Posts tagged ‘2008’

What Is It About California Shepherds?

I saw this by accident on the California FAQ on the state minimum wage.

1. Q. What is the minimum wage?
A. Effective January 1, 2008, the minimum wage in California is $8.00 per hour. It will increase to $9.00 per hour effective July 1, 2014, and to $10.00 per hour effective January 1, 2016.

For sheepherders, however, effective July 1, 2002, the minimum wage was set at $1,200.00 per month. On January 1, 2007, this wage increased to a minimum monthly salary of $1,333.20, and on January 1, 2008, it increased again to a minimum monthly salary of $1,422.52. Effective July 1, 2014, the minimum monthly salary for sheepherders will be $1600.34. Effective January 1, 2016, the minimum monthly salary for sheepherders will be $1777.98. Wages paid to sheepherders may not be offset by meals or lodging provided by the employer. Instead, there are provisions in IWC Order 14-2007, Sections 10(F), (G) and (H) that apply to sheepherders with respect to monthly meal and lodging benefits required to be provided by the employer.

 

What the hell?  The new minimum wage is absolutely appropriate to every industry in California except sheepherding?  It would be interesting to see the political process that led to this one narrow special rule.  The state Speaker of the House's brother-in-law is probably in the sheep business.

This kind of crap is frustrating as hell for me.  We have a labor model that is generally not even considered when politicians are setting labor law, and thus compliance causes us fits.  I would love special labor exemptions for my workers as well, but I don't have any pull in Sacramento.

Postscript:  While most folks think of the minimum wage as a restriction on employers, it is just as much a restriction on workers as well.  I am glad to see the California site acknowledge this:

3. Q. May an employee agree to work for less than the minimum wage?
A. No.

There Seems to Be No Limit to Politicians' Hypocrisy

Obama, 2008:  "I taught constitutional law for ten years. I take the Constitution very seriously. The biggest problems that we're facing right now have to do with George Bush trying to bring more and more power into the executive branch and not go through Congress at all, and that's what I intend to reverse when I'm president of the United States of America." (Townhall in Lancaster, Pennsylvania, March 31, 2008).

They all suck.  Every one of them.  This man was the great hope of more than half the nation and look what a loser he is.  We should stop talking about whether we are going to hand power to the Coke or the Pepsi party and start talking about limiting the power of these jerks.

Congratulations to Nature Magazine for Catching up to Bloggers

The journal Nature has finally caught up to the fact that ocean cycles may influence global surface temperature trends.  Climate alarmists refused to acknowledge this when temperatures were rising and the cycles were in their warm phase, but now are grasping at these cycles for an explanation of the 15+ year hiatus in warming as a way to avoid abandoning high climate sensitivity assumptions  (ie the sensitivity of global temperatures to CO2 concentrations, which IMO are exaggerated by implausible assumptions of positive feedback).

Here is the chart from Nature:

click to enlarge

 

I cannot find my first use of this chart, but here is a version I was using over 5 years ago.  I know I was using it long before that

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It will be interesting to see if they find a way to blame cycles for cooling in the last 10-15 years but not for the warming in the 80's and 90's.

Next step -- alarmists have the same epiphany about the sun, and blame non-warming on a low solar cycle without simultaneously giving previous high solar cycles any credit for warming.  For Nature's benefit, here is another chart they might use (from the same 2008 blog post).  The number 50 below is selected arbitrarily, but does a good job of highlighting solar activity in the second half of the 20th century vs. the first half.

click to enlarge

 

Explaining the Flaw in Kevin Drum's (and Apparently Science Magazine's) Climate Chart

I won't repeat the analysis, you need to see it here.  Here is the chart in question:

la-sci-climate-warming

My argument is that the smoothing and relatively low sampling intervals in the early data very likely mask variations similar to what we are seeing in the last 100 years -- ie they greatly exaggerate the smoothness of history and create a false impression that recent temperature changes are unprecedented (also the grey range bands are self-evidently garbage, but that is another story).

Drum's response was that "it was published in Science."  Apparently, this sort of appeal to authority is what passes for data analysis in the climate world.

Well, maybe I did not explain the issue well.  So I found a political analysis that may help Kevin Drum see the problem.  This is from an actual blog post by Dave Manuel (this seems to be such a common data analysis fallacy that I found an example on the first page of my first Google search).  It is an analysis of average GDP growth by President.  I don't know this Dave Manuel guy and can't comment on the data quality, but let's assume the data is correct for a moment.  Quoting from his post:

Here are the individual performances of each president since 1948:

1948-1952 (Harry S. Truman, Democrat), +4.82%

1953-1960 (Dwight D. Eisenhower, Republican), +3%

1961-1964 (John F. Kennedy / Lyndon B. Johnson, Democrat), +4.65%

1965-1968 (Lyndon B. Johnson, Democrat), +5.05%

1969-1972 (Richard Nixon, Republican), +3%

1973-1976 (Richard Nixon / Gerald Ford, Republican), +2.6%

1977-1980 (Jimmy Carter, Democrat), +3.25%

1981-1988 (Ronald Reagan, Republican), 3.4%

1989-1992 (George H. W. Bush, Republican), 2.17%

1993-2000 (Bill Clinton, Democrat), 3.88%

2001-2008 (George W. Bush, Republican), +2.09%

2009 (Barack Obama, Democrat), -2.6%

Let's put this data in a chart:

click to enlarge

 

Look, a hockey stick , right?   Obama is the worst, right?

In fact there is a big problem with this analysis, even if the data is correct.  And I bet Kevin Drum can get it right away, even though it is the exact same problem as on his climate chart.

The problem is that a single year of Obama's is compared to four or eight years for other presidents.  These earlier presidents may well have had individual down economic years - in fact, Reagan's first year was almost certainly a down year for GDP.  But that kind of volatility is masked because the data points for the other presidents represent much more time, effectively smoothing variability.

Now, this chart has a difference in sampling frequency of 4-8x between the previous presidents and Obama.  This made a huge difference here, but it is a trivial difference compared to the 1 million times greater sampling frequency of modern temperature data vs. historical data obtained by looking at proxies (such as ice cores and tree rings).  And, unlike this chart, the method of sampling is very different across time with temperature - thermometers today are far more reliable and linear measurement devices than trees or ice.  In our GDP example, this problem roughly equates to trying to compare the GDP under Obama (with all the economic data we collate today) to, say, the economic growth rate under Henry the VIII.  Or perhaps under Ramses II.   If I showed that GDP growth in a single month under Obama was less than the average over 66 years under Ramses II, and tried to draw some conclusion from that, I think someone might challenge my analysis.  Unless of course it appears in Science, then it must be beyond question.

The Real Health Insurance Shock Is Coming Next Fall

Obviously, the whole Obamacare implementation is in disarray.  Some of this I expected -- the policy cancellations -- and some of it I did not -- the horrendous systems implementation.  But I actually thought that most of this would be swept under the rug by a willing media.

What I really expected was for the true shock to come next fall.  And I think it is still coming.  I believe that despite rate increases, insurers are likely being overly optimistic about how much adverse selection and cost control issues they are going to have.  As a result, I expected, and still expect, huge premium increases in the fall of 2014.

Why?  The main benefit of Obamacare is for people who cannot afford health insurance but want it, and for people who are very sick and have lost their insurance.   Obamacare is a terrible plan as implemented because it futzes with virtually everything in the health care system when a more limited plan could have achieved the same humanitarian coverage goals.

Anyway, one reason Obamacare is so comprehensive is that it is based on a goal of cost control for the whole system.  Unfortunately, most all of its cost control goals are faulty.  From Megan McArdle, in an amazing article covering a huge range of Obamacare issues:

But I think it’s also clearly true that the majority of the public did not understand this. In 2008, the Barack Obama campaign told them that their premiums would go down under the new health-care law. And the law’s supporters believed it.

Q. Obama says his plan will save $2,500 annually for my family. How?

A. Through a combination of developing efficiencies in the system, expanding coverage to all Americans, and picking up the cost of some high-cost cases. Specifically:

-- Health IT investment, which will reduce unnecessary and wasteful spending in the health care system. Examples include extra hospital stays because of preventable medical errors and duplicative diagnostic tests;

-- Improving prevention and management of chronic conditions;

-- Increasing insurance industry competition and reining in the abusive practices of monopoly insurance and drug companies;

-- Providing reinsurance for catastrophic cases, which will reduce insurance premiums; and

-- Ensuring every American has health coverage, which will reduce spending on the “uncompensated” care of uninsured people who end up in emergency rooms and whose care is picked up by institutions and then passed through higher charges to insured individuals.

The part about reinsurance was always nonsense; unless it’s subsidized, reinsurance doesn’t save money for the system, though it may reduce the risk that an individual company will go broke. But the rest of it all sounded entirely plausible; I heard many smart wonks make most of these arguments in 2008 and 2009. However, it’s fair to say that by the time the law passed, the debate had pretty well established that few to none of them were true. “We all knew” that preventive care doesn’t save money, electronic medical records don’t save money, reducing uncompensated care saves very little money, and “reining in the abusive practices” of insurance companies was likely to raise premiums, not lower them, because those “abuses” mostly consist of refusing to cover very sick people.

The result?  Many of these things that supposedly reduced costs actually increase them.  So if you think the shock is high now, wait until next fall.  We will see:

  • Rates going up
  • Less choice, as insurers pull out of many local markets
  • Narrowing of doctors networks, and reduced choice in doctors
  • Companies dropping health care and dumping workers (and retirees if they can get away with it) into the exchanges and Medicare.

Deceptive Chart of the Day from Kevin Drum and Mother Jones to Desperately Sell the "Austerity" Hypothesis

Update:  OK, I pulled together the data and did what Drum should have done, is take the graph back to pre-recession levels.  Shouldn't it be even better if the increase in spending came during the recession rather than after?  See update here.

Kevin Drum complains about US government austerity (I know, I know, only some cocooned progressive could describe recent history as austerity, but let's deal with his argument).  He uses this chart to "prove" that we have been austere vs. other recessions, and thus austerity helps explain why recovery from this recession has been particularly slow.  Here is his chart

Austerity_2_WM_630

This is absurdly disingenuous.  Why?  Simple -- it is impossible to evaluate post recession spending without looking at what spending did during the recession.   All these numbers begin after the recession is over.  But what if, in the current recession, we increased spending much more than in other recessions.  We would still be at a higher level vs. pre-recession spending now, despite a lack of further increases after the recession.

In the time before this chart even starts, total state, local, Federal spending increased from 2007 to 2008 by 10.2%.  It increased another 11.1 % from 2008 to 2009.  So he starts the chart at the peak, only AFTER spending had increased in response to the recession by 22.5%.  Had he started the chart at the correct date and not at a self-serving one, my guess is that it would have shown that in this recession we increased spending more than any other recent recession, not less.  So went digging for some data.

I actually have a day job, so I don't have time to create a chart of total government spending since 1981, so I will look at just Federal spending, but it makes my point.  I scavenged this chart from Factcheck.org.  The purple bars are the year that each of Drum's data series begin plus the year prior (which is excluded from Drum's chart).  Essentially the growth in spending between the two purple lines is the growth left out just ahead of when Drum started each data series in his chart.  The chart did not go back to 1981 so I could not do that year.

click to enlarge

Hopefully, you can see why I say that Drum is disingenuous for not going back to pre-recession numbers.  In this case, you can see the current recession has an unprecedented pop in spending in the year before Drum starts his data series, so it is not surprising that post recession spending might be flatter (remember, the pairs of purple lines are essentially the change in spending the year before each of Drum's data series).  In fact, it is very clear that relative to the pre-recession year of 2008 (really 2007, but I will give him a small break), even after 5 years of "austerity" our federal spending as a percent of GDP will be far higher than in any other recession he considers.  In no previous recession in this era did post recession spending end up more than 2 points higher (as a percent of GDP) than pre-recession levels.    In this recession, we are likely to end up 4-5 points higher.

By the way, isn't it possible that he has cause and effect reversed?  He argues that post-recession recovery was faster in other recessions because government spending kept increasing over five years after the recession is over.  But isn't it just possible that the truth is the reverse -- that government spending increased more rapidly after other recessions because recovery was faster, thus increasing tax revenues. Congress then promptly spent the new revenues on new toys.

Let's look at the same chart, highlighted in a different way.  I will circle the 4-5 years included in each of Drum's data series:

spending-2

You can see that despite the fact that government spending in these prior recessions was increasing in real terms, it was falling in two our of three of them as a percentage of GDP (the third increased due to war spending in Afghanistan and Iraq, spending which I, and I suspect Drum, would hesitate to call stimulative, particular since he and others at the time called it a jobless recovery).

How can it be that spending was increasing but falling as a percent of GDP?  Because the GDP was growing really fast, faster than government spending.  This does not prove my point, but is a good indicator that recovery is likely leading spending increases, rather than the other way around.

Absolute Fecklessness

I am still reading through the Detroit Free Press report on Detroit's financial history and it is really amazing.  All the stuff you expect to see is there -- over taxation, over regulation, crony gifts, huge government pay and pensions, etc.  But this was new to me, and even worse than I expected:

Gifting a billion in bonuses: Pension officials handed out about $1 billion in bonuses from the city’s two pension funds to retirees and active city workers from 1985 to 2008. That money — mostly in the form of so-called 13th checks — could have shored up the funds and possibly prevented the city from filing for bankruptcy. If that money had been saved, it would have been worth more than $1.9 billion today to the city and pension funds, by one expert’s estimate.

Outright gifts of taxpayer money to government workers, even beyond their already rich salary and pensions!  Folks on the Left from Paul Krugman to Obama are trying to portray Detroit as the innocent victim of economic and demographic exogenous forces beyond their control.  Don't let them.  The exodus from Detroit and the destruction of its economy were not random events the city had to endure, but self-inflicted wounds.

Keynesian Multiplier of 0.05

So much for that Keynesian stimulus notion (emphasis in the original)

With everyone focused on the 5th anniversary of the Lehman failure, we are taking a quick look at how the world's developed (G7) nations have fared since 2008, and just what the cost to restore "stability" has been. In a nutshell: the G7 have added around $18tn of consolidated debt to a record $140 trillion, relative to only $1tn of nominal GDP activity and nearly $5tn of G7 central bank balance sheet expansion (Fed+BoJ+BoE+ECB). In other words, over the past five years in the developed world, it took $18 dollars of debt (of which 28% was provided by central banks) to generate $1 of growth. For all talk of "deleveraging" G7 consolidated debt has been at a record high 440% for the past four years.

The theory of stimulus -- taking money out of the productive economy, where it is spent based on the information of hundreds of millions of people as to the relative value of millions of potential investments, and handing it to the government to spend based on political calculus -- never made a lick of sense to me.  I guess I would have assumed the multiplier in the short term was fractional but at least close to one, indicating in the short run that if we borrow and dump the money into the economy we would get some short-term growth, only to have to pay the piper later.  But we are not even seeing this.

New Feature Here: Trend That Is Not A Trend

Some have asked me why I have not updated my climate blog in a while.  Frankly, the climate debate has become like the movie Groundhog Day, with the same handful of scientists releasing the same flawed studies making the same mistakes.  What used to be exciting is frankly boring.  I still blog here on updated climate news, and perhaps the IPCC will give us new things to write about soon, but for now most of my climate work will just be making appearances and presentations  (let me know if you have a large group, I don't charge any sort of fee).

For a while now I have been contemplating a new focus area, perhaps even a new blog.  I call this new focus "trend that is not a trend."  It refers to the tendency I find in the media to cite a trend without any supporting data, sometimes even when the actual trend in the data turns out to have the opposite sign.  Sometimes the reporter is motivated by conventional wisdom, sometimes by passion in advocating for a certain issue, and sometimes they are fooled by their own coverage, mistaking increases in coverage of a phenomenon for increases in the phenomenon itself (for example, this year everyone believes wildfires are up, when in fact this is a very low year).  We get a lot of this type of thing in climate, so it will give me a chance to continue to blog on climate but from a slightly different angle.

The best way to explain the phenomenon is with an example, and the Arizona Republic presented me with a great one today, in the form of an article by Joan Lowy of the Associated Press.  This in an article that reads more like an editorial than a news story.  It is about the Federal requirement for railroads to put safety electronics called Positive Train Control (PTC) on trains by a certain date.  The author has a pretty clear narrative that this is an absolutely critical piece of equipment for the public good, and that railroads are using scheming and lobbying to unfairly delay and dilute this critical mandate (seriously, I am not exaggerating the tone, you can read it for yourself.)

My point, however, is not to challenge the basic premise of the article, but to address this statement in her opening paragraph (emphasis added).

Despite a rash of deadly train crashes, the railroad industry’s allies in Congress are trying to push back the deadline for installing technology to prevent the most catastrophic types of collisions until at least 2020, half a century after accident investigators first called for such safety measures.

The reporter is claiming a "rash of deadly train crashes"  -- in other words, she is saying, or at least implying, that there is an upward trend in deadly train crashes.  So let's ask ourselves if this claimed trend actually exists.  She says it so baldly, right there in the first seven words, that surely it must be true, right?

Here is the only data she cites:

The National Transportation Safety Board has investigated 27 train crashes that took 63 lives, injured nearly 1,200 and caused millions of dollars in damage over the past decade that officials say could have been prevented had the safety system been in place.

Astute readers will note that this is not a trend, it is one data point.   Has the number increased or decreased over the decade?  For comparable decades, are 27 crashes and 63 deaths a lot or a little?  Is it a "rash", or a tapering off?  We have no idea.   As we get further into this series, readers will be surprised at how often the media uses single data points to "prove" a trend.

The only other evidence we get of a "rash" are three examples:

  • The July high speed rail accident in Spain, which killed scores of people.  Of course, readers may note that she actually had to go to another country for her first example, an example involving high-speed passenger rail which has very little in common with private railroads in the US.
  • A 2008 crash blamed on inattention of a Metrolink driver -- a government employee on a government train, which sort of undermines the basic thrust of the story that this is about evil private railroads using lobbying to endanger the public.  Few readers are likely to consider a 2008 crash to constitute a recent "rash."
  • A 2005 crash at a private freight railroad that killed 9 people from a chlorine gas leak.  Fewer readers are likely to consider a 2005 crash to constitute a recent "rash".

So let's go to the data.  It is actually very easy to find, and I would be surprised if Ms. Lowy did not actually have this data in her hands.  It is at the Federal Railway Administration Office of Safety Analysis.  2013 data is only current through June and seems to be set up on an October -September fiscal year.  So I ran the data only for October-June of every year to make sure the results were comparable to 2013.  Each year in the data below is actually 9 months of data.

By the way, when one is looking at railroad fatalities, one needs to understand that railroads do kill a lot of people every year, but the vast, vast majority of these -- 99% or more -- are killed at grade crossings.  People still do not understand that a freight train takes miles to stop.  (see postscript below, but as an aside, I would be willing to make a bet: Since deaths at grade crossings outnumber deaths from collisions by about 100:1, I would be willing to bet any amount of money that I could take the capital the author wants railroads to invest in PTC and save far more lives by investing it in grade crossing protection.  People like Ms. Lowy who advocate for these regulations never, ever seem to consider prioritization and tradeoffs.)

Anyway, looking at the data, here is the data for people killed each year in US railroad accidents (as usual click to enlarge any of the charts):

click to enlarge

So, rather than a "rash", we have just the opposite -- the lowest number of deaths in a decade.  One.  I will admit that technically she said rash of "fatal accidents" and this is data on fatalities, but I'm going to make a reasonable assumption that one death means one fatal accident -- which certainly cannot be higher than the number of fatal accidents in previous years and is likely lower.

Most of you will agree that this makes the author's opening statement a joke.  Believe it or not -- and this happens a surprising number of times -- this journalist is claiming a trend that not only does not exist, but is of the opposite sign.  But let's go further with a few other charts.  Maybe we just got lucky and there is a rash of accidents but just not fatal ones:

click to enlarge

Not only is there not a "rash" but the number of accidents have actually been cut in half.   But let's give the author one last try at a benefit of the doubt.  She says the technology she is advocating reduces human error caused accidents.  The FRA actually tracks these separately.  I wonder what that trend is?

click to enlarge

LOL, if anything it declines more.    The only thing I can possibly find in her favor is that number of train accident injuries spiked in 2013 after 10 years of declining, but since fatalities and accidents went down, the odds are this is a statistical anomaly and not part of any trend.

Postscript:  To my point above, 1 person died from train accidents in the last 9 months or so.  We don't know why or how they died, but let's just say it was preventable by PTC.  The author is therefore castigating railroads for not racing ahead with hundreds of millions to prevent one death, when the railroads know their chief focus for reducing preventable deaths should be on the 588 other people who died on the railroad in the same period, mainly from grade crossing and trespasser/pedestrian accidents.

Do Reporters Even Look At Their Own Charts?

A Wall Street Journal article today looks at problems at Sears in their critical appliance business.  I have no problem believing that Sears is in trouble, and at various times over the past decade (full disclosure here) have held small short positions in Sears.  The author argues that the Sears appliance business has had a number of missteps, and is contributing to Sears growing losses, propositions with which I cannot argue, in part because there is no data provided to confirm or deny the connection between problems in the appliance business and Sears' profitability woes.

The other theme of the article is that recent missteps in the appliance business, particularly the 2009 switch from Whirlpool to Samsung and LG to manufacture its in-house Kenmore brand, is hurting its market share in the retail appliance business, and leading the the growth in market share at Home Depot and Loews.   But the author's own data belie this conclusion.  Here is the market share chart she includes:

MK-CF765_SEARS_G_20130822175404

 

While Sears may have lost a couple of points of market share since 2008, and 2013 does not look like a particularly good year so far, the vast majority of its market share loss occurred from 2002-2008, long before most of the recent problems profiled in the article.  In fact, its more likely that the loss coincided with Sears reorganization with Kmart a decade ago, events referred to only briefly in the article.

Look, I have no insider knowledge here, just a pet peeve that trends referenced in an article should match trends in the data.  But Sears is a tired old retailer.  Many of its peers from the same era are dying or dead.  People are shifting their shopping away from the malls where Sears is located.  Lowes and Home Depot were both juggernauts during this period.  I would have said that a story could equally well have been written that despite all the confusion in their business, they have done a pretty descent job arresting the decline in their market share over the last five years.  Of course they are likely dead in the long run.

Postscript:  Oddly, I witnessed a similar Sears private label fracas when I worked for Emerson Electric over a decade ago.  For years and years, Emerson (not the folks who make the cheap radios and TVs) manufactured many of the Sears Craftsman hand tools and power tools.  Sears got tough one year, and negotiated a better deal of some sort with someone else, and an entire division of Emerson saw its sales basically going to zero.  So Emerson bought a bunch of orange paint and plastic, went to Home Depot, and cut a deal for a private label tool line at Home Depot (Emerson separately owns the Rigid tool company, so a lot of the items were branded Rigid).  Emerson ended up in potentially better shape (I did not stay long enough to see how it turned out), partnered with a growing rather than a declining franchise.

European Auster-Yeti

There are people who will swear to this day that, despite all evidence to the contrary, Bigfoot exists and they have seen it.  Paul Krugman similarly is just sure he has seen European austerity.  The rest of us are left scratching our heads for the evidence -- he doesn't even have a blurry photo or footprint.  Just tales from a friend of a friend, who is not only sure there has been austerity, but that it caused an old lady to dry her cat in a microwave and that if you swim 20 minutes after eating you will get cramps.

The official Keynesian story is that the PIIGS of Europe (Portugal, Italy, Ireland, Greece and Spain) have been devastated by cutbacks in public spending. Austerity has made things worse rather than better – clear proof that Keynesian stimulus is the answer. Keynesians claim the lack of stimulus (of course paid for by someone else) has spawned costly recessions which threaten to spread.  In other words, watch out Germany and Scandinavia: If you don’t pony up, you’ll be next.

Erber finds fault with this Keynesian narrative. The official figures show that PIIGS governments embarked on massive spending sprees between 2000 and 2008. During this period, their combined general government expenditures rose from 775 billion Euros to 1.3 trillion – a 75 percent increase. Ireland had the largest percentage increase (130 percent), and Italy the smallest (40 percent). These spending binges gave public sector workers generous salaries and benefits, paid for bridges to nowhere, and financed a gold-plated transfer state. What the state gave has proven hard to take away as the riots in Southern Europe show.

Then in 2008, the financial crisis hit. No one wanted to lend to the insolvent PIIGS, and, according to the Keynesian narrative, the PIIGS were forced into extreme austerity by their miserly neighbors to the north. Instead of the stimulus they desperately needed, the PIIGS economies were wrecked by austerity.

Not so according to the official European statistics. Between the onset of the crisis in 2008 and 2011, PIIGS government spending increased by six percent from an already high plateau.  Eurostat’sprojections (which make the unlikely assumption that the PIIGS will honor the fiscal discipline promised their creditors) still show the PIIGS spending more in 2014 than at the end of their spending binge in 2008.

As  Erber wryly notes: “Austerity is everywhere but in the statistics.”

On The Looming Death of American Football

Death by tort lawyer in 3...2...1

A Colorado jury has awarded $11.5 million in a lawsuit originally brought against helmet maker Riddell and several high school administrators and football coaches over brain injuries suffered by a teenager in 2008.” While the jury rejected the plaintiff’s claim of design defect, it accepted the theory that the helmet maker should have done more to warn of concussions.

If the helmet makers are getting nailed, wait until every high school and college in the country is sued, not to mention the massive suit looming against the NFL.  Expect to see a debate soon, beginning in state legislatures, over tort protection for football.  Texas, for example, has several of the country's tort hellholes but if Friday night high school football is threatened, you can bet that the legislature will be moved to action.

California Invents New Way To Raise Revenues

Retroactive tax increases

Under the California Franchise Tax Board’s interpretation of a 2012 state Court of Appeals ruling, which found part of the tax law to be unconstitutional, anyone who acted in good faith to claim the now-deceased QSB incentive on their2011 California return owes the state back taxes on the excluded or deferred income.

And the same goes for 2010. And 2009. And 2008.

And, what’s more, these taxpayers will also be hit with back interest and possible penalties.

The penalties part is particularly hilarious.  We are going to penalize you for doing what we told you to do.

By the way, I likely would have opposed the QSB incentive had I known about it as just another crony giveaway.  So I have no problem ending it.  But retroactive tax increases are a bad, bad precedent.

A Partial Retraction on AIG

The story the other day that AIG was considering suing the taxpayers because the taxpayers did not give them a nice enough bailout was so vomit-inducing that I did not even look much further into it.

A couple of readers whom I trust both wrote me to say that the issues here are a bit more complex than I made them out to be.  The Wall Street Journal sounds a similar note today:

Every taxpayer and shareholder should be rooting for this case to go to trial. It addresses an important Constitutional question: When does the federal government have the authority to take over a private business? The question looms larger since the 2010 passage of the Dodd-Frank law, which gave the feds new powers to seize companies they believe pose risks to the financial system.

That vague concept of "systemic risk" was the justification for the AIG intervention in September 2008. In the midst of the financial crisis, the federal government seized the faltering insurance giant and poured taxpayer money into it. The government then used AIG as a vehicle to bail out other financial institutions.

But the government never received the approval of AIG's owners. The government first delayed a shareholder vote, then held one and lost it in 2009, and then ignored the results and allowed itself to vote as if the common shareholders had approved the deal.

In 2011 Mr. Greenberg's Starr International, a major AIG shareholder, filed a class-action suit in the U.S. Court of Federal Claims in Washington alleging a violation of its Constitutional rights. Specifically, Starr cites the Fifth Amendment, which holds that private property shall not "be taken for public use, without just compensation." The original rescue loans from the government required AIG to pay a 14.5% interest rate and were fully secured by AIG assets. So when the government also demanded control of 79.9% of AIG's equity, where was the compensation?

Greenberg is apparently arguing that he would have preferred chapter 11 and that the company and its original shareholders likely would have gotten a better deal.  Perhaps.   So I will tone down my outrage against Greenberg, I suppose.  But nothing about this makes me any happier about bailouts and corporate cronyism that are endemic in this administration.

Corporate Crony Entitlement

This story is simply  unbelievable.  Shareholders of AIG should have been wiped out in 2008 in a bankruptcy or liquidation after it lost tens of billions of dollars making bad bets on insuring mortgage securities.  Instead, AIG management and shareholders were bailed out by taxpayers.

It is bad enough I have to endure those awful commercials with AIG employees "thanking" me for their bailout.  It's like the thief who stole my TV sending me occasional emails telling me how much he is enjoying it.

Now, AIG managers and owners are considering suing the government because the the amazing special only-good-for-a-powerful-and-connected-company deal they got was not good enough.

Directors at American International Group Inc., AIG -1.28% the recipient of one of the biggest government bailout packages during the financial crisis, are considering whether to join a lawsuit that accuses the U.S. government of too-onerous terms in the 2008-2009 rescue package.

The directors will hear arguments on Wednesday both for and against joining the $25 billion suit, a person briefed on the matter said. The suit was filed in 2011 on behalf of Starr International Co., a once very large AIG shareholder that is led by former AIG Chief Executive Maurice "Hank" Greenberg. It is pending in a federal claims court in Washington, D.C....

Starr sued the government in 2011, saying its taking of a roughly 80% AIG stake and extending tens of billions of dollars in credit with an onerous initial interest rate of roughly 15% deprived shareholders of their due process and equal protection rights.

This is especially hilarious since it coincides with those miserable commercials celebrating how AIG has successfully paid off all these supposedly too-onerous obligations.  And certainly Starr and other AIG investors were perfectly free not to take cash from the government in 2008 and line up some other private source of financing.  Oh, you mean no one else wanted to voluntarily put money into AIG in 2008?  No kidding.

Postscript:  By the way, employees of AIG, you have not paid off all the costs of your bailout and you never will.  The single largest cost is the contribution to moral hazard, the precedent that insurance companies, if sufficiently large and well-connected in Washington, can reap profits on their bets when they go the right way, and turn to the taxpayer to cover the bets when they go wrong.

Capital Controls

I am not sure I understand Kevin Drum's argument for capital controls.  He seems to be arguing that these controls are a sort of financial speed limit and making an awkward analogy to highway speed limits to justify them.

In a world where I as a taxpayer have to bail out banks, I don't have a huge problem with capital requirements for banks, though this seemingly simply topic is rife with unintended consequences -- I have seen it argued persuasively that the pre-2008 Basil capital requirements helped fuel the housing bubble by giving special preference to MBS in computing capital.  In fact, one might argue the same for the sovereign debt crisis, that by creating a huge demand for sovereign debt for bank balance sheets it fueled an unsustainable expansion in such debt.

Anyway, the point of this post was capital controls.  Drum quotes this from an IMF report:

19. Indeed, as the recent global financial crisis has shown, large and volatile capital flows can pose risks even for countries that have long been open and drawn benefits from capital flows and that have highly developed financial markets. For example, in several advanced economies, financial supervision and regulation failed to prevent unsustainable asset bubbles and booms in domestic demand from developing that were partly fueled by cheap external financing. Rather than favoring closed capital accounts, these experiences highlight the need for policymakers to remain vigilant to the risks. In particular, there is a constant need for sound prudential frameworks to manage the risks that capital inflows can give rise to, which may be exacerbated by financial innovation.

The logic, then, is that bubbles are exacerbated by inflows of foreign capital so capital controls can keep bubbles from getting worse.  I have very little knowledge of international finance, but let me test three thoughts I have on this:

  1. Doesn't this cut both ways?  If bubbles can be inflated by capital inflows, can't they also be deflated by capital outflows?  Presumably, if people domestically see the bubble, they would logically look for other places to invest their money.  International investments outside of the overheated domestic market are a logical alternative, and such capital flows would act a s a safety valve to reduce pressure on the bubble.  So wouldn't capital controls just as likely make bubbles worse, by confining capital within the bubble, as make them better by preventing new capital from outside the country flowing in?
  2. The implication here is that the controls would be dynamic.  In other words, some smart person in government would close the gates when a bubble starts to build and open them at other times.  But does that not presupposed the ability to see the bubble when one is in it?  Certainly there were a few who pointed out the housing bubble before 2008, but few in power did so.  And even if they had seen it, what is the likelihood that they would have pointed it out or taken action?  Who wants to be the politician who pops the bubble?  Remember the grief Greenspan got for pointing to an earlier bubble?
  3. Controls on capital inflows tend to be anti-consumer.  Yeah, I know, no one in government ever seems to care when they pass protectionist laws that protect 100 tire workers at the cost of higher tires for 100 million drivers.  But limiting capital inflows would reduce the value of the dollar, and make anything imported (or made from imported parts or materials) more expensive.

Great Idea

Great idea, and consistent with my growing skepticism of all published research given a general bias towards positive results.

If you’re a psychologist, the news has to make you a little nervous—particularly if you’re a psychologist who published an article in 2008 in any of these three journals:Psychological Science, the Journal of Personality and Social Psychology,or the Journal of Experimental Psychology: Learning, Memory, and Cognition.

Because, if you did, someone is going to check your work. A group of researchers have already begun what they’ve dubbedthe Reproducibility Project, which aims to replicate every study from those three journals for that one year. The project is part of Open Science Framework, a group interested in scientific values, and its stated mission is to “estimate the reproducibility of a sample of studies from the scientific literature.” This is a more polite way of saying “We want to see how much of what gets published turns out to be bunk.”

I wrote about problems in research publishing here.

Warning: Crimes Against Humanity May Be Found Here

According not to some random weird dude found on a campus in California, but to the head of NASA Goddard Institute for Space Studies, I am guilty of crimes against humanity for questioning whether the world's climate system is really dominated by strong positive feedback

One of the world’s most widely respected climatologists, James Hansen, director of NASA-GISS, which focuses on the study of earth’s climate for the space agency, testified to Congress in 2008 that the CEOs of fossil fuel companies (who, according to various professional reporting have been promoting this and other misleading messages about global warming in conjunction with ideological groups trying to prevent government regulation) “knew what they were doing” and, as stated in his written testimony to Congress in 2008, were guilty of “high crimes against humanity and nature.”

Hansen tells ABC News — in a phone call from the U.K. where he’s been traveling — that he used that highly charged phrase, crime against humanity, “not only for dramatic effect, but also because it is accurate, given the enormous scale of the consequences to humanity” if manmade global warming is not somehow stopped and reversed.

“It wasn’t only aimed at the fossil fuel CEOs,” Hansen added on the phone. “This also applies to politicians who pretend the global warming is not manmade.”....

“Crimes Against Humanity” is a category of culpability that found currency in the last century as a label for such atrocities as genocide, including the Nazi Holocaust.

This is a grave accusation, laden with great emotion, but it has not been made lightly — rather with extensive study and forethought.

You have been warned.

More Glendale Follies

I almost hate beating on the silly folks who run the City of Glendale even further, but they keep screwing up.

One of the reasons I think that city officials like those in Glendale like to dabble in real estate and sports stadiums is what I call the "bigshot effect."  They don't have any capital of their own, and they don't have the skills such that anyone else would (voluntarily) trust them to invest other people's money, but with a poll of tax money they get to play Donald Trump and act like they are big wheels.  The Glendale city council did this for years, and when their incompetence inevitably led to things starting to fall apart, they have simply thrown more money at it to try to protect their personal prestige.

But unfortunately, incompetence generally is an infinite reservoir, and apparently the City has screwed up again.  Years ago, when the City promised the rich people who owned the AZ Cardinals a new half billion dollar stadium, they put a contract to that effect on paper.  Granted, this was a sorry giveaway, spending hundreds of millions of dollars for a stadium that would be used by the Cardinals for 30 hours a year, by the Fiesta Bowl for 3 hours a year, and by the NFL for a Superbowl for 3 hours every 6-7 years.  But, never-the-less, the City made a contractual agreement.

And then, in its rush to be real estate bigshots, the city turned about 3700 parking spaces promised contractually to the Cardinals over to a developer to create an outlet mall (of the sort that has been quietly going bankrupt all over the country over the last few years).  Incredibly, the city did this without any plan for how to replace the parking it owed the Cardinals.  To this day, it has no plan.

Apparently, there were also some shenanigans with $25 million that had been escrowed to build a parking garage.

The demand letter also blames the parking problem on the city's dealings with Steve Ellman, Westgate's former developer and a one-time co-owner of the Phoenix Coyotes. The letter states that Ellman's relationship with the city has been "characterized by a lack of transparency."

The letter raises questions about a January 2011 arrangement in which the city and Ellman equally split a $25million escrow fund that had been earmarked to build a parking garage in Westgate, the team said.

Ellman put that money in escrow in 2008 after failing to keep a promise to the city to provide a set amount of permanent parking in Westgate.

By early 2011, half of that money went back to Ellman's lenders as part of a deal to try to keep the Coyotes in Glendale, while the city received the other $12.5 million in the account.

What a mess.  This is what happens when politicians try to be bigshots with our money.

 

 

It Was Never About the Ogallala Aquifer

A few weeks ago, I wrote that opposition to the Keystone was never about the Ogallala Aquifer.  Polluting the water was a simply a convenient talking point that might play better with the American public than the true goal, which is to shut down the development of new sources of North American oil.  I got a lot of comments and email that I was making this up, but in fact its pretty clear that opposition to the pipeline pre-dated knowledge even of its route.  Here is a environmental group's presentation from 2008 which advocates opposition to all pipelines (without any reference to their routes) out of the Canadian tar sands as a strategy to halt their development.

Postscript:  I really have little use for discussions about funding amounts and sources of various causes.  I find it largely irrelevent.  So I post this only because this week we are talking about the Heartland Institute's funding of climate skeptics as revealed by hero (if you are an environmentalist blog) or thief Peter Gleick.  Heartland sends a portion of its $6 million budget to support various climate skeptics, and somehow this "revelation" has environmentalists running in circles screaming rape.  But Heartland's pitiful few millions seem a joke in comparison to the environmental funding torrent.  Take this example from the Canadian tar sands issue, just a single one of a myriad of climate-related issues getting millions, even billions of dollars of funding.

Northrop’s presentation promised funding from the Rockefeller Brothers Fund and the William & Flora Hewlett Foundation in the amount of $7 million per year. Named in the presentation were 12 participating environmental pressure groups, including the Natural Resources Defense Council, Greenpeace, the World Wildlife Fund and the Sierra Club.

According to Canadian writer and researcher Vivian Krause, U.S. foundations have poured more than $300 million into Canadian environmental groups since 2000. One foundation, endowed by Intel co-founder Gordon Moore, has been single-handedly responsible for $92 million of that total, Krause wrote Jan. 17 in Canada’s Financial Post. Foundations flush with the wealth of computer pioneers William Hewlett and David Packard, she added, sent another $90 million to wage green-politics wars in the Great White North....

Tax records from the Rockefeller Brothers Fund indicate that it sent $1.25 million to Michael Marx’s organization, Corporate Ethics International, between December 2007 and November 2010. The money was earmarked “to coordinate the initial steps of a markets campaign to stem demand for tar sands derived fuels in the United States.” The Fund has not yet filed its tax return for 2011.

Among other initiatives, Corporate Ethics International launched a campaign in July 2010 to persuade American and British travelers to avoid visiting Alberta while tar sands exploration was underway. Tourism brings $5 billion to Alberta, making it one of the Canadian province’s biggest industries.

The William and Flora Hewlett Foundation, the second philanthropy Northrop mentioned in 2008 as a partner in the concerted effort to stop tar sands oil development, contributed far more.

Its tax returns indicate expenditures of more than $17.5 million targeted at tar sands oil development, including more than $15.4 million to the left-wing Tides Foundation and the affiliated Tides Canada Foundation. At the time, Tides was led by progressive millionaire Drummond Pike, and by ACORN co-founder and AFL-CIO organizer Wade Rathke.

A newer philanthropy, the Sea Change Foundation, also sent Tides $2 million in 2009, all of it to “promote awareness of an opposition to tar sands.” Another $3.75 million to Tides followed in 2010.

Funded by Renaissance Technologies hedge fund founder James Simons and his son, Nathaniel, Sea Change gave away $120 million between 2008 and 2010 in connection with energy-related issue activism. More than $18 million more of the Simons’ philanthropic funding in 2009 and 2010 went to organizations named in Northrop’s 2008 presentations, including the Natural Resources Defense Council, the Sierra Club, the World Wildlife Fund and Ceres, Inc., although Sea Change did not disclose the specific purpose of those grants.

Smaller tar sands-related contributions to Tides came from the Oak Foundation, endowed by Duty Free Shoppers tycoon Alan Parker; the New York Community Trust; and the Schmidt Family Foundation, whose millions come from Google CEO Eric Schmidt and his wife Wendy.

Tides, in turn, made at least $8.6 million in grants to 44 different organizations, each time specifically mentioning its “tar sands campaign.” Funds went to Greenpeace, the Natural Resources Defense Council, the Sierra Club, Forest Ethics, the Rainforest Action Network and dozens of others. Fully $2.2 million of that total went to Michael Marx’s Corporate Ethics International.

I have no problem with private people spending money however they want, but after throwing around sums of this magnitude, it seems amazing they feel the need to stop Heartland from spending a couple of million dollars in opposition.  It's like a rich guy telling you that your Chevy Nova is in the way of his Ferrari and could you please get it off the road.

Will Reality Never Set In?

I had thought the situation in Greece would eventually hammer home for everyone the perils of reckless enlargement of the state and deficit spending.  But apparently, it is not to be.  This is how Kevin Drum describes the core problem in Greece:

the austerity madness prompted by the 2008 financial collapse

So the problem is not a bankrupt state, but the "austerity" which by the way has at best carved only a trivial amount out of spending.  And it was triggered not by a ballooning deficit as a percent of GDP and an inability to meet interest and principle payments, but by the US financial crisis.

This is willful blindness of absolutely astounding proportions.  Which means the same folks are likely just rehearsing to ride the US right into the same hole.

Fannie and Freddie: Worse Than We Thought

From Edward Pinto at the American

Fannie and Freddie entered into agreements accepting responsibility for misleading conduct discovered by the SEC, including:

1.    As of June 30, 2008, Freddie had $244 billion in subprime loans, while investors were told it had only $6 billion in subprime exposure.

a.    Freddie knew it was inadequately compensated for the risks it was taking. For example, it was taking on “subprime-like loans to help achieve [its] HUD goals” that were similar to private fixed-rate subprime, but the latter typically received “returns five to six times as great,” says the complaint.

b.    Freddie had concerns about risk layering on loans with an LTV >90% and a FICO <680. (Yet, in Freddie’s disclosures it only noted risk layering concerns on loans with an LTV >90% and a FICO <620. This is a major difference since only 10 percent of its loans fell into the LTV >90% and a FICO <620 category, while nearly half fell into the LTV >90% and a FICO <680 one.)

2.    As of June 30, 2008, Fannie had $641 billion in Alt-A loans (23 percent of its single-family loan guaranty portfolio), while investors were told it had less than half that amount ($306 billion, or 11 percent of its single-family loan guaranty portfolio).

3.    The SEC complaint disclosed that Freddie had a coding system to track “subprime,” “other-wise subprime,” and “subprime-like” loans in its loan guaranty portfolio even as it denied having any significant subprime exposure.

These suits are important because they demonstrate that Fannie and Freddie “told the world their subprime exposure was substantially smaller than it really was … and mislead the market about the amount of risk on the companies’ books,” said Robert Khuzami, director of the SEC’s Enforcement Division.

Just Fooling, We Had No Idea What We Were Doing

California voters -- unskeptical, unrealistic, and gullible -- nevertheless trusted their elected and unelected technocrats in Sacramento to be telling them the truth when they agreed to a $9.95 billion bond issue for high speed rail.  It turns out, even according the HSR's most fervent supporters, that the numbers that were used to sell the bond issue were total crap, and they knew it at the time

In September, I was one of several journalists who interviewed top officials with the California High Speed Rail Authority. Here is board member Lynn Schenk’s response to my question about accountability:

Q: In 2008, this project was sold to voters with the claim that when it was done there would be 117 million annual riders, which is more than four times what Amtrak now has, and it operates in 46 states. It was sold with claims of a $100 round-trip ticket and many other claims that no one believes anymore. If we had known then what we know now, it might not have passed. So when do we get accountability?

SCHENK: This deserves as much of a direct answer as I can maybe possibly give. And that is about the first business plan and those early studies. These gentlemen were not there at the time. I was there. We had one professional and two half-professionals, who were constantly being furloughed because of the state budget issue. That first plan, much to the regret of many of us, was pulled together with Scotch tape and hairpins because we had to get something to the Legislature, but we didn’t have the money, the resources, the people to pull together, so there were a lot of errors. You’re right. But there were also things in there that still stand true today. And we have new studies, a new business plan coming out. The ridership study that we had it is not as bad as the opponents would say. But there are tweaks. And there are things that need to be adjusted and we are looking to do that.

Because the last thing a bureaucratic is ever going to say is "we don't know."   So they told they public the rail line would have 117 million annual riders, when even an estimate of 5 million is probably high.  Jeff Skilling is in jail for a far less substantial exaggeration of his business prospects.

Of course voters were idiots to accept these numbers, when 5 minutes of research would have shown them absurd (the media did nothing to help, of course).  One relevent factoid:

The current air passenger traffic between LAX and SFO is 2.7 million a year

But we are going to have tens of millions of rail customers.  Right.

WOW. Our Countries Leaders Sure Have Come A Long Way

From ABC News via Q&O

At a million-dollar San Francisco fundraiser today, President Obama warned his recession-battered supporters that if he loses the 2012 election it could herald a new, painful era of self-reliance in America.

“The one thing that we absolutely know for sure is that if we don’t work even harder than we did in 2008, then we’re going to have a government that tells the American people, ‘you are on your own,’” Obama told a crowd of 200 donors over lunch at the W Hotel.

At least he is making the choice clear.

Major Justification for GM Bailout Falls Apart

As GM was failing, I argued for the normal laws of bankruptcy to be allowed to work.  After all, valuable brands and manufacturing facilities were not just going to go *poof* -- someone would purchase them and employ them, and hopefully those someone's would to a better job than the previous owners and managers.

A big part of the "logic" for bailout and Presidential intervention in the auto companies was that auto purchases would halt if consumers were unsure whether their warranties would be honored and service would be available.

From an AP story, November 13, 2008

Advocates for the nation's automakers are warning that the collapse of the Big Three - or even just General Motors - could set off a catastrophic chain reaction in the economy, eliminating up to 3 million jobs and depriving governments of more than $150 billion in tax revenue.

Industry supporters are offering such grim predictions as Congress weighs whether to bail out the nation's largest automakers, which are struggling to survive the steepest economic slide in decades....

Automakers say bankruptcy protection is not an option because people would be reluctant to make long-term car and truck purchases from companies that might not last the life of their vehicles.

Well, it turns out that this was partially bogus.  The written warranties are still honored, but GM argues it left liability for any defects or design problems in the old shell company

General Motors Co (GM.N) is seeking to dismiss a lawsuit over a suspension problem on more than 400,000 Chevrolet Impalas from the 2007 and 2008 model years, saying it should not be responsible for repairs because the flaw predated its bankruptcy.

The lawsuit, filed on June 29 by Donna Trusky of Blakely, Pennsylvania, contended that her Impala suffered from faulty rear spindle rods, causing her rear tires to wear out after just 6,000 miles. [ID:nN1E7650CT]

Seeking class-action status and alleging breach of warranty, the lawsuit demands that GM fix the rods, saying that it had done so on Impala police vehicles.

But in a recent filing with the U.S. District Court in Detroit, GM noted that the cars were made by its predecessor General Motors Corp, now called Motors Liquidation Co or "Old GM," before its 2009 bankruptcy and federal bailout.

The current company, called "New GM," said it did not assume responsibility under the reorganization to fix the Impala problem, but only to make repairs "subject to conditions and limitations" in express written warranties. In essence, the automaker said, Trusky sued the wrong entity.

"New GM's warranty obligations for vehicles sold by Old GM are limited to the express terms and conditions in the Old GM written warranties on a going-forward basis," wrote Benjamin Jeffers, a lawyer for GM. "New GM did not assume responsibility for Old GM's design choices, conduct, or alleged breaches of liability under the warranty."

Of course, this happens all the time in bankruptcy  (and it is my experience, but I am not a legal expert) that GM may or may not succeed in this argument.  It is not always possible to leave liabilities behind in an old corporate shell, or else companies would reorganize every year.

But the point is that the special treatment of GM was supposed to be to protect consumers, and that turns out to be BS.  The warranties were likely always going to be protected in any bankruptcy, as such consumer benefits nearly always are in chapter 11 (the fact that you still hold any frequent flyer miles is proof of this, as nearly every airline in the country has been through chapter 11 in the last couple of decades and none of them disavowed their frequent flyer miles, despite the fact that holders are the most unsecured of unsecured creditors).