Tag Archives: government

Big Macs vs. Salads

Interesting piece of governmental schizophrenia from the Physicians Committee for Responsible Medicine.

You may comment that their image shows the much outdated food pyramid, so here below we show you the much improved MyPlate. As you can see, the subsidies still don’t measure up:

Ok, so maybe you think all this ‘Free Market’ talk is bunk and that the government should be allowed to impose quotas, taxes, tariffs and subsidies because it knows what’s best for us, like our mothers. This mother, however, is telling us to eat our veggies while placing a Big Mac in front of us.

* You may also comment that the graphic shows Federal subsidies from 1995-2005 but, while the newest form of the Farm Bill is the Food, Conservation, and Energy Act of 2008, the amount of subsidies for these categories has not changed. Only subsidies for biofuels has increased.

A Lottery for All

Another interesting take on lotteries, following on an older post regarding lotteries and savings accounts. If you recall, there we mentioned Prize Linked Savings, or a savings account that took interest payments, pooled them together, and doled them out as lottery winnings. Despite very successful pilot programs (by successful we mean they made savings rates increase) in places like Michigan and South Africa, the government has a problem with tem. Usually 40% of lottery winnings are taken by the government, which is much harder to do with savings accounts since they are privately owned.

Enter a model used by the Dutch, wherein a whole postcode will win each month’s lottery. The winnings are divided up between all residents within that postcode, meaning all winners receive around $13,000. So everyone in the community can be that much better off.

So how can these two ideas be combined? Well theoretically, the 40% of winnings taken by the government should be used to benefit its citizens, correct? What if these citizens received the winnings themselves? Could this allow the government to decrease (or eliminate) the amount of taxes taken out of the savings’ winnings?

As an explanation, people would be able to open bank accounts, knowing the interest they earned would be directed toward a pool of money. This money would then be doled out in a monthly lottery but, rather than have one individual win the full amount, a whole postal code could win it. Of course, this probably means winnings will be in the $10,000 range rather than the $1,000,000 range, but it also means 40% wouldn’t be taken out as taxes, since these would constitute a form of payment to citizens regardless.

The devil, as always, is in the details. Would the bank accounts still be private or state owned? And exact amounts of earnings, winnings and (eventual) tax payments would have to be calculated. But if it encourages people to save and not to spend their own earnings on lottery tickets, might it not be worth checking out?

Technically: It’s a Government

Italy now has an unelected government. The only other government entity in Europe to share this particular feature is the EU Commission – there’s some food for thought for you.

But what happened? Why has a panel of academics been appointed to lead Italy, and what on earth is a “technical government”?

A “Governo Tecnico” arises during times of government crisis: sitting parliament decides to step back and give confidence to a temporary government made up of “technical experts” from outside the political arena. This temporary government must exercise its best judgment, free of political bias, to direct the country back to stability until the next general election, when a new political entity will be elected by the populace. This has also been called the “government of national responsibility”.

And herein lies the proof of Churchill’s statement about democracy being the worst form of government except for all the others.

Should not every government be exactly this type of government? Chosen from amongst the people best qualified to lead in their given roles, as judged by previous experience and outcomes, and making decisions based on their knowledge and best intentions for the good of the nation as a whole and in the long-run, rather than political affiliation.

Clearly Italy must justify why its people should accept to be led by a non-elected government, and this justification highlights exactly what the problem with elected government is: career politicians.

From the moment that we accept a “technical government” as an “other”, not the standard of government in general, then we accept that the role of government is to fulfill political bias. That we should elect politicians based on political affiliation, preferred sound-bytes, great hair we don’t mind looking at for the next few years; basically anything but their capability of making decisions for a positive outcome.

Maybe we should think once again as to how and why we select our national leaders.

Taxation and “Fairness”

Do you ever get the impression that people see taxation as an end in itself, rather than a means to an end? We are struggling with empty state coffers: well just raise taxes. But for what? Why tax people at all? What is the money being spent on, besides front-line services? And why should producers be paying for those things?

Chris Dillow writes at the Stumbling and Mumbling blog about “The Fairness of 50p” tax rate.  [To be honest I take issue even with the title of this post: “fairness” is not an absolute, and what is fair to one is not fair to all.]

In a nutshell: he is saying that the rich (which he says can mean various things, but which he does not define here) should pay more taxes to the state because it is the state that has made them rich to begin with (I should have warned Ayn Rand fans to brace themselves for that one).

In any case, he presents his argument in 3 main points, and I choose the space of a post, rather than just a comment on his site, to give my own opinion on each. His first point reads:

“1. A high tax is a dividend, paid to the state in return for its investment in the things that made you rich.”

“Even if the state did not educate you”, he says, “chances are it educated your customers”. Although he does not explain why that education is central to these customers purchasing my product, service or labour. And I apologise for sounding sarky, but if I can prove that most my customers were not educated in state schools, may I pay less taxes?

The state also provides peace, in which the economy can flourish. I wonder: without the state are we all crazed animals who feed on each others’ wealth and fear? Did not trade come first, the state second? The state is not detached from peace, of course: it helps maintain peace, more or less effectively. However: we have the same amount of state all over the country, but not the same amount of peace (or safety).

And thirdly within this point: the state helps sustain capitalism. In fact more often then not: when the state gets involved in business corruption and market distortion ensue (automotive bailout, anyone?)

His second point seems to imply that business is corrupt by definition:

“2. The state’s force is a form of countervailing power. Some (many?) of the rich owe their fortune to the fact that they are powerful.”

In other words man is powerful first and rich second, and at that point holds undue influence to extract money from the state. I dare say wealth tends to precede power. Even in politics: wealth helps get you elected. In fact generally the more one grows in wealth, the less he extracts from the state. He will move from state to private health care, send his children to private schools, not depend on public housing, and much more.

In point 3 we look at markets, and so of course we find a negative:

“3. Inequality is a form of market failing.”

This appears premised on the idea that people become rich because of luck or talent, which I presume he associates closely with luck (you are either born with it or not). So this argument can only stand if we deny that wealth can and usually does come from work. Providing a good service, creating a great product, making fruitful decisions: these things generally come from training, work and dedication; not luck.

In any case I find this point moot, as equality is not, nor should be, the goal. Everybody has different desires, different pleasures and different priorities. The goal, to paraphrase Ocean, is that you get out as much as you put in, and you choose how much you put in.

I strongly believe in equality of opportunity as the only desirable equality, and this is achieved by less intervention, not more.

In summary: according to Dillow the state gives us all that is good (governments make you rich!) and the markets all that is bad (inequality is, we presume, bad). The more you have, the more you should contribute towards MPs second houses.

Shining some light on Subsidies

A recent article in the Economist highlights a great example of how government subsidies have a tendency create more profits for companies, which do not get passed down to consumers but rather raise the price of goods.

The focus of the article is MiaSole, which produces solar panels not made out of silicon, and therefore not receiving any government subsidies. It is just as efficient and just as cheap as any silicon-based solar panel, but since the silicon-based companies have been able to rely on subsidies, they haven’t concentrated on efficiency or driving costs down, so now they are at a disadvantage. At the risk of relying too much on quotes, these ones are telling:

“For much of the 2000s, with a shortage of pure silicon and lavish support from European governments, the price of solar panels failed to fall as expected.”

And in Europe, “Spain, then Germany, boosted demand by giving generous “feed-in tariffs” (subsidies) to anyone who produced solar power for the grid.” But “electricity consumers’ anger at their big bills is now forcing Germany to cut its subsidies.”

Although it has taken a while, hopefully governments will now realize that the subsidies have been bad for consumers, bad for solar power, bad for the economy and bad for the environment, so they will let the market take its course from now on. Some may be surprised to see that the cheaper, more efficient option is actually the better one for the environment too. To end with another quote:

“This all adds up to a bright future for cheap solar energy.”

The un-Taxi

Those of you who remember the Transport Azumah story might be saddened to hear about Ubercab. Ubercab was a service which allowed you to summon a taxi from your smart phone. Once summoned, all Ubercab drivers would be notified, and could see where you are based on GPS information. The closest one could then pass by and pick you up, take you to your destination, and drop you off. During the whole transaction no money would exchange hands since the fare would be subtracted directly from your account.

In other words, they made taxi rides much easier. No need to find a number or flag one down, no need to even call a cab, then no need to worry about money or change. Sounds good? To us as well. And even if it didn’t, we applaud the idea of entrepreneurs finding ways to provide more choice for the consumer. Well, the governments of California and San Francisco didn’t think so, and have issued Ubercab a Cease and Desist order.

The main difference from the Transport Azumah, story, however, is that Ubercab has decided not to comply. They have merely changed their name to Uber, and decided to offer their services without once referring to their vehicles as cabs or taxis.

In the meantime, Transport Azumah has found other routes, such as the New Haven-Boston bus route, providing a cheap alternative for students wishing to make it to the city.

We wish both companies all the best.

Let commuters be commuters

A curious incident happened recently in New York city: when the city stopped running its bus routes X25, X29, X90, and QM22 a private company took its place. Transport Azumah started running private charter buses on these exact routes. The result was that the customers were happy, the city didn’t have to run buses along these routes anymore, and everything seemed to be working out. And then the city served Joel Azumah, the owner of Transport Azumah, with a restraining order.

It seems their reasoning is that he runs an “unauthorized bus line” and that “safety” is their number one priority. Azumah claims this is a farce, since his buses are inspected by the NY state DOT every 6 months and carry the necessary liability insurance. So who is right?

Well it seems that support for this action has come from labor unions “concerned about privatization” (all city workers being part of the union, with all private workers being outside it), so we will see what happens. Safety should come first, but as far as we can tell there have been no incidences, complaints nor any other reason to assume the buses to be unsafe.

We don’t know any more details, but if the MTA is strapped for cash (the V and W subway lines were discontinued as well) then it makes sense to allow private charter buses to transport customers to their locations. In fact, even if the MTA is not strapped for cash, private charter buses should be allowed to transport customers to their locations. If passengers choose the private buses over the MTA, well, so be it.

It seems Transport Azumah has abided by the city’s ordinance. Their facebook page hasn’t been updated since April and their website does not seem to be active. A sad state of affairs for entrepreneurship in the Big Apple.

Pay the A.I.G. Bonuses

A.I.G. received about $170 Billion from the U.S. government. Out of this, $165 million (slightly less than 1/10th of 1%) will be paid out in bonuses. Seemingly everybody in government, from President Obama down, is up in arms against these bonuses. After all, the tax payers have paid to save these companies and millions of these dollars are going to the executives as bonus payments.

Before jumping on this extremely inviting bandwagon, however, we should look at some details. First of all, what is being called Bonus here it actually more appropriately referred to as “End of year compensation”. For those who have worked in both industries, the bonus structure in AIG (and most of wall street) is very different from an average marketing company in the midwest. While most people work for their salary and are happy receive a month’s worth in bonus as an extra at the end of the year, most of wall street works for their bonus. This is done for several reasons, the main one being it ensures firms that employees will remain at least until bonus time. This also means that bonus amounts are usually contractual and, rather than bonuses in the main street sense, they are more like withholdings of salary until year-end.

Secondly, when tallying up who deserves what, we should keep in mind who’s receiving what. While a small minority are high up executives who are receiving obscene amounts for non-performance (although a few have refused them or paid them back), the majority are recent grads to middle management, expecting their year-end compensation.

Thirdly, as mentioned above, these were contractual. A first version of TARP did away with all bonus payments. This section was scratched, so the bonuses were included. Not only do these bonuses retain talent, but the government knows it cannot take this money back. If it did, people would realize that any company receiving government funds is liable to break its contract, and that company will receive no more business, not to mention it won’t be able to hire anyone.

So what are the government’s options? It could withhold the bonus amounts from the next round of bailout money (which AIG is very likely to request). But of course, this will solve nothing since the managers will keep their bonuses and AIG as a company will merely have less to use, or they will just ask for more again. It could also declare that, as the government, it can decide to rescind the contracts. This brings about the problems mentioned in the paragraph above, not to mention a collapse of the financial system due to arbitrary government takeovers and contract breaching.

The third option is to hold a big witch hunt which will blow off steam (and possibly allow some politicians to score points), but which will achieve nothing tangible. We must assume that most politicians know this, and this is what they are doing.

We at Dumb Agent encourage executives who get paid extravagant bonuses in these hard times to either give the money back or to use it for a common good. We do not, however, believe the government can start breaching contracts because they changed their mind about clauses they agreed to include earlier.

CFTC to Regulate Prediction Markets?

Please read this. The CFTC is the Commodity Futures Trade Commission, a governmental body, and “Event Contracts” and “Event Markets” are government-speak for Prediction Markets.

It will be interesting to see what their conclusions will be. We are not aware of any need for governmental regulation in this sector, and are of the opinion that none is needed unless further information should arise.