Ban Texting Law of Unintended Consequences

Texas is just about to pass legislation that would ban people from texting or driving. The legislation would fine people that were caught a few hundred dollars and possibly jail time. If you penalize something you will get less of it. However, this could encourage people to try to hide their cell phones as best as possible (possibly even more dangerous) so they are not suspected of texting while driving or perhaps get dark windows to make it hard for cops to look in.

People often talk about how they don’t like people driving or texting while in the car. We are all guilty of doing this. Getting a call or getting a text that we think is important (most of the time it isn’t). I don’t think anyone would argue talking while driving or texting while driving is safe. People often claim that these distractions can cause people to get into accidents they wouldn’t have otherwise gotten into. One problem with this argument is people don’t consider the long list of things that can distract us. Billboards, highways signs, kids in the backseat, etc can all the distractions. Some of the claims that are made are that texting while driving is as dangerous as drinking and driving. The National Highway Traffic Safety Administration in 2006 estimated that 17,941 died because of alcohol related collusions. This would represent 40% of all total traffic related deaths. In addition to this there are 275,000 people that were injured in 2003 from alcohol related accidents. The number of deaths from 2001-2007 was a little over 16,000. Over a 6 year period this would be around 2,700 per year. Clearly, the number or people hurt or killed by drunk driving is far greater than the number of people hurt from texting or calling while driving. Also what if we have people that can drive well while texting or using their cell phone? Should we test people to see how well they can drive while using a cell phone ?

Consider the first text message was sent around 1992. Auto accidents have dropped considerably since then. The number of total traffic fatalities in the 1950’s was the same as it was in 2010 yet the population in the United States in 2010 was double of that of the 1950’s. Therefore accidents per population have drastically fallen. If we look at highway deaths per 100 million miles driven the number has been declining since 1921. The National Highway Safety was created in 1970. If you look at the number of highway deaths per 100 million miles the steepest decrease occurred before 1970. So to say we "need" an organization like National Highway Safety is utter nonsense.

Also what about the potential benefits of cell phones? Cell phones can be used for positive things like saving lives and sending vital information. For instance, if someone was in trouble we would want them to be using a cell phone in their car. Assuming that cell phones have only negative benefits is also nonsense. The important question is when looking at the overall net affect what is the outcome. Politicians and people only seem to look at intentions or just how an idea sounds without any through look at the evidence. One can only hope for the day of driverless cars.

Politicians and Insider Information

A study entitled "Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives" show that stocks purchased either by members of the U.S. House of Representatives or U.S. Senate members on average beats the market 6% annually. Seems very interesting that politicians come down harshly on people in Wall-Street for insider trading yet no one ever talks about politicians using insider information. Wait a moment as I choke on irony.

You could say, "Well these are suppose to be smart people so of course they will beat the market!” I don't find this very compelling when a large majority of people in politics are lawyers and have never taken a finance class. Since politicians have probably the best network of connections (they are in the business of granting favors) they are able get access to information that no one else could get.

On the other hand if politicians really can outperform the market why don't they become fund managers and clean the clocks of nearly every mutual fund or hedge fund manager?

Study link:
http://www.bepress.com/bap/vol13/iss1/art4/

End of Post Office (Hopefully)

A recent article in Business Week entitled “The U.S. Postal Service Nears Collapse” discusses the current problems with the United States Post Office and talks about why the post office is having problems and brings up some possible solutions. The author of the article makes the mistake of claiming USPS (United States Postal Service) could be number 29 on the Fortune 500 list. Although, the USPS employs close to 600,000 people it is constantly losing money. Companies on the Fortune 500 list are profit seeking firms not government sponsored entities.

I found online data that showed the income and expenses of the USPS since 1789. The data looks as if it is adjusted for inflation. I took the annual difference of the income and expenses and calculated the surplus or deficit. The total sum of losses for USPS since 1789 has been $13 trillion! Actually this understates the total deficit since USPS doesn’t pay taxes like corporations do. Most recently in 2010, USPS lost $8.37 billion. In 2010, USPS took in $67 billion but spent over $75 billion. I don’t know of any publicly traded company that takes in $65 billion and loses money.

Obviously there are some reasons why the post office is in trouble. The internet transformed communication and make it very cheap to transfer data, ideas, and information. So instead of writing long letter to friends and relatives people could just send an e-mail. People handle most of their finances online which gets rid of bills or checks that people get which would also reduce the mail. The USPS doesn’t really have incentive as for profit businesses. Business have to create value while government funded problems can just ask for more appropriations or money from the government. The government has a monopoly on the first class mail service and is it illegal for anyone else to deliver first class mail. Something also I find interesting is that no post office worker has ever been laid off. For profit businesses don’t operate this way. I would love to see UPS, FedEx, DHL, or any other business start delivering first class mail.

People might say “those greedy companies will increase prices!”. One problem that very few people realize is that anyone that pays taxes funds the USPS. People just look at the stamp price or whatever they are mailing and not including their portion of taxes that are going to the organization. Also how often do we see lines at the post office? I have a feeling a profit seeking company would reduce the size and number of lines. Whenever we go into McDonalds, Macys, Kroger, we rarely see lines as long as the post office. Another question people might bring up is “how would mail get to our house?”. I have a feeling companies could figure out the wants and needs of customers and plan accordingly. Companies could deliver the mail every day or maybe only a couple of days a week. The decisions and wants and needs of millions of people would determine what would ultimately happen. According to the USPS website in the first 3 years of service workers get 13 days of annual leave plus 13 sick days plus 10 days of holidays per year. This would be over a month’s worth of time off per year.

Even countries in Europe don’t have the government taking care of first class mail. In countries like Sweden, Germany, Finland and many more countries have companies that take care of the mailing needs of millions of people.

I really wish we could abolish the USPS and allow for profit companies to come in and improve the efficiency and accuracy of the mailing system. In a million years no government burecrat would have ever dreamed of UPS.

Herman Cain Dominates

Presidental hopeful Herman Cain schooling Bill Clinton on math and business...

Oprah

So apparently today was Oprah’s last show. In 2010, Forbes estimated that Oprah was worth $2.4 billion. Surely this is a lot of money but has she honestly improved the standard of living like Bill Gates of Steve Jobs? I am sure people that watched her show said they were enriched by her but did they pay for it? I have more respect for the entrepreneurs that created products millions of people bought and made society better off than Oprah.

One valid argument one could make is that Oprah created awareness for issues. True, people may not have had a lot of information about personal finance, health issues, child predators, etc however didn’t the internet fix this? Oprah’s ratings in 1991 were around 12.6 million people per episode, but by 2009 ratings fell to 6.2 million people. It is important to point out that ratings only decreased since 1991. With the rise of the information age of the 1990s it would seem as if more people could substitute the internet for Oprah in order to get their information or awareness. Instead of waiting to see what facts or news Oprah could bring people can now within a few seconds find out information on a wide variety of subjects.

I personally think it is great that Oprah has her money and gives to charity. What I guess I am curious about is how she made so much money informing people. The way she really made her money was because so many people watched her show and since advertisers pay based on how many people are watching it would increase the value of the show. Since there seems to be a high demand for her I would think they would start selling episodes (over 4,000 of them) on ITunes for 99 cents and let even more money flow in. Even though I don’t think people like Thomas Sowell or Walter E. Williams agree with her views I think they might agree that an African American coming from nothing and becoming a billionaire is nothing to sneeze at. The great thing about America is unlike other nations just because you start out your life a certain way doesn’t mean you will end your life that way.

Sowellism

I have a feeling Thomas Sowell’s writing only is gets better with age. He truly is a modern wordsmith/philosopher.

“Most Americans living below the official poverty line own a car or truck-- and government entitlement programs seldom provide cars and trucks. Most people living below the official poverty line also have air conditioning, color television and a microwave oven--and these too are not usually handed out by government entitlement programs. Cell phones and other electronic devices are by no means unheard of in low-income neighborhoods, where children would supposedly go hungry if there were no school lunch programs. In reality, low-income people are overweight even more often than other Americans”

“The desperately poor elderly conjured up in political and media rhetoric are-- in the world of reality-- the wealthiest segment of the American population. The average wealth of older households is nearly three times the wealth of households headed by people in the 35 to 44-year-old bracket, and more than 15 times the wealth of households headed by someone under 35 years of age”

Link
http://townhall.com/columnists/thomassowell/2011/05/24/dependency_and_votes/page/1

Gas Prices and Hypocrisy

Epstein on Obama at University of Chicago

Richard Epstein hits the nail on the head about President Obama.

Alternative Energy Nonsense

When I hear about anything alternative I tend to cringe. Alternative music, alternative energy, alternative medicine, and alternative investments all have something in common…they are not the best. President Obama wants to try to use more alternative energy to get to make the United States less dependent on foreign oil. The President and environment whackos want lower emissions and “clean energy”. Greedy companies are not stupid. Companies would only invest in these alternatives if they made economic sense (which they don’t…well only if you include tax credits).

One big argument from environmental whackos is that we have to worry about polluting the air. Let’s look at some data before we make any decisions. From the period of 1988-2002 toxic emissions declined 51 percent. Smog since 1970 has decreased by 1/3 even as the number of cars doubled. Acid rain has declined 67 percent even though we burn double the coal. Airborne lead is down 97 percent. All of these things occurred despite an increase in population growth. People tend to argue to argue after this data “Well see the EPA is doing a great job”. What people don’t consider is what emissions were before the EPA was ever created, how much regulations from the EPA costs, and how much of taxpayer money is spent to fund the EPA. For example, the number of car accidents per highway miles driven was much less even before the National Safety and Highway Traffic Safety Administration was ever created. Along the subject of cars and the environment I think of how unnecessary CAFÉ (corporate average fuel economy) laws are. By 2020 the government wants car companies to produce 35 mpg cars. One way to increase MPG is to make the car lighter which also makes the person in more likely to die in an accident given less cushion. Also car companies with the regulation will increase the cost and pass it along to consumers.

On the current energy problem however, the President should let companies drill within the United States. If the President wants to lower other energy costs he could further deregulate electricity markets to allow for lower prices. Natural gas is very low and companies might find even more useful ways to use it in the future .However, the idea that we should use solar, wind, water, and anything else under the face of the sun is utter nonsense. Lee Raymond former CEO of Exxon once explained that you would have to have solar panels covering the city of Los Angeles in order to equal the same amount of energy in one gas station. Over time technology and the economics of alternative energy might change. However, right now oil is the most cost efficient resource we have and for the government to pick what should work and what shouldn’t is just a bunch of hot air.

Total Wages Have Increased

Despite what people say it looks as if productivity and wages have been increasing together and wages have not declined if you include worker's benefits. Productivity rose 110% since 1968-2008 while total compensation (wages + benefits) increased 103%.

Koch Giving

Charles Koch has been in the news recently for trying to fund two professorships for Florida State’s economics department. $1.5 million was pledged from the Charles B. Koch Charitable Foundation to the school. Koch wanted to be involved in the process however. In reviewing potential candidates for the professorships Koch rejected nearly 60% of the faculty’s recommendations. One thing people really don’t realize is that deans and any department chair’s real job is fundraising. Often times a dean of any school has to figure out how to get donations from individual donors, alumni, and corporations. Clearly, this is no easy task and requires connections, charisma, and knowing how to work parties.

What I don’t quite understand is why people are upset about how people to choose to use their money. People don’t seem to realize that even people that donate money are to some degree self interested. These people want to see the money go for a good cause, something that can benefit society, or whatever reason they can rationalize. This Koch case would make a great ethics case for business school. One thing to keep in mind is that these schools never have to accept the money. There are cases were schools do reject money even when billionaire Alfred Mann wanted to try to give $162 million to fund a bioengineering institute to UCLA they declined because he wanted too much control. The point is colleges never have to accept the money if they choose not to. Colleges also have reputations to maintain. If a college is known for accepting money to let students in, allow wealthy donors to cherry pick professors, or to have control of athletic teams it will be known.

Koch’s net worth in 2010 was $22 billion. He and his brother have given away more than $196 million already. The man should be free to choose what he does with his money or what organizations, charities, or schools he gives it to. One large benefactor of Koch’s charitable giving has been George Mason University. Over the past 20 years Koch has given $30 million to George Mason University. The school established the Mercatus Center which is a free market think tank. George Mason now has a top rate economics department.

I think even if someone wants to donate money to liberal causes they should be allowed to do so. I think it’s interesting that people believe they should decide how other people use and spend their money. Donation is voluntary and is a two way street.

Speculative Nonsense

With high recent oil prices there has been a lot of talk about what is causing high oil prices. Oil companies are being called into Congress to explain their record profits and an investigation is underway to investigate speculators for “fixing” prices. I wonder Congress never seems to investigate oil companies when prices are low. Federal taxes on gasoline are above 18 cents per gallon. This does not include state taxes on gas which can range from 8 cents to 32 cents per gallon. Of course state and federal governments are never greedy.

First, we have to understand that prices are never set they are signals of information to suppliers and buyers. High prices induce consumers to cut back while inducing producers to try to create more. OPEC has a large role in determining how much oil can be produced which in a way acts like a cartel. OPEC looks at proven reserves in order to see how much a country can produce which doesn’t seem to make any sense. Countries should be free to produce as much oil as they want and sell it on the open market.

Congress also has a large say in the supply of oil. What is ironic however is if Congress allowed companies to drill within the United States futures prices would start falling since the future price reflects current and future conditions. In 2008, it was estimated in ANWR (Alaska National Wildlife Refuge) had over 4 billion barrels of oil. Even the United States interior department estimated there was around 134 billion barrels of undiscovered but recoverable oil.

Allowing companies to also build refineries wouldn’t hurt either. Even if Congress allowed companies to build refineries it would take at least 10 years to build in the United States considering all the permits required. In an odd way oil companies could not be in favor of drilling or allowing refineries since it acts as a barrier to entry for anyone that wants to get into the industry. If you could keep competitors out and restrict the supply it would be easy for a company to maintain not only their competitive advantage but their profits as well.

Despite what people think speculators are providing a valuable function by informing people what futures prices are going to do. If this were true why aren’t people quitting their day jobs in order to become oil speculators? By definition, this is a zero sum game. In a futures contract someone who thinks oil is going up and someone who thinks oil is going down. People make it seem as if anyone could speculate and make money. People complain about people speculating up the price of oil, however they should blame the people that believe the price is going down because otherwise a futures contract could never exist! Speculators put their own capital at risk and can lose a lot of money (especially if they are leveraged). These speculators are reducing the price volatility of oil not increasing it as some would speculate.

I tend to think people often look at outcomes instead of the inputs that lead to those outcomes. If people went a step beyond and thought about the actual causes of why prices are high it could do wonders for critical thinking skills.