Tuesday, February 28, 2006

Free Market vs. Corporate Tax Breaks

Tax breaks are anti-liberty, anti-free market, and here's why.

Take two states, areas, X and Y. GenericCorp is located in X. Lately, the cost of business for GenericCorp in X has increased, and unless something changes, GenericCorp will start losing money. While X has a tight labor market, Y has a fast-growing population and a weaker labor market. If GenericCorp moves to Y, the lower labor costs will allow GenericCorp to actually make money, plus they can afford to expand their operations and hire even more people than they employ in X.

But the people in fancy hats in X don't want their sugardaddy GenericCorp to move out of town, especially on their watch. So they offer a big tax break to GenericCorp to stay in X. The tax break is more than enough to keep GenericCorp profitable, so GenericCorp stays in X.

Who wins in this scenario? The people that live in X that work at GenericCorp, the fancy-hat-wearing incumbents of X, and maybe some auxillary businesses near GenericCorp (like restaurants and gas stations).

Who loses? The taxpayers of X that don't work at GenericCorp (who far outnumber those who work at GenericCorp) and the people in Y that would have worked at GenericCorp if they would have moved. And how do you think the smaller businesses in X feel? Together, they employ far more people than GenericCorp, but they have to pay a higher tax rate.

What's the end result? To use a clichet, the rich get richer and the poor get poorer. GenericCorp stays in X, continuing to pay inflated wages to the people that work there, while the people in Y struggle to find jobs that meet their skill level. Moreover, X has now become, to put it bluntly, GenericCorp's b*tch. What do you think's going to happen when the original tax break given to GenericCorp expires? Do you think GenericCorp is going to suddenly start paying the regular tax rate? Fat chance. GenericCorp will threten the fancy-hats of X, and they'll capitulate. And the spiral continues...

Look, tax breaks are a de facto tool of discrimination. Those that can afford to curry political favor get advantages the rest of society doesn't get. A free market doesn't discrminate. Unfair as it may seem, a free market lets jobs flow to wherever they're most valued, both by the empolyer and the employee. The free market allows society to trend toward an equilibrium. Tax breaks, along with other evil market-distorting twin public subsidies, delay that equilibrium from being reached.

What if metropolitan areas had "traffic breaks?" Imagine if the rich and powerful lobbied the government to limit access to the freeway they use during rush hour so that their commute could be swift and stress-free? Sounds great if you're rich and powerful. But what if you're part of the 98% of society that's not? Well, since access to the freeway of the rich is restricted, all the other freeways back up. Everybody else's commute gets way worse because the system is not allowed to reach equilibrium.

Anyway, the whole reason for this convoluted story is that later this year, the Supreme Court is going to rule on a case from Ohio, wherein an everyday taxpayers challenged the state's authority to grant a huge tax break to Daimler-Chrysler to keep a Jeep factory near Toledo. Here's a good article about it. This case is interesting because it's one in which the commerce clause could actually be used to increase liberty.

Friday, February 17, 2006

Municipal wireless

Okay, so municipal wireless. On the surface, it sounds like a great thing. Decently-fast access to the internet anywhere within a city...why not?

Of course, I'm naturally skeptical of government involvement in anything (as we all should be; after all, it's our money being spent), and municipal wireless is no different. What I'm absolutely opposed to are city-run projects, such as the one in Chaska, MN. Philadelphia was going to set up their municipal wireless like this; however, they've since decided to work with Earthlink.

Such arrangements, where a city contracts with some private company to build a wireless network, don't really seem all that bad. The Philadelphia plan is intriguing because Earthlink will provide wholesale service that will be resold to [I assume a variety of] ISPs that then offer retail service. That's the idea, at least.

At first, the Philadelphia plan, which seems pretty similar to ones conceptualized for Minneapolis and Chicago, reminded me of local cable TV monopolies. For cable TV, a city grants local monopoly powers to some cable company (like Charter, Time Warner, Comcast, etc.) for some fee, and then the residents of that city can only get cable through that one company. The justification for this monopoly-grant system is, presumably, that it's unreasonable and inefficient for competing companies to build physically duplicate cable networks. Interestingly, Barry Goldwater is responsible for the federal legislation that made this possible. (Sidenote: apparently there was a bill in Congress to reform this monopoly system. I don't think it passed, and it was opposed by the National League of Cities presumably because cities get revenues from cable company monopolies)

Anyway, at first, this is what I thought cities like Philadelphia were going to do. But upon further contemplation, I don't think the Philadelphia plan is all that bad.

In the Philadelphia plan, Earthlink will get right-of-way access to city streetlights and electricity for mounting and powering their equipment. This appears to be the only favor Earthlink is getting from the city. There's more to the relationship then that, but some of it involves Earthlink offering discounted prices for the city and poor residents. According to the Earthlink press release:
Under the terms of the proposal, no City or taxpayer dollars will be used to fund the project. EarthLink will finance, build and manage the wireless network, and provide Wireless Philadelphia with revenue sharing fees to help support the Wireless Philadelphia Non-Profit Corporation.
So, from what I gather, there's no reason some other company couldn't build their own wireless network (Wi-Fi or otherwise). The use of city streetlights and power is not a negligible benefit, but it's not as bad as a cable TV monopoly. Plus, the fact that retail service will be provided competitively should mean that consumers will have choices, something consumers don't have with cable TV monopolies.

The big question for me is this: If a company like Verizon wanted to buid an independent, duplicate citywide network in Philadelphia, would the city prohibit it? If they would, then the Philadelphia plan is too much like the cable TV monopoly system that gouges people today and I don't like it.

However, if the city wouldn't prohibit an independent competitor, then I guess I support the plan, despite the fact that government is involved on some level. But since wireless internet access increases mobility (socially and physically) and will likely expose more people to the information of the internet, I think the net benefit is more liberty, which is good.

I sent an email to www.wirelessphiladelphia.org and, somewhat to my surprise, actually got a response. Here's what I wrote to them:
Me (2/18/06)
I'm interested in citywide wireless systems (Minneapolis, where I live, will be getting one soon), and I have a question about the Philadelphia system.

If a competing company (say for example, Verizon) wanted to build a duplicate, independent citywide network in Philadelphia to compete with Wireless Philadelphia/Earthlink's network, could they? In other words, has Earthlink been granted any sort of local monopoly with Philadelphia?
and here's their response:

Them (3/9/06)
Thank you for your interest. EarthLink has not been given a monopoly. Please see the contacts on www.wirelessphiladelphia.org.
Well, it looks like Earthlink doesn't have a monopoly. That's great!

UPDATE: For comments, see the original post here.

Monday, February 13, 2006

Where do they get all the flags?

This post is a little late, but the issue has remain unresolved. How do protestors in the Middle East get all the flags? Seriously, Danish flags? I wouldn't know where to get one of those in the US. I bet they're hard to find in Denmark.

I mean, do stores in the Middle East keep stockpiles of flags, just in case? Sure, I can see keeping a healthy stack of Ol' Glory around. I mean, hardly a week goes by when you don't see footage of an American flag being burned. But Danish flags? Is there some flag maker in the Middle East that can switch patterns at a moment's notice? Have sales of Danish flags in the Middle East surged over the past couple weeks? Maybe there'll be price-gouging hearings by Middle Eastern governments on the sudden increase in the price of Danish flags.

Sensible solution to open internet debate

At Hammer of Truth, Stephen Gordon's post about the open internet debate does a good job of summarizing the various positions on the issue.

My take on the issue is that overall, a so-called open internet is extremely good. The behind-the-scenes network should be invisible to end-users, and anyone anywhere should be able to access any website.

But instead of making a whole new set of laws that require companies to do this, why not just say this: Companies that restrict their end-users' ability to access website from another ISP lose their government-enshrined monopoly protection.

What a waste...

Government drug agents arrest government terror agents for smuggling drugs outlawed by government.

Seems like things might be a lot simpler without one of the above ingredients.