Posted by Michael Hiteshew on 2nd June 2016 (All posts by Michael Hiteshew)
Note the ad hominem and generally vile nature of the leftists’ comments. It’s a reflection of who they are.
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Posted by Michael Hiteshew on 2nd June 2016 (All posts by Michael Hiteshew)
Note the ad hominem and generally vile nature of the leftists’ comments. It’s a reflection of who they are.
Posted by Trent Telenko on 26th May 2016 (All posts by Trent Telenko)
The “DUC” in this case being _D_rilled but _U_n_C_ompleted shale oil & gas wells
I ran into this article by Seeking Alpha energy analyst Gary Bourgeault over on Real Clear Energy which gave a figure for how many drilled but ‘unfracked’ wells are available for the new extended oil flow fracking technique I mentioned in May 15th 2016 post Texas Fracking and the Death of Big Oil.
The key passage from “U.S. Shale Oil Boom Over Says CSMonitor – Hahahahaha” below —
DUC wells waiting in the wings
Another major reason the shale boom isn’t over is the large number of drilled but uncompleted wells waiting to be brought into production. There is an estimated 5,000 in the U.S. which can be quickly brought to market when the price of oil is high enough to reward it. Some companies have been completing them for some time, and more are being completed in 2016.
There are a lot of implications in that number. Starting with the fact that new oil & gas rig counts are going to be minimal for some time. And the hard economic fact that major politically event driven oil price spikes are going to be extremely short and will drop below 50 dollars a barrel within weeks to three months, given how fast these North American “DUC” wells can be fracked to bring product to market.
This new age of “banked” cheap oil plays, and the resultant oil price stability, will see off both the “Big Oil” economic model and the political/corporate elites that live by it.
Update May 27 2016:
It looks like Zerohedge has come to the same set of conclusions about the “Big Oil” economic model with his post “Peak Petro-State – The Oil World In Chaos”
Over at The Lexicans, Bill Brandt posted an item about an 8-part TV series titled ‘American Genius’…it is about a selection of inventors and entrepreneurs who have had a major impact on technology, society, and history. It sounded worthwhile and I’ve watched about half of the episodes–thanks, Bill!…definitely worth watching, but OTOH I think there are a few things in the series that should have been covered a little differently.
Edison vs Tesla is about the AC-vs-DC power wars, and correctly reports on the sleazy fearmongering tactics that Edison used in his unavailing attempt to maintain DC’s dominance. The show referred to George Westinghouse, who was Tesla’s sponsor in this battle, as “sort of a railroad baron,” completely ignoring the fact that Westinghouse was himself a major American inventor. Most people would think of a ‘railroad baron’ as someone who owns or manages railroads, not someone who invented the air brake.
Farnsworth vs Sarnoff is about the battle to dominate the emerging television industry. It was presented as a David-versus-Goliath story–though Goliath was in this case named David (Sarnoff)–individual inventor versus ruthless tycoon. Sarnoff was indeed ruthless, indeed could be fairly referred to as a prototypical crony capitalist…but it would have been interesting to point out that he wasn’t always a Goliath, wasn’t born to that position, but had in fact come to this country as an impoverished Russian Jewish immigrant and had encountered severe and career-threatening anti-Semitism on his path to Goliath-dom.
Space Race is focused on two individuals, the German/American Wernher von Braun and the Soviet rocket designer Sergei Korolev. Korolev was played by an actor who looked a little too young for the role at the subject time period: more importantly, it should have been mentioned that Korolev had been arrested and sent to the Gulag, where he lost most of his teeth due to the brutal labor-camp conditions. There were psychological scars as well–Boris Chertok , who worked closely with Korolev for years, said that there was only one single time that he saw the man really happy. In a series focused primarily on the leading characters and their conflicts rather than on technical details, these things deserved to be covered.
The program refers to a successful Soviet test in 1957 of a missile with intercontinental range, shortly before the launch of Sputnik. Actually, the test was a failure because the warhead disintegrated on reentry…and reentry, while a critical factor for ICBMs, is not important at all for one-way satellite launches. The American belief that Sputnik meant all of our cities were vulnerable to Soviet missiles was a little premature–not much.
I thought Wernher von Braun got off too easily in this program. The show did mention that the V-2 missile was assembled by slave labor in an underground factory adjacent to a concentration camp: the truly horrific nature of V-2 manufacturing (this was possibly the only weapons system ever made that killed more people in its making than in its employment) could have gotten more emphasis, and the evidence is that von Braun was fully aware of what was going on in this place.
I’m also not convinced that von Braun was as absolutely critical to US missile and space programs as the show implies. The program to build the Atlas missile, which was developed in roughly the same time period as Korolev’s R-7, was directed by USAF General Bernard Schriever, with technology expertise provided largely by the newly-formed Ramo-Wooldgridge Corporation and by Convair. I see no reason why this team could not also have conducted a Moon program, had they been so chartered.
The show does point out that von Braun, in addition to his technical and management contributions, played an important role in popularizing the ideas of rocketry and space travel…I had been unaware of his work with Disney to this end. So, in addition to being a genuine rocket scientist (and, arguably, a war criminal in at least a moral sense), von Braun was also one of the great PR men of the century.
Again, with the omissions and missed opportunities, the series is still very much worth watching.
Posted by Trent Telenko on 15th May 2016 (All posts by Trent Telenko)
It isn’t often you see the death of a major worldwide industry. Last week I saw the death of the “Big Oil” economic model. It just died at the hands of Texas oil frackers who have developed a new “disruptive technology” that has made obsolete all the pillars of technology underpinning large, vertically integrated oil companies. More importantly, the same is true of all the petro-states that nationalized Big Oil’s assets in the 1960s to make all the state oil companies around the world today.
I found this out doing my day job last week as a Defense Department quality auditor visiting a mid-sized oil service company diversifying into federal contracts. The meeting was about issues with the contract they won and touched on others they have bid on. As a side bar at lunch the following points about their main business came up:
1. Oil field spending has died. Rig count in the USA is the lowest it has been since 1940.
2. One oil rig controller company these folks worked with saw a year over year drop of 72% in its business.
3. Another company they supplied had their “Cap-X” budget drop from ~$400 million for 2015-2016 to little over $30 million for 2016-2017.
4. One drilling company they supplied went from 120(+) new wells last year to _12_ this year.
5. This supplier sold a lot of copper tubing for “frack-log” drilling. That is the drilling of holes in good oil-bearing rock without fracking rock for oil immediately — and here is the new part — to take advantage of a new long-flow fracking technique.
While most of the points above are due to the Saudis’ oil price war on Texas frackers. An ex-Big Oil geologist I know put it this way —
The entire reason for the price drop was because the Saudis wanted to destroy fracking in the United States in order to keep us dependent upon them in order to keep them getting a free defense. The Saudis will have to diversify and start spending money on defense before the price goes back up, or they will be in serious trouble.
The technique in Point #5 above marks another “fracking revolution” that is of growing importance to the USA. This new fracking energy revolution will upend the world order as we know it. Political winds willing, America may well be a net hydrocarbon exporter in five to eight years.
Explaining why that is requires some background in Texas oil fracking.
Posted by Michael Hiteshew on 15th May 2016 (All posts by Michael Hiteshew)
The Myth of the Robber Barons, by Burton Folsom
Controlling our view of the past – even our view of the present – is an obsession with the Progressive Left. Our understanding of history deeply influences our thinking and philosophy. Among other things, it shapes our view of both the morality and social-economic effects of free market capitalism versus socialism.
To that end, a group of enormously successful people from the 19th century were demonized by turn of the century Progressives and have continued to be demonized as The Robber Barons by Leftist historians in primary school and college texts ever since. More subtly, through dark Orwellian references in Leftist entertainment programs and media, they have been thoroughly maligned in the popular imagination as well. Yet few people know who these people actually were and what, for better or worse, they actually did in their lives and how their works affected our lives even today. In his book, Robert Folsom sets out to take fresh look at people we would today call entrepreneurs.
In broken-windows policing the cops go after guys who jump subway turnstiles and commit other minor crimes. This is because the policing of low-level crimes tends to lead to reductions in serious crimes. Not only are minor criminals disproportionately responsible for felonies as compared to the general population, the fact that the police are seen not to ignore the small stuff creates a virtuous cycle by deterring other crimes and increasing the public’s confidence in civic authority.
I thought of this issue when I noticed that a sophisticated Java program that I use on my PC has serious bugs that are never corrected. For example, opening an Excel tie-in in the Java program kills all of the open Excel processes on my PC. I’ve complained several times but nothing gets fixed. Meanwhile there are simple apps on my phone that get updated frequently so that annoying little problems disappear over time. The fancy Java software has many more features but which software would I rather use?
Another Chicagoboy adds: The problem is that many companies view software updates as a cost rather than a feature. Software upgrades in response to customer complaints should be a trumpeted feature, because they are a way of convincingly communicating that the company shares its customers’ values about what matters, and therefore that it’s safe for the customers to invest their time in the company’s products as opposed to competing products.
Posted by Grurray on 29th April 2016 (All posts by Grurray)
Yesterday, the GDP figures were released for the first quarter of the year, and they showed that the economy is flatlining. We grew at only a pitiful 0.5%. Much of it was caused by a huge decline in business investment, which saw the biggest monthly drop since the recession.
This is mostly blamed on the troubles in the oil and gas industry, but output in other areas of the economy also showed weakness. Factory orders dropped and have remained flat the past several months. Car sales plummeted 2.1% last month, their biggest drop in a year. With gas prices low this is the one thing we should see rising. The car industry stumbling means there may be some other underlying problems.
The conventional wisdom, on the other hand, views this as just a blip. The winter season in the post-recession era has usually been the weakest time of year only to be followed by a rebound into the rest of the year. The exception was 2012 where the high hopes at the start gave way to the rising probability of an Obama reelection. The economic shock spread during the year, and the traditional holiday hangover came a little early in the wake of the electoral wreckage. This year, with the jobs market expected to stay strong and the Fed signaling it will put the brakes on further interest rate increases, the economy is seen bouncing back as the rough waters give way to the calm port.
It may very well turn out that way for all I know. My crystal ball has been a little foggy lately, so I wouldn’t venture a guess either way. However, there may be some other causes for concern further down the road. This week the McKinsey Institute just issued a research report on the stock market, ominously titled, Diminishing returns: Why investors may need to lower their expectations. In it they provide a detailed analysis of why the next 30 years will see lower stock market returns than the previous few decades.
Now admittedly, most analysts’ forecast for the next 30 days can usually be attributed to luck. A forecast for the next 30 years probably isn’t something you want to bet the whole farm on. A small corner of the barn maybe, but I would save the rest of the homestead to see how things actually unfold.
The report lays out in detail why the oversized returns between 1985 and 2015 were possible, and the reasons they say are because of four factors: low interest rates, low inflation, high productivity from technological advances, and favorable demographics from emerging markets entering the global economy. Nothing controversial there. The first three elements increased profit margins, and the last one provided cash influxes, which kept interest rates low, which in turn increased the others. Virtuous cycle – wash, rinse, repeat. They also include some calculations, but the self-evidence is apparent enough.
The wrench in the works is going to be the fact that those elements won’t have the effect that they once had. Interest rates are already rock bottom, and in some cases even below that. Squeezing more out of low yields is going to be tougher and tougher. In 1980 inflation was 13% and interest rates were 20%. Now they’re currently at 1.6% and 0.5% respectively. There’s nowhere to go but up. Sideways is always a possibility, but we’re still in the same boat. That won’t drive future growth either like it once did.
Demographic growth may still hold up. There’s still a whole lot of world out there with the potential to drive a modern global economy. The question is will they be capable of replicating what we saw in the recent past with hundreds of millions of Chinese rising out of the Maoist ashes and into the middle class? Any new emerging markets will have a lot more work to do. The report points out that the countries with the largest economies have seen slowing population growth, and that will continue to decelerate
In Western Europe, aging is more striking than in the United States. In France, for example, the share of the working-age population is expected to decline from 63 percent to 58 percent over the next 20 years. In Germany, the fertility rate has exceeded replacement rate in only seven of the past 50 years. Employment has already peaked in Germany, and its labor pool could shrink by up to one-third by 2064. Until the 2015 influx of refugees from Syria, Iraq, and elsewhere, the German population was expected to shrink by as much as 0.3 percent per year over the next 20 years.
Germany has decided to address their demographic collapse by welcoming in an unproductive culture. Either way they haven’t much left to contribute in preventing the forecasted shortfall.
McKinsey does hold out hope for some technological breakthroughs which could pick up the slack in productivity. Whatever it may be, they say it will need to have a bigger impact than the previous computer and internet revolutions because of the other headwinds. The best scenario would be in some combination with fast growing emerging market or industry. The problem with that happening is now that taxes and regulation are increasing, companies involved in fast growing sectors will tend to want to stay private, so equity returns will be elusive for only a select few.
Interestingly, one sector highlighted that will benefit from higher interest rates is insurance companies. The era of low to zero interest rates has made it difficult for them to make any money on annuities. Their annuities pay out guaranteed yields to customers, but ZIRP and NIRP keep profits low. Fixed income annuities in which insurers bear most of the risk will benefit from higher yields.
However, variable annuities where the customers share the risk have more exposure to equities, so they would be vulnerable to the lower growth/lower returns environment. Providers of variable annuities along with other asset managers will need to adjust their investment strategies:
To confront this, asset managers may have to rethink their investment offerings. One option would be for them to include more alternative assets such as infrastructure and hedge funds in the portfolios they manage. Such alternative assets already account for about 15 percent of assets under management globally today.
To chase returns, investors will be forced into riskier assets, possibly with dubious intentions, i.e. government boondoggles otherwise known as shovel ready infrastructure projects. We may already be seeing something like this with the imminent government takeover of financial advisors
The Department of Labor dealt a bit of a surprise blow to fixed indexed annuities in the final iteration of its rule, issued Wednesday, by lumping the annuities into a more complex and costly regulatory regime than they have presently, representing an about-face from the department’s original proposal.
Just like Obamacare pushes out the small to medium firms that can provide much needed innovation in order to capture the market, the new DOL fiduciary rules will push out small to medium sized advisors to replace them with automated puppets that will be programed to herd investors into investing in government programs.
There’s a good reason the Obama Administration is currently fighting so hard to keep these rules. It’s a template for taking over other industries. And with that it’s another impediment to productivity growth and innovation which reinforces the grim forecast of diminishing returns by McKinsey.
… Must be the LGTBYTUVXYZ activist and alleged Christian minister who bought a specially-decorated cake from the Whole Foods store in Austin, and tried to claim that a disparaging message had been iced upon it. The shock, the horror and all of this devastating experience (Devastating, I tell you!) led him to post at length on YouTube, hire a mouthpiece and alert The Media! Very shortly afterwards. So shortly, I reckon it was done at something close to light-speed as the social media cycle goes these days.
Sigh. This in Austin, and at Whole Foods. I can only guess that an HEB bakery counter was just too infra dig, and any Christian-owned bakeries were just too damn far out in the suburbs, and like ick! Straight and white people cooties! Like – he would have to have driven simply miles to have found a commercial bakery outlet which would have delivered a product absolutely guaranteed to live up to all those sweaty social justice warrior fantasies. So pick on Whole Foods … where a video rundown of the staff likely would have looked like the sequence of Roger de Bris’ stage crew in the remake of The Producers.
Brilliant, guy – simply brilliant. And Whole Foods is going to sue; all props to them for not caving.
There may be real hate crimes being perpetuated in these somewhat United States, but anyone paying attention to news reports of them usually must conclude that if they have not been faked outright by the so-called victim, it’s some curious circumstance that has been wildly misinterpreted by hysterics. Discuss.
Here’s a story about some Silicon Valley tech workers protesting outside a Hillary Clinton event co-hosted by a venture capitalist and George Clooney. One might expect that these people are protesting Clinton because their political preferences lean toward the Libertarian or Conservative side. But then, one would be wrong.
They are mostly Sanders supporters. And they feel oppressed by the industry that they are in, and especially by the VCs who fund the companies where they work. Here’s the complaint of a 26-year-old software engineer:
“They sell you a dream at startups – the ping-pong, the perks – so they can pull 80 hours out of you. But in reality the venture capitalists control all the capital, all the labor, and all the decisions, so yeah, it feels great protesting one.”
“Tech workers are workers, no matter how much money they make,” said another guy, this one a PhD student at Berkeley.
Now, one’s first instinct when reading this story–at least my first instinct–is to feel contempt for these whiners. Most of them are far better off financially than the average American, even after adjusting for the extremely high costs of living in the Bay area. And no one forced any of them to work at startups, where the pressures are well-known to be extreme. They could have chosen IT jobs at banks or retailers or manufacturing companies or government agencies in any of a considerable number of cities.
Looked at from a broader perspective, though, the story reminded me of something Peter Drucker wrote almost 50 years ago:
Claire Berlinski is very pleased with the response to the GoFundMe page in support of her new book ($9700 as of this writing) as well as the strong interest in the crowdfunding investment possibility.
A conversation between Claire and her brother Mischa suggests some grounds for cautious optimism about the future of this country:
Claire Berlinski wants to write a sequel to her important book Menace in Europe, which I reviewed here. She hopes to do this via a self-publishing and investment model, under which people will make contributions toward the estimated $60,000 cost of the project and receive in return a percentage of the profits.
Obviously, it will take some work to structure a deal like this properly and in compliance with all relevant regulations. In the meantime, Claire is doing some initial fundraising via GoFundMe–see the link at Brave Old World. Contributions here, which will go especially toward development of the project website, are straight donations without expectation of any financial return. However, you do get the benefit, as Claire notes, of helping to replace the New York Times and similar publications as gatekeepers of the news.
Posted by Michael Kennedy on 30th March 2016 (All posts by Michael Kennedy)
California has now decided to impose a a $15 per hour minimum wage on its remaining business economy.
Denial of consequences is an important part of left wing philosophy.
“California’s proposal would be the highest minimum wage we have seen in the United States, and because of California’s sheer size, it would cover the largest number of workers,” said Ken Jacobs, chairman of the UC Berkeley center. “This is a very big deal for low-wage workers in California, for their families and for their children.”
Implicit in all the assumptions is the belief that employers will not adjust by reducing the number of minimum wage employees they have.
The UC Berkeley estimate also includes some who earn slightly more than the lowest wage and stand to benefit from a ripple effect as businesses dole out raises to try to maintain a pay scale based on experience, Jacobs said.
If Brown’s plan passes, 5.6 million low-wage workers would earn $20 billion more in wages by 2023, according to the UC Berkeley analysis. It assumed no net jobs would be lost as businesses look to trim costs.
The experience in other places has not been positive.
Even a former chairman of President Obama’s Council of Economic Advisers, Alan Krueger, has cautioned recently that “a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences.”
I’ve previously written about the failure of the “Advanced Automation System,” an FAA/IBM effort to create a new-generation system for air traffic control: the story of a software failure. (The post excerpts the thoughts of Robert Britcher, who was deeply involved in the effort and is an excellent writer–very much worth reading.) The AAS project has been called “the greatest debacle in the history of organized work”–there are a lot of contenders for that honor, though, and here’s another one…
I have been considering “disruption”, including what is hype and what is real. Here is one on the cab industry where it occurred, in the electric and gas utility industry which has proven resilient in its current business model, and retail which is in the process of being disrupted.
My theory under these posts is that increasing supply (broadly defined) has been the key to whether or not “disruption” is truly real or not occurring. I don’t know if it will play out that way or not in the end but this is a starting point.
I have been interested in the airline industry for decades… in high school for my statistics class I built a model which correlated the profits of United Airlines with the price of oil. As an auditor and consultant I spent hours every week on a plane crossing the country serving utilities. And ever since I have traveled at least ten times a year for business or pleasure. So perhaps I would not consider myself an expert on the airline industry but certainly an interested observer.
The airline industry famously de-regulated in 1978. From 1978 to 2010 the airline industry added myriad new entrants and saw them fail along with much of the old guard. Wikipedia summarized this era here. In recent years, through bankruptcy and mergers, the US airline industry consolidated into four major carriers – American, United, Delta and Southwest. These four carriers control the vast majority of gates at major cities and effectively operate as an oligopoly. Now these four carriers are in rude health, as you can see in the stock chart below. Their stock prices have increased between 135% to 355% over the last 5 years. As an investor I bought Southwest after 9/11 and held on to it for years as the price languished; unfortunately I exited the stock before they became today’s oligopoly.
Another contributor to these gains is the collapse in oil prices. During the “peak oil” era, the airlines profits were strangled by the high cost of fuel – today they benefit immensely from today’s commodity price crash. This article describes how lower fuel costs saved them $4.3B in the third quarter 2015 alone and these lower costs have generally not come through to end users as price decreases – the airlines have banked the money or used them for dividends and capital improvements.
In San Saba, Texas. (Which, I am told, is correctly pronounced “San Say-bah” locally.) I met there on Monday with a gentleman who is a descendant of Frank Hamer, in the course of doing a book-talk presentation. I also met with a descendant of John Meusebach. I heard all about a Meusebach daughter, who became a dentist and had an extraordinarily interesting life.
You never know what you are going to find out about in small-town Texas.
And I got some nice pictures in San Saba, and in the next town over, called Cherokee.
Posted by Michael Hiteshew on 24th February 2016 (All posts by Michael Hiteshew)
What if someone were to apply the computer-controlled logistics system of an Amazon.com type business with robotic manufacturing? At Amazon, parts are stocked and retrieved robotically, inventories are updated, parts ordered, payments made, payments received, all with a minimum of human intervention. Humans manage the system, the system does the grunt work. Everything that can be automated is.
Combine that with robotic assembly, robotic inspection, robotic test, robotic packaging and shipping, and it seems one could easily compete with China for manufacturing a product like an iPhone. If something seems obvious yet does not occur, then one has not accounted for some key thing.
From my perspective, the key engine of economic growth is manufacturing; taking raw or less valuable material, applying know-how and capability, and creating something with greater net worth than the sum of its raw material worth. It is the foundation of wealth creation. And wealth creation is the foundation of a healthy economy, a high standard of living, social stability and opportunity.
Are we so tangled up in taxes and EPA and OSHA regulations we simply cannot manufacture anything competitively in the United States any longer, even with robots? If so, what is the solution, realistically? Is it possible to reform the regulatory state or does it need to be discarded, starting fresh? Can the tax system be fixed or should it burned and rebuilt? What is required to get manufacturing back on track in the United States?
I have been considering “disruption”, including what is hype and what is real. Here is one on the cab industry where it occurred and in the electric and gas utility industry which has proven resilient in its current business model.
While “retail” is a nebulous category, it is one that touches virtually everyone in the USA. Let’s start with the definition of retail:
the sale of goods to the public in relatively small quantities for use or consumption rather than for resale.
My experience with retail has been that of a consumer, although I live in an area near Michigan Avenue which features a huge variety of stores of all types, from mass market to high end “showcase” stores. I also have a long history with e-commerce, having been involved in a variety of businesses helping them to go “online” and “digital” from the earliest days of the web. Since the primary threat to modern retail today is from e-commerce, this experience is relevant.
This chart above is from a recent Business Insider article on retail. The graph clearly shows how shopping is moving from the physical retailer to the online retailer, and it is being accelerated by the adoption of mobile technologies (which enable you to shop and research while on the move, not just when you are in front of your computer at a desk).
Posted by Michael Hiteshew on 17th February 2016 (All posts by Michael Hiteshew)
Who does one call to get Europe on the phone? What is causing all the economic problems?
And what is happening in Ukraine and why?
And what should the USA be doing in all this? And is the USA an empire?
I started a trend of posting on disruption with the taxicab industry being walloped by Uber. While disruption is everywhere in the press, the question is – when is disruption truly real and where is it a distraction? Let’s move on to the electric and gas utility industry.
The electric and gas utility industry is the “exact opposite” of the classic “disruption” thesis… although disruption and revolution have been promised many times over the years, they have failed to materialize. Let’s look at the characteristics of this industry and find the salient facts that either “enable” or “defeat” disruption.
I worked in the electric and gas utility industry throughout all of the 90’s. I traveled to over 100 public, private and municipally owned utilities (there aren’t that many left today because there have been many mergers in the industry space). Since then I have followed them through business publications and public sources of information.
The electric utility industry has 4 main components:
1. Generation – the generation of power through nuclear fuel, coal, natural gas, hydro or solar / renewable
2. Transmission – moving power via high voltage lines from where it is generated (remote) to the cities where people live
3. Distribution – the local city with overhead and underground wires and substations and physical trucks
4. Customer Service – who you call and how they dispatch crews and respond to incidents
The electric utility industry also is characterized by “real time” surges and the fact that power can’t be stored (yet) on a large scale; thus peaks occur on the hottest days or the coldest days and power is needed exactly at that moment at your particular location. These peaks can results in demand far higher than during a “typical” day.
The natural gas utility industry is conceptually similar to the electric energy industry with two main differences. Generation isn’t handled by them (exploration companies find natural gas and get it to their system through their own processes and methods) and natural gas is much less “peak sensitive” and can be stored near the point of demand and injected into the system.
Broadly speaking, there have been many attempts to “de-regulate” the electric and gas utility markets over the last THREE decades. Let’s start with natural gas.
The term “disruption” is everywhere in the popular press. You should “disrupt yourself” and new internet unicorns are going to “disrupt” all kinds of industries. Let’s think a bit about what really is disruptive and what isn’t. This post is going to start with the taxi industry. Later I will turn to other industries, where disruption was predicted but didn’t occur, and we can try to determine why.
I am very familiar with taxis, having traveled all around the country for business over decades and using taxis all the time in Chicago. Downtown Chicago is one of the few places where you could hail a street taxi at almost any hour of the day or night and assume that one could be found in a relatively short period of time (within 10-15 minutes at worst).
What were the elements of the traditional taxicab industry? They were as follows:
– Limited numbers of licenses were offered, and they were generally bought up and consolidated into a few taxicab companies
– The taxis operated mostly where they offered the highest returns; downtown, in wealthy areas, or near clubs and nightlife. While they theoretically served the entire city, in practical terms they ignored the poorer areas not only for the inherent danger but also due to the fact that it was hard to get a “return” trip once you dropped someone off, necessitating a drive back to a wealthier area and lost time with no earnings
– If you talked with a taxi driver, they typically worked very long hours and did not earn much money. Since driving a car an “entry level” skill, there were in practical terms an infinite number of possible drivers (a large supply) so the earnings of the drivers were as low as the market would bear (very low). The medallion owner then kept all the remaining profits
– The taxicab experience as a rider generally was lousy and perceived to be unsafe to single women. You didn’t have any information about the driver and they could be anyone; the low wages of being a taxicab driver also tended to attract drivers on the margins economically
– The taxicab used a consistent rate based on time or mileage plus a charge to start the meter and often specific additional charges such as tolls or airport fees. The costs could be high; for instance in Chicago if you left the city limits after the first city you were charged “meter and a half” – thus to travel out to a far suburb the fare could easily exceed $100. This was explained as the fact that the cab can’t get a local fare (they are licensed to pick up in Chicago, not the remote city such as Naperville) so they had to drive all the way back to the city to start working again. And on a big night like New Years’ Eve, it was a crapshoot to find a taxi since supplies were limited and not everyone was out driving
– The main role of the taxi associations was to limit new medallions (which increased competition) and manage the local regulators, who generally defined rates and other business conditions. After a while most cities had “regulatory capture” and didn’t issue new medallions and mainly kept the status quo
– If you were out of a major city, generally no one used cabs except maybe to go or be picked up at the airport. When I lived in Texas in the late 90’s I tried to get a cab and I was laughed at; cabs were terrible and no one took them. The alternative was drinking and driving or finding a designated driver
By now everyone knows what has happened to the taxicab industry. They have been disrupted practically out of existence by Uber (and to a lesser extent ride sharing apps like Lyft).
Posted by Kevin Villani on 11th February 2016 (All posts by Kevin Villani)
Long time Democrat turned Republican Donald Trump, who as a business titan relied more than any of his opponents on “Wall Street” funding, decisively won the Republican primary. In sharp contrast, socialist Bernie Sanders decisively won the New Hampshire Democrat primary by attacking his opponent’s Wall Street ties. Trump supporters apparently believe that the way to deal with Wall Street a**holes is a bigger a**hole who will negotiate much better deals, whereas Sanders supporters believe that “Wall Street (a synonym for the entire US financial system) is a fraud” requiring major extractive surgery.
Most people within the NY financial community including the numerous mid-town asset management firms agree that many Wall Street players were a**holes during the sub-prime lending debacle leading to the 2008 financial crisis, but surely the Sanders pitchfork brigade wouldn’t travel uptown. This may explain why among the thousands of books and articles written in the aftermath of the financial crisis and the Occupy Wall Street movement, Wall Street hasn’t defended itself and has found few defenders willing to go public.
Truth be told, Wall Street has always attracted more than its share of greedy a**holes. But historically they discriminated against the less profitable investments in favor of those that had the highest return potential relative to risk. This represented the brains of a heartless US capitalist system. Defenders of capitalism correctly argue that it is the only economic system at the base of all human economic progress, however unequally distributed. Progressive critics argue for greater equality, the poor made poorer so long as the better off are equally so (although this is not the way it is typically represented).
Content abundance and curation in the media industry
18th-century Scotland had an interesting system for paying for college
Has getting things done in business…hiring new employees, finalizing business-to-business sales deals…become slower?
Rejecting one’s country for aesthetic reasons
This should be obvious, but to many people it’s unfortunately not: why the best hire might not have the perfect resume
Interesting thoughts: how debt/equity mix affects the trajectory of oil prices
This writer is pessimistic about pessimism
…well, this is the 21st century, you know
Concept of the Corporation, by Peter Drucker
It’s been a long time since I read this 1946 book by Peter Drucker. I recently pulled it down from the shelf and thought it worth a reread. I’ll be excerpting some passages I think are particularly interesting, not necessarily in sequential order. For starters, under the heading the corporation as a social institution:
Americans rarely realize how completely their view of society differs from that accepted in Europe, where social philosophy for the last three hundred years has fluctuated between regarding society as God and regarding it as merely an expression of brute force. The difference between the American view of the nature and meaning of social organization and the views of modern Europe goes back to the sixteenth and seventeenth centuries. During that period which culminated in the Thirty Years’ War (1618-1648) the Continent (and to a lesser degree England) broke with the traditional concept of society as a means to an ethical end–the concept that underlay the great medieval synthesis—and substituted for it either the deification or the degradation of politics. Ever since, the only choice in Europe has been between Hegel and Machiavelli. This country (and that part of English tradition which began with Hooker and led through Locke to Burke) refused to break with the basically Christian view of society as it was developed from the fifth to the nineteenth century and built its society on the reapplication of the old principle to new social facts and new social needs.
To this social philosophy the United States owes that character of being at the same time both the most materialistic and the most idealistic society, which has baffled so many observers…The American who regards social institutions and material goods as ethically valuable because they are the means to an ethical goal is neither an idealist nor a naturalist, he is a dualist.
One of the most fascinating shows that I watch is called “Drugs, Inc.” on National Geographic, which describes the “business” of drugs from its creation (chemicals) or growth (agriculture), through transportation (to America or Europe) and then to distribution (street level), along with interviews with drug abusers and their families. I did a blog post about this show here if you are interested.
Unlike television shows with a “narrative arc” of redemption, the business of Drugs, Inc. shows users as ever-insatiable and ever-addicted to the various drugs that are investigated by the show. Drug dealers are meeting demand that exists and is never questioned; the only risks to the dealer are competition from other cartels / distributors or the police. The fact that demand will always be there assuming the quality of the product is solid is taken as a given.
When they interview addicts their lives are not glamorous and often are morose and filled with regrets. The addicts may take an hour to find a place on their body to inject the drug, they steal from their own families, and they live brutal and dangerous lives in order to acquire the cash to make the next fix. The traditional high school movies that tried to scare you off drugs have nothing on this systematic and pragmatic approach to just watching the destroyed lives of drug users as they live to support their next fix.