Archive for September, 2006

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California’s Dedication to Efficiency and Conservation

September 18, 2006

Michael Giberson

On the Washington Monthly site, Kevin Drum took the occasion of a New York Times story on California’s new greenhouse gases law to praise California for its dedication to energy efficiency and conservation. Drum reported a decline in per capita energy use in the state since 1970, which happened, he said, “largely because California has passed laws forcing it to happen.”

Coyote Blog examines the data Drum points to and concludes: “I Do Not Think Your Data Means What You Think It Means.”

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So Long, WOXY

September 15, 2006

Lynne Kiesling

WOXY and I started up in Oxford, Ohio at the same time, 1983. Without WOXY my college life would have been miserable (OK, a little hyperbole, but just go with it); with WOXY, it was independent, fun, challenging, intense, at least in terms of the music I listened to. WOXY was the glue for several friendships (and was a good first-date evaluation question), and has continued to be my music mainstay to this day.

When I was in graduate school and would drive between Evanston, Illinois and Columbus, Ohio, I would intentionally take long gasoline and bathroom breaks on the part of the drive where I could get WOXY on the radio. I rejoiced when they started broadcasting over the Internet, and started getting fans from all over the world. When the money got tight and they went to a subscriber model, I signed up and paid dutifully every month. This station and this music has been a part of my life for 23 years, almost to the day.

Today is WOXY’s last day. And it’s an incredibly sad one for me. The tag line is “the future of rock ‘n roll”, which it will still be for me, even once it’s silent.

Apart from the sentimental history I have, where am I going to find good music?

UPDATE: Barb, one of the DJs, will start a show 9AM-noon on Minnesota Public Radio. I think it will be called The Current.

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Tea Bags: Consumer Marketing and Product Innovation

September 15, 2006

Lynne Kiesling

A follow-up to my recent musings on the health benefits of tea, one of my favorite beverages and daily rituals: innovation is occurring in the bagged tea market. This NYT article on new tea bag designs is very interesting, whether you are a tea drinker or not.

Most people are familiar with the flat, square bag typically used for tea, which is occasionally designed with a pleat in it to give the leaves more room to unfurl as they steep. The best flavor from tea comes from leaves that have not been broken down into very small pieces after fermentation and drying. But that’s usually what you get in commercially-packed tea bags:

Look closely at a conventional tea bag in your cupboard or in the paper cup from the local deli. Chances are that instead of leaves it is filled with indistinguishable bits, the detritus left after tea leaves are sifted and graded. The tea industry calls it dust, and the beverage it makes is likely to be rusty-looking and often bitterly tannic. But it no longer has to be, nor is it necessary to brew a whole pot of tea to achieve something better tasting.

One of the best bag innovations of the past few years is a pyramidal nylon mesh bag, which allows the long leaves of tea to unfurl. The pyramid shape creates a three-dimensional space more conducive to getting the best flavor out of long-leaf tea without grinding up the leaves, which can make tea bitter.

Perhaps the surest sign that the tea world is changing is this: Lipton, the world’s largest tea company and a division of Unilever, will start selling tea bags containing long leaf teas in supermarkets nationwide next month.

Instead of paper, the leaves will be enveloped by nylon mesh bags in a delicate pyramid shape.

Lipton is following the lead of American businesses like Harney & Sons, Mighty Leaf, Adagio and the Highland Tea Company, which for several years have sold tea bags filled with high-quality full-leaf teas, ones with complex, often floral, herbaceous, spicy or fruity nuances.

Smelling a trend, new companies, like Revolution Tea, Numi Tea, Two Leaves and a Bud, and Tea Forté, have formed expressly to sell fine teas in tea bags. Harrisons & Crosfield, from England, and the luxury Parisian tea purveyors Le Palais des Thés and Mariage Frères have also introduced tea bags.

Later on in the article a Lipton spokesperson says that people find brewing loose tea “intimidating”. I don’t think that’s really true; I think the problems are portability and convenience. When I’m at home I can make a single cup with loose tea in a ball, bag, or “tea sock”, but if I’m traveling, or at a conference or meeting at a hotel, they are going to want to provide the tea in bags, or I will carry my own tea with me in bags (yes, I do that, really).

I’m also glad that the article refers to the history of the tea industry, and how Lipton (and to a very large extent Twinings) profited by making tea affordable and accessible to more people. It also remarks on the change in the tastes and demographics of the tea market in the US, as more people become familiar with Japanese tea rituals. Very interesting.

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EconBrowser on Falling Gasoline Prices

September 15, 2006

Jim Hamilton has a a great post on the fundamentals underlying his correct prediction of falling gasoline prices. Lots of great information about the connection between spot and forward prices, and what you can infer from forward prices about expectations. He also discusses the reasons for this relatively precipitous decline in retail gasoline prices.

So why are gasoline prices coming down so dramatically? There are important seasonal factors in U.S. gasoline prices, which are higher in the summer due to summer fuel requirements and greater gasoline demand. Everyone always seems as shocked when prices go up in the spring as when they come down in the fall, even though to some extent that same pattern is repeated every year. However, much more than just the usual seasonal is in operation this fall. The drop in crude oil prices, down $14/barrel over the last month, has now become the dominating factor.

He also usefully points out that the deep water Gulf discovery last week is probably not a big driver in this process; if it were, Chevron’s stock price would have risen instead of fallen, and it hasn’t. The falling stock prices of refining companies is consistent with his argument.

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Maryland Court Says Legislature Overstepped Authority in Regulatory Battle

September 15, 2006

Michael Giberson

Maryland’s highest court has ruled that the state’s legislature overstepped its authority when it passed a law firing the five members of the Public Service Commission and directing the Governor to appoint replacements from a legislature-selected list of candidates.

All is not yet sweetness and light in Maryland, however, as one prominent gubernatorial candidate is promising to fire the five current appointees and “replace them with independent and competent members who will protect the public” should he be elected. And no, doubt, should those “independent and competent members” not be “independent and competent” in just the way the candidate wants, he would fire them too.

State legislators also want to help keep the state’s utility business on edge as they consider whether new, more carefully crafted legislation or a constitutional amendment will be the needed in order to grab the power they seek.

Is there no student of the history of state regulatory commissions available to the legislature to explain why it may not be a good idea for them to have that power? Once upon a time many corporations were chartered directly by acts of state legislatures — banks, toll roads, and some early gas and electric utilities — and “regulated” by ad hoc committees during political crises, but over time legislatures gave up that control in exchange for the relative stability provided by professional regulatory staffs and multi-member commissions (and the associated benefits of a more stable environment). The Maryland legislature seems determined to take at least a small step in the wrong direction. They should reconsider.

Also see related posts here and here.

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Maryland Court Says Legislature Overstepped Authority in Regulatory Battle

September 15, 2006

Michael Giberson

Maryland’s highest court has ruled that the state’s legislature overstepped its authority when it passed a law firing the five members of the Public Service Commission and directing the Governor to appoint replacements from a legislature-selected list of candidates.

All is not yet sweetness and light in Maryland, however, as one prominent gubernatorial candidate is promising to fire the five current appointees and “replace them with independent and competent members who will protect the public” should he be elected. And no, doubt, should those “independent and competent members” not be “independent and competent” in just the way the candidate wants, he would fire them too.

State legislators also want to help keep the state’s utility business on edge as they consider whether new, more carefully crafted legislation or a constitutional amendment will be the needed in order to grab the power they seek.

Is there no student of the history of state regulatory commissions available to the legislature to explain why it may not be a good idea for them to have that power? Once upon a time many corporations were chartered directly by acts of state legislatures — banks, toll roads, and some early gas and electric utilities — and “regulated” by ad hoc committees during political crises, but over time legislatures gave up that control in exchange for the relative stability provided by professional regulatory staffs and multi-member commissions (and the associated benefits of a more stable environment). The Maryland legislature seems determined to take at least a small step in the wrong direction. They should reconsider.

Also see related posts here and here.

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Fuel and Complementary Technologies

September 14, 2006

Lynne Kiesling

Mike’s post about ethanol and fuel economy raises an important general point: fuels and the technologies for burning them are strong complements. Engines are not one-size-fits-all fits with different fuels, but are highly customized.

We see this in history, too. The move from the use of whale oil for lighting to kerosene for lighting was something that consumers valued, because whale oil was smelly and smoky and was increasingly expensive; kerosene gave a cleaner, brighter light and was cheaper. But whale oil lamps couldn’t be retrofit to burn kerosene, so until someone cracked that technology nut, kerosene lighting did not disseminate widely.

If you are interested in such history, I recommend Daniel Yergin’s The Prize; the first couple of chapters cover the episode I just described. We’ll also be discussing that in a couple of weeks in my freshman seminar.

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Consumer Reports on Ethanol

September 13, 2006

Michael Giberson

Consumer Reports magazine put a 2007 Chevrolet Tahoe flexible-fuel vehicle running on E85 (an 85 percent ethanol/15 percent gasoline mix) through a battery of tests, and concludes it will cost consumers more than a gasoline burner. A chief limitation comes from ethanol’s lower energy content, which means that vehicles running on ethanol will have poorer fuel economy. According to the report, “in highway driving, gas mileage decreased from 21 to 15 mpg; in city driving, it dropped from 9 to 7 mpg.” They note that part of E85′s problem arises from use of an engine designed to work most efficiently with gasoline — an engine designed exclusively for ethanol would perform better. Not all results favored gasoline: Consumer Reports found a significant decrease in smog-building nitrongen oxide emissions when using E85.

Only a portion of Consumer Reports ethanol analysis is available online to non-subscribers, more appears to be available in the October 2006 print edition.

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Travel Toiletry Entrepreneurship: I Knew It Would Happen

September 12, 2006

Lynne Kiesling

Hate the thought of checking your bag just for some shampoo, toothpaste and moisturizer? Enter My Wet Stuff, a new company devoted to delivering travel-size toiletries to your hotel.

As we ramp up a brand-new company for a brand-new market need, deliveries will begin on September 29, 2006. After that, only 3 days of lead time will be required for orders. An express-ship program will follow shortly.

They started business on August 24.

This is a great, great example of an opportunity-seizing entrepreneurial activity. Israel Kirzner, call your office!

Thanks to Virginia Postrel for the tip.

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Expectations and Markets: A Case Study in Oil

September 12, 2006

Lynne Kiesling

I was just saying to a couple of colleagues yesterday that one of the things we take almost as axiomatic in economics-that prices are a function of expectations of future supply and demand-is little understood by laypeople. Oil markets recently have provided a good example of that interaction.

Take, for example, this Bloomberg article from Monday, noting that

Crude oil fell for a sixth day, its longest losing streak in almost three years, on signs that fuel demand growth will slow with the global economy and ample stockpiles in the U.S., consumer of a quarter of the world’s oil.

The price has been moving based on expectations of future demand falling relative to expectations of future supply. I find this all fascinating, because oil markets get, and internalize and respond to, a barrage of information that will affect both demand and supply tomorrow, a year hence, five years from now, and everything in between. These factors range from fundamentals like changing consumption and production technology and discoveries of new resources (such as the deep Gulf deposit last week) to political risk to weather. When I think analytically about all of the variety and timeframes of information that oil markets process, my respect and admiration grows for what futures markets accomplish.

Then this morning I find two additional articles, the first being this one on Saudi investment plans and an IEA report on slowing demand:

Crude oil traded near a five-month low as Middle East producers said they will invest as much as $94 billion on oil and gas infrastructure and the International Energy Agency lowered global demand estimates.

These new pieces of information in the media did not move prices very much this morning. My surmise is that traders already knew these two facts, and that they have been incorporated into price movements over the past five days. That’s why sometimes information like this is unexpectedly anticlimactic; actual market participants have already incorporated it into their choices.

Then a third story suggests that oil prices in Europe rose late this afternoon amid the possibility of increased political risk after the foiled US Embassy bombing in Damascus. Prices as of the story’s filing had risen slightly, only 1.3 percent. Again, this shows how much of the expectation of future effects have been priced in already.

Fascinating.

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