GMR Musings

Restaurant Foods that Suck (not due to taste)

2010-07-04T00:10:00.004-04:00

Yeah, this is a bit random, and a bit different, but it's not like this blog has regular readers anyway because I update it so infrequently.

Here are restaurant foods that I just plain cannot stand, and not because I dislike the way they taste, but rather because of the manner in which they are provided.

#1. Fajitas. So when you order fajitas, invariably the waiter brings out this super hot black frying pan with the fajuta stuff still sizzling away, with lots of onions. Damn it, restaurants have kitchens. Prepare the food in the kitchen, and then bring the damn stuff out. This has to be the most annoying thing for someone else at your table, or even the next table to order. Everything else on this list, it doesn't really matter if someone else at your table orders it. But Fajitas suck for everyone else at the table, not just the person ordering it. I really wish restaurants could finish these things back in the kitchen.

#2. Seafood pasta. Why can't restaurants remove the seafood from the shells before they make it, or after they make it but before they bring it. It makes eating the dish really difficult. You eat some noodles, then you have to get the clams or mussels or whatever out of the shells that are covered in red sauce. I can't eat the shells, I don't want the shells. If you order a seafood salad, it doesn't come with shells. Why seafood pasta?

#3. Open Faced Sandwiches. What the hell are these things anyway? Awful to eat. You can't pick them up, but cutting them and eating them is no picnic. Put an extra piece of bread on top so I can eat a sandwich the way it was intended to be eaten.

#4. Huge Sandwiches. Sort of like the open face sandwich, sandwiches that are way too big to possibly get your mouth around suck. Then you're left with the odd choice of stretching your mouth like some snake, and still have the sandwich fixings fall down your shirt, or you've got to start removing some of the meat in the sandwich so you can get it in your mouth. Or you can try eating it with a knife and fork, which is also really difficult.

#5. Really hard butter patties. So you're at a restaurant and they bring bread or rolls and then butter patties that are hard as rocks. You try spreading the butter on the bread, and it sort of rips the bread apart. So you try cutting slivers of the butter, but that's not really all that successful. Butter isn't mean to be deep frozen, people.

#6. Roasted Red Peppers. They're just slimy. Enough said.

#7, Really hard dinner rolls. So the restaurant brings you rolls. You try breaking one apart to butter it, but the outer crust is so hard that little crumbs go all over the place.

#8 Tightly packed untossed salad. So you order salad, and it comes in a bowl that's too small, so the salad is really packed in. But the salad isn't mixed up, but there's no way for you to mix it up without making a complete mess. This is especially true if you did takeout and got the dressing separately. You can't get the dressing distributed, so you have to pour just a tiny bit onto the salad, eat that part, and then hope to put in the rest of the dressing so you can stir it. Use a bigger bowl, people!

Hope the Republicans are (slightly) short in November

2010-02-17T00:15:00.002-05:00

While I certainly hope the Republicans do well in November, I hope they are a few votes shy of a majority in both chambers. In the Senate, this discussion is probably moot: it's almost mathematically impossible for them to get a majority in the Senate. They'd need to pick up 10 seats. That'd be about as good as they could possible do, and it'd require everything going right for them. Boxer losing, Murray losing, etc.

There are several reasons why being in the minority would be better for the Republicans long-term.

First, let's say they get slight majorities. They won't be able to accomplish much of anything, as Obama will veto any meaningful reforms.

Second, the Republican leadership is not great. I'd really like them put Ryan, Pence, Flake and others in leadership roles.

Third, Obama could go back into campaign mode, rallying his base and some swing voters against congress, who would probably be trying to cut the budget. The end result would be they'd get blamed for cutting various popular programs without actually cutting them. If Democrats held slight majorities, the blame could not easily be shifted onto Republicans.

Fourth, a slight majority in the Senate is no fun. Filibusters and other procedural motions can be used by the minority very effectively. Having a 51-49 Republican majority would mean that every bill would have to meet the approval of Olympia Snowe, Susan Collins and other liberal Republicans. In other words, it'd mean not being to really put many of your principles forward.

So in any event, I think it would be best if the Republicans had slight minorities in each chamber. If Republicans retake the House, I think it's much harder to get Obama out of office in 2012.

People are too Expensive

2009-10-23T21:05:00.002-04:00

A few months ago, I went to a corporate function at Blue Hill at Stone Barns, an organic restaurant 30 miles north of midtown Manhattan, in Pocantico Hills, part of Westchester County. Glad someone else was paying, because it was damned expensive and I left hungry. They grow most of the food there, on 80 acres that is owned by some non-profit organization.

Some of the other people at the event commented how nice the rolling hills and farmland looked. My response was that yeah, it looked nice enough I guess, but since the place was just 30 miles from Manhattan, and since many people want to live near Manhattan, I'd certainly have no objection if instead of a non profit farm, the place was occupied by a subdivision of 80 or 100 houses. After all, housing is very expensive in Westchester, and if you increase the supply of something, it'll make that product more affordable. Yeah, 80 to 100 houses wouldn't make that much of an impact, but every little bit helps.

I sort of expected some reaction about open space, traffic, and the usual arguments against more development. However, I was a little surprised by the almost universal reaction that I got. The problem that everyone said they'd have with development of the land would be that the property taxes collected wouldn't cover the additional school costs the children in those houses would require.

In Pleasantville (Pocantico Hills is part of Pleasantville), the median home and condo value in 2007 was $638K, so the median home would be somewhat higher. Not sure what the median house would be today, but you could probably sell the houses there for $750K each. These houses would likely generate $20K in annual property taxes each. In the school district, they spend Over $28K per student.

This leads me to a deeper question. Here we have a situation where people who can afford $800,000 homes and who are going to presumably have good jobs are too expensive to support. These are people that make the top 5% of income in the country. The local school district has become so expensive, that there are only a tiny portion of families that carry their weight. The shortfall has to be made up from people without children, businesses and other commercial property, and state and federal aid. Poorer people who could only afford say $400,000 houses (if such animals existed) wouldn't come close to carrying their costs. With the exception of multi millionaires in country estates, or with single (and childless) people living in condominiums, no one is really affordable anymore. The educational expenses in this community have become so bloated and expensive that it's encouraging basically everyone to take a no-growth stance. How does a society even hope to function if families become too expensive?

Oh, and another thing. You have a non profit organic farm that pays no property taxes 30 miles from the most desirable city in the country. Yet the restaurant is over $100 per head and serves tiny portions. So how exactly is the whole local, organic farming thing really supposed to work from a practical perspective? How are we going to feed all the people who make less than $300,000 per year?

A Matter of Preëxistence

2009-08-18T23:44:00.002-04:00

Representative Travis Childers (D-Mississippi) said today that he wouldn't support the current healthcare reform bill. The AP article also said:

"Childers said companies should stop denying coverage to people with pre-existing conditions. He said he wants to see details before deciding whether he'd support a mandate for all Americans to have some type of health insurance."

I hope to God this guy doesn't think all insurance shouldn't be subject to preëxisting conditions.

"I want fire insurance on my house please. Yeah, it burned down last week, but who are you to deny me coverage for a preëxisting condition?"

"I need insurance for my Toyota. Yeah, it was in a major wreck last week, but you can't deny me coverage just because of a preëxisting condition."

So here is this congressman, basically telling health insurance companies they have to accept someone, even if they know that person is going to cause the company to lose money. Now, if the insurance company could charge different rates for different people based on their health, they'd just charge the guys with preëxising conditions a lot. But since they can't usually charge much more for a guy with pre&emul;xisting solutions, they need to jack up the prices everyone else pays.

If insurance companies can't use their judgment to screen out those with preëxisting conditions, or at least charge those people market rates, it's not insurance. Really, it's just a privately-administered redistributive scheme.

Republican Pressure

2009-08-16T18:32:00.002-04:00

Today, Associated Press (AP) published an Article with the title White House Appears Ready to Drop 'Public Option'. Here is the first paragraph of the article:

"Bowing to Republican pressure, President Barack Obama's administration signaled on Sunday it is ready to abandon the idea of giving Americans the option of government-run insurance as part of a new health care system."

So it's Republican pressure, not pressure from some Democrats? The Democrats have a 60-40 majority in the Senate; they have an overwhelming majority in the House of Representatives. Republicans are powerless in Washington right now. Yet the first four words of the AP article, "Bowing to Republican pressure" makes it sounds like Republicans can stop the legislation. They can't.

So anyway, apparently they are going to do this instead:

Health and Human Services Secretary Kathleen Sebelius said that government alternative to private health insurance is "not the essential element" of the administration's health care overhaul. The White House would be open to co-ops, she said, a sign that Democrats want a compromise so they can declare a victory.

Under a proposal by Sen. Kent Conrad, D-N.D., consumer-owned nonprofit cooperatives would sell insurance in competition with private industry, not unlike the way electric and agriculture co-ops operate, especially in rural states such as his own.

With $3 billion to $4 billion in initial support from the government, the co-ops would operate under a national structure with state affiliates, but independent of the government. They would be required to maintain the type of financial reserves that private companies are required to keep in case of unexpectedly high claims.

"I think there will be a competitor to private insurers," Sebelius said. "That's really the essential part, is you don't turn over the whole new marketplace to private insurance companies and trust them to do the right thing."

So I guess these private coöperatives are never going to need a bailout, right? Seriously, if these coöperatives do run into problems (and you can almost bet on that happening), what's going to happen? Who is going to rescue them?

Federal taxes vs. Federal Outlays by State

2009-06-21T08:24:00.002-04:00

Often times, when reading various articles about tax policy, I see references that such-and-such a state pays more in federal taxes than it receives back. Today, I read that California gets only $0.80 back for every $1.00 it sends to Washington. People in Connecticut often point out that Connecticut gets somewhere between $0.60 and $0.70 for every dollar spent.

Often times, people say that Republican-leaning states in the South take much more than they provide, while more liberal states in effect subsidize the Republican states.

For Connecticut and New York, this has almost certainly inverted due to the AIG bailout alone. AIG received $170 billion in bailouts: this would almost all be going to New York and Connecticut. AIG is headquartered in New York, and its financial products group that caused most of the problems was in Connecticut. $170 billion is $7,394 for every man, woman and child in the two states, which should easily make up the difference between what's paid in and what's paid out.

Just wait until 2010 or 2012

2008-10-21T22:34:00.002-04:00

On many conservative blogs, people are more or less resigned that Barack Obama is going to win. However, there's often a retort that Obama will be a disaster, and the Republicans will come roaring back in 2010 and 2012. After all, it happened in 1994. Many conservatives seem to think it'll be good for the Republicans to be back in the wilderness, so they can remember that they're for smaller government, tax cuts, etc.

I just want to point out a few flaws with this argument.

The Democrats should be able to deflect any blame for an economic mess. After all, they'll be able to argue that it started when George Bush was president. Even if the Democrats put in disastrous policies (and they probably will), it's going to be very hard to pin a bad economy on them. They can implement higher taxes, forced unionization, cap-and-trade, restrictive regulation, windfall profits tax, and so on, and after the economy tanks and unemployment rises, they can blame the previous administration and maybe big corporations.

The Republicans at this point don't seem to have an inspiring leader like Newt Gingrich was in 1994. They look set to elect the same group to the leadership as they've had for a while. Conservatives may have a lot of good ideas, but the Republican party leadership hasn't seem interested.

The Democrats are going to implement several new policies that will help them secure a future advantage. These include implementing Card Check to end secret ballot voting for unions; elimination of the right-to-work law provision in Taft-Hartley, and reimposition of the Fairness Doctrine. This will ensure a steady stream of union dollars, and it'll stop a lot of conservative talk radio. They'll also likely advocate same day registration and voting. Felons could be granted the right to vote, and illegal immigrants could be granted citizenship.

If Obama wins, there's no guarantee he's a one term President. On election night in 1994, when Republicass were sweeping the nation, it seemed nearly impossible that Bill Clinton would get reëlected. Yet he did, quite handily. Even Jimmy Carter was close in the polls until the very end. The power of incumbency is quite powerful. There's also no guarantee that the Republicans would choose a good nominee. After all, the Republicans chose Bob Dole in 1996.

Remember, the things that upset you aren't necessarily the things that upsets the "Joe Sixpack" voter. I presume that the Democrats aren't stupid enough to try some sort of widescale gun confiscation or an "assault" weapons ban. And despite the efforts of George Miller, the Democrats won't nationalize 401K plans. And they won't demand America stop burning coal (although if they did, the Senate and House switchboards would not be lit up because there'd be no electricity). They'll raise taxes, but not to 70%. Capital gains taxes will hardly matter since no one has capital gains.

Obama could really screw up in foreign policy, which would be harder to pin on George Bush. Especially if he deploys troops to a new theater and one tht has minimal strategic interest for the United States.

He could put some disastrous energy policies in place that result in brownouts or gas lines. But he won't. He's got some smart people working for him.

Although we live in a right-of-center nation, there's no guarantee that Obama would definitely lose in 2012 or that the Democrats would suffer big losses in 2010. Sure, in 2010, they might lose some traditional Republican seats they managed to win (that looks like it will even happen in a couple of seats this year), but remember that the Dakotas keep electing Democrats to the Senate even though both states are overwhelmingly Republican.

It's looking like it's going to be very difficult for McCain to win. Let's hope the Republicans can win enough Senate sets to maange filibusters of the craziest Democratic attempts.

Why is Cheap Housing a Problem?

2008-10-08T08:13:00.002-04:00

Many Republicans and Democrats seem to think that a major problem is that houses have gotten too cheap.

Sure, it's not great for people that bought a house at a higher price, but now have negative equity. However, those people still have the same house that they had before, and they presumably have the same mortgage they had before. So their mortgage payments should be the same (unless they decided to play the rate game and get an adjustable rate mortgage, but with rates down, that shouldn't be a major problem). So if they were comforable paying $1,000 a month two years ago to live in a house, they should be comfortable with that same amount today, no?

Now, it really sucks for those people who have to, for whatever reason, relocate. But even then, what matters is not that you sell your house for a loss, but what the differential between houses is. So if the region of the country you lived in goes down a lot, but you have to move to a region where prices haven't collapses as much, that makes you worse off. But that has to be a relatively small subset of the population.

Sure, if housing prices drop, you can no longer use your equity as a piggy bank for a home equity line of credit. But that was all paper gains anyway.

So whom do falling house prices really hurt? Those people that bought houses they couldn't afford (either to live in or do speculate with), and who were hoping to refinance later and take out equity. I'm sorry, that's just so damned irresponsible on so many levels. So we try to keep housing artificially expensive so that people who couldn't really afford their houses and put in little or no equity can stay in them?

About 15 states have a crazy law that says if you walk away from your negative equity house, the bank can't come after your other assets. So these people can move across the street into an identical house, cut their mortgage, and leave the bank holding the bag.

Who benefits from falling housing prices? Well, for one, young people. If you just graduated college, I'd imagine that given the choice, you'd rather have cheap houses than expensive houses. If people can spend less money on their mortgage, they can spend more money on everything else. In our society, we like everything else to get cheaper. No one laments when cars get cheaper, or when personal electronics get cheaper. No one promises to do something about falling oil prices. (Weirdly, however, the government does keep some food prices artificially high, but I'm sure most Americans don't realize this).

Yes, I own a house and I have a mortgage. But even with falling prices, I have the same house and the same mortgage. So I'm really only worse off if I prepare an internal balance sheet of my net worth...

Foreclosed on No Money Down Mortgages

2008-09-30T07:46:00.002-04:00

To all the politicians that are demanding that we help the families that are being foreclosed on, not just the big banks, I have one simple question:

If someone bought a house with no money down, and now can't make the mortgage payments so they are foreclosed on, what have they lost?

Even those with small down payments have not lost a lot.

Open Door Policy

2008-08-14T00:10:00.002-04:00

New York City is strongly considering fining stores that leave their doors open while their air conditioning is running.

Now, obviously, leaving you doors open while you run the air conditioning results in higher electric bills. But why should there be a fine for engaging in a wasteful activity? Shouldn't it be up to the stores to decide how they run their business?

Councilwoman Gale A. Brewer, a co-sponsor of the bill, said, "There's no use cooling the sidewalk." Well, except that it entices people to enter the store. I'm sure the stores feel that leaving the door open is worth it. People walking down the street can just walk right in, without having to negotiate through a heavy door. I'd imagine that more people enter stores with an open door than with a closed door. Obviously, the companies believe this to be the case, since they keep their doors open.

Having more people enter a store means that there are more sales, and thus more profits.

According to the NYC government's website, Ms. Brewer has served on the council since 2002. Prior to this, she's worked almost exclusively in government and non profits, except for working for Telesis Corporation, an organization that builds low income housing (and thus must have significant interaction with government).

So in any event, her private sector experience is extremely limited. Yet now she wants to tell companies how to run their business.

Now suppose my assertion that open doors cause more foot traffic to enter is false. Why should the city council try to force companies to be more efficient? Shouldn't they also pass a bill that fines a company if they employ too many workers, or pay their workers too much? Or if they don't have an optimal phone plan? Or if they aren't securing their inventory from the lowest cost distributor? After all, all those things are wasteful as well.

A Review of VaultStreet

2008-07-19T22:54:00.008-04:00

Like many people, I have accounts at several different financial institutions that I've established over the years. I've always been a bit uneasy about signing up for e-documents. For a while, I was self employed, and because I had so many business expenses, I was used to storing lots of paper in case I got audited. I also was unsure of how to organize e-docs. Would I store them on my hard drive, so that if my hard drive crashed, I would have no financial records whatsoever? What filename methodoogy would I use? Would it be easy to sort the statements by date so I could see what I had?

Or would I leave the statements in my email account, thus endangering my quota, and not being able to find the emails amidst all the spam that makes it through my filters? Would the statements get mistaken for spam and dumped into my spam box that I rarely look at because it is so large? Or would I just leave the statements on the company's web site? Problem with that is, how long do they keep them there? For investments, you need to know what you paid for a stock when you sell it so you can compute capital gains. Some stocks I might keep for 5 to 10 years. I have the prices in Quicken, but if I got audited, what to do?

So I stumbed across a website called Vaultstreet (www.vaultstreet.com), and it seemed to have a pretty good idea. Here's how it works: you log into that account, and you give it your passwords to your brokerage accounts. Then it logs in to these accounts and downloads all your statements in PDF format, and stores them all, and it sorts them by date using metatags.

I was able to import statements from ING Direct, Schwab, TD Ameritrade and Fidelity. Many of the Schwab statements came in with the wrong date, the ING statements didn't have my account # in the metatag, but otherwise, the process worked relatively well.

You can specify which other people you want to examine your documents. So you could add your accountant, and he or she could log in and view all your statements, including your 1099s and other tax forms.

However, VaultStreet only lets you do this automatic download with about 15 different institutions. It doesn't have some big funds, like Janus, at least not yet. It seems to have most of the major online brokerages, but otherwise, its coverage is pretty skimpy. They really need to enhance their breadth of institutions covered.

They also don't allow you to upload documents that you scan yourself.

It took a little getting used to how their UI works, but I got the hang of it after a few sessions.

I also question their business model: after the 30 day trial period, they charge $200 per year. With the number of institutions they have, this seems like an awful lot of money. If you compute it at the cost per statement processed, it probably works out to $5 to $10 per statement. That seems like a lot to pay for a little bit of convenience. Furthermore, this should be a product that is very sticky. I doubt many people would leave after they use it: after all, they'd then have to figure out what they would do for filing their documents. Since this is a very sticky application, they really should price it low then have somewhat aggressive increases each year, especially as they add new institutions to download from.

Furthermore, VaultStreet should be going to smaller institutions to get them to pay Vaultstreet for processing their statements. Every statement that is printed and mailed must cost the financial institution at least $1: postage, paper, printing, stuffing, and so on. So if VaultStreet could get them to pay them instead, Vaultstreet would get a lot of individuals using their site. These individuals would only be able to access the statements that the institutions were paying for, but might decide to subscribe to get access to everything. They could do this with utilities (they've got Verizon broadband and Verizon telephone now, but that's it), mortgage companies, leasing companies, etc.

You'd think that by charging the institutions a fairly low amount, they'd get a lot of new customers, and some of these might sign up for the full package.

It'd be really nice if you could upload your exisitng stuff to the site. Because let's face it, you're probably going to have some paper documents from institutions that are too small for them to worry about. Another thing that would be excellent would be a way to add documents via email. So if I were emailed a statement, I could just forward it to a specific email address, and it would be added to my documents. (If they had email uploading, it'd be nice if you could specify meta tags like the statement date in the email message somehow).

I'd love to be able to scan and upload all this paper I have, and it's not just financial stuff. For instance, receipts for major appliances purchased. Car repair records (I have an extended warranty: what if my engine goes bad and the car company says I never changed the oil? So I keep all my valvoline receipts). A few weeks ago, I was stopped at a light, and the woman behind me didn't stop. That resulted in my needing a new bumper, paid for by her insurance company. It also resulted in about 30 pages of paperwork: accident report, insurance claims, mechanic, rental car agreement, and so on. Wouldn't it be nice if I could take all those pages, put them on my scanner, and then upload the file, or better yet, just attach it to an outlook email, type in the metatags (i.e., date, and brief description) and then upload it?

Don't get me wrong, I really like what Vaultstreet has done so far: it is a great idea to suck in stuff from the financial institutions directly. But I think the company has really overpriced its product based on how many statements you're likely to get per year from the institutions it supports now. Seriously, it's going to probably equate to $5 to $10 per statement, as I doubt you'll get more than 20-40 statements per year from the institutions they support. I'd also like to see Vaultstreet allow generic uploading, and especially generic emailing. As it stands now, it seems to be a very interesting technology, but unless you have a myriad of accounts at the few insttutions it currently supports, it's going to be hard to justify the $200 annual price tag.

A Matter of Years

2008-07-09T22:48:00.004-04:00

We've all heard that expanding our drilling for oil won't do any good because it would take at least ten years for the oil to reach the market:

"Let's remember that the amount of oil in ANWR is too small to significantly improve our current energy problems. Further, the oil exploration in ANWR will not actually start producing oil for as many as 10 years." -- Sen. Patty Murray (D-WA)

Many of the opponents of ANWR advocate a greater investment in mass transit, including high speed rail. For instance, Patty Murray won some award in 2003 for advocating rail subsidies.

So how long does high speed rail take to get from conception to actually bringing passengers?

The Southeast High Speed Rail (SEHSR) Corridor provides us with a good case study. The SEHSR will run from Washington, DC to Charlotte, NC, and will primarily be built on existing right of way. Four states formed the coalition in 1992. It is projected to open sometime between 2015 and 2020. So what's the hold up? It's not funding. It's environmental studies, and other studies. Here is what they need to complete:

Planning studies (1 - 1.5 years)

Determine existing studies
Traffic Forecasts
Analysis Needs
Conceptual Solutions
Preliminary Cost Estimates
Cost Estimation Valuation Process

Environmental Studies (5 years, after the planning studies)

Purpose and Need
Traffic Analysis (I guess the Traffic Forecasts from the planing studies isn't enough)
Preliminary Alternatives
Public Outreach
Technical Studies
Air Quality
Noise Analysis
Traffic Analysis (again?)
Socio Economic
Cultural Resources (what the hell is this?)
Biological Resources
Hazardous Materials
Water Quality
Floodplan / Hydrologic
Energy
Land Use
Economic
Wetlands
Visual Effects (from the studies or from the actual rail?)
Environmental Justice
Cumulative and Secondary Impacts (one secondary impact: lots of trees killed for studies)
Cost Benefit Analysis
Refine Alternatives
Alternative Selections
Section 400 Evaluation (not to be confused with 404 - File Not Found)
Record of Decision

Preliminary Design (2.25 years, concurrent with the end of the environemtal studies)

Geometric Design (they've got visual effects already, what's this for?)
Typical Selections
Grading
Drainage (this after they've got a study done on Floodplan / Hydrologic)
Structural
Traffic / ITS (another traffic study!?)
Signing / Striping
Lighting
Utilities
30% plans

Final Design / Right of Way Engineering (3.5 years)

60% Plan
90% Plan
Final Plans
Specifications and Estimates (of what?)
Right of Way Setting
Right of Way Engineering
Appraisals
Purchase Offers
Counter Offers
Relocation
Asbestos Clearing
Demolition
Condemnation (if necessary)
Federal Regulations

So the sum of all these is about 10 years, according to the SEHSR website. And this is before construction starts, but after the several year period when they were getting the coalition of states assembled and doing preliminary planning. In the case of the SEHSR corridor, the total time is currently estimated at 23 - 28 years.

So 10 years to get oil out of the ground seems pretty fair compared to the speed under which the government would be able to get a high speed rail link to go a few hundred miles.

The $40 billion question

2008-04-25T22:47:00.005-04:00

Barack Obama (and various other politicians) have often cited ExxonMobil's $40 billion in profits earned in 2007 as a bad thing. For instance, after winning one of his primaries, Barack Obama said, "I know that it won't be easy to change our energy policy. Exxon Mobil made $11 billion last quarter. They don't want to give those profits up easily."

Now, a few bloggers have remarked that Exxon actually paid taxes of 41%, and over the past few years, Exxon has paid an average of $27 billion per year in taxes.

However, I'd like to explore a different question: is Exxon Mobile really making huge profits? Now granted, the numbers are huge, but Exxon Mobil has to sell a lot to make that profit. Therefore, it's better to look at the percentage profit than the actual figure.

But in finance, it's not just the net after-tax profit figure that you should look at, but you should examine other indicators of profitablity as well. First, there's the issue of taxes. Corporations deploy legions of accountants, lawyers, etc. to delay paying taxes, and to shift money around to avoid certain taxes. So companies may pay high taxes one year and low taxes another year, so when comparing firms to each other, it's sometimes best to use pre-tax profits.

But there's another wrinkle: interest. Suppose you had two firms that were exactly the same, except the first paid dividends of its excess cash each year and the other one did not. The second firm would earn interest on its cash balance. Alternatively, one firm could have sold shares to the public to get its start up funds, while the second could have taken on debt, which comes with interest. So taking interest out of the equation also helps compare firms' profits to each other.

Finally, there's depreciation and amortization. When a firm buys equipment, it has to expense that over several years -- this is called depreciation. When a firm buys another firm, it has to amortize part of the cost of buying that firm over several years (namely, the amount that it paid above and beyond the net value of the assets acquired).

If you exclude amortization, depreciation, interest and taxes you get what's termed in the financial world as "EBITDA": Earnings before interest, taxes, depreciation and amortization.

It's also best to look not just at a single quarter, but a full year. This avoids the problem of one firm having a really good quarter or really bad quarter.

Here is a brief summary of how various other international oil companies have performed during the past 12 months, according to Yahoo finance:

Company	Sales ($B)	EBITDA ($B)	EBITDA %	Net Income	Net Income %
Exxon Mobil	$361.71	$73.01	20.18%	$40.61	11.23%
BP PLC	$284.37	$36.74	12.92%	$20.84	7.33%
Chevron Corp	$208.11	$38.48	18.49%	$18.69	8.98%
Conoco Phillips	$171.50	$35.17	20.51%	$11.89	6.93%
Eni SpA	$139.76	$41.06	29.38%	$15.91	11.38%
Hess Corp	$31.65	$5.30	16.75%	$1.83	5.78%
Marathon	$59.39	$7.60	12.80%	$3.95	6.65%
Respol YPF	$82.81	$8.14	9.83%	$5.07	6.12%
Royal Dutch Shell	$355.78	$53.77	15.11%	$31.33	8.81%
Total SA	$217.94	$49.67	22.79%	$20.95	9.61%

By examining the above, it's clear that versus other large, integrated oil companies, Exxon Mobil's after tax profits and its EBITDA are a little higher than other companies. However, this is due to it having a more efficient cost structure: if it charged much more than its competitors for oil, people would purchase oil from the competitors. Also note that the above revenue figures do not include sales taxes collected. Since sales taxes are included in the price of gasoline, they are sometimes included in companies' reported revenues.

Now, let's take a closer look at Exxon Mobil's profits:

Exxon Mobil splits its net income across three segments: upstream, downstream and chemicals, and it separates each of these according to US and non-US. Here is how Exxon Mobil's profits break out:

Division	US	Non-US	Total
Upstream	$4,870	$21,627	$26,497
Downstream	$4,120	$5,453	$9,573
Chemical	$1,181	$3,382	$4,563
Total	$10,171	$30,462	$40,633

Upstream	12.0%	53.2%	65.2%
Downstream	10.1%	13.4%	23.6%
Chemical	2.9%	8.3%	11.2%
Total	25.0%	75.0%	100.0%

(The above excludes a cost of $0.23 billion used for corporate overhead purposes)

Thus, 75% of Exxon Mobil's profits were earned outside of the United States, and only 25% -- $10.2 billion -- were earned in the United States. Now, Exxon Mobil is a huge company, and its lawyers and accountants almost certainly devise methods to shift taxes from high tax jurisdictions to low tax jurisdictions. For instance, if Exxon pumps crude out of the ground in Saudi Arabia, ships it to a refinery in the Caribbean and then sells the refined gasoline in the United States, how do you allocate the profits across the various countries?

Now, one more thing I want to do. I want to compare Exxon's EBITDA and Net Income to other large companies in the United States, just to give an idea that its profits are not outrageous. All dollar figures are in billions:

Company	Sales ($B)	EBITDA ($B)	EBITDA %	Net Income	Net Income %
Exxon Mobil	$361.71	$73.01	20.18%	$40.61	11.23%
Apple Computer	$26.50	$5.56	20.98%	$4.07	15.36%
AT&T	$120.70	$42.38	35.11%	$12.56	10.41%
Boeing	$66.39	$7.09	10.68%	$4.06	6.12%
Coca Cola	$30.13	$8.99	29.84%	$6.22	20.64%
Costco	$67.91	$2.39	3.52%	$1.19	1.75%
Ford	$172.46	$13.84	8.03%	$(2.76)	-1.60%
G.E.	$172.95	$37.69	21.79%	$21.90	12.66%
Google	$18.12	$6.51	35.93%	$4.51	24.89%
H.P.	$107.67	$12.25	11.38%	$7.85	7.29%
IBM	$101.26	$20.83	20.57%	$10.89	10.75%
Procter & Gamble	$79.74	$19.32	24.23%	$10.96	13.74%
Starbucks	$9.82	$1.47	14.97%	$0.68	6.87%

So when you look at a smattering of other companies, you see that Exxon Mobil's profits as a percentage of revenue are not that outrageous. They'll beat most pure retail operations: pure retail companies are very competitive, and they are just selling what others make, so they rely on volume. Automobile producers have low profits these days as they cope with legacy costs.

So, overall, while Exxon Mobil has high dollar figures for its profits, it does not have really excessive profits. How could it? It competes with other firms seeking to make a profit: if Exxon charged a lot more for gasoline than Shell, very few people would patronize Exxon instead of Shell. The oil industry is highly competitive.

So what does Barack Obama think could be gained by taking more of Exxon Mobil's profits? Well, presumably, votes. However, taxing oil companies more would almost certainly lead to higher prices, not lower prices, as they'd pass their costs on to consumers. They'd also be more likely to shift profits out of the United States, which already has a higher tax rate than most other industrialized nations. It certainly wouldn't lead to cheaper gas at the pump.

The Sequel to Se7en is Going to Suck

2008-03-23T20:16:00.006-04:00

So a Vatican newspaper listed seven new Deadly Sins. It's apparently a little more complicated than that: it wasn't the official new deadly sins, but rather Bishop Gianfranco Girotti's comments about sins. However, he still did list seven new sins, and while they might not replace gluttony and envy, they are still considered really bad by the Vatican. Here they are:

genetic modification;
human experimentations
polluting the environment
social injustice
causing poverty
financial gluttony
taking drugs

I'm not Catholic, but I don't think it's my theological background that makes it difficult for me how to exactly comprehend why some of these things are really that bad, or even how to judge that they're happening.

Genetic Modification

I don't have enough knowledge of science to know where the whole genetic modification thing begins: does plant grafting qualify, and if not, why not. Also, I fail to see how some things, such as implanting human genes into pigs so that pigs can grow organs that aren't rejected by humans should be a sin. I guess that all sins have some gray area, and I guess here the church is concerned that scientists can make some sort of super human like in Gattaca.

Human Experimentations

Again, where do you draw the line? Obviously, if it's involuntary human experimentations, that's bad, but I doubt that the bishop is trying to be so specific here. However, in some cases, human experimentation can yield great results. In 1967, South African Louis Washkansky had incurable heart disease. Dr. Christiaan Barnard performed a heart transplant at Groote Schuur hospital in Capetown. Mr. Washkansky lived only another 18 days, but an operation on Philip Blaiberg provided another 19 months of life, and Dorothy Fisher's heart transplant allowed her to live an additional 24 years. If Dr. Barnard had not "experimented" on Mr. Washkansky, Mr. Washkansky would have met his demise 18 days earlier, but the other patients would have lost considerable time.

Polluting the Environment

I guess the question here is how much and for what purpose? I don't think that many people would disagree that dumping your trash next to the road is a bad thing, or dumping used motor oil into your local pond. But we need some pollution: without any pollution, there would massive starvation. So I guess this must mean against excessive pollution, but again, but there's probably some way to get less pollution in exchange for higher cost or lower production of just about anything. Obviously, no one really wants pollution, but we have it because it's the result of a trade-off. Having no pollution just isn't feasible. Well, a government could mandate no pollution or very low pollution, I guess, but then they'd be guilty of "casuing poverty".

Social Injustice

This is one of those vague terms that can mean all kinds of things like living wage, and various mandates for economic equality. Many of the things adovated by social justice types are pretty much incompatible with economic reality. According to Wikipedia, Pope Benefict said, "The encyclical says that social justice is the primary responsibility of politics and the laity; the church itself should inform the debate on social justice with reason guided by faith, but its main social activity should be directed towards charity."

That sounds like a sensible approach...

Causing poverty

I'm at a loss here. I mean, the first guy that jumps to mind is Robert Mugabe. In fact, it would seem to me that the only people that could actually cause poverty would be people with the backing of a government or outright criminals. The former could mean heads of state or heads of government agencies or departments, or anyone else who implements disastrous economic policies. An industrialist who bribes a government to stop competition so he could charge more for his products would be causing poverty.

Criminals can cause poverty: an arsonist can burn down a building, which would result in someone being poor. Vandals (people who vandalize, not the Germanic tribe) can cause poverty. Thieves also can cause poverty.

Besides criminals and people with the backing of the government, I don't see anyone falling into this category. An industrialist may make a product that is better than existing products and put a lot of people out of work, causing poverty. However, without this, there'd be no progress: if a new technology is accepted by the market, it will lead to disruptions. The first lightbulb companies put candle makers out of work.

Financial Gluttony

This one at least features a word that indicates a degree of something ("gluttony") and not an absolute. However, just because one guy amasses large sums of money doesn't mean he's depriiving someone else of the ability to earn more and save more. And while I undertand where the Church is coming from on this one, it's sort of ironic that a lot of churches were build on the fact that some financial glutton died and left his money to a church.

Taking Drugs

Well, obviously, this must mean drugs that have no medicinal value for you. At least I hope so, lest the Catholic Church is preparing to do a merger with Chrisian Scientists. I hope that caffeine and alcohol get an exemption, or is the Catholic Church trying to also merge with the Mormons...

Anyway, one thing we can be sure about is that if this is the new seven deadly sin list, the sequal to Se7en (the movie starring Brad Pitt and Morgn Freeman) is going to suck. Unless they can bring Mugabe to a premature demise...

Gluts and Shortages (Prices Change)

2008-03-06T23:39:00.003-05:00

Prices change, but many people seem to wish they didn't.

There's a housing glut in the country. Do a Google search for that term in quotes and you get 14,000 hits.

Meanwhile, there's also apparently a nursing shortage. A Google news search for nursing shortage yields about 600 hits.

So why is there a housing glut and why is there a nursing shortage? The answer for why there's a housing glut is because many sellers of houses are hanging on to the hope that they can get what people were selling houses for a year or so ago. Lower the prices and you'll no longer have a housing glut. Waiting for a higher price may be economically sensible for an individual homeowner, especially if they want to move locally or are at least not in a major rush to move out.

There's a nursing shortage because hospitals and doctors don't want to raise nursing salaries as much as they should. If they raised the salaries, they'd no longer have to worry about filling all their available spots. Of course, it takes a while for this to fully take effect: someone can't become a nurse instantly. But if salaries were raised, perhaps some stay-at-home moms with nursing degrees would venture back into the workforce.

In a market economy such as ours, you should rarely have gluts or shortages in anything - goods or services. You may sometimes, like in a hurricane. But the media seems to report that gluts and shortages are a regular aspect of our lives. However, while there may be a lot of houses for sale at present, what there really is is that there are a lot of houses that are on the market at above market rates. And while there are a lot of nursing positions that are open, the employers don't think these positions are that essential, as they havn't boosted the salaries for these positions.

The house sellers may not get as much as they could have in the past, and the hospitals may have to pay more than they did previously, but that's the market. Prices move up and down, and trying to get an old price will be difficult.

Christmas: Never Good Enough

2007-12-26T22:08:00.001-05:00

Another Christmas season has passed, leaving us again with various articles about how this season wasn't as good for retailers as expected. As I was reading an article about this year's retail shortcomings, I had a sense of deja-vu. Luckily, I know how to do searches on the Internet, and found that yes, I had seen stories about weak Christmas retail seasons before. Let's have a look:

2007

Despite furious, last-minute shopping and heavy discounting, holiday retail sales largely fell short of industry expectations. Target Corp. (TGT), the No. 2 U.S. discount retailer, warned December sales might actually decline, helping to send retailers' shares down.

- CNN Money, 12/26/07

2006

Rush at End, but Holiday Sales Fall Short, -The New York Times, 12/26/06

2005

Retailers Find Little To Cheer -The New York Times, 1/6/06. This article says, "The nation's merchants, trotting out deep discounts before Christmas, lured enough last-minute buyers to deliver a decent, if unspectacular, sales gain of 3.2 percent in December."

A Solid but Not Spectacular Finish for Holiday Spending -The New York Times, 12/29/05. Says the article: " the International Council of Shopping Centers found that sales at 69 chain stores rose 3.9 percent from 2004. The group's chief economist called the performance 'soft.'"

2004

Retail in Review: More Bah than Sis-Boom -The New York Times, 12/28/04. Says the gray lady: "as customers crammed stores the day after Christmas, waving their gift cards and seeking the latest markdowns, analysts were there, too - watching. They offered their latest judgment of the Christmas shopping season yesterday: good, but not great."

2003

Results Mixed, Stores Await A Final Burst Of Shopping - The New York Times, 12/26/03. "Retailers are hoping for good news [for day after Christmas shopping] because this holiday season has been disappointing to many. Although most analysts expect sales at stores over all to be 3 percent to 6 percent higher than last year's dismal holiday numbers, in September retailers were gleefully predicting double-digit growth."

2002

GROWTH IN SALES FOR HOLIDAY PERIOD IS LOWEST IN YEARS -The New York Times, 12/27/02. "After examining sales figures from the last frenzied hours before Christmas, experts yesterday declared this year's holiday season the worst in many years."

2001

Late Shopping Gives Retailers A Slight Boost -The New York Times, 12/27/01. "A surge of last-minute shopping may have given the nation's retailers and the economy a small boost, according to several reports on holiday sales released yesterday. The 11th-hour sales gains will not add much to retailers' profits because most of the increases were bought with dizzying price cuts like 70 percent off gold and diamond jewelry at Kmart and 75 percent off sweaters at Neiman Marcus."

TECHNOLOGY; A Bright Spot in a Bleak Holiday Retailing Season -The New York Times, 12/19/01. "In the worst year in recent memory for most retailers, there appears to be one small bright spot: the Internet."

2000

Sales in Holiday Season Rose, Just Barely, Over Last Year's -The New York Times, 12/27/00. "Despite widespread markdowns and a burst of last-minute buying, this year's holiday shopping season is shaping up as among the worst in a decade, industry analysts said yesterday."

1997

Diary -The New York Times, 12/28/97. "A sparkling economy failed to deliver the snappy holiday season that retailers were counting on. Analysts and merchants estimated that sales were up a scant 2 to 3 percent from December of last year. This was the third lackluster Christmas season in a row, despite the sterling economy and the wealth-generating gains of the stock market."

1996

Holiday Retail Refrain: Better Than '95 but Not Good Enough, -The New York times, 12/25/96. "As surprise led to surprise and the season faded to a close yesterday, sales appeared to have been stronger than in last year's dismal Christmas shopping season. But they were expected to fall short of the levels many people in the industry had hoped for, retailers and retail experts said yesterday."

1995

Retailers Call Sales in December Worst Since '90-'91 Recession, -The New York Times. 1/5/96. "In the culmination of a dismal year for retailers that may well lead to a further industry shakeout in the next few months, the nation's merchants reported the worst December sales figures yesterday since the 1990-91 recession."

So anyway, it looks like 1998 and 1999 were good, but every other year since 1995 has had some sort of negative spin put on Christmas sales. It seems as if retailers have expectations that are just a bit high.

The Great Pumpkin Tax

2007-12-04T23:00:00.001-05:00

Recently, Iowa became the brunt of many jokes when it attempted to implement a sales tax on pumpkins. In Iowa, groceries are exempt from sales tax, but the Iowa government decided that most people used pumpkins for decorations and not for food. However, some specific variety of pumpkins used for pies was exempt from the tax, and you could also fill out a form if you were going to eat a pumpkin and not carve it. Seriously.

What's the real problem here? It's that the Iowa government has arbitrarily decided to tax one class of good but not another. If it had simply decided to tax everything at the same rate, this issue would never have come up. Many states exempt certain items from sales tax: in Connecticut, all groceries and any article of clothing under $50 are exempt from sales tax.

I'd rather have everything taxed, but then have the rate lower. Right now, if one class of good is taxed but another isn't, the people buying the taxed good are in effect subsidizing those who buy the untaxed good. Sure, everyone buys groceries, but not everyone spends the same ratio on groceries and taxed items. And please don't talk about helping the poor. There are many more efficient ways of helping the poor than not having a tax on groceries but having a tax on gasoline or having a tax on furniture or having a tax on cars.

When you tax people or items differently, you create many distortions. This ncludes the creation of silly government forms that make you declare you shall eat a pumpkin and not merely carve it. I'm all for low taxes. However, they need to be low on everything. Having taxes removed from one particular good, or for one preferred group of people, isn't really a tax cut. In the end, it's just a transfer payment. If the government taxed everything equally, but then gave checks for the amount of tax you paid for one particular good, that'd be a subsidy, and no one would argue with you on this fact. But that would have the same exact effect as what the situation currently is. In finance, if two financial scenarios have the exact same cash flows under all circumstances, they are deemed equivalent and would have the same price applied, and would be considered interchangeable.

For now, however, we'll be faced with the fact that we'll have to prove were eating a pumpkin pie or pumpkin bread, and not making a jack-o-lantern that is a tax dodger.

Diversity: Good for Us, Bad for You?

2007-10-13T23:30:00.001-04:00

Liberals seem to have very different views of diversity in foreign and domestic policies. For our own population, diversity is wonderful, and should always be promoted. Schools, workplaces, neighborhoods, and all other facets of community life should be more diverse and integrated. However, when it comes to foreign policy, liberals often advocate countries practice no diversity, and instead separate themselves based on ethnic group.

Take Presidential candidate Joe Biden, currently a Senator from Delaware. Biden has been pushing to have Iraq partioned into three regions "divided on ethnic lines". That sounds amazingly non-diverse to me. Now, compare Biden's plan for Iraq with his June 28, 2007 Press Release, which states, "As I’ve always said, diversity in our public schools enriches our classrooms and makes America a better and stronger nation."

So I guess according to Biden, diversity in US classrooms makes the US a better and stronger nation, but in Iraq, diversity makes the country a worse and weaker nation?

It's not just Iraq that liberals seem to have this amazing double standard about diversity. Take Africa. A common reason cited for Africa's dismal economic performance is that the colonial powers -- mainly Britain and France -- drew the borders without any thought to the ethnic groups and where they lived. If countries had been separated along ethnic lines, that would have supposedly made the countries wealthier. It's strange that suggesting that Africans in Africa should be politically separated along ethnic lines is a perfectly socially acceptable position to advocate, but if you said that Alabamans should be separated along ethnic lines, with political boundaries separating them, you'd be shunned by nearly all elements of our society.

When someone advocates that we can do diversity and they can't, I wonder what their true feelings are. Why can the US do more diversity, while the Iraqis or Africnns cannot? Is it that we have a superior form of government that alows ethnic minorities a voice in the court system and political system? If so, they why not simply encourage these other countries to adopt our form of government? Or is it that there's something culturally about us that allows us to be more receptive to diversity than the peoples of Iraq or Africa? Somehow I doubt a liberal would ever make this claim overtly. So I'm left to ponder why diversity is a good thing for us, but not for them.

Let's Be Provincial!

2007-06-15T22:33:00.001-04:00

Recently, Congressman Earl Blumenauer (D-Oregon) outlined his Food and Farm Bill of Rights. While I don't have an issue with some of the things (although probably for different reasons that the Congressman), point #6 seemed just plain odd:

Americans have a right to local supplies of fresh food: Too many Americans do not have the option of buying affordable, locally-grown fresh food. We deserve a food and farm policy that includes programs that deliver healthy food to all communities, regardless of location, class, or economic standing.

This just seems crazy, for many reasons. Having food produced in small pockets all over the country just wouldn't be efficient. The weather varies mightily from region to region, so certain crops just aren't feasible outside of certain regions (for instance, there are 5.5 million barrels of cranberries produced in the United States, of which 4.4 million barrels -- 80% of the total -- comes from just two states, Wisconsin and Massachusetts). Besides climate, there's variation in soil, variation in population densities, variations in freight rail lines, and so on. And pray tell, Congressman, but would everyone have a guarantee to local lobsters under your plan too?

A major issue, if not the major issue, is land cost. Land in Manhattan, Kansas is going to be a lot cheaper than in Manhattan, New York City. It just doesn't make sense for someone to grow bulk crops in Westchester County, NY or in Fairfield County, CT. Too many people want to live near New York City, and are therefore willing to pay significant amounts for small parcels of property. There is no way that farmers in these areas could compete with farmers in Kansas, as these NYC area farmers would have significantly higher mortgage payments.

In order to ensure that every single area of the counry, or even every major metropolitan area, had significant local food production would require a massive bureaucracy. And if not enough food were being produced according to the bureaucrats, then certain active measures would have to be taken. Bigger subsidies for the local farmers, massive zoning regulations, or something similar. This would result in massive distortions in the economy, and for little to no purpose in the end.

Right now, if enough locals really demanded that their food was local and not from far away, they could influence the market. At the grocery store, they could look for locally grown food and pay more for it. After enough people did this, more local farms may spring up. But in some cases, the extra payment would have to be considerable, since land is in very limited supply in some regions.

Back in the 1700s and 1800s, almost everything was local, because transportion costs were expensive. Now that transportation and logistics are so cheap, we can have our food come from far away. This of course means that we can eat fresh fruits and vegetables all year round, instead of just when they happen to be "in season".

This locally grown thing obviously hasn't been thought out very much. We are a dynamic country because goods can be shipped across the country with relative ease, not because we only consume locally-produced food and products. The Congressman may want to open up an economics textbook and study the chapter on Comparative Advantage.

A Three Headed Dog of an Argument

2007-05-19T14:30:00.000-04:00

This past week, Cerberus Capital, a private equity fund, acquired 80% of Chrysler for $7.4 billion. According to Wikipedia, Cerberus has over $24 billion under management.

This clearly shows that private equity can invest in just about any industry, and take a controlling stake.

Many people seem to imply that certain items are artificially too expensive because the existing companies in the sector somehow collaborate to keep new entrants out and the prices high, or the barriers to entry are so high that new companies cannot compete. This allows the companies to make excessive (sometimes called windfall) profits, and these industries usually earn the adjective "big" like "big oil".

However, the acquisition of Chrysler should demonstrate that if there's some industry out there in which the players are making excessive profits, private equity funds will soon show up. Private equity funds have guys that do nothing all day but look for potential markets to enter. If a certain industry is not that competitive, they'll pounce. They've got no loyalties to the existing players, and the acquisition of Chrysler should be clear evidence that there's plenty of money floating around.

A few industries have actual legal protection to keep out competition. The tobacco settlement essentially prohibits new entrants into the cigarette market. Certain utilities have a grantted monopoly. Patents and trademarks protect, for a while, companies with intellectual property (you can't start making lipitor, nor can you decide to print the latest John Grisham book). There are reasons for these protections, however: the companies had to expend particular amount of research to develop the products.

A limited number of companies can still very competitively compete: just because there are only 5 or 10 companies doesn't mean they don't compete.

If you think something is way too expensive for the cost involved, there's probably one of a few outcomes: 1) no, it really does cost a lot to produce that product or service; 2) yes, but it's intellectual property, which cost a lot; 3) the industry has somehow gotten the government to ban new entrants; 4) you're right, in which case you ought to go work for a private equity fund, and then enter that market. Your new company could undercut the others, making you millions of dollars in the process.

Are Baseball Players Paid too Much?

2007-04-09T22:58:00.002-04:00

Well, it's Baseball season again, and even though I'm not a big sports fan, you invariably hear how crazy it is that baseball players get paid so much for merely hitting a ball (the same type of argument is made for all major sports). Often times, these salaries are then compared to teachers' salaries, with the implication that baseball players should be paid less and teachers more.

Baseball salaries are of course set by the law of supply and demand, as are teacher salaries, and most other salaries. There's two basic ways that baseball salaries would come down: 1) the entry into the baseball market of many new good players. This would be what economists might call more supply. 2) less interest on the part of the general public in baseball. This would reduce the amount of owners had to pay players (through fewer ticket sales and / or lower TV revenues), and might lead to fewer teams in the marginal cities. This would be what economists call less demand.

So why are baseball players paid so much? First, not that many people can do what they do well. Second, people are willing to pay $20, $30, or whatever to go watch a game, and large corporations are willing to buy luxury boxes to entertain clients and employees. Millions of people are willing to watch baseball on TV or listen to it on the radio, and thus advertisements can be sold. Now, if this is all news to you, then either you aren't an American and lack even the most basic understanding of how our economy works, or you are really sheltered (so how in the world did you find this article?).

In short, baseball players are paid a lot because they get a lot of people to watch what they're doing. And in the process, you can get these people either spend money to watch them, or you can sell advertising. Baseball players accomplish what marketing executives try to do: get more eyeballs on a product, or have people pay to do something (in this case, watch baseball at the stadium or on pay-tv).

However, local governments can have an impact on baseball salaries as well: it's not merely the law of supply an demand in operation. Lots of cities in the country bend over backwards to get sports teams. They build stadiums with taxpayer money, they let the team get revenues for naming the stadium or for parking, or from vendors.

This has the effect of loweing the costs for the sports team owners, which allows them to pay additional money to the players. I don't mind that sports players make a lot of money. But I do not think it is the least bit fair that my taxes have to support sports teams (and thus help contribute to higher salaries for the athletes).

If local governments built no stadiums, we'd still have sports in this country. Maybe not in the exact same cities as we do now, but there would be a broad geographical dispersal of teams, and professional athletes probably would make slightly less than they do now. Some of the more marginal teams (I mean this from an economic standpoint, not how well they do on the field) might fold up without the subsidies, but it wouldn't be the end of the world. Teams would be located where there was the most interest for that sport. We'd have slightly lower taxes, or at least the local governments could waste the money somewhere else.

No to Broadwater, but Yes to What?

2007-01-29T22:29:00.001-05:00

Currently, Broadwater Energy is attempting to build a Liquefied Natural Gas (LNG) platform in Long Island Sound, about 10 or 11 miles from the Connecticut coast on one side and 9 to 10 miles from the New York coast on the other. This platform would be, according to Long Island Business News, 1200 feet long and eight stories high. Various distance-to-the-horizon calculators I tried on the web show that something that is 85 feet high can be seen for about 11 miles, so I guess if you were to stand on the beach, you could just see the structure.

Tanker ships would come into Long Island Sound, and the liquid natural gas would be heated into gas, where it would flow into a pipeline, and be used primarily by electricity generation facilities in New York City and on Long Island, but some gas would evidently also flow to Connecticut.

This has of course made the NIMBYites all upset. Well, they're not really NIMBYites, since this platform would be 11 miles away in the middle of the water. I don't really know if their objections are valid or not, as I'm not a maritime expert, energy expert, or anything. But one thing I've noticed is that while just about every politician seems to be against this, none of them has ever said what they might be for. However, every single one of them feels the need to say that something has to be done.

Let's take a look:

State Senator Judith Freedman (R-Westport): "No one is disputing the need for more, and more reliable, sources of energy. But in seeking better energy, we cannot lose sight of the need to protect our environment, the public's safety, and the best interests of Connecticut's citizens. The outcome of this project will affect Connecticut for years to come. FERC has a moral obligation to listen to what we have to say about it." (Source: Redding Pilot, January 29, 2007).

US Senators Dodd and Lieberman, as well as Representatives DeLauro, Larson, Murphy and Courtney (all Democrats) wrote a joint letter to FERC, and said, "While we understand and appreciate our nation's and this region's need for additional energy resources, we do not believe that the Broadwater project is the best way to meet these needs." (Source: Greenwich Post, January 23, 2007).

In a Press Release, US Rep. Rosa DeLauro (D-New Haven) said, "ÂLet me be clear, I do not believe that the Broadwater proposal is the right answer to addressing our regionÂs energy needs. Yes, there is clearly a need for additional energy infrastructure in New York , Connecticut , and the New England Region. However, it cannot come at the cost of one of our regionÂs and this nation's most precious natural resources." (Source: US House of Representatives, January 16, 2007).

State Rep. Tom Drew (D - Fairfield) said, "We should not even be considering something this extreme until the U.S. government has a realistic plan to reduce our dependency on fossil fuels. This isn't necessary and approving it will cause irreversible damage for generations to come." (Source: Westport News, January 19, 2007). I wonder if Rep. Drew would favor more nuclear power plants? Or if he'd be ok with a windmill farm in the sound? Or on land in his town?

Adrienne Esposito, executive director of the Citizens Campaign for the Environment, which is opposed to the platform, said, "People don't just place a high value on Long Island Sound. They place the highest value on it. We want more energy. . . . but we want an energy plan that doesn't destroy what we love." (Source: Newsday, January 11, 2007)

Lonnie Reed, a Branford RTM member, said, "We oppose Broadwater not because we are anti-energy haters but because we are convinced we can get natural gas in a cleaner, safer way." (Source: New Haven Independent, January 9, 2007). There was no mention of what this cleaner, safer way might be in the article.

One of the reasons politicians cite for the opposition to Broadwater is that the terminal is not needed, as pipelines could bring in whatever natural gas was needed. Since Broadwater Energy's parent companies, TransCanada and Shell, are probably not in the business of building unnecessary infrastructure, I'm inclined to believe that it is needed. Otherwise, Shell and Transcanada are going to have some serious explaining to do to their shareholders, since this terminal is going to cost about $1 billion to build. Some of the opposition to Broadwater says that there are other terminals under construction that could handle the distribution. Again, if that's the case, why is Broadwater prepared to spend $1 billion?

A lot of politicians said this would "industrialize" the sound. Aren't commercial fishermen industrializing the sound? What about commercial ships that bring stuff into the sound?

Some would say it would be an eyesore. Well, you'd hardly be able to see if from land, so I guess it'd be an eyesore for boaters. Are boaters that sensitive? What if they see a barge or a cargo ship with the containers not symmetrically stacked? Do they have an equally bad reaction?

The safety issue seems a bit odd. This facility would be 10 miles from anything, with water in all directions. Even if it blew up, it couldn't hurt anyone on shore. Some have said terrorists would target it. Seems like a pretty poor project to target.

Some of the opposition points seem to have some merit, like who is going to bear the costs. But to those who are opposed to the project, give some realistic proposals for how we're going to get more energy. Hoping that congress is going to wean us off fossil fuels isn't a realistic proposal. If existing pipelines or LNG platforms under construction elsewhere are going to solve the problem, why in the world is Broadwater spending $1 billion to build an LNG platform? Broadwater is only going to build the platform if they think it'll be used, because if it isn't going to be used, they'll never get their investment back.

Connecticut has the highest electric costs of any state except Hawaii. We need a realistic proposal to get more energy here.

NIMBY and Electricity Costs

2007-01-01T21:01:00.002-05:00

Recently, Connecticut utility United Illuminating (UI) was awarded a 50% price increase. Connecticut will supposedly, after this price increase takes effect, have the highest electrical rates in the country.

I became interested in this phenomenon: why does Connecticut have such high rates? First, I am not a UI customer: UI handles the relatively small area between Bridgeport and New Haven. Connecticut Light & Power (CL&P) is my utility, and covers almost all areas of the state that UI doesn't cover, although there are a few very small municipal utilities. In Connectict, UI and CL&P don't actually generate power: they instead buy the power and then distribute it.

In the course of trying to read up on why electric rates were so expensive, I stumbled on a newspaper article (link since deleted) about UI's proposal to build a substation in Trumbull, with local NIMBY types strongly opposed to the proposed location. While this was seemingly an unrelated article that I found because I typed "United Illuminating" into Google, this story provides a good example of one reason why electrical rates are so expensive: high real estate costs.

As far as I can tell here is what's happened. There is no substation in Trumbull, and in peak periods in the summer, the substations in Bridgeport and Shelton were loaded to 107% of capacity. So a new substation needs to get built. A substation is where the voltage is stepped down so it can be distributed to the local users.

UI owns about five acres of land in a residential area, and proposed to build a substation on this property, which would cost $17.3 million. There would be some woods buffer between some houses, but not on all sides. The local residents were understandably upset that a substation was going to get built there, and a neighborhood committee formed to protest the new substation.

Another property in a more industrial area was proposed instead. UI doesn't own this property, but the owner said he'd sell it for $7.5 million. The town offered open space it owned, but after residents near that space complained, that parcel became a nature preserve.

The additional cost to locate in the industrial area is about $11.6 million: $7.5 million to buy the property, with the remainder for additional costs in construction, materials, overheads, and transmission. I guess the difference comes from the fact that the industrial property is further from the power source than the property in the residential area.

It appears to me that UI owned the land where it wants to build the substation long before most of the surrounding houses were built. (This of course makes sense: why would UI buy land in a residential area before it was clear that it could get permits to build a substation there).

UI made an operating profit of $31.6 million last quarter, and $19.7 million in net income (i.e., after interest payments on its debt). So while it certainly can afford an extra $11.6 million expense, it isn't trivial. UI is going to, somehow, pass these costs on to its users. Maybe UI could also sell off the property in the residential area it owns and get something for that, if it could be zoned for new houses. Of the extra $11.6 million that UI would have to spend, the $7.5 million price for the property would not be tax deductible, as land is usually not something you can depreciate. The other $4 million should be tax deductible, but I'm not an accountant.

I don't necessarily think that anyone is in the wrong here, although I imagine that the industrial area property owner sees an opportunity to make a killer profit. But I think this episode is useful to show one reason why electricity costs a lot in Connecticut. Real estate is very expensive, and as a result, costs for goods and services that require real estate will be higher in Connecticut than in states with lower real estate prices.

There are of course a bunch of other reasons why electricity is expensive in this state: generation capacity, demand for the electricity, reliance on natural gas over coal, taxes, a regulatory structure (often called "deregulation") that prevents distributors from owning their own generation plants, etc. But real estate, and the general high cost of doing business here, is going to help make electricity more expensive.

I've heard many Republicans, Democrats, Liberals and Conservatives all demand that the Connecticut legislature DO SOMETHING about high electric rates. While there are certain things they can do, the fact is that with Connecticut's high land prices, and the ability of local residents to stall and block infrastructure projects, there are many things that the legislature simply cannot do. In Trumbull, UI had land for future use, but then the people moved in and all of the sudden these new people didn't want UI to build the infrastructure. Now UI may have to spend an additional $11.6 million.

One thing I am curious about is if UI and CL&P were owned by the state of Connecticut, do you think that local neighborhood groups could stop infrastructure projects like they can now? Or would the siting council and zoning boards have less sympathy for local groups fighting not a for-profit corporation but the state government? Could a utility owned by the state use eminent domain more frequently to put substations and high voltage lines where it saw fit?

Anyway, I think it's an interesting episode that gives some clues about why electric rates are so expensive in Connecticut.

Updated minor grammatical and spelling errors on 1/29/07

Build it and they will come.

2006-10-30T23:22:00.001-05:00

Frequently, when an existing road is proposed to be widened, the anti-widening folks will often make the following argument: "Yes, the road is clogged now, but if we expand it, it'll eventually become congested again, so let's not build it."

This just doesn't strike me as a good argument in a country with a growing population. Yes, the road might become congested again, in fact, it probably will. However, it'll become congested while carrying significantly more people. This means that new jobs will be created, new office parks, new shopping centers, movie theaters, etc. will be built.

Here on the east coast, we have Interstate 95, which runs parallel to Route 1. Route 1 is an old road: in New England, it is the old Boston Post Road, which is older than the United States. In the 1950s, when I-95 was built, I'm sure that Route 1 was very crowded. Of course, I-95 is often a standstill today, but that doesn't mean we should have never built I-95. If it had never been built, Route 1 certainly wouldn't be carrying all the cars that I-95 carries today, but the entire region would be much less developed, meaning that thee were fewer jobs, fewer houses, and fewer cars.

You may think that is a good thing. However, since we have a growing population (our birth rate is about replacement level, but we have many immigrants), we need to accommodate this growing population by building the infrastructure necessary. And we need a growing population to fund social security and other ponzi-esque pension schemes.

Should Health Insurance be Required?

2006-10-24T22:48:00.001-04:00

Should health insurance be required? While I am generally free-market oriented, I think that there's a strong case that could be made for requiring health insurance, a la Mitt Romney's plan in Massachusetts.

When someone is brought to an emergency room, he or she must be treated, and the payment issues are worked out later. This is a good thing, because many people that are brought to the emergency room are rather incapacitated, and may not even be able to tell you their name, much less their insurance policy number. Furthermore, it would seem odd to reject someone who is having an acute emergency because they didn't have insurance. I mean, even the most die-hard free marketeer probably wouldn't advocate the end to this rule.

Some people claim that forcing people to buy insurance is a personal responsibility issue: let them take the risks. However, because hospitals have to accept all emergency room patients, who exactly ends up taking the risk? True, the operation may cost thousands of dollars, which would have been covered by a policy that cost a few hundred per year, but if the operation is so expensive that someone couldn't pay it, the hospital is essentially still out the money. There's always going to be a free rider problem for those who could have afforded insurance, but who can't afford the actual treatment (and don't have sufficient assets). These people will declare bankruptcy. I would imagine that many single 20-something males fall into this category.

I would hope that any obligatory insurance plan required by the state would allow individuals to purchase various plans that would have different levels of coverage, as long as they all had emergency coverage. Furthermore, the insurance companies should be allowed to price these policies as they see fit, using whatever risk factors they deem appropriate (e.g., they could charge identical twins different rates if one smoked and the other didn't).

However, forcing basic emergency coverage for all those who can afford it seems entirely reasonable to me. Why should the hospitals have to take the risk?

Don't Cross that Line!

2006-10-04T16:29:00.001-04:00

In the United States, many people live in one state but work in another. In some states, like Colorado, this number is quite small since a small portion of the population lives near the state line. In other states, like Connecticut, this number can be quite substantial.

This has an impact on local tax policy. In Connecticut, various politicians talk about the rich paying their "fair share", which always seems to be more. The problem for Connecticut is that many of the wealthiest residents pay no income taxes on wages ot the state of Connecticut, since they work in New York state, and pay income taxes to New York instead. Raising the top bracket of Connecticut's income tax won't have an impact on these people until the Connecticut top bracket surpasses New York's top bracket, since you don't have to pay income taxes twice if you cross state lines on the way to your job.

Connecticut has about 3.5 million people. About 38% of these are either under 18 or over 65, so are not likely to be in the work force. According to Metro North, the commuter railroad that takes people to New York City and intermediate points, about 80,000 commuters get on the trains every day in Connecticut. A few more Connecticut residents probably board at Port Chester (the first train station in New York, right over the Greenwich border), and there are also some that drive their cars or take a bus over the Hudson line in New York state and take the train into the city from there (indeed, my town, Ridgefield, has the shuttle bus which runs 8 times per day to the Katonah train station in New York).

There are some commuters -- not many -- who take the train to other Connecticut towns, and there are some New Yorkers who commute outwards to Connecticut. But I would estimate that conservatively, there are 50,000 net train commuters from Connecticut into New York.

Some people drive from Fairfield county to Westchester county, but I would imagine that these people cancel each other out. The Massachusetts/Connecticut people probably also cancel each other out. There may be more Rhode Islanders coming in than Connecticut residents heading into Rhode Island, since Connecticut has two large casinos (Foxwoods and Mohegan Sun) located near the Rhode Island border. However, these are mainly low wage jobs, and thus don't generate much in the way of income taxes for the state.

These 50,000 or however many commuters into New York are mainly high wage earners. Monthly tickets from Greenwich to Grand Central station in New York City cost $237, and they get more expensive as you go further out. So the salary has to be worth the cost and approximate hour of commuting time.

New York has a graduated income tax that hits 7.7% after $500,000 (7.375% after $100,000). Connecticut reaches 5% at $10,000 and stays there. So for the top rate, Connecticut would not receive any income taxes from cross-border commuters until it topped the 7.7% level.

I don't have any statistics available, but I would imagine that as a percentage of income earned, Connecticut probably has the highest percentage being earned out of state. New Hampshire has a lot of commuters going into Boston, but since New Hampshire doesn't have income tax, this becomes irrelevant. New Jersey of course is also a commuter heavy state, both in the north (to New York) and south (to Philadelphia), but it's a much bigger state than Connecticut. Maryland has a decent percentage that commute into D.C., but it appears that there is some sort of agreement in place that means those residents pay taxes to Maryland and not DC (however, Maryland commuters to Delaware don't seem to have this agreement.

In any event, when a large portion of your biggest income producers commute out of state, and are thus not subject to your taxes, it's difficult to promise that raising taxes on the rich is going to bring in lots of new revenue.

One Conencticut state senator, Ed Meyer, said he would favor raising the top rate to 18.97%, which would make Connecticut the highest taxed state by far. This would of course pull in some money (18.97% minus 7.7% paid to New York) from the wealthy cross-border commuters, at least until they moved closer to their jobs, in the low tax jurisdiction of Westchester County, New York.

Dairy Farms? No Thanks, I'll take tract housing

2006-09-26T22:44:00.001-04:00

Connecticut gubernatorial candidate John DeStefano has a plan for Connecticut Dairy farmers. You can click on the link, but in essence, he doesn't think they are getting enough money, so he wants to give them $5 million of state funds, have some sort of summit, have an insurance fund for dairy farmers, and put into place some more price supports and subsidies.

My question is, why should the Connecticut government try to keep these dairy farms open when they obviously are uncompetitive with dairy farms in other states, which have less rain, cheaper electricity, and a lot cheaper land?

If milk is too cheap (and it's a heck of a lot more than gasoline per gallon), why don't these farmers close up shop, sell their equipment, and sell their land and do something else, or even retire?

Someone else could then buy the land who could put it to better use than trying to lobby the state and federal government for subisidies because what they produce can't be produced profitably.

Connecticut has very expensive land, so this land might be suitable to build new houses. Perhaps instead of subsidizing farmers, and then having to form committees to determine why housing is so expensive, we could just eliminate the subsidies to farmers, and then if they couldn't survive, they'd sell their land and the land could be put to more productive use.

Now, you might say that this would cause all Connecticut dairy farms to go under. Well, that doesn't mean we wouldn't have milk in the grocery store. We have orange juice but there are no orange trees in the state. This is because we have highways and railroads, which cross the state line and keep going to where these things come from. Apparently they can even bring milk in on refrigerated trucks.

Some of the dairy farms would probably survive: they'd be competitive enough (they might not be as cheap as Wisconsin, but after adding in transportation costs, they could probably compete).

Believe me, if the government doesn't provide price supports, milk is still going to get produced and pasteurized and distributed. We don't need governments trying to keep dairy farms in business when they cannot compete. Especially in a state where developable land is a scarce commodity.

From Sixteen Volts to Zero

2006-09-22T07:42:00.000-04:00

Well, it's more than apparent that Ilkka Kokkarinen's blog, Sixteen Volts was forcibly shut down.

For those of you who didn't know Sixteen Volts, Ilkka Kokkarinen is a professor of Computer Science at Ryerson University in Toronto. Mr. Kokkarinen is a native of Finland, but moved to Canada several years ago to try living in a more free market economy than Finland's. On his blog, he regularly chastised Feminists, as well as many other leftists, for their hypocrisy., often using biting sarcasm...

He supported nuclear power, but was also an avid proponent of public transportation (so much so in fact, that neither he nor his wife owned a car. He commuted via public transportation to Ryerson from the Toronto suburb of Mississauga, while his wife was able to walk to work). He seemed to write about 2 entries per day, fairly long entries at that, and it was quite an entertaining read. In mid September 2006, someone at his college distributed some blog entries he had written, albeit grossly out of context. Ilkka commented that he spoke to the student newspaper about the misquote, but idly wondered if something would happen akin to what happened in I am Charlotte Simmons, a recent novel written by Tom Wolfe.

Well, apparently the Feminists or anti-nuclear power people or whomever he offended managed to force the removal of his entire blog archive (a few weeks ago, Ilkka commented that all his blog entries could likely fill a book), and post an apology. While it was rare that any blog entry of his would get more than 3 or 4 comments, this apology has gotten 58 comments from people lamenting that he's quit blogging. I guess the leftists that were offended couldn't make counter arguments on their own blog, or even in the comments section on his blog, but instead wanted to ensure that no one else could read such offensive material like the stuff Ilkka wrote, which showed that they often contradicted themselves.

Shutting down his blog speaks volumes about how leftists engage in debate. As Ilkka liked to say, "While chasing the rabbit, the hunter is blind to the mountains."

Let's hope that Ilkka starts blogging again, albeit with a pseudonym, as I do... And let's hope that he blogs in English instead of Finnish. Finnish is just too damned hard to learn. I speak German fluently, and can figure out Dutch/Afrikaans. In Swedish, Norwegian or Danish, I can pick out certain words. But Finnish is of course not an Indo-European language, and the only major languages related to Finnish are Estonian and Hungarian (English is distantly related to Sanskrit, Russian and most of the languages of Europe, and it's closely related to the other Germanic languages, albeit with significant influence from French and Latin). Finnish is not a widely spoken language, nothing like English, so let's hope Ilkka blogs again in English!

Seventeen volts anyone?

Who Should Pay for Metro North?

2006-09-17T00:00:00.001-04:00

The Metro North Railroad takes commuters from Connecticut, Westchester and Long Island to Manhattan (and intermediate points).

The railroad is currently in the process of buying new railroad cars for the New Haven line (which goes from New Haven, Connecticut into New York, plus a few additional spur lines). These new Kawasaki railroad cars are being paid for by both Connecticut and New York state, with Connecticut picking up 65% of the tab and New York taking on 35% of the cost. This ratio was worked out by the number of riders from each state.

However, I think that this is a totally unfair division of costs. In the United States, if you work in one state and work in another, you pay income tax to the state where you work. Then, when you file your taxes, you get a credit for those taxes. So if your home state has a lower rate than the state you work in, you will wind up paying nothing in income tax to your home state. This is the case with Connecticut and New York. New York's income tax rates are higher, so Connecticut natives who work in New York pay taxes to New York. For those New Yorkers that work in Connecticut, they pay income taxes to Connecticut, and then since New York taxes are higher, they make up the difference by paying New York the additional amount.

Many more people commute into Manhattan from Connecticut than commute out of Manhattan to Connecticut. While there are some commuters from Fairfield county to Westchester and vice-versa, I would imagine most of these people drive.

My question is, even if Connecticut residents make up 65% of the passengers (or 65% of the passenger miles or whatever metric they used based on ridership), why should it foot 65% of the bill? Most of the Connecticut residents riding the train pay nothing to Connecticut in income taxes! Shouldn't the split be done instead on commuter destination?

Suppose Connecticut cut its funding. The railroads would be no fun to ride. People would either move out of Connecticut (but from an economy perspective the loss is minimal: they didn't work here) or find jobs in Connecticut that they could drive to. This would boost tax revenues (plus add in the fact that we aren't spending money on the railroad).

Since New York gets a big tax bonus by having better commuter trains (which makes commuting easier, which means more commuters), shouldn't it pay for the trains? It just seems odd that Connecticut would spend lots of money so rich people could commute to another state and end up paying nothing in income taxes to Connecticut.

Isn't it also a bit odd that Metro North is subsidized at all in the first place? Yeah, I know, highways are subisidized too. I don't like that, and I don't like this subsidy any better. This is a subsidy so mainly wealthy can take the train to work: in 1998, the average commuter earned nearly $100,000. Why exactly are we subsidizing the entire railroad? And if you say that there are poor people who can't afford the tickets, couldn't we figure out some way to give just the income qualified people a discount?

Insurance Politics

2006-09-05T22:59:00.001-04:00

Connecticut is the historic home of the insurance industry in the United States. Yet Attorney General Richard Blumenthal and a few state representatives seem to have little concept of how insurance works.

Connecticut borders Long Island Sound, and recently, Andover Cos. began requiring policyholders who live within 3/4 of a mile from the Sound to install storm shutters.

Why would Andover require storm shutters? They don't own a storm shutter company, so won't profit directly. Rather, Andover will reduce its risk exposure. According to Wikipedia, storm shutters prevent windows from being broken, and also prevent air pressure from building up in a house, which can ultimately cause structural collapse.

However, politicans don't like the fact that homeowners may have to install these shutters.

But Attorney General Richard Blumenthal and Speaker of the House James Amann are calling for a reversal of the new practice, saying it unfairly punishes homeowners. They fear that other insurance companies will copy Andover's requirement, forcing more coastal homeowners to install expensive shutters.

"This standard is unfair, unreasonable and unprecedented," Blumenthal said Thursday.

While this standard is apparently unprecedented in Connecticut, I fail to see how Andover's new policy is unfair or unreasonable (obviously, Andover would have to honor all existing claims on existing policies which terms have not yet expired). Insurance companies require all sorts of things all the time to qualify for lower priced insurance: we need to wear seat belts, not smoke, etc. to get lower rates.

We live in a competitive society, and somewhere out there, an insurance company should be willing to sell you insurance for the right price. If someone is convinced that storm shutters are not necessary, then they don't have to install them, and they can purchase insurance from one of the many other companies that sell insurance. Andover's market share is less than 1%.

There's talk of the economic hardship this would cause, and says it could cost up to $100,000 per house to install these shutters. Yet the same article quotes one contractor as saying they cost between $12 and $45 per square foot. At $45 per square foot, the upper range, that would cover 2,222 square feet of windows. Even if you have large 2 foot by 3 foot windows, you'd need 370 windows to hit $100,000.

Let the insurance companies decide what to require or not require in their policies. With competition, people will be able to choose among the various companies, and will be able to do their own cost-benefit analysis of installing shutters, wearing seatbelts, or quit smoking. And if they'd prefer not to do these things, they'll still be able to find insurance from someone. Just please don't get Mr. Blumenthal involved. But there doesn't seem to be any insurance against that...

Should Corporations give to Charity?

2006-09-04T00:44:00.000-04:00

When I was in business school, a bunch of people interviewed with some company. There was a question that went something like this: if you were managing the company, and made an unexpected profit windfall (like you discovered oil on otherwise worthless property), what would you do with the profits? The answer they were looking for was that you should give 10% to charity.

I've always wondered why corporations should give money to charity. After all, it's not really their money: it's the shareholders', and shouldn't the shareholders have the right to decide? I'm all for compassion, but for me, compassion means donating your own money or time, not someone else's (this is why I don't think that governments can be compassionate: it's just redistribution. It may in times be necessary, but that doesn't make it compassionate).

There are a few times when I think a corporation should give to charity. The first is if it's not really charity: on the surface, it looks like charity, but so much good will is generated, that it's a win-win. Sponsoring a little league team may bring the company free advertising or it may boost employee morale (if many of the workers' children play for the team). In other instances, charity may help source more employees (such as giving to a local tech school). Donations to certain public policy think tanks may result in more favorable laws being passed. These activities are obviously in the shareholders' best interest.

The second type of charity that I'd support is if a corportion were trying to reverse an earlier wrong. Even without the PR benefit. (For instance, if a record company distributed a CD that advocated cop killing, which is within the first amendment rights, but then someone followed the advice. The corporation may not have acted illegally, but it certainly didn't act responsibly).

Finally, I'd support general charity to whatever organization if the board truly believed that the shareholders wanted to give to these charities. This is obviously easier to ascertain when you have only a few shareholders. The reason for this is taxes. For instance, if a company has five shareholders, and they all think that Planned Parenthood (or the National Right to Life) is great, then the corporation giving away the money is more efficient from a tax perspective. If the corporation gives $100 to the organization, it actually only costs about $66 less in profit because taxes will be less now that income has dropped by $100.

If however, the corporation keeps the $100, then it pays $33 in taxes on it. Then it has $67. IT distributes this to the shareholders, who have to pay 20% tax on the dividends received, so they're left with about $54 (donating this will then bring them a tax benefit, but in a 33% bracket would be about $18).

However, in most cases, I would not support corporate charity. It's not really charity. Under most circumstances, large corporations with a diverse shareholder base have no business giving away their shareholders' money. Let the shareholders do that.

Gasoline Taxes and Road Building

2006-09-01T21:54:00.001-04:00

While I'm all for low taxes, I believe that gasoline taxes and tolls on highways can be perfectly reasonable, provided, however, that there are some constraints to them.

Roads cost money to build and maintain, and therefore, I think it's fair that the people that actually use the roads pay for their use. If someone has managed to position their life so they can walk to work and walk to the stores they need, why should they have to pay taxes so I can drive a car? However, the collary should also be true: if I drive, why should the gas taxes and tolls go to items other than those that are necessary to maintain the road?

I favor congestion-based tolls. These would be tolls that would be charged only during peak periods: by peak periods, I mean only those times when traffic moves less than the speed limit. As I wrote in a previous blog entry, these tolls would be set at such a rate so that enough people were deterred from using the road until the speed limit could then be attained. I believe this would be a more sensible allocation of a limited resource than to force everyone to sit in a traffic jam.

Now, if the congestion-based tolls are throwing out so much money that no other funding for roads is needed, this would tell me that the road infrastructure is woefully inadequate. The excess funds should be used to build more roads. The objective with congestion-based tolls isn't to raise revenue, it's simply to reallocate resources to those willing to pay for them.

Regular tolls are fine, as long as the toll can be collected efficiently. I hate having to wait 20 minutes to pay $1 for a toll. Gasoline taxes and various property taxes on cars are also acceptable, so long as these funds are not diverted to other sources.

So whatever gasoline taxes and tolls would have to be to maintain the road system is where I think the taxes should be set. However, there's one slight problem here. If a small state, such as Rhode Island, needed to have higher taxes than the neighboring states (perhaps because of more miles driven by its residents, more miles per car, or whatever), this could cause locals to cross state lines when making purchases. Taxes need to be high enough to cover costs, but not so high that people start finding alternative fuel sources in other states. States like these would probably have to revert to more tolls. Traffic fines should also be used solely for the road system.

The cost of the road system are construction costs, repair, snowplowing, traffic police salaries, and the cost for emergency rescue personnel for the portion that they deal with automobile accidents.

So would this make gas taxes higher or lower?

Currently, gasoline is taxed at $0.184 per gallon by the federal government, and then the states add their own taxes. This brings in about $30 billion to $40 billion per year, according to various estimates. The most recent highway bill signed by Bush had $286.4 billion in spending over six years, which right there is more than the gas taxes collected. This would indicate that the gas taxes aren't enough to fund federal transportation spending. Add to the fact that much of the $0.184 collected is block granted back to the states, and it looks like the federal gas tax is woefully short of where it should be. The highway bill was also filled with lots of local projects, not for the interstate highway system. The bridge to nowhere in Alaska is only the most ridiculous example.

Republicans and Democrats alike call for tax holidays of the gas tax. I guess my question would be: during this time, would you still build and repair roads, have police and fire units, etc? If so, then who's going to pay for it all if not the drivers. If I set up my life so that I don't need to drive, why should my income taxes go up to pay so people can drive?

At the same time, gas taxes shouldn't be thought of as a piggy bank to fund other non-road related projects.

There's a few other things I haven't mentioned. Pollution. In my above proposal, there's no allocation for pollution. I would definitely favor some sort of duty on pollution to encourage people to reduce their own. Charge each car based on the amount of particulates per mile times the number of miles driven; this will encourage people to get cars that pollute less. I don't really care if the car is a hybrid or runs on ehanol. Base it on the output. I never understood why there should be tax breaks for hybrids. Why not tax breaks for really fuel efficient cars, most of which happen to be hybrids. But what if someone else came up with a different way? Like reducing the number of cylinders in use when on a highway.

Public transportation. Many governments seem to think that drivers should pay for public transportation, because for every guy on the railroad, he's not on the road. However, if we were going to have a closed system, in which gas taxes and tolls and fines pay for roads and highways, then why should the drivers pay for the railroad riders? Yeah, they reduce congestion. So what. If a factory were to build worker housing next to the factory, should the owner get the same tax break because he's reducing congestion as well? Or if a company allows its employees to work from home or have flex commuting, should they get a tax break? Well, they sort of would, because under my proposal congestion wouldn't happen often: except when there was a wreck, there should be little congestion due to peak tolls.

So in any event, keep road taxes and tolls as high as necessary to maintain and build the roads. Don't expect subsidies, and don't expect to subsidize anyone else...

100 Years of non-violent Government Changes

2006-08-29T11:40:00.000-04:00

In the past 100 years, how many of the world's approximately 200 countries have either not had a violent overthrow of their government or have not been occupied by a foreign power?

The answer is only 8.

Australia
Canada
New Zealand
South Africa
Sweden
Switzerland
United Kingdom
United States

You may think more countries belong on the list. But Mexico had its revolution in 1910 (not really ending until the 1920s, but the consitution was established in 1917), most of Europe was occupied by the Germans or Russians during World War II. Most of Africa was colonized until the 1960s. I wonder if South Africa really belongs on the list, as it was a nominal British colony after the Boer War (1899-1902), but Transvaal had home rule beginning in 1906, and the Orange Free State in 1907, and the Union of South Africa wasn't created until 1910 (when it became a self-governing dominion under the British crown). So if we move the start date to 1910, then South Africa joins the list, because although it had a racist government, it was never occupied by a foreign power since that date and it did not have a violent overthrow of its government when the transition to majority rule took place in 1994.

In any event, it's interesting, but probably coincidental, that of the 8 countries, 6 of them have their institutions and legal codes rooted in the British system (the exceptions being Sweden and Switzerland).

100 years is not a huge amount of time, and while it seems unlikely that in 100 years, there will be only 8 countries who haven't been occupied or haven't had a violent transition of power, things can change pretty quickly. I wonder if 100 years ago anyone thought only 8 countries would make it for 100 years without being occupied or having a violent overthrow.

HOV lanes and People who need to get there fast

2006-08-26T23:43:00.001-04:00

Why do traffic jams exist? The answer is either 1) there's an obstruction: a wreck, construction, tree in the road, etc., and thus the capacity of the road is limited [reduced supply]; 2) there are too many cars on the road versus the capacity of the road [increased demand], 3) there's not an obstruction, but there's some event that causes people to slow down to have a look (like a wreck that's been moved off the road so it no longer is blocking traffic).

Most traffic jams result because of the capacity issue. There are simply too many cars for the road (and this often leads to wrecks, which causes further delays). The problem with highways is that the cost is almost always fixed, regardless of the time of day that the road is being used. Roads are funded through gasoline taxes and tolls, and tolls are usually fixed. Furthermore, while the lanes going into the city may be backed up for a few hours each day in the morning, most of the time it's smooth sailing.

Traffic jams cost drivers money in that they can't be doing something else, like working (this is "opportunity cost"). For an unemployed guy driving somewhere, the opportunity cost of sitting in a traffic jam is basically negligible. For a lawyer who sits in a traffic jam, the opportunity cost can be quite high.

Governments have two methods of reducing traffic jams resulting from capacity issues: increase supply or decrease demand. Increasing supply means adding more lanes, or alternate routes: an expensive proposition. States currently have fairly clumsy methods of reducing demand during peak periods: one of the more prevalent methods is to promote carpooling through HOV lanes, adding public transportation with more robust schedules during peak times, etc.

Why not charge drivers a high toll during peak periods? The key would be to have lower tolls outside the peak periods, when there's excess capacity. This would encourage some drivers to shift their work schedules so they'd start and end work during non-peak times (the first to do so would be workers who could shift their hours without a great impact [such as computer programmers]).

In addition to having the toll be reduced (or even eliminated) during non-peak times, there would also have to be a good collection mechanism (probably via electronic devices like EZPass) in place so that drivers wouldn't have to wait to pay a toll, thus negating the benefit of paying the toll in the first place. I believe that the technology to do this exists well enough right now.

Convert the HOV lanes into "pay to drive faster" lanes. This way, poor people could afford to drive, it would just take them longer (but they don't value their time that highly). Meanwhile, people whose time was very valuable could pay to drive in the HOV lanes.

What would the cost of the pay lanes have to be? Well, there would have to be some sort of mechanism to determine the price: at what price does traffic again move at the speed limit? That's where the price should be set.

Roads are a limited resource, and when you have a fixed price (i.e., the gasoline tax or a fixed toll) for a scarce good, you are going to get a shortage of that good (in this case, the good is a lane of pavement as long as your car and four car lengths to the next car). By raising the price of the good, you get rid of the shortage.

While local governments would probably make money by implementing this system, I do not think it should be viewed by municipalities as a way to keep getting lots of money (rather, it should be viewed like fines: attempting to control behavior). With current technology, it would probably be quite easy to reset the price every month for each hour window based on the demand. The price would be set so that at any given time, there would not be a backup (so most of the night, there should probably be no toll).

Many of you might say this would just hurt the poor working man who needs to get to work by a certain time, and why should he be penalized (if free lanes didn't exist next to pay lanes). My answer would be that he could leave earlier when there were no tolls. If he wants to consume a limited resource, he needs to pay for it (at 5:00 AM, roads usually aren't a limited resource, so tolls then could be free). He could carpool with others who wanted to drive during the peak period but could not afford to do so alone. Or he could lobby his employer to shift his working hours. If his employer refused, he might then find alternative employment that did allow for more flexible hours. This would eventually cause employers to have to raise their wages for lower-income people who work normal business hours. It would also provide an incentive for people who had normal working hours to live closer to their employer (or at least not in the same direction as all other commuters).

By having rates that vary according to demand, we'd eliminate the shortages. That's what done in almost every other facet of our lives, so why not with the highways as well?

Why Subsidize Multinational Corporations?

2006-08-15T21:27:00.000-04:00

I'm a free-market capitalist. I don't think corporations are evil. I think that they can almost always provide a good or service more efficiently than a governmental entity.

However, many suburbs give various tax abatements to encourage corporations to move their headquarters or factory or whatever to their community. I think that this practice is ridiculous and patently unfair, even if the company is providing a bunch of jobs, even if it's helping local businesses such as restaurants, even if it's a net win for the community under whatever metric.

For instance, UBS AG got $145 million in incentives, primarily tax credits, when it moved its headquarters from New York City to Stamford, CT.

However, if no municipality had offered UBS AG a tax incentive, it wouldn't have gone out of business. It would have either kept its headquarters in New York, or it would have moved someplace else. It may not have chosen Stamford without the tax breaks, but it would have chosen SOMEWHERE. Yet when municipalities compete with each other, all that ends up happening is that the large corporation ends up paying less in taxes, but everyone else has to pay more.

Now, you may ask yourself, how can someone who says he is so much in favor of free markets be against competition? Isn't competition the basis of free markets?

Yes, competition is essential for a free market to work. And I would have no problem if Stamford or Westport of Newark or Jersey City or whomever lowered their property tax rates for EVERYONE. However, a government picking and choosing what companies it provides tax incentives to simply creates distortions. Instead of the market deciding what companies will be located where, personal connections and other arbitrary factors lead to cities giving tax breaks to one company and the expense of the others. If a 10 person boutique firm moves from NYC to Stamford, no one gets a tax break. Why should UBS get a tax break simply because it's larger?

Suppose UBS paid the same property tax rate as every other business in Stamford. But then at the end of the year, Stamford decided to write a check to UBS for the amount of its taxes paid. Would that make you upset? Because that's essentially what Stamford has done.

I say this even if you can produce some analysis that after the inital 10 year (or however long it may be) tax holiday, UBS will pay taxes, and that will be a net win for Stamford. Except that they weren't paying taxes for 10 years. You may say, well they wouldn't have paid taxes if they hadn't moved here. But they would have had to have been SOMEWHERE and they'd be paying taxes there if no municipality offered these ridiculous tax breaks.

When property taxes aren't assessed at the same rate for all properties (and properties need to be reassessed regularly), then you've got an unfair system. You have the high ratepayers subsidizing the lower ratepayers. In a few cases, you may be able to get away with multiple rates (a special rate for a particular sewer district, or lower taxes for commercial properties on the theory that they don't send kids to school or whatever). But other than these few cases, keep property taxes at the same (hopefully very low) rate across a municipality. Don't tax someone at one rate simply because they may threaten to leave, or wouldn't have come, or whatever. If your tax rates are such that companies won't locate there without incentives, here's a thought: lower your taxes for everyone. Maybe the problem is that your taxes are too high.

Conservatives and Property Taxes

2006-08-09T22:28:00.001-04:00

What is it about conservatives that causes many of them to propose and embrace completely crazy property tax "reform"?

The latest is Ron Paul, a libertarian-Republican congressman from Texas who is often regarded as being the most free-market congressman, and who's revered by various free-market think tanks. He says that he wishes that in Texas, the state legislature would consider the following proposal:

Specifically, end the practice of annual assessments. Properties should be reassessed for tax purposes only when sold or ownership is otherwise transferred. The current system is terrifying for seniors forced to pay more and more each year, with no idea where they will find the money. And unlike other bills, property taxes must be paid or else one’s home can be taken away. My office hears from seniors who may have no choice but to leave Texas altogether because they cannot live with the uncertainty of arbitrary property tax increases. They literally fear losing their homes.

Now, I'm all for lower taxes, but they have to be lower for everyone. Ron Paul's proposal is simply crazy, and for several reasons.

First, it gives no incentive for people to elect conservatives who want to limit spending. Why? Because, under his proposal, their taxes cannot go up! Normally, when a community goes off and elects some liberals who want to spend a lot of money, they find that their taxes go up (and then as the tax base shrinks, their taxes go up some more). They start to question what value they're getting. However, Paul's proposal completely decouples these two things. The local populace can vote for all kinds of things, knowing that future home buyers are going to have to foot the bill.

Second, his proposal is simply unfair. It amounts to a subsidy from new homeowners to long-term homeowners. This is because without annual assessments, the increased tax burden will fall on the new homeowners. If you want lower taxes, fine. But if you don't apply the taxes uniformly, then you're not really having lower taxes, you have subsidizing by the unfavored group to the favored group. What about corporations or limited partnerships? The LP or LLC or whatever will own the property. Shares in that company can change hands, but without revaluation, the property taxes will be fixed in time.

Third, why should the government discourage mobility? Our economy is dynamic because people move to where the jobs are. (Compare this to a country like Germany, where people rarely move from one region to another). When the kids have left for college, the parents can buy a smaller house. But under this scenario of Paul's, there's a reward for not relocating, in lower property taxes. And downsizing to a smaller house may result in significantly higher property taxes. So people will be reluctant to relocate.

It also makes the cost of housing more expensive for younger people, who must buy a new house and therefore must shoulder a larger tax burden than older people who have lived in the same place.

Imagine the following quote:

Specifically, end the practice of annual rent increases. Rents should be raised only when the tenant ends the lease. The current system is terrifying for seniors forced to pay more and more each year, with no idea where they will find the money. And unlike other bills, rents must be paid or else one can be evicted. My office hears from seniors who may have no choice but to leave Texas altogether because they cannot live with the uncertainty of arbitrary rent increases. They literally fear losing their homes.

So how is a fixed property tax different from rent control? Now, you can say that you own the property and shouldn't be forced to pay taxes on it. Fine, but then do away with property taxes for everyone and find a different revenue stream, like the sales tax or income tax, to fund the government. The fact is, the government needs some money. Even the most die-hard libertarian realizes you need a court system, a law enforcement system, and some other items. You can debate how much government is ideal, but you need some. Therefore, you need some taxes. If you don't like property taxes, then abolish them for everyone. But if you are going to impose property taxes, impose them equitably.

Don't assess two identical houses at massively different rates. As for the argument that seniors cannot afford the increased taxes, there are sadly no guarantees in life. You buy an SUV and gas prices skyrocket, and you can't get gas at the old fixed price. Rents go up. When prices rise, you can either pay, or not purchase that product anymore. Not purchasing here implies that either you vote for conservatives who lower taxes, or you sell your house so you need not pay property taxes anymore.

Property taxes going up means that your house value is probably rising as well. This means that you could take out a Home Equity Line of Credit and pay the property taxes. Due to price appreciation, when you sell the house, you can pay the loan back.

Conservatives often propose similar schemes to Ron Paul's for property taxes. California has it in the form of Proposition 13. However, I think that conservatives would be better served if they proposed limits on increases in spending, or if they set a maximum tax rate on properties, but allowed those properties to be regularly reassessed. Taxes should be low, but they should also be fair.

Any tax cut that is not distributed among all people fairly is essentially a subsidy. Suppose that all houses in a neighborhood were regularly reassessed, and then were taxed at 1%. Everyone sent in their checks. Then the government figured out what the assessed rate was whenever you bought the house, and sent you a check for the difference. Some people would get nothing, some people would get a little and some people would get a lot.

Would you object to that? If not, why not? And if so, don't you also object to Ron Paul's proposal? Because in the end, it's the same thing. Everyone has the exact same cash flow under both my scenario and Ron Paul's proposal.

Keep this in mind during any property tax reform. Never altering the assessment creates massive distortions.

Equal Pay for Equality Bureaucrats

2006-07-28T22:07:00.000-04:00

"Equal pay for equal work" has been one of those slogans that's been around for a while. Women on average make less than men (72% is the number usually cited, which I don't doubt). According to various women's groups, there must be discrimination out there, and no other explanation could really be feasible.

There's an organization that promotes it. On its Q&A page, we find out that the whole equal pay for equal work concept is really equal pay for jobs that some government entity thinks require the same skill level, but aren't really equal, but they're equivalent:

The major provision of the Fair Pay Act prohibits wage discrimination based on sex, race, or national origin among employees for work in "equivalent jobs." Equivalent jobs are those whose composite of skill, effort, responsibility, and working conditions are equivalent in value, even if the jobs are dissimilar. The Act is a natural extension of the 1963 Equal Pay Act, which is limited to sex-based discrimination in the same jobs. For enforcement purposes, the Fair Pay Act allows class action lawsuits to be filed and provides for compensatory and punitive damages. It also fills the information gap for workers by requiring some employers to disclose to the Equal Employment Opportunity Commission (EEOC) general job classifications and their pay statistics (although it maintains individual confidentiality). The bill prohibits a company from lowering any employee's wage rate in order to implement fair pay.

Later, it goes on to say:

Women are still often steered into the more traditional female occupations - such as nurse, teacher, clerical worker, or retail sales clerk. This has perpetuated sex-based occupational segregation, which is beyond the reach of the Equal Pay Act alone. Requiring equal pay for workers in equivalent jobs, even when the work performed is different, is the surest way of eliminating the enduring biases against jobs held predominantly by women and people of color.

So here we are going to need a government agency to determine which jobs are equivalent even if the work performed is different. The site goes on to say that employers would set wages, but that a non-discriminatory system would be used to set wages. It also says that "Fair Play can lead to greater productivity by raising morale among workers who expect to receive fair pay for their work." I guess my question is, if something is going to lead to more productive employees without really costing anything, why wouldn't the companies implement the policies that are being advocated? Why do we need to require a government bureaucracy to do this? Companies are in the business of maximizing their profits.

An example the page gives of equivalent jobs is registered nursing assistants and compared with plumbers. While the jobs may have the same basic skill level (although I'm not really sure), they aren't the same. How the hell are they even similar? I certainly wouldn't want a nursing assistant to come over if my toilet was all stopped up, and I wouldn't want to see a plumber if my intenstines were all stopped up and I couldn't use the toilet (although in both cases, the end result would be an empty septic tank).

Right now, if there's a shortage of plumbers, you raise the wages offered, and you'll get more plumbers. If there's a shortage of nursing assistants, raise their wages, and you'll find enough nursing assistants. Might not be instantaneous (people have to study to be these things, or move to the area, or quit what they are doing), but it'll happen. But if you have a shortage of plumbers and you raise the nursing assistant's salaries, that's not going to help me find a guy to fix my toilet.

The top 10 reasons for pay inequity are provided. One of the points is that market forces aren't eliminating discrimination, because pay levels are different. Say what? Warren Farrel in Forbes had a good statement on this:

When I was on the board of directors for the National Organization for Women in New York City during the 1970s, I led protests against the pay gap. I wore a "59 Cents" pin to reflect my objection to the discrimination I felt was the cause of women earning only 59 cents to each dollar earned by men. Now, since I'm a husband and father, discrimination against women isn't just political, it's personal.

But one question haunted me through the years: If an employer has to pay a man one dollar for the same work a woman would do for 59 cents, why would anyone hire a man? If women do produce more for less, I thought, women who own their own businesses should earn more than male business owners. So I checked. I found that women entrepreneurs earn 50% less than their male counterparts.

He goes on to say that women and men make different choices, and these lead to men valuing money over flexibility, fulfillment, autonomy and safety, while for women, money ranked lower. (Although this goes against the liberal belief that men and women are exactly the same except in anatomy]. He also wrote a book explaining why men earn more.

Now, this pay equity thing may just be some looney-toon website by some marginal organization, and their bill probably has essentially no chance of passing. However, here in Connecticut, John deStefano is running for governor, and this is one of his Campaign Themes.

His proposal would "establish within one year a set of standards for evaluating pay equity in municipalities and in businesses and industries employing more than 50 people." (What does businesses and industries mean? Does he mean businesses and organizations or businesses and partners?)

Fortunately for us, deStefano doesn't look like a winner on election day. And he's going to get beaten by a woman. What's an equivalent job to governor? CEO? The governor probably makes less. I'd tell her she should become a CEO.

Are You Better Off Today than you would have been 25 or 50 years ago?

2006-07-27T00:15:00.001-04:00

Here in Connecticut, New Haven Mayor John deStefano is running for Governor, and his ads lament the fact that the middle class is “hurting.” One advertisement says, “My dad was a police officer. Back then, working people could scrimp and save and become middle-class. It was a different time,” while a 1957 Chevrolet appears in the picture.

DeStefano is right about one thing, it was a different time. And he certainly isn’t the first, nor will he be the last to make such a claim that somehow, 50 years ago or 25 years ago was a better time for the middle class. Katherine Newman was touting that in 1993 in her book. More doom and gloom about the declining standard of living are Here or Here or Tamara Drault's recent book, Strapped.

However, what all these claims fail to realize is simply how different “middle class” is today from back then. If most “hurting” middle class members tried to live like people did 50 years ago or 25 years ago, they’d find that the old times weren’t so great, and what people had to scrimp and save for pales in comparison to what we’ve got today.

It’s akin to someone lamenting that a baseball team doesn’t hit as many home runs as they did 25 years ago, without mentioning that their new ball park has an outfield wall that’s 60 feet farther from home plate.

What are some of the things that people take for granted today but were oblivious to 25 and/or 50 years ago? I’m going to try to give some indications of how people lived in 1956, 1981 and today, and the costs of these choices. At the end of each section, I summarize these cost savings, and I assume 130 million households in the United States. This is to live today at a standard roughly comparable with 1956. I'm not going to compare what people spent on X in 1956/1981 versus today, but instead I am going to compare what they spend today versus what they'd have to spend to get the same level of product or service prevalent in 1956 or 1981.

Big Houses: NPR reports that the average house size has doubled since the 1950s, and now stands at 2,349 square feet. Writes NPR:

Consider: Back in the 1950s and '60s, people thought it was normal for a family to have one bathroom, or for two or three growing boys to share a bedroom. Well-off people summered in tiny beach cottages on Cape Cod or off the coast of California. Now, many of those cottages have been replaced with bigger houses.”

What does this extra space end up costing? B4ubuild reports that an average house costs $45 to $150 per square foot to build. I’m going to assume that the extra 1,100 feet of living space now would skew a little to the lower end (since the “extra” space that people have now consists mainly of bedrooms and extra living rooms, not an extra kitchen). At $45 per square foot, an extra 1,000 square feet will add $49,500 to the price of a house. With an average mortgage rate of 6.25%, this equates to $304.78 in additional cost per month just for the added square footage (assuming a thirty year mortgage). I don’t know what the average size house was in 1981, but if we split the difference, this works out to about $152 in extra mortgage costs for the extra square footage.

YEAR	SAVINGS
1956	$3,657.36
1981	$1,828.68

Air Conditioning: in 1953, sales of room air conditioning units exceeded 1 million for the first time. However, almost no houses had central air, while by 1997, 47% of houses had central air conditioning and 25% had wall or window units according to the US Department of Energy. 93% of people in the south had air conditioners in 1997, and the average American household spent $140 on energy for air conditioning. The average cost of a central air system for your typical house is somewhere around $4,000, which means an extra $24.63 per month on your mortgage at 6.25%. To make the comparison the same fo the 1956 standard of living, supposing the average house had one window unit, with the average cost to run a window unit costs about $20 per month, you’d need to run it about 3 months, for $60 per year. So the average household spends about $80 per year more on energy than it would need to to maintain a 1956 standard of living. I'm going to assume that 1981 was equivalent to today in terms of air conditioning. It was probably a little less, but I'm not going to count it here.

YEAR	SAVINGS
1956	$375.55
1981	$0.00

Cell Phones: 195 million people had cell phones in 2005 in the United States compared to essentially zero in 1981 and zero in 1956. The average monthly cell phone bill is just under $50 according to the CTIA. Since I'm analyzing households, I'm going to say there are 1.5 phones per household on average. Thus, there's a savings of $75 per month if you wanted to live like they did in 1956 or 1981.

YEAR	SAVINGS
1956	$900.00
1981	$900.00

Computers: No one had a home computer in 1956. In 1981, a few techno-geeks had TRS-80s, Commodore 64s or early Apples. Today, most middle class families wouldn’t conceive of not having a fairly modern PC with an internet connection, and probably a wireless router, inkjet printer and large color monitor. In 1981, modems were practically unhead of. If you figure that the average home PC with a monitor and basic printer costs about $700 and has about a three year life before replacement, this equates to about $20 per month in equipment costs for the computer per month. Add in another $30 per month for an internet connection. Then add another $25 for the occasional purchases of non-game software, printer ink and printer paper, recordable DVDs and CDs, and it’s likely that the typical household spends $75 per month on their home computer. Shelling out a few bucks at a yard sale would probably get you a much better computer than existed in 1981 in the most advanced research laboratory.

YEAR	SAVINGS
1956	$900.00
1981	$900.00

Video Games: most people in 1956 would not have been able to conceive of video games. In 1981, there were some rudimentary systems with lame games. Today, there are some serious game consoles that can display graphics that in 1981 could only be dreamt of. In 2004, in the United States, we spent $6.2 billion on console and portable game software, $3.7 billion on game hardware and $1.1 billion on PC games according to Wikipedia. This equates to about $84.61 per household per year. If you want to have a 1981 style video game unit right now, you can purchase a joystick with 10 embedded games from the early 1980s for $17.99.

YEAR	SAVINGS
1956	$84.61
1981	$84.61

Televisions: In 1955 (I don’t have data for 1956), 67% of households had a television set, but only 4% had more than one television. Recall in Back to the Future how Marty was thought to be joking when he tells the 1955 McFlys that he had two televisions. In 1955, no one had color television sets. By 1980, 98% of the population had television, 50% of families had more than one TV and 83% of families had a color TV. However, television sizes were certainly significantly smaller, no one had plasma or LCD screens, and no one had stereo. In 2001, the average family had 2.4 televisions. In 2005, Americans spent $17 billion on digital televisions. Assuming three quarters of these purchases were for houses and the remainder for businesses, that would amount to $98.07 per household spent on digital television. Assuming the average non-HDTV set costs about $200, and a household purchases a set every four years (the average household has 2.4 sets, so this means that the life is around 8 years), the average household spends $50 on tube-TVs per year. To get to a 1956 standard of one black and white television, no remote, screen size of 12 inches or less, you’d probably have to shell out about $25, if you could actually find a B&W TV. By 1981, I'd imagine my family was normal: we had a color TV downstairs and the old black and white TV upstairs. To meet this standard, expect to shell out about $250. Assuming a life of 8 years, to get to 1956 standards, you’d need to spend $3 per year on TVs, and to get to 1981 standards, you’d need to spend $30. This is versus $148 for our standard today.

YEAR	SAVINGS
1956	$145.00
1981	$118.00

Cable TV: No one could even conceive of cable TV in 1956. In 1981, only 20% of the population had cable, and our most basic package would look like some sort of super system to someone in 1981. The average cable bill in 2004 was $50.98 per month, although my cable bill is sadly much higher. Assuming that it would cost $20 to get a 1981 package, we’re spending $31 more per month than we would to get to a 1981 standard of living, and $51 more per month versus a 1956 standard of living.

YEAR	SAVINGS
1956	$611.76
1981	$371.76

VCRs: The first videocassette recorder, the Ampex, was introduced in 1956. However, with a $50,000 price tag, only large TV stations could afford it. No middle class households owned one. 1981 was the height of the Betamax-VHS fight. Still, in 1981, most households didn’t own a VCR (in 1985, only 14% did, while this would hit 66% by 1990). Today, of course, you can purchase VCRs for about $30. So I'm not going to even factor in a cost savings, since if a VCR has a four year life, that's only a saving of less than a dollar per month.

DVDs: The first DVD players and discs didn’t hit the market until 1996 in Japan and 1997 in the United States. So in 1981 and 1956, you couldn’t have had a DVD player, which can now be purchased for approximately $50.

Movie Rentals and Purchases: Americans spend about $8.8 billion on video rentals per year, or about $67.69 per family per year. According toHome Media Research, consumers spend $15.9 billion on purchasing movies (primarily DVDs). This is about $122.30 per household. I'd say that works out to about six movies per year on average, which seems about right. I'm not sure what people spent in 1981 when VCRs were new. Of course, most people didn't own a VCR, but I'm going to say the average family rented 6 movies, which would run you $30 today.

YEAR	SAVINGS
1956	$189.99
1981	$159.99

Radio: There was of course Radio in 1956 and 1981, but FM stereo didn’t exist until the 1960s. Now, of course, we have satellite radio. In 1956, the satellite hadn’t yet left the drawing board (Sputnik was launched in October 1957). In 1981, no one of course had satellite radio. Today, there are about 6.5 million subscribers of XM and 4 million of Sirius according to Wikipedia.

Prescriptions: In 1956 or in 1981, a whole host of medicines was unavailable versus what we have at our disposal. Lipitor, Viagra, Zocor, Claritin, Crestor, Zetia, Zoloft, Nexium, etc. Any health plan that has prescription coverage inherently covers medicines developed since 1981: all medicines that were available in 1956 or 1981 are now available as generics, which means that they’re dirt cheap. If you don't have health care and your doctor happens to prescribe you medicine that has been around for 25 years (and there are indeed some of these medications), you can probably get it at your pharmacy for a few dollars. In the United States, pharmaceutical sales in 2004 were $235.4 billion. Most Americans, of course, don’t pay for pharmaceuticals directly, but instead have their insurance companies pay. Some Americans don’t take any pharmaceuticals, but other Americans pop pills incessantly. In any event, the pharmaceuticals do get paid for, and any businesses paying them will pass through the costs to their employees via lower salaries or higher insurance premiums. Americans spend an average of $1,810.76 on drugs per household. Assuming that 10% of these are for generics that were around in 1956 or 1981, the supplemental increase on drugs is about $1,629.69. Back in the 1950s or 1980s, there was no lipitor, and thus the hardness in your arteries in your heart couldn't be stopped. Back in the 1950s or 1980s, there was no Viagra and the softness in your...

YEAR	SAVINGS
1956	$1,629.69
1981	$1,629.69

Medical Care: many people bemoan how expensive medical care has gotten, and it’s almost too bad that there isn’t an option to buy an insurance plan that would only cover medical achievements up to a certain year. That way, people could get an idea of advances in medical care. The first CT scan was in 1972, and was incredibly primitive by today’s standards. Between 1956 and 1981, there was the first successful transfer of a pancreas, liver, heart, and heart/lung; since 1981, there have been a few others which seem mainly experimental to me, but I'm not a doctor (nor do I play one on TV as the silly ad campaign of the 1970s stated). Ultrasounds were still very experimental in 1956. And in case you don't think all this medical stuff really does any good, life expectancy tables might convince you, as average life expectancy of someone born in 1950 was 68.2 years versus 77.3 years in 2002. Not all of this is related to medicine (some is to better cars, see below, as well as more safety on various industrial and consumer machinery, etc). I have no idea what I'd price 1956-level health care would cost, but I would imagine that the savings would be substantial (I'm also not convinced you could tell a doctor, "Don't use any equipment developed after 1956"). Medical imaging (MRI, CAT, etc) costs $100 billion per year, which is equivalent to $769.23 per household. Even if you didn't get any images, you paid for it through your insurance. I'm not sure what was available in 1981, but let's say $100, because ultrasounds were available.

YEAR	SAVINGS
1956	$769.23
1981	$669.23

Automobiles: many people think of the late 1950s as the golden age of the US automobile, but what they don’t realize is that today’s car available to the typical consumer packs features that were practically unheard of in the 1950s. Safety systems such as lap belts, crumple zones, radial-ply tires, and front and side-impact airbags are often standard on today’s cars. In 1953, the chances of dying in an auto accident was four times as great as today. Some of this is due to medical advances, and some due to improved drunk-driving laws. Electric mirrors, power steering, anti-lock brakes, cruise control, eight speaker stereo systems and heated seats are also not limited to a few expensive luxury models. In order to have the same basic functionality of a typical 1956 car, you’d likely not be able to choose anything but the most basic car available today, and even then, the performance and safety would exceed the average 1956 car. I’m going to assume that if the typical American purchases a new car for $25,000, (according to the the FTC, it’s $28,400 ), he could get 1956 functionality for $13,000. In 1955, there were 1.16 cars per household, whereas in 2003, there were 2.03 cars per household. Thus, living at a 1956 standard of living would require you to spend $15,080 for 1.16 inferior cars versus $50,000 today (actually a little should be knocked off each one of these as businesses and local governments own cars). Assuming cars last eight years, this amounts to additional spending of $4,365 per year on cars to live beyond a 1956 standard. Due to business ownership, let’s cut that to an even $4,000. In 1981, the average household owned 1.72 cars, and while cars today are better, there isn’t as much of a difference as with 1956. I would say instead of $4,000 per year, the difference is probably closer to $1,500.

YEAR	SAVINGS
1956	$4,000.00
1981	$1,500.00

Lots of other stuff: There are a whole slew of things that are of course better now than 25 or 50 years ago. Some of them are somewhat silly, but people still shell out additional money to get titanium golf clubs, even if their game isn’t helped at all. Digital cameras allow the almost instant production of photographs, as opposed to waiting a few days for the local shop to develop them. I-pods allow the creation of digitally-pure music track lists, an improved airport structure allows people to travel more freely about the country. Long distance calls currently are often part of a flat-rate package, and most Americans think nothing of calling their friends across the country, while in 1956, few places had direct dial of long distance. In 1981, long distance was prevalent, but families reserved long distance calls for either late at night or on special occasions. You also sat next to the phone that was wired to the wall; there were no cordless phones in 1956, and in 1981, they were extremely rare. Food was radically different: in 1956, fruits and vegetables were really available only when they were “in season”, as shipping fruits from South America or even from California to the midwest was difficult. People didn’t have stainless steel propane grills or stainless steel refrigerators in 1956 or even in 1981. There were no ATMs in 1956, and in 1981, they were practically non-existent. In order to withdraw funds from your account, you had to visit the bank during business hours. Clothing styles are apparently much better today than in the 1950s or 1980s, but since I have no nose for fashion, I have no idea how to measure this. But shoes seem to be a lot nicer today, and athlete’s shoes seem to be better for impact, and dress shoes seem to be a lot more comfortable. Dishwashers didn’t catch on until the 1950s

I’ve heard a lot of people say that all this new stuff doesn’t make people any happier, and for a lot of people, that may be true (but for the guy who has a cholesterol level of 188 instead of 250 thanks to Lipitor, he may disagree, and while this would be a great place for a Viagra joke, I'll refrain). However, the middle class and even those who are at the lower end of the economic spectrum still shell out money for these things, and no one is forcing them to. Another common claim is that we have no leisure time today versus in previous decades. However, this report by the Federal Reserve shows that since 1965, Americans have more leisure time, not less.

So as you’re sitting there reading this on your 19 inch color computer monitor while listening to your Ipod and enjoying your 68 degree room cooled by central air conditioning and while eating an apple that is nine months out of season, and while you hear your cellphone ring, and while you just noticed someone sent you digital photos of yesterday’s fun times, and while you’ve got your plasma TV tuned in to a tennis match halfway around the world, can you really be certain that 1956 or 1981 was a better time?

50 years ago, half the families in the country earned less than the median household income. Today, again, half of families are below the median. But that median is so much higher than the median of 50 years ago. And 50 years from now, our median is going to seem primitive.

Here is a Summary of annual cost increases versus 1956 lifestyle. These are just my estimates, and of course your situation is going to be different.

Item	1956	1981
Larger House	$2,743.02	$1,371.51
Air Conditioning	$281.66	$0.00
Cell Phone	$900.00	$900.00
Computers	$900.00	$900.00
Video Games	$84.61	$84.61
TV	$145.00	$118.00
Cable	$611.76	$371.76
Movie Rental	$189.99	$159.99
Prescriptions	$1,629.69	$1,629.69
Medical Imaging	$769.23	$669.23
Cars	$4,000.00	$1,500.00
Total	$12,254.96	$7,704.79

(Note: the housing costs have been reduced by 25% to account for the fact that mortgage interest is tax deductible)

So in any event, the 1956 standard of living is $12,255 cheaper, and with a 25% tax bracket, the above represent about $16,000 in additional wages. And this doesn’t even begin to contemplate lots of other expenses like better golf clubs, long distance direct dialing, and so on. It’s anyone’s guess what this would all cost, but I sincerely believe that if a typical middle class family today decided they were going to live close to the standard of a 1956 middle class family, and watch only the big networks on a small black and white tv, have no internet, have one phone, one car, etc., that their total savings would be well over $20,000 pre-tax, or nearly half of the $44,389 median household income.

Mayor deStefano, the 1950s were indeed a different time.

DVD Region Codes and Pharmaceutical Safety

2006-07-24T00:08:00.000-04:00

At first blush, you might not think that region codes on DVDs and complains about imported pharmaceuticals being unsafe, but the two concepts are indeed very similar.

Books, movies, computer software and pharmaceuticals have similar cost structures: they require an incredible amount of effort to make the first item, and then a tiny amount of effort to make each additional item. Once the book is written, the movie filmed, the software developed or the drug researched, it's pretty easy to make the next item. (Books that retail for $25 cost only a few dollars to print; a CD for computer software costs pennies, and the actual chemicals in each pharmaceutical prescription are usually not a significant portion of the cost). Up to a point, airlines and hotels are similar: flying an airplane that is half full costs almost the same as flying one that is full, and having a hotel room with half the rooms empty doesn't cost the hotel much less than having all the rooms occupied.

Translating a book, movie or computer software into a foreign language requires some effort, but not nearly as much effort as was required to produce it originally. Pharmaceuticals of course work just the same if your mother language is English or Italian or anything else.

Companies often sell products in different markets, where there are different regulations, different competitors, different incomes, etc. Therefore, these companies attempt to price these market segments differently. These markets need not be separate countries: they can be separate groups of individuals.

Book publishers bring out hardbacks months before paperbacks. Hardbacks have a much higher profit margin (paperbacks cost less to print, but not that much less). The hardback buyers are the "must have this now" types, and are the ones really eager to read the book. The paperback buyers are less enthusiastic about the book, but by bringing out the paperback after the hardback, you can sell to those who are really willing to pay a lot, and then after they've bought the hardbacks, you release the paperbacks in the general market for the "nice to have" types who aren't willing to pay as much.

Airlines charge less if you're staying over Saturday night. Does it cost them any less to fly you if you stay over a Saturday night? No. But the airlines know that business travelers are willing to pay more, and they also know that few business travelers are willing to stay over a Saturday night.

The key to serving different markets, where the people are willing to pay different prices for the same good, is to prevent the expensive group from buying the product that is aimed at the cheap group. If the expensive group can buy at the cheap price, then your total scheme fails, and you can have only one price.

Books, movies and software sell in different countries, with significantly different prices. However, the language barrier prevents Americans from purchasing Tagalog versions of Windows or the latest thriller from Tom Clancy. Books are also relatively bulky, and shipping them around the world may eliminate any savings. Currently, In English-speaking countries, prices for the exact same book can be very different.

Take Thomas Friedman's The World is Flat, which is the current #1 bestseller on Amazon. It retails in the United States for $30, but is available at Amazon for $18 in Hardback, with paperback not available yet. However, in India, the English language edition sells for Rs. 721.6 ($15.43). Thus, the list price in India is just over half the list price in the United States (Amazon is likely shaving most of its profit off the book to use it as a "lost leader"). The Indian online bookseller is likely not selling the book at a loss, and the wholesale price in India is likely quite a bit less than Rs. 721.6.

I would imagine that if someone began importing a large number of bestsellers from India, the US publishers would almost certainly attempt to stop it. There is almost certainly going to be a condition in that the Indian publisher can only sell in India and maybe some other countries. If there isn't a restriction, I am surprised that no one has started importing popular book titles from India since they can be purchased for significantly less.

DVDs usually have multiple audio channels, and when DVDs of American movies are sold in Europe, they almost always have the original English audio track, since enough people can understand English. Movie releases are usually different in Europe, and they are priced differently in various countries. In some cases, movies are released on DVD in North America before they even hit the theaters in Europe. If people could order DVDs from North America over the Internet, this could put a damper on movie ticket sales in Europe (especially in Spain and France, since DVDs sold in North America usually include Spanish and French audio tracks). How do movie companies prevent Europeans from buying American DVDs?

First, television standards are different in the US and Europe, but with the ability to watch DVDs on computer screens, this is not a major issue. DVD companies came up with another line of defense. They instituted DVD regions: DVDs come in six different regions, and a DVD purchased in North America won't work in another region, and vice versa (unless you get a DVD player that has been modified to allow the playing of discs from multiple regions).

Many liberals, including Hillary Clinton and Al Gore, have recently written books which are available in India at lower prices. Yet these same authors also claim that Americans should be able to reimport drugs from Canada, were they are priced cheaper.

Canada has a board that essentially determines the prices of pharmaceuticals. By and large, the pharmaceutical companies don't care that much: as long as the cost to produce the drug is less than the cost to sell it (and once the research is done, this is almost certainly going to be the case), the drug company is happy because they are getting some money from another market. If the drugs were priced at Canadian prices in the US market that would be a problem: the drug company wouldn't make enough to recover its investment in R&D, but if the drugs are sold only in Canada at the lower prices, it's no big deal. (In some cases, US companies simply license the drugs to a Canadian manufacturer, and then needs to do nothing else).

Just like an author doesn't really care that much if Indians pay less for his or her book, the pharmaceutical company isn't hurt substantially if foreigners pay less for the drugs. But if people reimported books from India in large numbers, then the author would receive less of a royalty and perhaps decide that writing books was probably not worth the few rupees he ended up getting.

The drug companies have tried to stop reimportation from Canada, and have used the safety bogeyman. This is not the true reason they oppose reimportation. It may have some merit, but if they were that concerned about safety, they probably would protest that Canadians could get their hands on fake drugs. Rather, the drug companies are worried that if large numbers of people reimport their prescriptions, this would cause their development overall not to be profitable.

Unlike DVD sellers, drug companies cannot put some sort of region coding in their drugs that would render the drugs ineffective if an American took a drug made in Europe or Canada. So remember that the next time some Hollywood star speaks out about unfair pharmaceutical prices, the same star benefits from almost the exact same principle by having region codes on the DVDs.

And I really hope that the next time Hillary Clinton writes a book, some enterprising import firm imports large numbers of them from India or whatever English language market has them really cheap, to undercut the local market. If the US publisher sues, then I think it would be hysterical to use the exact same argument to promote the book import as Hillary used to promote pharmaceutical imports from Canada. ("Americans cannot afford the high prices of Hillary's wisdom, and why are the evil publishing companies selling her tome in other countries for less? It's unfair, and we should be allowed to import books from overseas.")

(Actually, if enough prescriptions from Canada were imported that they started to have a major impact, US drug companies would likely fight hard by either making the Canadians pay the same price as Americans or by simply not selling at all in Canada. Shipping costs largely keep individual consumers from importing books, DVDs or software from other countries, as well as the language barrier. However, if these were being imported from cheap countries in large numbers, the companies would likely raise the prices in those markets to prevent the reimportation, as the US market is more important than these ancillary markets).

Stem Cell Veto: Patently Absurd?

2006-07-20T17:09:00.000-04:00

Like just about 99.9% of the people that are taking a position on George Bush's stem cell veto, I really don't know much about the science involved. I'm not a biologist or biochemist, but I work in finance. What is clear is that 1) Bush stopped federal spending on embryonic stem-cell research; he didn't stop privately-funded research, and 2) it doesn't appear as if cures to major diseases like Alzheimer's are imminent. But they could happen in the future.

Most free-marketeers will say that research is the domain of private industry, not of the government, so we should just let the market work, and leave the government out of the business of research. Normally, I'd agree, but I'm not so sure I agree here.

Private companies engage in research if they can profit from the research. Pfizer spends billions of dollars researching potential new drugs because they hope that once a new drug is approved, it'll be able to sell that drug and make back its investment. After a drug is on the market for a few years, its patent expires and the drug goes generic, meaning that any pharmaceutical company can manufacture and sell the drug.

Venture capitalists can risk their money and their investors' money on investing in pharmaceutical start-ups that may have a promising new drug. With the market evaluating potential risks and rewards, the public benefits by being able to buy drugs like lipitor or viagra that were previously unavailable, and the drug companies that developed these drugs benefit their shareholders.

Now, I don't know if stem-cell research can lead to patentable results. If you find the cure for cancer or Alzheimers or whatever by using stem cells, can you patent that? It seems that the Wisconsin Alumni Research Foundation (WARF) holds some really broad patents on stem-cell research, but it is unclear if these patents are going to hold.

If new drugs or therapies or whatever that result from embryonic stem-cell research are patentable, then my position would be that the US government should not get involved in the research projects. This country has thousands of venture capital companies willing to deploy their money in various endeavours. If it's really possible that embryonic stem-cells can be used to cure cancer or Alzheimer's, and the result is patentable, there should be no shortage of venture capital available.

If, however, the result of stem-cell research will be such that it is not patentable, then it is going to be the domain of the government to do the research. Without patents, the research simply will not be done by private industry, since if company A spends $3 billion and comes up with a solution, company B will immediately copy the solution. No company will be willing to take on the risk.

So if the research results won't be patentable, then we need to evaluate the life-and-death questions about embryonic stem-cells, and I'm certainly inclined to side with the advocates of more stem-cell reseach, and I'm also willing to let the government fund most of the research.

I don't feel this way just about embryonic stem-cells, but pretty much about all other types of research. If there is research that will likely or even possibly lead to the improvement of mankind, but which can not be profited from, let the government do it. Obviously, we need to work out what risk/reward quotient works. With patentable research, keep the government out. Let industry and the free market work, if possible.

Does the Red state-Blue state divide start with charity?

2006-07-18T22:51:00.000-04:00

There's been a ton written and said about the blue state-red state divide in this country. According to the various stereotypes, blue staters are a bit more refined: an art-house film will often be described as having no appeal in the red states. Blue staters feel deep down that they're superior to the red staters, who, while they might not be rednecks, are just not as sophisticated. Those red-staters like simpler books, simpler TV shows, action movies, and are ultra-religious. Of course, all the southern states are red states, and many of the stereotypes about the red states are more or less the same as for southern states.

Here in Ridgefield, Connecticut (median household income: $107K), and in many other towns around here, the local church has an Appalachian Service Project. Every spring break or some other time of year when high schoolers aren't in school, they head down to Kentucky or Alabama or wherever and help rebuild homes and I guess do some of the things that those Sally Struthers ads claimed to do, albeit a bit closer to home.

I don't doubt for a minute that the organizers of it are perfectly sincere, and having been to rural West Virginia and Virginia, I understand that there are areas where the standard of living is, shall we say, not as advanced as it is in our little hamlet.

However, I wonder if at the same time, the church project serves to perpuate negative stereotypes about the south, and makes us northerners feel just that much superior. After all, I'm sure that many of the kids going on these projects haven't been to the south (Florida doesn't count), and when they are taken down there, they'll drive in a van to some really wretched area. And then there are the kids who don't go, but every week in the sermon for the four or five weeks before the trip they keep hearing about how this trip is so important because that place down there is so backward, and the people there need OUR help. Hear this every year from the time you're 7 or 8 until you're 18 and you must get the impression that that area of the country is really messed up.

I'm not against helping people, or even helping people in the South. I just wonder if this type of organization within the church helps to perpetuate stereotypes. Does it make high school students think of themselves as superior to students in other states? Does it make sense to always focus on Appalachia, and to call the group the Appalachian Service Project?

If the local paper in Connecticut ran a story about a group of kids from a South Carolina church who every year came to Bridgeport (where The Mayor has admitted to using cocaine while in office, and he replaced the mayor that went to jail for taking kickbacks) to help the nearly 20% of the population living below the poverty line, do you think you might feel a bit put off? Do you think the letters to the editor would be in favor of this mission?

I just can't help but think that this type of project is the first step in making local kids feel superior, without them realizing that the entire south isn't a prejudiced, backwards society that needs help from the north.

Property Tax Reform

2006-07-15T16:48:00.001-04:00

In various states around the country, property tax reform seems to be creeping up as an issue. While I'm all for lower taxes, I'm skeptical of exactly how property tax reform might be implemented.

To me, the only fair property tax seems to be one that has the same rate for everyone in a given municipality (unless there is a legimitate reason not to, such as a special sewer district), and the assessments are based as closely as possible to actual market rates, which means if the owner sold it, what would he or she get for it? Any transfer of the property (besides those among family members, because those won't necessarily be at market rates) would automatically trigger a reassessment at the purchase price.

Any deviance from this system seems to me to end up in a complete distortion: some people will have lower rates because they're preferred, while the others will have to carry the burden.

Many people make the claim that they're on a fixed income, and by golly, since they bought the property 40 years ago, the assessment has gone way up and now they cannot afford property taxes. Well, I wouldn't be opposed if the town could put some sort of lien on the property so that when it was sold, the town would receive the extra property tax plus interest. This way, the town wouldn't be out money, and the only reason the homeowner was paying extra taxes is because the value of their house increased so much that the assessment went up, but when they sold the house, they'd presumambly be way ahead. If you buy a car and then the price of gas goes up, people don't expect the gas station to cut you a break. Why should the local government cut you a break?

Many of the property tax reforms floating around limit how much assessments can go up, and they limit the tax rate. California has a 2% maximum increase in assessments and a 1% tax rate. I'm ok with the latter, but the former doesn't seem fair. You can wind up with two identical houses next to each other, but they'll have massively different assessments and therefore property taxes, because when you sell your house in California, it's reassessed.

If you don't reassess houses when they are sold, then you are going to favor people who live in old houses versus people who live in new houses, because new houses built after the law goes into effect will have their initial assessment done at market rates. If you reassess houses when they are sold, then you'll end up favoring long-term homeowners over younger homeowners.

If you want to keep property taxes down, then limit spending. If you limit spending, then property taxes will be kept in check. But if you don't limit spending, but you limit property taxes, then either 1) other taxes will have to be raised, or 2) the municipality will go deeper into debt.

When two people are taxed differently for the exact same wage or exact same property, then you get massive distortions, with certain people benefiting for no reason.

Another thing that bugs me about property tax reform is that it can actually lead to higher spending. If you limit the amount that someone's property taxes can go up each year, but you reassess when the house is sold, this means that newer property owners will pay more due to their higher assessments. But for the older people, when there's an election, why would they vote for someone who wanted to not increase spending fast? Their property taxes can't go up more than x%. Think about it: if we had a guarantee that our taxes wouldn't rise, but someone else's would, do you think we'd vote for many candidates that promised to cut spending?

Property tax reform has to include market rates for assessments and a consistent tax rate. Anything else is just playing favoritism, in which one group gets to benefit at the expense of another.

Incentives and Old Houses

2006-07-11T17:20:00.001-04:00

I've traveled around to various cities in the country, and have often taken a city tour. In many cities, the cheerful tour guide likes to point out some ridiculous architectural detail, and state that it was the result of some strange tax that they had way back then.

Countless cities seemed to tax houses based on their widths, so people built really narrow houses. This happened in Frederickburg, VA, Amsterdam, Holland, Charleston, SC, Hanoi, Vietnam and New Orleans.

Charleston also taxed doors, so people would enter and leave the house through a window that went floor to ceiling. In Savannah, the Marhsall House hotel veranda is accessible only though windows because doors were taxed.

There are all kinds of other examples: you'd be taxed on the number of stories at the front of the house, so people would build houses that were one floor at the street but then two or three floors in the back (so called Camel houses because they had a hump).

Sometimes homeowners were taxed on the square footage of the ground floor, so they'd use jetties to make the second floor stick out.

However, I'm not mentioning this because I'm a big fan of architecture. But I think that it does show how much people will change their behavior in order to avoid paying taxes. They'll enter through windows, live in narrow houses, have strange looking houses with strange humps or with the second floor larger than the first, etc.

Since the income tax has been established, people do all sorts of things, both legal and illegal, to avoid the taxman.

Yet, today, when various politicians say they're going to raise taxes on the rich, they believe that the rich aren't going to alter their behavior (like moving to another state, setting up various trusts, deferring income, etc). And while it's true that some wealthy people have strong connections to the local community or can't easily relocate, some can. More importantly, those of us who are not wealthy yet may decide to locate in a more dynamic state with lower taxes.

Gold-Plated Motorcycles

2006-07-06T22:33:00.001-04:00

Here in Connecticut, and in several other states, motorcyclists don't have to wear helmets. It's touted as a personal responsibility issue, with the common argument being this isn't an area that the state need to concern itself with.

I consider myself very free-market oriented, but I think that no helmet rules are incredibly irresponsible, and frankly, I'm not entirely in favor of motorcycles in general.

Imagine that gold-plated cars became all the rage, and that lots of people starting driving gold-plated cars. Every fender-bender that normally costs $5,000 in repairs would now cost $80,000 if you were unfortunate enough to get in a wreck with one of these gold-plated cars. The consequences of this would be that insurance rates would skyrocket, and speed limits would probably be reduced.

Now, how is a motorcycle different from a gold-plated car? If you're in a wreck with a motorcycle, there's likely to be significant medical bills, whereas there'd often be none if the wreck was with another automobile.

Now, I know that many of you are probably saying, don't get in wrecks, watch where you're going, etc. However, no one is perfect. There are potholes, black ice, areas of poor vision around curves or over hills, etc. When you drive now, you have (or at least your insurance company has) a pretty good idea of what a wreck is going to cost. There are accidents that cost a great deal between two vehicles, but they're rare. A car versus helmetless motorcyclist is certainly going to be at the top of the range. A wreck with a regular motorcyclist probably isn't much better.

When a driver gets in his car, he knows the chance of his causing a massive financial liability is quite low if he hits another car. But hit a motorcycle, and there's practically a guarantee of a massive financial liability. When the number of motorcycles, or very expensive cars for that matter, goes up, this will cause insurance rates to rise. There aren't that many expensive cars on the road, mainly because expensive cars require, well, lots of money. But motorcyclists don't need a lot of money, they just need to ride their motorcycles.

Is there really any economic difference between a motorcycle and a gold-plated car? Besides the fact that pretty much any guy with a halfway decent job can afford to ride around on a motorcycle, while only a tiny percentage of the population could even fathom driving a gold-plated car? Don't motorcyclists, and anyone driving an abnormally expensive car, create an externality that the rest of us have to assume? If driving with infants Britney Spears style was legal, don't you think that would make insurance rates quite a bit higher, because if you rear ended someone going 10 mph, you'd cause serious injury as opposed to just a little bit of twisted metal?

Since no one is perfect (after all, you probably have insurance, don't you?), our society has essentially organized itself to have highways with certain speed limits (in some cases set too low for revenue enhancement by local municipalities). These speed limits are usually a reflection of the optimum trade-off between safety and speed. Wrecks are a fact of life, but with the condition of our highways and the speed limits, you know that if you are not driving like a complete maniac, are not drunk or high, that if you cause a wreck with another car, you'll likely not suffer or cause severe injuries, and your insurance company will handle the claim, and you'll go on to drive the next day (probably in a rental car provided by the insurance company), and that your rates will go up, but it's not the end of the world. Hit another motorcycle, however, and your insurance may not cover all the damages based on the maximum payment that the insurance company will make.

Now, you may say, shouldn't the same apply to tractor-trailers. I think not for a few major reasons. First, it's obviously inconceivable that everyone drive a tractor trailer. Second, there's no real substitute for tractor trailers. Our economy would break down if you forced tractor trailer shipments to be done by car. Finally, tractor trailer drivers are the minority in the world of cars, and since they are bigger, there is an extra onus on them to be extra careful. Truck drivers need a special license, can only drive for limited amounts each day, and are prohibited from driving on certain roads.

Finally, I'd like to add that there's no personal motivation on my part. I've never caused an accident (a lady rear ended me once on I-95, but I was stopped in a traffic jam, at least until she hit me and pushed me into the car stopped ahead of me). I don't plan on getting in a wreck in the future, but I can't promise perfection!

What's up with Google News? It needs a Human Being!

2006-03-13T00:42:00.000-05:00

First, welcome to my blog. I haven't told anyone about this yet, so whatever you did to find it, well, congratulations.

Now, onto my first topic. Google News. While I love its "alerts" feature, there are some things about Google News that drives me nuts. First, they need to have a human being sit down for about a day and sort of rate sources from reputable to non-reputable, or at least for certain regional news. The Xinhua news agency comes up way too frequently for stories about US domestic policy.

Today, for instance, if you search for "microsoft mobile pc" without the quotes, the first news story is from the Times of Oman, the second from Mobile Africa in Ghana and the third from TabletPC Reviews. Couldn't they have some sort of human-inspired logic to push down these third world news sources when searching for Microsoft? Searching for Israel brings up a IranManian news article about Rabbis calling for Israel's destruction.

I tried Google News headlines in my RSS feed on my Pocket PC, with the top news and business headlines, but too often, the headlines would be wildly misleading. Like "Economy grew 7% last quarter" sounds really interesting, until you see it's from a Singapore newspaper. Good for them, but not really my priority.

Google News is best for obscure topics. For more common topics, Yahoo News seems to be better, as it appears as if they have an actual human being determing which stories are important, and what ranking they can take. It's just amazing that with a little bit of effort, Google's News could be so much better.