Archive for category Business
We Could Start By Repealing ObamaCare
Posted by Joshua Sharf in Business, National Politics, PPC, Regulation, Stimulus, Taxes on January 18th, 2011
President Obama claims in this morning’s Wall Street Journal to want to reduce the regulatory burden on American business, and so has ordered a review:
This order requires that federal agencies ensure that regulations protect our safety, health and environment while promoting economic growth. And it orders a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive. It’s a review that will help bring order to regulations that have become a patchwork of overlapping rules, the result of tinkering by administrations and legislators of both parties and the influence of special interests in Washington over decades.
I can remember hearing this sort of thing from every President since Jimmy Carter. You’ll note that the government is now considerably larger, more restrictive, and more intrusive than it was 35 years ago. Their failure is, in part, explainable by the nature of bureaucracy. Agencies fight interminable turf wars, and any attempt to systematically get them to play well together is doomed to failure. The FCC, for instance, insists on trying to regulate the Internet even in the face of specific Supreme Court decisions denying them the authority. Imagine how much more combative they are when the only opponents are other bureaucrats.
Philip Howard in his classic, The Death of Common Sense, notes how the USDA requires floors in certain food operations to be clean, while OSHA requires them to be dry. Good luck with that one.
The EPA has become a mini super-government unto itself, its authority reinforced by the automatic standing that many professional environmental lobbying groups have to bring suit on behalf of, “the environment.” Aside from trying to limit our breathing, ot currently is preventing the Border Patrol from patrolling parts of the border, meaning it’s exercising control not only over every aspect of manufacturing, it’s arrogating the right to regulate other federal agencies.
The FDA has tried, and will no doubt try again, to use price as a measure for approving medicine. As the president professes to be worried about medical innovation.
Of course, regulation isn’t even the major retardant of economic growth – government spending is. Obamacare amounts to a gigantic increase in the percentage of GDP explicitly devoted to government spending. The so-called stimulus hasn’t even been spent yet, largely because the same government didn’t know that there was no such thing as a “shovel-ready” project.
Coming after a miserable electoral repudiation of his policies, Obama’s comments recall President Clinton’s 1995 State of the Union Address. Realizing that he wouldn’t be able to push through large pieces of legislation, he famously declared that “the era of big government is over,” and embarked on a program of increasing regulation. Obama realizes much the same thing, but also recognizes that it will take years for bureaucracies, new and old, to absorb their new powers under Health Care reform, financial regulatory reform, and his expansive readings of executive authority.
Either Obama realizes this, and knows that he can give the appearance of understanding the problem without really giving substantive ground, or he doesn’t really understand the problem.
The subhead on his oped reads, “If the FDA deems saccharin safe enough for coffee, then the EPA should not treat it as hazardous waste.” Maybe we can get him to do the same thing with carbon dioxide.
If the FDA deems saccharin safe enough for coffee, then the EPA should not treat it as hazardous waste.
Slipshod Reporting on Rare Earths & Solar
Posted by Joshua Sharf in Backbone Business, Business, Energy, PPC, Regulation on January 16th, 2011
The Denver Post this morning reports that a lack of rare earths may be inhibiting the domestic solar cell industry. How this is so, they never quite describe. There’s no calculation, for instance, of what percent of a solar panel’s production cost comes from rare earths. Possibly, this is because rare earths aren’t actually used in the production of solar cells. According to a DOE study on strategic materials, solar cells use indium, tellurium, gallium, and maybe soon, selenium, none of which is in the lathanide series of rare earths. A briefing by the Rare Earth Industry Trade Association on the importance of rare earths to green energy applications doesn’t mention solar at all.
By coincidence, the New York Times this morning ran a piece on why solar panel manufacturers are relocating to China, and it seems that the reason has nothing to do with rare earths, which aren’t mentioned at all, and everything to do with our willingness to take the place of Germany and Spain in directing massive subsidies to the panels’ production. And in spite of our increasing mandates on so-called renewable energy as a source of electricity, it’s also not clear that we’ll be willing to force utilities to pay the exorbitant rates necessary to make large solar arrays profitable.
That, not the absence of a local rare earth supply, is what’s threatening a domestic solar industry.
Business-Friendly?
Posted by Joshua Sharf in Budget, Business, Colorado Politics, PERA, PPC on January 14th, 2011
Governor Hickenlooper (and boy, that need to be in the editor clipboard) has signalled a desire to be more “pro-business.” There’s a reason for that:
It’s already bad enough that the US has the highest corporate tax rates in the industrialized world. We also know that jobs tend to flow from blue states to red ones, and Colorado has a lot of red states surrounding it.
Kim Strassel has a fine piece in today’s Wall Street Journal about how the red-state governors of Michigan, Wisconsin, Indiana, and Ohio are already taking advantage of Illinois’s addiction to self-destructive behavior by luring businesses away. There are some limits; it’s
unlikely that Gary, Indiana, a joke since Meredith Wilson’s time, will be able to replicate Chicago’s freight infrastructure. But there’s no good reason why businesses can’t relocate to Salt Lake City, Cheyenne, Santa Fe, or Texas. (Cheyenne, you say? Well, yes. It made news last year when a large computer server farm, dedicated to some environmental purpose or another, relocated there to get away from Colorado’s high electricity rates.) Minnesota also isn’t so far away, and the new Republican majority up there may be enough to override Governor Dayton’s apparent intent to fumble this opportunity for his state.
Utah, Nevada, Wyoming, and Texas all rank higher on the Tax Foundation’s Business Tax Climate Rankings (http://www.taxfoundation.org/taxdata/show/22661.html). Nevada could be a nice stop for Californians looking to defect. The aforementioned Minnesota ranks 43rd, another reason they could be looking to improve.
And remember that “business-friendly” doesn’t necessarily mean “market-friendly,” or “growth-friendly.” Success at nurturing large businesses could come at the expense of small ones, which may or may not be more mobile. The hunger to lure larger defectors from California could mean subsidies at the expense of the rest of us.
Mayor Hickenlooper has already succeeded in driving business out of Denver to the surrounding cities, through software taxes, the head tax, and regulatory snarl. He’ll face similar pressures from his base to repeat that performance as governor. Let’s hope he realizes that other states will be willing to capitalize on that error.
Colorado Misses Out On Another Wave
Posted by Joshua Sharf in Business, Colorado Politics, Energy, PPC on December 20th, 2010
The Wall Street Journal reports that resource-rich states are recovering quite well from the recession:
Wages of workers in 10 states and the District of Columbia have more than regained ground lost during the recession, with the recovery concentrated in regions benefitting from the commodities boom and federal spending.
Many of the laggards, meanwhile, are states where the housing bust hit hard or where the collapse of the auto industry and other old-line manufacturing pulled down wages during the slump, according to a Commerce Department figures released Friday.
That Colorado is a resource-rich state can hardly be doubted. We have coal and natural gas in abundance, minor metals like molybdenum, potentially uranium. While real estate has suffered, we never had the kind of overbuilding seen in Florida, Arizona, or southern California, so we never had the kind of collapse, and manufacturing hasn’t been a mainstay of the Colorado economy for a while.
So why aren’t we recovering? Why is the state’s unemployment up to 8.8%, with only modest improvements projected (for whatever that’s worth)? Well it’s true that, unlike DC, northern Virginia, and suburban Maryland, we lack the ability to coerce the rest of the country to pay for our standard of living. But more importantly, the outgoing Ritter administration and its Democrat allies have waged an ongoing war against the exploitation of our natural resources.
I don’t want to see the state return to the boom-bust cycle that characterizes an economy overwhelmingly dependent on drilling and mining. But Colorado is clearly suffering from a national policy -seemingly unique in the industrialized world, and reinforced by state government – of refusing to exploit natural resources that our economy actually depends on.
More Bad Regulation from the PUC
Posted by Joshua Sharf in Business, Transportation on September 6th, 2010
So you move to the US from a foreign country, go to work, save your money, and then decide to strike out on your own to start your own business. Pretty much the American dream, huh?
Not if you’re the Colorado Public Utilities Commission:
All Colorado cabdriver Edem “Archie” Archibong wants is to fulfill the next stage in his immigrant success story — to start his own business.But Colorado’s heavily regulated taxi industry isn’t cooperating, causing some local politicians to ask why government is getting in the way of the free-market system.
Mr. Archibong, a Nigerian native and married father of two, came to the U.S. legally in 1977. He joined the Army, where he worked as an optical technician and later started driving a cab to support his family. In 2008, he helped lead a group of 150 Denver-area cabdrivers, many of them legal African immigrants, with plans to start a taxi company called Mile High Cab to serve five Denver-area counties.
In July, the Colorado Public Utilities Commission (PUC), which oversees the local taxi industry, ruled that Mr. Archibong’s startup had its financial house in order. The entrepreneurs pooled their collective savings to start the company, eschewing cumbersome bank loans.
But the PUC said Mile High Cab would hurt the public interest.
That’s right. More cabs and more competition would hurt the public, according to the PUC. Why it wouldn’t be a simple matter to let the public decide this is apparently beyond the reasoning capacity of the PUC.
In fact, it’s a perfect example of how regulatory bodies often become captive to the industries they’re supposed to be regulating. Since they establish barriers to entry, they then become overly concerned with the health of the existing entities.
It’s also an example of how regulatory bodies will almost always seek to expand regulation, rather than contract it, in order to solve a problem. A 2008 report by the PUC to the legislature shows that when the legislature had the opportunity to prevent this situation from arising, it took the opposite fork.
During the discussion and debate at the Legislature, multiple amendments to the original bill were proposed. Each of these amendments sought to balance the nature and scope of taxi regulation in Colorado in various ways. For example, in its early form, the bill stated a legislative declaration that “competition in the motor vehicle carrier industry will benefit Colorado consumers, making for greater choice and convenience.” The introduced version of the bill included a criminal history background check; the requirement that the operator meet certain safety, insurance and service quality standards; and the requirement that the Commission not limit the number of companies authorized to provide taxi service. Amendments were drafted, but not adopted, that required the Commission to conduct a study regarding expanding taxi service in rural areas; mandated the Commission to prescribe taxi rules regarding wheelchair access, refusals of service, taxi hailing without dispatch, reasonable lease rates, and the use of alternative fuels; prohibited unreasonable lease rates and fees to process credit transactions; and required companies to have at least 25 vehicles in populous base areas; required the companies to operate vehicles that are less than eight model years old, and to have a central dispatch open at all times.
Ultimately, after much discussion and debate, House Bill 07-1114 repealed the prohibition that precluded the Commission from regulating the lease rate charged to a driver by a common or contract carrier as found in § 40-3-103, C.R.S. (emphasis added)
That’s it. The bill started out with reasonable consumer protections in return for letting as many companies operate as could meet those standards, quickly became a hobby horse for a couple of dozen special cases, at which point the sponsors decided that the best solution was to ditch the deregulation aspect of the bill and add regulatory authority to the PUC.
As the report points out, cab drivers are independent contractors, leasing their vehicles from the cab companies. Right now, many of the cabbies are charged $800 or $900 a week rental. To make up this fixed cost, the cabbies often have to drive 12 or 14 hours a day. The PUC formerly had no oversight of these arrangements, but has for the last three years, and hasn’t seen fit to do anything about them. It’s obvious why. Cab companies get to testify about over-capacity, and seek to protect their (literal) rent-seeking by limiting the number of cabs.
This arrangement serves the cab companies just fine. It may very well be that the number of cabs is optimized for their close-to-extortionist lease agreements. But for the rider who wants faster service or a lower fare, or for the cabbie who wants negotiating leverage, it’s not such a good deal.
With control over the number of available cabs, the fares, and the lease arrangements, the PUC has done little more than to discredit (once again) the idea of central planning. The right answer is to remove the PUC’s control of all three elements, and let normal market forces work their magic. If Yellow Cab or Metro Cab drivers find they can’t make their leases, Yellow Cab and Metro Cab will find themselves with fewer drivers. Some drivers will leave to join Mile High Cab. I can certainly see where Mile High Cab could even work with finance companies to help refugees from Yellow and Metro who want to work, but who haven’t yet set aside enough cash to buy a car.
To maintain standards, let fares decide – on the spot – whether they want the cab that pulls up or the next cab in line; no reason anyone should have to ride in an unsanitary vehicle.
The members of the PUC are appointed by the Governor and approved by the Senate. All terms of the current Commissioners will expire during the term of the next governor. As a member of the House, I won’t have any say in the matter. But I’d certainly encourage my colleagues in the Senate to ask about new nominees’ positions on regulation the markets. And I’d happily sponsor legislation similar to the original HB07-1114.
Another View on Bubbles
Posted by Joshua Sharf in Backbone Business, Business on June 25th, 2010
One of the topics we didn’t get around to on the air was the topic of today’s bubbles. Eric Janszen’s article for Harper’s mentions what he thought at the time were a couple of possibilities, China and Alternative Energy/Infrastructure:
There is one industry that fits the bill: alternative energy, the development of more energy-efficient products, along with viable alternatives to oil, including wind, solar, and geothermal power, along with the use of nuclear energy to produce sustainable oil substitutes, such as liquefied hydrogen from water. Indeed, the next bubble is already being branded.
![[Image]](http://www.harpers.org/media/image/blogs/misc/alt-energy-eps-v5.gif)
Since then, Janszen has backed off on that suggestion, believing that there hasn’t been enough self-generated investment to justify the term, “bubble.” However, some VCs in the industry, also with Internet experience, beg to differ:
“There will be many decades of bubbles ahead,” he said. “There are people out there trying to outlaw them, particularly the sore losers. But they are accelerators to technology innovation.”
He argued that the history of technology is marked by bubbles of overinvestment, from the PC to the Internet, voice over IP, and others.
The same is happening in global warming. Concerns over global warming have spurred billions of dollars in investment from venture capitalists and government research to create low-polluting alternatives to fossil fuels.
“There is definitely a global warming bubble and one of the ways I know that is because the name Al Gore (is present),” Metcalfe joked. “Al Gore inflated the Internet bubble and now he’s inflating the global warming bubble.”
This was also about two years ago, but Metcalfe repeated the Gore joke at a recent VC conference in Boston, so it’s clear his thinking hasn’t changed on this issue.
The idea of bubbles as accelerators to technology and innovation is probably true, especially if they’re limited to equity bubbles. (Debt bubbles are much more dangerous to the economy.) Of course, remember that VCs, especially those who get in and out early, are usually among bubble winners, so there’s the issue of perspective in Metcalfe’s bubble boosterism.
Financial “Reform”
Posted by Joshua Sharf in Business, Finance on June 25th, 2010
According to the Wall Street Journal:
…Banks [will be allowed] to trade interest-rate swaps, certain credit derivatives and others—in other words the kind of standard safeguards a bank would take to hedge its own risk.
Banks, however, would have to set up separately capitalized affiliates to trade derivatives in areas lawmakers perceived as riskier, including metals, energy swaps, and agriculture commodities, among other things.
At one level, this makes sense. Banks can use the markets to hedge risk, but would set up separately capitalized companies to speculate. But that isn’t what the article says, and it’s not clear that’s what legislators have in mind. And it shows they still don’t understand the problem.
Classifying tradeable derivates on the basis of how lawmakers perceive their risk is like classifying road repairs based on how lawmakers perceive the sturdiness of the bridge. Al Franken probably drove back and forth across the I-35 bridge all the time, never guessing that it was unsound, and I can guarantee you he knows even less about what constitutes a “risky” derivative.
I still think the proper distinction here is between hedged and unhedged risk. If the bank is sitting in the middle between two sets of counter-parties, it’s at considerably less risk than if it’s speculating on a directional move, or if it could get killed by a large directional move.
The other derivative legislation largely mirrors what Eric Janszen talked about on the Bubble show:
Would for the first time extend comprehensive regulation to the over-the-counter derivatives market, including the trading of the products and the companies that sell them. Would require many routine derivatives to be traded on exchanges and routed through clearinghouses. Customized swaps could still be traded over-the-counter, but they would have to be reported to central repositories so regulators could get a broader picture of what’s going on in the market. Would impose new capital, margin, reporting, record-keeping and business conduct rules on firms that deal in derivatives.
This is a big change, and pardon me if I doubt the ability of regulators to actually understand what’s going on in the market in any way that lets them steer clear of crisis. But on the whole, more transparency is better. I am given to understand, however, that the exchanges, which are nominally supposed to adopt the underwriting risk of the contracts, would themselves be backstopped by the government. So much for ending “too big to fail.”
Cross-posted on Backbone Business.
UPDATE: Additional thoughts here.
There’s Labor, and Then, There’s Labor
Posted by Joshua Sharf in Business, Colorado Politics, HD-6 2010 on May 23rd, 2010
We all know that sitting and talking things through can give insight. Usually doesn’t happen in a candidate interview, though.
Still, there I was at the table with a representative from the IBEW, and one from AFSCME. (Others were there, too, but they’re not really germane.) In the middle of answering a question, where I was describing how money making a round-trip through Denver didn’t really create jobs, I suddenly realized that AFSCME had no business being at the same table as the IBEW.
I know, I know, Solidarity Forever, and all that. But the white-collar shakedown artist sitting there asking me about the Taxpayer Bill of Rights had about as much in common with Joe Hill as I do. And in answering the question, it became clear to me that while we conservatives talk about the philosophical and practical implications of public employees unions being able to choose who sits across the table from them, they are just as vigorously taking bread out of the mouths of those electricians.
How long will it be before the private-sector unions, full of traditional, blue-collar employees, realize that their members’ futures are being endangered by the public sector employees’ guaranteed retirements, before the reluctance of Texas to bail out California is mirrored by a split within union ranks? Look for it soon, as CalPERS and other public-sector retirement funds begin to throw their weight around on corporate boards, to the detriment of those companies’ ability to pay good wages, reduce hours, and create flexible working conditions.
Backbone Business
Posted by Joshua Sharf in Business, Radio on May 18th, 2010
We launched the Backbone Business subfranchise of Backbone Radio on Sunday night. It’s an hour a month devoted to business, finance, and economic topics, from a mostly non-political standpoint.
The first installment was on financial derivatives, and we have it posted as streaming audio.
The schedule, in deference to the options markets, it the Sunday after the 3rd Friday of the month – kind of like the Tuesday after the first Monday of November – so our next show will be on June 20, and while the date would suggest something about astrology or astronomy, we’re probably going to talk about bubbles.
Take a listen, and tell me what you think.
German Shorts
Posted by Joshua Sharf in Business, Finance on May 18th, 2010
No, not liederhosen.
The German government has announced that it will ban short-selling of 10 major financial institutions, government debt, and CDSs on government debt. It roughly parallels our three-week ban on short-selling about 800 financials in the fall of 2008, and is likely to be about as effective, pretty much like all short-selling bans throughout history.
It’s already had the effect of appearing more like panic than prudence, driving the Euro down over a penny against the Dollar today, since the announcement, and probably increasing short interest today in all three areas it seeks to shore up.
Short-sellers, as apparently has to be endlessly repeated, provide liquidity and more information to the market than the long side alone can provide. The fact that this action will have to go to the options market for satisfaction is likely to increase transaction costs. It may reduce naked short-selling, but it will also similarly increase transaction costs for those who are merely hedging, as well.
Similarly, it’s like to decrease the liquidity for Euro-zone government debt, raising interest rates; probably not the effect that the Germans are looking for here. And remember, being short the CDS means being the counter-party for someone who’s looking to parcel out some of the risk, which takes even more liquidity off the table.
Good move, Germany.
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