Thursday, September 30, 2010

Clip of the Week

It's Thursday, and thank God it is. Because that means it's time for the Clip of the Week, and no more ranting on China. I'm sure you've all had enough of that by now.

This week's Clip of the Week comes from the Jimmy Fallon Show, and it's fantastic. If you have even a passing interest in rap/hip-hop, you'll enjoy it.

I can't imagine how much time these guys spent rehearsing, and Fallon is especially impressive. (Also, the band backing them up is The Roots, which was the initial excuse for this whole bit to begin with). Good stuff.

Uh oh... (more from Mish on the trade wars)

I heavily excerpted a Mish Shedlock blog post in my last post, so that I wouldn't personally have to go ballistic in a full-on rant against ill-advised tariffs on Chinese goods and the trade war they will create (I might yet, stay tuned).

In a separate blog post, Mish points to a Bloomberg article that hints at a potentially insidious side effect of our posturing against China. Per Bloomberg,
A generation after Chinese leader Deng Xiaoping made mastering neodymium and 16 other elements known as rare earths a priority, China dominates the market, with far-reaching effects ranging from global trade friction to U.S. job losses and threats to national security.
The U.S. handed its main economic rival power to dictate access to these building blocks of modern weapons by ceding control of prices and supply, according to dozens of interviews with industry executives, congressional leaders and policy experts. China in July reduced rare-earth export quotas for the rest of the year by 72 percent, sending prices up more than sixfold for some elements.
Military officials are only now conducting an inventory of where and how U.S. suppliers use the obscure but essential substances -- including those that silence the whoosh of Boeing Co. helicopter blades, direct Raytheon Co. missiles and target guns in General Dynamics Corp. tanks.
“The Pentagon has been incredibly negligent,” said Peter Leitner, who was a senior strategic trade adviser at the Defense Department from 1986 to 2007. “There are plenty of early warning signs that China will use its leverage over these materials as a weapon.”
Great. Now not only does the trade war with China pose significant risks to our fragile economy, it also compromises our national security. These rare earth elements, in addition to guiding laser-guided missiles, are also critical components in solar panels and motors for hybrid cars, meaning that the impact of a trade war on our economy could be even more far-reaching than we may appreciate.

Seriously, folks, before initiating a trade war with China on shaky economic grounds, think very long and hard about the long-term consequences. We don't have NEARLY the amount of leverage with China that we think we have. Or, as "Tyler Durden" over at the Zero Hedge blog so diplomatically said,
Somehow, because [the tariffs bill] was framed as a "jobs issue", everyone in Congress went full retard and confirmed they have not the first clue about how Economics actually works. But yes, please revalue the Yuan: the next thing will be exploding prices at Wal Mart, which have so far successfully masked the fact that the US has been exporting staple product inflation. We wonder how those same "workers" on whose behalf this law was allegedly passed will feel when their bill anywhere is double what it used to be... Not to mention that their currently unemployed status will certainly not have changed.
Couldn't have ranted better myself. Posture against China, force corporations to export all our labor to the next cheapest alternative like Vietnam or Germany (because it sure as hell isn't the U.S.), create price inflation without actually creating or saving any jobs, and compromise national security in the process. That's amazing work, really it is. That's why we pay you the big bucks, D.C.

[Zero Hedge]

Begun the trade wars have

I've already written extensively on globalization and China, but with the House overwhelmingly voting yesterday (by a bipartisan 348-79 margin) to pass a bill favoring the imposition of tariffs on Chinese imports, I feel it's necessary to follow up. The election-year rhetoric in D.C. is now hitting a fevered pitch over this issue, as the Financial Times notes:
“They cheat to steal our jobs,” said Mike Rogers, a Republican from Michigan, while Dana Rohrabacher, a Republican from California, attacked China’s “clique of gangsters” that was doing “great damage to the people of the United States of America”.
Since I've already made my thoughts on this mess fairly clear, this time I'll let some others do the talking, beginning with economist Michael Hudson, who cites six crucial economic errors--not all of which I'll excerpt--behind the anti-China rhetoric. (Hudson's article, while long and economically dense, is exhaustive and a must-read. Also, all emphasis is mine).
It is traditional for politicians to blame foreigners for problems that their own policies have caused. And in today’s zero-sum economies, it seems that if America is losing leadership position, other nations must be the beneficiaries. Inasmuch as China has avoided the financial overhead that has painted other economies into a corner, nationalistic U.S. politicians and journalists are blaming it for America’s declining economic power...
[Princeton and L.S.E.] Professor [Paul] Krugman describes China as “deliberately keeping its currency artificially weak. … feeding a huge trade surplus,” adding that “in a depressed world economy, any country running an artificial trade surplus is depriving other nations of much-needed sales and jobs.” In his reading the problem is not that America has let its economy be financialized, or that easy bank credit has bid up housing prices for American workers and loaded down their budgets with debt service that, by itself, exceeds the wage levels of most Asian workers. “An undervalued currency always promotes trade surpluses,” he explains.

But this is only true if trade is “price-elastic,” with other countries able to produce similar goods of their own at only marginally different prices. This is less and less the case as the United States and Europe de-industrialize and as their capital investment shrinks as a result of their expanding financial overhead ends in a wave of negative equity. To assume that higher exchange rates automatically reduce rather than increase a nation’s trade surplus is Junk Economics Error #4. It is a tenet of the free market fundamentalism that Prof. Krugman usually criticizes, except where China is concerned...
Wall Street’s idea of “equilibrium” is that if only foreign countries would commit financial suicide along the lines that the United States is doing, then global equilibrium could be restored. But the most successful economies have kept their FIRE-sector [Finance, Insurance, and Real Estate] costs of living and doing business within reasonable bounds, and are not remotely as debt-leveraged as the United States. German workers pay only about 20% of their income for housing – about half the rate of their U.S. counterparts. German practice is not to make 100% mortgage loans, but to require down payments in the range of 30% such as still characterized the United States as recently as the 1980s.

The FIRE sector’s business plan has priced U.S. labor out of world markets. There seems little likelihood of making Chinese and German workers pay rents or mortgage interest as high as the United States. How can American economic strategists force them to raise the price of their college and university tuition so that they must take on the enormous student loans of the magnitude that Americans have to take on? How can they be persuaded to follow the high-cost U.S. practice of adding FICA-type wage withholding to the cost of living to save up pensions, Social Security and medical insurance in advance, instead of the pay-as-you-go basis that Germany quite rightly follows?
In other words, as I've said before, we export our labor to China not because of exchange rate manipulation, but because U.S. labor rates are simply too high. If we impose tariffs on China, global corporations will simply choose to outsource their labor to Vietnam, India, or even Germany. Anywhere but here.

This is where I will pass the baton to Mish Shedlock, of Mish's Global Economic Trend Analysis. In excerpting the same Hudson piece that I excerpted, Mish writes that:
Another Krugman flaw is that he seldom if ever looks at the consequences of what he proposes. Even IF manufacturing jobs returned to the US after tariff hikes, it would be at the expense of dock workers unloading ships, truckers hauling goods from coast to coast, and most importantly higher prices for consumers everywhere. Higher prices are not a good thing. Higher prices would benefit the few whose jobs were saved, at the expense of everyone else. Higher prices also benefit governments that take a sales tax bite out of every transaction and squander it on needless projects...
Inflation is the one and only endgame of any tariff action. Corporations will face higher input prices, and will pass those hikes on to the consumer. Even if we do create jobs (which is questionable), the 90% who are currently employed will see a complete erosion of their purchasing power as inflation takes hold.

Mish goes further, engaging in an exercise that attempts to fully understand the repercussions of our government's actions, even if exerting pressure on China proves "successful".
Here's a thought test. What would happen if China raised prices 20% across the board via an export tax or reevaluation of the Yuan, starting tomorrow?

For starters, the Chinese economy would implode overnight along with collapsing exports. US importers such as Walmart, Target, Best Buy, and Kohls would seek new supply chains from Vietnam, Korea, Singapore, or India, but that would take time. In the meantime, US stores would run out of some goods. US consumers would go on strike until the supply chains were restored. Hundreds of small businesses would go bankrupt. Finally, businesses going bankrupt would pressure the banking system.

Of course, China could raise the export tax 1% a month for 20 months. In that case, instead of an overnight collapse, China would implode in a few months as US importers made other arrangements.

Would any jobs return to the US in either scenario?

In theory, a handful of manufacturing jobs might, but only if US importers could not find another source of supplies. What if every country voluntarily placed a 20% export tax on goods headed for the US, or the US placed 20% tariffs on all allegedly "underpriced" goods.

In that case, global trade would collapse and we would lose manufacturing jobs and millions of other jobs as well. In other words, there would be a global depression if prices rose 20% via export taxes or tariffs, whether overnight or over the course of a year.
Thus, Krugman is simply off his rocker, as is anyone else who think tariffs will solve our problems.
This whole China issue continues to show government and politics at their worst. Oversimplifying very complex issues for the benefit of a soundbite and political grandstanding; telling people what they want to hear instead of focusing on hard truths; and, worst of all, scapegoating foreigners and immigrants in order to pander to potential voters.

Protectionism is always politically popular during a recession, but it is also always self-defeating, as the Smoot-Hawley Tariff of 1930 should have taught us. (The key excerpt of that link for me: "Such policies contributed to a drastic decline in international trade...Overall, world trade declined by some 66% between 1929 and 1934. More generally, Smoot-Hawley did nothing to foster trust and cooperation among nations in either the political or economic realm during a perilous era in international relations.") We, and the politicians in Washington, must be extremely careful not to fall into the protectionist "beggar-thy-neighbor" trap.

There are a lot of hard truths that America still has yet to face in this global recession. As long as our elected officials insist on treating every crisis as an opportunity to gain the political upper hand--instead of an opportunity to LEAD--we'll never actually face them.

[Financial Times]
[Mish's Global Economic Trend Analysis]

Wednesday, September 29, 2010

Is that a command?

It's campaign season, which of course means that signs like this are becoming ubiquitous.

For the unfortunately-named Republican Robert Hurt, running against incumbent U.S. Representative Tom Perriello (in my home district) might be an uphill battle, at least in the sign department. It might not be as unfortunate as John McCain's democratic opponent in Arizona, but I definitely get a kick out of the "Hurt U.S. Congress" sign every time. Clearly, I'm easily amused.

Solar roads

Sustainability and energy independence have become increasingly prominent buzzwords over the past decade, especially in the face of ever-rising geopolitical concerns. While much of the buzz is unfortunately hollow rhetoric, I'm intrigued by some of the more creative options that have been devised and proposed. These two articles, especially when put together, definitely piqued my interest.
A revolutionary idea that converts existing roadways into a national solar power grid is up for a major cash prize.
Scott working on a project to encapsulate solar panels in high-strength glass capable of standing up to thousands of cars and trucks passing by each day. He estimates that a single parking lot paved with solar panels — even one where cars are parked — could power the big box store it serves, and a cul-de-sac paved with solar panels could take an entire subdivision off the grid even on a cloudy day.
Eventually, LEDs built into the tops of solar panels placed on highways could move lanes around, create crosswalks, display speed limits and even detect and warn drivers about road hazards like stopped traffic and crossing wildlife. Best of all, the panels could be laid down over existing asphalt.
You can find out more about Scott's idea here. I'm not sure what the long-term viability and scalability of this project might be--especially given the budget constraints of our federal and local governments who manage our highways--but it's at the very least an example of a creative solution to a long-standing problem.

I know there are powerful interests aligned against this type of concept, but it's exactly the kind of thing that our government should be putting resources behind. Instead, they seem more often to be acting to preserve the status quo, one that I would argue is fairly badly broken. Hopefully these kinds of proposals and projects gain traction and lead us to a better place over the next century.

Note: I didn't have a chance here to mention it, but this concept is pretty cool too.


Tuesday, September 28, 2010

Quote of the Week

It's Tuesday, which means it's time for "Quote of the Week". And yeah, this one's really more of an excuse to post a video clip than anything else, but whatever...I used up my good quote on Friday. So at any rate, this quote/clip comes from yesterday's Celtics media day, kicking off the beginning of what should be an interesting NBA season (no, I haven't gotten over how the last one ended yet).


"How does he have that much energy? And we're not even playing, it's like... it's media day"
                                                                                                   -Rajon Rondo, on Kevin Garnett

(Click here for the video link...their video embed function isn't working properly)

I love Kevin Garnett. The guy's just completely insane. It's hard not to like a guy who takes everything he does as seriously as KG does. Every year I want to stop watching the NBA (really, I do), but as long as KG's around, I'm pretty sure I'll be watching.

[Comcast SportsNet]

GMO and the FDA

The Food and Drug Administration (FDA) has been in the headlines a lot lately, as it has considered whether or not to approve genetically modified salmon. At the heart of the debate is the FDA's policies on food labeling--its policies dictate that once a food has been approved for sale, it cannot and will not require the manufacturer to label it as "genetically modified".
The Washington Post has reported that, in addition to approving genetically modified "Frankenfish" salmon without requiring a GMO [genetically modified organism] label, the FDA will also be banning the inclusion of any references to not containing genetically modified content on food items which are GMO free.
The FDA, which has been under intense pressure from GM interests to approve the modified salmon without requiring any labeling, stated that it could not require a label on the salmon because the agency determined that the altered fish are not "materially different" from other salmon. Apparently, the agency is using even the same, and even flimsier, justifications to force food companies to hide the truth if their products are GM/GMO free - much to the delight of the multi-billion dollar GM industries. (Emphasis mine)
This has to make you uncomfortable. I don't honestly know for sure whether there's a "material difference" between genetically modified and conventional food, despite anecdotal evidence indicating that farm animals refuse to eat GMO corn and soy, and drawing potential links between GMO food and allergies. But I think that the FDA's arguments here are paper thin. According to the Post article,

"Extra labeling only confuses the consumer," said David Edwards, director of animal biotechnology at the Biotechnology Industry Organization. "It differentiates products that are not different. As we stick more labels on products that don't really tell us anything more, it makes it harder for consumers to make their choices."
The FDA defends its approach, saying it is simply following the law, which prohibits misleading labels on food. And the fact that a food, in this case salmon, is produced through a different process, is not sufficient to require a label.
This kind of idiocy (and hiding behind "policies") represents the height of hypocrisy. Deliberately hiding information from the consumer--and then pretending that it is to the consumer's benefit--is the work of a con artist. The FDA has gone out of its way to inform the consumer in other arenas, requiring incredibly detailed nutritional information on product labels and forcing chain restaurants to provide calorie counts on their menus. Their approach in those cases seems to be that the more informed the consumer becomes, the better food choices he will make. That their approach here seems so different--hiding information instead of providing more--indicates that the GMO food manufacturers have more political clout than anyone should allow.

Memo to the FDA: don't decide what will and won't confuse me, and pretend to be looking out for my best interests. That's not your job (and remember, you work for me). Provide me with all relevant information, and let me make my own decisions. This kind of ill-advised governmental paternalism is not in anyone's best interests--except maybe Monsanto.

[Washington Post]
[Natural News]

Monday, September 27, 2010

All hail Chief Justice Marshall

A recent study by the Pew Research Center found that, even when given four multiple choice options, only 28% of Americans were able to identify the current chief justice of the U.S. Supreme Court. 53% of respondents admitted their ignorance, while a staggering 8% chose Thurgood Marshall, who has been dead since 1993 and was never chief justice. This marks a notable increase in ignorance over the past 25 years, as shown in the below graphic (note that in November 1986, the chief's position had just been passed to William Rehnquist after the retirement of Warren Burger on September 26).

I think there are a number of reasons for this increase in ignorance, but the implications are troubling. At best, this would indicate that Roberts has been a fairly neutral chief, and managed to avoid major controversy (for better or worse). But at worst, it indicates an amazing lack of engagement by a populace that has become increasingly distracted from some of the more central issues that face our nation.

How can people be expected to care about Roberts' more controversial stances if they don't even know who he is? 

Congrats, Jim Furyk

You might remember my previous rants on Jim Furyk, who was disqualified from the first FedEx Cup playoff tournament for oversleeping and arriving late for the Wednesday pro-am. Yesterday in Atlanta, Furyk slammed the door on that memory, winning the Tour Championship and the FedEx Cup title (and $11.35 million in combined prize money) despite last month's disqualification.

That he made the (very valuable) clinching putt with his hat turned backwards, rolling it with a used putter that he bought three weeks ago for $39 at Joe & Leigh's Discount Golf Pro Shop in Easton, Mass. just makes the whole thing that much more fantastic.

So congratulations to Furyk for bucking up and making the best of what could have been a bad situation. With the Ryder Cup coming up this weekend in Wales, let's hope Furyk can use that same magic to carry the U.S. team.

[Boston Globe]

Friday, September 24, 2010

Honorary "Quote of the Week"

I was going to save this one for "Quote of the Week" next Tuesday, but after reading a couple of follow-up articles, I decided it deserved its own post.

Yesterday, Comedy Central host Stephen Colbert testified before Congress as part of a hearing entitled "Protecting America's Harvest".

In case you were wondering, my "Quote of the Week" candidate comes around the 1:11 mark in that video:

"This is America. I don’t want a tomato picked by a Mexican. I want it picked by an American, then sliced by a Guatemalan and served by a Venezuelan in a spa where a Chilean gives me a Brazilian.”

Colbert and Jon Stewart have been on fire lately, and this is no exception.

But of course, not everybody was amused. I noticed while watching the video that a certain humorless "Mr. King" didn't deign to crack a smile during the entire 5 minute clip. As it turns out, Mr. King had more to say on the issue afterward.
Rep. Steve King (R-Iowa), the conservative ranking Republican on a House Judiciary subcommitte on immigration, says that the presence of Comedy Central host Stephen Colbert at a hearing this morning weakened the credibility of Democrats who support giving citizenship to illegal immigrant farm workers.
“Amnesty supporters frequently claim that Americans won’t do hard work, a claim which is insulting,” said King in a statement. “Maybe amnesty supporters should spend less time watching Comedy Central and more time considering all the real jobs that are out there that require hard labor and don’t involve sitting behind a desk. If they did, they would realize that every day American workers perform the dirtiest, most difficult, most dangerous jobs that can be thrown at them.”
First of all, I don't even know what convoluted point Rep. King is trying to make here. Is he insinuating that Comedy Central viewers are all unemployed? Or that they all perform desk jobs (like he does) and therefore don't actually work hard? Or is he trying to suggest that all of Colbert's testimony is complete B.S., and that Americans actually do perform the work that he spent 5 minutes pointing out is done by migrant workers (or shipped abroad)? I sincerely have no idea what he's trying to say--all I know is that it seems to come directly out of the "pissy partisan congressman" playbook. Big man needs to lighten up.

I don't honestly know why Colbert was invited to testify, except to bring some star power and attention to an issue that's largely ignored (or at least hopelessly obscured by political rhetoric). It's an interesting strategy, and given Americans' obsession with celebrity (see here, here, here, and here), it's probably pretty intelligent. But regardless of the reasoning, and setting aside the obvious humorous slant to his testimony, he makes some pretty fantastic points. His underlying argument is well-reasoned, and shouldn't be dismissed simply because he's "just" a celebrity. So was Al Franken, and now he's a senator.

And to pretend that this is by any means a Democrat-vs.-Republican matter is just insulting. Congratulations, Rep. King, for hijacking Stephen Colbert's "Quote of the Week". Your quote, not his, is the one worthy of recognition.

For your utter humorlessness and unwillingness to drop your own political rhetoric for even 5 minutes, you, Representative Steve King, are the winner of this week's honorary "Quote of the Week". Well done, buddy.

[Talk Radio News]

Who's that debtor?

If you've been reading my posts, it's no secret to you that I think our mushrooming debt is a major concern. I was interested then, to see this graphic over at the Daily Reckoning blog.

Give up? Alright, I'll give you some help. Two are "emerging economies" in South America, two are European, and one is the United States.

Still don't know? Well (A) is Brazil, (B) is Norway, (C) is Chile, (D) is Spain, and (E) is the good old U-S-of-A. Even Spain, which was a centerpiece of the European debt crisis just months ago (and, like most of Europe, has a highly socialized economy and, ahem, free universal healthcare), seems to be in significantly better financial condition than the United States.

With this as the case, it seems that the United States is sparing no expense to protect its position as a "developed economy", while the emerging global economies are in a much better and more nimble overall condition. Clearly the United States has well-developed institutions that enable that type of government debt to persist (more so than the emerging economies), but how long will those institutions last if we continue to go down this road?

Regardless of your views on American exceptionalism, the recognition that we are more indebted than Spain should be an eye-opener. How that indebtedness plays out over the next decade and century is anyone's guess for now, but it absolutely cannot be ignored.

Thursday, September 23, 2010

Clip(s) of the Week

Yes, the point of "Clip of the Week" is to post a quick and entertaining clip once a week. Yes, last week I introduced this feature by posting a video of a girl getting blasted in the face by a watermelon on national television. And yes, there are technically 4 video clips this week, totaling 30 minutes of internet video, which only someone as shiftless and work-from-home-ly as I am would actually bother to watch all the way through. And yes, the first two actually require you to click on a link because I couldn't figure out how to embed the videos on my blog.

But so what, Stewart and Colbert are on fire this week, and this all seems vaguely newsworthy. And yes, I'm seriously thinking of going to D.C. on October 30th. Don't judge me. Just watch and enjoy.

"Take it down a notch...for America"

"Now is the time for all good men to freak out for freedom"

Housing goes exponential

Ever since the housing bubble burst (and took our economy with it), debate has raged as to whether prices have "bottomed out". With regard to the aggregate, my honest opinion is that I don't know. My best guess has been (and continues to be) that certain markets are oversold, while others have room still to go. Charts like this one (courtesy of the Zero Hedge blog) do an excellent job of illustrating why I feel that way.

It's striking to see how absurdly high the very top end is above the rest of the curve. That to me looks like something that's just begging to get a haircut.

Also of note is the list of top 10 "richest" markets in the nation, as ranked by average home price (they are also the only 10 that clock in at over $1 million).

1. Newport Beach, CA         $1,826,348
2. Palo Alto, CA                     1,479.227
3. Rye, NY                             1,325,550
4. San Francisco, CA              1,325,103
5. La Jolla, CA                        1,210,300
6. Greenwich, CT                    1,195,614
7. Wellesley, MA                     1,080,458
8. Pasadena, CA                     1,043,683
9. Honolulu, HI                        1,026,821
10. Santa Barbara, CA            1,024,661

Big shout out to my hometown of Wellesley...I had no clue it would still be up there. Note that 6 of the top 10 (and 12 of the top 17) markets are in California. Take this how you will, but with that state's budgetary situation as dire as it is, a haircut to the top end of the housing curve could be devastating. We shall see...

[Zero Hedge]

Globalization issues heat up

Since my initial post on the unintended consequences of globalization, I've come across a significant number of articles and news items that add color to my original argument. Now, with the House Ways and Means Committee meeting on Friday to vote on legislation aimed at pressuring China to revalue its currency, some of the issues I raised seem to be reaching a boiling point.

With all due respect to the men and women on the Committee (and no, they haven't done much lately to earn that respect), pressuring China on currency is an absolutely ridiculous idea. The ostensible purpose of this "pressure" is to stimulate economic recovery in the United States. As UC Irvine professor Peter Navarro wrote in an op-ed for the Los Angeles Times,
China's grossly undervalued yuan gives Chinese exporters a huge economic advantage, allowing them to price Chinese-made goods far lower than those made in the United States. At the same time, the yuan's undervaluation imposes the equivalent of a heavy tax on U.S. exports to China. 
This currency manipulation, in concert with China's massive export subsidies, has resulted in chronic U.S. trade deficits, a severe weakening of our manufacturing base and the loss of as many as 20 million American jobs, even as China's economy has boomed.
All of this is completely true. Unfortunately, it's only half the story. The fact is, the relatively low labor rate in China has been a huge driver of economic growth and corporate profits in the United States for a generation. With our rapid debasement of the dollar through accommodative monetary policy (coupled with massive credit expansion), it is also one of the only factors that has prevented our country from a significant inflationary event.

Furthermore, with China owning a significant portion of our outstanding national debt (about 20%, the largest foreign holder), it is simply bad policy to instigate a trade conflict with the same people who have enabled our government's profligate ways. True, their ownership of our debt is partially their problem--as the old (Keynesian?) saying goes, if you owe somebody thousands of dollars, that's your problem; if you owe somebody millions, that's their problem--but not entirely.

Remember, a significant (though shrinking) portion of our national debt is short-term debt, meaning that it needs to be rolled over (re-borrowed) frequently--unless, of course, we start to retire or shrink our national debt, which uh, isn't happening. Therefore, any policy that has the effect of thumbing its nose at one of our largest enablers represents a very dangerous game. The fewer people who are willing to buy our debt, the higher our interest expense goes, and the more insolvent our government becomes.

But, sadly, the debt issue is not the most important reason to avoid a trade conflict with China. The fact is, the supposed economic gains from a "properly valued" yuan are simply fantasy. As former Secretary of Labor Robert Reich writes (I don't always agree with Mr. Reich, but this particular piece is a must-read),
Even if China did allow its currency to rise against the dollar, there’s no reason to think this would automatically generate lots more American jobs.
American exports would become cheaper to Chinese consumers. But Japan, Germany, and other major exporters would also demand a piece of the action. Unemployment is high in all developed nations, and every government is under pressure to create more jobs.
Meanwhile, Chinese manufacturers – whose goods would suddenly become more expensive to American consumers – could simply shift their production to other nations with lower currencies. Indeed, as Chinese wages have begun to rise, Chinese manufacturers have already started to shift production to Vietnam, Indonesia, and other low-wage outposts of Southeast Asia.
In other words, we've lost manufacturing jobs not because China's yuan is undervalued, but because the American worker is overpriced. Remove Chinese labor from the equation, and U.S. corporations will simply find new places to farm cheap labor. No amount of trade sanctions against China can revive our beaten-up manufacturing industry, as I mentioned in my previous post.

If there were reasonably priced manufacturing laborers here in the U.S. just waiting to work, they'd have jobs by now. But we don't (as this link demonstrates) and probably won't any time soon. So in the short term, forcing China to revalue its currency will only serve to cost our corporations money, which will make it even more unlikely for them to begin hiring domestic workers. As this piece at Zero Hedge points out, a revalued yuan might in fact hurt the U.S. consumer more than it helps them. In other words, be careful what you wish for.

I argued in my previous piece on globalization that all of these issues are an inevitable (if unintended) consequence of the expansion of global trade. Motivations of all trading partners must be aligned for these situations to be sustainable, and that is rarely a fair expectation when dealing with rapidly developing global economies. With U.S. unemployment remaining stubbornly high, it seems that there is a growing trend toward protectionism in Washington. The consequences of this trend on our economy could be significant, both in the short-term and the long-term.

With a confluence of factors (trade conflicts among them) making it unlikely that large corporations will increase their hiring any time soon, it is becoming increasingly clear that our only way out of this economic recession is via ingenuity and entrepreneurship. Ironically, what has historically been the greatest source of entrepreneurship--immigration--is also under attack as protectionist feelings take hold. As Joel Kotkin wrote for Forbes (emphasis mine),
Between one-third and one-half all students at Stanford, MIT, University of Pennsylvania, University of Chicago and UC Berkeley come from abroad. These schools are training camps for immigrants transitioning into careers as American entrepreneurs.
Equally important, immigrant commerce also thrives at the grassroots level. It manifests most visibly in the proliferation of small stores, restaurants, food-processing businesses, garment factories and trucking lines. Overall, immigrants are 60% more likely to start a new business than native-born Americans. The number of self-employed immigrants has grown even in New York City, where the number of self-employed among the native-born has dropped.
My take-home lesson? While globalization may indeed have unintended consequences, and our current unemployment rate has its roots in our trade policy over the last two decades, protectionism is not the answer. Thumbing our nose at China, closing our doors to immigrants, or even simply taxing firms who outsource jobs might seem like good policy in the short run--and make for good election-year soundbites--but will all prove to be self-defeating behavior in the long run, which you know I hate.

I do hope that these lessons will be remembered when future debate arises over globalization and free trade (and immigration policy), but I'm not particularly confident. Recessions always bring out protectionist fervor, and well-reasoned debate is hard to find. Hopefully our friends in the Ways and Means Committee can buck that trend.

[Los Angeles Times]

Wednesday, September 22, 2010

More Vick

Only after posting the Philadelphia Daily News' ill-advised Michael Vick headline did I realize that it was the perfect opportunity for me to post one of my favorite cartoons of all time. It's an oldie but goodie, originally published just as Vick's dogfighting trial was beginning.

It's good to see Grimm and Ren getting some work. Although I do think the omission of Santa's Little Helper from the jury was a significant oversight.

Oh, come on... they didn't...

Oh, but they did. Well played, Philadelphia Daily News...

Wow, guys. Just wow. Of course, when stuff like this happens, it's hard to know if it's the editors or the readers who are more tone-deaf. But this one is pretty brutal.

[Yahoo! Sports]

R.I.P. Blockbuster

With today's unsurprising news that Blockbuster Inc. will file for Chapter 11 bankruptcy protection in the immediate future, we prepare to say goodbye to another brick-and-mortar company done in by industry changes brought on (in part) by the internet. While Blockbuster is not officially closing its doors, it has plans to close nearly half of its retail stores, while expanding its self-serve kiosk business (those Redbox-style things you see at gas stations and grocery stores). Nevertheless, the handwriting is clearly on the wall for Blockbuster, and their competitive responses might be a case of too little, too late.

Ultimately, Blockbuster was caught sleeping while Netflix and iTunes took over the rental market, with Redbox further eroding its margins. Much like Circuit City before it, Blockbuster was slow to respond to obvious changes in the way that consumers used their product, and it will likely meet the same end. Ironically enough, Blockbuster tried to step in and buy Circuit City before its failure.
Of course, what I choose to focus on in this news is what happens to an industry when its biggest player is allowed to become bankrupt. It would be hard to argue that the media industry is less robust or consumer-friendly than it was when Blockbuster was in its heyday. Rather, the death of Blockbuster is an instance of creative destruction, a necessary step in the evolution of the rental business. Why, then, do we feel compelled to respond differently when the company in question is a bank, airline, or car company? Are we holding back progress in those industries simply to preserve the comfort of the status quo?

Bankruptcies might not be pretty, and they might in some cases create painful frictional periods as we adjust to a new reality (and as displaced workers find new jobs). I, for one, wish I knew what our economy would look like if we allowed for institutional failures in all industries. What would be the car industry analogue to Netflix, if GM were allowed to fail? Who would become the of the airline world? Unfortunately, as long as we continue to selectively protect certain large failing businesses, we will never know.

[Wall Street Journal]

Tuesday, September 21, 2010

Quote of the Week

This week's "Quote of the Week" is noteworthy in that it's not new--not by a long shot. It's more than 10 years old, and yet somehow has managed to become newsworthy this week. Without further ado...


"I've dabbled in witchcraft..." -Christine O'Donnell, GOP U.S. Senate Candidate; October 1999

Regardless of your feelings about the Tea Party movement (I'll be posting my own thoughts here in the near future), I think it's fascinating to see how the established parties have scrambled to either discredit or capitalize on its momentum (or do both at the same time). But the fact that this offhand quote from a decade ago has become newsworthy and raised questions as to Ms. O'Donnell's fitness as a candidate is frankly sad. Remember, this statement is from a show that was deliberately over-the-top provocative. Its name alone ("Politically Incorrect") stated its intentions, and it was ultimately canceled after its host made "insensitive" remarks following 9/11.

Only now does O'Donnell realize just how politically incorrect the show was. Apparently your very appearance on the show--and willingness to be candid in the process--is reason enough to disqualify you from future endeavors in the political arena. There may well be legitimate reasons to discredit this woman (there probably are). But if this is how you're going to go about doing it, then that's just Exhibit A as to why I will never choose to go into government. There's simply too much that I've said and done (even just on this blog) that could be deliberately misconstrued to smear my character, with or without any legitimate basis in fact. And that's not a game I want any part of--as a candidate, voter, or citizen.

[ABC News]

Revisiting self-defeating behavior

Last week, I wrote a post about self-defeating behavior, focusing on the fact that Americans' most frequent "moderate physical activity" actually consists of preparing themselves a meal. I was therefore amused to read this piece in The Observer, entitled "Why exercise won't make you thin". To summarize,
More and more research in both the UK and the US is emerging to show that exercise has a negligible impact on weight loss... The Mayo Clinic, a not-for-profit medical research establishment in the US, reports that, in general, studies "have demonstrated no or modest weight loss with exercise alone" and that "an exercise regimen… is unlikely to result in short-term weight loss beyond what is achieved with dietary change."
"It's simple maths," says Professor Paul Gately, of the Carnegie Weight Management institution in Leeds. "If you want to lose a pound of body fat, then that requires you to run from Leeds to Nottingham, but if you want to do it through diet, you just have to skip a meal for seven days." Both Jebb and Gately are keen to stress that there is plenty of evidence that exercise can add value to a diet: "It certainly does maximise the amount you lose as fat rather than tissue," Jebb points out. But Gately sums it up: "Most people, offered the choice, are going to go for the diet, because it's easier to achieve."
First of all, these kinds of conclusions (and headlines) are incredibly dangerous for the average reader, and border on irresponsible journalism. While "exercise alone" will rarely help you LOSE weight, it is absolutely essential for maintaining weight and preventing weight gain. Clearly, calorie ingestion is the biggest lever when it comes to effecting weight loss, especially since we all typically eat too much to begin with. You don't need to burn what you never ingested. If you're obese, start by eating less, not by walking on a treadmill.

But buried deep within The Observer's semi-sensational article is one of the more important points--that of the self-defeating behavior (emphasis mine).
In what has become a defining experiment at the University of Louisiana, led by Dr Timothy Church, hundreds of overweight women were put on exercise regimes for a six-month period...Against all the laws of natural justice, at the end of the study, there was no significant difference in weight loss between those who had exercised – some of them for several days a week – and those who hadn't...Some of the women even gained weight.
Church identified the problem and called it "compensation": those who exercised cancelled out the calories they had burned by eating more, generally as a form of self-reward. The post-workout pastry to celebrate a job well done – or even a few pieces of fruit to satisfy their stimulated appetites – undid their good work. In some cases, they were less physically active in their daily life as well.
This study (and its conclusion) seems to be MUCH more important than those on which The Observer chooses to focus. Exercise certainly isn't useless, as the headline of the article seems to want to indicate. It may not be as efficient as a diet in terms of losing weight, but it is certainly longer-lasting and absolutely essential as a prevention tool. But if you're using your exercise as an excuse to eat more terrible food, well you're just going to be treading water (or, doing this).

I really hope that people don't read articles like this and use it as fuel for their self-defeating behavior, missing the important points buried within. While headlines like these easily generate clicks and page-views, they only confuse the public as to what they should or shouldn't be doing to lead a healthy lifestyle. So seriously, people, go to the gym.

[The Guardian]

Monday, September 20, 2010

No accepted medical use

Courtesy of Barry Ritholtz (again) comes this video on medical marijuana. If you have some time, it's worth a watch. As Barry writes,
The U.S. government classifies marijuana—along with heroin and LSD—as a Schedule I drug, the most tightly restricted category of drugs in the United States. According to the federal government, Schedule I drugs are unsafe and have “no currently accepted medical use in treatment in the United States.”
As medical marijuana proponents have pointed out since the Controlled Substances Act was passed by Congress in 1970, cannabis has been used medicinally for thousands of years, and there has never been a reported case of a marijuana overdose. Moreover, in recent years clinical researchers around the world have demonstrated the medicinal value of cannabis.

As pointed out in the video, most of the medical benefits of marijuana are what would be deemed "pain management" benefits. Marijuana doesn't cure or attempt to cure any ailments, but neither do many prescription drugs being peddled today. It would be hard to argue that marijuana has any less "medical use" than any legal opiate-based pain medication, such as codeine, morphine, or oxycodone. The pain-alleviating effects are extremely similar, without the dependency/withdrawal issues that are commonly associated with the opiate-based drugs.

The primary reasons behind marijuana's declaration as a Schedule I drug are unclear, though many claim that racist and cultural motivations were a significant factor. Either way, its continued treatment as a dangerous drug has cost federal and local governments untold millions in law enforcement and legal costs, with little effect on actual use.

At a time when balancing budgets is a primary concern, I would not be surprised to see marijuana legalization movements gain traction. By legalizing and taxing marijuana sales, we could actually turn a large government expenditure into a source of revenue. Ultimately, the need to balance government budgets may trump all other arguments in favor of criminalization, whatever they originally may have been. I'll certainly be keeping my eye on California.

[The Big Picture]

Sunday, September 19, 2010

Jeter the "cheater"

It's been a couple of days, but I couldn't resist writing about Derek Jeter and his supposed "cheating" act on Wednesday against the Tampa Bay (Devil) Rays. The whole thing just makes me laugh.

Do I think his actions were lame? Of course I do. Was it cheating? Yeah, technically. But it's nothing that doesn't happen daily around the league with little fanfare. Do I think this should be the impetus for Major League Baseball to expand its use of video replay? Good God, no. Baseball is slow enough as it is. Even if I did support the expanded use of replay (and I do, to a point, but I think most of the problems could be solved if MLB umps could swallow their egos and confer as a group more frequently, as NFL referees do), to allow its use on foul ball/hit-by-pitch situations would be ridiculous.

The real issue here is a fawning sports media caught off-guard by a man who they have gone out of their way to deify for nearly two decades. The treatment of Jeter has always been silly. A fantastic hitter with an average glove, he's been put up on a pedestal as "The Captain", the "guy who always plays the game the right way", and by God, he even calls Joe Torre "Mr. Torre"!! Let's all let him date our daughters.

ESPN columnist Gene Wojciechowski once went so far as to say that if Jeter was determined to have taken steroids, he would quit watching baseball forever. "It seems so, well, beneath him," Wojciechowski wrote. "He is the one player who I actually think would walk away from the game if he thought he had to cheat to compete." Wow, buddy. Check yourself. That's not objective journalism.

Fox announcer Tim McCarver has also been one of the worst offenders. I remember vividly a game against the Red Sox years ago, where Jeter was fooled by an inside fastball, and oops-ed a check-swing nubber down the line toward third base. It somehow stayed fair for an infield single, which opened the fawning floodgates. McCarver would swoon for the better part of the inning about what an amazing "piece of hitting" it was by Jeter, to get on base despite having been badly fooled. His response to the Jeter "hit-by-pitch"? Predictable.
“I cannot understand what the commotion is,” said the Fox baseball broadcaster Tim McCarver, a former major league catcher, as he took stock of the uproar.
“Why question that?” he said of Jeter’s actions. “I can’t believe anyone would say that’s cheating.”
For what it's worth, I actually agree with McCarver on half of his statement. I don't understand the commotion. But the second half, Tim's just wrong. Sorry, dude, but it is cheating. Cheating of the "it's just part of the game" type, which I don't really blame Jeter for at all. I'd have tried the same act if I was out there. Everyone does. But it is (technically) cheating. You're a journalist, and to deny that "he cheated" is a valid response is, again, bad journalism.

The fact is, the media have always looked at Jeter in a bizarre doe-eyed fashion, assuming that everything he does is perfect in every way. This is false. He's an amazing hitter, and I have immense respect for him as one of the best hitters I've ever seen. But he's always driven me crazy specifically because of the treatment he receives from the media. This whole debacle is no exception. It just makes me smile to see so many media members caught so incredibly off guard to learn that their hero is just a ballplayer like everyone else.

[New York Times]

Friday, September 17, 2010

The unintended consequences of globalization

I've been working on a post about the unintended consequences of globalization for a while now, and Wednesday's intervention in the foreign exchange market by the Bank of Japan gave me the motivation to finish and publish it. I have plenty more to say about the Bank of Japan's actions, but it may have to wait for a subsequent post. 

When I was an undergraduate economics major, the concept of globalization (and global specialization) seemed to be gaining traction by the day. Free trade agreements were popping up around the world--NAFTA and the World Trade Organization had come into existence just a few years earlier--and the works of Thomas Friedman were becoming ubiquitous in the academic world. The return of Hong Kong to Chinese sovereignty only added intrigue to the ever-growing discussion on the benefits of increased global interactions.

By the time I returned to school for my MBA in 2007, globalization had fully taken hold. A full third of my incoming Darden class consisted of international students, Friedman had earned wide accolades for The World is Flat, and the lesson in my classes was clear: in the 21st century, your business was either international or irrelevant.

But the global financial crisis of 2007-2008 laid bare the vulnerabilities that the interconnectedness of globalization had created, raising new questions as to the long-term viability of global business in the traditional sense.

The classic definition of globalization relies on the concept of "comparative advantage", which assumes that different countries will be able to produce certain goods at a lower relative cost than others. Comparative advantage posits that by specializing in those categories in which they have an economic edge, both nations can prosper and the overall economic level can rise--Chinese thrive by selling t-shirts to Americans, while Americans are free to focus their efforts on producing high-technology goods. (If you're unfamiliar with the theory, the Wikipedia link actually does a very good job of summarizing it).

But the problem with the theory of comparative advantage is that it is does not sufficiently allow for a dynamic world. It essentially assumes that the conditions which led to the existence of the relative advantages will remain static, and that neither side will hope to change them. In other words, it assumes that China will always be happy being a manufacturing-heavy society, providing cheap t-shirts to America, and that its labor rates in that arena will never increase.
Of course, proponents of globalization theory will argue that this is not the case--that a rising tide lifts all ships, and both economies will be able to grow and prosper. As the economies grow, their relationships will change, but the benefits outweigh the costs. The problem is, those frictional shifts in economies place incredible strains on existing trade relationships, and there will always be great resistance on one side or the other to a proposed change in the nature of the trade agreements.

As a result, economies on both sides of international trade become vulnerable. After years of the United States outsourcing its manufacturing jobs to India and China, India is left with a severe shortage of civil engineers, while the United States' manufacturing industry struggles to find workers to fill its jobs. This type of problem becomes exacerbated in times of recession, when domestic issues become of foremost concern.

Furthermore, shifts in the currency market (which has become increasingly more volatile) can be very dangerous to ongoing trade agreements. Facing a severe recession, the United States is under significant pressure to label China as a currency manipulator. The argument is that by artificially holding down the value of the yuan, China has unfairly distorted the labor market, stealing jobs from Americans by virtue of their weaker currency.

But the weak yuan has benefited both economies for decades, as it has been a fundamental factor in creating the "comparative advantages" enumerated above. Without a weak yuan, U.S.-China trade would have been essentially impossible. The weak yuan only became a "problem" when U.S. unemployment rates spiked to 10%, placing pressure on politicians to salvage as many American jobs as they could. When times are bad, we no longer want China to specialize in anything--we want all the jobs to ourselves.
We in America don't fully appreciate that if the yuan appreciates, both economies are in trouble--our labor force is not nearly nimble enough to take on these jobs, even if it becomes economically efficient to do so. You can't tell an unemployed iron worker to become a t-shirt fabricator overnight, any more than you can tell a chef to become a lawyer--at least not when you've spent decades training him to be what he has become. Worker mobility--in terms of both geography and industry--is incredibly low in the U.S., in large part due to the specialization that global trade created. This lack of employee mobility makes recoveries incredibly difficult.

The assumptions of a static world are always flawed. The developing countries want to become developed, but face resistance from those parties who benefit from their low labor rates. Currency exchange rates change drastically, with central banks fighting each other tooth and nail to either protect or change the status quo, depending on their individual motivations.

Ultimately, globalization becomes a dangerous game with dangerous international political implications. The gains from international trade are great for everyone in a booming economy. But once recession hits, all assumptions go out the window. China sees a unique opportunity to grow stronger relative to the developed economies, while the U.S. struggles to stay afloat and blames China (and its "currency manipulation" tactics) for its ailments.

All business partnerships--whether at the individual, corporate, or national level--depend on well-aligned goals and motivations to remain successful. The problem in the "global" world is that motivations can and must change with time, and frictional changes are messy. When one side has everything to lose, and the other everything to gain, there is no easy way out.

We can complain all we want today that China has all of our manufacturing jobs, and blame them for our stubbornly high unemployment rate. But the trade choices that we made over the last two decades--two very prosperous decades--created this mess in the first place. We cannot accept the gains from globalization without recognizing the risks. Unfortunately, the downside of globalization is all too much in our faces now. How we overcome this downside--and return to prosperity--is the most important policy decision we will have to make for the next decade and century.

Thursday, September 16, 2010

Introducing "Clip of the Week"

Following up on Tuesday's "Quote of the Week", on Thursdays I will now be posting a video "Clip of the Week". Like the Quote of the Week, the Clip of the Week will occasionally derive from a previous blog post, but will normally just be something I find amusing or infuriating.

Since I've been ranting more than usual lately, this week I'll lighten things up a bit with a clip from The Amazing Race.

It amazes me what reality TV shows are able to get away with, and this is no exception. Simply amazing. Painful to watch, but I can't look away.


Thanks to Barry Ritholtz...

Self-defeating behavior at its best

There are any number of paths to take when discussing the obesity epidemic in America, and most of them have been beaten to death. We are all basically aware by now that obesity rates have gone parabolic in the last two decades, doubling in adults and tripling among children. Reasons are well-documented--we're not exercising enough, we're eating too much, we're eating the wrong foods, the quality of food produced has declined, ad nauseum.

But a study published yesterday in the American Journal of Preventive Medicine placed a new spin on the issue, finding that Americans are in fact engaging in self-defeating behavior when it comes to their health. In a study that categorized activity by type (sedentary, light, moderate, and vigorous), doctors found that:
Only 5.07 percent of Americans reported doing any vigorous-intensity activity like running, while at the other end of the scale, more than 95 percent said they had engaged in the highly sedentary activity of eating and drinking. The next most common activity was another sedentary one -- watching television or a movie, which eight in 10 Americans did.
The "most frequently reported moderate activities were food and drink preparation (25.7 percent), followed by lawn, garden, and houseplant care (10.6 percent)," the study said.

It's already been well-documented that relatively few Americans are engaging in sufficient vigorous exercise. But I think that the finding that the most frequent moderate activity (the next level below vigorous) was preparing a meal is more interesting. I'm not even certain how this qualifies as a moderate activity to begin with, but it's the absolute epitome of self-defeating behavior. The only thing I can imagine that would be worse would be if Americans' most vigorous activity in a day was to get in their car and drive to the McDonald's drive-thru.

Self-defeating behavior is never pretty, and it's something that I've discussed in multiple contexts already on this blog. But this is a new one, and I don't have much to add on the topic except to shake my head and say, "wow".


Wednesday, September 15, 2010

Have Democrats become the party of big business?

I like to stay away from discussing politics (and religion) whenever possible, because people's opinions tend to be firm and emotionally charged. But this issue strikes me as too relevant to ignore, and the Tea Party's "big night" last night makes it only more so.

For decades, there has been an implicit assumption that the Republican party is the party more sympathetic to big business, whereas the Democrats tend to look out for small business and the middle class. But the Senate Democrats' inexplicable decision to reject a proposal to repeal the so-called "1099 footnote" in the recently-passed health care bill is the latest in a line of events that cast significant doubt upon that assumption.

The 1099 provision, which was tucked into the health care bill despite many Senators' insistence that they never knew it was there, requires all businesses to submit 1099 forms to the IRS for every vendor to whom they pay more than $600 in a year--a number so low as to make it clear which businesses the provision is targeting. A Wall Street Journal editorial notes that:
Meanwhile, small businesses are staring in horror toward 2013, when the 1099 mandate will hit more than 30 million of them. Currently businesses only have to tell the IRS the value of services they purchase from vendors and the like. Under the new rules, they'll have to report the value of goods and merchandise they purchase as well, adding vast accounting and paperwork costs.
Think about a midsized trucking company. The back office would have to collect hundreds of thousands of receipts from every gas station where its drivers filled up and figure out where it spent more than $600 that year. Then it would also need to match those payments to the stations' corporate parents.
Beyond the onerous cost to small businesses, many of whom don't have the resources to support robust back offices to begin with, this will also create an incredible burden on the IRS itself. Even if these businesses submit only 10 forms each--and that is likely a very conservative estimate, considering that only $50 per month adds up to the magic $600--that will mean a total of 300 million new forms being submitted to the IRS. Who is going to inherit the job of parsing through those hundreds of millions of new forms?

But the bigger problem at hand has to do with the original reasoning behind the 1099 provision in the first place. According to the Journal,
Democrats tucked the 1099 reporting footnote into the bill to raise an estimated $17.1 billion, part of the effort to claim that ObamaCare reduces the deficit by $100 billion or so.
But this "tax gap" of unreported business income is largely a Beltway myth, and no less than the Treasury Department's National Taxpayer Advocate Nina Olson says the costs will be "disproportionate as compared with any resulting improvements in tax compliance."
First of all, it makes little sense to me why this provision had any business being in a health care bill to begin with, other than as window dressing to make the bill seem less costly than it really is. But more importantly, it is completely ludicrous to spend time chasing after small businesses in search of $17 billion that might not exist, when the majority of U.S. companies--many of them large--currently pay no income tax. It would be far more sensible to take a much closer look at the multinationals that currently hide income overseas (as well as foreign companies who pay no income tax for revenues earned in the U.S.) than to attack small businesses and make their lives more difficult.

Democrats have said all the right things recently about supporting small businesses, and ensuring that they are free to create jobs and help our economy recover, but their recent actions are perplexing. As a small business owner myself, I watch the bailouts and stimulus and policies like these and I see the cost of running a small business increasing every day, while larger businesses (especially the largest) are largely given carte blanche. I wonder why, with policies like these, anyone would even bother to open a small business in this environment. Maybe that's exactly what our Senate wants, whether Republican or Democrat; I'm starting to wonder if there's really any difference any more from the perspective of a small business.

[Wall Street Journal]

An issue that won't go away

Yesterday, New Orleans Saints running back Reggie Bush--in one of the greatest you-can't-fire-me-I-quit moments in recent memory--forfeited the 2005 Heisman Trophy that he earned while playing for the USC Trojans. He becomes the first player in history to forfeit his award or have it stripped by the Heisman Trust, which has presented the award to the top collegiate football player since 1935.

Bush forfeited the trophy under extreme pressure from the Trust, which--despite its denials--was clearly on the verge of stripping the award due to Bush's improper receipt of gifts from an agent while he was at USC. There is further speculation that USC will also be forced to vacate its 2004 national title as the NCAA continues its investigation into the matter.

This is only the latest in a long line of recent news items focusing on "improper contact" between players and agents. Alabama coach Nick Saban famously referred to agents as "pimps" in the wake of his program's agent-related controversy this summer, saying:
"I don't think it's anything but greed that's creating it right now on behalf of the agents," Saban said in a rant at the SEC media days. "The agents that do this – and I hate to say this, but how are they any better than a pimp?
"I have no respect for people who do that to young people. None. How would you feel if they did it to your child?"
This, from a man who is scheduled to be paid $4 million per year through 2017 for coaching these same kids. Look in the mirror, Nick.

Former USC coach Pete Carroll, for his part, escaped from USC before it could be sanctioned, in order to sign a 5-year, $33 million contract with the NFL's Seattle Seahawks. He will face no punishment for what happened at USC under his watch, in the same way that Kentucky basketball coach John Calipari has twice escaped programs (UMass and Memphis) immediately before they were sanctioned. Coaches, athletic directors, and NCAA officials continue to be all too quick to blame individual agents and players for illicit behavior, without even addressing the possibility that their own policies and conduct may be to blame.

From their actions, the NCAA (and auxiliary organizations, like the Heisman Trust) continue to make it clear that the single worst violation a player can commit is to try to get a piece of collegiate athletics' ever-growing revenue pie. For comparison, recall that another Heisman-winning USC running back is currently serving time in prison for multiple felonies (murder not one of them), but has never been asked to return his award. In the eyes of the NCAA and Heisman Trust, armed robbery is apparently of less concern than gifts from agents.

I think about this issue in much the same way that I think about underage drinking. A rule is put in place that is somewhat arbitrary by its nature, but that engenders strong feelings among certain special interest groups. While nobody actually believes that the rules are particularly effective at preventing the targeted behavior, the rules' existence nevertheless creates a moral battleground that defines the public discourse. This is not healthy, and in fact prevents any informed discussion on the topic.

Player-agent contact, like underage drinking, continues to rage on college campuses across the country. Instead of trying to have an honest conversation as to why, we simply shun Reggie Bush for breaking the rules--and punish current USC players who had nothing to do with the situation--without considering if the rule was just to begin with.

This is just one more example of a reactionary policy creating more problems than it solves. By creating rules and heavily punishing athletes for breaking them, we are not actually doing anything to address the underlying inequities that create the behavior in the first place. All we have accomplished is to delay the broader conversation, which will only become that much more difficult once we are finally forced to have it. In my opinion, it will come sooner rather than later.

[Huffington Post]