Fractals of Change

The Energy State of the Union Annotated

President Obama recognized the importance of natural gas and the new, disruptive technologies which have made at least 100 years of this fuel available to us; that's the good news from the State of the Union Address. The bad news is that the President appears to have learned a lot of wrong lessons about the proper role of government in innovation and appears poised to take a lot of wrong-headed actions. Here's that section of the speech as reported in The New York Times with annotations by them (NYT) and by me (TE).

POTUS: And nowhere is the promise of innovation greater than in American-made energy. Over the last three years, we've opened millions of new acres for oil and gas exploration, and tonight, I'm directing my administration to open more than 75 percent of our potential offshore oil and gas resources. (Applause.)

NYT: An administration official declined to explain exactly what this potentially huge expansion of offshore activity meant, except to say that the Interior Department would be announcing new lease sales in the coming weeks. Those sales will not include areas the administration has already ruled off-limits, including most areas off Florida and along the Atlantic Coast, the official said, so it is not clear how the president reaches his target.

— John M. Broder, reporter

POTUS: Right now -- right now -- American oil production is the highest that it's been in eight years. That's right -- eight years. Not only that -- last year, we relied less on foreign oil than in any of the past 16 years. (Applause.)

TE: That is good news but obviously most of the increase in domestic production comes from actions taken before the present administration was in charge. Also a recession-related decrease in demand cut into imports. But still good news.

POTUS: But with only 2 percent of the world's oil reserves, oil isn't enough. This country needs an all-out, all-of-the-above strategy that develops every available source of American energy. (Applause.)

A strategy that's cleaner, cheaper, and full of new jobs. We have a supply of natural gas that can last America nearly 100 years. (Applause.)

And my administration will take every possible action to safely develop this energy. Experts believe this will support more than 600,000 jobs by the end of the decade. And I'm requiring all companies that drill for gas on public lands to disclose the chemicals they use. (Applause.)

TE: Amazing how he managed not to say the f-word, fracking or even the proper names for the innovations which are unlocking vast stores of both oil and natural gas, hydraulic fracturing and horizontal drilling. He did make a nod to opponents of hydraulic fracturing with the line about disclosure of the content of the fluids used in the process when drilling is done on public lands, actually good policy from my POV.

POTUS: Because America will develop this resource without putting the health and safety of our citizens at risk. The development of natural gas will create jobs and power trucks and factories that are cleaner and cheaper, proving that we don't have to choose between our environment and our economy. (Applause.)

TE: Applause! (Interestingly Boehner was applauding during this section the speech but Biden wasn't.)

POTUS: And by the way, it was public research dollars, over the course of 30 years, that helped develop the technologies to extract all this natural gas out of shale rock –- reminding us that government support is critical in helping businesses get new energy ideas off the ground. (Applause.)

TE: Ahem. In 1865 Col. Edward A. L. Roberts received the first of his many patents for an exploding torpedo; it was used not for war but increasing production from hydrocarbon formations. He died a wealthy man. The co-inventors of modern fracking combined with horizontal drilling were Joseph Clark and Riley Farris. By vastly increasing the supply of natural gas, they have arguably done more for energy independence, energy abundance, and lower carbon emissions than all the well-intended grant-funded green efforts in the last twenty years. That being said, surely some aspects of government and university basic research must have helped: perhaps studies of geology, sound wave propagation, GPS technology, and many other things. The President is right that government has a role in funding basic research.

POTUS: Now, what's true for natural gas is just as true for clean energy. In three years, our partnership with the private sector has already positioned America to be the world's leading manufacturer of high-tech batteries. Because of federal investments, renewable energy use has nearly doubled, and thousands of Americans have jobs because of it.

TE: Whoops. Wrong conclusion. There were no government incentives for fracking as opposed to other means of gas production, no special tax credits for this technology, no mandates that we use fracked natural gas rather than alternatives, no tariffs to prevent us from buying foreign natural gas when it was cheaper, no DOE-led grant programs tucked into the stimulus bill for hydraulic drilling. The wealth of natural gas didn't come about because of "federal investments"; it is a result of plain old-fashioned marketplace economics. Growth in "renewable use", on the other hand, is only because of government programs, just as the President says; that's why much of it unsustainable and, as the President points out later in his speech, why the "green jobs" created will die back without further subsidies while the direct jobs in drilling for natural gas and building pipelines are here for a long time to come and the indirect jobs in American manufacturing enabled by cheap domestic energy are "sustainable" – as long as the savings are not eaten up by subsidies for energy sources which aren't ready for prime time.

POTUS: When Bryan Ritterby was laid off from his job making furniture, he said he worried that at 55, no one would give him a second chance. But he found work at Energetx, a wind turbine manufacturer in Michigan. Before the recession, the factory only made luxury yachts. Today, it's hiring workers like Bryan, who said, "I'm proud to be working in the industry of the future."

Our experience with shale gas, our experience with natural gas, shows us that the payoffs on these public investments don't always come right away. Some technologies don't pan out; some companies fail. But I will not walk away from the promise of clean energy. I will not walk away from workers like Bryan. (Applause.)

TE: Unfortunately Mr. Ritterby's new job may not last past the expiration of tax credits for wind turbines at the end of this year. Our experience with shale gas (fracked natural gas) shows us that effective technologies can be developed by the private sector with no help from the government other than possible funding of basic research. The example of a government program the President should examine is corny ethanol: that set of incentives, mandates, and protective tariffs has led to less fuel efficiency, higher prices not only for fuel but for food as well, and probably environmental damage. The private sector goes down many blind allies as well; but it can't double down and insist that we use more expensive products – at least not unless it can hire lobbyists to convince congresspeople that such laws are needed. Anyway, it was ethanol the government was "investing" in while the natural gas answer to environmental and economic problems was developed outside the Washington Beltway.

POTUS: I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here. We've subsidized oil companies for a century. That's long enough. (Applause.)

It's time to end the taxpayer giveaways to an industry that rarely has been more profitable, and double-down on a clean energy industry that never has been more promising. Pass clean energy tax credits. Create these jobs. (Applause.)

TE: By all means take the" taxpayer giveaways" away from oil (and gas and nuclear and coal) companies. But giving them to new politically-connected industries is exactly the wrong thing to do. Yes, the government should support research into many energy sources including renewable ones. Once these sources become competitively viable – and some of them will, the winning technologies will be good for America and good for the world and its environment – just as natural gas is. Government doubles down when it makes a mistake (see ethanol above); private investors move on to the next new avenue until they find something that works. That's the lesson I wish the President had learned from our recent energy past.

Nevertheless, the President is absolutely right that the abundance of American natural gas is a very, very good thing.

Full disclosure: I have invested in line with my beliefs and will benefit as an investor if inexpensive, clean natural gas displaces oil.

Related posts:

Natural Gas Disrupts the Energy Industry

The Pickens Plan Bill: The Wrong Way to Get the Right Result

Ending Tax Giveaways Isn't Raising Taxes

We Can End Energy Subsidies

Good News for the New Year

 

 

    

Could Romney Give Us Tax Reform Without Even Getting Nominated?

The President's own National Commission on Fiscal Responsibility and Reform recommended a much flatter tax structure and elimination of most tax deductions and credits in their draft report. The President – and almost everyone else – ignored their recommendation. Ex-candidate Herman Cain made a 9-9-9 flat tax almost famous before he sunk from view. Ron Paul advocates a very flat income tax – zero . The other Republican candidates have advocated flatter taxes without much fervor. But Mitt Romney's incredible political miscalculation in attempting to withhold the fact that he pays only 15% of his income in taxes may have actually given us a leg up on tax reform.

The fact is that we do have a somewhat progressive federal income tax. The 40% of families with the lowest incomes don't pay any income tax at all as a group. The rich AS A WHOLE pay a higher rate than the rest of us. But the statistics obscure huge individual variances in taxes paid because of a tax system riddled with loopholes and special exceptions – like the so-called carried interest deduction and concessionary rate for capital gains, which probably are the reasons why Romney paid such a low rate (see a great post by my friend Fred Wilson who benefits from these concessions but argues they should be eliminated).

These exceptions are not only unfair – they also corrupt government. Politicians get campaign contributions (at least) from those who benefit from the loopholes. Working to add loopholes or defending the ones that are already there attracts lobbyists with full purses like… chose your simile. Individual loopholes don't attract much opposition since the pain of giving a few people a break is spread over the rest of us taxpayers.

Often loopholes are justified as tipping the economic scales in favor of some perceived common good. Unless you're a renter or take the standard deduction, you probably like the deduction for your home mortgage – realtors certainly do. But how do you feel about the tax credit for corny ethanol production, which was just allowed to expire this year? It managed to simultaneously drive up the price of energy and food, while probably doing some environmental damage along the way. Besides leading to bad government by providing congresspeople with a bottomless pit of favors to give out or protect in return for campaign support, loopholes are bad economic policy.

Here are some numbers from the Congressional Budget Office for 2007 (latest available, unfortunately, since some of this must have changed in the recession):

	quintiles
	1st	2d	3d	4th	5th	all		top 10%	top 1%
Individual Income	(6.8)	(0.4)	3.3	6.2	14.4	9.3		16.2	19.0
Social Insurance	8.8	9.5	9.4	9.5	5.7	7.4		4.5	1.6
Excise	1.6	1.0	0.8	0.7	0.4	0.6		0.3	0.1
total	3.6	10.1	13.5	16.4	20.5	17.3		21.0	20.7

Almost all income including interest on tax free bonds for the well-to-do and cash benefits for the not-well-to-do is counted. Note that, on the average, families in the lower two quintiles (low income 40% ) actually paid negative income tax – as groups they received more in earned income, child care, and other tax credits than they paid in income tax. However, people in these two quintiles DID pay a healthy share of their small incomes for social insurance including social security and Medicare (the table properly attributes the payments made by employers to the employees). The wealthy paid a somewhat higher share of their income in income tax; the top 20% paid more than twice the rate of INCOME tax that the 20% immediately below them paid; the top 1% pay 19%, more than the top 10% as a whole who pay only 16.2% (had enough percentages yet?). For those concerned with tax equality (not what this post is about), the top 1% had 19.4% of all pretax income in 2007, just as the occupiers suspect, but, on the other hand, paid 39.5% of all individual income tax.

Takeaway, statistically, we have a somewhat progressive tax system. But loopholes make it unfair.

Let's assume, for this post, that the current actual progressivity is fair. We should then collect these rates from various income groups with a straightforward tax on all income WITHOUT LOOPHOLES. The nominal tax rates would be lower, of course, but the money collected from each group would be the same.

The benefits to the country of a tax system without loopholes would be huge.

1. Fairness, fair, fairness. People with the same incomes would pay the same taxes.
2. Actual visibility into how much people are paying according to level of income.
3. A huge decrease in the cost of complexity – (not great for some accountants and lawyers).
4. A huge increase in efficiency when investments are made because of anticipated profit rather than anticipated tax benefit.
5. Eliminating the opportunity for congresspeople to sell tax breaks in return for contributions.
6. Lower rates make the special treatments unnecessary. If the top rate is 20%, it's hard to argue that capital gains or dividends need a special 15% rate. That argument is more compelling (although I still don't believe it) when marginal rates are north of 30%.

Maybe Romney's embarrassment will force him to advocate closing all loopholes for everyone. Maybe Gingrich will demonstrate his economic independence by doing the same. Maybe President Obama will listen to his own advisory commission and introduce a bill for tax simplification. Won't it be a great campaign if candidates are outdoing each other in closing loopholes and lowering the nominal tax rates? Unlike most government programs – certainly unlike tax breaks – tax simplification really will create jobs by making work more rewarding (less taxed because "unearned" income is taxed more than it is now) and making economic decisions more rational.

Related posts:

The Deficit Reduction Draft Proposal is the Stimulus Program We Need!

Good News for the New Year

The End of the Age of Incentives

What is DirecTV Selling?

Ostensibly this is a warning to set our parental controls – grandparental in our case. Looks to my jaundiced eye like a pitch for the pay-per-view porn channels in case we didn't realize "changes have been made."

Borrow a Book with Your Kindle

If you're an Amazon Prime member and if you own a Kindle, you can borrow books "free" – one book per month, anyway. You do this through the Kindle Owners' Lending Library. You can go to the Library from your Kindle Fire directly from the Fire bookstore; if you have an older Kindle, you go to the Kindle Store and click on "See all categories…"If you're on your computer and you find a book on the Amazon website, it'll tell you whether or not it can be borrowed from the library.

It's up to authors whether or not to make their books available for borrowing. Only book with US rights (currently) and whose eBook editions are exclusively available on Kindle are eligible. So why would you want to do this if you're an author? I bet you weren't even going to ask.

But here are the reasons:

1. Authors like to be read.
2. Authors actually get paid when their books are borrowed even though the customers aren't paying (except by buying a Kindle and signing up for Prime).

Amazon has an ingenious system for paying authors. Each month they put $500,000 into a pool (this month they've added $200,000 more). The pool is divided between authors in proportion to the number of times each author's titles are downloaded from Amazon. So authors have an incentive not only to make their books available to the library but also to promote the fact that their books can be borrowed there.

And guess what. Two books by me are available in the Kindle Owners' Lending Library. One is hackoff.com: an historic murder mystery set in the Internet bubble and rubble, a real murder mystery featuring an entrepreneur, a hacker, VCs, bankers and diverse other suspicious characters and informed by my stint as a CEO of a company which went public during the bubble – all fiction, of course. The other is my very much shorter The Interpreter's Tale set in Barcelona, wandering in and out of Gaudi architecture, and peopled with pickpockets, terrorists, separatists, and, of course, a hacker. This story used to be an Amazon Short before that category became part of Kindle.

Related posts:

The Interpreter's Tale

New Excerpt from The Interpreter's Tale

hackoff.com is a Finalist for the Lulu Blooker Award (didn't win, though)

The World Economic Forum at Davos Continued (contains an extract set in Davos, of course)

 

 

Decline in Banking and Government Sectors Good for the Economy

We need government and we need banks; but we don't need government to be as big as it's grown and we don't need banks which are too big to fail. When sectors like government or banking grow out of proportion to the benefits they bring, the economy as a whole suffers from a misallocation of resources.

So headlines like these from The Wall Street Journal this morning are good news:

BofA Ponders Retreat

Bank of America has told U.S. regulators that it is willing to retreat from some parts of the country if its financial problems deepen.

Banks Overhaul for Leaner Era

The investment-banking industry, notoriously prone to cyclical hiring and firing during booms and busts, is in the midst of a retrenchment that may be more far-reaching.

RBS Bids to Shrink to Glory

The needed contraction in the financial industry would have happened sooner if there hadn't been the bipartisan bailout known as TARP; it would also have been more abrupt. IMHO the economy would've recovered quicker if we hadn't cushioned the way down for investment bankers; others argue that that an abrupt banking contraction would have tanked the economy worse. We'll never know who is right.

The fight now is to make sure that banks don't get further bailouts and that too-big-to-fail banks get smaller. The prognosis is not great. The European Central Bank is continuing to print money to "lend" to its member banks at concessionary rates (1%) in hopes that these banks will turn around and lend some of it to their feckless governments, thereby keeping the governments afloat and earning high profits for the banks so that they can repair their damaged balanced sheets. Note that this is a scheme which protects employment in BOTH the banking and the government sectors.

Here in the US the government sector shrinks slowly from one employment report to the next. Meanwhile the private sector creates more jobs than are lost in government although not enough to bring the unemployment rate down as fast as we'd all like to see. Particularly good news is that manufacturing employment here is growing.

Government employment also would have contracted much more abruptly without the local government bailout contained in the Stimulus Bill. One can make a better argument, again IMHO, for cushioning the downsizing of government during a time when the need for government services increased than for bailing out banks. But the states and local governments by and large didn't take advantage of the reprieve to make the structural changes that were needed or even to get control over the cost of public sector retirement benefits.

Those who benefit from megagovernment – including those in the private sector serving government or exploiting grants, preferences and mandates – will fight to regrow government. As tax revenues recover along with the economy, the temptation to let government grow again will grow. That'd be a mistake. Just like bailing out banks.

Related posts:

Jon Hunstman: Wall Street's Big Banks Are the Real Threat to Our Economy

The Inconvenient Recovery

Another Day, Another Bank Bailout

Confessions of a Stimulator

 

Reader Comments on SOPA and PIPA Internet Blocking Bills

If either House bill SOPA (Stop Online Piracy Act) or Senate bill PIPA (Protect IP Act) or something in between passes both houses of Congress and is signed by the President, Internet censorship, unreachable websites, and forbidden searches will be the law of this land – just as in China. I blogged last week about the dangers these bills pose in return for helping Hollywood assure that none of its content is pirated. Readers have weighed in with some more data, questions, and amplifications. In addition, there is more useful information from twitter which I'll pass on below.

Vermont Tiger reader Will Workman commented:

"Okay, so I'll protest this law as soon as someone shows me a better way to protect intellectual property on the internet. By some estimates, 15% of all internet commerce involves stolen IP, either media available online, or offers to sell knockoff goods…

"So I repeat, are you just going to condemn a "Hollywood lobby" or are you going to propose a better way to stop the rampant IP theft on the internet?"

As he says, piracy is a real problem. Turns out that the "Internet Industry" has presented an alternative to address these real problems of piracy. According to ReadWriteWeb:

"The OPEN act sponsored by Rep. Darrell Issa, R-Calif., and Sen. Ron Wyden, D-Ore., would allow the International Trade Commission to order online ad networks and payment processors to sever ties withe foreign websites that are targeted by patent infringement claims…

""[The OPEN Act's] approach targets foreign rogue sites without inflicting collateral damage on legitimate, law-abiding U.S. Internet companies by bringing well-established international trade remedies to bear on this problem," AOL, eBay, Facebook, Google, LinkedIn, Mozilla, Twitter, Yahoo and Zynga wrote in a letter to Issa and Wyden in December."

In other words, OPEN seeks to sever the money links to pirate sites and stop otherwise legit sites from profiting by supporting them but does NOT include blocking our access to parts of the web.

Tiger reader Aaron S. Hawley wrote:

"Yes, it is bad policy. Fortunately it died last year with COICA but has been resurrected. What are the dots connecting Leahy to the lobbyists that cause him to peddle this kind of legislation in the first place? Last I checked, Hollywood is in Los Angeles, not Vermont. Does he owe favors for being in the Batman movie?"

Tiger reader Robin of Stowe responded to Aaron:

"According to the F.E.C., our Senator Leahy has been paid over $1,000,000 since 2000 by the entertainment industry. Here is the legislation they paid for.

"BTW, our Senior Senator was not in any way mis-led. He went in with eyes wide open, knowing the job he had to do. His record of Hollywood protecting legislation goes back over several sessions of Congress."

I emailed Robin and asked for a source for this allegation. Robin gave me a link to a page on Leahy on opensecrets.org. It says that his top two contributors since 1989 have been Time Warner and Walt Disney Company and that his top three contributor categories are Lawyers/Law Firms, TV/Movies/Music, and Lobbyists. There is a disclaimer which is important: "The organizations themselves did not donate, rather the money came from the organizations' PACs, their individual members or employees or owners, and those individuals' immediate families. Organization totals include subsidiaries and affiliates." The top metro areas in contributions to the Senator are Washington, DC and Los Angeles-Long Beach (which includes Hollywood).

To be fair, it does make sense for organizations to contribute to congresspeople who agree with and support their positions. These are the people they want to see re-elected.

A tweet pointed me to sopaopra.org. This is a cool site which lets you sort SOPA and PIPA opponents and proponents by how much they have received from the Movie/Music/TV industry, the Computers/Net industry, or the difference between the two amounts. Not surprisingly there is a high correlation between positions and contributions. Senator Bernie Sanders (I-VT) and Rep. Peter Welch (D-VT) are not listed as either opponents or proponents so contacting them may be a very good idea for Vermonters. Non-Vermonters can reach their congresspeople through http://www.usa.gov/Contact/Elected.shtml.

You can also sign a petition at whitehouse.org asking the President to veto these bills or anything like them if they ever reach his desk. You have to sign up with whitehouse.org to do this, but you can ask that President Obama not send you any messages.

Related post:

SOPA and PIPA are Bipartisan Bad Policy, Really Bad Policy

Jon Hunstman: Wall Street’s Big Banks Are the Real Threat to Our Economy

Coddling big banks has been a bipartisan effort. TARP passed in the Bush administration, and President Obama appointed TARP architect Tim Geithner as his Treasury Secretary and reappointed Fed Chairman Ben "bailout" Bernanke. Mitt Romney's background is in the financial industry and he thinks the bailout was necessary; look for more bank bailing should he become President.

Jon Huntsman has taken a strong and intelligent stance against bank bailouts and proposed a concrete plan for eliminating too-big-to-fail banks and allowing community banks to flourish – they can be allowed to fold if they fail. If he can manage a third place or better showing in New Hampshire Tuesday, Americans may have a strong and experienced alternative on the ballot in November.

This is Huntsman's statement on too-big-to-fail banks:

Rebuilding our economy and restoring trust in our government will require a leader with the independence to implement bold reforms that take on the establishment, from Washington to Wall Street.

Thus far, however, we are the only campaign willing to confront honestly and directly one of the greatest threats to our long-term economic prosperity: Too-Big-To-Fail Wall Street banks.

In 2008, with the nation's economy in crisis, Washington and Wall Street offered American taxpayers a Sophie's Choice: spend hundreds of billions of dollars to save big banks from failure, or witness the collapse of our financial system and irreparable economic harm.

This was not only a betrayal of the public's trust; it was also a betrayal of our free market system, which only works when every business plays by the same rules.

Taxpayers were promised those bailouts would be a one-time, emergency measure. Yet today, we can already see the outlines of the next financial crisis and bailouts.

The six largest financial institutions are significantly bigger than they were in 2008, having been encouraged to snap up Bear Stearns and other competitors at bargain prices.

These banks now have assets worth over 66% of gross domestic product – at least $9.4 trillion – up from 20% of GDP in the 1990s.

Dodd-Frank, which purportedly designed to fix Too-Big-To-Fail, has only made things worse. Not only has it left us with larger banks, but it imposes massive new regulations and unreasonable compliance costs on smaller banks, which hurts small business lending.

President Obama has offered no real solutions other than to demonize capitalism, which may score political points but does nothing to solve the problem.

My opponents have also failed to take on Wall Street with substantive reforms. This includes – unsurprisingly – the establishment's preferred front-runner, Mitt Romney.

Governor Romney, who has accepted more Wall Street money than any other candidate, has offered no concrete solutions to protect taxpayers in the event of a future financial crisis.

The Obama and Romney plan simply appears to be to cross our fingers and hope no Too-Big-To-Fail banks fail on their watch – a stunning lack of leadership on such a critical economic issue.

As president, I will break up the big banks, end future taxpayer bailouts, and restore capitalist principles – competition and creative destruction – to our financial sector.

We will accomplish this by imposing a fee on banks whose size exceeds a certain percentage of GDP, proving them an incentive to slim down and localize.

Many of us can recall an earlier time when we had community banks that were actually a part of the community, instead of a faceless Wall Street entity. They sponsored our kids' baseball teams. You knew the president on a first name basis. Your small business or farm's credit was based as much on your reputation and character as your FICO score.

We need banks that are closer to our communities that, if mismanaged, are small and simple enough to fail – not financial public utilities.

The federal government cannot afford to wait until the next financial crisis is upon us to act, which will be too late and cost taxpayers too much.

Whether it is ending Too-Big-To-Fail, reforming the corrupted culture of Congress, or eliminating special interest preferences in our tax code, we need a president who is not indebted to the power brokers in Washington or on Wall Street.

We need a president who will take on the establishment from the outside, and deliver the bold reforms our country desperately needs. That is what I will continue to offer the American people.

Related posts:

Another Day, Another Bank Bailout

"Too Big to Fail" Assures Bigness – and Failure

Preparing for the Next Banking Crisis

When Regulation Is Justified

The Occupiers and Tea Partiers Are Both Right

 

Huh?

Posted a comment on CNN.com. See hilited contradiction below.

SOPA and PIPA are Bipartisan Bad Policy, Really Bad Policy

In China you can't get to some Internet sites: no Facebook, no YouTube, no Twitter. Search engines can't find the "Falun Gong" or "Tiananmen Square massacre". We would never do that kind of blocking here in the US, you say. Well, not so fast. If either House bill SOPA (Stop Online Piracy Act) or Senate bill PIPA (Protect IP Act) or something in between passes both houses of Congress and is signed by the President, Internet censorship, unreachable websites, and forbidden searches will be the law of this land.

The Arab Spring has been enabled by the inability of some governments to block Internet communication. SOPA and SIPA both require that Internet blocking tools be developed and deployed here. Maybe we trust our own government not to misuse these (I don't!); but do we really want to be responsible for the proliferation of censorship and blocked communication?

Why, you ask, would our Congresspeople want to impose censorship anywhere? Why would they want to slow down the most vigorous parts of the US economy?

The answer, at least, is simple. These are bills that Hollywood wants to protect its movies from online piracy, and Hollywood makes mega-campaign contributions and even gives Congresspeople bit parts in its movies. There is nothing partisan about campaign contributions.

To be fair, online piracy is a problem as are websites which sell counterfeit goods – especially counterfeit drugs. Owners of intellectual property including movies, books, songs, and trademarks are entitled to protection under the law. US Internet sites should not intentionally aid or abet domestic or foreign sites which are breaking the law. In fact we already do have laws on the books to protect intellectual property and prevent fraud.

Under the existing Digital Millennium Copyright Act (DMCA), websites like YouTube have an obligation to remove material subject to copyright from their sites – if they are notified by the copyright holder that the material is an infringement. Companies like Google have been punished by fines for KNOWINGLY facilitating the sale of counterfeit products. The key issue is that YouTube is NOT responsible for checking every video that you upload to make sure you have not violated someone's copyright. If there were such an obligation – similar to requiring the Post Office to open every piece of mail to check for fraud or contraband, there would clearly be no services like YouTube. Similarly your Internet Service Provider (ISP) is not liable if you use your connection to download pirated stuff. If the ISP has to be a censor, then the ISP would have to examine everything you do (read your email, for example).

SOPA and PIPA are nominally aimed at foreign sites since US sites which break the law can (properly) already be shut down. However, foreign sites are beyond the reach of US law; so, the SOPA and PIPA logic goes, we must block access to these sites from the US. Blocking sites means that US search engines can't point to them (just like China); US domain name servers (DNS), which convert links like www.thisandthat.com to IP addresses reachable on the Internet, must "forget" how to convert the forbidden links; and our ISPs can be required to block our access to forbidden websites – meaning, of course, that our ISPs must examine which websites we do access and will probably have to keep a log to prove they blocked us when they should. Social media sites will have to examine all user-submitted content to assure that it does not contain forbidden links.

Under SOPA and PIPA you won't be able to access the same Internet that you see in countries which value Internet freedom; we'll be more like China and less like what we used to be. Here in the US we operate Internet proxy servers, which are used by many Chinese to evade their government's censorship of the Internet. These proxy servers might well be illegal under SOPA and PIPA because they would also provide a way to reach websites which would otherwise be banned in the US.

Google and Facebook will hire a legion of lawyers and survive even SOPA and PIPA, which they oppose; startup social media sites will have a hard time getting funding when they can easily be bankrupt by possibly frivolous lawsuits over postings by their users. There might not be a next Twitter. You may or may not be a user of social media, but you are a beneficiary of the fact that social media innovation creates jobs here in the US where most of that innovation happens – unless we choose to shut it off.

On his website, Senator Patrick Leahy (D-VT), chair of the Senate Judiciary Committee and prime sponsor of PIPA, says:

"The PROTECT IP Act is supported by businesses and organizations across the political spectrum from labor unions to the Chamber of Commerce and the National Association of Manufacturers, from the National Association of Broadcasters to the cable industry.  "

He goes on to point out, correctly, that it was approved unanimously by all the Republicans and Democrats on the Judiciary Committee. The first part of the press release makes the statement that the bill contains:

"..authorization for both the Attorney General and rights holders to bring actions against online infringers operating an internet site or domain where the site is 'dedicated to infringing activities,' but with remedies limited to eliminating the financial viability of the site, not blocking access [nb. emphasis mine]."

However, the description of the bill further down in the same press release makes very clear that this is all about blocking access:

"The court is authorized to issue a cease and desist order against a rogue website.  If the court issues that order, the Attorney General is authorized to serve that order, with permission of the court, on specified U.S. based third-parties, including Internet service providers, payment processors, online advertising network providers, and search engines.  These third parties would then be required to take appropriate action to either prevent access to the Internet site [nb. emphasis again mine] (in the case of an Internet service provider or search engine), or cease doing business with the Internet site (in the case of a payment processor or advertising network)."

Senator Leahy is usually a defender of civil liberties. It seems in this case he may have been misled by his friends in Hollywood about the draconian nature of the protections they are seeking.

According to Wikipedia:

"Opponents of SOPA include Google, Yahoo!, Facebook, Twitter, DynDNS, AOL, LinkedIn, eBay, Mozilla Corporation, the Wikimedia Foundation, and human rights organizations such as Reporters Without Borders, the Electronic Frontier Foundation, the ACLU, and Human Rights Watch

"On December 13, Julian Sanchez of the Libertarian think tank Cato Institute came out in strong opposition to the bill saying that while the amended version "trims or softens a few of the most egregious provisions of the original proposal... the fundamental problem with SOPA has never been these details; it's the core idea. The core idea is still to create an Internet blacklist..."

"Computer scientist Vint Cerf, one of the founders of the Internet and Google vice president, wrote House committee chairman Lamar Smith, saying "Requiring search engines to delete a domain name begins a worldwide arms race of unprecedented 'censorship' of the Web," in a letter published on CNet…

"An editorial in Fortune wrote, "This is just another case of Congress doing the bidding of powerful lobbyists—in this case, Hollywood and the music industry, among others. It would be downright mundane if the legislation weren't so draconian and the rhetoric surrounding it weren't so transparently pandering."^"

If this were just a commercial argument between old line entertainment businesses like the movie makers and new media companies like Google and Facebook, the issue would not be nearly as important as it actually is. These bills are the equivalent of banning all guns because some guns are used in felonies; they are the equivalent of allowing the government to exercise "prior restraint" of newspapers because sometimes libel gets published. These bills would move the US in the direction of some of the worst practices of China and give comfort to the world's remaining tyrannies who are trying desperately to cut off free communication. These are bills which must not pass.

If you agree, please email your Congresspeople.

Good News for the New Year

The ethanol $.45/gallon tax subsidy is gone! Happy New Year. This could be a small opening wedge for both good energy and good fiscal policy. Bipartisan inaction (a techniques which Congress has mastered) let the 30 year old credit for corny ethanol, which cost us taxpayers $6 billion last year, expire with the end of 2011. This brave inaction was taken BEFORE the Iowa caucuses! BTW, this is a healthy recognition that a targeted tax break is every bit as much a subsidy as a government check.

At the same time the $.54/gallon tariff on imported ethanol was also allowed to expire, and so cheaper ethanol made from Brazilian sugar cane will set a price limit on what American producers of corny ethanol can sell their product for. This competition matters because Congress did NOT eliminate that requirement that refiners add ethanol to our gasoline and diesel supplies. We are still going to buy the stuff whether we like it or not

It took an unusual left-right alliance for this significant inaction to occur. Originally the subsidies were supposed to promote energy independence and prevent carbon emissions. The left was disappointed to find that emissions may actually have increased as a result of ethanol subsidies encouraging the use of more and more of the existing farmland for fuel rather than food and forest land being converted to farms. Also, of course, the price of food has increased as the grain supply has been diverted to ethanol. The right's not-always-consistent suspicion of subsidies was confirmed by a National Academy of Sciences report (as quoted in The Wall Street Journal) saying that grain ethanol "could not compete with fossil fuels in the U.S. marketplace without mandates, subsidies, tax exemptions, and tariffs . . . This lack of competitiveness raises questions about the use of government resources to support biofuels." Even the farm lobby did not fight hard to keep the subsidy, recognizing that all of its subsidies are in danger in a time of general affluence for grain farmers.

Getting rid of the subsidy and the tariff is only two-thirds of the battle; there is still a nonsensical requirement that refiners put a 10% ethanol spike into our transportation fuel supply regardless of whether ethanol competes with other fuels on a miles per dollar basis. Congress would actually have to act to undo this requirement and Congress isn't much good at acting. Under old laws the required percentage of ethanol in fuel keeps going up on autopilot unless and until the EPA determines that there is not adequate ethanol available. So put this in your tailpipe and smoke it: since we are no longer subsidizing the use of ethanol with our tax dollars and since ethanol currently costs more than gasoline and since the refiners are forced to buy ethanol, the price of gasoline and diesel at the pump will go up. We will send this forced contribution to Brazilian sugar farmers and to any American producers who manage to reduce their prices sufficiently. Refiners who don't buy enough ethanol pay a penalty to the EPA, which, of course would get passed on to us.

Refiners aren't likely to have to pay the penalty for run-of-the-mill ethanol since there is enough of it around at prices below the penalty. However, there is a separate mandate for the amount of cellulosic ethanol (ethanol from nonfood crops) which must be blended into our fuel supply. Congress initially set 500 million gallons as the cellulosic ethanol number for 2012, but gave the EPA the ability to reduce the number in case sufficient quantities are not likely to be available. Given that NO qualifying cellulosic ethanol was produced in the US in 2011, the EPA has reduced the target to only 8.65 million gallons. And what happens, you ask, if that quantity is not available? Simple, refiners will pay a penalty of $.78/gallon for each non-existent gallon of cellulosic ethanol they don't buy (and presumably pass this cost on to us).

But let's look on the good side: we're two for three; the subsidy and the tariff are gone.

This is a great precedent for NOT passing any of the proposed subsidies for natural gas, which I believe will contribute greatly to solving energy, economic, and environmental problems without a government handout so long as there is reasonable, effective, and speedy regulation of extraction. Credits and subsidies for various forms of "renewable" energy are expiring; RIP. It'll take congressional action but existing tax and other subsidies for oil and nuclear power ought to also be repealed (and subsidy-free projects like the XL Pipeline be allowed to proceed). Heck, pretty soon we'll be taking tax breaks away from hedge fund managers. That'll be a real new year.

Related posts:

Natural Gas Disrupts the Energy Industry

The Pickens Plan Bill: The Wrong Way to Get the Right Result

Ending Tax Giveaways Isn't Raising Taxes

We Can End Energy Subsidies

Why Does Iran Think It Can Get Away with a Blockade?

"If they impose sanctions on Iran's oil exports, then even one drop of oil cannot flow from the Strait of Hormuz," says Iran's first vice president, Mohammad-Reza Rahimi, as quoted in The New York Times. According to the same article, about a fifth of the world's oil flows through the Straits. Kuwait, Iraq, Saudi Arabia and UAE all border on the Persian Gulf which would be bottled up by the threatened Iranian blockade.

So why does Iran think it can get away with that massive threat to both its neighbors and the Western economies dependent on this flow of oil. Let me count the reasons:

1. The US and Saudi Arabia have done nothing but grumble after uncovering an Iranian plot to blow up the Saudi ambassador in Washington.
2. The world has, of yet, taken no effective action against Iran's growing nuclear program.
3. The US once allowed Iran to hold its embassy personnel hostage for longer than a year.
4. Bands of ragtag Somali pirates continue hijacking ships – including oil tankers – despite patrols by NATO and other navies.
5. We continue to allow the payment of ransom for hijacked ships instead of recapturing them by force.
6. Some NATO countries (but not the US) play catch and release with pirates.
7. Despite some US progress towards independence from Middle East oil, the President can't bring himself to approve the XL Pipeline, accelerate drilling offshore in the lower 48 or in Alaska, or accelerate safe recovery of our vast natural gas resources (subsidies aren't needed, just intelligent regulation).
8. "Mr. Obama, his aides acknowledge, has no interest in seeing energy prices rise significantly at a moment of national economic weakness or as he intensifies his bid for re-election — a vulnerability the Iranians fully understand." –from the NYT article.

The article also says "In recent interviews, Obama administration officials have said that the United States has developed a plan to keep the strait open in the event of a crisis." I hope that's true. Presumably US and NATO warships will accompany tankers through the Straits. Hopefully Iran would back off in that case. But what if they miscalculate? We can't afford to be bluffing. The Straits is narrow and would be effectively blocked for a while by any wreckage. It can be reached by missiles fired from deep in Iran. The West would win eventually but better to avoid the dangers of Iranian miscalculation.

Here are a few suggestions for avoiding miscalculation:

1. Have NATO's navies finish their efforts against Somali pirates in order to concentrate on patrol in and near the Straits. Finishing means ending piracy by forbidding payment of further ransom and freeing the ships now being held hostage by force immediately. Until the pirates realize they have no options and that it is too dangerous for them to harm hostages, freeing these ships will probably involve some small loss of life; I don't say that lightly. But there will be more lives lost if hostage-taking continues to be rewarded. And many more lives lost if we have to go to war with Iran to keep the Straits open because Iranians confuse our forbearance towards pirates with weakness.
2. Put NATO ships on conspicuous station in or near the Straits; don't allow Iranian ships to come near them; and put Iran on notice that missile tests during this crisis they've provoked are too dangerous to allow and so all known launch sites will be destroyed in the event of any launch.
3. Take the steps approved by the Senate in a 100-0 vote to cut off companies which do business with Iran's Central Bank (this makes it very hard for Iran to sell its oil).
4. Approve the XL Pipeline and other projects which make North American oil and natural gas readily available.
5. Republican presidential contenders, who have generally taken a hard line on Iran, should announce that they will NOT politically attack the President when oil prices rise as a result of these tensions so long as we are taking speedy steps towards energy independence.

If we convince Iran that it can't threaten us with blockade, they may even realize they have to back off on nuclear weapons. On the other hand, if they think their threats deterred action against their oil exports, imagine what their threats'll be once they have a couple of nuclear bombs.

The Inconvenient Recovery

The US economy is improving. This improvement is inconvenient for both major political parties so it isn't getting much attention or credit. The improvement is slow – but might be faster if it got the recognition it deserves since improvement depends on consumer and business confidence.

The facts are that unemployment is coming down at an accelerating rate despite continued reduction in the government sector. The significant four week average for new unemployment claims is down. Consumer sales are up over last year. Inventories are still lean. Personal balance sheets are much more balanced than they were before the recession. Housing prices may finally have stabilized with the needle pointing right at affordable – especially with prevailing very low interest rates. The balance sheets of large corporations are stuffed with investable cash. The price of oil – always important to the American economy - has slid way off its highs and may have further to fall. Meanwhile abundant American natural gas is keeping a lid on electricity prices and creating jobs in both extractive and energy-dependent manufacturing businesses; some jobs are even coming back from China. Farmers are making scads of money. The rest of the world has apparently decided that the US is the best of a bad lot and is parking its money here, keeping our interest rates down and potentially making more capital available to invest.

So how come this isn't good news?

Well, if you're a partisan Republican it means that the Obama Administration hasn't completely wrecked the economy and he might even be able to run for reelection in an upturn – perish the thought; he'll certainly take credit for it if it happens. Moreover, how can you say you won't close tax loopholes for the very rich in this "struggling economy" if the economy isn't struggling?

If you're a partisan Democrat how do you argue that even more stimulus and government spending is needed when the economy inconveniently began to recover once Stimulus had run its course? How do you argue against tighter restrictions on collecting unemployment insurance if jobs are again available (I know that they're not readily available for everyone at every skill level everywhere)? How do you argue that we can't cut public sector jobs when the private sector is doing such a good job of taking up the job-creation slack?

If you're at the Federal Reserve, what is your excuse for continuing to manufacture profits for too-big-to-fail banks when a recovery is happening despite the facts that these banks are also too big to lend to small businesses and that large business have plenty of liquidity of their own.

It must be that I imbibed too much holiday cheer. How dare there be a recovery now?

Related posts:

"Too Big to Fail" Assures Bigness – and Failure

The Inconvenient Good News in the Employment Report

Jobs Coming Back from China

 

 

Don’t Argue with 911

"What's the nature of your emergency," the 911 operator asked.

"My wife is having a possible heart attack," I said.

"What's your location?"

"I'm on 89 North. Just passed mile marker 72. I'm going to Fletcher Allen. Fast." I was going eighty, ninety when there was room. It was dark but the road was dry.

"Sir, can I convince you to stop so I can get help to you."

"No. Sorry. I can get her there faster if I keep going. But if you can have an emergency vehicle meet me, I'll stop and transfer her."

"Sir, an ambulance has equipment to treat her. Do you have that in your car?"

"No. But it'll take too long to wait for an ambulance. I'm at mile marker 74."

"Sir, can you get off at the Richmond exit? It's in five miles."

"Can you get an ambulance there before I get there?"

"The ambulance will be there very quickly once I call it. Sir, it would be better if you got off."

"Call the ambulance and ask them how long it'll take them. Maybe they should meet me at Williston."    

"Sir, I can't call them until you tell me where you're getting off."

Mary was barely conscious. She didn't even tell me what to do which meant she was very sick indeed.

"I'll get off at Richmond. Call the ambulance."

"Can you go the park and ride at Richmond?"

"Yes. CALL THE AMBULANCE."

The 911 operator stayed on the line. The Richmond fast squad arrived at the park and ride five minutes after we did. They stabilized her and got her to Fletcher Allen in better shape than I would have. Turned out she was having a severe reaction to a prescribed medicine and her heart is certified fine. Two days later she was being Mary again and going to emergencies as a Red Cross volunteer rather than being the emergency.

But don't be as dumb as me. The ambulance would've been in Richmond five minutes earlier if I hadn't wasted time arguing. Five minutes could've mattered more than I want to think. Good thing the 911 operator was patient and persuasive or I would've been even dumber.

 

Son Jarah Quoted in Discovery's Top Science Story of 2011

The quote I liked is:

One of the most intriguing ideas comes from Jarah Evslin, Emilio Ciuffoli, and Xinmin Zhang of the Chinese Academy of Sciences in Beijing, who are using one unexplained phenomenon to account for another. Dark energy is a mysterious kind of antigravity thought to operate on a cosmological scale, pushing galaxies apart and causing the universe to expand ever-more quickly. Evslin and colleagues propose that dark energy changes its behavior in the presence of large masses like Earth. It could be scrunching space-time together near the planet so that the neutrinos' route becomes slightly shorter - 20 meters shorter, to be exact - than the measured value of 730,534.61 meters. "It creates a shortcut," Evslin says. "The neutrinos see the distance between CERN and Gran Sasso as being less than we do."

The paper with this theory in it is at http://arxiv.org/abs/1109.6641. 

Turns out that clicking on the embedded "inside" link below will only get you to a screen which hangs without explanation if you're not signed into zinio with an account which includes Discover access. You'd think they'd at least want to serve you an explanation with an ad. But that's not what this post is about.

 

 

Related posts:

The Latest on Speeding Neutrinos

v-c: What If It’s Positive?

 

Smart Meters Enhance Physical Privacy

As a Board Member of the Stowe Electric Department, I get occasional questions about Smart Meters from my neighbors.

"About Smart Meters and privacy…" a woman began.

"So long as the data from the meter's encrypted," I began without letting her finish the question.

"Huh?" she asked. "What's encryption have to do with anything? What I don't like is people tromping over my yard to read the meter. They won't have to do that when we have Smart Meters, right?"

"Right," I said.

"Yeah," a man chimed in. "My dogs don't like the meter readers at all. They'll be glad to have Smart Meters."

"I have a neighbor with a seasonal house and a locked gate. They don't like people knowing when they're there and when they're away. And they don't like meter readers going around the gate, either." This from a third person.

No one asked me about cyber security even though I would've been happy to give them a detailed answer about why they don't have to worry about their meter data being stolen. No one asked me about electromagnetic radiation from meters, which is safe and far, far less potent than holding a cellphone to your ear.

I explained that Smart Meters give the utility data which allows faster restoration of service in an outage; people were interested in that. I explained how better information reduced cost to the utility which means, in the long term, rates lower than they would be otherwise and that automating meter reading saves us all money. "Yeah, I'm for lower rates," someone said politely.

I told a story about querying my Smart Meter data remotely to find that a pump in my house was malfunctioning while I was away. People drifted off to the bar.

I mentioned that electric cars will be simply impossible if we don't have smart meters to make sure they don't all charge at once and bring down the grid. The conversation changed to cars, the non-electric kind. I decided not to be a bore.

Funny the things people are really interested in, like keeping their property private.

Related posts:

Irene Lesson # 1 – Smart Grid Great for Power Restoration

House Flatlines – Smart Grid to the Rescue

What's a Smart Grid and Why Does It Matter?

What The $69 Million Smart Grid Grant Will Mean to Vermont

Don't Like Smart Meters; Opt Out at Your Own Expense

Doing Good by Doing Well

"I'm hoping to get a job with a non-profit."

"I'll probably have to work in industry for a while, but then I plan to start a non-profit."

"I want to find a business with a triple bottom line."

"We're developing a video game that'll teach people not to be sexist."

"Once I make some money, I hope to be a philanthropist."

"I'm hoping to get a job with an NGO."

Noble thoughts, think I, but on the whole misguided fuzzy thinking.

All of these quotes come from bright, energetic young people studying to begin careers in areas like smartphone apps, computer game development, and web site wizardry. None of them say they want to make a lot of money (except to fund their planned philanthropy). None of them say they want to build insanely great products (Steve Jobs' mantra) or build a great company or lower the cost of energy or change the way people shop or even increase farm yields. Maybe they're just telling us what they think we want to hear; but they appear to be serious. Where did we go wrong?

Thomas Edison put as much energy into making inventions profitable as he did into discovery. If he hadn't, it would've been a lot longer before the world benefited from his inventions and his incredible invention stream – the electric light bulb, sound recording, movie making etc. etc. – would have been unsustainable for lack of funding. Don't know what he did as a philanthropist. Doesn't much matter.

By most accounts Henry Ford was a pretty awful person. He was a racist, an anti-Semite, and an admirer of much of what was happening in Nazi Germany. His charity went to some pretty bad causes. He didn't invent the car but his business and engineering acumen led to a car that every middleclass family could afford and his factory was a highway from poverty to the middleclass. The wreckage which is now Detroit didn't happen on his watch. The Fords who presided over that were much more socially conscious and politically correct – but they didn't do as much good as mean old Henry.

Bill and Melinda Gates are innovative philanthropists. They're driving the established bureaucracies of the UN and prominent NGOs crazy by insisting on results, which is a good thing. But, so far, Bill did more to change the world with a licensable operating system which made it possible to build and sell commodity computers that much of the world can afford and figure out how to use.

Now iPhone and Android are making the world more accessible by another order of magnitude. Steve Jobs built insanely great products – at high profit margins. Google gives Android away – because it enhances their hold on the search business. Google's motto may be "do no evil" – the good they have done is to link us to the information we need; the founders are famously billionaires.

Jeff Bezos and Amazon may have done as much for readers and books as the Carnegie Libraries.

Thanks to Charles Theodore Dotter who invented the stent in the artery of my heart as well as angioplasty itself; I hear he made a fortune. Glad he was motivated.

In 1865 Col. Edward A. L. Roberts received the first of his many patents for an exploding torpedo; it was used not for war but increasing production from hydrocarbon formations. He died a wealthy man. The co-inventors of modern fracking combined with horizontal drilling were Joseph Clark and Riley Farris. By vastly increasing the supply of natural gas, they have arguably done more for energy independence, energy abundance (a good thing), and lower carbon emissions than all the well-intended grant-funded green efforts in the last twenty years.

Not every person who has become rich has done good while getting there, obviously (I might mention drug dealers and certain investment bankers). Even the very do-gooding Ben and Jerry earned their fortunes by making sugar-coated cholesterol taste even better (without so much as a warning label). And there are many famous examples of people like Gandhi who did good without getting rich.

Nevertheless, I'll bet that, on the whole, when these students become workers and businesspeople, those who devote themselves to insanely great products, making things much cheaper than competitors do, or profitably knitting us all closer together in cyberspace will make more of a difference in the world while they are growing their bottom lines than when they later retire as philanthropists. I wish I could find a good way to tell them that.

Maybe I ought to un-retire and go back to work myself.

Related posts:

Great Docs and Technology Saved My Life Thursday

Natural Gas Disrupts the Energy Industry

WHO Doesn't Like the Gates Foundation

 

 

Irene Lesson #4 – You Can’t Spend a Lot of Money When You Don’t Have a Lot of Time

Vermonters already know that the State will spend less than half the amount originally estimated to fix the state roads and bridges decimated by Tropical Storm Irene; this post is for people in the rest of the country who will benefit from the lessons we learned.

The job got done in less than half the time anyone thought it would take – crucially all bridges and all but one state highway have been reopened prior to serious winter weather and in time for the skiers. Turns out that getting the job done fast and getting it done cheap are two sides of the same coin.

The original worst case estimate for this job was $600 million according to a story on VTDigger.org quoting Irene czar Neale Lunderville; but the final toll, according to a New York Times article, will be in the range of $175 million to $250 million. The original estimates were made quickly and were meant to be conservative; the people who made these estimates were literally up to their necks in more urgent problems. But the estimates were indubitably made according to a standard set of estimating formulas which have been in use (hopefully updated) since the time thirty years ago when I was Vermont's Transportation Secretary. History is that estimates tend to go up – not down!

The cost should've come in high. There was no time for competitive bidding. People worked overtime until they dropped (and were probably pretty tired before they dropped). Local supplies of almost everything including people and machines were exhausted. Rocks for building new embankments had to be hauled in on special trains. But the costs came in low.

The VTDigger article explains some of the reason for the savings:

"State officials attributed the drastic reduction in costs to a variety of factors, including the efficacy of emergency construction techniques and the extraordinary dedication of VTrans workers, the Vermont National Guard and private contractors. In all, 500 miles of roads were reopened in just two months after the Aug. 28 storm…

"The state also saved millions of dollars by taking short cuts during the post-Irene emergency that normally would be prohibited under state and federal laws. The standard pre-construction procedures for road and bridge repair were abandoned in order to expedite the process, according to Sue Minter, deputy commissioner of the Agency of Transportation. The processes that are normally followed for transportation projects — federal and state permitting, environmental mitigation, design review, planning, right-of-way purchases – went by the wayside.

"Transportation workers didn't have to keep roads open and contend with traffic. In some cases they used gravel and rock dug from rivers and collected from fields where floodwaters had left deposits of aggregate [my note: Working in the rivers is usually totally off limits]…

"Minter pointed to a bridge project in Newark as an example of how a brief road closure can hasten VTrans work and save the state hundreds of thousands of dollars. A bridge on Route 114 in the town was closed to traffic for one month during construction. As a consequence, it cost $300,000 to build instead of the average $1.5 million pricetag for bridge installation, she said. The bridge was completed in three months, as opposed to several years."

In other words, there wasn't time to spend a lot of money on either bureaucratic delays or costly attempts to keep the public happy by avoiding the inconvenience of temporary closings.

Vermont has learned from its experience. John McClaughry writing on VTTiger.com quotes Democratic Governor Peter Shumlin:

"You can be assured that in the interest of delivering the best possible roads and bridges and transportation infrastructure that we can to the hard-pressed taxpayers in Vermont, we have asked the Agency of Transportation… to assess how we can bring this kind of good news to future road project."

John also quotes House Republican Leader Don Turner asking: "If we can bypass some of those steps in an emergency situation and save hundreds of millions of taxpayer dollars, why can't we do that all the time?"

Like the reconstruction effort itself, learning from it is bipartisan although, as you might expect, there are many who think the state went too far in its rapid reconstruction and would like to make sure that never happens again.

IMHO there are four lessons here:

1. Americans can still come together and do remarkable things.
2. Government spends more of our money than we would want it to in order to keep us short-term happy – as in building a temporary bridge instead of telling us to go around during construction.
3. The regulations which started as well-intentioned and needed protection for neighbors and the environment has turned into a nightmare of expensive delay which at least doubles the cost of both public and private projects.
4. If we remember the three lessons above and reform both government construction practices and permitting, we can rebuild our infrastructure for less than half of what we thought it was going to cost and have a boom in private construction as well.

Related posts:

Shumlin Appointment of Lunderville as Irene Czar Great non-Partisan Decision

Irene Lesson #2: Nothing in America is Shovel Ready – Until It Has to Be

Jobs Rx: Make America Shovel Ready

The Latest on Speeding Neutrinos

Son Jarah was interviewed last week on CRI, China's English-Language equivalent of the BBC. The subject was the possible evidence of neutrinos traveling faster than the speed of light, which came from an experiment at CERN. Here's the show description from CRI:

2011-12-02 Speed of Light
The Speed of light. It's the universal speed limit. A constant that has informed physics since Albert Einstein laid out his theory of special relativity.
But a new experiment may disprove all of that. The OPERA lab in Italy has early results suggesting that sub atomic particles called Neutrinos may travel faster than the speed of light.
Today our panel of experts are taking a look first at the experiment itself, then at the reactions and impacts to the discovery and finally at the outlook of physics in light of these new results.
- Jarah Evslin, Professor at the Institute of High Energy Physics at the Chinese Academy of Sciences.
- Alexander Vikman, a CERN Fellow.
- Giovanni Amelino-Camelia, A theoretical Physicist from Sapienza University of Rome.

111202today1[1]>The Interview

When asked about a paper by a Nobel-laureate which says that the CERN results can't be right because they are theoretically impossible, Jarah says "Of course a theoretical argument cannot disprove an experiment, only a failure to repeat the experiment by another group can do that." All three interviewees are thoroughly scientific in both their skepticism about the results of an experiment which has yet to be independently replicated and their willingness to consider that a long-standing interpretation of Einstein's Theory of Special Relativity may be wrong despite the fact that it's accepted wisdom.

Jarah actually gives Einstein a hall pass and says that special relativity only claims 1) that nothing can exceed the speed of light IN A VACUUM (the possibly superluminal neutrinos were passing through the very solid crust of the earth); and that no subluminal particle can become superluminal (the neutrinos probably began their journey at - not below - the speed of light).

All three scientists agree that the CERN results are "probably" wrong. However, the last question of the show is "are we on the brink of a major shift in our understanding of the universe?" Only Jarah says "yes".

Jarah's latest paper on what the OPERA experiment might tell us if confirmed is at http://arxiv.org/abs/arXiv:1111.0733.

related post:

v-c: What If It’s Positive?

 

Another Day, Another Bank Bailout

The US Federal Reserve along with other central banks is making it easier – i.e. cheaper – for European banks to borrow US dollars. In other words we're giving the banks a gift of the half percent discount in interest rates the fed is financing. The action is cloaked in the usual rhetoric about encouraging banks to lend etc. etc.; but it has no purpose unless it's to make the banks stronger by letting them pocket the extra margin on loans made possible by giving them a break on their borrowing costs and deliberately ignoring the fact that they themselves are not credit-worthy since they hold scads of nearly worthless sovereign debt that isn't ever going to be repaid. As the Wall Street Journal, which apparently approves of this actions, says: "The coordinated action doesn't directly address Europe's government-debt and budget woes. Instead, it is aimed at alleviating the impact of those troubles on global markets." For "global markets", read "banks".

Don't worry though, we're not doing this generous deed for the sake of European money center banks; we're doing it to protect US banks. Again from the WSJ article: "Michael Feroli, an economist with J.P. Morgan, said Wall Street traders took the move as a sign that 'the Fed and central banks are there to support things' and that 'these guys have our back.' Yup. Make all the bad loans you want; pay your executives huge bonuses based on the short-term interest on loans whose principal we'll never be repaid; and we've "got your back." It's almost enough to make you camp out in Zuccotti Park – or, even better, watch who you vote for.

But, you ask, don't we want to "strengthen the banks". NO! We want to weaken and dismember any organization which is too big to fail. We want institutions which we can afford to let fail (given FDIC insurance) to compete for both our savings dollars and our banking business. We want institutions which can't afford to flood Washington and other world capitols with lobbyists and have to do business the old fashioned way on Main Street.

Governments and central banks share the blame for the predicament the "banking system" is in. In the US regulators as well as rating agencies let banks pretend that subprime mortgages were a rock-solid asset and that housing prices never could decline. For those who claim that the TARP money was paid back, consider that rescuing Fannie Mae and Freddie Mac has SO FAR cost us taxpayers $151 billion. This money goes to hold banks harmless from bad loans they made. If these had indeed been private insurers, they would've gone broke and the banks would be holding the bag. This is bank bailout money; it won't be repaid.

In Europe regulators doing stress tests on banks assumed that sovereign debt would be repaid even though they knew that the governments behind the debt were broke. The banks got to charge high interest rates on these loans to feckless governments because of risk which, according to the regulators, didn't exist. Good business if you can get it. Problem is that the banks aren't going to get repaid in full for loans to Greece and perhaps other countries. They don't really have the assets regulators encouraged them to report.

But regulators and central banks don't like to think of the plight of these poor bankers – especially because these very same regulators and central banks were complicit in creating the crisis of mis-priced assets and too-big-to-fail institutions. So we're back shoveling money into the bailout trough and being told that our future depends on more bank bailouts.

Which gets me back to voting.

According to an Economix blog on the New York Times site by former International Monetary Fund chief economist Simon Johnson:

"…More bailouts and the reinforcement of moral hazard — protecting bankers and other creditors against the downside of their mistakes — is the last thing that the world's financial system needs…

"Is there really no alternative to pouring good money after bad?

"In a policy statement released this week, Jon Huntsman, the former governor of Utah who is seeking the Republican presidential nomination, articulates a coherent alternative approach to the financial sector, which begins with a diagnosis of our current problem: too-big-to-fail banks:

" 'To protect taxpayers from future bailouts and stabilize America's economic foundation, Jon Huntsman will end too-big-to-fail. Today we can already begin to see the outlines of the next financial crisis and bailouts. More than three years after the crisis and the accompanying bailouts, the six largest U.S. financial institutions are significantly bigger than they were before the crisis, having been encouraged by regulators to snap up Bear Stearns and other competitors at bargain prices.'…

"The goal is simple, as Mr. Huntsman said in his recent Wall Street Journal opinion piece: make the banks small enough and simple enough to fail. 'Hedge funds and private equity funds go out of business all the time when they make big mistakes, to the notice of few, because they are not too big to fail,' he wrote. 'There is no reason why banks cannot live with the same reality.'"

I'm making a contribution to the Huntsman campaign. Ron Paul is for abolishing he Fed altogether; I'm not sure I'm there yet and I disagree too strongly with him on other issues to suppory him. Mitt Romney has says he thinks that TARP and the bailouts by the Feds were needed as does Herman Cain. Newt Gingrich did too much lobbying for Freddie Mac and ais been an unrepentant supporter of corny ethanol. And Barack Obama appointed Timothy "Tarp" Geithner as Treasury Secretary and reappointed "Bailout" Ben Bernanke as Fed Chairman.

Simon Johnson concludes his Economix piece:

"Only Theodore Roosevelt could take on the industrial and railroad monopolies in 1901, only Richard Nixon could go to China in 1972, and only Jon Huntsman seems prepared to face down the too-big-to-fail banks today."

Hope he's right that someone is prepared to do this. Hope we can elect politicians who will end the occupation of Wall Street by government-backed too-big-to-fail institutions.

Related posts:

"Too Big to Fail" Assures Bigness – and Failure

Preparing for the Next Banking Crisis

When Regulation Is Justified

The Occupiers and Tea Partiers Are Both Right

Too Many Employees Means No Jobs

There is only one woman visible in this CNN picture of a Chinese factory. Since the article is about a decline in Chinese factory orders, I think it is meant to be an illustration of layoffs. But look more closely; her chair is on a rail so she apparently can tend all those spools by herself. This is a highly automated factory. Looked at another way, whether this factory succeeds or fails has little to do with the cost of labor in China; the labor component of cost is low. Put more positively, productivity is high.

Now look at the second picture from a Daily Beast article about the failure of Evergreen Solar, a builder of solar panels heavily subsidized by the state of Massachusetts, which shipped its manufacturing from the Bay State and Michigan to China – and then went bankrupt with the loss of 1000 US jobs. Notice that the man in this picture from the Massachusetts plant appears to be putting solar panels together by hand. Even though there was indubitably some automation in this factory, the picture illustrates low productivity and a high labor cost per unit produced. Of course Massachusetts subsidized this factory because of the number of jobs it would create; so, in the search for subsidies, high productivity and low job count is a negative. Trouble is that, in the real world, low productivity and high job count leads to business failure. Exactly what happened here.

Private investors demand high productivity; democratic governments, as investors, looks for low productivity and high job counts. When I was Vermont's Stimulus Czar, we used to joke that we could make Washington happier with our job numbers if we banned the use of power tools on construction projects. We didn't laugh at our own joke.

The political problem with government investments is that some of them – like Solyndra and Evergreen – fail. The real problem with "job creation" investments by government is that they encourage inefficient enterprises and discourage private investors from putting their money into more efficient competitors, since the private investors don't want to compete with "free" government money.

New Chinese factories are highly automated and efficient even though they are often subsidized by government money or are simply government owned. The Chinese seem to realize that they need to efficient in order to compete. IMHO, however, the Chinese government investments are also riding for a fall; the Chinese bet, for example, that the West would continue to subsidize the purchase of solar panels. Meanwhile strapped governments in the Europe and the US are cutting back on and ending subsidies; not even cheap Chinese solar panels are a good business proposition without subsidies. Political favoritism plays an even greater role in the allocation of government subsidies in China than it does here in the US.

We now have a great opportunity to bring manufacturing jobs back to the US. The fact that labor costs are lower in China is less and less important as productivity rises everywhere. We have lower energy costs than China; we have the similar supplies of rare earths; it is obviously cheaper to transport goods to the giant US market from here rather than from China; and the Chinese have disappointed many of their American customers with poor quality (and dangerous additives). Some jobs are coming back already.

What we DON'T need is more government investment or even tax breaks for those who create "the most jobs". Lean factories will survive – and create high-paying jobs for American workers. Over-staffed enterprises will fail and create no jobs except for bankruptcy lawyers. American companies are sitting on piles of cash. Increasing sales – like those on Black Friday – will encourage them to build capacity, lean capacity. The big companies are sitting on so much cash, on which they earn almost no interest, that they don't even need the struggling banks to finance their expansion. And they certainly don't need the government to dispense even more subsidies to the inefficient.

The greatest stimulus government can deliver would be cutting the red tape needed to build and to tap into our own energy supplies. The second biggest stimulus would be an announcement that government is no longer going to try to pick industrial winners and losers – and recognizes that rewarding excess "job creation" is a surefire way to destroy private sector jobs.

Related posts:

Jobs Coming Back from China

America's Industrial Revival

Jobs Go Awaiting… Or to China