Author Archive

As Russia and China stand steadfastly by their ally Syria in spirit and in more material ways (like Russia supporting them with ammunition) it is important to realize how poisonous their world view actually is. There really is a critical moral distance between the US and Western values and those of the Russians and Chinese, which presume that regime stability at all costs as the absolute pinnacle of a governments’ function.

Here is a great set of satellite photos that show the use of heavy artillery (towed and self-propelled) along with rocket artillery that the Russians provided against civilian targets, basically just regular cities that happen to not be favored by Assad and his cronies in power.

Along with the photos comes some pithy but extremely true commentary about how there is no fair or logical manner to compare the “free Syrian Army” which Assad (and Russia and China) link to “terrorists” and “foreign elements” to those of the regime since Assad chooses to use these massive and powerful weapons against unarmed civilians. Frankly it is mind-boggling that a military, one entrusted to PROTECT its own citizens, would possibly use these horrendously powerful weapons against civilian areas.

Where did the Syrians get the idea to direct the massive firepower of modern artillery against unarmed civilians, who can’t possibly fight back (i.e. they don’t have airplanes or their own artillery for counter battery fire)? I am just speculating, but Russia’s own use of heavy artillery when they completely leveled THEIR OWN CITY of Grozny in Chechnya would be a logical example. This article describes the Soviet experience with Grozny and how eventually they were able to “win” the battle in the third battle for Grozny with the use of heavy artillery and the corresponding high casualty rate for non-combatants (civilians). It should be noted that these tactics would be unthinkable to Western leaders and collateral deaths of civilians are minimized whenever possible.

It is important that young people who read the media understand that these sorts of differences, that by standing steadfast with a brutal thug of an un-elected ruler who uses heavy artillery against his own, unarmed civilians and using their UN veto to ensure that this continues – that is the behavior of the Russians (and by their veto too, the Chinese, although they haven’t done anything like Grozny or Assad’s atrocities in recent years). They are not like us. And a world in which their values play a prominent role wouldn’t be a better world, or an “equivalent” world – it would be a barbaric Hobbsian world of the gangster-state.

I think someone proposed in River North recently.

Cross posted at LITGM

A common refrain among the Left can be summarized as “moral equivalence” – i.e., comparing the negative events that the US is involved with (i.e., Abu Ghraib) or the inherent difficulties involved with attempting to turn a despotic state such as Iraq or a “failed state” such as Afghanistan into a functioning democracy with the horrors of the Russian invasion of Chechnya or the Chinese armed suppression of Tibet and then concluding that “we are all the same”.

While the individuals here at Chicago Boyz never bought into the “moral equivalence” model it is true that the US had to prop up and stand by some odious regimes for quite a while in order to win the Cold War. While South Korea today is a vibrant democracy and certifiably free country it wasn’t always this way and while that is the ideal there are other countries that are at varying steps along this path.

With the “Arab Spring” the US is looking at things differently. While we supported Egypt and Tunisia it was clear that we weren’t giving them unlimited support against their people; our contacts (the military) in fact minimized the violence in the overall situation and now at least these countries have an opportunity to have a democratic society.

On the other hand you can see how the former Soviet “client states” are treating the uprising – with unimaginable brutality against unarmed civilians protesting peacefully. Libya and Syria behaved (and are still behaving, in the case of Syria) with insane behaviors such as opening fire with anti-aircraft weapons and tank fire against peaceful citizens which is a slaughter. This type of behavior of course is perfectly acceptable to a Russian style client state trained military, which use all means of oppression available to preserve the power of the ruling class against the will of the people. There is no “state” or “populace” of value; there is only the power of those in control (Gaddafi or Assad’s clique, or Putin’s clique, for example) and thus an ever escalating chain of violence is OK in their interpretation of events if that is what it takes to control power.

As a country the US certainly has made mistakes but we LEARN from mistakes and are now on the side of freedom and voices for the people. And it isn’t only the US; France and Britain led the Libyan intervention much to the dismay of THEIR left wing.

And yet Russia today shows why moral equivalence was NEVER correct; they are fundamentally anti-freedom and supporting regimes with the same core values of their own. One of the best description of the former USSR was that they were just “third generation gangsters” and it is clear that Assad is just a “second generation gangster” (Gaddafi’s second generation were mostly hunted down and killed or about to stand trial, something Gaddafi would never have done for his opponents).

Russia continues to veto resolutions that would support unarmed citizens against Assad; their logic is clear – the goal of a regime is to CONTINUE TO EXIST and all means necessary to do this are OK. The will of their own populace is irrelevant, and the doctrine of “do not interfere in country’s affairs” provides the justification. There are obvious parallels to the situation in Putin’s Russia in that he will do everything to retain power (stuff the ballot box, threaten violence, blame foreign powers, or actually deploy violence in ever escalating levels if needed).

Whatever the sins of the US in the modern era there are no equivalents of using anti-aircraft weapons and tanks against unarmed citizens, and using scorched earth tactics against civilians. This never happened. Instead the US took great pains to shield civilians and grow nascent democratic institutions, although the outcome of this is never certain.

China too waits in the wings; the “third generation gangster” label could be applied there but they are more circumspect in the use of violence and do seem to believe that their goal as a regime does include raising the overall standard of living and giving people freedom (except to criticize the government, of course). Since Russia will block all effective sanctions against Syria, China has an out. This doesn’t stop China from crushing dissent where it suits them (Tibet) in a way that Western nations could never pull off; and a Beastie Boy concert or two obviously hasn’t dissuaded them a bit from their activities.

And yet there are no protests outside Russia or China’s embassies by the Left; this isn’t a battle that concerns them (Syria or Libya), because it doesn’t fit their narrative that all the governments are oppressive and of moral equivalence. There are no angry posts on left wing blogs about these issues. It doesn’t fit their pre-defined agenda that the US is an oppressive place since birth and that we are all the same.

That is the definition of moral bankruptcy.

I was having a drink one night reading an article about someone’s “favorite things” and they mentioned an out-of-print book from the ’70s about the firm Hipgnosis that designed iconic album covers. Literally 5 or so clicks later I ordered it from my iPhone through Amazon and it recently arrived (amazing what the Internet can do).

Hipgnosis was the name of the now-defunct firm that produced all the record covers that you have in your collection from the era when a record cover was a work of art, something to look at for hours on end while the music played over your stereo (or headphones). Wikipedia has a good summary of the firm here and also the main designer (Storm Thogerson) here who even today still creates great CD Covers (it doesn’t sound the same, I admit) for bands like Muse. Here is a great site (non official) of Hipgnosis material, as well.

I was very impressed with these record covers growing up. At that time the internet didn’t exist so unless you went to a show and saw the band “in the flesh” or read a music magazine (which I never paid for) at a magazine stand you didn’t know much about the band “behind the music” so these iconic images helped you to imagine what the band stood for. Plus Led Zeppelin and Pink Floyd and similar artists never really toured the states when I was at an age to afford to attend shows so their “message” came through on album covers, posters, and sleeves.

Some of the album art that Hipgnosis made from the ’70s era is from great bands and albums like “The Lamb Lies Down On Broadway”, the Pink Floyd classics, and the Led Zeppelin era, as well as the Peter Gabriel unnamed solo albums. These bands seemed to stand well with the images.

I am a huge Michael Schenker / UFO fan and loved their covers, too, except I didn’t really understand them (especially “Force It” with the gleaming bathroom appliances). Obsession with the “ball bearing” images didn’t make the book but it also was iconic.

Then you get the more obscure bands like Montrose (Sammy Hagar’s band before he went solo) with their “arty” covers. Some of the band covers are hilarious when juxtaposition-ed against the fact that much of the underlying music was awful. Obviously these images were damn racy in the day; when I bought the book there were photocopies from a xerox machine inside the book of some of the racier album covers involving human body parts. These photocopies were likely 15 years old (nowadays way racier stuff is everywhere in the internet).

I also like the logos (in the collage) and the inside sleeve from “The Lamb Lies Down on Broadway”. Hipgnosis really did outstanding work and I highly recommend the book if you can find it. The book is organized in a somewhat “cheeky” fashion (they are British, after all) with the famous “Flying Pig” over the power station for “Animals” filed under the category “Fiascos”.

Cross posted at LITGM

Both our current administration and the New York Times appeared to have little or no understanding how the “real” economy worked or the impact of incentives on tax policy. In more recent years they grasped that changing tax policy can impact economic incentives, which in turn, can increase their chances of being re-elected.

Their first major foray was “cash for clunkers” which gave a tax deduction for turning in your old car for a new one. Like most one-time incentives, it accelerated purchases into the current period, giving a boost to auto manufacturers and car dealerships (and sticking the tax credit to the deficit). Lately the administration has gotten bolder, offering 100% deduction for capital purchases in the current year for tax purposes (which has the same effect as “cash for clunkers”, except on a wider scale as tax incentives for corporations and private companies), and then giving a 2% “payroll tax cut” which finally eliminates even the concept that social security is anything more than a “pay as you go” system and that there is nothing there waiting for you when you retire.

My view of tax policy is that the goal of a sound policy is to:

1) raise the revenue that you set out to achieve
2) minimize negative effects or dis-incentives of the policy

Examples abound of a failure of #1, including raising marginal taxes on the wealthy (they change their behavior or move to another jurisdiction) and the distortive effects of #2 are legendary, including over-investment in non-productive housing stock (due to the mortgage interest deduction) and the massive numbers of lawyers and accountants that make a living on the entrails of our bewildering and counter-productive tax system.

In recent years the NYT, as the sounding arm for the administration, has started to realize that the haphazard and counter-productive effects of our current tax system are legion, and that better core policies could improve revenues while minimizing negative behavior. This article called “A Better Tax System” (Instructions Included) laid our four principles that seem reasonable overall:

1) Broaden the base and lower rates
2) Tax consumption rather than income
3) Tax “bads” rather than “goods”
4) Keep it simple, stupid

I would say that their item 1 corresponds to my number 1, above, because a wider base with a less sloped marginal top is the core to a sustainable base of revenues that won’t fluctuate as much over time. Items 2-4 are under the negative minimization principle.

Of course part of the reason that this article seems to make sense is that it was written by a non NYT staffer who works for an opposition candidate. But I do think that the NYT and the administration are starting to realize that our current tax system is an unholy mess with huge dis-incentives (the highest corporate taxes in the world drive jobs overseas), that doesn’t raise revenue broadly, and has huge dis-incentives in terms of ability for companies and individuals to plan ahead.

Too bad it is too late in the game for them to do much more than talk about it. Also shame on the prior administration for never spending the political capital to attempt to change the system and reform it. They neglected to wield their power to make America more competitive.

Cross posted at LITGM

In a post about interest rates I wrote about being a little kid and over-hearing my grandfather (who was actually “grandfathered” in as a CPA because he was a practicing accountant before they had the exam) talk in the early 1980s saying that he thought interest rates “would never go below 10%”. At the time inflation was rampant (as Volker came in) and interest rates were in the 20% or so range, so this seemed like a valid observation. As we all know, interest rates have fallen to near-zero right now and even a “ceiling” of 10% (rather than a floor) seems far away.

Along the same lines, when I started in the energy business in the early 1990s, the “rule of thumb” of what a utility would pay for natural gas was about $2 / unit. The price would rise in the winter during the peak heating season and fall in the summer as utilities re-filled their storage, and it would vary around the $2 / unit mark, but not deviate too significantly. At the time there wasn’t a lot of vision forward on prices that I was aware of, but if you mentioned anything like the $14 / unit peak that was hit in 2005-6, you would have been laughed out of the room.

Today natural gas, propelled by innovation and “fracking”, has dropped to a price level that no one would have foreseen back in 2005-6. Per Bloomberg:

Supplies may reach a seasonal record of 2.4 trillion cubic feet in March, which is when heating demand usually ends and producers begin piping more gas into storage, Cooper said. Unless production falls or cold weather bolsters demand, prices will drop to $2.40 per million Btu, and perhaps below $2, as gas overflows storage caverns and clogs pipelines, he said.

To think that natural gas would return to 1990 price levels is amazing. Even using the government’s figures, which I think understate inflation dramatically, in the 21 years from 1990 to 2011, inflation makes the $2 in 1990 the equivalent of $3.51 today, per this inflation calculator.

What happened? Free enterprise and capital markets happened. Fracking and innovation allowed new natural gas deposits to be found in our country which brought forth huge reserves of US energy and drove down costs even while usage soared.

This low price for natural gas is not a short-term phenomenon. These reserves are significant and since natural gas is often found alongside oil, with oil at $100 / barrel the fact that natural gas is at a low price won’t impact it as much as you’d think because anything the driller gets is just profit on top of the huge profits for US sourced oil. The largest “threat” to low prices for natural gas in the US is actually the “high” price of natural gas overseas, because US drillers and pipelines can ship it to foreign countries in a liquefied (LNG) format if their high prices make it economical. Per this WSJ article:

(T)he current low natural gas prices are attracting market demand from around the world. There are already federal permits for 3 trillion cubic feet per year of natural gas exports, Apt said. “Will we export that bounty, and if we do, will that drive up U.S. prices,” he said. Natural gas sells for about $8 in Europe and $14 in Japan, but less than $4 here.

The real longer-term issue is whether other countries in Europe and Asia will also find large reserves of natural gas in shale just like they did in the US, and whether they will drill for it or avoid drilling out of environmental concerns. The French have already banned “fracking” but my (unproven) opinion is that this really says more about the power of the nuclear lobby in France, since the low price of natural gas has really been the final nail in the coffin of nuclear energy (along with the obvious issue of Japan) because it makes the plants un-economic to build. Likely the Ukrainians (smarting from Russia’s bullying over natural gas pricing), the Poles, and the Chinese will take up this technology in earnest and change the overall economics, even if countries like France are content to wait idly by.

As far as the US electricity industry, natural gas is causing coal plants to be mothballed or their owners to choose to not spend money on costly “scrubbers” to comply with EPA guidelines, changing the long term footprint of the US market. Since the nuclear boom was a “mirage” anyways (basically we will get a plant out of Southern Company and one in South Carolina, which won’t even keep up with likely decommissioning of units), this lower priced power is killing the market for new plants entirely.

For heavily indebted companies like Energy Futures Holdings (which bought up TXU assets in Texas), the low price of natural gas spells difficulties, since gas fired “peakers” set the “market price” for energy and with the price of gas at $2 / unit, not $8 or $10 / unit, they will make less money on their “base load” coal and nuclear plants which need to run all the time. Some of these utilities had a great summer in 2011 with high temperatures (especially in Texas) which helped to offset the increasing competitiveness of gas-fired generation.

The other key item to keep in mind is that when we buy US produced energy, we enrich our OWN country rather than sending wealth overseas, often to countries that despise us (and even if we don’t buy directly from Iran, the high cost of oil overall benefits them just the same whether or not we buy or someone else). The new innovative technologies have enormously benefited the United States, making us more competitive in business and reducing energy bills for tens of millions of households. And while energy companies do have “breaks” in the tax code to some extent, this innovation was not part of a government program and is in stark contrast to the failures of the Energy Department’s “research” and political backing of “green” energy which is likely to be a major campaign issue in 2012.

If only they’d unleash our oil companies in the US we would likely be able to dramatically increase our production and further reduce our dependence on foreign energy producers, while enriching our own country. The parable of natural gas is plain for all to see, which is that markets work if you let them, and that government intervention is usually far more harmful than inaction.

Cross posted at LITGM

Chicago winters are hell on your shoes. Aside from protecting them with those rubber shoe protectors, you can either 1) shine them yourself 2) go to a shoe shine stand. Since my poor shine technique leaves them not much better off than being dirty, I usually try to rely on a shoe shine stand.

The problem is that it takes about 20 minutes or so of standing in line and then getting your shoes done to do this right. And I usually don’t have 20 minutes when I am thinking about my shoes and I happen to be somewhere where a shine is available. As a result, I am stuck with a few pairs of forlorn and nasty shoes in the closet.

Thus I had a brainstorm recently and decided to just take my shoes to my dry cleaner, since they can also send them off for a shoe shine. “Just a shine?” my dry cleaner asked in her Korean accent… she seemed a bit confused. Yes indeed, just a shine.

Since then I’ve taken in all my shoes and given them a new lease on life. I am certain that this seems like a big waste of money (it is $7) but that is not far from the price of a shine plus tip and this takes no extra time at all.

But what is time really worth? I talked about this to a friend of mine in the investment world who refinanced his house and spoke of the endless rounds of re-submitting the same or slightly different documents over and over again and answering (virtually the same) questions until it hurt. Did he even “break even” on the re-financing after this was all taken into account? If your job is by the clock / corporate your off hours aren’t worth much; but if your job involves planning and marketing yourself or thinking of new ideas / research in fact those hours can be quite valuable.

I think that a shoe shine at $7 with a time commitment of zero is a good deal, for me at least. What’s your time worth?

Cross posted at LITGM

It’s Friday night!

Today I read an article about the fact that the German government can issue debt with a negative yield.

Germany sold six-month treasury bills at a negative yield for the first time amid demand for the debt securities of Europe’s biggest economy as a haven from the sovereign debt crisis roiling the region. The government auctioned 3.9 billion euros ($4.98 billion) of securities maturing in July at an average yield of minus 0.0122 percent, the Federal Finance Agency said in an e-mailed statement today. It was the first time it sold the securities at a negative yield, Joerg Mueller, a spokesman in Frankfurt, said in a telephone interview. The Netherlands sold 107-day bills at minus 0.007 percent on Dec. 12.

Thus purchasers are paying the German (and Dutch) governments for the privilege of lending them money.

Meanwhile, Italy is having a tough time finding buyers for its bonds. In order to sell debt, the yield is now above 7%, a line that (for some reason) in the popular press is read as the dividing line for “unsustainable”, kind of like the “Mendoza line” for baseball batting averages.

Italian bond yields rose above 7% on Friday (Dec 23) as worries about the government’s debt problems resurfaced. The yield on 10-year Italian government bonds edged up to 7.04%, after falling below 6% earlier this month. Italian yields first topped 7% in November amid fears that Italy could fall victim to the same debt crisis that led to bailouts for Greece, Ireland and Portugal.

On the face of it, this seems odd. Germany and the Netherlands are issuing bonds in Euros, just like the Greeks, Italians, Ireland and Portugal. Theoretically, all of these countries have the same “backstops” built into the Euro, and there is no exit mechanism.

The debt market is saying something different than what the politicians are saying – the debt market doesn’t believe the hype and, when the dust settles, they want to be holding paper from the creditworthy countries (Germany and the Netherlands) and not the PIIGS (the above countries plus Spain).

Back when Dan and I were in college we had a friend nicknamed “Strohs”. Since we were all very poor back then when we played poker often people used “markers” instead of cash. At the end of the game (generally when we ran out of beer and / or someone passed out) you might hold cash or you might hold “markers” which were really IOU’s from each person at the game. “Strohs” markers were a deck of cards marked with the ubiquitous “Dogs playing poker” picture, and thus at the end of the game if you held his marker, they were “Dogs”. “Strohs”, while a good friend of ours, wasn’t an especially credit-worthy guy (at the time). He earned his nickname by showing up for college with some clothes in a hefty trash bag and a pallet of Strohs 30 packs with which he filled his entire closet top to bottom.

So as the night wore on, if you held “Dogs” in your pile of chips and markers, your betting became especially reckless. It was common to say “I’ll raise you a bucket of dogs” which probably meant you were bluffing because if you lost all you did was remove the markers with which payment was unlikely to happen out of your stack of chips, for the promise of winning “real” markers (equivalent to the German debt above) or actual cash, instead.

For years books and magazines have focused on “yield” and also the credit worthiness of individual companies and (mostly) ignored currency risk. A friend of mine in the investment business talked about a customer who bought a huge Australian debt position and their piddly yield was irrelevant as currency gains from the Australian dollar (which I wrote about here) drove the position to a huge gain, when translated back into (weak) US dollars. Obviously this trader was ignoring yield and betting on currencies.

This is what appears to be happening today. When Europe’s dust cloud settles, people don’t want to be holding “a bucket of dogs” backed by promises from PIIGS governments’, they want the equivalent of the old Deutschmark from Germany. That is why they are essentially ignoring yield and accepting a negative yield from one country and demanding a 7% yield from another country ostensibly backed from the same currency.

Cross posted at LITGM

The sports bar Butch McGuire’s on division street (famous for bars like “Mothers” and where the movie “About Last Night” was supposedly set) is known for their Christmas decorations. I went there recently to check them out (and have a beer) and was mightily impressed.

This is a view of the front bar from the doorway and you can clearly see the two levels of train tracks as well. There are also dual level trains in one of the other dining rooms off the bar.

Here is a close up of the trains.
Read the rest of this entry »

Portugal is an EU and Euro member with a population of 10.5M. Portugal is one of the “PIIGS” (along with Ireland, Italy, Greece and Spain) that are having severe debt and austerity problems caused by a lack of confidence in their ability to service their huge financial burdens.

Portugal is relatively uncompetitive within the EU. They benefited from inflows and subsidies from the EU over the years and used it to raise living standards and develop a large and expensive public sector.

One advantage Portugal does have is their connections to former “empire” countries that also speak Portuguese including Angola and Brazil. These countries, while they have their own very significant problems, are not shackled with the anti-competitive rules and regulations that burden companies in the EU. While Portuguese citizens are not at the top of the education group in EU terms, in Angolan or Brazilian (general) terms they are very well educated and can assist multi-nationals taking advantage of the natural resources that Angola and Brazil are blessed with.

In this context, when asked what young people should do when faced with high unemployment, this article the conservative prime minister told them to “just emigrate”.

While many thought that his comments were not appropriate, there are few avenues for ambitious young people since the gravy train of EU subsidies is drying up and EU labor policies make it very difficult for companies to remove redundant staff in order to make room for more productive and cost compeititive new graduates.

This is a practical, if sad, solution to the problem of a non-competitive state which is forced to support the high cost and social benefits of the EU. It also perfectly crystalizes the “fixed pie” view of the left – keep jobs and barriers high for those that have them, and watch as the nation slowly loses competitiveness, falling hardest on those newest to the work force.

It is a blessing to the former colonies, however, who will receive the youngest, most productive and aggressive citizens who can make their fortune overseas rather than waiting in line (in vain) for a spot in the bureaucratic system.

Cross posted at LITGM

Rolling Stone magazine compiles “top lists”. Their top lists used to be very bad; they seemed to solely represent the personal preferences of their editor. Recently the lists have gotten better as they use a “panel” of musicians and critics to select which is an improved system. And in any list, there is a lot of judgement, and should be a little fun.

Even with these improvements, in my opinion, Rolling Stone botched the Top 100 Guitarist list. The list is far too tilted to the past; their #1 guitarist, Jimi Hendrix, DIED OVER FORTY YEARS AGO. Thus my methodology includes “relevance” in the calculation, and someone who died over forty years ago, correspondingly scores lower. I read through the list carefully, consulted outside sources, reviewed my own music, and built a “methodology” that resulted in my own list.

Alternative Methodology:

In reading through the list Rolling Stone and the musicians doing the evaluations obviously employed a lot of criteria. This isn’t the “most talented” list, or we’d be looking at Steve Vai and John Petrucci as #1 and #2, but they don’t make the Rolling Stone(nor mine)list at all. Rather than use a “subjective” evaluation criteria, I made my own up, and made it more explicit.

- Skills – ranked 1-3, with Neil Young a 1 and Eddie Van Halen a 3
- Innovation – ranked 1-3, with Jimi Hendrix a 3 and Nick Mars a 1
- Relevance – ranked 1-3, with Dave Grohl a 3 and Hendrix a 1
- Songwriting – ranked 1-3, with Neil Young a 3 and Yngwie Malmsteen a 1
- “Bonus” – an arbitrary category I added which allows for 0-2 points to be added for outsized contributions beyond the above categories. Dave Grohl gets 2 points for being the best rock drummer in the entire world; Matthew Bellamy gets 1 point for being the best singer on the entire list

In the process you were either a “top 100″ guitarist or you weren’t; then I started scoring the methodology on the top 100. Then I looked at the results and seemed if they made sense, and adjusted the scores accordingly.

Results of the Analysis:

As a result, the list I came up with is dramatically different than the Rolling Stone list, since it doesn’t just contain dead blues or rockabilly musicians and it weighs newer contributions higher than what happened 40+ years ago.

- only 46 of the 100 guitarists on the RS 100 list made the adjusted list
- 4 of the top 10 in the adjusted list weren’t even ranked in the Top 100 by RS
- 13 of the top 25 guitarists in the adjusted list weren’t even ranked in the Top 100 by RS

Read the rest of this entry »

When I was in Norway at the tiny (and picturesque) town of Mundal, I noted what appeared to be an abandoned highway toll booth near the edge of town. Since the meticulous Norwegians would never leave behind something like this without good reason, I started looking more closely at this find.

Surely enough, the meticulous Norwegians had a sign on the booth (in English, no less) describing why this toll booth was historic in their eyes.

Per the sign:

This toll station was situated on rv5 (close to Nork Bremuseum) from November 1994 to November 2010. The toll financed the road between Fjaerland and Sogndal. For most of the period, this was the road with the highest toll in Norway. The Norwegian Booktown and Fjaerland’s Historical Society will use the house to document the history of Fjaerland’s struggle for road-connection with the outside world. Until 1986 you could only travel to Fjaerland by boat / ferry.

As they noted on the sign the toll was very expensive. From what I have been able to find the toll cost 180 kroner each way (approximately $20 USD) but cut a substantial amount of time out of the drive to Mundal. However, once the road was paid for, the Norwegians dismantled this toll booth and stopped charging drivers, which is why they now have plans to use it as part of the historical site.

On the other hand, you have the State of Illinois, whose toll authority plans to dramatically increase tolls starting January 1, 2012. Per this article – Illinois toll road increase:

The cost of a trip on the Tollway system for the average I-Pass driver would increase to $1.18, up from today’s average of 63 cents per trip

Read the rest of this entry »

Recently I traveled to California and visited Point Reyes National Seashore. This park is north of San Francisco along the coast, accessible through the town of Point Reyes Station. This park is large considering how close it is to populated areas and has a lot of different types of scenery from coastline to meadows to wildlife.

We had unbelievably clear weather the entire time we were in California. Not only did it not rain a single drop for an entire week, most of the time there wasn’t even a cloud in the sky. To put this in perspective, they filmed the movie “The Fog” in Inverness, a small town in Point Reyes… so we were very lucky.

Read the rest of this entry »

The recent edition of “Parade” magazine when I saw a list of things that you can do to help others in need. I was struck by their plea to “Feed Hungry Children in Oregon” where they said that

Oregon has the nation’s highest rate of “child food insecurity.” About 252,000 kids – or nearly 30% of the state’s youth – aren’t sure where their next meal is coming from.

This surprised me because I never thought of Oregon as a state that had this sort of poverty. The example they gave in the article was as follows:

My husband and I both work full-time, but we make minimum wage, and some months it’s either pay our bills or buy food, says his mom, Nichole (her child is featured in the photo, above).

While this is a sad and heart rending story, there is another connection as to why their parents are having a hard time finding higher wage work. Per the Tax Foundation:

Oregon’s personal income tax system consists of five separate brackets with a top rate of 11% kicking in at an income level of $250,000. That rate ranks the highest among all states levying an individual income tax.

While tax policy may seem arcane to individuals worrying about food security, it is important to realize the CRUCIAL impact that state income tax rates play in state competitiveness. Of all the components of a tax burden, the ONE element that can be most easily modified or avoided is the personal income tax levied by a particular state. For instance, if you earn $1M a year, you’d be paying about $75,000 more in tax in Oregon than you would in Texas, Florida, Nevada, or other states that don’t levy a personal income tax (it isn’t $1M times 11% because of the graduated nature of the tax up to $250,000 and the fact that state taxes are deductible on Federal returns, so the $75,000 is a rough estimate).

A high marginal personal income tax rate falls DIRECTLY on those most likely to invest in a business that would hire someone like the family in this photo. A high marginal tax is analogous to seeking out the very individuals that could bring a state jobs and economic prosperity and telling them to invest elsewhere. You could go door-to-door and punch them in the face, or just set the nation’s highest personal income tax rate, the net effect is exactly the same.

The biggest fallacy the high marginal tax crowd falls into is the “fixed pie” thinking – since businesses and high income earners are unlikely to move, if you tax them more they will just sit like sheep and take it and pay into the state to fund their myriad social programs. That may be true in the short run and for individuals that are tied to their community, but I guarantee that every wealthy person has an accountant who carefully tells them the negative impact of residing in such a high tax state and the benefits of moving elsewhere on their take-home pay. If they have a choice to invest more in Oregon or go elsewhere, other states look much more inviting. Over time, investment slows, and then there are more and more articles with the sad faced children just like this one, and pleas for the rich to pay their “fair share”.

The problem is, the rich aren’t stupid, and a high state income tax is basically pushing them to invest and live elsewhere, particularly somewhere warm with a tax friendly climate like Nevada, Florida or Texas.

Cross posted at LITGM

I recently read and highly recommend a book called “The Great Big Book of Horrible Things” by Matthew White with the sub-title “The definitive chronicle of history’s 100 worst atrocities”. Since it is the holiday season, not being involved in one of these events is definitely something to be thankful for…

As someone who has spent their entire life reading books about history and military history in particular, this “organization” of cataclysmic events is very interesting. The author has different types of events, such as major dictators, not just wars, as he attempts to “rank” and chronicle each occurrence. Here are the top ten items per the author:

1. Second World War 66m
2. Chinggis Khan 40m
2. Mao Zedong 40m
4. Famines in British India 27m
5. Fall of Ming Dynasty 25m
6. Joseph Stalin 20m
6. Taiping Rebellion 20m
8. Mideast slave trade 18.5m
9. Timur 17m
10. Atlantic slave trade 16m

(as a note the First World War comes in tied for 11th at 15m)

The first thing that came to my mind is that I didn’t even know what some of these items were; I know relatively little about ancient Chinese regimes and I had never even heard of the Taiping Rebellion which occurred from 1850-64 and per this book at least killed more than World War I (of which I know a great deal). Here is a wikipedia article on the Taiping Rebellion which also quotes the 20 million figure (for what it is worth).

I also find interesting the separation of individual dictators from the military conflicts that they led or sponsored. He did not break out Hitler from WW2 since Hitler’s atrocities were mostly contained within that time span. However, Stalin’s atrocities occurred pretty much from the moment he took power until the day he died so he received a separate section dedicated to his crimes. The author also makes a special section on the communist crimes where he aggregates the various tyrants and crimes in one spot for sad if easy reading.

Read the rest of this entry »

There was a made for HBO movie called “Too Big To Fail” about the 2008 financial crisis. I recommend watching it (even though it was controversial in some circles for showing Hank Paulson as a virtual saint) especially for people who aren’t in the finance industry because it is intelligently written (based on a book) and they really got big name actors to play the part of Wall Street CEO’s.

The Wall Street Journal has an “overheard” box on the back page of the financial section and they had some interesting observations on Wall Street in 2011 on how the various players have shrunk in market capitalization.

Here are the current market caps of the “Too Big To Fail” parties:

- Lehman Brothers (Dick Fuld) – bankrupt
- JP Morgan-Chase (Jamie Dimon) – 110B (CORRECTED)
- Vikram Pandit (Citigroup) – 69B
- John Mack (Morgan Stanley) – 25B
- John Thain (Merrill Lynch) – bought by bank of America (see below)
- Lloyd Blankfein (Goldman Sachs) – 52B
- Rickard Kovacevich (Wells Fargo) – 123B
- Bob Willumstad (AIG) – 38B (resurrected by Federal Government)
- PREVIOUSLY Bear Stearns – sold to JP Morgan-Chase

In the movie Wells Fargo was treated as an afterthought. Not mentioned are two banks listed below and Bank of America is given only a small part in the movie, even though they ended up buying Merrill Lynch (I don’t even know who played Ken Lewis).

US Bankcorp 45B
PNC Financial 44B
Ken Lewis (Bank of America) 52B

The fact that these banks which are generally thought of as “regional banks” like US Bankcorp and even Wells Fargo have market caps in line or ahead of the giant Wall Street banks is a sea change in reality.

As these Wall Street companies become smaller what you are also seeing is the relative shrinking of the financial sector as a total portion of the US market capitalization. Financials returned -48% over the last 10 years vs. -17% for the S&P 500 (for the link to work change the time frame to 10 years and you can see the results).

These companies have an outsize impact on the economy of New York in particular because they pay out such a high percentage of their revenue in compensation. According to this article the compensation will drop 20 to 30% this year compared to the prior year.

In the first nine months of the year, Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America and Citigroup set aside almost $93 billion to pay employees, up from $91.25 billion in the year ago period, according to Johnson Associates. The final number, however, is not set until the fourth quarter, when firms have a clear idea of their total revenue for the year.

While employee compensation as a percentage of market capitalization is not always a good metric to use for comparison purposes, in this case it is enlightening. Much of the outsize pay (some would say obscene) that these New York traders and executives receive is justified by the profits (and high stock prices) that result from their actions. But if the banks are paying out such a high percentage of their total market capitalization in profits every year, that justification starts to take on water a bit.

As far as alternative metrics, Business Insider had an interesting article on Wal-Mart, which employs 1% of the US work force. This analysis attempted to show what would happen to the average worker if Wal-Mart plowed back all their profits into employee wages (just a theoretical case). Per the article:

If Walmart took its entire $22 billion of annual pre-tax income and used all of it to give each one of its 2.1 million employees a raise, this would amount to about $10,000 a year apiece. In other words, if Walmart decided to use 100% of its operating profit to pay all of its employees more, the average store associate’s salary would go from $20,000 to $30,000.

In an even sharper turn down the rabbit hole of linked causality, Wal-Mart itself is essentially moving off Wall Street to become a private company. This is obviously an exaggeration but Wal-Mart is using its profits to buy back stock, and much of its stock is held by the descendants of Sam Walton in the first place, so the outstanding stock metric is even lower than it appears. Wal-Mart has 3.46 billion shares outstanding but the “public float” is only 1.73 billion shares. And Wal-Mart is working hard to whittle away that public float, per this article…

Wal-Mart said on Friday that it would buy back $15 billion more of its shares to try to improve returns for its shareholders. The initiative, which was announced at the company’s annual shareholders’ meeting here, comes after a previous $15 billion repurchasing plan that was announced last year. The company bought back 244 million shares, worth about $13 billion, under that program

So there you go. Wall Street, that icon of capitalism, justifies high salaries for traders and executives on the basis of stock capitalization values that no longer support this line of reasoning. And on the other hand, the core basis for Wall Street, the raising and allocation of capital, is turned on its head as one of the largest and most well-run companies, Wal-Mart, essentially plows its earnings into a de-facto move to privatization and off Wall Street in the first place.

Cross posted at LITGM

The base of the Trump Tower parking garage is lit up for the holidays. Here is a view looking south towards the river.

It is difficult to get a photo from the ground that captures the entire height of Trump Tower and the lit up “pylon” on top. You can see the reflection from the lights of the adjacent IBM building alongside.

Cross Posted at LITGM

I recently traveled to Norway and as a minor military historian was fascinated by their historical entanglement with Germany. I was not able to travel to see the coastal fortifications in the Northern part of the country that I wrote about here.

Balestrand and The Kaiser

Balestrand is a beautiful little community along a large fjord (Sogenfjord)in Norway. While we were there I stayed at the Hotel Kviknes, which has a long tradition as a fine tourist hotel.

The Kaiser brought a portion of his fleet up the fjord with him while he visited Norway as a tourist. I saw a photo from a local guide but I can’t seem to find one on the internet. He had a touring vessel and it looked like a couple of light cruisers but am not certain.

This is the chair in the Hotel Kviknes where the Kaiser supposedly sat when WW1 was declared. There was a young couple having a drink at the table and they were nice enough to let me get a photo of the bottom of the chair which was marked accordingly.

Stalheim Hotel and the Kaiser

The Stalheim Hotel is one of the most famous hotels in Norway, known for its fabulous views as you can see below.

Read the rest of this entry »

In today’s Wall Street Journal there are two articles that seem to be completely disconnected but are really linked at the core. One is titled “Health System Reflects Greece’s Ills” which summarizes Greece’s public sector health policy:

Like nearly all Greeks, Mr. Gianakouras was covered by a state social security fund, which provided $13,6000 for the hospital bill. There was just one more thing: Mr. Gianakouras said he gave his surgeon “black money” – $5000 Euros in cash – to perform the operation.

‘If you don’t pay’, he said, ‘you don’t get anything done’.

While we might be surprised by this type of situation in the United States and a few other western countries, it is the way the world operates elsewhere when the government or constitution gives “rights” to citizens without the means to pay nor proper incentives to get work done in an organized and systematic (market-based) fashion. This system was brought to a fine art in the former Soviet Bloc countries where the free-market was squeezed almost entirely into niches; a vast, parallel system of bribes, favors, and illicit goods and services ran alongside the “official” system which got little or nothing done.

Alongside the uselessness of utilizing the official channels is the general impunity of the government workers that run the sham system. Periodically there are calls to remove “corruption” but that implies that corruption is a deviation from the system when in fact corruption is the system itself. There is little or no motivation for the government workers to follow rules and bribes and favors are commonplace, so what is the point in going after them in the first place for participating in a system that can’t work?

A different article discusses the “penalty” faced by SEC workers for their failure to spot the Bernie Madoff fraud, titled “SEC Discipline over Madoff” which can be easily summarized in the first paragraph:

The SEC admitted Friday that it has disciplined eight employees over their handling of the $50 billion Bernard Madoff Ponzi scheme without firing any of the workers.

In one of the most obvious cases of gross governmental negligence (there are entire documentaries about individuals that tried to bring Madoff’s scam to light and were ignored by the SEC employees so I won’t summarize them here), there is NO CONSEQUENCE for these workers for their failures.

The core concepts of moving away from the free-market to a governmental run system are 1) bribes , corruption and favors being built in to the system to make it work 2) general impunity of workers for participating in this sham “rights based’ process.

My advice is to befriend governmental workers and medical care professionals in the future as our system moves more towards the “Greek” model of over-promising care to everyone and under-funding and not incenting the hard work necessary for quality care to occur. And be prepared for a wall of government workers who can rule with impunity based on arcane processes and standards not tied to the free market or any sort of accountability based system as our “investment” in government increases; the first thing these workers will do is build a system where they are put “first” before the mission that they are trying to accomplish.

I never thought that my classes on “command economies” would ever come in so useful, but it shows the long-term arc of our creeping end game in the West.

Cross posted at LITGM