Prisoner’s Dilemmas- V: The Texas Heart Beat Bill

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The headlines in the news have been animated by the controversial Texas law, SB 8; colloquially known as the Heartbeat Bill. The legislation boasts several stringent limitations on abortions that operate analogously to a de facto ban. However, the most shocking aspect of the bill is that it allows private citizens to sue facilities that have performed abortions for $10,000 or more per procedure. This feature of the law indirectly deputizes the residents of Texas and has the potential to lead to some unforeseen consequences. At its core, the Heartbeat Bill is a legal manifestation of the partisan tug-of-war in the abortion debate. While Pro-Life advocates may believe they have won this round, little do they realize Texas now has a Prisoner’s Dilemma on its hands. The blowback from this contentious [1] the legislation will impose economic costs on the state of Texas.

It is worth noting that only a minuscule number of the citizenry in Texas has had an abortion. Per the Guttmacher Institute, in 2017, only 55,440  Texas residents had abortions performed. This figure is meager when compared to the total of all adult female Texans. Also, most voters are conservative. How could this move be detrimental to the entire state of Texas? The state only has a few liberal oases (West Texas & Austin); the overall impact of citizens moving to more progressive jurisdictions would only have a marginal effect on tax revenue. Perversely, this might have a disparate effect, leaving left-leaning municipalities such as Austin with a significant loss in local tax revenue. 

Texas having lower taxes and an affordable cost of living has resulted in population growth in recent years. Population growth and economic growth are correlated. Most of the Texas transplants are not coming from conservative-leaning states, but liberal high tax states such as California and New York. Arizona is another state currently experiencing a large diaspora of Americans migrating from high-tax states. Epitomized in the slogan “.. Don’t California, My Arizona..”. What happens when the conservative values of a low tax state become too off-putting for prospective residents? Not only hampers the economy through decreased tax revenue, but it hampers economic development in other ways. Left-leaning Tech Companies may enjoy the corporate tax rate of Texas. What happens when companies start choosing to avoid setting up offices in Texas for ethical reasons? More companies may opt to establish a campus in Phoenix instead of Austin. Causing an unfortunate ripple effect through the entire state economy. The Pro-Life camp is not doing themselves any favors by not striking a political middle ground. Progressives are only shooting themselves in the foot by avoiding Texas because of the Heartbeat Bill.

Foot Notes:

1.) This brief essay is in no way a commentary on the morality of abortion. Any such normative arguments would only detract from a game-theoretical assessment of the situation described.

Bootleggers and Baptists-XXXI: Microchip Shortage

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Bootlegger and Baptist  (1983) coalitions are dynamic alliances that form a juncture between the overlapping interests of two unlikely factions. Whether these oddball partnerships are implicit or explicit, there cannot be enough emphasis placed on the fact they are dynamic. In most scenarios, these normally divergent interest groups tend to part ways once the initiative has been resolved.  The aptitude of Conservative Christians and Feminists finding common ground after shared advocacy for legislation regulating pornography is improbable at best. Once the bill is defeated or passed these odd bedfellows part ways until a corresponding initiative is revived due.

Aside from the temporary resolution of a public policy issue, other factors can shake up Bootlegger and Baptist dynamics. A shift in vicissitudes can severely alter the incentives structure of one of the adjoining parties operating within the alliance. Arguably the current microchip shortage afflicting the technology industry best exemplifies this concept. The news regarding the microchip shortage started to break back in early 2021. The supply shortage was mainly spurred by an influx in the demand for consumer electronics during the 2020 pandemic. It was originally speculated that companies involved in the distribution and sale of electronics and technology would be the “Bootleggers” of the microchip shortage. The investment publication Barron’s suggesting that the shortage would be lucrative for IT distributor Avnet. However, such suggestions were somewhat premature, since the microchip shortage has cost the automobile industry billions in revenue. Similar ripple effects are likely to impact other sectors of the economy heavily reliant on microchip components.

Now the role of  “Bootlegger” could potentially be assigned to microchip producers in Taiwan and the Taiwanese government. Several democratic mid-western senators came together to write to Taiwan’s  Bi-Khim Hsiao for help with navigating the components ravaging the American auto industry.  Taiwan has long held a comparative advantage when it comes to microchip production. The Biden administration has also sent over “… 2.5 million COVID-19 vaccine doses..” which is significantly more than what was originally allocated to Taiwan. Some commentators may call this an equitable trade, microchips for vaccines. However, this exchange isn’t quite so linear. The United States is really at the mercy of Taiwan since the product constraints are profoundly stymieing automobile production. The old saying goes “Beggars can’t be choosers”, which encapsulates this situation in a nutshell.  The United States simply lacks bargaining power in these negotiations conferring all the leverage to Taiwan. In contrast,  Taiwan has one of the world’s superpowers at their backdoor step pleading for help. This does not depict a deal brokered between equals, but rather emergency assistance from one nation to another.

The mid-western senators reaching out to Taiwan are our “Baptists” as they act as our moralizing agents. These individuals fulfill this role by stressing the economic calamity, carnage, and overall harm that the microchip shortage could have inflicted upon the U.S. economy.  The Taiwanese government and producers are the clear “Bootleggers”.  Since they enjoy the position of being one of the most robust and efficient microchip producers in the world they have an asymmetrical advantage over the United States. Not only from a production standpoint but also in terms of negotiation power. The United States is coming to Taiwan in desperation rather than a firm bargaining vantage point. Frightened by the prospect of the already ailing auto industry taking any more shocks, these senators are looking for a quick solution, with little consideration for optics or downstream consequences.  Not to mention the additional vaccine dosages are merely the cherry on top.

Bootleggers and Baptists- XXX: USB-C Mandate in Europe

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USB (Universal Serial Bus) connections and ports have become a ubiquitous item in our daily lives. Whether it temporarily storing documents on USB flash drives and other peripherals (e.g. hardwired keyboards), we all use USB connections in some capacity. The matter of USB connections would hardly be a topic that could be conceivably politicized. However, the European Union has succeeded in turning the USB ports on electronic devices into a public policy debate. Next month the European Commission intends on presenting a “draft law” that would require all electronics producers to have a “common charging interface”. This would effectively prohibit the Lightning connections utilized by iPhones. If passed all other formats other than a USB-C connection would be banned in the European Union.

The question becomes what is a USB-C connection and why is the European Union so adamant about making it the compliance standard for the continent? USB connections and ports have been in existence since 1996. One of the latest innovations in USB connections came in the form of the USB-C (software version 3.1) in 2014. The USB-C connection boasts several technological advantages USB 2.0 and USN 3.0. Some of the benefits include thinner cables, greater capacity for transmitting data, and backward compatibility. Although these are most likely not the reasons why the EU is pushing for all electronics to have the USB-C standard for charging ports. The campaign for the USB-C mandate is arguably not directed towards consumer protection. Rather is more oriented towards environmentalism. One outstanding advantage of the USB-C format is that is more durable, meaning that it will not wear out as quickly as previous models of electronic port connections. The goal of mandating USB-C connections would be to reduce the amount of E-Waste a plank in the platform of the EU’s New Circular Economy Action Plan.

This initiative brought forth by the European Commission cannot escape the potential of a Bootleggers and Baptist (1983)  coalition from forming. The moralizing agent in this situation would be the European Union. Yes, there are some political gains for advocating for environmental causes. For instance, you look “progressive” and you earn the right to virtue signal. Above all, you win over the progressive vote, which is presumably sizable in Europe. The EU  may be a potential Dual-Role Actor, but for the sake of clarity, let’s assign the role of “Baptist” to the EU. Who are the Bootleggers in this scenario? It is highly unlikely that no one would benefit from the EU placing such compliance requirements on the charging ports for electronic devices. Regardless of whether the regulation is purported to target consumer safety or environmentalism disparate effects are inevitable. This was an observation implicit in Yandle’s theory since the nascent period of its development. Hence why in Yandle’s seminal paper he suggests there is a “demand” for regulation among corporations. The implementation of regulations operates as a backdoor way of reducing competition without violating antitrust laws. Granted, antitrust laws in the EU are different than those in the United States; however, this is still circuitous means of subverting the legal constraints of anti-competitive market behavior among firms.

Most electronics producers are on board and have already adopted all of the purposed EU requirements; except for Apple. While other Apple products have been reformed to include USB-C ports, the iPhone still uses a Lightning connection. Apple has even openly stated that such a requirement would hinder innovation. Yet, the other giants such as Samsung have remained silent on the matter; expressing tacit agreement with the purposed EU measure. It should be noted that Apple is a major competitor in the Smartphone market. The iPhone has approximately a 50% market share of the Smartphone market in the U.S. However, the global market share is primarily held by Samsung and other competitors. Nevertheless, Apple is still a serious competitor for companies such as Samsung in the global market. The silence of other producers most likely is due to rational business interests rather than the normative virtues of environmentalism. Therefore, Apple’s competitors in the Smartphone market are the “Bootleggers” of the EU’s USB-C mandate.

Coronavirus- Its Impact on Nutanix and the Global Economy

 

photo of gas masks
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Hyperconverged pioneer Nutanix is once again starting to falter. At the start of 2020, the outlook was much rosier after a slump in August 2019. Stocks rebounding by approximately 83%. Speculated improvement stemming from greater confidence in their transition from software to subscription services [1]. Nutanix exhibiting a 97% retention rate on their subscription services is promising [2]. Back in January, the threat of the COVID-19 (Coronavirus) was dormant. Its impact on commerce is now a matter of concern for the tech industry.

 

Nutanix shares sank as much as 24% in extended trading on Wednesday after the developer of cloud storage and networking software cited coronavirus concerns as one reason for lowering its 2020 revenue outlook”

CNBC

 

This resulting in the company’s lower revenue projections from $1.3- $1.4 billion to $1.29 -$1.36 billion [3]. 22 % of  Nutanix’s 2019 revenue came from Asia [4]. This is problematic due to Asian countries being profoundly impacted by this emergent illness. Nutanix is far from the only tech company that grappling with the economic complications of the COVID-19 outbreak. Both Apple and Microsoft have indicated that they will not meet their quarterly business goals [5]. Fears of the virus certainly have sullied sales prospects industry-wide. The reverberations are also being felt on the opposite side of the supply-chain.  Considering 73 percent of all of Microsoft’s components are manufactured in China [6]. One of the world’s prominent production hubs being the epicenter for an obscure virus is disastrous.

 

Naturally, the economic stress engendered by COVID-19 is not relegated to the tech sector. Substantial downturns have been estimated for other industries as well. For instance, the hospitality sector is anticipating stalls in sales internationally [7] [8]. The constraints on the economy may stretch beyond restricting the supply in some sectors and reducing demand in others. Countries are stifling commerce through various restrictions to prevent the spread of COVID-19. In the United States, it has even been stated that measures such as quarantining entire cities [9]. At first, glance does appear to be slightly excessive. Especially considering how much more pervasive the Flu is when compared to COVID-19 [10]. The perceived threat seems to stem more from the obscurity and ambiguity of COVID-19. Mirroring the reactionary stances taken in the event of an outbreak of communicable diseases. Regardless of whether this outbreak is truly a world health crisis or not, its impact on the economy will be all too real.

 

Placing restrictions on the flow of foreign goods will prove to be detrimental. Whether those restrictions are through tariffs or pragmatic embargoes to prevent the spread of disease. All modern economies are heavily reliant on imports. Not due to callous self-interest, but out of the virtue of efficiency. Comparative Advantage has allowed for intense specialization which enables countries to focus on the production of specific types of goods and services. Thank you, David Ricardo. Concentrated specialization has lead to increases in product quantity and quality. Whatever you cannot produce can be acquired through trade. Hence, why 60% of our global productivity is dependent on international trade [11]. Making it imperative that all restrictions placed on international trade be necessary. Per the AIER article Economic Policy Must Prepare for Pandemic Disease :

 

“What we do not see are the infinitely complex ways that productive structures depend on smoothly functioning markets that could all face deep disruption.

Efforts to examine the possible economic impact are few but a 2006 Congressional Budget Office study suggested that a 1918-style pandemic today could drop GDP by 4.25%, which would put the economy in painful recession territory”  [12].

 

Granted these findings are theoretical and most likely retrieved from economic models, still eye-opening. COVID-19 can present a serious risk to the United States. However, the benefit of being cautious needs to be weighted in relation to economic losses. Is it worth the losses in productivity to attempt to secure the U.S. against this virus? There are already confirmed cases here in the United States. There is little to stop COVID-19 from spreading. Quarantines and trade embargoes with nations that have confirmed cases cannot guarantee the number of cases domestically will not rise. Such measures only create a false sense of security. What isn’t speculative is production shortages, an increase in prices, and even the loss of jobs. Imports are the lifeblood of our advanced economy. Putting up barriers to our trading partners is merely cutting off circulation to the arteries.

As the quote above indicates, what initially seems reasonable doesn’t always work. Superficially, trade restrictions seem like a great way to curb the spread of this disease. Taking this course of action ignores the consequences downstream. It could even be said it lacks foresight. It is ineffective and impractical to produce all the goods that we utilize domestically in production. There is a reason why Target purchases its plastic lawn furniture from vendors in China. If produced domestically the same products would be triple the price and not maintain a level of quality commanding such a price tag. It becomes quite evident how a chain of such events could be harmful to the entire economy.