Showing posts with label Government. Show all posts
Showing posts with label Government. Show all posts

Thursday, August 14, 2008

Rent Seeking and Baby Strollers

On July 1, a new law went into effect in Australia mandating certain mandatory consumer safety standards on perambulators and strollers in Australia. Here is the writeup in The Age, and the full ACCC writeup can be found here.

In a nutshell, the new law states that any stroller or pram sold in Australia must have a safety label warning against not using the brake and of leaving strollers unattended, a red parking brake (many companies had been using other colors, and the goal is to make them more noticeable), and a safety tether (aka jogging strap). This is ostensibly in response to a pair of accidents in recent years where parents failed to apply the parking brake while the stroller was on a hill, leading to the stroller rolling away uncontrollably into a body of water and resulting in the drowning death of the babies in the strollers.

These deaths are tragic, no doubt, and are certainly avoidable. And the new requirements are likely trivial in cost. If the stroller design is already one of a molded plastic brake, changing the color of the molded plastic is probably costless. For those that use a metal bar braking mechanism, the cost of painting, powder coating, or anodizing (depending on the metal involved) what is essentially a 2 foot long tube is likely to be trivial. And a safety tether is simply a 2 to 3 foot long nylon strap. All in all, these new features are likely to amount to little more than a couple dollars in additional costs for any given stroller. In spite of this, these regulations are misguided for a number of reasons.

The first point to be made is that the mere presence of these safety features does not necessarily mandate their use. I have a stroller with a safety tether, I rarely use it. Indeed, I'm fairly certain that an "after-market" tether can be bought at most baby stores for just a few dollars, and I doubt that most people buy them at that trivial price. I have had strollers with red brakes, blue brakes, and silver metallic brakes, and have been knowledgeable of where each of them are and how to use them (aside--if the goal is to make the brakes noticeable, shouldn't the regulation be for yellow brakes, which is after all is the color in the visible spectrum that is most noticeable to the human eye?). The upshot of all this is that one would not expect to see any significant improvement in how people operate with their strollers.

More importantly, however, are the relatively hidden costs that arise when one considers the application of this standard. Hidden in the 16 page product safety guide is the following statement:
All suppliers of children’s prams and strollers (including second hand prams and strollers) are responsible for ensuring their prams and strollers meet the mandatory safety standard.
This has two very big, very inefficient effects. The first is that any stroller not meeting these standards cannot be resold and must be discarded once a family's children can no longer use them. Strollers, however, are durable goods and are quite likely to still be of considerable value once a child grows out of it. All of this value is being discarded by the new law. The second big effect is of restricting competition in the stroller market. Because strollers are consumer durables, the ability of retailers to charge extremely high prices for strollers is limited by the competition of not only other retailers (of which there are only a few in most areas of Australia), but also of the second hand market. This law has the effect of almost completely destroying, at least for the next few years, the second hand market, eliminating a huge part of their competition.

Is it any wonder, then, that the Infant and Nursery Product Association of Australia is saying that "the industry supports this initiative?" Imagine if a law was passed that said that it was illegal to sell a car built before 2008. How do you suppose Holden and Ford would feel? It's sad that the ACCC, the Australian Competition and Consumer Commission, has such little grasp of the notion of competition.

Sunday, August 10, 2008

Bootleggers and Baptists

This BBC News article reminded me of Bruce Yandle's "Bootleggers and Baptists" theory, which is basically about the use of high-minded rhetoric to push an agenda to simply increase one's economic clout. Unless, of course, you really believe that a research institute funded by the Australian government showing that eating kangaroo instead of beef is truly only looking out for the environment.

Wednesday, June 25, 2008

Please, Keep Your Money?

As free traders appear to be winning the argument over trade v.
protectionism, I think that the protectionism of the future will look a lot more like this case, where the Australian Government has put the kibosh on Chinese mining firm Sinosteel's attempt to acquire a large portion of Australian Murchison Metals. I would imagine that, to the non-economist, there would not seem to be much similarity between restricting trade in goods and services and restricting corporate ownership. I would argue that the two are one and the same.

Why would one firm buy another one? The standard intuition is that the purchaser believes he can make a greater profit than the current owner can make, and the current owner will only sell if he is offered more than he believes he can earn in profit. How can the purchasing firm take the exact same set of resources and generate more profit? By having a better plan, or a better business model, or better corporate structure. So in the case of allowing a foreign firm to take over a domestic one, we should simply view this the domestic country importing a better plan or a better model, which is good for their economy. Increased profits will generally lead to some combination of increased output, lower consumer prices, and/or higher wages for workers in the firm.

So what is the upshot of all this? We should treat foreign investment in the exact same way as we treat international trade, meaning the less restrictions on it the better.

Monday, June 23, 2008

Warden's Recommendation

Interesting tidbit here, John McCain's "warden" at the Hanoi Hilton has endorsed his candidacy for president. I was quite amused by the last line, where the jailer disputes McCain's accusations of torture, saying "He lies to American voters in order to get their support for his presidential election.”

Just on the one issue? I think it was Orwell who told us that "politics ... is a mass of lies, evasions, folly, hatred and schizophrenia."

Thursday, June 19, 2008

Boumediene

I'm amazed that people are faulting the Supreme Court's decision in the Boumediene case...how can you fault forcing the executive be able to demonstrate to someone (other than itself!) that somebody might in fact be an enemy combatant?

Tuesday, April 29, 2008

Alcopop Tax Folly

The Australian Government's new Alcopop Tax Hike, in addition to being an unfortunate attempt at paternalism, suffers from an even greater shortcoming: failure to understand what economists call the substitution effect. It is fairly obvious that increasing the tax on the alcohol content of premixed drinks by 70% will reduce the consumption of these drinks, but the Rudd Government doesn't seem to have asked the question of where these consumers will now choose to spend their money. I'm pretty sure the answer is not bubble gum and soda pop. I'm willing to bet that we simply see a substitution away from premixed drinks into hard liquor, beer, or wine, and I'd be surprised if this substitution wasn't pretty much on a 1-for-1 basis.

Sunday, February 17, 2008

Thank God for Government Hospitals

From BBC News:

A fully-equipped hospital that lay unused for two years has burned to the ground in northern Nigeria.

"The General Hospital in Maiduguri was built in 2006 but
the state government refused to open it until the president came to cut
the ribbon. The president was due to visit the hospital next month to open it...

Borno was recently hit by a measles outbreak that killed hundreds of children [and] existing hospitals in Borno are poorly equipped and overcrowded. Angry residents ... gathered around the burned hospital and shouted abuse at the alleged arsonists, local papers reported..."

--snip--

One question: It's understandable why they are mad at the arsonists, but why not be mad at the government? It seems to me that the politicians willing to let hundreds of people die (And in all likelihood it is probably way more than just the hundreds from the measles outbreak) in order to satisfy their demand for political grandstanding is the real problem here.

Sunday, February 10, 2008

Stimulate This!

I previously blogged about the Bush Stimulus package, and it looks like a stimulus bill has just passed by a considerable margin. I just wanted to add a few comments to my initial points:

  • Government induced economic stimulus can not work when the government is attempting to stimulate the economy through increased government spending, as this simply represents a future tax burden.
  • Government induced economic stimulus is meaningless if they are simply offering temporary benefits and tax reductions--at best you can hope to push the problems of today into the future.
  • Real economic stimulus occurs by permanently relaxing government intervention into the market.

Wednesday, February 6, 2008

And what if I don't like either choice?

I spoke earlier of the changes in the works at the ABC. Today, they have announced a number of changes in the services they will have on offer, including adding another channel and increasing the variety of programmes on offer. This sounds nice. After all, any free market economist will tell you that choice is good! However, markets work not just by offering you choices, but by rewarding producers who offer good choices and punishing producers who offer crappy choices, because after all, producing another option for you to choose among entails a cost. It's not the addition of more choices that drives markets to efficiency, it's the market process of entrepreneurs identifying an unmet demand that they can provide at a profit that drives markets to efficiency.

Sure, it's entirely possible that the new programming offered by the ABC could potentially earn a profit, and thus be efficient. It could be that there is an unmet demand for televised Australian ballet and opera, and the ABC is the entrepreneur that the market needs to provide this content. Or it could be that it simply is not worth the cost. My money is on the latter, and that we'll see the subsidy to the ABC rise as a result.

Tuesday, January 29, 2008

The $800,000,000 squiggle

The Australian Broadcasting Corporation has just announced that they are revamping their logo. I'm glad they issued a press release because I might never have noticed, regardless of what the new logo ultimately will be. The simple fact is that I almost never watch the ABC or the ABC2. I think in the past year my wife and I combined to watch one episode of Summer Heights High. Yet how much do I pay for it? According to their financials, the ABC lost around $800M last year (which the government chipped in to make up the difference), which makes my household bill at least $80, and probably much more. So for the pleasure of watching the ABC, I pay approximately $80 per hour. Meanwhile, I've never paid a dime to Seven, Nine, or Ten, and yet get a lot more viewing pleasure out of those channels.

There is very little justification for the government to provide goods and services that a market would provide anyhow, and markets have absolutely no problems providing the goods the ABC provides (radio, television, and internet programming). Moreover, the evidence is that the ABC does what they do rather poorly, routinely getting about half the viewership of the "big-three" channels. In the modern world, the only reason why the government should own any media outlets is that they want to be able to engage in thought control, like the third world military rulers and middle eastern theocratic dictators who control the press for that very reason.

Privatize the ABC. Not only would you save the taxpayers some money, but whoever takes over the ABC couldn't help but improve the programming, giving consumers a better variety of programs for their enjoyment