Monday, May 27, 2013

100 Years of Actors' Equity

“One of the things about Actors’ Equity that we hold dear to our hearts is that there is no problem that cannot be solved with a committee. It is probably carved over our entrance." 
- Nick Wyman, current president of Actors' Equity
So yesterday was Actors' Equity's 100th birthday. Happy Birthday AEA! If you don't know, "Equity" is the union for stage actors. A lot of my friends are proud and well-deserving Equity card-holders, so I don't mean to ruffle any feathers with this post. The nice thing about identifying as "libertarian" is that most people regard you as kind of cartoonishly naive and harmless, so you can have friends at all ends of the political spectrum. So if you disagree with me, rather than get offended please feel free to regard this as just the inconsequential rambling of someone with a lot of wacky opinions. With that said...

It seems to me that the problem with all of the talent unions is that they help some of their members at the expense of everyone else. It's true that the unions prop up the wages of those members who can get work, but as a consequence theaters pay less to other actors. Is it better that Actor A receive $5000 for a role rather than Actors A-E receive $1000 each? And suppose there is another $1000 in union dues, fees, and other administrative costs that goes into hiring Actor A. That is $1000 that should be going to actors but is instead being wasted in order to secure a privileged position for Actor A. So all other things being equal, you get an artificial allocation of the $5000 budget to one actor instead of several, and any administrative costs associated with the union are a deadweight loss. That is all other things being equal.

In reality, the total budget allocated to actors is probably much less in the union situation than it would be otherwise. Imagine Actor A and Actor Z are both top-notch union talent, and the union minimum is $5000. That means it would cost $10,000 to cast both in one production. Now suppose the total budget for actors is $8000. With that budget, the producer will only spend $5000 hiring either Actor A or Actor Z. If not for the union constraint, the producer might have hired both at $4000 each, raising the total amount spent on actors by 60%. So that's one way union minimums can lower total spending on actors. Another way is simply that by limiting how producers can allocate their budgets, you decrease their return on investment which in turn can decrease their budget for actors. So actors unions are great for those union actors who land the gigs, but they probably reduce the total amount paid to actors overall. Furthermore, they even harm their members by making it harder for those actors to find work. An actor may be able to maximize their income by working five shows a year at wages between one and four thousand per show, but instead their entire income depends on landing one scarce $5000 gig. And they can't even do a play for fun.

By now I know people are screaming at me that without talent unions the producers would keep all the profits and not spend any more on talent. Well, there are a few problems with that argument. First, actors are actually not very interchangeable. Anyone who has ever been involved in casting knows how difficult it is to find the right person for the role. Casting directors hold auditions earlier and earlier in an attempt to have first dibs on the best talent. Think of actors not as factory workers, but as software engineers being courted by Google and Apple. The way to raise their wages is to bid them up through competition, so what you want is more successful theaters. Third, most theater producers don't actually make much profit if they make any at all. Competition with other theaters forces them to pay more for the best actors, more for the best crew, more for the best marketing, etc. Nor can they just raise ticket prices, because ticket prices are presumably set to maximize revenue already. Raising prices typically means fewer people buying tickets and less revenue overall. If you can raise more money by raising your prices, then you weren't charging enough to begin with. But if you don't believe that on theoretical grounds, then test it empirically and call a theater producer and ask them how much profit they raked in last season. They'll laugh at you.

I recognize there are probably some sob stories from the 1930's about actors being mistreated, and I'm sure a lot of those are legitimate. But oftentimes the situation is something as simple as the fact that nobody, I mean nobody had any idea that Gilligan's Island would still be playing on TV forty years later when they negotiated their contracts, yet we treat stories about those actors as if they were evidence of widespread exploitation. Of course you need basic worker protections, and there's nothing wrong with people belonging to a support organization where they can seek professional advice and advocacy in cases of abuse. But that's not the AEA, and the theater industry today in no way resembles the Woody Guthrie-type world we like to imagine. Fortunately the AEA is tempered by the fact that most theaters are small, nimble, independent operations that strongly incentivize actors not to go union. In the film and TV industry, on the other hand, SAG/AFTRA and the major studios are in such collusion that actors don't really have a choice but to join.

So that's my wacky crazy quasi-libertarian take on Actors Equity.

Saturday, May 18, 2013

Hospital Billing Run Amok

Fascinating article on hospital billing run amok in New Jersey:http://www.nytimes.com/2013/05/17/business/bayonne-medical-center-has-highest-us-billing-rates.html?hp&_r=1&pagewanted=all&

So what is out of whack here? A market guy like me reads this and wonders how such a scheme is possible. Ahhh, bingo: "Under New Jersey law, patients treated in a hospital emergency room outside their provider’s network have to pay out of pocket only what they would have paid if the hospital was in the network."

Yup, a law like that'll break a market right quick. When a boneheaded law makes the customer indifferent to whether they seek care in-network or out-of-network, hospitals have no incentive to negotiate before the fact with insurers. Don't blame the hospitals, and don't blame the market system. Blame the New Jersey legislature.

Tuesday, May 14, 2013

College and Stocks

I mentioned to someone that I'm thinking about applying to grad school, and he advised me to "recognize that the opportunity cost of the time and money getting another degree is huge." Ah, but opportunity cost is not the time and money invested in college; it's the opportunity foregone by attending college instead of something else. So in order to know the opportunity cost, you have to know what is the opportunity.

By that measure, it occurred to me that college is actually pretty cheap right now. The absolute cost of going back to school is primarily made up of two big things: 1. tuition and fees and 2. opportunity costs. I don't count housing and living expenses because those exist whether or not I'm in school.

Tuition and fees are certainly very high. But what about opportunity costs? What opportunities will I be passing up by going back to school? At a time of 7.7% unemployment, depressed wages, and dismal economic growth, those opportunity costs are much lower than at times of full employment and booming growth. So while tuition costs may be rising, the absolute cost of going back to school may not be so huge after all. ;)

To apply the same line of thinking to stocks: Two useful measures for determining the value proposition of stocks are the price-earnings ratio and the equity-risk premium. According to the price-earnings ratio, stocks are fairly expensive right now relative to the historical mean. But equity-risk premium considers the "opportunity cost" of buying stocks instead of buying government bonds. Since the yield on treasury bonds is pretty much nil, the opportunity cost for buying stocks instead of bonds is very low (meaning the premium investors receive for buying stocks instead of bonds is very high). So by that measure, stocks are cheap.

In other words, one way to make something a good deal is to trash the alternative.

Saturday, May 11, 2013

Artist Criticizes the NEA

In this video I discuss why I think the National Endowment for the Arts is probably a bad idea, even though I personally benefited from a nice NEA funded grant.

Sunday, May 5, 2013

A Health Insurance Mandate that Would Work?


Aside from constitutional questions, it seems to me that the big problem with a mandate to buy health insurance is that if you're going to mandate it you presumably have to set minimal standards of coverage and you've got to make sure it's affordable. It's the regulation, not the mandate, that breaks the market.
So here's an idea: we mandate health insurance, but we don't define health insurance. The tax penalty for not buying anything is very high, but if you want to buy some $1 fake policy that offers no real protection, you are free to do that. There would still be free-riders, same as there is now, but people would have to actively enter the market and purchase a worthless policy if they want to be uninsured. The assumption is that by changing health insurance from opt-in to opt-out, we would preserve the voluntary nature of the system but fewer people would choose to free-ride. That would be an improvement, right?