Archive for October 2009

## The Cost of Solar

I had wanted to dig into the costs of a Florida solar facility that Obama recently visited.  Fortunately Ronald Bailey does it for us:

Now let's do a rough calculation of the costs of DeSoto Solar versus conventional power sources. According to the Electric Power Research Insitute, a modern 1,000 megawatt coal plant without carbon capture technology would cost about \$2.8 billion to build. Adding carbon capture would boost the cost to as much as \$4.7 billion.

The 25 megawatt DeSoto facility cost \$150 million. Scaling it up to 1,000 megawatts would cost \$6 billion. But coal power plants operate 90 percent of the time snd solar only 30 percent, so in order to get the equivalent amount of electricity out of solar plant would mean tripling the capital cost for a total of about \$18 billion. In other words, building a solar power plant costs between 4- and 6-times more than conventional, or even carbon capture, power. Even worse, a scaled up DeSoto-style plant costs 18-times more than a natural gas plant.

## Agriculture Is Cheap When You Have Serfs to do the Work

Tom Nelson has a pretty funny set of articles on the White House vegetable garden.    Michelle Obama told a group of kids it only cost \$180.  Tom links a variety of videos and articles showing:

• Five NPS workers digging in the garden, with a tractor, tiller, and hand tools.
• A job posting for a college grad for the position of "White House Farmer."
• A job description of an assistant White House chef who currently overseas the garden.

Farming is cheap if the serfs (ie US citizens) provide all the labor and equipment for free.

## What A Freaking Mess

It takes eleven pages just to summarize the new 1990-page House government health care bill.  Here is the summary.

The implications for my business is staggering.  I have already mentioned in the previous post that it imposes an 8% tax on wages on my business -- a business where 50% of revenues go to wages and margins are in the 6-7% range.  You do the math.

Worse for us is that nearly all our competitors are ma and pa companies with less than \$500,000 in wages a year, meaning that our competitors will be exempt from these taxes, giving them an automatic 4% cost advantage over our company.  Great.

Twelve seconds after this thing passes, I will be on my phone to my attorney to figure out if it is possible to break my company into multiple corporations that all fall under the 500,000 wage limit.  The paperwork and administration for this would be a huge hassle, but it can't be as high as 4% of sales.

Beyond this, I have not seen the detail yet, but the old House bill imposed enormous record-keeping obligations on businesses.  Basically, I would have to know at all times exactly what kind of medical insurance policy every one of my employees has.  Barf.

## Do Consumers Get Excited About Sales They Don't Qualify For?

Tiffany's is (hypothetically) handing out coupons for 50% off diamond necklaces.  This generates a lot of press, but you do not get a coupon.  Are you, without a coupon, more likely to buy a necklace anyway given all the publicity?  Or is your behavior unchanged, because you received no inventive?  Or are you perhaps less likely to buy, with the full retail price you would be paying now seeming higher as compared to the 50% off others are getting?

This issue seems to be at the heart of the conflict between the Obama administration and Edmunds.com (what is it about this administration and picking battles with media companies?)  In their analysis, Edmunds said that only about 250,000 of the auto sales during the cash-for-clunkers period were incremental.  The White House says they are underestimating, because even people who did not qualify for the program bought more cars because of the program:

The White House said [totally great car-buying, car-selling, and all-around-awesome-info site for every goddamn great and awful car website] Edmunds based its analysis on the "implausible" assumption that "the market for cars that didn't qualify for cash for clunkers was completely unaffected by this program. In other words, all the other cars were being sold on Mars, while the rest of the country was caught up in the excitement of the cash for clunkers program."...

Edmunds stands by its analysis.

"Instead of shooting the messenger, government officials should take heart from the core message of the analysis: The fundamentals of the auto marketplace are improving faster than the current sales numbers suggest," [Edmunds jefe Jeremy] Anwyl wrote.

The central issue, Anwyl said, "is how many of these sales would have occurred anyway. Apparently, the \$24,000 figure caught many by surprise. It shouldn't have. The truth is that consumer incentive programs are always hugely expensive when calculated by incremental sales -- always in the tens of thousands of dollars."

Edmunds rejected the White House suggestion that people got caught up in the excitement of the program and bought cars, even if they didn't qualify. And it discarded the notion that automakers boosted production solely because of the program.

"No manufacturer increases production, a decision with long-term consequences, based on the 30-day sales blip triggered by an event like cash for clunkers," Edmunds wrote.

Its an interesting question.  I would tend to come down on Edmunds' side from my own experience running promotions, but it is not totally cut and dried.  I can think of at least two examples where a discount to person A yields more sales to person B, but neither are really applicable here

• Example 1:  Ladies night.  Cheap drinks for the ladies bring in male customers, on the theory that that are looking for bars with, frankly, lots of drunk women
• Example 2:  Kids eat free.  Restaurants have programs with discounted or free kids meals to get their parent's business

I think one could actually make the argument that people who did not get the clunker discount would be less likely to buy, as its really hard to buy something for X when you know all the people around you are getting it for (X-\$3000)**.  This isn't an absolute rule - after all, people fly all the time next to folks who paid more or less for the same service.  But I do think it is a psychological issue that would tend to offset the general excitement around the program.  In the end, we won't have to guess, once we get sales data for the rest of the year and we can see if clunkers merely moved sales forward a few months or generated incremental sales.

**  As shown here, cash for clunkers amounted to about a \$3000 subsidy per buyer, above and beyond the blue book value of the car turned in.

## Congrats to the Obama Administration...

... for taking one of the few governments in Latin America that actually is trying to respect its democratic Constitution and forcing them to disavow the protections in its Constitution against elected officials attempting to hold onto power and reinstate a strongman friend of Hugo Chavez.

From start to finish I have been unable to understand the Obama Administrations policy in Honduras.  I just refuse to believe he is actively working as an agent for totalitarianism, so the best explanation I can come up with is that he made an ignorant mistake in his early reactions to the Zelaya and has since doubled down on the mistake rather than admitting it and reversing himself. This theory is consistent with John Kerry's attempts to hide the evidence of the administration's mistake, not to mention Hillary Clinton's personality at State.

In a foreign policy career that so far has been marked by a marked softness, it is amazing to me that the one place Obama has decided he is going to demonstrate his cojones internationally is in helping a wannabee dictator return to power in a democratic nation.

Earlier posts here and here.

## Jeff Flake Rocks

I really like our AZ Congressman Jeff Flake -- the libertarian goodness of Ron Paul without the weirdness and connections to racism.  This is pretty funny, from his site (ht:  Radley Balko)

Washington, D.C., Oct 28 - Republican Congressman Jeff Flake, who represents Arizona's Sixth District, today released the following statement regarding his vote against H.Res.784, a bill "honoring the 2560th anniversary of the birth of Confucius and recognizing his invaluable contributions to philosophy and social and political thought."

"He who spends time passing trivial legislation may find himself out of time to read healthcare bill," said Flake.

## My New #1 Reason I Hate This Recession...

...because nearly every day I get another letter from some near-bankrupt city, state, county, or other taxing authority which says basically:

"we have this vague, non-fact based hypothesis that your company owes us a lot of taxes you are not paying.  To avoid the determination that you owe us lots more money for some unproven or unspecified reason, you must send us approximately a two-inch stack of information that it will take from 8-10 hours to prepare, including..."

The most recent of these just came from the state of Michigan. There are several taxes that I don't pay because they clearly do not apply to me, but I just got a letter saying basically they will assume I owe them unless I fill out a four page form and send them a bunch of detailed financial information.

RRRRRRRRR.

## Bank Failures in Perspective

Bank failures in the last coupe of years, in terms of institutions as well as assets, are still well below the S&L crisis of the 1980's.  So what justifies the current nationalization of the banking sector and the short-circuiting of institutional failures and the subsequent creation of moral hazard.  Via Carpe Diem.

## Moral Hazard Continued at GMAC

GMAC, the former lending arm of General Motors Co., is in talks with the Treasury Department for a third injection of taxpayer aid, a further sign of the U.S. government's entrenchment in the U.S. auto industry.

The Treasury Department mandated earlier this year that GMAC Financial Services raise an additional \$11.5 billion in capital after undergoing a "stress test" along with 18 other banks. While other banks deemed undercapitalized have been able to raise funds from private investors, GMAC has been forced to go back to the government.

Maybe the reason no one but Obama will give GMAC any money is that they know that every time GMAC gets any money, it simply starts shoveling it at every car buyer who walks within shouting distance of a dealership and can fog a mirror.

Immediately after GMAC became eligible for TARP money, GM reduced to zero the interest rate"¦ on certain models. ...

GMAC has begun making loans to borrowers with credit scores as low as 621, a significant relaxation of the 700 minimum score the company adopted just three months ago as it struggled to survive. America's median credit score is 723"¦

GMAC is a giant ponzi scheme to subsidize car sales.  Ponzi schemes last only so long as there is a sucker to keep putting in money.  No private funds are that dumb, but fortunately for GMAC there is the Obama administration.

## Window Repair Jobs

Tyler Cowen links to a good article that gets at the fallacy that suddenly obsoleting our energy infrastructure and having to rebuild it will be of net economic benefit.

Optimistically treating European Commission partially funded data, we find that for every renewable energy job that the State manages to finance, Spain's experience cited by President Obama as a model reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created

Includes 1 million euros in government subsidies per wind job created.

In my mind, the green jobs mantra is a result of the CO2 abatement case becoming fatally weak, with supporters of legislation casting about for other justificaitons.  From the very beginning, many of the most passionate folks are on the AGW bandwagon not because they really understand the science, but because the theory provided justification for a range of government actions (reduced growth, limited technology, reduced energy use, reduction in global trade -- even vegetarianism) that they supported long before AGW made the news.

Update: A quick note on a theme I harp on a lot - nameplate capacity for wind and solar is really, really misleading.  In Spain in the study cited, wind operates at 19% of nameplate over the course of a year and solar operates at 8% (figure 3).  The actual CO2 reduction is even worse, because, particularly for wind, fossil-fuel fired turbines have to be spinning on hot backup for when wind suddenly dies.  Germany, the largest wind user in the word, found only 1,000MW of reduced fossil fuel plant needs from every 24,000 MW of wind capacity.

## Product Safety

Don Boudreaux has a nice summary of the problems with a lot of product safety problems.

You write as if "safe" is an objectively determinable and unique fact, such as whether or not your newspaper's paid circulation exceeds 500,000 or whether or not your sister is pregnant.  But "safe" is not objective in this way.  Because no product is 100 percent certain never to cause even the slightest harm (or 100 percent certain to cause harm), the question "Is this product safe?" has no correct single answer.  It has correct answers as varied as the number of that product's potential users.  No product is "safe" or "unsafe" in the abstract.

Perhaps your tolerance for risk is higher than mine.  Perhaps the pleasure I get from using a product is less than yours.  If so, should I be permitted to prevent you from using that product because, for me, the product is insufficiently safe?  My evaluation of the product's safety is correct only for me, not for you.  And matters don't change if I'm a government official.

## Aarrrggghhh

I find myself stuck in a Flagstaff city council meeting. I am listening to a truly irritating public comment. She is currently pounding on absentee landlords (apparently a large number of Flagstaff residents, as many as 50%, rent from out-of-town landlords. She just said basically that these landlords should get no consideration in such and such ordinance because they contribute nothing to the city but a thin sliver of property taxes.

Well, my guess is that "thin sliver" of property taxes pretty much funds all the schools, but I really wanted to stand up and ask - what about the capital they have invested in the city? Obviously half of the town is unable to construct their own house and have housing by the grace of these evil out of town landowners who have invested capital in the city to build out the housing stock.

## We Have Clearly Run Out of Real Law Enforcement Challenges

Via the AZ Republic, the excepting of which will probably bring in all kinds of spam code into this post no matter how hard I try to get rid of it:

Arizona wildlife officials are investigating the shooting death of a prairie dog in southern Arizona.

Apparently the state is irritated because this prairie dog was brought to the state as part of a program to bring more plague-infested nuisance rodents onto our land - on purpose!

The prairie dog was one of more than 100 transported from New Mexico in October 2008 in hopes of reintroducing the indigenous species to southern Arizona.

## Health Insurance Mandates

One of the reasons for substantial variation in the cost of health insurance between the states is the variations in state "must-cover" health insurance mandates.  New York and Massachusetts, both known to have among the most extensive requirements, not coincidentally have the highest average premium costs.

I found this study the other day - it was put together by a health insurance group and is certainly self-serving;  but since it is just a summary of existing law, I don't see any reason why it wouldn't be mostly accurate.

Here is one example table from the report -- it is the type of specialist care that must be covered in each state.  They also have much longer tables on the individual procedures that must be covered:

Gotta make sure that "naturopaths" are covered, don't we?  You can picture the process of specialists marching into state capitals and making their pitch that their profession needs to be covered.

You can get a feeling for what goes on with one example.  One procedure, "Port Wine Stain Elimination," caught my eye.  I assumed this was removal of some type of birthmark, but I was curious and looked it up.  I got this study near the top of the Google search, and in this link you can see the political process of mandates in a nutshell.  Here is the abstract (emphasis added)

background. Port-wine stains are congenital vascular malformations that can be disfiguring and may lead to psychosocial as well as medical complications. The 585-nm pulsed dye laser is very effective in treating port-wine stains. Laser treatment is often viewed by insurance companies as a "cosmetic procedure" and not "medically necessary." Consequently many patients are denied coverage for treatment of their disfiguring birthmarks.

objective. To determine variability of insurance coverage for laser treatment of port-wine stains from state to state. Natural history, progression, and potential complications of port-wine stains arc reviewed and rationale for consistent insurance coverage for laser treatment of port-wine stains is given.

methods. A questionnaire was mailed to 40 dermatologic surgeons in 22 states and the District of Columbia. We reviewed the literature regarding port-wine stains and their potential complications, and health care policy guidelines regarding "medical necessity" and "cosmetic procedures."

results. Insurance coverage for laser treatment of port-wine stains varies from state to state.

conclusion. Based on current health care policy guidelines, laser treatment of port-wine stains should be regarded, and covered, as a medical necessity by all insurance providers.

In other words, the study surveyed a bunch of cosmetic surgeons.  They were asked "should an expensive procedure you provide be covered by insurance."  They all answered "Hell YES!"  Anyone want to bet whether the funding for the study came from the company that makes the laser equipment?

But today, they now have to run to 50 state houses (well, 48 since they have been successful in 2).  In the future, they will just run to Congress.  And we know how good Congress is at saying no to special interests.

Postscript: I would normally assume this is obvious, but after years of blogging I know that I must add that I have nothing against those with port wine stains, I am thrilled that a technology exists today to remove them, but I don't want to pay for it in my policy.

Postscript #2: I am willing to bet that the Venn diagram of the 4 states offering "naturopath" coverage and the 3 states offering "Pastoral Counselors" don't overlap.

Postscript #3: What does a naturopath (whose tools include homeopathy) charge an insurance company for a remedy consisting of at most one molecule of active ingredient in a glass of pure but well shaken water?  Speaking of homeopathy, this is classically funny.

## Government Strongarm Tactics in the Chrysler Bankrupcy

This is an interesting video from the State Treasurer of Indiana about his state's experience as a secured creditor of Chrysler, and how their legal claims were pushed aside as the Administration moved more politically-favored constituencies (e.g the UAW) ahead of the secured creditors in line.

One side issue here.  Early in the video he explains that the State of Indiana held a lot of Chrysler bonds because Chrysler is a big employer and they try to support companies with a big footprint in the state.

Isn't that terrible risk management policy, closely akin to Enron employees putting all of their savings in Enron stock?  If Chrysler goes down, this means loss of investment returns in key retirement funds at the same time there is a large loss of tax money that will likely be the source of replacement funds.

## Cost of Climate Change Legislation

This video doesn't touch much on the science of global warming, but does make an eloquent case about the true cost of CO2 abatement legislation.

## Yeah, But....

From the AZ Republic, on the yet-again-revived public option:

Health-care legislation heading for the Senate floor will give millions of Americans the option of purchasing government-run insurance coverage, Majority Leader Harry Reid announced Monday, although he stopped short of claiming the 60 votes needed to pass a plan steeped in controversy.  Reid, D-Nev., said individual states would have the choice of opting out of the program. Details of how it would work were still sketchy, but states would get a year after the 2013 phase-in of the new health-care plan to decide whether to participate.

And federal taxes for citizens of opt-out states will be reduced, right?  No way.  This opt-out is a joke.  Its a bit like saying that every individual has the right to opt out of public education in favor of a private school.  Sure they do -- they don't have to attend the public school, but they have to pay for it anyway in their taxes.

Update: Sorry, the AZ Republic has made it almost freaking impossible to excerpt from their online articles without bringing over a load of cr*p code.

## Fortunately, Pregnant Women Can Easily Get A Big Mac

I liked TJIC's response to the story of the pregnant woman who could not find any available supplies of the government-provided flu vaccine:

Man, it's a good thing that the flu vaccine isn't being left in the hands of the free market "“ we might have the same horrible production and distribution bottlenecks that we run into with Coke, pizza, books, and pajamas "“ you can't find those things anywhere.

And, hey, on the bright side, socialized medicine is coming!

## Fox, Meet Henhouse

Via Maggies Farm and a commenter on TigerHawk:

During consideration of H.R. 3126, legislation to establish a Consumer Financial Protection Agency (CFPA), Democrats on the House Financial Services Committee voted to pass an amendment offered by Rep. Maxine Waters (D-CA) that will make ACORN eligible to play a role in setting regulations for financial institutions.The Waters amendment adds to the CFPA Oversight Board 5 representatives from the fields of "consumer protection, fair lending and civil rights, representatives of depository institutions that primarily serve underserved communities, or representatives of communities that have been significantly impacted by higher-priced mortgages" to join Federal banking regulators in advising the Director on the consistency of proposed regulations, and strategies and policies that the Director should undertake to enforce its rules.

By making representatives of ACORN and other consumer activist organizations eligible to serve on the Oversight Board, the amendment creates a potentially enormous government sanctioned conflict of interest. ACORN-type organizations will have an advisory role on regulating the very financial institutions from which they receive millions of dollars annually in direct corporate contributions and benefit from other financial partnerships and arrangements. These are the same organizations that pressured banks to make subprime mortgage loans and thus bear a major responsibility for the collapse of the housing market.

In light of recent evidence linking ACORN to possible criminal activity, Democrats took an unprecedented step today to give ACORN a potential role alongside bank regulators in overseeing financial institutions. This is contrary to recent actions taken by the Senate and House to block federal funds to ACORN.

ACORN was an important actor in the housing bubble, responsible for numerous lawsuits and other political pressure to force banks to lend to borrowers who by objective standards did not have the income or credit history to sustain mortgage payments.  It would be interesting to see how many mortgages ACORN was involved with have gone belly up.  But now, as part of the "solution" to the financial crisis, we will put ACORN in charge.

## The Gods Must be Crazy

I hardly know what to do with this.  When this is a pressing enough gender issue to demand NOW's attention, perhaps it is time to declare victory and move on to weightier topics.

A couple of weeks ago, President Obama had members of his cabinet, as well as members of congress, including Flake, over to the White House for a game of hoops.

They were all men.

Sounds like the boys had some fun but If you ask the "Debby Downers" from women advocacy groups like the National Organization for Women, the games lack of estrogen is unacceptable.

"Relationships get built in those more informal settings," NOW President Terry O'Neill told ABC News, "and the relationships have a huge impact on the influence an individual has. We know what happens when we segregated whether it by race or whether it by gender -- you end up with 1st class citizens and you end up with 2nd class citizens."

Fortunately we have moved beyond quotas.  Not.

"It's extremely important, now especially, for the president to have as many women as men in his closest circle of advisors. ... If women had been at the heads of the companies on Wall Street instead of these masters of the universe then we might not be in the predicament that we're in today," O'Neill says. "[The ratio of women to men] needs to be 50/50. Women are 52 percent of the voting public so obviously there needs to be 50/50 of any Cabinet."

I will be counting the men at the next baby shower.

## Reminder: Nov. 10 Phoenix Climate Presentation

I will be making a free presentation in Phoenix on climate change and the science behind the skeptic's case.  It is free to the public, and in answer to numerous inquiries, it is not sponsored or paid for by any organization and I am not promoting a book or any commercial product.  This is simply my personal hobby and style of activism (e.g. cerebral lecture rather than circling around carrying a sign).

But here is the really interesting coincidence:  It turns out Al Gore will be making the keynote address at the Greenbuild Conference in Phoenix on the next day (Nov 11).  Those who would like to be immunized in advance against his silliness should come to my presentation the night before.

The web site and directions for the presentation are hereNov 10 Climate Lecture Brochure (pdf).   We have a pretty large auditorium, so everyone is welcome.  Feel free to send the link or brochure to your friends in the area.

Update: I can see the local climate is already reacting to Gore's visit, as we get an early dose of the Gore effect:

Temperatures in the Valley are expected to fall more than 20 degrees to the 60s by midweek, according to the National Weather Service.

## A Total Crock

Since the New York Times has pretty much become the official media outlet of this administration, I presume that this article represents a new trial balloon in selling government health care.  The pitch this time -- its good for small businesses!  (via Maggies Farm)

President Obama, in his Saturday radio address, said the Democrats' health insurance overhaul would help small businesses and stimulate the economy by providing relief from "the crushing costs of health care "” costs that have forced too many small businesses to cut benefits, shed jobs, or shut their doors for good."....

The House speaker, Nancy Pelosi of California, said the sharp rise in premiums for small businesses offered the latest evidence that Congress must act swiftly on health care legislation.

"This underlines the urgent need for health insurance reform, including a public option," she said in an interview. "We need to have competition for the insurance companies to keep premiums down."

I am only now getting through the 1500 pages of this bill (putting me ahead of Ms. Pelosi in reading it, I am sure), but the last House bill would have been a disaster for my company, increasing taxes on wages by up to 8% and imposing a record-keeping burden that was just horrific.

The NYT and the Democrats are apparently trying to set up a mini-class war within bussinesses, snidely saying these companies have more negotiating leverage.  Sure.  But what they have even more of is the leverage to shape federal legislation to their benefit.  However worse a deal my company may get in free insurance markets due to being small is nothing compared to how much worse of a deal we will get from Congress by being small.

If they really wanted to cut costs for small businesses, they would strip out all the national and state coverage mandates for things like aromatherapy that raise costs so much and let me shop for insurance across state lines.  That would be real competition.  Unfortunately, all Pelosi means by competition is throwing Amtrak into the mix to compete with the airlines.  Yeah, that will do the trick.

## Classic Government

This is just so typical.  In response to demands for transparency, the Norwegian government starts publishing ... tons of private data about its citizens.  I wonder how much detail they put online about how the government spends the tax money?   Via maggies farm.

## We're Going To Fund Health Care Reform By Cutting the Insurance Company Profits

I am not sure anyone has actually said this, but that has certainly been the implication, right?  Obama & Pelosi spends a lot of time accusing insurance companies of having profits that are too high, so I have to believe his intention is to reap cost savings by cutting into them.

I have blogged about this before, but Carpe Diem also picks up this thread, observing that health insurance companies are #86 on the list of US industries in terms of profit margins, with a ROS of  3.3%.  As Mark Perry points out, this gives them a profit of about \$100 per individual policy.  Not really a very promising source of savings, is it?  But it is very scary for any industry that makes more than 3.3% profits, knowing that the Administration thinks they are making too much money and has shown a willingness to slice into profits it thinks to be excessive.

## The Corporate State

From Henry Payne:

Rent-seeking is the new venture capital model, Kleiner Perkins managing partner Ray Lane explained to an electric car-conference here Wednesday.

In an extraordinary speech, Lane laid out how market socialism can guarantee profits for politically connected VC firms like Kleiner -- far more preferable to the old model of "throwing a dart at a dart board," as Lane has put it. While Silicon Valley-based Kleiner made its reputation as a financier of tech startups like Netscape, Lane confided that they are inherently risky ventures in uncertain, fast-moving markets.

By contrast, Lane expressed admiration for communist governments like China and market-socialist economies like France where government determines new markets, thus providing a more certain investment climate for rent-seekers. With Kleiner partner Al Gore lobbying for federal mandates from wind to electric cars, Kleiner would be assured of a return on otherwise risky investments like Fisker Automotive, a California electric car company.