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.
Sunday, June 21, 2009
Tuesday, October 21, 2008
Just wait until 2010 or 2012
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.
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.
Wednesday, October 08, 2008
Why is Cheap Housing a Problem?
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...
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...
Tuesday, September 30, 2008
Foreclosed on No Money Down Mortgages
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.
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.
Thursday, August 14, 2008
Open Door Policy
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.
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.
Saturday, July 19, 2008
A Review of VaultStreet
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.
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.
Wednesday, July 09, 2008
A Matter of Years
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)
Environmental Studies (5 years, after the planning studies)
Preliminary Design (2.25 years, concurrent with the end of the environemtal studies)
Final Design / Right of Way Engineering (3.5 years)
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.
"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.
Friday, April 25, 2008
The $40 billion question
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:
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:
(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:
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.
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% |
| $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.
Sunday, March 23, 2008
The Sequel to Se7en is Going to Suck
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:
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...
- 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...
Thursday, March 06, 2008
Gluts and Shortages (Prices Change)
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.
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.
Wednesday, December 26, 2007
Christmas: Never Good Enough
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
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.
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.
Tuesday, December 04, 2007
The Great Pumpkin Tax
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.
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.
Saturday, October 13, 2007
Diversity: Good for Us, Bad for You?
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.
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.
Friday, June 15, 2007
Let's Be Provincial!
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:
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.
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.
Saturday, May 19, 2007
A Three Headed Dog of an Argument
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.
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.
Monday, April 09, 2007
Are Baseball Players Paid too Much?
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.
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.
Monday, January 29, 2007
No to Broadwater, but Yes to What?
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, "“Let me be clear, I do not believe that the Broadwater proposal is the right answer to addressing our region’s 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 region’s 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.
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, "“Let me be clear, I do not believe that the Broadwater proposal is the right answer to addressing our region’s 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 region’s 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.
Monday, January 01, 2007
NIMBY and Electricity Costs
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
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
Monday, October 30, 2006
Build it and they will come.
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.
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.
Tuesday, October 24, 2006
Should Health Insurance be Required?
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?
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?
Wednesday, October 04, 2006
Don't Cross that Line!
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.
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.
Tuesday, September 26, 2006
Dairy Farms? No Thanks, I'll take tract housing
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.
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.
Friday, September 22, 2006
From Sixteen Volts to Zero
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?
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?
Sunday, September 17, 2006
Who Should Pay for Metro North?
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?
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?
Tuesday, September 05, 2006
Insurance Politics
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.
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...
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...
Monday, September 04, 2006
Should Corporations give to Charity?
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.
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.
Friday, September 01, 2006
Gasoline Taxes and Road Building
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...
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...
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