Coyote Blog

Sorry, an unfinished version of this post may have shown up earlier today in your feed readers.  This one is the completed version.

For years, America has pushed home ownership.   Mortgage interest is one of the few personal expenses that is tax deductible, giving people a strong financial incentive to shift from renting to owning.  The Federal Reserve has pursued a policy of keeping interest rates low, further decreasing the cost of owning.   Congress passed a myriad of laws and created numerous organizations to help insure that anyone who wanted to buy a home could probably get credit.  And every politician, talking head, "expert", etc. who ever got in front of a camera tended to advise everyone regardless of circumstance to try to buy a home.  It was not just home ownership, it was The American Dream Of Home Ownership.

Hayek could have told us years ago that there was a fundamental problem with this.  In short, 300 million people do not have the same situation and needs and preferences.  Take just one example.  Does it really make sense to encourage a worker who has a risky income stream (e.g. is vulnerable to layoffs or reduced hours) to buy a house?  Leasing provides much greater flexibility to adjust fixed housing costs to changing circumstances.  Rent, get your hours reduced, move to a smaller apartment.  Buy, get your hours reduced, default, ruin your credit.

The result of our full-court press for home ownership has been rising home ownership rates ... and rising foreclosure and bankruptcy rates.

OK, none of the above is new information.  But I was having a conversation with my dad about education, and it struck me that we may be doing the exact same thing with four-year college liberal arts degrees.  Every talking head, from talk show hosts to politicians, push kids to go to college.  Along with home ownership, the BA is described as a keystone to the American Dream.  As with home ownership, we subsidize college education with state-run schools and government loan programs.  Just as the government tries to make sure everyone can own a home, they try to make sure every kid can go to college.

Returning to Hayek for a moment, is it really likely that spending four years getting a college liberal arts degree is really the best possible course for every single person?  Sure, one can argue that the state offers community colleges and other alternatives to the standard 4-year degree, as do private companies like the University of Phoenix, but I get no sense that politicians and the intelligentsia are really promoting this kind of nuance and choice.  I think the message clearly is "four year liberal arts degrees are the goal, everything else is second best."

State university systems that were originally founded to help teach scientific agriculture to farmers wouldn't be caught dead having anything so pedestrian show up in their marketing brochure today.  They want to have Nobel prize-winning faculty and be influencing public policy and be doing (and getting grants for) state-of-the-art research.   Teaching students a useful trade?  That's so ... uncool.  Let 'em go to DeVry if they want that.

To some extent this is the result of the takeover of most campuses by the faculty, who wield most of the power nowadays (just ask Neil Rudenstein and Larry Summers at Harvard).   Academics are a special class of folks who work as much for, or more for, prestige among their peers as for money.  Those incentives are great when you want someone to focus in 120 hours a week on inventing a new type of superconducting material.  But in a university, it tilts the entire institution towards a focus on teaching interesting things vs. teaching useful things.

So what has been the result?  Well, college has an equivalent to foreclosure and bankruptcy, and it is called drop-out rates.  And drop-out rates seem to be rising, at least reading articles anecdotally.  The only actual figure I can find was this one:

Just 54 percent of students entering four-year colleges in 1997 had a degree six years later "” and even fewer Hispanics and blacks did, according to some of the latest government figures. After borrowing for school but failing to graduate, many of those students may be worse off than if they had never attended college at all.

I can't prove there is a trend, because I just can't find a good online source, but 46% non-graduation rate strikes me as pretty high.  And I would argue that there is, in addition to drop-out rate, a second figure one must consider.  How many of those that did graduate could actually do with their degree what they thought they could?  How many have a 4-year journalism degree from Michigan and now are working at Starbucks, either by choice or necessity?  I call this the soft drop-out rate, the rate of, for lack of a better word, underemployment of one's education investment.

I know that education leaders can all give a nice speech about how important a liberal arts degree is to the health and functioning of the polis, but the fact of the matter is that it is a luxury.  It is an incredibly rich world that can have its youth in their strongest and most productive years studying Italian Renaissance poetry or Portuguese literature for four years.  And I am not talking about this as a luxury for garbage collectors or auto mechanics, but a luxury even for future white collar workers, who need basic skills like these but are, based on my hiring observations, graduating from college without them:

1. A strong sense of personal responsibility and a commitment to excellence in one's work
2. The ability to break down a task and organize work towards its completion
3. The ability to write a well-organized five paragraph persuasive essay or letter
4. The ability to do basic computational math
5. The ability to manage personal finances and make smart financial decisions
6. The ability to understand basic accounting terms and concepts
7. The ability to interact with other people honorably and on the basis of a reasonable level of self-awareness
8. A reasonably well-developed sense of ethics and responsibility

To illustrate this further, I want to end with something I have observed over the past year.  During the last election, I sensed something in the average 20-something Obama supporter that went beyond just frustration with the incumbent President and the normal level of youthful flirtation with progressivism.   I sensed a real anger that somehow some promise had not been kept to these folks.  One interpretation of this is that these folks were all promised that a 4-year liberal arts degree would be the guaranteed ticket to success, and that their college degree would make them future leaders and the world would soon tremble at their pronouncements (seriously, just go read the marketing literature from any college).  Having gotten this "promise," they suddenly find the world doesn't really hang on the every word of a 22-year-old who has never really been out of the womb, and the employers of the world are not beating the doors down to hire a gender studies major who wrote a really well-received thesis on the role of women in the Paraguayan post-modernist movement.

The Washington Post had a great profile on such folks (though written with far more sympathy than I would have mustered).  Here is an example from that article:

Armed with a Georgetown University diploma, Beth Hanley embarked in her 20s on a path hoping to become a professional world-saver. First she worked at nonprofit Bread for the World. Then she taught middle school English in central Africa with the Peace Corps. Finally, to certify her idealism, she graduated last spring with a master's degree in international relations from Johns Hopkins University.

But now the 29-year-old faces a predicament shared by many young strivers in Washington's public interest field. After years of amassing so many achievements, they struggle to find full-time employment with decent pay and realize they might not get exactly what they set out for. Hanley, a think tank temp who dreams of aiding the impoverished and reducing gender discrimination in developing countries, is stuck.

TJIC had some classic comments on this article, and I added some more.

Which brings me finally, of all places, to Michelle Obama.  She said something that I thought was relevant to this post:

Despite their Ivy League pedigrees and good salaries, Michelle Obama often says the fact that she and her husband are out of debt is due to sheer luck, because they could not have predicted that his two books would become bestsellers. "It was like, 'Let's put all our money on red!' " she told a crowd at Ohio State University on Friday. "It wasn't a financial plan! We were lucky! And it shouldn't have been based on luck, because we worked hard."

You can see the whole piece here, but she is a pretty clear example of what I am talking about.  She got a Princeton liberal arts degree and is just amazed that it did not automatically pay off for her.  Somehow, some promise to her has been broken.

Just as she is an example of this phenomenon, she is now endeavoring to be part of the problem, working hard to further confuse the expectations of young people.  Her message to them is -- go get an expensive education, but whatever you do don't do anything money-making with it:

"We left corporate America, which is a lot of what we're asking young people to do," she tells the women. "Don't go into corporate America. You know, become teachers. Work for the community. Be social workers. Be a nurse. Those are the careers that we need, and we're encouraging our young people to do that. But if you make that choice, as we did, to move out of the money-making industry into the helping industry, then your salaries respond." Faced with that reality, she adds, "many of our bright stars are going into corporate law or hedge-fund management."

I have no particular problem with people taking on these occupations, as long as I don't have to pay for it.  And I am proud that my university, Princeton, is one of the few that has changed its financial aid rules to allow students to graduate debt-free and have the financial flexibility to pursue careers that are not high-paying (making Ms. Obama's comments doubly ironic since this is her alma mater as well).

But the general expectation here is just unrealistic.  Here is how I responded previously to Ms. Obama's comments on her education:

This analogy comes to mind:  Let's say Fred needs to buy a piece of earth-moving equipment.  He has the choice of the $20,000 front-end loader that is more than sufficient to most every day tasks, or the $200,000 behemoth, which might be useful if one were opening a strip mine or building a new Panama Canal but is an overkill for many applications.  Fred may lust after the huge monster earth mover, but if he is going to buy it, he better damn well have a big, profitable application for it or he is going to go bankrupt trying to buy it.

So Michelle Obama has a choice of the $20,000 state school undergrad and law degree, which is perfectly serviceable for most applications, or the Princeton/Harvard $200,000 combo, which I can attest will, in the right applications, move a hell of a lot of dirt.  She chooses the $200,000 tool, and then later asks for sympathy because all she ever did with it was some backyard gardening and she wonders why she has trouble paying all her debt.  Duh.  I think the problem here is perfectly obvious to most of us, but instead Obama seeks to blame her problem on some structural flaw in the economy, rather than a poor choice on her part in matching the tool to the job.

And this is what it is all about when you cut through all the misty-eyed Utopian notions about education:  For most people, it is a tool.  And the tool needs to fit the circumstance, the goals, the capabilities, and the budget.  Its time to stop advocating (and subsidizing) and one-size fits all college education program.

Via the Smoking Gun

a skier at Colorado's ritzy Vail resort was left dangling upside down and pantsless from a chairlift last Thursday morning.

TJIC gives Meaghan Cheung -- who was chief of the enforcement division for the NYC branch of the SEC when Madoff was first investigated but who now claims to be an anonymous bureaucrat; and who ignored a number of detailed whisteleblower accounts that something was not right in the state of Madoff back in 2006; and who signed the report giving Madoff the "all clear, keep sending him your money" finding-- exactly as much sympathy as she deserves.

In penance for that other game link, here is my favorite online flash game, called desktop tower defense.

Click the ball to change the color

Via.

And yes, it does change color.  It is not a practical joke.

Update: I mean what I say in the title. I posted this because it was irritating, not because it was fun.

I have argued for a while that one of the undiscussed problems with nationalized or universal health care is that by socializing the costs of individual lifestyle decisions (e.g. eating, drinking, smoking, wearing a bike helmet, etc) it creates a strong financial incentive for the government to micro-manage individual behavior.  I call this the health care trojan horse for fascism (other posts here).

Q&O has a good post, quoting from Paul Hsieh, on this very topic.

Here's how I understood freedom and liberty worked:

Of course healthy diet and exercise are good. But these are issues of personal "“ not government "“ responsibility. So long as they don't harm others, adults should have the right to eat and drink what they wish "“ and the corresponding responsibility to enjoy (or suffer) the consequences of their choices. Anyone who makes poor lifestyle choices should pay the price himself or rely on voluntary charity, not demand that the government pay for his choices.

Does anyone have a particular argument with that?

In fact, if you believe in freedom and liberty, there really isn't another choice, is there?

But here's what's being offered as the alternative:

Government attempts to regulate individual lifestyles are based on the claim that they must limit medical costs that would otherwise be a burden on "society." But this issue can arise only in "universal healthcare" systems where taxpayers must pay for everyone's medical expenses.

The article has a lot of good examples that follow.  Mr. Hsieh's op-ed is here.

As a side note, I was watching the movie "The Golden Compass"  the other day.  The author and the original book are quite critical of religion, at least of the organized kind, and the evil fascist entity against which the protagonists fight is a world-controlling church.  The movie actually purged most of the religion criticism (or at least made it more subtle) and made the bad buys more generically totalitarian, but hangover criticism of the book stuck to the movie as well.

It was not really a particularly good (or bad) movie, but it had one set of lines spoken by the Nicole Kidman character that I couldn't believe came out of Hollywood.  The protagonist, Lyra, asks Kidman about the contradiction between Kidman's unwillingness to let anyone tell her what to do and the rule-making and absolute obedience that her organization demands of all citizens.    I need to go back and watch the movie to get it exactly right (of course, no one on the movie sites found it memorable enough to post).  But it was something like "Only a few of us are capable of making good decisions for ourselves.  We few have to make decisions for everyone else.  It is really for their own good."  It was really a brilliant summary of the modern political mentality, and slipped through I think only because people in Hollywood took it as a criticism of the religious right, not recognizing it as an equally damning indictment of the left.  (if anyone has the exact quote or a link, please post.  It was on the dirigeable fairly early in the movie, I think).

Update: OK, the Golden Compass lines I wanted start about the 3:00 minute mark in this video [thanks to commenter for showing how to link to a specific point in a YouTube video].  Here is how I transcribed it:

Kidman (Mrs. Coulter):  The Magesterium [the world-girdling totalitarian organization] is what people need, to keep things working, by telling people what to do.

Lyra:  But you told the master that you do whatever you please

Kidman:  That's right, clever girl.  Well, some people know what's best for them, and some people don't.  Besides, they don't tell people what to do in a mean and petty way, they tell them in a kindly way, to keep them out of danger.

Its really hilarious to read through reviews, as I have trying to find this quote.  Apparently (though I missed it at the time) it became a left-right debate about the movie.  The hilarious part is all the left-leaning blogs criticising the right for not seeing how well the shoe fits, without for a second considering that this is a perfect recitation of their end game as well.

Again, about 3:00 into the below:

It is interesting watching a group of folks sink into mass hypnosis.  Specifically, much of the left is working really hard to convince itself that obsoleting much of the current energy and transportation infrastructure and raising the price of electricity and fuel will result in net jobs growth.  And, that despite 100 years of failure in countries too numerous to name, the government will suddenly become able to successfully plan and manage investment to the greatest economic benefit.  Here is just one example:

My meditation comes in the wake of reading an article about green jobs. Obama and (other) progressives have been making a case for government spending to develop a green energy infrastructure. As Van Jones said in his powerful speech at GreenFest, that's how we got the highway system and the space program that, to some extent, fueled the prosperity of the 50s.

The article makes the point that when the government picks favorites, it sometimes picks wrong, terribly wrong, as is the case with ethanol. That had me scratching my head for a minute, but then I remembered some key differences:

• Ethanol was an invention, lock stock and barrel, of the agribusiness lobby. It wasn't promoted by scientists as a good source of energy, as solar power is.
• The government already picks winners. It gives huge subsidies and incentives to the fossil fuel industry.
• If solar power turns out to be a boondoggle like ethanol, we should push the government to dump its incentives.

However, it seems unlikely that solar power will be such a dud, given that it's already boosting the economy as a sole sector of growth in these bleak economic times, according to the L.A. Times article.

Here was my response (with some links and additional thoughts added) from his comments section:

With your ethanol statement, aren't you contradicting your point about the government's ability to make sensible energy choices?  I agree that ethanol is a bad energy and environmental strategy, and that most scientists who were not industry shills thought it a break-even proposition at best.  But the fact is that Congresses and Administrations of both parties have backed tens of billions of subsidies for ethanol.  No matter what the rhetoric, when the rubber hits the road, politicians make political, not sensible, decisions.

The study you cited a while back about job gains is just silly - most economists laughed it off.  The study claimed 1.5 million net job gains from California electricity and energy efficiency regulations.  Based on October job numbers, this would mean 9.8% of Californians in October would not have had a job if these regulations hadn't been passed.  Really?  Does this pass any kind of smell test?  These regulations created a few visible jobs and killed some invisible jobs, which is how politicians always manipulate these numbers in their favor.

California has low per capita electricity consumptions primarily for three reasons:  1) it has the mildest climate in the country (when weighted for population location) 2) it has among the ten highest state-average electricity prices in the country and 3) its regulatory regime has driven a disproportionate number of heavy industrial electricity users out of the state (as demonstrated by manufacturing job losses higher than the national average and a low percentage of industrial electricity use vs. other states).

One may believe all of these things are a good thing from an environmental standpoint, but they certainly don't add up to net job gains.  Since you often drape yourself in the scientific mantle when responding to climate skeptics, I will do the same -- economics a science, and it is just as bad to willfully ignore this science as any other.  Claiming that being forced, by CO2 concerns, to obsolete current energy infrastructure and rebuild it in a different form is a gain to the economy is falling into Bastiat's broken window fallacy.

But here is the real argument for not letting the government pick winners -- any small body of people, no matter how smart, has too little information to do such planning on a national scale.  The better alternative is simply to raise the price (ie via a carbon tax) of the fuel or electricity that is viewed to have a high environmental cost (the tax can be made less regressive by offsetting the tax with a reduction in payroll taxes).

When prices rise due to the tax, you don't have a few hundred folks in government trying to figure out how to reduce demand, you have 300 million people trying to figure out how to reduce their consumption  (or start a business to help others reduce their consumption), all with their own knowledge of the opportunities they see around them.  Technocrats hate this kind of solution -- its too anarchic, its not "controlled" or "planned" -- but the fact is that it works.  In a large sense, since you are the environmental guy, I will say that it's more like nature.  Nature isn't planned or controlled from above - order and behaviors emerge bottom up from the responses of individual living things to stimulus.

A reader sent me this, and I found it pretty funny:

Minnesota Public Radio and two neighboring churches in downtown St. Paul are escalating their opposition to the proposed line.

MPR said noise and vibrations from the train, connecting Minneapolis and St. Paul, could harm their ability to record and broadcast. The churches say those very same effects could rattle their aging buildings and disrupt their worship services.

In the latest salvo, MPR has asked the project planners to study alternative routes through downtown St. Paul.

MPR and the churches say they support light-rail, but not the proposed route along Cedar Street. The tracks would be laid about 14 feet from the front door of the broadcast center.

"As far as we know, this is the closest a light-rail line will run to federally designated noise- and vibration-sensitive facilities anywhere in the country," said Jeff Nelson, public-affairs director for MPR.

I am not sure a comment is even necessary.   MPR has published any number of light rail stories about budget and approval battles that were thinly disguised cheerleading for light rail.  Take this article for example, which discusses how light rail might be saved from trouble, but because it only quotes light rail supporters, a reader can't even figure out why the trouble exists.

Basically, MPR is saying "please put the rail line, which we support, near someone else who may hate it being nearby as much as we but don't have the access to the media and the political process to make a big stink about it."   Already, the line has apparently made an expensive accommodation for just one organization -- the University of Minnesota, a state agency.  The arrogance of this is staggering.  It reminds me of the NY Times and Columbia University, both of whom claim to be advocates for the underdog, except when the underdog gets in the way of their real estate deal and eminent domain grab.

By the way, am I the only one who has never heard of a federal designation for "noise- and vibration-sensitive facilities?"  If such a designation really exists (and I sure can't find it with any similar search terms on Google), what percentage of the list would you guess is politically connected organizations using the designation to get privileged treatment vs. those without power?

Update: The "federally designated" thing is a bit of an exaggeration.  The PR department of MPR was kind enough to send me a link.  They are referring to the category 1 designation in this report, which merely says that amphitheaters and recording studios should be in the quietest category when assessing impacts of transit nearby (neither MPR or any other facility is mentioned by name).  This same report essentially comes to the conclusion that it is perfectly possible for light rail to be near to recording studios and amphitheaters, just that some care needs to be taken in design.

By the way, the "As far as we know, this is the closes a light-rail line will run to" such a facility is just nuts.  I guess the "as far as we know" covers them from outright fraud, but I have to look no further than my own town of Phoenix to find light rail in proximity to such venues.   I know of a few radio stations and TV stations right on the rail line, but a quick Google maps search found at least 9 radio stations and TV stations and recording studios right on just the Central Avenue portion of the route.  In addition, I know of at least 5 ampitheaters on the route, not to mention our main public library.  (In fact, the library is right near the intersection of the rail line and Interstate-10, and I find it perfectly quiet there).  In fact, I would challenge MPR to identify one urban passenger rail line where there is NOT a radio station, TV station, recording studio, or ampitheater in close proximity.

There are no more dreaded words to the middle school parent than "I have a science project due."  Every year through four years of middle school we have had to come up with two (one for each kid).  The first couple are easy.  But trying to come up with a unique project #8 that engages the kids is hard.

The Internet is a great resource.  Search for "science project ideas" and there are loads of folks who have shared their project ideas, making it easier for kids to select from a menu of potential projects.  So, as a way of giving back, I want to, over time, publish some of the projects we have done so that others might benefit.  The first such project I published was my son's science project to measure the Phoenix urban heat island.

This project involves electro-magnetic propulsion.  My kids really like the Rockin' Roller Coaster at DisneyWorld.  Like many new coasters, this one uses a form of electro-magnetic propulsion to rocket the cars to 60+ miles per hour in just a few seconds.  We decided to try to simulate this effect (note:  there are several different approaches to electro-magnetic propulsion.  The simplistic model we used is NOT the one used by coasters, but it is close enough for a 7th-grade science project).

We first looked at building a simple rail gun, but some of the aspects of the construction were either dangerous or difficult (see here for an example of a simple one).  In particular, the energy that needs to be stored in the capacitor is really too dangerous for 12-year-old kids.   We decided instead simply try to roll a metal ball down a track, turning magnets off and on to move the ball along.  We ended up being successful, though don't expect really high speeds  (if you want cheap and easy high speeds with magnets and marbles, try this.  We used the gauss gun for a different science project for a different kid in another year).

The key is trying to turn the magnets on and off at the right time to propel the marble.  We imagined a number of approaches using electric eyes and such, but that seemed really hard.  Fortunately, as a model railroader, I had an answer.  The marbles we were using rolled perfectly on N-scale track.  Since the marbles were also conductive, they could complete a circuit between the two rails  (which is in fact how a model engine works).  By putting electrical gaps spaced in the rails, as the ball rolled, it would progressively activate different rail sections.  If each progressive section was wired to the next magnet, the marble effectively turns the magnets on and off as it rolls.

Here is the final model, with five electro-magnets (click any picture for more detail)

The only thing that is missing is the power supply.  The two red wires are connected to the positive and negative leads of a DC power supply.

Here is a view from above.  The magnets are also a model railroad part -- HO-scale uncoupling ramps made by a company named Kadee -- but other strong electro-magnets would probably work.  Note that the magnet needs to create a wide field, which was why we used these.

We ended up with the circuit breaks centered on each magnet.  So, when the ball gets to a magnet it crosses to the next track section, turning off the magnet under it and turning on the magnet in front of it.  If we did it again, we probably would have experimented with the position of this break.  Here are some detailed views  (sorry, the depth of field in the photos is awful):

Hopefully you can see the principle here.  As the ball approaches the magnet, it is completing the circuit to energize the magnet in front of it (ball is moving from right to left in this picture).  Right over the magnet is a break in the track that isolates the track electrically from the next section.  As the ball crosses this break, the magnet under it is turned off (preventing it from pulling backwards on the ball as it passes) and the next magnet in line is turned on.

Here are a couple of other views:

Potential Improvements: As mentioned above, I am not sure the correct position to switch power to the magnets is right when the ball is over a magnet -- some experimentation would probably yield a more optimal location.  Also, I continually feared that performance was being degraded because the previous magnet was not turning off fast enough (due to inductance effects in the coil).  If this is the case, then performance is hurt because the last magnet is still pulling backwards on the ball as it passes.  Smart circuit makers could probably fix this with some electronics, or moving the changeover point earlier, before the ball is over the magnet, might help.

You see, kids, government has to closely regulate evil capitalists, because these capitalists sometimes make investment mistakes, like making highly leveraged investments in risky bubble assets.  The government must be the one to watch over their shoulder, because well-meaning public servants would never make such a mistake themselves:

The California Public Employees' Retirement System (CalPERS)is now warning California's cities that they may have to cough up more money to cover the retirement and other benefits the fund provides for 1.6 million state workers, reports the Wall Street Journal. Some communities are already cutting municipal services and they are blaming CalPERS, not Proposition 13. Dan Cort, mayor of Pacific Grove, has been quoted as saying, "CalPERS could bankrupt us faster than anything else."

According to the Journal, CalPERS has lost almost a quarter of the $239 billion in assets it held in June of this year. Stock market losses are an obvious cause of the fund's distress, but less well known is that CalPERS makes extensive investments in real estate -- investments that have been largely financed by borrowing. Some deals involved as much as 80 percent of borrowed money. While this worked well in a rising market, now that real estate has tanked CalPERS expects to report paper losses of 103 percent on its housing investments for the fiscal year ending in June.

Note especially the text in bold.  It takes some effort to lose more than 100% of your investment in one year.  They would have been better off investing with Bernie Madoff, since a 100% loss would have been better than 103%.

The inherent flaw in every call for government action is not the "insight" that business people sometimes are wrong, even way wrong.  The flaw is assuming that anyone in government is more capable, or has superior incentives, to make better decisions.

Uh, right:

Via TJIC:

The steel industry, a bellwether for the state of the nation's economy, is looking to the government for a huge investment program: up to $1 trillion over two years.

Government can't create capital -- it can only force it to be reallocated and, to a small extent, move it forward from the future.   Given that there is some sort of fixed amount of investment capital in the economy, then, it strikes me that we are rapidly approaching the point where we are giving to Congress the job of allocating the vast majority of the country's available investment capital.  And if that prospect does not scare you, and it should, consider this:  Congress has made it fairly clear the three criteria it will use to select the recipients of capital:

• They must have a business model that has been proven a failure (by poor performance, eroding market share, and/or near bankrupcy)
• They must have strong, powerful unions with the historically proven ability to dictate terms to management
• The company and its key stakeholders must be strong supporters of the party in power

They say the government does things that private parties can't or won't, and that is certainly true here since I cannot imagine any private investor allocating capital on these criteria.

Nothing makes purity more interesting than temptation.  This applies to ideological purity just as much as the physical sort.  As a libertarian, my greatest temptation to call for government action comes when I deal, as a retailer, with Visa and Mastercard (V/MC).

This post is not a call for government action, so I guess I am resisting temptation.  But I at least need to vent, sort of like a monk pounding his head on the wall after getting the Victoria's Secret catalog in the mail.  So here is my rant.

First, let's start with how credit card companies make their money.  I will confess that I do not know how the card companies (V/MC) and the card processors (often large banks) split the take, so this is how they make money together.  V/MC and the processors charge fees to merchants.  Typically this is a fixed fee per transaction plus a percentage.  On average, a merchant might be paying 2.5-3.5% of a transaction.  The card companies also make money from card holders, charging annual fees, interest fees, etc.

You will have seen of late that most credit cards offer various loyalty programs, from airline miles to cash rebates.  You might have thought those were marketing expenses paid by the credit card companies.  Wrong.  The card companies simply charge merchants a higher fee for processing transactions using these cards.  In a sense, the card companies have organized with card users to use their power to extract extra value from merchants.

All of this I can generally live with.   Visa and MasterCard, through both their credit facility and their implicit standardization, bring enormous value to retailers and customers.  Its a big circular game anyway -- customers get 1% back and think they are getting a deal, merchants pay this extra 1% in fees, and then add it into the price of what they are selling.  It's a wash, except to the extent that customers with reward cards in the end extract a bit of value from customers who pay cash (for reasons explained below).

For this value one must accept the typically arrogant and indifferent customer service provided by any monopoly  (American Express is particularly awful to deal with as a retailer).   But they are no worse to deal with than the government, so its unclear how the government could make the service any better.

What tends to tick me off, though, are rules and restrictions.  Like the creeping work rules in the UAW contract, these are in many ways more insidious than the service and pricing.  Here is what set me off today, from one of my card processors  (in this case Bank of America, which, to be fair, is someone I would recommend for merchant account processing).  Click to enlarge.

So, why are businesses breaking these rules so often?  Let's take a look:

• No minimum transaction. Remember that V/MC charges a minimum fee, from 10-40 cents or so, per transaction.  So if someone buys a pack of gum in our store, likely 100% of the sales price is going to V/MC.  Typically it takes at least a one dollar total sale for there to be any money left over beyond paying cost of goods sold and the credit card folks.  So merchants logically want to set a minimum.   V/MC hates this practice, but it is rampant.  I plead the fifth on our own practices.
• Surcharging. Credit card customers cost more than cash customers.  Sure, we get some non-sufficient funds checks, but the eventual cost of these is nowhere near 2.5% of sales.  Merchants logically don't like having their cash customers having to subsidize the frequent flyer rewards of their credit customers.  However, unlike transaction minimums, card processors have mostly been able to drive out cash discounts.
• Requiring ID and Fraudulent Transactions. I will take these two together, since they are so ironic one after the other.  V/MC is telling merchants that they can't check ID, which is the only reasonable approach to limiting fraud, but that they can't submit fraudulent transactions.  You say that the text says "known fraudulent?"  Well, read on --

To the latter point, I think most people assume that the credit card companies are absorbing the fraud, which is how they justify the fees they charge.  Wrong again.  Credit card companies only absorb credit risk.  Over the last 10+ years, they have pushed fraud back on the retailer.  If a consumer claims fraud on his card with some transaction, then the credit card company refunds the customer and takes the money from the merchant unless the retailer can absolutely prove he made delivery to the consumer personally (which he can't prove because he can't check identification) .  Merchants bear the cost of fraud, not card companies.  Which I could accept (since I have more ability than the card companies to control fraud) expect the card companies ban me from controlling fraud.  So I have to take financial responsibility for something I am not allowed to prevent.  And that really ticks me off.

Anyway, maybe someday we can organize a large merchant boycott, where, even for a day, we all refuse to accept Visa and Mastercard.  Of course we would be breaking the rules, because that is not allowed by our V/MC agreement.

Postscript: I suspect that a few retailers with some power are starting to crack this, at least for themselves.  Costco only takes American Express.  Sams Club only take one card (MC, I think).  My guess is that both, with their large size, bargained for exclusivity in exchange for concessions on fees and/or terms.

Postscript #2: I expect comments like, "Well so-and-so always makes me show an ID."  I don't doubt you.  I am merely saying that by doing so, they have either negotiated an exception to the V/MC agreement (very unlikely, as V/MC holds to these rules like the Maginot Line) or the retailer is breaking the rules.

The Arizona minimum wage is going up again:

The annual increase is the third since voters approved the minimum-wage initiative by a 2-1 ratio in 2006. This year's increase is 5 percent. At $7.25 an hour, the wage is up nearly 41 percent from December 2006 but still only about half of the state's median wage of $14.25, according to the Arizona Department of Commerce.

Oh my God!  You mean the minimum is still below the median?  (Sorry, that is a bit off-topic, but I just can never resist making fun of journalist's understanding of math and statistics).

In just over two years, the minimum wage is up over 41%.  As a company that employs a lot of minimum wage workers in Arizona, I thought I would report on the impact to date.  As a quick background, my company runs campgrounds (and other recreation facilities) all across the country.  We typically employ retired couples who live in their RV onsite and work both for the free camp site as well as a wage, usually minimum wage.  In a good year, our business makes between 6-8% pre-tax profit on sales, which I can tell you is a thin, thin cushion given all of my life's savings are locked up in this one investment.

I don't know where minimum wage supporters think the extra money comes from to pay higher wages.  If they think at all, I suppose they would say that the government is in effect collective bargaining for these workers and getting businesses to cough up some of their immense profits to pay a bit better wage.

Well, our labor costs are about 50% of revenues  (we are a service business).  This 50% is not just wages, but other costs calculated as a percent of wages, such as FICA, medicare, and unemployment taxes and workers comp premiums.  So, if I still want to earn a living for myself, and the state says half my costs must go up by 41%, then it means that prices are going up 20+%.  And that is what has happened.   Remember, at the same time, fuel prices, electricity prices, insurance prices, and everything else has gone up, so that camping prices have risen by 20% or more.  But there is a limit to how far we can push prices, particularly since our typical customer tends to be relatively low-income.  So we are pursuing two other longer term responses:

• We are increasingly turning to automation solutions, like automatic pay systems and gates, to replace people.  While we like to have someone actually there to answer questions and to help visitors, fee collection machines work 24 hours, are not subject to overtime rules, they never get hurt, they never sue us, and the government never passes laws to increase their price.
• We are changing our operating strategy from hiring retired couples who live on-site to hiring younger workers.  This is a change I really hate.  The business model of hiring retired folks who live on-site at a campground is an old and successful one.  Folks in their seventies (and I even have workers in their eighties and nineties) don't work very fast, and they have more workers comp claims, but they had the ability to live on-site and life experience that helped them with customer service.  But trade-offs that worked at $5.15 an hour don't work as well at $7.25 and higher.  So far only selectively, but we are hiring younger folks from the local community to come in and do some of the janitorial and maintenance work.  Even if I pay them $8 or $10 an hour, they make sense if they can be twice as productive.

I don't think that anthropogenic global warming will be substantial enough to justify massive and expensive interventions to limit Co2.  I won't go into the reasons for this statement, as I have a whole other blog dedicated to climate.  If you are unfamiliar with the arguments that Co2 is likely warming the Earth, but not by nearly as much as alarmists claim, you might start with some of these videos.

However, it seems almost inevitable that the new Congress and Administration will do "something" on Co2, if for no other reason that it has become a self-image issue on the left  (i.e. I am a good person because I care about global warming).  We libertarians are seldom very good at engaging on issues of how such government interventions should be done best.  Every time people ask us our opinion of how to structure such a program to do the least harm, we get about 5 seconds into an answer before we just break down and start yelling, "this is crazy!  Do nothing!  Leave us alone!" (actually, emissions laws are one of the few areas where government regulation helps to protect private property rights).

Bryan Pick at Q&O points to a number of folks advocating an increase in carbon taxes offset by reductions in payroll taxes (Bryan's plan is more comprehensive than this, and is here).  I actually advocated something similar over a year ago.  Here is my logic chain:

1. The carbon tax is a much, much better approach to reducing CO2 than cap-and-trade systems.  Cap-and-trade is bad for the same reason that politicians like it -- it offers a near infinite playing field for lobbying, special rules, influence-peddling, special exemptions, government chosen winners, etc. while hiding the fact that it is in fact a huge new tax.  My more detailed argument on this can be found here and here and here.
2. A new carbon tax should be revenue neutral.  After all, the point in the first place is not to raise revenues, but to provide a pricing signal that Americans need to switch away from carbon-based fuels.
3. A good place to offset revenues is the payroll tax.  Both fuel taxes and payroll taxes are criticized for being regressive, so it is an easy place to try to forge a compromise with the left.  Further, the payroll tax acts effectively as a tax on hiring, so a reduction would certainly be welcome any time, and particularly in a recession.
4. We need to create a streamlined licensing program for nuclear reactors.  Utilities, particularly ones dependent on coal today, need a realistic option to continue to provide power at reasonable cost in their communities.  Solar and wind are just not reasonable alternatives today.  Nukes are the only carbon-free scalable generating technology we have.

Again, I don't think the dislocations required here are worth the effort, but this is the best way to do it if we must.

Postscript: By the way, here is one thing no one is telling you.  Folks in Congress have tossed around carbon and fuel tax ideas that might add, say 25 cents per gallon.  But if we are truly in thrall to the climate alarmists and take their recommendations, then Co2 outputs must be reduced 50-80% in this country.  We are talking about reducing Co2 output to levels before 1920!  To do this will require a truly massive tax.  Just to scale it, over the last year gas prices doubled by about $2 a gallon, and total miles driven fell by less than 5%.   Europe is at around $8-$9 gas and are nowhere near these climate goals.  I don't think it would be too much to say that gas prices would have to top $20 to reach these goals.

This is why I think the most likely case for climate regulation is that we will have some kind of tax or cap system but that this system will be far short of anything that will really reduce Co2 or even stop its growth.  The costs are just too high, and the benefits too shaky.  You can see that in Europe, as countries back off Kyoto goals  (and even Kyoto goals are far short of what alarmists think we need to be hitting).  And any progress they have made against Kyoto goals has mainly been accidents of changing enconomic and political structures rather than the result of any real targeted action.  What we will get is something that costs a lot without accomplishing much, but will make the left feel better about themselves.  Sound familiar?

I am honestly curious here.  Apparently, Seattle does not use salt to melt ice on roadways because they believe " it's not a healthy addition to Puget Sound."  I could understand if the salt was all washing into a trout stream or perhaps a reservoir, but isn't Puget Sound part of the ocean, which has, um, salt water?  Is it a different kind of salt  (e.g. calcium chloride vs. sodium chloride) that causes the problem?  Or is this another typical "don't understand the math of concentration" story?  Or perhaps are they using environmental concerns as cover for lack of preparation?

The permalinks are screwed up right now.  That is the one problem I have had that keeps me from 100% satisfaction with WordPress -- the mod-rewrite stuff is pretty finicky and can lead any custom permalink structure to get screwed up from time to time.

Update: Fixed now.  There is some kind of bug that whenever I try to change the URLs of categories, I get a permalink mess.  So I am just creating redirects for all the old category locations and calling it a day.  This error may well be a host problem rather than a WordPress problem.

This has become one of my absolute favorite photographs.  If I had to come up with an advertising campaign defending modern society against those who are anti-growth, anti-wealth and anti-technology (like, say, our new National Science Adviser John Holdren) I would use this picture on the posters.  (via Shorpy, which has a huge version here)

JD Tuccille has an interesting take on speed cameras from Maryland:

Originating from Wootton High School, the parent said, students duplicate the license plates by printing plate numbers on glossy photo paper, using fonts from certain websites that "mimic" those on Maryland license plates. They tape the duplicate plate over the existing plate on the back of their car and purposefully speed through a speed camera, the parent said. The victim then receives a citation in the mail days later.

Students are even obtaining vehicles from their friends that are similar or identical to the make and model of the car owned by the targeted victim, according to the parent.

JD calls this action "brilliant," and while I feel bad for the car owners who are caught in this trap, I understand his enthusiasm.   His argument, and I hope it is true, is that it won't take much of this sort of activity to greatly undermine whatever public support or trust there is for these cameras.

However, I guess I have less confidence in the state's reaction to this (which is saying a lot, because my read is that JD has zero confidence in the state).  My guess is that rather than back off the cameras, the government will just double-down on it with some crazy-high penalty (e.g. 10 years in prison) for counterfeiting a license plate.  After all, this is what they have done in the drug enforcement world.  You start with trying to ban a little joint-smoking by teens and you end up with millions of people in jail.

Update: Speaking of civil disobedience, here is another great story:

KopBusters rented a house in Odessa, Texas and began growing two small Christmas trees under a grow light similar to those used for growing marijuana. When faced with a suspected marijuana grow, the police usually use illegal FLIR cameras and/or lie on the search warrant affidavit claiming they have probable cause to raid the house. Instead of conducting a proper investigation which usually leads to no probable cause, the Kops lie on the affidavit claiming a confidential informant saw the plants and/or the police could smell marijuana coming from the suspected house.

The trap was set and less than 24 hours later, the Odessa narcotics unit raided the house only to find KopBuster's attorney waiting under a system of complex gadgetry and spy cameras that streamed online to the KopBuster's secret mobile office nearby.

To clarify just a bit, according to Cooper, there was nothing illegal going on the bait house, just two evergreen trees and some grow lamps. There was no probable cause. So a couple of questions come up. First, how did the cops get turned on to the house in the first place? Cooper suspects they were using thermal imaging equipment to detect the grow lamps, a practice the Supreme Court has said is illegal. The second question is, what probable cause did the police put on the affidavit to get a judge to sign off on a search warrant? If there was nothing illegal going on in the house, it's difficult to conceive of a scenario where either the police or one of their informants didn't lie to get a warrant.

Update #2: Alas, the KopBusters seemed to have been playing loose with the truth themselves, and apparently called in a tip to the police to have themselves raided.  Ugh, nothing worse for one's arguments than screw-ups on your own side.

You know you are in trouble when a guy who made his fortune in the early Internet boom (which featured companies like Pets.com using the last of their cash to put put sock puppets on the Superbowl) has to lecture you on making a profit.  From the always quotable Mark Cuban via TJIC:

For those in Detroit who have never operated a lemonade stand, or any other business, the way profits are generated is by making products at a price people want to buy them for, and then producing them, with all costs allocated, for less than you are selling them for. It's not apparent that this is a principle that Detroit understands....

You Know Chrysler is Toast Because the CEO takes out a fullpage ad in the Wall Street Journal today to thank the American Public for "investing" in Chrysler.

Lets see, is there anything more idiotic than spending more than 100k dollars on a full page ad "thanks for letting me waste your money " ad ? Does it make it worse that its a business publication where the readers might just recognize the stupidity of wasting money on ad dollars that doesn't even try to sell the product ? How does it make the next unemployed Chrysler worker feel that their entire year's salary just went for a single, ridiculous ad ?

Just one more example of how poorly run the car companies are. Note to the Big 3, spend money to make money. These types of ads have as much value as a Bernie Madoff account statement.

When I have discussions with folks about oil prices, supplies, and "peak oil," the conversation almost always requires some digression into the nature of oil reserves themselves.  The most important thing to understand is that men have never, ever even come close to pumpng out all the oil that is in a particular field.  Many, many fields have closed, but that is because the incremental cost to get the oil up and out are higher than expected oil prices.

So, changes in technology and changes in price can and do change expectations of how much oil can or will be recovered from a particular field.  For example, my family has a ranch near Glenrock, Wyoming.  When we first started going up there, the fields were booming.  Then they seemed to be completely shut down for a decade or more.  Recently, they were booming again, due to changes in technology and price.

My point, then, is that world recoverable reserve estimates are different -- for the same fields -- at expectations of $25 oil and $125 oil, but you seldom if ever see the MSM being very intelligent consumers of reserve data.   Michael Giberson addresses this issue in the context of an interesting year-end accounting issue:

Geoff Styles offers a timely discussion of how SEC requirements for reporting oil and gas reserves and current low prices will combine to force a potentially dramatic drop in reported oil and gas reserves as of the end of the year. In brief, current SEC rules require that oil and gas reserves reported on financial statements be limited to quantities very likely to be recoverable at the end-of-year market price for such resources. Given the quite low price expected at year end 2008 - current prices are under $40/bbl while 2007 prices ended over $95/bbl, companies owning oil and gas reserves will report sharply lower amounts of oil and gas in reserve.

Un-savvy investors may be alarmed - where did all that oil go? - and un-savvy political commentators will find the reports as more evidence for peak oil. But as Styles points out, the reserves are not going anywhere, and the resources are still there to be had for a price.

Styles explains that while current SEC rules require reserves reports to be based upon a single day's price, industry practice has long shifted to using less-volatile metrics for reserves evaluation. The SEC has proposed adapting its rules so as to reduce the effects of price volatility on reserves reporting, and Styles says the upcoming dramatic "loss" of reserves demonstrates the urgent need for such a change.

Via a reader, comes this update on the link from Phoenix's new light rail line to the airport:

Down the line, Sky Harbor plans to phase out shuttles.

Eventually, an automated train will take passengers around the airport. The project will cover 4.8 miles and will cost $1.1 billion.

Construction on the project began this year, and the first phase is scheduled to open in 2013.

The entire system will be up by 2020, Sky Harbor officials say.

I beg your pardon?  $1.1 Billion.  With a B?  For 4.8 miles?  That is, as the title implies, $3,617 per inch.   It is probably so expensive because they will be working at the blistering pace of 1/3 mile per year, or about 5 feet per day.

Some Valley residents have questioned the reason Phoenix and transit officials didn't build one train system - light rail - with several stations at Sky Harbor.

Transit leaders considered that, but they decided against it, light-rail officials have said.

Running the line through Sky Harbor would have made light rail even more expensive.

Because, you know, if the Sky Harbor extension is an entirely different project that has to be funded later to make up an obvious service gap that everyone and his dog can immediately spot in the system, then the cost doesn't count?

Phoenix's agreement to give a $100 million handout to a shopping mall development in north Phoenix was struck down as illegal.

A major economic-development agreement between Phoenix and the CityNorth development has been ruled unconstitutional, meaning the project may not grow into the once-envisioned second downtown on the city's north side.

The Arizona Court of Appeals said Tuesday that the $97.4 million agreement violates the gift clause of the Arizona Constitution, which prohibits governments from granting money or credit to private entities in most cases.

In 2007, the city agreed to give the developer half the sales-tax revenue from the site. The developer, among other provisions, agreed to denser construction and to provide free parking and special spaces for park-and-ride use.

Excellent news.  This handout was engineered in a fairly smart bit of rent-seeking on the developer's part.  There are two competing shopping mall development sites about a mile apart in a wealthy area along highway 101.  The two sites are close, but on different sides of the Scottsdale-Phoenix border, so the developers managed to get Phoenix to pony up tons of taxpayer swag out of fear that stores like Nordstrom would move to the Scottsdale development (more here).  The parking subsidy came in at around $30,000 per parking space, and the only public benefit was supposedly that other locals could use the lot, though there are no other structures not within this particular development in walking distance of the proposed lot.  Here is the enormous downside that Phoenix now faces for not being able to hand $100 million to the developers:

Representatives of the Thomas J. Klutznick Co. declined interviews but issued a prepared statement saying that, without the agreement, they will be forced to cut the density of the project.

Less density would mean fewer shops, restaurants, hotels and offices and fewer jobs, the statement said.

The company said a "less capital-intensive design" would include surface parking lots covering more than half the development. It also warned that the project will face delays.

Uh, okay.  I think I will survive.   Their problem is they wanted the taxpayer-funded garage so that they could convert surface lots in their plan to more buildings they could rent or sell.  Boohoo.  Either it makes economic sense, and they can pony up their own money, or not.  Speaking personally, fighting Christmas shopping traffic, I am just fine with lower density shopping.

Here is the reality of the green jobs myth Obama is pushing (via a reader):

The Arizona Corporation Commission raised the monthly charge that Arizona Public Service Co. residential customers will pay in 2009 to support renewable energy to $3.17 a month from $1.32 a month.

That's a 140 percent increase for the maximum tariff on people living in homes and apartments. Businesses would see their monthly charge increase to a maximum of to $117.93 from $48.84.

Large industrial customers could see tariffs of $353.78, compared with the current cap of $146.53.

The tariffs will be worth an estimated $78.4 million to the utility, which uses the money to acquire renewable energy and pay incentives to people who use rooftop solar and other renewables.

Nothing says "jobs creation" like increasing electricity prices.  Note that these prices are "per meter."  Since many businesses have many meters (we have nearly 100 in Arizona), the price increase is much higher.  For example, we expect to see a $2-$5 thousand dollar increase next year from this program.

Oh, but you say that this money is invested and creates jobs?  Yeah, right. )  via Michael Giberson

A power producer typically gets paid for the power it generates. In Texas, some wind energy generators are paying to have someone take power off their hands.

Because of intense competition, the way wind tax credits work, the location of the wind farms and the fact that the wind often blows at night, wind farms in Texas are generating power they can't sell. To get rid of it, they are paying the state's main grid operator to accept it. $40 a megawatt hour is roughly the going rate.

This is really incredible.    The power companies are constructing wind turbines and, at certain times, not only providing the power for free but actually paying the grid to take it.  All to capture subsidies and tax credits paid for by these special rate surcharges.    The only jobs being created are analysts trying to find the best way to rent-seek under these new laws.  I would rather pay people to dig holes and fill them back in.

Paul Kedrosky links to the year in pictures at Boston.com

Some good stuff.