Russell Roberts's Blog, page 1476

Among the Jobs of Competition

Here's a letter to the Wall Street Journal:

You report that U.S. antitrust regulators are scrutinizing Apple ("Regulators Eye Apple Anew," Feb. 18).  One concern is that, "Under Apple's terms for the new service, companies that sell digital subscriptions to content on Apple devices would be required to make it available for sale through apps at the company's iTunes App Store at the best available price."

If a chief function of competition is to ensure that consumers get the lowest possible prices, how can Apple's policy of requiring that content suppliers give Apple customers the "best available" – i.e., the lowest – prices be anticompetitive, especially given Apple's obvious interest in keeping the prices its customers pay for contents as low as possible?  Because no content supplier is required to sell its content on Apple devices, suppliers who choose to do so clearly expect to remain profitable despite their agreeing to charge Apple customers prices no higher than they charge non-Apple customers.

Moreover, Apple has capable competitors (such as HP, with its TouchPad).  So if consumers are harmed by Apple's contractual terms, Apple's rivals will offer to content suppliers terms more to these suppliers' liking, causing these suppliers to abandon Apple.  And Apple's market share will fall while that of its rivals rises.

Sincerely,

Donald J. Boudreaux

Long time ago

I am shocked to discover that banks are finding ways to avoid provisions in the Dodd-Frank bill (HT: Tim Townsend)

Some foreign banks are moving to restructure their U.S. operations to avoid one of the most-burdensome requirements of the new Dodd-Frank law.

In November, Barclays PLC quietly changed the legal classification of the U.K. bank's main subsidiary in the U.S. so that the unit would no longer be subject to federal bank-capital requirements. Several other banks based outside the U.S. are considering similar moves, according to people familiar with the matter.

The maneuver allows them to escape a provision of the financial-overhaul law that forces the pumping of billions of dollars of new capital into the U.S. entities, known as bank-holding companies.

"It's just not worth it to have all that capital trapped" in the holding company, said a New York lawyer who is advising banks on how to restructure.

The moves are the latest example of how banks are scrambling to cushion the impact of new laws and rules around the world.

Policy makers are demanding banks hold more capital and cash to help prevent a repeat of the financial crisis. But bank executives are worried that all the changes will crimp profits without making the financial system safer.

The last six words of that last sentence are what make this even funnier. Sure, if it wouldn't make the financial system safer, why crimp those lovely profits. But usually there's a tradeoff between profits and safety–more leverage means more profits and LESS safety. I know it's awkward to point out but I think there was a period in US history where leverage led to really high profits but eventually the whole system got in big trouble. Oh yeah, I remember, the financial crisis of 2008. But that was a long time ago. So no reason to keep capital just sitting around that could make profits.

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Fear the Boom and Bust with Hebrew subtitles

Thanks to Guy Kedem and Amir Weitman. (If you not see the subtitles, click the CC button in the bottom right hand corner.)

Testimony video (shorter)

Some people have asked for a shorter version of my testimony on the stimulus. Here it is.

Anti-Antitrust

Here's a letter to the Wall Street Journal:

You report that "U.S. antitrust enforcers have begun looking at the terms Apple Inc. set this week for media companies who want to sell their content on its popular iPad" ("Regulators Eye Apple Anew," Feb. 18).

This fact proves one of the rules of modern Washington (and Brussels): a private firm's success in a commercial market attracts officious bureaucrats as surely as a chocolate cake at a picnic attracts voracious ants.  And in both cases, these creatures' ravenous appetites damage the objects of their attention.

Sincerely,

Donald J. Boudreaux

Wisdom from Edmund Burke

Burke evidently said (HT: Katrin van der Vaart):

Nobody made a greater mistake than he who did nothing because he could do only a little.

The country is in trouble. Continuing to spend 25% of GDP through the federal government is not good for children or other living things. Continuing to spend more than $1.5 trillion than we take in via taxes is another mistake. Do what you can to slow down the gravy train for the few at the expense of the many. Do what you can even if it's a little. Speak to your friends and neighbors and family. Call or write a politician. Do something.

Testimony on video

My testimony starts around the 18 minute and 40 second mark:

If you keep listening, you'll get to see Elijah Cummings run roughshod over the three witnesses. We do our best but he can't be stopped. And you'll get to see Dennis Kucinich wonder who invited me because he and I agree on Wall Street and the government.

My only regret about the hearing is that when Cummings starts asking the questions and demanding yes or no, I didn't offer to answer for Romer and Bernstein.

The opening statements from Jim Jordan and Dennis Kucinich (they wrangle over the Romer and Bernstein absence) and John Taylor's statement precede mine in the first 18 minutes.

John Taylor's written testimony is superb. Clean macro. Here, along with mine and J.D. Foster's and the presenters in the second panel.

Dyson on Economics

I'm interviewing Freeman Dyson tomorrow for EconTalk. Here is what he says about climate change.

When I listen to the public debates about climate change, I am impressed by the enormous gaps in our knowledge, the sparseness of our observations and the superficiality of our theories. Many of the basic processes of planetary ecology are poorly understood. They must be better understood before we can reach an accurate diagnosis of the present condition of our planet. When we are trying to take care of a planet, just as when we are taking care of a human patient, diseases must be diagnosed before they can be cured. We need to observe and measure what is going on in the biosphere, rather than relying on computer models.

Replace "climate change" with "macroeconomics." Same problem.

New Books that I'm Especially Eager to Read

The False Promise of Green Energy, by Andrew P. Morriss, William T. Bogart, Roger E. Meiners, & Andrew Dorchak.

The Road to Renewal, by R. Richard Geddes.

Peddling Protectionism: Smoot-Hawley and the Great Depression, by Douglas A. Irwin.  (Actually, I just finished reading this superb book and will have something to say on it soon here at the Cafe.)

The empty chairs

Testified at a Congressional hearing today on the effect of the stimulus. The committee invited Christina Romer and Jared Bernstein to defend it. They declined to attend. So the committee (or presumably the Republican side of it) decided to set places for them anyway and just leave them empty. You can tell from my face that I am on the edge of my seat wondering if they'll appear at the last minute. I will post video of the hearing when it's available. Photo source and discussion is here.

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