Coyote Blog

The technocratic compulsion is very seductive to a lot of people (including, I think, our President-elect).  I can't tell you how often I hear "if we just had one smart person to clean up the mess..."  But it never works.  Just think about this auto czar idea being trial-ballooned this week.  Even if you could find someone brilliant enough to perfectly discern and synthesize the diverse buying interests of a hundred million consumers, he can never have the right incentives sitting in that government job.  Pretty soon he has group A insisting that he needs to mandate more fuel economy and group B that he needs to protect union jobs and group C that he needs to save jobs in Michigan in preference to Ohio and group D advocating for Ohio over Michigan and... you get the point.  All rolled up with the incentive problem that if he actually solves the problem at hand, he will be out of a job, so you can bet the problem is never fully solved.

My wife read the Michael Lewis article and comes back to me and says "I can't imagine how you can read that and still oppose government intervention and increased regulation."  I said, "why?"  Sure, people screwed up and did stupid stuff, but no defender of capitalism promises that won't happen.  Besides, what regulation would you propose?  "I don't know, but someone smart should have been watching them."

And that is what the argument usually boils down to - someone smart should have been watching them.  But lots of smart people were watching all the time.  You can see one such person featured in Lewis's article.  Guys run all over Wall Street looking every day for some single digit basis point spread they can make money off of.  But untold wealth was just sitting there for someone who was willing to call bullshit on the whole CDO/CDS pyramid game.  These guys playing this game were searching for people to bet against them. 

And despite this, despite untold wealth as an incentive, and companies looking for folks to take the other side of their transactions, only a handful saw the opportunity.  Thousands of people steeped in the industry with near-perfect incentives to identify these issues ... did not.  What, then, were our hopes of having some incremental government bureaucrats do so?  Usually, after this kind of crisis, there are lines of pundits and writers ready to suggest, with perfect hindsight, new regulations to avert the prior crisis.  But, tellingly, I have heard very few suggestions. 

Back in the 1980's, everyone was freaked out about junk bond-financed hostile takeovers, greenmail, leveraged buyouts and the like.   Since, while this activity has not disappeared, the wackiest of this behavior has really died down.  Do you remember that act of Congress and subsequent regulation that really curtailed this behavior?  Yeah, neither do I.  The fact is that, if they are allowed -- and if they are not shielded by taxpayer-funded bailouts from the consequences of their actions -- individuals learn from their excesses.  Or they go bankrupt.

At least in economic policy, progressives like Barack Obama are deeply conservative.  They want industries, jobs, real earnings, and class positions to be stable and predictable.  No one ever believes me when I say this, but look at the policies.  Trade protectionism protects current industry incumbents and workers, at the cost of poorer future performance due to lack of competition.  Unions attempt to lock in current jobs through numerous controls on work rules, slow or stop changes in technology and work processes that have the effect of eventually castrating the company (think GM).  Socialized medicine tries to lock in the current standard of care for everyone, while reducing the possibility of future improvements.  Redistribution attempts to lock in the current standard of living for everyone while reducing the possibility of future improvements.  I discussed this more European model last week.

I like how Shannon Love summarized it in the context of Obama:

Obama has no concept of business as a creative and experimental endeavor. On some deep unconscious level, he assumes that material wealth is something akin to a natural phenomenon for which no group of humans can take credit. Therefore, he sees distribution as the only serious economic issue and ignores how politics interferes with the actual process of wealth creation.

Though to be fair, I am not sure McCain or GWB understand this either.     (or here in 2005)

I always laughed at Democrats that tried to woo me to their party.  Now I laugh at Republicans too.  MoveOn may get mileage out of attacking Bush, but he has done more for the left/liberal cause than Clinton.  Clinton had NAFTA, welfare reform, and (moderated by an aggresive Republican Congress) fiscal sanity.

Hostess Twinkies are becoming the latest product remade and repackaged into 100-calorie snack packs

No word on how small they will be.  This had to be one of the great marketing blinding glimpses of the obvious:

Hostess launched its 100 calorie cupcakes in 2007, but held off on making a version of the Twinkie because the product was a favorite overall, not just among those looking for low-cal options

Get out of town.  Who would have thought that Twinkies were not a favorite for those looking for low-cal options.

The ethanol industry is struggling and a number of players are facing bankrupcy:

The ethanol industry built tremendous production and transportation infrastructure. It was a "if we build it, they will come" strategy.

Then, the world fell apart. Prices for gas at the pump are back down well below $3 instead of being headed toward $5 as they were in August.

Verasun says it will keep operating, but common shareholders have been crushed to death. The stock was at nearly $18 late last year. Now it is under $.40.

The only quibble I have is in the first sentence.  I would would have written the ethanol strategy as "If we seek rents, they will come."

From a couple of years ago

Rather than carve them, I peeled away the outer skin and thinned it in the land areas, creating this effect.

I thought Dale Franks has a really good post on why the bailout is a crock.  Its quite long, but here is one excerpt:

Banks that made bad mortgage choices get a buttload of money for their
bad MBS paper. Banks that charted a more reasonable course"”and yes,
there are quite a few"”get no reward.

In a real free market, of
course, the banks that made bad decision would have to take the hit.
They'd auction them off at whatever price the market would bear, and
they'd have to suck up the losses on the difference between face value
and sale value, even if that meant driving them out of business.
Meanwhile, the more rational banks would be able to pick up the MBS
paper at a discount, and make some cash off of the distress sale from
the incompetent banks.

And, of course, the incompetent banks would probably be driven out of business.  Which, after all, is how it is supposed
to work. But, the government seems entirely uninterested in letting the
market work this out, which brings me to my next point....

I keep hearing over and over again"”and I've even said it"”that no one
knows what these mortgage backed securities are worth. But let's be
clear here: the reason we don't isn't because the price is mystifyingly
unknowable. It's because they haven't even tried to sell them off yet.
We already know it's possible to find out what the price is, simply by
offering them up for sale. Indeed, we did it in July when Merril Lynch sold off its entire MBS portfolio.

The reason we're not doing it now is because the holders of MBS paper expect a government bailout, and they expect to
receive through it a price significantly higher than they would in the
secondary market. If it were otherwise, they'd already be auctioning
them off.

After all, we're talking about securities based on the
value of mortgage repayments. We already know that the default rate on
most of the MBS paper will be around 5%, with a maximum of probably no
more than 10%. Everybody already knows this. Now, just to turn the
screw, a buyer might want a discount of over"”perhaps well over"”50%.
after all, it's a fire sale, and everybody wants a bargain, right.

But there is a market-clearing price for these securities, and everybody on the street knows it.
What they also know is that they have an excellent chance of receiving
a much better price from the Feds, and that waiting for the bailout
gives them a better chance to stay in business, even if the Treasury is
a large shareholder in the company. And, after all, if the Treasury is
a shareholder, how likely is it that the government will let them fail, losing all that equity?

The
bailout doesn't solve the problem. It keeps the bad banks in business,
lets them escape the worst consequences of their malfeasance, and
prevents the better run banks from taking up the reins that would be
otherwise dropped when the bad banks went out of business.

Click to enlarge.  From here.

This is a pretty cool collection of photos from the ISS of the world's cities from space, sent to me by a friend.  These are an order of magnitude more detailed than you are used to seeing in other earth-lights photos.

Cross-Posted From Climate Skeptic. 

In
1497, Savonarola tried to end the Italian Renaissance in a massive pyre
of books and artwork (the Bonfire of the Vanities).  The Renaissance
was about inquiry and optimism, neither of which had much appeal to
Savonarola, who thought he had all the answers he needed in his
apocalyptic vision of man.  For him, how the world worked, and
particularly the coming apocalypse, was "settled science" and any
questioning of his world view was not only superfluous, it was evil.

Apparently, Blackwater wants to be tried under Sharia law:

I learn that Blackwater has filed a motion in a lawsuit claiming
that since the mishap they're being sued for (a plane crash) happened
in Afghanistan, the lawsuit should be adjudicated via sharia law, not
U.S. law. That's ironic enough on its own merits, but the explanation is even better:

In
April, Blackwater asked a federal judge in Florida to apply Islamic
law, commonly known as Shari'a, to the case. If the judge agreed, the
lawsuit would be dismissed. Shari'a law does not hold a company
responsible for the actions of employees performed within the course of
their work.

LOL, my guess is that they really don't want the precedent set that Blackwater will henceforth be held to Sharia law in Afghanistan.  By the way, don't miss your chance to buy some gear or posters in the Blackwater company store.  I found it randomly checking out their site.  They actually have some really good looking posters, much better looking than the stuff sold in company stores where I have worked.

Justin Wolfers asks:

You probably recall Hillary Clinton turning anti-economist in the dying days of her campaign:

"Well I'll tell you what, I'm not going to put my lot in with economists."

And more recently John McCain has jumped aboard:

"I trust the people and not the so-called economists to give the American people a little relief."

Honestly, I don't get it.

There is a very simple answer here.  Economists are people who say that you can't have your cake and eat it too.  As this is the core of the politician's populist message, they don't want anyone calling their bluff.

More on not wanting to hear the science here.

Update: One other thought, vis a vis climate and economics.  Obama, I suppose, would be one to argue that the science of catastrophic global warming is "settled."  But does he really think it is more settled than, say, the science that free trade leads to general increases in prosperity?  The left is all for the sanctity of science, except in economics.

A while back, Megan McArdle observed that Sweden's semi-socialist state performed well for a number of years, riding on residual work ethic in the system, a sort of cultural bank that eventually will be overdrawn.   According to Michael Moynihan, it appears this point has been reached:

Sweden does have the highest rate of workers on sick leave in
Europe, despite being consistently ranked by the OECD as Europe's
healthiest country. As my former colleague Johan Norberg has observed,
sick leave payments"”which, at the time of the last election, were as
high as 80 percent of a worker's salary"”accounted for a staggering 16
percent of the government budget.

Wow!  That is really staggering.  And not at all surprising.  Even in this country, I can't tell you how many people there are who consider a permanent disability to be roughly equivalent to hitting the lottery.  Income for life, without working!  I even had one woman who sued my company for actually (as the law requires) reporting her salary to the tax authorities rather than paying her under the table as she had hoped.  By creating evidence she could work, I endangered her disability application that was in the works (she kept a set of crutches in her car which she only used when on business related to this application).

The government figure of 7 percent unemployment was repeatedly mocked
by both former Prime Minister Göran Persson's detractors and allies. A
study by McKinsey Global estimated the true figure"”which included those
on sick leave, in early retirement, in jobs programs"”to be between 15
and 17 percent. Jan Edling, a researcher with the Social Democratic
trade union LO, estimated the total figure of unemployed to be 19.7
percent. (Edling's report was suppressed and he was himself offered
"early retirement.") The Confederation of Swedish Enterprise said the
figure was 16.5 percent. Other studies ranged from 12 percent to 18
percent.

The author also makes a point I have tried to make a number of times -- that the ability of the US economy to integrate and give opportunity to poor immigrants is a huge positive, in terms of assessing relative merits of different economic systems on the poor, that is never considered when evaluating European welfare states:
And the problem of unemployment in Sweden loops back around to the
difficulty Sweden has had in integrating its immigrants into the job
market.

As Swedish economist Esra Karakaya wrote in Aftonbladet in 2006,
the unemployment rate among immigrants in Sweden is 29 percent"”another
staggering figure, in marked contrast to the joblessness rate among
immigrants in this country. This, Karakaya convincingly argues, is
"because the labor market is governed by rigid job security laws" that
are incompatible with a globalized economy. Indeed, a recent study
tracking the fortunes of Somali immigrants in Sweden and in Minneapolis
(reported here in Swedish, summarized here in English)
found that its sample group in the U.S. started approximately 800
companies. In Sweden, they managed only 38. In a recent editorial in
the newspaper Expressen, Nima Sanandaji, a Kurdish immigrant, argued that
it was "important to study how the Swedish system of benefits, taxes
and [regulated] job market leads the same group of people to be
successful on one side of the Atlantic and to social poverty and
dependence in Sweden."

By the way, when you do the analysis right, the poorest quintile in Sweden does about the same as in the US.  The difference is that in 10 years, the poorest quintile in Sweden will still be the same folks, while the poorest quintile in the US will have moved up, to be replaced with new immigrants.

Part number whatever in a series.  Today's danger to consumers and the Republic is:  people offering to drive others around without a license.

A man who said he thought he was just helping a woman in need is accused of running an illegal taxi service.  Miami-Dade
County's Consumer Services Department has slapped Rosco O'Neil with
$2,000 worth of fines, but O'Neil claims he is falsely accused.....

The 78-year-old said he was walking into a Winn-Dixie to get some
groceries when he was approached by a woman who said she needed a ride.

"She asked me, 'Do I do a service?'" O'Neil said.

"I told her no. She said, 'I need help getting home.'

"O'Neil told the woman if she was still there when he finished his shopping, he would give her a ride. She was, so he did.

As
it turned out, the woman was an undercover employee with the consumer
services department targeting people providing illegal taxi services.

"She
said the reason she targeted him (is because) she saw him sitting in
his car for a few minutes," said Ellen Novodeletsky, O'Neil's attorney.

After
O'Neil dropped off the woman, police surrounded him, issued him two
citations and impounded his minivan. On top of the fees, it cost O'Neil
an additional $400 to retrieve his minivan from the impound lot.

There are no prior complaints that O'Neil was providing illegal transportation for a fee.

I don't care if he was running a business or being a good Samaritan -- I see no possible reason that this type of transaction should be illegal.

Huge alarm bells are going off as I read this headline in the Arizona Republic, whose motto should be "Happy to credulously print any crazy number your lobbying group puts in a press release."  In this case, the headline reads:

Ariz. economy reaped $500M from Super Bowl

Uh, sure.  Right.  Bet that is a quality number.  Lets first vet the source.  Who provided the paper with this number?

A study released today by the Arizona Super Bowl Host Committee
estimates professional football's championship game at University of
Phoenix Stadium in Glendale generated an economic impact of $500.6
million for the state.

Oh, I see.  Certainly a disinterested party.  And how was this number arrived at?

Arizona State University's W.P. Carey School of Business
completed the economic-impact report based on surveys of more than
1,500 visitors who came to the Valley to attend the game or take part
in festivities.

The survey revealed that visitors stayed in Arizona for an average of
3.9 nights and spent an average of $617 each day on hotels, food,
alcohol, transportation, recreation, shopping and other categories. The
report also calculated the amount that organizations dropped during
Super Bowl week.

Well, its good to see the business school at America's #1 party college on the case.  I would have thought this would be a very challenging study to conduct.  In my naiveté, I might have assumed that these Superbowl visitors might have displaced other potential visitors who would have been there anyway.  I would have fixated on the fact that Superbowl week is also Phoenix Open week and, given the beautiful winter weather here, one of the prime tourist weeks of the year even without the Superbowl.  I might have wondered how hotel stays during a week when most local resort hotels are full anyway could have been credited to the Superbowl, particularly when many locals left town to avoid the scene.   I might have been worried that I was not counting truly incremental revenues, but the folks in the business school at the university with Americas hottest coeds must be smarter than I am.

So apparently, these geniuses have found a way to assume that 100% of this $617 per day times 3.9 days is incremental and that there is no substitution effect.  However, they have also managed to somehow assume that University of Phoenix Stadium is even larger than I thought.  Because using these numbers, the only way to get to $500 million is if there were nearly 210,000 visitors.  Wow.  This does not even include the thousands of us from Phoenix who were also in the stadium. 

Look, the way to do this study is simple.  You look at sales tax receipts in Maricopa county over the period of January 2007-February 2008.  You calculate an underlying growth rate.  Then you compare the sales tax receipts for the Superbowl months (Jan-Feb 2008) with the same months a year previously, and see how much growth there is, if any, above the underlying growth rate.  I will tell you the answer right now:  It ain't anywhere close to $500 million.  I will eat my hat if its over $50 million.

Here is a reality check:  In 2004 the entire retail trade, from restaurants to stores to hotels, was $16.4 billion for all of Arizona.  This is $315 million per week.  Basically the study is saying that the entire retail trade for the whole state of Arizona was more than doubled in Superbowl week. 

Bullshit.

Zimbabwe introduces a new 50,000,000 bank note.  And if you do not understand the post title, shame on you.  Go read this book immediately.

Jeff Charleston, who went nearly wire to wire to win.  Here is the top ten, which yours truly finally managed to crack for the first time.  I picked the fewest correct games, by far, of anyone in the top 10 but got a lot of upset correct and thus scored a bunch of bonus points.  Memphis fans have to be squirming today.  I almost didn't watch the last 2 minutes of the game -- Memphis seemed to have it totally in hand.

The whole thing here.

Congrats to Jeff, and he can send me an email if he would like a free copy of either of my books.  And no, Bennett doesn't win 2 copies for being in second. 

I am a glutton for stats, so I always love to post this analysis.  Of the 125 brackets we have in the tournament, this is how many picked each team in each game  (teams in red are those already knocked out)

By the way, how about that buzzer-beater in overtime by Western Kentucky!

Pick counts for all PickHoops

This is a follow-up to my experience this morning logging on to E-verify for the first time, as required now by Arizona law.  After some research, it is becoming clear to me that the federal government's official position and the one that companies must agree to adopt when using e-verify is this:  When using e-Verify, it is against the law to screen out anyone in the hiring process based on immigration status.  Even if a company were to develop very strong evidence in the hiring process that a person is not a legal worker, that worker must still be hired (or at least not not-hired based on immigration status, if that makes sense).  Then, and only then, after the person is on the payroll, may the company begin the process of checking to see if that person is legal.  After weeks of various government steps, it may be required that the company fire that person, but apparently it could bring strong penalties to fire the person before the process has played out.

Is this nuts or what?  Its like having a job that requires an engineering degree but to not be able to ask during the hiring process if the candidate has an engineering degree and then being forced to fire the person after a few weeks of work for not having an engineering degree.  This is certainly a process that only the government could design, and one that completely ignores the substantial costs associated with taking on a new employee,

What really makes this interesting to me is that the Arizona law that requires the use of this system by Arizona companies was intended to end the use of illegal day laborers.  But in fact, there is absolutely nothing about this system that can be applied to day labor, given the way the timeframes work and the prohibition on pre-screening before the hire.   In fact, rather than being liable day one for hiring an illegal immigrant, one could argue with this system that, as long as one is following the process, a business is covered for weeks of an illegal immigrant's work -- covered so well that it is arguably illegal to fire said illegal alien worker until the multi-week process plays itself out.

Tyler Cowen links to Lane Kenworthy Saying:

]Poverty comparisons across affluent nations typically use a "relative"
measure of poverty. For each country the poverty line "” the amount of
income below which a household is defined as poor "” is set at 50%
(sometimes 60%) of that country's median income. In a country with a
high median, such as the United States, the poverty line thus will be
comparatively high, making a high poverty rate more likely...

There is actually at least one study out there by a left-leaning think tank that sort of addresses this (though not exactly).  The study first shows US and European income of the bottom 10 percentile vs. the median income of that country.  Not surprisingly, since US median income is so high, the bottom 10 percentile have a low share.  BUT, they then do the numbers a second, time, showing the bottom 10 percentile income in each country all compared to US median income, ie all with the same denominator,  here, the US poor do at least as well as most European countries.  The comparison shows clearly that while the US has more income inequality, it is not because our poor are poorer but because our rich and middle class are richer.   Here is that second study:

Kind of a cool phenomenon observed last week by the SOHO satellite.  The video is here -- watch the right side of the sun and you will see the ring blown into space.  The ring is nearly the same diameter as the sun.  Rather than being a smoke ring per se, it is actually a coronal mass ejection from a recent storm, as described here.

Unfortunately, Arizona Sheriffs, including out own egregious Joe Arpaio here in Phoenix, still have a wild west mentality:

On the night of July 29, 2007, Dibor Roberts,
a Senegalese-born American citizen living in Cottonwood, Arizona, was
driving home from her job as a nurse's aide at an assisted living
center located in the Village of Oak Creek, an unincorporated community
near Sedona. Along Beaverhead Flat Road, an unlit, unpopulated route
through the desert, she suddenly saw flashing lights in her rearview
mirror. Fearful of stopping on a deserted stretch of pavement,
especially in light of reports she'd heard of criminals impersonating police,
she decided to proceed to a populated area before stopping the car, the
nearest such area being Cornville, an unincorporated settlement along
the road to Cottonwood. She slowed her car to acknowledge the flashing
lights and continued to drive. Her decision wasn't especially unusual
-- in fact, it's recommended by some police departments....

On Cornville Road, well before the populated area, Sheriff's
Sergeant Jeff Neunum apparently tired of waiting for Roberts to reach a
settled area. While he was, in fact, a police officer, he now proceeded
to justify every fear an American may have about rogue cops. He raced
his cruiser in front of Roberts's car, forcing her off the road. He
then smashed her driver's-side window with his baton and grabbed a
cellphone she was using to check his identity. Accounts vary at this
point. While police deny it, the press has reported that Neunum dragged
Roberts from her vehicle, threw her to the ground, and handcuffed her
while driving his knee into her back.

All of this because she was going 15 miles over the speed limit on a deserted rural road.

A while back, I complained about County Attorney Andrew Thomas's self-promoting billboard campaign to impose extra-legal additional punishment on convicted drunk drivers.  Thomas, by the way, teamed with Sheriff Joe Arpaio in a shameful government legal attack on a newspaper that had been critical of him in the past  (fortunately, that case has since been dropped).

Well, now it appears that Thomas has used public funds to send out thinly-veiled advertising for his re-election.

Maricopa County supervisors are questioning County Attorney Andrew
Thomas' use of public money to produce and distribute hundreds of
thousands of slick booklets that feature his name and smiling portrait.

County administrators on Tuesday said the 45-page pamphlets,
distributed in local newspapers, were paid for through the county's
general fund.

They believe more than 500,000 copies were produced. Most supervisors
said they were astonished to see that Thomas spent the money on
booklets that they said were "self-serving" and "self-promoting."

The only other comment I would make is that, knowing out board of supervisors, they are probably mad only because they did not think of this approach for their own re-election.

Apparently, a
video by Greg Craven called "How the World Ends" has been getting a
lot of attention, supposedly because it prevents an irrefutable argument for immediately taking massive action to fight global
warming.  A newspaper asked me for my response, and I thought I would share it
here as well.  You can find my response posted at Climate Skeptic today.

The unfortunately named and horrendously ill-conceived and over-priced Seattle trolley takes to the streets today.  The Anti-Planner has an overview in the third in his series on light rail follies.

This video, from Reason, is the kind of work I wish I had the time and resources to produce.  This particular episode is on using eminent domain for economic redevelopment.  Very well done.

Update: Watching the city council meeting around 8 minutes into the video is depressing.  Folks are trying to defend their property, but the only argument they can use is to try to convince the council there is more public good in their use than the proposed new use (luxury condos).  I am depressed that this is the argument they have to use.  I would love to see someone be able to just say "its mine, it does nobody else any good, but who cares?  You can't take it and give it to someone else, period."