Hayek on Funny Business

 

I read in the WSJ today that Amazon gets a $1.46 subsidy per parcel for the last mile delivery. Bezos, you thief, put down the Prime package slowly and slide the money back to the taxpayer. Carefully. Slowly. No funny business.

But that is kind of what business, big business, has become. Funny Business. Jamie Dimon of JP Morgan Chase in an interview in The NY Times magazine explained back in the dark days of 2009 that Chase was adding a sixth business line, government relations. Wow! Such candor.

Elon Musk makes a dreamy electric car, the Tesla S 90. 0-60 in minus 2.3 seconds. Beam me up or forward, as you wish. She is kind of sexy. Love it. And Musk’s auto company is worth more than GM or Ford or just about every other auto company combined, even though Tesla makes a tiny fraction of the cars they do. But don’t cry for GM Argentina, they are after all, Guvament Moteurs.

So why is Tesla worth so much? Well Elon makes electric cars and that makes government grants, subsidies, tax credits, and dinner on the taxpayer. The calculation is that Musk’s company’s value equals about the same amount as his government subsidies.

Call Hayek. Those theories were simply wrong. The government can create value!

And those Tesla’s are good for the climate (except when recharged by dirty midwest coal power plants) and good for my testosterone shot (I am definitely feeling a bit low-T). However, what is a lion without the grrrr? Can a Tesla S be a babe magnet like say a McClaren 720S (with only 3.9 lbs per horsepower – vrrrooom, vrrrooom)? Well, kinda.

Tesla’s sound barrier breakers are so quiet no one, not even you, can tell they are scratching off. They accelerate like a 747 at 35,000 feet shifting from 400 mph to 500 mph. You feel it, but there is no vibration in your soul.

To deal with this near silence in a Tesla, I decided one can play car engine noises on an Apple iPhone to make it sound like the storm and crank of raw acceleration in the morning, the smell of victory. I learned this from reading that Jaguar amps up its engine sounds with speakers located next to the engine…. virtual horsepower. Is nothing sacred? Jag too gets state assistance – but quietly.

Now my iPhone is made by Apple who uses Ireland as a phony corporate location to lower its taxes to the point that they are smaller than that chip that runs my Apple Watch. US taxpayers be damned.

Then there is me, I order all sorts of stuff on Amazon, used books by Friedrich Hayek, new books by Salma Hayek, special scented candles, Cheerios from Amazon’s newest acquisition, Whole Foods, and the occasional bag of cement. And when I do this I am the one who gets that $1.46 subsidy – which makes the deliveries of 50 lb. bags of cement economical. Memo to myself, order more, get more $1.46 rebates. You gotta problem with dat? How about a cement suit for you? If you order in the next 2 hours and 17 minutes, Amazon can deliver a bespoke cement suit by 8:00 PM tomorrow, subsidized.

So to heck with the rest of you. I am planning on buying a government subsidized Tesla – after my fragile Porsche 911 sort of had a senior moment (not enough government subsidies for Porsche). I will cash in on those Tesla subsidies. Or, I may buy a government financed (rescued) GM ‘Vette. Sweet. I am typing this on my iPad and checking my Apple Watch to see what time it is before my next Prime delivery, all purchased for a price deeply subsidized by tax avoidance and a holding company in Barbados owned by an Apple subsidiary in Panama and arranged by a lawyer located in the Caymans. And lest you think there is a limit to my venality, I will order my car, food, and new Apple Watch VII on Amazon – that buck and a half makes it a great deal and all this possible. The government is my friend, BFF and most definitely a “best friend with benefits.”

The public trough is open. Its all you can eat. Just don’t make too much noise.

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  1. Steve C. Member
    Steve C.
    @user_531302

    RushBabe49 (View Comment):
    The USPS might even be profitable, if it was not required by Congress to pre-fund retiree pensions! Half its income goes to pay retired employees not to work!

    When this was done, I considered it an improvement. Still do. In the long term, this will benefit the US taxpayers.

     

    • #31
  2. James Madison Member
    James Madison
    @JamesMadison

    Umbra Fractus (View Comment):
    What this ultimately comes down to is that people are upset that Amazon is not paying more than they need to.

    Should the USPS charge Amazon, and only Amazon more to make up for the so-called, “subsidy?”

    No.  It should make sure it’s ward (USPS) covers all its costs and does not disrupt markets to earn marginal revenues.   A marginal revenue model eventually results in someone recapitalizing the entity.

    • #32
  3. James Gawron Inactive
    James Gawron
    @JamesGawron

    James Madison (View Comment):

    James Gawron (View Comment):
    . . .In short, Musk is a genius because the rest of us are idiots.

    Regards,

    Jim

    Read the Powerline article referenced in my post. Two parts. Very well done. When oil reaches $300, electric cars without subsidy will make sense.

    JM,

    Yes, and after I’ve chopped everybody’s legs off my prosthetic leg manufacturing company will make me a fortune. There is no long term reason for oil to go over $300 a barrel and plenty of reasons for it to drop in price again. Only ridiculous phony global warming induced hyper-regulation could possibly do this. The green energy scam relies on Goebbels fundamentals of propaganda. Just repeat the big lie long enough and after a while everyone just assumes it to be true.

    The Paris accords are stupid garbage. We don’t need all electric cars. The perils of battery manufacturing on a massive scale are probably the most likely unacceptable threat to the environment that I can imagine. Meanwhile, Elon Musk tells people what they want to hear, even if it’s nonsense, and makes fortune doing it.

    Regards,

    Jim

     

    • #33
  4. I Walton Member
    I Walton
    @IWalton

    Governments create distortions and business take advantage of them.   Interests build up around government mistakes and distortions and make them almost impossible to remove.  It’s why we have to fight against every intervention, and tax and subsidy the Feds want.  The USPS obviously undercharges for lots of bulk mail.  We get hundreds of slick catalogs every week.  That only happens because some costs aren’t being properly assigned, including, I would suspect to paper being used so that my trash collectors have more and heavier waste than otherwise.  We don’t even recycle those things any more.  Whenever something appears to make no economic sense, look for a government thumb on the scale.

    • #34
  5. The Reticulator Member
    The Reticulator
    @TheReticulator

    I have no problem with using Amazon as a club with which to whack the government into behaving itself better.

    Excellent, excellent article, Mr. Madison. The only thing I would have added is a reference to corporate welfare, even though this example isn’t precisely what is usually meant by the term.

    • #35
  6. Steve C. Member
    Steve C.
    @user_531302

    I Walton (View Comment):
    The USPS obviously undercharges for lots of bulk mail. We get hundreds of slick catalogs every week. That only happens because some costs aren’t being properly assigned,

    In a large network, some someone is usually almost always allegedly subsidizing some other someone.

    If my house is a block away from the post office, shouldn’t my first class postage fee be less than a farmer in west Texas living 40 miles away from the post office?

    I agree with your main contention that it’s all about how you assign costs. But there is no ONE correct answer to how those costs should be allocated. And just to make the cost accounting problem more Byzantine, we are talking about a government service/jobs program/political football. Just as we continue to subsidize Amtrak passenger rail service to East Jehoshaphat, our politicians presume to know the correct price of a first class postage stamp.* Which all things being equal, permits me to send a letter from Key West to Anchorage for the bargain price of $.47. The same price as from Key West to Miami.

    In defense of the USPS, one original purpose of the postal system was to unite the nation. I would certainly be open to the argument that it is becoming obsolete. But I’m not ready to sign up for consigning it to a museum.

    * Technically set by an independent board.

     

     

    • #36
  7. Umbra Fractus Inactive
    Umbra Fractus
    @UmbraFractus

    Whenever a headline accuses the government of “subsidizing” a private entity, it’s almost always an attack on the private entity. This is especially true if the “subsidy” takes multiple paragraphs to explain as it does in this case.

    • #37
  8. Jamie Lockett Member
    Jamie Lockett
    @JamieLockett

    Umbra Fractus (View Comment):
    Whenever a headline accuses the government of “subsidizing” a private entity, it’s almost always an attack on the private entity. This is especially true if the “subsidy” takes multiple paragraphs to explain as it does in this case.

    It’s not even a subsidy.

    • #38
  9. Umbra Fractus Inactive
    Umbra Fractus
    @UmbraFractus

    Jamie Lockett (View Comment):

    Umbra Fractus (View Comment):
    Whenever a headline accuses the government of “subsidizing” a private entity, it’s almost always an attack on the private entity. This is especially true if the “subsidy” takes multiple paragraphs to explain as it does in this case.

    It’s not even a subsidy.

    That’s what I was hinting at with the “multiple paragraphs” line.

    • #39
  10. James Madison Member
    James Madison
    @JamesMadison

    Jamie Lockett (View Comment):

    Umbra Fractus (View Comment):
    Whenever a headline accuses the government of “subsidizing” a private entity, it’s almost always an attack on the private entity. This is especially true if the “subsidy” takes multiple paragraphs to explain as it does in this case.

    It’s not even a subsidy.

    Jamie,

    The World Trade Organization (WTO) has a broader definition of subsidies, one more in conformance with economic reality and perhaps less formal or legal. It considers a subsidy to be any financial benefit provided by a government that gives an unfair advantage to a specific industry, business or even individual.  Another definition might be anything a government does that reduces the cost of doing business for some and not for others. (Source: World Trade Organization, World Trade Report 2006, “Defining Subsidies”). It matters not that anyone might benefit, so long as one group can gain advantage over their competitors by the contrivance.  Society is paying to ‘subsidize’ one group or activity by government action.

    Viewed this way, banking regulation that requires onerous and expensive reporting which favors big banks with big money and harms small, community banks or mid-sized banks is a form of subsidy.  In general regulation subsidizes big companies and consolidation over smaller firms and diversity.   Fannie Mae and Freddie Mac employed their status as GSE’s with the implied guarantee of the the U.S. Govt. to underwrite uncreditwothy loans and essentially build a bonfire of subprime lending.  This displaced some home buyers and disintermediated lenders, some of whom fell back on even higher risk lending practices to stay in the game and make matters worse.

    Amazon is reaping a pile of savings driving their truck through this shambolic USPS pricing structure supported by the tax payer who is the USPS’s ultimate guarantor.

    Reflecting primarily Whig sentiments, the US Constitution attempted to address the use/abuse of govt to subsidize one group over another with the Apportionment Clause (taxes), the Uniformity Clause and the controversial General Welfare Clause.  The 16th Amendment, court cases and regulatory fights in Butler, et. Al., eventually gave favor to the government to tax, take private property and meddle more deeply in markets in a way that allows it to intentionally or unintentionally pick winners and losers.  Thus, the USPS and its twisted pricing to generate marginal revenue, while creating an opportunity for Amazon to “draft” in its wake winds up favoring Bezos over Mom and Pop.

    Who believes the USPS is more efficient (by $1.46 per package) than FedEX and UPS in last mile delivery when all costs are fully priced?  QED: something is being subsidized in a WTO sense.

    The US govt is such a large gorilla, it is always favoring someone, and the bigger it gets, the more it leans and crushes.  Its the nature of government.

    • #40
  11. James Madison Member
    James Madison
    @JamesMadison

    The Reticulator (View Comment):
    I have no problem with using Amazon as a club with which to whack the government into behaving itself better.

    Excellent, excellent article, Mr. Madison. The only thing I would have added is a reference to corporate welfare, even though this example isn’t precisely what is usually meant by the term.

    Well, Recticulator, I wrote this tongue in cheek, satirically, and even a little sarcastically…, the latter is not appreciated by some.  But my theme was, we are all woven into the big state’s dabbling in private markets.  Dabbling, like pushing on a balloon, leads to adjustments.  People react.  Their reactions may have been intended and unintended consequences by the dabbler.  Things often go awry.  The USPS handing out below market pricing to Amazon might be one example.

    We are all in the fish bowl, dependent to some degree or benefitting in some way whenever the government’s universe changes.  And our government is so pervasive today, it is defining and affecting our economic lives in millions of ways.  We all adapt, move on, and build this into our way of doing things (buying from Amazon, buying Apple products, or buying Tesla’s even).  Hayek understood this and made the case that this was inefficient, and resulted in a form of servitude.

    Like it or not, we are not only victims of creeping corporate welfare, we are corporate welfare beneficiaries and wards.

    • #41
  12. I Walton Member
    I Walton
    @IWalton

    Steve C. (View Comment):

    I Walton (View Comment):
    The USPS obviously undercharges for lots of bulk mail. We get hundreds of slick catalogs every week. That only happens because some costs aren’t being properly assigned,

    In a large network, some someone is usually almost always allegedly subsidizing some other someone.

    If my house is a block away from the post office, shouldn’t my first class postage fee be less than a farmer in west Texas living 40 miles away from the post office?

    I agree with your main contention that it’s all about how you assign costs. But there is no ONE correct answer to how those costs should be allocated. And just to make the cost accounting problem more Byzantine, we are talking about a government service/jobs program/political football. Just as we continue to subsidize Amtrak passenger rail service to East Jehoshaphat, our politicians presume to know the correct price of a first class postage stamp.* Which all things being equal, permits me to send a letter from Key West to Anchorage for the bargain price of $.47. The same price as from Key West to Miami.

    In defense of the USPS, one original purpose of the postal system was to unite the nation. I would certainly be open to the argument that it is becoming obsolete. But I’m not ready to sign up for consigning it to a museum.

    * Technically set by an independent board.

    Yes and they did.  But some things are just subsidies for people with k street perch and they always will be.

    • #42
  13. Umbra Fractus Inactive
    Umbra Fractus
    @UmbraFractus

    James Madison (View Comment):
    The World Trade Organization (WTO) has a broader definition of subsidies, one more in conformance with economic reality and perhaps less formal or legal. It considers a subsidy to be any financial benefit provided by a government that gives an unfair advantage to a specific industry, business or even individual. Another definition might be anything a government does that reduces the cost of doing business for some and not for others. (Source: World Trade Organization, World Trade Report 2006, “Defining Subsidies”). It matters not that anyone might benefit, so long as one group can gain advantage over their competitors by the contrivance. Society is paying to ‘subsidize’ one group or activity by government action.

     

    This is asinine. This is nothing more than muddying the definition so that activists can claim subsidies where there are none. Yes, it does matter that “anyone might benefit.” It matters a lot.

    • #43
  14. Jamie Lockett Member
    Jamie Lockett
    @JamieLockett

    James Madison (View Comment):
    The World Trade Organization (WTO) has a broader definition of subsidies, one more in conformance with economic reality and perhaps less formal or legal. It considers a subsidy to be any financial benefit provided by a government that gives an unfair advantage to a specific industry, business or even individual. Another definition might be anything a government does that reduces the cost of doing business for some and not for others. (Source: World Trade Organization, World Trade Report 2006, “Defining Subsidies”).

    Except that’s not what is happening. It’s a pricing issue by the USPS.

    • #44
  15. James Madison Member
    James Madison
    @JamesMadison

    Jamie Lockett (View Comment):
    Except that’s not what is happening. It’s a pricing issue by the USPS.

    Mis-pricing or discriminatory pricing by a government body is what is happening and that amounts to someone not paying full freight.  So is this a micro economic error or intentional?  Either way someone is getting a deal and both the USPS and Amazon know this.  Some one is or will pay for this.  And that is a subsidy whether intended or not, and given that every one knows about this, it is probably intended.

    • #45
  16. Jamie Lockett Member
    Jamie Lockett
    @JamieLockett

    James Madison (View Comment):

    Jamie Lockett (View Comment):
    Except that’s not what is happening. It’s a pricing issue by the USPS.

    Mis-pricing or discriminatory pricing by a government body is what is happening and that amounts to someone not paying full freight. So is this a micro economic error or intentional? Either way someone is getting a deal and both the USPS and Amazon know this. Some one is or will pay for this. And that is a subsidy whether intended or not, and given that every one knows about this, it is probably intended.

    Anyone who uses the USPS gets that price. This isn’t discrimination it’s just the price that USPS is charging.

    • #46
  17. Jamie Lockett Member
    Jamie Lockett
    @JamieLockett

    Fortune’s counter piece to the WSJ article makes many of the same points other’s have made here with one very revealing fact: the author of the WSJ piece works for an investment company with a significant position in FedEx stock – now we now why he went after the USPS.

    • #47
  18. The Reticulator Member
    The Reticulator
    @TheReticulator

    Jamie Lockett (View Comment):
    Fortune’s counter piece to the WSJ article makes many of the same points other’s have made here with one very revealing fact: the author of the WSJ piece works for an investment company with a significant position in FedEx stock – now we now why he went after the USPS.

    Good for him. That’s the way it’s supposed to work.

    • #48
  19. The Reticulator Member
    The Reticulator
    @TheReticulator

    I hope that whether or not it’s technically a subsidy, everybody here is willing to go to work to have USPS charge more nearly what it costs to deliver packages, so as not to cause unfair competition with private companies.

    I hope that everyone here also agrees that it’s not healthy to have a winner-take-all behemoth like Amazon.   Three of the things that lead to winner-take-(almost)-all markets are:

    One. Improvements in communications

    Two. Improvements in transportation

    Three. Uniform regulation

    I don’t think anybody wants to do away with real improvements in communications and transportation, but we don’t need the kind of artificial, market-distorting improvements in transportation that are benefiting the Amazons at the expense of  brick-and-mortar retailers.

    • #49
  20. Jamie Lockett Member
    Jamie Lockett
    @JamieLockett

    The Reticulator (View Comment):
    I hope that whether or not it’s technically a subsidy, everybody here is willing to go to work to have USPS charge more nearly what it costs to deliver packages, so as not to cause unfair competition with private companies.

    I hope that everyone here also agrees that it’s not healthy to have a winner-take-all behemoth like Amazon. Three of the things that lead to winner-take-(almost)-all markets are:

    One. Improvements in communications

    Two. Improvements in transportation

    Three. Uniform regulation

    I don’t think anybody wants to do away with real improvements in communications and transportation, but we don’t need the kind of artificial, market-distorting improvements in transportation that are benefiting the Amazons at the expense of brick-and-mortar retailers.

    Why should we pressure the usps to change its prices? There could be a business reason we don’t know about. For example: the USPS is required by law to deliver first class mail and must deliver everywhere in the US, something FedEx and UPS aren’t required by law to do. Perhaps these prices exist as a way to increase capacity along routes they are already being forced to service anyway. Perhaps it’s a way to recapture market share from other services. Let the post office set its own prices – it is a privatized company after all.

    • #50
  21. Jamie Lockett Member
    Jamie Lockett
    @JamieLockett

    The Reticulator (View Comment):

    Jamie Lockett (View Comment):
    Fortune’s counter piece to the WSJ article makes many of the same points other’s have made here with one very revealing fact: the author of the WSJ piece works for an investment company with a significant position in FedEx stock – now we now why he went after the USPS.

    Good for him. That’s the way it’s supposed to work.

    Sure and it’s the job of the rest of us to look at all available information.

    • #51
  22. The Reticulator Member
    The Reticulator
    @TheReticulator

    Jamie Lockett (View Comment):

    The Reticulator (View Comment):
    I hope that whether or not it’s technically a subsidy, everybody here is willing to go to work to have USPS charge more nearly what it costs to deliver packages, so as not to cause unfair competition with private companies.

    I hope that everyone here also agrees that it’s not healthy to have a winner-take-all behemoth like Amazon. Three of the things that lead to winner-take-(almost)-all markets are:

    One. Improvements in communications

    Two. Improvements in transportation

    Three. Uniform regulation

    I don’t think anybody wants to do away with real improvements in communications and transportation, but we don’t need the kind of artificial, market-distorting improvements in transportation that are benefiting the Amazons at the expense of brick-and-mortar retailers.

    Why should we pressure the usps to change its prices? There could be a business reason we don’t know about. For example: the USPS is required by law to deliver first class mail and must deliver everywhere in the US, something FedEx and UPS aren’t required by law to do. Perhaps these prices exist as a way to increase capacity along routes they are already being forced to service anyway. Perhaps it’s a way to recapture market share from other services. Let the post office set its own prices – it is a privatized company after all.

    It gets to borrow money at tax-subsidized rates and it pays no taxes.  So it’s not so privatized, after all.  And it’s able to keep competitors from using the same mail boxes it uses – even though those mail boxes are paid for by private citizens.  So given those subsidies and tax breaks, the U.S.P.S. has no business keeping its “business reasons” private.

    • #52
  23. The Reticulator Member
    The Reticulator
    @TheReticulator

    Jamie Lockett (View Comment):

    The Reticulator (View Comment):

    Jamie Lockett (View Comment):
    Fortune’s counter piece to the WSJ article makes many of the same points other’s have made here with one very revealing fact: the author of the WSJ piece works for an investment company with a significant position in FedEx stock – now we now why he went after the USPS.

    Good for him. That’s the way it’s supposed to work.

    Sure and it’s the job of the rest of us to look at all available information.

    I’d think you could squeak out a few words of praise for a company that looks after its own interests instead of being intimidated into silence by the government.

    • #53
  24. Umbra Fractus Inactive
    Umbra Fractus
    @UmbraFractus

    The Reticulator (View Comment):

    Jamie Lockett (View Comment):

    The Reticulator (View Comment):

    Jamie Lockett (View Comment):
    Fortune’s counter piece to the WSJ article makes many of the same points other’s have made here with one very revealing fact: the author of the WSJ piece works for an investment company with a significant position in FedEx stock – now we now why he went after the USPS.

    Good for him. That’s the way it’s supposed to work.

    Sure and it’s the job of the rest of us to look at all available information.

    I’d think you could squeak out a few words of praise for a company that looks after its own interests instead of being intimidated into silence by the government.

    Except that in this case “looking after its own interests” involves falsely accusing a competitor of collusion with the government.

    • #54
  25. The Reticulator Member
    The Reticulator
    @TheReticulator

    Umbra Fractus (View Comment):
    Except that in this case “looking after its own interests” involves falsely accusing a competitor of collusion with the government.

    Maybe I missed it, but I haven’t seen an accusation of “collusion,” much less a false one.  But then, I don’t have access to the WSJ article, so haven’t been able to read it.

    • #55
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