Coyote Blog

Well, we have reached another milestone in our permission-based economy with the Administration's rejection of the Keystone Pipeline.  We have zillions of miles of pipelines and are actually wasting energy and creating environmental messes moving the same oil by the inferior option of rail, but somehow this one pipeline had to be opposed.

Actually, the only reason this project is in front of the administration at all is because it crosses the Canadian border, which requires  State Department sign-off.  Which leads me to wonder if there is a hack.  Why not take the pipeline right up to the border from both sides and create a rail line across the border using a continuous loop of tank cars.  Its kludgy and inefficient, but probably less so than moving the oil long distance by rail.

I am reminded of this from a story long ago off Santa Barbara.  Exxon had gotten permission to drill in Federal waters, but local state/county folks wanted to find a way to stop the oil development.  Plans were (as is typical for any offshore oil) for a separation facility on shore that would separate oil, gas, and water from the mix that usually comes up out of the ground.    The state or local folks (can't remember which) refused to permit the separation facility, thinking that would kill the project.  But Exxon built what I believe was a unique separation facility on a boat and anchored the boat offshore.  No land permits necessary.

This is very similar, in my mind, to the pipeline decision.  California's attempt to block oil development altogether proved futile, just as Obama's decision will have little effect on long-term Canadian oil development.  But it did, in both cases, force a workaround (rail and the separator ship) that were almost certainly environmentally worse solutions than those that were halted.

Everyone, you need to give up you CO2 emissions so that James Camperon can maintain his lifestyle:

But e.g. James Cameron apparently assumes that people won't be able to notice that he is using

3 houses in Malibu (24,000 sq ft in total - 10 times the average U.S. home), a 100-acre ranch in Santa Barbara, a JetRanger helicopter, three Harleys, a Corvette, a Ducati, a Ford GT, a collection of dirt bikes, a yacht, a Humvee firetruck, a fleet of submarines...

Nevertheless, he demands that people live with less - the same people who made him rich by watching his movies....

There simply doesn't exist any justification of the need to lower the world population that would make the life of James Cameron sustainable. It's just amazing to think about the societal atmosphere that makes it natural for him to defend these inhuman concepts.

Update:

I am back from the family reunion (my wife's family) which was held on a cruise last week.  The cruise was a really good venue for a family reunion -- small enough that you run into people, but large enough to escape them too.  Every night we had 4 large tables to ourselves in the restaurant.

The cruise itself was a little disappointing, but it was chosen more for being low cost and accesible to the entire group, so I can live with that.   There were way too many people in my space for my personal taste.  Someday I want to take a much smaller boat, maybe in the Greek Isles.

A couple of things amazed me.  One, the port of call in Mexico was really a dump.  And this is from someone who has spent time in Mexico, good places and bad, and has some fondness for the country.  I figured out the reason when I was laying on the deck and saw the Panamanian flag flying form the back of the boat.  By US law, for a non-US flagged ship to leave and return to a port (in this case Long Beach), it must stop in between in another country.  I am sure the cruise line would love to run four day cruises say between San Diego and Santa Barbara or San Francisco, but that would be illegal unless they took on the prohibitive cost of operating a US-flagged ship.  So we stopped in a little industrial town just over the border to make it all legal.

The other thing that amazed me was the decor of the ship.  I would have bet money that the ship was designed in the 1970's.  Our room, which had a balcony, was nice, but the common areas were right out of bad 1970's casino ambiance.  Amazingly, though, the nameplate said it was built in 1998.  Not sure what these guys were thinking.  I called it the great floating leisure suit.

Internet service was $24 per hour, so I did not do any blogging, but the good news is I got a ton of writing done on my new novel.

Until a few years ago, I did business up and down the Pacific Coast.  If I had to rank the business climates of these states, from worst to best, I would informally come up with something like:

1. (worst) Certain California counties (e.g. Ventura, San Francisco, Santa Barbara)
2. Oregon
3. Western Washington
4. Rest of California
5. Eastern Washington

So I was interested to see that Oregon may finally be getting the bad press it deserves as a difficult place to do business, though, interestingly enough, this particular article blames it on the Californians:

Some might call this California disease. This refers to a chronic inability to make hard decisions as well as a general disregard for business and economic activity....

With all the influx of Californians, it's not surprising that Oregon shows some signs of California disease. It recently increased its tax rates so that Oregon's highest-income taxpayers face marginal tax rates that match Hawaii's for the highest in the nation. Oregon's land-use planning had been extremely centralized for some time. Indeed, Oregon's land-use planning may be the most centralized in the United States. This makes it harder for communities to control their own destinies, whether they want to grow or not.

Interestingly, I actually wrote about similar effect in the context of immigration into the US.  While I am a supporter of open immigration, my greatest fear is that in the name of individual liberty, we would let in millions of new people who would someday vote against individual liberties.  It seems that may be a more substantial problem with Californian than Mexican immigration.

The good news for the rest of us is that Oregon may preferentially be attracting the slackers

Our analysis of California migrants has shown a gradual reduction in their earnings over what they were earning in the Golden State. There also are less quantifiable impacts. Portland, a city attractive to many unemployed and underemployed younger Californians, could well be becoming the "slacker" capital of the world.

Fortunately, Arizona is so politically un-correct with slacker/socialist/statist/greenie types that we don't get a lot coming here.

A few weeks ago I was amazed at the story of the city of Chicago spending hundreds of millions of dollars to build the terminal rail station of a rail line that had no plan, no route, no approval, and no money.  Why spend hundreds of millions on a station that could well be orphaned?  The reason, I supposed, was to make a toe in the water investment where the public could later be shamed into voting more funds for building a rail line to actually connect to their fabulous new station.

It appears that California may be doing the same thing. This November, voters in that state will have the chance to approve a $9.95 billion rail bond issue.  $9 billion of this is earmarked for building a high-speed rail line from Anaheim to San Francisco.  But current estimates for this line's cost, which are always way too low, are for $30 billion.  Who in their right mind would proceed with a $30 billion (or likely more) project when only $9 billion of funding has been obtained?  Only scam artists, Ponzi schemes.... and the government.

Update:  Wow!  Boy, I must be dumb or something.  The website supporting this bond issue says that this project will create 450,000 permanent new jobs.  How can anyone oppose that?  This is really amazing, since the entire US railroad industry currently employs 224,000 people, but this one rail line will create 450,000 jobs! 

Update #2:  I like to make predictions about government rail projects, so here is mine for this one:  I don't know what end they are starting with, but if they start from the south, I will bet that $9 billion does not even get them out of the LA area (say past Santa Clarita or Santa Barbara), much less anywhere close to San Francisco.

Congrats to Santa Barbara for breaking new ground in government paternalism:

The City Council here had already created a class of affordable housing
several years ago for people making up to 200% of the median income.
Last week, they agreed to tailor the Los Portales project for people
making up to 240%, or nearly $160,000. (To keep these affordable condos
affordable, buyers would be subject to price controls on resale that
would restrict any price increase to about 2% a year.)

Wow, government housing projects for people who make $160,000!  I loved this quote:

"it's hard to get sympathy for people making $160,000 a year if you're
down in Texas or something," said Bill Watkins, head of the UC Santa
Barbara Economic Forecast Project.

No shit.  So, why the project? 

But this is Santa Barbara, a built-out city hemmed in by the Santa Ynez
Mountains to the north, the Pacific Ocean to the south and politics in
every possible direction. And this is believed to be Santa Barbara's
last vacant lot big enough to hold a housing development.

So this is just the fault of geography and the bad old supply and demand system, right?  Well, it turns out the government had just a little to do with it too:

The city is zoned for 40,005 housing units. About 38,000 have been
built, and the only housing construction these days is in-fill: a few
units here, a few there. Unlike other land-poor cities, Santa Barbara
has been loath to tear down large swaths of outdated structures and
rebuild, said Paul Shigley, editor of the California Planning &
Development Report.

"They think they've got paradise," Shigley said. "They don't want it to change."

The tallest building here is the eight-story Granada Theatre, built in
1924. It could never be replicated today, in part because the City
Charter strictly limits buildings to 60 feet, about four stories. And
even four stories is a hard sell.

Oh, so the lack of new lots is an artificial government zoning limit, AND the government limits the height of new building to just a few stories AND the government won't allow tear down and gentrification of old neighborhoods.

By the way, housing projects like this in expensive areas are really just massive corporate welfare subsidies of local businesses.  If workers really need their housing subsidized to live there, and the government does nothing, one of two things happen:  Either busineses go somewhere else cheaper, or else they have to pay their employees more to live in the area.  By subsidizing this housing, the local government is in effect subsidizing local businesses by letting them pay lower wages.  In particular, this is typically a subsidy of tourist businesses (hotels and restaurants) which have a hugely disporportionate influence on local governments and who typically are tied to the local area and can't leave.  The town of Vail, for example, has subsized similar housing under presure from the ski resorts.

Hat tip: Hit and Run

While I sometimes get grouped into economics blogs, I actually don't have a degree in the subject.  I have an MBA, some practical experience, some hobbyist reading, a few undergraduate courses, and, as my wife can attest, a willingness to pretend I know what I am talking about.  Unfortunately, that is not enough in this case.

Over the last 6 months, I have observed an interesting phenomena in the Phoenix area, one which I am sure I am not the first to discover, but I don't have enough background to put a name on it.  Here is what is going on:

Over the last year or two, the Phoenix real estate market has been red hot.  This has caused a lot of individual investors to make local real estate investments (I discussed more about this here).  The preferred type of investment seems to be to buy an old house on valuable land, tear it down, and sell the new house for a profit.

All fine and normal so far.  The interesting part comes when the investor chooses the style and appearance of the new home.  Remember that these are typically highly leveraged investments.  Investors take out a large mortgage, and that mortgage has to be paid every month that the investor cannot sell the home.  It is critical, then, that the investor build a home that is designed in a way to be most likely to sell.

Let's imagine that the pool of possible house buyers have the following preferences (I am making these numbers up):

1. Tuscan / Mediterranean style, 40%
2. Santa Fe style, 25%
3. Santa Barbara style, 20%
4. New England style, 10%
5. Ultra modern style, 5%

With only limited information on what is going on in the market around them (ie what others are planning to build) all of these investor-builders pick the most popular style on the list, thereby apparently maximizing their ability to sell the home.  As a result, every tear down / rebuild / remodel I see in our area is a new Tuscan home.  So, while 40% of buyers (or whatever the number is) want Tuscan, 100% of the supply is Tuscan.  By the way, the same thing apparently happened in the last big Phoenix real estate boom back in the 1980's, since nearly every house in our neighborhood that was built in the early eighties was built in what we call the "santa barbara" style.

This is obviously some type of market failure, but I don't know what it is called.  I might call it the "variety failure".  To a large extent, this dynamic is made possible by the fact that many of the investors in the real estate market are only entering the housing market for a single transaction, and are not well informed of the actions of other sellers in the market.  In most other industries, investors need to make money over multiple transactions over many years, which mutes this effect.  For example, there are always farmers who try to plant this year what was earning good money last year, but these players in the market are usually weeded out over time as last year's shortage leads to this year's glut and financial losses.  Also muting this failure nowadays are changes in manufacturing techniques, which allows low cost production of greater variety, as well as expansion of specialty retail space (e.g. category killers like Petsmart or Borders), which allows display of more product variations.

Posting will be kind of light this week because I am away at camp.  My wife signed us up for a family camp that they have run for years at UC-Santa Barbara.  One good sign already:  most of the guests have been coming for years.  One lady I had dinner with is here for the 28th year.

Basically all the family stay in the dorms here, and there are activities arranged by age group all day for the kids and optional activities for the adults.  Meals are in the cafeteria, where the food has been pretty decent.  The whole family has had a good time so far, though it had a bit of a rough start for me.  We drove here from Phoenix, and I am usually fine with long-distance drives.  However, the last 4 solid hours were spent basically inside LA fighting traffic.  I was ready to blow my brains out when I got here.  Unfortunately, our car was met at the gate by a group of camp counselors who were channeling "Up with People" or maybe the Mousketeers, but they were way to jolly for my mood at the time.

By the way, how does anyone study at a University that sits on a beach?  Well, at least the high speed LAN in the rooms works really well.