July (I know, old news, but how many of you knew about this back then), the administration itself released figures.  These figures say that, even if the stimulus created/saved as many jobs as the (I think overly) optimistic official White House estimate, it was only accomplished at a cost of $278,000 PER JOB.  So it would have been, even assuming the stimulus actually created/saved 2.4M jobs, merely 1/6 as expensive to simply PAY those 2.4M workers the median household income and call it a day. 

Auto Bailout Losses

So the current estimate of losses from the auto bailout a while back is about $23.6B.  These are losses of about 28% of the initial investment, and we aren't out of the woods yet.