Archive for May, 2009

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No regulator has or will have the information, expertise, or ESP required to do this

May 19, 2009

Michael Giberson

The title is lifted directly out of Craig Pirrong’s post on the Treasury departments proposal to “crack down on off-exchange trading of exotic financial instruments blamed for sparking last year’s crisis” (in the words of yesterday’s WSJ article).

The Treasury wants derivatives contracts that commonly trade over-the-counter to trade through a centralized clearinghouse offering a common counterparty. Not all derivatives contracts are standardized enough to trade over-the-counter, and the Treasury proposes to not subject customized derivatives to the clearinghouse requirement. That raises the issue of how you prevent interested parties from customizing their otherwise standard contracts “just enough” to avoid the requirement. Treasury proposes to make clearinghouses responsible for ensuring customization doesn’t allow parties to skirt the clearinghouse requirement.

On this last issue Pirrong said, “It suggests a serious failure to think things through” on the part of the Treasury.

More to the point, Pirrong observes:

If they decide to prevent the use of customization to circumvent the clearing requirement, as it almost certainly must if the clearing mandate is to survive, Treasury and Congress will require a regulator to enforce the circumvention ban.  This would require an incredibly intrusive regulator, evaluating the design of every contract, and the intent behind it.  I can state almost categorically that no regulator has or will have the information, expertise, or ESP required to do this.  Moreover, this will just throw us back into the days of pre-CFMA requirement that all “futures” be traded on exchanges.  Not a good thing. This created regulatory uncertainty, legal ambiguity, and served to protect the interests of exchanges.  One can only imagine the Talmudic inquiries that would be involved in determining whether a particular derivative is, or should be cleared, or was designed to escape a clearing mandate.

Exactly so.

Posted in Economics, Energy markets, Regulation | Tagged , | 3 Comments »

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The bicycle paved the road for automobiles

May 19, 2009

Michael Giberson

From Inventing Green, where WIRED writer Alexis Madrigal is blogging his research notes for a forthcoming book The History of Our Future, a discussion of how bicycling may have given the internal combustion engine an early leg up in its competition against steam and electric-powered automobiles (and eventually made the roads unsafe for bicycling). Here is the start:

The bicycle, quite literally, paved the road for automobiles. The explosive popularity of the human-powered, two-wheeled vehicle sparked road construction across the Western world’s cities. The League of American Wheelmen was a major vector for the political will necessary to build better roads with more than one million members (out of a mere 75 million people) at its peak. Sure they engaged in silliness like racing and bicycle polo (!) but at heart, the group was a potent, progressive social force that inadvertently helped bring about its own end by getting roads paved, thus making long distance “touring” possible in automobiles.

Later in the post Madrigal passes along a selection from the League of American Wheelman’s pro-pavement propaganda, The Gospel of Good Roads, in which, as he puts it, “the state of American roads is compared, through a long and hilarious anecdote, to a drunk-ass husband.”

Recently Madrigal has blogged windmill catalogs and the dangers of steamboat travel, explored the work of 19th-century utopian John Adolphus Etzler, reported on just how many buggy whip makers there used to be in Louisville, Kentucky, and tossed a shout out to the American Wind Power Center and Museum.

Fabulous images accompany many of the posts.

Great stuff.

Posted in Economic history, Environmental policy, Technology | Tagged , , | 5 Comments »

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Perennial gale of creative destruction, personal wireless division

May 19, 2009

Lynne Kiesling

Even if it doesn’t end up being the disruptive innovation that these articles suggest, Verizon’s MiFI personal wifi hotspot device makes my little Schumpeterian heart go pitter-pat. Released yesterday, the Verizon MiFi (device by Novatel) is a credit-card sized 3G wireless router that can provide wireless Internet connection for up to 5 devices. Battery powered, 4 hours of service when not plugged in, reviews suggest that it’s interoperable and easy to set up. Good reviews of the product are at Engadget Mobile and the New York Times.

There are two aspects to the potential commercial success of this product: the technical features of the device, and the service contract under which Verizon is willing to offer it. For now Verizon is offering it at two different capacity levels (250 MB and 5GB per month), and pricing it at somewhat more than contracts for other air card wireless services.

But for my part Derek Thompson at the Atlantic made what is the most intellectually interesting point in this new development:

It could signal the end of cell phones.

That’s a big statement, so let’s back up a second. Three weeks ago, I cited an argument that VoIP (“voice over internet protocol”) could replace cell phones because dialing over the internet is much cheaper than dialing through a national cell phone network. The problem was, if you need the Internet to make calls, you’re going rely on Cosi shops and other hotspots for service. Three weeks ago, you couldn’t live in a permanent wifi cloud. Two weeks from now, you can.

That means that you won’t need a cell phone — or at least a cell phone plan. As long as you have a device with a speaker and audio that can connect to the Internet, like an iPod Touch, you can use Skype to make all your calls because the service provider (the Internet) is always in your pocket. Verizon plans to charge $40 a month for basic service. Not a bad deal for all-you-can-eat browsing and calling over the Internet.

It’s interesting to think about whether or not Verizon’s got a long-run strategy here relating to whether or not this kind of device will make their mobile phone business obsolete. I don’t have a particular answer, but raising the question is important. One potential future path involves the growth of their MiFi contracts while their phone contracts fall, implying that the MiFi and the phone are substitutes. Another potential future path would be if their MiFi contracts grow while they sell devices for browsing and calling over the Internet; in this case their phone business could morph into a device business. And I’m sure there are other options beyond my imagination.

But here’s why I think that Verizon possibly sowing the seeds of their own creative destruction is interesting — the convergence of all different communication platforms to the Internet. Over the past 25 years we’ve been moving from an analog telephony platform based on copper wires to a combination of wires/wireless digital telephony separate from the Internet, and now we may be seeing the beginning of the convergence of our formerly separate communication platforms into an Internet-based digital platform. Verizon has been installing fiber optic cable for digital backbone and for consumer applications (such as their FIOS offerings in the mid-Atlantic). Thus I see Verizon’s long-term strategy as one based on their investment in fiber optic to create a single digital communication platform using Internet protocol, on which voice becomes just another application.

So if they are sowing the seeds of the creative destruction of their mobile phone business, I think it’s because they’ve already got another business model in their sights, in which their phone business transitions over to being another application on their fiber optic platform.

Posted in Economics, Technology, Telecom | Tagged , , | 7 Comments »

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Gasoline retailer opposes a zone pricing ban in Connecticut

May 19, 2009

Michael Giberson

An effective zone pricing ban in Connecticut would have the effect of equalizing the wholesale price to gasoline retailers in the state. As such, it would benefit some retailers and harm others.

TheDay.com presents commentary from an owner of a retail gasoline station who expects to be harmed by the zone pricing ban currently under debate in the state:

Like the cost of living, the cost of doing business in Connecticut varies widely depending on your location…Retailers are given the flexibility to price their goods as a reflection of their overhead, as well as recognizing what their competitor down the street may be charging. The same system is used for the sale of gasoline…

If distributors are required to sell gas to dealers like us at the same price regardless of what external marketing conditions might be, we will not be able to compete and will very quickly go out of business.

A bill against zone pricing would benefit a very small, wealthy population and would have a devastating impact on eastern Connecticut’s residents. We have managed to keep our doors open in the midst of a financial crisis… Now, as the summer travel season approaches and the light at the end of the tunnel nears, our livelihood is once again in jeopardy as a result of a short-sighted attempt to cut gas prices for a select group of Fairfield County residents.

As I said of the New York zone pricing ban which went into effect last November, in essence a zone pricing ban is consumer protection for the affluent. This “protection,” if it has any effect at all, will come primarily at a cost of higher prices and poorer service in less affluent neighborhoods.

NOTE: Search for all zone pricing posts at Knowledge Problem.

Posted in Energy markets, Politics | Tagged , , | 3 Comments »

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Where I am not shopping for alcohol in Lubbock, Texas

May 18, 2009

Michael Giberson

From the Pinkies website:

Tom “Pinkie” Roden established Pinkie’s back in 1934, less than one year after the 21st Amendment to the Constitution was ratified (by an extraordinary 73%), ending 14 years of prohibition.

Carrying on the work that Pinkie started back in 1934, we have grown into a chain of fifteen wine and spirits retail stores with locations throughout West Texas.

Ironically, Pinkies Inc. is now taking action with the effect of extending the consequences of prohibition for just a little longer in Lubbock County, Texas. Joining them in that effort is Majestic Liquor Stores, Inc.

You know what? I think I’ll start shopping somewhere else.

(A complete list of Pinkies and Majestic stores is included below, after a brief retelling of the local “Bootleggers and Baptists” episode.)

After prohibition, Lubbock didn’t rush right back into alcohol sales. In fact, it wasn’t until 1960 that a small precinct outside of the city voted to allow package sales of alcohol. The precinct became affectionately known as “The Strip” by generations of students and other imbibing residents. In 1972, a city election permitted alcohol sales by the drink in restaurants.  A few surrounding towns have loosened restrictions a little bit.  But for the main population in the city of Lubbock, not much has changed; the status quo has been held together by a classic “Bootleggers and Baptists” coalition.*

Until now. The most recent election, held May 9, finally opened up alcohol sales throughout the county (subject to county ordinance, state law, and Texas Alcoholic Beverage Commission regulations, of course).  But the “bootleggers” haven’t given up yet.

The Strip gives all the appearances of being a competitive hub of activity, with 6 or 7 different businesses side-by-side. Bright flashing lights, separate ads in the local newspaper. Actually, just the two companies own all of the stores on The Strip – Pinkies Inc. of Odessa, Texas, and Majestic Liquor Stores Inc. from Fort Worth.  Not surprisingly, package beer, wine, and liquor prices are higher in Lubbock Texas than they are in the high income suburbs of Washington, DC, where I used to live.

A few days before the election, the two companies joined together to file a lawsuit against the city of Lubbock claiming an ordinance to govern alcohol sales in the city violated state laws and regulations. More details, and a picture or two from The Strip, are in this local TV news report.

It may be the case that the existing ordinance requires changes to conform to state law. I’m not a lawyer. The companies may be sincere in their desire to ensure proper local rules are put in place. But the timing of the lawsuit, their efforts to secure a restraining order to delay any local licensing activity until the lawsuit is resolved (estimates of the first new licenses have gone from “6-8 weeks” to “six months or more”) – I’m convinced this is primarily abuse of the legal process to maintain their near-duopoly status in the county for a few months more.

It just feels like anti-consumer activity to me, and so I’m turning myself into a former customer of Pinkie’s and Majestic stores.

Here is the list of the stores, some on the Strip and some tucked into a few of corners of the county where alcohol sales have been permitted lately, where I won’t be shopping:

  • AUSTIN’S KORNER (PINKIE’S INC., HWY 87)
  • AUSTIN’S KWIK KORNER (PINKIE’S INC., HWY 87)
  • CROSSED KEYS (MAJESTIC LIQUOR STORES INC., HWY 87)
  • CROSSED KEYS BEER & WINE (MAJESTIC LIQUOR STORES INC., HWY 87)
  • DOC’S BEER AND WINE STORE (MAJESTIC LIQUOR STORES INC., HWY 87)
  • DOC’S BEER AND WINE STORE #2 (MAJESTIC LIQUOR STORES INC., HWY 62 AND 82 EAST)
  • DOC’S LIQUOR STORE (MAJESTIC LIQUOR STORES INC., HWY 87)
  • DOUBLE T DISCOUNT (MAJESTIC LIQUOR STORES INC., FM 1585)
  • DOUBLE T DISCOUNT #2 (MAJESTIC LIQUOR STORES INC., CRD 7200 EAST)
  • DOUBLE T DISCOUNT #2 BEER STORE (MAJESTIC LIQUOR STORES INC., CRD 7200 EAST)
  • DOUBLE T DISCOUNT BEER & WINE (MAJESTIC LIQUOR STORES INC., FM 1585)
  • MINI-MART #1 (PINKIE’S INC., FM 1729)
  • MINI-MART #2 (PINKIE’S INC., HWY 87)
  • PINKIE’S CANYON STORE (PINKIE’S INC., FM 1729)
  • PINKIE’S LAKE STORE (PINKIE’S INC., FM 835 EAST)
  • PINKIE’S SLATON STORE (PINKIE’S INC., FM 835 EAST)
  • PINKIE’S TAHOKA STORE (PINKIE’S INC., HWY 87)
  • RAIDERLAND DISCOUNT WAREHOUSE (PINKIE’S INC., CRD 7200 EAST)
  • THE CELLAR (MAJESTIC LIQUOR STORES INC., HWY 87)
  • THE CELLAR BEER BARN (MAJESTIC LIQUOR STORES INC., HWY 87)

*“Bootleggers and Baptists” is a nickname for a theory explaining certain “strange bedfellow” coalitions in support of social regulation, first articulated under that name by Bruce Yandle. As Yandle explains, “The theory’s name draws on colorful tales of states’ efforts to regulate alcoholic beverages by banning Sunday sales at legal outlets. Baptists fervently endorsed such actions on moral grounds. Bootleggers tolerated the actions gleefully because their effect was to limit competition.”

To be clear, in the above by “Baptists” I don’t mean to assert that only, or even predominantly, Baptist churches were involved in the political campaign, and by “bootleggers” I don’t intend to suggest that either of the two companies are involved in any illegal alcohol sales.

The list of stores is derived from information available at the Texas Alcoholic Beverage Commission website, here.

OCTOBER UPDATE: Finally, in late September 2009, the state began issuing licenses to retailers in the city and so it is even easier for me not to shop at the two companies that dominate the Strip.

Posted in Economics, Food and wine, Politics | Tagged , , , | Comments Off

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Congressman to Western New York gasoline retailers: We will be watching you

May 18, 2009

Michael Giberson

From the Buffalo, New York, BusinessFirst:

In a letter sent May 13 by FTC Chairman Jon Leibowitz to Higgins, the agency said after a careful and extensive investigation, regulators could not find any evidence of illegal activity in gasoline markets in any of the affected cities. The agency monitored prices in Buffalo, Jamestown, Rochester and Burlington, Vt.

“To the contrary, staff found evidence suggesting that it is unlikely that illegal conduct caused those price levels, although staff was unable to identify precise reasons why retail gas prices in Western New York did not fall as quickly as prices in other Northeast cities,” Leibowitz wrote.

What the agency did note was that after Higgins released an Oil Price Information Service (OPIS) report on Dec. 4, 2008 citing Jamestown and the Buffalo-Niagara regions among the top 5 most “profitable” for gasoline retailers, the prices for unleaded gas decreased from an average of $2.25 to $1.85 by the end of 2009.

Does this last paragraph suggest that a servile and pandering attitude on the behalf of the FTC toward the congressman? I don’t find the FTC letter online at either the FTC’s website or that of the Congressman, so I’m just raising the question based on the news article.

The congressman’s press release suggests, surprise!, that he is quite willing to encourage the view that his actions had something to do with prices falling back in line with state averages:

“Western New York consumers were getting ripped off and we sounded the alarm, which caused WNY gas prices to fall in line with state averages, again proving that when we stand up for ourselves we can get things done,” Higgins added.  After Congressman Higgins publicly released an Oil Price Information Service (OPIS) report naming Jamestown & the Buffalo-Niagara regions among the top 5 most “Profitable” for gasoline retailers on December 4th, 2008, the prices of unleaded gas decreased from an average to $2.25 in Buffalo to $1.85 by the year’s end.

To the congressman, absence of evidence is no barrier to action:

“While we might not have proof of illegal activity or a clear definition of why our prices were so high, what is clear is retailers were acting in bad faith trough some type of implicit collusion and retailers and consumers should know that we were watching then and are watching now and will continue to work to make sure this doesn’t happen again,” said Higgins.

A quick trip to the price charts at www.buffalogasprices.com tells some of the story (start here at the default Buffalo price chart for one month, then add two more upstate New York cities to the chart – Rochester, Albany, or Syracuse are options – and expand to at least 18 months).  Up until the 2008 mid-July gasoline price peak, retail prices in Buffalo tracked prices elsewhere in upstate New York pretty closely. When prices started falling, they fell more slowly in Buffalo than in the rest of the state.  By the time retail prices hit bottom at the end of the year, prices in Buffalo were back in line with prices elsewhere in New York, and since the beginning of the year prices in Buffalo have moved in line with other gasoline prices in the state.

So, yes, prices did fall more slowly in Buffalo. Presumably, a good economic study could uncover likely causes. Those causes may not turn out to be politically useful to local politicians. In any case, of the congressman’s agenda intended to “prevent price disparity in [the Western New York] region” — raise public awareness, push for passage of a federal price gouging bill, push for passage of a bill to prevent excess speculation in the oil market, and invest in renewable energy — only the first is likely to have any real impact on local “price disparity.”

Posted in Energy markets, Politics | Tagged , , , | Comments Off

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Price Fishback on the Great Depression and today

May 18, 2009

Lynne Kiesling

Price Fishback is one of the best economic historians of the U.S. in the early 20th century, and he’s written a three-part series of posts on the current comparisons to the Great Depression at Freakonomics.

Part 1, How Does the Current Crisis Compare to the Great Depression?, puts our current unemployment and GDP growth patterns and rates in the context of the much-higher and long-lived unemployment (nine years!) and negative GDP growth of the 1930s.

Part 2, The Financial Meltdown Now and Then, offers a crystal-clear description of the causes of our recent financial crisis and compares it to what happened in 1929-1933. Price’s analysis of the current financial crisis is seriously one of the best and clearest ones I’ve seen, and I strongly recommend it to you.

Part 3, Let’s Avoid Other New Deal Policy Blunders, discusses the current federal policy responses relative to the anti-trade and New Deal policies of the 1930s. His conclusion:

We all want to know whether all of the government action will work to save us from a major downturn. There are questions about whether the spending and tax cuts in the stimulus package will happen soon enough to offset the recession. A significant part of the spending will not begin until 2010 and 2011 when most economists believe we will be into the next recovery. With unemployment rates only between 8 percent and 9 percent, we might expect the deficit and government hiring to make it more difficult for private firms to obtain investment funds and hire workers. Some recent studies of the New Deal relief programs suggest that additional work-relief jobs were associated with partial reductions in private employment. Meanwhile, the Federal Reserve has flooded the banking system with so much liquidity that we may be facing worries about inflation in the near future. The population can rest assured, however, that we have a very long downward path to follow before we get anywhere near the pain associated with the Great Depression.

A slam-dunk must read.

Posted in Economic history, Economics | Tagged , , | Comments Off

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2009 Energy Efficiency Indicator survey

May 18, 2009

Lynne Kiesling

Johnson Controls and the International Facilities Management Association have released their third annual Energy Efficiency Indicator survey. As summarized in this GreenBiz article,

  • More than 70 percent of respondents are paying more attention to energy efficiency now than they were in 2008.
  • Eighty-five percent of executives believe significant legislation mandating energy efficiency and/or carbon reduction is likely within two years.
  • Forty-five percent of business leaders say improving energy efficiency in their buildings is their top strategy to meet carbon reduction commitments.

Many materials related to the survey are available in the news section of the Johnson Controls web site. I particularly found the details in the presentation notes interesting, and I encourage you to look through the notes. One of the sets of details provided is the energy efficiency retrofit activities going on with the Empire State Building.

Johnson Controls also has an Energy Efficiency Now web site with more information and links.

Jeff St. John at GreenLight (a Greentech Media blog) also has a good article that discusses the various companies that have different interests in the business of energy efficiency, in the context of the results of this survey:

Johnson Controls has a dog in this fight. It and companies like Honeywell, Siemens, Echelon Corp. and, most recently, Cisco Systems, are making a big push to increase their presence in the building automation market, with an eye on energy efficiency primarily for commercial buildings (see Cisco Jumps Into Energy Management for Computers, Buildings and Echelon Beefs up LonWorks).

Then there are the demand response aggregators like EnerNoc, Comverge and CPower, which link utilities and their customers in programs to turn down power use during times of peak demand. That’s one way utilities are giving incentives for reduced energy use, if only during the scarce few hours of the year when they find themselves reaching the limit of their power generation capacity.

Note, however, that all of this discussion of energy efficiency fails to engage the transactive capability of building management systems. Building management systems can automate building controls response to a variety of signals, including price signals arising from dynamic pricing instead of from administrative demand response programs that have been the bread and butter for companies like EnerNoc and Comverge for the past five years.

Energy efficiency, dynamic pricing, and the transactive capabilities of building management systems and smart grid networks are complements; they go hand in hand to create value for all parties, both economic and environmental.

Posted in Economics, Electricity, Technology | Tagged , , | Comments Off

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Another celebrity knitter!

May 17, 2009

Lynne Kiesling

Back in March I mentioned that one of my favorite Steelers from the 1970s, Randy Grossman, is also a knitter. Now I find out via this New York Times article that actor John Glover, who is currently on Broadway in Waiting For Godot, is also a knitter!

The picture of him accompanying the story is absolutely priceless, and is worth clicking through even without reading the story.

Posted in Knitting | Comments Off

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Sorting out some claims about Danish wind power

May 15, 2009

Michael Giberson

A shortened version of Michael Trebilcock’s commentary on wind power, mentioned here the other day, was published in the Financial Post under the not so subtle title of, “Wind power is a complete disaster.”

The Financial Post subsequently published a reply by Sigurd Lauge Pedersen, a Senior Adviser to the Danish Energy Agency: “Wind power works.”

Trebilcock is back in the Financial Post with “The myth of the Danish green energy ‘miracle’.”

Pedersen begins, “It is perfectly legitimate to hate wind power. But it is more convincing if you do your homework first.” Trebilcock, in his reply, begins by casting aspersions on the Danish government’s sensitivity to criticism of their wind power experience. Both authors have some helpful points to make, but I object to the unnecessarily strident and snide tone of the exchange. (Hey, that’s what blogs are for! -ed.)

If Pedersen had done his homework, say by reviewing the Arthur Campbell paper cited in Trebilcock’s submission to the Ontario Legislative Committee on the Green Energy Act (mentioned in the original op-ed), Pedersen would have realized that claiming wind power raises CO2 emissions is not absurd. Instead it is merely unlikely.

If Trebilcock were more careful, or maybe if he understood wind power better, he’d have avoided the modest non sequitur of, “Most wind turbines run at about 25% of rated capacity, requiring back-up generation for the balance of the time.” No one, so far as I am aware, expects to get a constant 100 percent of nameplate capacity delivered from their wind power (or any other) generation, so what “balance of the time” is he referring to?

It is well known that “facts” circulating in public discourse sometimes stray from their original meaning, so it is sometimes useful to track down sources.  In the continuation I try to sort out two disputed claims made by Trebilcock in his first Financial Post op-ed.

Read the rest of this entry ?

Posted in Electricity, Energy markets, Politics | Tagged , , , | 5 Comments »

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