Sowell: A National Treasure

From Kudlow November 10, 2010

Cut Baby Cut!

The Republicans have recently taken over the House of Representatives and gained seats in Congress. One thing I keep hearing Republicans say is that they will cut spending. However, few politicians actually have the courage to do this since their constituents want politicians to “bring home the bacon”. While Republicans the Bush years show otherwise. Here are the largest expenditures:

Social Security $678 billion
Medicare- $453 billion
Interest on debt- $164 billion
National defense- $663.7 billion

Clearly, we need to trim back what we are spending since the spending can’t continue. The interest on the debt is also very low. Increases in the interest rate will only make matters worse. Also why not get rid of some departments of government altogether: Department of Housing and Urban Development ($47.5 billion), Department of Education ($46.7 billion) Department of Agriculture ($26 billion), Department of Labor ($13.3 billion). In 2005, the United States spent more than $477 billion to fight poverty this despite around at the time 12% of the American population was in poverty. Also spending might have a positive effect on the GDP in the long term if people that work for the government actually have to find jobs in the private sector.

News Vaults and an Economic Puzzle

With so many hours of TV stored in news vaults why are stations like ABC, NBC, and CBS holding all this content and not selling it to the public? ABC and NBC license footage to organizations. These organizations have to pay some type of fee or royalty to use the footage. However, if all this footage was released to the public and sold on iTunes couldn’t these companies be making lots of money? Economics would tell us that there is some reason why these companies are not doing this or else they would already be doing it. C-SPAN recently put its archived footage since 1987 online for free. C-SPAN has over 116,000 hours of footage and shows like The John Stewart Show and the Colbert Report use it for research (mainly to do jokes). The cost to C-SPAN to digitize everything was around $1 million per year. C-SPAN does recover part of the money by selling the same content on DVD’s for around Vanderbilt University has a Television News Archive that goes back to 1968 and allows people to make a video request loan for footage at a cost of $12 per every half hour of TV. Also, a lot of video is already free online. For instance, YouTube has a lot of older content that really covers important or breaking news.

In time I believe the cost to digitize older footage will decrease and with the growing space that hard drives allow for I think one day we could see news footage for sale to the public. It would be interesting to one day have a TIVO device and just search for anything ever on TV like the 1996 World Series or a Presidential Election.

Government Spending

Blue line represents spending at the spending rates under Bush. Black line is actual spending and Cross over line is when Obama came into office. (H/T Steve Landsburg)

Don Boudreaux on Law and Legislation

Talk given October 4, 2010 by Donald Boudreaux

FFF October 2010 from The Future of Freedom Foundation on Vimeo.

Interception of the Worst Kind

John Elway and a "business partner" invested $15 million with a hedge fund manager named Sean Mueller who is now charged with running a Ponzi scheme. John Elway's net worth is around $45 million (according to celebritynetworth.com, although don't know how accurate these numbers are). You would think Elway would be a little smarter with his money considering he has an economics degree from Stanford. I wonder why professional athletes don't take their money seriously when they know their careers statistically are usually less than a decade. Of course there are few exceptions like Michael Jordan, Tiger Woods (before his divorce), and Magic Johnson. Hopefully, Elway learns from this mistake and will be more careful with his investing in the future. Mistakes are the best tool for learning.

Chile and Capitalism

I am glad to see all the miners in Chile are safe after spending 69 days below the depths of the earth. However, I am glad to see capitalism was at work. Companies and people trying to make money benefit society and don't take something away. The economy is not a zero-sum game but an economic pie that can grow or shrink. Companies in the United States are not only trying to get rich but millions of others around the world are also trying to get rich. Below is a list of how the Chilean miners were saved.

Drill rig- Schramm Inc. (US)

Cable-(Germany)

Fiber optic cable- (Japan)

Communication- Samsung (South Korea)

Self-sterilizing socks- Cupron Inc. (U.S.)

Allowing companies around the world to perform their core competency makes everyone better off and in the case of the miners saved their lives. Maybe 10 or 15 years ago the miners might not have been able to have been saved (since the technology or drill may not have existed). Greed is good and can even save lives.

Bryan Caplan and Case Against Education

I saw a post on Econlib by Bryan Caplan about the case against education. I found this talk given at a FEE meeting June 23, 2010. Caplan makes great arguments about why perhaps we might be overeducated. I agree with him on this point. No one should be forced to school if they don't want to.

http://fee.org/media/the-case-against-education/

Trial Lawyers and Unintended Consequences

Recently, I have been thinking about trial lawyers and economic value. Most people I believe don’t like lawyers. Although, if people don’t like shouldn’t they really hate law professors since they breed future lawyers? The major thing I have been thinking about is if trial lawyers really have any economic value. My own belief is that yes they do some function. Companies and people do cheat people. Companies deserve to pay for their mistakes I think the big question is how much and is the plaintiff at any fault. What is really interesting is that judges and jurors usually determine the verdict. However, judges are elected and can be republican or democratic. Judges to be shouldn’t have political affiliation since they are suppose to rule based off the law and facts. Trial lawyers can greatly influence the decision of the jury with anecdotes, stories, and pictures to convey the hurt and loss of their party. Trial lawyers are just doing their jobs. However, isn’t it a little bizarre that a jury can make a decision to award $x million to one party and they don’t suffer any consequences if they make the wrong decision?

The marketplace usually rewards people for innovation, entrepreneurism, and ideas. The court system seems to be more of a redistribution of wealth. What if a judge told a jury, “If your verdict turns out to be incorrect you will owe one year of your salary to the state”? Juries might spend more time thinking about their decision if they had something at stake. Currently, members of a jury really have no skin in the game which can lead them to suboptimal decisions than if they had to make decisions with something at stake. Trial lawyers have something at stake. Trial lawyers want to win to boost their egos, win the verdict, and convince themselves that they are doing something beneficial for society. Speaking of money some trial lawyers make lots of money. We can’t label them as greedy since they are helping the average harmed person. John Edwards is worth around $55 million. He made a lot of money claiming that women having a Caesarean delivery were more likely to give birth to infants with problems. However, time showed that in fact having a Caesarean delivery did not increase problems with infants but there was some other factor causing the birth defects. John Edwards got to keep his money though. I am no legal expert but it would only seem fair for him to pay back the money he won.

A few trial lawyers have become billionaires. In 1984, Pennzoil was trying to buy Getty Oil. Pennzoil made an offer and Getty Oil made a binding agreement to accept. However, Texaco came in and tried to bid for Getty. Joe Jamail defended Pennzoil and won a $10.5 billion verdict. The firm got around 1/3 of this ($3 billion roughly) and Jamail’s take was around $335 million. If you consider Jamail never took the LSAT, failed torts in law school, and barely passed the bar exam (he had to get a 75 and got a 76). In Forbes 400 list Jamail is worth $1.5 billion. I would argue that no one was really harmed with Texaco making a bid for Getty Oil. I agree that contracts have a role and Texaco can’t bid when two parties already have an agreement. However, I don’t think it’s worth $10.5 billion plus all the time and resources Pennzoil and Texaco had to spend preparing and endure during the trial.

Another lawyer that has made a name for himself is Mark Lanier. A graduate of Texas Tech law school Lanier won a verdict for $118 million for asbestos, $253 million for the Vioxx case, and $56 million against Caterpillar for a driver that was crippled. Clearly, Lanier is good at what he does. Lanier has extraordinary presentation skills and use to preach at his church while still in high school. For Lanier’s first case he called up already famous lawyer John O’Quinn who told taught him the O’Quinn system. The O’Quinn system was working over 100 hours per week (taking Saturday’s off). For the Vioxx case Lanier made a 253 PowerPoint slide. Lanier hosts an annual Christmas party that is as big as Texas. Usually Lanier and his wife host the party at their 24,000 sq foot estate in Houston with around 8,000 of their closest “friends”, with carnival rides, climbing walls, large moonwalks. Not only do they have games and enough food to go around but he has entertainment like Miley Cyrus, Dolly Parton, and Barry Manilow. The Lanier’s have been putting on this party since 1993 and it usually runs over a half million dollars per year. Clearly, Lanier is very good at what he does but also through litigation has raised the cost for the rest of consumers. Companies don’t want to go to court and have to pay out money. For this very reason companies have to have corporate counsels just in case of a lawsuit. Also companies usually buy insurance to limit their liability. This is money that could otherwise be spent on production, capital projects, or increasing efficiency.

No doubt that it can pay to be a trial lawyer. I also don’t doubt that these lawyers are extremely hard working and motivated. Although, I would agree that trial lawyers serve some purpose I think they are often overused. I am all for people, companies, and individuals paying for their mistakes but we can’t think that this doesn’t have a cost. Economics shows us that there are always unintended consequences even when it comes to trial lawyers.

Epstein Strikes Again

A recent podcast (August 30,2010) from the brilliant Richard Epstein. Epstein talks mainly about regulation mainly the FDA and what changes have taken place in the last few decades.

Link:
http://www.econtalk.org/archives/2010/09/richard_epstein_1.html