Posts tagged ‘milk’

When You Give Up On Allocating Resources via Markets and Prices, All That is Left is Interest Group Politics

One of the ugly facts about how we manage water is that by eschewing markets and prices to allocate scarce water, all that is left is command and control allocation to match supply and demand.  The uglier fact is that politicians like it that way.  A golf course that pays a higher market rate for water doesn't help a politician one bit.  A golf course that has to beg for water through a political process is a source of campaign donations for life.

In a free society without an intrusive government, it would not matter whether California almond growers were loved or hated.  If people did not like them, then they just wouldn't buy their product.  But in California, the government holds the power of life or death over businesses through a number of levers, not least of which is water.

Almonds have become the Left's] new bête noir. The nut is blamed for exacerbating the California drought, overtaxing honeybee colonies, starving salmon of river water, and price-gauging global consumers. Almonds may be loved by consumers, but almond growers, it seems, are increasingly despised in the media. In 2014, The Atlantic published a melodramatic essay, “The Dark Side of Almond Use”—with the ominous subtitle, “People are eating almonds in unprecedented amounts. Is that okay?” If no one much cared that California agriculture was in near depression for much of the latter twentieth century—and that almonds were hardly worth growing in the 1970s—they now worry that someone is netting $5,000 to $10,000 per acre on the nut.

It is almost too much to bear for a social or environmental activist that a corporate farm of 5,000 acres could in theory clear $30 million a year—without either exploiting poor workers or poisoning the environment, but in providing cool people with a healthy, hip, natural product. The kind of people who eat almond butter and drink almond milk, after all, are the kind of people who tend to endorse liberal causes.

As for almonds worsening the drought: The truth is that the nut uses about the same amount of water per acre as other irrigated California crops such as pasture, alfalfa, tree fruit, pistachios, cotton, or rice. In fact, almonds require a smaller percentage of yearly irrigation use than their percentage of California farmland calls for. Nonetheless, the growth of almond farming represents to many a greedy use of scarce collective resource.

Disney's Amazing Star Wars Deal, Which Might Help Fill In Disney's Amazing ESPN Profit Hole

How did Disney buy Star Wars for only $4 billion?  I first saw this question asked by Kevin Drum, though I can't find the link (and I am not going to feel guilty about it after Mother Jones banned me for some still-opaque reason).  But Disney is going to release a new movie every year, and if it is anything like the Marvel franchise, they are going to milk it for a lot of money.  Plus TV tie-ins.  Plus merchandising.  Plus they are rebuilding much of their Hollywood Studios park at DisneyWorld in a Star Wars theme.

The answer is that this is the kind of deal that makes trading in a free market a win-win rather than zero-sum.  Lucas, I think, was played out and had no ability, or no desire, to do what it would take to make the franchise worth $4 billion.  On the flip side Disney is freaking good a milking a franchise for all its worth (there is none better at this) and so $4 billion is starting to appear cheap from their point of view.

By the way, Disney is going to need the profits from Star Wars to fill in the hole ESPN is about to create.  A huge percentage of the rents in the cable business have historically flowed to ESPN, which is able to command per-subscriber fees from cable companies that dwarf any other network. Times are a-changin' though, as pressure increases from consumers to unbundle.  If cable companies won't unbundle, then consumers will do it themselves, cutting the cable and creating their own bundles from streaming offerings.

ESPN is already seeing falling subscriber numbers, and everyone thinks this is just going to accelerate.  ESPN is in a particularly bad position when revenues fall, because most of its costs are locked up under long-term contracts for the acquisition of sports broadcasting rights. It can't easily cut costs to keep up with falling revenues.  It is like a bank that has lent long and borrowed short, and suddenly starts seeing depositors leave.   And this is even before discussing competition, which has exploded -- every major pro sports league has its own network, major college athletic conferences have their own network, and competitors such as Fox and NBC seem to keep adding more channels.

Even Vox Can't Make A Very Strong Case For Streetcars

A reader sent me a link to this Vox article on streetcars.  What I thought was interesting is just how weak the case for streetcars is, even when made by folks are are presumably sympathetic to them.  This page is entitled "Why do cities want streeetcars."  The arguments are:

  • Tourists like them, because you can't get lost like you can on buses.  My response is, "so what."  Unless you are one of a very few unique cities, tourists are a trivial percentage of transit riders anyway.  Why build a huge system just to serve out-of-town visitors?  I would add that many of these same cities (e.g. Las Vegas) considering streetcars are the same ones banning Uber, which tourists REALLY love.
  • Developers like them.  Ahh, now we are getting somewhere.  So they are corporate welfare?  But not so fast, they are not even very good corporate welfare.  Because most of the studies they cite are total BS, of the same quality as studies that say sports stadium construction spurs all sorts of business.  In fact, most cities have linked huge tax abatement and subsidy programs to their streetcars, such that the development you get with the subsidy and the streetcar is about what you would expect from the subsidies alone.  Reminds me of the old joke that mimicked cereal commercials: "As part of a breakfast with juice, toast, and milk, Trix cereal has all the nutrition of juice, toast, and milk."
  • Good for the environment.  But even Vox asks, "as compared to what."  Since they are generally an alternative buses, as compared to buses that have little environmental advantage and often are worse (they have a lot more weight to drag around when empty).
  • The Obama Administration likes them.  LOL, that's a recommendation?  When you read the text, what they actually say is that mayors like the fact that the Obama Administration likes them, for it means the Feds will throw lots of Federal money at these projects to help mayors look good using other peoples' money
  • Jobs.  This is hilarious Keynesianism, trying to make the fact that streetcars are 10-100x more expensive than buses some sort of positive.  Because they are more inefficient, they employ more people!  One could make the exact same argument for banning mechanical harvesters and going back to scythes.   Left unquestioned, as Bastiat would tell us, is how many people that money would have employed if it had not been seized by the government for streetcar use.
  • Je ne sais quoi.  I kid you not, that is their final argument, that streetcars add that special something to a neighborhood.  In my mind, this is Vox's way of saying the same thing I did the other day -- that the streetcar's appeal is primarily based on class, in that middle and upper class folks don't want to ride on a bus with the masses.   The streetcar feels more upscale than buses.   The poor of course, for whom public transit is most vital, don't want to pay 10 times more for sexiness.  Oh, and watch this video of Washington streetcars blocking traffic and crunching parked cars and tell me what it is adding to the neighborhood.

Every argument I have ever been in on streetcars always boils down to something like "well, all the cool kids like them."  Once, after defending the US approach to rail (vs. Europe and Japan) as (correctly) focusing on productivity vs. sexiness, having gone into a lot of detail on the economics of freight vs. passengers, I got a one sentence answer from Joel Epstein of the HuffPo:  “You should get out of the country more often.”  That was it -- the cool cosmopolitan kids who vacation in Gstaad but never would be caught dead driving across Nebraska were all against me.

The Crony Christmas Tree

One item that was part of the (thankfully) deceased farm bill that got little attention was a levy on live Christmas trees.

Apparently, live Christmas tree producers are upset at competition from artificial trees.  And there is nothing to which Congress is more sympathetic than using government coercion to help industry incumbents fight off new competition.

Readers may or may not know that the government often steps into certain agricultural commodities and, at the behest of the largest producers, creates mandatory advertising regimes.  In these regimes, a tax is levied on everyone's product and the money is used to fund advertising campaigns (e.g like the ones for milk and beef).

The most recent farm bill was to create a similar regime for live Christmas trees, requiring all tree producers to pay the per-tree tax whether they wanted or needed the advertising campaign or not.  So, for now, we have escaped holiday government-funded ads like "Pining for Christmas" and "Live Trees:  They are What's Fir Christmas."

The egg industry was silent on whether they would consider a similar step to battle plastic Easter eggs.

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

First Solar Update

A few years ago I was asked to give a presentation in front of a group of Phoenix business leaders on climate and alternative energy.  I can't remember what particular group it was, but it was some public-private group that was heavily invested in advocating for local subsidies to promote strategic businesses - the sort of local MITI that most large cities have, that has this delusion that they can ramp up the city's growth by focusing public and private investment into a few selected industries (that they select, of course).

I told them that I thought their focus on solar manufacturing was dumb.  First, the whole idea that because Arizona is a good solar market meant that it should have some advantage in solar manufacturing made absolutely no sense.  This only makes sense for products with high transportation costs or a particular input cost that can be gotten more cheaply in one particular area (the location of aluminum manufacturing near cheap electricity in the Northwest comes to mind).  By the same logic all car manufacturers would be located in LA.

Second, I said that the whole solar business was completely driven by subsidies.  If the subsidies were to go away, the heart of the business would go away faster than  I specifically mentioned First Solar in a positive context here, saying that though they where wholly dependent on subsidies for their revenues, they at least acknowledged as a corporate strategy they needed to get costs low enough to compete without subsidies.  (Someday, solar will get to that point, I hope, but I am skeptical that current approaches will yield the breakthrough, but that is another discussion).

If you want to understand the financial problems First Solar is having, let me show you four items.

First, from their 2010 annual report:

Geographic Risk. Our solar modules are presently predominantly sold to our customers for use in solar power systems concentrated in a single geographic region, Germany. This concentration of our sales in one geographic region exposes us to local economic risks and local public policy and regulatory risk in German.

This is way back in the notes on page 133.  By the way, I took a whole course in business school on reading financial reports.  Here is the key lesson for those not in the financial industry:  read them from the back.  Skip all the glossy crap at the front, go straight to the notes.

OK, here is the second bit of information.  Here is a world map of solar insolation, which is essentially the total solar energy available to produce power in a location when adjusted for atmosphere, weather, latitude, etc.

See Germany?  I won't insult your geographic knowledge by pointing at it, but much of Germany is in that yellow-green color which, for solar potential, means (in scientific terms) "it sucks."  Let's zoom in, and compare it to the US to get a feel for it (combined from two charts here)

Apparently the better sites in Germany have the same solar potential as ... Seattle!  The sliver of absolute best sites in Germany have approximately the same solar potential as Buffalo, NY.

So we have a company whose fortunes are dedicated almost entirely to selling solar panels into one of the most unpromising solar sites in the world.   Why is Germany buying so much solar?

OK, here is the third bit of information.  For years Germany had enormous feed-in tariffs (mandated above-market minimum prices)  for solar electricity:

The German feed-in tariff scheme has been in operation since 1991 and is regarded as one of the most successful in the world. In Germany, feed-in tariff rates are differentiated according to the source of the renewable energy. Separate tariffs are determined for biogas, biomass, hydroelectric, geothermal, solar and wind energy sources. The tariff paid for solar generators varies between EUR 45.7c/kWh and EUR 57.4c/kWh, depending on the capacity of the system and other design features. The tariff is greater for generators that are attached to the roof of a building or structure and greater again for generators that are attached to another part of a building. In Germany, the feed-in tariff is paid for a period of 20 years

Note the language from several years ago where "most successful" is determined without references to costs.

0.574 Euros per kWh is equal to about $0.75 today and even more several years ago when exchange rates were higher.  Remember this is a wholesale price, and should be compared to a $0.04 to $0.06 wholesale electricity price in the US  (I use US numbers to as its not clear to me Europe has a particularly competitive wholesale market.  The French have some sort of fixed price system set around $0.06).

However one wants to look at it, these are enormous subsidies.  People putting up solar panels in Germany were getting paid 10-15x what a market price for the same electricity might have been.

Finally, here is the fourth piece of evidence leading to First Solar's woes.  In 2010 and 2011 Germany, whose consumers began to balk at paying the highest electricity rates in the world in order to subsidize the method of electrical generation least suitable to Germany, began substantially cutting these tariffs.  In 2012 they will cut them even further:

German Environment Minister Norbert Roettgen and Economy Minister Philipp Roesler are set to hold a press conference on Thursday to outline the government's new approach on subsidies. However, the indications are that the cuts will be heavier than the market has been expecting:

  • a 30% cut in the feed-in-tariff (FIT) to 13.5 cents per kilowatt hour for new large solar installations
  • and a 20% cut in the FIT to 19.5 cents for new small plants

The market has of course been expecting cuts in the German FIT system. However, this news is decidedly worse than expected and likely to continue to pressure solar stocks - particularly those such as Yingli (YGE) with a significant exposure to German solar demand.

From a peak of $0.75 per kWh, Germany will now pay $0.255 per kWh for smaller installations, still four times the market price for wholesale electricity but only a third of what they paid during First Solar's boom years.  As I wrote yesterday, Germany was essentially paying $2 for milk from brown cows and $25 for milk from black cows.  This can't be sustained.

If one assumes a wholesale electricity price of 6 cents, First Solar's German customers were getting a 92% subsidy.  Sure, First Solar now faces other problems like Chinese competition and they have shot themselves in the foot on quality, but at the end of the day the only way they can survive is to convince some other government to turn on the taxpayer money spigot to keep them in business.  I am hoping we in Arizona and the US will not be the suckers, but I fear that we will.  One can argue the projects I discussed the other day, including the one where we taxpayers loaned First Solar the money to sell its solar panels to its own subsidiary, are evidence of this.  My guess is that First Solar will be throwing a lot of money and time towards Obama, praying for his re-election.

The Article I Would Write, If I Didn't Have A Day Job

Update:  I found a bit more time to give some more background on First Solar and German feed in tariffs here.

If I had the time, I would love to try to research and list every subsidy recieved by a company like First Solar.  Here are just a few:

First Solar is an Arizona-based manufacturer of solar panels. In 2010, the Obama administration awarded the company $16.3 million to expand its factory in Ohio -- a subsidy Democratic Gov. Ted Strickland touted in his failed re-election bid that year.

Five weeks before the 2010 election, Strickland announced more than a million dollars in job training grants to First Solar. The Ohio Department of Development also lent First Solar $5 million, and the state's Air Quality Development Authority gave the company an additional $10 million loan.

After First Solar pocketed this $17.3 million in government grants and $15 million in government loans, Ex-Im entered the scene.

In September 2011, Ex-Im approved $455.7 million in loan guarantees to subsidize the sale of solar panels to two solar farms in Canada. That means if the solar farm ever defaults, the taxpayers pick up the tab, ensuring First Solar gets paid.

But the buyer, in this case, was First Solar.

A small corporation called St. Clair Solar owned the solar farm and was the Canadian company buying First Solar's panels. But St. Clair Solar was a wholly owned subsidiary of First Solar. So, basically, First Solar was shipping its own solar panels from Ohio to a solar farm it owned in Canada, and the U.S. taxpayers were subsidizing this "export."

But this is just a few of them, even on this deal.  For example, the Canadian solar farm very likely picked up federal and provincial subsidies from Canada, and even more likely gets some kind of subsidized feed-in tariff (meaning that an above-market wholesale rate is paid for its electricity).  This sort of feed-in tariff, which is paid by electricity consumers, is wholly un-transparent and likely makes up the large bulk of solar subsidies.   I know the state of Arizona threw a lot of money at First Solar as well (which is headquartered in the Phoenix area.)

During First Solar's boom years, the company was mainly supported by sales to Germany, probably one of the worst solar sites in the world after perhaps Seattle.  But the German government mandated feed-in tariffs for solar that were five times (or more) the market price for electricity.  It was like saying that, while milk generally goes for $2 a gallon, the government mandated that milk from  brown cows could be sold for $10 a gallon, and what's more, consumers had to buy it.

The House Your Tax Money Built

One-Program Proof Technocratic Government Does Not Work

Ethanol continues to be one of the dumbest, most costly programs ever engaged in by the Federal government

"Today, about 40 percent of all U.S. corn -- that's 15 percent of global corn production or 5 percent of all global grain -- is diverted into the corn ethanol scam in order to produce the energy equivalent of about 0.6 percent of global oil needs.
Corn prices, now close to $7 per bushel, have more than doubled over the past two years (see chart above). And recent harsh weather, including floods in the Midwest and drought in the South, will likely mean a subpar U.S. corn harvest. That, in turn, will mean yet higher prices for corn, which will translate into higher prices for meat, milk, eggs, cheese and other commodities.
Environmental damage:  check
Fails to meets its goals (of reducing fossil fuel use): check
Raises food prices:  check
Raises gas prices: check
Highly regressive costs that hurt the poor most:  check
Benefits accrue to very a small group of the politically connected:  check

Bland, Corporate Wares

Often, the dominance of markets by bland and uninteresting mass-market products is blamed on capitalism.  This makes no sense to most business people, since if there really was a pent up demand for variety and smaller-batch products, someone would try to make money doing so.  One only has to look at the explosion of craft beers over the last 30 years to see this effect, and its one that is only being reinforced by modern technologies that allow lower costs for smaller batch production.

If one wants to put the blame anywhere, one might look at the government, where there is an interesting clash brewing on the Left between those who like local, small-batch products and the regulatory state the Left built.  For example, via Overlawyered

Homa Dashtaki [a producer of small-batch yogurt] was eager to demonstrate that her yogurt was safe and healthful, but complying with California regulations turned out to be not so easy. In fact, authorities told her that she would face possible prosecution unless she established a “Grade A dairy facility” employing processes more commonly found in factories. A highlight: she’d have to install a pasteurizer even though she made her yogurt from milk that was already pasteurized. What’s more, California law makes it illegal to pasteurize milk twice, so there went any hope of continuing her straightforward way of obtaining milk, namely bringing it home from a fancy grocery store.

Ms Dashtaki is pondering whether to move to another state, one whose rules allow for artisanal products. She would not be the first entrepreneur to flee the Golden State.

This is sort of like the old Mad magazine Spy v. Spy, but relabeled Left vs. Left.  Exactly the same dynamics are at work in organic farming as well as hand-crafted artisan toys (which are affected substantially by the recent toy regulations passed after the Chinese lead panic).

I Do Not Think That Word Means What You Think It Means

Today's word in question:  "safe"

The Environmental Protection Agency is holding public hearings today to review a proposed safe exposure limit for dioxin, a known carcinogen and endocrine disruptor produced as a common industrial byproduct.

It's all but impossible to avoid exposure to dioxin. Research done by the Environmental Working Group has shown that adults are exposed to 1,200 times more dioxin than the EPA is calling safe "” mostly through eating meat, dairy and shellfish "” and mothers pass it on to babies in the womb and in breast milk. A nursing infant ingests an amount 77 times higher than what the EPA has proposed as safe exposure. (Formula is also widely contaminated with the stuff.)

If you tell me that despite falling cancer incidence and survival rates and longer life-spans, we are all exposed to a chemical at 1200x its "safe" level, I might argue that we have defined the safe level too low.  Of course, the author draws just the opposite conclusion, arguing the standard needs to be tightened.

Two observations

  1. Things are getting better.  Apparently dioxin emissions (mostly from burning trash) have fallen by 90+% over the last twenty years.  In the blog post above, the author lambastes the EPA for dragging its feet on this standard for 30 years, but the lack of it sure does not seem to have been a problem

  2. I am not sure how setting a dioxin standard by the EPA is going to help.  Since most dioxin makes its way into the food chain (such as into dairy products), I suppose this would then give the government license to pound dairy farmers for the dioxin content of their products.  But what does this get us, and how is this the dairy farmers' fault?  For the last 30 years, as described at this site, the EPA and voluntary efforts by emitters have been working step by step through the pie chart above, knocking off the worst emitters.   You can see that clearly in the change of mix and the overall reduction.  This seems like a smart strategy.

We're All Safer Now

Via Alex Tabarrok:

New Environmental Protection Agency regulations treat spilled milk like oil, requiring farmers to build extra storage tanks and form emergency spill plans.

Local farming advocates says it's ridiculous to regulate a liquid with a small percentage of butter fat the same way as the now-infamous BP oil spill.

"It's just another, unnecessary over-regulation by the government just lacking any common sense," said Bill Robb, dairy educator for Michigan State University Extension...

The EPA regulations state that "milk typically contains a percentage of animal fat, which is a non-petroleum oil. Thus, containers storing milk are subject to the Oil Spill Prevention, Control and Countermeasure Program rule when they meet the applicability criteria..."

Did Obama Save BP?

The media is portraying the $20 billion BP spill fund as a result of tough talk from the President.  I think it was a lifeline that BP grabbed with great relish (so does the stock market, as their stock price has risen slightly in the day and a half since).

BP faces absolute bankruptcy from the torts resulting form this current spill, along with some criminal charges.  Its best hope is to negotiate a deal, Chicago-style, with the US government.  In exchange for a cash fund that will sound really large in the press but likely will fall short of actual claims, Congress will pass a law limiting its liability to just+ the settlement fund.  The public justification will be that the settlement fund will provide much quicker and more efficient compensation to victims -- which might even be true.

If one wants a model, just look at the tobacco settlement.  While they vilified them, the government in fact made tobacco companies their partners.  Since the settlement, the government has in fact stepped in to protect the large tobacco companies from competition and price erosion, in large part to protect parties to the settlement from loss of market share to parties who are not on the hook to pay out large sums to the government.  By the way, note that the vast majority of the tobacco settlement money did not go to its stated purpose of tobacco education and health care costs, but into the general funds to support politicians' whims.

This is how things work in the corporate state (and, I suppose, in organized crime).  Once you have an entity like BP vulnerable and under your control, the last thing you want is for them to die.  You want to milk them for years, both for cash and political support, the quid pro quo for being kept alive.

Update: OK, it seems I can't be original.  Others are thinking this too

A CoyoteBlog First -- Foodblogging!

OK, I am not a foodie.  I enjoy good food, but have never really appreciated sophisticated food or food that takes hours of preparation.   The steak on the grill is at least as appealing as the veal dish that took all afternoon to put together.

I know other bloggers often publish recipes.  If I were to do so, it might look like this (from an, unfortunately, actual experience)

1 bowl of Cap'n Crunch

Substitute 1/2 cup cheap vodka for milk

Preparation notes:  Never, ever do this again

That being said, we had the opportunity to have a world famous chef and writer, Hugh Carpenter, over to our house last night.  Hugh is a friend of my wife's from his summer cooking school and was kind enough to help us host a dinner party for some friends when he was in town in exchange for his room and board.   The fun part was he agreed to whip up a dinner with whatever we had in the house, which was pretty amazing.  Sort of an Iron Chef Arizona, with everything as the secret ingredient.   I would still be agonizing over how many teaspoons are in a tablespoon in the first recipe item in the time he whipped up a couple of sauces and some appetizers.


Here is Hugh with my wife.  Our guests are chipping in to help make the wontons  (Hugh actually is a big believer in this, and often advocates getting the guests to chip in on the preparation like this - its fun, a great icebreaker, and reduces pre-party stress on the host.


The list of folks Hugh has cooked for is amazing.  I find his cookbooks to be easy and down to earth and have good food in them.  They are here, and he has a new book entirely dedicated to chicken wings which may actually get me in the kitchen.

What people like my wife who are really into cooking really rave about is his cooking school in the Napa Valley.  There is a lot of cooking and wine drinking, of course, but the venues are great, often in the private homes of many of his friends and associates.  Highly recommended if you are into that sort of thing.

Oh, and since I am foodblogging, I guess I should tell you about our meal.  We had these pork wonton thingies in some sort of brown sauce.  We had black cod in some kind of chutney stuff with some sort of mixed rice thingie and this other vegetable deal.  We drank some sort of white wine except when we were drinking some sort of red wine.

Rachel Ray, watch out.


PS-  OK, I was actually able to introduce Hugh to a new food product.  He asked what I usually made the kids for breakfast, and I said "spray pancakes."  He had never heard of this, and so I proudly showed him my spray can of pancake batter (from Whole Foods, no less).  I couldn't tell if he was shocked or amazed.

My Personal Experience with Climate Alarmist Spin

We see all kinds of alarmist spin being attempted on the CRU emails.  For those who are interested, this is best layman's article I have found to discuss the now-famous Michael Mann "trick," what it is, and the obfuscation in the CRU's response.

I have at least one experience with the core alarmist community responding where I pointed out an error.  The responses I got in that case are very similar to the ones today for the CRU - basically the responses either are tangential to the basic point or try to retroactively change the alarmists original assertions.  They are responses that stand up only if the questioner is unwilling or unable to do the smallest amount of verification work (in other words, they work with most of the media).

The series of posts began with this image from the recent US government climate assessment.  Its point was to provide electric grid outages as a proxy measurement variable for severe weather, the point being that severe weather must have increased.


I thought this chart smelled funny

This chart screams one thing at me:  Basis change.  Somehow, the basis for the data is changing in the period.  Either reporting has been increased, or definitions have changed, or there is something about the grid that makes it more sensitive to weather, or whatever  (this is a problem in tornado charts, as improving detection technologies seem to create an upward incidence trend in smaller tornadoes where one probably does not exist).   But there is NO WAY the weather is changing this fast, and readers should treat this whole report as a pile of garbage if it is written by people who uncritically accept this chart.

So I called the owner of the data set at the EIA

He said that there may be an underlying upward trend out there (particularly in thunderstorms) but that most of the increase in this chart is from improvements in data gathering.  In 1997, the EIA (and Makins himself) took over the compilation of this data, which had previously been haphazard, and made a big push to get all utilities to report as required.  They made a second change and push for reporting in 2001, and again in 2007/2008.  He told me that most of this slope is due to better reporting, and not necessarily any underlying trend.   In fact, he said there still is some under-reporting by smaller utilities he wants to improve so that the graph will likely go higher in the future....

At the end of the day, this disturbance data is not a good proxy for severe weather.

The author of that section of the report, Evan Mills, responded and then I dealt with his response here.  Here is just one example of the BS we have to slog through every time we criticize even a tangential analysis like this.  See the links for his whole response, but he says in part:

As noted in the caption to the figure on page 58 of our report (shown above)"”which was masked in the blogger's critique [ed.  actually it was not masked- the source I got the chart from had left off the caption]"”we expressly state a quite different finding than that imputed by the blogger, noting with care that we do not attribute these events to anthropogenic climate change, but do consider the grid vulnerable to extreme weather today and increasingly so as climate change progresses, i.e.:

"Although the figure does not demonstrate a cause-effect relationship between climate change and grid disruption, it does suggest that weather and climate extremes often have important effects on grid disruptions."

The associated text in the report states the following, citing a major peer-reviewed federal study on the energy sector's vulnerability to climate change:

"The electricity grid is also vulnerable to climate change effects, from temperature changes to severe weather events."

This was pretty amazing - citing his chart's caption but hoping that somehow I or other readers would miss the very first line of the caption which he fails to quote:

To Dr. Mills' point that I misinterpreted him "” if all he wanted to say was that the electrical grid could be disturbed by weather or was vulnerable to climate change, fine.  I mean, duh.  If there are more tornadoes knocking about, more electrical lines will come down.  But if that was Dr. Mills ONLY point, then why did he write (emphasis added):

The number of incidents caused by extreme weather has increased tenfold since 1992.  The portion of all events that are caused by weather-related phenomena has more than tripled from about 20 percent in the early 1990s to about 65 percent in recent years.  The weather-related events are more severe"¦

He is saying flat out that the grid IS being disturbed 10x more often and more severely by weather.  It doesn't even say "reported" incidents or "may have" "” it is quite definitive.  So which one of us is trying to create a straw man?   It is these statements that I previously claimed the data did not support, and I stand by my analysis on that.

I deconstructed a lot of the rest of his longer post, and you can follow it all, but the bottom line is that if a you are drawing a trend line between two points, and you have much more data missing from the begginning end point than the end, your trend is going to be SNAFU'd.  Period.  No point in arguing about it.  See the chart below.  It represents the situation at hand.  The red is the reported data.  The blue is the unreported data, which declines as a percentage of the total due to a push for better data reporting by the database owners.  My point was simply that the red trend line was meaningless.  Its amazing to me that even accepting the basics of this picture, Dr. Mills wants to fight that conclusion.


I am reminded by one of the now-famous quotes from the CRU emails

I really wish I could be more positive about the Kyrgyzstan material, but I swear I pulled every trick out of my sleeve trying to milk something out of that. I don't think it'd be productive to try and juggle the chronology statistics any more than I already have - they just are what they are...

Yep, sometimes the measured results from nature are what they are.  Well, I actually that most of the time they are what they are, but not in climate apparently.  Never give up a flawed analysis that yields the "right" answer without a fight.  I concluded:

Look Dr. Mills, I don't have an axe to grind here.  This is one chart out of bazillions making a minor point.  But the data set you are using is garbage, so why do you stand by it with such tenacity?  Can't anyone just admit "you know, on thinking about it, there are way to many problems with this data set to declare a trend exists.

Can You Imagine If Oil Companies Did This?

I remember in the 1970s the sight of oil company executives getting dragged before Scoop Jackson's committee in Congress, forced to defend themselves against charges they were holding tankers offshore to drive prices up.  Hilariously, this was at the exact same time oil company executives were testifying in front of a Congress begging legislators to allow them to build the Alaska pipeline.  But demonizing oil companies simultaneously for both decreasing and increasing the supply of oil has been a tradition for decades.

Anyway, I have always found it intriguing how behavior in one industry made unsympathetic by the media can be treated so differently from identical behavior in a more media-cherished industry.  Check this out:

U.S. dairies will remove 86,710 cows from their herds to be sold to slaughterhouses as part of an industry-funded program intended to boost milk prices by curbing output.

The buyout is the third such cull in nine months, the Arlington, Virginia-based National Milk Producers Federation said today in a statement. The most recent buyout completed last month involved 101,000 cows, the most ever for the groups so- called Cooperatives Working Together program, which began in 2003.

Note further that this appears to be acceptable behavior in milk but not in oil, despite the fact that milk is heavily subsidized and the beneficiary of government price supports while oil companies simply pay a whole boatload of taxes.

It turns out there is one other such example in the news, where an industry is destroying hundreds of thousands of units of inventory, with the inevitable result of raising prices (particularly to the poor), all with the facilitation and in fact funding from the Obama Administration.  Can you guess what that is?

Another State-Run Oil Company Fiasco

And it couldn't happen to a nicer guy (hat tip to a reader):

Venezuela's daily oil production has fallen by a quarter since President Hugo
  Chavez won power, depriving his "Bolivarian Revolution" of much of
  the benefit of the global boom in oil prices...

The state oil company, PDVSA, produced 3.2 million barrels per day
in 1998, the year before Mr Chavez won the presidency. After a decade
of rising corruption and inefficiency, daily output has now fallen to
2.4 million barrels, according to OPEC figures. About half of this oil
is now delivered at a discount to Mr Chavez's friends around Latin
America. The 18 nations in his "Petrocaribe" club, founded in 2005, pay
Venezuela only 30 per cent of the market price within 90 days, with
rest in instalments spread over 25 years.

The other half - 1.2 million barrels per day - goes to America, Venezuela's only genuinely paying customer.

Mr Chavez has given PDVSA countless new tasks. "The new PDVSA is
central to the social battle for the advance of our country," said
Rafael Ramirez, the company's president and the minister for petroleum.
"We have worked to convert PDVSA into a key element for the social

The company now grows food after Mr Chavez's price
controls emptied supermarket shelves of products like milk and eggs.
Another branch produces furniture and domestic appliances in an effort
to stem the flow of imports. What PDVSA seems unable to do is produce
more oil.

Venezuela has proven reserves of 80 billion barrels,
but estimates suggest that it may possess 142 billion barrels - more
than anywhere else except Saudi Arabia....

this means that Venezuela has missed much of the benefit from the oil
boom and, now that prices are falling, Mr Chavez faces huge financial
problems. Nobody is sure at what point his government would be unable
to pay its bills, but most sources consulted believe this would
probably happen if oil falls to $80 a barrel. Yesterday, oil was
trading at $79.80.

More on "peak oil" being at least partially a function of state mis-management of promising oil reserves here.  Jim Kingsdale estimated last year, when prices were over $100 for oil, that oil prices would probably trade under $50 if the reserves were controlled by private companies rather than government buffoons.

Aren't These the Same?

I saw these two posts one after the other on Q&O.  One is about Chavez's food regulations in Venezuela, the other is about a government health care plan in California.  One is about government takeover of a critical industry, price controls, supply rationing, and demonizing large private corporations, and the other is about the same thing, but in Venezuela.  Since Chavez is further along with his program, we might see how things are working out for him:

Venezuela's top food company has accused troops of illegally seizing
more than 500 tonnes of food from its trucks as part of President Hugo
Chavez's campaign to stem shortages.

The leftist Chavez this
week created a state food distributor and loosened some price controls,
seeking to end months of shortages for staples like milk and eggs that
have caused long lines and upset his supporters in the OPEC nation.

highly publicised campaign has also included government crackdowns on
accused smuggling, with the military seizing 1,600 tonnes of food and
sending 1,200 troops to the border with Colombia....

He also threatened to expropriate companies selling food above regulated prices.

who is distributing food ... and is speculating, we must intervene and
we must expropriate (the business) and put it in the hands of the state
and the communities," Chavez said during the inauguration of a new
state-run market in Caracas.

Yep, sounds about the same.  Fortunately, people in the West can still travel across borders to get health care when government rationed and price-controlled services are not available, as many Canadians and British do. So in the US, when we implement all these same steps, we'll be able to travel to..., travel to...  Where will we be able to go?

Garbage Nazis

Apparently, the garbage nazis have won the contract in Seattle.  To remind you, here were some of their proposals in their bid for the contract:

If [CEO Chris] Martin is allowed to implement what he calls "my best
idea, my get-people-riled-up thing," we could all soon be subject to a
kind of garbage audit, too. He wants to bring the equivalent of the
red-light camera to your front curb. Just as the traffic camera
captures you running through a stoplight, CleanScapes' incriminating
photos would catch you improperly disposing of a milk carton. (It
belongs in the recycling bin.)

He also has advocated mandatory waster audits, whatever those are.  This is the choice that libertarians face every day -- we can either vote for a party that wants to listen to our phone calls or the party that wants to search our garbage.  Put a pizza carton in the recycling, you spend a night in the box.  Put a milk carton in the trash, you spend a night in the box.

It's never too early to start google bombing the company's home page:  Garbage Nazis

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. 

Dispatches from Zimbabwe

Here are a few scenes from Zimbabwe, stitched together form several posts by Cathy Buckle.  For all of those who support Hugo Chavez, and there are a surprising number in this country, this is exactly where Venezuela would be in a year if it wasn't for its oil.  And it may get there none-the-less (hat tip Q&O):

After three months of price controls the food situation in the country is
perilous and even those who were able to stock their pantries and cupboards are
now in trouble. In a main supermarket in my home town this week there was air
freshener, window cleaner, some vegetables, Indonesian toothpaste and imported
cornflakes from South Africa - one single packet costing more than half of a
teachers monthly salary.  There was also milk being sold from a bulk tank to
people who bring their own bottles and the queue went through the empty shop,
out the door and along the pavement. The line broke up suddenly before 10am when
the milk ran out and the huge shop was suddenly completely empty - nothing left
to sell, no more customers. This situation was a mirror image of conditions at
three other major supermarkets in the town and so we look desperately into
another week of struggle, praying for relief....

Milk is like gold in our town, as it is almost all over the country. When you
appreciate that the shops are empty and there is no food to buy, no protein, no
meat or eggs and now not even bread, you understand that people are desperate
for nourishment. A phone call to the local bulk dairy marketing outlet this week
went as follows:

Q: Hello, Do you have milk please?
A: Nothing.
Q: What about lacto (sour milk)?
A: Nothing.
Q: Any cheese?
A: (Bored) Nothing
Q: Ice Cream! ?
A: (Slightly annoyed) No, we have nothing. We are playing football in the car

Standing outside over yet another smoky fire late one afternoon this week, a
Go-Away bird chastised me from a nearby tree. I'm sure this Grey Lourie is as
fed up of me intruding into its territory as I am of  being there - trying to
get a hot meal for supper. For five of the last six days the electricity has
gone off before 5 in the morning and only come back 16 or 17 hours later a
little before midnight. "Go Away! Go Away!" the Grey Lourie called out
repeatedly as my eyes streamed from the smoke and I stirred my little pot. My
hair and clothes stink of smoke, fingers are yellow and sooty but this is what
we've all been reduced to in Zimbabwe. Our government don't talk about the power
cuts anymore and don't even try and feed us with lame excuses about how the
power is being used to irrigate non-existent crops. We all know it's not true
and the proof is there in the empty fields for all to see.

Something else our government aren't talking about  anymore is the nationwide
non availability of bread and the  empty shops in all our towns and cities.
Everywhere you go people are struggling almost beyond description to try and
survive and yet the country's MP's, both from the ruling party and the
opposition, do nothing to put an end to this time of  horror. I have lost count
of how many weeks this has been going on for but it must be around three months.
None of the basics needed for daily survival are available to buy. There is no
flour to bake with, no pasta, rice, lentils, dried beans or canned goods. People
everywhere are hungry, not for luxuries like  biscuits or snack food but for the
staples  that fill your stomach. When you ask people nowadays how they are
coping, mostly they say that they are not, they say they are hungry, tired and
have little energy. This is a national crisis almost beyond description and
people say they are alive only because of " the hand of God."

The Green Security State

Via Hit and Run:

Chris Martin, Coldplay lead singer founder and frontman of the CleanScapes waste removal agency, is bidding for a piece of Seattle's garbage collection contract.

Martin is allowed to implement what he calls "my best idea, my
get-people-riled-up thing," we could all soon be subject to a kind of
garbage audit, too. He wants to bring the equivalent of the red-light
camera to your front curb. Just as the traffic camera captures you
running through a stoplight, CleanScapes' incriminating photos would
catch you improperly disposing of a milk carton. (It belongs in the
recycling bin.)

"We could do it the nice way," he says, meaning
his company would e-mail you pictures of your detritus, along with
helpful information about separating out recyclables. Or, he says,
CleanScapes could send the pictures on to municipal inspectors, and
"the city could enforce its own laws." (While the city has sent warning
letters, no fines have ever been issued, according to Seattle Public

The vast majority of recycling is a net loss, both in dollars and in energy.  Only a few items (scrap iron, aluminum cans, bulk news print) make any sense at all in curbside recycling programs.  Milk cartons are not one of them.  The rest of the curbside recycling we do is merely symbolism actions that demonstrate our commitment to the cause, much like reciting a liturgy in church (Interestingly, the more honest environmentalists have admitted this, but still support the program because they believe the symbolic action is an important source of public commitment to the environment).

I guess it is not surprising to see folks like Mr. Martin bring the full power of the state to bear to make sure you are sorting your milk cartons correctly.  After all, in previous generations, the powers-that-be in small towns would employ people to watch for folks skipping out on church, and nations like Cuba still use neighborhood watches to spy out political heresy.  It's just a sign of the times that now such tactics are being used to smoke out environmental heresy.

Parable of Gasoline and Milk

Today, the price of gasoline at the pump before taxes is about $2.50 a gallon.  The price of milk per gallon is about $3.50 a gallon, and may rise to $5.00 by the fall

So I will present you with a heresy:  Gasoline is an absolutely screaming deal.  Having worked a brief stint in the oil industry, it is incredible what has to happen and the investments that are in place to get gas into your car.  Offshore oil platforms, dealing with unstable governments, thousand mile long pipelines, fleets of supertankers, huge complex refineries, and massive distribution networks are required to get gas to your car.  And yet, it's a buck cheaper than milk, which in comparison is nearly trivial to produce.  Sure, the milk needs a little processing and transportation, but compare this to oil, where processing involves reforming the very molecules in the oil to perfect the gas, and where transportation is across distances one to two orders of magnitude greater than for milk.  And don't even get me started on production:  a) cow  b) offshore oil platform in 1000 foot deep water.

It is perhaps even more instructive to see how the government regulates these two commodities.  Oil companies are constantly harassed by government as the world's great Satans, with windfall profits taxes and price gouging regulations, all on an industry that barely makes a 10% profit on sales in the best of times.  Milk, on the other hand, gets huge government subsidies and handouts, including a price support system that is both arcane and incredibly costly.  So Oil:  windfall profits taxes.  Milk, which is pricier but easier to produce: price supports.  Does anyone really want to argue that regulation is a result of real market realities rather than just populist pandering for and against favored and unfavored groups?

Worst Government Abuse I Have Seen Lately

I didn't think much could top some of the ridiculous stuff I have read of late on the government abuse and rent-seeking front;  the milk cartel, for example, seemed hard to top.  But I think this has jumped into the lead:

In Didden v. Port Chester, the government decided to redevelop
an area of the city, and chose a developer who drew up development
plans. One of the property owners, Bart Didden, owned a piece of
property that he wanted to lease to CVS to build a pharmacy. The
developer, on the other hand, wanted to use the land for a Walgreen's
instead. So the developer told Didden that if he would pay the
developer $800,000 and give him a percentage in the CVS, that he
wouldn't condemn the property. Didden, of course, rejected this
offensive offer, and the next day, the city condemned the land to give
to the developer.

This is much worse than Kelo, and I thought that case was bad.  Didden lost his appeal, but is trying to get the Supreme Court to hear the case:

"What the developer and Village of Port Chester did is nothing short of
government-backed extortion," said Didden. "I had an agreement to
develop a pharmacy, a plan fully approved by the Village, and in the
eleventh hour I was told that I must either bring this developer in as
a 50/50 partner or pay him $800,000 to go away. If I didn't, the City
would condemn my property through eminent domain for him to put up a
pharmacy. What else can you call that but extortion? I hope the Supreme
Court sets things right."

I guess the case has a bit of utility -- it does set a market value on government pull.  In this case, the developer has priced his "in" with the local city establishment at $800,000.   

To my untrained eye, this case seems not to be covered by the Kelo logic.  In Kelo, the justices (insanely) decided that a valid public purpose for eminent domain was to replace one landowner with another who will pay more sales and property taxes.  But its hard to argue that a CVS pharmacy would pay more or less than a Walgreen's pharmacy.  In addition, Didden's supporters are hoping that the Supreme Court will finally rule on the more general issue of "exactions":

What's interesting is how this case parallels something called
"exactions," which we see in a lot of cases involving building permits:
government demands that a property owner give up some value to the
government"”a portion of the land, or sometimes outright cash"”in
exchange for a building permit. Now, this case didn't involve a
building permit, but the issue is the same: in exchange for the right
to use the property, you have to give up your property rights. That is
what the Supreme Court has called "an out and out plan of extortion."

These exactions are rampant throughout America. They're causing housing prices to soar.
And yet despite PLF's repeated requests, the Supreme Court has refused
to take one of these cases to clarify that they do violate the
Constitution. Meanwhile, we hear that the Supreme Court can't find
cases to fill up its docket! Here's hoping the Court grants cert. in
this case and declares once and for all that government can't use its
power to regulate land use as leverage to demand money from property

Its All Monopoly Money

A lot of bad legislation has been passed to protect consumers from the "scourge" of monopoly.  The most common fear is that some company will lock up the market and then start raising prices.  This never happens in real life, because entry in most markets is far easier than most people imagine, particularly in modern America where there are so many accumulations of capital looking for a way to be spent.  In fact, the only time such price-gouging monopolies are ever sustainable is when they are backed by the coercive power of government.

The milk market, for decades one of the most egregious examples of government price-fixing for the benefit of producers over consumers, provides us with a perfect example of this phenomena:  A cartel charging too high of prices that is taken on by a maverick price-cutting outsider, who was on a path to success until the feds slapped him down.

In the summer of 2003, shoppers in Southern California began getting a break on the price of milk.

maverick dairyman named Hein Hettinga started bottling his own milk and
selling it for as much as 20 cents a gallon less than the competition,
exercising his right to work outside the rigid system that has
controlled U.S. milk production for almost 70 years. Soon the effects
were rippling through the state, helping to hold down retail prices at
supermarkets and warehouse stores.

That was when a coalition of giant milk companies and dairies, along
with their congressional allies, decided to crush Hettinga's
initiative. For three years, the milk lobby spent millions of dollars
on lobbying and campaign contributions and made deals with lawmakers,
including incoming Senate Majority Leader Harry M. Reid (D-Nev.).

March, Congress passed a law reshaping the Western milk market and
essentially ending Hettinga's experiment -- all without a single
congressional hearing.

The most hilarious (or disgusting, depending on my mood) part is listening to the statements of other milk producers complaining about the new competition and price-cutting, something the rest of us in business face as a matter of routine, but from which the privileged few in the dairy business are shielded:

Hettinga's operation was "damaging to the marketplace," said Elvin
Hollon, director of economic analysis for Dairy Farmers of America.
"Nobody ever envisioned there would be such large handlers" outside the

"So," Hollon said, "the regulations had to change."

and this:

In an interview later, Nunes called the milk legislation a victory for
"every dairy farmer in America except those who were gaming the
system." He added, "People out there were making millions of dollars a
year off the backs of America's dairy farmers . . . that was a wrong
that was finally righted.

That last paragraph is so brazen you may not even get it ... he is referring to competitors that are charging lower prices.  They are "making millions of dollars off the backs of America's dairy farmers" the same way the Honda Civic made millions of dollars off the back of the Yugo.  Under the new law passed by the dairy industry's cronies, Hettinga can still operate like he has been, as long as he pays $400,000 each year to his competitors to make up for the fact that he is out-competing them.

I will say I probably would like this guy -- he is able to look on the bright side:

"I still think this is a great country," Hettinga said. "In Mexico, they would have just shot me."

Yeah, we're much better here.  The government only rapes rather than kills you.

Outsourcing to Your Customers

So what does valet parking, soft drinks, and firewood have in common?  More in a second.  First, some background.

We have had a problem over the last few years in our California campgrounds.  We sell a lot of firewood to campers, usually in bags of 6-8 sticks.  We are having difficulties getting a good, inexpensive firewood source in the Owens Valley.  We can find a bunch of people who will deliver stacks of firewood by the cord for a very good price, but only one person in the valley bags the wood.  As a result, the bagging step alone is effectively costing us between $1 and $2 a bundle, which is a lot for something we sell for $5-$6. 

In kicking the problem around, we considered what is becoming an increasingly common approach - if bagging is labor intensive and costly, lets see if we can outsource that step to our customers.  Outsourcing to your customers has been around for a while, but has gotten more popular of late.  Many furniture and equipment makers have been doing this for years, by outsourcing final assembly to customers.  While some of this is to reduce shipping costs, part of the benefit to manufacturers is that they save on assembly labor.

Service industries have started to get into the act of late.  Banks have been outsourcing teller functions for years via ATM's.  Most fast food restaurants have outsourced soft drink cup filling to the customers.  Grocery stores (and now Home Depot) have hopped on the bandwagon, providing self-service checkout for those who don't want to wait in line.

What all these examples have in common is that they seem to meet with customer acceptance if they provide some sort of value to the customer(short-circuiting lines, easier drink refills, the right amount of ice in the cup) , and not just cost-savings to the company.

Which brings me to the examples that really irritate me - of companies outsourcing their payroll to me.  [Note, I am a libertarian -- please do not interpret the following as a call for government action!]  Tipping, in its purest form, is a way to reward exceptional (meaning - beyond the standard or expected) service.  Unfortunately, restaurants and other service establishments have twisted this act of reward and generosity into having customers pay the wages of their staff.  Restaurants are simultaneously increasing tipping expectations (from 15% to 20%+) while requiring tips on more and more occasions by building them automatically into the bill.

The event that brought my irritation to a boil the other day actually happened valet parking my car at a restaurant.  As background, the establishment charged $4 to valet park your car.  Now, I am not a socialist, so I accept that value is not driven by cost but rather by what I am willing to pay for it, and I was willing to pay $4 to avoid having to walk a few blocks from the free lot  (those of you from Boston or NY are wondering what the fuss is about -- a valet parking charge of any amount is virtually unprecedented in Phoenix, at least until recently).

So I paid my $4, and then I saw the sign:

"Our employees work for tips"

What?  You mean I just paid your company $4 for what amounts to about 5 minutes of labor, and now you are telling me that in addition, I need to pay your employees' wages for you too?  This is pretty nervy - I mean, other than a percentage concession payment they are probably making to be the parking company at that location, what other costs do they have?  I didn't want to hurt the young guy actually doing the parking, but for the first time in years I didn't tip the valet.  That little sign turned, for me, an act of goodwill into a grim obligation, extorted from me by guilt. 

Which brings me back to firewood.  In outsourcing bagging to the customer, I did not want to tick off our customers like I had been angered by similar steps, so I set two criteria for my managers and any plan they came up with:

  • It had to save a substantial amount of money, some of which we could pass back to customers as a price savings
  • It had to offer the customer more value - a better product somehow.

The plan my managers hit on was to purchase a number of small milk crates that customers could fill with wood for the same price as the old bag.  These crates would hold a bit more than the old bag, so customers can get more wood for their money.  In addition, customers can pick out their own pieces of wood from the stack.  This is actually something that has been requested in the past - some customers complained the bags had too many small sticks, some complained they had too many large sticks.  Now people can get what they want.  We will try this out in a few sites to see what customer reaction is, and, perhaps more importantly, to see if we can hold on to our milk crates without them walking away.