Let's Be Provincial!

Recently, Congressman Earl Blumenauer (D-Oregon) outlined his Food and Farm Bill of Rights. While I don't have an issue with some of the things (although probably for different reasons that the Congressman), point #6 seemed just plain odd:

Americans have a right to local supplies of fresh food: Too many Americans do not have the option of buying affordable, locally-grown fresh food. We deserve a food and farm policy that includes programs that deliver healthy food to all communities, regardless of location, class, or economic standing.

This just seems crazy, for many reasons. Having food produced in small pockets all over the country just wouldn't be efficient. The weather varies mightily from region to region, so certain crops just aren't feasible outside of certain regions (for instance, there are 5.5 million barrels of cranberries produced in the United States, of which 4.4 million barrels -- 80% of the total -- comes from just two states, Wisconsin and Massachusetts). Besides climate, there's variation in soil, variation in population densities, variations in freight rail lines, and so on. And pray tell, Congressman, but would everyone have a guarantee to local lobsters under your plan too?

A major issue, if not the major issue, is land cost. Land in Manhattan, Kansas is going to be a lot cheaper than in Manhattan, New York City. It just doesn't make sense for someone to grow bulk crops in Westchester County, NY or in Fairfield County, CT. Too many people want to live near New York City, and are therefore willing to pay significant amounts for small parcels of property. There is no way that farmers in these areas could compete with farmers in Kansas, as these NYC area farmers would have significantly higher mortgage payments.

In order to ensure that every single area of the counry, or even every major metropolitan area, had significant local food production would require a massive bureaucracy. And if not enough food were being produced according to the bureaucrats, then certain active measures would have to be taken. Bigger subsidies for the local farmers, massive zoning regulations, or something similar. This would result in massive distortions in the economy, and for little to no purpose in the end.

Right now, if enough locals really demanded that their food was local and not from far away, they could influence the market. At the grocery store, they could look for locally grown food and pay more for it. After enough people did this, more local farms may spring up. But in some cases, the extra payment would have to be considerable, since land is in very limited supply in some regions.

Back in the 1700s and 1800s, almost everything was local, because transportion costs were expensive. Now that transportation and logistics are so cheap, we can have our food come from far away. This of course means that we can eat fresh fruits and vegetables all year round, instead of just when they happen to be "in season".

This locally grown thing obviously hasn't been thought out very much. We are a dynamic country because goods can be shipped across the country with relative ease, not because we only consume locally-produced food and products. The Congressman may want to open up an economics textbook and study the chapter on Comparative Advantage.

A Three Headed Dog of an Argument

This past week, Cerberus Capital, a private equity fund, acquired 80% of Chrysler for $7.4 billion. According to Wikipedia, Cerberus has over $24 billion under management.

This clearly shows that private equity can invest in just about any industry, and take a controlling stake.

Many people seem to imply that certain items are artificially too expensive because the existing companies in the sector somehow collaborate to keep new entrants out and the prices high, or the barriers to entry are so high that new companies cannot compete. This allows the companies to make excessive (sometimes called windfall) profits, and these industries usually earn the adjective "big" like "big oil".

However, the acquisition of Chrysler should demonstrate that if there's some industry out there in which the players are making excessive profits, private equity funds will soon show up. Private equity funds have guys that do nothing all day but look for potential markets to enter. If a certain industry is not that competitive, they'll pounce. They've got no loyalties to the existing players, and the acquisition of Chrysler should be clear evidence that there's plenty of money floating around.

A few industries have actual legal protection to keep out competition. The tobacco settlement essentially prohibits new entrants into the cigarette market. Certain utilities have a grantted monopoly. Patents and trademarks protect, for a while, companies with intellectual property (you can't start making lipitor, nor can you decide to print the latest John Grisham book). There are reasons for these protections, however: the companies had to expend particular amount of research to develop the products.

A limited number of companies can still very competitively compete: just because there are only 5 or 10 companies doesn't mean they don't compete.

If you think something is way too expensive for the cost involved, there's probably one of a few outcomes: 1) no, it really does cost a lot to produce that product or service; 2) yes, but it's intellectual property, which cost a lot; 3) the industry has somehow gotten the government to ban new entrants; 4) you're right, in which case you ought to go work for a private equity fund, and then enter that market. Your new company could undercut the others, making you millions of dollars in the process.

Are Baseball Players Paid too Much?

Well, it's Baseball season again, and even though I'm not a big sports fan, you invariably hear how crazy it is that baseball players get paid so much for merely hitting a ball (the same type of argument is made for all major sports). Often times, these salaries are then compared to teachers' salaries, with the implication that baseball players should be paid less and teachers more.

Baseball salaries are of course set by the law of supply and demand, as are teacher salaries, and most other salaries. There's two basic ways that baseball salaries would come down: 1) the entry into the baseball market of many new good players. This would be what economists might call more supply. 2) less interest on the part of the general public in baseball. This would reduce the amount of owners had to pay players (through fewer ticket sales and / or lower TV revenues), and might lead to fewer teams in the marginal cities. This would be what economists call less demand.

So why are baseball players paid so much? First, not that many people can do what they do well. Second, people are willing to pay $20, $30, or whatever to go watch a game, and large corporations are willing to buy luxury boxes to entertain clients and employees. Millions of people are willing to watch baseball on TV or listen to it on the radio, and thus advertisements can be sold. Now, if this is all news to you, then either you aren't an American and lack even the most basic understanding of how our economy works, or you are really sheltered (so how in the world did you find this article?).

In short, baseball players are paid a lot because they get a lot of people to watch what they're doing. And in the process, you can get these people either spend money to watch them, or you can sell advertising. Baseball players accomplish what marketing executives try to do: get more eyeballs on a product, or have people pay to do something (in this case, watch baseball at the stadium or on pay-tv).

However, local governments can have an impact on baseball salaries as well: it's not merely the law of supply an demand in operation. Lots of cities in the country bend over backwards to get sports teams. They build stadiums with taxpayer money, they let the team get revenues for naming the stadium or for parking, or from vendors.

This has the effect of loweing the costs for the sports team owners, which allows them to pay additional money to the players. I don't mind that sports players make a lot of money. But I do not think it is the least bit fair that my taxes have to support sports teams (and thus help contribute to higher salaries for the athletes).

If local governments built no stadiums, we'd still have sports in this country. Maybe not in the exact same cities as we do now, but there would be a broad geographical dispersal of teams, and professional athletes probably would make slightly less than they do now. Some of the more marginal teams (I mean this from an economic standpoint, not how well they do on the field) might fold up without the subsidies, but it wouldn't be the end of the world. Teams would be located where there was the most interest for that sport. We'd have slightly lower taxes, or at least the local governments could waste the money somewhere else.

No to Broadwater, but Yes to What?

Currently, Broadwater Energy is attempting to build a Liquefied Natural Gas (LNG) platform in Long Island Sound, about 10 or 11 miles from the Connecticut coast on one side and 9 to 10 miles from the New York coast on the other. This platform would be, according to Long Island Business News, 1200 feet long and eight stories high. Various distance-to-the-horizon calculators I tried on the web show that something that is 85 feet high can be seen for about 11 miles, so I guess if you were to stand on the beach, you could just see the structure.

Tanker ships would come into Long Island Sound, and the liquid natural gas would be heated into gas, where it would flow into a pipeline, and be used primarily by electricity generation facilities in New York City and on Long Island, but some gas would evidently also flow to Connecticut.

This has of course made the NIMBYites all upset. Well, they're not really NIMBYites, since this platform would be 11 miles away in the middle of the water. I don't really know if their objections are valid or not, as I'm not a maritime expert, energy expert, or anything. But one thing I've noticed is that while just about every politician seems to be against this, none of them has ever said what they might be for. However, every single one of them feels the need to say that something has to be done.

Let's take a look:

State Senator Judith Freedman (R-Westport): "No one is disputing the need for more, and more reliable, sources of energy. But in seeking better energy, we cannot lose sight of the need to protect our environment, the public's safety, and the best interests of Connecticut's citizens. The outcome of this project will affect Connecticut for years to come. FERC has a moral obligation to listen to what we have to say about it." (Source: Redding Pilot, January 29, 2007).

US Senators Dodd and Lieberman, as well as Representatives DeLauro, Larson, Murphy and Courtney (all Democrats) wrote a joint letter to FERC, and said, "While we understand and appreciate our nation's and this region's need for additional energy resources, we do not believe that the Broadwater project is the best way to meet these needs." (Source: Greenwich Post, January 23, 2007).

In a Press Release, US Rep. Rosa DeLauro (D-New Haven) said, "“Let me be clear, I do not believe that the Broadwater proposal is the right answer to addressing our region’s energy needs. Yes, there is clearly a need for additional energy infrastructure in New York , Connecticut , and the New England Region. However, it cannot come at the cost of one of our region’s and this nation's most precious natural resources." (Source: US House of Representatives, January 16, 2007).

State Rep. Tom Drew (D - Fairfield) said, "We should not even be considering something this extreme until the U.S. government has a realistic plan to reduce our dependency on fossil fuels. This isn't necessary and approving it will cause irreversible damage for generations to come." (Source: Westport News, January 19, 2007). I wonder if Rep. Drew would favor more nuclear power plants? Or if he'd be ok with a windmill farm in the sound? Or on land in his town?

Adrienne Esposito, executive director of the Citizens Campaign for the Environment, which is opposed to the platform, said, "People don't just place a high value on Long Island Sound. They place the highest value on it. We want more energy. . . . but we want an energy plan that doesn't destroy what we love." (Source: Newsday, January 11, 2007)

Lonnie Reed, a Branford RTM member, said, "We oppose Broadwater not because we are anti-energy haters but because we are convinced we can get natural gas in a cleaner, safer way." (Source: New Haven Independent, January 9, 2007). There was no mention of what this cleaner, safer way might be in the article.

One of the reasons politicians cite for the opposition to Broadwater is that the terminal is not needed, as pipelines could bring in whatever natural gas was needed. Since Broadwater Energy's parent companies, TransCanada and Shell, are probably not in the business of building unnecessary infrastructure, I'm inclined to believe that it is needed. Otherwise, Shell and Transcanada are going to have some serious explaining to do to their shareholders, since this terminal is going to cost about $1 billion to build. Some of the opposition to Broadwater says that there are other terminals under construction that could handle the distribution. Again, if that's the case, why is Broadwater prepared to spend $1 billion?

A lot of politicians said this would "industrialize" the sound. Aren't commercial fishermen industrializing the sound? What about commercial ships that bring stuff into the sound?

Some would say it would be an eyesore. Well, you'd hardly be able to see if from land, so I guess it'd be an eyesore for boaters. Are boaters that sensitive? What if they see a barge or a cargo ship with the containers not symmetrically stacked? Do they have an equally bad reaction?

The safety issue seems a bit odd. This facility would be 10 miles from anything, with water in all directions. Even if it blew up, it couldn't hurt anyone on shore. Some have said terrorists would target it. Seems like a pretty poor project to target.

Some of the opposition points seem to have some merit, like who is going to bear the costs. But to those who are opposed to the project, give some realistic proposals for how we're going to get more energy. Hoping that congress is going to wean us off fossil fuels isn't a realistic proposal. If existing pipelines or LNG platforms under construction elsewhere are going to solve the problem, why in the world is Broadwater spending $1 billion to build an LNG platform? Broadwater is only going to build the platform if they think it'll be used, because if it isn't going to be used, they'll never get their investment back.

Connecticut has the highest electric costs of any state except Hawaii. We need a realistic proposal to get more energy here.

NIMBY and Electricity Costs

Recently, Connecticut utility United Illuminating (UI) was awarded a 50% price increase. Connecticut will supposedly, after this price increase takes effect, have the highest electrical rates in the country.

I became interested in this phenomenon: why does Connecticut have such high rates? First, I am not a UI customer: UI handles the relatively small area between Bridgeport and New Haven. Connecticut Light & Power (CL&P) is my utility, and covers almost all areas of the state that UI doesn't cover, although there are a few very small municipal utilities. In Connectict, UI and CL&P don't actually generate power: they instead buy the power and then distribute it.

In the course of trying to read up on why electric rates were so expensive, I stumbled on a newspaper article (link since deleted) about UI's proposal to build a substation in Trumbull, with local NIMBY types strongly opposed to the proposed location. While this was seemingly an unrelated article that I found because I typed "United Illuminating" into Google, this story provides a good example of one reason why electrical rates are so expensive: high real estate costs.

As far as I can tell here is what's happened. There is no substation in Trumbull, and in peak periods in the summer, the substations in Bridgeport and Shelton were loaded to 107% of capacity. So a new substation needs to get built. A substation is where the voltage is stepped down so it can be distributed to the local users.

UI owns about five acres of land in a residential area, and proposed to build a substation on this property, which would cost $17.3 million. There would be some woods buffer between some houses, but not on all sides. The local residents were understandably upset that a substation was going to get built there, and a neighborhood committee formed to protest the new substation.

Another property in a more industrial area was proposed instead. UI doesn't own this property, but the owner said he'd sell it for $7.5 million. The town offered open space it owned, but after residents near that space complained, that parcel became a nature preserve.

The additional cost to locate in the industrial area is about $11.6 million: $7.5 million to buy the property, with the remainder for additional costs in construction, materials, overheads, and transmission. I guess the difference comes from the fact that the industrial property is further from the power source than the property in the residential area.

It appears to me that UI owned the land where it wants to build the substation long before most of the surrounding houses were built. (This of course makes sense: why would UI buy land in a residential area before it was clear that it could get permits to build a substation there).

UI made an operating profit of $31.6 million last quarter, and $19.7 million in net income (i.e., after interest payments on its debt). So while it certainly can afford an extra $11.6 million expense, it isn't trivial. UI is going to, somehow, pass these costs on to its users. Maybe UI could also sell off the property in the residential area it owns and get something for that, if it could be zoned for new houses. Of the extra $11.6 million that UI would have to spend, the $7.5 million price for the property would not be tax deductible, as land is usually not something you can depreciate. The other $4 million should be tax deductible, but I'm not an accountant.

I don't necessarily think that anyone is in the wrong here, although I imagine that the industrial area property owner sees an opportunity to make a killer profit. But I think this episode is useful to show one reason why electricity costs a lot in Connecticut. Real estate is very expensive, and as a result, costs for goods and services that require real estate will be higher in Connecticut than in states with lower real estate prices.

There are of course a bunch of other reasons why electricity is expensive in this state: generation capacity, demand for the electricity, reliance on natural gas over coal, taxes, a regulatory structure (often called "deregulation") that prevents distributors from owning their own generation plants, etc. But real estate, and the general high cost of doing business here, is going to help make electricity more expensive.

I've heard many Republicans, Democrats, Liberals and Conservatives all demand that the Connecticut legislature DO SOMETHING about high electric rates. While there are certain things they can do, the fact is that with Connecticut's high land prices, and the ability of local residents to stall and block infrastructure projects, there are many things that the legislature simply cannot do. In Trumbull, UI had land for future use, but then the people moved in and all of the sudden these new people didn't want UI to build the infrastructure. Now UI may have to spend an additional $11.6 million.

One thing I am curious about is if UI and CL&P were owned by the state of Connecticut, do you think that local neighborhood groups could stop infrastructure projects like they can now? Or would the siting council and zoning boards have less sympathy for local groups fighting not a for-profit corporation but the state government? Could a utility owned by the state use eminent domain more frequently to put substations and high voltage lines where it saw fit?

Anyway, I think it's an interesting episode that gives some clues about why electric rates are so expensive in Connecticut.

Updated minor grammatical and spelling errors on 1/29/07

Build it and they will come.

Frequently, when an existing road is proposed to be widened, the anti-widening folks will often make the following argument: "Yes, the road is clogged now, but if we expand it, it'll eventually become congested again, so let's not build it."

This just doesn't strike me as a good argument in a country with a growing population. Yes, the road might become congested again, in fact, it probably will. However, it'll become congested while carrying significantly more people. This means that new jobs will be created, new office parks, new shopping centers, movie theaters, etc. will be built.

Here on the east coast, we have Interstate 95, which runs parallel to Route 1. Route 1 is an old road: in New England, it is the old Boston Post Road, which is older than the United States. In the 1950s, when I-95 was built, I'm sure that Route 1 was very crowded. Of course, I-95 is often a standstill today, but that doesn't mean we should have never built I-95. If it had never been built, Route 1 certainly wouldn't be carrying all the cars that I-95 carries today, but the entire region would be much less developed, meaning that thee were fewer jobs, fewer houses, and fewer cars.

You may think that is a good thing. However, since we have a growing population (our birth rate is about replacement level, but we have many immigrants), we need to accommodate this growing population by building the infrastructure necessary. And we need a growing population to fund social security and other ponzi-esque pension schemes.

Should Health Insurance be Required?

Should health insurance be required? While I am generally free-market oriented, I think that there's a strong case that could be made for requiring health insurance, a la Mitt Romney's plan in Massachusetts.

When someone is brought to an emergency room, he or she must be treated, and the payment issues are worked out later. This is a good thing, because many people that are brought to the emergency room are rather incapacitated, and may not even be able to tell you their name, much less their insurance policy number. Furthermore, it would seem odd to reject someone who is having an acute emergency because they didn't have insurance. I mean, even the most die-hard free marketeer probably wouldn't advocate the end to this rule.

Some people claim that forcing people to buy insurance is a personal responsibility issue: let them take the risks. However, because hospitals have to accept all emergency room patients, who exactly ends up taking the risk? True, the operation may cost thousands of dollars, which would have been covered by a policy that cost a few hundred per year, but if the operation is so expensive that someone couldn't pay it, the hospital is essentially still out the money. There's always going to be a free rider problem for those who could have afforded insurance, but who can't afford the actual treatment (and don't have sufficient assets). These people will declare bankruptcy. I would imagine that many single 20-something males fall into this category.

I would hope that any obligatory insurance plan required by the state would allow individuals to purchase various plans that would have different levels of coverage, as long as they all had emergency coverage. Furthermore, the insurance companies should be allowed to price these policies as they see fit, using whatever risk factors they deem appropriate (e.g., they could charge identical twins different rates if one smoked and the other didn't).

However, forcing basic emergency coverage for all those who can afford it seems entirely reasonable to me. Why should the hospitals have to take the risk?

Don't Cross that Line!

In the United States, many people live in one state but work in another. In some states, like Colorado, this number is quite small since a small portion of the population lives near the state line. In other states, like Connecticut, this number can be quite substantial.

This has an impact on local tax policy. In Connecticut, various politicians talk about the rich paying their "fair share", which always seems to be more. The problem for Connecticut is that many of the wealthiest residents pay no income taxes on wages ot the state of Connecticut, since they work in New York state, and pay income taxes to New York instead. Raising the top bracket of Connecticut's income tax won't have an impact on these people until the Connecticut top bracket surpasses New York's top bracket, since you don't have to pay income taxes twice if you cross state lines on the way to your job.

Connecticut has about 3.5 million people. About 38% of these are either under 18 or over 65, so are not likely to be in the work force. According to Metro North, the commuter railroad that takes people to New York City and intermediate points, about 80,000 commuters get on the trains every day in Connecticut. A few more Connecticut residents probably board at Port Chester (the first train station in New York, right over the Greenwich border), and there are also some that drive their cars or take a bus over the Hudson line in New York state and take the train into the city from there (indeed, my town, Ridgefield, has the shuttle bus which runs 8 times per day to the Katonah train station in New York).

There are some commuters -- not many -- who take the train to other Connecticut towns, and there are some New Yorkers who commute outwards to Connecticut. But I would estimate that conservatively, there are 50,000 net train commuters from Connecticut into New York.

Some people drive from Fairfield county to Westchester county, but I would imagine that these people cancel each other out. The Massachusetts/Connecticut people probably also cancel each other out. There may be more Rhode Islanders coming in than Connecticut residents heading into Rhode Island, since Connecticut has two large casinos (Foxwoods and Mohegan Sun) located near the Rhode Island border. However, these are mainly low wage jobs, and thus don't generate much in the way of income taxes for the state.

These 50,000 or however many commuters into New York are mainly high wage earners. Monthly tickets from Greenwich to Grand Central station in New York City cost $237, and they get more expensive as you go further out. So the salary has to be worth the cost and approximate hour of commuting time.

New York has a graduated income tax that hits 7.7% after $500,000 (7.375% after $100,000). Connecticut reaches 5% at $10,000 and stays there. So for the top rate, Connecticut would not receive any income taxes from cross-border commuters until it topped the 7.7% level.

I don't have any statistics available, but I would imagine that as a percentage of income earned, Connecticut probably has the highest percentage being earned out of state. New Hampshire has a lot of commuters going into Boston, but since New Hampshire doesn't have income tax, this becomes irrelevant. New Jersey of course is also a commuter heavy state, both in the north (to New York) and south (to Philadelphia), but it's a much bigger state than Connecticut. Maryland has a decent percentage that commute into D.C., but it appears that there is some sort of agreement in place that means those residents pay taxes to Maryland and not DC (however, Maryland commuters to Delaware don't seem to have this agreement.

In any event, when a large portion of your biggest income producers commute out of state, and are thus not subject to your taxes, it's difficult to promise that raising taxes on the rich is going to bring in lots of new revenue.

One Conencticut state senator, Ed Meyer, said he would favor raising the top rate to 18.97%, which would make Connecticut the highest taxed state by far. This would of course pull in some money (18.97% minus 7.7% paid to New York) from the wealthy cross-border commuters, at least until they moved closer to their jobs, in the low tax jurisdiction of Westchester County, New York.

Dairy Farms? No Thanks, I'll take tract housing

Connecticut gubernatorial candidate John DeStefano has a plan for Connecticut Dairy farmers. You can click on the link, but in essence, he doesn't think they are getting enough money, so he wants to give them $5 million of state funds, have some sort of summit, have an insurance fund for dairy farmers, and put into place some more price supports and subsidies.

My question is, why should the Connecticut government try to keep these dairy farms open when they obviously are uncompetitive with dairy farms in other states, which have less rain, cheaper electricity, and a lot cheaper land?

If milk is too cheap (and it's a heck of a lot more than gasoline per gallon), why don't these farmers close up shop, sell their equipment, and sell their land and do something else, or even retire?

Someone else could then buy the land who could put it to better use than trying to lobby the state and federal government for subisidies because what they produce can't be produced profitably.

Connecticut has very expensive land, so this land might be suitable to build new houses. Perhaps instead of subsidizing farmers, and then having to form committees to determine why housing is so expensive, we could just eliminate the subsidies to farmers, and then if they couldn't survive, they'd sell their land and the land could be put to more productive use.

Now, you might say that this would cause all Connecticut dairy farms to go under. Well, that doesn't mean we wouldn't have milk in the grocery store. We have orange juice but there are no orange trees in the state. This is because we have highways and railroads, which cross the state line and keep going to where these things come from. Apparently they can even bring milk in on refrigerated trucks.

Some of the dairy farms would probably survive: they'd be competitive enough (they might not be as cheap as Wisconsin, but after adding in transportation costs, they could probably compete).

Believe me, if the government doesn't provide price supports, milk is still going to get produced and pasteurized and distributed. We don't need governments trying to keep dairy farms in business when they cannot compete. Especially in a state where developable land is a scarce commodity.

From Sixteen Volts to Zero

Well, it's more than apparent that Ilkka Kokkarinen's blog, Sixteen Volts was forcibly shut down.

For those of you who didn't know Sixteen Volts, Ilkka Kokkarinen is a professor of Computer Science at Ryerson University in Toronto. Mr. Kokkarinen is a native of Finland, but moved to Canada several years ago to try living in a more free market economy than Finland's. On his blog, he regularly chastised Feminists, as well as many other leftists, for their hypocrisy., often using biting sarcasm...

He supported nuclear power, but was also an avid proponent of public transportation (so much so in fact, that neither he nor his wife owned a car. He commuted via public transportation to Ryerson from the Toronto suburb of Mississauga, while his wife was able to walk to work). He seemed to write about 2 entries per day, fairly long entries at that, and it was quite an entertaining read. In mid September 2006, someone at his college distributed some blog entries he had written, albeit grossly out of context. Ilkka commented that he spoke to the student newspaper about the misquote, but idly wondered if something would happen akin to what happened in I am Charlotte Simmons, a recent novel written by Tom Wolfe.

Well, apparently the Feminists or anti-nuclear power people or whomever he offended managed to force the removal of his entire blog archive (a few weeks ago, Ilkka commented that all his blog entries could likely fill a book), and post an apology. While it was rare that any blog entry of his would get more than 3 or 4 comments, this apology has gotten 58 comments from people lamenting that he's quit blogging. I guess the leftists that were offended couldn't make counter arguments on their own blog, or even in the comments section on his blog, but instead wanted to ensure that no one else could read such offensive material like the stuff Ilkka wrote, which showed that they often contradicted themselves.

Shutting down his blog speaks volumes about how leftists engage in debate. As Ilkka liked to say, "While chasing the rabbit, the hunter is blind to the mountains."

Let's hope that Ilkka starts blogging again, albeit with a pseudonym, as I do... And let's hope that he blogs in English instead of Finnish. Finnish is just too damned hard to learn. I speak German fluently, and can figure out Dutch/Afrikaans. In Swedish, Norwegian or Danish, I can pick out certain words. But Finnish is of course not an Indo-European language, and the only major languages related to Finnish are Estonian and Hungarian (English is distantly related to Sanskrit, Russian and most of the languages of Europe, and it's closely related to the other Germanic languages, albeit with significant influence from French and Latin). Finnish is not a widely spoken language, nothing like English, so let's hope Ilkka blogs again in English!

Seventeen volts anyone?

Who Should Pay for Metro North?

The Metro North Railroad takes commuters from Connecticut, Westchester and Long Island to Manhattan (and intermediate points).

The railroad is currently in the process of buying new railroad cars for the New Haven line (which goes from New Haven, Connecticut into New York, plus a few additional spur lines). These new Kawasaki railroad cars are being paid for by both Connecticut and New York state, with Connecticut picking up 65% of the tab and New York taking on 35% of the cost. This ratio was worked out by the number of riders from each state.

However, I think that this is a totally unfair division of costs. In the United States, if you work in one state and work in another, you pay income tax to the state where you work. Then, when you file your taxes, you get a credit for those taxes. So if your home state has a lower rate than the state you work in, you will wind up paying nothing in income tax to your home state. This is the case with Connecticut and New York. New York's income tax rates are higher, so Connecticut natives who work in New York pay taxes to New York. For those New Yorkers that work in Connecticut, they pay income taxes to Connecticut, and then since New York taxes are higher, they make up the difference by paying New York the additional amount.

Many more people commute into Manhattan from Connecticut than commute out of Manhattan to Connecticut. While there are some commuters from Fairfield county to Westchester and vice-versa, I would imagine most of these people drive.

My question is, even if Connecticut residents make up 65% of the passengers (or 65% of the passenger miles or whatever metric they used based on ridership), why should it foot 65% of the bill? Most of the Connecticut residents riding the train pay nothing to Connecticut in income taxes! Shouldn't the split be done instead on commuter destination?

Suppose Connecticut cut its funding. The railroads would be no fun to ride. People would either move out of Connecticut (but from an economy perspective the loss is minimal: they didn't work here) or find jobs in Connecticut that they could drive to. This would boost tax revenues (plus add in the fact that we aren't spending money on the railroad).

Since New York gets a big tax bonus by having better commuter trains (which makes commuting easier, which means more commuters), shouldn't it pay for the trains? It just seems odd that Connecticut would spend lots of money so rich people could commute to another state and end up paying nothing in income taxes to Connecticut.

Isn't it also a bit odd that Metro North is subsidized at all in the first place? Yeah, I know, highways are subisidized too. I don't like that, and I don't like this subsidy any better. This is a subsidy so mainly wealthy can take the train to work: in 1998, the average commuter earned nearly $100,000. Why exactly are we subsidizing the entire railroad? And if you say that there are poor people who can't afford the tickets, couldn't we figure out some way to give just the income qualified people a discount?

Insurance Politics

Connecticut is the historic home of the insurance industry in the United States. Yet Attorney General Richard Blumenthal and a few state representatives seem to have little concept of how insurance works.

Connecticut borders Long Island Sound, and recently, Andover Cos. began requiring policyholders who live within 3/4 of a mile from the Sound to install storm shutters.

Why would Andover require storm shutters? They don't own a storm shutter company, so won't profit directly. Rather, Andover will reduce its risk exposure. According to Wikipedia, storm shutters prevent windows from being broken, and also prevent air pressure from building up in a house, which can ultimately cause structural collapse.

However, politicans don't like the fact that homeowners may have to install these shutters.

But Attorney General Richard Blumenthal and Speaker of the House James Amann are calling for a reversal of the new practice, saying it unfairly punishes homeowners. They fear that other insurance companies will copy Andover's requirement, forcing more coastal homeowners to install expensive shutters.

"This standard is unfair, unreasonable and unprecedented," Blumenthal said Thursday.

While this standard is apparently unprecedented in Connecticut, I fail to see how Andover's new policy is unfair or unreasonable (obviously, Andover would have to honor all existing claims on existing policies which terms have not yet expired). Insurance companies require all sorts of things all the time to qualify for lower priced insurance: we need to wear seat belts, not smoke, etc. to get lower rates.

We live in a competitive society, and somewhere out there, an insurance company should be willing to sell you insurance for the right price. If someone is convinced that storm shutters are not necessary, then they don't have to install them, and they can purchase insurance from one of the many other companies that sell insurance. Andover's market share is less than 1%.

There's talk of the economic hardship this would cause, and says it could cost up to $100,000 per house to install these shutters. Yet the same article quotes one contractor as saying they cost between $12 and $45 per square foot. At $45 per square foot, the upper range, that would cover 2,222 square feet of windows. Even if you have large 2 foot by 3 foot windows, you'd need 370 windows to hit $100,000.

Let the insurance companies decide what to require or not require in their policies. With competition, people will be able to choose among the various companies, and will be able to do their own cost-benefit analysis of installing shutters, wearing seatbelts, or quit smoking. And if they'd prefer not to do these things, they'll still be able to find insurance from someone. Just please don't get Mr. Blumenthal involved. But there doesn't seem to be any insurance against that...

Should Corporations give to Charity?

When I was in business school, a bunch of people interviewed with some company. There was a question that went something like this: if you were managing the company, and made an unexpected profit windfall (like you discovered oil on otherwise worthless property), what would you do with the profits? The answer they were looking for was that you should give 10% to charity.

I've always wondered why corporations should give money to charity. After all, it's not really their money: it's the shareholders', and shouldn't the shareholders have the right to decide? I'm all for compassion, but for me, compassion means donating your own money or time, not someone else's (this is why I don't think that governments can be compassionate: it's just redistribution. It may in times be necessary, but that doesn't make it compassionate).

There are a few times when I think a corporation should give to charity. The first is if it's not really charity: on the surface, it looks like charity, but so much good will is generated, that it's a win-win. Sponsoring a little league team may bring the company free advertising or it may boost employee morale (if many of the workers' children play for the team). In other instances, charity may help source more employees (such as giving to a local tech school). Donations to certain public policy think tanks may result in more favorable laws being passed. These activities are obviously in the shareholders' best interest.

The second type of charity that I'd support is if a corportion were trying to reverse an earlier wrong. Even without the PR benefit. (For instance, if a record company distributed a CD that advocated cop killing, which is within the first amendment rights, but then someone followed the advice. The corporation may not have acted illegally, but it certainly didn't act responsibly).

Finally, I'd support general charity to whatever organization if the board truly believed that the shareholders wanted to give to these charities. This is obviously easier to ascertain when you have only a few shareholders. The reason for this is taxes. For instance, if a company has five shareholders, and they all think that Planned Parenthood (or the National Right to Life) is great, then the corporation giving away the money is more efficient from a tax perspective. If the corporation gives $100 to the organization, it actually only costs about $66 less in profit because taxes will be less now that income has dropped by $100.

If however, the corporation keeps the $100, then it pays $33 in taxes on it. Then it has $67. IT distributes this to the shareholders, who have to pay 20% tax on the dividends received, so they're left with about $54 (donating this will then bring them a tax benefit, but in a 33% bracket would be about $18).

However, in most cases, I would not support corporate charity. It's not really charity. Under most circumstances, large corporations with a diverse shareholder base have no business giving away their shareholders' money. Let the shareholders do that.

Gasoline Taxes and Road Building

While I'm all for low taxes, I believe that gasoline taxes and tolls on highways can be perfectly reasonable, provided, however, that there are some constraints to them.

Roads cost money to build and maintain, and therefore, I think it's fair that the people that actually use the roads pay for their use. If someone has managed to position their life so they can walk to work and walk to the stores they need, why should they have to pay taxes so I can drive a car? However, the collary should also be true: if I drive, why should the gas taxes and tolls go to items other than those that are necessary to maintain the road?

I favor congestion-based tolls. These would be tolls that would be charged only during peak periods: by peak periods, I mean only those times when traffic moves less than the speed limit. As I wrote in a previous blog entry, these tolls would be set at such a rate so that enough people were deterred from using the road until the speed limit could then be attained. I believe this would be a more sensible allocation of a limited resource than to force everyone to sit in a traffic jam.

Now, if the congestion-based tolls are throwing out so much money that no other funding for roads is needed, this would tell me that the road infrastructure is woefully inadequate. The excess funds should be used to build more roads. The objective with congestion-based tolls isn't to raise revenue, it's simply to reallocate resources to those willing to pay for them.

Regular tolls are fine, as long as the toll can be collected efficiently. I hate having to wait 20 minutes to pay $1 for a toll. Gasoline taxes and various property taxes on cars are also acceptable, so long as these funds are not diverted to other sources.

So whatever gasoline taxes and tolls would have to be to maintain the road system is where I think the taxes should be set. However, there's one slight problem here. If a small state, such as Rhode Island, needed to have higher taxes than the neighboring states (perhaps because of more miles driven by its residents, more miles per car, or whatever), this could cause locals to cross state lines when making purchases. Taxes need to be high enough to cover costs, but not so high that people start finding alternative fuel sources in other states. States like these would probably have to revert to more tolls. Traffic fines should also be used solely for the road system.

The cost of the road system are construction costs, repair, snowplowing, traffic police salaries, and the cost for emergency rescue personnel for the portion that they deal with automobile accidents.

So would this make gas taxes higher or lower?

Currently, gasoline is taxed at $0.184 per gallon by the federal government, and then the states add their own taxes. This brings in about $30 billion to $40 billion per year, according to various estimates. The most recent highway bill signed by Bush had $286.4 billion in spending over six years, which right there is more than the gas taxes collected. This would indicate that the gas taxes aren't enough to fund federal transportation spending. Add to the fact that much of the $0.184 collected is block granted back to the states, and it looks like the federal gas tax is woefully short of where it should be. The highway bill was also filled with lots of local projects, not for the interstate highway system. The bridge to nowhere in Alaska is only the most ridiculous example.

Republicans and Democrats alike call for tax holidays of the gas tax. I guess my question would be: during this time, would you still build and repair roads, have police and fire units, etc? If so, then who's going to pay for it all if not the drivers. If I set up my life so that I don't need to drive, why should my income taxes go up to pay so people can drive?

At the same time, gas taxes shouldn't be thought of as a piggy bank to fund other non-road related projects.

There's a few other things I haven't mentioned. Pollution. In my above proposal, there's no allocation for pollution. I would definitely favor some sort of duty on pollution to encourage people to reduce their own. Charge each car based on the amount of particulates per mile times the number of miles driven; this will encourage people to get cars that pollute less. I don't really care if the car is a hybrid or runs on ehanol. Base it on the output. I never understood why there should be tax breaks for hybrids. Why not tax breaks for really fuel efficient cars, most of which happen to be hybrids. But what if someone else came up with a different way? Like reducing the number of cylinders in use when on a highway.

Public transportation. Many governments seem to think that drivers should pay for public transportation, because for every guy on the railroad, he's not on the road. However, if we were going to have a closed system, in which gas taxes and tolls and fines pay for roads and highways, then why should the drivers pay for the railroad riders? Yeah, they reduce congestion. So what. If a factory were to build worker housing next to the factory, should the owner get the same tax break because he's reducing congestion as well? Or if a company allows its employees to work from home or have flex commuting, should they get a tax break? Well, they sort of would, because under my proposal congestion wouldn't happen often: except when there was a wreck, there should be little congestion due to peak tolls.

So in any event, keep road taxes and tolls as high as necessary to maintain and build the roads. Don't expect subsidies, and don't expect to subsidize anyone else...

100 Years of non-violent Government Changes

In the past 100 years, how many of the world's approximately 200 countries have either not had a violent overthrow of their government or have not been occupied by a foreign power?

The answer is only 8.

Australia
Canada
New Zealand
South Africa
Sweden
Switzerland
United Kingdom
United States

You may think more countries belong on the list. But Mexico had its revolution in 1910 (not really ending until the 1920s, but the consitution was established in 1917), most of Europe was occupied by the Germans or Russians during World War II. Most of Africa was colonized until the 1960s. I wonder if South Africa really belongs on the list, as it was a nominal British colony after the Boer War (1899-1902), but Transvaal had home rule beginning in 1906, and the Orange Free State in 1907, and the Union of South Africa wasn't created until 1910 (when it became a self-governing dominion under the British crown). So if we move the start date to 1910, then South Africa joins the list, because although it had a racist government, it was never occupied by a foreign power since that date and it did not have a violent overthrow of its government when the transition to majority rule took place in 1994.


In any event, it's interesting, but probably coincidental, that of the 8 countries, 6 of them have their institutions and legal codes rooted in the British system (the exceptions being Sweden and Switzerland).

100 years is not a huge amount of time, and while it seems unlikely that in 100 years, there will be only 8 countries who haven't been occupied or haven't had a violent transition of power, things can change pretty quickly. I wonder if 100 years ago anyone thought only 8 countries would make it for 100 years without being occupied or having a violent overthrow.

HOV lanes and People who need to get there fast

Why do traffic jams exist? The answer is either 1) there's an obstruction: a wreck, construction, tree in the road, etc., and thus the capacity of the road is limited [reduced supply]; 2) there are too many cars on the road versus the capacity of the road [increased demand], 3) there's not an obstruction, but there's some event that causes people to slow down to have a look (like a wreck that's been moved off the road so it no longer is blocking traffic).

Most traffic jams result because of the capacity issue. There are simply too many cars for the road (and this often leads to wrecks, which causes further delays). The problem with highways is that the cost is almost always fixed, regardless of the time of day that the road is being used. Roads are funded through gasoline taxes and tolls, and tolls are usually fixed. Furthermore, while the lanes going into the city may be backed up for a few hours each day in the morning, most of the time it's smooth sailing.

Traffic jams cost drivers money in that they can't be doing something else, like working (this is "opportunity cost"). For an unemployed guy driving somewhere, the opportunity cost of sitting in a traffic jam is basically negligible. For a lawyer who sits in a traffic jam, the opportunity cost can be quite high.

Governments have two methods of reducing traffic jams resulting from capacity issues: increase supply or decrease demand. Increasing supply means adding more lanes, or alternate routes: an expensive proposition. States currently have fairly clumsy methods of reducing demand during peak periods: one of the more prevalent methods is to promote carpooling through HOV lanes, adding public transportation with more robust schedules during peak times, etc.

Why not charge drivers a high toll during peak periods? The key would be to have lower tolls outside the peak periods, when there's excess capacity. This would encourage some drivers to shift their work schedules so they'd start and end work during non-peak times (the first to do so would be workers who could shift their hours without a great impact [such as computer programmers]).

In addition to having the toll be reduced (or even eliminated) during non-peak times, there would also have to be a good collection mechanism (probably via electronic devices like EZPass) in place so that drivers wouldn't have to wait to pay a toll, thus negating the benefit of paying the toll in the first place. I believe that the technology to do this exists well enough right now.

Convert the HOV lanes into "pay to drive faster" lanes. This way, poor people could afford to drive, it would just take them longer (but they don't value their time that highly). Meanwhile, people whose time was very valuable could pay to drive in the HOV lanes.

What would the cost of the pay lanes have to be? Well, there would have to be some sort of mechanism to determine the price: at what price does traffic again move at the speed limit? That's where the price should be set.

Roads are a limited resource, and when you have a fixed price (i.e., the gasoline tax or a fixed toll) for a scarce good, you are going to get a shortage of that good (in this case, the good is a lane of pavement as long as your car and four car lengths to the next car). By raising the price of the good, you get rid of the shortage.

While local governments would probably make money by implementing this system, I do not think it should be viewed by municipalities as a way to keep getting lots of money (rather, it should be viewed like fines: attempting to control behavior). With current technology, it would probably be quite easy to reset the price every month for each hour window based on the demand. The price would be set so that at any given time, there would not be a backup (so most of the night, there should probably be no toll).

Many of you might say this would just hurt the poor working man who needs to get to work by a certain time, and why should he be penalized (if free lanes didn't exist next to pay lanes). My answer would be that he could leave earlier when there were no tolls. If he wants to consume a limited resource, he needs to pay for it (at 5:00 AM, roads usually aren't a limited resource, so tolls then could be free). He could carpool with others who wanted to drive during the peak period but could not afford to do so alone. Or he could lobby his employer to shift his working hours. If his employer refused, he might then find alternative employment that did allow for more flexible hours. This would eventually cause employers to have to raise their wages for lower-income people who work normal business hours. It would also provide an incentive for people who had normal working hours to live closer to their employer (or at least not in the same direction as all other commuters).

By having rates that vary according to demand, we'd eliminate the shortages. That's what done in almost every other facet of our lives, so why not with the highways as well?

Why Subsidize Multinational Corporations?

I'm a free-market capitalist. I don't think corporations are evil. I think that they can almost always provide a good or service more efficiently than a governmental entity.

However, many suburbs give various tax abatements to encourage corporations to move their headquarters or factory or whatever to their community. I think that this practice is ridiculous and patently unfair, even if the company is providing a bunch of jobs, even if it's helping local businesses such as restaurants, even if it's a net win for the community under whatever metric.

For instance, UBS AG got $145 million in incentives, primarily tax credits, when it moved its headquarters from New York City to Stamford, CT.

However, if no municipality had offered UBS AG a tax incentive, it wouldn't have gone out of business. It would have either kept its headquarters in New York, or it would have moved someplace else. It may not have chosen Stamford without the tax breaks, but it would have chosen SOMEWHERE. Yet when municipalities compete with each other, all that ends up happening is that the large corporation ends up paying less in taxes, but everyone else has to pay more.

Now, you may ask yourself, how can someone who says he is so much in favor of free markets be against competition? Isn't competition the basis of free markets?

Yes, competition is essential for a free market to work. And I would have no problem if Stamford or Westport of Newark or Jersey City or whomever lowered their property tax rates for EVERYONE. However, a government picking and choosing what companies it provides tax incentives to simply creates distortions. Instead of the market deciding what companies will be located where, personal connections and other arbitrary factors lead to cities giving tax breaks to one company and the expense of the others. If a 10 person boutique firm moves from NYC to Stamford, no one gets a tax break. Why should UBS get a tax break simply because it's larger?

Suppose UBS paid the same property tax rate as every other business in Stamford. But then at the end of the year, Stamford decided to write a check to UBS for the amount of its taxes paid. Would that make you upset? Because that's essentially what Stamford has done.

I say this even if you can produce some analysis that after the inital 10 year (or however long it may be) tax holiday, UBS will pay taxes, and that will be a net win for Stamford. Except that they weren't paying taxes for 10 years. You may say, well they wouldn't have paid taxes if they hadn't moved here. But they would have had to have been SOMEWHERE and they'd be paying taxes there if no municipality offered these ridiculous tax breaks.

When property taxes aren't assessed at the same rate for all properties (and properties need to be reassessed regularly), then you've got an unfair system. You have the high ratepayers subsidizing the lower ratepayers. In a few cases, you may be able to get away with multiple rates (a special rate for a particular sewer district, or lower taxes for commercial properties on the theory that they don't send kids to school or whatever). But other than these few cases, keep property taxes at the same (hopefully very low) rate across a municipality. Don't tax someone at one rate simply because they may threaten to leave, or wouldn't have come, or whatever. If your tax rates are such that companies won't locate there without incentives, here's a thought: lower your taxes for everyone. Maybe the problem is that your taxes are too high.

Conservatives and Property Taxes

What is it about conservatives that causes many of them to propose and embrace completely crazy property tax "reform"?

The latest is Ron Paul, a libertarian-Republican congressman from Texas who is often regarded as being the most free-market congressman, and who's revered by various free-market think tanks. He says that he wishes that in Texas, the state legislature would consider the following proposal:

Specifically, end the practice of annual assessments. Properties should be reassessed for tax purposes only when sold or ownership is otherwise transferred. The current system is terrifying for seniors forced to pay more and more each year, with no idea where they will find the money. And unlike other bills, property taxes must be paid or else one’s home can be taken away. My office hears from seniors who may have no choice but to leave Texas altogether because they cannot live with the uncertainty of arbitrary property tax increases. They literally fear losing their homes.

Now, I'm all for lower taxes, but they have to be lower for everyone. Ron Paul's proposal is simply crazy, and for several reasons.

First, it gives no incentive for people to elect conservatives who want to limit spending. Why? Because, under his proposal, their taxes cannot go up! Normally, when a community goes off and elects some liberals who want to spend a lot of money, they find that their taxes go up (and then as the tax base shrinks, their taxes go up some more). They start to question what value they're getting. However, Paul's proposal completely decouples these two things. The local populace can vote for all kinds of things, knowing that future home buyers are going to have to foot the bill.

Second, his proposal is simply unfair. It amounts to a subsidy from new homeowners to long-term homeowners. This is because without annual assessments, the increased tax burden will fall on the new homeowners. If you want lower taxes, fine. But if you don't apply the taxes uniformly, then you're not really having lower taxes, you have subsidizing by the unfavored group to the favored group. What about corporations or limited partnerships? The LP or LLC or whatever will own the property. Shares in that company can change hands, but without revaluation, the property taxes will be fixed in time.

Third, why should the government discourage mobility? Our economy is dynamic because people move to where the jobs are. (Compare this to a country like Germany, where people rarely move from one region to another). When the kids have left for college, the parents can buy a smaller house. But under this scenario of Paul's, there's a reward for not relocating, in lower property taxes. And downsizing to a smaller house may result in significantly higher property taxes. So people will be reluctant to relocate.

It also makes the cost of housing more expensive for younger people, who must buy a new house and therefore must shoulder a larger tax burden than older people who have lived in the same place.

Imagine the following quote:

Specifically, end the practice of annual rent increases. Rents should be raised only when the tenant ends the lease. The current system is terrifying for seniors forced to pay more and more each year, with no idea where they will find the money. And unlike other bills, rents must be paid or else one can be evicted. My office hears from seniors who may have no choice but to leave Texas altogether because they cannot live with the uncertainty of arbitrary rent increases. They literally fear losing their homes.

So how is a fixed property tax different from rent control? Now, you can say that you own the property and shouldn't be forced to pay taxes on it. Fine, but then do away with property taxes for everyone and find a different revenue stream, like the sales tax or income tax, to fund the government. The fact is, the government needs some money. Even the most die-hard libertarian realizes you need a court system, a law enforcement system, and some other items. You can debate how much government is ideal, but you need some. Therefore, you need some taxes. If you don't like property taxes, then abolish them for everyone. But if you are going to impose property taxes, impose them equitably.

Don't assess two identical houses at massively different rates. As for the argument that seniors cannot afford the increased taxes, there are sadly no guarantees in life. You buy an SUV and gas prices skyrocket, and you can't get gas at the old fixed price. Rents go up. When prices rise, you can either pay, or not purchase that product anymore. Not purchasing here implies that either you vote for conservatives who lower taxes, or you sell your house so you need not pay property taxes anymore.

Property taxes going up means that your house value is probably rising as well. This means that you could take out a Home Equity Line of Credit and pay the property taxes. Due to price appreciation, when you sell the house, you can pay the loan back.

Conservatives often propose similar schemes to Ron Paul's for property taxes. California has it in the form of Proposition 13. However, I think that conservatives would be better served if they proposed limits on increases in spending, or if they set a maximum tax rate on properties, but allowed those properties to be regularly reassessed. Taxes should be low, but they should also be fair.

Any tax cut that is not distributed among all people fairly is essentially a subsidy. Suppose that all houses in a neighborhood were regularly reassessed, and then were taxed at 1%. Everyone sent in their checks. Then the government figured out what the assessed rate was whenever you bought the house, and sent you a check for the difference. Some people would get nothing, some people would get a little and some people would get a lot.

Would you object to that? If not, why not? And if so, don't you also object to Ron Paul's proposal? Because in the end, it's the same thing. Everyone has the exact same cash flow under both my scenario and Ron Paul's proposal.

Keep this in mind during any property tax reform. Never altering the assessment creates massive distortions.

Equal Pay for Equality Bureaucrats

"Equal pay for equal work" has been one of those slogans that's been around for a while. Women on average make less than men (72% is the number usually cited, which I don't doubt). According to various women's groups, there must be discrimination out there, and no other explanation could really be feasible.

There's an organization that promotes it. On its Q&A page, we find out that the whole equal pay for equal work concept is really equal pay for jobs that some government entity thinks require the same skill level, but aren't really equal, but they're equivalent:

The major provision of the Fair Pay Act prohibits wage discrimination based on sex, race, or national origin among employees for work in "equivalent jobs." Equivalent jobs are those whose composite of skill, effort, responsibility, and working conditions are equivalent in value, even if the jobs are dissimilar. The Act is a natural extension of the 1963 Equal Pay Act, which is limited to sex-based discrimination in the same jobs. For enforcement purposes, the Fair Pay Act allows class action lawsuits to be filed and provides for compensatory and punitive damages. It also fills the information gap for workers by requiring some employers to disclose to the Equal Employment Opportunity Commission (EEOC) general job classifications and their pay statistics (although it maintains individual confidentiality). The bill prohibits a company from lowering any employee's wage rate in order to implement fair pay.

Later, it goes on to say:

Women are still often steered into the more traditional female occupations - such as nurse, teacher, clerical worker, or retail sales clerk. This has perpetuated sex-based occupational segregation, which is beyond the reach of the Equal Pay Act alone. Requiring equal pay for workers in equivalent jobs, even when the work performed is different, is the surest way of eliminating the enduring biases against jobs held predominantly by women and people of color.

So here we are going to need a government agency to determine which jobs are equivalent even if the work performed is different. The site goes on to say that employers would set wages, but that a non-discriminatory system would be used to set wages. It also says that "Fair Play can lead to greater productivity by raising morale among workers who expect to receive fair pay for their work." I guess my question is, if something is going to lead to more productive employees without really costing anything, why wouldn't the companies implement the policies that are being advocated? Why do we need to require a government bureaucracy to do this? Companies are in the business of maximizing their profits.

An example the page gives of equivalent jobs is registered nursing assistants and compared with plumbers. While the jobs may have the same basic skill level (although I'm not really sure), they aren't the same. How the hell are they even similar? I certainly wouldn't want a nursing assistant to come over if my toilet was all stopped up, and I wouldn't want to see a plumber if my intenstines were all stopped up and I couldn't use the toilet (although in both cases, the end result would be an empty septic tank).

Right now, if there's a shortage of plumbers, you raise the wages offered, and you'll get more plumbers. If there's a shortage of nursing assistants, raise their wages, and you'll find enough nursing assistants. Might not be instantaneous (people have to study to be these things, or move to the area, or quit what they are doing), but it'll happen. But if you have a shortage of plumbers and you raise the nursing assistant's salaries, that's not going to help me find a guy to fix my toilet.

The top 10 reasons for pay inequity are provided. One of the points is that market forces aren't eliminating discrimination, because pay levels are different. Say what? Warren Farrel in Forbes had a good statement on this:

When I was on the board of directors for the National Organization for Women in New York City during the 1970s, I led protests against the pay gap. I wore a "59 Cents" pin to reflect my objection to the discrimination I felt was the cause of women earning only 59 cents to each dollar earned by men. Now, since I'm a husband and father, discrimination against women isn't just political, it's personal.

But one question haunted me through the years: If an employer has to pay a man one dollar for the same work a woman would do for 59 cents, why would anyone hire a man? If women do produce more for less, I thought, women who own their own businesses should earn more than male business owners. So I checked. I found that women entrepreneurs earn 50% less than their male counterparts.

He goes on to say that women and men make different choices, and these lead to men valuing money over flexibility, fulfillment, autonomy and safety, while for women, money ranked lower. (Although this goes against the liberal belief that men and women are exactly the same except in anatomy]. He also wrote a book explaining why men earn more.

Now, this pay equity thing may just be some looney-toon website by some marginal organization, and their bill probably has essentially no chance of passing. However, here in Connecticut, John deStefano is running for governor, and this is one of his Campaign Themes.

His proposal would "establish within one year a set of standards for evaluating pay equity in municipalities and in businesses and industries employing more than 50 people." (What does businesses and industries mean? Does he mean businesses and organizations or businesses and partners?)

Fortunately for us, deStefano doesn't look like a winner on election day. And he's going to get beaten by a woman. What's an equivalent job to governor? CEO? The governor probably makes less. I'd tell her she should become a CEO.

Are You Better Off Today than you would have been 25 or 50 years ago?

Here in Connecticut, New Haven Mayor John deStefano is running for Governor, and his ads lament the fact that the middle class is “hurting.” One advertisement says, “My dad was a police officer. Back then, working people could scrimp and save and become middle-class. It was a different time,” while a 1957 Chevrolet appears in the picture.

DeStefano is right about one thing, it was a different time. And he certainly isn’t the first, nor will he be the last to make such a claim that somehow, 50 years ago or 25 years ago was a better time for the middle class. Katherine Newman was touting that in 1993 in her book. More doom and gloom about the declining standard of living are Here or Here or Tamara Drault's recent book, Strapped.

However, what all these claims fail to realize is simply how different “middle class” is today from back then. If most “hurting” middle class members tried to live like people did 50 years ago or 25 years ago, they’d find that the old times weren’t so great, and what people had to scrimp and save for pales in comparison to what we’ve got today.

It’s akin to someone lamenting that a baseball team doesn’t hit as many home runs as they did 25 years ago, without mentioning that their new ball park has an outfield wall that’s 60 feet farther from home plate.

What are some of the things that people take for granted today but were oblivious to 25 and/or 50 years ago? I’m going to try to give some indications of how people lived in 1956, 1981 and today, and the costs of these choices. At the end of each section, I summarize these cost savings, and I assume 130 million households in the United States. This is to live today at a standard roughly comparable with 1956. I'm not going to compare what people spent on X in 1956/1981 versus today, but instead I am going to compare what they spend today versus what they'd have to spend to get the same level of product or service prevalent in 1956 or 1981.

Big Houses: NPR reports that the average house size has doubled since the 1950s, and now stands at 2,349 square feet. Writes NPR:

Consider: Back in the 1950s and '60s, people thought it was normal for a family to have one bathroom, or for two or three growing boys to share a bedroom. Well-off people summered in tiny beach cottages on Cape Cod or off the coast of California. Now, many of those cottages have been replaced with bigger houses.”

What does this extra space end up costing? B4ubuild reports that an average house costs $45 to $150 per square foot to build. I’m going to assume that the extra 1,100 feet of living space now would skew a little to the lower end (since the “extra” space that people have now consists mainly of bedrooms and extra living rooms, not an extra kitchen). At $45 per square foot, an extra 1,000 square feet will add $49,500 to the price of a house. With an average mortgage rate of 6.25%, this equates to $304.78 in additional cost per month just for the added square footage (assuming a thirty year mortgage). I don’t know what the average size house was in 1981, but if we split the difference, this works out to about $152 in extra mortgage costs for the extra square footage.

YEAR	SAVINGS
1956	$3,657.36
1981	$1,828.68

Air Conditioning: in 1953, sales of room air conditioning units exceeded 1 million for the first time. However, almost no houses had central air, while by 1997, 47% of houses had central air conditioning and 25% had wall or window units according to the US Department of Energy. 93% of people in the south had air conditioners in 1997, and the average American household spent $140 on energy for air conditioning. The average cost of a central air system for your typical house is somewhere around $4,000, which means an extra $24.63 per month on your mortgage at 6.25%. To make the comparison the same fo the 1956 standard of living, supposing the average house had one window unit, with the average cost to run a window unit costs about $20 per month, you’d need to run it about 3 months, for $60 per year. So the average household spends about $80 per year more on energy than it would need to to maintain a 1956 standard of living. I'm going to assume that 1981 was equivalent to today in terms of air conditioning. It was probably a little less, but I'm not going to count it here.

YEAR	SAVINGS
1956	$375.55
1981	$0.00

Cell Phones: 195 million people had cell phones in 2005 in the United States compared to essentially zero in 1981 and zero in 1956. The average monthly cell phone bill is just under $50 according to the CTIA. Since I'm analyzing households, I'm going to say there are 1.5 phones per household on average. Thus, there's a savings of $75 per month if you wanted to live like they did in 1956 or 1981.

YEAR	SAVINGS
1956	$900.00
1981	$900.00

Computers: No one had a home computer in 1956. In 1981, a few techno-geeks had TRS-80s, Commodore 64s or early Apples. Today, most middle class families wouldn’t conceive of not having a fairly modern PC with an internet connection, and probably a wireless router, inkjet printer and large color monitor. In 1981, modems were practically unhead of. If you figure that the average home PC with a monitor and basic printer costs about $700 and has about a three year life before replacement, this equates to about $20 per month in equipment costs for the computer per month. Add in another $30 per month for an internet connection. Then add another $25 for the occasional purchases of non-game software, printer ink and printer paper, recordable DVDs and CDs, and it’s likely that the typical household spends $75 per month on their home computer. Shelling out a few bucks at a yard sale would probably get you a much better computer than existed in 1981 in the most advanced research laboratory.

YEAR	SAVINGS
1956	$900.00
1981	$900.00

Video Games: most people in 1956 would not have been able to conceive of video games. In 1981, there were some rudimentary systems with lame games. Today, there are some serious game consoles that can display graphics that in 1981 could only be dreamt of. In 2004, in the United States, we spent $6.2 billion on console and portable game software, $3.7 billion on game hardware and $1.1 billion on PC games according to Wikipedia. This equates to about $84.61 per household per year. If you want to have a 1981 style video game unit right now, you can purchase a joystick with 10 embedded games from the early 1980s for $17.99.

YEAR	SAVINGS
1956	$84.61
1981	$84.61

Televisions: In 1955 (I don’t have data for 1956), 67% of households had a television set, but only 4% had more than one television. Recall in Back to the Future how Marty was thought to be joking when he tells the 1955 McFlys that he had two televisions. In 1955, no one had color television sets. By 1980, 98% of the population had television, 50% of families had more than one TV and 83% of families had a color TV. However, television sizes were certainly significantly smaller, no one had plasma or LCD screens, and no one had stereo. In 2001, the average family had 2.4 televisions. In 2005, Americans spent $17 billion on digital televisions. Assuming three quarters of these purchases were for houses and the remainder for businesses, that would amount to $98.07 per household spent on digital television. Assuming the average non-HDTV set costs about $200, and a household purchases a set every four years (the average household has 2.4 sets, so this means that the life is around 8 years), the average household spends $50 on tube-TVs per year. To get to a 1956 standard of one black and white television, no remote, screen size of 12 inches or less, you’d probably have to shell out about $25, if you could actually find a B&W TV. By 1981, I'd imagine my family was normal: we had a color TV downstairs and the old black and white TV upstairs. To meet this standard, expect to shell out about $250. Assuming a life of 8 years, to get to 1956 standards, you’d need to spend $3 per year on TVs, and to get to 1981 standards, you’d need to spend $30. This is versus $148 for our standard today.

YEAR	SAVINGS
1956	$145.00
1981	$118.00

Cable TV: No one could even conceive of cable TV in 1956. In 1981, only 20% of the population had cable, and our most basic package would look like some sort of super system to someone in 1981. The average cable bill in 2004 was $50.98 per month, although my cable bill is sadly much higher. Assuming that it would cost $20 to get a 1981 package, we’re spending $31 more per month than we would to get to a 1981 standard of living, and $51 more per month versus a 1956 standard of living.

YEAR	SAVINGS
1956	$611.76
1981	$371.76

VCRs: The first videocassette recorder, the Ampex, was introduced in 1956. However, with a $50,000 price tag, only large TV stations could afford it. No middle class households owned one. 1981 was the height of the Betamax-VHS fight. Still, in 1981, most households didn’t own a VCR (in 1985, only 14% did, while this would hit 66% by 1990). Today, of course, you can purchase VCRs for about $30. So I'm not going to even factor in a cost savings, since if a VCR has a four year life, that's only a saving of less than a dollar per month.

DVDs: The first DVD players and discs didn’t hit the market until 1996 in Japan and 1997 in the United States. So in 1981 and 1956, you couldn’t have had a DVD player, which can now be purchased for approximately $50.

Movie Rentals and Purchases: Americans spend about $8.8 billion on video rentals per year, or about $67.69 per family per year. According toHome Media Research, consumers spend $15.9 billion on purchasing movies (primarily DVDs). This is about $122.30 per household. I'd say that works out to about six movies per year on average, which seems about right. I'm not sure what people spent in 1981 when VCRs were new. Of course, most people didn't own a VCR, but I'm going to say the average family rented 6 movies, which would run you $30 today.

YEAR	SAVINGS
1956	$189.99
1981	$159.99

Radio: There was of course Radio in 1956 and 1981, but FM stereo didn’t exist until the 1960s. Now, of course, we have satellite radio. In 1956, the satellite hadn’t yet left the drawing board (Sputnik was launched in October 1957). In 1981, no one of course had satellite radio. Today, there are about 6.5 million subscribers of XM and 4 million of Sirius according to Wikipedia.

Prescriptions: In 1956 or in 1981, a whole host of medicines was unavailable versus what we have at our disposal. Lipitor, Viagra, Zocor, Claritin, Crestor, Zetia, Zoloft, Nexium, etc. Any health plan that has prescription coverage inherently covers medicines developed since 1981: all medicines that were available in 1956 or 1981 are now available as generics, which means that they’re dirt cheap. If you don't have health care and your doctor happens to prescribe you medicine that has been around for 25 years (and there are indeed some of these medications), you can probably get it at your pharmacy for a few dollars. In the United States, pharmaceutical sales in 2004 were $235.4 billion. Most Americans, of course, don’t pay for pharmaceuticals directly, but instead have their insurance companies pay. Some Americans don’t take any pharmaceuticals, but other Americans pop pills incessantly. In any event, the pharmaceuticals do get paid for, and any businesses paying them will pass through the costs to their employees via lower salaries or higher insurance premiums. Americans spend an average of $1,810.76 on drugs per household. Assuming that 10% of these are for generics that were around in 1956 or 1981, the supplemental increase on drugs is about $1,629.69. Back in the 1950s or 1980s, there was no lipitor, and thus the hardness in your arteries in your heart couldn't be stopped. Back in the 1950s or 1980s, there was no Viagra and the softness in your...

YEAR	SAVINGS
1956	$1,629.69
1981	$1,629.69

Medical Care: many people bemoan how expensive medical care has gotten, and it’s almost too bad that there isn’t an option to buy an insurance plan that would only cover medical achievements up to a certain year. That way, people could get an idea of advances in medical care. The first CT scan was in 1972, and was incredibly primitive by today’s standards. Between 1956 and 1981, there was the first successful transfer of a pancreas, liver, heart, and heart/lung; since 1981, there have been a few others which seem mainly experimental to me, but I'm not a doctor (nor do I play one on TV as the silly ad campaign of the 1970s stated). Ultrasounds were still very experimental in 1956. And in case you don't think all this medical stuff really does any good, life expectancy tables might convince you, as average life expectancy of someone born in 1950 was 68.2 years versus 77.3 years in 2002. Not all of this is related to medicine (some is to better cars, see below, as well as more safety on various industrial and consumer machinery, etc). I have no idea what I'd price 1956-level health care would cost, but I would imagine that the savings would be substantial (I'm also not convinced you could tell a doctor, "Don't use any equipment developed after 1956"). Medical imaging (MRI, CAT, etc) costs $100 billion per year, which is equivalent to $769.23 per household. Even if you didn't get any images, you paid for it through your insurance. I'm not sure what was available in 1981, but let's say $100, because ultrasounds were available.

YEAR	SAVINGS
1956	$769.23
1981	$669.23

Automobiles: many people think of the late 1950s as the golden age of the US automobile, but what they don’t realize is that today’s car available to the typical consumer packs features that were practically unheard of in the 1950s. Safety systems such as lap belts, crumple zones, radial-ply tires, and front and side-impact airbags are often standard on today’s cars. In 1953, the chances of dying in an auto accident was four times as great as today. Some of this is due to medical advances, and some due to improved drunk-driving laws. Electric mirrors, power steering, anti-lock brakes, cruise control, eight speaker stereo systems and heated seats are also not limited to a few expensive luxury models. In order to have the same basic functionality of a typical 1956 car, you’d likely not be able to choose anything but the most basic car available today, and even then, the performance and safety would exceed the average 1956 car. I’m going to assume that if the typical American purchases a new car for $25,000, (according to the the FTC, it’s $28,400 ), he could get 1956 functionality for $13,000. In 1955, there were 1.16 cars per household, whereas in 2003, there were 2.03 cars per household. Thus, living at a 1956 standard of living would require you to spend $15,080 for 1.16 inferior cars versus $50,000 today (actually a little should be knocked off each one of these as businesses and local governments own cars). Assuming cars last eight years, this amounts to additional spending of $4,365 per year on cars to live beyond a 1956 standard. Due to business ownership, let’s cut that to an even $4,000. In 1981, the average household owned 1.72 cars, and while cars today are better, there isn’t as much of a difference as with 1956. I would say instead of $4,000 per year, the difference is probably closer to $1,500.

YEAR	SAVINGS
1956	$4,000.00
1981	$1,500.00

Lots of other stuff: There are a whole slew of things that are of course better now than 25 or 50 years ago. Some of them are somewhat silly, but people still shell out additional money to get titanium golf clubs, even if their game isn’t helped at all. Digital cameras allow the almost instant production of photographs, as opposed to waiting a few days for the local shop to develop them. I-pods allow the creation of digitally-pure music track lists, an improved airport structure allows people to travel more freely about the country. Long distance calls currently are often part of a flat-rate package, and most Americans think nothing of calling their friends across the country, while in 1956, few places had direct dial of long distance. In 1981, long distance was prevalent, but families reserved long distance calls for either late at night or on special occasions. You also sat next to the phone that was wired to the wall; there were no cordless phones in 1956, and in 1981, they were extremely rare. Food was radically different: in 1956, fruits and vegetables were really available only when they were “in season”, as shipping fruits from South America or even from California to the midwest was difficult. People didn’t have stainless steel propane grills or stainless steel refrigerators in 1956 or even in 1981. There were no ATMs in 1956, and in 1981, they were practically non-existent. In order to withdraw funds from your account, you had to visit the bank during business hours. Clothing styles are apparently much better today than in the 1950s or 1980s, but since I have no nose for fashion, I have no idea how to measure this. But shoes seem to be a lot nicer today, and athlete’s shoes seem to be better for impact, and dress shoes seem to be a lot more comfortable. Dishwashers didn’t catch on until the 1950s

I’ve heard a lot of people say that all this new stuff doesn’t make people any happier, and for a lot of people, that may be true (but for the guy who has a cholesterol level of 188 instead of 250 thanks to Lipitor, he may disagree, and while this would be a great place for a Viagra joke, I'll refrain). However, the middle class and even those who are at the lower end of the economic spectrum still shell out money for these things, and no one is forcing them to. Another common claim is that we have no leisure time today versus in previous decades. However, this report by the Federal Reserve shows that since 1965, Americans have more leisure time, not less.

So as you’re sitting there reading this on your 19 inch color computer monitor while listening to your Ipod and enjoying your 68 degree room cooled by central air conditioning and while eating an apple that is nine months out of season, and while you hear your cellphone ring, and while you just noticed someone sent you digital photos of yesterday’s fun times, and while you’ve got your plasma TV tuned in to a tennis match halfway around the world, can you really be certain that 1956 or 1981 was a better time?

50 years ago, half the families in the country earned less than the median household income. Today, again, half of families are below the median. But that median is so much higher than the median of 50 years ago. And 50 years from now, our median is going to seem primitive.

Here is a Summary of annual cost increases versus 1956 lifestyle. These are just my estimates, and of course your situation is going to be different.

Item	1956	1981
Larger House	$2,743.02	$1,371.51
Air Conditioning	$281.66	$0.00
Cell Phone	$900.00	$900.00
Computers	$900.00	$900.00
Video Games	$84.61	$84.61
TV	$145.00	$118.00
Cable	$611.76	$371.76
Movie Rental	$189.99	$159.99
Prescriptions	$1,629.69	$1,629.69
Medical Imaging	$769.23	$669.23
Cars	$4,000.00	$1,500.00
Total	$12,254.96	$7,704.79

(Note: the housing costs have been reduced by 25% to account for the fact that mortgage interest is tax deductible)

So in any event, the 1956 standard of living is $12,255 cheaper, and with a 25% tax bracket, the above represent about $16,000 in additional wages. And this doesn’t even begin to contemplate lots of other expenses like better golf clubs, long distance direct dialing, and so on. It’s anyone’s guess what this would all cost, but I sincerely believe that if a typical middle class family today decided they were going to live close to the standard of a 1956 middle class family, and watch only the big networks on a small black and white tv, have no internet, have one phone, one car, etc., that their total savings would be well over $20,000 pre-tax, or nearly half of the $44,389 median household income.

Mayor deStefano, the 1950s were indeed a different time.