On Big Stores and Advertising

Earnest Hemmingway wrote in his memoir, “If you are lucky enough to have lived in Paris as a young man, then wherever you go for the rest of your life it stays with you, for Paris is a moveable feast.” I agree completely. Not a day goes by that I do not think back fondly on my years walking the historic and fashionable streets of Paris. France left me with the indelible conviction that life is better when society is not so obnoxiously full of huge chain stores and pervasive advertising. Although the United States should avoid many Western European policies like the plague, we should follow their example by helping small shops and regulating manipulative, in-your-face advertising. Corporate stores and rampant advertising contribute to a materialistic culture and an undesirable physical environment, both of which are enemies of American spiritual, emotional, and physical wellbeing. Our American Dream should be about the contributions we will make to our families and to society, not about the stuff we buy.

Big Corporate Chain Stores

There are fewer and fewer small consumer-oriented businesses left in America. We buy our Chinese-manufactured clothing from chain stores. We buy our genetically modified groceries at chain stores. We buy our furniture from chain stores. Same goes with our electronics, hardware, beauty supplies, and sports equipment. Although there are a few Ma & Pa restaurants and shops around, we buy almost everything from big corporations. I dislike shopping at big chain shops because the quality of products and service is poor. There is a plausible argument that big chain stores are cheaper and more convenient than shopping at small shops. I generally disagree; but the argument is intelligent. However, that big corporations put out better quality products and services than small shops, nobody has even begun to prove. Owners of small shops take greater pride in their services and products. Products are higher quality when they are made by a particular craftsman for a particular customer. Unfortunately, many Americans have become habituated to poor quality products—plastics, wax, and cheap construction are everywhere. Similarly, small service providers tend to outdo their corporate counterparts.

I’d like to briefly address the arguments that big chain stores are better because they are cheaper and more convenient. Products are generally cheaper at big stores, but their duration is shorter, which costs more. For example, a tailored suit will be more comfortable, look better, and last longer than a mass-produced, cheap suit. It is very possible that the a man would have to buy two or three cheap suits to dress himself for the same amount of time that the tailor-made suit will last him. Big stores are probably cheaper than small stores to some extent, but much less than many Americans seem to think. If there were much fewer big shops around, shopping at little shops would be more convenient than shopping at the big places. It isn’t much more convenient to walk the length of a street in the same store; you might as well walk the same distance from little shop to little shop. Since all of our stores are huge nowadays, we have to travel longer distances to get what we need. If shops were smaller, we would be better able to walk to buy our food and supplies rather than have to drive—healthier, more sociable, and generally more pleasant.

I have found that many people do not know that public corporations are required by law to put the pecuniary interests of shareholders before all interests of consumers. Frequently, pleasing customers translates into increased profits, but not always. Big corporations wield their influence over government and society to make their job easier and more lucrative. They use their power to make things more convenient to make money, not more convenient for the consumer. They get customers addicted to a product or service and then decrease the quality with time. As a result, frivolous consumerism is way too much a part of American culture. The companies convince people that they need more stuff, not better stuff. The corporations convince people that they need things, they don’t really need. The corporations use advertising to teach people to envy others for their things and to feel like they are inadequate if they don’t keep up with the Joneses. It is even rather rare for critiques of corporate stores to show up in reputable publications because they are hesitant about publishing anything that will offend their sponsors.

In my opinion, this consumerism is exemplified by smartphone buying. I know a few people who spend exorbitant amounts to constantly upgrade from the iPhone 3GS, to the iPhone 4, to the iPhone 4S, and for what? Finicky voice-recognition software? A slightly improved camera? More likely, it is to keep up with the Joneses because they have fallen prey to the corporation’s message that your phone is a status symbol. Or, they have convinced them, through sly psychological trickery that stuff makes them happier than it actually does; that things are better than time. Despite all of the freedom and money we have in America, we are not the happiest people because we are too stressed about things that don’t matter. We need to stop spending our resources on stuff and status and start spending them on enjoying our family, nature, and culture—for that is where real happiness lies.

Additionally, the growth of big corporate stores concentrates wealth in the hands of fewer and fewer citizens. Some of my friends who disagree with my sentiment here argue that I am going against the free market. I am not so sure that I am—but, perhaps I am to a degree. I measure the value of the free market first by its ability to bring about a good society and secondarily by its ability to maximize wealth and American political power. Regardless, I think that these big chain stores are engaging in anticompetitive activity by elbowing out their competitors with an onslaught of manipulative advertising, political influence (e.g. procuring favorable changes in the tax structure, business regulation, etc.), and even pushing urban designs that favor big stores over little ones, even to the detriment of city beauty and the health of the environment.

Some businesses perhaps provide more public good to us as Americans if they are big. I do not doubt it. This essay is not against all big natural resources, pharmaceutical, manufacturing companies, etc. What I am convinced of is that quality of life is better when there are more SMALL SHOPS than there are corporate mega-chains. Having a few big stores is fine. But, the proliferation of corporate chain stores has weakened local economies, stripped communities of their beauty and character, and impoverished civic and cultural life in American towns and cities. 

Advertising

But wait, there’s more! We are practically drowning in the manipulative marketing of big shops. I have tried American-style advertising for free and I want to return it for a full refund. The trial was definitely not risk-free. It was fraught with puffery, misleading information, psychological chicanery, and false portrayals of reality. The ubiquitous nature of the loud and bright advertising is so constant that it fatigues you and pounces when you are too tired to adequately defend against its cunning attacks. You see, advertising works. It sells. But, it is annoying and bad for America on a cultural and moral level. Even the advertisements online are worse in the United States. They are more common, more in-your-face, brighter, and cheesier.

In my opinion, the only proper purpose of advertising is to inform people of their options with regard to products and services. Advertising in America is, to some degree, protected by the First Amendment and is backed by big-time support of lobbyists; but we need more truthful advertising, fewer commercials, fewer ugly billboards, and fewer product placements in the media. We need to emphasize America’s natural beauty and family values by making the places we live and the activities we engage in supportive of those things. 

Guns, Crime, and Statistics

Psychologically, humans have difficulty making sense of data. Although we are talented associative, causative, and analogous thinkers, cognitive science has abundantly demonstrated that we have trouble thinking statistically. For example, most people incorrectly believe politicians have more extra-marital affairs than doctors. Why? Because, thanks to the news, they associate politicians with scandals. Indeed, even the way statistics are framed can drastically change our perception. Doctors are more likely to operate on patients if they are told there is a 90% survival rate than if they are told there is a 10% mortality rate. In my observations of the recent gun control debate, I have noticed a lot of flawed statistical reasoning. But, with so many numbers being thrown out, it is hard to make sense of the data. I decided to spend an hour looking over gun and crime statistics to see if I could start to make any sense of them. Here are my thoughts.

Moral Assumptions about Gun Ownership

            The Second Amendment guarantees the right of citizens to “keep and bear arms.” The Supreme Court has interpreted the phrase to mean, essentially, “possess and own non-military weapons.”  Although many argue that the Second Amendment only applies to militia members and others go even further to assert that a right to gun ownership is antiquated, I think both arguments are wrong. Before and after the Constitution was ratified, militias were composed of private citizens who owned and carried their own guns. Indeed, a number of states were told they were voting for individual, private ownership of guns when the Second Amendment was up for ratification. So, it doesn’t seem to make much sense to say that private citizens can’t own or carry weapons unless furnished by an official military unit. Private gun ownership was firmly entrenched in the American tradition and went unchallenged for about a century.

I believe gun ownership is beneficial today for three reasons: (1) it allows private citizens to protect their lives and property; (2) it disincentivizes against oppressive government conduct and strengthens our military; (3) it represents the value we place on freedom in America. According to the FBI, one in about every 250 Americans will be murdered (assuming current murder rates) and the likelihood of being involved in violent crime or robbery is even higher. The likelihood of dying in an accidental firearm discharge is one in 4,888 (and many of these are from hunting and target shooting accidents outside of the home). It might make some sense to require a gun safe in the home, but these numbers suggest owning a gun is more likely to protect you than to hurt you. Although I think foreign invasion or a coup d’état is extremely unlikely in the United States, I think the slow erosion of our rights in exchange for false security is likely. Gun ownership is symbolic to our freedom and discourages rash government intrusion. In addition, our military is disproportionately made up of people who grew up with guns in the home. I think it fair to say that our military, especially in case of an unexpected need for a draft, is all the stronger for it.

However, I am not one to say, “Guns don’t kill people. People kill people.” Although violent crime is much more a function of mental health, racial demographics, socio-economic factors, and family stability than it is about gun ownership, the easy availability of guns has some effect. Whether easy availability of guns is 2%, 10%, or 30% of the cause of violent crime, I don’t know. Although gun sales and ownership is up by about 5% since 2001, gun murders, gun aggravated assault, and gun robbery have all gone down during the same time frame. Clearly, other contributing factors are more an issue than gun sales and ownership. Although mass murders in upper and middle class America draw the most attention, they represent only a tiny segment of murders nationwide. The majority of murders are concentrated in less advantaged urban neighborhoods and carried out with standard handguns, blunt objects, knives, or hands and feet. Poverty, education, and race are all more predictive of violent crime than is gun ownership. Perhaps gun restrictions should be focused on urban (democratic? Just kidding, but seriously) neighborhoods. Although we lament the horrifying acts of violence at Sandy Hook Elementary, should we not also grieve for the thousands of murders that don’t make national news? Despite my support for some gun regulation measures, I am not particularly emphatic of any because I feel our time and effort could be better spent addressing family stability and socio-economic disparity.

Anyway, with that, I wanted to comment very briefly on a few of President Obama’s legislative proposals for gun regulation.

           

Ban on Assault Weapons and High-Capacity Magazines

            Assault weapons are inconvenient for criminals because they are too bulky for easy concealment. In 2009, rifles were used in 349 murders. Likely only a tiny percentage of rifle murders were carried out with "assault" rifles, which happen to be some of the best selling guns in the country.  Most Americans do not know what an assault rifle is. The distinction between a "regular" rifle and an "assault" rifle isn't the lethality, but the cosmetic features. The difference between a semi-automatic hunting rifle and an assault weapon is not the size of bullet, firing rate, or lethal range. Rather, the difference is whether a gun has a pistol grip, flash hider, or an adjustable shoulder stocks. Assault rifles may have menacing looks, but there is no meaningful distinction between a semi-automatic “assault weapon” and a hunting rifle. The DOJ supposes that assault rifles account for, at most, 2% of gun crimes and that the effects of a ban would be so small as to represent statistical insignificance. The burden on freedom is not de minimis. Really, the ban on assault rifles is only symbolic. It has virtually no affect on crime rates, but represents a step towards more intrusive gun control.

             Bans on high-capacity magazines are similarly symbolic. Such a ban was in place until 2004, when the law expired. Crime rates lowered at predictable rates without the magazine ban lapse even registering as a statistical blip. Indeed, a number of mass murders, including the Columbine High School Massacre and the Virginia Tech Shooting were perpetrated with low-capacity magazines without sacrificing any malicious efficiency.  This legislative proposal is more about eroding freedoms with a false lullaby of security than it is about actually saving lives; therefore I oppose this measure.

Requiring Background Checks on All Gun Sales

I support background checks on gun sales as long as they don’t cause unreasonable inconvenience on the buyer. To the extent that the purchaser does not have to fill out unnecessary paperwork, wait an undue amount of time, or wade through sticky bureaucracy—I think background checks on all gun sales will have a more beneficial affect than the minor any minor inconvenience. I would even consider a national gun registry—so long as it wasn’t being used as symbolic warfare on gun ownership generally.

Stricter Penalties for Assisting Criminals and Felons to Obtain Guns

            Tough penalties on illegal gun trafficking and crimes are a step in the right direction. However, deterrence is better accomplished by increasing the likelihood of getting caught than by increasing the severity of the punishment. We need more undercover cops and less cozy prisons.

Strong Families

President Obama is not suggesting this as a solution to violent crime. But, more than anything, we need strong families for a secure and free society. Single-parent homes, high-divorce rates, sex out of wedlock, diminished involvement in community organizations, and drugs in the home are the driving factors of poor educational outcomes, high crime, and socio-economic disparity. Crafting policies to support strong families would do more for lowering gun crime than regulating guns would lower gun crime.

The Future Role of Finance in the United States

                                                                                          Photo: Ramy Majouji

In this post, I will try to paint in broad strokes my understanding of what caused the 2007 economic downturn and what I think it should mean for the future of the finance sector in the United States.

Starting in the 1990s and continuing into 2006, housing prices increased steadily and substantially. Variable rate mortgages and other sub-prime loans were riskily extended to those with relatively low credit ratings. Buyers assumed they would be able to pay the higher interest rates that kicked in after a designated time period because they thought their careers would progress or, in the alternative, they thought they could just sell their house for a profit. Overconfidence in the stability of the rising housing market prompted speculators to purchase, flip, and develop real property with little hesitation. The housing bubble grew until it burst in late-2006 and 2007. In most of the country, home prices initially only stalled. However, in markets like Florida, Nevada, Arizona, and California where there was an especially pronounced oversupply of housing, the prices dropped abruptly. The other states followed suit.

Then, in 2008, Bear Stearns, a giant investment bank was pulled into the red by its failing hedge funds that were heavily composed of investments in mortgage backed securities. Government sponsored enterprises Fannie Mae and Freddie Mac, dealers in mortgage backed securities, were both collapsing. The U.S. government took over management of Fannie Mae and Freddie Mac and bailed out AIG, a reinsurer of mortgage securities that was on the brink of failure too. By March of 2009, the Dow Jones had dropped from a high of 14,000 in 2006 to a mere 6,547.

Other financial industry giants were also failing. Lehman Brothers filed for bankruptcy and Merrill Lynch sold out to Bank of America hastily to avoid the same red-lettered fate. With other banking institutions like Citigroup teetering, the Legislature passed a $700 billion (yes, billion; as much as the entire GDP of Indonesia) bailout called TARP. They bought billions of dollars worth of stock in banks like Citigroup and guaranteed billions more dollars in loans. Taxpayers might still be Citigroup's largest shareholder. And yet, they cannot pass the government stress test even today.

The manufacturing industry suffered as a result of the crisis too. So the government poured billions of additional dollars into General Motors and Chrysler in addition to the TARP bailout. But both automobile companies and numerous other manufacturing companies went bankrupt anyway.

These problems affected the entire economy, making for fewer American jobs. In an effort to raise the unemployment rate, Congress provided a $787.2 billion (although the encumbered nature of some of the "investments" probably raise the true price to above $1 trillion) Economic Stimulus Package. Near the same time, Congress guaranteed billions more dollars of loans to failed banks.

The economic downturn has engendered a lot of anger (often directed at the finance industry and politicians) and even more finger pointing. Most likely, the combination of low mortgage interest rates and deregulation was the primary cause, although financial globalization, global imbalance of debt surplus and deficit, executive compensation, and credit cards among other factors likely contributed to the problem. The blame game is futile. What is important is learning from the past and moving forward instead of backwards (although perhaps something we did in the past is better).

We should not be mad at finance as a whole. The finance sector and many of its innovative financial instruments have enabled socially beneficial enterprises that were unimaginable before stock markets, mortgages, loans, bonds, swaps, options, micro-loans, crowd funding, etc. Therefore, the solution to the economic downturn caused by the housing crash is not to hastily restrict the size and inventiveness of the finance and business industries. Rather, regulations should be thought-out and designed to channel financial creativity in ways that most benefits the ability of small businesses and huge corporations to capitalize, grow, innovate, and succeed on the world stage.

One challenge faced by legislatures and economic policymakers is the fact that innovations in finance often help society; but, innovations in finance make finance more complex and harder to predict and understand thus making them more risky. Perhaps the price for the benefits of big and complex finance instruments is occasional bubbles and economic downturns. But, perhaps the cost is worth it. On the other hand, repentance is often harder than not messing up in the first place. Perhaps getting out of the economic ditches does take longer than not getting in them in the first place. I don't know the answer. But, I bet it is somewhere in the middle. Nations that are slow to innovate in finance and who make it hard to buy and sell risk lag behind other nations in political stability and economic growth (e.g. compare Ghana and S. Korea who had similar political and economic situations in 1960. Other factors played a role too [fertility rates, Ghana taking IMF loans, South Korea's linguistic and cultural unity, etc], but it is far-fetched to deny that S. Korea's financial acumen played no role).

The replacement of faith with moral relativity and cynicism also contributes to economic downturns. Without unifying belief in post-death consequences, there is no forceful constraint on behavior when there is pressure to act selfishly. My careful observations confirm that faithful people have more of a stomach to do what is right when nobody is looking. As the priority of religion dwindles in America, I predict that business and finance leaders will be less and less bound by morals and they will have more need of being restricted by economic regulations and criminal laws that will, in turn, burden the full potential of businesses and the finance sector to do good for society. Although a strong moral education and ethical character among leaders will not solve all the complex social risks of finance innovation, it is certainly an important part of the solution.

In short, I would say that the proper course for the United States vis-a-vis the finance industry is two-fold. First, complexity and innovation in finance should be encouraged, but not to such a degree that regulators, shareholders, and legislators can't understand reflect on the implications of the develpments. Regulation should be efficient and not overlapping or over-broad. Second (and the government's role is limited here), religion and traditional values need to have a stronger presence in the lives of Americans. This starts in the home.

Federalism: Commerce + Elastic Clauses vs. 10th Amendment

One of the crowning features of the American Constitution is federalism. Splitting the atom of national sovereignty vertically between the states and federal government affords Americans many benefits. Firstly, it guards against tyranny. Montesquieu and James Madison both defined tyranny as the accumulation of powers all in the same unified entity (Federalist #47). Keeping authority and powers separated between local and national government discourages the abuse of power and protects the rights of regional minorities. Secondly, federalism facilitates the general principle of subsidiarity which holds that matters should be handled on the lowest organizational level possible. Regional governments are closer and more invested in their jurisdiction and can better respond to local needs and preferences. Federalism tends to result in improved economic effectiveness. Thirdly, federalism allows for experimentation as the states innovate and test new policies.

Originally, even the founding fathers who advocated for a strong federal government believed that the states would retain substantial sovereignty. Madison said, "The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite." Until very recently, however, the federal government has consistently expanded its powers to the diminution of the powers of the states. It is the natural tendency for any governmental entity to try and amplify its influence; however, their actions at the fringes of their power must make it through the gates of judicial review.

One of the enumerated powers of Congress is to "regulate Commerce with foreign nations, and among the several states, and with the Indian tribes." Although, in its infancy, the Commerce Clause was given a narrow interpretation of "trade," the Supreme Court now interprets "Commerce" more broadly to include production, manufacturing, trade, and even wholly intrastate economic activities which "substantially effect" interstate commerce. The latter meaning is set in precedent, but certainly stretches the original understanding of the term considerably.

The Constitution also empowers Congress "To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof." The Necessary and Proper Clause has caused political friction since its inception. Thomas Jefferson thought that "Necessary" referred only to those things that were indispensible. Thus, in his mind, the federal government could exercise only its enumerated powers and the means to accomplishing those powers as absolutely necessary. John Adams, on the other hand, believed that this was an untenable position that would result in an impuissant federal government unable to provide for the well-being of its citizens. Adam's view won the day and since McCulloch v. Maryland (1819), the Supreme Court has read "Necessary" to mean "convenient" or "useful" for some political end. The Court, however, does not question the validity of acts of Congress as long as such acts have some plausible explanation or purpose behind the legislation.

The Commerce Clause combined with the Necessary and Proper Clause makes for wide discretion and power on behalf of the federal government and gives reason for continually diminishing the powers reserved for the states. The current Court has said that this combination is not without limit as other Supreme Courts seemed to have implied. In United States v. Lopez, the Court held that the Commerce Clause extended only to economic activities. In the past decade, the Court has also limited the federal expansion by asserting that the 10th Amendment also buts up against the Commerce Clause. There are various opinions about this. The 10th Amendment states, "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." On one end of the spectrum, there are people that hold this Amendment to be only a truism. They believe that the states only have the leftover powers that the federal government leaves behind, which could be nothing. Others say no, no, the states obviously have some essential function in the Constitution and the federal government cannot grow to the point that it infringes on that essential constitutional role. On the other extreme end of the spectrum are those that believe the federal government should be severely restricted to its enumerated powers alone.

I believe American federalism is an exalted principle of our miraculous Constitution. While I am a firm believer in the free market, I am not totally opposed to federal involvement and regulation. But, Congress too often overreacts to public tragedies and enact regulations to please the public and add ephemeral popular causes to their curriculum vitae. The result is overregulation and legislation that is hastily pushed through. The United States currently has over 240 regulatory agencies. The Federal Register (containing executive agencies regulations) is nearly 83,000 pages long (Obama's administration has added around 15,000 pages so far). Whereas before there was only a handful of federal crimes and the states were left to deal with crime, now there are over 4,000 federal crimes, but no one knows exactly how many there are because of the way they are cross-referenced with regulations. Too many federal laws and regulations are either unnecessary or detrimental; too many are overlapping with the each other or with state regulations that are doing a fine enough job.

Legislation should be approached carefully and deliberately. Here are a few things legislatures should consider before enacting any new law or regulation scheme:

(1) How much would the subject of legislation or regulation benefit from economies of scale. Sometimes, it is more effective to do something once on a grand scale than to do it 50 times. For example, the NASA space program would likely be impossible if every state pursued it on their own. But, together, much more is possible.

(2) Is the issue of great, lasting, and communal importance or is it a matter of local needs, preferences, and conditions? Building codes and speed limits, for example, have little or no effect on the nation as a whole and are better established by local governments.

(3) Is there a collective-action problem resulting in a race to the bottom when all the states are left on their own to devise policy and solutions? Or, is there incentive to race to the top? Does competitiveness and free market lead to positive outcomes or does it lead to free riders and states trying to undercut each other?

(4) Does allowing states to legislate and regulate in a particular area cause negative externalities? If Illinois decides to engage in manufacturing that severely pollutes the Mississippi River, at least five other states are going to suffer.

(5) How sure are we of a regulation or legislative scheme's effectiveness? Has it been proven in the laboratories of the states? States experiment with new policies that sometimes work and are adopted by other states. For example, medical marijuana in California, a Unicameral legislature in Nebraska, or a 4-day state government business week in Utah are all being watched by other states to see how things work out.

(6) Are maintenance, monitoring, and enforcement costs cheaper at the state or national level?

(7) Is legislation and regulation the most effective way to deal with a problem or would tort law be more cost-effective? So many expensive regulations are unnecessary because Tort Law (or Contract or Property) has proven itself more cost-effective and equally as efficient.

(8) Is there a restraint on Americans' individual agency and liberty? Will Americans have less choices because of a new regulation or law? If so, is a (often marginal) increase in security worth the loss of freedom? Remember, "Give me liberty or give me death?" It seems Americans are too easily lulled into saying, "Here's some more of my liberty, can you make me more secure (even if the policy is more like a sugar pill)?