Monday, December 29, 2014

Bad government

I am a relatively ardent believer in free markets as long as they are free and fair.  In that light, I believe that any private person or organization should be able to do whatever he/she/it wants to do, no matter how stupid.  The exceptions are that there has to be a level playing field (so I believe in anti-monopoly regulation) and they have to pay for any negative externalities (so I believe in environmental regulation and carbon taxes).  At the extreme, I believe that a private person should be allowed to have racist thoughts and speech and (non-threatening) actions and the appropriate response should be to ostracize them and the let social Darwinism take care of the problem rather than any regulation against it.

But when it comes to government action, my opinion flips on its side.  Government actions should not be allowed to favor any particular demographic, any company, or any industry over another.  And if an industry is getting subsidized from taxpayer money or where competition is limited by government action (which are questionable practices to begin with), they should be similarly constrained.  So for example the net neutrality debate is pretty simple for me. Telecom providers are regulated public service access providers. So they should be able to have different plans based on how much bandwidth a company wants to use.  But any bandwidth deal available to one company should be available to any other.  AT&T can say that 500 mbs costs X and 1000 mbs costs Y.  But not 500 mbs costs X for my partner Netflix but costs Y for Google who doesn’t pay the partner fee. 

Sorry for all that prefacing, but I don’t want to rant without the prebuttal to frame it.  Two stories came to my attention this week that are really bothering me. They are both examples of where I see government going way down the wrong path and directly contradicting what I see as their Constitutional responsibilities.

The first one (December 12 podcast) is a ruling by the Second Circuit where they reversed an insider trading conviction.  The case revolves around the sharing of inside information by hedge fund managers.  If an employee of a company has early, non-public information about the company’s earnings and buys stock based on that information, it is insider trading.  If the employee tells a friend and they buy stock based on that information, that is also insider trading.  Up until last week, if the employee told a hedge fund manager who shared it with another hedge fund manager who shared it with a third hedge fund manager, that would also be insider trading.  But the Second Circuit decided that it was only insider trading if the third hedge fund manager knew where the information originally came from.  It is not enough that he knew that it was insider/non-public information.  So what the hedge fund managers can do is to share information around their social network and just leave out their source.  They can do as much insider trading as they want. One of the defendants in this case made $70 million on a single trade.  And now it is not even a crime.

Then I read this article in Fortune about how Tesla pitted four states against each other over where they would locate their new battery “gigafactory.”  If they were shaking down four private companies (or any corporation not getting government subsidies or preferences) they should be allowed to do anything they want.  If a company is foolish enough to buy in, economic Darwinism can take care of it.  But when it is four state Governors who are gambling with taxpayer money and doing it in secret, that is not kosher.  Tesla really worked them over – I recommend the article as a great primer in negotiation.  The Tesla negotiators were getting the royal treatment and being offered more and more benefits every day.  They got decades long waivers of property taxes, payroll taxes, free land, construction of new roads and rail lines to the site.  They even got offers of hundreds of millions of up front dollars. All done in secret.  That sounds like extortion to me. And no corporate board looking over the governor’s shoulders with the ability to fire their asses.  You can say that voters can petition for a recall election, but that is not even close to the same thing.  Especially since these complicated deals are very easy to spin positively. 

Sorry for ranting.  I promise to write something positive next time.