Archive for January 2009

Government Licensing = Incumbent Protection

I have written on this topic quite a bit, but via Cato comes another great example of how licensing and regulation, while promoted as consumer protections, much more frequently are incumbent protection against new competitors.  Cato has a video of some folks in Oregon who started a moving business, only to find that sate law effectively requires them to get permission of current moving companies before they can operate  (apparently, someone in Oregon is enamored of medieval guild systems).

How the law works is that when a new mover submits his application for a business license, existing movers can file an objection (which apparently is pro forma).  The new company must then justify to the state why another moving company is justified by the marketplace.  Of course, absolutely no guidance is given how such a thing might be proven.

I would have found this unbelievable, had not my company faced the exact same requirement in another context.  In Shasta County, California, we wanted a liquor license to sell beer at the store we run at McArthur-Burney Falls State Park.  We were told that we could not have a license until we had proven to the County that there was enough demand for another liquor outlet.  It was for our protection, they told me -- we wouldn't want you to get in a situation where you might fail.

I have written about liquor licensing before - if ever there was a regulatory regime whose time was long past, this is it.  The extensive fingerprinting and background checks one must go through to get a license are outdated remnants of a concern for the return of organized crime, a problem that was obviated by legalization  (so that, as usual, the government regulatory regime to fix a problem was instituted at the same moment the problem went away).  Now, the liquor licensing process is used as a club by existing competitors to keep new entrants out.  My bet is that organized crime is now on the other side of the fence, using the liquor licensing process to hammer honest competitors.  And if you really want to see abuse, read the whole Rack 'N Roll saga by Radley Balko.

I bet you are just overcome with suspense wondering if we got our license.  In Shasta County, we eventually succeeded, mainly because the store was in a gated park with an entrance fee, and we could make the argument that competition did not really cross the gates of the park.  Years later, we lost a similar battle in Lake Havasu City, AZ, where a group of local business people have really organized the town to their benefit and use every tool they can, from zoning to licensing, to keep competitors out.

Top Arizona Campgrounds

I don't often mix stuff in about my business, but two of our Arizona campgrounds - Manzanita and Cave Springs, both in the Sedona/Oak Creek Canyon area, were named to the top 10 Arizona campgrounds list by

While I am on business news, the NFRA, our trade group, is having its annual conference March 3-5 in San Diego California.  The conference focuses on privitization of public recreation, and may be of interest to any number of public recreation authorities who are currently struggling with budget issues.  Our company alone runs over 100 public recreation facilities, keeping these facilities open to the public and turning an operating cost for public authorities into a source of income.  I am trying to teach our trade goup to blog, and their formative effort is here.


Demonstration of Microsoft Photosynth technology using an collection of inauguration photos.  The arrows at the bottom take you to other mosaics.  Move the cursor over the picture, it white quadrilaterals will appear - these are photo views you will get if you click on it.  Kind of cool -- you could imagine this in a movie, with police hunting for the killer in a large public even, searching through photos, yada yada.

Gratuitous Umlauts

Doogie Horner creates a classification system for heavy metal band names that pretty awesome (click to enlarge).


I saw it first at FlowingData, a website and blog about the graphical representation of data that I can't believe I have never visited before.  Other cool graphics include the Walmart growth video.  Lots of ways to waste time on this site, if you are a geek like me.

Are We Crazy?

I don't think younger folks really comprehend the staggering environmental improvements we have made over the last 40 years.   Virtually every metric you can think of on air and water pollution has improved, not to mention the return to health of a number of high-profile species like the bald eagle.

So I am sure that had you told me in the early seventies that the main toxic threats that the government would be campaigning to protect us from in 2009 were carbon dioxide and salt, I would have thought you were crazy.

Mommy, Mommy, I'm Scared

Via the environmental blog Thin Green Line:

Check out this post on Bay Area Moms revealing that products with high fructose corn syrup contain mercury. Scary!

I have had some experience working with recreation on lakes that have mercury-contaminated fish  (not good for business) so I thought I would check out the articles.  Mommy Files blog here.  Advocacy group quoted here.  Actual study here.  Test results here.

This strikes me as being right at the focal point of where both the environmental and consumer protection movements went off the rails -- the issue of relative risks.  In short, risks for things with scary names (mercury and radiation being two great examples) cannot seem to be processed rationally.  Everything is toxic, at some concentration.  The key is understanding concentration and relative risks, and not panicking when anyone yells "mercury" in a crowded grocery store.

Before I get into this more, it is a little hard to discuss because I can't really find in the study or the advocacy press releases what forms the mercury take in the HFCS -- it may be they just don't know yet.  The form the mercury is in matters.  Most people would be surprised, but while pure liquid mercury is not good for you, but it isn't particularly toxic when compared to other forms  (just ask Sir Isaac Newton, who used to drink the stuff).  Mercury vapor is really bad, as are certain chemical derivatives of mercury, such as the form often found in fish.

So here is some perspective on mercury concentrations, again remembering these standards often apply to specific chemical variants.  The US legal limit on fish is 1 part per million, or 1 ppm.    The legal US limit on mercury in water is 2 parts per billion, or 2 ppb.  One might think that means the mercury in water is more dangerous, but it is actually in a much less dangerous form (according to my imperfect understanding) than the mercury in fish.  However, it is assumed that one drinks more grams of water a day than grams of fish.  This does not entirely explain the 500-fold discrepancy -- my guess is that this is also a matter of attention, as drinking water standards and contaminants get much more headline plan than for fish (again, in part due to a general inability, particularly in the media, to sort through relative risks).

So then we have HFCS.  The worst test value was apparently in Quaker Oatmeal to Go, which had a value of 350 parts per trillion (ppt).  In other words, the worst sample found anywhere had a mercury level nearly 6 times lower than the federal drinking water standard (2 ppb = 2000 ppt).   What this means is that you would have to eat 63 pounds of Quaker Oatmeal to Go a day to have the same mercury risk as drinking 5 liters of water at the federal standard each day.  And that is the worst product.  Only 17 of 55 products tested had any detectable mercury at all, and only 7 had concentrations over 100 ppt.

Don't even get me started on fish.  8 ounces of fish at the federal standard would have the same mercury as 1,429 pounds of Quaker oatmeal.  The risks are not even in the same ballpark.  The oatmeal risk is three orders of magnitude lower than the fish risk.   I wonder how many of the moms who now quiver at giving their kids oatmeal still feed their kids lots of nutritious fish?

The right way to write this story is not "scary!"  The right way to write this story is "Hey, we found some mercury where we did not expect it, this bears further study, but right now the concentrations are so far lower than you would find in many other everyday foods you eat or drink that it's not worth worrying about.  If you really want to protect your kids from mercury, stay away from fish."

Postscript: I lament the passing of sugar in favor of HFCS.  So often food activists gloss over this issue, preferring to imply it is some kind of corporate conspiracy to give us worse food.  But in fact, the main blame for this shift lies entirely on Congress, which maintains absurdly high sugar tariffs and a continued blockade of Cuba that give us among the highest sugar prices in the world.  Faced with this reality, food manufacturers cleverly found an alternative.   I prefer good old sugar, and implore Congress to ditch corporate welfare for sugar manufacturers

Phrase That Needs to Be Expunged From The Political Lexicon: "Peer Reviewed"

Yesterday, while I was waiting for my sandwich at the deli downstairs, I was applying about 10% of my conciousness to CNN running on the TV behind the counter.  I saw some woman, presumably in the Obama team, defending some action of the administration being based on "peer reviewed" science.

This may be a legacy of the climate debate.  One of the rhetorical tools climate alarmists have latched onto is to inflate the meaning of peer review.  Often, folks, like the person I saw on TV yesterday, use "peer review" as a synonym for "proven correct and generally accepted in its findings by all right-thinking people who are not anti-scientific wackos."

But in fact peer review has a much narrower function, and certainly is not, either in intent or practice,  any real check or confirmation of the study in question.  The main goals of peer review are:

  • Establish that the article is worthy of publication and consistent with the scope of the publication in question.  They are looking to see if the results are non-trivial, if they are new (ie not duplicative of findings already well-understood), and in some way important.  If you think of peer-reviewers as an ad hoc editorial board for the publication, you get closest to intent
  • Reviewers will check, to the extent they can, to see if the methodology  and its presentation is logical and clear -- not necesarily right, but logical and clear.  Their most frequent comments are for clarification of certain areas of the work or questions that they don't think the authors answered.
  • Peer review is not in any way shape or form a proof that a study is correct, or even likely to be correct.  Enormous numbers of incorrect conclusions have been published in peer-reviewed journals over time.  This is demonstrably true.  For example, at any one time in medicine, for every peer-reviewed study I can usually find another peer-reviewed study with opposite or wildly different findings.
  • Studies are only accepted as likely correct a over time the community tries as hard as it can to poke holes in the findings.  Future studies will try to replicate the findings, or disprove them.  As a result of criticism of the methodology, groups will test the findings in new ways that respond to methodological criticisms.  It is the accretion of this work over time that solidifies confidence  (Ironically, this is exactly the process that climate alarmists want to short-circuit, and even more ironically, they call climate skeptics "anti-scientific" for wanting to follow this typical scientific dispute and replication process).

Further, the quality and sharpness of peer review depends a lot on the reviewers chosen.  For example, a peer review of Rush Limbaugh by the folks at LGF, Free Republic, and Powerline might not be as compelling as a peer review by Kos or Kevin Drum.

But instead of this, peer review is used by folks, particularly in poitical settings, as a shield against criticism, usually for something they don't understand and probably haven't even read themselves.  Here is an example dialog:

Politician or Activist:  "Mann's hockey stick proves humans are warming the planet"

Critic:  "But what about Mann's cherry-picking of proxy groups; or the divergence problem  in the data; or the fact that he routinely uses proxy's as a positive correlation in one period and different correlation in another; or the fact that the results are most driven by proxys that have been manually altered; or the fact that trees really make bad proxies, as they seldom actually display the assumed linear positive relationship between growth and temperature?"

Politician or Activist, who 99% of the time has not even read the study in question and understands nothing of what critic is saying:  "This is peer-reviewed science!  You can't question that."

Carbon Tax vs. Cap and Trade

Coyote, December 2007:

I can for a moment place myself in a position where I would imagine being worried about CO2 and dependence on fossil fuels.  For someone who really cares about these things, here is what a rational energy plan would look like:

  1. large federal carbon tax, offset by reduction in income and/or payroll taxes
  2. streamlined program for licensing new nuclear reactors
  3. get out of the way

Ronald Bailey, today:

Interestingly, Sen. Bob Corker (R-Tenn.) suggested to Gore during the hearing that a better proposal would be to impose an across-the-board carbon tax which would then be reimbursed entirely by cutting the payroll tax.

He has much more on problems of cap and trade in the article.  I have written many times on a carbon tax vs. cap-and-trade, indexed here.

Another Selling Point for Phoenix Light Rail

Share a ride with a prisoner:

Maricopa County sheriff's deputies may soon begin taking some inmates to Fourth Avenue Jail on Metro light rail in a bid to cut costs.

The Sheriff's Office announced its intent to transport inmates using the light rail from 44th and Washington streets to the Fourth Avenue Jail in order to eliminate parking fees. MCSO estimates that the new system can save about $72,000 in transport fees.

Seems to be some funny economics at work if the city charges the Sheriff more money for parking a car at the jail than it does for at least 3 people to ride the metro.

Anyway, count on Sheriff Joe to ease any tension you might have with this share-a-ride program:

"There is nothing to be concerned or worried about as my deputies will be armed," Sheriff Joe Arpaio said in a press release.

Great, but who is going to protect me from the sheriff?  And why does this statement remind me of the famous Al Haig "Don't Worry, I'm in charge" press conference?

I Beat the Market

Almost exactly 10 years ago, on my son's 5th birthday, I bought him some large scale (G-scale) trains and track.  It was a logical present given that I have always been a model railroader myself, though with smaller scale trains (HO and now N) and a different approach (for example, I fabricated my own track rather than buying it).

Anyway, I bought 4 boxes of track from the leader in large scale, LGB, for $85 a box  (I know because the price tag is still on the boxes).  We used the track only lightly and indoors.  Over the holidays, 10 years later, we decided to get rid of it.  I almost just gave it way, but put it on eBay instead.

Well, apparently LGB went out of business, and its track is still very much in demand on eBay.  I sold the boxes for an average of $200 a box.  That is an annual return, even leaving out the use we got out of it, of 8.9%.  Compare this to the 10-year return of the S&P500 index as of 1/2/09 of -1.4%.  Can you say, "found money?"

Is Obama Exchewing Executive Power, Or Just Redirecting It?

Radley Balko is justifiably happy that Obama is chucking the the theory that the President can detain people indefinitely at his whim:

President Obama yesterday eliminated the most controversial tools employed by his predecessor against terrorism suspects. With the stroke of his pen, he effectively declared an end to the "war on terror," as President George W. Bush had defined it, signaling to the world that the reach of the U.S. government in battling its enemies will not be limitless.While Obama says he has no plans to diminish counterterrorism operations abroad, the notion that a president can circumvent long-standing U.S. laws simply by declaring war was halted by executive order in the Oval Office.

Key components of the secret structure developed under Bush are being swept away: The military's Guantanamo Bay, Cuba, facility, where the rights of habeas corpus and due process had been denied detainees, will close, and the CIA is now prohibited from maintaining its own overseas prisons. And in a broad swipe at the Bush administration's lawyers, Obama nullified every legal order and opinion on interrogations issued by any lawyer in the executive branch after Sept. 11, 2001.

It's worth emphasizing again here these steps Obama's taking effectively limit his own power. That's extraordinary.

But here is my cynical side coming out:  It is easy to limit your own power in areas in which you have no desire to exercise it.  Obama is doing great work here that needs to be done, but he is also not really giving up anything he cares to have.  I could just as easily have written a story that said that Bush took brave steps to limit the power of the executive branch over CO2 emissions.

When Bush wanted to listen to phone conversations or to hold people incommunicado for years, he could have gone to Congress to seek such authority, or used the authority he already had but which was (rightly) limited by oversight from the judiciary.  But terrorism was "too important" to bother with that stuff, so he did it by executive fiat.

So the real test, in my mind, is to see Obama's attitude towards executive power in an area where he really wants to get something done, and might not have the patience to wait for Congress.   Obama is a different kind of guy, right?  He would never expand executive power and short-circuit Congress just because he was in the hurry for something, would he?

President Barack Obama signed an executive order to force the auto industry to produce more fuel-efficient cars, an act he says will begin a new era of global leadership for the U.S.

I thought this was particularly clever rhetoric for continuing to gut the 10th Ammendment.

"The days of Washington dragging its heals are over," he declared, saying it should be easier for states to adopt tough fuel-efficiency rules. "My administration will not deny facts; we will be guided by them. We cannot afford to pass the buck or pass the burden onto the states."

We are not grabbing power here in Washington, we are just relieving them of the burden of governing themselves.

Update: By the way, I do believe the current version of the CAFE legislation gives the NHTSA and the EPA the ability to change the standard, so technically the administration has this power.  However, typically changes to regulations must go through a public disclosure, comment, and review process, with a number of key requirements like economic impact studies.  The reasons for these requirements is to try to offset (imprefectly) the enormous power Congress is delegating to the Administration in these regulations.

Per Wikipedia (yeah, take it with a grain of salt) the CAFE legislation says:

Congress specifies that CAFE standards must be set at the "maximum feasible level" given consideration for

  1. technological feasibility;
  2. economic practicality;
  3. effect of other standards on fuel economy; and
  4. need of the nation to conserve energy.

Obama, impatient with following the process (where have we seen that before?) cuts through it with an executive order.   No one has gone through this process of making these tradeoffs -- Obama and a few advisors picked a number and ordered it into being.  By doing so, he is in effect violating the spirit if not the actual text of the legislation in which the power to set CAFE standards was delegated to the agencies under him.

Peering Into the Details of The Stimulus Bill

The CBO is out with its scoring of the stimulus bill (pdf).  Kevin Drum seems to think it refutes my statement that it would be impossible to have any kind of real infrastructure impact in the next 1-2 years.  Drum says:

Specifically, they estimate that in the spending portion of the bill, $477 billion out of $604 billion would be disbursed either this fiscal year or in the next two fiscal years. That's 79% of the total.

I guess opinions can vary on this, but that strikes me as pretty good. What's more, most of the spending that comes in FY2012 or later is either for projects that simply take more than two years to complete (highways, school repairs) or infrastructure improvements that have long-term paybacks (renewable energy programs). There are a few other items in the out years that are more arguable, but they add up to a pretty small portion of the bill.

This is correct on its face.  But here is the issue, and what drives me crazy about politicians and their enablers like Drum.  This is being sold as an infrastructure bill.  And even by Drum's admission, all the infrastructure spending is in the out years, well beyond any reasonable time frame for the recession.

Picking through the report, the "spending"  (I object to calling tax cuts "spending") in the next two years, the recession window, is mainly in these categories ( I get slightly different numbers than Drum)

  • Tax cuts of $223.2 billion (lost revenue + outlays)
  • Transfer payments $202.2 billion
    • Unemployment & Child Support:  $42.2 billion
    • Health Insurance Assistance:  $36.6 billion (lost revenue + outlays)
    • Medicaid: $76.9 billion
    • Food Assistance:  $10.8 billion
    • Health and Human Services (unspecified):  $14.9 billion
    • Employment and job training:  $2.9 billion
    • School/College loans:  $14.7 billion
    • Housing assistance:  $3.2 billion
  • State government "stabilization":  $31.4 billion
  • Defense:  $6.2 billion
  • Other: $62.5 billion
    • Increase in department budgets  $28.4 billion (estimated, may be low)
    • Real infrastructure spending (mainly schools, federal buildings, highways, and other transit)  $26.7 billion (at most!)
    • Green energy / energy programs  $7.4 billion (at most!)

So do you see my point. The reason so much of this infrastructure bill can be spent in the next two years is that there is no infrastructure in it, at least in the first two years!  42% of the deficit impact in 2009/2010 is tax cuts, another 44% is in transfer payments to individuals and state governments.  1% is defense.  At least 5% seems to be just pumping up a number of budgets with no infrastructure impact (such as at Homeland Security).  And at most 6% is infrastructure and green energy.  I say at most because it is unclear if this stuff is really incremental, and much of this budget may be for planners and government departments rather than actual facilities on the ground.

So don't call this an infrastructure bill.  This is a tax cut and welfare bill, at least in 2010 and 2011.   I guess I can understand a rush to do things like the welfare pieces, but that would argue for splitting the bill, into an emergency transfer payment appropriation and a infrastructure appropriation that can be studied and debated in more depth.

But that is never going to happen, because what we see is a unique kind of political synergy.  The bundling of these two very difference spending streams gives yields two political advantages:

  1. The infrastructure piece, despite being less than 10% of the bill, allows politicians to call this "investment" and "green energy" and "infrastructure" which sell better with sections of the public than "welfare" and "transfer payments."  The minority infrastructure pieces allow Congress and Obama to call the bill new and forward looking, rather than the imitation of 1970s legislation that it really is.
  2. The emergency pieces of the bill allow politicians to stuff numerous bureaucracy increases and pork spending into the bill that would not stand up to scrutiny.  Despite the fact that much of this spending will not occur for years, they can keep saying "rush, emergency, hurry" to deflect scrutiny and criticism.

Update: The National Review has a lot more detail here.

Light Rail and Energy Use

Politics is full of premises that people take on faith without actually testing against facts.  One such premise is that light rail investments reduce energy use and CO2 output.  But data from the USDOT, as I posted before, shows that light rail at average occupancy and autos at average occupancy are in an energy dead heat.   Driving a hybrid or even high fuel efficiency conventional automobile, even solo with no passengers, uses less energy and produces less CO2 per passenger-mile than light rail.

A group critical of the Denver light rail system brings us another data point.  In their report (pdf), compiled from the official figures of the Denver transit authority, they claim:  (via the Anti-Planner)

Denver's light-rail trains use 4,400 British thermal units (BTUs) and produce 0.78 pounds of CO2 per passenger mile. By comparison, the average SUV uses about 4,400 British thermal units (BTUs) and produces 0.69 pounds of CO2 per passenger mile.47 In other words, people who ride Denver's light rail when gasoline prices rise are not saving energy: they are merely imposing their energy costs on other taxpayers. If oil prices rise again, people can save more energy by buying more fuel-efficient cars than by riding energy intensive rail transit lines

Quite a while back, I made a light rail bet.  I said that for the capital cost of constructing these systems, I could purchase every regular rider a Prius, and with the annual operating deficit each year could purchase gas for all these Prius's for a full year.  This bet has not yet proved wrong (LA example), even for heavy rail (Albuquerque example).  Now,though, in addition to being more cost effective, the hybrid is also more energy efficient.

Postscript: I am sometimes criticized for not including the highway construction cost in my Prius bet.   First, a new highway lane has far more capacity than most light rail lines, and is far cheaper to build.  I don't think anyone, even light rail supporters, dispute this.  Light rail is generally supported over highways for what I would call aesthetic reasons -- light rail just strikes some people as more elegant a transportation solution.  All the traffic carried by most light rail lines is generally a small fraction of a single highway lane.  The congestion argument is a chimera, and is never supported, even in the fine print of transit authority statistics.  From Denver's internal projections:

Now, RTD says the line will cost more than $600 million, which is a lot for a mere 11 route miles. Moreover, RTD has changed the proposed technology to something it calls "electric multiple-unit commuter rail," which sounds something like the Chicago Electroliners or some of the Philadelphia commuter trains.

For this high price, the DEIS reports incredibly trivial benefits. The proposed rail line is projected to take 0.0085 percent of cars off the road. Of course, that's for the region as a whole, but in the corridor it will take a whopping 0.227 percent of cars off the road. A handful of buses could do as well.

Cool Picture

At first I thought the picture here was pretty lame - big deal.  Composition, not great.  Detail, blah.  But then I started zooming in.  And in.  All the way to the point I could almost play the music from the sheet music of the band in the lower center of the picture.

Frédéric Bastiat, Call Your Office

From the AZ Republic:

The owner of a glass company accused of a $132,000 scheme to smash Scottsdale school bus windows and profit from the repairs has been indicted.

A Maricopa County grand jury returned the Jan. 22 indictment against Troy Jason Vollberg, 34, who was arrested Friday by Scottsdale police....

documents accuse Vollberg, owner of Tri-State Glass, of being the mastermind behind an effort nearly two years ago to bilk the Scottsdale Unified School District out of hundreds of thousands of dollars to replace broken bus windshields.

Investigators claim Vollberg paid Scott Sloan $5,000 to find a person to knock out the glass, and then paid Mike Olivares $15,000 in April 2007 to break out the front windshields of 70 school buses in a Scottsdale bus yard.

Vollberg, whose company was a subcontractor for the school district, charged the district $134,000 to repair the windshields.

Police documents say Vollberg pocketed the money and used it for a "trip to Las Vegas and new tires for his truck."

Arrested for acting on the broken windows fallacy!  If only we could do the same with the Congressional authors of the stimulus bill.

Only In France

Via Q&OFormer French President Mauled by Clinically Depressed Poodle

Former French President Jacques Chirac was rushed to a hospital after being mauled by his pet dog who is being treated for depression, in a dramatic incident that rattled the ex-president's wife.

The couple's white Maltese poodle, called Sumo, has a history of frenzied fits and became increasingly prone to making "vicious, unprovoked attacks" despite receiving treatment with anti-depressants, Chirac's wife Bernadette said.

As an aside, does anyone else of my generation remember the Saturday Night Live fake commercial for "Puppy Uppers" and "Doggy Downers?"  Do you remember how this seemed, you know, like a ridiculous spoof?  (video here).

Update: By the way, here is our white Maltese, who to date has not received any of the benefits of veterinary psycho-pharmacology, but who is a great dog none-the-less.


Prosecuting Those With Bad PR

CEO's of companies struggling on the brink of failure often make happy, confident public statements that all is well.  Is that a crime?

Well, it depends on how you look at it.  It comes down to a CEO's fiduciary responsibility to the company's investors, and how that is regulated for public companies.  We think of fibbing to inflate the company stock poorly serves investors, but what about when the company is facing a liquidity crisis?  Isn't public optimism in a liquidity crisis exactly what is needed to serve shareholder's interests?  Consider Treasury Secretary Paulson, and his near criminal declaration of a financial crisis, and the effect these ill-considered statements have had on the economy.

It is hard for me nowadays not to think about Jeff Skilling, who sits in jail for making what the jury thought to be overly optimistic public statements about the company's financial health  (I know you are thinking that he was put in jail for all that off balance sheet accounting and gimmickry, but in fact the prosecution never chose to bring these charges in the trial).  Even Skilling's jury, which was pretty clearly predisposed to convict, seemed to acknowledge that he did not make these statements for personal gain.

So why is Skilling in jail and not, say GM CEO Rick Wagoner?  Wagoner was making a lot of happy-face statements just a few months before his company acknowledged they were facing chapter 11 if Congress did not bail him out.  For extra credit, Wagoner told Congress $15 billion would be enough of a bailout, when he had to have been pretty confident it was not going to come close to cover the hole he faced.

Tom Kirkendall asks some of  the same questions, and looking at the cases he cites, it seems fairly clear that the difference between prosecuted and un-prosecuted CEO's has more to do with their like-ability, celebrity status, and general PR position than their specific actions.

Postscript: I have actually been thinking about the Enron bankruptcy a bit lately for another reason.  Remember that massive natural gas shortage we had when Enron went bankrupt?  Neither do I.  That's because chapter 11 is a pretty well-oiled process in this country.  Enron shareholders, bondholders, and management lost most their investment (and their jobs) but Enron's productive assets and skilled employees didn't disappear.  Enron's assets were bought by other companies who hopefully will employ them more profitably and productively than Enron had.

The same goes for GM.  We have a well-understood and proven process for taking a company like GM through bankruptcy.  However, we are instead replacing this well-understood and practiced process with a new process, called something like "Congressionally-managed restructuring funded with taxpayer dollars."  Does anyone really think this new process is better than the one we have?  Its only advantage, at least to some, is that it may preserve some management jobs, and shareholder and bondholder value, at the expense of taxpayers and any real effort for long-term reform of how GM's assets are managed.

The Stimulus Time Delay

From the WSJ, via TJIC:

The stimulus bill currently steaming through Congress looks like a legislative freight train, but given last week's analysis by the Congressional Budget Office, it is more accurate to think of it as a time machine. That may be the only way to explain how spending on public works in 2011 and beyond will help the economy today.

According to Congressional Budget Office estimates, a mere $26 billion of the House stimulus bill's $355 billion in new spending would actually be spent in the current fiscal year, and just $110 billion would be spent by the end of 2010. This is highly embarrassing given that Congress's justification for passing this bill so urgently is to help the economy right now, if not sooner.

And the red Congressional faces must be very red indeed, because CBO's analysis has since vanished into thin air after having been posted early last week on the Appropriations Committee Web site. Officially, the committee says this is because the estimates have been superseded as the legislation has moved through committee. No doubt.

In addition to suppressing the CBO analysis, Democrats have derided it. Appropriations Chairman David Obey (D., Wis.) called it "off the wall," never mind that CBO is now run by Democrats. Mr. Obey also suggested that it would be a mistake to debate the stimulus "until the cows come home." We'd settle for a month or two, so at least the voters can inspect the various Congressional cattle they're buying with that $355 billion.

The reason this is so was explained by yours truly last week.  In short:

A year from now, any truly new incremental project in the stimulus bill will still be sitting on some planners desk with unfinished environmental impact assessments, the subject of arguments between multiple government agencies, tied up in court with environmental or NIMBY challenges, snarled in zoning fights, subject to conflicts between state, county, and city governments, or all of the above.  Most of the money will have been spent by planners, bureaucrats, and lawyers, with little to show for in actual facilities.

Paypal in Trouble?

A few days ago I posted on the security hole I discovered in Paypal where payments to my email were flowing to someone else's account.  After denying the problem for quite a while, Paypal finally admitted it.

In the last two days, I have had two other problems with Paypal.  The first was that an account hold was slapped by Paypal on my account.  Apparently I accessed the account from an IP address (maybe a hotel on the road?) they had never seen me at before and so they froze my account until this morning when I had to spend an hour convincing them in various ways I really did control the account.

The second issue was when Paypal put a hold on a payment I received.  At first, I was ticked off at the buyer, thinking that person had received the item and then was trying to keep his money.  But it turned out the buyer had nothing to do with it.  Again, the Paypal computers saw the buyer account had been relatively inactive and held the payment until the buyer called in and convinced them the payment was legitimate.

Now, at some level, one can say that Paypal is trying to protect my money.  But if fraud is so prevelent in Paypal that these kind of onerous fraud checks and constant account and payment freezes are becoming the norm, then it may well be that their business model is in trouble.  Like strip searches at the airport, it may increase security but it may also kill the business.

If you had asked me five years ago, I would have said it likely that by 2009, we would have an online payments system that involved some type of digital certificates on individual computers tied to either a payment system or one's credit card number.  My corporate cash management account works this way, but the retail world does not.  Part of the problem is that there is only limited consumer incentive to demand such a system.  Currently, most fraud costs are pushed by card companies unto retailers rather than consumers (who can fairly easily void a fraudulent payment) reducing the percieved cost of low security.

Postscript:  It is always interesting to listen to the tone of customer service agents.  I talked to four different Paypal agents this morning, and the fairly clear undertone of their responses to my rants about these problems was "it's as bad around here as you think it is."

The Other Reason Stimulus Won't Work

Frequent readers will know that I do not buy into the Keynesian multiplier effect for government spending.  But there is an even better reason why the stimulus bill will never work:   it is simply impossible to break ground on any new government construction project in less than a year.

A year from now, any truly new incremental project in the stimulus bill will still be sitting on some planners desk with unfinished environmental impact assessments, the subject of arguments between multiple government agencies, tied up in court with environmental or NIMBY challenges, snarled in zoning fights, subject to conflicts between state, county, and city governments, or all of the above.  Most of the money will have been spent by planners, bureaucrats, and lawyers, with little to show for in actual facilities.

The couple of exceptions I can think of are:

  • The project has already been proceeding for years, and thus is just about to start construction anyway.  Which implies the spending is not incremental and that we are just substituting federal dollars for local dollars in completing local projects, never a good idea.
  • It may be possible to get a repair project going faster, but even that is probably impossible.  The contract award process alone can take up to 6 months, and it is probably no accident that federal highway funds are one of the few areas the government budgets multi-year.

To illustrate, let me tell a story.  We operate a marina and campground on a lake in Ventura County, California.  The marina office and store used to be a small floating building attached to the dock and floating on the lake (this is a fairly typical arrangement in small marinas).  The County decided it, for whatever reason, did not like having a floating store building any more, and it wanted the floating building closed and a new modular building put in a corner of the parking lot, on dry land.

So we get a modular building and park it in the parking lot near the dock entrance, as ordered.  Having been required by the county to take these steps, we were subsequently shocked to find that a variety of County offices refused to permit the new structure.  Eventually, it took nearly 4 months and $10,000 in fees to obtain the 8 County permits and approvals we needed to park a trailer in the parking lot.   And this does not include the cost of a fairly senior manager spending half his time chasing down all these approvals.  At one point, the County demanded a soil sample, and so we had to have a company come out and saw into the concrete parking lot to obtain a sample of the soil underneath.  God knows how long it would take to approve new construction on virgin land with water, sewer, etc.

Finally, some of you might be thinking that these government hurdles would be easier for the government itself to clear.  Wrong.  You have never, ever seen a government employee display as much energy as they will muster when they think another government agency is bypassing his or her authority.  I made a presentation a while back to a group of county commissioners in California, and it seems like most of their jobs involve dueling with various state agencies and local governments.

Good Stuff From Obama

Well, I was cynical about Obama giving up executive power, as politicians generally have a different view of runaway government power once that power is in their hands.  But some good stuff has come out already:

  • Obama rescinded Bush's 2001 executive order allowing former presidents, vice presidents, and their heirs to claim executive privilege in determining which of their records get released to the public. Even better, he's requiring the signature of both his White House counsel and the attorney general before he can classify a document under executive privilege.
  • Issued a memorandum to all executive agencies asking them to come up with a new plan for open government and complying with FOIA requests. He is also instructing three top officials, including the U.S. attorney general, to come up with a new policy on open government. The new policy would replace the existing policy, infamously set by a 2001 memo from John Ashcroft that instructed federal agencies to essentially to take every measure they can to refuse FOIA requests.
  • Put a freeze on the salaries of top White House aides.
  • Suspended the military trials at Gitmo, and is expected to issue an order closing Gitmo as soon as today.

That's a really good start.  I am now more optimistic that we might actually get some rollbacks of government power vis a vis FISA and the Patriot Act.  The Fourth Amendment took a serious beating since 9/11, and hopefully it is not too late to roll back the precedents set over the last 7 years.

Of course, all of these activities are reductions of executive power in areas in policy areas Obama wants to undo actions by GWB.  The real test will be to see his approach to executive power in areas where he wants to go past GWB.  A good example is carbon dioxide regulation, where it has been suggested Obama should take the issue out of Congress's hands and establish a regulatory regime by executive fiat.

While we are on wish lists, I have often told my Republican friends that a fault of Bush's that did not get enough press was his apparent lack of willingness to provide adult supervision to Congress.  Congress needs to be shamed occasionally to stay on task and not drift off into feeding fests at the trough, and only the President can really do this.  Bush did not have the desire to face down a Republican Congress, and probably had lost all his credibility by the time he faced a Democratic Congress.  Harry Reid and Nancy Pelosi will take a lot of baby-sitting to avoid veering off into their worst behaviors, and it will be interesting to see if Obama will do so.  I think it is in his interest to do so.  Already, the ridiculous stimulus bill Pelosi has crafted threatens to embarrass him.  If I were Obama, I would be furious.  He expends his early political capital for a stimulus bill, and gets a total porked-up lobbyist's-fantasy from the House.

The Money Pit

Even with the government throwing money at it in multi-billion dollar chunks, GM seems to be sinking too fast for even the Treasury department to keep it afloat:

The target date for General Motors Corp. to get its second installment of government loans passed last week, but a top company executive says he expects the money to arrive in the next several days.

Fritz Henderson, GM's president and chief operating officer, said without the second installment of $5.4 billion, the company would run out of cash long before March 31.

In December, the Treasury Department authorized $13.4 billion in loans for GM and another $4 billion for Chrysler to keep both automakers out of bankruptcy. GM received $4 billion late last year and was to get $5.4 billion Jan. 16 and another $4 billion on Feb. 17, the day it is to submit its plan to show the government how it will become viable.

Henderson told the Automotive News World Congress in Detroit that the money is critically needed to pay its bills. He attributed the delay in receiving the second installment to the Treasury Department's workload and the change in administrations.

"If we don't get our second installment of the funding we'll run out of cash, it's that's simple," he said. "We've been finalizing what we need to do. We anticipate receiving it. But it's critical that we receive it."

The AP article above actually softpedals GM's money burn rate by saying GM received the first $4 billion "last year."  While technically correct, the fact is that GM received the money "last month."  So it appears that GM's burn rate may be as high as $4 billion a month, and that is before we necessarily even hit bottom in the recession. This should be absolutely unsurprising, as GM was burning through about $2.5 billion a month of cash pre-recession, when times were good.

It is just incredible that Congress and the Administration (old and new) are spending this much money to help GM management hang on to their jobs and to protect GM bondholders.  GM assets are not going to go away in a bankruptcy, but they may end up in hands that are more capable of using them productively.  Just to get one tiny glimpse of the incompetence at work here, note this:

Henderson also disagreed with United Auto Workers President Ron Gettelfinger who said on Monday that that a mid-February deadline for General Motors and Chrysler to complete their restructuring plans may be "almost unattainable" and that the automakers may have been set up to fail.

So, through the fairly strong economy of the last several years, GM has been burning through cash but did not see the need to have a restructuring plan (for most companies, having an operating cash flow deficit at the top of the business cycle is a pretty big red flag, but apparently not so at GM).  GM managers showed up in Washington to demand taxpayer money, and still didn't have a plan.  Chagrined, they showed up again to beg humbly for money, and they still didn't have a plan  (and frankly lie about their likely cash burn rate).  Three months later, in February, they may still not have a restructuring plan.

Inauguration Day Party Pooper

OK, I was really going to remain silent today, because no one seems to want to hear a rant about today's imperial coronation.  But as I sit here watching the press coverage and waiting for John the Baptist to show up, and as I observe the general cultish hysteria and the swooning of normally serious adult people, I just can't help myself.  For a libertarian like myself, it's like watching people line up at 3am to be the first to be in the store when McDonald's switches its fountain drinks from Coke to Pepsi.   Heck, I was creeped out by the cult following of Ron Paul this year, a politician I agree with a lot, so I certainly am going to get the willies from the love-fest for an admitted statist like Obama.

I am not enough of a historian to speak for much more than the last thirty years, but the popularity of non-incumbent political candidates has typically been proportional to 1) their personal charisma and 2) our lack of knowlege of their exact proposals.  Seriously, can you name any other difference (on the plus side) between Obama and Hillary other than these two?  We forget, but GWB was the unknown newcomer in 1992.  As was Clinton and Carter.  Reagan was an exception, but was running against an incumbent who really had a terrible four years, and Bush I was an exception as well, though he was running against one of the weakest candidates and campaigns the Democrats have fielded in 50 years.  Folks are excited about Obama because, in essence, they don't know what he stands for, and thus can read into him anything they want.  Not since the breathless coverage of Geraldo Rivera opening Al Capone's vault has there been so much attention to something where we had no idea of what was inside.  My bet is that the result with Obama will be the same as with the vault.

There is some sort of weird mass self-hypnosis going on, made even odder by the fact that a lot of people seem to know they are hypnotized, at least at some level.  I keep getting shushed as I make fun of friends' cult behavior watching the proceedings today, as if by jiggling someone's elbow too hard I might break the spell.  Never have I seen, in my lifetime, so much emotion invested in a politician we know nothing about.   I guess I am just missing some gene that makes the rest of humanity receptive to this kind of stuff, but just for a minute snap your fingers in front of your face and say "do I really expect a fundamentally different approach from a politician who won his spurs in .... Chicago?  Do I really think the ultimate political outsider is going to be the guy who bested everyone at their own game in the Chicago political machine?"

Well, the spell will probably take a while to break in the press, if it ever does -- Time Magazine is currently considering whether it would be possible to put Obama on the cover of all 52 issues this year -- but thoughtful people already on day 1 should have evidence that things are the same as they ever were, just with better PR.   For God sakes, as his first expenditure of political capital, Obama is pushing for a trillion dollar government spending bill that is basically one big pork-fest that might make even Ted Stevens blush, a hodge-podge of every wish-list of leftish lobbyists that has been building up for eight years.  I will be suitably thrilled if the Obama administration renounces some of the creeping executive power grabs of the last 16 years, but he has been oddly silent about this.  It seems that creeping executive power is a lot more worrisome when someone else is in power.

It has been suggested by some that today is less a cultish corronation but a big victory party in the battle against racism.  Well, I am certainly willing to accept it on those terms.  I have been arguing for years that it is time to declare victory on the worst aspects of race and gender discrimination, and move on to problems of interest to all races (like individual freedom or giving kids options to escape crappy public schools).   Unfortunately, I fear that too many folks in power are dependent on the race/gender/class wars continuing, so you and I may think we are declaring victory, but those with power over our lives have not.

Update: Just to be clear, I am not reacting to Obama per se, but to the reaction to Obama. Had someone pointed a gun at my head and forced me to vote for Obama or McCain, I would have voted for Obama. He is no worse than other politicians (I hope) and likely better than most.

Go Cardinals

I have no vocal chords as I screamed them out yesterday at the game as the Cardinals beat the Eagles to win the NFC championship.  Yesterday's game was one of the more unlikely events I have ever personally witnessed, and caps an incredible playoff run where a team that just 45 days ago was absolutely pathetic somehow found themselves in week 16 of the season.   During the final Eagle drive (the one around 2 minutes to go, not the pathetic last play) the crowd was the loudest I have ever heard at any sporting event  (the previous personal best was probably some games at the old Palestra in Philly, the home of "Big 5" basketball).

Anyway, this screen shot from  seemed appropriate:


Run Away!

Megan McArdle said a few days ago:

My reasoning for thinking of this as a depression, rather than a recession:  roughly, that we don't understand how to get in or out of it.

I have no doubt that unwinding serious problems with mortgage loans and the housing bubble would have pushed us into some kind of recession.  But one can easily argue that the bank failures in the 1980s and the housing market in places like Texas were far worse in the 1980's than they were in late 2008.  In fact, there is a fair amount of evidence that current mortgage and foreclosure problems are mainly limited to 4 states (Arizona, California, Nevada, Florida).

If one argues that we now have something worse than a run-of-the-mill recession (which I am still dragging my feet on admitting), then I think I know the cause:  economic hypochondria.  Yes, we may have a cold, but we have convinced ourselves it's cancer.

It all began with one man:  the US Treasury Secretary.  Who decided in October to scream to all the world that the US and all its financial institutions were facinig systemic disaster.

FDR did at least one thing I thought fairly clever.  One day, he declared a bank holiday, and told the country he was going to inspect all the banks.  And a few days later, a few were closed and the rest opened up, suddenly certified by the US Government as healthy.   He did exactly the opposite of Paulson - he faked it.  No way he really knew if all the other banks were healthy, but he saw a crisis of confidence and he bluffed.  The same way, in fact, Jeff Skilling bluffed (and went to jail for) when he faced a liquidity crisis and the leaders of Bear Stearns and many others have this year as well.  But Paulson screamed to the world "liquidity crisis" and we may not know much about how to get in and out of them, but we do know that such a statement is usually a self-fulfilling prophesy.

Once Paulson struck the match, everyone else had a reason to contribute to the fire.  Obama loved it, because a financial crisis could be laid at the door of Republicans.  The media loved it, because they always like to headline pending disasters and it supported their guy Obama.  Banks learned to love it, as they soon found that if the country bought the "disaster" story, they might get free government handouts.  And then GM and others saw an opening to stampeded the government into more handouts.  In one of the great ironies of all time, the looming depression became the greatest gravy train of all time, spawning what literally will be the largest pork-fest in all of history.

So what do the rest of us think?  Well, we might still have our jobs, but it sure seemed like we might lose them soon.  Just watch the news.  And our company joined right into the panic.  I have cut expenses and jobs like crazy in anticipation of a drop in revenue I haven't even seen yet!

Can I prove that this is anything more than just a libertarian fantasy-rant?  Not really.  The only potential proof I can offer is as follows.  If my story is correct, then we should see layoffs occurring faster than actual drops in output.  We should see job cuts in anticipation of, rather than as a result of, falling demand.  To which I offer these two charts, via Alex Tabarrok:

onetwoPostscript: To be fair, economists who look at this stuff much more deeply were calling out deep problems long before Paulson screamed fire in a crowded movie house (example).  I am not say we would not have had a recession, but the speed and depth of the drop may well have been affected by his mismanagement.