Category Archives: Monopolies

Tesla Whines About Protectionist Legislation for Auto Dealers While Using Government Largesse to Compete

Last week, I wrote about rent seeking auto dealers lobbying for protection from competition with manufacturers utilizing direct-to-consumer sales models. I mentioned direct-to-consumer manufacturer Tesla by name, and suggested such legislation would prevent consumers from enjoying the savings that might otherwise be realized from Tesla’s efforts to “eliminate the middle-man.”

I should have taken the opportunity to address Tesla’s own abundant receipt of government largesse.

And to be clear, “government” largesse is always paid for by the taxpayers.

In a piece entitled “If Tesla Would Stop Selling Cars, We’d All Save Some Money,” Forbes contributor Patrick Michaels details all the ways Tesla benefits from government handouts. Michaels concludes that taxpayers shell out $10,000 for every car Tesla sells.

Michaels starts with a claim that purchasers of Tesla vehicles receive a $7500 “taxback bonus that every buyer gets and every taxpayer pays.” Since the tax credit appears to be non-refundable, I would not count it as a cost to other taxpayers, as Michaels does.

But the federal tax credit is only the tip of the crony capitalist iceberg for Tesla.

There are also generous state subsidies paid by taxpayers to the wealthy people who buy Tesla’s expensive vehicles. Purchasers in Illinois, for example, can receive a $4,000 rebate from that state’s “Alternate Fuels Fund,” a $3,000 rebate to offset the cost of electric charging stations, and reduced registration fees. California likewise offers a long list of rebates and subsidies to buyers of electric vehicles.

One of the hidden costs to consumers comes in the form of the increased price tag on cars sold by manufacturers who do not qualify for California’s mandated emissions credits, which they instead have to buy from Tesla, allowing it to earn a profit despite selling cars at a massive loss. As Michaels explains:

Tesla didn’t generate a profit by selling sexy cars, but rather by selling sleazy emissions “credits,” mandated by the state of California’s electric vehicle requirements. The competition, like Honda, doesn’t have a mass market plug-in to meet the mandate and therefore must buy the credits from Tesla, the only company that does. The bill for last quarter was $68 million. Absent this shakedown of potential car buyers, Tesla would have lost $57 million, or $11,400 per car. As the company sold 5,000 cars in the quarter, though, $13,600 per car was paid by other manufacturers, who are going to pass at least some of that cost on to buyers of their products. Folks in the new car market are likely paying a bit more than simply the direct tax subsidy.

Slate’s Scott Woolley details another way in which Tesla has cost taxpayers money. In 2009, Tesla received a $465 million Department of Energy loan that allowed it to weather a financial maelstrom. Unlike Solyndra (and Abound Solar and Fisker Automotive and The Vehicle Production Group LLC), Tesla managed to repay the loan in 2013. According to Michaels, it did so by reporting its first ever quarterly profit (earned from the sale of the emissions credits), which sent its stock soaring and enabled it to borrow $150 million from Goldman Sachs, and then issuing a billion in new stock and long-term debt.

But Tesla paid the U.S. taxpayers back at a rate far below what venture capitalists would have earned on the same loan. As an example, Tesla’s CEO Elon Musk also made a loan to Tesla. Musk got a 10% interest rate and options to convert the debt to stock, which he did, resulting in a 3,500% rate of return on his investment.

In contrast, the U.S. taxpayer received a 2.6% rate of return.

In other words, in our crony capitalist system, taxpayers take the loss on bad loans like the one to Solyndra, but do not enjoy commensurate reward on good loans like the one to Tesla.

But there is still more. Tesla cannot keep earning emissions credits, which allow it to earn a profit despite selling its cars at a loss, unless it can keep selling those cars. Josh Harkinson, writing for Mother Jones, writes that:

Its first-quarter profit, a modest $11 million, hinged on the $68 million it earned selling clean-air credits under a California program that requires automakers to either produce a given number of zero-emission vehicles or satisfy the mandate in some other way. For the second quarter, Tesla announced a $26 million profit (based on one method of accounting), but again the profit hinged on $51 million in ZEV credits; by year’s end, these credit sales could net Tesla a whopping $250 million.

Tesla’s ability to continue selling the cars that earn the credits is in question. The market for $80,000 cars has a limited number of buyers. Tesla must expand its customer base with a more affordable product.

One way to achieve that would be to cut the vehicle’s range. But subsidies, credits and fuel savings notwithstanding, consumers have little taste for lower ranges—even at a much lower price. Another way for Tesla to lower the cost of its vehicles is to cut the cost of its batteries without sacrificing the range. As Harkinson observes:

That, however, may again depend on massive subsidies—in this case funding to battery researchers and manufacturers by the governments of Japan and China. Over the past five years, Japan’s New Energy and Industrial Technology Development Organization, a public-private partnership founded in 1980, has pumped roughly $400 million into developing advanced battery technologies. Tesla’s Panasonic cells also might be pricier if not for subsidies the company received to expand its battery plants in Kasai and Osaka.

When Republican Gov. Rick Snyder signed the bill reaffirming Michigan’s protectionist legislation for traditional automobile franchise dealers, auto blog Jalopnik reported GM’s position as follows:

“Competition is always healthy,” GM spokeswoman Heather Rosenker tells Jalopnik. “But it needs to be on a level playing field.”

In the context of the substantial aid Tesla receives from federal, state and foreign governments, it is easier to have some sympathy for the plight of traditional manufacturers—and their dealers.

Ultimately, that sympathy shines a spotlight on the problems created when government starts “tinkering” in the market. Inevitably, that initial, well-intentioned tinkering necessitates ever more intrusive secondary tinkering aimed at remediating the unintended side effects of its initial foray into the market.

Consider health care. Inflation in the cost of U.S. health care began to outpace the general rate of inflation when the government began subsidizing health care costs. Nobel laureate economist Milton Friedman has estimated that real per capita health spending is twice what it would be in the absence of third party payments, and that Medicare and Medicaid are responsible for 43% of that increase. The remaining portion can be blamed in large part on the third party payments from mandated employer health care coverage, further separating patients from the cost of their care and eliminating the market forces that would otherwise keep costs down. Add to the foregoing the government-enforced monopolies on health care education, leading to 22% fewer medical schools in the United States now than one hundred years ago, despite a 300% increase in population, and attendant provider shortage. All that well-intentioned tinkering created a whole host of ugly, unintended side effects, necessitating more tinkering. The federal government responded with the Affordable Care Act and its accompanying thousands of pages of new regulations.

Everywhere the pattern repeats. The cost of higher education outpaces general inflation precisely because the government wants to help people pay for it. The unintended side effect is increasing numbers of graduates with useless degrees and few job prospects, necessitating further tinkering in the form of loan relief, jobs programs and minimum wage hikes. The Federal Reserve suppresses interest rates to artificial lows in the well-intended effort to speed recovery from the bust of the dot-com bubble. The unintended (in this case, it may actually have been intended, at least by Paul Krugman) side effect is a new bubble in housing. When that bubble bursts, the government must step in to bail people and banks out of their bad investments, create new bureaucracies and new regulations making it harder for people to qualify for loans (in contrast to previous tinkering designed to make it easier).

Lather, rinse, repeat.

I am not a radical free-marketer because I dislike poor people or have a special love for corporations. I am a radical free marketer because I know no amount of tinkering ever produces results as beneficial as what the market produces, naturally and efficiently, all on its own.

Sarah Baker is a libertarian, attorney and writer. She lives in Montana with her daughter and a house full of pets.

Atlas Shrugged Part II in Theaters This Weekend

Atlas Shrugged Part II is opening this weekend. Want to check it out? Follow this link to find a theater near you.

And now, the official Atlas Shrugged Part II trailer:

Accountability, responsibility, risk, metrics, unions, markets… What about education?

As has been discussed here recently, Chicago teachers are striking, even though they already make an average salary nearly double that of the average Chicago family, and are being offered a 16% raise over four years.

I dunno about you, but as a free market partcipant in our economy today, that sounds like a pretty good deal.

Well, first thing is they’re asking for a 30% raise over four years… but that’s really just a negotiating point, and one they don’t expect to get. If it were just about the raise, I’d guess they’d take the 16%.

It’s not.

It’s not really about the money; it’s that the teachers new contract attempts, in even the tiniest way, to add some accountability and performance measures to the teachers contracts.

… and the teachers unions can’t give even a millimeter on this issue. Not one millimeter, not ever. Because if they do, their rigid seniority system collapses, and they lose power.

Here’s a fun fact: a lot of younger teachers don’t mind the idea of performance standards, and they actually LIKE the idea of merit pay, performance bonueses etc… It’s not a foreign idea for them, because all their friends who live in the real world market economy have that sort of thing.

Recently, in Idaho, the commissioner of education managed to get teacher tenure eliminated, and performance based bonuses (note, not performance based salaries or hiring or firing, just bonuses) passed as commission regulations, and then when they were challenged in lawsuits, via statute approved by public referendum.

In response, the teachers unions sponsored an unsuccessful attempt to have the commissioner (who is now serving as one of the two lead advisors on education to the Romney campaign) recalled. So unsuccessful in fact the numbers indicate basically no-one voted for the recall but teachers and their immediate families.

This year, they managed to get enough signatures together to get a repeal effort on the merit pay rules on the ballot as a referendum; polling on which indicates it will fail miserably. Meanwhile, the teachers unions are both suing to prevent the policies from being implemented AND SIMULTANEOUSLY suing to force the department of education to distribute the bonus money, but on a seniority basis.

Trying to have their cake and eat it too.

I don’t understand how much more clear it could be that this has nothing to do with the wellbeing of our children, or about good teachers; it’s about protecting union rules, and union rule…

BUT, there are certainly good, well meaning people, who really do believe that we shouldn’t put performance standards on teachers… That it’s somehow “unfair” or impossible, or just not a good idea etc…

“You can’t hold teachers accountable for the performance of their students, there’s too much they can’t control. Their home lives, their parents, poverty… Good teachers could be penalized simply for having bad students). It’s not fair”

Common refrain from teachers, and from those who support their position in this… After all you wouldn’t want to be evaluated on someone elses efforts and abilities right?

Well… I am. Most likely you are too.

In the free market, we are held accountable for other people performance and decisions etc… all the time.

As an individual contributor, my performance is measured not only by my own efforts, abilities, and success; but that of my group, my manager, and my company as a whole.

As a manager, I am held entirely accountable for someone elses performance. I have tools to motivate them, help them perform better etc… But still, I have to deal with the performance that other people give me. I have to have the skill to use that performance in the best possible way.

“But you can fire your low performing employees”.


Ever worked in corporate America? Or had a real job of any kind?

So long as my employees meet bare minimum standards, and don’t actually commit a crime (or violate major HR policies), I’m not getting rid of my low performers. It’s up to me, to make them meet the standards I need for my group to be successful.

In sales, you are held accountable for other people actions, decisions, and performance as well. You don’t get to control your customers decisions, and how much they buy from you is dependent more on their performance than yours.

Yes, a skilled salesperson with a good support team will sell more than an unskilled one; and that’s as it should be… but its still entirely dependent on someone elses performance and decisions. A good sales guy can’t get a customer who doesn’t have the money for the product, to buy the product… or at least not more than once.

Good sales managers understand this. They set account and territory sales expectations based on a reasonable evaluation of the possible performance of those accounts. If they don’t then they won’t get any decent sales people to work for them, and they’ll constantly churn sales people making these accounts and territories perform even worse.

What matters in evaluating your ability as a salesperson isn’t your absolute sales, it’s your performance in comparison to other sales people with a similar situation. IF you perform well, then good managers will put you on difficult accounts that have the potential to perform better, and reward you if you make them perform up to potential.

At least if you have a decent management team.

At that point you’re at the mercy of having a good boss, who understands that relative performance is a better judge of your capability than absolute performance…

Just like teachers need to be.

Holding teachers accountable, doesn’t mean that all teachers should be held to arbitrary and universal standards. Teachers that teach all “remedial” students can’t be held to the same standard of performance as those who teach all honors students…


Or at least no-one serious, with credibility, who should be listened to.

Calling for “standardized testing and accountability” isn’t calling for teachers to make poor students perform at the level of honors students. It’s calling for teachers of all levels of students to perform no worse than average against other teachers of similar levels of students; and to measure improvement in those students over time, compared to other teachers of the same level of students.

How is that unreasonable?

Only those with the irrational… even stupid… belief that teaching is some kind of special “calling” performed only by special people who must be protected from the market forces that the rest of us must cope with; could possibly justify that sort of thinking, with any kind of intellectual honesty.

They generally apply the same sort of thinking to artists, who must be protected from the horrible taste of the masses etc…

Yeah… If we did that, then teachers would be at the mercy of having competent managers, who knew how to evaluate performance.

Just like the rest of us.

In fact… The only time I ever see a serious proposal that teachers should be evaluated by absolute and arbitrary standards… It’s coming from lefties or teachers; because they are trying to “avoid bias” or “avoid subjectivity” etc… etc… etc…

Holding teachers accountable also means holding administrators and school systems accountable. It means making them participate in the market that the rest of us are forced to.

If you have a poorly managed school, good teachers won’t go there.

IF good teachers won’t go there, then good students won’t go there… IF they’re given the option that is…

Oh… wait a second… Hey… that might just be…

And of course, if we allowed that, then the unions would lose…

Oh… hey, that might just be…

Ya think maybe…

Teaching is a job, just like any other. It’s a job that has more benefits than most. These days, it’s even a job that pays more than most. It’s a job that has a lot more security than most. It’s a job that has more garbage and BS and heartbreak than most. It’s a job that’s harder than most. It’s a job that’s a lot more important than most…

Great teachers can do more to help children be successful than anything other than great parents…

But it’s still a job.

Teachers aren’t superheroes, they aren’t artists, they are workers… just like the rest of us.

Teachers don’t need to be protected from the real world, they need to be a part of it, and accountable to it… just like the rest of us.

Maybe if they were, there would be a lot more good teachers, and a lot less bad ones.

Maybe if they our were, our children would be a lot better off.

I am a cynically romantic optimistic pessimist. I am neither liberal, nor conservative. I am a (somewhat disgruntled) muscular minarchist… something like a constructive anarchist.

Basically what that means, is that I believe, all things being equal, responsible adults should be able to do whatever the hell they want to do, so long as nobody’s getting hurt, who isn’t paying extra

Book Review: Slackernomics, by Dale Franks

Those of you that have been around the libertarian blogosphere for any length of time will recognize the name Dale Franks. His main writing gig is over at QandO, where he spends the bulk of his time writing about the economy. In addition, he’s a bit of a gunblogger, and runs a separate blog for motorcycles.

At one point a few years ago I had noticed a link to a book Dale has written called Slackernomics: Basic Economics for People Who Think Economics is Boring. Given that I’m not the type who thinks economics is boring, but had enjoyed his blogging, I wanted to get a chance to read it. At that time, the book was only available in print at a price above $20. It took a spot on my “buy when I get around to it list”, and sat there for quite some time, but I never pulled the trigger. Then, more recently, it became avaiable for the Kindle at only $2.99 — I no longer had an excuse not to buy it. So onto the Kindle it went, and after several long months of sitting there taking up space, I’ve finally gotten around to reading it.

Slackernomics is a primer on basic economic theory that, as the title suggests, is written for people who think economics is boring. It’s written in a convivial tone, and the illustrative examples that Dale uses reminds one more of Freakonomics than of Adam Smith. Don’t let that fool you, though — the book is not a “sideshow” like Freakonomics — it gets to the heart of the matter. I liken it to be similar to Henry Hazlitt’s “Economics in one Lesson”, but written for people who may not be interested in the more formal writing style of Hazlitt. In addition, having been written many decades after Hazlitt’s book, it’s obviously much more up to date.

The book covers everything from price theory, minimum wage & rent control to monetary theory and the business cycle, Keynesianism, taxes / deficit spending, savings & investment, and economic statistics. He continues with a great defense of free trade and a bit of entrance into politics (touching a tad on public choice theory). In all, for being a relatively short book, he hits all the major notes that anyone looking for an introduction to economic thought would need to learn.

But the big question, for readers of this blog, is whether it’s worth it to buy. “Am I going to learn anything new?” And I can honestly say that despite the fact that I read economic books & blogs for leisure, and that I’ve blogged a fair bit about economics myself, I learned some new things from Slackernomics. Dale’s fourth chapter, unwinding the mess of the myriad of economic reports and statistics he’s constantly posting on Twitter, Google+, and at QandO, was wonderful. I’ve looked at many of these reports merely reading analysts *reaction* to the numbers (Higher jobless claims? How unexpected!), but rarely understood which group (public or private) was putting out certain reports nor how they all fit together. For me, a layman who is conversant on a lot of economic theory but not as perhaps on the technical reports, I have never seen an explanation of the reports that come out each week and each month as simple and readable as that chapter. That was more than worth it for my $2.99.

So my recommendation is simple: at $2.99, if you have a Kindle (or a device with a Kindle app), it’s hard to pass it up. You’re almost assured to get your money’s worth from the book. Even further, if you know someone in high school or college that may not have received good schooling in economics (which is, unfortunately, most of them), and who isn’t exactly about to tackle The Wealth of Nations, find a way to get them a copy of Slackernomics. Dale’s writing style will keep them interested.

All in all, it’s a book that lives up to its title, and goes well beyond.

If The Gov’t Doesn’t Pick Up The Trash, It’s Rat-Infested Black Plague For Us All

It seems that Radley Balko has gone playing whack-the-left again, this time smacking around John Cole of Balloon Juice for an overreacting tirade against people who are overzealously overreacting. It seems that Fountain Hills, AZ had competitive trash pickup, and the city council wanted to bid out trash pickup as a single-provider city service instead. The people of Fountain Hills reacted like a bunch of 1950’s anti-communists, calling it socialism and likening it to Obamacare. John Cole and his comment section went ape-shit, in the original post and follow-ups here and here.

Quite a few commenters suggested that if we don’t have municipal trash collection, we’ll look like third-world countries where people just bury, burn, or leave their trash out on their property to rot. Strangely, I hadn’t heard a single report of uncollected trash in Fountain Hills leading to this change. Even more fun, one commenter proved the old adage that everything that’s not compulsory shall be prohibited:

Actually, oddly I agree that cities shouldn’t have uniform trash pickup, if only because I think we should move towards having zero waste as individuals. (Reusable bags for food, no consumer goods, and composting.)

I couldn’t have drawn up a caricature this flat if I’d had a projector to trace it with on my wall.

So why am I wading into this morass? Because I’ve actually lived this. One of the features of competitive services is that if they don’t live up to my guidelines, they don’t get my business.

When I first moved to Georgia, I lived in unincorporated Cobb County, where there was no monopoly muni provider of trash pickup*. There were about 3 or 4 competing services. I ended up choosing one, and despite repeatedly saying they’d deliver a trash can, they neither did so nor did they haul away my trash. Now, I don’t think they’re a bad company. I think they just had a few repeated screwups. As we all know, occasionally government has screwups, like raiding the wrong address for drugs, or putting 8-year-olds on TSA no-fly lists. Unlike government poor service, though, I had, and took advantage of, the right to fire them. When my needs weren’t being met, I had an alternative.

The problems didn’t quite end there, of course. I then received a bill for “set-up fees” for the account, despite the fact that they’d never provided services. Rather than face collections, I paid the bill up front, and then sent an email to their customer service demanding it be refunded. They quickly and cordially acceded to my request, with no hassle whatsoever.

You can just ask the same Radley Balko how easy it is to get money he’s owed from the government, even when he’s done everything right and hounded them repeatedly for an explanation.

Municipal trash service isn’t really the hill to die on for a libertarian. It’s one of those services that straddles the line of public good vs. private market. Our HOA actually debated whether to consolidate to a single provider, as some of the families in the neighborhood were concerned about large trucks coming through on multiple days rather than a single day. It didn’t happen (at least during the 2 years I’d lived there), but I understand the argument and even as a libertarian I wouldn’t have moved out of the neighborhood over such a small issue. The best-run competitively-bid single-provider service can probably achieve economies of scale and efficiency that a competitive market (in this case) cannot — which of course isn’t to say that local governments always provide the best-run single-provider system. But it’s ridiculous for those opposing a competitive system to suggest that it doesn’t work, or that there aren’t actual benefits to customer service in a competitive system.
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