Two COVID-19 Problems; One Solution

COVID-19 causes many problems.  Two have popped up this week.  Two very different sets of officials in two very different places are confronting two very different sets of problems.  The Italian government has a specific COVID-19 problem: the price of face masks.  The University of Wisconsin has a more general COVID-19 problem including the likelihood that both sources of revenue, student tuition and the state government, will not meet expectations.

The Italian government has created a problem for itself by replacing market signals with central planning.  Alberto Mingardi at the WSJ tells it all in the headline: Italy’s COVID Price-Control Fiasco.  As folks often say, to be fair, we should only report when government price controls are not a fiasco.  Still you should read the whole thing just to remind yourself of the problems of central planning.  Here is a tidbit:

Companies were allowed to import only masks that were already allocated to health-care institutions. No one was allowed to import masks and sell them to the highest bidder. Those who were buying up masks to hoard risked government confiscation. These moves clamped down on price gouging but created a shortage. Through a later adjustment, importers were able to keep 20% of their masks to sell on the market. Yet the signal was clear: importing face masks is better not left to “animal spirits.”

Central planning always leads to the need for more central planning.  Later, Alberto lets us know that the market worked for hand sanitizer.

On this side of the Atlantic, the University of Wisconsin System (UWS) has created The Blueprint For The UWS Beyond COVID-19.  UWS has two different meanings.  Sometimes UWS means all 26 campuses.  The Blueprint applies to all 26 campuses.  UWS also means UWS central administration.  They created the Blueprint.  It is no surprise when they conclude:

To address the significant costs of the COVID-19 pandemic, the University of Wisconsin System must play a more direct role in operations at the campus level to more rapidly achieve systemwide efficiencies.

We are convinced that UWS works because each campus has a fair degree of autonomy.  Perhaps you should read it all.  It is only seven pages and it sounds plausible but it will meet with all the problems of central planning.

So we have two different sets of officials on two sides of the Atlantic dealing with COVID-19 and they both decide that they need more power to solve the problem.  We know in Italy that the people being planned took “unexpected” actions.  Expected the “unexpected” in Wisconsin too.  Another action we can expect is for more officials to conclude that more central planning is the solution to COVID-19 problems.  We really should expect the “unexpected” from both the planners and the planned.

Prices And Bridge

American Contract Bridge League (ACBL) has a nice little monopoly.  If you are a serious duplicate bridge player then they have exclusive rights to hold tournaments or designate who holds them and decide on the allocation of points that allows us to put our rank in our obituary to impress our bridge playing friends.

Of course, COVID-19 has changed all of that.  No more in-person bridge tournaments.  Theeleven day tournament in Montreal in July has been cancelled.  Eleven days is not a typo.  To get an idea of all that goes on here is a list of the still scheduled event in Tampa in the fall.  On the other hand, COVID-19 has been great for Bridge Base Online (BBO) because you can find competition there.  This weekend BBO and ACBL joined forces to a Stay @ Home, Play @ Home tournament complete with very desirable gold points.  Here is 36 page document on classifications and different color points if you are interested.  We don’t play many tournaments but the prices for this online tournament were close to same amount as in-person tournaments.

There was an announcement of the tournament on BBO and a section for comments.  As one would expect, every comment complained about the price.  Most mentioned that an online tournament has less costs to ACBL than in in-person tournament.  An ACBL email gives us a counter argument of lower costs to the player:

Who doesn’t love a big regional – especially when there are no travel or hotel expenses! We hope to see every table full. There are I/N games, Gold Rush pairs, two-session Open Pairs and side games – something for everyone.

There is another argument that ACBL gets to indirectly in its email. The variable cost model puts revenue as units * price and costs as fixed costs (they don’t change with units) plus variable cost per unit times units.  When units approach zero the organization has a problem because they can’t cover fixed costs.  ACBL has that problem.  Here is what the email says later on:

At the beginning of April, staff was reduced to a 32-hour work week, taking a 20% pay cut. Management took the pay cut as well, but many saw no reduction in work hours. Now that we have a better idea of what is before us, we had to make the difficult and sad decision to furlough much of our staff. [Emphasis added.]

We could have an interesting discussion about which employee costs are fixed and which are variable.  It is interesting academically but not practically.  ACBL, like most organizations, is reducing costs by furloughing employees.

Price, of course, is really useful information for decision makers.  Complaints don’t matter.  Sales do matter.  How did bridge players react to the price on the first tournament?  The sections we played in were sold out or close to sold out.  We expect to see many more online tournaments.  Will they be successful?  The price mechanism will let us know.

 

 

Price Controls

We reported with great sadness that Wisconsin had set up a mechanism to try to identify and punish price “gouging”.  We are even more distressed to find out that Michigan is trying to take action:

LANSING, MICHIGAN — Michigan Attorney General Dana Nessel has accused home improvement chain Menards of price[“] gouging[“] during the coronavirus pandemic.

Sigh!  Not only is the state of Michigan not helping its citizens but it is actively trying to stop companies from getting products to consumers.  We had hoped for bipartisanship but Dana, like The Suit, is a Democrat.  Don’t worry because bipartisanship is out there on this issue.  As The Frontrunner has made identity a critical criteria for nominations and Dana fits multiple criteria  we might see her name again.

Gel in and gel out when you go there but we would encourage you to go to Menards and buy something ASAP.

Fun With Price “Gouging”

Mark Perry makes fun of price “gouging” at Carpe Diem today.  As we said earlier, Wisconsin will not be the only state and the Democrats will not be the only party to do stupid things to try to deal with shortages.  Here is part of his warning:

WARNING: As I’ve written many times in the past about price gouging charging market prices for goods that are in high demand and short supply, the unintended and unseen adverse consequences of enforcing anti-price gouging laws are predictable, unfortunate, and avoidable. While government price controls may be motivated by an understandable desire to help consumers during the coronavirus pandemic by keeping prices for critical supplies low, those artificially low prices exert secondary effects that are guaranteed to retard the adjustment process.

Of course you should read the whole thing.

Price Controls Again

The Suit is predictable.  We can’t find it online but cub reporter Emily Hamer, a 2019 graduate (we showed you we found that to show we looked for the article both by The Suit and the reporter), reports that “Governor signs orders limiting retailers during COVID-19 emergency.”  He has even identified the enforcement agencies to combat “price gouging” which is “the increasing of prices of goods much higher than would be considered fair.”  Sigh.

It is hard to believe that COVID-19 is an emergency if we waste time on price controls.  We try to be kind to The Suit and his ilk but this is world-class stupidity.

Sidebar: To be clear, we mean price controls are stupid for the ruled.  They may be smart for The Suit and other rulers because it looks like they are doing something when they are actually stopping people from getting what they need.  End Sidebar.

Price controls means that the consumers will be looking for benefits and find more empty shelves. It means that retailers will either ignore the order or be worrying about limiting purchases and other things rather than getting us the stuff we need.  Higher prices also are a means to stop hoarding.  It means that the bureaucrats will either ignore The Suit causing one set of problems or, even worse, take him seriously and make life miserable for everyone by using up their time.

We want to be clear that GOP suits too.  That is really sad.  We capitalistic orphans are lonelier than the folks in quarantine.

Illustrating The Social Media Problem

Kevin D. Williamson has written a book on the social media problem, The Smallest Minority: Independent Thinking In The Age Of Mob Politics.  You should read it but if you don’t we have a neat and, we think, strange illustration for you.  Before we begin, you should know, if it isn’t obvious, that stars drive attendance in sports.

We were listening to Jason Davis on the United States of Soccer on Sirius XM a few days ago.   One of the teams, it was Dallas FC, had created an opportunity for fans to buy a package to see (three?) Mexican stars when their teams came to visit.  None of these guys are Babe Ruth or Michael Jordan but it was a sensible marketing plan to help to fill the stadium.  Jason and Dallas fans twitterers were up in arms.  We are not making this up.  They were saying how dare the club encourage people who are not rabid fans to come to the park!  It is as foolish as it sounds.  Yet these foolish and angry tweets got the package allegedly removed from the Dallas FC web page.  We went there and found no mention of it but it might be hidden.

Jason and the twits are a great example of mob rule and mob foolishness.  They are saying that they don’t want more fans at the park unless they are pure.  That is not how you fill a stadium.  For example, we are a season ticket holder to an out-of-state team.  We go to see them once or twice a year.  We are not anywhere near rabid supporters but it helps them fill seats.  We know a baseball season ticket holder that sells his tickets to fans of his team’s biggest rivals.  Is he not a big fan?  It is a financial decision as he can only afford the tickets that way.

It does tie into our current political culture because these rabid fans want control of the club and control of the other season ticket holders.  It is another form of wealth envy.  We often hear fans who want to stop Vikings season ticket holders from selling tickets to Packer fans.  One party owns them and another doesn’t.  If Packer fans are willing to pay exorbitant amounts for ticket then folks are going to sell.

Getting more fans in the park will help the club.  Getting more people in the park will generate more rabid home fans.  But as Kevin points out, Twitter is not a place for thinking.  Social media is, as Dallas FC illustrates, a place for mob thinking.  And mob thinking is rarely good thinking.

2019 Women’s World Cup

The USA has won the 2019 Women’s World Cup (WWC) for the second consecutive time and the fourth time over all.  The have been eight WWC and the USA has four golds, a silver, and three bronzes.  We have team to be proud of.

There has been much talk about equal pay for the US national teams.  Here is a story from Business Insider (BI) published a few years ago with some details.  It appears that a chant for equal pay broke out after the USA won the WWC final against the Dutch.  What is the rationale for such a recommendation?  Is it equal pay for equal work?  No, none of the women would make the men’s team.  Is it revenue generation?  Perhaps. The WWC does get high TV ratings in the US.

As of 2017, the 2015 FIFA Women’s World Cup Final was the most watched football  [soccer] match in American history with nearly 23 million viewers,[25] more than the 2015 NBA Finals and Stanley Cup.[26] It was also the most watched Spanish-language broadcast in tournament history.[25] More than 750 million viewers were reported to have watched the tournament worldwide.

The total revenue, however, generated by the WWC is minuscule compared to the World Cup.  The same Wikipedia item tells us:

The 2015 Women’s World Cup generated almost $73 million, the 2018 men’s tournament generated an estimated $6.1 billion in revenue. [Emphasis added]

We could find similar numbers for club soccer.  It doesn’t seem that you would get far towards equal pay using revenue generated as a rationale.  As a related issue, the national team can outbid clubs for women but not men.

The success of the women’s team is more reasonable argument for equal pay.  It appears from the BI story (we expect all the prices have gone up) that the US men’s and women’s teams do earn about the same.  The US women win almost all of their matches.  The US men do not.  The US women win the WWC.  The men didn’t even qualify to the last one and have won eight of their 32 matches in the World Cup.  So, using the BI chart, and saying that the women win 20 and the WWC and the men go ten and ten and miss the WC then the men get $182 K and the women get $174 K.  We could argue about the exact details and they are different than they were in 2016 but the structure looks close to right to us.

 

TV Pricing And Structural Problems

We went to check out the Women’s World Cup third place and championship game because some the previous games have been on FS1 and others on Fox.  When we turned on the local Fox station DirecTV directed us to this.  It says in part:

We [DirecTV and ATT]  had hoped to prevent Nexstar from removing its stations from your TV channel lineup. We even offered Nexstar more money to keep their stations available. However, Nexstar simply said no and chose to remove them instead. By doing so, Nexstar has put you in the center of its negotiations.

Nexstar is

Nexstar Media Group is one of the largest local TV station operators in the country. With the reach of 174 full power television stations in 100 markets addressing nearly 38.7% of US television households, and a diversified, growing digital media operation, Nexstar Media Group offers superior audience engagement across all media devices and local broadcast television’s unrivalled influence on consumers’ purchasing and political decisions.

Nexstar has a different story on the negotiations:

Nexstar has been negotiating in good faith to establish a mutually agreeable contract with AT&T/DIRECTV and has offered AT&T/DIRECTV the same rates it offered to other large distribution partners with whom it completed successful negotiations with in 2019 to date.  Over the past 20 months alone, Nexstar has successfully renewed more than 390 distribution agreements with cable providers for the carriage of Nexstar’s stations.  Nexstar would like to continue to try to reach a fair agreement with AT&T/DIRECTV and allow its viewers to receive their local stations again.

Well, it is obvious to us that both DirecTV and Nexstar have put us at the center of their negotiations.  They have done it during one of the time sensitive shows that we don’t want to miss.  We feel like it is The Donald and China again.  It both cases we are human shields.  We don’t like it.

One thing we do like is the story.  It tells us that Nexstar and DirecTV are under great economic pressure from other sources.  Everyone knows they are losing viewer and/or subscribers who are cutting the cable.  Good!  Markets do run at the margin.

TV has serious economic problems because the markets have structural problems.  We have free TV that sells ads to make a profit.  Of course, many of us (most would be our guess) pay to get it over cable and satellite for a fee.  Those providers have strange pricing systems that bundle stations and strongly advantage new subscribers while disadvantaging folks like us that don’t like to change.  Then there are a bunch of Internet services that don’t tell you much about the service. You need to ask a user or sign up and figure it out.  For those of us that don’t like to leave it is a big turn-off.  Consumers are getting more savvy (even us, a little) and the markets will shake out but it will take time.   We will see more transparent pricing soon but we will be stuck with low entry prices.

Not A Surprise

We saw a link to this on Facebook.  We don’t know if the study is bona fide or not but the analysis is another one of those surprises that does not surprise anyone that actually thinks about the question.  Perhaps the 44th president was surprised.  The study was comparing the longevity of women that owned horses to those who didn’t.  It doesn’t mention men.

By the end of the study, they found surprising results. Women who owned a horse lived for 15 years longer. This result was true for women of different ages and nationalities. The scientists even looked at data from 50 countries to see if the results were accurate. It turns out that owning a horse is extremely good for your health. [Emphasis added]

Well, we are pretty sure that owning a horse implies wealth and exercise.  Both of those things are good for your health.  Charles Murray has shown the connection between wealth and health and Coming Apart.  The connection between excise and health seems obvious.  It is not the horse.  It is the horse that is a proxy for other things.  For example, we predict that almost all horse owners have a dog.  The dog is equally unlikely to be the cause of longevity.  If you want to live longer walk up the stairs instead of buying a horse.

Postal Service Allocations II

Recently we wrote that the arguments put forth by The Donald and others that the US Postal Service (USPS) was giving Amazon a subsidy were unconvincing because fixed cost allocations are arbitrary.

Sidebar One: We use first person plural, Sidebars and don’t cite ourselves.  We don’t have that many posts that you can’t look and check.  That is how we roll.  End Sidebar One.

We have changed our mind and concluded that The Donald and others are not just unconvincing but they are wrong.  In looking at the evidence we see that the USPS has excess capacity because there is less first class mail.  The USPS has capacity and Amazon has packages.  The USPS is using Amazon to support first class mail rather than the other way around.  We should salute a not-for-profit organization for making such astute business decisions.

Sidebar Two: An interesting question is what is the extent of the USPS’s fixed costs.  Do they, or realistically, to what extent should labor costs be included.  There is a nice research opportunity there.  End Sidebar Two.

There are reasons to be upset with the USPS.  The Amazon deal is not one of them.