Farmers' Market franchisee

I was talking to a baker at a farmers' market yesterday. My girlfriend bought the loaf of break pictured to the left and I asked about where the recipe came from for the sold-out apple pie bread.

I turned out it came from another baker within the corporation.

As loyal shills of this blog will remember, I do not think there is anything wrong with going to a farmers' market or buying from a local company; I just don't see it as a virtue or a way to make the local economy wealthier.

However, the activists that do may feel bamboozled when they learn that Great Harvest Bread Company packages its food and surrounds itself in the veneer of what appears to be a locally-owned independent company but is actually a national franchise - one that costs $55,000 to $90,000 to join and charges royalties that start at 7 percent.

So much for that silly "keep the money in the community" nonsense.

Now, there is nothing wrong with Great Harvest Bread Co., they have been around a lot longer then the snobby local food movement and the bread I had from them was great. They make a product people clearly enjoy at prices they are willing to pay. This is not a criticism of their business, but a nod to their ingenuity.

It only makes sense that large corporations would tap into the locavore movement and the farmers' market game, such as Sprouts Farmers Market. What's clever here is that Great Harvest Bread Company is slipping seamlessly into the markets instead of trying to organize an entire market on its own.

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Planned obsolescence doesn't exist

In 1992 my 4th grade public school teacher gave me a religious pamphlet.

It wasn't about Christ, the paper was cheap recycled newsprint and the sermon was about environmentalism and the depravity of capitalism, but it was very much a religious pamphlet. That's not to say that preserving the environment is an unworthy cause, but unexamined faith is required to believe the fable in this comic book-style magazine.

The pamphlet each student in my class received told about a fictional video game console that was hugely popular. Players needed to buy the system and its game cartridges, but the catch was they were designed to break and shut down after three months so parents would have to buy new ones. Which, of course, they did.

"Of course" meaning it's what people did in this flimsy narrative. In the real world they would switch to a competitor.

The strained hook at environmentalism was that these video game systems wasted resources when they were purchased over and over again and thrown away. The muted-color comic told us that real-life corporate executives are so evil that they actually do this and the toys we want so bad are tainted with their greed and must be shunned.

Even as a 10-year-old I knew this was a far-fetched and dishonest story, but sadly many adults fall for similar tales today.

For years I've heard anti-capitalists talk about a conspiracy theory called planned obsolescence, where companies design products to become outdated or useless in a short amount of time to force customers to buy replacements. A recent example is the idea that Apple is purposely using software updates to slow down older iPhone models so people will have to buy new ones.

But as New York Times economics columnist Catherine Rampell recently wrote there are perfectly rational explanations for these things:

Of course, lots of these signs of “planned obsolescence” have alternative and more benign explanations, related to design, efficiency and innovation. Sure, software upgrades may make older phones run more slowly, but that could be a side effect rather than the primary intention; newer software does more sophisticated stuff (3-D maps! Photo filters! AirDrop!) intended to take advantage of the hardware capabilities of the newest phones, and these more sophisticated features happen to be quite taxing on previous-generation hardware.

She went on to say that Apple knows its customers want to upgrade to the new models every few years anyways, so why bother making them more expensive just so they will last forever. Imagine if a 1970's tailor made leisure suits that would stay crisp for all eternity, and charged extra for them.

It's telling that when she spoke to people alleging planned obsolescence, their accusations always came without evidence:

I spoke with a lot of technology experts for the Magazine column, and their interpretations of Apple’s design decisions were all over the map. Some suggested that yes, Apple is deliberately limiting its technology’s lifespan to harvest more sales from its existing user base. Others said no — the brand hit that Apple would take for doing this would be too damaging, and Apple knows it. Since the column was published, I have likewise seen plenty of reader emails and technology blog posts insisting that Apple is either obviously engaging in planned obsolescence or obviously not.

Some of the accusations of planned obsolescence are downright stupid. For example, the ones in the poorly-researched "Story of Stuff" video.





After alleging that DVDs were introduced in 1995 with the intention of replacing them with Blu-ray discs, streaming video and digital downloads, but before she suggests that flat screen monitors were held back from production for several decade so consumers could purchase bulkier versions, narrator Annie Leonard says something so moronic about personal computers that an Amish minister would laugh.

I opened up a big desktop computer to see what was inside and I found out that the piece that changes each year is just a tiny little piece in the corner. But you can't change that one piece because each new version is a different shape so you gotta chuck the whole thing and buy a new one.

No one, absolutely no one, should believe such an outrageous tall tale about mysterious unnamed computer pieces that don't fit and don't have converter cables. She must live in a world where nerds don't build their own desktop computers or use expansion slots. Anyone competent enough to plug in a monitor knows what she's saying is an inexcusable lie. She flat-out made that up.

Her follow-up line "So I was reading industrial design journals from the 1950's" should be accompanied by a rimshot. No she wasn't. According to Lee Doren, those journals she claims were talking about making products break were really talking about weighing the cost of the expensive indestructible leisure suit from paragraph 10.

The most important thing to remember when considering planned obsolesce is Bertrand Russell's cosmic teapot analogy, where anyone can claim a China teapot is caught in orbit around the planet Mars and dare others to prove them wrong. The burden of proof lies on the claim-maker, otherwise buffoons can invent fanciful stories and proclaim them true until another person can muster the evidence the disprove it.

Planned obsolescence is a legend, and a far-fetched one at that. It is up to the claim-makers to present their evidence, and after decades of spinning stories they have failed to do so.
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Milton Friedman's opposition to corporations

This is a short clip of Milton Friedman where he both defends both the idea that corporate power needs to be held in check and a hands-off approach from the government.

This is an important concept in free-market economics that its critics have notoriously misunderstood. If this concept was widely understood, that opposition to corporate welfare is a central tenant of capitalism, then we would have a lot more libertarians in the world.



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Valveconomics

Imagine my surprise today when I read the name of my favorite economics podcast while browsing Joystiq, the only video game news blog I read.

This week's EconTalk episode is an interview with Greek economist Yanis Varoufakis, who became Valve's economist in residence last year. Valve has produced some amazing games like Portal, Half Life, Team Fortress and Left 4 Dead and Varoufakis was brought on to help create a shared currency within multiple games.

Check out the Varoufakis's summary of the Valve structure, it's a great interview and an interesting way to run a business.
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Three cheers for carrion-eaters

Mitt Romney's success in the GOP primary has lead to some harsh criticism from rivals Rick Perry and Newt Gingrich, comparing Romney's old private equity firm Bain Capital to a vulture that feasts on the dead and leaves only bones behind.

Some people are saying that comparison isn't a fair description of Bain Capital's actions. But for this post, let's assume it was true. Let's say there are firms that break up troubled companies and harvest the assets, laying people off in large numbers. Is there ever an ethical time to do that?

Yes there is, as that's a public service that the economy needs. I could go into details of why that is, but there's already a great monologue from Danny DeVito that explains it all.



Can you imagine a world without vultures? An Earth without carrion beetles, blowflies or decompositing bacteria? Dead bodies would pile up and waste space. Their useless carcasses would tie up matter out of circulation in the circle of life. It's unpleasant to watch, but rot and scavenging are a necessary part of the ecosystem.

The same is true for businesses. Without vulture firms, we would have unneeded, wasteful or incompetent firms occupying office space, holding onto workers and wasting customer money. When those firms are eaten or rot, all those resource go back into circulation.

Healthy, fit animals have nothing to fear from the noble vulture. They are the avian custodians of our world.
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Small businesses are a political fetish

If there's one bit of rhetorical that's clueless from the left and condescending from the right, it's the worship of small businesses.

Small businesses are wholesome, mom and pop shops, right? They have closer ties to the community, treat workers better, pollute less and create more jobs than big companies.

Well, no, all of those claims are false.

It's popular for politicians to claim that small businesses create most new jobs in this country, so let's start there. You hear this from both donkey and elephant breeds. The crucial detail they are missing is that small businesses lose most of the jobs too, as they go under a lot. This is a classic case of counting the hits and not the misses, and that's why the policies intended to help small businesses fail at creating jobs.

From Doug Henwood of the Left Business Observer:

...It’s still often claimed that that’s where all the real job action is. The claim is ultimately traceable to 1980s work by the consultant David Birch, who once famously said that 88% of the new U.S. jobs created in the first half of the 1980s were in firms employing fewer than 20 workers. That factoid was repeated by pundits and politicians, and has since made its way around the world. But it’s not true.

Mr. Birch came up with this nugget by playing with some computer tapes from the credit rating and business information firm Dun & Bradstreet. But a closer examination conducted some years later showed the D&B tapes to be full of errors, at odds not only with official unemployment insurance registration info, but even with the phone book. Firms were classed as being born and dying when they merely changed hands. And Mr. Birch’s methodology was pretty idiosyncratic, to put it kindly.

For example, firms that started in the very small category — fewer than 20 workers — were categorized for all time as staying there, even if they’d grown beyond the small category. Or, more wackily, if a firm with 600 employees had a bad year and canned 200 of them, this would show up as a gain of 400 jobs for the small business sector. Not that Mr. Birch ever fully disclosed his techniques, like most serious researchers would; he did, however, tell the Wall Street Journal in 1988 that his figures were “silly,” and that “I can change that number at will by changing the starting point or the interval. Anybody can make it come out any way they want.” Despite that confession, Mr. Birch is still taken seriously by the U.S. press.

American small businesses are defined as having less than 500 employees, a far cry from the small stores everyone pictures. Large businesses pay their employees more and environmental regulators have an easier time keeping tabs on them. They also employ local people and contribute to charities in the immediate area.

I don't mean to vilify small business, because they are still important for the economy. Large, successful businesses have to start somewhere. For what it's worth, every member of my family is a small business owner. Both my parents, my brother and even his wife all own their own small businesses. My father owns a small franchised store and the other three have farm and agricultural businesses.

I used to think as small businesses as having the blessing of being too small to hire lobbyists to game the system in their favor. That was until I learned they pool their resources together and form lobbying groups like the National Federation of Independent Business.

In the end, all businesses are important for the economy, large or small. It's popular to single out small businesses as being special, but that's just empty rhetoric.

As a footnote, the "buy local" activists usually throw in that local businesses tend to be small businesses, but that's not always the case. Coming from Maine, I've never heard localists say they're against buying from LL Bean, despite it being a huge corporation. Their flawed model makes no allowances for the size of a business. That's why I don't bother including this point in my normal treatments of their economic views.
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Why I support corporate personhood

Imagine a caveman wakes up in the modern world, sees a television for the first time and smashes it with the first object he can lay hands on. He doesn't know anything about it, but assumes it's a threat and feels compelled to destroy it.

That sums up the young lefts view of corporate personhood. People with no understanding of business law have taken it upon themselves to edit the constitution to strike at firms they see as their enemies, but don't realize how savage their actions really are.

The point of a corporation is to create a legal entity that can own property, has its own debts and can spend its resources. It is, in essence, a stand-in for a group of people. It is not, as critics like to remind us, an actual person, but that doesn't mean corporations don't deserve rights.

From a 2011 Cato Institute paper by Iila Shapiro and Caitlyn W. McCarthy:

...If corporations had no Fourth Amendment rights, the police could storm corporate offices and cart off computers and files for any or no reason. If corporations had no Fifth Amendment rights, the mayor of New York could exercise eminent domain over Rockefeller Center by fiat and without compensation if he decides he’d like to move his office there.

...When rights-bearing individuals associate to better engage in a whole host of constitutionally protected activity, their constitutional rights remain fully intact. These individuals do not lose their right to speak or act simply because they chose to exercise those rights by pooling their resources in a corporate form.

The targeted constitutional right that activists want to take away from corporations is freedom of speech, following last year's Supreme Court decision in Citizens United vs. Federal Election Commission.

As retired ACLU executive director Ira Glasser carefully explained, the case did not allow corporations to make unlimited campaign contributions like the left claims. Instead, it ended a stupid censorship ban that protected politicians from being criticized by corporations or unions around elections. This was a victory over censorship.

Glasser addressed another issue the left likes to make, that the wealth corporations command could allow them to drown out all other speech, so the government needs to cap what they can say. He wrote:

The inequities of speech that flow from the inequities of wealth are certainly a big and distorting problem for a democracy, and have always been so, and not just during elections. No one knows how to remedy that, short of fundamental re-distributions of wealth. But I'll tell you what isn't a remedy: granting the government the power to decide who should speak, and how much speech is enough. Nothing but disaster flows from that approach, and that was what was at stake in this case.

This idea of leveling the playing field for speech belongs in Harrison Bergeron's dystopia. If an entity's speech is too persuasive because of its reach, scope or volume, why not censor speakers who are skilled at attracting large audiences or making compelling arguments? Free speech does not need government oversight, and the ACLU has consistently supported corporate speech rights, despite left-wing campaigns that try to pressure them into switching sides.

Without free speech, corporations would be handicapped in trying to defend themselves in the public arena. Suppose a large group of naturalists starts a campaign that Acme widgets cause cancer, and have no scientific basis for this claim. What happens now? The activists get in the press, they talk to other people and they may be allowed to pass out their literature in classrooms.

But the corporation isn't a real person, so it needs to spend money in its own defense to speak. Perhaps science-based speakers will call the activists on their nonsense, but should Acme have to wait around hoping for good Samaritans? Why prevent it from launching a similar campaign to correct the lie using its own resources?

As my fellow defenders have been quick to point out, many groups the left loves are corporations who enjoy free speech. There's the ACLU, Media Matters, the Daily KOS, MSNBC, NORML MoveOn.org and the transparently-named Corporation for Public Broadcasting.

Once again, members of the American left are on the wrong side of a freedom of speech issue. Censorship harms the potential listener, not just the thwarted speaker, and adults don't need a moderator to decide who they can listen to.
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Crony capitalism hate post #257

Crony capitalism is like a reality TV show where contestants who are voted off are invited back on the show immediately.
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The Maine maple syrup myth

Today was Maine Maple Sunday, a simultaneous open house at all of the family-run maple syrup businesses in the state. There are pancakes for sale and live demonstrations of sap being boiled down to make syrup and a lot of maple trees with active sap lines.

Localists get to see their dream world in action - local people drawing raw materials from the earth and turning them into high-end organic products. Maple syrup sells for a lot at these events - A local newspaper reported the statewide average as $55 a gallon. Localists see these prices as being earned by independent people, with no corporate strings attached or middlemen.

There's a lot more to the story, and it shatters the cottage-industry image that attracts the "buy local" crowd.

It's true that some of the maple syrup is produced there inside the "sugar house." Maple syrup sellers use cordless drills to put blue plastic tubes into the trees. The sap runs down these tubes into collection tubs and is then boiled down to remove most of the water. That's all there really is to it, and it's considered an organic product. That's kind of like certifying a bag of ice as organic - there was never a chance or reason to use synthetic pesticides or additives.

But that's only one way the independent maple syrup sellers get their syrup.

The other way is they simply buy it.

Companies like Bascom Family Farms of Vermont have large-scale operations, and so they produce maple syrup cheaply. The small operations in Southern Maine aren't very efficient, and the industry could lose a lot of money if the climate fails to produce much sap, which is what happened this year.

One maple syrup maker I talked to said that two-thirds to three-quarters of the syrup they sell each year is purchased as "bulk maple syrup" from a company in northern Maine. Some produce all of their own syrup, and others fall somewhere else on the spectrum. It's a common business plan because it's very profitable.

Essentially, Maine maple syrup businesses are middlemen. They put on a demonstration of collecting sap and boiling it down to entertain customers, but bulk syrup is so cheap that they can just buy it and pour it into their own bottles. This doesn't apply to every maple syrup business in Maine - some do produce everything they bottle. However, those who do buy bulk syrup don't volunteer that information during their demonstrations.

If someone wanted to only eat foods produced in Maine, they wouldn't be happy with this system. Now would people who make a point to know exactly where their food comes from, or those who take "food miles" seriously.

People like me, however, see nothing wrong with the way the system works. People are selling valuable products using efficient production methods. Maple syrup producers in rural area are getting business because their large operations are efficient. The climate was awful this year for syrup production by the small part-time operations, and they would have lost a lot of money without the aid of the bulk maple syrup vendors.

My only qualm is that keeping the real recipe a secret gives localists and the general public a false view of the world. They are organized under the Maine Maple Producers Association, that perpetuates the myth of an all-Maine syrup origin. Businesses should be free to get their materials from whatever side of the border they want, but they shouldn't mislead the public to where it came from.
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