Philip Greenspun’s Weblog

The most famous toy store in the U.S. will be closing on July 15 (USA Today). They can’t justify the rent on Fifth Avenue now that everything in New York is gold-plated. I’m wondering if this also shows the dominance of electronic games. A $1500 stuffed giraffe is great but do kids value it as much as $100 of apps?

What do readers think? Is there is a long-term downward trend for non-electronic physical toys?

[Separately I wonder what New York is going to look like going forward. Any part of the city exposed to the market economy seems to trend toward high-end stuff that is not useful for day-to-day living. Yet the government is passionate about “affordable housing” and the lucky few (55 out of 88,000 in this example) end up with an apartment worth perhaps $5 million that they can occupy for life, but not sell. So they can’t take the $5 million and move to the Midwest (or Mexico?) and enjoy being rich. Instead they will stay in Manhattan, have a job at Starbucks, and have to order everything from Amazon because the local retailers sell only furs and diamonds.]

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If you like graphic novels, here’s one from 1941: Jacob Lawrence’s Migration Series, on view at New York’s Museum of Modern Art through September 7 (all images and captions can be viewed online as well). One of my personal favorites is Panel 58, showing three children at a blackboard.

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On May 5 I wrote in support of same-sex marriage on the grounds that what the government offers as a civil marriage no longer bears any relationship to what traditionalists and religious people think of as “marriage.” The Irish recently voted to approve same-sex marriage and this represents a clean experiment due to the fact that “religious marriage” or “traditional marriage” in Ireland must mean Roman Catholic marriage.

Civil marriage and Roman Catholic marriage in Ireland were more or less synonymous until 1997 at which point no-fault divorce was introduced in Ireland. As noted in my previous posting, once a country establishes no-fault divorce and the possibility for citizens to make a profit by marrying and divorcing a higher-income or wealthier partner, denying the right to marry is primarily the denial of an economic opportunity. Irish voters, even ones with a strong Catholic faith, apparently realized that it didn’t make sense to keep mixing church and state.

[As a measure of how much social change has occurred in Ireland over the past few decades, note that it seems that Ireland also enables parents to profit from obtaining custody of children following a one-night encounter. This courts.ie page explains that marriage is not a bar to obtaining a potentially unlimited amount of child support (though if you want to get more than $8500/year you have to go to a Circuit Court or High Court rather than a District Court). Not too many years ago having a child out of wedlock would be a source of shame in Irish society; today the child is a source of cash, albeit probably not as much as one could get from a U.S. court (see Real World Divorce).]

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It seems that an organization with billions of dollars in revenue and no supervision is roughly 1.5 percent corrupt ($150 million in bribes, kickbacks, etc. against $10 billion in revenue from the news reports that I’ve seen).  That would be comparable to $60 billion siphoned off to cronies out of the $4 trillion annual U.S. federal budget. Here’s a fun quote (WSJ):

After Mr. Bin Hammam said he was seeking their support [to become president of FIFA], Mr. Warner allegedly told attendees that they could pick up a “gift” at a hotel conference room. Officials were allowed to enter one at a time, the indictment said, and each person was handed an envelope with $40,000 inside.

The next day, Mr. Warner allegedly told recipients that the money came from Mr. Bin Hammam. “If you’re pious, open a church, friends,” Mr. Warner allegedly said. “Our business is our business.”

It seems reasonable to assume that any organization that is structured like FIFA would be susceptible to the same kinds of corruption. What could replace it? Forgive an American’s ignorance of all things soccer-related, but what does FIFA do that is important? Is it mostly picking countries to host events, collecting broadcast and sponsorship revenues, and dividing up the cash? If so, why not replace it with a system in which any country can apply to host the World Cup or some other event and then the winner is chosen at random via a process everyone can agree is transparent (something like Bitcoin)? And have the money division be done by mid-level officials at a bank (maybe not one of those recently fined for market rigging)?

And more importantly, how will the FIFA prosecution affect the Eurovision Song Contest, which Americans cannot live without?

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The May 16, 2015 cover story for Economist is “Tax-free debt: The great distortion.” The article advocates one of my personal pet ideas: eliminate tax deductions for home mortgage interest (see “Most perverse things about the U.S. tax code?” for example), though not for all of the reasons that I am against subsidizing home ownership, e.g., that it makes the labor market more rigid and exposes consumers to risks such as Detroit or Chicago becoming insolvent. The Economist goes farther, however, and suggests eliminating deductions for business interest. Could that work? Consider an equipment leasing company. After depreciation, interest would presumably be its largest expense. At current U.S. corporate income tax rates the enterprise would owe more in taxes than its actual cash earnings. Thus leasing companies couldn’t exist in their present form or with anything like their existing rates.

I can’t quite figure out if this makes sense as an economic policy. If interest is not deductible, doesn’t that favor the largest enterprises that can borrow at the lowest costs? So if you’re a mid-sized business trying to compete with General Electric, you’re now at a further disadvantage because GE can borrow at much lower cost than you and then offer favorable lease rates for its products, an effect magnified by the lack of deductibility for your higher payments. If interest is not deductible then incumbent companies with large capital bases will be further advantaged compared to startups? Supposedly there are economists at the Economist but I can’t figure out why interest, a necessary expenses for many types of businesses, should be treated differently than other types of business expense. (The home mortgage situation is different, I think, because that’s a personal expense and generally personal expenses are not deductible.)

[Separately, the research behind the article is a little suspect for saying “America’s debt subsidies cost the federal government over 2% of GDP—as much as it spends on all its policies to help the poor.” To the extent that you believe elaborate medical interventions “help the poor,” this is wrong. Federal Medicaid spending alone is close to 2% of GDP (gao.gov; this is not the total spent on Medicaid, I don’t think, because it excludes what states spend). How could the editors have missed the fact that the U.S. is a country with tens of millions of working-age residents who don’t work and yet who don’t lack for the essentials (housing, food, health care) and that this could not be consistent with only a few percent of GDP captured by the poverty industry?]

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Back in 2003 I wrote a much-derided posting about how high school students should learn math, science, and engineering by building a bicycle. The latest issue of New Yorker contains “D.I.Y. School”, an article about a school in Malibu Canyon, Califronia where James Cameron‘s 11-year-old son built a motorcycle.

 

 

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I can’t figure out why Uber is so valuable. Someone who wants to find out what are the nearest available pizza vendors can open up Apple or Google Maps and see. If Uber/Lyft/et al. develop profits that are significant by Apple/Google standards what stops Apple and Google from adding “nearest available transportation providers” to their respective maps applications? Then they establish a commission for that service that effectively takes all of the profit out of Uber/Lyft/et al. Why should I have two Maps applications on my smartphone, one that shows 50,000 different types of businesses (Apple Maps, e.g.) and one that shows just one type of business? (Uber, e.g.)

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The world of photography is a poorer place as of yesterday due to the death of Mary Ellen Mark (age 75), one of America’s most effective artists in the book medium. A Google Image search will show some of her range but I would encourage readers unfamiliar with Mark’s work to get hold of some of her books. Most of her pictures were designed to be part of a series.

Sad.

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Eight of us went to Carnegie Hall on May 24 to hear the Verdi Requiem performed by more than 400 young singers (including my favorite Stuyvesant student!). The concert was organized by DCINY and featured an excellent orchestra. One of us is a fairly serious musician prone to critical comments, e.g., “What a pathetic joke” (Jean-Pierre Rampal concert in Boston Symphony Hall), and “Any guy who would sit down and write 106 symphonies, most of them bad, has just got to be an asshole” (after seeing Haydn on a program). Even he was won over by Claudia Chapa, mezzo-soprano. It is not easy for a young singer to work in that size venue but she handled it like someone accustomed to the Met’s gargantuan space. Baritone Christopher Job and tenor John Pickle also managed to fill the hall.

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Could it be that the $15 per hour minimum wage adopted by Los Angeles results in some serious cash being earned… by lawyers?

Within a few years it will be illegal for anyone whose skills are worth less than $15 per hour to have a job in Los Angeles. On the other hand, not everyone is eligible for welfare. Especially for adults who cannot obtain possession of a minor child it can take a long time to get on SSDI, work their way through the public housing bureaucracy, etc. Humans don’t want to starve and markets tend to clear despite government prohibitions against people entering into agreements. (Recent example that I learned about talking to a Swede: “There are a lot of apartments in central Stockholm that are owned by the government,” he noted, “and the rents are set very low. But none are ever available unless you pay a large amount of cash to the current occupant. If you stay 5 or 10 years it works out to be roughly the same as the monthly cost of a private apartment.”)

How could the labor market clear for people that employers don’t want to hire at $15 per hour? Contracting! There is no minimum wage for an Uber driver. If it turns out that he or she earns less than the minimum wage the government will still permit him or her to continue to operate the 1099 business.

What would it look like in a restaurant? Instead of hiring people to clear tables and clean at an hourly wage the restaurant could hire a person to be responsible for one bathroom, a portion of the kitchen, and five tables at a fixed monthly rate.  The person would bring his or her own cleaning supplies and work the hours of his or her choice, as long as the cleaning got done. The restaurant could spin off the waitstaff as well. Perhaps a waiter rents ten tables from the restaurant much as a cab driver will rent a taxi from a medallion (value up to $1 million in the pre-Uber era thanks to government regulation!) owner. Customers pay the restaurant for the food and the waiter for providing the service.

Note that some employers that don’t want to have low-wage employees are already doing this, albeit typically through a contractor that does hire W2s. See “Costco’s Second-Class Citizens” (Bloomberg 2013) for example or any big company that hires a cleaning service rather than employing janitors.

Here’s where the lawyers come in. If lawyers can persuade a judge that Joe Contractor should have been a W2 employee and that Joe Contractor earned less than $15 per hour then the judge can order a company to pay years of back pay, a potentially good deal for Joe Contractor and a great deal for his attorney. As the factors that separate a 1099 from a W2 employee are subjective this could be a very fertile area for lawyers.

What do readers think? Is this the frontier that finally enables all of those extra law school graduates to get jobs?

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