Published in The Tennessean, Sunday, September 25, 2011
by Richard J. Grant
While financial markets focus on the latest version of “Operation Twist” in which the Federal Reserve attempts to “twist” the yield curve by reducing long-term interest rates relative to short-term rates, there is another kind of twist going on between businesses that are owned or favored by the government and those that are private. One group is subsidized or protected while the other is taxed or harassed.
The U.S. Postal Service is in serious financial trouble. Like any spoiled child of government, it just can't get the hang of acting like a real business. Despite its privileged position, it faces the prospect of cutting service and very likely defaulting on obligations promised to employees.
Article I of the Constitution gives Congress the power “To establish Post Offices and post Roads;” but it does not give it the obligation to do so. Also, there does not appear to be any command in the Constitution that requires Congress to ban private businesses from delivering first-class mail. But Congress has done just that, thereby giving the U.S. Postal Service a monopoly.
Perhaps Congress should think about this, especially in the wake of Senate hearings held to interrogate Google chairman Eric Schmidt over allegations of anticompetitive behavior. While none of us can remember a time when there was no U.S. Postal Service, most of us had never heard of Google a dozen years ago. Another dozen years from now, neither of these businesses is likely to be operating in the same way if at all.
Whenever a company offers its services with a high-enough quality and a low-enough price to attract the majority of customers in a particular market segment, there is a temptation for politicians and even competitors to hurl charges of monopoly. If “monopoly” means merely “single seller,” then historians would be hard pressed to find any example of a private monopoly that is not protected by government. Certainly Google has a “monopoly” in the use of its name and any technology that it has patented or is able to keep secret. But the same can be said about its competitors in the past, the present, and the future.
The first company to introduce an internet search engine could be said to have had a monopoly at that moment, but it sure didn't last very long. And where is that company now? The freedom to bring your ideas to market means that all existing companies must strive unceasingly to serve their customers better or risk losing them to you. “Lock-in” is never guaranteed when innovators are free to compete.
Ironically, Google offers services that compete with those of the Post Office. But there is a moral dissonance in the different ways that Congress treats the two companies. The Post Office is protected by statute from direct competition to its core product. Until this is changed we will never know how a private entrepreneur might have served this market. Meanwhile, Google faces this threat of competition every day; and a group of senators seem to believe that the company's chairman has nothing more productive to do than to ward off their attempts to look tough on monopoly.
Instead of looking tough and perpetuating the anti-monopoly charade, congressmen would better serve us by focusing on the refinement of laws that actually protect us from theft, force, and fraud – and from twisting.
Richard J. Grant is a professor of finance and economics at Lipscomb University and a senior fellow at the Beacon Center of Tennessee. His column appears on Sundays. E-mail: rjg@richardjgrant.com
Copyright © Richard J Grant 2011
Sunday, September 25, 2011
Sunday, September 18, 2011
Good economists warned Obama against stimulus
Published in The Tennessean, Sunday, September 18, 2011
by Richard J. Grant
When you wake up on the road to Hell, it matters which way you choose to walk. The Obama administration never ceases to remind us that it was their predecessor that dropped us off on that road. But at some point, the not-so-new president needs to take notice of which way he is leading us.
Whatever starting point we might have wished for, as my old professor James Buchanan would say, “We start from here,” and not from someplace else. Call it our “inheritance.” But that's where we started, so get over it.
If everything had been wonderful in the year 2008, then candidate Obama probably would not have stood a chance of becoming president. As it turned out, many years of copious and perverse regulation, unnecessary and excessive government spending, and an unnatural interest-rate policy all began to unwind in a perfect financial storm.
Now, after two and a half years in power, the Obama administration is feeling the political heat. If we are all now sweating, it is not because of CO2 levels but because of the administration's policy direction. They have doubled down on the worst of the Bush administration's policies.
Good economists warned them that “stimulus” programs, whether through high government spending or low interest rates, would fail. Everyone else had to see it before they could believe it. Even now there are apologists who insist that there wasn't enough government spending and that not enough money was created.
Good economists warned them that the subsidization of “green jobs” would be no more productive than any other attempt by government to pick winners. Not only did this over-investment in green dreams drain resources from other more-promising uses, it rendered many “green” projects unsustainable. Easy government money always attracts politically connected hucksters, so we should not be surprised when subsidized industries become corrupted and when taxpayers must pick up the tab for bankruptcies.
Good economists warned them that the subsidization of home ownership and the intimidation of banks into granting mortgages to those with a weak ability to handle debt would result in more foreclosures and losses. But rather than learn from the poor example of the previous two administrations, the Obama administration is once again forcing banks into subprime mortgage lending.
Good economists warned them that declaring medical care to be a “right” and increasing government control over healthcare provision would neither improve service nor reduce costs. Heavy-handed regulation of medical insurance would destroy the risk-reducing character of that industry and ultimately shift more of the risk burden onto taxpayers. But shifting risks and costs onto taxpayers can barely hide the fact that it raises the burden of both.
The Obama administration is either short on good economists or short on its ability to listen to them. What it seems not to be short on is psychologists. But psychology is just not a substitute for good economics.
Calling something a “stimulus” does not make it a healthy economic policy. Calling something “green” does not make it good for the environment or a wise use of resources. Calling something a “right” does not create the resources necessary to satisfy it, nor does it justify confiscating those resources from their legitimate owners.
Perhaps the psychologists could explain to the administration that good intentions are not a substitute for good results – or for road pavement.
Richard J. Grant is a professor of finance and economics at Lipscomb University and a senior fellow at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: rjg@richardjgrant.com
Copyright © Richard J Grant 2011
by Richard J. Grant
When you wake up on the road to Hell, it matters which way you choose to walk. The Obama administration never ceases to remind us that it was their predecessor that dropped us off on that road. But at some point, the not-so-new president needs to take notice of which way he is leading us.
Whatever starting point we might have wished for, as my old professor James Buchanan would say, “We start from here,” and not from someplace else. Call it our “inheritance.” But that's where we started, so get over it.
If everything had been wonderful in the year 2008, then candidate Obama probably would not have stood a chance of becoming president. As it turned out, many years of copious and perverse regulation, unnecessary and excessive government spending, and an unnatural interest-rate policy all began to unwind in a perfect financial storm.
Now, after two and a half years in power, the Obama administration is feeling the political heat. If we are all now sweating, it is not because of CO2 levels but because of the administration's policy direction. They have doubled down on the worst of the Bush administration's policies.
Good economists warned them that “stimulus” programs, whether through high government spending or low interest rates, would fail. Everyone else had to see it before they could believe it. Even now there are apologists who insist that there wasn't enough government spending and that not enough money was created.
Good economists warned them that the subsidization of “green jobs” would be no more productive than any other attempt by government to pick winners. Not only did this over-investment in green dreams drain resources from other more-promising uses, it rendered many “green” projects unsustainable. Easy government money always attracts politically connected hucksters, so we should not be surprised when subsidized industries become corrupted and when taxpayers must pick up the tab for bankruptcies.
Good economists warned them that the subsidization of home ownership and the intimidation of banks into granting mortgages to those with a weak ability to handle debt would result in more foreclosures and losses. But rather than learn from the poor example of the previous two administrations, the Obama administration is once again forcing banks into subprime mortgage lending.
Good economists warned them that declaring medical care to be a “right” and increasing government control over healthcare provision would neither improve service nor reduce costs. Heavy-handed regulation of medical insurance would destroy the risk-reducing character of that industry and ultimately shift more of the risk burden onto taxpayers. But shifting risks and costs onto taxpayers can barely hide the fact that it raises the burden of both.
The Obama administration is either short on good economists or short on its ability to listen to them. What it seems not to be short on is psychologists. But psychology is just not a substitute for good economics.
Calling something a “stimulus” does not make it a healthy economic policy. Calling something “green” does not make it good for the environment or a wise use of resources. Calling something a “right” does not create the resources necessary to satisfy it, nor does it justify confiscating those resources from their legitimate owners.
Perhaps the psychologists could explain to the administration that good intentions are not a substitute for good results – or for road pavement.
Richard J. Grant is a professor of finance and economics at Lipscomb University and a senior fellow at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: rjg@richardjgrant.com
Copyright © Richard J Grant 2011
Sunday, September 11, 2011
Our choice to be strong
Published in The Tennessean, Sunday, September 11, 2011
by Richard J. Grant
Ten years ago today, I happened to be living in the Middle East. It was early evening, the end of the workday, when I arrived home to see the television on with the image of one of the twin towers burning.
When the second plane hit, we knew that a bigger story was unfolding. The more we learned, the more we had to question the reality of our surroundings. But it was to our surroundings and the events in them that each of us had to react. In some places more than others, we could be reminded of Robert Browning's words, “For sudden the worst turns the best to the brave.”
Watching from 6900 miles away gave an odd sense of safety despite being closer to what might well have been the source of the problem. What soon became apparent, in a land where appearances are always deceiving, was the difference in deeper sentiment. But strength is always respected, especially when applied wisely.
Many shared the thought that we cannot let “them” stop us from carrying on with life. For that evening I had planned to get a haircut, and despite several hours of unplanned television, I still had time to do so. A routine, tedious task had suddenly taken on the aura of defiance. But when I realized that I was sitting in a chair with my Muslim barber standing behind me holding a long blade, it took on the aura of an IQ test.
I already knew about “known unknowns.” Profiling works both ways. Personal relationships give mercy an edge over justice; and slicing customers is bad for business. It is also frowned upon by the local rulers who provide effective incentives to refrain. Even for most sympathizers, martyrdom is no more than a spectator event.
The barber watched me curiously as I met a colleague outside the shop; he seemed puzzled by my hand gestures as I described to my colleague my theory of how the towers collapsed. My colleague and I now had reason to forget that it was also one year since one of our colleagues had been murdered.
Our lost colleague and friend had been in Vietnam in the early days. He described the uncertainty of what he was up against in those days when he worked on the insertion and extraction of special-operations troops. Though he spoke of carrying out injured colleagues and of patching up the helicopters, his only malady was hearing loss from the heavy use of the 50-caliber tools of his trade. Perhaps that is why he did not hear his attacker approaching decades later.
In happier times when asked if he had any desire to go back to Vietnam, he replied, “I didn't leave anything there that I need.”
Another close friend, who had recently headed home by sea, was in the Atlantic on September 11. He did not get caught in the disruptions of air travel, but his ship was compelled to land in Boston rather than New York. A few weeks later, he was back in uniform ready for his fourth war.
Enemies limit our choices. But they can never stop us from choosing wisely. First and always, we must choose to be strong.
When we leave the Middle East and Central Asia, we will see that we didn't leave anything there that we need.
Richard J. Grant is a professor of finance and economics at Lipscomb University and a senior fellow at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: rjg@richardjgrant.com
Copyright © Richard J Grant 2011
by Richard J. Grant
Ten years ago today, I happened to be living in the Middle East. It was early evening, the end of the workday, when I arrived home to see the television on with the image of one of the twin towers burning.
When the second plane hit, we knew that a bigger story was unfolding. The more we learned, the more we had to question the reality of our surroundings. But it was to our surroundings and the events in them that each of us had to react. In some places more than others, we could be reminded of Robert Browning's words, “For sudden the worst turns the best to the brave.”
Watching from 6900 miles away gave an odd sense of safety despite being closer to what might well have been the source of the problem. What soon became apparent, in a land where appearances are always deceiving, was the difference in deeper sentiment. But strength is always respected, especially when applied wisely.
Many shared the thought that we cannot let “them” stop us from carrying on with life. For that evening I had planned to get a haircut, and despite several hours of unplanned television, I still had time to do so. A routine, tedious task had suddenly taken on the aura of defiance. But when I realized that I was sitting in a chair with my Muslim barber standing behind me holding a long blade, it took on the aura of an IQ test.
I already knew about “known unknowns.” Profiling works both ways. Personal relationships give mercy an edge over justice; and slicing customers is bad for business. It is also frowned upon by the local rulers who provide effective incentives to refrain. Even for most sympathizers, martyrdom is no more than a spectator event.
The barber watched me curiously as I met a colleague outside the shop; he seemed puzzled by my hand gestures as I described to my colleague my theory of how the towers collapsed. My colleague and I now had reason to forget that it was also one year since one of our colleagues had been murdered.
Our lost colleague and friend had been in Vietnam in the early days. He described the uncertainty of what he was up against in those days when he worked on the insertion and extraction of special-operations troops. Though he spoke of carrying out injured colleagues and of patching up the helicopters, his only malady was hearing loss from the heavy use of the 50-caliber tools of his trade. Perhaps that is why he did not hear his attacker approaching decades later.
In happier times when asked if he had any desire to go back to Vietnam, he replied, “I didn't leave anything there that I need.”
Another close friend, who had recently headed home by sea, was in the Atlantic on September 11. He did not get caught in the disruptions of air travel, but his ship was compelled to land in Boston rather than New York. A few weeks later, he was back in uniform ready for his fourth war.
Enemies limit our choices. But they can never stop us from choosing wisely. First and always, we must choose to be strong.
When we leave the Middle East and Central Asia, we will see that we didn't leave anything there that we need.
Richard J. Grant is a professor of finance and economics at Lipscomb University and a senior fellow at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: rjg@richardjgrant.com
Copyright © Richard J Grant 2011
Sunday, September 04, 2011
Justice Department a flop on business competition
Published in The Tennessean, Sunday, September 4, 2011
by Richard J. Grant
It is often said that “a little bit of knowledge is dangerous.” An excellent illustrator of that statement is the U.S. Department of Justice, particularly its Antitrust Division.
Last week, the Department of Justice filed a civil antitrust lawsuit to block the acquisition of T-Mobile USA by the much larger AT&T. According to its own press release, the department said that “the proposed $39 billion transaction would substantially lessen competition for mobile wireless telecommunications services across the United States, resulting in higher prices, poorer quality services, fewer choices and fewer innovative products for the millions of American consumers who rely on mobile wireless services in their everyday lives.”
In this, the Department of Justice (DOJ) claims for itself not only the knowledge of good and evil but also the knowledge to manage entire industries, if not the entire economy. Were we so rude as to ask where it gets that knowledge, we would be disappointed to learn that it gets it from textbooks that suggest that competition can be measured by the number of “competitors” currently active in a market.
Thus we get the judicial equivalent of painting by numbers. The Antitrust Division has a long history of counting heads within an industry, and if it deems that number to be insufficient, it either breaks up one of the largest companies or, in this case, prevents a merger.
T-Mobile is losing customers and might not survive unless it can add such capabilities as those that AT&T could bring to it. It has been operating for little more than 10 years, which makes it quite old for an industry that is supposedly rather dynamic.
To the Antitrust Division, one less company means less competition. Despite reminders that true competition comes not from total numbers but from the freedom of entry and exit by potential new competitors, the DOJ actively ensures that government remains the biggest entry barrier, and the biggest wet blanket, to innovators in business.
The Antitrust Division is a throwback from the Progressive Era, a period that turned Washington, DC into a sort of Jurassic Park that clones and protects the institutional dinosaurs that continue to stalk us. Central planners are supposed to be extinct, but these wannabe gatekeepers have decided that “AT&T had not demonstrated that the proposed transaction promised any efficiencies that would be sufficient to outweigh the transaction's substantial adverse impact on competition and consumers.”
What the DOJ demonstrates is the assumption that somehow government can have market knowledge that no one else has. This is the assumption that presaged all the interventionist failures in history. Witness our current economic stagnation.
Even if it doesn't stop the merger, the DOJ lawsuit has hurt both companies. They have expended resources to anticipate DOJ objections and weakened their business plans accordingly. Resources needed to innovate and to serve customers in the market have been dissipated once again by government interference.
If we are unhappy with our wireless service, perhaps we should ask ourselves who has monopoly control over the spectrum. Who are the gatekeepers that stand between us and our service providers?
If the DOJ were sincerely interested in promoting competition, then it would disband its Antitrust Division and request that Congress repeal the Sherman Act and reduce its budget accordingly so the funds could be relinquished to the private sector, where the real competitors live.
Richard J. Grant is a professor of finance and economics at Lipscomb University and a senior fellow at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: rjg@richardjgrant.com
Copyright © Richard J Grant 2011
by Richard J. Grant
It is often said that “a little bit of knowledge is dangerous.” An excellent illustrator of that statement is the U.S. Department of Justice, particularly its Antitrust Division.
Last week, the Department of Justice filed a civil antitrust lawsuit to block the acquisition of T-Mobile USA by the much larger AT&T. According to its own press release, the department said that “the proposed $39 billion transaction would substantially lessen competition for mobile wireless telecommunications services across the United States, resulting in higher prices, poorer quality services, fewer choices and fewer innovative products for the millions of American consumers who rely on mobile wireless services in their everyday lives.”
In this, the Department of Justice (DOJ) claims for itself not only the knowledge of good and evil but also the knowledge to manage entire industries, if not the entire economy. Were we so rude as to ask where it gets that knowledge, we would be disappointed to learn that it gets it from textbooks that suggest that competition can be measured by the number of “competitors” currently active in a market.
Thus we get the judicial equivalent of painting by numbers. The Antitrust Division has a long history of counting heads within an industry, and if it deems that number to be insufficient, it either breaks up one of the largest companies or, in this case, prevents a merger.
T-Mobile is losing customers and might not survive unless it can add such capabilities as those that AT&T could bring to it. It has been operating for little more than 10 years, which makes it quite old for an industry that is supposedly rather dynamic.
To the Antitrust Division, one less company means less competition. Despite reminders that true competition comes not from total numbers but from the freedom of entry and exit by potential new competitors, the DOJ actively ensures that government remains the biggest entry barrier, and the biggest wet blanket, to innovators in business.
The Antitrust Division is a throwback from the Progressive Era, a period that turned Washington, DC into a sort of Jurassic Park that clones and protects the institutional dinosaurs that continue to stalk us. Central planners are supposed to be extinct, but these wannabe gatekeepers have decided that “AT&T had not demonstrated that the proposed transaction promised any efficiencies that would be sufficient to outweigh the transaction's substantial adverse impact on competition and consumers.”
What the DOJ demonstrates is the assumption that somehow government can have market knowledge that no one else has. This is the assumption that presaged all the interventionist failures in history. Witness our current economic stagnation.
Even if it doesn't stop the merger, the DOJ lawsuit has hurt both companies. They have expended resources to anticipate DOJ objections and weakened their business plans accordingly. Resources needed to innovate and to serve customers in the market have been dissipated once again by government interference.
If we are unhappy with our wireless service, perhaps we should ask ourselves who has monopoly control over the spectrum. Who are the gatekeepers that stand between us and our service providers?
If the DOJ were sincerely interested in promoting competition, then it would disband its Antitrust Division and request that Congress repeal the Sherman Act and reduce its budget accordingly so the funds could be relinquished to the private sector, where the real competitors live.
Richard J. Grant is a professor of finance and economics at Lipscomb University and a senior fellow at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: rjg@richardjgrant.com
Copyright © Richard J Grant 2011
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