Tag Archives: economics

In Which a Judge Gets It (Mostly) Right

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Judge Reed O’Connor of the US District Court for the Northern District of Texas ruled at the end of the summer that the Obamacare requirement that health coverage providers must provide coverage for particular aspects of health care—and do so at no cost to the individual being covered—was unconstitutional. He’s currently considering whether to make his ruling permanent and if so, whether to make his ruling applicable only to the litigants in the particular case or to make it nationwide. (As an aside, I have trouble seeing how a ruling of unconstitutionality can have any range less than national.)

Michael Cannon, Cato Institute’s Director of Health Policy Studies, testified as an expert witness in the case that

People have a right to choose whether and what kind of health insurance they need and want. The government shouldn’t be requiring people to buy coverage of any service, whether preventive or otherwise.

O’Connor’s ruling to that extent would be partially correct. However, Government also shouldn’t be dictating to private companies what they must or must not produce. That’s textbook fascism.

There’s also no authority in our Constitution for government to determine what private companies can and cannot produce.

They Should Take Him Up on His Offer

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Many California local jurisdiction officials dispute with California Governor Gavin Newsom (D) over which has the larger responsibility for the homelessness rampant in those jurisdictions and what action should be taken to mitigate the problem. As a result of the dispute,

Mr Newsom recently put a temporary freeze on $1 billion of state grants for city and county homelessness programs. He also rejected a slate of proposals from local officials outlining how they would spend the money, saying the measures would have reduced homelessness statewide by 2% between 2020 and 2024, which he deemed inadequate.

In response,

Mayors and county officials, meanwhile, have said they need the Newsom administration to provide reliable, recurring revenue streams and a cohesive statewide framework to address the issue.

No, they don’t. City and county officials need to reassess their own spending priorities and their own ordinances regarding housing, employment, and homelessness and make their own adjustments. Nor should they be holding out for a Statewide “framework” for the problem: each local area has its own unique set of homeless problems, even if there might be considerable overlap among the areas.

Then these city and county officials need to accept Newsom’s generous offer to step back from interfering in city and county governance; they should accept his withholding from them of State funding.

The less State funding a city or county takes from the State government, the less hold on the city or county the State has and the weaker the ability of the State to dictate behaviors to the city or county government. This would be a relative increase in city and county power relative to the State and a net gain for the individual liberties of the local residents and the State citizens resident in there.

What’s not to like?

Whose Choice Is It?

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And whose property is it?

A new law being seriously considered by lawmakers in New York City could strip landlords of the ability to perform criminal background checks on prospective tenants.

Because landlords shouldn’t be able to control who rents their property, shouldn’t be able to protect the interests of their existing tenants—who have, by dint of their rent agreements, have some property of their own in the landlord’s buildings.

This law means it’s city government property; landlords possess the buildings only in fee from the city lords.

Republican Councilwoman Inna Vernikov has the right of it:

A bill which would prohibit landlords from conducting criminal background checks of potential tenants. Murdered someone? Beat up your girlfriend? Robbed? Stabbed your neighbor? No problem. Come live among us!

Certainly felons, even violent felons, shouldn’t be blanketly denied a second chance, shouldn’t be blanketly denied an opportunity to demonstrate that they’ve rehabilitated themselves, shouldn’t be blanketly denied an opportunity at redemption.

But that should be the choice of the property owner, the landlord; it cannot be, legitimately, a choice forced upon the property owner, in a one-size-fits-all diktat by the Lords of the city.

The Cost of Food

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Saturday’s Wall Street Journal had an article centered on the difficulty of passing a farm bill that, among other things, continues subsidies for farmers. The article included some words on the bill’s food stamp program and funding, including this remark:

...SNAP, the food-stamps program is generally aimed at helping low-income households afford to buy food.

There are at least two ways to help low-income households afford to buy food. One is to restore work/train for work/school requirements to the program, which in the end, increases those families’ income.

The other way is to get rid of the ethanol subsidies and requirements. Converting food to fuel additives drives up the costs of a whole range of foods, creating a closed loop of increasingly expensive food driving increasing need for food stamps. Cut that out.

Getting rid of the subsidies will help the farmers, too, by encouraging them to grow more food more cheaply and with their lower cost (already significantly lower than the cost of farming in other nations), gain global market share. And more income for farmers.

Financial Reporting

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A little bit in the weeds, here, but necessary for future understandings by some investors. The proximate matter is FTX’ collapse and bankruptcy (with possibly criminal activities associated).

In a footnote to the financial statements, the company said its “primary shareholder is also the primary shareholder of several related entities which do business with the company.” It didn’t say who the related parties were for any specific transaction it disclosed.
The standard accounting rules for disclosing related-party transactions are vague and have long been considered a weakness in the system. There is no clear-cut rule requiring companies to disclose the players in a related-party transaction. The rules do say, “If necessary to the understanding of the relationship, the name of the related party shall be disclosed.”

Some questions arise. Whose definitions of “necessary” and “understanding?” The way the rule is written, those definitions are left to the company—FTX, here—to determine, and what an investor or customer or client needs or wishes for his own understanding is unimportant.

FTX’s new CEO John Ray exposed part of the much larger problem in his FTX bankruptcy-court filing, in which he acknowledged that FTX’s financial information wasn’t trustworthy and that it was controlled by

 a very small group of inexperienced, unsophisticated, and potentially compromised individuals.

That potentially compromised part is key. Compromised by whom? In what way? That would seem clearly related to who those “related parties” are.

There’s more, related to arm’s length transactions, which are statutorily required in many business arrangements. Here’s a working definition of arm’s length transactions that’s good enough for our purposes:

A transaction in which the buyer and the seller have no significant, prior relationship. In an arm’s length transaction, neither party has an incentive to act against his/her own interest. That is, the seller seeks to make the price as high as he/she can, and likewise the buyer seeks to make it as low as he/she can. The negotiations for an arm’s length transaction result in the arm’s length price, which is almost always close to the market value of the asset being sold.

That drive for each party to work toward his own interest, and especially the resulting essentially market price for the things being transacted, also is key. How can an investor or a customer or a client know that a particular transaction within an FTX is legitimate or problematic under arms’ length requirements if the investor or customer or client can’t know who the related party is that’s do[ing] business with the company? And why is the investor or customer or client being actively denied this information? What’s being hidden?

This is, as RG Associates founder and member of the Financial Accounting Standards Board’s Emerging Issues Task Force, Jack Ciesielski, said,

a hole that needs to be fixed. The auditors would have to know who the related party is. Why not just put that in there? How hard can it be? By keeping it purposely opaque it’s defeating the purposes of the footnote.

And so do investors, customers, and clients need to know—hence the footnote, even if carefully vague in the present case. And hence the need to plug that loophole: require the related parties to be explicitly identified. There’s no free speech question here, no political speech would be chilled by this. Documenting business arrangements in a purely investment environment has nothing to do with our 1st Amendment.