Coyote Blog

My column for this week is up at Forbes, and inevitably, deals with the State of the Union address last night.

But the portion that really floored me was Obama’s taking credit for the increase in US oil and gas production over the last several years.  It is certainly true that, against all predictions of peak oil, new technologies have helped drive a surge in US hydrocarbon production.  Combined with a recession-driven drop in demand, America’s oil imports as a percentage of its total use has dropped to 45.6%, the lowest level in over 15 years.

This surge in energy production is a fabulous reminder of how markets work.  For years I have written that the peak oil folks were missing something fundamental by performing an overly static analysis.  They looked at current “proven” reserves of oil and gas and projected forward how many years it would take for these to run out.  But oil and gas reserve numbers only make sense in the context of a particular set of technologies and pricing levels.  As hydrocarbons run short, rising prices tend to spur both innovation and new, more expensive exploration activity.  Oil and gas companies are once again proving Julian Simon’s addage that the only true scarcity is human brain power, and they should be given a lot of credit for the recent production boom.

The one person who deserves no credit for this boom is Barack Obama....

Read it all.

Via the WSJ

Glendale, Ariz., is selling about $136 million in debt in the municipal-bond market this week, just days after Moody's Investors Service cut its bond rating because of the desert city's obligations to cover losses on a National Hockey League franchise.

In exchange for the NHL's promise to manage team operations and keep the team in Glendale until a new owner is found, the city agreed to compensate the league, the city's executive communications director, Julie Frisoni, said.

The Coyotes filed for bankruptcy protection in 2009, and that spring, the NHL became the owner of the team. In exchange for keeping the team, the city signed an agreement to absorb up to $25 million of the team's losses in both 2011 and 2012, in anticipation of finding a new owner, Moody's analysts said.

Glendale is slowly sinking itself in a mountain of debt to pursue its insane strategy to subsidize every billionaire sports owner in Arizona.  The town of 225,000 people is spending $25,000,000 to fund the operating losses of a freaking hockey team -- that's nearly $500 a year for every 4-person family in the city.  Nuts.  And this is just their operating subsidy, it does not include debt service on the $300 million stadium it built for the team.

The problem is that the team is worth less than $100 million in Arizona (based on recent sales comps of other NHL franchises in warm cities like Atlanta) but might be worth $300-$400 million if moved to Canada (Jim Balsillie made an offer in this range, including an offer to pay down $150 million or so of the city's debt, before RIM stock started to crash).  The NHL, which owns the team now, has promised owners that they will not take a penny less than $200 million for the team, and that they will not suffer any operating losses.

So, because they simply cannot admit they were wrong to subsidize the team the first time around, to keep the team in Glendale the city must either fund $25 million a year in team operating losses or it must pony up $100 million or so to bridge the team's $100 million value in Arizona and the league's $200 million price tag (something they tried and failed to do last year when the Goldwater Institute pointed out that such a subsidy was unconstitutional in AZ.

I repeat, what a big freaking mess.  How do you avoid it?  The only way is the Wargames strategy, ie the only winning move is not to lay the sports team subsidy game in the first place.

Looks like I will be on Fox & Friends at 8:15 EST tomorrow (Wed) to discuss the State of the Union, and specifically the Obama administration and public vs. private investment.  That will make four national TV appearances and 4 entirely different topics (parks, minimum wage, electric car efficiency, and infrastructure investments).  I'm really honing a razor-sharp personal brand.

One thing that many green energy advocates fail to understand is the very scale of US energy demand in relation to the output of various green sources.

Let's consider wind.

The Keystone XL pipeline would have provided 900,000 barrels of oil per day, roughly equivalent to 1.53 billion kw-hr per day.  A typical wind turbine is 2MW nameplate capacity, but at best actually produces about 30% of this on average.  This means that in a day it produces 2,000*.3*24 = 14,400 kw-hr of electricity.  This means that the Keystone XL pipeline would have transported an amount of energy to the US equal to the output of 106,250 of those big utility-size wind turbines.

Looked at another way, the entire annual output of the US wind energy sector was about 75 terra-watt-hours per year or about 260 million kw-hr per day.  This means that the Keystone XL pipeline would have carried energy equal to over 5 times the total output of wind power in the US.

Of course, this is just based on the potential energy in the fuel, and actual electricity production would be 50-65% less.  But even so, this one single pipeline, out of many, is several times larger than the entire wind power sector.

Star Wars crowd-sourced in 15-second intervals, each by a different person, often in completely different styles.

The garbage chute scene at 1:18 is pretty representative of what this is about. We get live action (both high and low quality props), animation, sock puppets and even ferrets.

The opening 20th Century Fox credit change is great - how they missed this idea in the real movie, I will never know.

I thought this was an interesting discussion of leap seconds.  At its heart, the debate is about a tradeoff between hassle (a lot of programming goes into inserting a second into a day every year or so) and how close we want time to match its traditional association with astronomical observations (e.g. noon is exactly noon at Greenwich).   This is a debate that has occured at least since the imposition of time zones (mainly at the behest of railroads) which for many cities converted "sun time" to "railroad time."  Until then, every town was on a different time with noon set to local astronomic noon.  Now, only a few cities actually have noon at noon.  Of course, daylight savings time took this even further.

Search warrant required for GPS tracking

I like to send my daughter, the artist, examples of people working in new media to help inspire her.  This is pretty amazing -- 3D painting in layers of acrylic.  These are NOT objects embedded in the clear plastic, its all painting in thin layers, like a 3D printer.

via

(update: link is fixed)  My new Forbes column is up, and it attempts to strip away the window dressing around the Keystone pipeline decision to get at the core issue -- "a quasi-irrational ('I'm blogging against the modern economy from my iPhone'), almost aesthetic distaste for energy production, the modern industrial economy, and capitalism itself. "  Read it all here.

PS-  the contrast between the Administrations support of the egregious HSR project in CA and its rejection of the takes-no-tax-dollars Keystone XL infrastructure project reminds me of my earlier piece on the Timeless Appeal of Triumphalism.   Politicians love to shift capital from private, boring, productive things like pipelines to sexy taxpayer-funded things that they can put their names on.

I sat through a series of sessions held with legislators today in Utah, and I must say I was pretty impressed with the fiscal sanity that has ruled this state through the last 10 years, and saw it successfully through the recent downturn.  When tax revenues were up last decade, they were doing crazy, nutty things like actually building up their rainy day fund.  And they are already talking this year about contributing to rather than withdrawing from this fund.  They still do silly politician-stuff (the law to name a state gun comes to mind) but overall a good session, facilitated by a terrific, scrappy group called the Utah Taxpayers Association.  These guys had the governor, the Speaker of the House, the President of the Senate, and numerous legislators participating.  I am not sure our larger and much better funded Goldwater Institute in AZ could do as well.

As an added bonus, I found myself sitting with a talking to Billy Casper, two-time winner of the US Open and Master Champion.  Turns out Mr. Casper is in roughly the same business I am, lending his name and time to a large firm that privately manages public golf courses.

Bonus Utah Observation:  You would expect a state with a large LDS influence to have oddities in its alcohol laws, but other than state-run liquor stores (which can be found in a number of other states, alas) I observed nothing too odd.  What I had not thought about was coffee.  There are very few Starbucks here, due in large part to LDS prohibitions on caffeine.  I know a lot of software firms moved here -- I wonder how they even function without large supplies of Mountain Dew Code Red?

Oh, and I know you don't think BBQ in Utah, but Pat's is freaking awesome.  My competitor who is based on the area was nice enough to buy me lunch.  And just in time, as about an hour later it was announced I had just won a large contract from him.

I propose a similar law for all climate scientists when they are presenting their computer model forecasts.  Actual legislation once proposed in New Mexico:

When a psychologist or psychiatrist testifies during a defendant’s competency hearing, the psychologist or psychiatrist shall wear a cone-shaped hat that is not less than two feet tall. The surface of the hat shall be imprinted with stars and lightning bolts. Additionally, a psychologist or psychiatrist shall be required to don a white beard that is not less than 18 inches in length, and shall punctuate crucial elements of his testimony by stabbing the air with a wand. Whenever a psychologist or psychiatrist provides expert testimony regarding a defendant’s competency, the bailiff shall contemporaneously dim the courtroom lights and administer two strikes to a Chinese gong…

In the case of New Mexico, this was meant as satire and eventually was removed from the final bill, but I think it would be a great adjunct for climate forecasts, better than a surgeon general's warning.

For those of you not in Arizona that wonder from all the articles about him why Sheriff Joe is still elected by almost landslide majorities, and why Republicans all over the state still beg him for his endorsement, here it is:

A subsequent examination of the sheriff's file showed that residents of Maricopa County wrote to him regarding the presence of Mexicans in greater Phoenix.

Citizens saw day laborers. They saw people with brown skin. They heard Spanish spoken.

And what the letters reveal is enormous anxiety about Hispanics:

• "I always see numerous Mexicans standing around in that area . . . These Mexicans swarmed around my car, and I was so scared and alarmed . . . I was never so devastated in my life regarding these circumstances . . . Although the Mexicans at this location may be within their legal right to be there . . . I merely bring this matter to your attention in order that all public agencies, FBI, etc., may be kept informed of these horrific circumstances."
• "I would love to see an immigrant sweep conducted in Surprise, specifically at the intersection of Grand and Greenway. The area contains dozens of day workers attempting to flag down motorists seven days a week."
• "The Mesa police chief drags his feet and stalls . . . the head of the Mesa police union is a Hispanic."
• "As a retiree in Sun City, formerly from Minnesota, I am a fan of yours and what you are doing to rid the area of illegal immigrants . . . when I was in McDonald's at Bell Road and Boswell (next to the Chase Bank) this noon, there was not an employee in sight, or within hearing, who spoke English as a first language — to my dismay. From the staff at the registers to the staff back in the kitchen area, all I heard was Spanish — except when they haltingly spoke to a customer. You might want to check this out."

And Sheriff Arpaio did check it out.

None of the Hispanics described in the letters had broken the law. It is not against the law to speak Spanish or work as a day laborer.

Arpaio nonetheless gave the correspondence to Deputy Chief Brian Sands. Federal Judge Snow determined that raids and roundups quickly followed. Hispanics were rousted because white people were uncomfortable.

Sheriff Joe once did a roundup in tony Fountain Hills, which I would be surprised if it had even 5% Hispanic population, and managed to drag in for various petty violations (e.g. cracked windshield) a group that was about 95% Hispanic.  His favorite thing to do, when he isn't busting into homes with Hollywood celebrities, is to send his deputies into a business and have them handcuff everyone with brown skin and refuse to release them until they or their family members have arrived to prove they are in the US legally.

This whole article is a good roundup of yet another abusive side of Arpaio, his flagrant disregard for public records laws and the rules of evidence.  In Maricopa County, "exculpatory evidence" and "shredded" have roughly the same meaning.

Glen Reynolds reports that opposition to SOPA has caused Congress to pull back a bit.  My prediction:  They will kill this particular bill, and we will all pat ourselves on the back for it going away, but they it will get slipped into the back of some defense authorization bill while no one is looking and become law anyway.  This kind of pandering to Hollywood and increased government control over speech and the Internet is just too appealing for Congress to pass up forever.

Just six months ago, governments were criticizing ratings agencies for letting threats by debt security issuers cow them into keeping ratings for bad debt higher than they should be (emphasis added)

Moody’s and Standard & Poor’s, Wall Street’s two largest credit rating agencies, were roundly criticized in the Levin-Coburn Senate reportfor betraying investors’ trust and triggering the massive mortgage-backed securities sell-offs that caused the 2008 financial crisis.

Credit rating agencies are supposed to provide independent, third-party credit assessments to help investors understand the risks in buying particular securities, debts and other investment offerings. For example, securities that have earned the highest ‘AAA’ rating from Standard & Poor’s (S&P) should have an “extremely strong capacity to meet financial commitments” or have “a less than 1% probability of incurring defaults.” Investors would use the ratings to help evaluate the securities they’re seeking to buy.

However, the standard practice on Wall Street is fraught with conflicts of interest. In reality, the credit rating agencies have long relied on fees paid by the Wall Street firms seeking ratings for their mortgage-backed securities, collateralized debt obligations (CDOs), or other investment offerings. The Levin-Coburn report found the credit agencies “were vulnerable to threats that the firms would take their business elsewhere if they did not get the ratings they wanted. The ratings agencies weakened their standards as each competed to provide the most favorable rating to win business and greater market share. The result was a race to the bottom.” Between 2004 and 2007, the “issuer pay” business model fostered conflicts of interest that have proven disastrous for investors.

I have no problem with this analysis.  But it's ironic in contrast to the very same governments' reactions to their own downgrades over the last 6 months.  In fact, the general government reaction from Washington to Paris has to be to ... wait for it ... threaten the agencies in order to keep their ratings up.  And these threats go farther than just loss of business - when the government issues threats, they are existential.  It's hard to see how the US or French government's behavior vis a vis downgrades has been any different than that of banks or bond issuers that have faced downgrades.

In general, the tone of government officials has been "what gives them the right to do this to us?"  The answer to that question is ... the government.  These self-same governments were generally responsible for mandating that certain investors could only buy certain securities if they are rated.  And not just rated by anyone, but rated by a handful of companies that have been given a quasi-monopoly by the government on this rating business.

Someday, I need to look up how the actual rule for use of "a" vs. "an" is written.  Most people, including me, have always said that "an" is used in front of a vowel.  "This is an unusual task."  But this is not always true.  How about, "this is a useful item."  In this case, I suppose we use "a" because despite starting with a vowel, "useful" really starts with a "y" consonant sound, as in "you."

Today will be remembered in history as the day that had no Republican candidate debate.

There are a lot of ways to parse this story about the alleged video of soldiers urinating on corpses in Afghanistan.  It seems ugly, but desecration of corpses has a long history in Afghan conflicts (often consisting of cutting off male-only body parts).  And it's bizarre to see people more upset about peeing on corpses than with corpsifying them in the first place.

But at the end of the day this is what I think is broken about the Afghan conflict.  You don't send warriors into a brutal guerrilla war with no rules and simultaneously expect them to be goodwill ambassadors as well.  Given that these are two activities whose Venn diagrams of skills and mindsets have so little overlap, the military does a pretty good job trying to do what its being asked, but over the long run it's a losing game  (somewhere in here there is an Ender's Game reference about trying to meld empathy with killer instincts).

By the way, exactly what is our goal in Afghanistan, will someone remind me?  We have been successful when __________________ ?

This country has made great progress in cleaning up its waterways over the last four decades.  Conservatives like to pretend it's not true, but there is absolutely nothing wrong from a strong property rights perspective in stopping both public and private actors from dumping their waste in waterways that don't belong to them.

The problem today with the EPA is not the fact that they protect the quality of the commons (e.g. air and water) but that

1. New detection technologies at the parts per billion resolution have allowed them to identify and obsess over threats that are essentially non-existent
2. Goals have changed such that many folks use air and water protection as a cover or excuse for their real goal, which is halting development and sabotaging capitalism and property rights

What might surprise Brougham and many other New Yorkers who were appalled by last summer’s sewage discharge is that there’s nothing particularly unusual about it. Almost every big rainstorm causes raw sewage to flow into the city’s rivers. New York is one in a handful of older American cities — Baltimore, Philadelphia and Washington, D.C., are others — that suffer from poor sewer infrastructure leading to Combined Sewer Overflows, or CSOs. New York City has spent $1.6 billion over the last decade trying to curb CSOs, but the problem is so pervasive in the city that no one is sure whether these efforts will make much of a difference.

CSOs occur because the structure of New York City’s sewage system often can’t cope with the volume of sewage flowing through it. Under the city’s streets, thousands of drains, manholes and plumbing systems converge into a few sewage mains. These pipes can handle the 1.3 billion gallons of wastewater that the five boroughs produce on a typical day — about as much water as would be generated by a 350-year-long shower. But whenever the pipes gather more water than usual — such as during a rain- or snowstorm — the pumps at the city’s 14 wastewater treatment plants can’t keep up with the flow. Rather than backing up into streets and homes, untreated sewage systematically bypasses the plants and heads straight into the waterways.*

In this way, 27 to 30 billion gallons of untreated sewage enter New York City waterways each year via hundreds of CSO outfalls, says Phillip Musegaas of Riverkeeper, a New York clean water advocacy group. Musegaas says he finds it especially upsetting that city officials don’t effectively warn the thousands of people like Brougham who use the waterways and could encounter harmful bacteria during overflow events.

The 5-year old transcripts of Federal Reserve Board meetings .  Bernanke & Geithner basically yawn at concerns raised about housing prices and mortgages.

Let's be clear.  Unlike most of those who are likely commenting on this, I do NOT blame these folks for being wrong about the direction of the incredibly complex economy, and how one or two factors might influence the whole.   My sense has always been that it is impossible to be consistently right.

What I do criticize is the hubris of making major top-down Federal policy decisions that require that these folks be consistently right.  It's simply madness, and I am exhausted with the continuing reaction of both the media and most politicians that if we only had the right folks making these decisions, all would be well.  The reality is that these decisions are impossible to make, and will virtually always lead to gross mis-allocations of capital and resources in the economy that lead to recessions.

Update:  Here is one example

JUNE 28-29: In summarizing Fed officials’ views, Bernanke notes how it’s getting more and more difficult to make forecasts, describing the economic situation as “exceptionally complicated.” Since housing is particularly hard to project, Bernanke calls it “an important risk and one that should lead us to be cautious in our policy decisions.”

So, this seems like an admirable statement of humility.  Given these remarks, the group did nothing, right?  Of course not ... they raised interest rates a quarter of a point.

Name the industry where 99.9% of the time, public policy has an explicit goal to substantially reduce worker productivity.   Answer.

For some reason, I had presumed this was a modern phenomenon.  Apparently not.... From Bastiat in 1848

But, by an inference as false as it is unjust, do you know what the economists are now accused of? When we oppose subsidies, we are charged with opposing the very thing that it was proposed to subsidize and of being the enemies of all kinds of activity, because we want these activities to be voluntary and to seek their proper reward in themselves. Thus, if we ask that the state not intervene, by taxation, in religious matters, we are atheists. If we ask that the state not intervene, by taxation, in education, then we hate enlightenment. If we say that the state should not give, by taxation, an artificial value to land or to some branch of industry, then we are the enemies of property and of labor. If we think that the state should not subsidize artists, we are barbarians who judge the arts useless.

I get to teach one class a year in the senior economics class at my kids' school.   Could do worse this year than teaching it around What is Seen and What is Not Seen

No, that headline is correct -- some crazed hacker has not taken over Coyote Blog.  Having been relentlessly critical of government organizations in general and the DMV in particular, I think fairness demands I post exculpatory evidence when I have it.

This morning we thought my son lost his driver's license (later found).  Dreading the all day trip to the DMV to get it replaced (and no, nothing has changed my opinion that that experience sucks), we checked online for the procedure.  It turns out that we could have applied for a new license over the Internet, and, best of all, if we got the application in by 3:00 today we could have had the license in our hands by noon tomorrow, on a Saturday no less, via express delivery.  That's better than my credit card company does.

Yes, such service is a virtual necessity given how central the government has made the driver's license in so many routine activities (except voting of course, that would be racist!).   But it is still a breath of fresh air to see any state institution match their service to such necessities.  Now, if we could only get the passport process sorted out, but that one is just getting worse.

Conservatives are mad at Eugene Robinson's mocking of how Rick Santorum and his family dealt with the tragedy of an newborn death.   Patterico (via Glen Reynolds) writes something that is good critique of the Left, but is an equally good critique of the Right

What really infuriates is the contempt they [those on the Left] show for parents who make different choices than they would . . . and the smug arrogance with which they pronounce judgment on the most intimate aspects of others’ private lives.”

Substitute the word "people" for "parents in the first half and this applies to a lot of folks on both sides of the aisle.

As I predicted, the various highly touted European debt and currency interventions last month did squat.  This is no surprise.  The basic plan currently is to have the ECB give essentially 0% loans to banks with the implied provision that they use the money to buy sovereign debt.  Eventually there are provisions for austerity, but I wrote that I don't think it's possible these will be effective.   It's a bit unclear where this magic money of the ECB is coming from - either they are printing money (which they refuse to own up to because the Germans fear money printing even more than Soviet tanks in the Fulda Gap) or there is some kind of leverage circle-jerk game going where the ECB is effectively leveraging deposits and a few scraps of funding to the moon.

At this point, short of some fiscal austerity which simply is not going to happen, I can't see how the answer is anything but printing and devaluation.  Either the ECB prints, spreading the cost of inflation to all counties on the Euro, or Greece/Spain/Italy exit the Euro and then print for themselves.

The exercise last month, as well as the months before that, are essentially mass hypnosis spectacles, engineered to try to get the markets to forget the underlying fundamentals.  And the amazing part is it sort of works, from two days to two weeks.  It reminds me of nothing so much as the final chapters of Atlas Shrugged where officials do crazy stuff to put off the reckoning even one more day.

Disclosure:  I have never, ever been successful at market timing investments or playing individual stocks, so I generally don't.  But the last few months I have had fun shorting European banks and financial assets on the happy-hypnosis news days and covering once everyone wakes up.  About the only time in my life I have made actual trading profits.

Thought problem:  I wish I understood the incentives facing European banks.  It seems like right now to be almost a reverse cartel, where the cartel holds tightly because there is a large punishment for cheating.  Specifically, any large bank that jumps off the merry-go-round described above likely starts the whole thing collapsing and does in its own balance sheet (along with everyone else's).  The problem is that every day they hang on, the stakes get higher and their balance sheets get stuffed with more of this crap.  Ironically, everyone would have been better getting off a year ago and taking the reckoning then, and certainly everyone would be better taking the hit now rather than later, but no one is willing to jump off.  One added element that makes the game interesting is that the first bank to jump off likely earns the ire of the central bankers, perhaps making that bank the one bank that is not bailed out when everything crashes.  It's a little like the bidding game where the highest bidder wins but the two highest bidders have to pay.  Anyone want to equate this with a defined economics game please do so in the comments.