Monday, May 16, 2016

Week's sad news

In the  quest to understand just how much the administrative state is harming economic activity, there are lots of anecdotes but few overall measures. But we have lots of anectdotes. I thought it would be fun to put together a week's worth from my morning-coffee WSJ reading.

Tuesday: The Labor Department issues a new "persuader rule" employer would likely have to report asking a consultant to study the labor savings of moving to a right-to-work state. An attorney would have to disclose private discussions with an employer over a neutrality agreement to support a union’s organizing attorney who advises Employer A about a union organizing campaign will also have to report if he’s conducting, say, a sexual harassment investigation at Employer B. All of this information will be public....The Manhattan Institute estimates the rule will cost about $60 billion over 10 years....The beneficiaries will be unions, which don’t have to report their own persuader activities. 
Wednesday: Judge blocks Staples Merger, and 45 federal programs,
U.S. District Judge Emmet G. Sullivan sided with the Federal Trade Commission, which in a December lawsuit alleged the combination of the office superstores would lead to higher prices for large corporations that buy office supplies in bulk.

Shares of both companies plunged in morning trading in New York. Office Depot stock dropped 37% to $3.82, while Staples fell 19% to $8.41...Staples said Tuesday it will cut another $300 million in annual costs and explore alternatives for its European operations, which include more than 200 stores.
Many of us remember the econ 101 fable of monopoly which needs government protection. Most of the academic IO and antitrust literature has come to disbelieve this classic story. Staples and Office Depot themselves are recent innovations. There is no distinct market for large box office retail stores. Everything in them can be bought elsewhere, and it's pretty easy to enter. In fact, they are in decline facing competition from the internet and other retailers. The idea that they can lock up the market on paper, toner cartriges, off-brand pcs, and raise prices is pretty silly. Especially for "large corporations that buy office supplies in bulk." Please, the point of the federal government is to preserve low prices for "large corporations" to buy paper?

Thursday's editorial on the matter puts it better than I did,
Stuck in a declining market, Staples and Office Depot have been reporting reduced sales. Government lawyers might have noticed that people are using less paper and ink these days. Then there are those little competitors called Amazon, Costco and Wal-Mart. Such competition is why the government couldn’t argue with a straight face that a merged company would force higher prices on individual consumers or small businesses. So the government claimed that the victims of the proposed merger would be huge corporations that buy in bulk...the judge made clear that he thinks the Exxons of the country need government help to get a deal on Post-it notes.  

Also, on the editorial page, 
The auditors at the Government Accountability Office report that there are currently 45 federal programs dedicated to supporting care “from birth through age five,” spread across multiple agencies. The Agriculture Department runs a nursery division, for some reason.

“Administering similar programs in different agencies can create an environment in which programs may not serve children and families as efficiently and effectively as possible,” GAO dryly notes. Parents can also claim five separate child-care tax credits.
Thurdsay A Climate Courtroom Crusade Scorches Due Process.

Read the whole thing, if like me you're not a lawyer. It turns out, back in the day, Attorneys general couldn't, on their own, subpoena all your files, comb through them, and then use the results to file criminal charges.
Mr. Schneiderman and other attorneys general have the power to bring not simply administrative, but criminal, charges on the basis of the information they force out of private parties. They thereby dangerously combine the roles of grand jury and prosecutor.
File it under decline of rule of law, and increasing ability of political officials to silence opponents.

In more classic gumming-up-the-works, Port-Trucking Firms Run Into Labor Dispute.
The nation’s busiest ports are emerging as a key battleground in the legal fight over whether truck drivers should be counted as employees or independent contractors.
Several trucking companies operating at the ports of Long Beach and Los Angeles have filed for bankruptcy protection in recent months, citing mounting costs to settle hundreds of legal claims. 
This is related to the big fight whether Uber drivers are contractors or employees. Independent contractors -- as chosen by the companies and their drivers -- gives us the consumer cheaper services, and allows more freedom to the company and workers. Employee status costs a lot more, makes a few drivers better off, and keeps a lot of potential drivers out of the market.

Friday Tesla Can Build All The Cars It Wants. The Real Challenge Could Be Selling Them

Via Forbes, and a good reminder that so much damaging regulation is state and local. Tesla wants to sell you cars directly, no-haggle, the way you buy computers.
Tesla is prohibited from selling cars directly to consumers in many states, including Texas and Michigan, where laws protect franchised car dealers....its direct-to-consumer sales model has run into a buzz saw of state franchise laws..... In a few states, such as New Jersey, New York, Ohio and Pennsylvania, Tesla won permission to operate a handful of retail locations, and no more. But dealer trade groups are objecting. In some states, they’ve filed suit to block retail licenses granted to Tesla; in others, they’ve proposed legislation that would prevent Tesla from obtaining such licenses.


  1. Wednesday: The decision came from a judge after examining both the government and the companies arguments. They may be wrong of course, but that would require a bit more thorough an argument than "Companies do not need to worry about monopoly suppliers".

    Thursday: Are you seriously arguing that we have too many criminal prosecutions of corporate leaders lately? Anecdotal evidence seems to point the other way, any data?
    Also, " Independent contractors -- as chosen by [...] their drivers"? The whole reason that there are legal (and political) battles is that (many, maybe most) drivers did not choose to be independent contractors freely.

    Friday: These rules used to be a lot stricter and Tesla has already won victories turning them back in many places. Good example of how an outdated regulation can be a hassle, but not ultimately a crucial factor for economic outcomes. This whole "battle" is such a minor side show to the real technological and political issues at stake.

  2. Much disturbing news. But when I saw the headline, I thought you were referring to the passing of Jack Treynor, one of the inventors of CAPM, mentor of Fischer Black, and influential editor of the Financial Analysts Journal.

  3. Sure enough: Grumpy Economist.

  4. I wonder if Noah Smith reads this, sees it as an isolated set of cases, and figures the benefits to union families is on the whole better for society than the infinitesimal drop in prices. Nevermind the long term benefits from a mere "level effect"

    1. Noah's "priors" are too influential to allow these trivial cases to alter his mindset.

  5. Spent my first weekend without Uber / Lyft in Austin in 2 years. Some effects - 1) Restaurant we ate at Saturday night says Bar staff and Wait staff is getting crushed (tips and bookings way down) but Valet's are doing well! 2) Had friend who's gf was caught in a torrential downpour who live downtown without a car ... she had to bike home through the storm 3) I personally caught 4 lyfts using the workaround of dragging my cursor outside the city limits and then calling my driver with my exact location which worked surprisingly well but did cost me time (wait time from 2 minutes to 20), a bit of money (I can't use line's anymore) and burnt extra gasoline because drivers are constantly driving back from out of town, 4) a buddy of mine with a 12 passenger van was able to start driving people around illegally and profitably 5) we were the butt of all jokes to visiting professors in town for a small conf

  6. On the Staples - Office Depot merger - it is a sorry state of affairs when the regulators who are making the decisions truly don't what they are doing. DOJ relies heavily on the Herfindahl- Hirschman Index [Quote] "HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. For example, for a market consisting of four firms with shares of 30, 30, 20, and 20 percent, the HHI is 2,600 (302 + 302 + 202 + 202 = 2,600)." This is fine for a market like crude oil production, passenger car OEMs, commercial passenger jet engines, or even fast food hamburgers. For companies producing multiple products selling in multiple markets the focus should be on individual products within the company portfolio. Broken down this way all of the office supply products have a large number of suppliers including big ones (Amazon), and local small ones. The major markets for Staples - Home Depot are businesses buying bulk volumes. A combination does not really affect the buying (bargaining) power of the buyer. The focus has to be individual products in specific/individual markets.

  7. The worst sin against free enterprise, certainly on the West Coast, is property zoning.

    We should also decriminalize push-cart Vending.

    It is interesting to ponder why the "free enterprise" crowd goes mute on these issues....

    1. I don't think we're mute at all ... if not for push-carts and other "illegal" food vendors i'm not sure i'd have ever gotten a good taco in LA. As an avid biker / walker, the zoning thing drives me batty. Can I please have a bar, an apartment, a job and a grocery store near where I live?

    2. San Francisco is an amazing example of how growth and innovation can persist despite all the nutty policies that both the local and state governments pass. One might be tempted to conclude that its really all small potatoes. Then again, no one saw Detroit coming.

  8. @ James Carlyle

    I think to attract Noah Smith, John Cochrane would have to link his anecdotes into a really embarrassing scatter plot, extrapolate it out of sample, and then have Brad Delong do the tough work of explaining how dumb that was. Noah would come in at the end, totally unfairly, to collect the applause.

    Like a high-scoring forward in hockey, Noah tends not to go into the corner without a goon to protect him. He is Gretzky and Delong is Cement Head Semenko.

  9. no way this could hurt anyone right?

  10. Defered taxation of company profits has a strong upward effect of company capital ratios in Estonia. "The capital buffers of most banks increased last year and the share of CET1 capital was very large at the end of the year, standing at 35% of risk weighted assets for the banks on a consolidated basis. " Eesti Pank, Financial stability review


Comments are welcome. Keep it short, polite, and on topic.

Thanks to a few abusers I am now moderating comments. I welcome thoughtful disagreement. I will block comments with insulting or abusive language. I'm also blocking totally inane comments. Try to make some sense. I am much more likely to allow critical comments if you have the honesty and courage to use your real name.