Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago School economists and fellow travelers.
Carl from Chicago I recently braved the crowds which were surprisingly large for a recession on Saturday and went shopping for Christmas gifts. A few photos from my travels in downtown Chicago.
Upper left – an Agent Provocateur bag left in the trash. Someone probably purchased something for their girl and then realized that bringing the bag home is a dead giveaway. Or this is really saying “here is a gift which ostensibly is for you but is actually for me.”
From time to time Dan from Madison writes about gambling and the hypocrisy of the NFL in their actions on this topic. In particular, the NFL was upset about legal wagering on sports in Delaware, when today it pretty much is only officially legal in Nevada and a couple other states (also Oregon and Montana, per this article).
Something strange happened in Russia this summer. Even though the economy was in a severe downturn and hundreds of thousands were employed in casinos throughout the country, the government (basically Putin) decreed that casinos were to be shut down on July 1, 2009. This article by the NY Times provides a good summary of the situation and its impact.
The gambling industry says the ban will leave more than 400,000 people without work in Russia, at a time when it has been hard hit by the economic downturn: the World Bank predicts the economy will contract by 7.9 percent this year. The government has put the figure at 60,000 people, though industry analysts say that is absurdly low.
After the law passed, federal officials and casino executives seemed certain that it would be watered down, which is apparently why neither the casinos nor the four regions did anything to prepare. “You know, in our country, the decisions are made by only one person,” said Samuil Binder, deputy executive director of the Russian Association for Gaming Business Development. He was referring to Mr. Putin.
For the last couple of years there has been talk of a “renaissance” in nuclear power in the United States. The government has issued some loan guarantees to various parties and the greens are starting to come around to nuclear power because of greenhouse emissions. While I am a supporter of nuclear power and of investing in generating capacity in general, from the moment that this false hope started I have been steadfast in maintaining that virtually no new nuclear plants will be built in the US in the near term, meaning the next 5 or so years.
One other block against any sort of nuclear power investment is HISTORY. This article in today’s Wall Street Journal titled “Costs Cloud Texas Nuclear Plan” discusses the South Texas Project, a nuclear site in Texas that is owned today by municipal utilities in Austin and San Antonio, Texas and NRG, a public company that owns various generating assets around the USA.
The South Texas Project (STP) has 2 nuclear units today. NRG applied for federal financing to build 2 additional nuclear units at the site, as part of this “renaissance” of nuclear power.
The original STP project was subject to massive cost overruns. Per the article:
“skittishness about the cost of nuclear energy is understandable. The first two units at STP were supposed to cost less than $1 billion but ended up costing more than $5 billion. With that memory seared into its memory, San Antonio officials have been sensitive to anything suggesting that they could, again, get blindsided by escalating costs”
Note that the costs escalated by a FACTOR OF FIVE from the original estimate – $4B cost overrun in 1982 dollars translates into over $8B based on this “inflation calculator” I found on the web.
One truism on Technology is that the initial media splash and the early adopters skew trends by making them seem to have more impact than they actually do. It is often the slower, longer “tail” of a trend that causes the most significant change, even if by then the media has passed the story by because it is no longer “hot”.
Two items happened last week that show a profound technology advancement that is by now ubiquitous and thus rarely commented on by the media. These two items are 1) the vast scope of online gaming and 2) Craigslist and its impact on retail.
While watching the Bears get killed on Sunday during half time, my nephew put on Call of Duty – Modern Warfare 2 which just got released in November, 2009 for Xbox. Already, there were masses of individuals online playing the game – there were over 800,000 users online AT THAT MOMENT. He joined a game, which was simple, and the intelligence split up the team members based on their levels so that the two teams were balanced. It is just amazing how easy it is to join these games and play infinitely, against other human opponents – this used to be hard to do (Dan and I played online a long time ago) and now it is not only a snap but there are hundreds of thousands of opponents ready to play a huge variety of missions at any time day or night. Also, Xbox, which was viewed as behind Wii and PS3, is now a leader in online gaming which is a huge differentiator against the other consoles, while this wasn’t viewed as a critical factor at the time the consoles all emerged.
Over the long term, electricity use has been closely correlated with the general growth in the economy. Due to the fact that building power stations, transmission lines and siting locations for distribution facilities has a long lead time (sometimes measured in decades), utilities have to plan ahead.
One of the major pillars of electricity demand is industry. Many facilities use large amounts of electricity, such as steel & aluminum, paper and pulp making, and manufacturing plants for autos. Some facilities use so much electricity that they build their own power plants, and / or locate their facilities near cheap power (which is why a lot of the aluminum industry and aircraft manufacturing is in the Northwest, where cheap hydro power was available).
This latest recession has caused industrial usage to plummet to an unprecedented degree. The article above was in the Wall Street Journal titled “Weak Power Demand Dims Outlook“. Per the article:
Electricity sales remained weak in the third quarter, prompting speculation that the sluggishness could persist even after the U.S. economy rebounds. Some utilities don’t expect power sales to recover to pre-recession levels until 2012 — if at all — because so many factories have closed.
Some of the major utilities, such as AEP out of the midwest and Southern Company in the Southeast are seeing demand reductions for industrial use in the 15-20% range. These types of reductions are out of the historical norm for a recession.