Taxes Destroy Wealth: Stossel on Philly's Soda Tax

5 years ago… I reported on Philadelphia’s new tax on soda. The politicians promised to spend the money on early childhood education.

5 years later… here’s what happened: pic.twitter.com/SFVNU23VEy

— John Stossel (@JohnStossel) December 26, 2023

How Biden Hobbled his own Infrastructure Push

My developer friends tell me its the difference between a developer spending his or her own money and the government spending someone else's money. 

But Eric Boehm of REASON has a more nuanced explanation: "At nearly every turn, the infrastructure package opted for policies that limited supplies, hiked prices, added paperwork, and grew government."

Rules requiring contractors to use American-made stuff in federally funded projects have been on the books for decades. That's one of the reasons why American mass transit projects are much more expensive than similar projects built in other parts of the world. The infrastructure bill doubled down on those problems by expanding those requirements to cover even basic materials like copper wiring, drywall, and lumber. 

"The quick implementation of Buy America requirements for such a broad range of materials will cause delays in project delivery while states, contractors, manufacturers, and suppliers continue working to determine how best to track and verify these materials," Washington state Secretary of Transportation Roger Millar warned federal officials in a letter last year. 

The Buy American rules are only part of the problem, however. Biden's stubborn refusal to lift tariffs imposed by former President Donald Trump means that steel (something you need for a lot of infrastructure projects) prices remain artificially high. 

The infrastructure law also created delays by adding more paperwork and a confusing patchwork of new federal oversight for projects that sought funding. "Ordinarily, Washington lets states decide how best to spend transportation money," The Wall Street Journal reported in November 2021. But the infrastructure bill gives the Biden administration a greater role in deciding which projects to fund. Those additional steps slowed everything down 

Finally, it's worth keeping in mind something the infrastructure package didn't include: permitting reform to streamline environmental reviews that routinely hamstring federal construction projects. 

Gas Stations -> Convenience Stores -> Restaurants?

Gas stations have always offered complementary services. In the 40s and 50s it was mechanic services, in the 60s, and 70s, it was wiper and oil changes, and in the 80s and 90s it was convenience store items. Pay-at-the-pump may have given drivers less of a reason make in-store purchases. Ease of substitution across gas stations makes the search for higher margin complements a profitable strategy.

However, the current trend is for more gars stations/convenience stores to offer fresh food. This may be the result of declining demand in convenience store mainstays - cigarette smoking is steadily declining and more fuel efficient cars go longer between fill ups.Perhaps the transition from selling packaged Slim Jims and Corn Nuts to preparing fresher foods is to get a leg up on the transition to EVs.

But a shift to electric vehicles should go well with the food business if it means consumers spend longer stretches of time charging their vehicles. 

I sent Nashville's Mayor a copy of Chapter 8, "Understanding [housing] Markets."

Here's why:  "Nashville voters ... are especially looking to Metro leaders to address the city's affordable housing problem."    

If the mayor and the council honestly look the cause of the crisis, they will find it is caused by zoning restrictions (see previous post) that limit supply.  With 100 people moving to Nashville each day, the only thing that can adjust is price.  

The standard feel-good response is affordable housing mandates on new construction which raises the cost of new construction and limits supply--exacerbating the very problem it is designed to alleviate.  (See What Nashville can Learn from NYC: Affordable Housing Mandates Reduce the Supply of Affordable Housing.)

...mandates reduce the profitability of new development.  This will lead to less new development, or developers will substitute towards smaller developments, not subject to the mandate.  In the former case, fewer new developments would be built; in the latter, lower-density development would take place.  Either way, this represents a decrease in supply.  A decrease in supply would increase price, exacerbating the very problem--lack of affordable housing--that it was designed to ameliorate.   (And don't forget that density is green.)

Which areas around Nashville have the tightest housing regulations?

Its Official: Forest Hills, Williamson, and Brentwood are the worst.

To be clear, zoning limits supply so when new people come to Nashville, the only things that can adjust is price--and it goes up. See previous posts on this topic.  

HT:  Davis

10 most popular posts in 2023

• Car Wash Industry Dynamics (November 27, 2023)
• Why House Prices Go Up (November 30, 2023)
• When this movie starts, Google is already popular (October 24, 2023)
• Do Looks Matter for an Academic Careers in Economic? (October 20, 2023)
• The Strategy That Saved the New York Times (Dec 16, 2023)
• Randomized Trial to Measure Facebook Ad Effectiveness (May 2, 2023)
• Where US Housing Supply Has Grown (May 4, 2023)
• Why Today's Students Are Harder to Teach (April 10, 2023)
• Declining Fertility Rates (Oct 19, 2023)
• Korea's low fertility rate (0.7) moves it toward extinction (Dec 4, 2023)

The strategy that saved the NY Times

 Economist:  

The new New York Times was the product of two shocks – sudden collapse, and then sudden success. The paper almost went bankrupt during the financial crisis, and the ensuing panic provoked a crisis of confidence among its leaders. Digital competitors like the HuffPost were gaining readers and winning plaudits within the media industry as innovative. They were the cool kids; Times folk were ink-stained wrinklies.

In its panic, the Times bought out experienced reporters and editors and began hiring journalists from publications like the HuffPost who were considered “digital natives” because they had never worked in print. ... The HuffPosts and Buzzfeeds began to decay, and the Times’s subscriptions and staff began to grow.

Illiberal journalists ... more concerned with group rights than individual rights, which they regard as a bulwark for the privileges of white men. They have seen the principle of free speech used to protect right-wing outfits like Project Veritas and Breitbart News and are uneasy with it. They had their suspicions of their fellow citizens’ judgment confirmed by Trump’s election, and do not believe readers can be trusted with potentially dangerous ideas or facts. They are not out to achieve social justice as the knock-on effect of pursuing truth; they want to pursue it head-on. The term “objectivity” to them is code for ignoring the poor and weak and cosying up to power, as journalists often have done.

Book recommendations (in no particular order)

• Anti-Fragile , by Nassim Taleb (also Fooled by Randomness, Black Swan)
• Randomistas: Fighting Poverty with Science  by Esther Duflo
• Rationality: What It Is, Why It Seems Scarce, Why It Matters  by Steven Pinker
• Enlightenment Now: The Case for Reason, Science, Humanism, and Progress by Steven Pinker 
• Everybody Lies: Big Data, New Data, and What the Internet Can Tell Us About Who We Really Are  by Seth Stephens-Davidowitz
• Prediction Machines, Updated and Expanded: The Simple Economics of Artificial Intelligence  by Ajay Agrawal , Joshua Gans
• Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley, link
• Amazon Unbound, Why is Bezos such an Extraordinary Manager?
• Randomistas
• Algorithms to Live By
• Factfulness
• The Art of Strategy
• Shoe Dog
• An Economist Walks into a Brothel
• Sapiens
• Dataclysm
• Rising Strong (squishy, but good)

NPR: Cobalt is important for green energy. So why has America's only coablt mine closed?

https://www.npr.org/2023/12/14/1219246964/cobalt-is-important-for-green-energy-so-why-has-americas-only-coablt-mine-closed

HT:  Brie

(Lack of) Barriers to Entry in Beer Brewing

More commercial insights are forthcoming from "Grain and Beer" episode of The History of the Germans podcast. Unlike most crafts, any household could brew beer. But since not everyone could brew it well, towns set out to regulate it by limiting the number of houses where it was allowed. Fortunately, the number was set high enough for competition to thrive.

Since there were no guilds, the way the cities tried to control the production and to maintain standards for health and safety was by restricting the number of houses that were allowed to make beer. Hamburg for instance had 500 houses where the making of beer was allowed. If someone wanted to become a brewer, he did not have to marry some brewer’s widow, schmooze the guild masters and pass an examination, what he or she needed to do was buying one of the houses where brewing was allowed. That is why you often find breweries in Germany being called “Brauhaus” meaning brewer’s house, referring to the physical location where brewing was allowed. 

Hanseatic beer used hops with its distinct taste but also acted as a preservative. This allowed it to be exported even at exorbitant transport costs. 

... Einbecker Beer was famous across Northern Europe and was drunk as far north as Bergen and Stockholm, another 900km onwards by boat. Why would people pay 5X for the imported version of a daily staple? Something they drank more than 200 litres each per year.

Our pod-caster, the erudite Dirk Hoffman-Becking, claims that German brewers convinced far flung Europeans that their beer was a luxury good that signaled the status of its consumer. I conjecture, without evidence, that setting a low entry barrier and mild standards regulation generated competition that kept production costs down and product quality up. One need not be a beer snob to appreciate an objectively better product not available from locals.

The Hansa as a Brand

The History of the Germans podcast I have been enjoying has just gotten to the Hanseatic League, the trading network dominated by the Germans that came to dominate the Baltic and North Seas in the high middle ages. One the first trade routes was to the then important trade center of Novgorod. A curious question was why this network was so successful. There appear to be a number of factors but one important one has to do with developing a brand to signal quality that ameliorated asymmetric information problems.

And we get another crucial element, the commercial discipline and branding. If you came to Novgorod on your own, assuming you made it at all, it would have been very difficult for you to sell your wares at a good price. Your clients will ask: Is that cloth you sell really the high-quality material from Bruges and not the cheap stuff from Ypres? That salt, could it be mixed with something? Where do I go when I have a complaint and you have gone home?

The brand was supported by an effective governance structure for the traders visiting St. Peter’s Yard in Novgorod.

The members of the St. Peter’s Yard maintained or at least pretended to maintain strict discipline amongst their ranks and if one of their customers had found themselves cheated by one of these merchants, they knew where to go for redress. This created what we would today call a brand. Merchants who came with that fleet became seen as trustworthy. They may be a touch more expensive, but you get what you were hoping to get.

AT&T's Shift in Supplier Strategy

AT&T made a major shift from a single primary supplier of proprietary network infrastructure provided by Nokia to an open radio access network (Open RAN) to handle most of its US network traffic by late 2026.

Open RAN is expected to bring several advantages, including reduced costs, increased vendor diversity, and enhanced network agility.

Open RAN is a way to have many different vendors compete for business in the future. What precipitated this dramatic change in strategy? Two possibilities include:

• A long-term contract with single supplier is often a mechanism to overcome holdup opportunities. Perhaps newer technology has made the upstream market develop so that relationship specific investments are less important.
• A clever two-part pricing supplier contract in could have mitigated the effects of double-marginalization. Perhaps this form of contract became unworkable. Or perhaps enough competition developed that the margins are not big enough for double-marginalization to lead to large inefficiencies.
  

South Korea's low fertility rate (0.7) moves it towards extinction

 Via MarginalRevolution:

…South Korea is distinctive in that it slipped into below-replacement territory in the 1980s but lately has been falling even more — dropping below one child per woman in 2018, to 0.8 after the pandemic, and now, in provisional data for both the second and third quarters of 2023, to just 0.7 births per woman.

It’s worth unpacking what that means. A country that sustained a birthrate at that level would have, for every 200 people in one generation, 70 people in the next one, a depopulation exceeding what the Black Death delivered to Europe in the 14th century. Run the experiment through a second generational turnover, and your original 200-person population falls below 25. Run it again, and you’re nearing the kind of population crash caused by the fictional superflu in Stephen King’s “The Stand.”