Checking in on MoviePass

MoviePass Hikes Subscription Fees, Limits Access to Films

The company is strapped for cash and has introduced a series of measures that it hopes will keep itself solvent. They include jacking up the prices from $9.99 to $14.95 per month over the next 30 days, as well as limiting access to nearly all Hollywood blockbusters within their first two weeks of release. The company’s parent company, Helios and Matheson, said these steps will reduce its cash burn rate by 60%.

But the company still faces major questions about its sustainability. On Friday, MoviePass borrowed $6.2 million, including $5 million in cash, in order to stay afloat and meet its financial obligations. Beginning on Wednesday, its creditor can ask MoviePass to pay up to $3.1 million of the money it borrowed.

Monday, May 14, 2018

Yes, we're losing money on every transaction, but we have a plan to increase volume

[Apologies for letting this one sit in the queue for so long. I plan to do a fairly long post on the various absurdities of this business plan, but I realized that the company may not be able to wait for detailed analysis. Therefore, I'm just going to hit a couple of high points in this and an upcoming post.]

I suspect that most people (maybe especially those who read this blog) have become thoroughly jaded to bad business plans running on new economy hype and Silicon Valley money. Many of you probably feel that you seen it all before, that you have lost the capacity to be shocked by how stupid an idea can be or by how many millions it can raise.

I more than sympathize. In a world where Tesla is valued higher than General Motors and Bitcoin is... well, Bitcoin, it is difficult to come up with the topper. That said, sometimes a piece of business logic, while perhaps not the stupidest or the most overvalued, nonetheless manages to stand out through a blinding lack of self-awareness.

Many companies have used the losing-money-but-making-it-up-in-volume argument over the past few years, but I don't know that I've ever seen it stated in quite such naked terms.

From an interview with Mitch Lowe, CEO of Moviepass.

[David Pogue] The math doesn’t really work out, does it? Let’s say you go to the movies twice a month. In New York, that’s $360 of movie tickets a year — but you’re paying MoviePass only $120 a year. MoviePass is losing $240 a year, just on you. Multiply that by MoviePass’s 2 million subscribers, who are currently buying 6% of the nation’s movie tickets. How is that sustainable?

...

Pogue: You must go through your life explaining how MoviePass works. And everybody says exactly the same thing back to you…

Lowe: Which is, “how can you possibly afford such an amazing deal?”

Pogue: Yeah. How do you make money?

Lowe: There’s two groups of people that go to the movies. There’s 11% that go 18 times a year, and they buy half of all the movie tickets in the country. 5.5 billion tickets.

There’s another 200 million people (89% of moviegoers) that only see the blockbuster hits. They go to four maybe five films a year. They see “Star Wars” and the Marvel films. Our product is priced to reactivate those casual moviegoers, to get them to go see the great independent films that now they say, “I’m just going to wait and stream at a later date.”

...

Lowe: People have told us they’re starting movie clubs, and now they’re going with a bunch of friends, going to the movies every week together and then going out afterwards. We have a guy who said, “I’m going to turn 40. I’m going to go to a movie for 40 days in a row leading up to my 40th birthday.” But what’s even cooler is people are seeing films they never would have seen without a MoviePass card.

Pogue: But I’m confused about that, because every time someone goes to a movie, you’re losing more money. Don’t you secretly prefer people who don’t use the card as often?

Lowe: They [the people who see a lot of movies] become more valuable to us. They evangelize the service. They become more valuable to our partners, the studios, exhibitors.

Understanding Netflix – – children's programming isn't child's play

Whenever an extraordinarily high.value for a company appears to be based primarily on a good narrative, you should always examine the bullish story for red flags, both in terms of questionable claims and notable omissions. In the case of Netflix, there is no omission more notable than the lack of discussion of children's programming.

There was perhaps no more important market in the adoption of every major advance in television history, from the initial postwar boom to cable television to home video. If someone is discussing the next step in the evolution of the medium and isn't spending a reasonable amount of time on children's programming, you should, at best, take what's being said with a grain of salt and at worst, dismiss it entirely.

This is particularly true with Netflix. If you have been following the standard narrative at all, you've heard ad nausea about the extraordinary amounts of money that the company is paying for original content. You've heard how all this money is building up a tremendous content library that will allow Netflix to compete with, even dominate the big media companies.

But these numbers, regardless of how immense and awe-inspiring they may be, are largely meaningless without proper context. If we want to evaluate the claim that Netflix is pursuing (and has a reasonable shot at achieving) media dominance, we need to dig into the details of intellectual property and how the strategies are playing out in different market segments. There is no more useful place to start than with children's programming.

The conventional narrative that Netflix is using its massive content spending to eventually achieve monopoly status implicitly assumes that the company is building a content library of such size and quality that it will no longer be dependent on any of the major studios for programming. As previously mentioned, even before the Disney acquisition of Fox, this was almost impossible, so unlikely that one has to question whether or not the company itself was sincere about these claims.

Netflix has always been relentlessly focused on two objectives: subscriber growth and hype. When it comes to intellectual property, however, the record is far more mixed. Proponents have a number of explanations for this, but most of them seem to come down to either

1. It took a while for the present strategy to evolve and be put into place.

2. There will always be a few outliers.

In these discussions, the subject of children's programming is generally avoided. Perhaps because it does not at all the standard narrative nor is it covered by either of the standard excuses.

To belabor the obvious, the greatest value of a Batman or a Scooby Doo lies less in what you've done in the past and more in what you have the option of doing in the future. Rights to characters and derivative works is the gift that keeps on giving. Even if you license another company to make use of your character, the result (in addition to getting a nice fat check) is usually to enhance the value of your intellectual property.

If Netflix were truly serious about its goal of world domination, it would need to be building a catalog not just of shows, but of valuable characters and franchises. The quickest way to do this is to simply buy some well-established property. Unfortunately, almost all of the really well-known options are held by the handful of major studios and they have no intention of letting them go. Nonetheless, there are some smaller players who would be worth acquiring if you genuinely wanted to build a catalog. As far as I can tell, Netflix is not pursuing these.

The slower and far more difficult path is to start from scratch, introduce a large number of characters and potential franchises that you own outright then promote the hell out of them. There does appear to be a little bit of activity in this area but not nearly enough to qualify as a serious effort.

Instead, Netflix continues to base its children's programming largely on licensed properties. Unless something surprising is going on beneath the surface (and I do have some questions about the company's future relationship with NBC/Universal), it would appear that much, possibly most, of their content spend in this area not only does nothing to build up their intellectual property; it actually serves to enhance the IP of the very companies it is supposed to annihilate.

Here's a list of current or pending Netfilx original kids shows that don't appear to meaningfully contribute to the content library:

Kong: King of the Apes, Voltron: Legendary Defender, Home: Adventures with Tip & Oh, Skylanders Academy, Legend Quest, Spirit Riding Free, Lego Elves: Secrets of Elvendale, The Magic School Bus Rides Again, Stretch Armstrong and the Flex Fighters, Trolls: The Beat Goes On!, The Boss Baby: Back in Business, Spy Kids: Mission Critical, Harvey Street Kids, The Epic Tales of Captain Underpants, and She-Ra and the Princesses of Power.


Obviously, we don't know the details of these agreements it's possible Netflix is getting some kind of rights to derivative works or is cutting a better deal than we might expect (though it should be noted that historically the company was known for over, not underpaying). With that said, it certainly appears that they are not at all focused on building the kind of content library they would need if serious about their stated goals.

At least not in the areas that count the most.

Light rail versus self-driving cars

This is Joseph

Consider:

“We are definitely going to have pushback,” said Brad Templeton, a longtime Silicon Valley software architect who preaches the potential of “robocars.” (He believes the subway paved over in concrete for autonomous vehicles could transport more passengers than rail can.) “I regularly run into people who even when they see the efficiency numbers just believe there is something pure and good about riding together, that it must be the right answer.”

and

“Don’t build a light rail system now. Please, please, please, please don’t,” said Frank Chen, a partner with the venture capital firm Andreessen Horowitz. “We don’t understand the economics of self-driving cars because we haven’t experienced them yet. Let’s see how it plays out.”

Now I typically love Brad Templeton's analysis.  Look at this great article, for example. But I do think there are some issues with this approach.  I certainly don't think my like for public transit is about being with other people -- that is actually one of the major downsides of a light rail system is dealing with other passengers who are sick or unaware of personal hygiene standards.  There are other issues.

One is the geometry one:

Highways today can carry about 2,000 cars per lane per hour. Autonomous vehicles might quadruple that. The best rail systems can carry more than 50,000 passengers per lane per hour. They move the most people, using the least space. No technology can overcome that geometry, said Jarrett Walker, a Portland-based transportation consultant. 

Which is brought up in the same article.

Another issue is the average age of cars on the road, which right now is 11.5 years. This means, in the absence of subsidies or very aggressive regulation, it is going to be something like 30 years before we could have all self-driving cars.  Many of the efficiency gains come from the self driving cars being the dominant type of car on the road.

Also, cars that make 2 trips (to pick up and then return) are going to use more road space that a car that is driven and then parked.  Now it might be the case that you can get it down to a reasonably small percentage of total miles -- technology is cool.  But that also weighs into the geometry argument.

So I hope that self-driving vehicles are coming.  But I don't see that they necessarily solve issues of congestion -- you make driving more pleasant and people will be willing to do more of it.  They might radically improve safety (which would be awesome) and they might make commuting time much, much more pleasant.  These are goods, in and of themselves, which don't need a pure robocar future to harvest.

But it seems like a tough gamble to stop current transportation planning until the new technology is mature enough that my type of objections can be answered.

This is how you cultivate IP.

Since we're in the middle of a thread about the business of television, content libraries, and intellectual property, I thought it would be a good time to look at examples of doing it right, particularly since these examples give me an excuse to post more Friday videos.

Cartoon Network Groovies were a great illustration of how to take characters from the catalog (some like Atom Ant and Quickdraw McGraw, all but forgotten) keep them in the public eye, package them in an appealing way, and even make them surprisingly hip.

Imagine a channel that showed a bunch of music videos during commercial breaks. These videos featured footage from the shows the network aired, and sometimes even had original animation made for it. And here's the kicker: many songs were done by prominent artists like They Might Be Giants, Will.i.am, and even Devo. Prepare to be surprised, as this was Cartoon Network during the late 1990s/early 2000s.

Tech industry approaches in other fields

This is Joseph


I found this twitter thread by Dr. Sarah Taber to be pretty thought provoking.  The real interesting part is at the top:

What this makes me wonder is whether the approach of tech translates well to other industries.  The windows PC was a major productivity improvement and the occasional blue screen of death was annoying rather than fatal.  On average, it made productivity a lot higher and the clients were willing to put up with these problems in exchange for the increased productivity.  Just think of how much better a word processor is than a typewriter at conducting a writing project.  In terms of revising work, it has simply been a game changer.

This starts to be less ok when the costs of failure are high enough.

Or consider this example, also from Sarah Taber:

The fast improvement approach of Tech has some really awesome features, but it isn't really geared to dealing with these long term issues.

Now, I want to be clear.  Computer and software technology has been miraculous.  It makes sense to wonder what other areas this technology can be applied to.  And all processes have error rates and problems -- tech just have a different set of failure points to traditional industries.

That said, there are problems that require a different approach.  It may be faster to hammer a nail than to use a screw, but the screw solves different problems and has different performance characteristics than the nail.  So we should be open to switching to nails, but keep a clear head about how these approaches may show faults when applied to areas other than the ones in which they were developed.

Disney, Fox and Netflix

I apologize for this, but the only really good summary I've found of the impact of the Disney Fox merger (particularly on Netflix) is this interview with the Hollywood Reporter's Kim Masters. Not only do I not have a text version, but I can't even get it to link directly to the relevant story. Instead, the best I can do is suggest you fast-forward the segment to about 16 minutes in, immediately after the execrable  Jeremy Peters).

One of the strangest aspects of the Netflix coverage has been the disconnect the way the story you get from the NY media vs what you hear in LA. In many ways, this echoes what we saw with over the air television and the rise of the terrestrial stations a.k.a. diginets. Major NYC news organizations like the New York Times and Wall Street Journal completely (and I do mean completely) ignored the story even after most major media players (including NBC/Universal, CBS, Fox, Sony, producer Mark Burnett, and somewhat indirectly Disney) jumped on the bandwagon.

With Netflix, no one could accuse the East Coast journalistic establishment of not covering the story, but they have repeatedly ignored, distorted, or dismissed the take coming from people who actually know the industry. The standard argument is that industry experts don't understand the new economy or the Silicon Valley Way of doing things. I vaguely seem to recall a story about a medical testing company that made similar arguments. Perhaps I should go online and try to find out what happened to them.

One idea which is treated as credible by investors and the financial press while seen as completely absurd by anyone with knowledge of the business is the idea that the company can, in a relatively short period of time, create a content library that rivals that of the major studios in quantity and quality. It's true that Netflix is spending a great deal of money producing new shows, but even if they were doing this in the smartest possible way and getting the greatest possible bang for their buck (which they aren't) it would still be a tiny fraction of the investment they would need to make.

As industry watchers have previously noted, Disney was already big and powerful enough to devastate, possibly even destroy, Netflix by going with another streaming service or starting their own. With the Fox acquisition, the company's content library is much larger and it now owns a majority share in the Netflix competitor, Hulu.

None of this is an especially recent development. I need to go back and check the exact timeline, but for at least a few weeks and possibly a few months, the big question is not been "will someone by Fox pictures?" But rather would it be Disney or NBC/Universal/Comcast? In those weeks or months, any analysis you've seen that defends Netflix's skyhigh valuation and doesn't address this issue should be ignored as worthless.

Jonathan and Huell

When I first moved to LA about 15 years ago, I did what countless others had done and started working my way through the cheap half of Jonathan Gold's recommendations. Though it's starting to lose its standing, LA still perhaps cheap eats capital of the United States. You can still go to a different spot every day of the year and find something unique and wonderful with change fact from your ten, possibly your five.

Gold had a special affinity for these places, taco trucks and hamburger stands and mom-and-pop restaurants tucked into corners of strip malls in the least glamorous parts of town. Though no one could write more skillfully about fine cuisine, Gold 's heart was always clearly with the little guys and small, unheralded places that truly caught the spirit of a culture and/or a neighborhood in a way that the Michelin starred restaurant almost never could.

Gold was a local boy and he knew and loved each and every one of those neighborhoods. Like Pauline Kael, he wrote beautifully about his subject while using it to explore bigger questions. Gold brought a great sense of joy to his writing because he enjoyed not just the food but the individuals and the culture that produced it.

When you follow one of his recommendations, you more than just experienced a great meal, you felt had truly gotten to know a new neighborhood.

This got me thinking about another departed California journalist, one who most definitely was not a hometown boy but who adopted and was adopted by the state like no other. Huell Howser

Howser was another California institution, a transplanted local color reporter whose down-home demeanor was matched by extraordinary skills. He was one of those broadcasters whom you could drop pretty much anywhere with a microphone and a request for 25 minutes of tape and you'd get something ranging from good to wonderful.

Howser had an openly stated disdain for the slick and touristy spots that inexplicably attract so many travel writers (particularly from the New York Times). He preferred to find his stories in out-of-the-way neighborhoods and small desert or mountain towns, much as Jonathan Gold often lavished his highest praise on places like Bakersfield.Howser liked to say that his objective was to get people to look around them and find their own adventures.

One of the things that is most maddening for a resident of Los Angeles is the way that writers from other parts of the country (again particularly New York) go to great lengths to avoid anything interesting or distinctive when they visit, then go back home and write about how Los Angeles is boring and without distinction. Gold and Howser were a welcome corrective.

Both men also shared something else in common' they both saw it as their job to seek out the praiseworthy. This was perhaps the most notable trait of Howser's persona ("That's AMAZING!") but it was just as important to understanding Gold. In a field often marked by viciousness, he actually lived by the rule of if you can't say anything nice, don't say anything at all. LA had a wealth of great food. Why waste everyone's time complaining about the bad.

By all accounts, both men were remarkably like their personas. You can find this in the many remembrances of Gold that just came out. For Howser, I recommend this from Gustavo Arellano.

Libraries versus Amazon

This is Joseph, talking about something Mark Palko tweeted.

There is an article suggesting we replace libraries with Amazon:

Amazon have created their own online library that has made it easy for the masses to access both physical and digital copies of books. Amazon Books is a chain of bookstores that does what Amazon originally intended to do; replace the local bookstore. It improves on the bookstore model by adding online searches and coffee shops. Amazon Go basically combines a library with a Starbucks.

The justification seems to be at least partially about taxes:

Now, I have a few observations.

The bookstore/coffee shop model (perhaps we could call it Barnes and Noble) is a nice retail model that has had some modest success.  But it seems to be in decline more than growth these days and presumes that the marginal person in it is actually a paying customer.

I will note that Long Island must have unusually expensive library taxes, as reports across the US in response to this usually report taxes that are an order of magnitude lower.  That said, locating things in New York City and environs is often very expensive.  I am not sure we should set national policy on the NYC real estate market.

It is clear that bookstores would like libraries to go away.  For the same reasons that Uber is probably not a fan of public transit systems -- if you reduce competition that is going to increase profits on the margin.  Is it really the case that subsidizing Amazon is an urgent public priority?  I mean I like Amazon and use their services, but they don't seem to be struggling as a company.

Finally, taxes are complicated issue but there is no example I can come up with of a large society that functioned without them.  There are some exceptions on the margin.  Medieval Iceland, for example, is interesting but obviously used a lot of family mechanisms to cover the gap.  Or the Incas, who may not have levied taxes per se, but had what looks a lot like a centrally planned economy to compensate.  Now it is clear that taxes can be too high.  But it is also clear that no central government often works out poorly.

What I find interesting is how people always want to try these experiments in the United States, a large, diverse, multi-ethnic country with a large military organization.  You can make a low tax version of this work, but I am wondering if we should try and make this model work for a smaller country first.  Maybe Iceland could try regressing back to the middle ages for a couple of decades and we'll see how it all turns out?

When Bell Labs got funky

Leafing through Internet Archive's If magazine collection looking for public domain art I could appropriate (sooner or later I will need a shot of robot-on-robot violence)...

... I came across an ad that seemed interesting.

 [If was the sister publication of Galaxy]

 A bit of Googling took me to this from WFMU

"Music From Mathematics" was an album of early electronic music, programmed by the boffins (very likely in authentic period white coats and glasses) at Bell Laboratories way back in the early 1960s, using the then-new IBM 7090 computer and an "electronic to sound transducer". The music on the album, about half of which is included here, is a mixture of strange, other-worldly blips, rushing white noise, tootly reworkings of classical pieces and a marvellous period "singing computer" version of "A Bicycle Made For Two" (already featured on the 365 Days Project, #62, and so not included again). Full marks to Decca Records for releasing the record - remember that in 1962, these alien sounds would have been totally new, and suitably space-age in their sound.

So for your listening pleasure...

You thought I was exaggerating with the Muskmas line, didn't you?

This amusing thread from Gizmodo's Matt Novak beautifully illustrates some points we've been making for a long time. The language and imagery we use to describe technology in the 21st century has increasingly become that of myth and magic, even for advances that are mundane or trivial. At the same time (and I'm sure the causal relationships run both ways here), our default ways of thinking about tech and innovation have become increasingly dominated by what we've called magical heuristics, mental modes and tools only appropriate for a nonrational, supernatural worldview.

The worst part is that Donald Trump’s batshit press conference is distracting me from the amazing emails piling up in my inbox defending Elon Musk’s honor pic.twitter.com/I7Dna2EzVd

— Matt Novak (@paleofuture) July 16, 2018

The best line to hit my inbox from the Musk defenders so far: “......without his help we on this planet are doomed.”

— Matt Novak (@paleofuture) July 16, 2018

The second best line so far: “The guy Musk has done more for humanity in the last 10 years than anyone has in the last 2000.”

— Matt Novak (@paleofuture) July 16, 2018

Obviously, it would be a mistake to treat the crazy emails that show up in a journalist's inbox as a representative sample, but before we dismiss these comments as the ravings of random lunatics, go back and take a look at this previously discussed Rolling Stone cover story. Are the messianic unicorn comments from Elon Musk's supporters really that much more over-the-top than this?

Musk will likely be remembered as one of the most seminal figures of this millennium. Kids on all the terraformed planets of the universe will look forward to Musk Day, when they get the day off to commemorate the birth of the Earthling who single-handedly ushered in the era of space colonization.
...
“Musk is a titan, a visionary, a human-size lever pushing forward massive historical inevitabilities – the kind of person who comes around only a few times in a century”

.

Of course, the Rolling Stone piece is itself a bit of an extreme case, but not an entirely unrepresentative one. We've collected dozens of examples over the past few years of Silicon Valley saviors and wondrous sorcery in tech drag. These stories ranged from partially to primarily bullshit, but they have had a great impact on the way we invest, make public policy decisions, and pursue research. In other words, we are paying a real price for believing in these fantasies.

Deficits

This is Joseph.

This is an interesting tweet thread by Jeffery Brown.  Here is an image of a few tweets:

What is really interesting here is not that Dr. Brown is wrong.  He isn't.  He is completely correct. 

What is interesting is where the focus is.  In the thread he names two MMTers, Bernie Sanders (an independent failed presidential nominee) and Alexandria Ocasio-Cortez (a Democratic nominee for the house who is not even elected yet). 

Now I am huge believer in fiscal responsibility.  Here is Fortune on the recent tax cuts:

Trump’s heady economic potion, however, is masking misguided policies that could leave those same businesses with a severe hangover from today’s celebration. The U.S. government’s huge and growing budget deficits have become gargantuan enough to threaten the great American growth machine. And Trump’s policies to date—a combination of deep tax cuts and sharp spending increases—are shortening the fuse on that fiscal time bomb, by dramatically widening the already unsustainable gap between revenues and outlays. On our current course, we’re headed for a morass of punitive taxes, puny growth, and stagnant incomes for workers—a future that’s the precise opposite of what Trump champions.

I think Jodi Beggs identified why this is important here:

I would like to think carefully about the deficit.  I think that balance of payments is important and I remember that hyper-inflation is something that can really happen.  But if the focus is on minor players on the party out of power and not on the people actually increasing the deficit now, it is now wonder that people wonder about motives.  If the deficit becomes a political argument than the bad fiscal consequences I would like to avoid become a lot more likely. 

More on health care costs

This is Joseph.

As projections go, this one is shocking:

Medical services are expensive. There is no getting around it. The average family health insurance premium in the US is approaching $20,000. By one estimate, average family premiums could rise to 100 percent of US median household income by 2033 if trends continue.

Even now, the median family income in the United States is fifty-nine thousand dollars, which means health costs are starting to dominate expenses.  In parallel with the cost of housing (which is growing faster then wages right now), it is pretty clear that either wages need to go up soon or we need to find a method to control costs. 

One feature of health care costs that is odd is the presence of different costs for different customers (off the street versus negotiated insurance costs versus medicare/medicaid rates) and a complete lack of pricing transparency.  It is difficult to save up for medical procedures when you don't know the actual price and it is common for bills to be a surprise. 

Obviously, consistent and transparent prices are going to be needed in order to utilize market forces, as is competition.  I think that it isn't a surprise that centrally planned health care systems have proved quite a popular solution to this problem. 

Which doesn't mean that is the way to go.  But if we are going to find a way forward then we need to find a way to contain costs.  I see this as the central question of health policy at the moment. 

What next for health care costs?

This is Joseph

I read with great interest this article by Edward Murphy on US health care costs.  The bottom line was quite interesting:

In March, three researchers from the Harvard T. H. Chan School of Public Health published a study in JAMA analyzing the well-known reality that the United States spends dramatically more on health care than other wealthy countries. They compared the US, where health care consumes 17.8 per cent of gross domestic product, to 10 comparable nations where the mean expenditure is 11.5 percent. Despite spending much less, the other countries provide health insurance to their entire populations and have outcomes equal to or better than ours. The researchers found that this inefficiency gap is primarily driven by two characteristics of the US system: the high cost of pharmaceuticals and inordinate administrative expenses.

and

It is not in the interest of huge profit-making corporations to restrain the overall cost of the US health care system. In fact, their interest is served by driving health care expenditures higher. When combined with the spending analysis provided by researchers, the financial data disclosed by public corporations point to a path that the country must follow to make our system more coherent and less costly. Any progress will require driving down pharmaceutical pricing and reducing administrative costs imposed by middlemen. We are not doing that yet but, ultimately, we must. 

This is an evergreen topic given that health care is expensive and there is a sense that it doesn't have quite the overall outcomes that you'd expect.  If it was just that a wealthier country spends more on health to get better outcomes, then I would say that the market was functioning effectively.  It's unclear to me that being wealthy means an interest in higher administrative costs, although I guess hedge funds might be an example of this phenomenon.

This is relevant because there is a real issue with laws to regulate health care, both in terms of payments and the laws themselves.  I see this as the end of the idea of a regulatory framework for the private marker (the affordable care act) and a prelude to a pivot to some other approach. I am waiting to see who might provide leadership on this front.  What is the vision of the Trump administration on health care policy and cost containment?  How are they going to tackle this difficult and nearly intractable issue?

Curious minds are waiting for the other shoe to drop and see what the new plan is

Postscript:  And in case you think these high profits are needed for innovation, Noah Smith has a great tweet here. 

A follow-up to yesterday's post

This is Joseph

In yesterday's post we talked about employer monopsony.  Relevant to this post is today's news about Washington state successfully suing to get fast food franchises to no longer enforce "no poaching" agreements.  The gist is:

The provisions prohibit workers at, for example, one Carl’s Jr. franchise from going to another Carl’s Jr. They do not stop those workers from taking jobs at restaurants run by a different chain.

While this does not lock workers into a single chain, it does make it harder for them to move around if one particular employment situation gets bad.  Any barriers to mobility tend to depress wages and thus the question of minimum wage as a policy.

It's true that tackling the bad policy might be a better overall decision.  But minimum wage is an easy to enforce policy that is hard to weasel around.  Once again, it is a policy that bears more looking at.

Jodi Beggs on employer monopsony power and mimumum wage

This is Joseph

Jodi Beggs has a great post on the minimum wage in the presence of employer monopsonies.  If there is only one buyer of market labor, that purchaser has a decided advantage.  Her main point of doing this analysis was to make the point that:

If a labor market is a monopsony (or if employers have monopsony power), minimum wages could actually increase rather than decrease employment.

She provides a number of worked examples, which are fun to look over.

What this made me wonder about the is the role of non-compete agreements in labor markets.  For example, there is a sandwich company that used to enforce non-compete agreements. Insofar as actors include these agreements in employment contracts, we might be closer to the point where minimum wages have a reduced cost (or even a benefit) to employment levels.  This is also likely to occur in high skill areas where the number of employers is small.  If you are a skilled airplane builder and live in Montreal, you will find limited employer options that are not Bombardier.  Moving has costs and, in the modern world, it isn't necessarily trivial to immigrate.

These effects may also occur in small markets, where the number of competing employers is limited, which is more of what Jodi Beggs was worrying about in her post.  In order for market forces to work properly, there are a number of key assumptions that are required.  There being multiple buyers of labor is one of these and we shouldn't be surprised if your intuitions are reversed in some markets.

Now how that works for things like the Seattle minimum wage are more complicated.  But this could be an important layer to understanding this as different studies had slightly different industries and it may be that employer diversity is confounding some of these associations.

But it is worth reflecting on as it makes the arguments against the minimum wage a lot weaker if there are market monopsonies present.  If so, then the policy benefits of this policy are actually pretty great.

(Jodi Beggs points to an article on the topic, and the evidence seems mixed, but not ignorable).