Coyote Blog

Several years ago, I made a bet that California high speed rail would, if built, end up costing over $100 billion.  Incredibly, Kevin Drum is making the same bet.

The disappointing part is that he is quick to say that this project is an outlier, that certainly he still supports other HSR rail projects.  But they all look as bad as the CA project.  The CA project has just gotten more attention and scrutiny because of its size.  If memory serves, Drum was right there supporting the Tampa to Orlando line, which if possible is even dumber than the California line.  In my experience, the difference between a good high speed rail project and a bad one is basically how much one digs into the numbers and challenges the assumptions.  With enough leg work, they all look bad.

After over three years of effort, and many, many checks written to numerous departments, Ventura County has granted us the right to operate a fuel tank at a particular location near Lake Piru, CA.  This is actually a huge improvement, and will be much safer and less liable to create a spill than the current methods of schlepping around zillions of 5-gallon cans in a pickup truck.

However, we still have not, after 3 years of trying, obtained a permit from self-same Ventura County to install said tank.  So it is currently legal for us to own, posses, and operate a fuel tank at the permitted location but still illegal for us to install one there.

The tank we purchased 3-years ago in the naive hope all this permitting could be done in a month or two will probably be rusted out by the time we can actually install it.

Apparently, Congress just before the election appropriated $900 million to build part of a high speed rail line in CA.  Rather than focusing either on LA or SF, Congress apparently appropriated the money for a mostly rural district that just coincidentally had a Democratic Congressman embroiled in a difficult election.  So now Congress has dedicated a billion dollars of your money for this high speed rail line, from Borden to Corcoran:

I am not kidding you.  More here from the AntiPlanner.

I discussed the CA high speed rail project here and here.  I discussed the practice of building even one useless section as a way to commit the public to building the whole thing here.  An excerpt of how this is done the Chicago way:

But what is really amazing is that Chicago embarked on building a $320 million downtown station for the project without even a plan for the rest of the line "” no design, no route, no land acquisition, no appropriation, no cost estimate, nothing.  There are currently tracks running near the station to the airport, but there are no passing sidings on these tracks, making it impossible for express and local trains to share the same track.  The express service idea would either require an extensive rebuilding of the entire current line using signaling and switching technologies that may not (according to Daley himself) even exist, or it requires an entirely new line cut through some of the densest urban environments in the country.  Even this critical decision on basic approach was not made before they started construction on the station, and in fact still has not been made.

OK, so after the monks and coffins, here is the future licensing act ripe for abuse by industry incumbents to protect their position.

New state licenses required for anyone handling a mortgage application could help prevent a repeat of the bad loans that contributed to Phoenix's housing crash....

The law, passed in 2008, creates state oversight for people who take loan applications, gives consumers an avenue for reporting misconduct and establishes a fund to help repay borrowers who lose money because of unethical or illegal acts by their loan officers.

The law faces hurdles, as cash-strapped Arizona struggles to process thousands of new applications.

Still, advocates call it a success. Many of the risky - and sometimes illegal - home loans that helped lead to record foreclosures in Arizona might not have been made if the more than 10,000 unlicensed loan officers working then had been subject to more oversight.

How?  If people were selling illegal home loans before, they were already breaking the law and the state obviously was unable to enforce the law.  How is adding a piece of paper that must be applied for each year going to help?  My company has all kinds of silly licenses - liquor licenses, guiding licenses, health licenses, tobacco sales licenses, over-the-counter drug sales licenses, even egg licenses - and in not a single case does the issuer of these licenses exercise any sort of oversight of our operations.  If they get their extensive paperwork (so workers have an excuse to retain their jobs - after all someone has to process the paperwork) and their check, that is generally the sum of interactions with these organizations.

Now, some of these licenses were hard to get in the first place, but not for any reason of my character or ethics or business model.  They were hard to get because their issuance has been co-opted by incumbent businesses in the state who use the process to limit competition.  Liquor licenses are a great example - in places like Shasta County CA and Lake Havasu City AZ, we had a real problem getting the liquor license over opposition from existing businesses.

This is almost mindless naivete:

"Loan-officer licensing is long overdue in Arizona," said Felecia Rotellini, who for five years served as superintendent of the Department of Financial Institutions, the state agency regulating the mortgage industry. She is running for Arizona attorney general.

"A lot of bad loans wouldn't have been made if we had it before," Rotellini said. "It gives me peace of mind for consumers to know we have licensing now."

The author of the article just throws the following statement out there without any source, as if it was an axiom with which we all would agree

In Arizona, the housing boom and crash were partly fueled by loan officers, how they operated and how they were paid.

In fact, the author's incredible confidence in licensing is undermined in this adjacent statement:

Mortgage brokers, who run firms that connect borrowers with the best loans, have long been regulated by the Department of Financial Institutions.

Brokers employ loan officers, who work directly with borrowers, collecting their Social Security numbers and financial information to determine whether they qualify for a loan. Loan officers usually recommend types of mortgages and lenders.

These officers, sometimes called originators, weren't subject to state scrutiny. They worked under the licenses of their brokers, much the way an apprentice would work for a licensed contractor. Previously, that oversight was considered sufficient.

So the firms these guys worked for were licensed, but the individual employees were not. But if that licensing of firms, which after all is the level where loan practices and compensation policy are set which supposedly are at fault, how does licensing individual employees help? This is a typical political step that a) gets some state organization more money and power, b) generates one sound bite in a news cycle for some politician to tell voters that they care and c) does zero for consumers.

At the end of the day, the real cause of the housing boom was easy credit, and yes loan officers participated in this given that their commission-based incentives caused them to want to make every loan possible.  But this incentive outcome would not have been some kind of insight to the people and system that employed the loan officers.  In fact, everyone from the loan officer to the Congress wanted easy credit, and to blame one link in the chain of delivering this credit to consumers is madness.  Going forward, there is absolutely no evidence that the government is going to reduce its history of promoting easy credit, as evidenced by any number of federal loan modification and lending programs over the last 2 years.  So the likelihood that a government regulatory agency could have somehow headed off the bubble and its bursting is just silly.  The government was a party to it.

In the long run this mechanism will almost certainly be co-opted by current loan issuers as a way to limit competition, much as real estate agents and lawyers and funeral home directors already do.  As a minimum, this is a way for mortgage brokers to outsource some of the cost of running background checks and such on their employment candidates onto taxpayers.  In fact, I wonder who was behind this law in the first place?

Backed by mortgage brokers and real-estate regulators, the law quietly went into affect on July 1

As explained by Steven Pearlstein, who presumably has created so much economic value in his lifetime that he can cast stones from the high ground

And some of it, to be quite frank, Robert, is an appalling lack of imagination and guts on the part of these same CEOs who are complaining and pointing the finger at every else. You know, these guys are very good at cutting. They're very good at blaming others. They're a little less good at coming up with creative new products and services, and they've got a little flabby in that regard in the last few years where the focus has been on surviving and cutting, as it should had been. But they're not the gutsiest group of people in the world.

And by the way, they get into this group think which you - you know, the fact that they all say it, it's sort of like a notion that starts in the country club locker room, and everyone is nodding, and then the one passes it on to the other. And now, you know, this similarity of the comments betrays this sort of group think that is almost self-fulfilling at this point.

Mr. Pearlstein is absolutely right.  As CEO of my company, I am out of creativity.  I will give you an example.  The new health care law appears (the implementation is still hazy) to impose a $2000 penalty per employee for not having a corporate health care plan (all my employees are retired, so they already have health care plans, but that does not affect the penalty).  With a bit over 400 employees, that makes the penalty something north of $800,000 a year.  This is larger than my annual net income.  And Mr. Pearlstein is correct -- I am absolutely at a loss as to how to deal with this, which just proves his point that all we CEO's have an appalling lack of creativity.

Mr. Pearlstein seems to be holding an image of the Fortune 25 in his head, but in fact most job creation is by smaller companies.  I wrote a while back on Forbes.com why CEO's of smaller companies have be having their creativity diverted.

Postscript: On January 10, 2008, our company actually, shockingly, had a creative idea.  Instead of refueling our boats at a lake in Ventura County, CA using zillions of 5 gallon gas carriers, lets put in a small double wall gas tank.  It would save a ton of useless labor, it would greatly reduce fuel spills on the lake (the nozzle, unlike the 5 gallon cans, has overflow protection), it would save lots of trips into town to fill gas tanks -- a winner all the way around.  Granted this was a pretty small idea, but sometimes success in small business is a lot of bunts and singles.

After hundreds of manhours of effort, numerous checks written to the County and the state, and I don't know how many forms filled out, on July 1, 2010, exactly 901 days after we got the creative idea, Ventura County gave us the last permit we needed to go forward.

This is lifted from an email I got from America Outdoors

A little noticed provision in the recently passed health care reform bill will require every payment to corporations over $600 to be reported on a Form 1099 to the IRS, including payments for the purchase of merchandise and services. This provision takes effect in 2012.

The current law requires a Form 1099 to be submitted to the IRS when your business pays more than $600 for rent, interest, dividends, and non-employee services if the payments are made to entities other than corporations. Currently, payments made to a corporation and payments for merchandise are not required to be reported.

To file the required 1099, a business will have to obtain and keep track of a Taxpayer Information Number (TIN) from every vendor before submitting the 1099 to that business and the IRS. Under current tax law, one copy of the form is sent to the IRS, and another copy is sent to the person to whom the business made the payments.

Rep. Dan Lungren (CA-3) introduced "The Small Business Paperwork Mandate Elimination Act" (H.R. 5141). The legislation would repeal the expanded 1099 reporting requirement.  Lungren correctly asserts that the burdens placed on small businesses by this reporting requirement would be overwhelming.

Call your U.S. Representative today and ask them to cosponsor H.R. 5141. The House switchboard number is 202-225-3121.  Ask to be connected to your Representative's office.

My small business has over a thousand vendors.  I would have to hire someone full time for a month to do this.  And it would be to zero purpose.  The IRS would be so flooded with forms that there would be no way they could pull any useful information from the blizzard.  This is yet another example of legislators operating with absolutely no idea how commerce actually works.  We have coined a name for it within our firm -- we call it arrogant ignorance.

Chris Edwards at Cato had more on this a while back.

I'm stunned that there wasn't a broader debate before such a costly mandate was enacted. If it goes into effect, it will waste vast quantities of human effort in filling out forms, reworking computer systems, collecting and organizing data, and fighting the IRS. The struggling American economy can't afford anymore suffocating tax regulations. This mandate is a giant deadweight loss. It should be repealed.

Every one of these members of the House Subcommittee on Commerce, Trade, and Consumer Protection voted to pass this absurd law out of committee except Rep. John Barrow, D-Ga.

Bobby L. Rush, Illinois, Chairman

Jan Schakowsky, IL, Vice Chair	George Radanovich, CA, Ranking Member
John P. Sarbanes, MD	Cliff Stearns, FL
Betty Sutton, OH	Ed Whitfield, KY
Frank Pallone, Jr., NJ	Joseph R. Pitts, PA
Bart Gordon, TN	Mary Bono Mack, CA
Bart Stupak, MI	Lee Terry, NE
Gene Green, TX	Sue Wilkins Myrick, NC
Charles A. Gonzalez, TX	John Sullivan, OK
Anthony D. Weiner, NY	Tim Murphy, PA
Jim Matheson, UT	Phil Gingrey, GA
G. K. Butterfield, NC	Steve Scalise, LA
John Barrow, GA (voted NO!)
Doris O. Matsui, CA
Kathy Castor, FL
Zachary T. Space, OH
Bruce L. Braley, IA
Diana DeGette, CO

Hat tip: Don Boudreaux

Being a red state, maybe if AZ fails before CA, it will be less likely that Congress and the Administration will do some sort of bailout to head off local accountability.  It sure seems we might be able to pull off an early failure:

Arizona state government has managed to blow through a $700 million loan from the Bank of America in less than a week, and that wasn't even enough to keep things going.According to Treasurer Dean Martin, his office had to dip into internal sources to come up with the extra $73 million the state needed just to keep the lights on.

"Government spending in Arizona is out of control. We are more than three-quarters of $1 billion in the red for daily operations," Martin says. "As we predicted in our forecasts, just one week after setting up essentially the largest line of credit in state history, the state of Arizona has maxed it out. The governor and Legislature need to [rein] in excessive spending; we can no longer afford to continue spending more than we make."

The state is currently about $1.6 billion in the hole, and the $700 million loan the state spent last week is just the beginning of excessive spending of borrowed money.

Via Maggies Farm and a commenter on TigerHawk:

During consideration of H.R. 3126, legislation to establish a Consumer Financial Protection Agency (CFPA), Democrats on the House Financial Services Committee voted to pass an amendment offered by Rep. Maxine Waters (D-CA) that will make ACORN eligible to play a role in setting regulations for financial institutions.The Waters amendment adds to the CFPA Oversight Board 5 representatives from the fields of "consumer protection, fair lending and civil rights, representatives of depository institutions that primarily serve underserved communities, or representatives of communities that have been significantly impacted by higher-priced mortgages" to join Federal banking regulators in advising the Director on the consistency of proposed regulations, and strategies and policies that the Director should undertake to enforce its rules.

By making representatives of ACORN and other consumer activist organizations eligible to serve on the Oversight Board, the amendment creates a potentially enormous government sanctioned conflict of interest. ACORN-type organizations will have an advisory role on regulating the very financial institutions from which they receive millions of dollars annually in direct corporate contributions and benefit from other financial partnerships and arrangements. These are the same organizations that pressured banks to make subprime mortgage loans and thus bear a major responsibility for the collapse of the housing market.

In light of recent evidence linking ACORN to possible criminal activity, Democrats took an unprecedented step today to give ACORN a potential role alongside bank regulators in overseeing financial institutions. This is contrary to recent actions taken by the Senate and House to block federal funds to ACORN.

ACORN was an important actor in the housing bubble, responsible for numerous lawsuits and other political pressure to force banks to lend to borrowers who by objective standards did not have the income or credit history to sustain mortgage payments.  It would be interesting to see how many mortgages ACORN was involved with have gone belly up.  But now, as part of the "solution" to the financial crisis, we will put ACORN in charge.

Continuing with a long-running theme here at Coyote Blog, here is another example of government regulation being anti-competitive and having the net result of protecting the margins of powerful, established incumbents against new entrants:

During a recent meeting, the Antiplanner was extolling the virtues of Houston's land-use policies, and a home builder at the meeting said, "Of course, no one here wants our city to be like Houston," meaning no one wanted Houston's land-use regime.

Why not? I asked. "There is too much competition down there. My company can't make a profit," he said. "You have to have some barriers to entry to be able to make money."

Those who accuse free marketeers of being supporters of big business don't realize that big businesses (and often smaller businesses) don't want a free market. In this home builder's case, he wanted enough restrictions on the market to keep out some of his competitors (most likely smaller companies that can't afford to hire lawyers and planners for every project) but not enough regulation to keep his company out

Several years ago my company had to obtain a liquor license in Shasta Country, CA. At one point, the issuance of the license had to be voted on by some group (County commissioners, the planning board, something like that). I was told the reason was that if they issued too many licenses, I would not be able to make money -- really, they were looking after me.

Well, not really.  First, the government seldom has any idea even how a business works.  Perhaps the liquor was a loss leader for my business, and I didn't care to make money on it at all.  Perhaps I had a better marketing concept.

And herein we get to the real flaw -- the implication is that somehow the dangers is to the new entrant in a crowded marketplace, but in fact the reality is often the opposite.   The actual competitive danger is often to incumbents, fat and happy with the status quo and unable to react quickly (due to all kinds of reasons from sunk investment to long held biases) to shifts in customer preferences.  No matter what their stated reason, the true effect of such regulation is to protect current competitors from new entrants, new products, and new business concepts.

I can see the effects of this right here where I am sitting, out near the end of Cape Cod.  Zoning and business regulation here is enormously aggressive - its is virtually impossible to start a new retail establishment here, particularly on virgin land.  As a result, every store and restaurant here feels like it is right out of the 1950s.  You'd hardly know there has been a revolution in retail or service delivery over the past few decades, because businesses here are sheltered from new entrants.  They don't need to adopt better practices or provide better products or services, because they know they are not vulnerable (courtesy of the government) to competitive attacks from new entrants using more modern strategies.

A while back, I criticized a story in the NY Times, as quoted by Kevin Drum, that said that California had among the lowest per capita electricity usage of any state (true) and that this was because of the intelligent regulation regime in the state (yes, but not the way they meant).  The implication of Drum's argument was that there was some sort of efficiency ideal that a smart group of technocrats could reach at limited cost to the state (false). Specifically, Drum argued:

Anyway, it's a good article, and goes to show the kinds of things we
could be doing nationwide if conservative politicians could put their
Chicken Little campaign contributors on hold for a few minutes and take
a look at how it's possible to cut energy use dramatically "” and reduce
our dependence on foreign suppliers "” without ruining the economy. The
energy industry might not like the idea, but the rest of us would.

My response, in part, was this:

Well, here are the eight states in the data set above that the
California CEC shows as having the lowest per capita electricity use:
CA, RI, NY, HI, NH, AK, VT, MA.  All right, now here are the eight
states from the same data set that have the highest electricity prices:  CA, RI, NY, HI, NH, AK, VT, MA.  Woah!  It's the exact same eight states!  The 8 states with the highest prices are the eight states with the lowest per capita consumption.
Unbelievable.  No way that could have an effect, huh?  It must be all
those green building codes in CA.  I suspect Drum is sort of right,
just not in the way he means.  Stupid regulation in each state drives
up prices, which in turn provides incentives for lower demand.  It
achieves the goal, I guess, but very inefficiently.  A straight tax
would be much more efficient.

As part of a presentation I am working on about global warming and proposed California CO2 abatement bill AB52, I had the occasion to do a bit more research.  All of my data is from the Energy Information Administration, whose page URLs keep changing and thus breaking my links but this index page to data seems to stay the same.

I found three factors that seem to be the main drivers of state electricity demand (which is measured in all of the charts below in thousands of kw-h per capita).  The first factor is climate, and certainly California has one of the milder climates.  The chart below looks at residential electricity demand vs. cooling degree days (weighted for population location).  Each data point is a state, with California is shown as the red data point:

We get something similar for heating degree days, with electrical use going down as the climate gets milder, though not as good of a fit, which is not surprising since electricity is less important to heating than cooling.  Since California is well below the line, mild climate can be said to explain some of its lead on other states, but not all.

So I looked next at the percentage of electricity demand that goes to industry.  More heavily industrialized states will have a higher total per capita demand, because heavy industry chews up electricity that other types of businesses do not.  It turns out that California has a relatively low industrial use, which is not surprising given the regulatory environment there and the degree to which industry has been chased out of the state (one would have to be a madman to, all things considered, set up a new factory in California).  So here is the same type of chart of total electrical per capita use by state vs. the % industrial demand, again with each data point a state and California in red:

Again there is a pretty strong relationship, and again we see some but not all of California's low per capita consumption explained.  In effect, states on the left have exported their high-electricity-use industries to the states on the right (or to other countries).

I have saved the most obvious relationship for last:  price.  It turns out unsurprisingly that the states with the highest electricity prices have the lowest per capital consumption:

Rolling climate, industrial intensity, and price together, these factors seem to explain at least 80% of California's efficiency lead over other states.  California government regulatory policy does indeed drive lower electrical consumption, just not exactly the way they would like you to think.  By chasing industries out of the state and raising electricity costs above those of almost every other state, California has reached a lower per capita consumption level.

This may not be of much interest to regular readers, but is being posted so future recipients of this letter may find this article when searching in Google. 

I got this in the mail the other day (click to enlarge)

It is laid out to mirror the typical format of a state annual report or business license renewal form.  It purports to be from a government-sounding "Board of Business Compliance."  The layout and wording is very similar to the California State required annual report form, as is the $125 fee the letter claims is "now due."  Only in the really fine print near the bottom right does it admit to being a business solicitation. 

Beware.  Despite all their efforts to fool you, filling out this form and filing this $125 fee is not required by any government agency.   I am not sure if you pay money to this group whether you will actually receive any services (I did not pay).  But I will observe that there is absolutely no way that a third party could create a legally meaningful set of minutes for your company based on the information in this form.  Remember, though, that it is important for small corporations to keep their minutes in order -- but I am pretty sure this is not the best way to do it.

Business that must be obtained this way is not worth having, at least in my book. 

Postscript:  One might ask, how can anyone fall for this?  The biggest problem is the government itself.  Doing business in 12 states, 20 counties, and a number of large municipalities, I get literally a hundred "legitimate" forms like this requiring a $50-$150 filing fee from government institutions all the time.  This form, at first, looks more legitimate than say, the application for egg license I get from two states (which are in fact real government requirements). 

PPS:  Don't even get me started on yellow page vendors, directory listing providers, and companies claiming your URL registration is expiring.

UPDATE: Apparently one of the commenters included contact information at the California AG.  The AG's office has written me asking to have comments and concerns about this issue routed to a different address.  I think poor Mr. Wayne was deluged with a bunch of complaints.  Here is what they sent me as their preferred alternative contact information:

 

Complaints may be filed with the California Attorney General's Office by mail, telephone, fax, the Internet, or email:

 

MAILING ADDRESS:

 

Attorney General's Office
California Department of Justice
Attn: Public Inquiry Unit
P.O. Box 944255
Sacramento, CA 94244-2550

TELEPHONE:   1-800-952-5225 (Toll-free in CA) or (916) 322-3360

 

FAX:   (916) 323-5341

WEBSITE:   http://ag.ca.gov/consumers

 

EMAIL:   piu@doj.ca.gov

California is apparently trumpeting its "leadership in energy."  The centerpiece of its claims is its low per capita electricity use.  Arnold is making the claim now, but Kevin Drum was pushing this a while back when he said:

Anyway, it's a good article, and goes to show the kinds of things we
could be doing nationwide if conservative politicians could put their
Chicken Little campaign contributors on hold for a few minutes and take
a look at how it's possible to cut energy use dramatically "” and reduce
our dependence on foreign suppliers "” without ruining the economy. The
energy industry might not like the idea, but the rest of us would.

Max Schulz of the Manhattan Institute is not impressed:

California's proud claim to have kept per-capita energy consumption
flat while growing its economy is less impressive than it seems. The
state has some of the highest energy prices in the country "“ nearly
twice the national average "“ largely because of regulations and
government mandates to use expensive renewable sources of power. As a
result, heavy manufacturing and other energy-intensive industries have
been fleeing the Golden State in droves.

Neither am I.  I addressed this issue a while back in response to Drum's post, but since the meme is going around again, I will excerpt from that old post.

The consumption data is from here.
You can see that there are three components that matter - residential,
commercial, and industrial.  Residential and commercial electricity
consumption may or may not be fairly apples to apples comparable
between states (more in a minute).  Industrial consumption, however, will not be comparable, since the mix of industries will change radically state by state.....

Take two of the higher states on the list.  Wyoming, at the top of
the per capita consumption list, has industrial electricity consumption
as a whopping 58% of total state consumption.  KY, also near the top,
has industrial consumption at 50% of total demand.  The US average is
industrial consumption at 29% of total demand.  CA, NY, and NJ, all
near the bottom of the list in terms of per capital demand, have
industrial use as 20.6%, 15.1%, and 16% respectively.  So rather than
try to correlate electricity consumption to local energy regulations,
it is clear that the per capita consumption numbers by state are a much
better indicator of the presence of heavy industry. In other
words, the graph Drum shows is actually a better illustration of the
success of CA not in necessarily becoming more efficient, but in
exporting its pollution to other states.  No one in their
right mind would even attempt to build a heavy industrial plant in CA
in the last 30 years.  The graph is driven much more by the growth of
industrial electricity use outside CA relative to CA.

Now take the residential numbers.  Lets look again at the states at
the top of the per capita list:  Alabama, South Carolina, Louisiana,
Tennessee, Arkansas, Mississippi, Texas.  Can anyone tell me what these
states have in common?  They are hot and humid.  Yes, California has
its hot spots, but it has its mild spots too  (also, California hot
spots are dry, so they can use more energy efficient evaporative
cooling, something that does not work in the deep south).  These
southern states are hot all over in the summer.  So its
reasonable to assume that maybe, just maybe, some of these hot states
have higher residential per capita consumption because of air
conditioning load?  In fact, if one recast this list as
residential use per capita, you would see a direct correlation to
summer air conditioning loads.   This table of cooling degree days weighted for population location is a really good proxy for how much air conditioning is needed by state.  (Explanation of cooling degree days).
You can see that states like Alabama and Texas have two to four times
the number of cooling degree days than California, which should
directly correlate to about that much more per capita air conditioning
(and thus electricity) use....

OK, now I have saved the most obvious fisking for last.  Because
even when you correct for these numbers, California is pretty efficient
vs. the average on electricity consumption.  Drum attributes this,
without evidence, to government action.  The NY Times basically does
the same, positing in effect that CA has more energy laws than any
other state and it has the lowest consumption so therefore they must be
correlated.  But of course, correlation is not equal to causation.
Could there be another effect out there?

Well, here are the eight states in the data set above that the
California CEC shows as having the lowest per capita electricity use:
CA, RI, NY, HI, NH, AK, VT, MA.  All right, now here are the eight
states from the same data set that have the highest electricity prices:  CA, RI, NY, HI, NH, AK, VT, MA.  Woah!  It's the exact same eight states!  The 8 states with the highest prices are the eight states with the lowest per capita consumption.
Unbelievable.  No way that could have an effect, huh?  It must be all
those green building codes in CA.  I suspect Drum is sort of right,
just not in the way he means.  Stupid regulation in each state drives
up prices, which in turn provides incentives for lower demand.  It
achieves the goal, I guess, but very inefficiently.  A straight tax
would be much more efficient.

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

People have been defaulting on mortgages for all of recorded history.  In Roman times, such a default could well result in the mortgage-holder getting sold into slavery, so things have improved a bit.  But seriously, people default on their mortgages all the time.  So what makes those currently in default more deserving of taxpayer aid than those before them or after them?  I mean, other than the fact that the press is paying attention to these particular defaults?  A similar question was reasonably asked of 9/11 victims who scored government compensation when victims before or after of other transportation accidents and building fires have not been so rewarded.

I challenge any politician to answer this question with an answer other than "well, these people are in the media spotlight right now and as a politician, I want to be in the spotlight with them."

Update: More analysis here, including the bright side of the burst housing bubble:

Countrywide wants to be
able to take its loans that the market won't accept and refi them under
FHA or FNMA. That's what this is all about. Don't forget that.

It's
not about homeownership. Let's look at the latest 25th percentile
(starter homes) list prices for a range of CA cities, compared to the
price in January 2007:

LA: $365,000/ $429,920
OC: $414,900/ $499,000
Riverside: $259,900/ $335,000
Sacramento: $229,900/ $316,477
San Diego: $325,000/ $392,279
San Francisco: $380,000/ $468,376
San Jose: $489,950/ $580,589
Santa Cruz: $489,000/ $577,400

What
you see above is great news for all the people who would like to buy
homes without going bankrupt a few years down the line. It's VERY bad
news for banks and financial companies that made the original bad loans
without bothering to check whether the borrowers could pay the danged
loan. You figure out who this country should reward - responsible
aspiring home owners or stupid banks.

I hire retired couples for the summer to run campgrounds and other recreation facilities.  Since these campgrounds are closed in the winter (most are under 8 feet of snow) I lay most of these folks off in October. 

The vast majority of my employees do not work the winter.  They have other retirement savings that they supplement working for me in the summer and then they take the winter off.   And that would be all of the story, except in  California.  For some reason in California, but not in most other states, all these folks run straight to the unemployment office and file for unemployment over the winter.  For those of you who don't know how unemployment insurance premiums work, the premium I pay as a percentage of wages is based on past claims experience.  In California, I am an "F", the worst category, and have to pay over 6%(!) of wages to unemployment insurance. 

Now in most states, what these employees are doing is illegal.   It is typical of unemployment offices that you have to call in each week and certify that you are looking for work.  If you are not actively looking for work, then you are not eligible, and most states outside CA seem fairly diligent about enforcing the rules.  Last year, not one but two of the people who were claiming unemployment in CA over the winter were in Mexico on the beach the whole time!  I know, because they called me from there to see if they were going to be rehired in the spring.

It was then that I found out why this happens more in CA than in other states.  I called the California state unemployment office and asked them how I could have cases of unemployment fraud (ie claiming unemployment when one is not actually looking for work) investigated.  The person from the state office got very hostile with me.  She said that I was making a very serious charge, and that if I made such a charge, and fraud was not proven, then I could be liable for civil and even criminal penalties for asking for the investigation.  I said forget it, raised prices to customers to cover the extra winter vacation wages I was forced to pay, and moved on.   

From San Francisco, of course! via Market Power

Prop. G obligates the
Planning Commission to conduct a hearing for any chain store (also
known as "formula retail") proposed in neighborhood commercial
districts.

Formula retail is defined as any retail sales establishment with 11
or more stores in the United States that maintains two or more
standardized features, including decor, facade, color scheme, uniforms,
signage or a trademark.

Incredibly, freaking 58% of the voters passed this turkey.  It's hard to know where to start, but here are a few thoughts:

• Equal protection?  Anyone?  Buehler? 
• One of the most obvious punishments of success I have ever seen.  If you only have one store, you are fine.  But if you are succesful and your concept flourishes and you have many stores, then you are automatically penalized.
• One of the single most anti-consumer pieces of legislation I have ever seen.  Stores using a proven formula that has been succesful in other areas have a sort of consumer good housekeeping seal of approval.  They are by definition retail establishments where many consumers have already voted with their wallet "we like this."  So in effect, proven customer favorites are penalized vs. less proven concepts.  What an odd zoning concept when you put it that way -- we don't want anyone doing business here that has already proven themselves to be succesful with customers.  We only want you if you have no proof customers want what you are selling.

The other night I was staying in Arcadia, CA (a suburb of LA near Pasadena) on what I was told was the old Route 66.  There were a ton of restaurant choices, many of which I did not recognize, and there was a Chile's, which I grew up with in Texas.  I am positive some of those restaurants would have provided me a more satisfying meal than Chile's.  I am also sure some would have been worse.  Sometimes I am in the mood to find something new, but that night I just wanted a predictable experience.  All that stuff San Francisco is trying to penalize -- those standardized features -- bring real value to many consumers.

Anthony Watts and Steven McIntyre make an interesting observation, using an example temperature measurement point in the US and Global Historical Climate Network (the network that most historic global warming estimates are made from).

Over time, temperature measurement points, even those nominally in the same town, tend to change.  The measurement technology changes (from bulbs to electronics) the location can move across town, and towns with their heat islands can encroach.  As a result, scientists try to make guesstimate corrections to the historical data to take these events into account. 

Taking just one example measurement point, at Petaluma CA, Watts and McIntyre show how two different adjustment approaches by scientists at this location change the historic warming measured by over 1.5 degrees C.  Note that this "noise" is more than twice the value of the estimated "signal" -- the estimated 0.6 degrees C global warming over the last century.

More on signal to noise ratios in global warming measurement.

Unemployment insurance is a disaster for a seasonal business like mine.  As background, most of my employees are retired, and don't really need to work.  They work for me in the summer, and then frequently take the winter off.  Unfortunately, some of the more unscrupulous ones will file for unemployment over the winter, telling the state office they are looking for work (usually a requirement) when in fact they have no intention of working.  I had two employees last year for whom I received a notice of their unemployment filing the very same day they called me to tell me what a great time they are having over the winter fishing in Mexico.

For those who don't know how it works, if I get a lot of unemployment claims I am punished with a higher rate the next year, despite the fact that by the nature of the business I have absolutely no work I can offer people in the winter.  Not surprisingly, I guess, my worst problems with such behavior are in the three Pacific coast states (CA, OR, WA) where the prevalent culture of big government benefits and limited individual responsibility combine to make people feel totally OK about such malfeasance  (this behavior is 20 times more prevalent for me in these three states vs. the other ten we operate in).  In fact, I have challenged several people who I knew were not looking for work and cheating me and the unemployment system and, rather than deny the charges, they threatened me with a lawsuit if I either reported them to the state or disciplined them in any way.

I'm not really going anywhere with this -- this is just my annual rant I post every year when I get my unemployment insurance rates for CA and OR.  I pay over 6% of wages as premiums in CA, and there is not a thing I can do about the fact that all the facilities we run are under 10-20 feet of snow in the winter and don't need employees.

Kevin Drum, building on a story from the NY Times, uses data from the California Energy Commission to make the case that California is the most efficient user of electricity in the country and that this efficiency can be attributed sole to government intervention.  Drum, always on the lookout for an excuse for the government to take over some sector of the economy, concludes:

Anyway, it's a good article, and goes to show the kinds of things we
could be doing nationwide if conservative politicians could put their
Chicken Little campaign contributors on hold for a few minutes and take
a look at how it's possible to cut energy use dramatically "” and reduce
our dependence on foreign suppliers "” without ruining the economy. The
energy industry might not like the idea, but the rest of us would.

On its face, California's numbers are impressive.  The CEC's numbers show California to have the lowest per capita electricity use in the nation, using electricity at half the national rate and one quarter the "least efficient" states.

This would be really cool if it were true that a few simple public policy steps could cut per capital energy consumption in half.  Unfortunately, though I am willing to posit California is better than average (as any state would be with a mild climate and newer housing), the data doesn't say what Drum and the article are trying to make it say. 

The consumption data is from here.  You can see that there are three components that matter - residential, commercial, and industrial.  Residential and commercial electricity consumption may or may not be fairly apples to apples comparable between states (more in a minute).  Industrial consumption, however, will not be comparable, since the mix of industries will change radically state by state.  As an extreme example, states with high aluminum production or oil refining or steel making, which are electricity intensive, will have a higher per capita industrial electricity consumption, irrespective of public policy.  The graph Drum and the NY Times uses includes industrial consumption, which is a mistake -- it is more reflective of industry mix than true energy efficiency.

Take two of the higher states on the list.  Wyoming, at the top of the per capita consumption list, has industrial electricity consumption as a whopping 58% of total state consumption.  KY, also near the top, has industrial consumption at 50% of total demand.  The US average is industrial consumption at 29% of total demand.  CA, NY, and NJ, all near the bottom of the list in terms of per capital demand, have industrial use as 20.6%, 15.1%, and 16% respectively.  So rather than try to correlate electricity consumption to local energy regulations, it is clear that the per capita consumption numbers by state are a much better indicator of the presence of heavy industry. In other words, the graph Drum shows is actually a better illustration of the success of CA not in necessarily becoming more efficient, but in exporting its pollution to other states.  No one in their right mind would even attempt to build a heavy industrial plant in CA in the last 30 years.  The graph is driven much more by the growth of industrial electricity use outside CA relative to CA.

Now take the residential numbers.  Lets look again at the states at the top of the per capita list:  Alabama, South Carolina, Louisiana, Tennessee, Arkansas, Mississippi, Texas.  Can anyone tell me what these states have in common?  They are hot and humid.  Yes, California has its hot spots, but it has its mild spots too  (also, California hot spots are dry, so they can use more energy efficient evaporative cooling, something that does not work in the deep south).  These southern states are hot all over in the summer.  So its reasonable to assume that maybe, just maybe, some of these hot states have higher residential per capita consumption because of air conditioning load?  In fact, if one recast this list as residential use per capita, you would see a direct correlation to summer air conditioning loads.   This table of cooling degree days weighted for population location is a really good proxy for how much air conditioning is needed by state.  (Explanation of cooling degree days). You can see that states like Alabama and Texas have two to four times the number of cooling degree days than California, which should directly correlate to about that much more per capita air conditioning (and thus electricity) use.

In fact, I have direct knowledge of both Alabama and Texas.  Both have seen a large increase in residential per capita electricity use vis a vis California over the last thirty years.  Granted.  But do you know why?  The number one reason for increased residential electricity use in the South is the increased access of the poor, particularly poor blacks, to air conditioning.  It is odd to see a liberal like Drum railing against this trend. Or is it that he just didn't bother to try to understand the numbers?

OK, now I have saved the most obvious fisking for last.  Because even when you correct for these numbers, California is pretty efficient vs. the average on electricity consumption.  Drum attributes this, without evidence, to government action.  The NY Times basically does the same, positing in effect that CA has more energy laws than any other state and it has the lowest consumption so therefore they must be correlated.  But of course, correlation is not equal to causation.  Could there be another effect out there?

Well, here are the eight states in the data set above that the California CEC shows as having the lowest per capita electricity use:  CA, RI, NY, HI, NH, AK, VT, MA.  All right, now here are the eight states from the same data set that have the highest electricity prices:  CA, RI, NY, HI, NH, AK, VT, MA.  Woah!  It's the exact same eight states!  The 8 states with the highest prices are the eight states with the lowest per capita consumption.  Unbelievable.  No way that could have an effect, huh?  It must be all those green building codes in CA.  I suspect Drum is sort of right, just not in the way he means.  Stupid regulation in each state drives up prices, which in turn provides incentives for lower demand.  It achieves the goal, I guess, but very inefficiently.  A straight tax would be much more efficient.

Please, is there anyone in the "reality-based community" that cares that their data really is saying what they think it is saying??

Arizona has a ballot initiative here in November to raise the minimum wage to $6.75.  Perhaps more worrisome, the law has been structured to raise the rate every year based on some cost of living increase.  (As an aside - these cost of living escalators in government-mandated wage rates are insanely recursive.  The government raises wages, which increases prices, which leads to a further increase of the statutory rate).  An Arizona group opposed to the initiative has put out a nice Word document with the proposed laws language annotated with facts and refutations.

I will not be coy and pretend that I don't have an interest in this question.  The campgrounds we operate on public lands were run by volunteers in the past, until the courts decided that private companies were not legally allowed to use volunteers.  Most of our camp hosts, who tend to be in their 70's or older (we have many employees in their eighties and a few in their nineties!) get paid minimum wage plus a camp site in a nice park for the summer (the latter is what they really want).  Unlike private campgrounds that are built to be efficient to operate, the public campgrounds we operate tend to be small and labor-intensive.

We make about a 5% profit on sales in the camping business (yes, I know that is pathetically low).  Labor is 60-70% of our costs, if you include costs that are directly tied to wages like payroll taxes and workers comp. premiums.  This law would raise the minimum wage by 31%.  You do the math.  In a stroke, this ballot initiative would raise our costs by 20% (.31 x .65) in a business where costs are 95% of revenues.  Something has to give.  I am not going to work the hours I work and run the business for charity.  A 5% margin is almost there already.  We are therefore planning for two different contingencies.

1. Camping fees will have to rise by approximately 20%.  This means that a camping fee of $16 will go up by $3.  I will not make any more money, this will all be a pass-through to my employees, most of whom really wanted to volunteer in the first place.  One could rename this ballot initiative the "vote yourself a camping fee increase" initiative.  A few years ago, an attempt to raise lodging taxes on camping by a few percent met with howls of opposition.  But in effect this is ballot initiative in in effect adding a 20% tax to camping fees.
2. My labor model of hiring retired people may well have to change.  There is a real trade-off in hiring retired folks to maintain campgrounds.  On the plus side, we get a lot of honest and responsible people who have the time and the flexibility in their life to pick up stakes and go live in a campground all summer.  The down side, of course, someone who is 75, or 85, is not going to work as fast or as productively as younger folks.  My workers also tend to get injured more easily (my insurance company freaks every time it sees my employee list with dates of birth) which costs a lot in workes comp. premiums.

   When presented with the choice in the current market of hiring a retired person at $5.15 an hour or a younger, faster worker at $7.50 an hour, I have been happy to hire retired people.  This model has worked great for us.  Unfortunately, I must revisit this business model when my choice is between hiring a faster worker at $7.50 and a slower worker at $6.75 (and rising).  Already in high minimum wage states like CA, OR, and WA we have begun shifting away from hiring as many retired people.  I also hire a lot fewer people, having invested in automated fee collection in high labor cost areas.  (Think about this, at least for a few seconds, before all of you start sending me the inevitable emails I get for being a heartless brute for paying anyone minimum wage).

By the way, the federal government gets around this problem for the campgrounds it operates itself.   How?  Why, it exempts itself from these laws.  Most federal campgrounds employ retired persons as volunteers.  They don't pay campground workers minimum wage, they pay them ZERO.

I wrote a much longer post on minimum wage laws here.  Minimum wage laws are becoming hip in traditionally red-state border areas as a tool to keep immigrants from working.

Update:  I actually underestimated the amount of my costs directly tied to wages, and so I have updated some of the numbers to be more realistic.

In today's Opinion Journal, the WSJ editorializes against the proposal to even further raise marginal income tax rates in California, to the highest in the country save in New York City.  The Journal argues that this is chasing productive, high income people out of California:

The
latest Census Bureau data indicate that, in 2005, 239,416 more
native-born Americans left the state than moved in. California is also
on pace to lose domestic population (not counting immigrants) this
year. The outmigration is such that the cost to rent a U-Haul trailer
to move from Los Angeles to Boise, Idaho, is $2,090--or some eight
times more than the cost of moving in the opposite direction.

I had seen this Uhaul metric before.  The logic is that Uhaul has to keep its fleet of trucks and trailers balanced.  If everyone is going one way with them, say from California to Utah, then they are going to end up with an enormous yard full of vehicles in Utah unless they 1)  pay to backhaul the trucks to CA empty, which is really expensive, or 2) increase the price of the route to Utah and decrease the price of the route back until they are in balance or until the price of the preferred direction covers the backhaul costs.

I had never tried this myself.  I always wondered if the examples people use in articles like this are hand-selected or representative.  So I tried, at random, LA to Salt Lake City  (I have Utah on the brain, I guess, because we are going skiing up there next week, woohoo!)  and chose a date far enough in the future I didn't run into any random demand peaks.  A one-way 26-foot truck rental from LA to SLC on May 15 was quoted at $1888.  The same truck from SLC to LA was quoted at $299!  Try it yourself.

Frequent readers of my blog know I am a big supporter of open immigration, but it cannot be a good thing to send a quarter of a million of your best educated and most productive people out every year and backfill them with lower-skilled, under-educated immigrants. 

I don't know John Bolton from Michael Bolton, so I can't comment on whether he is an appropriate choice for the UN.  Nevertheless, there are a couple of things I do know:

1. Absolutely no one in the Senate gives a crap if Bolton has a temper or sometimes was tough on subordinates.  I am willing to wager about any figure you can name that many of the Senators commenting on Mr. Bolton are themselves strutting prima donnas who have blasted subordinates.  I remember that former CA Governor Gray (Grey?) Davis supposedly had some incredible temper tantrums with subordinates, but at the time that was not thought to be a disqualifier for office.  Why is it that stupid issues like this (or the immigration status of nannies) seem to dominate confirmation hearings rather than the person's qualifications and philosophy?
2. I have worked for not one but two men who have been featured on that famous "Toughest Bosses in America" list.  Compared to some of my encounters with these two, the stuff being talked about with Bolton is a joke. 
3. When you hear "the UN" when any senator is talking, substitute the word "Enron".  This is not quite appropriate, because in many ways, as referenced here, the UN scandals are much worse than Enron.  However, if this comparison is at all apt, why is it so inappropriate to send an ambassador who is openly skeptical of the UN in its current state?  When the feds sought out a prosecutor to oversee the Enron investigations, did they go looking for a person who had a high degree of respect and friendship for Ken Lay and Jeff Skilling?

I have a couple of hours down time here at the hotel and was hoping to catch up on a little blogging.  Unfortunately, while the hotel has wireless Internet, it turns out to be the slowest connection of all time.  I finally switched to dial up and got a substantial speed improvement.  At my computer, I actually get a pretty strong wireless signal with a "11.5 MBPS" speed, so I presume there is another bottleneck further up the line.  My guess is that they are using a wireless repeater system and one of the jumps has a bad connection.  Actually, I am surprised this does not happen more often.  Today I am at the Red Lion in Redding, CA, which I will certainly avoid in the future.  I usually go with Hampton Inn, because I have always been happy with their high-speed service and Internet connectivity is more important to me than how nice a bed I get.

Today, on NPR, I heard my state of Arizona getting bashed by some young reporter at the local affiliate based on Arizona's rankings in the latest NEA state rankings.  So, I thought I would check the report out myself.  The cover of the report tells us what we should expect to find:

This report is an update of data from NEA Research's report, Rankings & Estimates: Rankings of the States 2003 and Estimates of School Statistics 2004, based on the latest information provided from state departments of education. NEA Research collects, analyzes, and maintains data on issues and trends affecting the nation's public education systems and their employees.

OK, so lets open the report and see what statistics the NEA thinks are the best measures of public education.  Here are all the stats in the report, in the order they are reported (presumably their importance):

1. How much, on average, did teachers in each state earn per year?
2. How many students were enrolled in each state?
3. How many teachers were working in each state?
4. What was the student"“teacher ratio in each state?
5. How much money, on average, did each state spend per student?
6. How much money did each state spend for operating schools, including salaries, books, heating buildings, and so on?
7. How much money did each state spend in total for schools, including operating expenses, capital outlay, and interest on school debt?
8. How much revenue did school districts receive from state governments?
9. How much revenue did school districts receive from local governments?
10. What were school districts' total revenues?

Thats it.  That is the entire sum total of performance metrics they have for states and their schools.  So, what's missing?  How about any dang measure of student learning or performance!  I know that the NEA wants to criticize every test out there, and in fact resists standardized testing at every turn, but is it too much to think that we might measure the quality of education by the, um, quality of education, and not by how much the employees make? 

To be fair, the NEA does talk about NAEP test data on their web site, to the extent that they point out that some test scores are improving (they don't mention that this is improving off a disastrously low base).  This NEA web site section on student performance reminds me a lot of the environmental protection section on the Dow Chemical web site -- it's there because it's important to public relations but its not really a topic that dominates their priorities. I have a related post here that fisks the ideas for improvement on this NEA page, but if you don't want to read that post suffice it to say that they boil down to 1) spending more money; 2) hiring more teachers; 3) paying teachers more money ; 4) testing less or putting less emphasis on tests and measurable performance; and 5) more certification and protecting the guild.

Look, I don't begrudge the NEA's role as the union and collective-bargaining agent of the teachers, and as such, they should be very concerned with salary levels (more on that in a minute).  However, the NEA and their supporters constantly try to piously position the NEA as not a union - oh no - but as a group primarily interested in the quality of education.  I hope this report and its contents effectively dispels that myth once and for all.  The NEA today as an institution cares no more about the quality of education than the UAW cared about the quality of GM cars in the 70's (by the way, I am careful to say the NEA as an institution-- many individual teachers care a lot).

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