Economics


The Wall Street Journal recently (Thursday July 14, 2011) published an article in the Marketplace section where various analysts reported valuing the company at $100 billion and upwards. Redpoint Venures’ Geoff Yang notes that Facebook created a new ecosystem – the ‘social web’. His valuation was based on a $25BB market in online ad revenue with Facebook having a 27% share. In 2015 that $25BB will grow to $45BB and Facebook’s share translates to $7BB in revenue. Add in the local advertising market today estimated at $133BB and project that to the future for $150BB. With the Internet taking 20% and Facebook 20% of that, add $6BB in revenue. Add in international revenue and the estimated 2015 revenue goes to $19BB. With a P/E of 25, Facebook is worth $140BB in 2015. The high end of the scale in the report was $240BB valuation. Some of the higher P/Es are undoubtedly because Facebook is still a private company, lots of investor want in, and the law of supply and demand is active.

Going back to Geoff Yang’s comment about a new ecosystem, the thing about ecosystems is that they contain lots of niches, some beneficial and some not so beneficial. Looking at Facebook as a social media, people automatically assume that Facebook is about communications. This couldn’t be farther from the truth. In fact, Facebook has the ‘potential’ to be a communications tool but to be specific, one has to remember that, as Claude Shannon established, communications requires three elements: a sender, a channel and a receiver. Social media over the Internet is clearly the channel and the millions of members participating are senders. I am not so certain about the receivers.

Facebook is a means for participants to throw out to the world (dare I say ‘vomit’) pithy comments about life, mostly as a means to assuage their egos and establish that their thoughts are somehow worthy of publication. Admittedly, blog writers succumb to the same predisposition, as do contributors to refereed journals. In our case as well as the case with journals, we impose some sort of peer review.

The problem comes when participants believe and expect that Facebook is, in fact, a means of communication, when it typically is not. Personally, being inoculated by Inter-relay Chat (IRC) in earlier days, I know enough to not assess my self-worth by a post or response to a post that comes flying my way, and do not participate in “flame wars”. There are lots of people out there using Facebook with less unassailable egos, fragile personalities and low self-esteem. When these persons become involved in Facebook interactions; and the inevitable trolls and digital demagogues line up like sharks at a chumming, the potential for damage is high.

In verbal communications, most people learn quickly that a self-imposed delay between thinking and speaking is a survival trait. Facebook provides minimal feedback to reinforce an equivalent delay between thought and post. This is not a new concept – books have been written on email etiquette. What is new is that email did not have the potential to impact participants to the same degree. Technology has provided enablers: streams of friend’s posts requires bandwidth; computational power; and storage – all of which have made significant improvements over the last ten years. The result of which is a much more rapid and wider dissemination of accidental stupidity and intentional cruelty.

A 2009 report showed that 1 in 5 divorces are attributed to Facebook. Verbal bullying on Facebook has been reported and is increasing. Blackmail related to Facebook posting of photos is noted. Some interesting work on the phenomena is found here.

Returning to Facebook’s valuation, an infelicitous confluence of factors – high valuations, widespread usage and the potential for material damage (psychological – resulting in treatment costs; suicides, etc.) make Facebook an obvious target for tort lawyers. Expect novel theories of liability to emerge directly in proportion to Facebook’s rising valuation.

Hola muchachos! Angry New Mexican here again with some original work for a change. So it turns out that for conservatives, hatred of the New York Times is an article of faith, much like Bill Clinton’s assassination of Vince Foster or the fact that President Obama is actually a Muslim and for that matter wasn’t born in America. Hmm. Perhaps I should have added those to the Conservative’s Declaration of Faith. But I digress.

Evidently The Grey Lady is viewed as the personification of all that is wrong with the “liberal media.” Now, if they wielded that label on MSNBC, I would find it hard to complain, but this is the same party who’s current 10 Commandments are so exclusive that Ronald Regan qualifies as a RINO (and if the WSJ says so, can a Republican really argue). To expect Republicans to have any connection with reality is like expecting Paris Hilton to develop a set of morals. I mean, it’s technically possible, but it’s about as likely as winning the Triple Crown with a lame horse. Regardless, the relative decline of print media, especially the New York Times, had Angry Overeducated Catholic salivating at the thought of a conservative media ascendancy. I had to respond. You see, the truth does that sort of thing.

Anyway, as bad as things are for the Grey Lady, the NYT is still doing pretty damned well compared to the vast majority of major papers. It’s still America’s #3 newspaper, after all. WSJ and every hotel’s favorite USA Today (#2 and #1, respectively) are also holding up pretty well.

WaPo is fucked as a national paper, which is why they’ve closed all their domestic news offices outside of the Washington metro area. They’re not even trying for “national paper” status any more. The Chicago Tribune and LA Times fighting valiantly on their way down, but they’re doomed unless they can (a) off the NYT or WSJ or (b) take the WaPo route and surrender. They’ll either refocus themselves as local papers (WaPo’s plan), or die.

This of course has nothing whatsoever to do with “media bias.” Just because the conservative media fantasy-cum-conspiracy-theory happens to offer an explanation for an event doesn’t mean that it’s the correct explanation (witness the circulation slide of the Moonie-owned uber-conservative Washington Times).

The bitter truth is that that through the power of the internet, the paradox of choice is wielding it’s winnowing fan. The papers with a truly local (or truly niche) audience will survive. But they’ll be small because a niche, by definition, doesn’t have many people willing to pay for it. The big guys will survive too, because when people have too many options they pick what is popular. If for no other reason, they allow you to have a discussion with other people who have seen the same material. This is also why Twilight movies are guaranteed to be made in Hollywood. No matter how badly they suck, they will pack theaters because they are popular. And tons of people see popular movies, even very, very bad ones. This is what will save the WSJ and NYT. They’re the most popular. People will read them because plenty of other people do. Everyone else gets fucked. (See also the article, “A world of hits” in this week’s Economist).

I’m sure it warms Angry Overeducated Catholic’s heart to realize that the future of print national/international level news in America is WSJ vs. NYT (let’s be honest, if it weren’t for hotels, nobody would read USA Today). The polarization brought by Conservative Savior Rupert Murdoch via Fox News to television will now make it’s inexorable way to print news. Rupert versus the world. I’m sure he’s always looked at it this way. But it wasn’t until recently that a sane man would actually think he might be right.

I sure wish the Bancrofts’ had a pair of balls somewhere in the entire family and stood up to Murdoch. I’d rather see the future of news fought between then Bancrofts and the Sulzbergers than see the world’s second most offensive Australian (after Mel Gibson, the raging alcoholic anti-Semite, naturally). But sadly, the fallen state of the world is such that douchebags do sometimes get ahead.

Amazon.com, the world’s most popular on-line retailer has unveiled a new subscription service known as “Amazon Prime”. For just $79 a year Amazon.com is offering free two day shipping on all of your orders (except those which Amazon deems ineligible for the service). Sounds like a pretty good idea right? Especially if you make a lot of Amazon.com purchases. I’m certainly behind businesses trying to find that new competitive edge it takes to stay on top. Ordinarily I would just see something like Amazon Prime as a nice piece of new business strategy. The one problem is now that Prime is out Amazon is blackmailing users into using it.

You see recently my wife and I put in an order to Amazon.com for a guide book we wanted for a trip to Europe. We’re leaving in three weeks, so we wanted to be sure we’d get it on time. The book was in stock and was eligible for Free Shipping, with a listed shipping time of 3-5 days. We purchased it and checked out with no problems, all very routine. Imagine our surprise that evening when we got an e-mail estimating the delivery date at three weeks. We decided to call Amazon to see what the issue was. Maybe the guide was out of stock and their system had been incorrect? No problem there we’d just select another one, so we dialed in prepared to switch our order. The explanation we got blew our minds.

Evidently in the Amazon terms of service they have the right to hold your items for later shipping, and the 3-5 days is just the time it takes from leaving the warehouse. We’d never had this kind of delay before so we were a bit surprised, was there a problem? No. Amazon is just trying to get folks to sign up for Amazon Prime (which we were offered an upgrade to, one month free trial). In fact if we upgraded today our book would ship immediately.

How sneaky and dishonest! All of my respect for Amazon.com has just been flushed down the drain. We bit the bullet and upgraded, not to prime, but two day delivery as we couldn’t chance it with the guide given our travel date, but we will be thinking long and hard before buying from Amazon.com again in their future. Their sneaky little game may have just cost them two customers.

-Angry Midwesterner


The White House today rebuffed pleas from California for cash. California, as anyone not living under a rock knows by now, carries an estimated $24 billion deficit and is in dire economic peril. Now they expect the rest of us to bear the penalty of their excess for them, and pay for the irresponsible behavior for which they reaped all of the rewards. Something must have hit Obama in the head this morning because for once he made the right choice.

He told those lazy, good for nothing, deadbeat, pot smoking, California Hippie Losers to bug off. Three cheers for Obama!

California has the largest GDP in the US, at over $1.8 trillion, one of the highest levels of taxation in the country, an annual tax revenue of over $114 billion, and one of the highest levels of tax revenue per capita. They have all the resources necessary to solve their own problems. The reason they cannot pay their bill is that, much like a bunch of trailer trash Wal-mart shoppers, they’ve lived beyond their means and run up a debt funding ridiculous programs, propositions, and other such folly to a point that no one in the damnable state even knows where or how the money is being spent. A full 50% of their yearly tax revenue is earmarked for propositions even before the budget is set, that’s more revenue than the total taxes brought in by 48 of the 50 states. And yet visit California and you’ll find a third world nightmare of poorly paved roads, one of the worst school systems in the nation (ranked 48th of 50), no public transportation worthy of the name, scant police coverage, and a wash of crime and poverty that stretches 800 miles from north to south.

California isn’t too big to fail. It’s too irresponsible, stupid, and mismanaged to succeed. Its practices, culture, and above all the arrogance of its people make it one of the largest threats to the American way of life in the world. So now California, we’re cutting you off and it’s time for you to reap what you have sown. Obama should strip your state of its sovereignty and readmit it as a federal territory.

-Angry Midwesterner


Barack Obama kept the man that George Bush reluctantly appointed SecDef as his SecDef. This is truly a bizarre thing but I suspect that it will go down in history as one of the smartest things he did. I’m willing to believe news reports that Obama didn’t entirely want to do this either. Think about it, you’re basically saying “gosh, I have to keep the guy appointed to a key job by the deeply unpopular guy I’m replacing….” It doesn’t look pretty politically for all sorts of reasons. But whatever the politics of the decision, it seems that the two men have developed a very functional relationship, and not a moment too soon given the fact that, not to put too fine a point on it, we are in two wars and dealing with numerous other unpleasant contingencies that require attention from men with guns.

Take a look at Gates’ recent speech to the Air War College, though. For those of you who don’t know, the Air Force is one of the greatest bureaucratic warrior organizations around. They are fantastic at this, the acknowledged masters, so Gates pretty much has to win roll the USAF to win this. Anyway, the speech is worth reading in its entirety but I’ve extracted a few choice bits. It’s full of a refreshing empiricism that seemed lacking in Rumsfeld, e.g.,

Another theme underlying my recommendations is the need to think about future conflicts in a different way. To recognize that the black and white distinction between irregular war and conventional war is an outdated model. We must understand that we face a more complex future than that, a future where all conflict will range along a broad spectrum of operations and lethality. Where near-peers will use irregular or asymmetric tactics and non-state actors may have weapons of mass destruction or sophisticated missiles as well as AK-47s and RPGs. This kind of warfare will require capabilities with the maximum possible flexibility to deal with the widest possible range of conflict.

Another important thing I looked at was whether modernization programs, in particular ground modernization programs, had incorporated the operational and combat experiences of Iraq and Afghanistan. The problem with the Army’s Future Combat Systems vehicles was that a program designed nine years ago did not adequately reflect the lessons of close-quarter combat and improvised explosive devices that have taken a fearsome toll on our troops and their vehicles in Iraq, and now in Afghanistan.

We have to be prepared for the wars we are most likely to fight – not just the wars we’re best suited to fight, or threats we conjure up from potential adversaries with unlimited time and resources. And as I’ve said before, even when considering challenges from nation-states with modern militaries, the answer is not necessarily buying more technologically advanced versions of what we built – on land, sea, or air – to stop the Soviets during the Cold War.

Of course, a pretty speech doesn’t make reality. No plan survives contact with the enemy, and in Washington there are many: Contractors, the military itself (sadly), Congress, etc. But if the SecDef doesn’t make a real, realistic hard-nosed but not dictatorial, empirically-based start at reforming the Pentagon bureaucracy, who will?

Now it’s up to Obama to back Gates again. Choosing the right man for the job is probably the easier part.

In a recent NY Times piece, noted imperial advisor Nicolas Kristof points out that the Emperor’s Advisers Have No Clothes:

The expert on experts is Philip Tetlock, a professor at the University of California, Berkeley. His 2005 book, “Expert Political Judgment,” is based on two decades of tracking some 82,000 predictions by 284 experts. The experts’ forecasts were tracked both on the subjects of their specialties and on subjects that they knew little about.

The result? The predictions of experts were, on average, only a tiny bit better than random guesses — the equivalent of a chimpanzee throwing darts at a board.

I salute Kristof for having the courage to declare that his profession (along with pretty much everyone else) has no clothes (or at least far fewer clothes than we think—perhaps a German speedo!) I have sometimes disagreed vehemently with Kristof over various issues, but I have to admire anyone who has the moral courage to turn the harsh light on his own profession, and even himself:

The marketplace of ideas for now doesn’t clear out bad pundits and bad ideas partly because there’s no accountability. We trumpet our successes and ignore failures — or else attempt to explain that the failure doesn’t count because the situation changed or that we were basically right but the timing was off.

For example, I boast about having warned in 2002 and 2003 that Iraq would be a violent mess after we invaded. But I tend to make excuses for my own incorrect forecast in early 2007 that the troop “surge” would fail.

As Kristof notes, the greatest problem is with extremely self-confident experts who are morally certain that they’re right:

Mr. Tetlock called experts such as these the “hedgehogs,” after a famous distinction by the late Sir Isaiah Berlin (my favorite philosopher) between hedgehogs and foxes. Hedgehogs tend to have a focused worldview, an ideological leaning, strong convictions; foxes are more cautious, more centrist, more likely to adjust their views, more pragmatic, more prone to self-doubt, more inclined to see complexity and nuance. And it turns out that while foxes don’t give great sound-bites, they are far more likely to get things right.

Perhaps the problem is that expertise grants enormous ability to describe details about the present state of things in a field or area. There’s no absolute logical requirement for that to translate into better prediction in that area, but we’re basically hard-wired to think that there is. Combine that with our hard-wired response to confidence and we’ll follow a knowledgeable hedgehog anywhere, even to Hell itself.

Contrast that with the ability of markets,in general, to outperform experts. The best example is the stock market, whose simple average generally outperforms 2/3 of managed mutual funds each year (an example from last year: http://www.winninginvesting.com/index_vs_managed_funds.htm and another: http://www.fool.com/investing/mutual-funds/2009/02/25/index-funds-are-hard-to-beat.aspx). Over time, the results are even more staggering, as very few mutual funds repeat winning performance from year to year. Experts simply cannot complete with the “wisdom” of the market as a whole.

An important thing to keep in mind, especially today as we’re urged to put more and more confidence in expert management of the financial sector by government regulators, expert allocation of money by government bureaucrats, and the most massive transfer of money from the private market-driven economy to government experts in recent history. It’s perhaps no coincidence that the government is relying upon the least-regulated part of the financial sector (which has been least affected by the recent woes) to bail out the most-regulated part:

Democrats like Barack Obama and Barney Frank, at least on the campaign trail or in sound bites, have portrayed the financial crisis as the product of deregulation. The solution, they say, is more regulation. In that vein Frank, one of the brainiest members of Congress, is proposing that the Federal Reserve become a regulator of systemic risk, with the power to regulate firms that because of their size or strategic position are of systemic importance.

My American Enterprise colleague Peter Wallison has argued powerfully that this is a bad idea. Neither the Federal Reserve or other regulators identified the systemic risk which caused this crisis. Neither did most financial institutions or investors. Systemic risk is hard to identify for the very reason that it is systemic.

If experts are as unreliable as Kristof argues, can expert risk assessment (which is what regulation is) be expected to outperform market-based risk assessment (which is what an unregulated market does)? Certainly not all the time, which is precisely the lesson that we should learn from the recent crisis originating in the heavily-regulated mortgage industry…and precisely the lesson our leaders seem determined not to learn.

(Hat tip to Angry New Mexican for the Kristof link and article!)

In the past year or so, I’ve gotten pretty serious about photography. One of the things I’ve discovered both through my own experimenting, and by reading a number of excellent books on the subject, is that there is this magical device called a “polarizing filter” which, believe it or not, will make a good 95% of your outdoor pictures worlds better, just by slapping it on, and rotating it until the sky turns a deep and magical blue. While just about every photographer knows this little trick, I’d bet they don’t know the history of this incredible device. It’s a tale of war, of invention, and most of all, dog piss.

The polarizing filter was invented by Dr. Edwin Land, of Polaroid fame (hence the name), who had been studying the problem of making a polarizing filter for civil and military applications during his time as a student at Harvard, when he ran across work by Dr. William Herapath whose pupil, one Mr. Phelps, discovered that feeding a dog iodine and quinine caused it’s urine to form strange green crystals which polarized light, called herapathite. Dr. Herapath had spent years trying to grow a single large crystal of herapathite, to no avail, and had given up on the project. Land, inspired by these antics with dog urine, decided to go the opposite direction, and invented a process for forming many small crystals of herapathite, and lining them up properly so they would function as a single large crystal by forcing the, *ahem* crystalizing substance through narrow slits. His experiments were successful, and Harvard invited him back and provided him with space to continue his research.

World War II had several profound effects on Land’s invention. Reflections on the water made it difficult to spot submarines and other naval vessels, thus polarizing sunglasses were used to cut down on the reflected light, making it easier for scouts to spot ships at a distance. However while this increased the demand for polarizing filters, World War II also saw US soldiers coming face to face with the terror of malaria in the South Pacific. Large amounts of quinine were needed to treat these men, limiting the supply for polarizing filters. Land, ever the inventor, took this challenge as an opportunity and developed a new process for creating polarizing filters using sheets of polyvinyl alcohol stretched so as to pull the molecules into alignment.

This new method did not require quinine, and was actually found to create better quality filters than the older iodoquinine sulfate methods, and continued to be the dominate method for producing polarizing filters. Thus died the dog piss polarizer.

-Angry Midwesterner


Money down the Drain

Do your pockets feel a little lighter than they used to? Perhaps about $7,000 lighter? Well don’t worry, that’s just the cost of the economic stimulus for each tax paying American! That emptiness you feel is just feeling of our economy being stimulated by Obama’s package! So now that we’re out $7,000 each the question is, will it work? Will our economy finally get the treatment it needs to get up again? Will we be driven into the cold deadly arms of Socialism? Is Obama’s $825 billion package really as big as everyone seems to think it is?

The Angry Men weigh in on the issue, and hopefully you, dear reader, will as well. We want to know, what do you think of Obama’s package?


Angry Midwesterner

Despite having voted for Obama over McCain, I have to agree with McCain on this issue, the so called “stimulus package” is mostly pork. Even the slightest bit of research shows us that only around 3% of the stimulus money will be spent in the next year, and in two years time only 16% of that money will be spent. A huge chunk of the money isn’t even marked to spent before 2011. So how exactly is this the crucial time sensitive stimulus it was sold as? How does it help America if the money isn’t even being spent? This isn’t about reviving our economy, it’s about never letting a crisis go to waste, as Rahm Emanuel has mentioned, many times.

The worst of it is, the pork isn’t even good pork. It’s mostly wasteful spending probably driven by lobbyists. If Obama really wanted to pork the US so badly, I at least wish he’d had the decency to not lie to us and claim it would stimulate our economy while the special interest groups he is beholden to got theirs too. This stimulus package is a violation of the trust America put in Obama, and is most definitely not the change we voted for.


Angry Diesel Engineer

 
I don’t see how this massive piece of legislation (almost 500 pages in the form Obama signed) is supposed to “spend us out of our recession.”  

While I completely disdain Obama’s socialist utopia (believing that I am better suited to manage my affairs than Uncle Sam), I am interested to see what happens with all this oversight that gets put in place.  If you haven’t checked it out yet, Recovery.gov is an interesting website, with lots of ambiguous statements about how our crazy reckless spending is going to help everyone keep their job.  I am disappointed that millions of dollars are going to create government bureaucratic jobs for said oversight positions though.

I am interested to see where this takes us especially with health care.  I’m not sure how making all medical records electronic will help save jobs (unless you get a job on the H.I.T. board).  All in all, I have great distrust in the government making health care decisions for me.  If they were making decisions for you over  100 years ago, your free health care would have been mandated by the gov. to let your blood.  In a field that is constantly improving in technique and knowledge, free market is the only logical way to go.


Angry Overeducated Catholic

 

I think Angry Midwesterner’s boiling it down to $7000 per taxpayer is a great way to think about this. Another is how much money is being spent per job created (about $300,000 if I recall). And a third is to note the areas most impacted by the current economic woes, the areas where the most money is going, and then notice that they don’t really line up:  

http://money.cnn.com/news/storysupplement/economy/stimulus_jobs/

At first glance, Nevada, for example, should be up in arms. In fact, that map doesn’t look at all like the map of a package intended to help out those hurt by the recession. Actually, though, the per-capita map shows you that it’s not really that bad, but it’s still somewhat disconnected from the unemployment rate.

Because, after all, it’s not really about helping those hurt by economic turmoil…it’s about buliding the Great Society v2.0 (aka New Deal v3.0).

And that $7000 price tag? Only going to go up folks, or should I say, suckers! You tax-paying, hardworking chumps whose money will be systematically confiscated and transferred to the ne’er-do-wells, luckless souls, aging Boomers, shiftless bums, and criminal classes across this great land! The Democratic leadership views you as so many stupid hick sheep to be sheared for the Greater Glory of the People’s Government. It’s just the start!

Remember: Obama is going to cure cancer…with your money, all of it if that’s what it takes.


Angry Political Optimist
 

The size of the stimulus package is not so much of an issue. At the end of World War II, the debt as a fraction of GDP approached 100%. Even if the dire predictions of the Republicans bear out, and Obama’s administration creates a $4T running deficit, a functional United States of America can recover in less than ten years. 

What should be worrying people is the implicit surrender of what makes America great that is embedded in these packages. Since when do Americans look to the government for assistance? Remember when people listed the classical set of great lies and number two on the list was “I’m from the government and I’m here to help you?” Americans need to look inwards to themselves and to each other for support, not to Obama and his minions. If we accept what Obama and the Congress tells us we are — what is implicit in this package — then we will NEVER recover as a nation.

As a practical matter, spending money requires an efficient bureaucracy, even if they only spend on themselves. Bush’s Katrina fiasco was caused not by an unwillingness to assist black residents but by the total unwieldiness of the FEMA distribution system. Wal-Mart, and for that matter, the US Military were on site and assisting within days (only to be rebuffed and hindered by FEMA). Does anyone really think that doubling down on the bureaucracy in Washington will allow them to spend the stimulus money. Do the math. You have to distribute $2.2B a day. (I realize that this is not the way it works, but really, by 2010, I bet that most of the money is still just an allocation on the liability side of the balance sheet. One that can be wiped away with a stroke of a pen in 2010 I might add.)

Obama and the Congress have shown their true colors. They make the Republican porkers look like pikers. Let them have their day in the sun, and then in two years bury the bastards for another 40.

It was a little over a year ago I wrote about Ugo Chavez’s dramatic ability to run a fine country into the ground. Well the speculative bubble that held oil prices at record highs last year has popped and, with the global recession, oil is selling at $40/barrel, not the $80/barrel that Ugo needs to break even. (I don’t know about you but I make sure not to buy gas at Venezuelan-owned Citgo stations, to do my own nano-scale part to hasten Chavez’ demise.)

So today I wake up to snow, a cup of coffee and the Washington Post, and find this little gem by Edward Schumaker-Matos. Money quote:

Inflation in Venezuela is running at 31 percent, by far the highest in Latin America, and is expected to hit 45 percent this year. The official exchange rate is 2.15 bolivares to the dollar, but the black market is at more than 5 bolivares, a gap so large that the government will have no choice but to devalue the currency, which will cause local prices to rise still more. The government has enough reserves for the next year to continue subsidizing food prices, but that has caused food shortages. And the government is so far behind on payments to oil contractors that many have stopped working, cutting back production from the goose that lays the golden eggs. Oil accounts for 95 percent of Venezuela’s exports.

While I idly dreamed about a firing squad for Ugo, that reality may be closer than anyone thought. I doubt it, his pal Ah-ma-dinnerjacket will probably take him in, in style. Oh, wait, Ah-ma-dinnerjacket ain’t having so grand a time of it. Well there’s always, Tsar Vladimir, though he might not have too grand a time if oil stays down, either. If all else fails, they can always hot bunk on Radical Jack‘s couch….

Updates: Sigh.

And this.

Here’s a nice article on Tsar Vladimir’s current dilemmas.

Anyone reading through the list of bribes attached to the bailout bill passed last week eventually runs across this entry, and is utterly confused.

Excise Tax Exemption for Wooden Practice Arrows Used by Children. Current law imposes an excise tax of 39 cents, adjusted for inflation, on the first sale by the manufacturer, producer, or importer of any shaft of a type used to produce certain types of arrows. This proposal would exempt from the excise tax any shaft consisting of all natural wood with no laminations or artificial means to enhance the spine of the shaft used in the manufacture of an arrow that measures 5/16 of an inch or less and is unsuited for use with a bow with a peak draw weight of 30 pounds or more. The proposal is effective for shafts first sold after the date of enactment. The estimated cost of the proposal is $2 million over ten years.

I took it upon myself, being fond of archery, to look into this as a service to our loyal readers, and hopefully find something that made this make more sense.

Fortunately, there were a number of other sites more devoted to the topic, and with longer, more detailed write-ups of the issues, so here’s the summary:

In 1900, the Lacey Act helped return hunting to a for-sport hobby or for-food necessity, rather than a for-profit cash-crop mega-harvest that it had been, and the remaining hunters have had a key interest in proper wildlife management.

In 1937 the “Federal Aid in Wildlife Restoration” program (referred to as the Pittman-Robertson program) was enacted and signed by FDR. This enacted that fish and hunting license fees would be used only for wildlife management and for hunting safety and training (such as setting up state-run shooting ranges).

In 1969-1972, in quick succession, an excise tax was imposed on hunting arms and ammunition as well as hunting archery equipment. This was mostly spearheaded by a prominent archery manufacturer and conservationist, Fred Bear. The archery tax was intended to be split 50/50 between the state for wildlife preservation and archery clubs for setting up instruction and shooting facilities — to help encourage the hobby. Because of a bit of politicking, the money for the archery facilities was never released, and all of it was kept by the governmental departments.

In 1997 collection this tax was moved from being at the point of retail sale (that is, at every mom & pop archery store — which was a serious headache) to further back up the supply chain at the manufacturer. Arrows, for various reasons, have to fit the individual archer and bow, and so are best assembled and finished at the point-of-sale. This tax change encouraged the continuance of point-of-sale arrow finishing.
But this specified that the tax on arrows would be on arrow components, not on finished arrows. This opened a loophole in that imported finished arrows did not have the tax assessed on them.

From 1997-2002, domestic arrow manufacturers increasingly lost market share to importers because of the unlevel playing field. ($.43M, $1.6M, $3.2M, $7.8M, $11.0M)

In 2003 the loophole was closed by taxing the first-sale of completed arrows regardless of where they are manufactured.

This eventually resulted in a $.43 tax per arrow. (Real arrows tend to cost between $5 and $10, so $.43 isn’t a huge deal.)

However, children’s practice arrows can be very cheap, even into the $.36/arrow range. This means the excise tax for these arrows is 120%! This priced archery as an activity out of the range of most youth programs when the price for the core expendable more than doubled.

Starting in 2005, a wooden arrow manufacturer in Oregon (Rose City Archery), whose business orders from youth programs had died off 40% that year, began lobbying for an exception to this tax for youth arrows. (Note: I’m not entirely sure where Rose City was getting their numbers (quoted from the link above) from here, since even their cheapest kids’ wooden arrows are $39/dozen = $3.25 per arrow ($2 per arrow for do-it-yourself), of which tax would be around 13%, still not ridiculous)

In 2008, this bill that didn’t have the weight behind it to get passed on its own, and it just sat around waiting for the right spending free-for-all to get attached to before it could pass. And now, voila! Youth archery is blooming abundantly this week and upwards of four (yep, just 4) U.S. manufacturers of wooden arrows are back in the cheap wooden arrow business! The economy is saved!

Verdict:
Overall, I didn’t know that hunting licenses and taxes paid for so much of the state fish & wildlife budgets. This seems proper that people benefiting should pay most of the cost.

I began thinking that the wooden arrow thing actually made -more- sense because it was correcting a fault in the tax code, and the new version would encourage youth archery, and lead to more adult archery, resulting in higher tax revenue amounts (not least of all because adult archery equipment is expensive). However, aluminum arrows were invented in 1939, and carbon arrows invented in 1983, wooden arrows are only used by “purists” and historical reenacters. Most real youth archery programs use aluminum or carbon arrows, and aren’t affected by this change.

I conclude that this is just another piece of pork for congresscritters from woody states, and won’t really have any affect at all on archery in America, except to draw a bit of attention to it from all the chatter about how ridiculous this tax exception is, especially compared to the actual matter at hand that it was tacked onto.

-AI

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