Archive for May 2010
The Wall Street Journal today editorializes that the Cape Wind clean energy project that recently won the approval of the Interior Dept. is a “lousy deal” because it may, if the pricing scheme proposed by the company operating the wind farm is approved by regulators, produce energy at double the price consumers in the area now pay.
Here’s what’s also going to be expensive, if we don’t move aggressively toward a clean energy future:
•Rebuilding after hurricanes, which will be stronger and more frequent with a warmer Atlantic Ocean. Hurricane Andrew, in 1992, cost $41.5b in 2010 dollars.
•Cleaning up after oil spills, such as is now being played out along the Gulf Coast. Current costs are estimated at $350m and rising.
•The price of food, as fertile soil is lost to heat and drought.
I could go on, but you get the point: Conservatives don’t want to pay now, but we’ll all end up paying later. The difference is that the costs now are knowable, and so easier to plan for.
The Journal says that Cape Wind will result in “$443 million in new energy costs.” It doesn’t say among how many people these costs will be spread out, or over how long a period of time; if it’s 5 million people who might get power from Cape Wind, over 40 years (which seems like a reasonable amount of time for it to function), then we’re talking about a whopping $2.21 per person per year.
Disinvestment—the inevitable result of their tax-cuts-to-solve-everything approach to governing (if you can call it that)—also ends up costing more in the long term. Case in point: In 1978 Californians voted to cap their property taxes. This was hailed as a great moment, the people taking power away from big scary mean government, and launched an anti-tax movement that can be said to be the roots of the “Tea Party” (which boasts among its membership people who are on Medicaid yet rail against “people looking for handouts” and “the whole welfare mentality”). But since public schools get the bulk of their funding from this pool, the state’s schools went from tops in the nation to down around Mississippi’s somewhere. Obviously this would not have been the sole factor (conservatives will probably blame unions and immigrants), but it cannot be said that the way to improve outcomes in education is to reduce its funding.
Now you’ve got companies saying the students we’re graduating are too dumb for them to hire (I can point you to the surveys if you’re interested). So we get a lot of unemployed people. But Republicans don’t want to pay unemployment benefits. Some of these people turn to crime—and Republicans are always happy to lock people away. Here’s the problem: It costs about $25000 a year to incarcerate someone.
California spends about 1/3 that figure per pupil on public education. So would you rather educate people now, or get car-jacked by them later?
This would be funny except the pattern gets played out again and again. Look at the news today: It’s conventional wisdom on the conservative blogs (and leaking into the mainstream press) that the reason Greece and Spain are so screwed (if they are indeed screwed; the $18b per year bailout compares favorably with the $144b a year we’re spending in Iraq) is because of their overly generous welfare states. The implication is that there but for the grace of God go I, i.e., the US will be headed down this road if we don’t cut back on entitlements (somehow the Pentagon’s budget, which has nearly tripled in the last 20 years, is always left out of these discussions).
Now consider Republican policies: They want every company to be free to move their operations to wherever labor is cheapest. They don’t want to pay to retrain the workers left behind for the service jobs that are all our economy creates anymore. They don’t want to give them unemployment insurance over the long term. They don’t want to pay to educate their kids, so that the kids don’t grow up into the same predicament as their unemployed parents.
So what are they supposed to do? Live off the fat of the land? Become bond traders? Whoops, that won’t work—their education is shit. Work retail? Great—but who’s going to buy the stuff they’re selling?
Is there something I’m missing here?
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Credit Defense Secretary Robert Gates for having the cajones to stand up to the military brass and the pork barons in the Congress, cajoling each to cut wasteful spending; stop fighting the Cold War; and eliminate projects from the budget that do nothing for national security, but help members of Congress get re-elected.
The irony here is that this is exactly the work Donald Rumsfeld was brought in to do a decade ago. (It’s a job that’s needed doing for 20 years; in the meantime we’ve spent about $7,300,000,000 on defense—not including appropriations to pay for the wars in Iraq and Afghanistan.)
Rumsfeld was known, from his experience in private industry, as an aggressive cost-cutter. (Disclosure: Rumsfeld’s son and I were buddies in college; Rumsfeld’s best friend’s wife and my mother are close friends.) Perhaps more importantly, as head of the pharmaceutical giant G.D. Searle & Co., he earned the reputation as being someone who could change minds and push agendas in government: he shepherded Searle’s artificial sweetener, aspartame, through FDA approval.
Of course, 9/11 significantly re-arranged Rumsfeld’s to-do list. Bush might have thought to replace him with a wartime SecDef; Rumsfeld’s do-it-on-the-cheap M.O.A. proved terribly ill-suited to preparing for the fall of Iraq, and its occupation. (Condoleeza Rice, a Soviet scholar, didn’t exactly have the background to deal with the new threat, either.)
Anyway, here’s hoping Gates is successful. With the Pentagon accounting for almost half of all discretionary spending, we clearly can’t continue along this path much longer.
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Stock markets reeled last week—even leaving aside the mysterious 13-minute swing on Thursday which investigators are still trying to figure out—partly on the chance that Greece will be unable to meet its loan payments. Germany came to the rescue yesterday, but we’re not entirely out of the woods.
For all the stress and fear of contagion and plunging markets and blah blah blah, I think it’s worth putting this “crisis” into perspective:
On May 19, Greece will need about $12 billion.
I don’t point this out to say that Google is too big or too profitable. But for heaven’s sake: For half of what Google pulls in in a year, Greece can meet its first big debt payment?
Correct me if I’m wrong, but when two guys in their 30’s can solve a problem by whipping out their checkbooks, it doesn’t strike me as a situation that’s going to cause a global financial meltdown.
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Today’s stunning market plunge and rebound, in which the Dow Jones Industrial Average swung 874 points in 13 minutes, is Exhibit A in why a transaction tax on stock trades is a good idea.
I’ve been a buy-and-hold investor since the late 1980’s, so while I don’t look at the daily fluctuations I think I would have noticed a day with such a dramatic swing, and I sure don’t remember one. (If I’m wrong, please correct me in the comments; I’d look through the charts myself but it would cause me to miss a deadline.)
The remarkable turn of events appears to be the result of computer-driven trading, in which trading firms employ software algorithms that automatically generate transactions. (For one thing, humans can’t trade at the speed required to move the market so far, so quickly.) These programs were blamed for much of the markets’ losses in late 2008 and early 2009, which saw a lot of days on which indices would plunge around 3pm after falling slightly, or even trying to rally, earlier on; the programs see a certain set of factors in place at a certain time of day and it sets off alarm bells, generating frenzied automatic selling no matter the stock and no matter the news.
There’s nothing wrong with these programs per se—in fact I’m sure they’ve helped market efficiency in some ways—but when a perfect storm happens they can wipe out trillions in shareholder value overnight, with no basis in fundamentals like EPS or EBITDA. When that happens, they’re acting on trends, not on the inherent value of companies which we’re supposed to be investing in. These algorithms are both a function and a cause of the transition of stock trading in recent decades from an emotion-driven casino where people and computers are betting on share price, instead of a rational market in which investors are buying a share of a company’s future earnings.
When I started watching the markets, a day in which a billion shares were traded was considered heavy volume. Today that’s typical for a Friday before a long weekend. A transaction tax would keep things from boiling over so frequently by putting a lid on much of the meaningless but stress-inducing volatility that gives traders and investors heart attacks.
A transaction tax—there are various proposals, but the one proposed in Congress would place a 0.25% levy on trades of $100,000 or more, and 2% on derivatives—would cause these algorithms to be recalculated on the side of caution. This wouldn’t affect Main Street investors, who generally don’t fool around with 100 grand at a pop and to whom the derivative markets aren’t open, but it’s estimated this plan would raise $150bn a year. It’s true that big institutional investors are trading with pension funds that affect regular folks’ pocketbooks and retirements, but the costs would be so spread out as to be barely noticeable, and in exchange we’d get a lot of market stability and send a lot of foolhardy players messing around with other people’s money to the sidelines.
Ask anyone who planned to tap their 401(k) or whose pension vested in late ’08 or ’09 if they’d give up a few dollars for every $100k of their nest egg in exchange for that.
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The NY Times today runs—and, perhaps more significantly, Politico’s Playbook email blast cites—a classic case of pointless navel-gazing the press too often engages in, at the expense of actual reporting. The whole structure of the piece is typical: You start with a link-baiting headline, “Shadow of Hurricane Katrina Hangs Over Obama After Spill.”
Then you go on to demonstrate how responsible you are by saying, in the 13th of 15 paragraphs, that there is a “key difference” between the spill and Katrina.
In between you dig up an academic—in this case, a self-promoting professor at a fourth-rate university—to say something that sounds detached and intellectual, but in fact is a total case of log-rolling, with the log having been replaced by a piece of bullshit in the shape of a log. I wonder how many calls Helene Cooper had to make to get someone to say something to support her obviously pre-determined thesis, that the spill is somehow comparable to the Great Flood of New Orleans?
The Times has therefore, in an attempt to demonstrate its lack of liberal bias, launched a meme in the political discourse, justifying pundits’ forthcoming “balanced” debates on cable about an issue that doesn’t exist.
Here are a few “key differences,” in the hopes that as little as possible breath and ink is wasted on this baseless comparison.
1) Katrina was not an accident, and as such, it was predictable. We must remember that what happened in New Orleans was not a natural disaster; it was entirely man-made. The state of the levees protecting the city was well-known: the Army Corps of Engineers, which was responsible for them, knew it, and anyone who read the Times-Picayune‘s superb series on the danger posed to the city by a major hurricane due to the weak levees knew it too. The Corps’s budget for levee construction in New Orleans was slashed by Bush 14 months before Katrina, and its overall budget was cut by $71.2 million two months before the storm. Bush, as he never tired of reminding us, was Commander in Chief, and therefore bore ultimate responsibility for not fixing the levees in the four-and-a-half years he had to do so before the hurricane struck.
2) Hurricanes are forecast; the type of accident that exacerbated the spill has never happened before. Bush had days, if not weeks, to send emergency supplies to New Orleans and help with its evacuation as the storm came from the Atlantic, across Florida, west through the Gulf, and finally north to the mouth of the Mississippi. By contrast, the mechanism that’s supposed to shut off BP’s oil well has never failed before. This shouldn’t be read as an endorsement of offshore drilling, or an excuse for BP, which spent $700m on the rig that exploded and $1m a day to run it. But Bush could have prepared for the flood of New Orleans, and chose not to. It’s true that Obama could have, in general way, done more to prevent an oil spill in the Gulf, but foreseeing this disaster would have been impossible, because no such disaster of this particular type had ever occurred. Not so with Bush.
3) Bush deliberately dismantled the system for responding to disasters, both directly and indirectly. Bush directed in 2005 that FEMA “officially” lose disaster-preparedness capabilities, leaving no federal agency to perform this essential function. In January 2001, he had named a crony from Texas with no experience in disaster management to head FEMA. This guy handed the reins to Mike “Heckuva job” Brown, a college friend who also had no experience, and had been fired from his previous job for mismanagement. Brown was at the controls when Katrina came ashore. FEMA denied flood-control requests from Louisiana.
4) Bush slept, and New Orleans wept; Obama was on the case from Day 1. Here’s a timeline of the days before and after Katrina. It shows that 3 hours after first reports of levee breach, Bush was making a speech somewhere (“My Pet Goat,” anyone?) and 12 hours after, Rumsfeld was at a baseball game. The governor of Louisiana made a desperate plea for help at 8pm on the 29th; Bush went to bed that night without responding. The next day, he went on vacation. Three days later a campaign had begun to blame local officials.
By contrast, the Coast Guard was on the scene within hours of the explosion at the oil rig; the DepSec of Interior was there the next day, and coordination with local officials and with BP have been constant from the beginning.
So that ought to be enough about that.
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