Wednesday, January 16, 2013
Headphones: Paradigm of Market Progress
We had headphones when I was a kid. They were nothing special, just speakers with puffy foam to fit around your ears and a plastic piece to secure them on your head. They sounded fine. They kind of made your ears sweaty. Others could hear a bit of what you heard. You could hear what was going on outside the headphones. Mostly, they just made the scratches and pops on the vinyl records sound louder in your ears. Otherwise, they didn’t matter much in the scheme of things.
Somehow, over the last few years—and especially over the last twelve months—everything changed. Total headphone mania has broken out. It seems like everyone under a certain age wants a pair. The quality makes the ones I had when I was a kid seem like stone-age relics. Forget the pops and clicks of vinyl. The purpose of the new headphones is to reveal a universe of sound no human being has ever experienced.
In my opinion the sound is sometimes better than you can get in a physical space. It is better than real life for me, sometimes, because headphones can block all outside noise and really target your ears.
Crucially, they have become status symbols. What brand you own and use says something about who you are or who you want to be. They are worn with pride, attached only to tiny boxes that contain thousands of songs—a tiny box that is also a phone, GPS, blood pressure checker, musical instrument, and tens of thousands of other things.
In the beginning of the headphone craze, there was Bose, a company that somehow manages to keep reinventing its products and defying every expectation that it is old hat. It was founded in 1964, long before the digital age, and only just after audio equipment became common in every American home. Bose distinguished itself by innovating with the changing times.
As for its headphones, they were first made only for specialists in industry. Only in the last ten years did the company begin pushing the idea of stellar sound for average consumers. Its most popular models hit the market in 2010 and they changed the market forever. They took a throwaway item and turned it into a must have.
Meanwhile, a competitor was waiting in the wings. Beats Electronics was founded in 2006 by hip-hop artist Dr. Dre. He was not only the owner but he personally promoted their products as the best way to hear all of the sound. His personal credibility mattered. This product quickly found a niche among a group of buyers who had no interest in Bose’s stuffy/scientific approach. By 2010, the mass craving for the perfect headphone experience had entered the mainstream.
Bose and Beats entered a titanic struggle in the midst of a market that was growing ever larger. Bose started working with new designs to make their product more hip, even as Beats started working on new designs for professionals. These companies were learning from each other while invading each other’s market niches. Emulation—or observing and copying the successes of one’s competitors—was an important part of the competitive process in the headphone market.
The profit signals worked as they should, inviting ever more enterprising attempts to capture the buying attention of a newly attentive consumer. New companies flew into the market. By 2012, every shape and size became available. The price ranges widened, with makers such as Beats able to sell their wares for $250 and up.
As of this writing, Bose is asking $350 for its top-of-the-line set. Other companies compete with each other in the $200 price range, variously struggling to charge the highest price while still undercutting each other for market share. A new language has emerged: in-ear, on-ear, and over-ear. You have to choose.
At my last visit, my local Best Buy has about 20 feet of shelf space devoted to them. Amazon has dedicated an entire online store to them, featuring dozens of brands, from old audiophile standbys to highly specialized earbuds designed to be worn during athletic training. And within a few weeks after observing this, the market expanded out further to the point that imitators of the high-end models showed up at very reasonable prices at drug stores.
The luxury good had become the standard product over time. And if you find even these products to be too expensive, you can also buy lookalikes in dollar stores, products that are not as good but that allow people on a budget to at least look like they are using high-status items.
They all sound great to me, and I would be hard pressed to discern the difference between them apart from their color and shape. And by the way, they all look spectacular, very much unlike the headphones I had when I was a kid.
A few observations about the market bear repeating in light of this case.
This whole craze illustrates the unpredictability of the marketplace. If someone had told me ten years ago that an explosive industry would emerge in which companies will sell headphones to average kids for hundreds of dollars, I would have said: no way. But, surprise, there it is. And the phenomenon has all the elements of market success: substance, style, and intense competition rooted in emulation and the drive to develop and improve.
No one planned this large outcome in any of its particulars; it emerged from the actions of entrepreneurs, producers, sellers, and buyers, and it involves the division of labor working all over the globe. The producers are profiting, surely, but how? Through service to the common person, and the common person is the one who determines such success and failure.
Some people look at this situation and think: what a gigantic waste. It shouldn’t matter what headphones you own or whether you own them at all. Plus, this duplication is pointless. Dog eats dog eats dog and what do you have in the end?
Well, here is what you have the end: and grand and glorious and productive new industry that gets us closer to experiencing better lives. The products do in fact open new worlds to us. Whether you listen to hip hop or Schubert, whether you thrill to the punch of a bass drum or the delicate balance of an oboe and violin duet, the music is taking on a new meaning in people’s heads, hearts, and souls.
All this so-called materialism ends up feeding a nonmaterial end of letting us experience joy. Poets, philosophers, and theologians have told us since the ancient world of the magical properties that music can have on civilization. But it took the capitalists to make their dreams real and universalize them.
As for the supposed duplication of product availability, this is only evidence of how the marketplace is fully capable of serving the infinite diversity within the human family.
Consider too that all of these undertakings must constantly face the grueling test of the balance sheet. If it works economically, we know that it is not a waste of resources. When it stops working for one company, or all, that too is a sign that the activity must stop.
This is a system that works for everyone. It is filled with surprises and opportunities for both producers and consumers, the product of an unplanned order that no one in particular controls in full. If we could bring the dynamism, economics, element of surprise, and relentless creativity and innovation to other sectors of life that are dominated by State imposition, we would see the emergence of new types of social service that we can’t today even imagine.
In other words, the right way to fix health care, education, transportation, and justice—or any sector that is bogged down in bureaucracy and rules—is right before our eyes, or perhaps right in our ears. For sectors dominated by the State, the music has stopped. For those controlled by market forces, it has just begun.
A rallying cry for taming spending
Democrats not allergic to arithmetic must know the cost of their "fiscal cliff" victory. When they flinched from allowing all of George W. Bush's tax rates, especially those on middle-class incomes, to expire, liberalism lost its nerve and began what will be a long slide into ludicrousness.
Those temporary rates were enacted in 2001, when only 28 House Democrats supported them, and in 2003, when only seven did. But with the "American Taxpayer Relief Act of 2012" – did liberals think about that title? – 172 House Democrats voted to make the Bush income-tax rates permanent for all but 0.7 percent of taxpayers – individuals earning more than $400,000 and couples earning more than $450,000.
Liberals could have had a revenue increase of $3.7 trillion over 10 years. Instead, they surrendered nearly $3.1 trillion of that. They cannot now increase government revenue as a share of GDP through tax reform because Republicans insist that the Taxpayer Relief Act closed the revenue question. And because tax reform is dead for the foreseeable future, so are hopes for a revenue surge produced by vigorous economic growth.
No numerate person thinks today's entitlement state, let alone the steady expansion of it that is liberalism's aspiration, can be funded by taxing the income of the 0.7 percent of taxpayers whose rates were just raised. Or the 2 percent whose rates would have been raised had liberals simply allowed the automatic increase of rates for individuals earning more than $200,000 and couples earning more than $250,000.
Because 82 percent of American earners pay more in payroll taxes than income taxes, no politically conceivable or economically feasible middle-class tax rate can fund the entitlement state. And America's political culture rules out funding it with new consumption or energy taxes. By rescuing almost everyone from restoration of Clinton-era rates, liberals abandoned any pretense of paying for ever-expanding entitlements. Instead, they made trillion-dollar deficits their program.
From 1950-2000, economic growth averaged 3.6 percent; since then it has averaged less than 2 percent. Liberals think today's correlation between the slow economic growth and rapid governmental growth – including under George W. Bush – is a coincidence. Conservatives do not. And they note some recent actions, done in December's bright light of public attention and fiscal anxiety, which indicate that this government's indiscipline is incorrigible and shameless.
Years ago, for example, Congress decided that, to save the planet, there should be tax credits to bribe Americans to buy electric cars. Sen. Ron Wyden, D-Ore., believes it only fair that buyers of electric motorcycles, some of which are made in Oregon, not get left out of the bribery business. Thanks to the Taxpayer Relief Act, they won't.
People who choose to live in places vulnerable to flooding believe it would be unfair that the cost of their property insurance fully reflect this risk. So government subsidizes their insurance, and hence their decision to live where there is increased risk of property damage.
Today's government has neither wit nor will to stop subsidizing electric motorcycles or to reform flood insurance. Hence Republicans should rally 'round one of several well-refined constitutional amendments requiring balanced budgets. Such an amendment would be popular everywhere, but especially in six states important in 22 months.
Republicans need to gain six seats to win Senate control in 2014, when Democrats will be defending 20 seats, Republicans only 13. Six Democratic incumbents represent states in which Barack Obama got less than 42 percent of the 2012 vote.
Sixty-seven Senate votes are needed to send a proposed amendment to the states for ratification. There are 45 Republican senators. There are nowhere near 22 Democrats who would vote for an amendment Republicans could support. Still, Republicans, whose divisions cause Democratic gloating, could use a balanced budget amendment to divide Democrats who threw the remnants of their fiscal self-respect off the cliff.
Obamacare imposes new fees, cost increases on the public
Obamacare was sold to the public based on the fallacy that it would cut healthcare costs, but each month brings additional evidence that it will drive up healthcare costs instead. The New York Times reported last week that “health insurance companies across the country are seeking and winning double-digit increases in premiums for some customers, even though one of the biggest objectives of the Obama administration’s health care law was to stem the rapid rise in insurance costs for consumers. Particularly vulnerable to the high rates are small businesses and people who do not have employer-provided insurance and must buy it on their own. In California, Aetna is proposing rate increases of as much as 22 percent, Anthem Blue Cross 26 percent and Blue Shield of California 20 percent for some of those policy holders.” Earlier, Obamacare resulted in hikes of 41-47 percent in health insurance premiums for some policyholders in Connecticut. The Times notes that in “other states, like Florida and Ohio, insurers have been able to raise rates by at least 20 percent for some policy holders.”
Writing in the The Wall Street Journal today, Merrill Matthews and Mark Litow say that some premiums in individual markets may double due to Obamacare. One reason is that the “Congressional Democrats who crafted the legislation ignored virtually every actuarial principle governing rational insurance pricing.” “Although President Obama repeatedly claimed that health insurance premiums for a family would be $2,500 lower by the end of his first term, they are actually about $3,000 higher — a spread of about $5,500 per family.”
Most Americans will feel the brunt of a $63 per head fee imposed by the Obama administration, for which they will receive nothing in return. As the Associated Press notes, “Your medical plan is facing an unexpected expense, so you probably are, too. It’s a new, $63-per-head fee to cushion the cost of covering people with pre-existing conditions under President Barack Obama’s health care overhaul. The charge, buried in a recent regulation, works out to tens of millions of dollars for the largest companies, employers say. Most of that is likely to be passed on to workers. Employee benefits lawyer Chantel Sheaks calls it a ‘sleeper issue’ with significant financial consequences, particularly for large employers. ‘Especially at a time when we are facing economic uncertainty, (companies will) be hit with a multi-million dollar assessment without getting anything back for it,’ said Sheaks, a principal at Buck Consultants, a Xerox subsidiary. Based on figures provided in the regulation, employer and individual health plans covering an estimated 190 million Americans could owe the per-person fee. The Obama administration says it is a temporary assessment levied for three years starting in 2014, designed to raise $25 billion.”
The Obama administration is also levying a 3.5-percent fee (of dubious legality) on insurers that participate in federal health insurance exchanges created by Obamacare, a fee that will be passed on to the public through higher health insurance premiums. In the District of Columbia, small businesses are being forced to buy overpriced insurance on an Obamacare exchange by the “District of Columbia Health Benefit Exchange Authority,” which “voted . . . to require D.C. small businesses to buy coverage through the exchange. Although President Obama falsely claimed when Obamacare was enacted that “if you like your present health insurance, you can keep it,” Washington’s small “employers can stick with their current health insurer” only “if that provider opts into D.C.’s exchange.” Even if it does, employers “may see their rates increase . . . experts said.” The forced participation in the exchange will “apply to any company that has an office in the District with 50 or fewer employees.
Even liberal Democrats in the Senate like Al Franken are admitting that the medical-device tax contained in Obamacare will wipe out many jobs. In a statement in December, “Sen. Al Franken called it a ‘job-killing tax’” that will “impair American competitiveness in the medical device field.” Obamacare has triggered layoffs in the medical device industry. Employers are now cutting full-time workers and replacing them with part-time workers (which helps conceal high unemployment) to avoid Obamacare mandates that apply to full-time employees, a phenomenon chronicled at the Huffington Post and on Fox News. Obamacare will reduce employment by an additional 800,000 due to work disincentives and its bizarre income-cliffs for things like tax credits.
A 2011 study predicted that “790,000 Ohioans will lose their private health insurance and premiums will rise 55%-85% when Obamacare takes full effect in 2014.” Those percentages sound a bit high, but the study was done by reputable consultants and commissioned by the Ohio Department of Insurance.
Obamacare will harm the health care system. It contains racial discriminatory provisions and racial preferences that were criticized by the U.S. Commission on Civil Rights. The Dean of Harvard Medical School, Jeffrey Flier, noted that Obamacare will reduce life-saving medical innovation. It arbitrarily discriminates against certain hospitals, and raises taxes starting in 2013 on investors, including, but not limited to, a new 3.8% Medicare tax on investment earnings for individuals earning more than $200,000 and households earning more than $250,000 per year. The Associated Press and others have noted that it breaks a number of Obama campaign promises.
For more blog postings from me, see TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCH, POLITICAL CORRECTNESS WATCH, FOOD & HEALTH SKEPTIC, AUSTRALIAN POLITICS, IMMIGRATION WATCH INTERNATIONAL, EYE ON BRITAIN and Paralipomena . GUN WATCH is now mainly put together by Dean Weingarten.
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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)
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Posted by JR at 1:50 AM