Carl from Chicago

Business executive interested in history, economics, taxation and energy policy.

River North Architecture Tour

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Recently I went on a River North architecture tour in Chicago.  The tour was sponsored by the Chicago Architecture Foundation and cost $15 / each for non-members, which was money well spent.  Here is a link to the tour.

The tour started near St. James cathedral at Rush and Huron (upper right, photo).  This church was constructed right before the Great Chicago Fire of 1871.  The center, middle photo shows the tower on the right that survived the fire; you can see the damage to the stones.  On the lower left you can see the Episcopal center for the St. James cathedral built in a modernist style; this was almost torn down during the great real estate boom but it survived and now is probably safe for a few years since construction has come to a standstill.  Driehaus Capital Management helped greatly with the neighborhood, and the top photo shows their headquarters.  The bottom center photo is a classic car in their courtyard and the Driehaus museum features a prominent building from an early baron with immense stone walls in an attempt to make it fireproof.

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How the Oil Spill Impacts Nuclear Power

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The world is watching the oil spill in the Gulf of Mexico and the struggles of the oil industry to contain the spill.

The financial markets are watching as well… this article explains how BP lost over 20% of its market value in the days following the incident that happened on April 20th, moving from $60 / share to $46 / share as of May 14.

The stock market is attempting to determine the impact of this incident on BP’s share price, which includes the immediate costs to clean up the spill, but also a general loss of corporate credibility and a negative pall over the offshore drilling industry that BP was counting on for future growth. While only the furthest left are calling for an abandonment of deep-water drilling off the coast of the USA, you can be certain that heavy new governmental controls and costs will burden future projects, to the extent that they can get approval at all.

While it may not seem like there is a connection between this environmental event and the nuclear industry, it is conceptually close to what occurred after Three Mile Island in 1979. While this incident did not “shut down” the nuclear power industry in the United States, it effectively stopped new, incremental construction and the electrical utility industry just managed to complete the bulk of their in-progress projects before the industry went into a state of hibernation on new construction that (mostly) continues to this day.

Nuclear power projects rest on a shaky foundation of public and governmental support; any sort of environmental event, whether minor or major, contained or not, will likely cause public opinion to turn which will cause the government to turn on the companies. There is a vast crew of environmentalists just waiting for this event to turn on the spin machine, and they will put out a full court press across all media to attack the industry.

The fact that EVERYTHING has to go right, in the US and abroad, for nuclear power to be successful in the United States makes these investments extremely risky. In prior posts I discussed the dis-incentives in terms of regulatory structure in most states in the US (there are some exceptions, such as South Carolina, which are the few areas going forward with nuclear projects), the fact that most generators aren’t sufficiently capitalized to make the massive investments in new generating capacity, but I really didn’t touch on the fragile level of public support for nuclear power among the general population.

You can bet that the financial officers of companies considering to invest in nuclear generation are watching the market capitalization of BP very carefully, thinking that it only would take a nuclear event anywhere in the US (or outside of the US, if it was major like Chernobyl) for not only their company but the entire industry to take a beat-down in the stock market. Remember, too, that most top officers of these companies have heavy stock-based incentives; it isn’t just the shareholders that would suffer, too – they would also feel it in their pocketbook.

Cross posted at LITGM

Raising Protestors… A Stalking Horse

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On May 5th I was walking through the Loop when I saw a long line of kids chanting and holding signs. Per this article it was an organized walk-out of about 700 Chicago Public School students to protest education cuts needed to close Illinois’ massive budget deficit. The “no 37” signs are referencing the fact that class sizes may go up to 37 students as a result of these cuts.

I read the article and the “journalist” who is covering the protests talks to students and they mention how their after-school programs are getting cut and that more students in a classroom means that the teachers will have less time to spend with each of the students.

What was interesting to me is that the article DID NOT mention that there were many teachers and non-students among the protesters. I could see them in the crowd, although the majority of the protesters were students. Obviously the teachers have their own motives for pushing back on financial cuts, including their own pay and job security. It does look much more convenient to have the students out front rather than the unionized teachers demanding that, although the state is broke, and their pensions are a significant cause of what is wrecking the state financially, that they shouldn’t bear any of the fiscal belt-tightening that is inevitable for Illinois in the future.

I also want to know if this message of teaching the students to agitate for more taxpayer funds is really a lesson that we should be imparting; the governor is proposing a 33% tax hike and he puts education on the block first because he knows that it is the part of the budget that will rile up the largest part of his political base (a variant of the “Washington Monument” strategy), rather than actually trying to tackle the core issues that are driving our state into financial insolvency. The students are pawns in this game, and demanding that taxes be raised on other people rather than sharing in the communal pain after our fiscal profligacy is a sad lesson to be teaching.

Cross posted at LITGM

Niall Ferguson at the Chicago Council on Global Affairs

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Wednesday night I attended a lecture by Niall Ferguson for the Chicago Council on Global Affairs at the Fairmont Hotel. The name of his presentation was “America: An Empire on the Cusp of Collapse.”

I was a fan of Niall based on his book “The Pity of War” about World War One, which I thought was an interesting approach to the topic, although I did not share all of his conclusions.

Mr. Ferguson’s presentation was not as depressing as the title sounds. In his articles he is prodding governments for better policies to tackle debt and working with lawmakers in the US and overseas that want to consider solutions. In a recent visit to Washington DC, however, Mr. Ferguson said that only three leaders wanted to meet with him.

His largest point was that the US and Western Europe had a giant advantage in economic power vs. their population when compared with Asia and the rest of the world in the period from the 1800’s through the middle of the twentieth century. It appears that this advantage is eroding and the Asian economies (predominantly China) are closing that gap.

He stated that we needed to consider why Western Europe was able to take such as commanding lead in the first place, and by understanding this we would be able to think about how we might be able to “reboot” our economies to compete more effectively. Here are the six “killer applications” (and a link to an FT article by Niall) that Niall Ferguson said enabled Europe to lead Asia for so long:

1) Modern medicine
2) A science-based culture
3) A representative political system
4) Consumer society
5) Market capitalism
6) Work ethic

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