Coyote Blog

Its absolutely critical that you run over and sign this online petition.  Go now.

via

I have been reading a lot of the data flying around of late about income inequality and mobility.  And it struck me that income mobility may be a large part of what is driving many OWS protesters.

Despite assumptions to the contrary on the Left, wealth is not a zero-sum game.  Steven Jobs got richer by making me better off.  But the one thing that is zero-sum is presence in the top 1%.  When someone joins the club, someone, by operation of basic math, drops out.

That does not mean that the other person who drops out is poorer, it just means that they are no longer as rich relative to their peers.  This same effect works int he top 10% and 20%, etc.

Looking at OWS protectors, they seem to be disproportionately children of the upper middle class or even of the rich.  They have expensive college educations, live in nice homes, and have gobs of stuff (OWS must be the most iPhoned event in history).  My guess is that they are of the upper two quintiles, or at least their parents were.

I am wondering if the problem is not income inequality but too much income mobility.  After all, a third of the top two quartiles in 2001 had dropped into the bottom three in 2007 (while an equal number moved up). Are these the angry proletariat, or are they children of the well-off who are upset their college degree in puppetteering did not automatically keep them up with the Joneses?   Are they, in other words, Philip Rearden?

I don't have time today to link all the evidence, but the combination of crashing real estate markets and the Chinese government jamming liquidity into its banks tells me the China bubble is bursting as we speak.

This is an interesting test of the Austrian view of depressions vs. the Keynesian / Krugman / Thomas Friedman / MITI view of government-orchestrated prosperity.  If the latter are right, then China is doing more right to keep their economy going than any country in history and you should go invest all your money in Chinese real estate.

However, if one believes the Austrian model about government-enforced mis-allocation of capital and labor leading to bubbles and crashes; if one believes that the technocrat-beloved MITI was largely responsible for the Japanese lost decade; if one believes that the US govenrment through articially low interest rates and government-directed reductions in underwriting quality helped create the housing bubble -- then the mother of all crashes is looming in China.  Because no country has done more to reallocate resources and capital based on the whims of a few technocrats  and well-connected industrialists than has China.  After all, this is why Thomas Friedman loves China, that it does not rely on the judgement of millions of individuals to allocate capital, but instead on the finger pointing of a few at the top.

This is an interesting story on the AP and journalistic ethics

The Associated Press purchased an advanced copy of the book. It is set for release on Nov. 15.

Let's start with the second paragraph.  It's a lie, pure and simple--and the papers that reprinted the stories know it.  Giffords didn't sell any "advanced copy" of the book.  The book is strictly embargoed so that she can control the timing of the media stories that surround it.  Bookstores, however, have copies locked up in storage rooms so the copies can all be put on the shelves at the same time.  Someone stole one of those copies...or perhaps stole a proof text from the publisher...and then sold it to the Associated Press.

Rather than admit that they illegally purchased and then printed excerpts from a stolen copy, the Associated Press lied and said that they "purchased an advanced copy of the book."  That would be a big story by itself, but the newspapers that have contracts with the AP didn't want to blow a good story, so that meekly reprinted the lie.

What's worse is that the AP not only stole Giffords' book and disrupted the timing of her planned roll out...they botched the story and made Giffords issue a denial. ...

...faced with an ambiguous quote in a stolen book and no chance to verify it, the AP did just what they teach you in the ethics classes in Journalism school...they ran with the most tantalizing, headline grabbing interpretation and then made Gabby deny it.  Nice.

This is a fascinating tale, from Occupy Wall Street, demonstrating how a group with assumptions including

1. Its OK for one group to exercise power over another group
2. Its OK to redistribute money on some basis other than earning it through voluntary commerce

Perhaps I do not give Sarah Palin enough credit, because this is a really good passage, from one of her recent speeches (emphasis added by Mickey Kaus)

We sent a new class of leaders to D.C., but immediately the permanent political class tried to co-opt them – because the reality is we are governed by a permanent political class, until we change that. They talk endlessly about cutting government spending, and yet they keep spending more. They talk about massive unsustainable debt, and yet they keep incurring more. They spend, they print, they borrow, they spend more, and then they stick us with the bill. Then they pat their own backs, and they claim that they faced and “solved” the debt crisis that they got us in, but when we were humiliated in front of the world with our country’s first credit downgrade, they promptly went on vacation.

No, they don’t feel the same urgency that we do. But why should they? For them business is good; business is very good.  Seven of the ten wealthiest counties are suburbs of Washington, D.C. Polls there actually – and usually I say polls, eh, they’re for strippers and cross country skiers – but polls in those parts show that some people there believe that the economy has actually improved. See, there may not be a recession in Georgetown, but there is in the rest of America.

Yeah, the permanent political class – they’re doing just fine. Ever notice how so many of them arrive in Washington, D.C. of modest means and then miraculously throughout the years they end up becoming very, very wealthy? Well, it’s because they derive power and their wealth from their access to our money – to taxpayer dollars.  They use it to bail out their friends on Wall Street and their corporate cronies, and to reward campaign contributors, and to buy votes via earmarks. There is so much waste. And there is a name for this: It’s called corporate crony capitalism. This is not the capitalism of free men and free markets, of innovation and hard work and ethics, of sacrifice and of risk. No, this is the capitalism of connections and government bailouts and handouts, of waste and influence peddling and corporate welfare. This is the crony capitalism that destroyed Europe’s economies. It’s the collusion of big government and big business and big finance to the detriment of all the rest – to the little guys. It’s a slap in the face to our small business owners – the true entrepreneurs, the job creators accounting for 70% of the jobs in America, it’s you who own these small businesses, you’re the economic engine, but you don’t grease the wheels of government power.

So, do you want to know why the permanent political class doesn’t really want to cut any spending? Do you want to know why nothing ever really gets done? It’s because there’s nothing in it for them. They’ve got a lot of mouths to feed – a lot of corporate lobbyists and a lot of special interests that are counting on them to keep the good times and the money rolling along.

Mt Rushmore without the heads

I find the Left's opinions on Greece to be fascinating.  After all, Greece is essentially the logical end result of all of their love for deficit spending, so what kind of cognitive dissonance is necessary to write about Greece on the Left?  This kind:

OK, but they're spending too much money. Surely they know they have to cut back?

Sure, but the deals on offer are pretty unattractive. Europe wants to forgive half of Greece's debt and put them on a brutal austerity plan. The problem is that this is unrealistic. Greece would be broke even if all its debt were forgiven, and if their economy tanks they'll be even broker.

But that's the prospect they're being offered: a little bit of debt forgiveness and a lot of austerity.

Well, them's the breaks.

But it puts Greece into a death spiral. They can't pay their debts, so they cut back, which hurts their economy, which makes them even broker, so they cut back some more, rinse and repeat. There's virtually no hope that they'll recover anytime in the near future. It's just endless pain. What they need is total debt forgiveness and lots of aid going forward.

I certainly agree that Greece is now in a death spiral, but this analysis is just amazing.  The only way for other countries to avoid sharing Greece's fate is to, very simply, spend within their means.  If they do, problem avoided.  If they don't, and get hooked on deficit spending, then Greece is their future, the only question is when.

So what does Drum do?  He calls the spending withing their means strategy "unrealistic" and "brutal austerity."    So he occupies a long post lamenting what a totally SNAFU'd situation Greece is in, but takes off the table the only possible approach for other counties to avoid the same fate.   And in fact advocates a strategy that will push a few others over the cliff sooner, or even cause a few to jump on their own (after all, if the punishment for spending your way into financial disaster is to get, as Drum recommends, all your debt forgiven and years of aid payments, why the hell would anyone want to be fiscally responsible?)

And it is amazing to me that he calls forgiving half their debt, the equivalent in the US of our creditors erasing about $7 trillion, as "a little bit of debt forgiveness" while cutting government spending a few percent of GDP is "a lot of austerity."

His solution, of course, is not for Greece to face up to its problems but to transfer the costs of its irresponsibility to others and then remain nearly perpetually on the dole.

His mistake is to assume Greece faces endless pain.  It does not.  History has shown that countries that are willing to rip off the bandage quickly rather than over a few decades can recover remarkably quickly if sensible policies are put in place.  Heck, the Weimar Republic, which had inflation so bad people got paid 3 times a day so their family could buy something before the money became worthless a few hours later, got its house in order in a matter of months.

I wrote quite a while ago I wrote that there was no way the estimated $43 billion California high speed rail project would be completed for less than $100 billion.  Well, now the agency itself is estimating it will cost $100 billion (or $98 billion and change, but that is likely a number picked to avoid going to three digits).  So I now officially raise my estimate to $200 billion for the complete line from Anaheim to San Francisco.  Anyone want the under?

Via Business Week

 Beacon Power Corp., an energy- storage company that received $43 million in backing from the U.S. program that supported failed solar-panel maker Solyndra LLC, filed for bankruptcy after struggling to raise private financing.

The money-losing company, which makes flywheels that manage energy moving through a power grid, had sought to avoid the fate of Solyndra, which entered bankruptcy last month after receiving a $535 million loan guarantee from a U.S. Energy Department program designed to spur alternative energy development. Beacon faced delisting of its shares by the Nasdaq Stock Market and warned in an Aug. 9 regulatory filing that it might not remain a “going concern.”...

In addition, Beacon received $29 million in grants from the U.S. and Pennsylvania for a 20-megawatt plant in that state and hired Group Robinson LLC to help raise more funds for the $53 million project. Group Robinson, a Menlo Park, California- based renewable-energy consulting company, also was helping Beacon find customers outside the U.S.

This is not an accident.  By definition, the government is investing in companies that every other private lender and investor turned down.

The most frequent customer service fail we have in our company is when an employee, thinking they are doing me some kind of favor, go nuts on a customer trying to enforce some trivial rule or trying to collect the last $5 our company might be owed.

It is astronomically hard to train people to use their judgement the same way I would in a customer situation.  This is particularly true when ego gets involved, when the employee feels like they have somehow taken a ego hit, with the customer "winning" and them "losing."  I once had an employee drive out of the park we were operating and chase a woman down the road over a misunderstanding about whether $5 had been paid correctly.  Incredible.  Unfortunately,  I have found no amount of training can fix judgement this bad, and the only thing I know how to do is fire them as fast as possible so they can't do any more harm.

I have always supposed this over-zealousness was a general human train, but in certain am-I-crazy moments, I wonder if somehow I am preferentially selecting for this kind of nuttiness.  Apparently not:

A Hawaii couple’s 3-year-old daughter was taken away from them for 18 hours after they were arrested for forgetting to a pay for two $5 sandwiches.

“This is unreal this could happen to a family like ours,” Nicole Leszczynski told Hawaii’s KHON.

The outing-turned-nightmare happened Wednesday while the family was shopping at a local Safeway.

“We walked a long way to the grocery store and I was feeling faint, dizzy, like I needed to eat something so we decided to pick up some sandwiches and eat them while we were shopping,” Leszczynski told the news station.

Leszczynski, who is 30-weeks pregnant, her husband, Marcin, and daughter Zophia bought $50 worth of groceries — but forgot about their two chicken salad sandwiches.

“It was a complete distraction, distracted parent moment,” Leszczynski told KHON.

As the family left, they were stopped by store security, who asked for their receipt.

“I offered to pay, we had the cash. We just bought the groceries,” Leszczynski told the station.

Instead, the expectant mother told KHON that the Safeway manager called police. They were taken to the main Honolulu police station where they were booked for fourth degree theft. Then Zophia was taken into custody by Child Protective Services.

I will say that I think the public agencies we replace in operating these parks are generally worse at this than we are, simply because so many of their employees have law enforcement certifications.  Dealing with customer service issues using law enforcement officers is often a recipe for bad outcomes.

via here

If the very rich got that way through special access to government power, then why is the solution to tax them more, and not just to reduce government power?

And if the very rich got that way through hard work and innovation, then why the hell are we proposing to take resources out of these people's hands?

The 1% make many beautiful things possible in the world which the rest of us could not afford.  Yes we could celebrate the ballet and the opera and the symphony, none of which would likely thrive without the 1%, but today lets celebrate something a bit more material.  I will never own anything like this.  In fact, I would feel like a sucker if I paid the asking price for one.  But I still enjoy the fact that they exist and I can admire their beauty.

Transparency and accountability are always loved by those out of power but seldom by those in power.  Thus we hear a lot about them on the campaign trail, and then suddenly, once folks are in office, silence.  Two examples today.

First, this unbelievably anti-democratic and egregious proposal

A proposed rule to the Freedom of Information Act would allow federal agencies to tell people requesting certain law-enforcement or national security documents that records don't exist—even when they do.

Under current FOIA practice, the government may withhold information and issue what's known as a Glomar denial that says it can neither confirm nor deny the existence of records.

The new proposal—part of a lengthy rule revision by the Department of Justice—would direct government agencies to "respond to the request as if the excluded records did not exist."

The second story is in the same spirit, of using secrecy to avoid scrutiny and accountability

Sometime in 2012, I will begin the ninth year of my life under an FBI gag order, which began when I received what is known as a national security letter at the small Internet service provider I owned. On that day in 2004 (the exact date is redacted from court papers, so I can’t reveal it), an FBI agent came to my office and handed me a letter. It demanded that I turn over information about one of my clients and forbade me from telling “any person” that the government had approached me....

For years, the government implausibly claimed that if I were able to identify myself as the plaintiff in the case, irreparable damage to national security would result. But I did not believe then, nor do I believe now, that the FBI’s gag order was motivated by legitimate national security concerns. It was motivated by a desire to insulate the FBI from public criticism and oversight.

I am not at all a financial or Wall Street guy, but I had a few thoughts

• I am amazed at the equity rally over this.   Writing down one country's debt, without fixing its underlying financial problem or dealing with all the other countries who have problems, seems a small win.  Particularly when this one country stretched European resources to the breaking point, and there are a lot of other lined up just behind Greece.
• Its interesting to see how much everyone bent over backwards not to trigger payouts from credit default swaps (CDS).  If this is the wave of the future, I would be shorting sovereign debt at the same time I was writing CDS contracts on sovereign debt.    Maybe this is exactly why I am not a trader, but it strikes me that if you had an arsonist around burning down houses, while at the same time the government worked hard to let fire insurance companies avoid paying off on the fire damage, wouldn't you be shorting houses and long on fire insurance companies?
• How smart does the UK feel right now for staying out of the common currency?  The anti-EU folks in the UK should be calling for that referendum on EU participation right now.   It would likely fail by a landslide.
• The question that keeps nagging at me -- is it really worth as much as a trillion euros to keep Greece in the Euro?  Why?

When sharing our kneejerk reaction to yesterday's latest European resolution, we pointed out the obvious: "Portugal, Ireland, Spain and Italy will promptly commence sabotaging their economies (just like Greece) simply to get the same debt Blue Light special as Greece." Sure enough, 6 hours later Bloomberg is out with the appropriately titled: "Irish Spy Reward Opportunity in Greece’s Debt Hole." Bloomberg notes that Ireland has not even waited for the ink to be dry before sending out feelers on just what the possible "rewards" may be: "Greece’s failure to cut spending and boost revenue by enough to meet targets set by the European Union and International Monetary Fund prompted bondholders to accept a 50 percent loss on its debt. While Ireland won’t seek debt discounts, the government might pursue other relief given to Greece, including cheaper interest payments on aid and longer to repay it, according to a person familiar with the matter who declined to be identified as no final decision has been taken."

From ABC News via Q&O

At a million-dollar San Francisco fundraiser today, President Obama warned his recession-battered supporters that if he loses the 2012 election it could herald a new, painful era of self-reliance in America.

“The one thing that we absolutely know for sure is that if we don’t work even harder than we did in 2008, then we’re going to have a government that tells the American people, ‘you are on your own,’” Obama told a crowd of 200 donors over lunch at the W Hotel.

At least he is making the choice clear.

Especially when the government is doing all it can to damp the forces of evolution and extinction.  Via Mickey Kaus

Dysfunctional–or at any rate, not-functional-enough–corporate cultures are hard to change. That would include both the culture of the Old GM and that of many of its suppliers. Obama should have been more skeptical about “New GM’s” ability to turn itself around with its same old workforce and same old union

I warned of something similar long before GM was rescued by Bush and Obama:

But things change.  Sometimes that change is slow, like a creeping climate change, or sometimes it is rapid, like the dinosaur-killing comet.  DNA that was robust no longer matches what the market needs, or some other entity with better DNA comes along and out-competes you.  When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one.  The corporation is killing the value of its assets.  Smart people are made stupid by a bad organization and systems and culture.  In the case of GM, hordes of brilliant engineers teamed with highly-skilled production workers and modern robotic manufacturing plants are turning out cars no one wants, at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the right managers and a crisis mentality, to evolve DNA over a period of 20-30 years.  One could argue that GE did this, avoiding becoming an old-industry dinosaur.  GM has had a 30 year window (dating from the mid-seventies oil price rise and influx of imported cars) to make a change, and it has not been enough.  GM’s DNA was programmed to make big, ugly (IMO) cars, and that is what it has continued to do.  If its leaders were not able or willing to change its DNA over the last 30 years, no one, no matter how brilliant, is going to do it in the next 2-3.

So what if GM dies?  Letting the GM’s of the world die is one of the best possible things we can do for our economy and the wealth of our nation.  Assuming GM’s DNA has a less than one multiplier, then releasing GM’s assets from GM’s control actually increases value.  Talented engineers, after some admittedly painful personal dislocation, find jobs designing things people want and value.  Their output has more value, which in the long run helps everyone, including themselves.

The alternative to not letting GM die is, well, Europe (and Japan).  A LOT of Europe’s productive assets are locked up in a few very large corporations with close ties to the state which are not allowed to fail, which are subsidized, protected from competition, etc.  In conjunction with European laws that limit labor mobility, protecting corporate dinosaurs has locked all of Europe’s most productive human and physical assets into organizations with DNA multipliers less than one.

From AutoGreenBlog

Output of cellulosic ethanol will surge starting in 2013, according to the U.S.' largest corn-based biofuel production firm, Poet LLC.

Poet says 2013 marks the start of commercial-scale cellulosic ethanol production in the U.S. and predicts its lone facility will "open the floodgates" for the advanced biofuel....

As Poet exec Greg Hartgraves points out, production of cellulosic ethanol is expensive and that means those floodgates need to be helped open with federal monies. Without an energy policy mandating its production, U.S. firms are likely to shy away from the cellulosic biofuel, he said.

Duh.  It's a substitute that is both less effective (lower btu per gallon) and more expensive that what it is supposedly substituting.   I am just floored at the number of investors who are putting money up on the come with an expectation that somewhere down the road they can convince the government to subsidize them.  Poet knows this plant is uneconomic but has built it anyway, probably hoping to extract promises of support from candidates in the Iowa caucuses.  Kleiner Perkins did the same think with Fisker Automotive, making early stage investments that could only be bailed out by future political largess.  As Ayn Rand would say,the aristocrats of pull.

Peter Tchir via Zero Hedge

The AIG moment was the first time that the US threw any pretense of real capitalism out the window.  Bear Stearns at least was done by JPM with government help.  Fannie and Freddie were taken over, but they were always quasi government entities.  It was AIG that was truly special.  The government didn't even attempt to see if the banks had managed their exposures at all.  The government didn't even care if they had.  They panicked and saved the banks from their own folly - they didn't give capitalism a chance.  The US has never truly recovered from that.  The entire system looks to government support more and more.  Since AIG the Fed has been running at least one massive easing program or another constantly.  The government is lurching from spending program to spending program to keep the economy churning.

At the first signs of weakness we beg for the FED or ECB or the government to do something big and fast.  The European credit crisis seemed a final chance to put some capitalism back into capitalism.  To allow dumb decisions to pay the price for failure.  To reward the institutions that had properly navigated through the risks.  There was even a brief moment when it looked like Germany would do that - would force those who failed to pay the price and support those who had taken the best steps.  But now with Dexia bailed out and some super SIV on the way, it looks like we are once again heading down a path of not allowing failure - in fact we are once again rewarding failure and living beyond your means.  It isn't communism, but it certainly doesn't fit any classic definition of capitalism.

The thumbnail does not look like much, but the detail is incredible.  I can't remember a photo this old that one could zoom down so far in and look around.  Click to see the full version, via Shorpy

Actual product, c. 1920

I started blogging because I was always frustrated in live arguments that I would remember the killer comment 5 minutes too late, so it is no surprise that I find live TV frustrating.  Here is how I had hoped the interview would go this morning on Fox.  In actual execution, I decided not to play the "2nd law of thermodynamics" card on the morning show just after the in-studio visit by a bunch of bijon frise's.

I'm confused, why are we we even talking about miles per gallon in an electric car?

• We measure how well traditional cars use fossil fuels with the miles they drive per gallon of gas, or mpg
• Of course, we can't measure efficiency the same way in an electric car since they don't use gas directly, though the electricity we use to charge them is mostly produced from fossil fuels.
• So the EPA came up with a methodology to show an equivalent MPG for electric cars so their fossil fuel use (way back in the power plant) could be compared to traditional cars

And you think there is a problem with those numbers?

• It turns out the EPA uses a flawed methodology that overstates the electric car equivalent MPG, in part because they assume the potential energy in fossil fuels can be converted to electricity in the power plant with perfect efficiency, which doesn't happen in real life and actually violate the second law of thermodynamics

How should they have done it?

• During the Clinton administration, the Department of Energy came up with a better methodology which uses real world power plant efficiencies and fuel mixes to determine how much fuel went into charging an electric car.

• Using this methodology, the Fisker Karma, even in all-electric mode, gets about 19 mpg equivilent, not 52.  This means that it uses about the same amount of fossil fuels to drive a mile as does a Ford Explorer SUV -- the only difference is that the fossil fuel use is better hidden.

I will be on the Fox and Friends morning show tomorrow morning at about 8:50ET  (though of course these things are always subject to change right up to the last minute).  I will be talking Fisker Karma.

This will make the third time I have been on national TV -- one talking about park management, one talking about the minimum wage and this one talking about MPG calculations for electric cars.  At least I am not in a rut, though I think my pundit brand identification is probably confusing.