Archive for December 2008

The Last Temptation

Nothing makes purity more interesting than temptation.  This applies to ideological purity just as much as the physical sort.  As a libertarian, my greatest temptation to call for government action comes when I deal, as a retailer, with Visa and Mastercard (V/MC).

This post is not a call for government action, so I guess I am resisting temptation.  But I at least need to vent, sort of like a monk pounding his head on the wall after getting the Victoria's Secret catalog in the mail.  So here is my rant.

First, let's start with how credit card companies make their money.  I will confess that I do not know how the card companies (V/MC) and the card processors (often large banks) split the take, so this is how they make money together.  V/MC and the processors charge fees to merchants.  Typically this is a fixed fee per transaction plus a percentage.  On average, a merchant might be paying 2.5-3.5% of a transaction.  The card companies also make money from card holders, charging annual fees, interest fees, etc.

You will have seen of late that most credit cards offer various loyalty programs, from airline miles to cash rebates.  You might have thought those were marketing expenses paid by the credit card companies.  Wrong.  The card companies simply charge merchants a higher fee for processing transactions using these cards.  In a sense, the card companies have organized with card users to use their power to extract extra value from merchants.

All of this I can generally live with.   Visa and MasterCard, through both their credit facility and their implicit standardization, bring enormous value to retailers and customers.  Its a big circular game anyway -- customers get 1% back and think they are getting a deal, merchants pay this extra 1% in fees, and then add it into the price of what they are selling.  It's a wash, except to the extent that customers with reward cards in the end extract a bit of value from customers who pay cash (for reasons explained below).

For this value one must accept the typically arrogant and indifferent customer service provided by any monopoly  (American Express is particularly awful to deal with as a retailer).   But they are no worse to deal with than the government, so its unclear how the government could make the service any better.

What tends to tick me off, though, are rules and restrictions.  Like the creeping work rules in the UAW contract, these are in many ways more insidious than the service and pricing.  Here is what set me off today, from one of my card processors  (in this case Bank of America, which, to be fair, is someone I would recommend for merchant account processing).  Click to enlarge.


So, why are businesses breaking these rules so often?  Let's take a look:

  • No minimum transaction. Remember that V/MC charges a minimum fee, from 10-40 cents or so, per transaction.  So if someone buys a pack of gum in our store, likely 100% of the sales price is going to V/MC.  Typically it takes at least a one dollar total sale for there to be any money left over beyond paying cost of goods sold and the credit card folks.  So merchants logically want to set a minimum.   V/MC hates this practice, but it is rampant.  I plead the fifth on our own practices.
  • Surcharging. Credit card customers cost more than cash customers.  Sure, we get some non-sufficient funds checks, but the eventual cost of these is nowhere near 2.5% of sales.  Merchants logically don't like having their cash customers having to subsidize the frequent flyer rewards of their credit customers.  However, unlike transaction minimums, card processors have mostly been able to drive out cash discounts.
  • Requiring ID and Fraudulent Transactions. I will take these two together, since they are so ironic one after the other.  V/MC is telling merchants that they can't check ID, which is the only reasonable approach to limiting fraud, but that they can't submit fraudulent transactions.  You say that the text says "known fraudulent?"  Well, read on --

To the latter point, I think most people assume that the credit card companies are absorbing the fraud, which is how they justify the fees they charge.  Wrong again.  Credit card companies only absorb credit risk.  Over the last 10+ years, they have pushed fraud back on the retailer.  If a consumer claims fraud on his card with some transaction, then the credit card company refunds the customer and takes the money from the merchant unless the retailer can absolutely prove he made delivery to the consumer personally (which he can't prove because he can't check identification) .  Merchants bear the cost of fraud, not card companies.  Which I could accept (since I have more ability than the card companies to control fraud) expect the card companies ban me from controlling fraud.  So I have to take financial responsibility for something I am not allowed to prevent.  And that really ticks me off.

Anyway, maybe someday we can organize a large merchant boycott, where, even for a day, we all refuse to accept Visa and Mastercard.  Of course we would be breaking the rules, because that is not allowed by our V/MC agreement.

Postscript: I suspect that a few retailers with some power are starting to crack this, at least for themselves.  Costco only takes American Express.  Sams Club only take one card (MC, I think).  My guess is that both, with their large size, bargained for exclusivity in exchange for concessions on fees and/or terms.

Postscript #2: I expect comments like, "Well so-and-so always makes me show an ID."  I don't doubt you.  I am merely saying that by doing so, they have either negotiated an exception to the V/MC agreement (very unlikely, as V/MC holds to these rules like the Maginot Line) or the retailer is breaking the rules.

Update on the Arizona Minimum Wage

The Arizona minimum wage is going up again:

The annual increase is the third since voters approved the minimum-wage initiative by a 2-1 ratio in 2006. This year's increase is 5 percent. At $7.25 an hour, the wage is up nearly 41 percent from December 2006 but still only about half of the state's median wage of $14.25, according to the Arizona Department of Commerce.

Oh my God!  You mean the minimum is still below the median?  (Sorry, that is a bit off-topic, but I just can never resist making fun of journalist's understanding of math and statistics).

In just over two years, the minimum wage is up over 41%.  As a company that employs a lot of minimum wage workers in Arizona, I thought I would report on the impact to date.  As a quick background, my company runs campgrounds (and other recreation facilities) all across the country.  We typically employ retired couples who live in their RV onsite and work both for the free camp site as well as a wage, usually minimum wage.  In a good year, our business makes between 6-8% pre-tax profit on sales, which I can tell you is a thin, thin cushion given all of my life's savings are locked up in this one investment.

I don't know where minimum wage supporters think the extra money comes from to pay higher wages.  If they think at all, I suppose they would say that the government is in effect collective bargaining for these workers and getting businesses to cough up some of their immense profits to pay a bit better wage.

Well, our labor costs are about 50% of revenues  (we are a service business).  This 50% is not just wages, but other costs calculated as a percent of wages, such as FICA, medicare, and unemployment taxes and workers comp premiums.  So, if I still want to earn a living for myself, and the state says half my costs must go up by 41%, then it means that prices are going up 20+%.  And that is what has happened.   Remember, at the same time, fuel prices, electricity prices, insurance prices, and everything else has gone up, so that camping prices have risen by 20% or more.  But there is a limit to how far we can push prices, particularly since our typical customer tends to be relatively low-income.  So we are pursuing two other longer term responses:

  • We are increasingly turning to automation solutions, like automatic pay systems and gates, to replace people.  While we like to have someone actually there to answer questions and to help visitors, fee collection machines work 24 hours, are not subject to overtime rules, they never get hurt, they never sue us, and the government never passes laws to increase their price.
  • We are changing our operating strategy from hiring retired couples who live on-site to hiring younger workers.  This is a change I really hate.  The business model of hiring retired folks who live on-site at a campground is an old and successful one.  Folks in their seventies (and I even have workers in their eighties and nineties) don't work very fast, and they have more workers comp claims, but they had the ability to live on-site and life experience that helped them with customer service.  But trade-offs that worked at $5.15 an hour don't work as well at $7.25 and higher.  So far only selectively, but we are hiring younger folks from the local community to come in and do some of the janitorial and maintenance work.  Even if I pay them $8 or $10 an hour, they make sense if they can be twice as productive.

I Have Been On-Board For A While

I don't think that anthropogenic global warming will be substantial enough to justify massive and expensive interventions to limit Co2.  I won't go into the reasons for this statement, as I have a whole other blog dedicated to climate.  If you are unfamiliar with the arguments that Co2 is likely warming the Earth, but not by nearly as much as alarmists claim, you might start with some of these videos.

However, it seems almost inevitable that the new Congress and Administration will do "something" on Co2, if for no other reason that it has become a self-image issue on the left  (i.e. I am a good person because I care about global warming).  We libertarians are seldom very good at engaging on issues of how such government interventions should be done best.  Every time people ask us our opinion of how to structure such a program to do the least harm, we get about 5 seconds into an answer before we just break down and start yelling, "this is crazy!  Do nothing!  Leave us alone!" (actually, emissions laws are one of the few areas where government regulation helps to protect private property rights).

Bryan Pick at Q&O points to a number of folks advocating an increase in carbon taxes offset by reductions in payroll taxes (Bryan's plan is more comprehensive than this, and is here).  I actually advocated something similar over a year ago.  Here is my logic chain:

  1. The carbon tax is a much, much better approach to reducing CO2 than cap-and-trade systems.  Cap-and-trade is bad for the same reason that politicians like it -- it offers a near infinite playing field for lobbying, special rules, influence-peddling, special exemptions, government chosen winners, etc. while hiding the fact that it is in fact a huge new tax.  My more detailed argument on this can be found here and here and here.
  2. A new carbon tax should be revenue neutral.  After all, the point in the first place is not to raise revenues, but to provide a pricing signal that Americans need to switch away from carbon-based fuels.
  3. A good place to offset revenues is the payroll tax.  Both fuel taxes and payroll taxes are criticized for being regressive, so it is an easy place to try to forge a compromise with the left.  Further, the payroll tax acts effectively as a tax on hiring, so a reduction would certainly be welcome any time, and particularly in a recession.
  4. We need to create a streamlined licensing program for nuclear reactors.  Utilities, particularly ones dependent on coal today, need a realistic option to continue to provide power at reasonable cost in their communities.  Solar and wind are just not reasonable alternatives today.  Nukes are the only carbon-free scalable generating technology we have.

Again, I don't think the dislocations required here are worth the effort, but this is the best way to do it if we must.

Postscript: By the way, here is one thing no one is telling you.  Folks in Congress have tossed around carbon and fuel tax ideas that might add, say 25 cents per gallon.  But if we are truly in thrall to the climate alarmists and take their recommendations, then Co2 outputs must be reduced 50-80% in this country.  We are talking about reducing Co2 output to levels before 1920!  To do this will require a truly massive tax.  Just to scale it, over the last year gas prices doubled by about $2 a gallon, and total miles driven fell by less than 5%.   Europe is at around $8-$9 gas and are nowhere near these climate goals.  I don't think it would be too much to say that gas prices would have to top $20 to reach these goals.

This is why I think the most likely case for climate regulation is that we will have some kind of tax or cap system but that this system will be far short of anything that will really reduce Co2 or even stop its growth.  The costs are just too high, and the benefits too shaky.  You can see that in Europe, as countries back off Kyoto goals  (and even Kyoto goals are far short of what alarmists think we need to be hitting).  And any progress they have made against Kyoto goals has mainly been accidents of changing enconomic and political structures rather than the result of any real targeted action.  What we will get is something that costs a lot without accomplishing much, but will make the left feel better about themselves.  Sound familiar?

Environmental Question

I am honestly curious here.  Apparently, Seattle does not use salt to melt ice on roadways because they believe " it's not a healthy addition to Puget Sound."  I could understand if the salt was all washing into a trout stream or perhaps a reservoir, but isn't Puget Sound part of the ocean, which has, um, salt water?  Is it a different kind of salt  (e.g. calcium chloride vs. sodium chloride) that causes the problem?  Or is this another typical "don't understand the math of concentration" story?  Or perhaps are they using environmental concerns as cover for lack of preparation?

Permalinks Screwed Up

The permalinks are screwed up right now.  That is the one problem I have had that keeps me from 100% satisfaction with WordPress -- the mod-rewrite stuff is pretty finicky and can lead any custom permalink structure to get screwed up from time to time.

Update: Fixed now.  There is some kind of bug that whenever I try to change the URLs of categories, I get a permalink mess.  So I am just creating redirects for all the old category locations and calling it a day.  This error may well be a host problem rather than a WordPress problem.

I Love This Image

This has become one of my absolute favorite photographs.  If I had to come up with an advertising campaign defending modern society against those who are anti-growth, anti-wealth and anti-technology (like, say, our new National Science Adviser John Holdren) I would use this picture on the posters.  (via Shorpy, which has a huge version here)


New Form of Identity Theft

JD Tuccille has an interesting take on speed cameras from Maryland:

Originating from Wootton High School, the parent said, students duplicate the license plates by printing plate numbers on glossy photo paper, using fonts from certain websites that "mimic" those on Maryland license plates. They tape the duplicate plate over the existing plate on the back of their car and purposefully speed through a speed camera, the parent said. The victim then receives a citation in the mail days later.

Students are even obtaining vehicles from their friends that are similar or identical to the make and model of the car owned by the targeted victim, according to the parent.

JD calls this action "brilliant," and while I feel bad for the car owners who are caught in this trap, I understand his enthusiasm.   His argument, and I hope it is true, is that it won't take much of this sort of activity to greatly undermine whatever public support or trust there is for these cameras.

However, I guess I have less confidence in the state's reaction to this (which is saying a lot, because my read is that JD has zero confidence in the state).  My guess is that rather than back off the cameras, the government will just double-down on it with some crazy-high penalty (e.g. 10 years in prison) for counterfeiting a license plate.  After all, this is what they have done in the drug enforcement world.  You start with trying to ban a little joint-smoking by teens and you end up with millions of people in jail.

Update: Speaking of civil disobedience, here is another great story:

KopBusters rented a house in Odessa, Texas and began growing two small Christmas trees under a grow light similar to those used for growing marijuana. When faced with a suspected marijuana grow, the police usually use illegal FLIR cameras and/or lie on the search warrant affidavit claiming they have probable cause to raid the house. Instead of conducting a proper investigation which usually leads to no probable cause, the Kops lie on the affidavit claiming a confidential informant saw the plants and/or the police could smell marijuana coming from the suspected house.

The trap was set and less than 24 hours later, the Odessa narcotics unit raided the house only to find KopBuster's attorney waiting under a system of complex gadgetry and spy cameras that streamed online to the KopBuster's secret mobile office nearby.

To clarify just a bit, according to Cooper, there was nothing illegal going on the bait house, just two evergreen trees and some grow lamps. There was no probable cause. So a couple of questions come up. First, how did the cops get turned on to the house in the first place? Cooper suspects they were using thermal imaging equipment to detect the grow lamps, a practice the Supreme Court has said is illegal. The second question is, what probable cause did the police put on the affidavit to get a judge to sign off on a search warrant? If there was nothing illegal going on in the house, it's difficult to conceive of a scenario where either the police or one of their informants didn't lie to get a warrant.

Update #2: Alas, the KopBusters seemed to have been playing loose with the truth themselves, and apparently called in a tip to the police to have themselves raided.  Ugh, nothing worse for one's arguments than screw-ups on your own side.

You Know You Are In Trouble When...

You know you are in trouble when a guy who made his fortune in the early Internet boom (which featured companies like using the last of their cash to put put sock puppets on the Superbowl) has to lecture you on making a profit.  From the always quotable Mark Cuban via TJIC:

For those in Detroit who have never operated a lemonade stand, or any other business, the way profits are generated is by making products at a price people want to buy them for, and then producing them, with all costs allocated, for less than you are selling them for. It's not apparent that this is a principle that Detroit understands....

You Know Chrysler is Toast Because the CEO takes out a fullpage ad in the Wall Street Journal today to thank the American Public for "investing" in Chrysler.

Lets see, is there anything more idiotic than spending more than 100k dollars on a full page ad "thanks for letting me waste your money " ad ? Does it make it worse that its a business publication where the readers might just recognize the stupidity of wasting money on ad dollars that doesn't even try to sell the product ? How does it make the next unemployed Chrysler worker feel that their entire year's salary just went for a single, ridiculous ad ?

Just one more example of how poorly run the car companies are. Note to the Big 3, spend money to make money. These types of ads have as much value as a Bernie Madoff account statement.

Oil Reserves vs. Oil Prices

When I have discussions with folks about oil prices, supplies, and "peak oil," the conversation almost always requires some digression into the nature of oil reserves themselves.  The most important thing to understand is that men have never, ever even come close to pumpng out all the oil that is in a particular field.  Many, many fields have closed, but that is because the incremental cost to get the oil up and out are higher than expected oil prices.

So, changes in technology and changes in price can and do change expectations of how much oil can or will be recovered from a particular field.  For example, my family has a ranch near Glenrock, Wyoming.  When we first started going up there, the fields were booming.  Then they seemed to be completely shut down for a decade or more.  Recently, they were booming again, due to changes in technology and price.

My point, then, is that world recoverable reserve estimates are different -- for the same fields -- at expectations of $25 oil and $125 oil, but you seldom if ever see the MSM being very intelligent consumers of reserve data.   Michael Giberson addresses this issue in the context of an interesting year-end accounting issue:

Geoff Styles offers a timely discussion of how SEC requirements for reporting oil and gas reserves and current low prices will combine to force a potentially dramatic drop in reported oil and gas reserves as of the end of the year. In brief, current SEC rules require that oil and gas reserves reported on financial statements be limited to quantities very likely to be recoverable at the end-of-year market price for such resources. Given the quite low price expected at year end 2008 - current prices are under $40/bbl while 2007 prices ended over $95/bbl, companies owning oil and gas reserves will report sharply lower amounts of oil and gas in reserve.

Un-savvy investors may be alarmed - where did all that oil go? - and un-savvy political commentators will find the reports as more evidence for peak oil. But as Styles points out, the reserves are not going anywhere, and the resources are still there to be had for a price.

Styles explains that while current SEC rules require reserves reports to be based upon a single day's price, industry practice has long shifted to using less-volatile metrics for reserves evaluation. The SEC has proposed adapting its rules so as to reduce the effects of price volatility on reserves reporting, and Styles says the upcoming dramatic "loss" of reserves demonstrates the urgent need for such a change.

$3,617 an inch

Via a reader, comes this update on the link from Phoenix's new light rail line to the airport:

Down the line, Sky Harbor plans to phase out shuttles.

Eventually, an automated train will take passengers around the airport. The project will cover 4.8 miles and will cost $1.1 billion.

Construction on the project began this year, and the first phase is scheduled to open in 2013.

The entire system will be up by 2020, Sky Harbor officials say.

I beg your pardon?  $1.1 Billion.  With a B?  For 4.8 miles?  That is, as the title implies, $3,617 per inch.   It is probably so expensive because they will be working at the blistering pace of 1/3 mile per year, or about 5 feet per day.

Some Valley residents have questioned the reason Phoenix and transit officials didn't build one train system - light rail - with several stations at Sky Harbor.

Transit leaders considered that, but they decided against it, light-rail officials have said.

Running the line through Sky Harbor would have made light rail even more expensive.

Because, you know, if the Sky Harbor extension is an entirely different project that has to be funded later to make up an obvious service gap that everyone and his dog can immediately spot in the system, then the cost doesn't count?

A Small Setback for the Corporate State

Phoenix's agreement to give a $100 million handout to a shopping mall development in north Phoenix was struck down as illegal.

A major economic-development agreement between Phoenix and the CityNorth development has been ruled unconstitutional, meaning the project may not grow into the once-envisioned second downtown on the city's north side.

The Arizona Court of Appeals said Tuesday that the $97.4 million agreement violates the gift clause of the Arizona Constitution, which prohibits governments from granting money or credit to private entities in most cases.

In 2007, the city agreed to give the developer half the sales-tax revenue from the site. The developer, among other provisions, agreed to denser construction and to provide free parking and special spaces for park-and-ride use.

Excellent news.  This handout was engineered in a fairly smart bit of rent-seeking on the developer's part.  There are two competing shopping mall development sites about a mile apart in a wealthy area along highway 101.  The two sites are close, but on different sides of the Scottsdale-Phoenix border, so the developers managed to get Phoenix to pony up tons of taxpayer swag out of fear that stores like Nordstrom would move to the Scottsdale development (more here).  The parking subsidy came in at around $30,000 per parking space, and the only public benefit was supposedly that other locals could use the lot, though there are no other structures not within this particular development in walking distance of the proposed lot.  Here is the enormous downside that Phoenix now faces for not being able to hand $100 million to the developers:

Representatives of the Thomas J. Klutznick Co. declined interviews but issued a prepared statement saying that, without the agreement, they will be forced to cut the density of the project.

Less density would mean fewer shops, restaurants, hotels and offices and fewer jobs, the statement said.

The company said a "less capital-intensive design" would include surface parking lots covering more than half the development. It also warned that the project will face delays.

Uh, okay.  I think I will survive.   Their problem is they wanted the taxpayer-funded garage so that they could convert surface lots in their plan to more buildings they could rent or sell.  Boohoo.  Either it makes economic sense, and they can pony up their own money, or not.  Speaking personally, fighting Christmas shopping traffic, I am just fine with lower density shopping.

The Green Jobs Myth

Here is the reality of the green jobs myth Obama is pushing (via a reader):

The Arizona Corporation Commission raised the monthly charge that Arizona Public Service Co. residential customers will pay in 2009 to support renewable energy to $3.17 a month from $1.32 a month.

That's a 140 percent increase for the maximum tariff on people living in homes and apartments. Businesses would see their monthly charge increase to a maximum of to $117.93 from $48.84.

Large industrial customers could see tariffs of $353.78, compared with the current cap of $146.53.

The tariffs will be worth an estimated $78.4 million to the utility, which uses the money to acquire renewable energy and pay incentives to people who use rooftop solar and other renewables.

Nothing says "jobs creation" like increasing electricity prices.  Note that these prices are "per meter."  Since many businesses have many meters (we have nearly 100 in Arizona), the price increase is much higher.  For example, we expect to see a $2-$5 thousand dollar increase next year from this program.

Oh, but you say that this money is invested and creates jobs?  Yeah, right. )  via Michael Giberson

A power producer typically gets paid for the power it generates. In Texas, some wind energy generators are paying to have someone take power off their hands.

Because of intense competition, the way wind tax credits work, the location of the wind farms and the fact that the wind often blows at night, wind farms in Texas are generating power they can't sell. To get rid of it, they are paying the state's main grid operator to accept it. $40 a megawatt hour is roughly the going rate.

This is really incredible.    The power companies are constructing wind turbines and, at certain times, not only providing the power for free but actually paying the grid to take it.  All to capture subsidies and tax credits paid for by these special rate surcharges.    The only jobs being created are analysts trying to find the best way to rent-seek under these new laws.  I would rather pay people to dig holes and fill them back in.

Amazing Pictures

Concert Review: Sarah Brightman

I took my wife to see Sarah Brightman last night in Glendale, AZ.  For those who do not recognize the name, she is most famous for playing Christine in Phantom of the Opera, which was essentially written for her by her husband at the time, Andrew Lloyd Weber.  She made an appearance at the recent Beijing Olympic opening ceremonies singing from on top of that big ball-thing.

Her solo career defies characterization.   The two concerts I have seen are a mix of pop/rock remixes (e.g. "Dust in the Wind", of all things),  new agey sounding stuff, opera, and Broadway.  A couple of notes on this concert:

  • Brightman seems to be a bit of a flake.  Her costumes can be downright loony  (think Bjork at the Academy Awards in the swan outfit).   Her stage backdrops all seem to be taken from 1970's Yes and Genesis album cover art.  Her staging is often odd, which leads to some numbers that are really cool and some that I found myself laughing out loud at  (the swimming sequence was cool, as was little Red Riding Hood in the forest).   It was like she was auditioning for her own show in Vegas.
  • In most shows she has one or two male tenors to sing duets with her.  This always tends to be the best part of the show.  She gets top talent here, and, like as not, if you see a guy singing with her this year he probably will be famous next year.  We saw a guy named Mario Frangoulis who was freaking amazing.
  • I really have to criticize the song selection.  Way too much new agey stuff that really didn't seem very challenging.  All I could think of on these songs was that her singing them was like driving the kid's carpool in a Ferrarri.  Because at the end of the day, with the right material, she has a really heart-stopping voice.  But only 3-4 songs really pushed the envelope.

Zappos is the Bomb (Plus Last Minute Gift Idea)

I'm not an affiliate, and I get no remuneration for plugging them, but I must say that is absolutely terrific if you are looking to buy any kind of clothes online.  Originally mainly a women's shoe and accessory store, now it sells all kinds of stuff.

Just as an example, my wife ordered some shoes the other day, and found them to be the wrong size.  She contacted them and got a shipping label for a free return.  Before we even got the box out the door to UPS, the replacement shoes in the correct size showed up at our house.

Guys, if you have not heard of Zappos, the odds are very high that your wife has.  In a feature that reminds me of the heyday of the bust, they are offering free shipping to arrive by Christmas for orders received before 1PST December 23.  That includes free shipping and overnight delivery of gift cards.

Whew! Done

OK, I think I have finally, successfully migrated both my blogs from the Typepad ASP service to self-hosted WordPress, with the completion of Climate Skeptic last night.  Now I can get back to real posting.

In Medias Res

You certainly don't have to spend very long convincing me that a significant government action can be distortive of markets, so I won't argue too much with Kevin Drum that the capital gains tax changes maybe played a contributing factor to the housing bubble  (though it is hilarious that the left considers tax reductions as the only distortive government actions).

However, thinking back on events, its a little hard for me to ascribe the lion's share of the bubble to capital gains tax changes, as opposed to, say, the mortgage interest deduction or Federal Reserve interest rate policies or local zoning controls.

I probably wouldn't have bothered blogging on this, but I found the chart Drum uses from the NY Times to be hilarious:


Do you see the problem?  I will help by simplifying the chart:


Its a pretty heroic assumption to say that Event B caused Trend A.

Update:  Russel Roberts thinks the Times is right, but that they are using the wrong data to prove it.  1997 looks much more like the critical inflection point if you look at prices rather than sales  (chart via Roberts, from a different NY Times article, click to enlarge)


Back to the 1970s

I have argued for a while that the US appears to be regressing back to the 1970s.  George Bush is showing every sign of rivaling Richard Nixon for the award for most heavy-handed, misguided economic interventions by a President nominally espousing free market principals.  And there is no reason to think that Obama's outsider appeal and leftish economics will clean things up any better than did Carter.

Another sign the 1970's are back is Obama's appointment of Paul Ehrlich buddy John Holdren as his Science Adviser.   The Reference Frame has more on his work and "credentials", but suffice it to say there is very little there.

He is a strong practitioner of what I call post-modern science, where being fact-based and rigorous is far, far less important than coming to politically correct conclusions that are wrapped in just enough pseudoscience to wow science-illiterate media and most of the public.  His only highly cited works are Club-of-Rome type stuff with Ehrlich in the 1970s, and, not surprisingly, climate alarmist work today.   He is the type of scientist that is more comfortable (and better received) on an Oprah episode than in a detailed science debate.  He has a tendency to declare issues settled without having ever produced any evidence, and a history of eventually backing down from ludicrous positions he adopted without evidence in earlier phases of his life, only to then make the exact same mistake again in a slightly modified form.

The title comes from perhaps his most famous work, and is a great example of exactly what this guy is about.  I=PAT is supposedly an equation to measure man's impact (generally interpreted to be negative impact) on the Earth.  The letters stand for Impact (or Influence) = Population x Affluence x Technology **

The fact that he has an "equation" makes it look like science.  But in fact, it is not an equation at all.  He never tries to put any numbers to it, and in fact one cannot put numbers to it.  It is merely a political point of view popular on the left - that growth and technology and wealth are all bad - made to look like there is some science behind it.   It gives the scientific impremateur to something that is no such thing, so limits-to-growth supporters could yell back at their critics that is was "settled science."  Its a kind of voodoo, where activists could wave Holdren and Ehrlich at their critics, to try to keep the fact-Gods at bay.  Similar forces are at work in climate, though climate scientists have learned not to put their equations on paper (since then churlish outsiders can criticize it) but to bury them in a black box climate model.

In fact, even as a concept I=PAT fails.   Because at least two of the three terms have exactly the opposite relationship.  What do I mean?  Well, I guess I could be convinced that, all things being equal, rising human population has a net negative impact on the environment.   But affluence and technology should be in the denominator, not the numerator.  I won't bother with an extensive proof, since Holdren never proves his equation, but I will offer up a couple of thought experiments:

  • Imagine 6-7 billion people on the earth today but with the wealth and technology of the pre-Jethro Tull 17th century.  It would be a freaking disaster.  The catastrophe, to humanity and the environment, would be unimageable.   We are able to have the P we have today only because it is offset by A and T.  Or, in a point made in an earlier post, poverty is not "sustainable."
  • America is demonstrably less polluted and cleaner than in 1970, despite a higher population.  Many areas are cleaner than in 1920, and we have more untouched land and more forest coverage today than we did in 1920.  Why?  Technology and affluence.

If one really wanted to be scientific about it, and studied actual data, I think he would find that environmental impact follows a parabola with development.  Initial increases in population and industrialization lead to messy problems, which are then fixed with increasing wealth and technology.  There are many places in the world where halting growth would merely freeze the country at the top of this parabola.  China is a great example.  China's environmental problems will get solved through increasing wealth.  Stopping it from growing would actually increase the negative impact on the environment.

Anyway, I just spent more time on the proposition than it deserves.  If Holdren ever steps down, I suppose there's always Rosie O'Donnell to replace him.

** This is based on the popular interpretation of the equation.  In fact, in its original form, T was not technology but just a plug factor, something like impact per population-dollar.  At this level, the equation is certainly true, as mathematically it is hard to argue against the equation impact = population x dollars x impact per population-dollar!  So, at some level, the finding was not wrong but simply trivial.  However, in popular mythology, T was changed to technology, and the authors really did nothing to correct this interpretation, because essentially they agreed with it, even if they hadn't proved it.  (more here)  This approach, of proving one thing that is trivial and then claiming the proof is of something broader and more robust is now typical of climate science.

I'd Hate to See Winter

There is some discussion over at Climate Audit about Ojmjakon, Russia in the context of trying to debug some recent NASA temperature measurement glitches.  But I could not get past this data, which really seems a bit nippy for late Autumn:


Well, as long as its sunny.

Perhaps the Real Issue

I have mixed feelings about the Republican basing of automotive unions.  On the one hand, I see no reason why individuals in a free society shouldn't be able to organize and bargain as a group on wages.  However, this is not a free society, and the union organizing process is one of the most regulated in the country, with numerous state and federal laws that artificially tilt the bargaining and financial power towards unions.  Unions, for example, are the only private organization that I know of in this country that have taxation power, ie the ability to apply non-voluntary financial assessments on a population with the full force of government behind their collection.

But it may be that so much attention has been applied to wages and health care that this issue has been under-reported.  Below is apparently the Ford-UAW 2,215 page contract. Eeek.


How can it be possible to run a company where even the smallest operational improvement idea has to be screened against this document?

Whatever Is The Most Important to You, We Are Cutting That First

The very essence of business decision-making is prioritization and trade-offs.  The same is true in the government, its just that the objective function is reversed:

GM is warming up the propaganda engine for the next run at Congress. "Look, the first thing we had to cut was our electric car program!".

And here I thought that because GM has still, after 30 years, failed to realize their business model needs to change that maybe management there were slow learners.  But they seem to be very, very adept at learning the government game.

When I was in the corporate world, if I wanted extra funds for my projects, I would have to go in and say "Here are all my projects.  I have ranked them from 1-30 from the most to least valuable.  Right now I have enough money for the first 12.  I would like funding for number 13.  Here is my case."

But the government works differently.  When your local government is out of money, and wants a tax increase, what do they threaten to cut?  In Seattle, it was always emergency services.  "Sorry, we are out of money, we have to shut down the fire department and ambulances."  I kid you not -- the city probably has a thirty person massage therapist licensing organization and they cut ambulances first.   In California it is the parks.   "Sorry, we are out of money.  To meet our budget, we are going to have to close down our 10 most popular parks that get the most visitation."  The essence of government budgeting brinkmanship is not to cut project 13 when you only have money for 12 projects, but to cut project #1.

I can just see me going to Chuck Knight at Emerson Electric and saying "Chuck, I don't have enough money.  If you don't give me more, we are going to have to cut the funds for the government-mandated frequency modification on our transmitters, which means we won't have any product to sell next month."  I would be out on my ass in five minutes.  It just floors me that this seems to keep working in the government.  Part of it is that the media is just so credulous when it comes to this kind of thing, in part because scare stories of cut services fit so well into their business model.

So of course, with billions of dollars of waste, absurdly high labor costs, stupid-large executive compensation, etc., GM chooses to cut funding the project that is most important to Congressional Democrats and the new Obama administration.


Via TJIC, Radley Balko shares almost exactly my position on the death penalty:

I'm opposed to the death penalty not because I don't think there are some crimes so heinous that they merit death as a punishment. I'm opposed to it because I don't think the government is capable of administering it fairly, competently, and with adequate protections to prevent the execution of an innocent person.

This is an issue that I have moved pretty far on since my high school conservative days.  I used to be a death penalty hawk --  I suppose this was in part due to the natural tendency to take the opposite side of folks making bad arguments.  Death penalty opponents would argue that we just don't have the right to take away the life of that lady who drowned her three kids by sinking them in a car in a lake because she was tired of taking care of them.   Well, I felt she had pretty much forfeited her ability to fall back on the sanctity of life defense.

But I am increasingly pessimistic of the justice system's ability to adequately separate guilt from innocence (it is run by the government, after all).  We have far too many examples of people who have exhausted their normal appeals and have sat in jail, and even on death row, for years or decades before exculpatory evidence came to light (or, in situations of bias like in the deep south, where courts were finally willing to consider exculpatory evidence).   We can only tremble to think of how many innocent men were never cleared before the day of the fatal injection came.  Prosecutors, who often are using the position as a springboard for higher office, generally have the incentive never to back down from a case and to defend every conviction, no matter how clear the evidence becomes that an innocent person is in jail, to the very end  (see Janet Reno, for example, who in a twist of terrible irony now sits on the board of the Innocence project, while men falsely convicted in her day care pogrom still sit in jail).

Update: Speaking of prosecutorial abuse....

Sizing the Bailout

From here and here:


I haven't checked these numbers, and they are supposed to be all in real dollars, but YMMV.

So we are going to spend 33% of GDP to avoid a recesion, when the worst recession in history (the Great Depression) had a peak-to-trough GDP loss of about 20%.

Update: This chart is obviously based on a lower estimate.  But it does give one pause when considering the "bailout all due to US laissez faire."


Worst Economic Prescription of the Week

I hate to pick on Kevin Drum twice in a row, but my God is this the worst economic prescription you have read of late:

The only sustainable source of consistent growth is rising median wages. The rich just don't spend enough all by themselves.

The flip side of this, of course, is that rich people are going to have to accept the fact that they don't get all the money anymore. Their incomes will still grow, but no faster than anyone else's.

How do we make this happen, though? I'm not sure. Stronger unions are a part of it. Maybe a higher minimum wage. Stronger immigration controls. More progressive taxation. National healthcare. Education reforms. Maybe it's just a gigantic cultural adjustment. Add your own favorite policy prescription here.

This isn't just a matter of social justice. It's a matter of facing reality. If we want a strong economy, we can only get it over the long term if we figure out a way for the benefits of economic growth to flow to everyone, not just the rich. This is, by far, Barack Obama's biggest economic challenge. Until median wages start rising steadily and consistently, we haven't gotten ourselves back on track.

This is so crazy, its is hard to know where to begin.  And since it is after midnight, I will keep it short.  But here are a few thoughts:

  • Note the embedded theory here of income and wealth, which is really startling.  For Drum and most of the left, income is this sort of fountain that spews forth on its own out in the desert somewhere.   Rich people are the piggy folks who crowd close to the fountain and take more than their fair share of what is flowing out.  There is absolutely no recognition that possibly wealth is correlated with individual initiative, work, intelligence, and behaviors.  More on zero-sum economic thinking here and here.
  • I am sick and tired of the "stagnant median income" meme.  How many times does this have to be debunked?  But the quick version is
  1. Median total compensation per individual is not stagnant, it has risen steadily.  The only way to show stagnant incomes is to look only at cash wages, and ignore the shift in compensation value to health care and other non-cash benefits.  Also, folks trying to push this meme typically look at household income rather than individual income, but since household sizes have been shrinking rapidly, it skews the data.
  2. Median income numbers are weighed down by strong (legal and illegal) immigration.  New immigrants entering at the bottom bring the median down.  If one were to look at apples and apples, ie the same people without immigrants ten years ago and today, one would see strong median income growth.  Just to drive the point home, if there have been 10 million new immigrants at the poor end of the economy, then one needs to count up the list of incomes 10 million spaces to get the true apples-to-apples median income comparison.
  3. Individuals matter, not medians.  Even with a stagnant median income, all individuals can and probably are doing better as incomes improve with age.
  4. A lot more here
  • I feel like I am living in some weird new incarnation of Brave New World or Midas World where the government sets its highest purpose as promoting ever-higher consumer spending.  The last such goal the government set for itself was increasing home ownership.  And that worked out really well.
  • This is back to the 70's time, something I have been predicting for a while.  How is it that educated people can believe that protectionism + strong restrictions on the free movement of people + higher taxes + government tilt of the labor management bargaining power further towards the unions + creation of a massive new government bureaucracy = increased prosperity?  I think of all the crap I catch from leftists that I am somehow anti-science and anti-reason for being a climate skeptic.  But economics is a science too, and willful ignorance of that science is far more destructive than other instances of scientific ignorance to which they point.
  • Isn't protectionism + strong unions + comprehensive 3rd party-paid health care + high government regulation exactly the approach the US auto industry has taken.  How's that working out?

My Education Secretary Pick

Obama has picked Arne Duncan of Chicago as Secretary of Education.  Unwilling to send his own kids to schools run by Mr. Duncan, he is never-the-less putting Duncan in charge of the rest of our schools.

My appointment for the Secretary of the Department of Education would have been the head of a liquidation firm.  As a libertarian, I can find fault just about everywhere in Washington, but nothing better illustrates the modern disregard for the Constitution and the 9th and 10th Amendments than the Federal education infrastructure.  My daughter asked me what I would do first if I were President.  I would put blowing up this department first (though its demise would be neck and neck with the Department of Energy).  I would even be willing to do it in a funding-neutral way, such that Federal funds currently allocated to education would still be so allocated, and simply distributed on some kind of per head basis to local districts.  Which, in fact, would actually increase real education funding, eliminating the great Washington leaky bucket as well as the cost of compliance with reams of rules and regulations that is born by local districts.

It is possible to find a few  (though very few, on a percentage basis) anecdotes of public schools that have been turned around  (in fact, I think there are few enough that a movie can and has been made about every one).  There are no examples that I know of a large school district being turned around.   As to this guy Duncan picked by Obama today --  I am willing to believe he had some point successes at individual schools.  But he certainly didn't turn around the whole district  (certainly not to the Obama family's standards, since they refused to send their kids to the schools Duncan ran).  So what hope does he have at a national level?  Answer:  none.  But I am sure he will ask for more money to do it.