Posts tagged ‘congress’

So How Can Anyone Be Opposed to Non-Discrimination Laws

First, let me establish a few background facts.  Several years ago I headed an attempt to put a Constitutional amendment legalizing gay marriage on the ballot here in Arizona.  As far back as 2004 I had a gay couple running a campground, and faced a customer petition demanding we remove them because they promoted moral degeneracy by being gay (it's for the children!).  I told those customers to camp somewhere else, as we were not changing our staffing.  Since then I have probably hired more gay couples to run campgrounds than anyone else in the business.

So how could I possibly be opposed to this:

After a period of foreshadowing and rumor, the Equal Employment Opportunity Commission has now gone ahead and ruled that employment discrimination on the basis of sexual orientation is forbidden under existing federal civil rights law, specifically the current ban on sex discrimination. Congress may have declined to pass the long-pending Employment Non-Discrimination Act (ENDA), but no matter; the commission can reach the same result on its own just by reinterpreting current law.

There are multiple problems with non-discrimination law as currently implemented and enforced in the US.  Larger companies, for example, struggle with disparate impact lawsuits from the EEOC, where statistical metrics that may have nothing to do with past discrimination are never-the-less used to justify discrimination penalties.

Smaller companies like mine tend to have a different problem.  It is an unfortunate fact of life that the employees who do the worst job and/or break the rules the most frequently tend to be the same ones with the least self-awareness.  As a result, no one wants to believe their termination is "fair", no matter how well documented or justified (I wrote yesterday that I have personally struggled with the same thing in my past employment).

Most folks grumble and walk away.  But what if one is in a "protected group" under discrimination law?  Now, not only is this person personally convinced that their firing was unfair, but there is a whole body of law geared to the assumption that their group may be treated unfairly.  There are also many lawyers and activists who will tell them that they were almost certainly treated unfairly.

So a fair percentage of people in protected groups whom we fire for cause will file complaints with the government or outright sue us for discrimination.  I will begin by saying that we have never lost a single one of these cases.   In one or two we paid someone a nominal amount just to save legal costs of pursuing the case to the bitter end, but none of these cases were even close.

This easy ability to sue, enabled by our current implementation of discrimination law, imposes a couple of costs on us.  First, each of these suits cost us about $20,000 to win (insurance companies are smart, they know exactly how this game works, and will not sell one an employment practices defense policy without at least a $25,000 deductible, particularly in California).  It takes a lot of effort for the government, even if neutral and not biased against employers as they are in California, to determine if the employee who was fired happened to be Eskimo or if the employee was fired because he was an Eskimo.  Unfortunately, the costs of this discovery are not symmetric.  It costs employees and their attorneys virtually nothing to take a shot at us with such discrimination cases, but costs us$20,000 each to defend and win (talk about Pyrrhic victories).  Which is why we sometimes will hand someone a few bucks even if their claim is absurd, just to avoid what turns out to be essentially legal blackmail.

Second, the threat of such suits and legal costs sometimes changes our behavior in ways that might be detrimental to our customers.  A natural response to this kind of threat is to be double careful in documenting issues with employees in protected groups, meaning their termination for cause is often delayed.  In a service business, almost anyone fired for cause has demonstrated characteristics that seriously hinder customer service, so drawing out the termination process also extends the negative impact on customers.

To make all this worse, many employees have discovered a legal dodge to enhance their post-employment lawsuits (I know that several advocacy groups in California recommend this tactic).  If the employee suspects he or she is about to be fired, they will, before getting fired, claim all sorts of past discrimination.  Now, when terminated, they can claim they where a whistle blower that that their termination was not for cause but really was retaliation against them for being a whistle-blower.

I remember one employee in California taking just this tactic, claiming discrimination just ahead of his termination, though he never presented any evidence beyond the vague claim.  We wasted weeks with an outside investigator checking into his claims, all while customer complaints about the employee continued to come in.  Eventually, we found nothing and fired him.  And got sued.  The case was so weak it was eventually dropped but it cost us -- you guessed it -- about $20,000 to defend.  Given that this was more than the entire amount this operation had made over five years, it was the straw that broke the camel's back and led to us walking about from that particular operation and over half of our other California business.

More Washington Hypocrisy

When an election was in the offing and 60 Minutes was paying attention, Congress voted a couple of years ago to finally remove the exemption that protected Congress and its staff from insider trading laws that apply to everyone else.

Now that the election is over and no one is looking, Congress has reversed itself 

So... with very little fanfare, Congress quietly rolled back a big part of the law late last week. Specifically the part that required staffers to post disclosures about their financial transactions, so that the public could make sure there was no insider trading going on. Congress tried to cover up this fairly significant change because they, themselves, claimed that it would pose a "national risk" to have this information public. A national risk to their bank accounts.

It was such a national risk that Congress did the whole thing quietly, with no debate. The bill was introduced in the Senate on Thursday and quickly voted on late that night when no one was paying attention. Friday afternoon (the best time to sneak through news), the House picked it up byunanimous consent. The House ignored its own promise to give Congress three days to read a bill before holding a vote, because this kind of thing is too important to let anyone read the bill before Congress had to pass it.

Quote of the Day

From Megan McArdle:

When I was reporting on Wall Street, I used to be told with some regularity that government was needed to counteract the short-term thinking of the business sector, who never thought much beyond the next quarterly earnings report.  This now seems as quaintly adorable as picture hats and daily milk deliveries.  An ADHD day trader with a cocaine habit and six months to live has considerably more long-term planning skills than our current congress.

Part of a generally awesome rant

Transparency for Thee, But Not for Me

The government is the first organization, given its unique powers to use force against citizens, that should be subject to surveillance and transparency.  Unfortunately, since it is the government itself that sets the rules, it is usually the last.  Following in the tradition of a Congress that exempts itself form most of its workplace regulation, comes the new financial bill which apparently exempts the SEC from most public scrutiny

Under a little-noticed provision of the recently passed financial-reform legislation, the Securities and Exchange Commission no longer has to comply with virtually all requests for information releases from the public, including those filed under the Freedom of Information Act.

The law, signed last week by President Obama, exempts the SEC from disclosing records or information derived from "surveillance, risk assessments, or other regulatory and oversight activities." Given that the SEC is a regulatory body, the provision covers almost every action by the agency, lawyers say. Congress and federal agencies can request information, but the public cannot.

That argument comes despite the President saying that one of the cornerstones of the sweeping new legislation was more transparent financial markets. Indeed, in touting the new law, Obama specifically said it would "increase transparency in financial dealings."

Apparently the children of the sixties, who once pushed for the Freedom of Information Act as a check to those in power, now are rolling it back once they are in power themselves.


From New York Magazine

The wrinkly old men that we elect to Congress are so horny and gross that the American taxpayer shells out on average $1 million a year in settlements to sexually harassed Hill staffers, according to the Office of Compliance. The level of perviness fluctuates from year to year "” in 2007, 25 staffers were paid a total of $4 million.

Kids Prefer Cheese comments

Wouldn't such settlements possibly be of interest to voters, the media, and opponents of the crotch-grabbing perv-boys? It sure would! And that is why Congress passed a law saying that no one can obtain this information!

Via the South Bend Seven.  The New York article also makes this observation:

According to the same Office of Compliance, which is on a roll today, "the Capitol and other congressional buildings are rife with fire traps and other pervasive problems of age and dangerous design, with an estimated 6,300 safety hazards lurking on Capitol Hill this Congress." Congress has exempted itself from federal workplace safety regulations, so it isn't legally obligated to repair any of these hazards, many of which will be expensive. It's the kind of short-sightedness we've all come to expect from our lawmakers.

It is irritating that they exempt themselves from the same laws everyone else has to follow, though I can't say I am too worked up at the thought of some Senator slamming his or her head on a low doorway.

We Won't Play Politics With GM...

...except when we do.  I think everyone pretty much assumed that Obama's promise of treating GM like a real business and not as a political plaything was BS from the start, particularly when Congress started intervening in dealer-closure decisions about 5 seconds after the promise left Obama's lips.

Henry Payne has a roundup of Congressional micro-management at GM.  One example:

Chrysler and GM have moved aggressively to cut their transportation costs, effecting Teamster jobs and riling the union's political friends. Chrysler, for example, will save 25 percent of its $111 million annual hauling budget by transferring to lower-cost carriers. But Michigan reps from both sides of the aisle are unimpressed, reports the Detroit News. "Relatively minor short-term cost savings generated by shifting this work to non-unionized companies is greatly outweighed by the elimination of good-paying, union middle-class jobs," complains Michigan Republican Thaddeus McCotter.

What do "good-paying" trucking jobs have anything to do with GM's health?

Corporations and Free Speech

Here is my very simplistic take.  You will have to pardon me for referencing the actual text of the Constitution -- I know this is passe in our modern era (jeez, I am probably a tenther too).  The issue looks pretty straight-forward to me, for two reasons

  • Congress shall make no law ... abridging the freedom of speech.  Doesn't say by whom or for what.  There are no modifiers.  Doesn't say "except when individuals organize themselves into a corporation."
  • Congress shall make no law ... abridging ...the right of the people peaceably to assemble.  So Congress can make no law restricting free speech and it can make no law restricting assembly but somehow it can make laws restricting free speech of people who have assembled?

Contact Your Congress Person

Added a link on the right for phone numbers and emails of all Congress members.

I May Have Been Wrong When I Said Government Officials Weren't Dumb

I often say that most government officials are not dumb or evil, they just have bad incentives that make them act that way, and they look dumb because they attempt to tackle problems that even a 250IQ can't solve (e.g. planning the economy).

But I may have been wrong.  Evidence is mounting that people in Congress, at least, really are just plain dumb.  From an interview on NPR:

[Congressman Henry] Waxman: Well, there have been scientists brought together to see if they could figure out the science and make it clear whether this is a danger or not, whether it's a danger that's a great one or one that we can postpone for a while, and the overwhelming consensus of all the leading scientists that have looked at this issue is there is a warming of the planet, it's manmade, caused by our burning of carbon fuels, and it's happening faster than anybody ever thought it would happen.

We're seeing the reality of a lot of the North Pole starting to evaporate, and we could get to a tipping point. Because if it evaporates to a certain point - they have lanes now where ships can go that couldn't ever sail through before. And if it gets to a point where it evaporates too much, there's a lot of tundra that's being held down by that ice cap.

If that gets released we'll have more carbon emissions and methane gas in our atmosphere than we have now. We see a lot of destruction happening because of global warming, climate change problems, so we've got enough warning signals and enough of a scientific consensus to take this seriously.

Oh my heavens, we are certainly in good hands.  Via Tom Nelson.

Postscript: For those who slept through high school science:

  • North Pole ice melts, it does not evaporate (liquids evaporate).  Occasionally a solid will go straight from a solid to a gaseous state (e.g. with dry ice) - that is called sublimation.  Ice on Kilimanjaro, for example, sublimes rather than melts.
  • There have been a number of years this century, including several times in the 1930's, when the Northwest Passage opened up in the summer, so a recent opening was far from the "first time."
  • The ice cap does not hold down the tundra.  The concern, as I understand it, is that large stretches of Siberia are essentially permanently frozen peat bogs.   If the permafrost (which is under the tundra) melts, this allows the previously frozen organic matter to start to decompose, releasing methane which is a strong greenhouse gas.
  • When Waxman refers to a tipping point, he means that a positive feedback cycle, much like nuclear fission, is created causing temperatures to accelerate rapidly.  As an aside, such runaway positive feedback processes are rare among long-term stable natural systems, as at some point, given 5 billion years of history, they should have already run away by now.  Why temperatures would reach a tipping point now when they did not in millennia past when both global temperature and CO2 levels were much higher remains unexplained by Mr. Waxman and other tipping point advocates.
  • As of today, global sea ice extent is higher than the last 30 year average.  (this graph is updated regularly)

I Don't Get It

Just a few days ago I wrote about proposals for government subsidies / bailouts / partial control of print media. Already, it seems that bills are popping up in Congress. I guess this is not surprising -- as Congress loves to throw pork at particular industries in exchange for help getting elected, the temptation to make the newspaper industry, with its unique political muscle, beholden to the political class must be overwhelming.

But I must say this makes zero sense to me:

With many U.S. newspapers struggling to survive, a Democratic senator on Tuesday introduced a bill to help them by allowing newspaper companies to restructure as nonprofits with a variety of tax breaks.

"This may not be the optimal choice for some major newspapers or corporate media chains but it should be an option for many newspapers that are struggling to stay afloat," said Senator Benjamin Cardin.

I don't see how allowing organizations (whose problem is that they are making no profits) to avoid income taxes on their non-existent profits is really going to solve much. Is the thought that donations will save the day? Are we to endure endless pledge drives in print media?  Or maybe Democrats are hoping ACORN will use its stimulus funds to start buying up local papers?

This is classic government in the corporate state.  Economics and new technologies are driving huge changes in an influential business.  These changes will force survivors to adopt new business models, and will force formerly dominant competitors who refuse to change out of business.  Rather than face these changes and deal with risks to their leading positions, powerful incumbents run to government to try to get the state to lock in historic business models and prevent new entrants for poaching on what they consider their protected market preserves.

Haiti on the Potomac

The Liberty Papers thinks we have become a lawless Banana Republic.  George Will is thinking along the same lines, snarkily observing that Sweden, China, and Mexico have all observed in one way or another that the Feds seem to be acting outside the rule of law.

I have opined in the past that what really extended the Great Depression was not any real underlying economic issue, or even vast increases in government spending per se.  It was that arbitrariness with which the Roosevelt administration dealt with economic matters.  With nutty programs like the Mussolini-inspired National Industrial Recovery Act coming and going, investors and businesses never knew from day to day what the rules of the game would be next year, or even next week.

I fear that this is exactly the climate Obama and Congress are creating today.

  • When Congress reacts to CNN headlines by retroactively confiscating legal compensation that it had protected just weeks before, what will happen to my compensation?
  • When government deficits soar by trillions of dollars, what will taxes look like next year?
  • When the Administration says that Co2 will have to be reduced by 80%, what numbers do I plug into my forecasts for fuel and electricity?
  • When the government decides on a whim to print a trillion dollars more money to pay off government debt, what will inflation look like in the coming months and years?

As of two months ago, my company was still investing.  We were still getting bank credit, particularly for equipment financing, though it took more work than in the past to secure it.  We still saw opportunity in our business, and in fact saw increased opportunity in the recession for low-cost recreation options and outsourcing of public recreation facilities.

But today, I am reluctant to make any new investments.  Investing $5000 now for $8,000 a year from now normally sounds good, but what happens now that the Feds have more than doubled the money supply?  How much will $8,000 really be worth a year from now?  What will my taxes be on the increase?**  What new costs or liabilities  might be retroactively placed on me for making the investment?  What happens if beltway pundits start thinking I am making too much money?

All this commotion of government intervention started when Paulson and other Bush appointees started screaming that the banking system was going to shut down and therefore crash the whole economy.  As my readers know, I believe to this day that this was all sky-is-falling over-reaction and panic-mongering, and most of the credit crunch resulted from uncertainty about the Treasury and its statements, not due to realities on the ground.   However, whatever tightening of credit we might or might not have avoided by government action, it pales in its effect on investment in comparison to the arbitrariness and trillion-dollar-plan-of-the-day that has been the first 60 days of the Obama administration.

** footnote: For those of you who have not lived through high inflation times, taxes and inflation are a deadly combination.  That is because the Federal Government, after creating inflation, then taxes each of us on its effects.  Here is an example:  Invest $5000 now at a fixed 10% a year.  Suddenly, inflation goes up to 8% a year.  In five years, I now have a bit over $8000.  In economic terms I have made a small profit of, since $8000 in five years at 8% inflation is worth $5,445 today.

But the IRS thinks I have made $3000, not just $445, and will tax me on the full $3000.  If they take a third, I only have $7000 at the end, or $4,764 in current dollars, meaning that after taxes, I actually lost money.

The Earmarked Bankruptcy

The normal process for bureaucratic allocation of, say, highway funds, does not always work that well.  Seriously, you don't have to convince this libertarian of that.  But it is at least intended to try to balance priorities and allocate the funds marginally rationally.   Which points out the problem with earmarks -- they are overrides by Congress of the normal allocation and prioritization process for political ends.  By definition, the projects in earmarks would not have normally been funded by the usual operation of the prioritization process.

Which brings me, oddly enough, to AIG  (and to GM).  When companies can no longer meet all of their obligations, they generally file for chapter 11 bankruptcy. This is an extremely well-worn process, both in the courts and the business community, that attempts to save as much value as possible and to allocate that value, based on law and a set of rules everyone understands in advance, to the various stakeholders.   The folks who are involved in this process are pretty hard-headed folks, less out for revenge and retribution as for maintaining value and capturing as much as possible for whatever group one might represent.

Now Congress and the Administration are getting themselves involved in the bankruptcy process, by trying to avert actual chapter 11 filings by AIG and GM.  By doing so, they are effectively overriding the bankruptcy process.  Just as with earmarking, they claim this override is for some good of the country.  But, just as with earmarking, you can assume it is to benefit some politically-favored group.  At GM, the feds are saying that we don't want employees or the equity holders to take a haircut, as they would in Chapter 11, so we will transfer the loss to taxpayers, and perhaps bondholders (could there be any politically less favored group than taxpayers?).  Same at AIG.   Is it any surprise that the number one beneficiary of the Pauslon bailout of AIG was Goldman Sachs?  The Left thought they smelled a rat when the administrations contracted with ex-Cheney-run Haliburton in Iraq, but no one is going to bat an eye when the Treasury department, populated with ex-Wall Street types, is bailing out all its employees' old firms?

On the subject de jour, the AIG executive bonuses, many of these were just as guaranteed, contractually, as were payments on AIG policies and bond guarantees.  I don't know how such obligations are treated in chapter 11 (are they treated as more or less senior than other obligations?) but I do know the decision to keep them or ditch them would be made against a goal of maintaining long-term value, and not public witch-hunting.

This is the real problem, even beyond the taxpayer cost, of this new form of Congressional or Administration-led pseudo-bankruptcy:  Winners and losers are determined by political power and perceptions of short-term political gain, rather than against a goal of maintaining value and following well understood and predictable rule.  This process throws all the old predictable rules and traditions out the window.  Investors and folks with contracts used to know just how senior their obligations were in a corporate failure.  Now, they have no idea, as their position in the bankruptcy may in the future depend more on how much they donated in the last presidential election, or how good their PR agent is.

The Most Money Every Spent With The Least Scrutiny

We will be posting on the stimulus bill for months and years, because it will take that long to figure out what was in it.  Congressman who voted for it may never know what they actually voted for.  Veronique de Rugy takes a first swing at it:

Total spending amounts to $792 billion, with $570 billion in direct spending and $212 billion in tax provisions. These numbers don't include the massive amount of interest that will accrue on the increased debt. If we include that, the total amount comes to $1.14 trillion.

Supporters of the package describe the legislation as transportation and infrastructure investment, the idea being to use new spending to put America back to work while at the same time fixing decrepit infrastructure. However, only 17 percent of the discretionary spending in this package is for infrastructure items. More worrisome still, the final version lacks any mechanism to ensure that spending will be targeted toward infrastructure projects with high economic returns

De Rugy actually overestimates the infrastructure spending, because she looks at the spending over 10 years.  Since the stimulative effect of infrastructure spending in this recession is, at most, limited to 2009-2010 spending, and since the infrastructure spending is more back-end loaded, the percentage is much lower in the first 2 years -- something like 6-7% as I calculated here (I will go back through the CBO reports with an update when I get a chance, but Kevin Drum links them here, hilariously saying they "scored well."

Unfortunately, even this seems to wildly underestimate the true cost of the bill.  In creating the bill, Congress increased the general operating funds for zillions of departments and programs  (remember, 80+% of the spending is departmental budget increases, not infrastructure construction).  However, they show these increasing disappearing after a couple of years.  We all know that Democrats consider removing an increase to be "a massive cut" so we can assume that at some point, these budget increases will be extended for eternity.  If one makes this more realistic assumption, then the cost of the stimulus bill is over $3 trillion!  [update:  Carpe Diem demonstrates this with a nice set of graphs]

My other project I am working on is to look at some of the "shovel ready" projects on the mayor's list here  (warning!  600 page pdf!!) in the Phoenix area.  My incoming hypothesis is that any project on here either:

  1. Is not shovel ready, as it takes years to get a project through planning, procurement, and environmental permitting, but once anyone in DC finds that out, they won't take back the money, -OR-
  2. Is something that the local residents, who will enjoy the benefit, refused to fund, raising the question as to why the rest of us should fund it.

I won't spill the beans yet, but here are a few tastes from the Phoenix area:

  • A major upgrade to the water system of the town of Paradise Valley, a small community embedded in Phoenix which is, by a fairly good margin, the single wealthiest zip code in the state.
  • A lot of solar.  Solar is a particularly good choice for this list because 1)  Obama has a hard-on for it, so he is unlikely to question it  2)  Solar's problem is high capital cost vs. the amount of electricity produced, but if someone else is paying the capital cost....

A Question about the Stimulus Bill

Kevin Drum, quoting Joe Klein, hopes the press (which we know to be so terribly biased against leftish ideas and new government spending) doesn't smear Obama's economic plan like they did Clinton's.

I won't get into all that, but I want to ask a related question:  To what extent does current legislation actually represent an Obama plan at all?  Maybe the press coverage has been poor, but hasn't Obama really been forced to put a happy face on and accept the half-baked mess that comes out of Congress?  Hasn't Obama really taken the role as Majority Whip, trying to wrangle votes for an existing piece of legislation, rather than actually crafting its framework?

I would define one of the key aspects of Presidential leadership as bringing some adult supervision to Congress, and particularly his own party in Congress.  Bush CERTAINLY never was able or willing to do so, and I don't see evidence of Obama doing so either.  Congress is running amuck, and every week seems to add another $100 billion in random pork to the bill.  In content, my perception is that the stimulus bill is Nancy Pelosi's bill but Obama's blame.  Or am I missing something?  Has the Administration had more involvement in the crafting of this bill than it appears?

Update: Jane Hamsher at Huffpo (HT to a commenter) argues that my understanding above is a result of furious Administration spin:

The story of the morning seems to be that the Obama team is unhappy with Nancy Pelosi and the House committee chairs for delivering up such a liberal, pork-laden bill that they themselves really had nothing to do with.

"Anonymous staffers" are fanning out to fuel the fiction that "during the transition Summers, his deputy Jason Furman, and the White House's top Congressional liason, Phil Schiliro, laid out the broad principles they wanted the bill to adhere to, but when it came to actual content, they deferred to the chairmen."

Except that it's not true.  The Obama transition team has been working on the substance of the bill from day one.  Their first step was to go to the Association of Mayors, the National Governors' Associations and other non-congressional groups and say "give us all your shovel-ready projects."  That and other provisions written by the Obama team became the spine of the bill.  It went through only three committee markups, and moved through the House at lightening speed in a way that made many House chairs unhappy, with the notable exception of Dave Obey (now also under attack) who helped push it through quickly.

The House bill is notable not only for its size but also because it had no earmarks, which are the lifeblood of House members, the way they show their constituents what they're doing for them.  As one person knowledgable about the writing of the bill says, "if you're in the House why would you write a bill without earmarks unless you didn't write the bill?"

But with public opinion quickly turning against the bill, and the House Republicans claiming the moral high ground as they held formation to oppose him, how could Obama be distanced from responsibility for elements of the bill under GOP attack and remain above the fray?  That seemed to be the locus of White House concern, and according to those familiar with what happened, the "polarizing" Nancy Pelosi was designated to take the fall.

Interesting.  Well, I don't often comment on politics per se  (vs. actual proposals) because I am so naive about this stuff.  Hamsher could in turn be shilling for Pelosi.  I just don't know enough.

By the way Hamsher tends to imply that it is a good bill with bad PR.  Phhhth.  It is an awful bill, and I am willing to bet that I have read more of it and the CBO report than she.

Prosecuting Those With Bad PR

CEO's of companies struggling on the brink of failure often make happy, confident public statements that all is well.  Is that a crime?

Well, it depends on how you look at it.  It comes down to a CEO's fiduciary responsibility to the company's investors, and how that is regulated for public companies.  We think of fibbing to inflate the company stock poorly serves investors, but what about when the company is facing a liquidity crisis?  Isn't public optimism in a liquidity crisis exactly what is needed to serve shareholder's interests?  Consider Treasury Secretary Paulson, and his near criminal declaration of a financial crisis, and the effect these ill-considered statements have had on the economy.

It is hard for me nowadays not to think about Jeff Skilling, who sits in jail for making what the jury thought to be overly optimistic public statements about the company's financial health  (I know you are thinking that he was put in jail for all that off balance sheet accounting and gimmickry, but in fact the prosecution never chose to bring these charges in the trial).  Even Skilling's jury, which was pretty clearly predisposed to convict, seemed to acknowledge that he did not make these statements for personal gain.

So why is Skilling in jail and not, say GM CEO Rick Wagoner?  Wagoner was making a lot of happy-face statements just a few months before his company acknowledged they were facing chapter 11 if Congress did not bail him out.  For extra credit, Wagoner told Congress $15 billion would be enough of a bailout, when he had to have been pretty confident it was not going to come close to cover the hole he faced.

Tom Kirkendall asks some of  the same questions, and looking at the cases he cites, it seems fairly clear that the difference between prosecuted and un-prosecuted CEO's has more to do with their like-ability, celebrity status, and general PR position than their specific actions.

Postscript: I have actually been thinking about the Enron bankruptcy a bit lately for another reason.  Remember that massive natural gas shortage we had when Enron went bankrupt?  Neither do I.  That's because chapter 11 is a pretty well-oiled process in this country.  Enron shareholders, bondholders, and management lost most their investment (and their jobs) but Enron's productive assets and skilled employees didn't disappear.  Enron's assets were bought by other companies who hopefully will employ them more profitably and productively than Enron had.

The same goes for GM.  We have a well-understood and proven process for taking a company like GM through bankruptcy.  However, we are instead replacing this well-understood and practiced process with a new process, called something like "Congressionally-managed restructuring funded with taxpayer dollars."  Does anyone really think this new process is better than the one we have?  Its only advantage, at least to some, is that it may preserve some management jobs, and shareholder and bondholder value, at the expense of taxpayers and any real effort for long-term reform of how GM's assets are managed.


From the Interagency Task Force on Commodity Markets, via Mark Perry:

The Task
Force's preliminary assessment is that current oil prices and the
increase in oil prices between January 2003 and June 2008 are largely
due to fundamental supply and demand factors. During this same period,
activity on the crude oil futures market "“ as measured by the number of
contracts outstanding, trading activity, and the number of traders "“
has increased significantly. While these increases broadly coincided
with the run-up in crude oil prices, the Task Force's preliminary
analysis to date does not support the proposition that speculative
activity has systematically driven changes in oil prices.

world economy has expanded at its fastest pace in decades, and that
strong growth has translated into substantial increases in the demand
for oil, particularly from emerging market countries. On the supply
side, the production of oil has responded sluggishly, compounded by
production shortfalls associated with geopolitical unrest in countries
with large oil reserves. As it is very difficult to rely on substitutes
for oil in the short term, very large price increases have occurred as
the market balances supply and demand (see top two charts above).

a group of market participants has systematically driven prices,
detailed daily position data should show that that group's position
changes preceded price changes. The Task Force's preliminary analysis,
based on the evidence available to date, suggests that changes in
futures market participation by speculators have not systematically
preceded price changes. On the contrary, most speculative traders
typically alter their positions following price changes, suggesting
that they are responding to new information "“ just as one would expect
in an efficiently operating market.

Congress and other agencies have commissioned studies of this type on oil markets and prices approximately every 90 days or so for the last 35 years, and every one of them have come to the same conclusion:  Oil markets move based on the participant's best guesses about trends in supply and demand.  Duh.  As I wrote previously, the last hydrocarbon price manipulation case I have seen in court was aimed at a group that allegedly manipulated prices for 30 seconds at the end of a trading day whose closing price affected certain contracts.  And it is not clear that they were successful. 

The Oil Reality

Yesterday we saw the people who have done the most to keep oil prices high (e.g. Congress) trying to blame shift their policy failures onto oil company executives.  Hilariously, Maxine Waters thinks she would do a better job for consumers if she were in charge of the US oil companies. 

Beyond the realities of supply and demand, which I guess we all despair of teaching Congress, there were these remarks by Shell's John Hofmeister (via Powerline):

While all oil-importing nations buy oil at global prices, some, notably
India and China, subsidize the cost of oil products to their nation's
consumers, feeding the demand for more oil despite record prices. They
do this to speed economic growth and to ensure a competitive advantage
relative to other nations.

Meanwhile, in the United States, access to our own oil and gas
resources has been limited for the last 30 years, prohibiting companies
such as Shell from exploring and developing resources for the benefit
of the American people.

Senator Sessions, I agree, it is not a free market.

According to the Department of the Interior, 62 percent of all
on-shore federal lands are off limits to oil and gas developments, with
restrictions applying to 92 percent of all federal lands. We have an
outer continental shelf moratorium on the Atlantic Ocean, an outer
continental shelf moratorium on the Pacific Ocean, an outer continental
shelf moratorium on the eastern Gulf of Mexico, congressional bans on
on-shore oil and gas activities in specific areas of the Rockies and
Alaska, and even a congressional ban on doing an analysis of the
resource potential for oil and gas in the Atlantic, Pacific and eastern
Gulf of Mexico.

The Argonne National Laboratory did a report in 2004 that identified
40 specific federal policy areas that halt, limit, delay or restrict
natural gas projects. I urge you to review it. It is a long list. If I
may, I offer it today if you would like to include it in the record.

When many of these policies were implemented, oil was selling in the
single digits, not the triple digits we see now. The cumulative effect
of these policies has been to discourage U.S. investment and send U.S.
companies outside the United States to produce new supplies.

As a result, U.S. production has declined so much that nearly 60 percent of daily consumption comes from foreign sources.

The problem of access can be solved in this country by the same
government that has prohibited it. Congress could have chosen to lift
some or all of the current restrictions on exportation and production
of oil and gas. Congress could provide national policy to reverse the
persistent decline of domestically secure natural resource development.

This is a point I have made for a while:

Exxon Mobil is the largest U.S. oil and gas company, but we account for
only 2 percent of global energy production, only 3 percent of global
oil production, only 6 percent of global refining capacity, and only 1
percent of global petroleum reserves. With respect to petroleum
reserves, we rank 14th.
Government-owned national oil companies dominate the top spots. For an
American company to succeed in this competitive landscape and go head
to head with huge government-backed national oil companies, it needs
financial strength and scale to execute massive complex energy projects
requiring enormous long-term investments.

Lots more good stuff, check it out.

How Princeton Uses Its Money

Everybody is always trying to spend someone else's money.  This kind of thing would really make me sick, except it is a little funny to see the kind of class warfare and redistributionist economics preached by elite universities come back to bite them:

Dr. Gravelle points out that endowment wealth is concentrated in the
upper ranks, much of it at 62 institutions with endowments larger than
$1 billion. But just three years ago only 39 schools had billion-plus
endowments. That's a 38% increase in just a few years. In 2006, 125
schools had endowments over $500 million"”a third more than in 2002. The
number of schools that can count themselves as endowment-rich or
super-rich is growing rapidly....

What the data shows is that endowment wealth is everywhere"”except in
the hands of the students who need it today. Last year endowments
increased 17.7% on average"”those larger than a billion increased 18.4%.
Yet, despite double-digit increases stretching back a decade or more
"”endowment spending is at a nearly all-time low of 4.2%--down from 5.1%
in 1994, 6.5% in 1982, and 5.2% in 1975....

Tuition has been going up so rapidly for so long it has reached nearly
ungraspable levels. So let me put today's tuition cost in concrete
terms. Senators, what would your constituents say if gasoline cost
$9.15 a gallon? Or if the price of milk was over $15? That is how much
those items would cost if their price had gone up at the same rate that
tuition has since 1980.

I believe that skyrocketing tuition is
undoubtedly the biggest "access" problem in higher education. What can
possibly be more discouraging to a capable student whose parents are
not wealthy than a school with a $45,000 price tag on the door?...

Congress should not hesitate to consider a minimum payout
requirement"”and 5% should be considered a starting point. The 5% number
is a dated one"”even for private foundations. Many schools have been
rolling over so much money for so long that they should easily be able
to accommodate a higher rate of payout. Possibly the most significant
challenge for policymakers will be to make sure that any newly directed
monies actually go toward aid or tuition reduction and don't become
part of a shell game.

Seriously, is there no pocket of private money that socialists won't stick their hand into?  In effect, at the same time Americans get lambasted for saving too little, this guy is going after private universities for saving too much?  And note the implicit assumption about government intervention he holds and expects all of Congress to hold in the third paragraph above:  It is just assumed that if prices go up enough to upset the constituents, then it is Congress's job to act.

Far be it for facts to get in the way of good populism, but I do know what Princeton does with its 2nd or 3rd largest endowment:

  • Every student who gets admitted gets a financial aid package from the University that will allow them to attend, no matter what their finances are.  Yes, the student may have to work his butt off, but if he really wants to go to Princeton he will be able to go.  Princeton's wealth also allows it to be much more friendly in these financial assessments.  For example, many assets like the parent's house are taken off the table when assessing ability to pay
  • If a student graduates normally, then all of her debts are paid off at graduation.  Every student graduates debt-free, giving them far more flexibility in what jobs they choose our of college.  No longer must they eschew non-profit or low-paying jobs due to the burden of debt.
  • Princeton has accepted that applying more money to increasing the educational intensity of its existing 4000 students by an additional 0.1% is not the best use of its investment.  It has committed (in too small of a way for my preferences, but that is another matter) to using its fortunes to increase its size and bring Ivy League education to more people.  This year, it increased its entry class size by 250, which may seem small to those of you from large universities but is about a 20% increase for Princeton.

Since all Princeton students get whatever aid they need and graduate debt-free.  So the tuition number is irrelevent.  And statements like "I believe that skyrocketing tuition is
undoubtedly the biggest "access" problem in higher education" are virtually meaningless. 

Chavez Declared Dictator

Hugo Chavez has had himself declared dictator of Venezuela

Venezuela's National Assembly has given initial approval to a bill
granting the president the power to bypass congress and rule by decree
for 18 months.

President Hugo Chavez says he wants "revolutionary laws" to enact
sweeping political, economic and social changes. He has said he wants
to nationalise key sectors of the economy and scrap limits on the terms
a president can serve.

Mr Chavez began his third term in office last week after a landslide election victory in December.

The bill allowing him to enact laws by decree is expected to win
final approval easily in the assembly on its second reading on Tuesday.
Venezuela's political opposition has no representation in the National
Assembly since it boycotted elections in 2005.

Recognize that Chavez is the man, more than any other world leader, that progressives in this country have adopted as their hero.  Nowhere will you see a better illustration of what end-game progressives are really after.

Mourning the Loss of Free Speech Through November 7, 2006


In a stunning beat down on one of America's longest-held and most sacred principles, your first ammendment rights to criticize incumbent politicians, at least on radio and TV, are suspended from now until the November 7 election.  Congress has decided, and incredibly the Supreme
Court has concurred, that only members of the media, including intellectual giants like Bill O'Reilly and Keith Olbermann, can legally criticize sitting politicians on TV and radio in the runup to the election.  These restrictions also came very, very close to applying to this and all other blogs.  John McCain, Russ Feingold, and everyone who voted for this un-American incumbent protection act need to be voted out of office at our next opportunity. Update:  Nice roundup here.
(This post is sticky -- newer posts are below)

Separation of Powers

The separation of powers concept, so fundamental in our Constitution to checking government power grabs, seems to be on life support.  The reason I say this is that for separation of powers to work, each branch of the government has to, you know, actually monitor and try to check power grabs in other branches.   What I see today are three branches that have kind of reached some sort of peace treaty, agreeing to let the others run amok as long as it is allowed to do so itself.  To support this hypothesis, I make the following observations:

  • The executive branch continues to try to accumulate power, adding "indefinite detentions without trial" and "warrantless searches" to its arsenal, justifying nearly anything with the blanket argument that "the world is different post 9/11."  The Supreme Court has generally proved itself unwilling to do anything about it, which should be all the more the case in the future since both Bush appointees seem very comfortable with accretions of executive power.  Even the opposition party, though willing to make verbal assaults, seems unwilling to take any real measures.
  • Congress seems perfectly willing to spend their time wallowing in pork and dreaming up new earmarks to satisfy prominent donors.  The current budgeting process is a fiasco, and the executive branch seems unwilling to exercise any adult supervision, including an incredible record of zero vetos is nearly 6 years.  Congress has shied away from working on any issues of any seriousness (e.g. Social Security) which is perhaps good for us, since their only attempt to fix runaway spending in Medicare resulted in them adding an expensive and ridiculously complex drug benefit.  Congress and the President conspired to pass the egregious McCain-Feingold speech limit bill, which effectively helps protect the job of Congressional incumbents and protects them from 3rd party criticism when approaching an election.
  • With Congress unwilling to address any legislative issues of substance, the judiciary seems perfectly happy to take their place, creating new law in hundreds of areas.  And Congress seems willing to let them.  It can only be dangerous for a Congressperson to deal with hot-button issues like gay marriage and abortion - its much better to let the judiciary do it for you.  Often Congressman can get the outcomes they want, without actually having to create a legislative record on the issue that might come up in a campaign.

The whole situation depresses me just writing about it.

Be Afraid

Per the BBC News:

More than 5% of the net's most popular domains have been registered using "patently false" data, research shows.

A US congressional report into who owns .com, .net and .org domains found that many owners were hiding their true identity.

Congress has just discovered that people, knock me over with a feather, do not always include all their correct personal private  and personal confidential information in online web databases that can be read by everyone:

The report found that owner data for 5.14% of the
domains it looked at was clearly fake as it used phone numbers such as
(999) 999-9999; listed nonsense addresses such as "asdasdasd" or used
invalid zip codes such as "XXXXX".

In a further 3.65% of domain owner records data was missing or incomplete in one or more fields.

I personally am a fan of (555) 555-5555 in filling out web forms.  For years, I never, ever put my correct phone number in the WHOIS registry, and only correctly filled in enough blanks to get my credit card authorized.

As is usual with every privacy reduction effort, it starts with an honest desire for better law enforcement:

Increasingly whois data is being used by law enforcement
and security companies to find out who is running a website involved in
spamming or some other scam....

The GAO recommended that more effort be made to verify
the information by domain owners and that greater use be made of
commercial software tools to check who runs a website.


I get the law enforcement issue, but I think it is dwarfed by the privacy and free speech issues.  There are a lot of really good non-illegal reasons not to want the detailed personal and private information of web site owners plastered all over public data bases, and there are particularly good reasons that web site owners might not like the government to know who they are.  Like every blogger in China, for example.  I don't think that US Government bodies (or major corporations, or political groups, or fringe groups like the KKK) are above seeking some type of retribution (e.g. audits) against folks online who criticize them, and I am sure China and Saudi Arabia are not above it.  If you start a web site criticizing your current employer, do you really want to reveal your name?  I for one thought for a long time about whether to blog as myself or anonymously.

As for hunting down phishing and other such scams, liscencing web owners in a way similar to say gun owners is not necesary.  Scams are illegal because somewhat is defrauded of money, and that money leaves an easier trail to follow than any electronic trail, even with better ICAHN data.  You can use zombie computers and other techniques to defeat most electronic tracing, but the money WILL end up in the bad guys hands and can be found.

Next up:  Requiring background checks before you can register for a web site.

Perhaps the Best Reason for Private Accounts

Frequent readers will know that I have little patience with the argument against private Social Security accounts that goes something like "Americans are too dumb to be trusted with their own retirement funds".  Today, however, I am going to put that aside for perhaps a better question:

Can the government be trusted with our retirement funds?

This is the argument made by Brad DeLong and quoted in Marginal Revolution:

We need to raise our national savings rate. But if we just raise Social Security
taxes, Congress will treat these taxes as general revenue and spend them. Only
by funneling Social Security contributions into some vehicle that Congressional
representatives cannot interpret as a resource available to fund current
spending can we raise the national savings rate. And private accounts are the
best vehicle we can find to (a) accumulate contributions without (b) allowing
Congressional representatives to seize them as resources available to fund
current federal spending.

Congress has taken all the savings surpluses built up by Social Security over the past decades and it has spent them.  Republicans have spent the money.  Democrats have spent the money.  It is gone, spent on cruise missiles and welfare moms and ethanol subsidies and PBS broadcasts and snail darter studies.  No matter what verbal acrobatics people try to engage in to argue that there is a real "trust fund", the fact of the matter is that all that is in the Social Security till are IOU's that can only be redeemed by raising taxes. 

The situation with Social Security is entirely equivalent to having invested your money in a mutual fund and only later finding the directors of the fund spent your money on themeselves rather than investing it in redeemable securities.  The only differences are that:

  • The proprietors of that bogus mutual fund may go to jail, but Congress won't
  • Congress can raise taxes to get the money to bail themselves out of their malfeasance

Think of it this way: 

  • There were more real assets of value remaining in Enron in its bankruptcy to divide up among investors and creditors than remain in the Social Security "trust fund" to divide up among program contributors.
  • There were more real assets of value remaining in the Teamsters retirement fund after years of being raped by organized crime than remain in the Social Security "trust fund"

Stop handing over our savings to such unsavory racketeers (ie. Congress).  We certainly can't do a worse job for ourselves.

Is the Department of Labor "Fair"? Part 1 of a series

Note that this is part 1 of a three-part series. Here are part 2 and part3.

Over the past several years, we have been audited a couple of times by the Department of Labor (DOL). One of the audits was standard procedure (as a concessionaire to the US Forest Service, audits are sometimes required on certain contracts) and one was based on employee complaints. It never ceases to amaze me that some folks never even bother to call our HQ to complain and try to get it paycheck mistakes fixed -- they go straight to the government rather than our labor department if something looks wrong on their check.

Many times I have heard other small business owners say that the DOL is not "fair". If you were to ask me if I think they are fair, I would answer "yes" and "no". If you want to know if DOL employees are generally honest, well-intentioned, and law-abiding, my experience is that they are. However, if you expect, as a business owner, that the DOL will act as some kind of neutral court of law, in which you and your workers have equal status and equal rules of evidence, then you are in for a surprise. The DOL is not on the employers side and doesn't really pretend to be.

This should not come as a surprise to you. Young lawyers out of school generally don't seek out lower government pay scales with a vision of helping businesses manage their cost structures. They join the DOL because they are interested in defending downtrodden workers against rapacious capitalists who seek to exploit them (etc. etc.) The main mission of the DOL is to enforce labor laws like the Fair Labor Standards Act (FLSA). However, overlaying this mission is a strong institutional culture that mission 1A is to defend workers against employers. This culture will have a number of implications in any dealings you, as an owner or employer, have with the DOL:

1. Workers claims will almost always be believed by the DOL, and the DOL will generally not require much documentary evidence to back up workers claims. The flip side of this is that employers claims that contradict workers will always require extensive documentary evidence. For example, we had several weeks of time sheets burn up in an office fire. In cases like this, the DOL will generally always side with the worker's recollection of time worked rather than the employers, even if the time claimed is completely inconsistent with hours worked in all other documented weeks. The burden of proof, in almost any dispute, will be on the employer.

2. The DOL's first answer to any employer's claims of an exemption under FLSA or other labor laws will be "NO". Congress has granted a number of exemptions to labor laws for certain business situations. For example, one that applies to our business in some cases is the FLSA has relaxed standards for overtime for "seasonal recreation businesses". From my experience, the DOL hates to admit that these exceptions apply to your particular situation. Back to the fairness point, they CAN be convinced, but sometimes it takes a lot of work to do so. In part 2 and part 3 of this series, I will give more specific examples of how to do this.

3. The DOL will never point out to you an exemption or saving that you are missing. I know that many people get frustrated with the IRS, but I have actually had experiences where the IRS found a mistake where I had overpaid. I have never had this experience with the DOL. The DOL does not really have very good staff or tools to help employers comply with the law in the most efficient manner. They have LOTS of tools and people dedicated to making sure workers get every bit of what the law guarantees them.

If you recognize this culture and context, and put any frustration that you might have as a tax-paying citizen and business owner aside, you can get a fair shake from the DOL. You just have to be prepared in advance to argue your case and bring lots of evidence to bear. And, if worst comes to worse, and you are willing to pay the attorney fees, you can always refuse the DOL's finding and take the case to a court of law, where there are much more neutral evidence standards.

The next part of this series will discuss further some examples and lessons learned in making your case to the DOL. Part 3 of the series will include a specific example.

Note: These are my observations as a business owner and are not specific recommendations. I am not a lawyer, and, even if I were, I am not your lawyer.